<PAGE>
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
---------------------------------
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 1998
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
-------------to--------------
---------------------------------------
Commission file number 0-13093
I.R.S. Employer Identification Number 36-3131704
PC QUOTE, INC.
(a Delaware Corporation)
300 S. Wacker
Chicago, Illinois 60606
Telephone (312) 913-2800
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve months, (or for such
shorter period that the Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No ____
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: 13,359,462 shares of the Company's
common stock ($.001 par value) were outstanding as of November 10, 1998.
Page 1
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<TABLE>
<CAPTION>
PC QUOTE, INC.
INDEX
PAGE
<S> <C>
PART I. Financial Information
Item 1. Balance Sheets as of September 30, 1998 and
December 31, 1997 3
Statements of Operations for the nine month periods
ended September 30, 1998 and 1997 5
Statements of Operations for the three month periods
ended September 30, 1998 and 1997 6
Statements of Cash Flows for the nine month periods
ended September 30, 1998 and 1997 7
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition 15
Liquidity and Capital Resources 16
Year 2000 Issues 18
Recently Issued Accounting Pronouncements 19
PART II Other Information
Item 2. Changes in Securities 20
Item 6. Exhibits and Reports on Form 8-K 21
Company's Signature Page 22
</TABLE>
Page 2
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PC QUOTE, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 and DECEMBER 31, 1997
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
(Unaudited) (Audited)
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 170,912 $ 1,113,130
Accounts receivable, net of allowance for
doubtful accounts of: 1998: $485,000; 1997:
$346,000 2,596,481 1,435,450
Prepaid expenses and other current assets 80,724 61,981
-------------- --------------
Total current assets 2,848,117 2,610,561
-------------- --------------
PROPERTY AND EQUIPMENT
Satellite receiving equipment 932,764 895,126
Computer equipment 7,641,610 7,266,576
Communication equipment 2,922,666 2,716,415
Furniture and fixtures 314,208 293,240
Leasehold improvements 402,692 366,325
------------ ------------
12,213,940 11,537,682
Less: Accumulated depreciation and amortization 9,942,896 9,035,571
-------------- --------------
2,271,044 2,502,111
-------------- --------------
OTHER ASSETS
Software development costs, net of accumulated 5,109,555 5,126,473
amortization of: 1998: $4,805,059; 1997:
$5,045,080
Deposits and other assets 244,567 297,303
-------------- -------------
TOTAL ASSETS $ 10,473,283 $ 10,536,448
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
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PC QUOTE, INC.
BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 1998 and DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) September 30, December 31,
1998 1997
(Unaudited) (Audited)
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Note payable, bank, current $ 300,000 $ 300,000
Convertible subordinated debenture payable 2,500,000 -
Note payable, credit facility 3,250,000 2,250,000
Accounts payable 4,591,232 2,834,460
Accrued expenses 300,577 604,916
Accrued compensation 405,113 618,289
Accrued interest 817,290 388,253
Income taxes payable - 5,192
Unearned revenue, current 1,122,087 635,275
------------ ------------
Total current liabilities 13,286,299 7,636,385
------------ ------------
LONG-TERM LIABILITIES
Note payable, bank, noncurrent 574,634 799,634
Convertible subordinated debenture
payable, net of unamortized discount of
$1,096,402 - 1,403,598
Unearned revenue, noncurrent 268,833 442,953
Accrued expenses, noncurrent 167,727 187,549
------------ ------------
Total long-term liabilities 1,011,194 2,833,734
------------ ------------
TOTAL LIABILITIES 14,297,493 10,470,119
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.001; 50,000,000
shares authorized:1998: 13,357,307 and
1997: 12,436,800 shares issued and
outstanding 13,357 12,437
Additional paid-in capital 18,653,417 17,386,591
Additional paid-in capital - convertible subordinated
debenture and warrants 2,750,491 2,750,491
Accumulated deficit (25,241,475) (20,083,190)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (3,824,210) 66,329
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
$ 10,473,283 $ 10,536,448
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PC QUOTE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------- -----------------------------------------
| For the Nine Months Ended
| September 30,
- ------------------------------------------------------------- -----------------------------------------
1998 1997
(Unaudited) (Unaudited)
------------- --------------
<S> <C> <C>
Revenue
Satellite and terrestrial services $ 9,580,113 $ 9,279,867
Internet products and services 7,393,902 3,395,905
------------ ------------
Total revenue 16,974,015 12,675,772
------------ ------------
Operating expenses
Operations and customer service 6,110,165 6,283,608
License and exchange fees 4,910,316 3,312,426
Sales 3,518,483 2,756,635
Depreciation and amortization 2,409,325 2,152,356
General and administrative 2,430,267 2,911,913
Product and market development 1,172,461 1,265,210
Restructuring expense -- 1,146,677
------------ ------------
Total operating expenses 20,551,017 19,828,825
------------ ------------
Loss from operations (3,577,002) (7,153,053)
Other income (expense)
Interest income 14,904 14,721
Interest expense (1,596,187) (1,259,944)
------------ ------------
($ 5,158,285) ($ 8,398,276)
------------ ------------
------------ ------------
Net basic and diluted loss per common share ($ 0.40) ($ 1.14)
Shares used in computing net basic and diluted loss per
common share 12,841,886 7,364,987
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PC QUOTE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------- -----------------------------------
| For the Three Months Ended
| September 30,
- ---------------------------------------------------------------- -----------------------------------
1998 1997
(Unaudited) (Unaudited)
------------- -----------
<S> <C> <C>
Revenue
Satellite and terrestrial services $ 3,372,881 $ 3,111,677
Internet products and services 2,864,829 1,337,691
------------ -----------
Total revenue 6,237,710 4,449,368
------------ -----------
Operating Expenses
Operations and customer service 1,871,198 2,127,392
License and exchange fees 1,955,474 1,131,224
Sales 1,127,987 903,055
Depreciation and amortization 837,307 757,242
General and administrative 794,922 796,953
Product and market development 388,201 341,203
------------ -----------
Total operating expenses 6,975,089 6,057,069
------------ -----------
Loss from operations (737,379) (1,607,701)
Other Income (Expense)
Interest income 2,948 1,587
Interest expense (176,624) (705,886)
------------ -----------
Net loss ($ 911,055) ($2,312,000)
------------ -----------
------------ -----------
Net basic and diluted loss per common share ($0.07) ($0.31)
Shares used in computing net basic and
diluted loss per common share 13,284,274 7,373,085
