<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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
F-21
<PAGE>
Exhibit 4(b)
PC QUOTE, INC.
CONVERTIBLE SUBORDINATED DEBENTURE DUE 2001
PC QUOTE, INC., a corporation duly organized and existing under the laws
of Delaware (herein called the "Company"), for value received, hereby promises
to pay to Physicians Insurance Company of Ohio ("PICO") Two Million Five Hundred
Thousand and 00/100 Dollars ($2,500,000.00) on December 31, 2001, at PICO's
executive offices (or at such other offices or agencies designated for that
purpose by the holder of this Debenture) in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts or in shares of Common Stock of the Company
as more fully set forth on Appendix A hereof and to pay interest from the date
hereof in cash or shares of Common Stock of the Company as more fully set forth
on Appendix A hereof, semiannually on January 1 and July 1 of each year (each an
"Interest Payment Date"), commencing on January 1, 1998, on said principal sum
at said office or agency, in like coin or currency, or at the holder's option in
Company shares of Common Stock, at a rate per annum equal to one percent (1%)
over the prime rate as announced from time to time by THE WALL STREET JOURNAL
until payment of said principal sum has been paid on this Debenture.
Reference is hereby made to the further provisions of this Debenture set
forth on APPENDIX A, including, without limitation, provisions subordinating the
payment of principal and interest on this Debenture to the prior payment in full
of all Senior Indebtedness (as defined herein) and provisions giving the holder
of this Debenture the right to convert, and the Company the right to redeem,
this Debenture into common stock of the Company ("Common Stock"), on the terms
and subject to the limitations referred to on APPENDIX A. Such further
provisions shall for all purposes have the same effect as though fully set forth
at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
manually or by facsimile by the duly authorized officers.
Dated: 11/27/96
Attest: PC QUOTE, INC.
By: /s/ Darlene Czaja By: /s/ Louis J. Morgan
------------------------- -------------------------
Secretary Chairman
<PAGE>
APPENDIX A
----------
PC QUOTE, INC.
CONVERTIBLE SUBORDINATED DEBENTURE DUE 2001
This Debenture is duly authorized by the Company (herein
called the "Debenture"), in the principal amount of Two Million
Five Hundred Thousand Dollars ($2,500,000), together with interest
from the date hereof at an annual rate equal to one percent (1%)
over the prime rate as published from time to time by THE WALL
STREET JOURNAL, the interest to be payable semiannually in cash or
shares of Common Stock of the Company at the holder's option,
commencing on January 1, 1998, with principal and any accrued but
unpaid interest due and payable on December 31, 2001, and is issued
under and pursuant to that certain Agreement dated as of November
14, 1996 (herein called the "Agreement") by and between the Company
and Physicians Insurance Company of Ohio ("PICO"). In case an
Event of Default (defined below) shall have occurred and be
continuing, the principal hereof and accrued interest hereon may be
declared due and payable by the holder hereof by giving notice in
writing to the Company.
An "Event of Default", wherever used herein means any one of
the following events (whether voluntary or involuntary or pursuant
to the subordination provisions hereof, or be effected by operation
of law or pursuant to any judgment, decree or order of any court of
any order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of any installment of interest on
the Debenture as and when it becomes due and payable,
whether or not such payment is prohibited by the
subordination provisions hereof, and continuance of such
default for a period of 30 days; or
(2) default in the payment of principal as and when the same
shall become due and payable at maturity or in connection
with any redemption or otherwise, by declaration or
otherwise and whether or not such payment is prohibited
by the subordination provision hereof and such default
continues for a period of 15 days; or
(3) default in the Company's obligation to deliver shares of
Common Stock upon conversion; or
(4) the entry by a court having jurisdiction in the premises
of (a) a decree or order for relief in respect of the
Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (b) a decree or
order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of
or in respect of the Company under any applicable Federal
or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of all or
substantially all of its property, or ordering the
winding up or liquidation of its
<PAGE>
affairs, and the continuance of any such decree or order
for relief or for any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or
(5) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or state
bankruptcy, insolvency, reorganization or other similar
law, or the consent by it to the entry of a decree or
order for relief in respect of the Company in an
involuntary case or proceeding under any applicable
Federal or state bankruptcy, insolvency, reorganization
or other similar law, other consent by it to the
appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or of all or
substantially all of its property, or the making by it of
general assignment for the benefit of creditors.
The holder of this Debenture may waive any past default or
Event of Default and its consequences. Any such consent or waiver
by the holder of this Debenture shall be conclusive and binding
upon such holder and upon all future holders and owners of this
Debenture and all Debentures which may be issued in exchange or
substitution therefor, irrespective of whether or not any notation
thereof is made upon this Debenture or such other debentures.
Except with respect to the rights of holders of Senior
Indebtedness set forth in this Debenture, no provision of this
Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, or
interest on this Debenture at the price and at the time prescribed
hereunder.
Interest on the Debenture shall be calculated on the basis of
a 360-day year of twelve 30-day months for the period from (and
including) each Interest Payment Date to (but not including) each
following Interest Payment Date. At the option of the holder, all
or any portion of an Interest Payment may be made in shares of
Common Stock having their fair market value equal to the amount of
such Interest Payment represented by such shares.
