-----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, STpvkbIODa11atvcu5RLr/lRVhlMQ+xoreDtc49zaHX+yYGcKm+8G4+/ht9H8wps hfV5ChT3W7C8cmbNhB43mg== 0001047469-97-005635.txt : 19971121 0001047469-97-005635.hdr.sgml : 19971121 ACCESSION NUMBER: 0001047469-97-005635 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19971120 SROS: AMEX 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: S-2/A SEC ACT: SEC FILE NUMBER: 333-39245 FILM NUMBER: 97725083 BUSINESS ADDRESS: STREET 1: 300 S WACKER DR STREET 2: STE 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 S-2/A 1 S-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION NOVEMBER 20, 1997. REGISTRATION NO. 333-39245 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PC QUOTE, INC. DELAWARE 36-3131704 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) PC QUOTE, INC. WILDMAN, HARROLD, ALLEN & DIXON 300 SOUTH WACKER DRIVE, #300 225 WEST WACKER DRIVE CHICAGO, IL 60606 CHICAGO, ILLINOIS 60606-1229 (312) 913-2800 (312) 201-2000 ATTENTION: JIM R. PORTER ATTENTION: DONALD E. FIGLIULO CHIEF EXECUTIVE OFFICER (Name, address, including zip code, and (Address, including zip code, and telephone number, including area code, of telephone number, including area code, agent for service) of registrant's principal executive office) APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividends or interest reinvestment plans, check the following box. /X/ If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1), check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE* REGISTRATION FEE Transferable Subscription Rights.............. 7,402,246 0 0 0 Common Stock, $.001 par value................. 7,402,246* $1.00 $7,402,246* $2,243.10
* Estimated solely for the purpose of calculating the Registration Fee. - ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DERTERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS 7,402,246 SHARES [LOGO] COMMON STOCK (AND RIGHTS TO ACQUIRE UP TO 7,402,246 OF SUCH SHARES) ------------------------ PC Quote, Inc., a Delaware corporation (the "Company"), is distributing to holders of record of shares of its common stock, $.001 par value per share (the "Common Stock"), as of the close of business on November 21, 1997 (the "Record Date"), other than Imprimis Investors LLC and Wexford Spectrum Investors LLC (together, the "Wexford Affiliates") which have agreed not to participate in the Rights Offering, transferable subscription rights (the "Rights") to purchase additional shares of Common Stock (the "Basic Subscription Privilege") at a price of $1.00 per share (the "Subscription Price"). Stockholders will be entitled to one Right for each share of Common Stock held on the Record Date. Each Right will entitle its holder (a "Holder") to purchase one share of Common Stock (collectively the "Underlying Shares"). No fractional shares of Common Stock will be sold, and fractional interests will be rounded up. Upon exercise of the Basic Subscription Privilege, a Holder will also be entitled to purchase at the Subscription Price a pro rata portion of any Underlying Shares that are not otherwise subscribed for pursuant to the exercise of Basic Subscription Privileges (the "Oversubscription Privilege"). In the event there are any unexercised Rights after the Basic Subscription Privileges and Oversubscription Privileges have been fulfilled, then any such remaining unexercised Rights (the "Unexercised Allotment;" and, collectively, with the Basic Subscription Privilege, Oversubscription Privilege, and the sale of shares of Common Stock in connection therewith, the "Rights Offering") shall be offered to members of management, including Directors. If available, management intends to exercise a minimum of 250,000 Rights in such Unexercised Allotment and purchase the respective shares underlying such Rights at the Subscription Price. The Common Stock is currently traded on The American Stock Exchange. On November 14, 1997 the closing price of the Common Stock as reported on The American Stock Exchange was $1.50 per share. The Company has applied to list the Rights and the Underlying Shares issuable upon exercise of the Rights on The American Stock Exchange. The Company believes the Rights will commence trading on November 24, 1997. However, no assurances can be given that a market for the Rights will develop. THE RIGHTS WILL EXPIRE AT 4:30 p.m., Chicago Time, on December 19, 1997, unless extended by the Company (such date, as it may be extended on one or more occasions, is referred to herein as the "Expiration Date"). In no event will the Expiration Date be extended beyond February 27, 1998. If the Company elects to extend the term of the Rights, it will issue a press release to such effect not later than the first day The American Stock Exchange is open for trading following the most recently announced Expiration Date. Funds provided in payment of the Subscription Price will be held by American Securities Transfer & Trust, Inc., as the Subscription Agent, until the Closing, which will occur promptly following Expiration Date. The exercise of Rights is irrevocable once made, and no interest will be paid to Holders exercising their Rights. AN INVESTMENT IN THE COMPANY'S COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ THE DATE OF THIS PROSPECTUS IS NOVEMBER , 1997. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-2 (together with any amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Rights and the Underlying Shares. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in schedules and exhibits to the Registration Statement as permitted by the rules and regulations of the Commission. Statements contained in this Prospectus as to the contents of any contract or other document referred to herein or therein are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, or incorporated by reference therein, for a more complete description of the matter involved and each such statement shall be deemed qualified in all respects by such reference. Such additional information may be obtained from the Commission's principal office in Washington, D.C. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files periodic reports, proxy and information statements and other information with the Commission. The Registration Statement and the exhibits thereto, as well as such reports, proxy and information statements and other information, filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549, and at the Regional Offices of the Commission located at 7 World Trade Center, New York, NY 10048 and Citicorp Center, 500 Madison Street, Suite 1400, Chicago, IL 60661. Copies of such material can be obtained upon written request addressed to the Public Reference Section of the Commission at 450 Fifth Street, N.W. Washington, D.C. 20549, at prescribed rates. The Commission also maintains a World Wide Web site on the Internet at www.sec.gov that contains reports, proxy and information statements and other information filed electronically with the Commission by registrants like the Company. The Common Stock is traded on The American Stock Exchange and reports, proxy and information statements and other information concerning the Company may be inspected at the offices of The American Stock Exchange, 86 Trinity Place, New York, NY 10006. DOCUMENTS INCORPORATED BY REFERENCE The following documents filed by Company with the Commission are incorporated herein by reference: (i) the Company's 1996 Annual Report to Stockholders, containing the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as amended; (ii) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997; (iii) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997, as amended on October 31, 1997; (iv) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997; and (v) the Company's Current Report on Form 8-K dated July 16, 1997, as amended on August 26, 1997. Copies of the Company's 1996 Annual Report to Stockholders, containing its Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as amended, and its Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 accompany this Prospectus. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior to the termination of the Rights Offering, shall be deemed to be incorporated by reference to this Prospectus and to be a part hereof from the respective dates of the filing thereof. The Company will provide without charge to each person, including each beneficial owner, to whom a copy of this Prospectus is delivered, on the written or oral request of such person, a copy of any or all documents incorporated by reference into this Prospectus that are not delivered herewith, except the exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). Requests for such copies should be directed to the Company's principal office: PC Quote, Inc., 300 South Wacker Drive, Suite 300, Chicago, Illinois 60606, Attn: Darlene Czaja, Tel. No. (312) 913-2800. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. THE COMPANY PC Quote, Inc., a Delaware corporation (the "Company"), provides real-time and delayed financial data, including equities, commodities, futures and options quotations and news on a subscription basis to professional and consumer markets worldwide. Professional clients include brokerage firms, banks, insurance companies, fund managers, institutional and professional traders. The Company's "web site" offers non-fee delayed quotes to all visitors and real time subscription market data services to fee-based subscribers. The Company's principal executive offices are located at 300 South Wacker Drive, #300, Chicago, Illinois 60606 and its telephone number is (312) 913-2800. The Company's World Wide Web address is www.pcquote.com. THE RIGHTS OFFERING Rights............................ Each Holder of Common Stock (other than the Wexford Affiliates) will receive one transferable Right for each share of Common Stock held of record on the Record Date. An aggregate of 7,402,246 Rights will be distributed pursuant to the Rights Offering. An aggregate of 7,402,246 shares of Common Stock will be sold if all Rights are exercised. The exercise of Rights is irrevocable once made, and no Underlying Shares will be issued until the closing following the Expiration Date. Basic Subscription Privilege...... Holders are entitled to purchase at the Subscription Price one share of Common Stock for each Right held. See "The Rights Offering--The Rights" and "Subscription Privileges--Basic Subscription Privilege." Oversubscription Privilege........ Each Holder who elects to exercise his or her Basic Subscription Privilege may also subscribe at the Subscription Price for Underlying Shares, if any, remaining unissued after satisfaction of all subscriptions pursuant to the Basic Subscription Privilege. If an insufficient number of Underlying Shares is available to satisfy fully all elections to exercise the Oversubscription Privilege, the available Underlying Shares will be allocated on a pro rata basis among Holders who exercise their Oversubscription Privilege based on the respective numbers of Underlying Shares subscribed for by such Holders pursuant to the Basic Subscription Privilege. In the event any Rights remain unexercised following satisfaction of the Basic Subscription and Oversubscription Privileges, the Company intends to offer the remaining Underlying Shares for purchase at the Subscription Price to members of management, including Directors. See "The Rights Offering-- The Rights" and "Subscription Privileges--Oversubscription Privilege." Subscription Price................ $1.00 in cash per share of Common Stock.
3 Shares of Common Stock Outstanding after Rights Offering........... Assuming that all Rights are fully exercised, 19,804,492 shares will be outstanding after the Rights Offering, based on 12,402,246 shares outstanding on the Record Date. The final number of shares of Common Stock that will be outstanding after the Rights Offering is dependent upon the extent to which Rights are exercised. Assuming the availability of sufficient funds therefor, the Company intends to use a portion of the net proceeds of the Rights Offering to repurchase an aggregate of four million shares of Common Stock from the Wexford Affiliates. Upon consummation of this proposed repurchase, 15,804,492 shares of Common Stock will be outstanding and the Company will hold 4,000,000 shares in its treasury. See"--Use of Proceeds," "Recent Developments--Financing Transaction with the Wexford Affiliates," and "Reason for the Rights Offering and Use of Proceeds." Transferability of Rights......... The Rights are transferable, and it is anticipated that they will trade on The American Stock Exchange until the close of business on the last trading day prior to the Expiration Date. In addition, the Company has applied to list the Rights and the Underlying Shares on The American Stock Exchange. The Company believes the Rights will commence trading on November 24, 1997. The Basic Subscription Privilege and the Oversubscription Privilege are only transferable together, and any transfer of a Right will be deemed a transfer of both the Basic Subscription Privilege and the Oversubscription Privilege. There can be no assurance, however, that any market for Rights will develop. See "The Rights Offering--Method of Transferring Rights." Record Date....................... November 21, 1997. Expiration Date................... December 19, 1997, unless extended by the Company from time to time, provided that the Expiration Date shall not be later than February 27, 1998, unless the Board of Directors determine that a material event has occurred which necessitates one or more further extensions of the Rights in order to permit adequate disclosure of information concerning such event to Holders. See "The Rights Offering--Expiration Date." If the Company elects to extend the term of the Rights, it will issue a press release to such effect not later than the first day on which The American Stock Exchange is open for trading following the most recently announced Expiration Date. In the event Company elects to extend the term of the Rights Offering by more than 14 calendar days, it will, in addition, cause written notice of such extension to be promptly sent to all Holders of record on the Record Date.
4 Procedure for Exercising Rights... Rights may be exercised by properly completing the certificate evidencing such Rights (the "Subscription Certificate") and forwarding such Subscription Certificate (or following the Guaranteed Delivery Procedures, as defined below) to the Subscription Agent on or prior to the Expiration Date, together with payment in full of the Subscription Price for each Underlying Share subscribed for pursuant to the Subscription Privileges. If the mail is used to forward Subscription Certificates, it is recommended that insured, registered mail be used. The exercise of a Right may not be revoked or amended. If time does not permit a Holder or transferee of a Right to deliver its Subscription Certificate to the Subscription Agent on or before the Expiration Date, such Holder or transferee should make use of the Guaranteed Delivery Procedures described under "The Rights Offering--Exercise of Rights." If paying by uncertified personal check, please note that the funds paid thereby may take at least five business days to clear. Accordingly, Holders who wish to pay the Subscription Price by means of uncertified personal check are urged to make payment sufficiently in advance of the Expiration Date to ensure that such payment is received and clears by such date and are urged to consider payment by means of certified or cashier's check, money order or wire transfer of funds. Persons Holding Shares, or Wishing to Exercise Rights Through Others.......................... Persons holding shares of Common Stock, and receiving the Rights distributable with respect thereto, through a broker, dealer, commercial bank, trust company or other nominee, as well as persons holding certificates of Common Stock personally who would prefer to have such institutions effect transactions relating to the Rights on their behalf, should contact the appropriate institution or nominee and request it to effect the transactions for them. See "The Rights Offering--Exercise of Rights." Closing and Issuance of Common Stock........................... The closing will occur and certificates representing Underlying Shares will be delivered to subscribers as soon as practicable after the Expiration Date and after all prorations have been effected. See "The Rights Offering--Subscription Privileges." No Underlying Shares will be issued until the closing. Funds delivered to the Subscription Agent for the exercise of Subscription Privileges will be held in escrow by the Subscription Agent until the closing. No interest will be paid to Holders on funds held by the Subscription Agent. In the case of Holders exercising Oversubscription Privileges, any excess funds will be returned to the Holders as soon as practicable following the closing.