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6
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PC QUOTE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------- ----------------------------------------
| For the Nine Months Ended
| September 30,
- ------------------------------------------------------- ----------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($5,158,285) ($8,398,276)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of property
and equipment 907,325 902,306
Amortization of software development costs 1,502,000 1,250,051
Amortization of deferred debt on warrants -- 442,640
Amortization of discount on convertible
subordinated debenture payable 1,096,402 467,016
Write-off of capitalized software development
costs -- 571,647
Changes in assets and liabilities:
Accounts receivable, net of allowance (1,161,031) 198,727
Income tax refunds receivable -- 40,000
Prepaid expenses and other current assets (18,743) 3,026
Deposits and other assets 52,736 48,459
Accounts payable 1,756,772 2,268,072
Accrued expenses (113,492) 700,093
Unearned revenue 312,693 (15,258)
----------- -----------
Net cash used in operating activities (823,623) (1,521,497)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (676,258) (526,779)
Software development costs capitalized (1,485,083) (1,158,482)
----------- -----------
Net cash used in investing activities (2,161,341) (1,685,261)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 4,256,695 48,839
Repurchase of common stock (2,988,949) --
Net borrowings under credit facility 1,000,000 2,290,000
Principal payments under capital lease obligations -- (142,685)
Principal payments on note payable, bank (225,000) (225,000)
----------- -----------
Net cash provided by financing activities 2,042,746 1,971,154
----------- -----------
Net decrease in cash and cash equivalents (942,218) (1,235,604)
Cash and cash equivalents:
Beginning of period 1,113,130 1,321,512
----------- -----------
End of period $ 170,912 $ 85,908
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 7
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<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosure of cash flow information
Interest paid $70,747 $171,173
Income taxes paid $ 3,517 --
Supplemental disclosure of non-cash investing transactions and financing
activities
Additional paid-in-capital from issuance of warrants -- $979,097
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 8
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PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and in conjunction with the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The interim financial
statements include all adjustments that, in the opinion of management, are
necessary in order to make the financial statements not misleading. The
amounts indicated as "audited" have been extracted from the Company's
December 31, 1997 annual report. For further information, refer to the
financial statements and footnotes included in PC Quote's ( the "Company")
annual report on Form 10-K for the year ended December 31, 1997.
SOFTWARE DEVELOPMENT COSTS: Costs associated with the planning and designing
phase of software development, including coding and testing activities necessary
to establish technological feasibility of computer software products to be sold,
leased or otherwise marketed, are charged to product development costs as
incurred. Once technological feasibility has been determined, costs incurred in
the construction phase of software development, including coding, testing and
product quality assurance, are capitalized.
Amortization commences at the time of capitalization or, in the case of a new
product or service offering, at the time the new product or service becomes
available for use. Unamortized capitalized costs determined to be in excess of
the net realizable value of the product are expensed at the date of such
determination. The accumulated amortization and related software development
costs are removed from the respective accounts effective in the year following
full amortization.
PC Quote, Inc.'s policy is to amortize capitalized software costs by the greater
of (a) the ratio that current gross revenue for a product bears to the total of
current and anticipated future gross revenue for that product or (b) the
straight line method over the remaining estimated economic life of the product
including the period being reported on, principally three to five years. The
Company assesses the recoverability of its software development costs against
estimated future undiscounted cash flows. Given the highly competitive
environment and technological changes it is reasonably possible that those
estimates of anticipated future gross revenue, the remaining estimated economic
life of the product, or both may be reduced significantly.
FINANCIAL INSTRUMENTS: The Company has no financial instruments for which the
carrying value materially differs from fair value.
INCOME TAXES: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Page 9
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PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
REVENUE RECOGNITION: Revenue from service contracts is recognized as the
contracted services are rendered. The Company bills for services one month in
advance; billings are due within 30 days. The unearned revenue has been
reflected net of the related receivable on the balance sheet. Customers'
deposits or prepayments are classified as unearned revenue. Customers' deposits
on contracts greater than one year are classified as non-current unearned
revenue.
(2) RECLASSIFICATIONS
The statement of operations has been modified to enhance information to the
shareholder. The 1997 statements of operations have been reclassified to conform
with the 1998 presentation. The statement of operations for the nine months
ended September 30, 1997 included herein includes the reclassification of
amounts previously reported by the Company in the Statements of Operations
for the three and six month periods ended March 31, 1997 and June 30, 1997,
respectively. Such amounts were not material to the statement of operations
in any such period.
(3) INCOME TAXES
At December 31, 1997, the Company had federal income tax net operating loss
carryforwards of approximately $23,183,315 for federal income tax purposes and
approximately $20,387,000 for alternative minimum tax purposes. The future
utilization of these net operating losses will be limited due to changes in
Company ownership. The net operating loss carryforwards will expire, if not
previously utilized, in the years 1999 to 2012.
(4) FINANCING AND RELATED PARTY TRANSACTIONS
On November 14, 1996, the Company entered into an agreement (the "Debenture
Agreement") with Physicians Insurance Company of Ohio, ("Physicians"), which
then owned approximately 30% of the Company's outstanding shares of Common
Stock. Pursuant to the Debenture Agreement, PICO invested $2.5 million in the
Company in exchange for a Subordinated Convertible Debenture (the "Debenture")
in the principal amount of $2.5 million with interest at 1% over prime. Interest
is payable semiannually, beginning January 1, 1998. PICO made the investment and
the Debenture was issued on December 2, 1996. The Debenture was to mature on
December 31, 2001.