The registered holder of this Debenture has the right, at its
option, at any time on or prior to the close of business on
December 31, 2001, to convert the principal amount hereof into
1,250,000 fully paid and non-assessable shares of Common Stock at
the conversion price of $2.00 per share (as adjusted in accordance
with this paragraph), upon surrender of this Debenture to the
Company at its executive offices, accompanied by written notice of
conversion duly executed. If the Company at any time subdivides
(by any stock split, stock dividend, recapitalization or otherwise)
its outstanding shares of Common Stock into a greater number of
shares prior to conversion, the Conversion Price shall be
proportionately reduced and the number of shares of Common Stock
obtainable upon conversion shall be proportionately increased. If
the Company at any time combines (by reverse stock split or
conversion) its outstanding shares of Common Stock into a smaller
number of shares prior to conversion, the Conversion Price shall be
proportionately increased and the number of shares of Common Stock
obtainable upon conversion shall be proportionately decreased. The
Company shall not issue fractional shares or scrip representing
fractions of shares of Common Stock upon any such conversion, but
shall make an adjustment therefor in cash on the basis of the then
current market value of such fractional interest. No
-2-
<PAGE>
payment or adjustment shall be made on conversion for interest
accrued hereon or for dividends on Common Stock delivered on
conversion. In the case of a consolidation, merger, or sale or
transfer of substantially all the Company's assets with, into or to
any person or entity or related group of persons or entities which
is not a subsidiary of the Company, the Conversion Price shall be
proportionately adjusted and the number of shares of Common Stock
obtainable upon conversion shall be proportionately adjusted so
that the rights of the holder hereof shall be equitably preserved.
The indebtedness evidenced by this Debenture is expressly
subordinated and subject to right of payment to the prior payment
in full of all indebtedness of the Company to Lakeside Bank, both
secured and unsecured, whether outstanding at the date hereof or
incurred after the date hereof ("Senior Indebtedness"). The
provisions of this paragraph are made for the benefit of all
holders of Senior Indebtedness, and any such holder may proceed to
enforce such provisions. Each holder of this Debenture, by
executing the same, agrees to and shall be bound by such
provisions.
(1) In the event of any insolvency or bankruptcy proceedings,
and any receivorship, liquidation, reorganization or
other similar proceedings relative to the Company or to
its creditors, or to its property, and in the event of
any and if the shares of Common Stock to be issued
conversion are to be issued to in any name other than
that of the registered holder of this Debenture by
instrument of transfer, in form satisfactory to the
Company, duly executed by the registered holder or his
duly authorized attorney and, in case such surrender
shall be made during the period prior to the close of
business proceedings for voluntary liquidation,
dissolution or other winding up of the Company, whether
or not involving insolvency or bankruptcy, then the
holders of Senior Indebtedness shall be entitled to
receive payment in full of all principal and interest on
all Senior Indebtedness before the holder of this
Debenture are entitled to receive any payment on account
of principal or interest on this Debenture, and to that
end (but subject to the power of a court of competent
jurisdiction to make other equitable provision reflecting
the rights conferred in this Debenture upon the Senior
Indebtedness and its holders with respect to the
subordinate indebtedness hereunder and the holder of it
by a lawful plan of reorganization under applicable
bankruptcy law) the holders of Senior Indebtedness shall
be entitled to receive for application in payment of it
any payment or distribution of any kind or character,
whether in cash or property or securities, which may be
payable or deliverable in any proceedings in respect to
this Debenture, except securities which are subordinate
and junior in right of payment to the payment of all
Senior Indebtedness then outstanding; and
(2) In the event of any default in the payment of the
principal of or interest on any Senior Indebtedness and
during the continuation of any such default, no amount
shall be paid by the Company, and the holder of this
Debenture shall not be entitled to receive any amount, in
respect to the principal or interest on this Debenture;
and
-3-
<PAGE>
(3) In the event that this Debenture is declared due and
payable before its expressed maturity because of the
occurrence of an Event of Default (under circumstances
when the provisions of the foregoing clause (1) is
applicable), the holders of the Senior Indebtedness
outstanding at the time the Debenture becomes due and
payable because of the occurrence of an Event of Default
shall be entitled to receive payment in full of all
principal and interest on all Senior Indebtedness before
the holder of this Debenture is entitled to receive any
payment on account of the principal or interest hereon.
No present or future holder of Senior Indebtedness shall be
prejudiced in the right to enforce subordination of this Debenture
by any act or failure to act on the part of the Company. The
provisions of this paragraph are solely for the purpose of defining
the relative rights of the holders of Senior Indebtedness on the
one hand, and the holder of this Debenture on the other hand, and
nothing here shall impair, as between the Company and the holder of
this Debenture, the obligation of the Company, which is
unconditional and absolute, to pay to the holder of this Debenture
principal and interest in accordance with its terms; nor shall
anything here prevent the holder of this Debenture from exercising
all remedies otherwise permitted by applicable law or herein,
subject to the rights, if any, under this paragraph of holders of
Senior Indebtedness to receive cash, property or securities
otherwise payable or deliverable to the holder of this Debenture.
The Company agrees, for the benefit of the holders of Senior
Indebtedness, that in the event that this Debenture is declared due
and payable before its expressed maturity because of the occurrence
of an Event of Default (a) the Company will give prompt notice in
writing of the happening to the holders of Senior Indebtedness, and
(b) all Senior Indebtedness shall become immediately due and
payable on demand, regardless of its expressed maturity.
This Debenture may be redeemed at the option of the Company,
upon a resolution adopted by a majority of the Company's directors
then in office who are neither affiliated with PICO nor designated
by PICO as a nominee to the Company's Board of Directors, solely at
the closing of the Rights Offering (as defined in the Agreement)
(the "Redemption Date") in whole, prior to maturity, upon not less
than 5 nor more than 60 days' prior notice given in writing to the
holder hereof at its registered address, for 1,250,000 shares of
Common Stock at a redemption price of $2.00 per share, as adjusted
pursuant to this paragraph, together with accrued and unpaid
interest to the Redemption Date. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) its outstanding shares of Common Stock into a greater
number of shares prior to the Redemption Date, the Redemption Price
shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of the Company's redemption option
shall be proportionately increased. If the Company at any time
combines (by reverse stock split or otherwise) its outstanding
shares of Common Stock into a smaller number of shares prior to the
Redemption Date, the Redemption Price shall be proportionately
increased and the number of shares of Common Stock obtainable upon
exercise of the Company's redemption option shall be
proportionately decreased. In the case of a consolidation, merger,
or sale or transfer of substantially all of the Company's assets
with, into or to any person or entity or related group of persons
or entities which is not a subsidiary of the Company, the
Redemption Price shall be proportionately adjusted and the number
of shares of Common Stock obtainable upon conversion shall be
proportionately adjusted so that the rights of the holder hereof
shall be
-4-
<PAGE>
equitably preserved. If the Company exercises its redemption
option, interest shall cease to accrue on this Debenture on or
after the Redemption Date.