5 Use of Proceeds................... It is anticipated that the net proceeds to Company will be approximately $7.0 million if all of the Underlying Shares are purchased in the Rights Offering. If less than all of the Underlying Shares are purchased, the proceeds will be correspondingly reduced. $4.0 million of such proceeds will be used to repurchase an aggregate of four million shares of Common Stock from the Wexford Affiliates with any additional proceeds used for general corporate purposes. See "Recent Developments-- Financing Transaction with Wexford Affiliates," and "Reason for the Rights Offering and Use of Proceeds." Subscription Agent................ American Securities Transfer & Trust, Inc. The American Stock Exchange Com- mon Symbol...................... PQT The American Stock Exchange Rights Symbol.......................... PQT.Rt
6 RISK FACTORS Prospective investors should carefully consider the following risk factors in addition to other information set forth in this Prospectus before making a decision to purchase any of the securities offered hereby. LOSS OF SIGNIFICANT CUSTOMERS; RECENT OPERATING LOSSES AND DECLINING REVENUES. In December 1996, the Company discontinued providing services to a major client which accounted for net revenues of approximately $1.7 million, $0.6 million and $0.6 million in 1996, 1995, and 1994, respectively. Also, beginning in January 1997, the Company significantly reduced the level of services to another major customer that accounted for revenue of $3.4 million, $3.9 million, and $3.6 million in 1996, 1995 and 1994, respectively. The Company incurred a loss of approximately $3.3 million for the year ended December 31, 1996, and as of December 31, 1996, had an accumulated deficit of approximately $8.9 million and deficit working capital of $1.5 million. These conditions raised substantial doubt about the Company's ability to continue as a going concern. There can be no assurance that the Company will operate profitably in the future. The ability of the Company to continue as a going concern is dependent upon a number of factors including completion of this Rights Offering. See "Management Discussion and Analysis of Financial Condition and Results of Operations" and Note 14 to the Financial Statements for the Fiscal Year Ended December 31, 1996, as filed on Form 10-K, as amended, incorporated herein by reference. For the nine months ended September 30, 1997, the Company's service revenue decreased 2% from the same period of 1996 and was essentially unchanged for the quarter. The decrease in revenue was due to the loss of two major customers in the Company's traditional direct data feed business. The lost revenue, $3.8 million and $400,000 for the nine months and quarter respectively, was substantially offset by increases in service revenue in the Company's traditional and internet businesses, as well as revenue from the sale of advertising on the internet. NEED FOR ADDITIONAL FINANCING. The Company believes at this time that the maximum net proceeds to the Company from the Rights Offering will be sufficient to satisfy the Company's current need for capital. However, events could occur or opportunities could arise which could increase such need for capital beyond the amount of the maximum net proceeds to the Company from the Rights Offering. Upon such events or opportunities the Company would be required to generate additional sources of funding to continue its planned activities or exploit the perceived opportunities. There is no assurance that any such additional sources of funding will be available. Should such additional funding become necessary, and should PC Quote be unable to obtain such funding, the Company may be required to sell certain of its assets, cease operations or forego the perceived opportunities. None of the stockholders receiving or exercising Rights in the Rights Offering will be obligated to provide any additional capital to the Company beyond amounts paid pursuant to the Basic Subscription Privilege or the Oversubscription Privilege. CONTROL BY PRINCIPAL STOCKHOLDERS. Provided PICO Holdings, Inc. and its affiliate, Physicians Insurance Company of Ohio (together, "PICO"), neither exercises nor converts outstanding warrants or a convertible subordinated debenture, and after giving effect to the Rights Offering and the proposed repurchase of four million shares from the Wexford Affiliates, PICO will beneficially own approximately 49.1% of the outstanding shares of Common Stock, assuming PICO and all other Holders fully exercise all of the Rights distributed to them under the Basic Subscription Privilege. As a result, PICO will be able to control the outcome of matters requiring a stockholder vote, including the election of directors. Such control could preclude any unsolicited acquisition of the Company and, consequently, adversely affect the market price of the Common Stock. See "Recent Developments--Transactions with Physicians Insurance Company of Ohio and PICO Holdings, Inc." Prior to giving effect to the Rights Offering, the Wexford Affiliates are deemed to beneficially own five million five hundred thousand shares of Common Stock, constituting approximately 42.7% of the outstanding shares of Common Stock. In connection with the terms of a certain Stock and Warrant Purchase Agreement dated October 15, 1997 between the Company and the Wexford Affiliates (the 7 "Purchase Agreement"), the Wexford Affiliates have agreed not to participate in the Rights Offering. The Company intends to use $4.0 million of the net proceeds from the Rights Offering to repurchase from the Wexford Affiliates an aggregate of four million shares of Common Stock, which shares the Company plans to hold in its treasury upon consummation of the repurchase. After giving effect to the Rights Offering and the repurchase, the Wexford Affiliates will beneficially own 9.2% of the outstanding shares of Common Stock. Such ownership could have the effect of further discouraging the unsolicited acquisition of the Company and, consequently, adversely affect the market price of the Common Stock. See "Recent Developments--Financing Transaction with Wexford Affiliates." VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's revenue, gross profits and earnings have fluctuated and, in the future, may fluctuate from quarter to quarter based on such factors as the number, size and scope of services and software applications which the Company provides, the contractual terms for the provision of such services and software applications, any delays incurred in connection with an agreement to provide services and software applications, the adequacy of provisions for losses, the accuracy of estimates of resources required to complete ongoing service offerings and general economic conditions. Unanticipated variations in any of such factors may cause significant variations in operating results in any particular quarter and could result in losses for such quarter. An existing customer's unanticipated termination of or failure to renew a major agreement for the provision of services and software applications during a quarter could have a material adverse effect on the Company's business, financial condition and results of operations. AGREEMENTS WITH EXCHANGES. The Company's ability to provide services enabling its customers to access real-time and delayed financial data such as equities, commodities, futures and options quotations and news is dependent on its ability to gather ticker and news feeds from securities exchanges and other sources. The Company has agreements in place with such exchanges and other sources which permit the Company to gather the information it needs for its services. The termination, expiration or nonrenewal of any of these agreements could inhibit the Company's ability to provide high quality services to its customers and, accordingly, have a material adverse effect upon the Company's business, financial condition and results of operations. See "The Company." SOFTWARE LICENSING AGREEMENT. A significant software application which is offered to subscribers for the Company's financial data quotations and news services, PC Quote 6.0, is licensed by the Company from an unaffiliated third party pursuant to a Software Distributor Agreement dated December 4, 1995 (the "Distributor Agreement"). The Distributor Agreement is for a three-year term but provides for automatic two-year renewals thereafter unless terminated pursuant to ninety days' notice. The termination, expiration or nonrenewal of the Distributor Agreement could have a material adverse effect on the Company's business, financial condition and results of operations. RELIANCE UPON EXECUTIVE OFFICERS AND KEY EMPLOYEES. The success of the Company is highly dependent upon the efforts and abilities of its executive officers, particularly Mr. Jim Porter, the Company's Chairman of the Board and Chief Executive Officer. Although its executive officers and key employees have entered into agreements with the Company which contain nondisclosure covenants, such agreements do not guarantee that these individuals will continue their employment with the Company. The loss of services of certain executive officers or key employees for any reason could have a material adverse effect upon the Company's business, financial condition and results of operations. COMPETITION. The market for the on-line provision of financial information such as equities, commodities, futures and options quotations and news through services and software applications similar to those the Company provides includes a large number of competitors and is subject to rapid change. The Company believes its primary competitors include Automatic Data Processing, the Telerate unit of Dow Jones & Co., Bloomberg, the Comstock unit of Standard & Poors, the ILX unit of Thomson Corporation, Telesphere Global Ticker, Reuters, Quote.com and Data Broadcasting Corporation. Many of these competitors have significantly greater financial, technical and marketing resources and greater name 8 recognition than the Company. Such competition may impose additional pricing pressures on the Company. There can be no assurance that the Company can compete successfully with its existing competitors or with any new competitors. SUBSCRIPTION CONTRACT RISKS. Many of the Company's subscription contracts are for services and software applications which are critical to the operations of its customers' businesses. The Company's failure or inability to deliver services and software to its customers' satisfaction could have a material adverse effect on its customers' operations and could consequently subject the Company to litigation or damage the Company's reputation, which could have a material adverse effect on the Company's business, financial condition and results of operations. Substantially all of the Company's subscription contracts are of relatively short duration; their maximum length is three years. Although these contracts carry early termination penalties, the unexpected termination or nonrenewal by a client of a significant contract could have a material adverse effect on the Company's business, financial condition and results of operations. CUSTOMER CONCENTRATION. The Company has derived a significant portion of its revenues from a limited number of large customers. In 1995, 1996 and for the nine months ended September 30, 1997, the Company's largest customer accounted for approximately 29%, 20% and 4% of its revenues, respectively, and its ten largest clients accounted for approximately 43%, 39% and 16% of its revenues, respectively. The volume of services provided to specific customers varies from year to year. There can be no assurance that a large customer in one year will continue to use the Company's services in a subsequent year. Furthermore, the Company is not always the exclusive provider of securities quotations and news to its customers. The loss of any large customer could have a material adverse effect on the Company's business, financial condition and results of operations. TECHNOLOGICAL ADVANCES. The information technology industry has experienced and is continuing to experience rapid technological advances and developments. The Company's success will depend in part on its ability to develop solutions which keep pace with continuing changes in information processing technology, evolving industry standards and changing client preferences. While the Company is actively engaged in research and development activities to meet such client needs and preferences, there can be no assurance that the Company will be successful in addressing these developments on a timely basis or that, if addressed, the Company will be successful in the marketplace. The Company's delay or failure to address these developments could have a material adverse effect on the Company's results of operations. In addition, there can be no assurance that technologies developed by others will not render the Company's services noncompetitive or obsolete. INTELLECTUAL PROPERTY RIGHTS. Software developed by PC Quote in connection with customer services typically is licensed for use by the customers. The Company holds no patents or registered copyrights and has no present intention of registering any copyrights or filing any patent applications. The following are registered trademarks: BasketMaker-Registered Trademark-, QuoteWare-Registered Trademark-, PriceWare-Registered Trademark- and QuoteBlaster-Registered Trademark-. HyperFeed-TM- is a servicemark of the Company. Although the Company believes that its services and software applications do not infringe upon the intellectual property rights of others and that it has all rights necessary to utilize the intellectual property employed in its business, the Company is subject to the risk of litigation alleging infringement of third- party intellectual property rights. The Company typically agrees to indemnify its clients against such claims. Any such claims could require the Company to spend significant sums in litigation, pay damages, develop non-infringing intellectual property or acquire licenses to the intellectual property which is the subject of asserted infringement. The Company relies upon a combination of nondisclosure and other contractual arrangements and trade secret, copyright and trademark laws to protect its rights, the rights of third parties from whom the Company licenses intellectual property and the proprietary rights of its clients. There can be no assurance, 9 however, that the steps taken by the Company will be adequate to deter misappropriation of proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. RISKS OF LICENSING PROPRIETARY SOFTWARE APPLICATIONS. The Company does not have patent or federal copyright protection for its proprietary software products. Although applicable software is readily duplicated illegally by anyone having access to appropriate hardware, the Company attempts to protect its proprietary software through license agreements with customers and common law trade secret protection and non-disclosure contract provisions in its agreements with its employees. The Company uses security measures, including a hardware key, which restricts access to its on-line services unless proper password identification from a PC Quote user is provided. As an additional safeguard, the Company provides only the object code on its diskette and retains the source code. There can be no assurance that such licensees will properly utilize the Company's software applications and services. The failure by licensees to adhere strictly to the Company's standards could subject PC Quote to litigation and harm the Company's reputation thereby resulting in a material adverse effect on the Company's business, financial condition and results of operations. SIGNIFICANT UNALLOCATED NET PROCEEDS. The only specific allocation of the Company's anticipated net proceeds from the Rights Offering is the repurchase of an aggregate of four million shares of Common Stock for total consideration of $4.0 million. Accordingly, a portion of the Company's anticipated net proceeds of the Rights Offering has not been committed to specific uses. The Board of Directors of the Company will have broad discretion with respect to the use of such unallocated net proceeds. See "Reason for the Rights Offering and Use of Proceeds." REQUIREMENTS FOR LISTING SECURITIES ON THE AMERICAN STOCK EXCHANGE. The Common Stock is currently listed with The American Stock Exchange. The Company has applied to list the Rights and the Underlying Shares of Common Stock issuable upon their exercise for trading on The American Stock Exchange. If the Company is unable to maintain the standards for continued listing, the Common Stock and the Rights, if listed, could be subject to delisting from The American Stock Exchange. Trading, if any, would thereafter be conducted on an electronic bulletin board established for securities that do not meet listing requirements or in what is commonly referred to as the "pink sheets." As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the Company's securities. POSSIBLE VOLATILITY OF STOCK PRICE. The Company's Common Stock is thinly traded and may experience significant price and volume fluctuations which could adversely affect the market price of the Common Stock without regard to the operating performance of the Company. ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation and By-laws, the Delaware General Corporation Law and the Securities Exchange Act of 1934 contain certain provisions that could have the effect of discouraging or making more difficult the acquisition of the Company by means of a tender offer, a proxy contest or otherwise, even though such an acquisition might be economically beneficial to the Company's stockholders. These include provisions under which (i) only the Board of Directors or an authorized special committee thereof may call meetings of stockholders, and (ii) stockholders must comply with certain advance notice procedures to nominate candidates for election as directors of the Company and to submit proposals for consideration at stockholders' meetings. The ability of the Board of Directors to issue up to 5,000,000 shares of preferred stock, in one or more classes or series, and with such powers, designations, preferences and relative, participating, optional or special rights, qualifications, limitations or restrictions as may be determined by the Board of Directors of the Company, also could make an acquisition of the Company more difficult. In addition, these provisions may make the removal of management more difficult, even in cases where such removal would be favorable to the interests of the Company's stockholders. 10 DEPENDENCE UPON FINANCIAL MARKETS. A significant portion of the Company's revenue is derived from supplying financial data and quotations related to U.S. financial exchanges and markets. Any significant downturn or other negative development with respect to those exchanges and markets could adversely effect the Company's revenue. CERTAIN RIGHTS OFFERING CONSIDERATIONS NO COMMITMENTS TO PURCHASE AND NO MINIMUM SIZE OF RIGHTS OFFERING. The Company does not have a written commitment from any person to purchase any shares of Common Stock pursuant to the Rights Offering. In addition, no minimum amount of proceeds is required for the Company to consummate the Rights Offering. Accordingly, no assurances can be given as to the amount of gross proceeds that the Company will realize from the Rights Offering. See "Purpose of the Rights Offering and Use of Proceeds," "The Rights Offering," and "Plan of Distribution." ADDITIONAL SHARES ISSUABLE TO THE WEXFORD AFFILIATES. Pursuant to the terms of the Purchase Agreement, in the event the Rights Offering is not completed on or prior to January 24, 1998, the Wexford Affiliates will be entitled to receive, out of escrow, warrants to purchase up to 250,000 shares of Common Stock and, in the event the Rights Offering is not completed on or prior to February 28, 1998, the Wexford Affiliates will be entitled to receive warrants to purchase up to an additional 250,000 shares of Common Stock (such warrants, collectively, the "Additional Warrants"). The exercise price for the Additional Warrants is $2.00 per share. Were the Rights Offering not completed on or prior to February 28, 1998, thereby entitling the Wexford Affiliates to receive all of the Additional Warrants, their deemed beneficial ownership of Common Stock would increase to 44.8% of the outstanding Common Stock. See "--Control by Principal Stockholders" and "Recent Developments--Financing Transaction with Wexford Affiliates." DILUTION; DISCOUNT FROM MARKET PRICE. Holders who do not exercise their Subscription Privileges in full will realize a dilution in their percentage voting interest and ownership interest in future net earnings, if any, of the Company to the extent that Rights are exercised by other Holders. Provided PICO neither exercises nor converts outstanding warrants or a convertible subordinated debenture and assuming PICO fully subscribes to its Basic Subscription Privilege, and assuming no other Rights were exercised, and assuming the proposed repurchase of four million shares from the Wexford Affiliates does not occur, PICO would collectively own approximately 52.7% of the Company's Common Stock. In addition, the Subscription Price represents a 33 1/3% discount from the closing market price of $1.50 as of November 14, 1997 and could result in a reduction in the market price for the Company's Common Stock. LIMITED LIQUIDITY OF SECURITIES AND TRADING ACTIVITY. The Common Stock is thinly traded. The Company has applied to list the Rights and the Underlying Shares of Common Stock issuable upon exercise of the Rights on The American Stock Exchange. The Company believes the Rights will commence trading on November 24, 1997. However, no assurances can be given that an efficient market for the Rights will develop or, if developed, be maintained. See "Risk Factors--Control by Principal Stockholders." POSSIBLE EXTENSION OF EXPIRATION DATE. The Company has reserved the right to extend the Expiration Date to as late as February 27, 1998. Funds deposited in payment of the Subscription Price may not be withdrawn and no interest will be paid thereon to Holders. See "The Rights Offering--Expiration Date." 11 THE COMPANY COMPANY OVERVIEW PC Quote, Inc. has over 17 years of experience in providing real-time and delayed financial information such as equities, commodities, futures and options quotations and news to professional and consumer markets worldwide. With its objective to become the leading provider of such quotations and news to new and existing clients, the Company focuses its marketing efforts on institutions such as brokerage firms, banks, insurance companies, fund managers, and institutional and professional traders, individual investors, and software companies. To meet this objective the Company has developed a reputation for providing high speed real-time transmission of security prices to the professional investor community through a ticker plant regarded as one of the fastest and most accurate in the industry. Its real-time database of last sale and bid/ask prices of more than 250,000 issues contains the most comprehensive options data and has also been optimized for NASDAQ Level II. The database includes all North American equities and options, major stock indices, Level 1 NASDAQ-quoted stocks, mutual funds, money market funds, futures contracts, and commodities. The Company has recently expanded its service offering to the individual investor, applications developers and businesses by offering its products through the Internet. The Company generates revenue from its securities quotations services, individual investor subscriptions, Internet business services, software and web site development services, OEM and redistributor services, and from advertising sold on its web site. The Company classifies its data services in two categories: real-time satellite broadcast or dedicated landline for professional trading desktops and networks; and Internet services for individual investors, developers, corporations and financial institutions. The Company's Network/Desktop Services provide real-time securities quotations and optional analytic applications for professional investors such as securities brokers, dealers, traders and portfolio managers. HyperFeed-TM-, the Company's digital real-time market data feed, supports all of the Company's products and services. The Company believes that HyperFeed is one of the world's fastest and one of the most accurate digital market data feeds. The speed and accuracy of data delivery are crucial factors for active equity traders. HyperFeed provides traders a high speed link to real-time data through satellite feeds and terrestrial delivery systems. The Company's quality control personnel work to eliminate corrupted/bad data prior to the data's redistribution to its customers. In addition, the Company believes its software interface is highly regarded by its customers as user friendly and conducive to finding data quickly. As a result of these and other factors, the Company has developed a leading position with the NASDAQ day trader market, supplying the data feed to a significant percentage of this market. Furthermore, PC Quote's unique applications programming interfaces (APIs) are noted for their robustness and ease of use, enabling IT departments of financial institutions to create their own quote systems, or switch from their current systems to PC Quote's HyperFeed with relative ease. The Company's Internet Services provide a wide range of Internet technology solutions, in addition to marketing opportunities leveraged by the very strong brand awareness of PC Quote on the Worldwide Web. Through its Internet Services the Company: 1. Makes available to the individual investor the same data feed and analytical capabilities as it provides the professional investor. In addition, the Company's web site (www.pcquote.com) enables non-professional individual investors access to delayed and real-time quotes on stocks, options, mutual funds, futures, commodities and indices, as well as news, fundamentals, SEC filings, historical data, earnings estimates and other research. 