On May 5, 1997, the Company and PICO Holdings, Inc. ("PICO") entered into a Loan
and Security Agreement (the "Loan Agreement"), under which PICO agreed to make a
secured loan to the Company in an aggregate principal amount of up to $1.0
million at a fixed rate equal to 14% per annum. Unless otherwise extended, the
entire principal balance and all accrued interest due under the Loan Agreement
were payable on September 30, 1997. All advances under the Loan Agreement are
secured by a pledge of substantially all of the assets of the Company. These
liens are subject to the prior lien of the Company's primary lender, Lakeside
Bank. PICO was also entitled to be paid a "facility fee" of $40,000 on the
maturity date of the loan contemplated by the Loan Agreement.
Page 10
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PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
In connection with the Loan Agreement, the Company and Physicians entered into a
First Amendment to the Debenture (the "Debenture Amendment"), pursuant to which
the terms of the Debenture were restructured as follows: (a) the maturity date
of the Debenture is now April 30, 1999 instead of December 31, 2001: (b) the
Debenture may not be prepaid or redeemed without the consent of PICO; (c) the
conversion rate on the Debenture was changed from $2.00 per share to the lower
of (i) the mean of the closing bid price per share for the 20 trading days
preceding exercise of the Debenture or (ii) $1.5625 per share (the market price
of the Company's Common Stock on the date of the Debenture Amendment); and (d)
certain negative covenants were added to the Debenture Agreement. Interest under
the Debenture continues to be payable in cash or, at the option of Physicians,
in shares of the Company's Common Stock.
Also on May 5,1997, in consideration of the loan by PICO to the Company, the
Company issued a Common Stock Purchase Warrant (the "Warrant") to PICO entitling
PICO to purchase a minimum of 640,000 shares of the Company's Common Stock at a
price per share (the "Warrant Price") equal to the lesser of (a) the mean of the
closing bid price per share for the 20 trading days preceding exercise of the
Warrant or (b) $1.5625 per share (the market value of the Company's Common Stock
on the date the Warrant was issued). The Warrant expires on April 30, 2000. In
lieu of exercising the Warrant for cash, PICO may elect to receive shares of the
Company's Common Stock equal to the "value" of the Warrant determined in
accordance with a formula specified in the Warrant (the "Conversion Value"). The
number of shares of the Company's Common Stock subject to the Warrant and the
Warrant Price will be adjusted to reflect stock dividends; reclassifications or
changes of outstanding securities of the Company; any consolidation, merger or
reorganization of the Company; stock splits; issuances of rights, options or
warrants to all holders of shares of the Company's Common Stock exercisable at
less than the current market price per share; and other distributions to all
holders of shares of the Company's Common Stock. In the event of any sale,
license or other disposition of all or substantially all of the assets of the
Company or any reorganization, consolidation or merger involving the Company in
which the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity (an "Acquisition"), if the successor entity does not assume the
obligations of the Warrant and PICO has not fully exercised the Warrant, the
unexercised portion of the Warrant will be deemed automatically converted into
shares of the Company's Common Stock at the Conversion Value. Alternatively,
PICO may elect to cause the Company to purchase the exercised portion of the
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received had
PICO exercised the unexercised portion of the Warrant immediately before the
record date for determining stockholders entitled to participate in the proceeds
of the Acquisition, less (b) the aggregate Warrant Price. The Warrant also
provides for certain piggyback registration rights and a one-time demand
registration right.
Page 11
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PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
In August 1997, the Company and PICO agreed to amend the Loan Agreement and
related documents to increase the amount of the secured loan from PICO to the
Company from $1.0 million up to $2.0 million. The terms of the Loan Agreement
otherwise remained substantially the same, except that the "facility fee" of
$40,000 was eliminated for new advances. In connection with the increase of the
loan amount pursuant to such amendment, the Company granted PICO an additional
Common Stock Purchase Warrant for a minimum of 500,000 shares of the Company's
Common Stock. The terms of the additional warrant are substantially the same as
those contained in the Warrant, except that the conversion price is the lesser
of (a) $2.00 per share or (b) the mean of the closing bid price per share for
the 20 trading days preceding exercise of the additional warrant. The additional
warrant also provides for certain piggyback registration rights and a one-time
demand registration right.
On September 22, 1997 the Company and PICO executed a second amendment to the
Loan Agreement to further increase the amount of the secured loan from PICO to
the Company from $2.0 million to $2.25 million. The terms of the Loan Agreement
otherwise remained substantially the same, except that the maturity date was
extended to December 31, 1997. In consideration of the amendment to the Loan
Agreement, the Company granted PICO another Common Stock Purchase Warrant for up
to 129,032 shares of Common Stock. The terms of such warrant are substantially
the same as contained in the Warrant, except that the conversion price is the
lesser of (a) $1.9375 per share or (b) the mean of the closing bid price per
share for the 20 trading days preceding exercise of this warrant. This warrant
also provides for certain piggyback registration rights and a one-time demand
registration right.
On December 30, 1997, February 5, 1998, March 10, 1998, May 5, 1998 and June 1,
1998, the Company and PICO executed the third, fourth, fifth, sixth, and seventh
amendments to the Loan Agreement, respectively, extending the due date for
borrowings by the Company, plus accrued interest, to January 31, 1998, February
28, 1998, April 30, 1998, May 31, 1998 and August 31, 1998, respectively. No
further warrants were issued in connection with the third, fourth, fifth, sixth,
or seventh amendments to the loan agreement.
On May 19, 1998 PICO exercised a portion of one of their warrants and
purchased 320,000 shares of Common Stock of the Company for $500,000.