The Company may deem and treat the registered holder hereof as
an absolute owner of this Debenture (whether or not this Debenture
shall be overdue and notwithstanding any retention of ownership or
other writing hereon made by anyone other than the Company. For
the purpose of receiving payment hereof for conversion hereof and
for all other purposes, and the Company shall not be affected by
any notice to the contrary. All such payments and conversions
shall satisfy and discharge the liability upon this Debenture to
the extent of the sum or sums so paid on the conversion so made.
No recourse for the payment of the principal of, if any, or
interest on this Debenture or for any claim based hereon or
otherwise in respect hereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this Debenture
or because of the creation of any indebtedness represented thereby,
shall be filed against any incorporation, stockholder, officer or
director, as such, past, present or future, of the Company or of
any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by
the acceptance hereof and as part of the consideration for the
issue hereof, expressly waived and released.
THIS DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAW OF THE STATE OF ILLINOIS AND FOR ALL PURPOSES SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID
STATE.
THIS DEBENTURE MAY NOT BE TRANSFERRED EXCEPT TO AFFILIATES OF
PICO WITHOUT THE COMPANY'S EXPRESS WRITTEN CONSENT, AND ANY SUCH
TRANSFER SHALL BE SUBJECT TO COMPLIANCE WITH ALL APPLICABLE FEDERAL
AND STATE SECURITIES LAWS.
-5-
<PAGE>
CONVERSION NOTICE
To: PC Quote, Inc.
The undersigned registered owner of this Debenture hereby
irrevocably exercises the option to convert this Debenture into
shares of Common Stock of PC QUOTE, INC., in accordance with the
terms of this Debenture, and directs that the shares issuable and
deliverable upon the conversion, together with any check in payment
for fractional shares be issued and delivered to the registered
holder hereof unless a different name has been indicated below.
Dated:
-------------------- --------------------------------------
Signature
Fill in for registration of shares to be delivered, and Debentures
if to be issued, other than to and in the name of the registered
holder (Please Print):
- -----------------------------------------------------
(Name)
- -----------------------------------------------------
(Street Address)
- -----------------------------------------------------
(City, State and Zip Code)
- -----------------------------------------------------
Social security or other taxpayer identification number.
-6-
<PAGE>
ASSIGNMENT
For value received___________________________hereby sell(s),
assign(s), and transfer(s) unto
_________________________________________________________________
(Please include social security number or other tax identification
number of assignee) the within Debenture and hereby irrevocably
constitutes and appoints____________________________attorney to
transfer the said Debenture on the books of the Company, with full
power of substitution in the premises.
Dated:
------------------------- --------------------------------
Signature(s)
Signature(s) must be guaranteed by a commercial bank or trust
company or a member firm of a major stock exchange.
- --------------------------------
Signature Guarantee
-7-
<PAGE>
Exhibit 10(p)
Agreement, dated November 14, 1996,
between PC Quote, Inc. and
Physicians Insurance Company of Ohio
15
<PAGE>
AGREEMENT
THIS AGREEMENT is made this 14th day of November, 1996, by and
between PC Quote Inc., a Delaware corporation, and Physicians
Insurance Company of Ohio, an Ohio corporation ("PICO").
1. AGREEMENT:
A. PICO agrees to purchase from PC Quote a Convertible
Subordinated Debenture in substantially the form attached
hereto (the "Debenture") in the principal amount of
$2,500,000 due December 31, 2001 with interest at an
annual rate of one percent (1%) over the prime rate as
announced from time to time by The Wall Street Journal.
Principal will be payable in full on December 31, 2001.
Interest shall accrue from the Closing Date and be
payable semi-annually beginning January 1, 1998.
Interest shall be payable in cash or, at the option of
PICO, in shares of Common Stock of PC Quote at their fair
market value at the time of such payment. The Debenture
shall be convertible at the election of PICO at any time
into 1,250,000 shares of Common Stock of PC Quote (the
"Common Stock"), subject to adjustment as set forth
therein; and the Debenture shall be redeemable by PC
Quote solely at the conclusion of the Rights offering
described below in paragraph 7 for 1,250,000 shares of
Common Stock,
<PAGE>
subject to adjustment. The agreement also provides that
PC Quote shall, (i) at the closing of the Debenture
offering, provide for a five member Board of Directors
composed of Ronald Langley, Louis Morgan, Paul DiBiasio,
John Hart and Michael Ellis. Messrs. Morgan, DiBiasio and
Langley are current members of the Board of Directors.
Messrs. Hart and Ellis have been proposed as nominees to
the Board by PICO; and (ii) establish an Executive
Committee of the Board having full powers authorized by
the Delaware General Corporation Law consisting of Louis
Morgan, Ronald Langley and John Hart. The Debenture
offering is expected to close on or before November 21,
1996.
2. REPRESENTATIONS AND WARRANTIES OF PC QUOTE: PC QUOTE hereby
represents and warrants to PICO as follows:
A. PC Quote presently has authorized 10,000,000 shares of
Common Stock, of which 7,350,000 shares are outstanding,
1,000,000 shares are reserved for outstanding options
under the Company's Incentive Stock Option Plan and up to
100,000 shares are reserved for issuance under the
Company's Employee Stock Purchase Plan.