2. Provides the software developer of a software company, IT department of a financial institution, or programmer the ability to create custom applications using PC Quote's datafeed for personal, intranet/WAN, or retail use utilizing the wide distribution mechanism of the Internet. 12 3. Provides advertising on PC Quote's popular Web site for non-professional individual investors, a high-traffic marketing engine that brings a targeted audience to financial services companies, computer and technology businesses, and consumer goods advertisers. 4. Provides PC Quote the opportunity for strategic business relationships and co-content marketing opportunities with technology, financial, and Internet industry leaders. PC Quote believes its Internet Services are the most advanced available for custom and turnkey applications. The depth and quality of the Company's market data has made PC Quote's web site a popular business site on the Internet. It is visited more than 133,000 times every business day with an average duration of over 12 minutes, with more than 9 million quotes being queried each day. The Company intends to leverage its core competency in high speed/high quality data collection and delivery and strengthen its technology leadership position in Internet and broadcast solutions to clients needing fast, reliable market data. [On the Internet--given the initial success of PC Quote's Internet subscription service, PC Quote 6.0 for Windows, Web site advertising revenue, and Internet business solution services--the Company believes that its Internet Services provides a platform for continued growth in subscription, advertising, and datafeed revenues. In the real-time Network and Desktop arena, greater bandwidth, databasing technology and superior backbone systems and client services positions the Company to continue to attract and retain customers.] PRODUCTS AND SERVICES HyperFeed, the cornerstone of the services provided by the Company, is broadcast at 1024 kilobytes per second and 112 kilobytes per second. The Company transmits market data, including dynamic NASDAQ Level II market maker quotes, on over 400,000 issues traded in over 30 countries, in addition to financial news and information such as the Dow Jones Composite News Services (up to 90-day retrieval of nine wires "Broadtape," Professional Investor Report, Capital Markets Report, International News Wire, World Equities Report, European Corporate Report, Electronic Wall Street Journal, International Petroleum Reports, Federal Filing), multiple levels of fundamental data, and fixed income pricing. HyperFeed underlies all of the Company's other products and services, which capitalize on HyperFeed to access, view and utilize data in a variety of ways. To produce and transmit HyperFeed, PC Quote uses multiple redundant, high-speed data circuits to gather ticker and news feeds from securities exchanges and other sources. At the Company's production center in Chicago these feeds are directed into multiple redundant dynamic real-time databases from which HyperFeed is generated. HyperFeed is transmitted to customer sites over either a satellite communications network or dedicated digital data circuits. At the customer site HyperFeed is received by a Quote Server, an industry standard PC, which creates and maintains databases of real-time data, news and fundamental information. The Quote Server can reside on a local area network, where the data it maintains is accessible to software applications running on workstations on the network, or it can function as a stand-alone unit, in which case its data is available to software applications running on the Quote Server itself. In either case, the software applications accessing the data may be supplied by the Company, by third parties, or the customer. Third party and customer supplied software utilize the Company's high-performance application program interfaces ("APIs") to access the Quote Server's data. In this way the Quote Server can supply data for virtually any purpose, including proprietary order execution systems, analytical modeling, internal risk management, order matching, or redistribution via online systems, the Internet, or wide area networks. Third party developers and customers using the APIs for their own development pay a monthly fee for the interfaces, in addition to monthly HyperFeed licensing fees and per-user or per-unit charges once the application is ready for distribution or redistribution. 13 The Company also maintains Internet Quote Servers at its facility. These Quote Servers function just like any other Quote Servers, supporting applications developed by the Company, or by third parties or customers using Internet-enabled versions of the Company's APIs. In this way the Company and its customers are able to benefit from the Internet's substantially lower costs for service, communications and startup, its ease of access, and its worldwide availability. SOFTWARE AND SERVICES CURRENTLY MARKETED BY REGISTRANT To complement the HyperFeed database, the Company has several high-end applications and programming tools which it licenses to HyperFeed subscribers. PC QUOTE 6.0. PC Quote 6.0 for Windows is a comprehensive suite of real-time professional trading analysis tools. Running under Microsoft-TM- Windows-TM- 3.1 or Windows-TM- 95, or Windows NT-TM-, PC Quote 6.0 offers unlimited quote pages, charting, technical analysis, searchable news, time of sale and quote, NASDAQ Level II market maker screens, options analytical tools, dynamic data exchange into Microsoft-TM- Excel-TM- tickers, alerts, baskets and more. PC Quote 6.0 can be fed by Quote Servers on the customer's local area network or through a connection to the Internet. Monthly fees for Internet service are lower than fees for local area network service; this makes PC Quote 6.0 more affordable around the world for individual investors and affords a wide range of options for the professional marketplace. The software application for PC Quote 6.0 is licensed from an unaffiliated third party pursuant to a Software Distributor Agreement. See "Risk Factors--Software Licensing Agreement." QUOTE SERVER WITH QUOTE TOOLS. For custom applications using robust and easy-to-use APIs, the Quote Server enables a customer to build anything from real-time trading desktop interfaces, to Web sites with portfolio management and the latest in Internet push technology. The Quote Server APIs are unique in that they give a complete suite of programming interfaces, from ActiveX to CGI, to C++ and Visual Basic for all levels of programming in all environments. Furthermore, the Quote Server can run in multiple environments including NT and UNIX. WEB SITE, ADVERTISING, AND MARKETSMART. The PC Quote Web site is the company's marketing engine supported by advertising revenues. The site's current 50 million monthly page views, over 133,000 daily unique visitors, and 50,000 registered users for MarketSmart, the Company's Web-based free subscription service, attest to its popularity. The site provides marketing opportunities for individual investor services, business services, wholesale services, and other strategic partners of the Company. Advertising revenue is tied to this high-traffic web site, and pays for many of the Web-based subscription services as well as assists in securing strategic relations with ad revenue sharing programs. INTERNET BUSINESS SERVICES. The Company offers custom and template Website services and software development services--from basic tools to complete turnkey installations--to software vendors, financial institutions, corporations, and Internet content providers. All of the Company's Internet services, including the Web site, advertising, PC Quote 6.0 on the Internet, and Quote Tools, can be wholesaled, private-labeled, cloned or customized to help a client grow its business on the Web and increase market share, retain customer loyalty, increase trading activity, or showcase its services through PC Quote's popular Web site. Clients include the Microsoft Network and MSNBC, CompuServe Information Service, CNET, the American Stock Exchange, Dow Jones SMART MONEY and Earthlink Network. STRATEGIC RELATIONS The Company has become a premier quote service for the major office applications companies. In Microsoft Excel's-TM- new 1997 version, Web Query technology features the ability to access data from PC Quote. In February of 1997 Lotus Development Corporation also featured PC Quote's data as the "in the box" feature for its SmartSuite application. The Web site and Internet Business Services has additionally 14 procured strategic relationships with AT&T Worldnet, Market Guide, Edgar Online, Zacks Investment Research, SkyTel, Sandbox Entertainment Corporation, CNET, Microsoft Corporation, and others. RECENT DEVELOPMENTS TRANSACTIONS WITH PHYSICIANS INSURANCE COMPANY OF OHIO AND PICO HOLDINGS, INC. On November 14, 1996, the Company entered into an agreement (the "Debenture Agreement") with Physicians Insurance Company of Ohio, ("PICO"), which then owned approximately 30% of the Company's outstanding shares of Common Stock. Pursuant to the Debenture Agreement, PICO invested $2.5 million in the Company in exchange for a Subordinated Convertible Debenture (the "Debenture") in the principal amount of $2.5 million with interest at 1% over prime. PICO made the investment and the Debenture was issued on December 2, 1996. The Debenture was to mature on December 31, 2001 and is convertible at any time by PICO into 1.25 million shares of Common Stock of the Company (subject to adjustment in certain cases). On May 5, 1997, the Company and PICO Holdings, Inc. ("Holdings") entered into a Loan and Security Agreement (the "Loan Agreement"), under which Holdings agreed to make a secured loan to the Company in an aggregate principal amount of up to $1.0 million at a fixed rate equal to 14% per annum. Unless otherwise extended, the entire principal balance and all accrued interest due under the Loan Agreement were payable on September 30, 1997. All advances under the Loan Agreement are secured by a pledge of substantially all of the assets of the Company. These liens are subject to the prior lien of the Company's primary lender, Lakeside Bank. Holdings will be paid a "facility fee" of $40,000, plus interest at a rate equal to 14% per annum, on the maturity date of the loan contemplated by the Loan Agreement. In connection with the Loan Agreement, the Company and PICO entered into a First Amendment to the Debenture and Debenture Agreement (the "Debenture Amendment"), pursuant to which the terms of the Debenture were restructured as follows: (a) the maturity date of the Debenture is now April 30, 1999 instead of December 31, 2001; (b) the Debenture may not be prepaid or redeemed without the consent of PICO; (c) the conversion rate on the Debenture has been changed from $2.00 per share to the lower of (i) the mean of the closing bid price per share for the 20 trading days preceding exercise of the Debenture or (ii) $1.5625 per share (the market price of the Company's Common Stock on the date of the Debenture Amendment); (d) certain negative covenants were added to the Debenture Agreement; and (e) the rights offering contemplated by the Debenture Agreement will be at such time and at a price as PICO and the Company shall agree. Interest under the Debenture will continue to be payable in cash or, at the option of PICO, in shares of the Company's Common Stock at the market value of such shares at the time of payment. Also on May 5, 1997, in consideration of the loan by Holdings to the Company, the Company issued a Common Stock Purchase Warrant (the "Warrant") to Holdings entitling Holdings to purchase a minimum of 640,000 shares of the Company's Common Stock at a price per share (the "Warrant Price") equal to the lesser of (a) the mean of the closing bid price per share for the 20 trading days preceding exercise of the Warrant or (b) $1.5625 per share (the market value of the Company's Common Stock on the date the Warrant was issued). The Warrant expires on April 30, 2000. In lieu of exercising the Warrant for cash, Holdings may elect to receive shares of the Company's Common Stock equal to the "value" of the Warrant determined in accordance with a formula specified in the Warrant (the "Conversion Value"). The number of shares of the Company's Common Stock subject to the Warrant and the Warrant Price will be adjusted to reflect stock dividends; reclassifications or changes of outstanding securities of the Company; any consolidation, merger or reorganization of the Company; stock splits; issuances of rights, options or warrants to all holders of shares of the Company's Common Stock exercisable at less than the current market price per share; and other distributions to all holders of shares of the Company's Common Stock. In the event of any sale, license or other disposition of all or substantially all of the assets of the Company or any reorganization, consolidation or merger involving the Company in which the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity (an "Acquisition"), if the successor entity does not assume the obligations 15 of the Warrant and Holdings has not fully exercised the Warrant, the unexercised portion of the Warrant will be deemed automatically converted into shares of the Company's Common Stock at the Conversion Value. Alternatively, Holdings may elect to cause the Company to purchase the exercised portion of the Warrant for cash upon the closing of any Acquisition for an amount equal to (a) the fair market value of any consideration that would have been received had Holdings exercised the unexercised portion of the Warrant immediately before the record date for determining stockholders entitled to participate in the proceeds of the Acquisition, less (b) the aggregate Warrant Price. The Warrant also provides for certain piggyback registration rights and a one-time demand registration right. In August 1997, the Company and Holdings agreed to amend the Loan Agreement and related documents to increase the amount of the secured loan from Holdings to the Company from $1.0 million up to $2.0 million. The terms of the Loan Agreement otherwise remained substantially the same, except that the "facility fee" of $40,000 was eliminated for new advances. In connection with the increase of the loan amount pursuant to such amendment, the Company granted Holdings an additional Common Stock Purchase Warrant for a minimum of 500,000 shares of the Company's Common Stock. The terms of the additional warrant are substantially the same as those contained in the Warrant, except that the conversion price is the lesser of (a) $2.00 per share or (b) the mean of the closing bid price per share for the 20 trading days preceding exercise of the additional warrant. The additional warrant also provides for certain piggyback registration rights and a one-time demand registration right. On September 22, 1997 the Company and Holdings executed a second amendment to the Loan Agreement to further increase the amount of the secured loan from Holdings to the Company from $2.0 million to $2.25 million. The terms of the Loan Agreement otherwise remained substantially the same, except that the maturity date was extended to December 31, 1997. In consideration of the amendment to the Loan Agreement, the Company granted Holdings another Common Stock Purchase Warrant for up to 129,032 shares of Common Stock. The terms of such warrant are substantially the same as contained in the Warrant, except that the conversion price is the lesser of (a) $1.9375 per share or (b) the mean of the closing bid price per share for the 20 trading days preceding exercise of this warrant. This warrant also provides for certain piggyback registration rights and a one-time demand registration right. FINANCING TRANSACTION WITH WEXFORD AFFILIATES. In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC (collectively, the "Wexford Affiliates") expended $5.0 million to purchase five million shares of Common Stock and warrants to purchase five hundred thousand shares of Common Stock at an exercise price of $2.00 per share, exercisable at any time prior to October 15, 2002 (the "Initial Warrants"). The Wexford Affiliates have acquired the Common Stock and the Warrants for investment purposes pursuant to a certain Stock and Warrant Purchase Agreement dated October 15, 1997, between PC Quote and the Wexford Affiliates (the "Purchase Agreement"). Pursuant to the terms of the Purchase Agreement, on October 15, 1997, the Wexford Affiliates purchased 1,450,000 shares of Common Stock and the Initial Warrants for a purchase price of $1.45 million. On October 20, 1997, pursuant to the terms of the Purchase Agreement, the Wexford Affiliates purchased an additional 550,000 shares of Common Stock for a purchase price of $0.55 million. On October 23, 1997, pursuant to the terms of the Purchase Agreement, the Wexford Affiliates purchased an additional 3,000,000 shares of Common Stock for a purchase price of $3.0 million. Up to four million of the shares of Common Stock purchased by the Wexford Affiliates are subject to repurchase by PC Quote at a purchase price of $1.00 per share pursuant to the terms of the Purchase Agreement (the "Repurchase"). Pursuant to the terms of the Purchase Agreement, PC Quote will use its best efforts to consummate the Repurchase from the proceeds of the Rights Offering. In the event that the Rights Offering is not completed on or prior to January 24, 1998, the Wexford Affiliates will be entitled to receive, out of escrow, warrants to purchase an additional 250,000 shares of Common Stock with the same terms as the Initial Warrants and, in the event the Rights Offering is not completed on or prior to 16 February 28, 1998, the Wexford Affiliates will be entitled to receive, out of escrow, warrants to purchase an additional 250,000 shares of Common Stock with the same terms as the Initial Warrants. In contemplation of the Purchase Agreement, the Wexford Affiliates have agreed not to participate in the Rights Offering. REASON FOR THE RIGHTS OFFERING AND USE OF PROCEEDS The net proceeds to the Company from the Rights Offering are estimated to be approximately $7.0 million. The Company intends to use $4.0 million of such net proceeds to repurchase an aggregate of four million shares of Common Stock recently sold to Imprimis Investors LLC and Wexford Spectrum Investors LLC (the "Wexford Affiliates") pursuant to the terms and subject to the conditions set forth in that certain Stock and Warrant Purchase Agreement between the Company and each of the Wexford Affiliates dated October 15, 1997. The Company intends to use the remaining net proceeds for general corporate purposes, including working capital. Pending any of the foregoing uses, the Company intends to invest the net proceeds in short-term, investment grade securities, certificates of deposit or direct or guaranteed obligations of the United States government. 17 DESCRIPTION OF CAPITAL STOCK COMMON STOCK The authorized capital stock of the Company includes 50,000,000 shares of Common Stock, par value $.001 per share. Holders of Common Stock have no preemptive rights. The outstanding shares of Common Stock are fully paid and non-assessable. Holders of Common Stock are entitled to dividends when, as, and if declared by the Board of Directors of the Company out of any funds legally available to the Company for that purpose. Holders of Common Stock are entitled to one vote per share held of record with respect to all matters submitted to a vote of the stockholders. There is no cumulative voting for the election of directors, who are elected annually to one-year terms. Directors are elected by a plurality; all other matters require the affirmative vote of a majority of the votes cast the meeting. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of Preferred Stock, par value $.001 per share, and to establish and issue shares of Preferred Stock in series and to fix, determine and vary the voting rights, designations, preference qualifications, privileges, options, conversion rights and other special rights of each series of Preferred Stock. CERTAIN PROVISIONS OF DELAWARE LAW The Company is subject to Section 203 of Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in a wide range of specified transactions with any "interested stockholder," as such term is defined to include, among others, any person or entity who in the previous three years obtained 15% or more of any class or series of stock entitled to vote in the election of directors, unless, among other exceptions, the transaction is approved by (i) the Board of Directors prior to the date the interested stockholder obtained such status or (ii) the holders of two-thirds of the outstanding shares of each class or series owned by the interested stockholder. PRICE RANGE OF COMMON STOCK The following table shows for the three quarterly periods ended September 30, 1997 and for each 1996 quarterly period the high and low closing prices of the Company's Common Stock for the periods indicated, as reported by The American Stock Exchange. TRADE
HIGH LOW --------- ----- 1997 QUARTERLY INFORMATION First............................................................................................. 3 11/16 2 1/4 Second............................................................................................ 2 1/2 1 1/8 Third............................................................................................. 2 9/16 1 1/2 1996 QUARTERLY INFORMATION First............................................................................................. 16 8 3/8 Second............................................................................................ 14 1/8 6 3/4 Third............................................................................................. 8 3 7/8 Fourth............................................................................................ 5 1/2 2 1/4
18 DIVIDEND POLICY The Company has not paid dividends on its Common Stock and it does not presently anticipate making any such payments in the near future. HOLDERS OF RECORD At November 12, 1997, the approximate number of holders of record of the Common Stock was 400. THE RIGHTS OFFERING THE RIGHTS The Company is distributing, at no cost, to the record holders of its outstanding Common Stock as of November 21, 1997 (the "Record Date"), other than the Wexford Affiliates, transferable Rights to purchase additional shares of Common Stock (the "Basic Subscription Privilege") at a price of $1.00 per share (the "Subscription Price"). The Company will distribute one Right for each share of Common Stock held on the Record Date. Each Right will entitle its Holder to purchase one share of Common Stock. The Rights will be evidenced by transferable subscription certificates (the "Subscription Certificates"). An aggregate of 7,402,246 shares of Common Stock (the "Underlying Shares") will be sold if all Rights are exercised. No fractional Underlying Shares, or cash in lieu thereof, will be issued or paid. The number of Underlying Shares distributed to each Holder will be rounded up to the nearest whole share in connection with the exercise of Subscription Privileges. SUBSCRIPTION PRIVILEGES BASIC SUBSCRIPTION PRIVILEGE. Each Right will entitle the Holder thereof to receive, upon payment of the Subscription Price, one share of Common Stock. Certificates representing shares of Common Stock purchased pursuant to the Basic Subscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date, irrespective of whether the Subscription Privilege is exercised immediately prior to the Expiration Date or earlier. Holders exercising their Subscription Privilege will not be stockholders of record with respect to the shares issuable pursuant to such Subscription Privilege until the closing, which it is anticipated will occur five business days after the Expiration Date. OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below, each Right also carries the right to subscribe at the Subscription Price for any Underlying Shares not subscribed for through the exercise of Basic Subscription Privileges by other Holders (the "Excess Shares"). If the Excess Shares are not sufficient to satisfy all subscriptions pursuant to the Oversubscription Privilege, such Excess Shares will be allocated pro rata (subject to the elimination of fractional shares) among those Holders exercising the Oversubscription Privilege, in proportion, not to the number of shares requested pursuant to the Oversubscription Privilege, but to the number of shares each Holder exercising the Oversubscription Privilege subscribed for pursuant to the Basic Subscription Privilege; provided, however, that if such pro rata allocation results in any Holder being allocated a greater number of Excess Shares than such Holder subscribed for pursuant to the exercise of such holder's Oversubscription Privilege, then such Holder will be allocated only such number of Excess Shares as such Holder subscribed for and the remaining Excess Shares will be allocated among all other Holders exercising the Oversubscription Privilege. Only beneficial holders who exercise the Basic Subscription privilege in full will be entitled to exercise the Oversubscription Privilege. Certificates representing Excess Shares purchased pursuant to the Oversubscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date and after all prorations have been effected. In the event Rights remain unexercised after satisfaction of the Basic Subscription and Oversubscription Privileges, the Company intends to offer the remaining unexercised Rights (the "Unexercised 19 Allotment") to members of management, including Directors. If available, management intends to exercise a minimum of 250,000 Rights in such Unexercised Allotment and purchase the respective shares underlying such Rights at the Subscription Price. EXPIRATION DATE The Rights will expire at 4:30 p.m., Chicago time, on December 19, 1997 unless extended by the Company from time to time. Notwithstanding the foregoing, the Expiration Date in no event shall be later than February 27, 1998, except that the Company reserves the right to extend the exercise period on one or more occasions if the Board of Directors determines that the occurrence of a material event necessitates amendment of the Registration Statement or recirculation of the Prospectus that forms a part thereof in order