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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION NOVEMBER 20, 1997.
REGISTRATION NO. 333-39245
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PC QUOTE, INC.
DELAWARE 36-3131704
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
PC QUOTE, INC. WILDMAN, HARROLD, ALLEN & DIXON
300 SOUTH WACKER DRIVE, #300 225 WEST WACKER DRIVE
CHICAGO, IL 60606 CHICAGO, ILLINOIS 60606-1229
(312) 913-2800 (312) 201-2000
ATTENTION: JIM R. PORTER ATTENTION: DONALD E. FIGLIULO
CHIEF EXECUTIVE OFFICER (Name, address, including zip code,
and
(Address, including zip code, and telephone number, including area code,
of
telephone number, including area code, agent for service)
of
registrant's principal executive
office)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividends or
interest reinvestment plans, check the following box. /X/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1),
check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE* REGISTRATION FEE
<S> <C> <C> <C> <C>
Transferable Subscription Rights.............. 7,402,246 0 0 0
Common Stock, $.001 par value................. 7,402,246* $1.00 $7,402,246* $2,243.10
</TABLE>
* Estimated solely for the purpose of calculating the Registration Fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DERTERMINE.
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SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
7,402,246 SHARES
[LOGO]
COMMON STOCK
(AND RIGHTS TO ACQUIRE UP TO
7,402,246 OF SUCH SHARES)
------------------------
PC Quote, Inc., a Delaware corporation (the "Company"), is distributing to
holders of record of shares of its common stock, $.001 par value per share (the
"Common Stock"), as of the close of business on November 21, 1997 (the "Record
Date"), other than Imprimis Investors LLC and Wexford Spectrum Investors LLC
(together, the "Wexford Affiliates") which have agreed not to participate in the
Rights Offering, transferable subscription rights (the "Rights") to purchase
additional shares of Common Stock (the "Basic Subscription Privilege") at a
price of $1.00 per share (the "Subscription Price"). Stockholders will be
entitled to one Right for each share of Common Stock held on the Record Date.
Each Right will entitle its holder (a "Holder") to purchase one share of Common
Stock (collectively the "Underlying Shares"). No fractional shares of Common
Stock will be sold, and fractional interests will be rounded up.
Upon exercise of the Basic Subscription Privilege, a Holder will also be
entitled to purchase at the Subscription Price a pro rata portion of any
Underlying Shares that are not otherwise subscribed for pursuant to the exercise
of Basic Subscription Privileges (the "Oversubscription Privilege"). In the
event there are any unexercised Rights after the Basic Subscription Privileges
and Oversubscription Privileges have been fulfilled, then any such remaining
unexercised Rights (the "Unexercised Allotment;" and, collectively, with the
Basic Subscription Privilege, Oversubscription Privilege, and the sale of shares
of Common Stock in connection therewith, the "Rights Offering") shall be offered
to members of management, including Directors. If available, management intends
to exercise a minimum of 250,000 Rights in such Unexercised Allotment and
purchase the respective shares underlying such Rights at the Subscription Price.
The Common Stock is currently traded on The American Stock Exchange. On
November 14, 1997 the closing price of the Common Stock as reported on The
American Stock Exchange was $1.50 per share. The Company has applied to list the
Rights and the Underlying Shares issuable upon exercise of the Rights on The
American Stock Exchange. The Company believes the Rights will commence trading
on November 24, 1997. However, no assurances can be given that a market for the
Rights will develop.
THE RIGHTS WILL EXPIRE AT 4:30 p.m., Chicago Time, on December 19, 1997,
unless extended by the Company (such date, as it may be extended on one or more
occasions, is referred to herein as the "Expiration Date"). In no event will the
Expiration Date be extended beyond February 27, 1998. If the Company elects to
extend the term of the Rights, it will issue a press release to such effect not
later than the first day The American Stock Exchange is open for trading
following the most recently announced Expiration Date. Funds provided in payment
of the Subscription Price will be held by American Securities Transfer & Trust,
Inc., as the Subscription Agent, until the Closing, which will occur promptly
following Expiration Date. The exercise of Rights is irrevocable once made, and
no interest will be paid to Holders exercising their Rights.
AN INVESTMENT IN THE COMPANY'S COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS NOVEMBER , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (together with any amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Rights and the Underlying
Shares. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, or
incorporated by reference therein, for a more complete description of the matter
involved and each such statement shall be deemed qualified in all respects by
such reference. Such additional information may be obtained from the
Commission's principal office in Washington, D.C.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy and information statements and other
information with the Commission. The Registration Statement and the exhibits
thereto, as well as such reports, proxy and information statements and other
information, filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, DC 20549, and at the Regional Offices of the
Commission located at 7 World Trade Center, New York, NY 10048 and Citicorp
Center, 500 Madison Street, Suite 1400, Chicago, IL 60661. Copies of such
material can be obtained upon written request addressed to the Public Reference
Section of the Commission at 450 Fifth Street, N.W. Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a World Wide Web site on the
Internet at www.sec.gov that contains reports, proxy and information statements
and other information filed electronically with the Commission by registrants
like the Company. The Common Stock is traded on The American Stock Exchange and
reports, proxy and information statements and other information concerning the
Company may be inspected at the offices of The American Stock Exchange, 86
Trinity Place, New York, NY 10006.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by Company with the Commission are
incorporated herein by reference:
(i) the Company's 1996 Annual Report to Stockholders, containing the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as amended;
(ii) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997;
(iii) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997, as amended on October 31, 1997;
(iv) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997; and
(v) the Company's Current Report on Form 8-K dated July 16, 1997, as amended
on August 26, 1997.
Copies of the Company's 1996 Annual Report to Stockholders, containing its
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as
amended, and its Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 accompany this Prospectus. All documents filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the
date of this Prospectus and prior to the termination of the Rights Offering,
shall be deemed to be incorporated by reference to this Prospectus and to be a
part hereof from the respective dates of the filing thereof.
The Company will provide without charge to each person, including each
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
or oral request of such person, a copy of any or all documents incorporated by
reference into this Prospectus that are not delivered herewith, except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Requests for such copies should be directed to
the Company's principal office: PC Quote, Inc., 300 South Wacker Drive, Suite
300, Chicago, Illinois 60606, Attn: Darlene Czaja, Tel. No. (312) 913-2800.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS.
THE COMPANY
PC Quote, Inc., a Delaware corporation (the "Company"), provides real-time
and delayed financial data, including equities, commodities, futures and options
quotations and news on a subscription basis to professional and consumer markets
worldwide. Professional clients include brokerage firms, banks, insurance
companies, fund managers, institutional and professional traders. The Company's
"web site" offers non-fee delayed quotes to all visitors and real time
subscription market data services to fee-based subscribers. The Company's
principal executive offices are located at 300 South Wacker Drive, #300,
Chicago, Illinois 60606 and its telephone number is (312) 913-2800. The
Company's World Wide Web address is www.pcquote.com.
THE RIGHTS OFFERING
<TABLE>
<S> <C>
Rights............................ Each Holder of Common Stock (other than the Wexford
Affiliates) will receive one transferable Right for each
share of Common Stock held of record on the Record Date.
An aggregate of 7,402,246 Rights will be distributed
pursuant to the Rights Offering. An aggregate of
7,402,246 shares of Common Stock will be sold if all
Rights are exercised. The exercise of Rights is
irrevocable once made, and no Underlying Shares will be
issued until the closing following the Expiration Date.
Basic Subscription Privilege...... Holders are entitled to purchase at the Subscription
Price one share of Common Stock for each Right held. See
"The Rights Offering--The Rights" and "Subscription
Privileges--Basic Subscription Privilege."
Oversubscription Privilege........ Each Holder who elects to exercise his or her Basic
Subscription Privilege may also subscribe at the
Subscription Price for Underlying Shares, if any,
remaining unissued after satisfaction of all
subscriptions pursuant to the Basic Subscription
Privilege. If an insufficient number of Underlying
Shares is available to satisfy fully all elections to
exercise the Oversubscription Privilege, the available
Underlying Shares will be allocated on a pro rata basis
among Holders who exercise their Oversubscription
Privilege based on the respective numbers of Underlying
Shares subscribed for by such Holders pursuant to the
Basic Subscription Privilege. In the event any Rights
remain unexercised following satisfaction of the Basic
Subscription and Oversubscription Privileges, the
Company intends to offer the remaining Underlying Shares
for purchase at the Subscription Price to members of
management, including Directors. See "The Rights
Offering-- The Rights" and "Subscription
Privileges--Oversubscription Privilege."
Subscription Price................ $1.00 in cash per share of Common Stock.
</TABLE>
3
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<TABLE>
<S> <C>
Shares of Common Stock Outstanding
after Rights Offering........... Assuming that all Rights are fully exercised, 19,804,492
shares will be outstanding after the Rights Offering,
based on 12,402,246 shares outstanding on the Record
Date. The final number of shares of Common Stock that
will be outstanding after the Rights Offering is
dependent upon the extent to which Rights are exercised.
Assuming the availability of sufficient funds therefor,
the Company intends to use a portion of the net proceeds
of the Rights Offering to repurchase an aggregate of
four million shares of Common Stock from the Wexford
Affiliates. Upon consummation of this proposed
repurchase, 15,804,492 shares of Common Stock will be
outstanding and the Company will hold 4,000,000 shares
in its treasury. See"--Use of Proceeds," "Recent
Developments--Financing Transaction with the Wexford
Affiliates," and "Reason for the Rights Offering and Use
of Proceeds."
Transferability of Rights......... The Rights are transferable, and it is anticipated that
they will trade on The American Stock Exchange until the
close of business on the last trading day prior to the
Expiration Date. In addition, the Company has applied to
list the Rights and the Underlying Shares on The
American Stock Exchange. The Company believes the Rights
will commence trading on November 24, 1997. The Basic
Subscription Privilege and the Oversubscription
Privilege are only transferable together, and any
transfer of a Right will be deemed a transfer of both
the Basic Subscription Privilege and the
Oversubscription Privilege. There can be no assurance,
however, that any market for Rights will develop. See
"The Rights Offering--Method of Transferring Rights."
Record Date....................... November 21, 1997.
Expiration Date................... December 19, 1997, unless extended by the Company from
time to time, provided that the Expiration Date shall
not be later than February 27, 1998, unless the Board of
Directors determine that a material event has occurred
which necessitates one or more further extensions of the
Rights in order to permit adequate disclosure of
information concerning such event to Holders. See "The
Rights Offering--Expiration Date." If the Company elects
to extend the term of the Rights, it will issue a press
release to such effect not later than the first day on
which The American Stock Exchange is open for trading
following the most recently announced Expiration Date.
In the event Company elects to extend the term of the
Rights Offering by more than 14 calendar days, it will,
in addition, cause written notice of such extension to
be promptly sent to all Holders of record on the Record
Date.
</TABLE>
4
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<TABLE>
<S> <C>
Procedure for Exercising Rights... Rights may be exercised by properly completing the
certificate evidencing such Rights (the "Subscription
Certificate") and forwarding such Subscription
Certificate (or following the Guaranteed Delivery
Procedures, as defined below) to the Subscription Agent
on or prior to the Expiration Date, together with
payment in full of the Subscription Price for each
Underlying Share subscribed for pursuant to the
Subscription Privileges. If the mail is used to forward
Subscription Certificates, it is recommended that
insured, registered mail be used. The exercise of a
Right may not be revoked or amended. If time does not
permit a Holder or transferee of a Right to deliver its
Subscription Certificate to the Subscription Agent on or
before the Expiration Date, such Holder or transferee
should make use of the Guaranteed Delivery Procedures
described under "The Rights Offering--Exercise of
Rights."
If paying by uncertified personal check, please note
that the funds paid thereby may take at least five
business days to clear. Accordingly, Holders who wish to
pay the Subscription Price by means of uncertified
personal check are urged to make payment sufficiently in
advance of the Expiration Date to ensure that such
payment is received and clears by such date and are
urged to consider payment by means of certified or
cashier's check, money order or wire transfer of funds.
Persons Holding Shares, or Wishing
to Exercise Rights Through
Others.......................... Persons holding shares of Common Stock, and receiving
the Rights distributable with respect thereto, through a
broker, dealer, commercial bank, trust company or other
nominee, as well as persons holding certificates of
Common Stock personally who would prefer to have such
institutions effect transactions relating to the Rights
on their behalf, should contact the appropriate
institution or nominee and request it to effect the
transactions for them. See "The Rights
Offering--Exercise of Rights."
Closing and Issuance of Common
Stock........................... The closing will occur and certificates representing
Underlying Shares will be delivered to subscribers as
soon as practicable after the Expiration Date and after
all prorations have been effected. See "The Rights
Offering--Subscription Privileges." No Underlying Shares
will be issued until the closing. Funds delivered to the
Subscription Agent for the exercise of Subscription
Privileges will be held in escrow by the Subscription
Agent until the closing. No interest will be paid to
Holders on funds held by the Subscription Agent. In the
case of Holders exercising Oversubscription Privileges,
any excess funds will be returned to the Holders as soon
as practicable following the closing.
</TABLE>
5
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<TABLE>
<S> <C>
Use of Proceeds................... It is anticipated that the net proceeds to Company will
be approximately $7.0 million if all of the Underlying
Shares are purchased in the Rights Offering. If less
than all of the Underlying Shares are purchased, the
proceeds will be correspondingly reduced. $4.0 million
of such proceeds will be used to repurchase an aggregate
of four million shares of Common Stock from the Wexford
Affiliates with any additional proceeds used for general
corporate purposes. See "Recent Developments-- Financing
Transaction with Wexford Affiliates," and "Reason for
the Rights Offering and Use of Proceeds."
Subscription Agent................ American Securities Transfer & Trust, Inc.
The American Stock Exchange Com-
mon Symbol...................... PQT
The American Stock Exchange Rights
Symbol.......................... PQT.Rt
</TABLE>
6
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RISK FACTORS
Prospective investors should carefully consider the following risk factors
in addition to other information set forth in this Prospectus before making a
decision to purchase any of the securities offered hereby.
LOSS OF SIGNIFICANT CUSTOMERS; RECENT OPERATING LOSSES AND DECLINING
REVENUES. In December 1996, the Company discontinued providing services to a
major client which accounted for net revenues of approximately $1.7 million,
$0.6 million and $0.6 million in 1996, 1995, and 1994, respectively. Also,
beginning in January 1997, the Company significantly reduced the level of
services to another major customer that accounted for revenue of $3.4 million,
$3.9 million, and $3.6 million in 1996, 1995 and 1994, respectively.
The Company incurred a loss of approximately $3.3 million for the year ended
December 31, 1996, and as of December 31, 1996, had an accumulated deficit of
approximately $8.9 million and deficit working capital of $1.5 million. These
conditions raised substantial doubt about the Company's ability to continue as a
going concern. There can be no assurance that the Company will operate
profitably in the future. The ability of the Company to continue as a going
concern is dependent upon a number of factors including completion of this
Rights Offering. See "Management Discussion and Analysis of Financial Condition
and Results of Operations" and Note 14 to the Financial Statements for the
Fiscal Year Ended December 31, 1996, as filed on Form 10-K, as amended,
incorporated herein by reference.
For the nine months ended September 30, 1997, the Company's service revenue
decreased 2% from the same period of 1996 and was essentially unchanged for the
quarter. The decrease in revenue was due to the loss of two major customers in
the Company's traditional direct data feed business. The lost revenue, $3.8
million and $400,000 for the nine months and quarter respectively, was
substantially offset by increases in service revenue in the Company's
traditional and internet businesses, as well as revenue from the sale of
advertising on the internet.
NEED FOR ADDITIONAL FINANCING. The Company believes at this time that the
maximum net proceeds to the Company from the Rights Offering will be sufficient
to satisfy the Company's current need for capital. However, events could occur
or opportunities could arise which could increase such need for capital beyond
the amount of the maximum net proceeds to the Company from the Rights Offering.
Upon such events or opportunities the Company would be required to generate
additional sources of funding to continue its planned activities or exploit the
perceived opportunities. There is no assurance that any such additional sources
of funding will be available. Should such additional funding become necessary,
and should PC Quote be unable to obtain such funding, the Company may be
required to sell certain of its assets, cease operations or forego the perceived
opportunities. None of the stockholders receiving or exercising Rights in the
Rights Offering will be obligated to provide any additional capital to the
Company beyond amounts paid pursuant to the Basic Subscription Privilege or the
Oversubscription Privilege.
CONTROL BY PRINCIPAL STOCKHOLDERS. Provided PICO Holdings, Inc. and its
affiliate, Physicians Insurance Company of Ohio (together, "PICO"), neither
exercises nor converts outstanding warrants or a convertible subordinated
debenture, and after giving effect to the Rights Offering and the proposed
repurchase of four million shares from the Wexford Affiliates, PICO will
beneficially own approximately 49.1% of the outstanding shares of Common Stock,
assuming PICO and all other Holders fully exercise all of the Rights distributed
to them under the Basic Subscription Privilege. As a result, PICO will be able
to control the outcome of matters requiring a stockholder vote, including the
election of directors. Such control could preclude any unsolicited acquisition
of the Company and, consequently, adversely affect the market price of the
Common Stock. See "Recent Developments--Transactions with Physicians Insurance
Company of Ohio and PICO Holdings, Inc."
Prior to giving effect to the Rights Offering, the Wexford Affiliates are
deemed to beneficially own five million five hundred thousand shares of Common
Stock, constituting approximately 42.7% of the outstanding shares of Common
Stock. In connection with the terms of a certain Stock and Warrant Purchase
Agreement dated October 15, 1997 between the Company and the Wexford Affiliates
(the
7
<PAGE>
"Purchase Agreement"), the Wexford Affiliates have agreed not to participate in
the Rights Offering. The Company intends to use $4.0 million of the net proceeds
from the Rights Offering to repurchase from the Wexford Affiliates an aggregate
of four million shares of Common Stock, which shares the Company plans to hold
in its treasury upon consummation of the repurchase. After giving effect to the
Rights Offering and the repurchase, the Wexford Affiliates will beneficially own
9.2% of the outstanding shares of Common Stock. Such ownership could have the
effect of further discouraging the unsolicited acquisition of the Company and,
consequently, adversely affect the market price of the Common Stock. See "Recent
Developments--Financing Transaction with Wexford Affiliates."
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's revenue, gross
profits and earnings have fluctuated and, in the future, may fluctuate from
quarter to quarter based on such factors as the number, size and scope of
services and software applications which the Company provides, the contractual
terms for the provision of such services and software applications, any delays
incurred in connection with an agreement to provide services and software
applications, the adequacy of provisions for losses, the accuracy of estimates
of resources required to complete ongoing service offerings and general economic
conditions. Unanticipated variations in any of such factors may cause
significant variations in operating results in any particular quarter and could
result in losses for such quarter. An existing customer's unanticipated
termination of or failure to renew a major agreement for the provision of
services and software applications during a quarter could have a material
adverse effect on the Company's business, financial condition and results of
operations.
AGREEMENTS WITH EXCHANGES. The Company's ability to provide services
enabling its customers to access real-time and delayed financial data such as
equities, commodities, futures and options quotations and news is dependent on
its ability to gather ticker and news feeds from securities exchanges and other
sources. The Company has agreements in place with such exchanges and other
sources which permit the Company to gather the information it needs for its
services. The termination, expiration or nonrenewal of any of these agreements
could inhibit the Company's ability to provide high quality services to its
customers and, accordingly, have a material adverse effect upon the Company's
business, financial condition and results of operations. See "The Company."
SOFTWARE LICENSING AGREEMENT. A significant software application which is
offered to subscribers for the Company's financial data quotations and news
services, PC Quote 6.0, is licensed by the Company from an unaffiliated third
party pursuant to a Software Distributor Agreement dated December 4, 1995 (the
"Distributor Agreement"). The Distributor Agreement is for a three-year term but
provides for automatic two-year renewals thereafter unless terminated pursuant
to ninety days' notice. The termination, expiration or nonrenewal of the
Distributor Agreement could have a material adverse effect on the Company's
business, financial condition and results of operations.
RELIANCE UPON EXECUTIVE OFFICERS AND KEY EMPLOYEES. The success of the
Company is highly dependent upon the efforts and abilities of its executive
officers, particularly Mr. Jim Porter, the Company's Chairman of the Board and
Chief Executive Officer. Although its executive officers and key employees have
entered into agreements with the Company which contain nondisclosure covenants,
such agreements do not guarantee that these individuals will continue their
employment with the Company. The loss of services of certain executive officers
or key employees for any reason could have a material adverse effect upon the
Company's business, financial condition and results of operations.
COMPETITION. The market for the on-line provision of financial information
such as equities, commodities, futures and options quotations and news through
services and software applications similar to those the Company provides
includes a large number of competitors and is subject to rapid change. The
Company believes its primary competitors include Automatic Data Processing, the
Telerate unit of Dow Jones & Co., Bloomberg, the Comstock unit of Standard &
Poors, the ILX unit of Thomson Corporation, Telesphere Global Ticker, Reuters,
Quote.com and Data Broadcasting Corporation. Many of these competitors have
significantly greater financial, technical and marketing resources and greater
name
8
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recognition than the Company. Such competition may impose additional pricing
pressures on the Company. There can be no assurance that the Company can compete
successfully with its existing competitors or with any new competitors.
SUBSCRIPTION CONTRACT RISKS. Many of the Company's subscription contracts
are for services and software applications which are critical to the operations
of its customers' businesses. The Company's failure or inability to deliver
services and software to its customers' satisfaction could have a material
adverse effect on its customers' operations and could consequently subject the
Company to litigation or damage the Company's reputation, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Substantially all of the Company's subscription contracts are of relatively
short duration; their maximum length is three years. Although these contracts
carry early termination penalties, the unexpected termination or nonrenewal by a
client of a significant contract could have a material adverse effect on the
Company's business, financial condition and results of operations.
CUSTOMER CONCENTRATION. The Company has derived a significant portion of
its revenues from a limited number of large customers. In 1995, 1996 and for the
nine months ended September 30, 1997, the Company's largest customer accounted
for approximately 29%, 20% and 4% of its revenues, respectively, and its ten
largest clients accounted for approximately 43%, 39% and 16% of its revenues,
respectively. The volume of services provided to specific customers varies from
year to year. There can be no assurance that a large customer in one year will
continue to use the Company's services in a subsequent year. Furthermore, the
Company is not always the exclusive provider of securities quotations and news
to its customers. The loss of any large customer could have a material adverse
effect on the Company's business, financial condition and results of operations.
TECHNOLOGICAL ADVANCES. The information technology industry has experienced
and is continuing to experience rapid technological advances and developments.
The Company's success will depend in part on its ability to develop solutions
which keep pace with continuing changes in information processing technology,
evolving industry standards and changing client preferences. While the Company
is actively engaged in research and development activities to meet such client
needs and preferences, there can be no assurance that the Company will be
successful in addressing these developments on a timely basis or that, if
addressed, the Company will be successful in the marketplace. The Company's
delay or failure to address these developments could have a material adverse
effect on the Company's results of operations. In addition, there can be no
assurance that technologies developed by others will not render the Company's
services noncompetitive or obsolete.
INTELLECTUAL PROPERTY RIGHTS. Software developed by PC Quote in connection
with customer services typically is licensed for use by the customers. The
Company holds no patents or registered copyrights and has no present intention
of registering any copyrights or filing any patent applications. The following
are registered trademarks: BasketMaker-Registered Trademark-,
QuoteWare-Registered Trademark-, PriceWare-Registered Trademark- and
QuoteBlaster-Registered Trademark-. HyperFeed-TM- is a servicemark of the
Company.
Although the Company believes that its services and software applications do
not infringe upon the intellectual property rights of others and that it has all
rights necessary to utilize the intellectual property employed in its business,
the Company is subject to the risk of litigation alleging infringement of third-
party intellectual property rights. The Company typically agrees to indemnify
its clients against such claims. Any such claims could require the Company to
spend significant sums in litigation, pay damages, develop non-infringing
intellectual property or acquire licenses to the intellectual property which is
the subject of asserted infringement.
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
rights, the rights of third parties from whom the Company licenses intellectual
property and the proprietary rights of its clients. There can be no assurance,
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however, that the steps taken by the Company will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights.
RISKS OF LICENSING PROPRIETARY SOFTWARE APPLICATIONS. The Company does not
have patent or federal copyright protection for its proprietary software
products. Although applicable software is readily duplicated illegally by anyone
having access to appropriate hardware, the Company attempts to protect its
proprietary software through license agreements with customers and common law
trade secret protection and non-disclosure contract provisions in its agreements
with its employees. The Company uses security measures, including a hardware
key, which restricts access to its on-line services unless proper password
identification from a PC Quote user is provided. As an additional safeguard, the
Company provides only the object code on its diskette and retains the source
code. There can be no assurance that such licensees will properly utilize the
Company's software applications and services. The failure by licensees to adhere
strictly to the Company's standards could subject PC Quote to litigation and
harm the Company's reputation thereby resulting in a material adverse effect on
the Company's business, financial condition and results of operations.