B. PC Quote has taken all requisite corporate action to
authorize the execution and delivery of this Agreement,
the Debenture and the transactions contemplated hereby
2
<PAGE>
and thereby, including the reservation of an aggregate of
2,500,000 shares of Common Stock for issuance upon
conversion of the Debenture and the Rights offering
described in paragraph 7 below.
C. The shares of Common Stock to be issued upon conversion
or redemption of the Debenture and in payment of any
interest thereon, when so delivered, will be duly and
validly authorized, fully paid and non-assessable.
D. Except as disclosed by the Company to PICO, the execution
and delivery of this Agreement, the Debenture and the
transactions contemplated hereby and thereby do not
conflict with, or cause a default under, any material
indenture, loan agreement, or other contract or agreement
to which PC Quote is a party or by which its property may
be bound or affected, nor any judgment or order of any
court or governmental agency to which PC Quote or its
property is subject; nor is the consent of any
governmental agency required for PC Quote's execution and
delivery of this Agreement, the Debenture or performance
of the transactions contemplated hereby and thereby
except for compliance with applicable federal and state
securities laws.
3. CLOSING DATE: The Closing Date shall be November 21, 1996, at
10:00 o'clock Chicago time, at the Company's executive
3
<PAGE>
offices in Chicago, Illinois or at such other time and place
as the parties may agree.
4. PICO REPRESENTATIONS AND WARRANTIES: PICO represents and
warrants to PC Quote as follows:
A. PICO has taken all requisite corporate action to
authorize the execution and delivery of this Agreement,
the purchase of the Debenture and the transactions
contemplated hereby and thereby, including its agreement
in connection with the Rights offering described in
paragraph 7 below.
B. The execution and delivery of this Agreement, the
purchase of the Debenture and the transactions
contemplated hereby and thereby including its agreement
in connection with the Rights offering described in
paragraph 7 below, do not conflict with, or cause a
default under, any material indenture, loan agreement, or
other contract or agreement to which PICO is a party or
by which its property may be bound or affected, nor any
judgment or order of any court or governmental agency to
which PICO or its property is subject; nor is the consent
of any governmental agency required for PICO's execution
and delivery of this Agreement, purchase of the Debenture
or performance of the transactions contemplated hereby
and thereby including PICO's agreement in connection with
the Rights offering
4
<PAGE>
described in paragraph 7 below, except requisite
compliance with applicable federal and state securities
laws.
5. PICO INVESTMENT REPRESENTATIONS:
PICO represents and warrants to PC Quote that (i) it is in
receipt of PC Quote's Forms 10-Q for the periods ended March
31, 1996 and June 30, 1996 and the draft Form 10-Q for the
quarter ended September 30, 1996; (ii) it is familiar with the
business, prospects and financial condition of PC Quote; (iii)
it understands that the Debenture and all shares of Common
Stock to be received by it upon conversion or redemption of
the Debenture or upon payment of interest will not be
registered under applicable federal or state securities laws
until such time as they are included in a Registration
Statement filed by PC Quote with the Securities Exchange
Commission; (iv) the Debenture and all such shares of Common
Stock are being acquired by PICO for its own account, for
investment purposes only, and not with a view to distribution
or resale; (v) the Debenture and all such shares of Common
Stock cannot be sold or transferred except under a
registration statement, or applicable SEC exemption (such as
Rule 144), and the Debenture and certificates for such shares
will contain a legend to such effect; (vi) representatives of
PICO have had an opportunity to review any additional
documents requested and to ask
5
<PAGE>
questions of, and receive answers from officers of PC Quote
concerning this investment; (vii) PICO and its representatives
have such knowledge and experience in financial and business
matters that PICO is capable of evaluating the merits and
risks of an investment in PC Quote; and (viii) PICO's
financial situation is such that it can comfortably hold the
Debenture and all the shares of Common Stock to be received
for the required period without selling them and can even
sustain a complete loss with respect to such Debenture and/or
shares of Common Stock.
6. STOCKHOLDER APPROVAL: As promptly as practicable PC Quote
agrees to prepare and submit for its shareholders' approval
(i) an amendment to its Certification of Incorporation to
increase its authorized shares of Common Stock to 20,000,000
shares and (ii) ratification of the transactions contemplated
by this Agreement. Such shareholder approval may be by
written consent of the holders of 51% of more of PC Quote's
outstanding shares or at the 1997 annual shareholders'
meeting.
7. RIGHTS OFFERING: PC Quote and PICO each agree as follows:
A. PC Quote agrees to prepare and file with the Securities
and Exchange Commission a Registration Statement (the
"Registration Statement"), and use its best efforts to
have such Registration Statement declared effective, for
a Rights offering to be made pro rata to all its
6
<PAGE>
Shareholders except PICO consisting of 1,250,000 shares
of Common Stock at an exercise price of $2.00 per share.
Such Rights will be non-transferrable, exercisable solely
in cash, will expire 30 days after issuance, and will
provide that PICO shall, at no cost to PICO, exercise for
$2.00 cash per share any such Right which expires
unexercised.
B. PICO agrees within three (3) business days from receipt
of written notice from PC Quote to such effect, to
purchase for $2.00 cash all shares of Common Stock
deliverable upon the exercise of all Rights which have
expired unexercised.
C. To the extent permissible under applicable Federal and
State Securities Laws, PC Quote agrees to include in the
Registration Statement those shares of Common Stock
issuable to PICO upon conversion or redemption of the
Debenture and any other shares of PC Quote common stock
then owned by PICO.
PC QUOTE, INC.