to permit time for the distribution of such information. After the Expiration Date, unexercised Rights will be null and void. The Company will not be obligated to honor any purported exercise of Rights received by the Subscription Agent after the Expiration Date, regardless of when the documents relating to such exercise were sent, except pursuant to the Guaranteed Delivery Procedures described below. EXERCISE OF RIGHTS Rights may be exercised by delivering to the Subscription Agent, on or prior to 4:30 p.m., Chicago time, on the Expiration Date, the properly completed and executed Subscription Certificate evidencing such Rights with any required signatures guaranteed, together with payment in full of the Subscription Price for the Underlying Shares subscribed for pursuant to the Subscription Privileges (except as permitted pursuant to clause (iii) of the next sentence). Such payment in full must be by: (i) check or bank draft drawn upon a U.S. bank or postal telegraphic or express money order payable to American Securities Transfer & Trust, Inc., as Subscription Agent; or (ii) wire transfer of funds to the account maintained by the Subscription Agent for such purpose; or (iii) in such other manner as Company may approve in writing in the case of persons acquiring Underlying Shares at an aggregate Subscription Price of $500,000 or more, provided in each case that the full amount of such Subscription Price is received by the Subscription Agent in currently available funds within five American Stock Exchange trading days following the Expiration Date (the payment method under (iii) being an "Approved Payment Method"). Payment of the Subscription Price will be deemed to have been received by the Subscription Agent only upon (a) clearance of any uncertified check, (b) receipt by the Subscription Agent of any certified check or bank draft drawn upon a United States bank or of any postal, telegraphic or express money order, (c) receipt of good funds in the Subscription Agent's account designated above, or (d) receipt of good funds by the Subscription Agent through an Approved Payment Method. If paying by uncertified personal check, please note that the funds paid thereby may take at least five business days to clear. Accordingly, Holders who wish to pay the Subscription Price by means of uncertified personal check are urged to make payment sufficiently in advance of the Expiration Date to ensure that such payment is received and clears by such date and are urged to consider payment by means of certified or cashier's check, money order or wire transfer of funds. The address to which the Subscription Certificates and payment of the Subscription Price should be delivered is: American Securities Transfer & Trust, Inc. Attention: John G. Harmann 938 Quail Street Lakewood, CO 80215 If a Holder wishes to exercise Rights, but time will not permit such Holder to cause the Subscription Certificate or Subscription Certificates evidencing such Rights to reach the Subscription Agent on or prior to the Expiration Date, such Rights may nevertheless be exercised if all of the following conditions (the "Guaranteed Delivery Procedures") are met: 20 (i) such Holder has caused payment in full of the Subscription Price for each Underlying Share being subscribed for pursuant to the Subscription Agent on or prior to the Expiration Date; (ii) the Subscription Agent receives, on or prior to the Expiration Date, a guaranteed notice (a "Notice of Guaranteed Delivery"), substantially in the form provided with the Instructions as to Use of PC Quote, Inc. Subscription Certificates (the "Instructions") distributed with the Subscription Certificates, from an "Eligible Guarantor Institution" (as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934), stating the name of the exercising Holder, the number of Rights represented by the Subscription Certificate(s) held by such exercising Holder, the number of Underlying Shares being subscribed for pursuant to the Subscription Privileges and guaranteeing the delivery to the Subscription Agent of any Subscription certificate(s) evidencing such Rights within three American Stock Exchange trading days following the date of the Notice of Guaranteed Delivery; and (iii) the properly completed Subscription Certificate(s), with any required signatures guaranteed, is received by the Subscription Agent within three American Stock Exchange trading days following the date of the Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be delivered to the Subscription Agent in the same manner as Subscription Certificates at the addresses set forth above, or may be transmitted to the Subscription Agent by facsimile transmission (telecopy number (303) 234-5340). Additional copies of the form of Notice of Guaranteed Delivery are available upon request from the Subscription Agent, whose address and telephone number are set forth under "Subscription Agent" below. Funds received in payment of the Subscription Price for Excess Shares subscribed for pursuant to the Oversubscription Privilege will be held in a segregated account pending issuance of such Excess Shares. If a Holder exercising the Oversubscription Privilege is allocated less than all of the Excess Shares that such Holder wished to subscribe for pursuant to the Oversubscription Privilege, the excess funds paid by such Holder in respect of the Subscription Price for shares not issued shall be returned by mail without interest or deduction as soon as practicable after the Expiration Date. A holder who holds shares of Common Stock for the account of others, such as a broker, a trustee or a depository for securities, should notify the respective beneficial owners of such shares as soon as possible to ascertain such beneficial owner's intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the record Holder of such Rights should complete the Subscription Certificate and submit it to the Subscription Agent with the proper payment. In addition, the beneficial owner of Common Stock or Rights held through such a holder of record should contact the Holder and request the Holder to effect transactions in accordance with the beneficial owner's instructions. Unless a Subscription Certificate (i) provides that the shares of Common Stock to be issued pursuant to the exercise of Right represented thereby are to be delivered to the Holder or (ii) is submitted for the account of an Eligible Guarantor Institution, signatures on such Subscription Certificate must be guaranteed by an Eligible Guarantor Institution. If either the number of Underlying Shares being subscribed for payment to the Basic Subscription Privilege is not specified on the Subscription Certificate, or the amount delivered is not enough to pay the Subscription Price for all Underlying Shares stated to be subscribed for, the number of Underlying Shares subscribed for will be assumed to be the maximum amount that could be subscribed for upon payment of such amount, after allowance for the Subscription Price of any specified Underlying Shares. If the number of Underlying Shares being subscribed for is not specified, or payment of the Subscription Price for the indicated number of Rights that are being exercised exceeds the required Subscription Price, the payment will be applied, until depleted, to subscribe for Underlying Shares in the following order: (i) to subscribe for the number of Underlying Shares indicated, if any, pursuant to the Basic Subscription Privilege; (ii) to subscribe for Underlying Shares until the Basic Subscription Privilege has been fully exercised with respect to all of the Rights represented by the Subscription Certificate; and (iii) to subscribe for additional Underlying Shares pursuant to the Oversubscription Privilege (subject to any applicable proration). 21 The Instructions accompanying the Subscription Certificates should be read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE COMPANY. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 4:30 P.M., CHICAGO TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, THE RIGHTS HOLDER IS STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIERS CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS. All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Company, whose determinations will be final and binding. The Company, in its sole discretion, may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Company determines in its sole discretion. Any questions or requests for assistance concerning the method of exercising Rights or requests for additional copies of this Prospectus or the Instructions or the Notice of Guaranteed Delivery should be directed to the Subscription Agent, telephone number (303) 234-5300. NO REVOCATION ONCE A HOLDER OR RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE OR THE OVERSUBSCRIPTION PRIVILEGE SUCH EXERCISE MAY NOT BE REVOKED. METHOD OF TRANSFERRING RIGHTS The Company has applied to list the Rights for trading on The American Stock Exchange. Upon such listing, the Rights may be purchased or sold through usual investment channels, including banks and brokers. The Company believes the Rights will commence trading on November 24, 1997. Trading in Rights will cease on the close of business on The American Stock Exchange trading day preceding the Expiration Date. The Rights evidenced by a single Subscription Certificate may be transferred in whole by endorsing the Subscription Certificate for transfer in accordance with the accompanying instructions. A portion of the Rights evidenced by a single Subscription Certificate may be transferred by delivering to the Subscription Agent a Subscription Certificate properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby in the name of the transferee (and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights). In such event, a new Subscription Certificate evidencing the balance of the Rights will be issued to the Holder or, if the Holder so instructs, to an additional transferee. Holders wishing to transfer all or a portion of their Rights should allow a sufficient amount of time prior to the Expiration Date for (i) the transfer instructions to be received and processed by the Subscription Agent, (ii) a new Subscription Certificate to be issued and transmitted to the transferee or transferees with respect to the transferred Rights, and to the transferor with respect to retained Rights, if any, and (iii) the Rights evidenced by such new Subscription Certificates to be exercised or sold by the recipients thereof. If time does not permit a transferee of a Right who wishes to exercise its Right to 22 deliver its Subscription Certificate to the Subscription Agent on or before the Expiration Date, such transferee should make use of the Guaranteed Delivery Procedure described under "The Rights Offering--Exercise of Rights." Neither the Company nor the Subscription Agent shall have any liability to a transferee or transferor or Rights if Subscription Certificates or new Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date. All commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred in connection with the purchase, sale or exercise of Rights will be for the account of the transferor or subscriber of the Rights, and none of such commissions, fees or expenses will be paid by the Company or the Subscription Agent. 23 CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Wildman, Harrold, Allen & Dixon, counsel to the Company, the following is an accurate discussion of the material federal income tax consequences of the Rights Offering to the holders of Common Stock upon the distribution (the "Distribution") of Rights, and to holders of Rights upon the exercise and disposition of the Rights. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder, judicial authority, and current administrative rulings and practice, all of which are subject to change on a prospective or retroactive basis. The tax consequences of the Rights Offering under state, local and foreign law are not discussed. Moreover, special considerations not described herein may apply to certain taxpayers, such as financial institutions, broker-dealers, life insurance companies, and tax-exempt organizations. The discussion is limited to those who have held the Common Stock, and will hold the Rights and any Common Stock acquired upon the exercise of Rights as capital assets (generally, property held for investment) within the meaning of Section 1221 of the Code. DISTRIBUTION OF THE RIGHTS. Holders of Common Stock will not recognize taxable income for federal income tax purposes in connection with the receipt of the Rights. STOCKHOLDER BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided in the following sentence, the basis of the Rights received by a stockholder as a distribution with respect to such stockholder's Common Stock will be zero. If, however, either (i) the fair market value of the Rights on the date of Distribution is 15% or more of the fair market value (on the date of Distribution) of the Common Stock with respect to which they are received or (ii) the stockholder properly elects, in his or her federal income tax return for the taxable year in which the Rights are received, to allocate basis, part of his or her basis in Common Stock will be allocated between the Common Stock and the Rights in proportion to the fair market value of each on the date of Distribution. The holding period of a stockholder with respect to the Rights received as a distribution on such stockholder's Common Stock will include the stockholder's holding period for the Common Stock with respect to which the Rights were issued. In the case of a stockholder who purchased Rights, the tax basis of such Rights will be equal to the purchase price paid therefor, and the holding period for such Rights will commence on the day following the date of the purchase. SALE OF THE RIGHTS. A Stockholder who sells the Rights received in the Distribution prior to exercise will recognize gain or loss equal to the difference between the amount realized on the sale and such stockholder's adjusted basis (if any) in the Rights sold. Such gain or loss will be capital gain or loss if gain or loss from a sale of Common Stock held by such stockholder would be characterized as capital gain or loss at the time of such sale. Any gain or loss recognized on a sale of Rights acquired by purchase will be capital gain or loss if Common Stock would be a capital asset in the hands of the stockholder. Generally such capital gain or loss will be classified as short-term if the stockholder's holding period in the Rights is one year or less and long-term if the stockholder's holding period in the Rights is more than one year. Under current law, generally long-term capital gains are subject to a maximum marginal tax rate of 28% for individuals, estates and trusts if the capital asset is held for more than one year but not more than 18 months, and a maximum marginal tax rate of 20% if the capital asset is held for more than 18 months. LAPSE OF THE RIGHTS. Stockholders who allow the Rights received by them in the Distribution to lapse will not recognize any gain or loss, and no adjustment will be made to the basis of the Common Stock, if any, owned by such stockholders. 24 Stockholders who are purchasers of the Rights will be entitled to a loss equal to their adjusted tax basis in the Rights if such Rights expire unexercised. If the Rights expire unexercised not more than one year after the stockholder's holding period began, any loss recognized on the expiration of the Rights acquired by purchase will be a short-term capital loss if Common Stock would be a capital asset in the hands of the purchaser. EXERCISE OF THE RIGHTS, BASIS AND HOLDING PERIOD OF COMMON STOCK. Stockholders will not recognize any gain or loss upon the exercise of Rights. The basis of the Common Stock acquired through exercise of the Rights will be equal to the sum of the Subscription Price therefor and the stockholder's basis in such Rights (if any). A stockholder's holding period for the Common Stock acquired through exercise of the Rights will begin on the date the Rights are exercised. SALE OF COMMON STOCK. The sale of Common Stock acquired through exercise of the Rights will result in the recognition of gain or loss to the stockholder in an amount equal to the difference between the amount realized on the sale and the stockholder's adjusted basis in the Common Stock. Gain or loss on the sale of such Common Stock will be classified as short-term capital gain or loss, if the stockholder's holding period in such Common Stock is one year or less and long-term capital gain or loss if the stockholder's holding period in such Common Stock is more than one year. Under current law, generally long-term capital gains are subject to a maximum marginal tax rate of 28% for individuals, estates and trusts if the capital asset is held for more than one year but not more than 18 months, and a maximum marginal tax rate of 20% if the capital asset is held for more than 18 months. THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY, EACH HOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING APPLICABLE TO HIS OR HER OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS. SUBSCRIPTION AGENT The Company has appointed American Securities Transfer & Trust, Inc. as Subscription Agent for the Rights Offering. The Subscription Agent's address, which is the address to which the Subscription Certificates and payment of the Subscription Price should be delivered, as well as the address to which Notice of Guaranteed Delivery must be delivered, and the Subscription Agent's telephone number and facsimile number, are: American Securities Transfer & Trust, Inc. Attn: John G. Harmann 938 Quail Street Lakewood, CO 80215 Tel. No.: (303) 234-5300 Facsimile No.: (303) 234-5340 The Company will pay the fees and expenses of the Subscription Agent, and will also agree to indemnify it from any liability which it may incur in connection with the Rights Offering. PLAN OF DISTRIBUTION The Common Stock offered hereby is being offered by Company pursuant to the issuance of Rights directly to holders of shares of Common Stock on the Record Date. Certain employees, officers or directors of the Company may solicit responses from Holders to the Rights Offering, but such individuals will not receive any commissions or compensation for such services other than their normal employment compensation. 25 The Company intends to distribute Rights and copies of this Prospectus to stockholders of record on the Record Date promptly following the effective date of the Registration Statement of which this Prospectus forms a part. Holders who desire to subscribe for the purchase of shares of Common Stock in the Rights Offering are urged to complete, date and sign the Subscription Certificate and return it to the Subscription Agent on or before the Expiration Date, together with payment in full of shares should be directed to the Subscription Agent. INFORMATION AGENT The Company has appointed American Securities Transfer & Trust, Inc. as Information Agent for the Rights Offering. Any questions or requests for additional copies of this Prospectus, the Instructions or the Notice of Guaranteed Delivery may be directed to the Information Agent at the telephone number and address below. American Securities Transfer & Trust, Inc. Attn: John G. Harmann 938 Quail Street Lakewood, CO 80215 Tel. No.: (303) 234-5300 Facsimile No.: (303) 234-5340 The Company will pay the fees and expenses of the Information Agent and will also agree to indemnify the Information Agent from certain liabilities in connection with the Rights Offering. LEGAL MATTERS The validity of the authorization and issuance of the securities offered hereby and the tax matters discussed under "Certain Federal Income Tax Consequences" are being passed upon for Company by Wildman, Harrold, Allen & Dixon, Chicago, Illinois. EXPERTS The financial statements of PC Quote, Inc. as of December 31, 1996 and for the two year period ended December 31, 1996 incorporated in this Prospectus by reference to the Annual Report on Form 10-K, as amended, have been so incorporated in reliance on the report of McGladrey & Pullen LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The statements of operations, stockholder's equity and cash flows and related schedule for the year ended December 31, 1994 incorporated in this Prospectus by reference to the Annual Report on Form 10-K, as amended, has been so incorporated in reliance on the reports of Coopers & Lybrand L.L.P., independent accountants, given on the authority of said firm as experts in auditing and accounting. CHANGE IN ACCOUNTANTS On July 9, 1997, McGladrey & Pullen LLP declined to stand for re-election as the independent auditors for the Company. At a meeting held August 19, 1997, the Company's Board of Directors unanimously approved the appointment of KPMG Peat Marwick LLP to be the independent auditors for the year ending December 31, 1997. The reports of McGladrey & Pullen LLP on the financial statements for the past two fiscal years contained no adverse opinions or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle, except for a going concern phrase that was included in the report relating to the Company's audited financial statements for the year ended December 31, 1996 as follows: "The accompanying financial statements have been prepared assuming that PC Quote, Inc. will 26 continue as a going concern. As more fully described in Note 14, the Company has experienced significant operating losses, which adversely affected the Company's current results of operations and liquidity. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 14. The financial statements do not include any adjustments that might result from the outcome of this uncertainty." In connection with its audits for the two most recent fiscal years and through July 9, 1997, there have been no disagreements with McGladrey & Pullen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of McGladrey & Pullen LLP would have caused them to make reference thereto in their report on the financial statements for such years. The Company has requested that McGladrey & Pullen LLP furnish it with a letter addressed to the SEC stating whether or not its agrees with the above statements. A copy of such letter is filed as Exhibit 16.1 to this Registration Statement. INDEMNIFICATION OF DIRECTORS AND OFFICERS-- DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION Under provisions of the Company's Certificate of Incorporation, any person made a party to any lawsuit by reason of being a director or officer of the Company, or any parent or subsidiary thereof, may be identified by the Company to the full extent authorized by the General Corporation Law of the State of Delaware. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS
Available Information..................................................... 2 Documents Incorporated By Reference....................................... 2 Prospectus Summary........................................................ 3 Risk Factors.............................................................. 7 The Company............................................................... 12 Reason For the Offering and Use of Proceeds............................... 17 Description of Capital Stock.............................................. 18 Price Range of Common Stock............................................... 18 The Rights Offering....................................................... 19 Certain Federal Income Tax Consequences................................... 24 Subscription Agent........................................................ 25 Plan of Distribution...................................................... 25 Information Agent......................................................... 26 Legal Matters............................................................. 26 Experts................................................................... 26 Change In Accountants..................................................... 26 Indemnification of Directors and Officers--Disclosure of Commission's Position On Indemnification............................................. 27
7,402,246 SHARES [LOGO] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC Registration Fee.............................................. $ 2,500 The American Stock Exchange Listing Fee........................... 17,500 Subscription Agent's fees and expenses............................ 10,000 Printing fees..................................................... 20,000 Legal fees and expenses........................................... 60,000 Accounting fees and expenses...................................... 50,000 Consulting fees and expenses...................................... 200,000 Blue Sky fees and expenses (including legal fees)................. 5,000 Miscellaneous..................................................... 15,000 TOTAL........................................................... $ 380,000
The foregoing, except for the Securities and Exchange Commission registration fee and The American Stock Exchange listing fee are estimates. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145(a) of the General Corporation Law of Delaware (the "DGCL") empowers a corporation to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, employee or agent of the corporation or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. Subsection 145(b) of the DGCL empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under similar standards, except that no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, and that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled. It empowers the corporation to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. II-1 The Company's certification of incorporation provides that to the fullest extent permitted by Delaware law, the Company shall indemnify and advance indemnification expenses to all of its directors and officers. In addition, the certificate to the fullest extent permitted by Delaware law, of incorporation provides that a director shall not be liable to the Company or its stockholders for breach of fiduciary duty as a director. The Company has entered into indemnification agreements with each director providing for indemnification to the fullest extent permitted by Delaware law.