SIGNIFICANT UNALLOCATED NET PROCEEDS. The only specific allocation of the
Company's anticipated net proceeds from the Rights Offering is the repurchase of
an aggregate of four million shares of Common Stock for total consideration of
$4.0 million. Accordingly, a portion of the Company's anticipated net proceeds
of the Rights Offering has not been committed to specific uses. The Board of
Directors of the Company will have broad discretion with respect to the use of
such unallocated net proceeds. See "Reason for the Rights Offering and Use of
Proceeds."
REQUIREMENTS FOR LISTING SECURITIES ON THE AMERICAN STOCK EXCHANGE. The
Common Stock is currently listed with The American Stock Exchange. The Company
has applied to list the Rights and the Underlying Shares of Common Stock
issuable upon their exercise for trading on The American Stock Exchange. If the
Company is unable to maintain the standards for continued listing, the Common
Stock and the Rights, if listed, could be subject to delisting from The American
Stock Exchange. Trading, if any, would thereafter be conducted on an electronic
bulletin board established for securities that do not meet listing requirements
or in what is commonly referred to as the "pink sheets." As a result, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities.
POSSIBLE VOLATILITY OF STOCK PRICE. The Company's Common Stock is thinly
traded and may experience significant price and volume fluctuations which could
adversely affect the market price of the Common Stock without regard to the
operating performance of the Company.
ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation and
By-laws, the Delaware General Corporation Law and the Securities Exchange Act of
1934 contain certain provisions that could have the effect of discouraging or
making more difficult the acquisition of the Company by means of a tender offer,
a proxy contest or otherwise, even though such an acquisition might be
economically beneficial to the Company's stockholders. These include provisions
under which (i) only the Board of Directors or an authorized special committee
thereof may call meetings of stockholders, and (ii) stockholders must comply
with certain advance notice procedures to nominate candidates for election as
directors of the Company and to submit proposals for consideration at
stockholders' meetings. The ability of the Board of Directors to issue up to
5,000,000 shares of preferred stock, in one or more classes or series, and with
such powers, designations, preferences and relative, participating, optional or
special rights, qualifications, limitations or restrictions as may be determined
by the Board of Directors of the Company, also could make an acquisition of the
Company more difficult. In addition, these provisions may make the removal of
management more difficult, even in cases where such removal would be favorable
to the interests of the Company's stockholders.
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DEPENDENCE UPON FINANCIAL MARKETS. A significant portion of the Company's
revenue is derived from supplying financial data and quotations related to U.S.
financial exchanges and markets. Any significant downturn or other negative
development with respect to those exchanges and markets could adversely effect
the Company's revenue.
CERTAIN RIGHTS OFFERING CONSIDERATIONS
NO COMMITMENTS TO PURCHASE AND NO MINIMUM SIZE OF RIGHTS OFFERING. The
Company does not have a written commitment from any person to purchase any
shares of Common Stock pursuant to the Rights Offering. In addition, no minimum
amount of proceeds is required for the Company to consummate the Rights
Offering. Accordingly, no assurances can be given as to the amount of gross
proceeds that the Company will realize from the Rights Offering. See "Purpose of
the Rights Offering and Use of Proceeds," "The Rights Offering," and "Plan of
Distribution."
ADDITIONAL SHARES ISSUABLE TO THE WEXFORD AFFILIATES. Pursuant to the terms
of the Purchase Agreement, in the event the Rights Offering is not completed on
or prior to January 24, 1998, the Wexford Affiliates will be entitled to
receive, out of escrow, warrants to purchase up to 250,000 shares of Common
Stock and, in the event the Rights Offering is not completed on or prior to
February 28, 1998, the Wexford Affiliates will be entitled to receive warrants
to purchase up to an additional 250,000 shares of Common Stock (such warrants,
collectively, the "Additional Warrants"). The exercise price for the Additional
Warrants is $2.00 per share. Were the Rights Offering not completed on or prior
to February 28, 1998, thereby entitling the Wexford Affiliates to receive all of
the Additional Warrants, their deemed beneficial ownership of Common Stock would
increase to 44.8% of the outstanding Common Stock. See "--Control by Principal
Stockholders" and "Recent Developments--Financing Transaction with Wexford
Affiliates."
DILUTION; DISCOUNT FROM MARKET PRICE. Holders who do not exercise their
Subscription Privileges in full will realize a dilution in their percentage
voting interest and ownership interest in future net earnings, if any, of the
Company to the extent that Rights are exercised by other Holders. Provided PICO
neither exercises nor converts outstanding warrants or a convertible
subordinated debenture and assuming PICO fully subscribes to its Basic
Subscription Privilege, and assuming no other Rights were exercised, and
assuming the proposed repurchase of four million shares from the Wexford
Affiliates does not occur, PICO would collectively own approximately 52.7% of
the Company's Common Stock. In addition, the Subscription Price represents a
33 1/3% discount from the closing market price of $1.50 as of November 14, 1997
and could result in a reduction in the market price for the Company's Common
Stock.
LIMITED LIQUIDITY OF SECURITIES AND TRADING ACTIVITY. The Common Stock is
thinly traded. The Company has applied to list the Rights and the Underlying
Shares of Common Stock issuable upon exercise of the Rights on The American
Stock Exchange. The Company believes the Rights will commence trading on
November 24, 1997. However, no assurances can be given that an efficient market
for the Rights will develop or, if developed, be maintained. See "Risk
Factors--Control by Principal Stockholders."
POSSIBLE EXTENSION OF EXPIRATION DATE. The Company has reserved the right
to extend the Expiration Date to as late as February 27, 1998. Funds deposited
in payment of the Subscription Price may not be withdrawn and no interest will
be paid thereon to Holders. See "The Rights Offering--Expiration Date."
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THE COMPANY
COMPANY OVERVIEW
PC Quote, Inc. has over 17 years of experience in providing real-time and
delayed financial information such as equities, commodities, futures and options
quotations and news to professional and consumer markets worldwide. With its
objective to become the leading provider of such quotations and news to new and
existing clients, the Company focuses its marketing efforts on institutions such
as brokerage firms, banks, insurance companies, fund managers, and institutional
and professional traders, individual investors, and software companies.
To meet this objective the Company has developed a reputation for providing
high speed real-time transmission of security prices to the professional
investor community through a ticker plant regarded as one of the fastest and
most accurate in the industry. Its real-time database of last sale and bid/ask
prices of more than 250,000 issues contains the most comprehensive options data
and has also been optimized for NASDAQ Level II. The database includes all North
American equities and options, major stock indices, Level 1 NASDAQ-quoted
stocks, mutual funds, money market funds, futures contracts, and commodities.
The Company has recently expanded its service offering to the individual
investor, applications developers and businesses by offering its products
through the Internet.
The Company generates revenue from its securities quotations services,
individual investor subscriptions, Internet business services, software and web
site development services, OEM and redistributor services, and from advertising
sold on its web site. The Company classifies its data services in two
categories: real-time satellite broadcast or dedicated landline for professional
trading desktops and networks; and Internet services for individual investors,
developers, corporations and financial institutions.
The Company's Network/Desktop Services provide real-time securities
quotations and optional analytic applications for professional investors such as
securities brokers, dealers, traders and portfolio managers. HyperFeed-TM-, the
Company's digital real-time market data feed, supports all of the Company's
products and services. The Company believes that HyperFeed is one of the world's
fastest and one of the most accurate digital market data feeds. The speed and
accuracy of data delivery are crucial factors for active equity traders.
HyperFeed provides traders a high speed link to real-time data through satellite
feeds and terrestrial delivery systems. The Company's quality control personnel
work to eliminate corrupted/bad data prior to the data's redistribution to its
customers. In addition, the Company believes its software interface is highly
regarded by its customers as user friendly and conducive to finding data
quickly. As a result of these and other factors, the Company has developed a
leading position with the NASDAQ day trader market, supplying the data feed to a
significant percentage of this market. Furthermore, PC Quote's unique
applications programming interfaces (APIs) are noted for their robustness and
ease of use, enabling IT departments of financial institutions to create their
own quote systems, or switch from their current systems to PC Quote's HyperFeed
with relative ease.
The Company's Internet Services provide a wide range of Internet technology
solutions, in addition to marketing opportunities leveraged by the very strong
brand awareness of PC Quote on the Worldwide Web. Through its Internet Services
the Company:
1. Makes available to the individual investor the same data feed and analytical
capabilities as it provides the professional investor. In addition, the
Company's web site (www.pcquote.com) enables non-professional individual
investors access to delayed and real-time quotes on stocks, options, mutual
funds, futures, commodities and indices, as well as news, fundamentals, SEC
filings, historical data, earnings estimates and other research.
2. Provides the software developer of a software company, IT department of a
financial institution, or programmer the ability to create custom
applications using PC Quote's datafeed for personal, intranet/WAN, or retail
use utilizing the wide distribution mechanism of the Internet.
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3. Provides advertising on PC Quote's popular Web site for non-professional
individual investors, a high-traffic marketing engine that brings a targeted
audience to financial services companies, computer and technology
businesses, and consumer goods advertisers.
4. Provides PC Quote the opportunity for strategic business relationships and
co-content marketing opportunities with technology, financial, and Internet
industry leaders.
PC Quote believes its Internet Services are the most advanced available for
custom and turnkey applications. The depth and quality of the Company's market
data has made PC Quote's web site a popular business site on the Internet. It is
visited more than 133,000 times every business day with an average duration of
over 12 minutes, with more than 9 million quotes being queried each day.
The Company intends to leverage its core competency in high speed/high
quality data collection and delivery and strengthen its technology leadership
position in Internet and broadcast solutions to clients needing fast, reliable
market data. [On the Internet--given the initial success of PC Quote's Internet
subscription service, PC Quote 6.0 for Windows, Web site advertising revenue,
and Internet business solution services--the Company believes that its Internet
Services provides a platform for continued growth in subscription, advertising,
and datafeed revenues. In the real-time Network and Desktop arena, greater
bandwidth, databasing technology and superior backbone systems and client
services positions the Company to continue to attract and retain customers.]
PRODUCTS AND SERVICES
HyperFeed, the cornerstone of the services provided by the Company, is
broadcast at 1024 kilobytes per second and 112 kilobytes per second. The Company
transmits market data, including dynamic NASDAQ Level II market maker quotes, on
over 400,000 issues traded in over 30 countries, in addition to financial news
and information such as the Dow Jones Composite News Services (up to 90-day
retrieval of nine wires "Broadtape," Professional Investor Report, Capital
Markets Report, International News Wire, World Equities Report, European
Corporate Report, Electronic Wall Street Journal, International Petroleum
Reports, Federal Filing), multiple levels of fundamental data, and fixed income
pricing.
HyperFeed underlies all of the Company's other products and services, which
capitalize on HyperFeed to access, view and utilize data in a variety of ways.
To produce and transmit HyperFeed, PC Quote uses multiple redundant, high-speed
data circuits to gather ticker and news feeds from securities exchanges and
other sources. At the Company's production center in Chicago these feeds are
directed into multiple redundant dynamic real-time databases from which
HyperFeed is generated. HyperFeed is transmitted to customer sites over either a
satellite communications network or dedicated digital data circuits. At the
customer site HyperFeed is received by a Quote Server, an industry standard PC,
which creates and maintains databases of real-time data, news and fundamental
information.
The Quote Server can reside on a local area network, where the data it
maintains is accessible to software applications running on workstations on the
network, or it can function as a stand-alone unit, in which case its data is
available to software applications running on the Quote Server itself. In either
case, the software applications accessing the data may be supplied by the
Company, by third parties, or the customer.
Third party and customer supplied software utilize the Company's
high-performance application program interfaces ("APIs") to access the Quote
Server's data. In this way the Quote Server can supply data for virtually any
purpose, including proprietary order execution systems, analytical modeling,
internal risk management, order matching, or redistribution via online systems,
the Internet, or wide area networks. Third party developers and customers using
the APIs for their own development pay a monthly fee for the interfaces, in
addition to monthly HyperFeed licensing fees and per-user or per-unit charges
once the application is ready for distribution or redistribution.
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The Company also maintains Internet Quote Servers at its facility. These
Quote Servers function just like any other Quote Servers, supporting
applications developed by the Company, or by third parties or customers using
Internet-enabled versions of the Company's APIs. In this way the Company and its
customers are able to benefit from the Internet's substantially lower costs for
service, communications and startup, its ease of access, and its worldwide
availability.
SOFTWARE AND SERVICES CURRENTLY MARKETED BY REGISTRANT
To complement the HyperFeed database, the Company has several high-end
applications and programming tools which it licenses to HyperFeed subscribers.
PC QUOTE 6.0. PC Quote 6.0 for Windows is a comprehensive suite of
real-time professional trading analysis tools. Running under Microsoft-TM-
Windows-TM- 3.1 or Windows-TM- 95, or Windows NT-TM-, PC Quote 6.0 offers
unlimited quote pages, charting, technical analysis, searchable news, time of
sale and quote, NASDAQ Level II market maker screens, options analytical tools,
dynamic data exchange into Microsoft-TM- Excel-TM- tickers, alerts, baskets and
more.
PC Quote 6.0 can be fed by Quote Servers on the customer's local area
network or through a connection to the Internet. Monthly fees for Internet
service are lower than fees for local area network service; this makes PC Quote
6.0 more affordable around the world for individual investors and affords a wide
range of options for the professional marketplace. The software application for
PC Quote 6.0 is licensed from an unaffiliated third party pursuant to a Software
Distributor Agreement. See "Risk Factors--Software Licensing Agreement."
QUOTE SERVER WITH QUOTE TOOLS. For custom applications using robust and
easy-to-use APIs, the Quote Server enables a customer to build anything from
real-time trading desktop interfaces, to Web sites with portfolio management and
the latest in Internet push technology. The Quote Server APIs are unique in that
they give a complete suite of programming interfaces, from ActiveX to CGI, to
C++ and Visual Basic for all levels of programming in all environments.
Furthermore, the Quote Server can run in multiple environments including NT and
UNIX.
WEB SITE, ADVERTISING, AND MARKETSMART. The PC Quote Web site is the
company's marketing engine supported by advertising revenues. The site's current
50 million monthly page views, over 133,000 daily unique visitors, and 50,000
registered users for MarketSmart, the Company's Web-based free subscription
service, attest to its popularity. The site provides marketing opportunities for
individual investor services, business services, wholesale services, and other
strategic partners of the Company. Advertising revenue is tied to this
high-traffic web site, and pays for many of the Web-based subscription services
as well as assists in securing strategic relations with ad revenue sharing
programs.
INTERNET BUSINESS SERVICES. The Company offers custom and template Website
services and software development services--from basic tools to complete turnkey
installations--to software vendors, financial institutions, corporations, and
Internet content providers. All of the Company's Internet services, including
the Web site, advertising, PC Quote 6.0 on the Internet, and Quote Tools, can be
wholesaled, private-labeled, cloned or customized to help a client grow its
business on the Web and increase market share, retain customer loyalty, increase
trading activity, or showcase its services through PC Quote's popular Web site.
Clients include the Microsoft Network and MSNBC, CompuServe Information Service,
CNET, the American Stock Exchange, Dow Jones SMART MONEY and Earthlink Network.
STRATEGIC RELATIONS
The Company has become a premier quote service for the major office
applications companies. In Microsoft Excel's-TM- new 1997 version, Web Query
technology features the ability to access data from PC Quote. In February of
1997 Lotus Development Corporation also featured PC Quote's data as the "in the
box" feature for its SmartSuite application. The Web site and Internet Business
Services has additionally
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procured strategic relationships with AT&T Worldnet, Market Guide, Edgar Online,
Zacks Investment Research, SkyTel, Sandbox Entertainment Corporation, CNET,
Microsoft Corporation, and others.
RECENT DEVELOPMENTS
TRANSACTIONS WITH PHYSICIANS INSURANCE COMPANY OF OHIO AND PICO HOLDINGS,
INC. 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. PICO
made the investment and the Debenture was issued on December 2, 1996. The
Debenture was to mature on December 31, 2001 and is 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 will be paid a "facility fee" of $40,000, plus
interest at a rate equal to 14% per annum, on the maturity date of the loan
contemplated by the Loan Agreement.
In connection with the Loan Agreement, the Company and PICO entered into a
First Amendment to the Debenture and Debenture Agreement (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 has been 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 and at a price as PICO and the Company shall agree.
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
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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.
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.
FINANCING TRANSACTION WITH WEXFORD AFFILIATES. In October 1997 Imprimis
Investors LLC and Wexford Spectrum Investors LLC (collectively, the "Wexford
Affiliates") expended $5.0 million to purchase 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").
The Wexford Affiliates have 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"). Pursuant to the terms of the Purchase Agreement, on
October 15, 1997, the Wexford Affiliates purchased 1,450,000 shares of Common
Stock and the Initial Warrants for a purchase price of $1.45 million. On October
20, 1997, pursuant to the terms of the Purchase Agreement, the Wexford
Affiliates purchased an additional 550,000 shares of Common Stock for a purchase
price of $0.55 million. On October 23, 1997, pursuant to the terms of the
Purchase Agreement, the Wexford Affiliates purchased an additional 3,000,000
shares of Common Stock for a purchase price of $3.0 million.
Up to four million of the shares of Common Stock purchased by the Wexford
Affiliates are 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 will use its best
efforts to consummate the Repurchase from the proceeds of the Rights Offering.
In the event that the Rights Offering is not completed on or prior to January
24, 1998, the Wexford Affiliates will be 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 is not
completed on or prior to
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February 28, 1998, the Wexford Affiliates will be 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.
In contemplation of the Purchase Agreement, the Wexford Affiliates have
agreed not to participate in the Rights Offering.
REASON FOR THE RIGHTS OFFERING AND USE OF PROCEEDS
The net proceeds to the Company from the Rights Offering are estimated to be
approximately $7.0 million. The Company intends to use $4.0 million of such net
proceeds to repurchase an aggregate of four million shares of Common Stock
recently sold to Imprimis Investors LLC and Wexford Spectrum Investors LLC (the
"Wexford Affiliates") pursuant to the terms and subject to the conditions set
forth in that certain Stock and Warrant Purchase Agreement between the Company
and each of the Wexford Affiliates dated October 15, 1997.
The Company intends to use the remaining net proceeds for general corporate
purposes, including working capital. Pending any of the foregoing uses, the
Company intends to invest the net proceeds in short-term, investment grade
securities, certificates of deposit or direct or guaranteed obligations of the
United States government.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Company includes 50,000,000 shares of
Common Stock, par value $.001 per share. Holders of Common Stock have no
preemptive rights. The outstanding shares of Common Stock are fully paid and
non-assessable. Holders of Common Stock are entitled to dividends when, as, and
if declared by the Board of Directors of the Company out of any funds legally
available to the Company for that purpose.
Holders of Common Stock are entitled to one vote per share held of record
with respect to all matters submitted to a vote of the stockholders. There is no
cumulative voting for the election of directors, who are elected annually to
one-year terms. Directors are elected by a plurality; all other matters require
the affirmative vote of a majority of the votes cast the meeting.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock, par
value $.001 per share, and to establish and issue shares of Preferred Stock in
series and to fix, determine and vary the voting rights, designations,
preference qualifications, privileges, options, conversion rights and other
special rights of each series of Preferred Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to Section 203 of Delaware General Corporation Law,
which prohibits a Delaware corporation from engaging in a wide range of
specified transactions with any "interested stockholder," as such term is
defined to include, among others, any person or entity who in the previous three
years obtained 15% or more of any class or series of stock entitled to vote in
the election of directors, unless, among other exceptions, the transaction is
approved by (i) the Board of Directors prior to the date the interested
stockholder obtained such status or (ii) the holders of two-thirds of the
outstanding shares of each class or series owned by the interested stockholder.
PRICE RANGE OF COMMON STOCK
The following table shows for the three quarterly periods ended September
30, 1997 and for each 1996 quarterly period the high and low closing prices of
the Company's Common Stock for the periods indicated, as reported by The
American Stock Exchange.
TRADE
<TABLE>
<CAPTION>
HIGH LOW
--------- -----
<S> <C> <C>
1997 QUARTERLY INFORMATION
First............................................................................................. 3 11/16 2 1/4
Second............................................................................................ 2 1/2 1 1/8
Third............................................................................................. 2 9/16 1 1/2
1996 QUARTERLY INFORMATION
First............................................................................................. 16 8 3/8
Second............................................................................................ 14 1/8 6 3/4
Third............................................................................................. 8 3 7/8
Fourth............................................................................................ 5 1/2 2 1/4
</TABLE>
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DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and it does not
presently anticipate making any such payments in the near future.
HOLDERS OF RECORD
At November 12, 1997, the approximate number of holders of record of the
Common Stock was 400.
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing, at no cost, to the record holders of its
outstanding Common Stock as of November 21, 1997 (the "Record Date"), other than
the Wexford Affiliates, transferable Rights to purchase additional shares of
Common Stock (the "Basic Subscription Privilege") at a price of $1.00 per share
(the "Subscription Price"). The Company will distribute one Right for each share
of Common Stock held on the Record Date. Each Right will entitle its Holder to
purchase one share of Common Stock. The Rights will be evidenced by transferable
subscription certificates (the "Subscription Certificates"). An aggregate of
7,402,246 shares of Common Stock (the "Underlying Shares") will be sold if all
Rights are exercised.
No fractional Underlying Shares, or cash in lieu thereof, will be issued or
paid. The number of Underlying Shares distributed to each Holder will be rounded
up to the nearest whole share in connection with the exercise of Subscription
Privileges.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. Each Right will entitle the Holder thereof to
receive, upon payment of the Subscription Price, one share of Common Stock.
Certificates representing shares of Common Stock purchased pursuant to the Basic
Subscription Privilege will be delivered to subscribers as soon as practicable
after the Expiration Date, irrespective of whether the Subscription Privilege is
exercised immediately prior to the Expiration Date or earlier. Holders
exercising their Subscription Privilege will not be stockholders of record with
respect to the shares issuable pursuant to such Subscription Privilege until the
closing, which it is anticipated will occur five business days after the
Expiration Date.
OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below, each
Right also carries the right to subscribe at the Subscription Price for any
Underlying Shares not subscribed for through the exercise of Basic Subscription
Privileges by other Holders (the "Excess Shares"). If the Excess Shares are not
sufficient to satisfy all subscriptions pursuant to the Oversubscription
Privilege, such Excess Shares will be allocated pro rata (subject to the
elimination of fractional shares) among those Holders exercising the
Oversubscription Privilege, in proportion, not to the number of shares requested
pursuant to the Oversubscription Privilege, but to the number of shares each
Holder exercising the Oversubscription Privilege subscribed for pursuant to the
Basic Subscription Privilege; provided, however, that if such pro rata
allocation results in any Holder being allocated a greater number of Excess
Shares than such Holder subscribed for pursuant to the exercise of such holder's
Oversubscription Privilege, then such Holder will be allocated only such number
of Excess Shares as such Holder subscribed for and the remaining Excess Shares
will be allocated among all other Holders exercising the Oversubscription
Privilege. Only beneficial holders who exercise the Basic Subscription privilege
in full will be entitled to exercise the Oversubscription Privilege.
Certificates representing Excess Shares purchased pursuant to the
Oversubscription Privilege will be delivered to subscribers as soon as
practicable after the Expiration Date and after all prorations have been
effected.
In the event Rights remain unexercised after satisfaction of the Basic
Subscription and Oversubscription Privileges, the Company intends to offer the
remaining unexercised Rights (the "Unexercised
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<PAGE>
Allotment") to members of management, including Directors. If available,
management intends to exercise a minimum of 250,000 Rights in such Unexercised
Allotment and purchase the respective shares underlying such Rights at the
Subscription Price.
EXPIRATION DATE
The Rights will expire at 4:30 p.m., Chicago time, on December 19, 1997
unless extended by the Company from time to time. Notwithstanding the foregoing,
the Expiration Date in no event shall be later than February 27, 1998, except
that the Company reserves the right to extend the exercise period on one or more
occasions if the Board of Directors determines that the occurrence of a material
event necessitates amendment of the Registration Statement or recirculation of
the Prospectus that forms a part thereof in order to permit time for the
distribution of such information. After the Expiration Date, unexercised Rights
will be null and void. The Company will not be obligated to honor any purported
exercise of Rights received by the Subscription Agent after the Expiration Date,
regardless of when the documents relating to such exercise were sent, except
pursuant to the Guaranteed Delivery Procedures described below.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to the Subscription Agent, on or prior
to 4:30 p.m., Chicago time, on the Expiration Date, the properly completed and
executed Subscription Certificate evidencing such Rights with any required
signatures guaranteed, together with payment in full of the Subscription Price
for the Underlying Shares subscribed for pursuant to the Subscription Privileges
(except as permitted pursuant to clause (iii) of the next sentence). Such
payment in full must be by: (i) check or bank draft drawn upon a U.S. bank or
postal telegraphic or express money order payable to American Securities
Transfer & Trust, Inc., as Subscription Agent; or (ii) wire transfer of funds to
the account maintained by the Subscription Agent for such purpose; or (iii) in
such other manner as Company may approve in writing in the case of persons
acquiring Underlying Shares at an aggregate Subscription Price of $500,000 or
more, provided in each case that the full amount of such Subscription Price is
received by the Subscription Agent in currently available funds within five
American Stock Exchange trading days following the Expiration Date (the payment
method under (iii) being an "Approved Payment Method"). Payment of the
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (a) clearance of any uncertified check, (b) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a United
States bank or of any postal, telegraphic or express money order, (c) receipt of
good funds in the Subscription Agent's account designated above, or (d) receipt
of good funds by the Subscription Agent through an Approved Payment Method.