In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC
(collectively, the "Wexford Affiliates") purchased five million shares of Common
Stock and warrants to purchase five hundred thousand shares of Common Stock at
an exercise price of $2.00 per share, exercisable at any time prior to October
15, 2002 (the "Initial Warrants"), in exchange for $5.0 million.
The Wexford Affiliates acquired the Common Stock and the Warrants for investment
purposes pursuant to a certain Stock and Warrant Purchase Agreement dated
October 15, 1997, between PC Quote and the Wexford Affiliates (the "Purchase
Agreement"). Up to four million of the shares of Common Stock purchased by the
Wexford Affiliates were subject to repurchase by PC Quote at a purchase price of
$1.00 per share pursuant to the terms of the Purchase Agreement (the
"Repurchase"). Pursuant to the terms of the Purchase Agreement, PC Quote was
required to use its best efforts to consummate the Repurchase from the proceeds
of a rights offering.
Page 12
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PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
On October 31, 1997 the Company filed a Form S-2 Registration Statement with the
Securities and Exchange Commission in contemplation of the rights offering. The
Registration Statement was amended on November 20, 1997 and became effective on
November 21, 1997. The Company distributed 7,402,246 transferable subscription
rights to shareholders of record as of the close of business on November 21,
1997, entitling them to purchase one additional share of Common Stock for each
right at a price of $1.00 per share.
On January 23, 1998, the Company completed the rights offering. The Company
received approximately $3.0 million in gross proceeds from the sale of shares
underlying exercised rights. Pursuant to the Purchase Agreement, the entire
proceeds were used to fulfill the Company's obligation to repurchase shares from
the Wexford Affiliates, and the Additional Warrants reverted back to the
Company.
During the second quarter of 1998, the Wexford Affiliates exercised a portion of
their warrants and purchased 143,300 shares of Common Stock of the Company for
$286,600. During the third quarter of 1998, the Wexford Affiliates exercised a
portion of their warrants and purchased 89,500 shares of Common Stock of the
Company for $179,000.
On July 24, 1998 the Company and PICO executed the eighth amendment to the Loan
Agreement to extend the due date for the borrowings by the Company, plus accrued
interest, from August 31, 1998 to December 31, 1998.
On July 31, 1998 the Company and PICO executed the ninth amendment to the Loan
Agreement to further increase the amount of the secured loan from PICO to the
Company from $2.25 million to $3.25 million. No further warrants were issued in
connection with the eighth or ninth amendments.
On September 23, 1998 the Company entered into a Securities Purchase
Agreement (the "Securities Agreement"), subject to shareholder approval, with
PICO and Physicians (Physicians together with PICO, "Holdings"). Under the
terms of the Securities Agreement, the Company and Physicians, as the holder
of the Debenture in the principal amount of $2,500,000, plus accrued interest
in the amount of $428,331 as of September 30,1998, plus interest accruing at
the rate of $651 per day thereafter (such principal and all accrued interest
through the Closing Date, the "Debenture Balance"), and PICO, to whom the
Company is indebted in the principal amount of $3,290,000, plus accrued
interest in the amount of $387,838 as of September 30, 1998, plus interest
accruing at the rate of $1,262 per day following the date hereof (such
principal and all accrued interest through the Closing Date, the "PICO
Indebtedness") wish to provide for the purchase of Series A 5% Convertible
Preferred Stock by Physicians through the conversion of the Debenture and for
the purchase of Series B 5% Convertible Preferred Stock by PICO in
consideration for the cancellation of the PICO Indebtedness.
Subject to the terms and conditions of the Agreement, Physicians agrees to
purchase at the Closing and the Company agrees to issue to Physicians at the
Closing the number of shares of Series A 5% Convertible Preferred Stock into
which the Debenture Balance shall be convertible as of the Closing determined by
dividing the following by one hundred: the number calculated from the division
of the Debenture Balance by the lowest of the following numbers (i) 1.5625, (ii)
the closing sale price of the Company's Common Stock as reported by the American
Stock Exchange ("AMEX") one day prior to the Closing Date (the "AMEX Closing
Price") or (iii) the average AMEX Closing Price of the Company's Common Stock
over the twenty-day period immediately preceding the Closing Date (the "Average
AMEX Price").
Subject to the terms and conditions of the Agreement, PICO agrees to purchase at
the Closing and the Company agrees to sell and issue to PICO at the Closing the
number of shares of Series B 5%
Page 13
<PAGE>
Convertible Preferred Stock determined by dividing the following by one
hundred: the number calculated from the division of the PICO Indebtedness as
of the Closing Date by the lower of the following numbers: (i) 1.3125, (ii)
the AMEX Closing Price or (iii) the Average AMEX Closing Price, at a purchase
price per share equal to the lowest of (i), (ii) and (iii) (the "Series B
Closing Price").
Subject to the terms and conditions of the Agreement, the Company shall issue
to PICO a warrant to purchase the number of shares of Common Stock of the
Company equal to the following (i) the Debenture Balance, divided by the
Series B Closing Price, multiplied by .10, plus (ii) the PICO Indebtedness,
divided by the Series B Closing Price, at an exercise price of 120% of the
Series B Closing Price per share, and an expiration date of April 30, 2005.
At the Closing, the Company and PICO, as the holder of three Common Stock
Purchase Warrants to purchase an aggregate of 949,032 shares of Common Stock
of the Company (the Warrant together with additional warrants, the "Existing
Warrants"), each of which currently expires on April 30, 2000, shall enter
into Amendments of the Existing Warrants to extend the term of the Existing
Warrants until April 30, 2005.
The Closing Date shall be the date that is five (5) days from the date of
fulfillment, including obtaining shareholder approval, or waiver of all
conditions to Closing, as set forth in the Agreement, or such other date as
may be mutually agreed to by the Company and the Investors.