EXHIBIT SEQUENTIALLY NO. DESCRIPTION NUMBERED PAGE - ------ -------------------------------------------------------------------------- --------------------- 4.1 $2,500,000 Convertible Subordinated Debenture due 2001 issued by the Company to Physicians Insurance Company of Ohio, Inc., incorporated by reference to Exhibit 4(b) of the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 4.2 Form of Common Stock Purchase Warrant for 640,000 shares of the Company's Common Stock issued to PICO Holdings, Inc., incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 4.3 Form of First Amendment to Convertible Subordinated Debenture and Debenture Agreement, for the quarter ended June 30, 1997, incorporated by reference to Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended June 30, 1997. 4.4 Form of Common Stock Purchase Warrant for 500,000 shares of the Company's Common Stock issued to PICO Holdings, Inc., incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 4.5 Form of Common Stock Purchase Warrant for 129,032 shares of the Company's Common Stock issued to PICO Holdings, Inc., incorporated by reference to Exhibit 4.1 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4.6 Form of Common Stock Purchase Warrant for 350,000 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.2 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4.7 Form of Common Stock Purchase Warrant for 150,000 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.3 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4.8 Form of Common Stock Purchase Warrant for 101,500 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.4 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997.
II-2
EXHIBIT SEQUENTIALLY NO. DESCRIPTION NUMBERED PAGE - ------ -------------------------------------------------------------------------- --------------------- 4.9 Form of Common Stock Purchase Warrant for 43,500 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.5 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4.10 Form of Common Stock Purchase Warrant for 38,500 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.6 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4.11 Form of Common Stock Purchase Warrant for 16,500 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.7 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4.12 Form of Common Stock Purchase Warrant for 175,000 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.8 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4.13 Form of Common Stock Purchase Warrant for 75,000 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.9 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4.14 Form of Common Stock Purchase Warrant for 35,000 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.10 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4.15 Form of Common Stock Purchase Warrant for 15,000 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.11 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 5.1 Opinion of Wildman, Harrold, Allen & Dixon 8.1 Opinion of Wildman, Harrold, Allen & Dixon 10.1 Vendor Agreement with the Option Price Reporting Authority, incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-18, Commission File No. 2-90939C. 10.2 Vendor Agreement with the New York Stock Exchange, Inc., incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-18, Commission File No. 2-90939C. 10.3 Vendor Agreement with the National Association of Securities Dealers, Inc., incorporated by reference to Exhibit 10(d) of Company's Annual Report on Form 10-K for the year ended December 31, 1989.
II-3
EXHIBIT SEQUENTIALLY NO. DESCRIPTION NUMBERED PAGE - ------ -------------------------------------------------------------------------- --------------------- 10.4 Amended and Restated PC Quote, Inc. Employees' Combined Incentive and Non-Statutory Stock Option Plan, incorporated by reference to Appendix E to Company's Proxy Statement dated July 2, 1987. 10.5 Satellite Service Agreement dated June 12, 1991 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 10(r) to Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.6 Amendment to satellite service agreement dated September 6, 1991 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 10(s) to Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.7 Amendment to point-to-multipoint satellite network service agreement dated November 22, 1989 between the Company and GTE SpaceNet Satellite Services Corporation incorporated by reference to Exhibit 10(v) to Company's Annual Report on Form 10-KSB for the year ended December 31, 1992. 10.8 Amendment to satellite service agreement (exhibit 10(r)) dated October 4, 1993 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 10(z) to Company's Annual Report on Form 10-KSB for the year ended December 31, 1993. 10.9 Satellite Service Agreement dated September 15, 1994 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(a) to Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.10 Satellite Service Agreement dated October 15, 1993 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(b) to Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.11 Lease regarding office space at 300 South Wacker Drive, Chicago, Illinois dated June 1, 1994, by and between Company and Markborough 300 WJ Limited Partnership, incorporated by reference to Exhibit 11(e) to Company's Annual Report on Form 10-SKB for the year ended December 31, 1994. 10.12 Agreement dated November 14, 1996 between the Company and Physicians Insurance Company of Ohio, Inc. incorporated by reference to Exhibit 10(p) to Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10.13 Employment agreement dated as of December 2, 1996 between the Company and Louis J. Morgan incorporated by reference to Exhibit 10(r) to Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10.14 Form of Loan and Security Agreement dated as of May 5, 1997 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 10.1 to Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
II-4
EXHIBIT SEQUENTIALLY NO. DESCRIPTION NUMBERED PAGE - ------ -------------------------------------------------------------------------- --------------------- 10.15 Form of Promissory Note made by the Company to the order of PICO Holdings, Inc., incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 10.16 Form of First Amendment to Loan and Security Agreement, incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 10.17 Form of Second Amendment to Loan and Security Agreement, incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. 10.18 Form of Stock And Warrant Purchase Agreement dated as of October 15, 1997 between the Company and Imprimis Investors LLC and Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. 13.1 1996 Annual Report on Form 10K, as amended. 13.2 Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997 16.1 Letter of McGladrey & Pullen LLP 23.1 Consent of McGladrey & Pullen LLP 23.2 Consent of Coopers & Lybrand L.L.P. 23.3 Consent of Wildman, Harrold, Allen & Dixon (contained in its opinion filed as Exhibit 5.1 hereto) 99.1 Form of Rights Certificate and Notice of Exercise
ITEM 17. UNDERTAKINGS. A. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement. (i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-5 B. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C. The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each employee to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each employee to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. D. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on November 20, 1997. PC QUOTE, INC. By: /s/ JIM R. PORTER ----------------------------------------- Jim R. Porter CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities on November 20, 1997. SIGNATURE TITLE - ------------------------------ -------------------------- /s/ JIM R. PORTER - ------------------------------ Chairman of the Board and Jim R. Porter Chief Executive Officer /s/ JOHN E. JUSKA - ------------------------------ Chief Financial Officer John E. Juska /s/ LOUIS J. MORGAN - ------------------------------ Director Louis J. Morgan /s/ RONALD LANGLEY - ------------------------------ Director Ronald Langley /s/ JOHN R. HART - ------------------------------ Director John R. Hart /s/ TIMOTHY K. KRAUSKOPF - ------------------------------ Director Timothy K. Krauskopf /s/ WILLIAM FLOERSCH - ------------------------------ Director William Floersch II-7 EX-5.1 2 OPINION OF WILDMAN, HAROLD, ALLEN & DIXON EXHIBIT 5.1 November 19, 1997 PC Quote, Inc. 300 South Wacker Drive Suite 300 Chicago, IL 60606 Re: Registration Statement on Form S-2 No. 333-39245 Ladies and Gentlemen: We have acted as counsel to PC Quote, Inc., a Delaware corporation (the "Company"), in connection with the filing of a Registration Statement on Form S-2, Registration No. 333-39245 (the "Registration Statement"). The Registration Statement relates to the (i) proposed issuance of an aggregate of 7,402,246 transferable rights (the "Rights") which will entitle each of the Company's shareholders as of the record date to purchase one share of the Company's Common Stock (the "Shares") at a subscription price of $1.00 per share and (ii) a maximum of 7,402,246 shares of the Company's Common Stock that may be issued upon a due and proper exercise of the Rights. We have examined such documents and corporate and other records and such matter of law as we deemed necessary for the purpose of rendering this opinion, including the Company's Certificate of Incorporation, as amended, the Company's By-Laws, the Registration Statement pursuant to which the Rights and the Shares are to be registered under the Securities Act of 1933, as amended (the "Act"), and records of corporate proceedings. Based upon the foregoing, it is our opinion that the Rights, upon issuance by the Company, and up to 7,402,246 Shares when sold and delivered against due and proper execution of the Rights Subscription Certificate and payment in full of the subscription price by a stockholder of the Company as of the record date for the Rights Offering will be duly authorized, validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. We also consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. Very truly yours, WILDMAN, HARROLD, ALLEN & DIXON EX-8.1 3 OPINION OF WILDMAN, HAROLD, ALLEN & DIXON EXHIBIT 8.1 November 19, 1997 The Board of Directors PC Quote, Inc. 300 South Wacker Drive Chicago, Illinois 60606 RE: PC Quote, Inc.--Form S-2 Registration Statement No. 333-39245 (the "Prospectus") Gentlemen: We have acted as counsel to PC Quote, Inc., a Delaware corporation (the "Corporation") in connection with the distribution by the Corporation to holders of record of its Common Stock, $.001 par value per share (the "Common Stock"), other than Imprimis Investors LLC and Wexford Spectrum Investors LLC, of transferable subscription rights (the "Rights") to purchase shares of Common Stock of the Corporation at a price of $1.00 per share, as set forth in the Prospectus. In connection with this opinion, we have examined the Prospectus and the originals or copies, certified or otherwise identified to our satisfaction, of such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinion set forth herein. In rendering our opinion, we have participated in the preparation of the Prospectus. Our opinion is conditioned on, among other things, the initial and continuing accuracy of the facts, information, covenants and representations set forth in the documents referred to above. In our examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such documents. In rendering our opinion, we have considered the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated thereunder, judicial decisions and Internal Revenue Service rulings, all as in effect on the date hereof and all of which are subject to change, which changes may be retroactively applied. A change in the authorities upon which our opinion is based could affect our conclusions. In addition, there can be no assurances that any of the opinions expressed herein will be accepted by the Internal Revenue Service or, if challenged, by a court. Based upon and subject to the foregoing, we are of the opinion that although the discussion set forth in the Prospectus under the heading "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" does not purport to discuss all possible United States federal income tax consequences of the acquisition, purchase, ownership and disposition of the Rights, such discussion constitutes, in all material respects, a fair and accurate discussion of the material United States federal income tax consequences to the holders of Common Stock of the receipt of Rights in the distribution and to the holders of Rights upon the exercise and disposition of the Rights. Except as set forth above, we express no opinion to any person as to the tax consequences whether federal, state, local or foreign, of the distribution, exercise and disposition of the Rights. This opinion is furnished to you solely for your benefit in connection with the transaction contemplated by the Prospectus and is not to be used, circulated, quoted or otherwise referred to for any other purpose or relied upon by any other person without our prior written consent. We disclaim any undertaking to advise you of any subsequent changes of the facts or assumed herein or any subsequent changes in applicable law. Very truly yours, WILDMAN, HARROLD, ALLEN & DIXON EX-13.1 4 1996 ANNUAL REPORT TO STOCKHOLDER 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. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-13093 PC QUOTE, INC. Incorporated in the State of Delaware FEIN 36-3131704 Principal Executive Offices: 300 South Wacker Drive, #300, Chicago, Illinois 60606 Telephone Number: (312) 913-2800 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par Value Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 17, 1997, the aggregate market value of the Common Stock of the Registrant (based upon the closing price of the Common Stock as reported by the American Stock Exchange) on such date held by non-affiliates of the Registrant was approximately $12,853,094. Indicate by check mark whether registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No As of March 17, 1997, there were 7,412,849 shares of Common Stock of the Registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE: See Page 3 Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held in 1997 are incorporated by reference into Part III hereof. 2 PART OF FORM 10-K DOCUMENT PART I None PART II None PART III None PART IV ITEM 14 Exhibits and Reports Exhibits as specified in Item on Form 8-K 14 of this Report 3 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS During the year ended December 31, 1996, the Company's Board of Directors was comprised of Louis J. Morgan, M. Blair Hull, Paul DiBiasio, Ronald Langley and Alexander Piper III. Messrs. Hull and Piper resigned as directors in December 1996 and Mr. DiBiasio resigned in April 1997. The current directors and executive officers of the Company, and their ages and positions as of April 28, 1997 are as follows: NAME AGE POSITION Louis J. Morgan 60 Chairman of the Board of Directors, Chief Executive Officer and Treasurer Ronald Langley 52 Director Howard C. Meltzer 44 President and Chief Operating Officer Michael A. Press 53 Vice President, Finance and Chief Financial Officer Directors hold office for one year and until their successors are elected and qualified. Executive officers of the Company are appointed by, and serve at the direction of, the Board of Directors. LOUIS J. MORGAN became Chairman of the Board of the Company in May 1984. Mr. Morgan served as President of the Company from August 1980 to May 1984. From 1962-1972, Mr. Morgan was employed as a securities broker and sales manager of a regional New York Stock Exchange member brokerage firm. He was a member of the Chicago Board Options Exchange, Inc. from 1973 to 1986 and served on the Systems Committee of the Chicago Board Options Exchange, Inc. from 1980 through 1983. RONALD LANGLEY became Chairman of publicly held PICO Holdings, Inc. in November 1996; Chairman of Quaker Holdings Limited, an investment banking firm, in October 1992; Chairman since 1995 and Director since 1993, of Physicians Insurance Company of Ohio, an insurance company; Chairman of Global Equity Corporation, a Canadian investment banking corporation since September 1995; Chairman of Summit Global Management, Inc., a subsidiary of Physicians Insurance Company of Ohio which acts as an investment advisor registered with the Securities and Exchange Commission, since 1994. Since 1994, Mr. Langley served as Chairman of the Centurion Trust Company, a bank specializing in custodian services. HOWARD C. MELTZER joined the Company in June 1996 as President and Chief Operating Officer. Previously, he spent 20 years developing and implementing strategic initiatives for Reuters. Having served in the organization's London, Hong Kong and Toronto offices, Mr. Meltzer was most recently based at the Reuters Chicago office as vice president of business operations and Central District. MICHAEL A. PRESS joined the Company in July 1996 as Vice President of Finance, Chief Financial Officer. Since 1987 Mr. Press has been an independent financial consultant. Prior to that he was an officer of a national real estate development company and a senior financial and corporate development executive for Allis Chalmers and Congoleum Corp. BOARD OF DIRECTORS' MEETINGS AND COMMITTEES During the year ended December 31, 1996, the Board of Directors held six meetings. Each of the directors attended, in person or by telephone, at least 75% of the aggregate of the total number of meetings of the Board of Directors. 4 ITEM 11. EXECUTIVE COMPENSATION The following table summarizes the compensation for the past three years of (a) the Company's Chief Executive Officer, (b) the Company's President and Chief Operating Officer (who commenced employment June, 1996), (c) the Company's Vice President, Finance and Chief Financial Officer (who commenced employment July, 1996), and (d) the Company's two most highly compensated officers other than executive officers. SUMMARY COMPENSATION TABLE
Annual Compensation Awards -------------------- ---------- Shares Underlying All Other Name and Principal Position Year Salary Bonus Options Compensation (1) - --------------------------- ---- -------- ------ ----------- ---------------- Louis J. Morgan 1996 $251,562 $21,875 --- $13,752 Chairman of the Board, Chief 1995 241,896 --- 30,000 13,419 Executive Officer and Treasurer 1994 225,463 --- 20,000 11,509 Howard Meltzer (2) 1996 106,571 27,500 75,000 --- President and Chief Operating 1995 --- --- --- --- Officer 1994 --- --- --- --- Michael Press (3) 1996 57,232 5,450 25,000 --- Vice President, Finance, 1995 --- --- --- --- Chief Financial Officer 1994 --- --- --- --- Michael J. Kreutzjans 1996 152,705 11,911 --- 1,830 Vice President, Development Design 1995 145,619 --- 25,000 1,830 1994 79,365 --- 20,000 3,330 Jerry M. Traver 1996 211,539 4,813 --- --- Vice President, Sales and Marketing 1995 145,619 25,000 --- 1994 79,365 20,000 ---
- ---------------------------------- (1) Represents the insurance premiums paid by the Company on life insurance policies on which the named person's spouse is the beneficiary. (2) Mr. Meltzer's employment with the Company commenced July 1996. Represents amounts paid to Mr. Meltzer from June 1996 through December 1996. (3) Mr. Press' employment with the Company commenced July 1996. Represents amounts paid to Mr. Press from July 1996 through December 1996. Mr. Richard Chappetto, the Company's former President, International Division, and Chief Financial Officer, ceased his employment with the Company on November 1, 1996. During the last fiscal year the Company paid Mr. Chappetto cash compensation of $159,566 in accordance with his September 1993 employment agreement with the Company, which Agreement expired in September 1996. The following table shows the total number of Options granted to each of the named persons during 1996 (both as the number of shares of Common Stock subject to such Options and as a percentage of all Options granted to employees during 1996) and, for each of these grants, the exercise price per share of Common Stock and option expiration date. Except for options granted to Mr. Meltzer, the options will vest in three equal annual installments in 1997, 1998 and 1999 and will be exercisable through July 16, 2001. The exercise price of these options was fair market value (as defined in the Plan) at the date of grant. Of the 75,000 options granted to Mr. Meltzer, 25,000 vested immediately upon commencement of his employment in July. The remaining 50,000 options vest in equal annual installments through July, 1998. No SARs were granted in 1996. 5 OPTION/SAR GRANTS IN 1996 FISCAL YEAR