If paying by uncertified personal check, please note that the funds paid
thereby may take at least five business days to clear. Accordingly, Holders who
wish to pay the Subscription Price by means of uncertified personal check are
urged to make payment sufficiently in advance of the Expiration Date to ensure
that such payment is received and clears by such date and are urged to consider
payment by means of certified or cashier's check, money order or wire transfer
of funds.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
American Securities Transfer & Trust, Inc.
Attention: John G. Harmann
938 Quail Street
Lakewood, CO 80215
If a Holder wishes to exercise Rights, but time will not permit such Holder
to cause the Subscription Certificate or Subscription Certificates evidencing
such Rights to reach the Subscription Agent on or prior to the Expiration Date,
such Rights may nevertheless be exercised if all of the following conditions
(the "Guaranteed Delivery Procedures") are met:
20
<PAGE>
(i) such Holder has caused payment in full of the Subscription Price for
each Underlying Share being subscribed for pursuant to the Subscription
Agent on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration
Date, a guaranteed notice (a "Notice of Guaranteed Delivery"), substantially
in the form provided with the Instructions as to Use of PC Quote, Inc.
Subscription Certificates (the "Instructions") distributed with the
Subscription Certificates, from an "Eligible Guarantor Institution" (as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934), stating
the name of the exercising Holder, the number of Rights represented by the
Subscription Certificate(s) held by such exercising Holder, the number of
Underlying Shares being subscribed for pursuant to the Subscription
Privileges and guaranteeing the delivery to the Subscription Agent of any
Subscription certificate(s) evidencing such Rights within three American
Stock Exchange trading days following the date of the Notice of Guaranteed
Delivery; and
(iii) the properly completed Subscription Certificate(s), with any
required signatures guaranteed, is received by the Subscription Agent within
three American Stock Exchange trading days following the date of the Notice
of Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery
may be delivered to the Subscription Agent in the same manner as
Subscription Certificates at the addresses set forth above, or may be
transmitted to the Subscription Agent by facsimile transmission (telecopy
number (303) 234-5340). Additional copies of the form of Notice of
Guaranteed Delivery are available upon request from the Subscription Agent,
whose address and telephone number are set forth under "Subscription Agent"
below.
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Shares. If a Holder
exercising the Oversubscription Privilege is allocated less than all of the
Excess Shares that such Holder wished to subscribe for pursuant to the
Oversubscription Privilege, the excess funds paid by such Holder in respect of
the Subscription Price for shares not issued shall be returned by mail without
interest or deduction as soon as practicable after the Expiration Date.
A holder who holds shares of Common Stock for the account of others, such as
a broker, a trustee or a depository for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owner's intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record Holder of such Rights
should complete the Subscription Certificate and submit it to the Subscription
Agent with the proper payment. In addition, the beneficial owner of Common Stock
or Rights held through such a holder of record should contact the Holder and
request the Holder to effect transactions in accordance with the beneficial
owner's instructions.
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Right represented thereby are to
be delivered to the Holder or (ii) is submitted for the account of an Eligible
Guarantor Institution, signatures on such Subscription Certificate must be
guaranteed by an Eligible Guarantor Institution.
If either the number of Underlying Shares being subscribed for payment to
the Basic Subscription Privilege is not specified on the Subscription
Certificate, or the amount delivered is not enough to pay the Subscription Price
for all Underlying Shares stated to be subscribed for, the number of Underlying
Shares subscribed for will be assumed to be the maximum amount that could be
subscribed for upon payment of such amount, after allowance for the Subscription
Price of any specified Underlying Shares. If the number of Underlying Shares
being subscribed for is not specified, or payment of the Subscription Price for
the indicated number of Rights that are being exercised exceeds the required
Subscription Price, the payment will be applied, until depleted, to subscribe
for Underlying Shares in the following order: (i) to subscribe for the number of
Underlying Shares indicated, if any, pursuant to the Basic Subscription
Privilege; (ii) to subscribe for Underlying Shares until the Basic Subscription
Privilege has been fully exercised with respect to all of the Rights represented
by the Subscription Certificate; and (iii) to subscribe for additional
Underlying Shares pursuant to the Oversubscription Privilege (subject to any
applicable proration).
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<PAGE>
The Instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 4:30 P.M., CHICAGO
TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR, THE RIGHTS HOLDER IS STRONGLY URGED TO PAY,
OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIERS CHECK, MONEY ORDER OR
WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company, in its sole discretion, may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as the Company
determines in its sole discretion.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus or the Instructions
or the Notice of Guaranteed Delivery should be directed to the Subscription
Agent, telephone number (303) 234-5300.
NO REVOCATION
ONCE A HOLDER OR RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE OR
THE OVERSUBSCRIPTION PRIVILEGE SUCH EXERCISE MAY NOT BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
The Company has applied to list the Rights for trading on The American Stock
Exchange. Upon such listing, the Rights may be purchased or sold through usual
investment channels, including banks and brokers. The Company believes the
Rights will commence trading on November 24, 1997. Trading in Rights will cease
on the close of business on The American Stock Exchange trading day preceding
the Expiration Date.
The Rights evidenced by a single Subscription Certificate may be transferred
in whole by endorsing the Subscription Certificate for transfer in accordance
with the accompanying instructions. A portion of the Rights evidenced by a
single Subscription Certificate may be transferred by delivering to the
Subscription Agent a Subscription Certificate properly endorsed for transfer,
with instructions to register such portion of the Rights evidenced thereby in
the name of the transferee (and to issue a new Subscription Certificate to the
transferee evidencing such transferred Rights). In such event, a new
Subscription Certificate evidencing the balance of the Rights will be issued to
the Holder or, if the Holder so instructs, to an additional transferee.
Holders wishing to transfer all or a portion of their Rights should allow a
sufficient amount of time prior to the Expiration Date for (i) the transfer
instructions to be received and processed by the Subscription Agent, (ii) a new
Subscription Certificate to be issued and transmitted to the transferee or
transferees with respect to the transferred Rights, and to the transferor with
respect to retained Rights, if any, and (iii) the Rights evidenced by such new
Subscription Certificates to be exercised or sold by the recipients thereof. If
time does not permit a transferee of a Right who wishes to exercise its Right to
22
<PAGE>
deliver its Subscription Certificate to the Subscription Agent on or before the
Expiration Date, such transferee should make use of the Guaranteed Delivery
Procedure described under "The Rights Offering--Exercise of Rights." Neither the
Company nor the Subscription Agent shall have any liability to a transferee or
transferor or Rights if Subscription Certificates or new Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
All commissions, fees and other expenses (including brokerage commissions
and transfer taxes) incurred in connection with the purchase, sale or exercise
of Rights will be for the account of the transferor or subscriber of the Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Subscription Agent.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Wildman, Harrold, Allen & Dixon, counsel to the Company,
the following is an accurate discussion of the material federal income tax
consequences of the Rights Offering to the holders of Common Stock upon the
distribution (the "Distribution") of Rights, and to holders of Rights upon the
exercise and disposition of the Rights.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Regulations promulgated thereunder, judicial
authority, and current administrative rulings and practice, all of which are
subject to change on a prospective or retroactive basis. The tax consequences of
the Rights Offering under state, local and foreign law are not discussed.
Moreover, special considerations not described herein may apply to certain
taxpayers, such as financial institutions, broker-dealers, life insurance
companies, and tax-exempt organizations. The discussion is limited to those who
have held the Common Stock, and will hold the Rights and any Common Stock
acquired upon the exercise of Rights as capital assets (generally, property held
for investment) within the meaning of Section 1221 of the Code.
DISTRIBUTION OF THE RIGHTS. Holders of Common Stock will not recognize
taxable income for federal income tax purposes in connection with the receipt of
the Rights.
STOCKHOLDER BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided in
the following sentence, the basis of the Rights received by a stockholder as a
distribution with respect to such stockholder's Common Stock will be zero. If,
however, either (i) the fair market value of the Rights on the date of
Distribution is 15% or more of the fair market value (on the date of
Distribution) of the Common Stock with respect to which they are received or
(ii) the stockholder properly elects, in his or her federal income tax return
for the taxable year in which the Rights are received, to allocate basis, part
of his or her basis in Common Stock will be allocated between the Common Stock
and the Rights in proportion to the fair market value of each on the date of
Distribution.
The holding period of a stockholder with respect to the Rights received as a
distribution on such stockholder's Common Stock will include the stockholder's
holding period for the Common Stock with respect to which the Rights were
issued.
In the case of a stockholder who purchased Rights, the tax basis of such
Rights will be equal to the purchase price paid therefor, and the holding period
for such Rights will commence on the day following the date of the purchase.
SALE OF THE RIGHTS. A Stockholder who sells the Rights received in the
Distribution prior to exercise will recognize gain or loss equal to the
difference between the amount realized on the sale and such stockholder's
adjusted basis (if any) in the Rights sold. Such gain or loss will be capital
gain or loss if gain or loss from a sale of Common Stock held by such
stockholder would be characterized as capital gain or loss at the time of such
sale.
Any gain or loss recognized on a sale of Rights acquired by purchase will be
capital gain or loss if Common Stock would be a capital asset in the hands of
the stockholder.
Generally such capital gain or loss will be classified as short-term if the
stockholder's holding period in the Rights is one year or less and long-term if
the stockholder's holding period in the Rights is more than one year. Under
current law, generally long-term capital gains are subject to a maximum marginal
tax rate of 28% for individuals, estates and trusts if the capital asset is held
for more than one year but not more than 18 months, and a maximum marginal tax
rate of 20% if the capital asset is held for more than 18 months.
LAPSE OF THE RIGHTS. Stockholders who allow the Rights received by them in
the Distribution to lapse will not recognize any gain or loss, and no adjustment
will be made to the basis of the Common Stock, if any, owned by such
stockholders.
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Stockholders who are purchasers of the Rights will be entitled to a loss
equal to their adjusted tax basis in the Rights if such Rights expire
unexercised. If the Rights expire unexercised not more than one year after the
stockholder's holding period began, any loss recognized on the expiration of the
Rights acquired by purchase will be a short-term capital loss if Common Stock
would be a capital asset in the hands of the purchaser.
EXERCISE OF THE RIGHTS, BASIS AND HOLDING PERIOD OF COMMON
STOCK. Stockholders will not recognize any gain or loss upon the exercise of
Rights. The basis of the Common Stock acquired through exercise of the Rights
will be equal to the sum of the Subscription Price therefor and the
stockholder's basis in such Rights (if any).
A stockholder's holding period for the Common Stock acquired through
exercise of the Rights will begin on the date the Rights are exercised.
SALE OF COMMON STOCK. The sale of Common Stock acquired through exercise of
the Rights will result in the recognition of gain or loss to the stockholder in
an amount equal to the difference between the amount realized on the sale and
the stockholder's adjusted basis in the Common Stock. Gain or loss on the sale
of such Common Stock will be classified as short-term capital gain or loss, if
the stockholder's holding period in such Common Stock is one year or less and
long-term capital gain or loss if the stockholder's holding period in such
Common Stock is more than one year. Under current law, generally long-term
capital gains are subject to a maximum marginal tax rate of 28% for individuals,
estates and trusts if the capital asset is held for more than one year but not
more than 18 months, and a maximum marginal tax rate of 20% if the capital asset
is held for more than 18 months.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
EACH HOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO
THE TAX CONSEQUENCES OF THE RIGHTS OFFERING APPLICABLE TO HIS OR HER OWN
PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE AND
LOCAL INCOME AND OTHER TAX LAWS.
SUBSCRIPTION AGENT
The Company has appointed American Securities Transfer & Trust, Inc. as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
Subscription Price should be delivered, as well as the address to which Notice
of Guaranteed Delivery must be delivered, and the Subscription Agent's telephone
number and facsimile number, are:
American Securities Transfer & Trust, Inc.
Attn: John G. Harmann
938 Quail Street
Lakewood, CO 80215
Tel. No.: (303) 234-5300
Facsimile No.: (303) 234-5340
The Company will pay the fees and expenses of the Subscription Agent, and
will also agree to indemnify it from any liability which it may incur in
connection with the Rights Offering.
PLAN OF DISTRIBUTION
The Common Stock offered hereby is being offered by Company pursuant to the
issuance of Rights directly to holders of shares of Common Stock on the Record
Date. Certain employees, officers or directors of the Company may solicit
responses from Holders to the Rights Offering, but such individuals will not
receive any commissions or compensation for such services other than their
normal employment compensation.
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<PAGE>
The Company intends to distribute Rights and copies of this Prospectus to
stockholders of record on the Record Date promptly following the effective date
of the Registration Statement of which this Prospectus forms a part.
Holders who desire to subscribe for the purchase of shares of Common Stock
in the Rights Offering are urged to complete, date and sign the Subscription
Certificate and return it to the Subscription Agent on or before the Expiration
Date, together with payment in full of shares should be directed to the
Subscription Agent.
INFORMATION AGENT
The Company has appointed American Securities Transfer & Trust, Inc. as
Information Agent for the Rights Offering. Any questions or requests for
additional copies of this Prospectus, the Instructions or the Notice of
Guaranteed Delivery may be directed to the Information Agent at the telephone
number and address below.
American Securities Transfer & Trust, Inc.
Attn: John G. Harmann
938 Quail Street
Lakewood, CO 80215
Tel. No.: (303) 234-5300
Facsimile No.: (303) 234-5340
The Company will pay the fees and expenses of the Information Agent and will
also agree to indemnify the Information Agent from certain liabilities in
connection with the Rights Offering.
LEGAL MATTERS
The validity of the authorization and issuance of the securities offered
hereby and the tax matters discussed under "Certain Federal Income Tax
Consequences" are being passed upon for Company by Wildman, Harrold, Allen &
Dixon, Chicago, Illinois.
EXPERTS
The financial statements of PC Quote, Inc. as of December 31, 1996 and for
the two year period ended December 31, 1996 incorporated in this Prospectus by
reference to the Annual Report on Form 10-K, as amended, have been so
incorporated in reliance on the report of McGladrey & Pullen LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The statements of operations, stockholder's equity and cash flows
and related schedule for the year ended December 31, 1994 incorporated in this
Prospectus by reference to the Annual Report on Form 10-K, as amended, has been
so incorporated in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
CHANGE IN ACCOUNTANTS
On July 9, 1997, McGladrey & Pullen LLP declined to stand for re-election as
the independent auditors for the Company. At a meeting held August 19, 1997, the
Company's Board of Directors unanimously approved the appointment of KPMG Peat
Marwick LLP to be the independent auditors for the year ending December 31,
1997.
The reports of McGladrey & Pullen LLP on the financial statements for the
past two fiscal years contained no adverse opinions or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principle, except for a going concern phrase that was included in the report
relating to the Company's audited financial statements for the year ended
December 31, 1996 as follows: "The accompanying financial statements have been
prepared assuming that PC Quote, Inc. will
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continue as a going concern. As more fully described in Note 14, the Company has
experienced significant operating losses, which adversely affected the Company's
current results of operations and liquidity. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 14. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty."
In connection with its audits for the two most recent fiscal years and
through July 9, 1997, there have been no disagreements with McGladrey & Pullen
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of McGladrey & Pullen LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Company has requested that McGladrey & Pullen LLP furnish it with a
letter addressed to the SEC stating whether or not its agrees with the above
statements. A copy of such letter is filed as Exhibit 16.1 to this Registration
Statement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS--
DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION
Under provisions of the Company's Certificate of Incorporation, any person
made a party to any lawsuit by reason of being a director or officer of the
Company, or any parent or subsidiary thereof, may be identified by the Company
to the full extent authorized by the General Corporation Law of the State of
Delaware.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS
GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Available Information..................................................... 2
Documents Incorporated By Reference....................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
The Company............................................................... 12
Reason For the Offering and Use of Proceeds............................... 17
Description of Capital Stock.............................................. 18
Price Range of Common Stock............................................... 18
The Rights Offering....................................................... 19
Certain Federal Income Tax Consequences................................... 24
Subscription Agent........................................................ 25
Plan of Distribution...................................................... 25
Information Agent......................................................... 26
Legal Matters............................................................. 26
Experts................................................................... 26
Change In Accountants..................................................... 26
Indemnification of Directors and Officers--Disclosure of Commission's
Position On Indemnification............................................. 27
</TABLE>
7,402,246 SHARES
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 2,500
The American Stock Exchange Listing Fee........................... 17,500
Subscription Agent's fees and expenses............................ 10,000
Printing fees..................................................... 20,000
Legal fees and expenses........................................... 60,000
Accounting fees and expenses...................................... 50,000
Consulting fees and expenses...................................... 200,000
Blue Sky fees and expenses (including legal fees)................. 5,000
Miscellaneous..................................................... 15,000
TOTAL........................................................... $ 380,000
</TABLE>
The foregoing, except for the Securities and Exchange Commission
registration fee and The American Stock Exchange listing fee are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of Delaware (the "DGCL")
empowers a corporation to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Subsection 145(b) of the DGCL empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under similar standards, except that no indemnification may be
made in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that despite the adjudication of liability such person is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith, and that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled. It empowers the
corporation to purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
II-1
<PAGE>
The Company's certification of incorporation provides that to the fullest
extent permitted by Delaware law, the Company shall indemnify and advance
indemnification expenses to all of its directors and officers. In addition, the
certificate to the fullest extent permitted by Delaware law, of incorporation
provides that a director shall not be liable to the Company or its stockholders
for breach of fiduciary duty as a director.
The Company has entered into indemnification agreements with each director
providing for indemnification to the fullest extent permitted by Delaware law.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- ------ -------------------------------------------------------------------------- ---------------------
<C> <S> <C>
4.1 $2,500,000 Convertible Subordinated Debenture due 2001 issued by the
Company to Physicians Insurance Company of Ohio, Inc., incorporated by
reference to Exhibit 4(b) of the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
4.2 Form of Common Stock Purchase Warrant for 640,000 shares of the Company's
Common Stock issued to PICO Holdings, Inc., incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997.
4.3 Form of First Amendment to Convertible Subordinated Debenture and
Debenture Agreement, for the quarter ended June 30, 1997, incorporated
by reference to Exhibit 10.2 to the Company's Report on Form 10-Q for
the quarter ended June 30, 1997.
4.4 Form of Common Stock Purchase Warrant for 500,000 shares of the Company's
Common Stock issued to PICO Holdings, Inc., incorporated by reference to
Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
4.5 Form of Common Stock Purchase Warrant for 129,032 shares of the Company's
Common Stock issued to PICO Holdings, Inc., incorporated by reference to
Exhibit 4.1 of the Company's Report on Form 10-Q for the quarter ended
September 30, 1997.
4.6 Form of Common Stock Purchase Warrant for 350,000 shares of the Company's
Common Stock issued to Imprimis Investors LLC, incorporated by reference
to Exhibit 4.2 of the Company's Report on Form 10-Q for the quarter
ended September 30, 1997.
4.7 Form of Common Stock Purchase Warrant for 150,000 shares of the Company's
Common Stock issued to Wexford Spectrum Investors LLC, incorporated by
reference to Exhibit 4.3 of the Company's Report on Form 10-Q for the
quarter ended September 30, 1997.
4.8 Form of Common Stock Purchase Warrant for 101,500 shares of the Company's
Common Stock issued to Imprimis Investors LLC, incorporated by reference
to Exhibit 4.4 of the Company's Report on Form 10-Q for the quarter
ended September 30, 1997.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- ------ -------------------------------------------------------------------------- ---------------------
<C> <S> <C>
4.9 Form of Common Stock Purchase Warrant for 43,500 shares of the Company's
Common Stock issued to Wexford Spectrum Investors LLC, incorporated by
reference to Exhibit 4.5 of the Company's Report on Form 10-Q for the
quarter ended September 30, 1997.
4.10 Form of Common Stock Purchase Warrant for 38,500 shares of the Company's
Common Stock issued to Imprimis Investors LLC, incorporated by reference
to Exhibit 4.6 of the Company's Report on Form 10-Q for the quarter
ended September 30, 1997.
4.11 Form of Common Stock Purchase Warrant for 16,500 shares of the Company's
Common Stock issued to Wexford Spectrum Investors LLC, incorporated by
reference to Exhibit 4.7 of the Company's Report on Form 10-Q for the
quarter ended September 30, 1997.
4.12 Form of Common Stock Purchase Warrant for 175,000 shares of the Company's
Common Stock issued to Imprimis Investors LLC, incorporated by reference
to Exhibit 4.8 of the Company's Report on Form 10-Q for the quarter
ended September 30, 1997.
4.13 Form of Common Stock Purchase Warrant for 75,000 shares of the Company's
Common Stock issued to Wexford Spectrum Investors LLC, incorporated by
reference to Exhibit 4.9 of the Company's Report on Form 10-Q for the
quarter ended September 30, 1997.
4.14 Form of Common Stock Purchase Warrant for 35,000 shares of the Company's
Common Stock issued to Imprimis Investors LLC, incorporated by reference
to Exhibit 4.10 of the Company's Report on Form 10-Q for the quarter
ended September 30, 1997.
4.15 Form of Common Stock Purchase Warrant for 15,000 shares of the Company's
Common Stock issued to Wexford Spectrum Investors LLC, incorporated by
reference to Exhibit 4.11 of the Company's Report on Form 10-Q for the
quarter ended September 30, 1997.
5.1 Opinion of Wildman, Harrold, Allen & Dixon
8.1 Opinion of Wildman, Harrold, Allen & Dixon
10.1 Vendor Agreement with the Option Price Reporting Authority, incorporated
by reference to Exhibit 10.4 of the Company's Registration Statement on
Form S-18, Commission File No. 2-90939C.
10.2 Vendor Agreement with the New York Stock Exchange, Inc., incorporated by
reference to Exhibit 10.5 of the Company's Registration Statement on
Form S-18, Commission File No. 2-90939C.
10.3 Vendor Agreement with the National Association of Securities Dealers,
Inc., incorporated by reference to Exhibit 10(d) of Company's Annual
Report on Form 10-K for the year ended December 31, 1989.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- ------ -------------------------------------------------------------------------- ---------------------
<C> <S> <C>
10.4 Amended and Restated PC Quote, Inc. Employees' Combined Incentive and
Non-Statutory Stock Option Plan, incorporated by reference to Appendix E
to Company's Proxy Statement dated July 2, 1987.
10.5 Satellite Service Agreement dated June 12, 1991 between Company and
SpaceCom Systems, Inc. incorporated by reference to Exhibit 10(r) to
Company's Annual Report on Form 10-K for the year ended December 31,
1991.
10.6 Amendment to satellite service agreement dated September 6, 1991 between
Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit
10(s) to Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
10.7 Amendment to point-to-multipoint satellite network service agreement dated
November 22, 1989 between the Company and GTE SpaceNet Satellite
Services Corporation incorporated by reference to Exhibit 10(v) to
Company's Annual Report on Form 10-KSB for the year ended December 31,
1992.
10.8 Amendment to satellite service agreement (exhibit 10(r)) dated October 4,
1993 between Company and SpaceCom Systems, Inc. incorporated by
reference to Exhibit 10(z) to Company's Annual Report on Form 10-KSB for
the year ended December 31, 1993.
10.9 Satellite Service Agreement dated September 15, 1994 between Company and
SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(a) to
Company's Annual Report on Form 10-K for the year ended December 31,
1994.
10.10 Satellite Service Agreement dated October 15, 1993 between Company and
SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(b) to
Company's Annual Report on Form 10-K for the year ended December 31,
1994.
10.11 Lease regarding office space at 300 South Wacker Drive, Chicago, Illinois
dated June 1, 1994, by and between Company and Markborough 300 WJ
Limited Partnership, incorporated by reference to Exhibit 11(e) to
Company's Annual Report on Form 10-SKB for the year ended December 31,
1994.
10.12 Agreement dated November 14, 1996 between the Company and Physicians
Insurance Company of Ohio, Inc. incorporated by reference to Exhibit
10(p) to Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
10.13 Employment agreement dated as of December 2, 1996 between the Company and
Louis J. Morgan incorporated by reference to Exhibit 10(r) to Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
10.14 Form of Loan and Security Agreement dated as of May 5, 1997 between the
Company and PICO Holdings, Inc., incorporated by reference to Exhibit
10.1 to Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- ------ -------------------------------------------------------------------------- ---------------------
<C> <S> <C>
10.15 Form of Promissory Note made by the Company to the order of PICO Holdings,
Inc., incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.16 Form of First Amendment to Loan and Security Agreement, incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
10.17 Form of Second Amendment to Loan and Security Agreement, incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
10.18 Form of Stock And Warrant Purchase Agreement dated as of October 15, 1997
between the Company and Imprimis Investors LLC and Wexford Spectrum
Investors LLC, incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997.
13.1 1996 Annual Report on Form 10K, as amended.
13.2 Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1997
16.1 Letter of McGladrey & Pullen LLP
23.1 Consent of McGladrey & Pullen LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Wildman, Harrold, Allen & Dixon (contained in its opinion filed
as Exhibit 5.1 hereto)
99.1 Form of Rights Certificate and Notice of Exercise
</TABLE>
ITEM 17. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement.