If approved by the shareholders of the Company, the Securities Agreement and
proposed debt recapitalization would:
1) eliminate the Company's obligation to pay $3.8 million in
principal and accrued interest when due on December 31, 1998
and $3.1 million (principal and accrued interest) when due on
April 30, 1999;
2) represent a permanent $6.7 million equity infusion increasing
stockholders' equity from a negative $3.8 million at September 30,
1998 to a positive pro-forma $2.8 million (adjusted for interim
interest); and
3) increases September 30, 1998 working capital (current assets
minus current liabilities) by $6.6 million.
Concurrently with the execution of the Securities Agreement, the Company and
Physicians entered into the Second Amendment to the Debenture and Debenture
Agreement to revise the conversion language therein in order to make it
consistent with the Securities Agreement.
Page 14
<PAGE>
PART I. ITEM 2
Management's Discussion and Analysis of
Results of Operations and Financial Condition
INTRODUCTION - SAFE HARBOR DISCLOSURE
The statements made herein that are not historical facts may contain
forward-looking information that involve substantial risks and uncertainties.
The Company's actual results, performance or achievements could differ
materially from the results, performance or achievements expressed in, or
implied by, these forward-looking statements. Among the factors that could
cause or contribute to such differences are those set forth in the Company's
filings with the Securities and Exchange Commission and include the Company's
ability to (i) obtain adequate financing to continue as a going-concern and
fund its current and future business strategies, (ii) attract and retain its
key employees, (iii) compete successfully against competitive products and
services, (iv) obtain shareholder approval to recapitalize or pay, refinance,
or extend the up to $3.25 million loan from PICO Holdings, Inc. on or before
December 31, 1998, (v) maintain its relationships with key suppliers and
providers of market data, and (vi) the effect of economic and business
conditions generally.
RESULTS OF OPERATIONS:
FOR THE NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 1998
Total revenue increased 34% to $16,974,000 for the nine months ended
September 30, 1998, and 40% to $6,238,000 for the quarter ended September 30,
1998 versus the comparable prior year periods. The increase is the result of
continued growth in the Company's Internet product and service offerings,
which accounted for 44% of total revenue for the nine month period, a 118%
increase over the first nine months of 1997, and 46% of total revenue for the
quarter, a 114% increase over the quarter ended September 30, 1997. Satellite
and Terrestrial Service revenue increased 3% for the nine months ended
September 30, 1998 and 8% for the quarter ended September 30, 1998 as
compared to the same periods in the prior year. The increase is due to the
addition of new satellite customers, as well as an increase in services for
existing customers.
Total Operating Expenses increased 3.6% to $20,551,000 for the nine months
ended September 30, 1998 from $19,829,000 for the comparable 1997 period, and
increased 15.2% to $6,975,000 for the quarter ended September 30,1998 as
compared to $6,057,000 for the comparable 1997 period. Increases in License
and Exchange Fees and Sales expenses incurred during the nine and three month
periods were directly attributable to increased revenue. Increased
advertising expenditures, a component of Sales expense, during the periods
were mitigated to an extent by a lower percentage sales compensation plan
implemented in the fourth quarter of last year. These increases, together
with an increase in non-cash charges for Depreciation and Amortization, were
offset to a degree by decreases in Operations and Customer Support, General
and Administrative, and Product and Market Development costs for the nine
months ended September 30, 1998 when compared to prior year period. In June
1997, the Company underwent a significant management reorganization and
restructuring of operations. As a result, for the nine months ended September
30, 1997 the Company wrote off approximately $572,000 of unamortized software
development costs for previously capitalized software projects that were
discontinued. The management reorganization in 1997 resulted in the Company
incurring employment related termination costs of $425,000 and $150,000 was
paid to terminate a contractual arrangement related to unprofitable
operations. For the nine months and quarter ending September 30, 1998, there
were no such restructuring charges incurred.
Page 15
<PAGE>
PART 1. ITEM 2
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Costs of Operations and Customer Service decreased 3% and 12% for the nine
months and quarter ended September 30, 1998, respectively, over the same
periods in 1997. Increases in Internet access and service provider costs to
support the Company's subscriber growth were more than offset by decreases in
cost of leased equipment and personnel costs required to support operations.
License and Exchange Fees for the nine months and quarter ended September 30,
1998 increased 48% and 73%, respectively, from the same periods of the prior
year. The increase is a result of the growth in revenue and subscribers.
Sales expenses increased 28% and 25%, respectively, for the nine months and
quarter ended September 30, 1998 over the same periods in 1997. The increase
is due to compensation costs for additional sales personnel hired in December
1997 and January 1998, higher total commission payments directly attributable
to increased sales, and an increase in advertising expenses.
Depreciation and Amortization for the nine months and quarter ended September
30, 1998 increased 12% and 11%, respectively, over the same periods in 1997. The
increase reflects the Company's decision to amortize and depreciate new
capitalized software projects and computer equipment purchases over a three
versus five year period, in addition to the commencement of amortization of
previously capitalized software costs related to the release of new product and
service offerings in 1998.
General and Administrative expenses decreased 17% for the nine months, and was
unchanged for the quarter, ended September 30, 1998 from the same periods in
1997. The decrease is attributable to reductions in i) compensation costs, as a
result of the management restructuring that occurred in June of last year, ii)
professional fees due to lower utilization of outside assistance, and iii) bad
debt expense, as a result of increased collection efforts.
Product and Market Development expenses were essentially unchanged for the nine
months and quarter ending September 30, 1998 as compared to the same periods for
1997.
Interest expense increased 27% and decreased 75% for the nine months and quarter
ended September 30, 1998, respectively, as compared to the same periods in 1997.