Potential Realizable Value at Number of % of Total Assumed Annual Rates of Securities Options Exercise Price Appreciation Underlying Granted to or Base for Option Options Employees in Price Expiration ----------------------- Name Granted (#) Fiscal Year ($/Sh) Date 5%(1) 10%(1) - ---- ------------ ------------- -------- ----------- ----- ------ Louis J. Morgan ---- ---- _____ __________ ________ ________ Howard Meltzer 75,000 57% 5.375 7-16-2001 $490,000 $590,215 Michael Press 25,000 19% 5.375 7-29-2001 163,333 196,738 Michael J. Kreutzjans ---- ---- ______ __________ ________ ________ Jerry M. Traver ---- ---- ______ __________ ________ ________
(1) The dollar amounts under these columns are the result of calculations at the 5% appreciation and 10% appreciation rates for the full five-year terms of the options as required by the SEC. The dollar amounts presented are not intended to forecast possible future appreciation, if any, of the price of the Common Stock. The following table sets forth, for each of the named persons, the number of shares they acquired on exercise of Options in 1996, the aggregate dollar value realized upon exercise, the total number of shares of Common Stock underlying unexercised Options and the aggregate dollar value of unexercised, in-the-money Options, separately identifying the exercisable and unexercisable Options. No SARs were outstanding in 1996. AGGREGATED OPTION/SAR EXERCISES IN 1996 FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Shares Value of Unexercised Shares Underlying Unexercised In-the-Money Options/ Acquired Options/SARs at FY-End (#) SARs at FY-End on Value ($)(1) Exercise Realized Exercisable/ Exercisable/ Name (#) ($) Unexercisable Unexercisable ---- ---------- -------- ------------- --------------- Louis J. Morgan 25,000 57,813 35,166/33,334 30,729/15,834 Howard Meltzer ______ ______ 25,000/50,000 ____________ Michael Press ______ ______ /25,000 ____________ Michael J. Kreutzjans 10,000 33,125 31,999/30,001 27,541/15,834 Jerry M. Traver 13,000 135,688 13,999/30,001 4,478/15,834 - -----------------------
(1) These values represent the excess, if any, of the fair market value of the shares of Common Stock subject to Options on December 31, 1996 over the respective option prices. COMPENSATION OF DIRECTORS On May 13, 1994, the Company adopted a policy of paying its non-employee directors $4,000 per year and, in addition, $750 per meeting. Pursuant to this policy, non-employee directors were paid an aggregate of $29,750 during the last fiscal year. 6 EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS. Effective as of December 2, 1996, the 1989 Employment Agreement between the Company and Mr. Morgan was replaced by a new Employment Agreement. Mr. Morgan's current agreement provides for his continued employment by the Company as Chairman of the Board of Directors at an annual salary of $251,000, an amount equal to his 1996 base compensation. Pursuant to the Agreement, the Company shall use its best efforts to nominate Mr. Morgan as director at its next meeting of shareholders. The Agreement expires December 2, 1997 unless extended by the parties. The Employment Agreement also contains confidentiality and nondisclosure provisions. In July, 1996, the Company and Mr. Meltzer entered into an Employment Agreement. It provides for (i) the employment of Mr. Meltzer as President and Chief Operating Officer of the Company, (ii) a minimum annual base salary of $190,000 for the three years beginning July 16, 1996 unless Mr. Meltzer's employment is earlier terminated in accordance with the Agreement, and (iii) the granting of certain stock options during its term. Further, the Employment Agreement provides that upon termination of Mr. Meltzer's employment under certain circumstances, Mr. Meltzer shall be entitled to additional compensation in an amount equal to his annual base salary. The Employment Agreement also contains confidentiality and non-compete provisions. In July, 1996, Michael Press commenced his employment as Vice President, Finance, and Chief Financial Officer. On that date, Mr. Press entered into a letter agreement with the Company which provides that in the event his employment with the Company is terminated for any reason he would receive an amount equal to one year of his compensation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of December 31, 1996 regarding the beneficial ownership of shares of the Common Stock of the Company by each director and by all current directors and executive officers as a group.
Beneficial Ownership of Shares of of Percent Name Common Stock of Class ----- ----------------------- --------- Louis J. Morgan(1)...................... 374,932 5.1% Ronald Langley(2)....................... 3,396,400 45.8% All Directors and Officers as a Group (4 persons)(1)(2)(3)........... 3,877,496 52.3%
- ----------------------------- (1) Does not include 275,100 shares of Common Stock held by Mr. Morgan's spouse, as to which shares Mr. Morgan disclaims any voting or investment power. Includes 35,166 shares of Common Stock which may be acquired upon exercise of presently exercisable options. (2) Mr. Langley, a Director of the Company since 1995, is a Director of PICO Holdings, Inc. ("PICO"). As such, Mr. Langley may be deemed to beneficially own the 3,396,400 shares of common stock of the Company over which shares PICO claimed beneficial ownership in a Schedule 13D filed with the SEC on December 16, 1996. See "Principal Stockholders." Mr. Langley disclaims beneficial ownership of these shares within the meaning of 13d-3 of the Securities and Exchange Act of 1934. (3) Includes 106,164 shares of Common Stock which may be acquired upon exercise of presently exercisable options. 7 PRINCIPAL STOCKHOLDERS The following table sets forth information as of December 31, 1996 regarding each person other than directors of the Company who were known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock. Each person named has sole voting and investment power with respect to the shares beneficially owned by such person. The information presented in the table is derived from a Schedule 13D filed with the SEC by the named person on December 16, 1996.
Amount and Nature of Name and Address of Beneficial Owner Beneficial Ownership of Shares Percent of Class - ------------------------------------ ------------------------------ ----------------- PICO Holdings, Inc. 3,396,400--Direct 45.8% 875 Prospect Street La Jolla, California
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On November 14, 1996, the Company entered into an agreement with Physicians Insurance Company of Ohio, Inc. ("PICO"), which then owned approximately 30% of the Company's outstanding shares of common stock. Pursuant to the Agreement, PICO invested $2.5 million in the Company in exchange for a Subordinated Convertible Debenture (the "Debenture") in the principal amount of $2.5 million with interest at 1% over prime. PICO made the investment and the Debenture was issued on December 2, 1996. The Debenture matures on December 31, 2001 and is convertible at any time by PICO into 1.25 million shares of common stock of the Company (subject to adjustment in certain cases). 8 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PC QUOTE, INC. By: /s/ LOUIS J. MORGAN - -------------------------------------------------- Louis J. Morgan, Chairman By: /s/ HOWARD MELTZER - ------------------------------------------------- Howard Meltzer President and Chief Operating Officer By: /s/ MICHAEL PRESS - -------------------------------------------------------- Michael Press Vice President, Finance, Chief Financial Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ LOUIS J. MORGAN - --------------------------------------------- Louis J. Morgan, Director April 30, 1997 /s/ RONALD LANGLEY - ---------------------------------------- Ronald Langley, Director April 30, 1997 9 EX-13.2 5 QUARTERLY REPORT ON FORM 10-Q DTD 9/30/97 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q _________________________________ [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 1997 Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from -------------to-------------- _______________________________________ Commission file number 0-13093 I.R.S. Employer Identification Number 36-3131704 PC QUOTE, INC. (a Delaware Corporation) 300 S. WACKER DRIVE, SUITE 300 CHICAGO, ILLINOIS 60606 TELEPHONE (312) 913-2800 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past twelve months, (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 12,384,246 shares of the Company's common stock ($.001 par value) were outstanding as of November 10, 1997. Page 1 PC QUOTE, INC. INDEX PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 3 Statements of Operations for the nine month periods ended September 30, 1997 and 1996 (unaudited) 4 Statements of Operations for the quarters ended ended September 30, 1997 and 1996 (unaudited) 5 Statements of Cash Flows for nine month periods ended September 30, 1997 and 1996 (unaudited) 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of: Results of Operations and Financial Condition 11 Liquidity and Capital Resources 13 PART II. OTHER INFORMATION Item 2. Changes in Securities 14 Item 6. Exhibits and Reports on Form 8-K 16 Company's Signature Page 17 Page 2 PC QUOTE, INC. BALANCE SHEETS SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
SEPTEMBER 30, DECEMBER 31, 1997 1996 ASSETS (UNAUDITED) (AUDITED) ------------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 85,908 $1,321,512 Accounts receivable, net of allowance for doubtful accounts of $348,384 (1997) and $234,000 1996) 901,526 1,100,253 Income tax refunds receivable 40,000 Prepaid expenses and other current assets 182,045 185,071 ------------- ------------ Total current assets 1,169,479 2,646,836 ------------- ------------ PROPERTY AND EQUIPMENT Satellite receiving equipment 889,490 865,454 Computer equipment 6,862,486 6,382,179 Communication equipment 2,671,293 2,656,057 Furniture and fixtures 293,240 293,240 Leasehold improvements 366,326 359,126 ------------- ------------ 11,082,835 10,556,056 Less accumulated depreciation and amortization 8,694,155 7,791,849 ------------- ------------ 2,388,680 2,764,207 ------------- ------------ OTHER ASSETS Software development costs, net of accumulated amortization of $4,385,479 (1997) and $3,600,204 (1996) 5,126,629 5,789,845 Deposits and other assets 304,723 353,182 ------------- ------------ TOTAL ASSETS $ 8,989,511 $11,554,070 ------------- ------------ ------------- ------------ SEPTEMBER 30, DECEMBER 31, 1997 1996 LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (AUDITED) ------------- ------------ CURRENT LIABILITIES Note payable, bank, current $ 300,000 $ 300,000 Note payable, credit facility, net of deferred costs of $536,457 (1997) 1,753,543 Capital lease obligations 142,685 Accounts payable 4,042,462 1,774,390 Unearned revenue 1,021,269 995,600 Accrued expenses 1,432,979 718,640 ------------- ------------ Total current liabilities 8,550,253 3,931,315 LONG-TERM LIABILITIES Note payable to bank, noncurrent 875,000 1,100,000 Convertible Subordinated Debenture Bond Payable Net of Unamortized Discount of $1,304,379 (1997) 1,195,621 850,000 and $1,650,000 (1996) Unearned revenue, noncurrent 93,709 134,636 Accrued expense, noncurrent 192,296 206,542 ------------- ------------ Total liabilities 10,906,879 6,222,493 ------------- ------------ STOCKHOLDERS' EQUITY Common stock, par value $.001; 10,000,000 shares authorized: 7,384,246 (1997) and 7,355,621 (1996) shares issued and outstanding 7,384 7,356 Paid in capital 12,664,806 12,615,995 Paid in capital-Convertible Subordinated Debenture and Warrants 2,750,492 1,650,000 Accumulated deficit (17,340,050) (8,941,774) ------------- ------------ Total stockholders' equity (1,917,368) 5,331,577 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,989,511 $11,554,070 ------------- ------------ ------------- ------------
The accompanying notes are an integral part of these financial statements. Page 3 PC QUOTE, INC. STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 1997 1996 (UNAUDITED) (UNAUDITED) --------------------------- NET REVENUES Services $12,675,772 $12,883,133 Direct costs of services 11,093,738 7,575,431 ----------- ----------- 1,582,034 5,307,702 ----------- ----------- OPERATING COSTS AND EXPENSES Amortization of software development 1,250,051 801,000 Research and development 893,846 543,292 Selling and marketing 2,873,830 2,341,820 General and administrative 2,570,682 2,603,026 Restructure expense 1,146,677 ----------- ----------- 8,735,086 6,289,138 ----------- ----------- OPERATING LOSS (7,153,052) (981,436) OTHER INCOME (EXPENSE) Interest income 14,721 4,112 Interest expense (1,259,945) (100,796) ----------- ----------- NET LOSS ($8,398,276) ($1,078,120) ----------- ----------- ----------- ----------- ----------- ----------- NET LOSS PER COMMON SHARE ($1.14) ($0.15) ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. Page 4 PC QUOTE, INC. STATEMENTS OF OPERATIONS
FOR QUARTER ENDED SEPTEMBER 30 ------------------------------ 1997 1996 (UNAUDITED) (UNAUDITED) ------------------------------ NET REVENUES Services $4,449,368 $4,460,823 Direct costs of services 3,767,512 3,075,128 ---------- ---------- 681,856 1,385,695 ---------- ---------- OPERATING COSTS AND EXPENSES Amortization of software development 418,937 308,000 Research and development 341,137 197,281 Selling and marketing 903,954 882,293 General and administrative 625,529 1,081,249 Restructure expense ---------- ---------- 2,289,557 2,468,823 ---------- ---------- OPERATING LOSS (1,607,701) (1,083,128) OTHER INCOME (EXPENSE) Interest income 1,587 0 Interest expense (705,886) (39,636) ---------- ---------- NET LOSS ($2,312,000) ($1,122,764) ---------- ---------- ---------- ---------- ---------- ---------- NET LOSS PER COMMON SHARE ($0.31) ($0.15) ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements. Page 5 PC QUOTE, INC STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ($8,398,276) ($1,078,120) ----------- ----------- Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities Depreciation and amortization of property and equipment 902,306 705,061 Amortization of software development cost 1,250,051 801,000 Amortization of discount on convertible subordinated debenture bond payable 467,016 Amortization of deferred debt on warrants 442,640 Write-off of capitalized software development costs 571,647 Changes in assets and liabilities: Accounts receivable, net of allowance 198,727 308,738 Prepaid expenses and other current assets 3,026 188,014 Deposits and other assets 48,459 (26,931) Accounts payable 2,268,072 8,128 Unearned revenue (15,258) (179,138) Accrued expenses 700,093 142,976 Income tax refund 40,000 ----------- ----------- Total adjustments 6,876,779 1,947,848 ----------- ----------- Net cash provided by (used in) operating activities (1,521,497) 869,728 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVTIES: Purchase of property and equipment (526,779) (415,214) Software development costs capitalized (1,158,482) (2,342,379) ----------- ----------- Net cash used in investing activities (1,685,261) (2,757,593) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 48,839 204,861 Principal payments under capital leases obligations (142,685) (524,273) Principal payments on note payable to banks (225,000) (225,000) Net borrowings under line of credit-Bank 1,500,000 Net borrowings under credit facility 2,290,000 ----------- ----------- Net cash provided by financing activities 1,971,154 955,588 ----------- ----------- ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (1,235,604) (932,277) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 1,321,512 1,043,478 ----------- ----------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $85,908 $111,201 ----------- ----------- ----------- ----------- - -------------------------------------------------------------------------- ----------- - -------------------------------------------------------------------------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest Paid $171,173 $100,796 Income taxes paid None None SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS: Issuance of warants $979,097 None - -------------------------------------------------------------------------- ----------- - -------------------------------------------------------------------------- -----------