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
II-5
<PAGE>
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each employee to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each employee to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
D. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago, State of Illinois, on November 20, 1997.
<TABLE>
<S> <C> <C>
PC QUOTE, INC.
By: /s/ JIM R. PORTER
-----------------------------------------
Jim R. Porter
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities on November 20, 1997.
SIGNATURE TITLE
- ------------------------------ --------------------------
/s/ JIM R. PORTER
- ------------------------------ Chairman of the Board and
Jim R. Porter Chief Executive Officer
/s/ JOHN E. JUSKA
- ------------------------------ Chief Financial Officer
John E. Juska
/s/ LOUIS J. MORGAN
- ------------------------------ Director
Louis J. Morgan
/s/ RONALD LANGLEY
- ------------------------------ Director
Ronald Langley
/s/ JOHN R. HART
- ------------------------------ Director
John R. Hart
/s/ TIMOTHY K. KRAUSKOPF
- ------------------------------ Director
Timothy K. Krauskopf
/s/ WILLIAM FLOERSCH
- ------------------------------ Director
William Floersch
II-7
<PAGE>
EXHIBIT 5.1
November 19, 1997
PC Quote, Inc.
300 South Wacker Drive
Suite 300
Chicago, IL 60606
Re: Registration Statement on Form S-2
No. 333-39245
Ladies and Gentlemen:
We have acted as counsel to PC Quote, Inc., a Delaware corporation (the
"Company"), in connection with the filing of a Registration Statement on Form
S-2, Registration No. 333-39245 (the "Registration Statement"). The Registration
Statement relates to the (i) proposed issuance of an aggregate of 7,402,246
transferable rights (the "Rights") which will entitle each of the Company's
shareholders as of the record date to purchase one share of the Company's Common
Stock (the "Shares") at a subscription price of $1.00 per share and (ii) a
maximum of 7,402,246 shares of the Company's Common Stock that may be issued
upon a due and proper exercise of the Rights.
We have examined such documents and corporate and other records and such
matter of law as we deemed necessary for the purpose of rendering this opinion,
including the Company's Certificate of Incorporation, as amended, the Company's
By-Laws, the Registration Statement pursuant to which the Rights and the Shares
are to be registered under the Securities Act of 1933, as amended (the "Act"),
and records of corporate proceedings.
Based upon the foregoing, it is our opinion that the Rights, upon issuance
by the Company, and up to 7,402,246 Shares when sold and delivered against due
and proper execution of the Rights Subscription Certificate and payment in full
of the subscription price by a stockholder of the Company as of the record date
for the Rights Offering will be duly authorized, validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. We also consent to the reference to our
firm under the caption "Legal Matters" in the Registration Statement. In giving
this consent, we do not thereby admit that we are included in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
WILDMAN, HARROLD, ALLEN & DIXON
<PAGE>
EXHIBIT 8.1
November 19, 1997
The Board of Directors
PC Quote, Inc.
300 South Wacker Drive
Chicago, Illinois 60606
RE: PC Quote, Inc.--Form S-2 Registration Statement No. 333-39245 (the
"Prospectus")
Gentlemen:
We have acted as counsel to PC Quote, Inc., a Delaware corporation (the
"Corporation") in connection with the distribution by the Corporation to holders
of record of its Common Stock, $.001 par value per share (the "Common Stock"),
other than Imprimis Investors LLC and Wexford Spectrum Investors LLC, of
transferable subscription rights (the "Rights") to purchase shares of Common
Stock of the Corporation at a price of $1.00 per share, as set forth in the
Prospectus.
In connection with this opinion, we have examined the Prospectus and the
originals or copies, certified or otherwise identified to our satisfaction, of
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinion set forth herein.
In rendering our opinion, we have participated in the preparation of the
Prospectus. Our opinion is conditioned on, among other things, the initial and
continuing accuracy of the facts, information, covenants and representations set
forth in the documents referred to above. In our examination, we have assumed
the genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such documents.
In rendering our opinion, we have considered the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated
thereunder, judicial decisions and Internal Revenue Service rulings, all as in
effect on the date hereof and all of which are subject to change, which changes
may be retroactively applied. A change in the authorities upon which our opinion
is based could affect our conclusions. In addition, there can be no assurances
that any of the opinions expressed herein will be accepted by the Internal
Revenue Service or, if challenged, by a court.
Based upon and subject to the foregoing, we are of the opinion that although
the discussion set forth in the Prospectus under the heading "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" does not purport to discuss all possible United States
federal income tax consequences of the acquisition, purchase, ownership and
disposition of the Rights, such discussion constitutes, in all material
respects, a fair and accurate discussion of the material United States federal
income tax consequences to the holders of Common Stock of the receipt of Rights
in the distribution and to the holders of Rights upon the exercise and
disposition of the Rights.
Except as set forth above, we express no opinion to any person as to the tax
consequences whether federal, state, local or foreign, of the distribution,
exercise and disposition of the Rights. This opinion is furnished to you solely
for your benefit in connection with the transaction contemplated by the
Prospectus and is not to be used, circulated, quoted or otherwise referred to
for any other purpose or relied upon by any other person without our prior
written consent. We disclaim any undertaking to advise you of any subsequent
changes of the facts or assumed herein or any subsequent changes in applicable
law.
Very truly yours,
WILDMAN, HARROLD, ALLEN & DIXON
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-13093
PC QUOTE, INC.
Incorporated in the State of Delaware FEIN 36-3131704
Principal Executive Offices:
300 South Wacker Drive, #300, Chicago, Illinois 60606
Telephone Number: (312) 913-2800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par Value
Indicate by check mark whether the registrant (1) has filed all reports 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
As of March 17, 1997, the aggregate market value of the Common Stock of the
Registrant (based upon the closing price of the Common Stock as reported by the
American Stock Exchange) on such date held by non-affiliates of the Registrant
was approximately $12,853,094.
Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes X No
As of March 17, 1997, there were 7,412,849 shares of Common Stock of the
Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: See Page 3
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Annual Meeting of Stockholders to be held in
June 1997 are incorporated by reference into Part III hereof.
2
<PAGE>
PART OF FORM 10-K DOCUMENT
PART I None
PART II None
PART III
ITEM 10 Directors, Executive Officers, Company's Proxy Statement
Promoters and Control Persons; to be filed in connection with
Compliance with Section 16(a) its Annual Meeting of
of the Exchange Act Stockholders
ITEM 11 Executive Compensation Company's Proxy Statement
to be filed in connection with
its Annual Meeting of
Stockholders
ITEM 12 Security Ownership of Company's Proxy Statement
Certain Beneficial Owners to be filed in connection with
and Management its Annual Meeting of
Stockholders
ITEM 13 Certain Relationships and Company's Proxy Statement
Related Transactions to be filed in connection with
its Annual Meeting of
Stockholders
PART IV
ITEM 14 Exhibits and Reports Exhibits as specified in Item
on Form 8-K 14 of this Report
3
<PAGE>
PC QUOTE, INC.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
PC Quote, Inc. (the "Company" or the "Registrant") was incorporated in the State
of Illinois on June 23, 1980 as On-Line Response, Inc. and was incorporated in
Delaware on August 12, 1987. The Company provides real-time and delayed
securities quotations and news to professional and consumer markets worldwide.
Professional clients include brokerage firms, banks, insurance companies, fund
managers, institutional and professional traders. The Company's "web site"
offers non fee delayed quotes to all visitors and real time subscription market
data services to fee based subscribers.
PRODUCTS AND SERVICES
The Company's executive offices are located in Chicago, Illinois. The Company
also maintains sales offices in New York, San Diego, Dallas and Chicago.
GENERAL
The Company maintains a real-time database of last sale and bid/ask prices of
more than 225,000 issues, including stocks, major stock indices, options on
stocks and indices, Level 1 NASDAQ-quoted stocks, Level 2 NASDAQ market maker
quotes, mutual funds, money market funds, futures contracts and options on
futures contracts, traded on all U.S. stock, option and commodity exchanges.
Also covered are exchange-traded issues from 36 other countries in Europe and
Asia. The Company creates its database by gathering ticker and news feeds from
stock exchanges and other sources and processing such information into a single
data feed. The Company's primary processing plant is located in its executive
offices in Chicago, Illinois.
PC Quote software applications, running on the customer's computer, process
the data stream to allow the user to monitor securities on an on-going
real-time basis. They also create in the user's computer a complete database
of trading symbols, continuously updated by the data stream. This database
gives the user instant access to security prices.
The following is a description of the principal products and services marketed
by Company.
4
<PAGE>
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
HYPERFEED-TM-
HyperFeed is the Registrant's digital real-time market data feed. It is
broadcast at 112,000 bits per second and covers over 250,000 issues traded on
145 exchanges in 55 countries. HyperFeed also carries:
- Dynamic Nasdaq Level II market maker quotes
- Dow Jones Composite News Service (up to 90-day retrieval of ninewires
"Broadtape," Professional Investor Report, Capital Markets Report,
International NewsWire, World Equities Report, European Corporate
Report, Electronic Wall St. Journal, International Petroleum Reports,
Federal Filings)
- Multiple levels of fundamental data
- Fixed income pricing
- Other types of fixed and dynamic financial data
HyperFeed underlies all of the Registrant's other products and services,
which basically function to access, view and utilize HyperFeed data in
different ways. To produce and transmit HyperFeed, PC Quote uses multiple
redundant, high speed data circuits to gather ticker and news feeds from
securities exchanges and other sources. The Sonet rings were introduced into
three markets in 1996, which allows for 1,024,000 bps at shared communication
rates that are lower than a standalone T-1 delivery. At the Registrant's
production centers in Chicago and St. Louis, these feeds are directed into
multiple redundant dynamic real-time databases from which HyperFeed is
generated. The Registrant also generates other data feeds which are
broadcast at 56,000 bps or 19,200 bps. These feeds, which are available at
lower monthly costs, carry portions of the universe of data found on
HyperFeed. They are not currently marketed by the Registrant, but are
maintained for customers who began using them before HyperFeed became
available in 1990.
HyperFeed is transmitted to customer sites by Spacecom Systems FM3 satellite
communications network, or by dedicated digital data circuits. At the customer
site HyperFeed is received by a QuoteServer, an industry standard PC which
creates and maintains data bases of real-time, news and fundamental information.
The QuoteServer can reside on a local area network, where the data it maintains
is accessible to software applications running on workstations on the network,
or it can function as a stand-alone unit, in which case its data is available to
software applications running on the QuoteServer itself. In both instances the
software applications accessing the data may be supplied
5
<PAGE>
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
by the Registrant, by third parties, or by the customer itself.
Software supplied by third parties or customers utilize the Registrant's
high-performance application program interfaces to access the QuoteServer's
data. In this way the QuoteServer can supply data for virtually any purpose,
including proprietary order execution systems, analytical modeling, internal
risk management, order matching, or redistribution by on-line systems and
wide area networks. Third party developers and customers using the
application program interfaces for their own development pay a monthly fee
for the interfaces, in addition to monthly HyperFeed fees. Customers using
an application developed and marketed by a third party for use with HyperFeed
do not pay for the interfaces; they pay only for HyperFeed itself.
The Registrant also maintains QuoteServers that reside on the Internet. These
QuoteServers function just like any other QuoteServers, supporting applications
developed by the Registrant, or by third parties or customers using
Internet-enabled versions of the Registrant's application program interfaces.
In this way the Registrant and its customers are able to benefit
from the Internet's substantially lower costs for service, communications and
startup, its ease of access, and its worldwide availability.
SOFTWARE APPLICATIONS AND SERVICES MARKETED BY REGISTRANT
PC Quote 6.0 for Windows is a comprehensive suite of real-time professional
trading tools. Running under Microsoft -TM- Windows -TM- 3.1 or Windows -TM-
95, or Windows NT -TM-, PC Quote 6.0 offers unlimited quote pages, charting,
technical analysis, searchable news, time of sale and quote, Nasdaq Level II
market maker screens, dynamic data exchange into Microsoft-TM- Excel-TM-
tickets, alerts, baskets and more.
PC Quote 6.0 can be fed by QuoteServers on the customer's local area network or
on the Internet. Monthly fees for Internet service are lower than fees for
local area network service; this makes PC Quote 6.0 more affordable around the
world for individual investors and affords a wider range of the professional
marketplace.
MarketSmart is a consumer-level, non-professional service that is available on
the Internet's World Wide Web. Using leading World Wide Web "browsers" such as
Netscape Navigator-TM- and Microsoft Internet Explorer -TM-, subscribers log
in to Registrant-maintained "sites" on the Web to get unlimited real-time or
20-minute delayed quotes, charts, portfolio services, option pages, fund pages
and other pages of market information. Unlike PC Quote 6.0, these pages are
not dynamic; they present static snapshots of data, but can be refreshed
manually at any time and as often as the subscriber wishes. Data is currently
limited to U.S. and Canadian exchanges, although subscribers may be from any
country.
6
<PAGE>
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
PC Quote for DOS and OS/2 displays the full range of HyperFeed data, including
news and fixed income data, in a variety of colorful, easy to use displays and
windows. The OS/2 version also displays dynamic Nasdaq Level II market maker
quotes.
Market Data Controls do not display information, but rather represent
application program interfaces that allow a Microsoft-TM- and Visual
Basic-TM-developer to write custom applications which include real-time market
data and related fundamental information. The Registrant recently released
Internet-enabled versions of the Market Data Controls, and plans to use its
World Wide Web site to market applications developed with the Controls.
PriceWare utilizes PC Quote's satellite communications and information
processing technology augmented by wide area networking capabilities to deliver
portfolio pricing services. This technology distinguishes PriceWare from other
pricing services, which utilize magnetic tapes or CPU to CPU transfer via land
lines. It enables PriceWare to furnish prices on demand,
with little incremental charge for frequent use.
A number of third party applications and services are also comarketed by the
Registrant. These include FirstAlert-- charting and technical analysis
FirstAlert-- software developed by Roberts-Slade, Inc., Market Guide fundamental
Slade, Inc., databases, S&P Electronic Stock Guide, Comtex News and Dow Jones
News.
In July of 1995, the Company established an internet web site offering free
delayed quotes and other information to all visitors. During 1996 PC Quote
began to sell advertising on its web site, provide market information for other
web sites, offer development tools for internet-based applications, and form
strategic relationships with other major internet players. The Company's
expanded web site now offers, in addition to links to unlimited free delayed
quote information, subscription fee real-time quote information, corporate
profiles and press releases, information about PC Quote's products and services
and paths for learning about and signing up for subscription services available
on the site.
The Company's primary Internet Services include MarketSmart and PC Quote 6.0 for
Windows ("Internet-based PC Quote 6.0") . MarketSmart, which was introduced in
1995, offers non-professional investors internet access to a range of quote
viewing options. Internet-based PC Quote 6.0 is identical to the Company's PC
QUOTE 6.0 for professional investors. Internet-based PC Quote provides data
powered by HyperFeed such as unlimited quote pages, news, charts, technical
analysis and time of sale quotes among other products.
Additionally, starting January 1997, queries to its web site are being shipped
with Microsoft Excel 97 as the in the box' implementation of Microsoft Excel's
new interactive Web Query technology.
7
<PAGE>
PART I ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
In addition to its own Web site the Company makes its data available to those
accessing the Internet via on-line service providers through redistribution
agreements with Microsoft Network. CompuServe Information Service, CompuServe.
AT&T Interchange/Business Net, the Chicago Sun-Times, Apple e-word, and
Newscorp/MCI Ventures. Redistribution agreements are essentially wholesaling
arrangements whereby other organizations resell the Company's data to their
customers. Redistributors differ from the Company's web site service in that
redistributors have the Company's QuoteServer(s) at their operations center and
the redistributor becomes responsible for end-user billing.
PC Quote realizes revenue from its Internet Services through subscription
fees derived from real-time quotes, as well as from the sale of advertising
on the free quote pages and MarketSmart.
PATENTS, TRADEMARKS AND LICENSES
The Company does not have patent or federal copyright protection for its
proprietary software products. Although applicable software is readily
duplicated illegally by anyone having access to appropriate hardware, the
Company attempts to protect its proprietary software through license agreements
with customers and common law trade secret protection and non-disclosure
contract provisions in its agreements with its employees. The Company uses
security measures, including a hardware key, which restrict access to its
on-line services unless proper password identification from a PC Quote user is
provided. As an additional safeguard, the Company provides only the object code
on its diskette and retains the source code.
The following products are registered trademarks: BasketMaker-Registered
Trademark-, QuoteLan-Registered Trademark-, QuoteWare-Registered Trademark-,
PriceWare-Registered Trademark- and QuoteBlaster-Registered Trademark-. The
HyperFeed -TM- product is a servicemark of the Company.
COMPETITION
There are numerous companies that provide on-line securities quotations or
similar services and software programs that the Company currently provides to
the professional and consumer markets. Many of these companies are
substantially larger and have substantially greater assets than Company and
possess substantially greater financial, technological and personnel resources
than Company.
8
<PAGE>
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
SEASONALITY
The Company has not experienced any material seasonal fluctuations in its
business. Barring any prolonged period of investor inactivity in trading
securities, the Company does not believe that seasonality is material to its
business activities.
RESEARCH AND DEVELOPMENT
The Company's system and programming employees expend their time and effort
developing new software programs and expanding or enhancing existing ones.
Development efforts focus on providing a solution to the informational and
analytical needs of both the professional and private investors. Development
activity has increased with the implementation of high level design and
prototyping tools. The Company's continuing investment in software
development consists primarily of enhancements for existing products and new
technology relative to its Internet quote and data products and Windows based
and network products. During the fiscal years ended December 31, 1996, 1995
and 1994, the Company expensed $706,618, $558,671 and $667,831, respectively,
for research and development. See "Management Discussion and Analysis."
ENVIRONMENT
Compliance with federal, state, and local provisions with respect to the
environment has not had a material adverse effect on the Company's capital
expenditures, earnings, or competitive position.
EMPLOYEES
As of December 31, 1996, the Company employed 104 employees, none of whom are
represented by a collective bargaining unit. The Company believes it has a
satisfactory relationship with its employees. From time to time the Company
retains the services of outside consultants on an hourly basis.
GOVERNMENT CONTRACTS
The Company has no material contracts with the Government.
BACKLOGS
Due to the nature of the business, backlogs are not a typical occurrence in the
industry.
MAJOR CUSTOMERS
For information concerning the Company's major customers, see the discussion
in the section of this report entitled "Management's Discussion and Analysis".
9
<PAGE>
ITEM 2. PROPERTIES
The Company's executive offices and data center are located in approximately
15,500 square feet of leased space on the 3rd floor of 300 South Wacker Drive,
Chicago, Illinois. On September 1, 1994 a new lease was entered into for the
Chicago offices, commencing on September 1, 1994 and expiring on December 31,
2004. Lease payments are subject to escalating base rent as well as adjustment
for changes in real estate taxes and other operating expenses. (See Note 5 of
Notes to Financial Statements.)
The Company also leases approximately 5,000 square feet of office space in
Aurora, Illinois, through March 2000, 3,000 square feet of office space in New
York City through May 1997, and a single office in San Diego, California through
June 1997. ( See Note 5 of Notes to Financial Statements.)
ITEM 3. LEGAL PROCEEDINGS
Richard F. Chappetto, a former officer of the Company, filed a complaint
against the Company on December 31, 1996. The action entitled RICHARD F.
CAPPETTO VS. P.C. QUOTE, INC., was filed in the Circuit Court of Cook County,
Illinois bearing Case No. 96L015250, Mr. Chappetto's employment with the
Company ceased on November 1, 1996. Mr. Chappetto's complaint alleges that
the Company breached various verbal and written agreements by failing to pay
certain commission, bonuses and severance pay and failing to provide him with
certain stock options. Mr. Chappetto seeks monetary damages of approximately
$680,000. The Company has filed a Motion to Dismiss a major portion of the
complaint and is vigorously contesting the matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders, through the solicitation of
proxies or otherwise, during the fourth quarter of the fiscal year ended
December 31, 1996.
10
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following tables show for 1996 the high and low closing prices of the
Company's Common Stock for the periods indicated, as reported by the American
Stock Exchange. The following table shows for 1995 the representative high and
low bid prices of the Company's Common Stock for the periods indicated as
reported by National Quotation Bureau Inc.
TRADE
-----
1996 QUARTERLY INFORMATION HIGH LOW
- -------------------------- ---- ---
First 16 8-3/8
Second 14-1/8 6-3/4
Third 8 3-7/8
Fourth 5-1/2 2-1/4
1995 QUARTERLY INFORMATION
- --------------------------
First 1-3/4 1-1/16
Second 1-3/4 1-1/16
Third 8-1/2 1-7/8
Fourth 27-1/2 6-1/4
As of December 31, 1996, Company had 378 stockholders of record of its Common
Stock.
DIVIDEND POLICY
Company has not paid dividends on its Common Stock and it does not presently
anticipate making any such payments in the near future.
11
<PAGE>
PART II - ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------------------------------------------------------------------------------
INCOME DATA:
<S> <C> <C> <C> <C> <C>
Net Sales $ 17,032,164 $ 13,391,982 $ 12,903,645 $ 12,205,916 $10,950,769
Gross profit $ 5,908,644 $ 7,700,031 $ 6,496,441 $ 5,860,869 $ 5,323,688
Income (loss) before income taxes $ (3,091,705) $ 1,376,597 $ 312,410 $ 211,055 $ 118,087
Net income (loss) $ (3,255,969) $ 1,512,239 $ 305,410 $ 185,407 $ 118,087
BALANCE SHEET DATA:
Total assets $ 11,554,070 $ 10,522,840 $ 9,071,731 $ 8,226,053 $ 7,312,733
Debt, long term $ 2,084,636 $ 487,367 $ 1,053,457 $ 1,242,783 $ 1,038,463
Shareholders' equity $ 5,331,577 $ 6,611,278 $ 4,830,369 $ 4,427,444 $ 4,243,131
PER SHARE DATA:
Net Income (loss) $ (0.45) $ 0.21 $ 0.04 $ 0.03 $ 0.017
Weighted average shares outstanding 7,248,000 7,263,000 6,966,000 7,103,000 $ 6,864,830
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
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 include the Company's ability to (i)
obtain adequate financing to fund its current and future business strategies,
(ii) attract and retain its key employees, (iii) compete successfully against
competitive products and services and (iv) the effect of economic and
business conditions generally.
RESULTS OF OPERATIONS FOR 1996 COMPARED TO 1995
Service revenue increased 27% to $17,032,164 in 1996 from $13,391,982 in
1995. The increase in service revenue continues from the release of a new
product in December 1995, PC Quote for Windows 6.0 in the Company's core and
internet business. Net income decreased 315% to a loss ($3,255,969) in 1996
from $1,512,239 in 1995. The loss was due to significantly higher costs
(Direct and Overhead departments) and Research and Development relative to
revenue increases in the traditional business.
Direct cost of services increased approximately 95% to $11,123,520 in 1996
from $5,691,951 in 1995. This primarily reflects an increase in staffing
levels in customer support and operations and royalty and communications
costs related to the increase in volume in the core business. Additional
technological infrastructure costs, principally, staffing, equipment and
communications, were incurred in scaling up the core business and the
internet operations for anticipated revenues which were not fully realized.
12
<PAGE>
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, RESULTS OF OPERATIONS FOR 1996 COMPARED TO 1995,
CONTINUED
Research and Development expenses increased approximately 26% to $706,618 in
1996 from $558,671 in 1995. The increase in research costs is related
primarily to internet based projects.
Sales and marketing costs increased 36% to $3,078,384 in 1996 from $2,267,798 in
1995. The increase was due to the increase in commissions costs relating to the
increase in service revenues and higher commission rate.
General and administrative costs increased 61% to $3,836,950 in 1996 from
$2,384,336 in 1995. The main increases were in salaries and related costs
due to additional staffing and reallocation of personnel to support major
business opportunities. There was also an increase in the bad debt expense
and shareholders services compared to 1995.
Interest income decreased 56% to $9,743 in 1996 from $22,037 in 1995. Interest
income decreased due to the Company's use of cash over credit for some equipment
needs.
Interest expense decreased 30% to $143,618 in 1996 from $205,435 in 1995. The
decrease was primarily due to a decrease in the amount of outstanding capital
lease indebtedness and a change in the use of capital leases to operating leases
for financing customer server equipment.
RESULTS OF OPERATIONS FOR 1995 COMPARED TO 1994
Service revenue in 1995 increased 4% to $13,391,982 from $12,903,645 in 1994.
This increase was due to the continuing success of the Company's core product
line PC Quote for Windows 5.0 and the introduction of PC Quote for Windows 6.0
during the fourth quarter. Net income in 1995 increased 395% to $1,512,239 from
$305,410 in 1994. The increase in net income was due to increased revenues,
continued cost controls which began with the reorganiztion in 1994, an income
tax credit of $135,642, and the increase in capitalization as the Company moved
to finish new products for release in early 1996.
Direct cost of service decreased approximately 11% to $5,691,951 in 1995 from
$6,407,204 in 1994. The decrease was due to the overall decrease in costs
mainly related to the reallocation of resources into developmental capitalized
costs.