The primary reason for the increase for the nine months is the acceleration, in
the second quarter of 1998, of the convertible debenture amortization ($893,000
was charged to interest expense) due to the potential conversion of the
debenture to equity. Also contributing to the increase is interest payable for
borrowings on the credit facility, established in May 1997 and increased in
August 1997, September 1997, and July 1998. The decrease for the quarter ended
September 30, 1998 versus 1997 is the result of the accelerated amortization
discussed above and the amortization in 1997 of the value assigned to the
warrants issued in connection with the credit facility borrowings.
LIQUIDITY AND CAPITAL RESOURCES:
FOR THE NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 1998
Net cash and cash equivalents declined $942,000 from year-end 1997 to $171,000
at the end of September 30, 1998. Expenditures for new equipment were $676,000,
$149,000, or 28%, higher for the first nine months of 1998 versus 1997 as
operating cash was used to effect new purchases. Capitalized software costs of
$1,485,000 were $327,000, or 28%, higher for the nine months ended September 30,
1998, compared to the same period for 1997. Although the Company decreased its
overhead allocation to capitalizable projects, there was an increase in
development resources devoted to the construction phase of new systems and
products. The Company borrowed an additional $1.0 million
Page 16
<PAGE>
PART I. ITEM 2
Management's Discussion and Analysis of
Results of Operations and Financial Condition
on the credit facility with PICO during the period, and the Company repaid
$225,000 of the principal balance on the bank term loan. The Company received
approximately $4.3 million in net proceeds from (i) the sale of shares of
Common Stock underlying rights exercised pursuant to its rights offering,
(ii) the purchase of Common Stock by PICO Holdings and the Wexford Affiliates
through exercise of previously issued warrants (iii) the sale of shares of
Common Stock to employees pursuant to the Company's Employee Stock Purchase
Plan (iv) the sale of shares of Common Stock to employees who exercised
options previously granted to them under the Company's Employee Incentive
Stock Option Plan, and (v) the issuance of shares to the Chairman and CEO in
lieu of cash payments for previously deferred and current compensation. The
Company repurchased 2,988,949 shares of its Common Stock, at one dollar per
share, from Imprimis Investors LLC and Wexford Spectrum Investors LLC
(collectively, the "Wexford Affiliates"), fulfilling its obligation under its
October 1997 Stock and Warrant Purchase Agreement with the Wexford
Affiliates. Agreements were reached with various vendors to extend payments
under negotiated payment plans.
Due to the decline in cash flow to levels expected to be insufficient for
working capital, capital expenditures, and debt services, the Company has
explored multiple alternatives available to the Company for the purposes of
raising capital to fund operations and enhancing shareholder value. On
July 31, 1998 the Company increased its borrowings under the Loan Agreement
by $1.0 million pursuant to the Ninth Amendment to the Loan Agreement. On
September 23, 1998 the Company and Holdings entered into a Securities
Purchase Agreement whereby, subject to shareholder approval at a special
meeting on December 15, 1998, the $2.5 million convertible subordinated
debenture, the $3.3 million in principal borrowings under the Loan Agreement
(including the $1.0 million borrowed on July 31, 1998) and related accrued
interest of approximately $800,000 would be converted into convertible
preferred shares. If approved by the shareholders of the Company, the
Securities Agreement and proposed debt recapitalization would:
1) eliminate the Company's obligation to pay $3.8 million in
principal and accrued interest when due on December 31, 1998
and $3.1 million (principal and accrued interest) when due on
April 30, 1999;
2) represent a permanent $6.7 million equity infusion increasing
stockholders' equity from a negative $3.8 million at September 30,
1998 to a positive pro-forma $2.8 million (adjusted for interim
interest); and
3) increase September 30, 1998 working capital (current assets
minus current liabilities) by $6.6 million.
There can be no assurances, however, that the Company will be successful in
obtaining shareholder approval.
The Company continues to explore additional alternatives to fund operations and
enhance shareholder value. Such alternatives include a merger, a spin-off or
sale of part of the Company's business, a strategic relationship or joint
venture with another technology or financial service firm or other financing to
further fund the Company's business. Any capital raised may be costly to the
Company and/or dilutive to stockholders. There can be no assurances, however,
that the Company will be successful in concluding a transaction, or that if a
transaction is concluded that such transaction will result in alleviating the
Company's present financial situation. If the Company is not able to obtain
shareholder approval for the Holdings debt conversion and, in turn, secure
additional capital to repay the debts, when due, the lack of funds may
significantly limit the Company's ability to realize value from its assets and
its product offerings, and its ability to continue its business as currently
conducted.
Page 17
<PAGE>
PART I. ITEM 2
Management's Discussion and Analysis of:
YEAR 2000 ISSUES
PC Quote products are delivered as either streaming data or application
software. The streaming data originates from North American securities and
commodities exchanges and other major market data providers. The data passes
through telephone and satellite company distribution networks (hardware,
firmware & software). Once received at the PC Quote data center, the data is
consolidated and processed through the PC Quote "ticker plant". The PC Quote
data processing incorporates incoming communication equipment (routers,
switches and modems), NT based PC systems (single, dual and quad processing
systems), and proprietary processing software coded in Microsoft C++ to the
Microsoft NT operating system. The processed data is sent outbound through
communication equipment and passed to terrestrial, Internet and satellite
based distribution systems. The data is delivered to the end user from the
third party carrier to either a modem or satellite receiver. The output of
the end user modem or satellite receiver is fed, in turn, to a PC based
communication card and finally to the application software at the Customer
site.
The Company's Y2K program has been structured to address its internal
computer systems and applications, equipment portfolio, and continuity of its
network service operations. The Company is confirming the Year 2000
compliance status of its vendors, service providers and major customers. The
Company believes it is taking the necessary steps regarding Year 2000
compliance with respect to matters within its control to provide that Year
2000 issues will not materially impact the Company. The unexpected inability
of a major service provider (securities exchange, commodities exchange,
telecommunications company, or Internet service provider) to continue to
provide, or to deliver, existing services could cause a temporary disruption
of service.