The accompanying notes are an integral part of these financial statements. Page 6 PC QUOTE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (1) BASIS OF PRESENTATION The accompanying interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The interim financial statements include all adjustments that, in the opinion of management, are necessary in order to make the financial statements not misleading. The amounts indicated as "audited" have been extracted from the Company's December 31, 1996 annual report. For further information, refer to the consolidated financial statements and footnotes included in PC Quote's annual report on Form 10-K for the year ended December 31, 1996. Certain reclassifications have been made to conform to the current presentation. Costs associated with the planning and designing phase of software development, including coding and testing activities necessary to establish technological feasibility of computer software products to be sold, leased or otherwise marketed, are charged to research and development costs as incurred. Once technological feasibility has been determined, costs incurred in the construction phase of software development, including coding, testing and product quality assurance, are capitalized. Amortization is provided over an estimated life of the software products and commences when the product is available for general release to customers. Unamortized capitalized costs determined to be in excess of the net realizable value of the product are expensed at the date of such determination. The anticipated future gross revenues and remaining economic life of the products are based on estimates which are subject to change. Accumulated amortization and related software development costs are removed in the year following full amortization. (2) INCOME TAXES At December 31, 1996, the Company had federal income tax net operating loss carryforwards of approximately $12,059,000 for federal income tax purposes and approximately $9,794,000 for alternative minimum tax purposes. The net operating loss carryforwards will expire in the years 1999 to 2011. Page 7 (3) RESTRUCTURE EXPENSE In June 1997, the Company underwent a significant management reorganization and restructuring of operations. As a result, the Company wrote off approximately $572,000 representing the unamortized portion of previously capitalized software development costs. The write-off relates to development efforts which new management has decided for economic reasons not to pursue. The management reorganization resulted in the Company incurring employment termination costs of $425,000 and $150,000 was paid to terminate a contractual arrangement related to unprofitable operations. (4) BORROWINGS FROM SHAREHOLDER On May 5, 1997, the Company and PICO Holdings, Inc. ("Holdings") entered into a Loan and Security Agreement (the "Loan Agreement"), under which Holdings agreed to make a secured loan to the Company in an aggregate principal amount of up to $1.0 million at a fixed rate equal to 14% per annum. Unless otherwise extended, the entire principal balance and all accrued interest due under the Loan Agreement were payable on September 30, 1997. All advances under the Loan Agreement are secured by a pledge of substantially all of the assets of the Company. These liens are subject to the prior lien of the Company's primary lender, Lakeside Bank. Holdings will be paid a "facility fee" of $40,000, plus interest at a rate equal to 14% per annum, on the maturity date of the loan contemplated by the Loan Agreement. Also on May 5, 1997, in consideration of the loan by Holdings to the Company, the Company issued a Common Stock Purchase Warrant (the "Warrant") to Holdings entitling Holdings to purchase a minimum of 640,000 shares of the Company's Common Stock at a price per share equal to the lesser of (a) the mean of the closing bid price per share for the 20 trading days preceding exercise of the Warrant or (b) $1.5625 per share (the market value of the Company's Common Stock on the date the Warrant was issued). The Warrant expires on April 30, 2000. In August 1997, the Company and Holdings agreed to amend the Loan Agreement and related documents to increase the amount of the secured loan from Holdings to the Company from $1.0 million up to $2.0 million. In connection with the increase of the loan amount pursuant to such amendment, the Company granted Holdings an additional Common Stock Purchase Warrant for a minimum of 500,000 shares of the Company's Common Stock. The terms of the additional warrant are substantially the same as those contained in the Warrant, except that the conversion price is the lesser of (a) $2.00 per share or (b) the mean of the closing bid price per share for the 20 trading days preceding exercise of the additional warrant. Page 8 On September 22, 1997 the Company and Holdings executed a second amendment to the Loan Agreement to further increase the amount of the secured loan from Holdings to the Company from $2.0 million to $2.25 million. The terms of the Loan Agreement otherwise remained substantially the same, except that the maturity date was extended to December 31, 1997. In consideration of the amendment to the Loan Agreement, the Company granted Holdings another Common Stock Purchase Warrant for up to 129,032 shares of Common Stock. The terms of such warrant are substantially the same as contained in the Warrant, except that the conversion price is the lesser of (a) $1.9375 per share or (b) the mean of the closing bid price per share for the 20 trading days preceding exercise of this warrant (5) SUBSEQUENT EVENTS On October 22, 1997, pursuant to shareholder approval on October 16, 1997, a Certificate of Amendment to the Company's Certificate of Incorporation that increased the Company's total authorized Common Stock to fifty million (50,000,000) shares, eliminated the Preferred Stock, par value $1.312704617 per share, from the Company's authorized capital, and authorized the Company to issue up to five million (5,000,000) shares of preferred stock, par value $0.001 per share, was filed with the Secretary of State of the State of Delaware. In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC (collectively, the "Wexford Affiliates") expended $5.0 million to purchase five million shares of Common Stock and warrants to purchase five hundred thousand shares of Common Stock at an exercise price of $2.00 per share, exercisable at any time prior to October 15, 2002 (the "Initial Warrants"). The Wexford Affiliates have acquired the Common Stock and the Warrants for investment purposes pursuant to a certain Stock and Warrant Purchase Agreement dated October 15, 1997, between PC Quote and the Wexford Affiliates (the "Purchase Agreement"). Pursuant to the terms of the Purchase Agreement, on October 15, 1997, the Wexford Affiliates purchased 1,450,000 shares of Common Stock and the Initial Warrants for a purchase price of $1.45 million. On October 20, 1997, pursuant to the terms of the Purchase Agreement, the Wexford Affiliates purchased an additional 550,000 shares of Common Stock for a purchase price of $0.55 million. On October 23, 1997, pursuant to the terms of the Purchase Agreement, the Wexford Affiliates purchased an additional 3,000,000 shares of Common Stock for a purchase price of $3.0 million. Page 9 Up to four million of the shares of Common Stock purchased by the Wexford Affiliates are subject to repurchase by PC Quote at a purchase price of $1.00 per share pursuant to the terms of the Purchase Agreement (the "Repurchase"). Pursuant to the terms of the Purchase Agreement, PC Quote will use its best efforts to consummate the Repurchase from the proceeds of a rights offering. In the event that the rights offering is not completed on or prior to January 24, 1998, the Wexford Affiliates will be entitled to receive, out of escrow, warrants to purchase an additional 250,000 shares of Common Stock with the same terms as the Initial Warrants and, in the event the rights offering is not completed on or prior to February 28, 1998, the Wexford Affiliates will be entitled to receive, out of escrow, warrants to purchase an additional 250,000 shares of Common Stock with the same terms as the Initial Warrants. In contemplation of the Purchase Agreement, the Wexford Affiliates have agreed not to participate in the rights offering. On October 31, 1997 a Form S-2 Registration Statement was filed with the Securities and Exchange Commission for the rights offering. Page 10 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION INTRODUCTION The statements made herein that are not historical facts may contain forward-looking information that involve substantial risks and uncertainties. The Company's actual results, performance or achievements could differ materially from the results, performance or achievements expressed in, or implied by, these forward-looking statements. Among the factors that could cause or contribute to such differences include the Company's ability to (i) obtain adequate financing to fund its current and future business strategies, (ii) attract and retain key employees, (iii) compete successfully against competitive products and services, (iv) maintain its relationships with key suppliers and providers of market data, (v) pay, refinance, or extend the up to $2.25 million loan from PICO Holdings on or before December 31, 1997, and (vi) the effect of economic and business conditions, generally. RESULTS OF OPERATIONS: FOR THE NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 1997 Service revenue for the nine months ended September 30,1997 decreased 2% from the same period of 1996 and was essentially unchanged for the quarter ended September 30, 1997 when compared to the same period of the prior year. The decrease is due to the loss of two major customers in the Company's traditional direct data feed business. The lost revenue, $3.8 million and $400,000 for the nine months and quarter, respectively, has been substantially offset by increases in service revenue in the Company's traditional and internet businesses, as well as revenue from the sale of advertising on the internet. Direct costs of services increased 46% and 23% for the nine months and quarters ended September 30, 1997, respectively, over the same periods in 1996. Principal components of these increases were royalties, leased equipment, communication costs, and compensation directly attributable to internet operations and sales of PCW6.0, payments to providers of market data, and maintenance of and enhancements to the Company's traditional direct data feed systems. Page 11 Amortization of software development for the nine months and quarter ended September 30, 1997 increased 56% and 36%, respectively, from the same periods of the prior year, reflecting the investment in internet and direct data feed products and delivery mechanisms. Similarly, research and development costs increased 65% and 73%, respectively, for the nine months and quarter ended September 30, 1997 as compared to the same periods in 1996. The increase was due to additional charges for equipment leased to upgrade systems' design and testing equipment, in addition to costs of maintaining and enhancing previously developed products and services. Selling and marketing costs increased 23% and 2%, respectively, for the nine months and quarter ended September 30, 1997 over the same periods in 1996. The increase was mainly due to commissions. General and administrative expenses decreased 1% and 42% for the nine months and the quarter ended September 30, 1997, respectively, from the same periods in 1996. The decreases were principally due to reductions in compensation and related employee costs and a decrease in bad debt expense for the quarter as compared to the prior year. In June 1997, the Company underwent a significant management reorganization and restructuring of operations. As a result, for the nine months ended September 30, 1997 the Company wrote off approximately $572,000 of unamortized software development costs for previously capitalized software projects that were discontinued. The management reorganization resulted in the Company incurring employment related termination costs of $425,000 and $150,000 was paid to terminate a contractual arrangement related to unprofitable operations. Interest expense increased 1,150% and 1,681%, respectively, for the nine months and quarter ended September 30. 1997 over the same periods in 1996. The increases reflect the recognition of non-cash amortization of $467,016 and $330,936 for the nine months and quarter, respectively, for the value of the $2.5 million convertible subordinated debenture's beneficial conversion feature and amortization of $442,640 and $264,810 for the nine months and quarter, respectively, for the value of the common stock purchase warrants issued to PICO Holdings, Inc. in connection with a financing arrangement. Also included is interest on the bank term loan, the convertible subordinated debenture and financing arrangement borrowings. See footnote 4 of the Notes to the Financial Statements for additional information with respect to the financing arrangement. Page 12 ITEM 2 MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES: FOR THE NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 1997 Net cash declined by 93% for the nine months ended September 30, 1997 as compared to 89% for the nine months ended September 30, 1996. Expenditures for new equipment and capitalized software costs were 39% lower than last year. New direct borrowings of $2,290,000 from the 1997 loan facility with PICO Holdings, discussed below, were also incurred. Agreements were reached with various vendors to extend payments under negotiated payment plans. The Company's $1.0 million line of credit with Lakeside Bank expired in February 1997. The Company is experiencing working capital constraints which has hindered operations. To lessen such constraints, on May 5, 1997 the Company entered into a loan and security agreement with its principal shareholder, PICO Holdings ("PICO"), to provide working capital loans of up to $1.0 million. In connection with the extension by PICO of such $1.0 million facility, the Company and PICO restructured the terms of its $2.5 million subordinated convertible debenture ("Debenture"). In August 1997, the Company and PICO amended the loan and security agreement increasing the facility by $1.0 million to $2.0 million. In September 1997, the Company and PICO further amended the loan and security agreement increasing the facility by $0.25 million to $2.25 million and extending the due date for all borrowings on the facility, plus accrued interest to December 31, 1997. See footnote 4 of the Notes to the Financial Statements and Part II of this report for additional information regarding the loan facility. In October 1997 the Company issued five million (5,000,000) shares of Common Stock in exchange for five million dollars ($5,000,000), subject to the Company's right to repurchase four million shares at one dollar ($1) per share upon completion of a rights offering. See note 5 of the Footnotes to the Financial Statements and Part II of this report for additional information regarding the equity capital infusion. Page 13 Part II ITEM 2. CHANGES IN SECURITIES On September 22, 1997 the Company and PICO Holdings, Inc., ("Holdings") executed a second amendment to the Loan and Security Agreement dated as of May 5, 1997, as amended on August 8, 1997 (the "Loan Agreement") to further increase the amount of the secured loan from Holdings to the Company from $2.0 million to $2.25 million. The terms of the Loan Agreement otherwise remained substantially the same, except that the maturity date was extended to December 31, 1997. In consideration of the amendment to the Loan Agreement, the Company granted Holdings a Common Stock Purchase Warrant entitling Holdings to purchase a minimum of 129,032 shares of the Company's Common Stock at a price per share (the "Warrant Price") equal to the lesser of (a) the mean of the closing bid price per share for the 20 trading days preceding exercise of the Warrant or (b) $1.9375 per share. The Warrant expires on April 30, 2000. In lieu of exercising the Warrant for cash, Holdings may elect to receive shares of the Company's Common Stock equal to the "value" of the Warrant determined in accordance with a formula specified in the Warrant (the "Conversion Value"). The number of shares of the Company's Common Stock subject to the Warrant and the Warrant Price will be adjusted to reflect stock dividends; reclassifications or changes of outstanding securities of the Company; any consolidation, merger or reorganization of the Company; stock splits; issuances of rights, options or warrants to all holders of shares of the Company's Common Stock exercisable at less than the current market price per share; and other distributions to all holders of shares of the Company's Common Stock. In the event of any sale, license or other disposition of all or substantially all of the assets of the Company or any reorganization, consolidation or merger involving the Company in which the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity (an "Acquisition"), if the successor entity does not assume the obligations of the Warrant and Holdings has not fully exercised the Warrant, the unexercised portion of the Warrant will be deemed automatically converted into shares of the Company's Common Stock at the Conversion Value. Alternatively, Holdings may elect to cause the Company to purchase the exercised portion of the Warrant for cash upon the closing of any Acquisition for an amount equal to (a) the fair market value of any consideration that would have been received had Holdings exercised the unexercised portion of the Warrant immediately before the record date for determining stockholders entitled to participate in the proceeds of the Acquisition, less (b) the aggregate Warrant Price. The Warrant also provides for certain piggyback registration rights and a one-time demand registration right. In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC (collectively, the "Wexford Affiliates") expended $5.0 million to purchase five million shares of the Company's Common Stock and warrants to purchase five hundred thousand shares of the Company's Common Stock at an exercise price of $2.00 per Page 14 share, exercisable at any time prior to October 15, 2002 (the "Initial Warrants"). The Wexford Affiliates have acquired the Common Stock and the Warrants for investment purposes pursuant to a certain Stock and Warrant Purchase Agreement dated October 15, 1997, between PC Quote and the Wexford Affiliates (the "Purchase Agreement"). Pursuant to the terms of the Purchase Agreement, on October 15, 1997, the Wexford Affiliates purchased 1,450,000 shares of Common Stock and the Initial Warrants for a purchase price of $1.45 million. On October 20, 1997, pursuant to the terms of the Purchase Agreement, the Wexford Affiliates purchased an additional 550,000 shares of Common Stock for a purchase price of $0.55 million. On October 23, 1997, pursuant to the terms of the Purchase Agreement, the Wexford Affiliates purchased an additional 3,000,000 shares of Common Stock for a purchase price of $3.0 million. Up to four million of the shares of Common Stock purchased by the Wexford Affiliates are subject to repurchase by PC Quote at a purchase price of $1.00 per share pursuant to the terms of the Purchase Agreement (the "Repurchase"). Pursuant to the terms of the Purchase Agreement, PC Quote will use its best efforts to consummate the Repurchase from the proceeds of the Rights Offering. In the event that the Rights Offering is not completed on or prior to January 24, 1998, the Wexford Affiliates will be entitled to receive, out of escrow, warrants to purchase an additional 250,000 shares of Common Stock with the same terms as the Initial Warrants and, in the event the Rights Offering is not completed on or prior to February 28, 1998, the Wexford Affiliates will be entitled to receive, out of escrow, warrants to purchase an additional 250,000 shares of Common Stock with the same terms as the Initial Warrants. In contemplation of the Purchase Agreement, the Wexford Affiliates have agreed not to participate in the Rights Offering. On October 31, 1997 a Form S-2 Registration Statement was filed with the Securities and Exchange Commission for the rights offering. Page 15 Item 6. Exhibits and Reports on Form 8-K a. The following Exhibits are filed herein: Exhibit 4.1 Form of Common Stock Purchase Warrant for 129,032 shares of the Company's Common Stock issued to PICO Holdings, Inc. Exhibit 4.2 Form of Common Stock Purchase Warrant for 350,000 shares of the Company's Common Stock issued to Imprimis Investors LLC Exhibit 4.3 Form of Common Stock Purchase Warrant for 150,000 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC Exhibit 4.4 Form of Common Stock Purchase Warrant for 101,500 shares of the Company's Common Stock issued to Imprimis Investors LLC Exhibit 4.5 Form of Common Stock Purchase Warrant for 43,500 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC . Exhibit 4.6 Form of Common Stock Purchase Warrant for 38,500 shares of the Company's Common Stock issued to Imprimis Investors LLC Exhibit 4.7 Form of Common Stock Purchase Warrant for 16,500 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC Exhibit 4.8 Form of Common Stock Purchase Warrant for 175,000 shares of the Company's Common Stock issued to Imprimis Investors LLC Exhibit 4.9 Form of Common Stock Purchase Warrant for 75,000 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC Exhibit 4.10 Form of Common Stock Purchase Warrant for 35,000 shares of the Company's Common Stock issued to Imprimis Investors LLC Page 16 Exhibit 4.11 Form of Common Stock Purchase Warrant for 15,000 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC Exhibit 4.12 Certificate of Amendment dated as of October 22, 1997, to Company's Certificate of Incorporation. Exhibit 10.1 Form of Second Joint Amendment to Agreement to Provide Insurance; Disbursement Request and Authorization; Promissory Note; and Loan and Security Agreement Exhibit 10.2 Form of Stock And Warrant Purchase Agreement dated as of October 15, 1997 between the Company and Imprimis Investors LLC and Wexford Spectrum Investors LLC Exhibit 27 Financial Data Schedule b. The Company's Current Report on Form 8-K was filed on July 16, 1997 and amended on August 26, 1997. SIGNATURES __________ Pursuant to the requirements of the Exchange Act of 1934, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PC QUOTE, INC. Date: November 14, 1997 By: /s/ Jim R. Porter ------------------------- Jim R. Porter Chief Executive Officer By: /s/ John E. Juska ------------------------- John E. Juska Chief Financial Officer EX-16.1 6 LETTER OF MCGLADREY & PULLEN LLP EXHIBIT 16.1 October 31, 1997 Securities and Exchange Commission Washington D.C. 20549 We were previously the independent accountants for PC Quote, Inc., and on March 7, 1997, we reported on the financial statements of PC Quote, Inc. as of and for the two years ended December 31, 1996. On July 9, 1997, we declined to stand for reelection as independent accountants of PC Quote, Inc. We have read PC Quote, Inc.'s statements included under the heading "Change in Accountants" appearing in the Registration Statement on Form S-2 (Rights Offering), and we agree with such statements, except we are not in a position to agree or disagree with the Company's statements relating to actions taken at meetings of the Company's Board of Directors. /s/ MCGLADREY & PULLEN, LLP ------------------------------------------ McGLADREY & PULLEN, LLP