By: /s/ Louis J. Morgan
--------------------------------
Its: Chairman
PHYSICIANS INSURANCE COMPANY OF OHIO
By: /s/ John R. Hart
--------------------------------
Its: President & CEO
7
<PAGE>
EXHIBIT C
Convertible Subordinated Debenture
Due 2001
23
<PAGE>
EXHIBIT 10(q)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 16th day of July, 1996, by and between
PC QUOTE, INC., a Delaware corporation with its principal offices at 300 South
Wacker, Chicago, Illinois (hereinafter called the "Employer") and HOWARD C.
MELTZER (hereinafter called the "Executive") as follows:
WHEREAS, Employer has employed Executive in an executive position, and
currently employs Executive in the position of President and Chief Operating
Officer; and
WHEREAS, it is to the advantage of both parties to have the terms and
conditions of Employer's employment of Executive embodied in a written
agreement;
THEREFORE, in consideration of the mutual promises and covenants contained
herein, the parties hereby agree as follows:
1. EMPLOYMENT
Subject to and upon the terms and conditions hereinafter set forth,
Employer agrees to and hereby does employ Executive as a corporate officer as
described in Section 2 hereof for the period ("Employment Period") commencing as
of July 16, 1996 and ending at the close of business on July 16, 1999, unless
terminated earlier pursuant to Section 6 below, and Executive does hereby accept
and agree to such employment as provided for below.
2. DUTIES
During the Employment Period, Executive shall be employed by Employer as
President and Chief Operating Officer. The Executive shall be, during the
Employment Period, subject always to the supervision, direction and control of
the Chief Executive Officer and Chairman of the Board of Employer, perform such
executive duties and functions as he may be called upon to perform, subject to
the following provisions:
(i) Such executive duties and functions shall be substantially the same
as, or reasonably similar to those customarily performed by the President and
Chief Operating Officer engaged in business comparable to that engaged in by the
Employer from time to time during the Employment Period; and
(ii) Executive shall devote substantially full time and exert his best
efforts in the performance of his duties and functions.
3. COMPENSATION
(i) During the Employment Period, for all services rendered hereunder by
Executive for said Period:
<PAGE>
(a) Employer shall pay Executive an annual Base Salary at such times as
salaries of other officers of Employer are paid. During the Employment Period,
the annual Base Salary shall be no less than $190,000. The Base Salary and
Bonus (provided for below) shall be subject to review and revision by the
Compensation Committee of the Employer's Board of Directors on or about July 16
of each year during the Employment Period.
(b) In addition to the Base Salary, Executive shall be entitled to
participate in any life, accident and health insurance, 401K stock option,
hospitalization, or any other plan or benefit now or hereafter afforded by
Employer to its executives generally if and to the extent Executive is eligible
to participate.
(c) A Bonus program shall be negotiated in good faith by the Executive and
the Employer and put into effect as soon as possible retroactive to the
beginning of the Employment Period and to remain in effect throughout the
Employment Period. Such Bonus program shall contain an annual target bonus
equal to 50% of Executive's annual Base Salary, which bonus, or portions
thereof, may be earned upon Executive's achievement of provided performance
milestones.
(d) In the event of an Unfriendly Takeover of Employer (as hereinafter
defined), Executive shall have the right to terminate his employment at any
time by written notice to Employer. Upon termination of Executive's
employment after an Unfriendly Takeover for any reason whatsoever (including
resignation, dismissal, death or disability as provided in Section 4, or
expiration of the Employment Period), Executive shall receive, in addition to
all other compensation and benefits he may be entitled to under (i) this
Agreement, (ii) the Employer's Stock Option Plan and related option
agreement(s) ("Stock Options"), and (iii) any other written plan to which
Executive and Employer are parties, Termination Compensation in an amount
equal to one times his Base Salary at the date of such termination plus the
cost of continued life, accident, health and hospitalization insurance for a
period of one year beyond the date of such termination; provided, however,
that if an Unfriendly Takeover occurs after the date of Executive's death, or
after the commencement of a period of disability pursuant to Section 4(a),
the provisions of this paragraph (c) shall not apply. Termination
Compensation shall be paid in one lump sum no later than ninety (90) days
after the termination date. For purposes of this Agreement, an Unfriendly
Takeover shall mean any merger or consolidation of Employer with any other
unaffiliated entity or person, an acquisition by an unaffiliated entity or
person of substantially all Employer's assets, any acquisition of fifty
percent (50%) or more of the combining voting power of Employer's stock other
than acquisitions from Executive) by any individual period or entity
(including a group considered a single person under Section 13(d)(3) of the
Securities Exchange Act of 1934 and the Regulations promulgated thereunder,
or equivalent provisions of future laws) or any change in a majority of the
members of the Employer's Board of Directors within any 24 month period
(including the election of new members following an increase in the number of
members of the Board), unless such above event is pursuant to a tender offer,
merger or other plan of reorganization which is approved by a majority of
Employer's Board of Directors in office as of the date hereof.
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<PAGE>
(ii) All compensation, except Termination Compensation and Employee's right
under the Option Plan and related option agreements, shall cease upon the
termination of the Executive's employment or the Employment Period.
Notwithstanding the foregoing, Executives rights and obligations with respect to
options issued to Executive under Employer's Stock Option Plan (the "Option
Plan") shall, in the event of Executive's termination of employment, be governed
by the provisions of the Plan and the Option Agreement(s) which may be issued
thereunder.
(e) Executive shall participate in the Company's Directors and Officer's
Insurance coverage, which is at least $1,000,000 in the aggregate, and provides
protection to Executive concerning liability arising out of actions taken by
Executive in the regular course of performance of his duties under this
Agreement.
(f) The parties agree that an agreement shall be executed and delivered to
the Executive under which the Executive will be granted certain options to
purchase shares in the Employer and that the execution and delivery of such
agreement shall be a condition of Executive's employment hereunder.