PC Quote warrants PC Quote authored software marketed under the product name
QuoteSockets to be year 2000 compliant. Other PC Quote authored application
software has been tested under year 2000 conditions to include millenium date
roll over. This will be further verified by the use of a commercially
acknowledged and available testing program to determine the Y2K compliance of
a full "end to end" Hyperfeed product. The Company is compiling year 2000
compliance statements from third party software, hardware and firmware
manufactures, securities and commodities exchanges, and other market data
providers and is testing internal packaged software systems, all hardware
equipment, and network systems. Customers provide their own hardware. The
Company has commenced discussions with major customers to ascertain their Y2K
state-of-readiness.
Management estimates the costs of the Industry recognized tools to perform
the Y2K scenario testing to be approximately $10,000. Additional costs
include the Company's allocation of personnel resources to the Year 2000
project for purposes of testing ancillary systems and, if necessary,
reprogramming or replacing or upgrading equipment and software.
Management believes that the PC Quote products will be Year 2000 compliant
prior to the commencement of the year 2000. However, at the present time, the
Company can give no assurances that its suppliers or customers systems will
be year 2000 compliant. In the event that the Company experiences an
interruption of service, or a portion thereof, as a result of the Company's
suppliers of market data (principally securities and commodities exchanges)
failing to successfully address their own Year 2000 issues, the Company
believes it has protection from any action brought against it for such
disruption in that, within its standard license agreement with its customers,
the Company is only obligated provide data that it receives from the
exchanges and other market data providers.
Page 18
<PAGE>
PART I. ITEM 2
Management's Discussion and Analysis of:
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998 the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
SOP provides guidance on accounting for the costs of computer software
developed or obtained for internal use and provides guidance for determining
whether computer software is for internal use. The Company will adopt the
provisions of SOP 98-1 effective January 1, 1999. The Company is currently
reviewing its software capitalization policies and evaluating the impact of
this Statement on its results of operations and financial position.
Page 19
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC
(collectively, the "Wexford Affiliates") purchased five million shares of
Common Stock and warrants to purchase five hundred thousand shares of Common
Stock at an exercise price of $2.00 per share, exercisable at any time prior
to October 15, 2002 (the "Initial Warrants"), in exchange for $5.0 million.
The Wexford Affiliates acquired the Common Stock and the Warrants for
investment purposes pursuant to a certain Stock and Warrant Purchase
Agreement dated October 15, 1997, between PC Quote and the Wexford Affiliates
(the "Purchase Agreement"). Up to four million of the shares of Common Stock
purchased by the Wexford Affiliates were subject to repurchase by PC Quote at
a purchase price of $1.00 per share pursuant to the terms of the Purchase
Agreement (the "Repurchase"). Pursuant to the terms of the Purchase
Agreement, PC Quote was required to use its best efforts to consummate the
Repurchase from the proceeds of a rights offering. In the event that the
rights offering was not completed on or prior to January 24, 1998, the
Wexford Affiliates would have been entitled to receive, out of escrow,
warrants to purchase an additional 250,000 shares of Common Stock with the
same terms as the Initial Warrants and, in the event the Rights Offering was
not completed on or prior to February 28, 1998, the Wexford Affiliates would
have been entitled to receive, out of escrow, warrants to purchase an
additional 250,000 shares of Common Stock with the same terms as the Initial
Warrants (together the "Additional Warrants").
On October 31, 1997 the Company filed a Form S-2 Registration Statement with
the Securities and Exchange Commission in contemplation of the rights
offering. The Registration Statement was amended on November 20, 1997 and
became effective on November 21, 1997. The Company distributed 7,402,246
transferable subscription rights to shareholders of record as of the close of
business on November 21, 1997, entitling them to purchase one additional
share of Common Stock for each right at a price of $1.00 per share.
On January 23, 1998 the Company completed the rights offering and issued
2,988,953 shares of Common Stock underlying rights exercised pursuant to the
rights offering. The Company repurchased 2,988,949 shares of its Common
Stock, at one dollar per share, from Imprimis Investors LLC and Wexford
Spectrum Investors LLC (collectively, the "Wexford Affiliates"), fulfilling
its obligation under the Purchase Agreement, and the Additional Warrants
reverted back to the Company.
On May 19, 1998 PICO Holdings, Inc. exercised a portion of one of their
warrants and purchased 320,000 shares of the Company's Common Stock for
$500,000. During the second quarter of 1998, the Wexford Affiliates exercised
a portion of their warrants and purchased 143,300 shares of Common Stock of
the Company for $286,600. During the third quarter of 1998, the Wexford
Affiliates exercised a portion of their warrants and purchased 89,500 shares
of Common Stock of the Company for $179,000.
During the first nine months of 1998, the Company issued 232,649 shares of its
Common Stock to employees, who purchased the shares pursuant to the Company's
Employee Stock Purchase Plan.
During the first nine months of 1998, 95,015 shares of the Company's Common
Stock were purchased by employees who exercised stock options granted to them
under the Company's Employee Incentive Stock Option Plan.
In June 1998 the Chairman and Chief Executive Officer and the Board Of Directors
of the Company agreed that, in lieu of cash for payments previously deferred and
current salary due to the Chairman and C.E.O., the Company would issue and the
Chairman would receive shares of Common Stock of the Company at the market
price. A total of 37,839 shares were issued pursuant to this agreement.
Page 20
<PAGE>
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS and REPORTS on FORM 8-K
(a) FINANCIAL STATEMENTS
The financial statements of the Company are filed herewith in Item 1 of this
report.
(b) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1998.
(c) EXHIBITS
4(a) Securities Purchase Agreement between Registrant and PICO Holdings, Inc.
and Physicians Insurance Company of Ohio, incorporated by reference to Exhibit
4.1 of the Company's Report on Form 8-K dated October 6, 1998.