Research and Development expenses decreased approximately 16% to $558,671 in
1995 from $667,831 in 1994. The Development Department has facilitated the
development of new products for the Internet through the use of developmental
productivity tools lowering the design phase and time to market. This effort
has lead to the inroduction of the MarketSmart product
13
<PAGE>
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, RESULTS OF OPERATIONS FOR 1995 COMPARED TO 1994,
CONTINUED
offering and other Internet based services for 1996. The Company has continued
to control R&D expenses.
Sales and marketing cost decreased 3% to $2,267,798 in 1995 from $2,341,529
in 1994. Sales costs have decreased during this period due to restructuring
of compensation plans for the sales people and a reduction in the amount of
advertising used in 1995. Sales have increased due to focusing on sales into
niche markets such as firms interested in trading NASDAQ Level II securities.
The fourth quarter also saw sales of the Company's new product PC Quote
Windows 6.0 increase over the previous quarters.
General and administrative costs increased 43% to $2,384,336 in 1995 from
$1,672,052 in 1994. The increases were due to higher equipment rental costs,
related to the switch from capital leases to operating leases, increased one
time consulting fees and exchange fees relating to move from the Emerging Market
section of the American Stock Exchange to that of a fully listed AMEX Company.
Compensation incurred in the establishment of the PC Quote Internet service.
Interest expense decreased 21% to $205,435 in 1995 from $257,240 in 1994. The
decrease was primarily due to a decrease in the amount of outstanding capital
lease indebtedness and a change in the use of capital leases to operating leases
for financing customer server equipment.
LIQUIDITY AND CAPITAL RESOURCES
While the Company continued to generate positive cash flow from operating
activities it decreased $3,142,271 from the prior year. Additional
investments in equipment were $914,898 for the year ended December 31, 1996,
versus $668,178 for the year ended December 31, 1995. These investments in
equipment were necessary to take advantage of new technology. New equipment
was also required to support the increased number of servers provided by the
Company to new and expanding clients. New technology has provided for faster
processing of the PC Quote's HyperFeed and better performance for the end
users. Approximately 95% of the equipment investments were financed with
operating leases in 1996 as compared to 60% in 1995. The cost of equipment
leased under operating leases in 1996 was approximately $4,076,000.
14
<PAGE>
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
In August 1996 the Company entered into an agreement with its lender providing
for a $1,500,000 term loan, bearing interest at the lender's prime rate.
Advances under the credit facility are secured by substantially all of the
Company's assets. (See Note 2 of Notes to Financial Statements.)
In November 1996, the Company entered into an agreement with a 30% stockholder
to issue $2,500,000 of subordinated convertible bonds due December 31, 2001.
The document also contains an agreement for the related party to underwrite a
stock rights offering by the Company to all stockholders (excluding the 30%
related party) of 1,250,000 shares at $2 per share. (See Note 2 of Notes to
Financial Statements).
Due to the decline in cash flow from Operating Activities, to levels expected
to be insufficient for Working Capital, Capital Expenditures, and Debt
Services, in February 1997, the Company hired a financial consultant to
explore strategic alternatives to raise capital. Such a transaction might
include a merger, a sale of substantially all or part of the Company's
assets, a strategic relationship or joint venture with another technology or
financial service firm. By securing additional capital, management believes
that operations will generate sufficient cash to meet all capital
requirements, there can be no assurance that such level of operations will be
achieved in the near term. In addition, any funds raised may be costly to the
Company and/or dilutive to stockholders. 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. (See Note 14 in
Notes to Financial Statements).
GLOBAL FINANCIAL SERVICES (FORMERLY BRIDGE INFORMATION SYSTEMS, INC.) AGREEMENT
The Company entered into an agreement with Global Financial Services,
(formerly Bridge Information Systems) ("Global") on January 25, 1995, whereby
the Company would provide domestic data to Global for $2,100,000 (1996) and
$450,000 through March 31, 1997. For the remainder of the contract term,
amounts will be charged on a per-site basis at December 31, 1996. In
September 1996, the Company agreed to accelerate the termination date of the
fixed fee portion of this agreement to January 1, 1997. (See Note 7 in the
Notes to Financial Statements)
On July 6, 1995, Global divested 100% of its holdings of PC Quote, Inc. in a
private sale to an unrelated party. (See Note 7 in Notes to Financial
Statements)
MAJOR CUSTOMER
In December 1996, the Company discontinued providing services to Charles
Schwab and Company that accounted for net revenues of approximately
$1,693,000, $557,000, $591,000, in 1996,1995, and 1994, respectively.
For the fiscal year ending December 31, 1996, 1995, and 1994, Global
accounted for revenues approximately of $3,414,000, $3,920,000, and
$3,555,000, respectively.
SEGMENT INFORMATION
Information regarding segment information is incorporated herein by reference to
Note 12 of Notes to the Financial Statements, which appears elsewhere in this
report.
15
<PAGE>
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
OTHER
The Company believes general inflation does not materially impact its sales
and operating results nor is it expected that the effect of current tax
legislation will significantly affect its future financial position,
liquidity or operating results. The Company has net operating loss
carryforwards for federal income tax purposes of approximately $12,018,000
(and $3,600 for alternative minimum tax) which, if not previously utilized,
will expire during the years 1999 through 2011. (See Note 4 of Notes to
Financial Statements)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
Pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, the
information called for by this Item is incorporated herein by reference to the
"Index of Financial Statements", which appears elsewhere in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
There have been no changes or disagreements with accountants that would
require disclosure.
16
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information concerning directors and executive officers of the Company will be
set forth in the Company's proxy statement to be used in connection with its
June 1997 annual meeting of stockholders, which proxy statement will be filed
with the Commission within 120 days after the end of the Company's last fiscal
year, and such information is herein incorporated by reference
thereto.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation will be set forth in Company's
proxy statement to be used in connection with its June 1997 annual meeting of
stockholders, which proxy statement will be filed with the Commission within 120
days after the end of Company's last fiscal year and such information is herein
incorporated by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management will be set forth in Company's proxy statement to be used in
connection with its June 1997 annual meeting of stockholders. The proxy
statement will be filed with the Commission within 120 days after the end of
Company's last fiscal year and such information is herein incorporated by
reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relations and related transactions will be set
forth in Company's proxy statement to be used in connection with its June 1997
annual meeting of stockholders. The proxy statement will be filed with the
Commission within 120 days after the end of Company's last fiscal year, and such
information is herein incorporated by reference thereto.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements of the Company filed herewith are included in Item 8 of
this Report.
2. Financial Statement Schedules
The financial statement schedule for the valuation and qualifying accounts is
included in Item 8 of this report.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the last quarter of the
period covered by this Report.
(c) EXHIBITS
3(a) Articles of Incorporation of Company, incorporated by reference to
Appendix B of Company's Proxy Statement dated July 2, 1987.
3(b) By-laws of the Company, as amended and restated, incorporated by
reference to Exhibit 3(b) to Company's Annual Report on Form 10-K for
the year ended December 31, 1987.
4(a) Specimen Common Share Certificate of the Company, incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement on
Form S-18, Commission File No. 2-90939C.
4(b) $2,500,000 Convertible Subordinated Debenture due 2001 issued by the
Company to Physicians Insurance Company of Ohio, Inc., located after
the Financial Statements of this report.
10(a) Vendor Agreement with the Option Price Reporting Authority,
incorporated by reference to Exhibit 10.4 of Company's Registration
Statement on Form S-18, Commission File No. 2-90939C.
10(b) Vendor Agreement with the New York Stock Exchange, Inc.,
incorporated by reference to Exhibit 10.5 of Company's Registration
Statement on Form S-18, Commission File No. 2-90939C.
10(c) Vendor Agreements with the National Association of Securities
Dealers, Inc. incorporated by reference to Exhibit 10(d) of Company's
Annual Report on Form 10-K for the year ended December 31, 1989.
10(d) Form of Employee Non-Disclosure Agreement, incorporated by
reference to Exhibit 10.10 of Company's Registration Statement on Form
S-18, Commission File No. 2-90939C.
10(e) Amended and Restated PC Quote, Inc. Employees' Combined Incentive
and Non-Statutory Stock Option Plan, incorporated by reference to
18
<PAGE>
PART IV - ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
Appendix E to Company's Proxy Statement dated July 2, 1987.
10(f) Lease regarding office space at 50 Broadway, New York City, dated
January 31, 1987, as amended by First Amendatory Agreement dated
May 18, 1987, by and between Company and 50 Broadway Joint Venture,
incorporated by reference to Exhibit 10(y) to Company's Annual Report
on Form 10-K for the year ended December 31, 1987.
10(g) Satellite Service Agreement dated June 12, 1991 between Company
and SpaceCom Systems, Inc. incorporated by reference to Exhibit 10(r)
to Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
10(h) Amendment to satellite service agreement dated September 6, 1991
between Company and SpaceCom Systems, Inc. incorporated by reference
to Exhibit 10(s) to Company's Annual Report on Form 10-K for the year
ended December 31, 1991,
10(i) Amendment to point-to-multipoint satellite network service
agreement dated November 22, 1989 between Company and GTE SpaceNet
Satellite Services Corporation incorporated by reference to
Exhibit 10(v) to Company's Annual Report on Form 10-KSB for the year
ended December 31, 1992.
10(j) Amendment to satellite service agreement (exhibit 10(r)) dated
October 4, 1993 between Company and SpaceCom Systems, Inc.
incorporated by reference to Exhibit 10(z) to Company's Annual Report
on Form 10-KSB for the year ended December 31, 1993.
10(k) Satellite Service Agreement dated September 15, 1994 between
Company and SpaceCom Systems, Inc. incorporated by reference to
Exhibit 11(a) to Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
10(l) Satellite Service Agreement dated October 15, 1993 between
Company and SpaceCom Systems, Inc. incorporated by reference to
Exhibit 11(b) to Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
19
<PAGE>
PART IV - ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
10(m) Satellite Service Agreement dated June 1, 1993 between Company and
SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(b)
to Company's Annual Report on Form 10-K for the year ended December
31, 1994.
10(n) Vendor Agreement with Global Information Systems Inc. incorporated
by reference to Exhibit 11(d) of Company's Annual Report on Form
10-K for the year ended December 31, 1994.
10(o) Lease regarding office space at 300 South Wacker Drive, Chicago,
Illinois dated June 1, 1994, by and between Company and Markborough
300 WJ Limited Partnership, incorporated by reference to Exhibit
11(e) to Company's Annual Report on Form 10-SKB for the year ended
December 31, 1994.
10(p) Agreement dated November 14, 1996 between the Company and
Physicians Insurance Company of Ohio, Inc. located after the
Financial Statements of this report.
10(q) Employment agreement dated July 16, 1996 between the Company and
Howard Meltzer, located after the Financial Statements of
this report.
10(r) Employment agreement dated as of December 2, 1996 between the
Company and Louis J. Morgan located after the Financial Statements
of this report.
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PC QUOTE, INC.
By:
/s/ LOUIS J. MORGAN
- --------------------------------------------------
Louis J. Morgan, Chairman
By:
/s/ HOWARD MELTZER
- -------------------------------------------------
Howard Meltzer President and Chief Operating Officer
By:
/s/ MICHAEL PRESS
- --------------------------------------------------------
Michael Press Vice President, Finance, Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ LOUIS J. MORGAN
- ---------------------------------------------
Louis J. Morgan, Director
March 31, 1997
/s/ RONALD LANGLEY
- ----------------------------------------
Ronald Langley, Director
March 31, 1997
/s/ PAUL DIBIASIO
- ----------------------------------------
Paul DiBiasio, Director
March 31, 1997
21
<PAGE>
C O N T E N T S
- ---------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORTS F1-2
- ---------------------------------------------------------------
FINANCIAL STATEMENTS
Balance sheets F3-4
Statements of operations F-5
Statements of stockholders equity F-6
Statements of cash flows F7-8
Notes to financial statements F9-19
Auditors Opinion on Schedule II F-20
Supplemental Schedule II F-21
- ---------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PC Quote, Inc.
Chicago, Illinois
We have audited the accompanying balance sheets of PC Quote, Inc. as of December
31, 1996 and 1995, and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PC Quote, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that PC
Quote, Inc. will continue as a going concern. As more fully described in
Note 13, the Company has experienced significant operating losses, which has
adversely affected the Company's current results of operations and liquidity.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note 14. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ McGladrey & Pullen, LLP
Schaumburg, Illinois
March 7, 1997
F-1
<PAGE>
PC QUOTE, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of PC Quote, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of PC Quote, Inc. for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion to these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
/s/ Cooper & Lybrand LLP
Chicago, Illinois
March 17, 1995
F-2
<PAGE>
PC QUOTE, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
- --------------------------------------------------------------------------------
Current Assets
Cash $ 1,321,512 $ 1,043,478
Accounts receivable, less allowance for
doubtful accounts
1996 $234,000; 1995 $95,000 1,100,253 1,320,508
Income tax refunds receivable 40,000 40,000
Prepaid expenses and other current assets 185,071 294,536
Deferred tax asset - 158,000
---------------------------
TOTAL CURRENT ASSETS 2,646,836 2,856,522
---------------------------
Property and Equipment
Satellite receiving equipment 865,454 785,718
Computer equipment 6,382,179 6,158,855
Communication equipment 2,656,057 2,437,279
Furniture and fixtures 293,240 256,260
Leasehold improvements 359,126 340,271
---------------------------
10,556,056 9,978,383
Less accumulated depreciation and amortization 7,791,849 6,759,973
---------------------------
2,764,207 3,218,410
---------------------------
Software Development Costs, net of accumulated
amortization 1996 $3,600,204; 1995 $3,088,146 5,789,845 4,172,215
---------------------------
Deposits and Other Assets 353,182 275,693
---------------------------
TOTAL ASSETS $ 11,554,070 $ 10,522,840
---------------------------
---------------------------
See Notes to Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Note payable, bank, current $ 300,000 $ 100,000
Capital lease obligations, current 142,685 587,731
Accounts payable 1,774,390 1,616,404
Accrued expenses 918,918 573,191
Income taxes payable 6,264 -
Unearned revenue 995,600 546,869
-----------------------------
TOTAL CURRENT LIABILITIES 4,137,857 3,424,195
-----------------------------
Note Payable, Bank, noncurrent 1,100,000 100,000
-----------------------------
Convertible subordinated debenture bond payable, net
of unamortized discount of $1,650,000 850,000 -
-----------------------------
Capital Lease Obligations, noncurrent - 133,176
-----------------------------
Unearned Revenue 134,636 254,191
-----------------------------
Stockholders' Equity
Common stock, $.001 par value;authorized 10,000,000 shares;
issued and outstanding 1996 7,355,621; 1995 7,185,732 7,356 7,186
Additional paid-in capital 12,615,995 12,289,897
Additional paid-in capital - convertible subordinated debenture 1,650,000 -
Accumulated deficit (8,941,774) (5,685,805)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 5,331,577 6,611,278
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,554,070 $10,522,840
-----------------------------
-----------------------------
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
PC QUOTE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues:
Services $ 17,032,164 $ 11,417,388 $ 9,548,971
Services - related party - 1,974,594 3,354,674
-----------------------------------------------------
17,032,164 13,391,982 12,903,645
Direct cost of services 11,123,520 5,691,951 6,407,204
-----------------------------------------------------
5,908,644 7,700,031 6,496,441
-----------------------------------------------------
Operating costs and expenses:
Amortization of software development costs 1,244,522 929,231 972,000
Research and development 706,618 558,671 667,831
Selling and marketing 3,078,384 2,267,798 2,341,529
General and administrative 3,836,950 2,384,336 1,672,052
Restructuring - - 314,260
-----------------------------------------------------
8,866,474 6,140,036 5,967,672
-----------------------------------------------------
OPERATING INCOME (LOSS) (2,957,830) 1,559,995 528,769
-----------------------------------------------------
Financial income (expense):
Interest income 9,743 22,037 40,881
Interest expense (143,618) (205,435) (257,240)
-----------------------------------------------------
(133,875) (183,398) (216,359)
-----------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (3,091,705) 1,376,597 312,410
Income taxes (credits) 164,264 (135,642) 7,000
-----------------------------------------------------
NET INCOME (LOSS) $ (3,255,969) $ 1,512,239 $ 305,410
-----------------------------------------------------
-----------------------------------------------------
Net income (loss) per share $ (0.45) $ 0.21 $ 0.04
Weighted average number of common and common
equivalent shares outstanding 7,248,000 7,263,000 6,996,000
See Notes to Financial Statements.
</TABLE>
F-5
<PAGE>
PC QUOTE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additional Cumulative
Paid-in Foreign
Common Common Additional Capital Currency
Stock Stock Paid-in Convertible Translation Accumulated
Shares Amount Capital Debentures Adjustment Deficit Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 6,865,130 $6,865 $11,921,235 $ - $2,798 ($7,503,454) $4,427,444
Net income - - - - - 305,410 305,410
Issuance of common stock 104,044 104 100,209 - - - 100,313
Translation adjustment - - - - (2,798) - (2,798)
-------------------------------------------------------------------------------------------
Balances, December 31, 1994 6,969,174 6,969 12,021,444 - - (7,198,044) 4,830,369
Net income - - - - - 1,512,239 1,512,239
Issuance of common stock 216,558 217 268,453 - - - (268,670)
-------------------------------------------------------------------------------------------
Balances, December 31, 1995 7,185,732 7,186 12,289,897 - - (5,685,805) 6,611,278
Net (loss) - - - - - (3,255,969) (3,255,969)
Issuance of convertible debentures - - - 1,650,000 - - 1,650,000
Issuance of common stock 169,889 170 326,098 - - - 326,268
-------------------------------------------------------------------------------------------
Balances, December 31, 1996 7,355,621 $7,356 $12,615,995 $1,650,000 $ - $(8,941,774) $5,331,577
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
PC QUOTE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $(3,255,969) $1,512,239 $ 305,410
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of property and equipment 1,230,809 1,289,506 1,493,054
Provision for doubtful accounts 734,346 361,369 156,140
Amortization of software development costs 1,244,522 929,231 972,000
Deferred income taxes 158,000 (158,000) -
(Gain) loss on disposal of equipment 52,206 (15,975) 31,718
Changes in assets and liabilities:
Accounts receivable (514,091) (1,126,643) (263,977)
Accounts receivable - related party - 287,334 165,721
Income tax refunds receivable - (40,000) -
Prepaid expenses and other current assets 109,465 20,257 (35,717)
Deposits and other assets (77,489) (100,074) (44,921)
Accounts payable 157,986 266,669 398,806
Accrued expenses 345,727 108,480 101,499
Unearned revenue 329,176 224,418 (30,316)
Income taxes payable 6,264 - -
-----------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 416,540 3,558,811 3,249,417
-----------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (914,898) (668,178) (1,085,746)
Proceeds from sale of equipment 190,498 15,975 -
Software development costs capitalized (2,862,152) (2,586,519) (1,580,844)
-----------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (3,586,552) (3,238,722) (2,666,590)
-----------------------------------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 326,268 268,670 100,313
Proceeds from notes payable 2,500,000 - -
Proceeds from issuance of subordinated
convertible debentures 2,500,000 - -
Principal payments under capital lease obligations (578,222) (829,367) (838,710)
Principal payments on note payable, bank (1,300,000) (100,000) (100,000)
-----------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,448,046 (660,697) (838,397)
-----------------------------------------
Effect of exchange rate changes on cash and cash equivalents - - 14,686
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 278,034 (340,608) (240,884)
Cash and cash equivalents:
Beginning 1,043,478 1,384,086 1,624,970
-----------------------------------------
Ending $ 1,321,512 $1,043,478 $1,384,086
-----------------------------------------
-----------------------------------------
</TABLE>
(continued)
F-7
<PAGE>
<TABLE>
<CAPTION>
PC QUOTE,INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information
Interest paid $ 143,618 $205,435 $259,818
Income taxes paid 1,000 37,950 -
Supplemental Schedule of Noncash Investing and Financing
Activities
Capital lease obligations incurred for purchase of equipment - - 911,474
Additional paid-in-capital from issuance of subordinated
convertible debenture bonds 1,650,000 - -
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company maintains a real-time database of last sale, bid/ask, and
historical prices of more than 225,000 security issues, including stocks,
major stock indices, options on stocks and indices, Level I NASDAQ-quoted
stocks, Level II NASDAQ market maker quotes, mutual funds, money market funds,
futures contracts and options on futures contracts, traded on all U.S. stock,
option and commodity exchanges. Also covered are exchange-traded issues from
over 36 other countries in Europe and Asia. The Company generates a digital
data stream from the Company's database and broadcasts it to the customer's
personal computer. The Company's software applications, running on the
user's computer, process the data stream to allow the user to monitor
securities on an on-going real-time basis. They also create in the user's
computer a complete database of trading symbols, continuously updated by the
data stream. This database gives the user instant access to security prices.
The Company's continuing investment in software development consists primarily
of enhancements for existing products and new technology relative to the new
family of Internet quote and data products and Windows based and network
products.
The Company's customer base consists primarily of professional investors,
securities brokers, dealers and traders, and portfolio managers. The Company
performs ongoing credit evaluations of its customers as well as requiring
certain collateral. Customers are located primarily in the United States and
North America, but also in Europe, Central and South America, and the Pacific
Rim.
Significant accounting policies are as follows.
ACCOUNTING ESTIMATES: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION: The accompanying financial statements for 1994
include the accounts of PC Quote, Inc. and its subsidiary. All intercompany
accounts and transactions have been eliminated in consolidation. In 1994, as
part of a restructuring plan, the activities of the subsidiary were
discontinued.
CASH AND CASH CONCENTRATION: The Company considers all highly liquid debt
investments with a maturity of three months or less when purchased to be cash
equivalents. The Company typically invests excess cash in a money market
account which is at a financial institution which management believes has a
strong credit rating.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation on owned assets is provided using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the estimated useful lives or the terms of the respective leases.
Amortization of leased assets is included with depreciation on owned assets.
F-9
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Maintenance and repair costs are charged to earnings as incurred. Costs of
improvements are capitalized. Upon retirement or disposition, the cost and
related accumulated depreciation and amortization are removed from the accounts
and any gain or loss is included in the statements of income.
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 research and development 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 when the product is available for general release to
customers. Unamortized capitalized costs determined to be in excess of the net
realizable value of the product are expensed at the date of such determination.
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 revenues for a product bear to the total of
current and anticipated future gross revenues for that product or (b) the
straight line method over the remaining estimated economic life of the product
including the period being reported on, primarily five years. It is reasonably
possible that those estimates of anticipated future gross revenues, the
remaining estimated economic life of the product, or both will be reduced
significantly in the near term.
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.
REVENUE RECOGNITION: Revenues from service contracts are 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 receivables 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.
COMPUTATION OF NET INCOME PER SHARE: Net income (loss) per share is based upon
the weighted average number of shares of common stock outstanding, and when
dilutive, common equivalent shares from stock options and warrants (using the
treasury stock method).
F-10
<PAGE>
PC QUOTE, INC.
NOTES TO FIANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION: Results of operations for the subsidiary
during 1994 are translated using the average exchange rate during the period.
Resulting translation adjustments are recorded in a separate component of
stockholders' equity, cumulative foreign currency translation adjustment. In
conjunction with a restructuring in the third quarter of 1994, the Company's
only foreign subsidiary was closed down and the cumulative foreign currency
translation adjustment was written off as part of the loss.
RECLASSIFICATION: Certain items in the 1995 balance sheet and related statement
of cash flows have been reclassified, with no effect on net income, to be
consistent with the classifications adopted for December 31, 1996.
NOTE 2. NOTES PAYABLE AND RELATED PARTY TRANSACTIONS
The Company has a $1,500,000 term loan with a bank, payable in monthly
installments of $25,000 plus interest at prime (prime was 8.25% at December 31,
1996). The loan is collateralized by substantially all assets of the Company.
At December 31, 1996, the outstanding balance was $1,400,000.
The Company has an agreement with a bank providing for a $1,000,000 revolving
line of credit. The line of credit is collateralized by the same assets as the
term loan. There were no borrowings outstanding at December 31, 1996. The line
of credit subsequently expired in February 1997.
In November 1996, the Company entered into an agreement with a 30% stockholder
to issue $2,500,000 of subordinated convertible debenture bonds due December 31,
2001. The bonds bear interest at prime plus 1%. Interest is payable
semiannually beginning January 1, 1998. The bonds contain a conversion feature
allowing the holder to convert the principle amount to 1,250,000 shares of
common stock at $2 per share. The document also contains an agreement for the
related party to underwrite a stock rights offering by the Company to all
stockholders (excluding the 30% related party) of 1,250,000 shares at $2 per
share. The conversion feature has been determined to have a value of
$1,650,000. The value of the conversion was recorded as additional paid-in
capital and a discount on the bonds was recorded.
F-11
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. STOCK OPTIONS AND WARRANTS
The Company has an Employees' Combined Incentive and Non-Statutory Stock Option
Plan. The Plan provides that at all times optional shares outstanding plus
shares available for grant equal 1,000,000 shares. These options may be granted
to key employees of the Company at a purchase price equal to the fair value of
the Company's common stock at date of grant and are exercisable for a period of
up to five years from the date of grant.
