-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LrkFhaqwgZe9ADZsrKLOl8g2+/+oiBTx3IkklY3zd2onQCk4PDgbFM/D3xana9vA 6S6QF9LAgKbhPLpASdZHRA== 0000912057-97-011315.txt : 19970401 0000912057-97-011315.hdr.sgml : 19970401 ACCESSION NUMBER: 0000912057-97-011315 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PC QUOTE INC CENTRAL INDEX KEY: 0000745774 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 363131704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11108 FILM NUMBER: 97570289 BUSINESS ADDRESS: STREET 1: 300 SOUTH WACKER DRIVE STREET 2: SUITE 300 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129132800 MAIL ADDRESS: STREET 1: 300 S WACKER STREET 2: SUITE 300 CITY: CHICAGO STATE: IL ZIP: 60606 10-K 1 10-K 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. [ ] 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 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 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 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 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 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 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 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 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 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 PART II - ITEM 6. SELECTED FINANCIAL DATA ITEM 6. SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992 ---------------------------------------------------------------------------------- INCOME DATA: 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
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 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 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 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 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 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 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 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 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 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 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 - --------------------------------------------------------------- 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 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 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
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 - ---------------------------------------------------------------------------------------------------- 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 ----------------------------- -----------------------------
F-4
PC QUOTE, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- 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.
F-5 PC QUOTE, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Additional Cumulative Paid-in Foreign Common Common Additional Capital Currency Stock Stock Paid-in Convertible Translation Accumulated Shares Amount Capital Debentures Adjustment Deficit Total - ---------------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-6 PC QUOTE, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- 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 ----------------------------------------- -----------------------------------------
(continued) F-7
PC QUOTE,INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------- 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 - -
See Notes to Financial Statements. F-8 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 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 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 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 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:
Earnings Earnings 1996 per Share 1995 per Share ---------------------------------------------------------- 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 ---------------------------------------------------------- ----------------------------------------------------------
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:
Weighted Exercisable Average Weighted Weighted Remaining Average Average Number Contractual Exercise Number Exercise Range of Exercise Prices Outstanding Life Price Exercisable Price - ---------------------------------------------------------------------------------------------------------------- .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 ---------------- -------------- ---------------- --------------
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 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 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 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 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 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 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 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 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 EX-4 2 EXHIBIT 4(B) 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 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 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- 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- (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- 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- 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- 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- EX-10 3 EXHIBIT 10(P) Exhibit 10(p) Agreement, dated November 14, 1996, between PC Quote, Inc. and Physicians Insurance Company of Ohio 15 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, 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 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 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 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 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 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 EXHIBIT C Convertible Subordinated Debenture Due 2001 23 EX-10 4 EXHIBIT 10(Q) 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: (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. -2- (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"): -3- (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. -4- 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- 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- (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- EX-10 5 EXHIBIT 10(R) 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. 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- 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- 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- 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- EX-27 6 EXHIBIT 27 FDS
5 12-MOS DEC-31-1996 DEC-31-1996 1,321,512 0 1,100,253 234,000 0 2,646,836 10,556,056 7,791,849 11,554,070 4,137,857 1,100,000 0 0 7,356 5,324,221 11,554,070 0 17,032,164 0 11,123,520 8,866,474 734,346 143,618 (3,091,705) 164,264 0 0 0 0 (3,255,969) (.45) (.45)
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