4(b) Form of Certificate of Designations of Series A and Series B Preferred
Stock of PC Quote, Inc., incorporated by reference to Exhibit 4.2 of the
Company's Report on Form 8-K dated October 6, 1998.
4(c) Form of Registration Rights Agreement between Registrant and PICO Holdings,
Inc. and Physicians Insurance Company of Ohio, incorporated by reference to
Exhibit 4.3 of the Company's Report on Form 8-K dated October 6, 1998.
4(d) Form of Common Stock Purchase Warrant to be issued to PICO Holdings, Inc.,
incorporated by reference to Exhibit 4.4 of the Company's Report on Form 8-K
dated October 6, 1998.
4(e) Form of First Amendment to Common Stock Purchase Warrant dated May 5, 1997,
incorporated by reference to Exhibit 4.5 of the Company's Report on Form 8-K
dated October 6, 1998.
4(f) Form of First Amendment to Common Stock Purchase Warrant dated August 8,
1997, incorporated by reference to Exhibit 4.6 of the Company's Report on Form
8-K dated October 6, 1998.
4(g) Form of First Amendment to Common Stock Purchase Warrant dated
September 22, 1997, incorporated by reference to Exhibit 4.7 of the Company's
Report on Form 8-K dated October 6, 1998.
4(h) Form of Second Amendment to Convertible Subordinated Debenture dated as
of September 23, 1998, located at the end of this Report.
27. Financial Data Schedule
Page 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the Company caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
PC QUOTE, INC.
Date: November 12, 1998
By: /s/ Jim R. Porter
-------------------------------------
Jim R. Porter
Chairman and Chief Executive Officer
By: /s/ John E. Juska
------------------------------------
John E. Juska
Chief Financial Officer
Page 22
<PAGE>
SECOND AMENDMENT TO CONVERTIBLE SUBORDINATED
DEBENTURE DUE 2001
THIS SECOND AMENDMENT TO CONVERTIBLE SUBORDINATED DEBENTURE DUE 2001 is
entered into as of this 23rd day of September, 1998, by and between
PHYSICIANS INSURANCE COMPANY OF OHIO, an Ohio corporation ("Physicians"), and
PC QUOTE, INC., a Delaware corporation (the "Company").
RECITALS
A. Physicians is the holder of that certain Convertible Subordinated
Debenture Due 2001, in the principal amount of $2,500,000, plus accrued
interest, issued by the Company on November 14, 1996, as amended by the First
Amendment to Convertible Subordinated Debenture Due 2001 and Debenture
Agreement, dated May 5, 1997, and as further amended by Amendments Nos. 1-4
of the First Amendment to Convertible Subordinated Debenture Due 2001 and
Debenture Agreement. The Convertible Subordinated Debenture Due 2001, as
amended, is hereinafter referred to as the "Debenture."
B. Concurrently herewith, the Company, Physicians and PICO Holdings,
Inc., are entering into a Securities Purchase Agreement, pursuant to which
certain debt obligations of the Company held by Physicians and PICO Holdings,
Inc. will be converted into equity.
C. As additional consideration for Physicians entering into the
Securities Purchase Agreement, the Company has agreed to amend the conversion
provisions of the Debenture as provided in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and in the Debenture, and for other good and
valuable consideration, the receipt and sufficiency which is hereby
acknowledged, the parties hereto agree as follows:
1. The fourth full paragraph of page 2 of APPENDIX A of the Debenture,
is hereby amended and restated in its entirety as follows:
The registered holder of this Debenture has the right, at its
option, at any time on or prior to the later to occur of the close
of business on April 30, 1999 or the full payment of this
Debenture, to convert the principal amount hereof, plus all accrued
interest as of the date of such conversion (collectively, the
"Debenture Balance"), into the number of fully paid and
nonassessable shares of Series A
<PAGE>
Preferred Stock of the Company determined by dividing the following
by 100: the number calculated from the division of the Debenture
Balance by the lowest of the following numbers (i) 1.5625, (ii) the
closing sale price of the Company's Common Stock as reported by the
American Stock Exchange ("AMEX") one day prior to the conversion
date (the "AMEX Closing Price") or (iii) the average AMEX Closing
Price of the Company's Common Stock over the 20-day period
immediately preceding the conversion date (the "Average AMEX
Price"). The number resulting from the above calculation which is
to be divided by 100 is hereinafter referred to as the "Conversion
Price." Such conversion shall require surrender of this Debenture
to the Company at its execution 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
otherwise) 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 script representing
fractions of shares of Common Stock upon any such conversion, but
shall make an adjustment therefor in cash on the basis of the
current market value of such fractional interest. 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. Notwithstanding, anything to
the contrary contained in this Debenture, in no event will there be
any adjustment in the Conversion Price or the number of shares of
Common Stock deliverable upon conversion upon the Company's rights
offering contemplated by the Agreement.
2. Except as expressly provided herein, all of the terms and
provisions of the Debenture shall remain in full force and effect.
<PAGE>
3. The provisions of this Amendment shall be performed and interpreted
in accordance with the laws of the State of Illinois without reference to
conflicts of laws principles.
4. This Amendment may be executed in multiple counterparts, each of
which shall be deemed an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Convertible Subordinated Debenture Due 2001 as of the date first above
written.
PC QUOTE, INC.
By: __________________________________
Name:
Title:
PHYSICIANS INSURANCE COMPANY OF OHIO
By: __________________________________
Name:
Title:
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 170,912
<SECURITIES> 0
<RECEIVABLES> 2,596,481
<ALLOWANCES> 485,000
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<CURRENT-ASSETS> 2,848,117
<PP&E> 12,213,940
<DEPRECIATION> 9,942,896
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<COMMON> 13,357
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<TOTAL-LIABILITY-AND-EQUITY> 10,473,283
<SALES> 16,974,015
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