Other information with respect to the plan is as follows:
Weighed
Average
Number of Price Per
Shares Share
--------------------------
Balance, December 1, 1993 515,816 1.20
Granted 2,500 1.56
Exercised (104,044) (1.30)
Canceled (20,759) (0.88)
--------------------------
Balance, December 31, 1994 393,513 1.30
Granted 261,435 4.57
Exercised (166,282) (1.06)
Canceled (29,000) (1.50)
--------------------------
Balance, December 31, 1995 459,666 3.70
Granted 130,000 4.94
Exercised (89,663) (1.41)
Canceled (60,000) (3.88)
--------------------------
Balance, December 31, 1996 440,003 4.51
--------------------------
--------------------------
Shares
Exercisable Available
Shares for Grant
--------------------------
December 31, 1996 157,338 559,997
December 31, 1995 145,001 540,334
December 31, 1994 279,147 502,143
The options granted under the plan become exercisable at an annual cumulative
rate of one-third of the total number of options granted. The price for options
outstanding at December 31, 1996, ranged from $.8750 to $15.125 per share.
F-12
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. STOCK OPTIONS AND WARRANTS (CONTINUED)
As permitted under generally accepted accounting principles, grants under the
plan are accounted for following the provisions of APB Opinion No. 25 and its
related interpretations. Accordingly, no compensation cost has been recognized
for grants made to date. Had compensation cost been determined based on the
fair value method prescribed in FASB Statement No. 123, (which became effective
for grants issued beginning in 1995) reported net income (loss) and net income
(loss) per share would have been as follows:
<TABLE>
<CAPTION>
Earnings Earnings
1996 per Share 1995 per Share
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(3,255,969) $ (0.45) $1,512,239 $ 0.21
Compensation expense related to stock
options granted (628,141) (0.09) (83,589) (0.01)
---------------------------------------------------------
Adjusted net income
(loss) $(3,884,110) $ (0.54) $1,428,650 $ 0.20
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
The fair value of each grant is estimated using the Black-Scholes option-pricing
model with the following assumptions for 1996 and 1995, respectively: an
expected life of three years, dividend rate of 0%, and risk-free interest rate
of 6% for both years; turnover rates of 23 and 27%, and a volatility factor of
81 and 99%.
A further summary about options outstanding at December 31, 1996, is as follows:
<TABLE>
<CAPTION>
Weighted Exercisable
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
.8750 to .9375 21,500 1.00 $0.8750 21,500 $0.8750
1.4375 80,837 4.00 1.4349 46,673 1.4375
2.0 to 2.625 52,166 3.21 2.2436 30,499 2.0000
5.25 to 7.125 283,000 4.39 5.9885 58,666 6.3856
15.125 2,500 4.00 15.1250 - -
---------------- --------------
440,003 157,338
---------------- --------------
---------------- --------------
</TABLE>
On February 25, 1993, the Company issued warrants entitling the holders to
purchase 74,500 shares of common stock at a price of $1.25 per share and 12,500
shares of common stock at a price of $1.00 per share. During the year ended
December 31, 1996, 50,000 shares at $1.25 per share were exercised. During the
year ended December 31, 1995, 24,500 shares at $1.25 per shares and 12,500
shares at $1.00 per share were exercised. No warrants were previously
exercised.
F-13
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. INCOME TAXES
The deferred tax assets and liabilities consist of the following components as
of December 31, 1996 and 1995:
1996 1995
-----------------------
Deferred tax assets:
Unearned revenue $ 384,300 $ 272,400
Receivable allowances 79,700 32,300
Property and equipment 98,800 29,700
Accrued expenses 45,900 35,600
Net operating loss carryforwards 4,100,060 2,683,200
Research and development credit carryforward 106,000 44,100
-----------------------
4,814,760 3,097,300
Valuation allowance 2,864,700 1,525,100
-----------------------
1,968,500 1,575,800
-----------------------
Deferred tax liabilities:
Software capitalization 1,968,500 1,417,800
-----------------------
Net current deferred tax asset $ - $ 158,000
-----------------------
-----------------------
The deferred tax assets and the valuation allowance at December 31, 1995, have
been increased by $319,300 from the amounts previously reported due to
additional tax deductions determined upon filing the 1995 tax return.
The components of income (loss) before income taxes are as follows:
1996 1995 1994
------------------------------------
Foreign $ - $ - $ 950
Domestic (3,091,705) 1,376,597 311,460
------------------------------------
$(3,091,705) $1,376,597 $ 312,410
------------------------------------
------------------------------------
Income tax expense (credits) for the years ended December 31, 1996, 1995, and
1994, consists of the following:
1996 1995 1994
------------------------------------
Current:
Foreign $ - $ - $ -
State and local 6264 22358 7000
Deferred 158000 (158000) -
--------------------------------------
$ 164,264 $(135,642) $ 7,000
--------------------------------------
--------------------------------------
F-14
<PAGE>
NOTE 4. INCOME TAXES (CONTINUED)
Reconciliations of income tax expense computed at the statutory federal income
tax rate to the Company's income tax expense for the years ended December 31,
1996, 1995 and 1994, are as follows:
1996 1995 1994
----------------------------------
Statutory rate provision $(1,051,200) $ 468,000 $103,800
Increase (decrease) resulting from:
Utilization of net operating loss - - (95,700)
Nondeductible expenses 26,000 11,000 11,000
State income taxes (net of federal benefit) 4,100 14,800 4,500
Change in valuation allowance 1,200,460 (551,100)
Other (15,096) (78,442) (16,600)
----------------------------------
$ 164,264 $(135,642) $ 7,000
----------------------------------
----------------------------------
The valuation allowance for the years ended December 31, 1996 and 1995, was
also increased by $124,300 and $235,300 with regard to unrealized income tax
benefits related to incentive employee stock options.
At December 31, 1996, the company had federal income tax net operating loss
carryforwards of approximately $12,059,000 for federal income tax purposes and
approximately $9,794,000 for the alternative minimum tax. The net operating
loss carryforwards will expire, if not previously utilized, as follows: 1999
$546,000; 2000 $1,370,000; 2001, $1,539,000; 2002 $560,000; 2003 $79,000; and
thereafter $7,965,000.
Approximately $1,058,000 of these net operating losses relates to exercise of
incentive employee stock options and will be credited directly to
stockholders' equity when realized. The company also had research and
development credits of $106,000 which will expire in years 2010 to 2011 if
not previously utilized. The future utilization of these net operating losses
and research and development credits may be limited due to changes in Company
ownership.
F-15
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. LEASE COMMITMENTS AND SUBSEQUENT EVENTS
The Company is obligated as lessee under certain noncancelable capital and
operating leases for equipment and office space, and is also obligated to pay
insurance, maintenance and other executory costs associated with the leases. On
September 1, 1994, the Company entered into a new lease agreement in conjunction
with the move of its corporate headquarters, which is subject to escalating base
rent as well as adjustments for changes in real estate taxes and other operating
expenses. Expense under the lease is being recognized on a straight-line basis.
Future minimum lease payments for the Company as lessee are as follows as of
December 31, 1996:
Capitol Operating
Leases Leases
----------------------
Years ending December 31:
1997 $172,580 $2,746,484
1998 2,374,614
1999 834,968
2000 97,377
2001 85,022
Thereafter 369,074
----------------------
Total minimum lease payments 172,580 $6,507,539
Less amount representing interest (at 6% to 7.7%) 29,895 ----------
--------- ----------
Present value of net minimum lease payments, due currently $142,685
---------
---------
Assets under capital leases, included as property and equipment, are as follows
at December 31:
1996 1995
-------------------------
Equipment:
Satellite receiving $ 273,600 $ 273,600
Communication 1,907,626 1,907,626
Computer 3,576,736 3,576,736
Furniture and fixtures 156,944 156,944
-------------------------
5,914,906 5,914,906
Accumulated amortization 5,209,342 4,786,700
-------------------------
$ 705,564 $1,128,206
-------------------------
-------------------------
Rent expensed, under operating leases amounted to $2,408,879, $662,947 and
$443,092 for the years ended December 31, 1996, 1995 and 1994, respectively.
Subsequent to December 31, 1996, the Company entered into various operating
lease agreements requiring monthly payments totaling $22,411 through January
2000. The leases result in additional commitments as follows: 1997 $227,023;
1998 $268,935; 1999 $268,935; 2000 $43,595.
F-16
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. OTHER COMMITMENTS
Under a Satellite Network Service agreement which expires in November 1997, the
Company is required to pay an annual base fee of approximately $456,000 plus
related service fees. The Company expensed $653,083, $478,480 and $483,697 in
1996, 1995 and 1994, respectively, for the base fee plus related service fees.
Under an agreement for satellite transmission services, including "FM3"
satellite transmissions, the Company is required to pay a monthly base fee of
$52,888 through January 2006 plus related service fees. The Company expensed
$618,648, $457,650 and $403,763 for the years ended December 31, 1996, 1995 and
1994, respectively, for these services.
NOTE 7. MAJOR CUSTOMER, RELATED PARTY AND TRANSACTIONS WITH GLOBAL FINANCIAL
SERVICES, FORMERLY BRIDGE INFORMATION SYSTEMS
Global Financial Services (Global), formerly Bridge Information Systems owned
1,523,573 shares of the Company's common stock. The Company had net services
to Global which comprised 10% or more of total net services for the years
ended December 31, 1996, 1995 and 1994. These services totaled approximately
$3,414,000, $3,920,000 and $3,355,000, respectively. The trade receivable
balances due from Global at December 31, 1996 and 1995, were approximately
$10,700 and $379,000, respectively.
On January 25, 1995, the Company entered into an agreement with Global, whereby
the Company would provide domestic data to Global for $2,100,000(1996)and
$450,000 through March 31, 1997. For the remainder of the contract term,
amounts will be charged on a per-site basis at December 31, 1996. In September
1996, the Company agreed to accelerate the termination date of this agreement to
January 1, 1997.
On July 6, 1995, Global divested 100% of its holdings of PC Quote, Inc. in a
private sale to an unrelated party. The stock transaction did not affect the
business agreements between Global and the Company. Revenues from Global are
reflected as services - related party through the date of the divestiture.
Subsequent sales are included with service revenue. Likewise receivables from
Global through that date are reflect as accounts receivable, related party.
In December 1996, the Company discontinued providing services to another
significant customer that accounted for net revenues of approximately
$1,693,000, $557,000, and $591,000 in 1996, 1995, and 1994, respectively.
NOTE 8. DEFINED CONTRIBUTION PLAN
In 1993, the Company established a 401(k) retirement savings plan for employees
meeting certain eligibility requirements. Under the Plan, the Company is
required to match employee contributions at 25% of the first 5% contributed by
an employee. The Company recorded expenses related to its matching of
contributions of approximately $30,000, $22,300 and $32,600 for the years ended
December 31, 1996, 1995 and 1994, respectively.
F-17
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. EMPLOYEE STOCK PURCHASE PLAN
In 1995, the Company established an employee stock purchase plan and reserved
100,000 shares of its common stock. The Plan allows employees to have up to 10%
of their annual salary withheld to purchase common stock of PC Quote, Inc. on
the final day of each quarter at 85% of the market price on either the first or
last day of the quarter, whichever is lower. Shares sold to employees totaled
30,228 and 13,376 for the years ended December 31, 1996 and 1995, respectively.
NOTE 10. LITIGATION
On December 31, 1996, a lawsuit was filed against the Company, by a former
officer, alleging breach of various verbal and written agreements by failing to
pay certain commissions, bonuses and severance pay and failing to provide him
with certain stock options. The lawsuit seeks monetary damages of approximately
$680,000. The Company's legal counsel has indicated that the outcome of the
lawsuit cannot be determined at this time. Management believes the claim is
without merit; accordingly, no provision has been made in the financial
statements for any loss that may result from litigation.
NOTE 11. RESTRUCTURING
The results of operations for 1994 include charges of $314,260 ($0.045 per
share) for costs associated with a reduction of headcount, the closure of the
foreign subsidiary and the movement of corporate headquarters. These charges
were recorded in the third quater of 1994. This restructuring resulted in a
workforce reduction of approximately 10 employees ($149,000), and write off of
leasehold improvements and equipment on prior corporate headquarters ($75,100)
in the U.S. operations. Restructuring cost related to the U.K. operation
include employee costs ($59,360), write-down of equipment ($15,000) and
miscellaneous other costs ($15,800). The customers previously serviced by the
U.K. subsidiary are now being serviced by the U.S. operations.
NOTE 12. FOURTH QUARTER ADJUSTMENTS
Based on its periodic review of the software capitalization, the Company
determined in the fourth quarter of 1996 and 1995 that certain adjustments were
appropriate to properly reflect the capitalization of development costs relating
to products which had reached technological feasibility during 1996 and 1995.
In addition, during the fourth quarters, the Company determined that adjustments
to certain other accounts were necessary. The net effect of these fourth
quarter adjustments did not materially effect the operating results of the first
three quarters.
NOTE 13. GEOGRAPHIC INFORMATION
Operating profit by geographic area is total operating revenue less expenses
which are deemed to be related to the unit's operating revenue.
Information about the Company's operations by geographic area for the year ended
December 31, 1994 are as follows:
Purchase of
Property,
Net Service Operating Depreciation Plant and
Revenues Profit/Loss Expense Equipment
- ------------------------------------------------------------------------------
United States $ 12,345,752 $ 534,415 $ 1,441,612 $ 1,085,746
United Kingdom 557,893 (5,646) 51,442
----------------------------------------------------------
$ 12,903,645 $ 528,769 $ 1,493,054 $ 1,085,746
----------------------------------------------------------
----------------------------------------------------------
F-18
<PAGE>
PC QUOTE
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTES 14. MANAGEMENT'S PLANS AND INTENTIONS FOR CONTINUING OPERATIONS
The Company incurred a loss of approximately $3,256,000 for the year ended
December 31, 1996, and as of December 31, 1996, had an accumulated deficit of
approximately $8.9 million and deficit working capital of $1.5 million. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management has taken several actions to address these
circumstances.
In November 1996, the Company entered into an agreement with a 30%
stockholder to issue $2.5 million in subordinated convertible debenture
bonds. The document also contains an agreement for the related party to
underwrite a stock rights offering by the Company to all stockholders
(excluding the 30% related party) of 1,250,000 shares at $2.00 per share.
In February 1997, the Company hired a financial consultant to explore strategic
alternatives which may be available to the Company with the purpose of enhancing
stockholder value. Such a transaction might include a merger, a sale of
substantially all or part of the Company's assets, a strategic relationship or
joint venture with another technology or financial service firm or the
exploration of various financing alternatives to further fund the Company's
business.
F-19
<PAGE>
PC QUOTE, INC.
SUPPLEMENTAL SCHEDULE II OF FINANCIAL STATEMENTS, CONTINUED
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To the Board of Directors
PC Quote, Inc.
Chicago, Illinois
Our audit of the financial statements of PC Quote, Inc. as of and for the
years ended December 31, 1996 and 1995 included the 1996 and 1995 information
on Schedule II contained herein. Such schedule is presented for purposes of
complying with the Security and Exchange Commission's rule and is not a
required part of the basic financial statements. In our opinion, such
schedule presents fairly the information set forth therein in conformity with
generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Schaumburg, Illinois
March 7, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors
PC Quote, Inc.
Our report on the statement of operations, stockholder equity, and cash flows
of PC Quote, Inc. and Subsidiary for the year ended December 31, 1994 is
included on page F-2 of this Form 10-K. In connection with our audit of such
financial statements, we have also audited the related financial statement
schedule for the year ended December 31, 1994 listed in the index on page
of the Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
represents fairly, in all material aspects, the information required to be
included herein.
COOPERS & LYBRAND LLP
Chicago, Illinois
F-20
<PAGE>
March 17, 1997
PC QUOTE, INC.
SUPPLEMENTAL SCHEDULE II TO THE FINANCIAL STATEMENTS
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
Balance at
DESCRIPTION Beginning of Charged to Deductions Balance at
Period Operations from End of
Reserves Period
-----------------------------------------------------
Allowance for doubtful
accounts-trade receivable
in the balance sheets:
1996 95,000 734,346 (595,346) 234,000
1995 100,000 361,369 (366,369) 95,000
1994 49,000 156,140 (105,140) 100,000
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's financial statements for the period ending December 31, 1996
and December 31, 1995 were audited by McGladrey & Pullen, L.L.P. The
Company's financial statements for the year ended 1994 were audited by
Coopers & Lybrand L.L.P.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-13093
PC QUOTE, INC.
Incorporated in the State of Delaware FEIN 36-3131704
Principal Executive Offices:
300 South Wacker Drive, #300, Chicago, Illinois 60606
Telephone Number: (312) 913-2800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par Value
Indicate by check mark whether the registrant (1) has filed all reports 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
As of March 17, 1997, the aggregate market value of the Common Stock of the
Registrant (based upon the closing price of the Common Stock as reported by the
American Stock Exchange) on such date held by non-affiliates of the Registrant
was approximately $12,853,094.
Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes X No
As of March 17, 1997, there were 7,412,849 shares of Common Stock of the
Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: See Page 3
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Annual Meeting of Stockholders to be held in
1997 are incorporated by reference into Part III hereof.
2
<PAGE>
PART OF FORM 10-K DOCUMENT
PART I None
PART II None
PART III None
PART IV
ITEM 14 Exhibits and Reports Exhibits as specified in Item
on Form 8-K 14 of this Report
3
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
During the year ended December 31, 1996, the Company's Board of Directors
was comprised of Louis J. Morgan, M. Blair Hull, Paul DiBiasio, Ronald Langley
and Alexander Piper III. Messrs. Hull and Piper resigned as directors in
December 1996 and Mr. DiBiasio resigned in April 1997. The current directors
and executive officers of the Company, and their ages and positions as of April
28, 1997 are as follows:
NAME AGE POSITION
Louis J. Morgan 60 Chairman of the Board of Directors,
Chief Executive Officer and Treasurer
Ronald Langley 52 Director
Howard C. Meltzer 44 President and Chief Operating Officer
Michael A. Press 53 Vice President, Finance and Chief Financial Officer
Directors hold office for one year and until their successors are elected
and qualified. Executive officers of the Company are appointed by, and serve at
the direction of, the Board of Directors.
LOUIS J. MORGAN became Chairman of the Board of the Company in May 1984.
Mr. Morgan served as President of the Company from August 1980 to May 1984.
From 1962-1972, Mr. Morgan was employed as a securities broker and sales manager
of a regional New York Stock Exchange member brokerage firm. He was a member of
the Chicago Board Options Exchange, Inc. from 1973 to 1986 and served on the
Systems Committee of the Chicago Board Options Exchange, Inc. from 1980 through
1983.
RONALD LANGLEY became Chairman of publicly held PICO Holdings, Inc. in
November 1996; Chairman of Quaker Holdings Limited, an investment banking
firm, in October 1992; Chairman since 1995 and Director since 1993, of
Physicians Insurance Company of Ohio, an insurance company; Chairman of
Global Equity Corporation, a Canadian investment banking corporation since
September 1995; Chairman of Summit Global Management, Inc., a subsidiary of
Physicians Insurance Company of Ohio which acts as an investment advisor
registered with the Securities and Exchange Commission, since 1994. Since
1994, Mr. Langley served as Chairman of the Centurion Trust Company, a bank
specializing in custodian services.
HOWARD C. MELTZER joined the Company in June 1996 as President and Chief
Operating Officer. Previously, he spent 20 years developing and implementing
strategic initiatives for Reuters. Having served in the organization's London,
Hong Kong and Toronto offices, Mr. Meltzer was most recently based at the
Reuters Chicago office as vice president of business operations and Central
District.
MICHAEL A. PRESS joined the Company in July 1996 as Vice President of
Finance, Chief Financial Officer. Since 1987 Mr. Press has been an independent
financial consultant. Prior to that he was an officer of a national real estate
development company and a senior financial and corporate development executive
for Allis Chalmers and Congoleum Corp.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
During the year ended December 31, 1996, the Board of Directors held six
meetings. Each of the directors attended, in person or by telephone, at least
75% of the aggregate of the total number of meetings of the Board of Directors.
4
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation for the past three years of
(a) the Company's Chief Executive Officer, (b) the Company's President and Chief
Operating Officer (who commenced employment June, 1996), (c) the Company's Vice
President, Finance and Chief Financial Officer (who commenced employment July,
1996), and (d) the Company's two most highly compensated officers other than
executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Awards
-------------------- ----------
Shares
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation (1)
- --------------------------- ---- -------- ------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
Louis J. Morgan 1996 $251,562 $21,875 --- $13,752
Chairman of the Board, Chief 1995 241,896 --- 30,000 13,419
Executive Officer and Treasurer 1994 225,463 --- 20,000 11,509
Howard Meltzer (2) 1996 106,571 27,500 75,000 ---
President and Chief Operating 1995 --- --- --- ---
Officer 1994 --- --- --- ---
Michael Press (3) 1996 57,232 5,450 25,000 ---
Vice President, Finance, 1995 --- --- --- ---
Chief Financial Officer 1994 --- --- --- ---
Michael J. Kreutzjans 1996 152,705 11,911 --- 1,830
Vice President, Development Design 1995 145,619 --- 25,000 1,830
1994 79,365 --- 20,000 3,330
Jerry M. Traver 1996 211,539 4,813 --- ---
Vice President, Sales and Marketing 1995 145,619 25,000 ---
1994 79,365 20,000 ---
</TABLE>
- ----------------------------------
(1) Represents the insurance premiums paid by the Company on life insurance
policies on which the named person's spouse is the beneficiary.
(2) Mr. Meltzer's employment with the Company commenced July 1996. Represents
amounts paid to Mr. Meltzer from June 1996 through December 1996.
(3) Mr. Press' employment with the Company commenced July 1996. Represents
amounts paid to Mr. Press from July 1996 through December 1996.
Mr. Richard Chappetto, the Company's former President, International Division,
and Chief Financial Officer, ceased his employment with the Company on November
1, 1996. During the last fiscal year the Company paid Mr. Chappetto cash
compensation of $159,566 in accordance with his September 1993 employment
agreement with the Company, which Agreement expired in September 1996.
The following table shows the total number of Options granted to each of the
named persons during 1996 (both as the number of shares of Common Stock subject
to such Options and as a percentage of all Options granted to employees during
1996) and, for each of these grants, the exercise price per share of Common
Stock and option expiration date. Except for options granted to Mr. Meltzer,
the options will vest in three equal annual installments in 1997, 1998 and 1999
and will be exercisable through July 16, 2001. The exercise price of these
options was fair market value (as defined in the Plan) at the date of grant. Of
the 75,000 options granted to Mr. Meltzer, 25,000 vested immediately upon
commencement of his employment in July. The remaining 50,000 options vest in
equal annual installments through July, 1998. No SARs were granted in 1996.
5
<PAGE>
OPTION/SAR GRANTS IN 1996 FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of
Securities Options Exercise Price Appreciation
Underlying Granted to or Base for Option
Options Employees in Price Expiration -----------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5%(1) 10%(1)
- ---- ------------ ------------- -------- ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Louis J. Morgan ---- ---- _____ __________ ________ ________
Howard Meltzer 75,000 57% 5.375 7-16-2001 $490,000 $590,215
Michael Press 25,000 19% 5.375 7-29-2001 163,333 196,738
Michael J. Kreutzjans ---- ---- ______ __________ ________ ________
Jerry M. Traver ---- ---- ______ __________ ________ ________
</TABLE>
(1) The dollar amounts under these columns are the result of calculations at
the 5% appreciation and 10% appreciation rates for the full five-year terms
of the options as required by the SEC. The dollar amounts presented are
not intended to forecast possible future appreciation, if any, of the price
of the Common Stock.
The following table sets forth, for each of the named persons, the number of
shares they acquired on exercise of Options in 1996, the aggregate dollar value
realized upon exercise, the total number of shares of Common Stock underlying
unexercised Options and the aggregate dollar value of unexercised, in-the-money
Options, separately identifying the exercisable and unexercisable Options. No
SARs were outstanding in 1996.
AGGREGATED OPTION/SAR EXERCISES IN 1996
FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Shares Underlying Unexercised In-the-Money Options/
Acquired Options/SARs at FY-End (#) SARs at FY-End
on Value ($)(1)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ---------- -------- ------------- ---------------
<S> <C> <C> <C> <C>
Louis J. Morgan 25,000 57,813 35,166/33,334 30,729/15,834
Howard Meltzer ______ ______ 25,000/50,000 ____________
Michael Press ______ ______ /25,000 ____________
Michael J. Kreutzjans 10,000 33,125 31,999/30,001 27,541/15,834
Jerry M. Traver 13,000 135,688 13,999/30,001 4,478/15,834
- -----------------------
</TABLE>
(1) These values represent the excess, if any, of the fair market value of the
shares of Common Stock subject to Options on December 31, 1996 over the
respective option prices.
COMPENSATION OF DIRECTORS
On May 13, 1994, the Company adopted a policy of paying its non-employee
directors $4,000 per year and, in addition, $750 per meeting. Pursuant to this
policy, non-employee directors were paid an aggregate of $29,750 during the last
fiscal year.