(g) In the event Executive's employment by Employer is terminated during
the Employment Period for any reason other than Cause, then Employer shall
provide Executive reasonable outplacement services to be provided by a firm
selected by Executive and reasonably acceptable to Employer.
4. TRADE SECRETS AND CONFIDENTIAL INFORMATION
In the course of the term of employment it is anticipated that Executive
shall have access to secret or confidential information, records, date,
specifications, systems methods, plans, policies, inventions, material and other
knowledge ("Confidential Material") owned by Employer, which are acknowledged by
Executive to be valuable, special and unique aspects of the Employer's business.
All such Confidential Material shall be and remain the property of Employer,
whether or not created by Executive's services. Except as required by his
duties to Employer, Executive shall not, directly or indirectly, either during
the Employment Period or at any time thereafter, disclose or disseminate to
anyone or make use of, for any purpose whatsoever, any Confidential Material.
Upon termination of his employment Executive shall promptly deliver to the
Employer all Confidential Material (including all copies thereof whether
prepared by Executive, Employer or others) which are in the possession or under
the control of Executive.
5. NON-COMPETITION
Executive agrees that, except in accordance with his duties under this
Agreement on behalf of Employer, he will not, during the term of his employment
with Employer and for a period of three (3) months after termination of
Executive's employment with Employer for any reason (the "Non-Competition
Period"):
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<PAGE>
(a) Independent of any other obligation under this Agreement directly, or
indirectly through any other individual, person or entity (i) own, (ii) manage,
(iii) operate, (iv) be employed by, (v) render services to, (vi) become
interested in or associated with, (vii) join in, (viii) control, (ix)
participate in (whether as an officer, director, shareholder, creditor, partner,
promoter, proprietor, associate, employee, representative, or otherwise) or (x)
otherwise carry on any Competing Business (as hereinafter defined); provided,
however, that this paragraph (a) shall not preclude Executive from owning not
more than five percent (5%) of the equity ownership of any Competing Business,
provided that such interest is owned as a passive investment and Executive does
not actively participate in such Competing Business.
(b) Independent of any other obligation under this Agreement, directly, or
individually through any other individual, person or entity solicit, entice,
persuade or induce any individual, person or entity which presently is, or at
any time during the Non-Competition Period shall be, an employee of Employer, to
terminate or refrain from renewing or extending his or her employment with
Employer or to become employed by or enter into a contractual relationship with
Executive or any other individual, person or entity, and Executive shall not
approach any employee for any such purpose or authorize or knowingly cooperate
with the taking of any such action by other individual, person or entity.
(c) Independent of any other obligation under this Agreement, directly, or
indirectly through any other individual, person or entity solicit, entice,
persuade or induce any individual, person or entity which presently is, or at
any time during the Non-Competition Period shall be, a supplier or vendor to
Employer, to terminate, reduce or refrain from renewing or extending its
contractual or other relationship with Employer, and the Executive shall not
approach any such supplier or vendor for any such purpose or authorize or
knowingly cooperate with the taking of any such action by any other individual,
person or entity.
(d) Independent of any other obligation under this Agreement, directly,
or indirectly through any other individual, person or entity solicit, entice,
persuade, induce, contact or otherwise discuss with any individual person or
entity which presently is, or at any time during the Non-Competition Period
shall be, a customer of Employer, to terminate, reduce or refrain for
renewing or extending its contractual or other relationship with the
Employer, or to become a customer of or enter into any contractual or other
relationship with any Competing Business for or to provide goods or services
of the type provided by Employer or Executive shall not approach any such
customer for any such purpose or authorize or knowingly cooperate with the
taking of any such action by any other individual, person or entity.
(e) For purposes of this Agreement, a Competing Business shall include any
business conducted in whole or in part within the continental United States of
providing stock or securities price quotations to brokerage firms, banks, trust
companies or insurance companies.
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<PAGE>
6. TERMINATION FOR CAUSE
Notwithstanding any other provision of this Agreement, Executive's
employment and the Employment Period may be terminated at any time for "cause."
Cause means any one or more of the following events:
(i) any material act of fraud or dishonesty on the part of Executive in
connection with his employment;
(ii) a judgment convicting the Executive for any crime or offense
constituting a felony under the laws of any local, state or federal criminal
statute, including without limitation, a conviction for any act of dishonesty
such as embezzlement, theft, larceny or for assault or battery;
(iii) any failure by Executive to perform his duties and functions as
required pursuant to Section 2 above, which failure continued or reoccurred
after the Company has notified, IN WRITING, the Executive of the initial failure
and provided the Executive with a period of 30 days to cure the failure and
properly perform his duties and functions as required by the Company; or
(iv) any other breach by the Executive of this Agreement or the policies of
the Company.
7. RENEWAL
Upon the expiration of the initial three year Employment Period,
Executive's employment and the Employment Period shall be renewed and continue
automatically on an annual basis in one year terms unless and until one of the
parties delivers to the other a written notice of intention to terminate at
least ninety days prior to the expiration of the then existing Employment
Period. At all times, the parties maintain their rights to terminate the
Agreement and the Employment Period pursuant to Sections 3(d) and 6.
In the event that the Employer does not RENEW Executive's employment at the
end of the initial Employment Period, for reasons other than Cause, the Employer
shall pay to Executive an amount equal to one (1) times his Base Salary at the
time of non-renewal and the costs of continued life, accident, health and
hospitalization insurance for a period of one year beyond the end of the initial
Employment Period ("Non-Renewal Compensation"). Thereafter, Executive shall be
entitled to COBRA benefits. The Non-Renewal Compensation shall be paid to the
Executive in six equal monthly installments beginning on the last day of the
month following the termination of Executive's Employment. Such payments will
be suspended and all unpaid Non-Renewal Compensation forfeited in the event that
Executive breaches any provision of the Agreement.
-5-
<PAGE>
8. RESIGNATION
In the event that Executive chooses not to accept renewal of his Employment
and the Employment Period or at any time resigns or otherwise terminates his
employment, the Executive shall deliver to the Employer notice of his decision
at least 30 days prior to the resignation, termination or non-renewal.
9. NOTICES
Any notice required to be given under this Agreement shall be in writing
and sent registered or certified mail, return receipt requested, to the parties'
respective address(es), or to an address respectively designated in writing by a
party. Unless Executive designates another address, notices addressed to him
may be sent to his attention at the principal office of Employer in Chicago.
10. MISCELLANEOUS
(a) Whether or not expressly stated, "Employer", as used herein, shall,
unless the context clearly otherwise requires, include each and every
"affiliate" thereof and "affiliate" wherever used shall have the meaning
presently provided in Rule 12b-2 of the General Rules and Regulations
promulgated under the Securities Exchange Act of 1934.
(b) The rights and obligations of Employer shall inure to the benefit of
and be binding upon any successor, transferee or assign of Employer. This
Agreement is personal to Executive and shall not be assigned by him to any other
party whatsoever; however, the rights of Executive shall inure to the benefit of
his heirs or legal representatives.
(c) All rights and remedies provided in this Agreement or by law are
cumulative and severable. The pursuance of any remedy by either party shall not
be deemed a waiver of other remedies, and if any right or remedy provided shall
ever be held invalid or unenforceable, the other rights and remedies provided
shall not be affected by such holding.
(d) This Agreement contains the entire agreement of the parties hereto and
may only be amended by the written mutual agreement of the parties hereto. This
Agreement supersedes, nullifies and replaces any prior existing agreements,
written or otherwise, between the parties.
-6-
<PAGE>
(e) This Agreement has been executed in Chicago, Illinois and shall be
governed by the laws of Illinois.
PC QUOTE, INC. (Employer)
By: /s/ LOUIS J. MORGAN
-------------------------------
Louis J. Morgan, Chairman
ATTEST:
/s/ DARLENE E. CZAJA
- --------------------------------------
Darlene E. Czaja, Corporate Secretary
ACCEPTED:
/s/ HOWARD C. MELTZER
- ---------------------------------------
Howard C. Meltzer (Executive)
-7-
<PAGE>
Exhibit 10(r)
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 2nd day of December, 1996, by and between PC
QUOTE, INC., a Delaware corporation ("Employer") and LOUIS J. MORGAN
("Employee").
RECITALS
WHEREAS, Employee has served as the Chairman of the Board and the Chief
Executive Officer of Employer for the past several years;
WHEREAS, Employer and Employee have entered into an employment agreement
dated February 15, 1989 (the "1989 Agreement") providing for the employment and
compensation of Employee as Chief Executive Officer and Chairman of the Board of
Employer for the past several years;
WHEREAS, Employer and Employee wish to enter into a new employment
agreement (hereinafter "Agreement") which would replace the 1989 Agreement and
which would set forth the specific terms and conditions of Employee's continued
employment by Employer;
WHEREAS, Employee acknowledges that during the course of his employment,
he will have access to certain secret and confidential matters belonging to
Employer and other confidential and sensitive information belonging to or
relating to Employer and/or to Employer's employees, prospective employees,
clients, prospective clients, suppliers, prospective suppliers, and
independent contractors;
WHEREAS, Employer's relationship with its clients, its ongoing service to
them, and the protections of confidential, unique and secret information
belonging to the Employer and its clients are vital to the continued operation
of the Employer's business, and the divulgence of any of the above stated
information would constitute an irreparable injury to Employer and or its
clients;
NOW THEREFORE, Employer and Employee agree as follows:
A. DUTIES.
Employee shall serve as the Chairman of the Board of Directors of Employer
and shall carry out all reasonable duties assigned to persons occupying these
positions under the certificate of incorporation of Employer, any additional
duties that are customarily assumed by persons occupying these positions, and
any other duties that Employee and the Board of Directors of Employer shall
agree upon.
<PAGE>
B. COMPENSATION AND OTHER TERMS AND CONDITIONS OF EMPLOYMENT.
1. SALARY. During the Term (as defined in paragraph F. herein) of
this Agreement, Employer shall pay to Employee a salary at an annual rate of
$251,000 in equal installments as nearly as practicable on the fifteenth and
last days of each month in arrears.
2. EXPENSES. During the Term of this Agreement, the Employee shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Employee in performing services hereunder, provided that such expenses
are incurred and accounted for in accordance with the policies and procedures
established by the Employer.
3. OTHER BENEFITS. The Employee shall be entitled to participate in
or receive benefits under any employee benefit plan, insurance or arrangement
made available by the Employer, whether currently maintained by the Employer or
made available by the Employer in the future, to its executives and key
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. The
Employer shall maintain in full force and effect, and the Employee shall be
entitled to continue to participate in, all of its Employee benefit plans,
insurance and arrangements in effect on the date hereof in which the Employee
participates, or plans or arrangements providing the Employee with at least
equivalent benefits thereunder.
4. VACATIONS. During the Term of this Agreement, Employee shall be
entitled to reasonable vacation periods during which his compensation shall be
paid in full. Vacation periods substantially equivalent to those taken by
Employee while performing his present duties prior to execution of this
Agreement shall be considered reasonable.
5. OTHER COMPENSATION. Employee shall be entitled to any
compensation in addition to the amounts set forth above deemed appropriate by
Employer, including without limitation stock options.
6. EFFECT OF EARLY TERMINATION. In the event this Agreement is
terminated early under Paragraph F herein, Employee's compensation and benefits
will be prorated based on the number of days Employee was employed under this
Agreement.