6
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
Effective as of December 2, 1996, the 1989 Employment Agreement between the
Company and Mr. Morgan was replaced by a new Employment Agreement. Mr. Morgan's
current agreement provides for his continued employment by the Company as
Chairman of the Board of Directors at an annual salary of $251,000, an amount
equal to his 1996 base compensation. Pursuant to the Agreement, the Company
shall use its best efforts to nominate Mr. Morgan as director at its next
meeting of shareholders. The Agreement expires December 2, 1997 unless extended
by the parties. The Employment Agreement also contains confidentiality and
nondisclosure provisions.
In July, 1996, the Company and Mr. Meltzer entered into an Employment Agreement.
It provides for (i) the employment of Mr. Meltzer as President and Chief
Operating Officer of the Company, (ii) a minimum annual base salary of $190,000
for the three years beginning July 16, 1996 unless Mr. Meltzer's employment is
earlier terminated in accordance with the Agreement, and (iii) the granting of
certain stock options during its term. Further, the Employment Agreement
provides that upon termination of Mr. Meltzer's employment under certain
circumstances, Mr. Meltzer shall be entitled to additional compensation in an
amount equal to his annual base salary. The Employment Agreement also contains
confidentiality and non-compete provisions.
In July, 1996, Michael Press commenced his employment as Vice President,
Finance, and Chief Financial Officer. On that date, Mr. Press entered into a
letter agreement with the Company which provides that in the event his
employment with the Company is terminated for any reason he would receive an
amount equal to one year of his compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 1996 regarding the
beneficial ownership of shares of the Common Stock of the Company by each
director and by all current directors and executive officers as a group.
<TABLE>
<CAPTION>
Beneficial
Ownership of Shares of
of Percent
Name Common Stock of Class
----- ----------------------- ---------
<S> <C> <C>
Louis J. Morgan(1)...................... 374,932 5.1%
Ronald Langley(2)....................... 3,396,400 45.8%
All Directors and Officers as a
Group (4 persons)(1)(2)(3)........... 3,877,496 52.3%
</TABLE>
- -----------------------------
(1) Does not include 275,100 shares of Common Stock held by Mr. Morgan's
spouse, as to which shares Mr. Morgan disclaims any voting or investment
power. Includes 35,166 shares of Common Stock which may be acquired upon
exercise of presently exercisable options.
(2) Mr. Langley, a Director of the Company since 1995, is a Director of PICO
Holdings, Inc. ("PICO"). As such, Mr. Langley may be deemed to
beneficially own the 3,396,400 shares of common stock of the Company over
which shares PICO claimed beneficial ownership in a Schedule 13D filed with
the SEC on December 16, 1996. See "Principal Stockholders." Mr. Langley
disclaims beneficial ownership of these shares within the meaning of 13d-3
of the Securities and Exchange Act of 1934.
(3) Includes 106,164 shares of Common Stock which may be acquired upon exercise
of presently exercisable options.
7
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of December 31, 1996 regarding
each person other than directors of the Company who were known by the Company to
own beneficially more than 5% of the outstanding shares of Common Stock. Each
person named has sole voting and investment power with respect to the shares
beneficially owned by such person. The information presented in the table is
derived from a Schedule 13D filed with the SEC by the named person on December
16, 1996.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership of Shares Percent of Class
- ------------------------------------ ------------------------------ -----------------
<S> <C> <C>
PICO Holdings, Inc. 3,396,400--Direct 45.8%
875 Prospect Street
La Jolla, California
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 14, 1996, the Company entered into an agreement with Physicians
Insurance Company of Ohio, Inc. ("PICO"), which then owned approximately 30% of
the Company's outstanding shares of common stock. Pursuant to the 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. PICO made the investment and the Debenture was
issued on December 2, 1996. The Debenture matures on December 31, 2001 and is
convertible at any time by PICO into 1.25 million shares of common stock of the
Company (subject to adjustment in certain cases).
8
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PC QUOTE, INC.
By:
/s/ LOUIS J. MORGAN
- --------------------------------------------------
Louis J. Morgan, Chairman
By:
/s/ HOWARD MELTZER
- -------------------------------------------------
Howard Meltzer President and Chief Operating Officer
By:
/s/ MICHAEL PRESS
- --------------------------------------------------------
Michael Press Vice President, Finance, Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ LOUIS J. MORGAN
- ---------------------------------------------
Louis J. Morgan, Director
April 30, 1997
/s/ RONALD LANGLEY
- ----------------------------------------
Ronald Langley, Director
April 30, 1997
9
<PAGE>
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
_________________________________
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 1997
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
-------------to--------------
_______________________________________
Commission file number 0-13093
I.R.S. Employer Identification Number 36-3131704
PC QUOTE, INC.
(a Delaware Corporation)
300 S. WACKER DRIVE, SUITE 300
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: 12,384,246 shares of the Company's
common stock ($.001 par value) were outstanding as of November 10, 1997.
Page 1
<PAGE>
PC QUOTE, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Balance Sheets as of September 30, 1997 (unaudited)
and December 31, 1996 3
Statements of Operations for the nine month periods
ended September 30, 1997 and 1996 (unaudited) 4
Statements of Operations for the quarters ended
ended September 30, 1997 and 1996 (unaudited) 5
Statements of Cash Flows for nine month periods
ended September 30, 1997 and 1996 (unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition 11
Liquidity and Capital Resources 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 16
Company's Signature Page 17
Page 2
<PAGE>
PC QUOTE, INC.
BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
ASSETS (UNAUDITED) (AUDITED)
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 85,908 $1,321,512
Accounts receivable, net of allowance for doubtful
accounts of $348,384 (1997) and $234,000 1996) 901,526 1,100,253
Income tax refunds receivable 40,000
Prepaid expenses and other current assets 182,045 185,071
------------- ------------
Total current assets 1,169,479 2,646,836
------------- ------------
PROPERTY AND EQUIPMENT
Satellite receiving equipment 889,490 865,454
Computer equipment 6,862,486 6,382,179
Communication equipment 2,671,293 2,656,057
Furniture and fixtures 293,240 293,240
Leasehold improvements 366,326 359,126
------------- ------------
11,082,835 10,556,056
Less accumulated depreciation
and amortization 8,694,155 7,791,849
------------- ------------
2,388,680 2,764,207
------------- ------------
OTHER ASSETS
Software development costs, net of
accumulated amortization of
$4,385,479 (1997) and $3,600,204 (1996) 5,126,629 5,789,845
Deposits and other assets 304,723 353,182
------------- ------------
TOTAL ASSETS $ 8,989,511 $11,554,070
------------- ------------
------------- ------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (AUDITED)
------------- ------------
CURRENT LIABILITIES
Note payable, bank, current $ 300,000 $ 300,000
Note payable, credit facility, net of deferred
costs of $536,457 (1997) 1,753,543
Capital lease obligations 142,685
Accounts payable 4,042,462 1,774,390
Unearned revenue 1,021,269 995,600
Accrued expenses 1,432,979 718,640
------------- ------------
Total current liabilities 8,550,253 3,931,315
LONG-TERM LIABILITIES
Note payable to bank, noncurrent 875,000 1,100,000
Convertible Subordinated Debenture Bond Payable
Net of Unamortized Discount of $1,304,379 (1997) 1,195,621 850,000
and $1,650,000 (1996)
Unearned revenue, noncurrent 93,709 134,636
Accrued expense, noncurrent 192,296 206,542
------------- ------------
Total liabilities 10,906,879 6,222,493
------------- ------------
STOCKHOLDERS' EQUITY
Common stock, par value $.001; 10,000,000
shares authorized: 7,384,246 (1997) and 7,355,621
(1996) shares issued and outstanding 7,384 7,356
Paid in capital 12,664,806 12,615,995
Paid in capital-Convertible Subordinated Debenture and
Warrants 2,750,492 1,650,000
Accumulated deficit (17,340,050) (8,941,774)
------------- ------------
Total stockholders' equity (1,917,368) 5,331,577
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,989,511 $11,554,070
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
PC QUOTE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
---------------------------
<S> <C> <C>
NET REVENUES
Services $12,675,772 $12,883,133
Direct costs of services 11,093,738 7,575,431
----------- -----------
1,582,034 5,307,702
----------- -----------
OPERATING COSTS AND EXPENSES
Amortization of software development 1,250,051 801,000
Research and development 893,846 543,292
Selling and marketing 2,873,830 2,341,820
General and administrative 2,570,682 2,603,026
Restructure expense 1,146,677
----------- -----------
8,735,086 6,289,138
----------- -----------
OPERATING LOSS (7,153,052) (981,436)
OTHER INCOME (EXPENSE)
Interest income 14,721 4,112
Interest expense (1,259,945) (100,796)
----------- -----------
NET LOSS ($8,398,276) ($1,078,120)
----------- -----------
----------- -----------
----------- -----------
NET LOSS PER COMMON SHARE ($1.14) ($0.15)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
PC QUOTE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR QUARTER ENDED SEPTEMBER 30
------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
------------------------------
<S> <C> <C>
NET REVENUES
Services $4,449,368 $4,460,823
Direct costs of services 3,767,512 3,075,128
---------- ----------
681,856 1,385,695
---------- ----------
OPERATING COSTS AND EXPENSES
Amortization of software development 418,937 308,000
Research and development 341,137 197,281
Selling and marketing 903,954 882,293
General and administrative 625,529 1,081,249
Restructure expense
---------- ----------
2,289,557 2,468,823
---------- ----------
OPERATING LOSS (1,607,701) (1,083,128)
OTHER INCOME (EXPENSE)
Interest income 1,587 0
Interest expense (705,886) (39,636)
---------- ----------
NET LOSS ($2,312,000) ($1,122,764)
---------- ----------
---------- ----------
---------- ----------
NET LOSS PER COMMON SHARE ($0.31) ($0.15)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE>
PC QUOTE, INC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($8,398,276) ($1,078,120)
----------- -----------
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities
Depreciation and amortization of property and equipment 902,306 705,061
Amortization of software development cost 1,250,051 801,000
Amortization of discount on convertible subordinated
debenture bond payable 467,016
Amortization of deferred debt on warrants 442,640
Write-off of capitalized software development costs 571,647
Changes in assets and liabilities:
Accounts receivable, net of allowance 198,727 308,738
Prepaid expenses and other current assets 3,026 188,014
Deposits and other assets 48,459 (26,931)
Accounts payable 2,268,072 8,128
Unearned revenue (15,258) (179,138)
Accrued expenses 700,093 142,976
Income tax refund 40,000
----------- -----------
Total adjustments 6,876,779 1,947,848
----------- -----------
Net cash provided by (used in) operating activities (1,521,497) 869,728
----------- -----------
CASH FLOWS FROM INVESTING ACTIVTIES:
Purchase of property and equipment (526,779) (415,214)
Software development costs capitalized (1,158,482) (2,342,379)
----------- -----------
Net cash used in investing activities (1,685,261) (2,757,593)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 48,839 204,861
Principal payments under capital leases obligations (142,685) (524,273)
Principal payments on note payable to banks (225,000) (225,000)
Net borrowings under line of credit-Bank 1,500,000
Net borrowings under credit facility 2,290,000
----------- -----------
Net cash provided by financing activities 1,971,154 955,588
----------- -----------
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,235,604) (932,277)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 1,321,512 1,043,478
----------- -----------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $85,908 $111,201
----------- -----------
----------- -----------
- -------------------------------------------------------------------------- -----------
- -------------------------------------------------------------------------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $171,173 $100,796
Income taxes paid None None
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Issuance of warants $979,097 None
- -------------------------------------------------------------------------- -----------
- -------------------------------------------------------------------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6
<PAGE>
PC QUOTE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(1) BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The interim financial statements include all adjustments
that, in the opinion of management, are necessary in order to make the financial
statements not misleading. The amounts indicated as "audited" have been
extracted from the Company's December 31, 1996 annual report. For further
information, refer to the consolidated financial statements and footnotes
included in PC Quote's annual report on Form 10-K for the year ended December
31, 1996. Certain reclassifications have been made to conform to the current
presentation.
Costs associated with the planning and designing phase of software development,
including coding and testing activities necessary to establish technological
feasibility of computer software products to be sold, leased or otherwise
marketed, are charged to research and development costs as incurred. Once
technological feasibility has been determined, costs incurred in the
construction phase of software development, including coding, testing and
product quality assurance, are capitalized.
Amortization is provided over an estimated life of the software products and
commences when the product is available for general release to customers.
Unamortized capitalized costs determined to be in excess of the net realizable
value of the product are expensed at the date of such determination. The
anticipated future gross revenues and remaining economic life of the products
are based on estimates which are subject to change. Accumulated amortization
and related software development costs are removed in the year following full
amortization.
(2) INCOME TAXES
At December 31, 1996, the Company had federal income tax net operating loss
carryforwards of approximately $12,059,000 for federal income tax purposes and
approximately $9,794,000 for alternative minimum tax purposes. The net
operating loss carryforwards will expire in the years 1999 to 2011.
Page 7
<PAGE>
(3) RESTRUCTURE EXPENSE
In June 1997, the Company underwent a significant management reorganization and
restructuring of operations. As a result, the Company wrote off approximately
$572,000 representing the unamortized portion of previously capitalized software
development costs. The write-off relates to development efforts which new
management has decided for economic reasons not to pursue. The management
reorganization resulted in the Company incurring employment termination costs of
$425,000 and $150,000 was paid to terminate a contractual arrangement related to
unprofitable operations.
(4) BORROWINGS FROM SHAREHOLDER
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 will be paid a "facility fee" of $40,000, plus
interest at a rate equal to 14% per annum, on the maturity date of the loan
contemplated by the Loan Agreement.
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 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 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. 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.
Page 8
<PAGE>
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
(5) SUBSEQUENT EVENTS
On October 22, 1997, pursuant to shareholder approval on October 16, 1997, a
Certificate of Amendment to the Company's Certificate of Incorporation that
increased the Company's total authorized Common Stock to fifty million
(50,000,000) shares, eliminated the Preferred Stock, par value $1.312704617 per
share, from the Company's authorized capital, and authorized the Company to
issue up to five million (5,000,000) shares of preferred stock, par value $0.001
per share, was filed with the Secretary of State of the State of Delaware.
In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC
(collectively, the "Wexford Affiliates") expended $5.0 million to purchase 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").
The Wexford Affiliates have 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"). Pursuant to the terms of the Purchase Agreement, on
October 15, 1997, the Wexford Affiliates purchased 1,450,000 shares of Common
Stock and the Initial Warrants for a purchase price of $1.45 million. On
October 20, 1997, pursuant to the terms of the Purchase Agreement, the Wexford
Affiliates purchased an additional 550,000 shares of Common Stock for a purchase
price of $0.55 million. On October 23, 1997, pursuant to the terms of the
Purchase Agreement, the Wexford Affiliates purchased an additional 3,000,000
shares of Common Stock for a purchase price of $3.0 million.
Page 9
<PAGE>
Up to four million of the shares of Common Stock purchased by the Wexford
Affiliates are 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 will use its best
efforts to consummate the Repurchase from the proceeds of a rights offering. In
the event that the rights offering is not completed on or prior to January 24,
1998, the Wexford Affiliates will be 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 is not
completed on or prior to February 28, 1998, the Wexford Affiliates will be
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.
In contemplation of the Purchase Agreement, the Wexford Affiliates have agreed
not to participate in the rights offering. On October 31, 1997 a Form S-2
Registration Statement was filed with the Securities and Exchange Commission for
the rights offering.
Page 10
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
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 include the Company's ability to (i)
obtain adequate financing to fund its current and future business strategies,
(ii) attract and retain 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 on or before December 31, 1997, and (vi)
the effect of economic and business conditions, generally.
RESULTS OF OPERATIONS:
FOR THE NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 1997
Service revenue for the nine months ended September 30,1997 decreased 2% from
the same period of 1996 and was essentially unchanged for the quarter ended
September 30, 1997 when compared to the same period of the prior year. The
decrease is due to the loss of two major customers in the Company's traditional
direct data feed business. The lost revenue, $3.8 million and $400,000 for the
nine months and quarter, respectively, has been substantially offset by
increases in service revenue in the Company's traditional and internet
businesses, as well as revenue from the sale of advertising on the internet.
Direct costs of services increased 46% and 23% for the nine months and quarters
ended September 30, 1997, respectively, over the same periods in 1996. Principal
components of these increases were royalties, leased equipment, communication
costs, and compensation directly attributable to internet operations and sales
of PCW6.0, payments to providers of market data, and maintenance of and
enhancements to the Company's traditional direct data feed systems.
Page 11
<PAGE>
Amortization of software development for the nine months and quarter ended
September 30, 1997 increased 56% and 36%, respectively, from the same periods of
the prior year, reflecting the investment in internet and direct data feed
products and delivery mechanisms.
Similarly, research and development costs increased 65% and 73%, respectively,
for the nine months and quarter ended September 30, 1997 as compared to the same
periods in 1996. The increase was due to additional charges for equipment leased
to upgrade systems' design and testing equipment, in addition to costs of
maintaining and enhancing previously developed products and services.
Selling and marketing costs increased 23% and 2%, respectively, for the nine
months and quarter ended September 30, 1997 over the same periods in 1996. The
increase was mainly due to commissions.
General and administrative expenses decreased 1% and 42% for the nine months and
the quarter ended September 30, 1997, respectively, from the same periods in
1996. The decreases were principally due to reductions in compensation and
related employee costs and a decrease in bad debt expense for the quarter as
compared to the prior year.
In June 1997, the Company underwent a significant management reorganization and
restructuring of operations. As a result, for the nine months ended September
30, 1997 the Company wrote off approximately $572,000 of unamortized software
development costs for previously capitalized software projects that were
discontinued. The management reorganization resulted in the Company incurring
employment related termination costs of $425,000 and $150,000 was paid to
terminate a contractual arrangement related to unprofitable operations.
Interest expense increased 1,150% and 1,681%, respectively, for the nine months
and quarter ended September 30. 1997 over the same periods in 1996. The
increases reflect the recognition of non-cash amortization of $467,016 and
$330,936 for the nine months and quarter, respectively, for the value of the
$2.5 million convertible subordinated debenture's beneficial conversion feature
and amortization of $442,640 and $264,810 for the nine months and quarter,
respectively, for the value of the common stock purchase warrants issued to PICO
Holdings, Inc. in connection with a financing arrangement. Also included is
interest on the bank term loan, the convertible subordinated debenture and
financing arrangement borrowings. See footnote 4 of the Notes to the Financial
Statements for additional information with respect to the financing arrangement.
Page 12
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES:
FOR THE NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 1997
Net cash declined by 93% for the nine months ended September 30, 1997 as
compared to 89% for the nine months ended September 30, 1996. Expenditures for
new equipment and capitalized software costs were 39% lower than last year. New
direct borrowings of $2,290,000 from the 1997 loan facility with PICO Holdings,
discussed below, were also incurred. Agreements were reached with various
vendors to extend payments under negotiated payment plans.
The Company's $1.0 million line of credit with Lakeside Bank expired in February
1997. The Company is experiencing working capital constraints which has hindered
operations. To lessen such constraints, on May 5, 1997 the Company entered into
a loan and security agreement with its principal shareholder, PICO Holdings
("PICO"), to provide working capital loans of up to $1.0 million. In connection
with the extension by PICO of such $1.0 million facility, the Company and PICO
restructured the terms of its $2.5 million subordinated convertible debenture
("Debenture"). In August 1997, the Company and PICO amended the loan and
security agreement increasing the facility by $1.0 million to $2.0 million. In
September 1997, the Company and PICO further amended the loan and security
agreement increasing the facility by $0.25 million to $2.25 million and
extending the due date for all borrowings on the facility, plus accrued interest
to December 31, 1997. See footnote 4 of the Notes to the Financial Statements
and Part II of this report for additional information regarding the loan
facility.
In October 1997 the Company issued five million (5,000,000) shares of Common
Stock in exchange for five million dollars ($5,000,000), subject to the
Company's right to repurchase four million shares at one dollar ($1) per share
upon completion of a rights offering. See note 5 of the Footnotes to the
Financial Statements and Part II of this report for additional information
regarding the equity capital infusion.
Page 13
<PAGE>
Part II
ITEM 2. CHANGES IN SECURITIES
On September 22, 1997 the Company and PICO Holdings, Inc., ("Holdings")
executed a second amendment to the Loan and Security Agreement dated as of May
5, 1997, as amended on August 8, 1997 (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 a Common Stock Purchase Warrant entitling Holdings to purchase a
minimum of 129,032 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)
$1.9375 per share. 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.
In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC
(collectively, the "Wexford Affiliates") expended $5.0 million to purchase
five million shares of the Company's Common Stock and warrants to purchase
five hundred thousand shares of the Company's Common Stock at an exercise
price of $2.00 per
Page 14
<PAGE>
share, exercisable at any time prior to October 15, 2002 (the "Initial
Warrants").
The Wexford Affiliates have 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"). Pursuant to the terms of the Purchase Agreement,
on October 15, 1997, the Wexford Affiliates purchased 1,450,000 shares of
Common Stock and the Initial Warrants for a purchase price of $1.45 million.
On October 20, 1997, pursuant to the terms of the Purchase Agreement, the
Wexford Affiliates purchased an additional 550,000 shares of Common Stock for
a purchase price of $0.55 million. On October 23, 1997, pursuant to the
terms of the Purchase Agreement, the Wexford Affiliates purchased an
additional 3,000,000 shares of Common Stock for a purchase price of $3.0
million.
Up to four million of the shares of Common Stock purchased by the Wexford
Affiliates are 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 will use its best
efforts to consummate the Repurchase from the proceeds of the Rights Offering.
In the event that the Rights Offering is not completed on or prior to
January 24, 1998, the Wexford Affiliates will be 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 is
not completed on or prior to February 28, 1998, the Wexford Affiliates will be
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.
In contemplation of the Purchase Agreement, the Wexford Affiliates have
agreed not to participate in the Rights Offering. On October 31, 1997 a Form
S-2 Registration Statement was filed with the Securities and Exchange
Commission for the rights offering.
Page 15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. The following Exhibits are filed herein:
Exhibit 4.1
Form of Common Stock Purchase Warrant for 129,032 shares of the
Company's Common Stock issued to PICO Holdings, Inc.
Exhibit 4.2
Form of Common Stock Purchase Warrant for 350,000 shares of the
Company's Common Stock issued to Imprimis Investors LLC
Exhibit 4.3
Form of Common Stock Purchase Warrant for 150,000 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC
Exhibit 4.4
Form of Common Stock Purchase Warrant for 101,500 shares of the
Company's Common Stock issued to Imprimis Investors LLC
Exhibit 4.5
Form of Common Stock Purchase Warrant for 43,500 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC
.
Exhibit 4.6
Form of Common Stock Purchase Warrant for 38,500 shares of the
Company's Common Stock issued to Imprimis Investors LLC
Exhibit 4.7
Form of Common Stock Purchase Warrant for 16,500 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC
Exhibit 4.8
Form of Common Stock Purchase Warrant for 175,000 shares of the
Company's Common Stock issued to Imprimis Investors LLC
Exhibit 4.9
Form of Common Stock Purchase Warrant for 75,000 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC
Exhibit 4.10
Form of Common Stock Purchase Warrant for 35,000 shares of the
Company's Common Stock issued to Imprimis Investors LLC
Page 16
<PAGE>
Exhibit 4.11
Form of Common Stock Purchase Warrant for 15,000 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC
Exhibit 4.12
Certificate of Amendment dated as of October 22, 1997, to
Company's Certificate of Incorporation.
Exhibit 10.1
Form of Second Joint Amendment to Agreement to Provide
Insurance; Disbursement Request and Authorization; Promissory
Note; and Loan and Security Agreement
Exhibit 10.2
Form of Stock And Warrant Purchase Agreement dated as of
October 15, 1997 between the Company and Imprimis Investors LLC
and Wexford Spectrum Investors LLC
Exhibit 27
Financial Data Schedule
b. The Company's Current Report on Form 8-K was filed on July 16, 1997 and
amended on August 26, 1997.
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, thereunto duly
authorized.
PC QUOTE, INC.
Date: November 14, 1997 By: /s/ Jim R. Porter
-------------------------
Jim R. Porter
Chief Executive Officer
By: /s/ John E. Juska
-------------------------
John E. Juska
Chief Financial Officer
<PAGE>
EXHIBIT 16.1
October 31, 1997
Securities and Exchange Commission
Washington D.C. 20549
We were previously the independent accountants for PC Quote, Inc., and on
March 7, 1997, we reported on the financial statements of PC Quote, Inc. as of
and for the two years ended December 31, 1996. On July 9, 1997, we declined to
stand for reelection as independent accountants of PC Quote, Inc.
We have read PC Quote, Inc.'s statements included under the heading "Change
in Accountants" appearing in the Registration Statement on Form S-2 (Rights
Offering), and we agree with such statements, except we are not in a position to
agree or disagree with the Company's statements relating to actions taken at
meetings of the Company's Board of Directors.
<TABLE>
<S> <C>
/s/ MCGLADREY & PULLEN, LLP
------------------------------------------
McGLADREY & PULLEN, LLP
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in the Registration Statement on
Form S-2 (Rights Offering) of PC Quote, Inc. of our report dated March 7, 1997,
relating to the balance sheets of PC Quote, Inc. as of December 31, 1996 and
1995, and the related statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1996,
which report appears in the December 31, 1996, Annual Report on Form 10-K of PC
Quote, Inc. and to the reference of our firm under the heading "Experts" in the
Registration Statement.
<TABLE>
<S> <C>
/s/ MCGLADREY & PULLEN, LLP
------------------------------------------
McGladrey & Pullen, LLP
</TABLE>
October 31, 1997
Schaumburg, Illinois
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 of
our reports dated March 17, 1995, on our audit of the financial statements and
financial statement schedule of PC Quote, Inc. for the year ended December 31,
1994 as included in the Annual Report on Form 10-K of PC Quote, Inc. for the
year ended December 31, 1996 and to the reference of our firm under the heading
"Experts" in the Registration Statement.
[SIG]
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
November 19, 1997
<PAGE>
PC QUOTE, INC.
SUBSCRIPTION CERTIFICATE NO. ____________ RIGHTS
CUSIP NO. 693236 11 9
THE TERMS AND CONDITIONS OF THE OFFERING ARE SET FORTH IN THE PC QUOTE,
INC. PROSPECTUS DATED _____________, 1997 (THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON
REQUEST FROM PC QUOTE, INC., THE SUBSCRIPTION AGENT AND THE INFORMATION AGENT.
THIS CERTIFICATE OR A NOTICE OF GUARANTEED DELIVER MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 4:30 P.M., CHICAGO TIME, ON DECEMBER
19, 1997 (SUCH DATE, SUBJECT TO EXTENSION AS PROVIDED IN THE PROSPECTUS, IS
REFERRED TO IN THIS CERTIFICATE AS THE "EXPIRATION DATE").
The Rights represented by this Subscription Certificate may be exercised by
duly completing Form 1; and may be transferred, assigned, exercised or sold
through a bank or broker by duly completing Form 2; Rights holders are
advised to review the Prospectus and instructions (copies of which are
available from PC Quote, Inc. and the Subscription Agent) before exercising
or selling their Rights.
IMPORTANT: Complete the appropriate FORM and if applicable, delivery
instructions, and SIGN on reverse side.
SUBSCRIPTION PRICE $1.00 PER SHARE RIGHTS TO PURCHASE
COMMON STOCK OF
PC QUOTE, INC.
The registered owner, or assigns, whose name is inscribed hereon is
entitled to subscribe for shares of Common Stock upon the terms and subject to
the conditions set forth in the Prospectus and instructions relating thereto.
By:_____________________________________________________________________________
Jim R. Porter, Chairman of the Board and Chief Executive Officer
By:_____________________________________________________________________________
Darlene E. Czaja, Secretary
<PAGE>
THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE
AND MAY BE COMBINED OR DIVIDED AT THE OFFICE OF THE SUBSCRIPTION AGENT.
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER
LESS THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW
SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS
EVIDENCED THEREBY.
Delivery: Holder:
American Securities Transfer & Trust, Inc.
Attn: John G. Harmann
938 Quail Street, Suite 101
Lakewood, CO 80215
<PAGE>
FORM 1 - EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocable
exercises one or more Rights evidenced by this Certificate to subscribe for
shares of Common Stock as indicated below, on the terms and subject to the
conditions specified in this Prospectus, receipt of which is hereby
acknowledged.
(a) Number of shares subscribed for pursuant to the Basic Subscription
Privilege. (One Right equal one shares.)
______________X $_____ per share = $______________
(Number of shares - whole number only)
(b) Number of shares subscribed for pursuant to the Oversubscription
Privilege. (No shares may be subscribed for pursuant to the
Oversubscription Privilege unless all of the Rights represented by
this Subscription Certificate are fully exercised pursuant to the
Basic Subscription Privilege)*
______________X $_____ per share = $______________
(Number of shares - whole number only)
(c) Total Subscription Price. (Add far right columns in a and b.)
$______________
METHOD OF PAYMENT (CHECK ONE)
____ CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO ______________.
____ WIRE TRANSFER DIRECTLY TO UNION BANK & TRUST, ACCOUNT NO. 85-
02961, ABA NO. 102000908.
(d) If the number of Rights being exercised pursuant to the Basic
Subscription Privilege is less than all of the Rights represented
by this Subscription Certificate (check only one):
____ DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE
REMAINING RIGHTS TO WHICH I AM ENTITLED.
____ DELIVER A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING
RIGHTS IN ACCORDANCE WITH MY FORM 2 INSTRUCTIONS (please include
any required signature guarantees).
____ CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO
THE DATE HEREOF AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):_________________________________________________
<PAGE>
Window Ticket Number (if any)___________________________________________________
Date of Execution of Notice of Guaranteed Delivery______________________________
Name of Institution which guaranteed delivery___________________________________
<PAGE>
FORM 2
_____ CHECK HERE TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OF
YOUR RIGHTS EVIDENCED HEREBY OR TO EXERCISE OF SELL RIGHTS THROUGH
YOUR BANK OR BROKER: For value received,______ Rights represented by
this Subscription Certificate are hereby assigned to (please print
name and address and Taxpayer Identification No. of transferee in
full:
Name____________________________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Taxpayer Identification No.**___________________________________________________
________________________________________________________________________________
Signature of Subscriber/Transferor***
*The number of Underlying Shares available to Holders pursuant to the
Oversubscription Privilege may be limited in the Prospectus. If the number of
Underlying Shares subscribed for exceeds the number of shares actually tendered
to the subscriber, the portion of the Subscription Price tendered corresponding
to those excess shares shall be returned to the subscriber, without interest, as
soon as practicable after the Expiration Date.
**Social Security Number of individuals.
***For a Transfer, A Signature Guarantee must be provided by an Eligible
Guarantor Institution as defined in Rule 17Ad-15 of the Securities Exchange Act
of 1934.
<PAGE>
INSTRUCTIONS AS TO USE OF PC QUOTE, INC.
SUBSCRIPTION CERTIFICATES
----------------
CONSULT PC QUOTE, INC., THE INFORMATION AGENT, THE SUBSCRIPTION AGENT, YOUR BANK
OR BROKER AS TO ANY QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by PC Quote, Inc., a Delaware corporation (the "Company"), to the
holders of its Common Stock, $.001 par value per share (the "Common Stock"), as
described in the Company's Prospectus dated _________, 1997, as such prospectus
may be amended and/or updated prior to the Expiration Date (as defined below;
such Prospectus, as so amended and/or updated, being the "Prospectus"). Holders
of record of Common Stock at the close of business on November 21, 1997 (the
"Record Date"), are receiving one transferable subscription right (collectively,
the "Rights") for each share of Common Stock held by them of record on the
Record Date. An aggregate of approximately 7,402,246 Rights exercisable to
purchase an aggregate of 7,402,246 shares of Common Stock (the "Underlying
Shares") are being distributed in connection with the Rights Offering. Each
Right entitles its holder (a "Holder") to purchase one share of Common Stock
(the "Basic Subscription Privilege") at $1.00 per share (the "Subscription
Price").
In addition, subject to the allocation described below, each Right entitles
its Holder to subscribe at the Subscription Price for Underlying Shares after
satisfaction of all subscriptions made pursuant to the Basic Subscription
Privilege (the "Oversubscription Privilege"; collectively, with the Basic
Subscription Privilege, the "Subscription Privileges"), provided that all of the
Rights of such Holder have been fully exercised with respect to such Holder's
Basic Subscription Privilege. American Securities Transfer & Trust, Inc., as
subscription agent (the "Subscription Agent"), will endeavor to use their best
efforts to ensure that Holders fully exercise their Basic Subscription
Privileges before subscribing for and acquiring Underlying Shares pursuant to
their Oversubscription Privileges, but such compliance cannot be guaranteed.
Underlying Shares will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that all the Underlying Shares are
not subscribed for through the exercise of the Basic Subscription Privilege by
the Expiration Date (the "Excess Shares"). If the Excess Shares so available are
not sufficient to satisfy all subscriptions pursuant to the Oversubscription
Privilege, the Excess Shares will be allocated pro rata among the Holders who
exercise the Oversubscription Privilege in proportion, not to the number of
shares requested pursuant to the Oversubscription Privilege, but to the number
of shares they have subscribed for pursuant to the Basic Subscription Privilege;
provided, however, that if such pro rata allocation results in any Holder being
allocated a greater number of Excess Shares than such Holder subscribed for
pursuant to the exercise of such Holder's Oversubscription Privilege, then such
Holder will be allocated only such number of Excess Shares as such Holder
subscribed for and the remaining Excess Shares will be allocated among all other
Holders exercising their Oversubscription Privileges. See "The Rights Offering"
in the Prospectus.
<PAGE>
The Rights will expire at 4:30 p.m., Chicago time, on December 19, 1997,
subject to extension as described in the Prospectus (the "Expiration Date").
The number of Rights to which you are entitled is printed on the face of
your subscription certificate (the "Subscription Certificate"). You should
indicate your wishes with regard to the exercise or sale of your Rights by
completing the appropriate form or forms on your subscription certificate and
returning the certificate to the Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION CERTIFICATE MUST BE RECEIVED BY THE SUBSCRIPTION AGENT,
OR GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION
CERTIFICATES MUST BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE
INCLUDING FINAL CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE SUBSCRIPTION
AGENT, ON OR BEFORE 4:30 P.M., CHICAGO TIME, ON THE EXPIRATION DATE (EXCEPT IN
THE CASE OF AN APPROVED PAYMENT METHOD). YOU MAY NOT REVOKE ANY EXERCISE OR A
RIGHT.
1. SUBSCRIPTION PRIVILEGES; EXERCISE.
To exercise Rights, complete Form 1 and send your properly completed and
executed subscription certificate, together with payment in full of the
Subscription Price for all Underlying Shares subscribed for pursuant to the
Subscription Privileges, to the Subscription Agent. Payment of the Subscription
Price must be made in U.S. dollars for the full number of Underlying Shares
being subscribed for by check or bank draft drawn upon a U.S. bank or postal,
telegraphic or express money order payable to American Securities Transfer &
Trust, Inc., as Subscription Agent; by wire transfer of same day funds to the
account maintained by the Subscription Agent for such purpose at Union Bank &
Trust, Account No. 85-02961; ABA No. 102000908; or in such other manner as the
Company may approve in writing in the case of persons acquiring Underlying
Shares at an aggregate Subscription Price of $500,000 or more; provided that, in
the case of clause (c), in any event, the full amount of such Subscription Price
is received by the Subscription Agent in currently available funds by no later
than the fifth (5th) American Stock Exchange trading day following the
Expiration Date (the payment method under (c) being an "Approved Payment
Method"). Payment of the Subscription Price will be deemed to have been received
by the Subscription Agent only upon the clearance of any uncertified check, the
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U.S. bank or any postal, telegraphic or express money order, the receipt
of good funds in the Subscription Agent's account designated above or (iv)
receipt of funds by the Subscription Agent through an Approved Payment Method.
If paying by uncertified personal check, please note that the funds paid thereby
may take at least five (5) business days to clear. Accordingly, Holders who wish
to pay the Subscription Price by means of uncertified personal check are urged
to make payment sufficiently in advance of the Expiration Date to ensure that
such payment is received and clear by such date and are urged to consider
payment by means of certified or cashier's check, money order or wire transfer
of
<PAGE>
funds. You may also transfer your subscription certificate to your bank or
broker in accordance with the procedures specified in Section 3(a) below, make
arrangements for the delivery of funds on your behalf and request such bank or
broker to exercise the subscription certificate on your behalf. Alternatively,
you may cause a written guarantee substantially in the form attached to these
instructions (the "Notice of Guaranteed Delivery") from an "Eligible
Institution" within the meaning of Rule 17Ad-15 under the Securities Act of
1934, to be received by the Subscription Agent at or prior to the Expiration
Date together with payment in full of the applicable Subscription Price. Such
Notice of Guaranteed Delivery must state your name, the number of Rights
represented by your subscription certificate, the number of Underlying Shares
being subscribed for pursuant to the Basic Subscription Privilege, the number of
Underlying Shares, if any, being subscribed for pursuant to the Oversubscription
Privilege and will guarantee the delivery to the Subscription Agent of your
properly completed and executed subscription certificates within five (5)
American Stock Exchange trading days following the date of the Notice of
Guaranteed Delivery. If this procedure is followed, your subscription
certificates must be received by the Subscription Agent within five (5) American
Stock Exchange trading days of the Notice of Guaranteed Delivery. Additional
copies of the Notice of Guaranteed Delivery may be obtained upon request from
the Subscription Agent or Information Agent at the address, or by calling the
telephone number, indicated below.
If more Underlying Shares are subscribed for pursuant to the
Oversubscription Privileges than are available for sale, Underlying Shares will
be allocated, as described above, among persons exercising the Oversubscription
Privilege in proportion to such persons' exercise of Rights pursuant to the
Basic Subscription Privilege.
The address, telephone and telecopier numbers of the Information Agent and
Subscription Agent are as follows:
American Securities Transfer & Trust, Inc.
Attn: John G. Harmann
938 Quail Street, Suite 101
Lakewood, CO 80215
Telephone: (303) 234-5300
Telecopier: (303) 234-5340
If you exercise less than all of the Rights evidenced by your subscription
certificate by so indicating in Form 1 of your subscription certificate, the
Subscription Agent will issue to you a new subscription certificate evidencing
the unexercised Rights. However, if you choose to have a new subscription
certificate sent to you, you may not receive any such new subscription
certificate in sufficient time to permit you to sell or exercise the Rights
evidenced thereby.
If the number of Underlying Shares being subscribed for pursuant to the
Basic Subscription Privilege is not specified, you will be deemed to have
exercised such Basic Subscription Privilege with respect to the maximum whole
number of Shares that may be acquired for the Subscription
<PAGE>
Price payment delivered after allowances for the Subscription Price of any
specified Underlying Shares. If the number of Underlying Shares being subscribed
for is not specified, or full payment of the Subscription Price for the
indicated number of Rights that are being exercised is not forwarded or if the
payment delivered exceeds the required Subscription Price, the payment will be
applied, until depleted, to subscribe for Underlying Shares in the following
order: 1) to subscribe for the number of Underlying Shares indicated, if any,
pursuant to the Basic Subscription Privilege; 2) to subscribe for Underlying
Shares until the Basic Subscription Privilege has been fully exercised with
respect to all of the Rights represented by your Subscription Certificate; and
3) to subscribe for additional Underlying Shares pursuant to the
Oversubscription Privilege (subject to any applicable proration) .
2. DELIVERY OF STOCK CERTIFICATES, ETC.
The following deliveries and payments will be made to the address shown on
the face of your subscription certificate.
(A) BASIC SUBSCRIPTION PRIVILEGE. As soon as practicable after the
Expiration Date, the Subscription Agent will mail to each Holder who
validly exercises the Basic Subscription Privilege certificates
representing shares of Common Stock purchased pursuant to the Basic
Subscription Privilege.
(B) OVERSUBSCRIPTION PRIVILEGE. As soon as practicable after the
Expiration Date, the Subscription Agent will mail to each Holder who
validly exercises the Oversubscription Privilege a certificate representing
the number of shares of Common Stock allocated to such Holder pursuant to
the Oversubscription Privilege.
(C) CASH PAYMENTS. As soon as practicable after the Expiration Date,
the Subscription Agent will mail to each Holder who exercises the
Oversubscription Privilege, without interest, any excess funds received in
payment of the Subscription Price for Underlying Shares that are subscribed
for by such Holder but not allocated to such Holder pursuant to the
Oversubscription Privilege.
3. SALE OR TRANSFER OF RIGHTS.
The Basic Subscription Privilege and the Oversubscription Privilege are
only transferable together, and any transfer of Rights will be deemed a transfer
of both the Basic Subscription Privilege and the Oversubscription Privilege
related thereto. A portion of the Rights evidenced by a single Subscription
Certificate may be transferred only in units to purchase whole shares and
Subscription Certificates may only be divided into units to purchase whole
shares.
(A) SALE OF RIGHTS THROUGH A BANK OR BROKER. To sell all Rights
evidenced by a subscription certificate through your bank or broker, so
indicate on Form 2 and deliver your properly completed and executed
subscription certificate to your bank or broker and have your signature
guaranteed by an Eligible Institution.
<PAGE>
Your subscription certificate should be delivered to your bank or broker in
ample time for it to be exercised. If Form 2 is completed without
designating a transferee, the Subscription Agent may thereafter treat the
bearer of the subscription certificate as the absolute owner of all of the
Rights evidenced by such subscription certificate for all purposes, and the
Subscription Agent shall not be affected by any notice to the contrary.
Your bank or broker cannot issue subscription certificates. If you wish to
sell less than all of the Rights evidenced by a subscription certificate,
either you or your bank or broker must instruct the Subscription Agent as
to the action to be taken with respect to the Rights not sold, or you or
your bank or broker must first have your subscription certificate divided
into subscription certificates of appropriate denominations by following
the instructions in paragraph 4 of these instructions. The subscription
certificates evidencing the number of Rights you intend to sell can then
be transferred by your bank or broker in accordance with the instructions
in this paragraph 3(a).
(B) TRANSFER OF RIGHTS TO A DESIGNATED TRANSFEREE. To transfer all of
your Rights evidenced by your subscription certificate to a transferee
other than a bank or broker, you must check the box for Form 2 and complete
Form 2 in its entirety, execute the subscription certificate and have your
signature guaranteed by an Eligible Institution. If Form 2 is completed
without designating a transferee, the Subscription Agent may thereafter
treat the bearer of the subscription certificate as the absolute owner of
all of the Rights evidenced by such subscription certificate for all
purposes, and the Subscription Agent shall not be affected by any notice to
the contrary. Only the Subscription Agent can issue subscription
certificates. If you wish to transfer less than all of the Rights evidence
by your subscription certificates of appropriate smaller denominations by
following the instructions in paragraph 4 below. The subscription
certificate the number of Rights you intend to transfer can then be
transferred by following the instructions in this paragraph 3(b).
4. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS.
To have a subscription certificate divided into smaller denominations, you
must send your subscription certificate, together with complete separate
instructions (including specification of the denominations into which you wish
your Rights to be divided) signed by you, to the Subscription Agent, allowing a
sufficient amount of time for new subscription certificates to be issued and
returned so that they can be used prior to the Expiration Date. Alternatively,
you may ask a bank or broker to effect such actions on your behalf. Your
signature must be guaranteed by an Eligible Institution if any of the new
subscription certificates are to be issued in a name other than that in which
the old subscription certificate was issued. Subscription certificates may not
be divided into units to purchase fractional shares and any instruction to do so
will be rejected. As a result of delays in the mail, the time of the
transmittal, the necessary processing time and other factors, you or your
transferee may not receive such new subscription certificates in time to enable
the Holder to complete a sale or
<PAGE>
exercise by the Expiration Date. Neither the company nor the Subscription Agent
will be liable to either a transferor or transferee for any such delays.
5. EXECUTION.
(A) EXECUTION BY REGISTERED HOLDER. The signature on the subscription
certificate must correspond with the name of the registered Holder exactly
as it appears on the face of the subscription certificate without any
alteration or change whatsoever. Persons who sign the subscription
certificate in a representative or other fiduciary capacity must indicate
their capacity when signing and, unless waived by the Subscription Agent in
its sole and absolute discretion, must certify to the Subscription Agent
and the Company as to their authority to so act.
(B) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the
subscription certificate is executed by a person other than the Holder
named on the face of the subscription certificate, proper evidence of
authority of the person executing the subscription certificate must
accompany the same unless, for good cause, the Subscription Agent dispenses
with proof of authority.
(C) SIGNATURE GUARANTEES. Your signature must be guaranteed by an
Eligible Institution if you wish to transfer your Rights, as specified 3(b)
above, to a transferee including a bank or broker.
6. METHOD OF DELIVERY.
The method of delivery of subscription certificates and payment of the
Exercise Price to the Subscription Agent will be at the election and risk of the
Holder, but, if sent by mail, it is recommended that they be sent by registered
mail, properly insured, with return receipt requested, and that a sufficient
number of days be allowed by ensure delivery to the Subscription Agent and the
clearance of any checks sent in payment of the Exercise Price prior to 4:30
p.m., Chicago time, on the Expiration Date.
7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE
DEPOSITORY TRUST COMPANY.
In the case of holders of Rights that are held of record through The
Depository Trust Company ("DTC"), the exercise of the Subscription Privileges
may be effected by instructing DTC to transfer Rights (such Rights being "DTC
Exercised Rights"), from the DTC account of such Holder to the DTC account of
the Subscription Agent, together with payment of the Subscription Price for each
Underlying Share subscribed for pursuant to the Subscription Privileges.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION CERTIFICATES
ISSUED BY
PC QUOTE, INC.
This form, or one substantially equivalent hereto, must be used to exercise
Rights pursuant to the Rights Offering described in the Prospectus dated
_______, 1997 (the "Prospectus"), of PC Quote, Inc., a Delaware corporation (the
"Company"), if a holder of Rights cannot deliver the subscription certificate(s)
evidencing the Rights (the "subscription certificate(s)") to the Subscription
Agent listed below (the "Subscription Agent"), at or prior to 4:30 p.m. Chicago
time, on December 19, 1997 (such date, subject to extension as provided in the
Prospectus, is referred to as the "Expiration Date"). Such form must be
delivered by hand or sent by facsimile transmission or mail to the Subscription
Agent, and must be received by the Subscription Agent on or prior to the
Expiration Date. See "The Rights Offering-Exercise of Rights" in the Prospectus.
Payment of the Subscription Price of $1.00 per share for each share of the
Company's Common Stock subscribed for upon exercise of such Rights must be
received by Subscription Agent in the manner specified in the Prospectus at or
prior to 4:30 p.m. Chicago time, on the Expiration Date, even if the
subscription certificate evidencing such Rights is being delivered pursuant to
the procedure for guaranteed delivery thereof.
The Subscription Agent is:
American Securities Transfer & Trust, Inc.
Attn: John G. Harmann
938 Quail Street, Suite 101
Lakewood, CO 80215
Telephone: (303) 234-5300
Telecopier: (303) 234-5340
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby represents that he, she or it is the holder of
subscription certificate(s) representing Rights and that such subscription
certificate(s) cannot be delivered to the Subscription Agent at or before 4:30
p.m., Chicago time on the Expiration Date. Upon the terms and subject to the
conditions set forth in the Prospectus, receipt of which is hereby acknowledged,
the undersigned hereby elects to irrevocably exercise one or more Rights
evidenced by the subscripting certificate to subscribe for shares of Common
Stock as indicated below.
(a) Number of shares subscribed for pursuant x $1.00 per share = $________
to the Basic Subscription Privilege. (Number of shares - whole
(One Right equals one share.) number only)
(b) Number of shares subscribed for pursuant x $1.00 per share = $________
to the Oversubscription Privilege. (No (Number of shares - whole
shares may be subscribed for pursuant to number only)
the Oversubscription Privilege unless all
of the Rights represented by this
Subscription Certificate are fully
exercised pursuant to the Basic
Subscription Privilege.)
(c) Total Subscription Price. (Add far right $________
columns in (a) and (b).)
The undersigned understands that payment in full of the Subscription Price,
as computed above, of $1.00 per share for each share of Common Stock subscribed
for pursuant to the Basic Subscription Privilege and Oversubscription Privilege
must be received by the Subscription Agent at or before 4:30 p.m. Chicago time
on the Expiration Date and represents that such payment either (check or
appropriate box):
[_] is being delivered to the Subscription Agent herewith
or
[_] has been delivered separately to the Subscription Agent, and is or was
delivered in the manner set forth below (check appropriate box and complete
information relating thereto):
[_] wire transfer of funds
name of transferor institution _________________________________________
date of transfer _______________________________________________________
<PAGE>
confirmation number (if available) _____________________________________
[_] uncertified check (Payment by uncertified check will not be deemed to have
been received by the Subscription Agent until such check has cleared.
Holders paying by such means are urged to make payment sufficiently in
advance of the Expiration Date to ensure that such payment clears by such
date.)
[_] certified check
[_] bank draft (cashier's check)
[_] money order
name of maker __________________________________________________________
date of check, draft or money order ____________________________________
check, draft or money order number _____________________________________
bank on which check is drawn or issuer of money order __________________
Signature(s) ________________________ Address _______________________________
_____________________________________ _____________________________________
Name(s) _____________________________ _____________________________________
_____________________________________ Area Code and Tel. No(s). ___________
PLEASE TYPE OR PRINT
Subscription Certificate No(s). (if Available) ______________________________
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SUBSCRIPTION CERTIFICATE SIGNATURE GUARANTEE)
The undersigned, an "Eligible Institution" within the meaning of Rule 17Ad-
15 under the Securities Exchange Act of 1934, guarantees that the undersigned
will deliver to the Subscription Agent the certificates representing the Rights
being exercised hereby, with any required signature guarantees and any other
required documents, all within five (5) American Stock Exchange trading days
after the date hereof.
Dated:
___________________________________ _____________________
___________________________________ ___________________________
(NAME OF FIRM)
___________________________________
(ADDRESS)
___________________________
___________________________________ (AUTHORIZED SIGNATURE)
(AREA CODE AND TELEPHONE NUMBER)
The institution which completes this form must communicate the guarantee to
the Subscription Agent and must deliver the subscription certificate(s) to the
Subscription Agent within the time period shown herein. Failure to do so could
result in a financial loss to such institution.