C. BEST EFFORTS.
1. EMPLOYEE. Employee agrees that he will at all times faithfully
and industriously perform all of his duties that may be required of and from him
to the reasonable satisfaction of Employer. Employee further agrees that during
the term of this Agreement he will not engage in or become interested in any
other business, calling or enterprise which is or may be contrary to or in
competition with the interest, welfare, or benefit of Employer.
-2-
<PAGE>
2. EMPLOYER. Employer agrees to use its best efforts to secure the
election of Employee as a member of the Employer's Board of Directors at the
Employer's next shareholder meeting.
D. CONFIDENTIALITY.
1. SCOPE. Employee shall not at any time during the term of his
employment with Employer or for a period of twelve (12) calendar months after
the termination of Employee's employment, regardless of who initiated such
termination, communicate, divulge or disclose for use by himself or others any
information or knowledge, disclosed or otherwise obtained by him during his
employment by Employer (including but not limited to information and knowledge
conceived, discovered or developed by Employee) which is not generally known in
Employer's industry and which is related to the business of Employer or the
business or the Employer's customers or suppliers or is in the nature of a trade
secret of Employer or Employer's customers or suppliers.
2. RETURN OF PAPERS. At the time of Employee's termination or
demand by Employer (whichever is sooner), Employee shall promptly turn over to
Employer all books, records, papers and other documents obtained in the course
of Employee's duties under this Agreement.
E. REMEDIES.
In the event of any violation of Paragraphs C or D herein, Employer
shall be authorized and entitled to obtain from any court of competent
jurisdiction preliminary and permanent injunctive relief as well as an equitable
accounting of all profits or benefits arising out of such violation, which
rights and remedies shall be cumulative and in addition to any other rights or
remedies to which Employer may be entitled, including the right to damages
directly or indirectly sustained by Employer. The prevailing party shall be
paid reasonable attorney fees, court costs and litigation expenses incurred in
enforcing any provisions of this Agreement.
F. TERM.
The term of this Agreement shall be one year beginning on the 2nd day
of December, 1996 (the Term). However, notwithstanding the foregoing, Employee
may terminate Employee's employment with Employer at any time without cause upon
giving thirty (30) days written notice to Employer, and further provided that
Employer may at any time terminate Employee's employment upon giving ten (10)
days notice only on the basis of Employee's dishonesty, conviction of a felony
or gross misconduct. If Employee's employment is involuntarily terminated by
Employer during the Term of this Agreement for any other reason, Employee shall
continue to receive the compensation and other benefits set forth herein through
December 2, 1997.
-3-
<PAGE>
G. NOTICES.
All notices pursuant to this Agreement must be in writing. All
notices to Employer shall be addressed to the main office of Employer at 300
South Wacker Drive, Chicago, Illinois, or at such other address as Employer may
hereafter designate by written notice to Employee given in accordance with this
paragraph and all notices to Employee shall be addressed to the Employee at the
office in which he is based with a copy to his home address as last indicated in
the books and records of the Employer or at such other address as Employee may
hereafter designate by written notice to Employer given in accordance with this
Paragraph. All notices shall be considered effective when delivered personally
to Employer or Employee or two (2) days after deposit of said notice in the
United States mail, registered mail, postage prepaid, return receipt requested,
addressed to the address of the party to whom directed as hereinabove set forth.
H. ADDITIONAL PROVISIONS.
1. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between Employer and Employee, and all of the terms and conditions of this
Agreement take precedence over any and all prior understandings and agreements
made by and between Employer and Employee regarding employment and the execution
of this Agreement shall constitute the termination of any and all such prior
agreements.
2. SEVERABILITY. In the event any of the restrictions contained in
this Agreement are held to be in any respect an unreasonable restriction upon
Employee, then the court so holding shall reduce the territory to which it
pertains and/or the period of time in which it operates, or effect any other
change to the extent necessary to render any of the restrictions enforceable.
Each of the terms and provisions of this Agreement is and is to be deemed
severable in whole or in part and, if any term or provision or the application
thereof in any circumstances should be invalid, illegal or unenforceable, the
remaining terms and provisions or the application thereof to circumstances other
than those as to which it is held invalid, illegal or unenforceable, shall not
be affected thereby and shall remain in full force and effect.
3. ASSIGNMENT. The rights and obligations of Employer and Employee
hereunder shall inure to the benefit of and be binding upon any successor or
assign of Employer. This Agreement is personal to Employee and shall not be
assigned by him to any other party whatsoever.
4. EFFECT OF WAIVER. The waiver by Employer of any breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee. No waiver shall be legally
operative unless in writing and signed by an authorized agent of Employer.
5. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Illinois.
-4-
<PAGE>
6. AMENDMENT. This Agreement, unless otherwise herein stated
herein, may only be amended by the written mutual agreement of the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
EMPLOYER:
PC QUOTE, INC.
By: /s/ Howard C. Meltzer
------------------------------
President
EMPLOYEE:
/s/ Louis J. Morgan
------------------------------
Louis J. Morgan
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,321,512
<SECURITIES> 0
<RECEIVABLES> 1,100,253
<ALLOWANCES> 234,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,646,836
<PP&E> 10,556,056
<DEPRECIATION> 7,791,849
<TOTAL-ASSETS> 11,554,070
<CURRENT-LIABILITIES> 4,137,857
<BONDS> 1,100,000
0
0
<COMMON> 7,356
<OTHER-SE> 5,324,221
<TOTAL-LIABILITY-AND-EQUITY> 11,554,070
<SALES> 0
<TOTAL-REVENUES> 17,032,164
<CGS> 0
<TOTAL-COSTS> 11,123,520
<OTHER-EXPENSES> 8,866,474
<LOSS-PROVISION> 734,346
<INTEREST-EXPENSE> 143,618
<INCOME-PRETAX> (3,091,705)
<INCOME-TAX> 164,264
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,255,969)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