EX-23.1 7 CONSENT OF MCGLADREY & PULLEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to incorporation by reference in the Registration Statement on Form S-2 (Rights Offering) of PC Quote, Inc. of our report dated March 7, 1997, relating to the balance sheets of PC Quote, Inc. as of December 31, 1996 and 1995, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 1996, which report appears in the December 31, 1996, Annual Report on Form 10-K of PC Quote, Inc. and to the reference of our firm under the heading "Experts" in the Registration Statement. /s/ MCGLADREY & PULLEN, LLP ------------------------------------------ McGladrey & Pullen, LLP
October 31, 1997 Schaumburg, Illinois EX-23.2 8 CONSENT OF COOPERS & LYBRAND EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-2 of our reports dated March 17, 1995, on our audit of the financial statements and financial statement schedule of PC Quote, Inc. for the year ended December 31, 1994 as included in the Annual Report on Form 10-K of PC Quote, Inc. for the year ended December 31, 1996 and to the reference of our firm under the heading "Experts" in the Registration Statement. [SIG] COOPERS & LYBRAND L.L.P. Chicago, Illinois November 19, 1997 EX-99.1 9 FORM OF RIGHTS CERTIFICATE & NOTICE OF EXERCISE PC QUOTE, INC. SUBSCRIPTION CERTIFICATE NO. ____________ RIGHTS CUSIP NO. 693236 11 9 THE TERMS AND CONDITIONS OF THE OFFERING ARE SET FORTH IN THE PC QUOTE, INC. PROSPECTUS DATED _____________, 1997 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM PC QUOTE, INC., THE SUBSCRIPTION AGENT AND THE INFORMATION AGENT. THIS CERTIFICATE OR A NOTICE OF GUARANTEED DELIVER MUST BE RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 4:30 P.M., CHICAGO TIME, ON DECEMBER 19, 1997 (SUCH DATE, SUBJECT TO EXTENSION AS PROVIDED IN THE PROSPECTUS, IS REFERRED TO IN THIS CERTIFICATE AS THE "EXPIRATION DATE"). The Rights represented by this Subscription Certificate may be exercised by duly completing Form 1; and may be transferred, assigned, exercised or sold through a bank or broker by duly completing Form 2; Rights holders are advised to review the Prospectus and instructions (copies of which are available from PC Quote, Inc. and the Subscription Agent) before exercising or selling their Rights. IMPORTANT: Complete the appropriate FORM and if applicable, delivery instructions, and SIGN on reverse side. SUBSCRIPTION PRICE $1.00 PER SHARE RIGHTS TO PURCHASE COMMON STOCK OF PC QUOTE, INC. The registered owner, or assigns, whose name is inscribed hereon is entitled to subscribe for shares of Common Stock upon the terms and subject to the conditions set forth in the Prospectus and instructions relating thereto. By:_____________________________________________________________________________ Jim R. Porter, Chairman of the Board and Chief Executive Officer By:_____________________________________________________________________________ Darlene E. Czaja, Secretary THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED AT THE OFFICE OF THE SUBSCRIPTION AGENT. RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER LESS THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCED THEREBY. Delivery: Holder: American Securities Transfer & Trust, Inc. Attn: John G. Harmann 938 Quail Street, Suite 101 Lakewood, CO 80215 FORM 1 - EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocable exercises one or more Rights evidenced by this Certificate to subscribe for shares of Common Stock as indicated below, on the terms and subject to the conditions specified in this Prospectus, receipt of which is hereby acknowledged. (a) Number of shares subscribed for pursuant to the Basic Subscription Privilege. (One Right equal one shares.) ______________X $_____ per share = $______________ (Number of shares - whole number only) (b) Number of shares subscribed for pursuant to the Oversubscription Privilege. (No shares may be subscribed for pursuant to the Oversubscription Privilege unless all of the Rights represented by this Subscription Certificate are fully exercised pursuant to the Basic Subscription Privilege)* ______________X $_____ per share = $______________ (Number of shares - whole number only) (c) Total Subscription Price. (Add far right columns in a and b.) $______________ METHOD OF PAYMENT (CHECK ONE) ____ CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO ______________. ____ WIRE TRANSFER DIRECTLY TO UNION BANK & TRUST, ACCOUNT NO. 85- 02961, ABA NO. 102000908. (d) If the number of Rights being exercised pursuant to the Basic Subscription Privilege is less than all of the Rights represented by this Subscription Certificate (check only one): ____ DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS TO WHICH I AM ENTITLED. ____ DELIVER A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS IN ACCORDANCE WITH MY FORM 2 INSTRUCTIONS (please include any required signature guarantees). ____ CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s):_________________________________________________ Window Ticket Number (if any)___________________________________________________ Date of Execution of Notice of Guaranteed Delivery______________________________ Name of Institution which guaranteed delivery___________________________________ FORM 2 _____ CHECK HERE TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OF YOUR RIGHTS EVIDENCED HEREBY OR TO EXERCISE OF SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value received,______ Rights represented by this Subscription Certificate are hereby assigned to (please print name and address and Taxpayer Identification No. of transferee in full: Name____________________________________________________________________________ Address_________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Taxpayer Identification No.**___________________________________________________ ________________________________________________________________________________ Signature of Subscriber/Transferor*** *The number of Underlying Shares available to Holders pursuant to the Oversubscription Privilege may be limited in the Prospectus. If the number of Underlying Shares subscribed for exceeds the number of shares actually tendered to the subscriber, the portion of the Subscription Price tendered corresponding to those excess shares shall be returned to the subscriber, without interest, as soon as practicable after the Expiration Date. **Social Security Number of individuals. ***For a Transfer, A Signature Guarantee must be provided by an Eligible Guarantor Institution as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934. INSTRUCTIONS AS TO USE OF PC QUOTE, INC. SUBSCRIPTION CERTIFICATES ---------------- CONSULT PC QUOTE, INC., THE INFORMATION AGENT, THE SUBSCRIPTION AGENT, YOUR BANK OR BROKER AS TO ANY QUESTIONS The following instructions relate to a rights offering (the "Rights Offering") by PC Quote, Inc., a Delaware corporation (the "Company"), to the holders of its Common Stock, $.001 par value per share (the "Common Stock"), as described in the Company's Prospectus dated _________, 1997, as such prospectus may be amended and/or updated prior to the Expiration Date (as defined below; such Prospectus, as so amended and/or updated, being the "Prospectus"). Holders of record of Common Stock at the close of business on November 21, 1997 (the "Record Date"), are receiving one transferable subscription right (collectively, the "Rights") for each share of Common Stock held by them of record on the Record Date. An aggregate of approximately 7,402,246 Rights exercisable to purchase an aggregate of 7,402,246 shares of Common Stock (the "Underlying Shares") are being distributed in connection with the Rights Offering. Each Right entitles its holder (a "Holder") to purchase one share of Common Stock (the "Basic Subscription Privilege") at $1.00 per share (the "Subscription Price"). In addition, subject to the allocation described below, each Right entitles its Holder to subscribe at the Subscription Price for Underlying Shares after satisfaction of all subscriptions made pursuant to the Basic Subscription Privilege (the "Oversubscription Privilege"; collectively, with the Basic Subscription Privilege, the "Subscription Privileges"), provided that all of the Rights of such Holder have been fully exercised with respect to such Holder's Basic Subscription Privilege. American Securities Transfer & Trust, Inc., as subscription agent (the "Subscription Agent"), will endeavor to use their best efforts to ensure that Holders fully exercise their Basic Subscription Privileges before subscribing for and acquiring Underlying Shares pursuant to their Oversubscription Privileges, but such compliance cannot be guaranteed. Underlying Shares will be available for purchase pursuant to the Oversubscription Privilege only to the extent that all the Underlying Shares are not subscribed for through the exercise of the Basic Subscription Privilege by the Expiration Date (the "Excess Shares"). If the Excess Shares so available are not sufficient to satisfy all subscriptions pursuant to the Oversubscription Privilege, the Excess Shares will be allocated pro rata among the Holders who exercise the Oversubscription Privilege in proportion, not to the number of shares requested pursuant to the Oversubscription Privilege, but to the number of shares they have subscribed for pursuant to the Basic Subscription Privilege; provided, however, that if such pro rata allocation results in any Holder being allocated a greater number of Excess Shares than such Holder subscribed for pursuant to the exercise of such Holder's Oversubscription Privilege, then such Holder will be allocated only such number of Excess Shares as such Holder subscribed for and the remaining Excess Shares will be allocated among all other Holders exercising their Oversubscription Privileges. See "The Rights Offering" in the Prospectus. The Rights will expire at 4:30 p.m., Chicago time, on December 19, 1997, subject to extension as described in the Prospectus (the "Expiration Date"). The number of Rights to which you are entitled is printed on the face of your subscription certificate (the "Subscription Certificate"). You should indicate your wishes with regard to the exercise or sale of your Rights by completing the appropriate form or forms on your subscription certificate and returning the certificate to the Subscription Agent in the envelope provided. YOUR SUBSCRIPTION CERTIFICATE MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, OR GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION CERTIFICATES MUST BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE INCLUDING FINAL CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, ON OR BEFORE 4:30 P.M., CHICAGO TIME, ON THE EXPIRATION DATE (EXCEPT IN THE CASE OF AN APPROVED PAYMENT METHOD). YOU MAY NOT REVOKE ANY EXERCISE OR A RIGHT. 1. SUBSCRIPTION PRIVILEGES; EXERCISE. To exercise Rights, complete Form 1 and send your properly completed and executed subscription certificate, together with payment in full of the Subscription Price for all Underlying Shares subscribed for pursuant to the Subscription Privileges, to the Subscription Agent. Payment of the Subscription Price must be made in U.S. dollars for the full number of Underlying Shares being subscribed for by check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to American Securities Transfer & Trust, Inc., as Subscription Agent; by wire transfer of same day funds to the account maintained by the Subscription Agent for such purpose at Union Bank & Trust, Account No. 85-02961; ABA No. 102000908; or in such other manner as the Company may approve in writing in the case of persons acquiring Underlying Shares at an aggregate Subscription Price of $500,000 or more; provided that, in the case of clause (c), in any event, the full amount of such Subscription Price is received by the Subscription Agent in currently available funds by no later than the fifth (5th) American Stock Exchange trading day following the Expiration Date (the payment method under (c) being an "Approved Payment Method"). Payment of the Subscription Price will be deemed to have been received by the Subscription Agent only upon the clearance of any uncertified check, the receipt by the Subscription Agent of any certified check or bank draft drawn upon a U.S. bank or any postal, telegraphic or express money order, the receipt of good funds in the Subscription Agent's account designated above or (iv) receipt of funds by the Subscription Agent through an Approved Payment Method. If paying by uncertified personal check, please note that the funds paid thereby may take at least five (5) business days to clear. Accordingly, Holders who wish to pay the Subscription Price by means of uncertified personal check are urged to make payment sufficiently in advance of the Expiration Date to ensure that such payment is received and clear by such date and are urged to consider payment by means of certified or cashier's check, money order or wire transfer of funds. You may also transfer your subscription certificate to your bank or broker in accordance with the procedures specified in Section 3(a) below, make arrangements for the delivery of funds on your behalf and request such bank or broker to exercise the subscription certificate on your behalf. Alternatively, you may cause a written guarantee substantially in the form attached to these instructions (the "Notice of Guaranteed Delivery") from an "Eligible Institution" within the meaning of Rule 17Ad-15 under the Securities Act of 1934, to be received by the Subscription Agent at or prior to the Expiration Date together with payment in full of the applicable Subscription Price. Such Notice of Guaranteed Delivery must state your name, the number of Rights represented by your subscription certificate, the number of Underlying Shares being subscribed for pursuant to the Basic Subscription Privilege, the number of Underlying Shares, if any, being subscribed for pursuant to the Oversubscription Privilege and will guarantee the delivery to the Subscription Agent of your properly completed and executed subscription certificates within five (5) American Stock Exchange trading days following the date of the Notice of Guaranteed Delivery. If this procedure is followed, your subscription certificates must be received by the Subscription Agent within five (5) American Stock Exchange trading days of the Notice of Guaranteed Delivery. Additional copies of the Notice of Guaranteed Delivery may be obtained upon request from the Subscription Agent or Information Agent at the address, or by calling the telephone number, indicated below. If more Underlying Shares are subscribed for pursuant to the Oversubscription Privileges than are available for sale, Underlying Shares will be allocated, as described above, among persons exercising the Oversubscription Privilege in proportion to such persons' exercise of Rights pursuant to the Basic Subscription Privilege. The address, telephone and telecopier numbers of the Information Agent and Subscription Agent are as follows: American Securities Transfer & Trust, Inc. Attn: John G. Harmann 938 Quail Street, Suite 101 Lakewood, CO 80215 Telephone: (303) 234-5300 Telecopier: (303) 234-5340 If you exercise less than all of the Rights evidenced by your subscription certificate by so indicating in Form 1 of your subscription certificate, the Subscription Agent will issue to you a new subscription certificate evidencing the unexercised Rights. However, if you choose to have a new subscription certificate sent to you, you may not receive any such new subscription certificate in sufficient time to permit you to sell or exercise the Rights evidenced thereby. If the number of Underlying Shares being subscribed for pursuant to the Basic Subscription Privilege is not specified, you will be deemed to have exercised such Basic Subscription Privilege with respect to the maximum whole number of Shares that may be acquired for the Subscription Price payment delivered after allowances for the Subscription Price of any specified Underlying Shares. If the number of Underlying Shares being subscribed for is not specified, or full payment of the Subscription Price for the indicated number of Rights that are being exercised is not forwarded or if the payment delivered exceeds the required Subscription Price, the payment will be applied, until depleted, to subscribe for Underlying Shares in the following order: 1) to subscribe for the number of Underlying Shares indicated, if any, pursuant to the Basic Subscription Privilege; 2) to subscribe for Underlying Shares until the Basic Subscription Privilege has been fully exercised with respect to all of the Rights represented by your Subscription Certificate; and 3) to subscribe for additional Underlying Shares pursuant to the Oversubscription Privilege (subject to any applicable proration) . 2. DELIVERY OF STOCK CERTIFICATES, ETC. The following deliveries and payments will be made to the address shown on the face of your subscription certificate. (A) BASIC SUBSCRIPTION PRIVILEGE. As soon as practicable after the Expiration Date, the Subscription Agent will mail to each Holder who validly exercises the Basic Subscription Privilege certificates representing shares of Common Stock purchased pursuant to the Basic Subscription Privilege. (B) OVERSUBSCRIPTION PRIVILEGE. As soon as practicable after the Expiration Date, the Subscription Agent will mail to each Holder who validly exercises the Oversubscription Privilege a certificate representing the number of shares of Common Stock allocated to such Holder pursuant to the Oversubscription Privilege. (C) CASH PAYMENTS. As soon as practicable after the Expiration Date, the Subscription Agent will mail to each Holder who exercises the Oversubscription Privilege, without interest, any excess funds received in payment of the Subscription Price for Underlying Shares that are subscribed for by such Holder but not allocated to such Holder pursuant to the Oversubscription Privilege. 3. SALE OR TRANSFER OF RIGHTS. The Basic Subscription Privilege and the Oversubscription Privilege are only transferable together, and any transfer of Rights will be deemed a transfer of both the Basic Subscription Privilege and the Oversubscription Privilege related thereto. A portion of the Rights evidenced by a single Subscription Certificate may be transferred only in units to purchase whole shares and Subscription Certificates may only be divided into units to purchase whole shares. (A) SALE OF RIGHTS THROUGH A BANK OR BROKER. To sell all Rights evidenced by a subscription certificate through your bank or broker, so indicate on Form 2 and deliver your properly completed and executed subscription certificate to your bank or broker and have your signature guaranteed by an Eligible Institution. Your subscription certificate should be delivered to your bank or broker in ample time for it to be exercised. If Form 2 is completed without designating a transferee, the Subscription Agent may thereafter treat the bearer of the subscription certificate as the absolute owner of all of the Rights evidenced by such subscription certificate for all purposes, and the Subscription Agent shall not be affected by any notice to the contrary. Your bank or broker cannot issue subscription certificates. If you wish to sell less than all of the Rights evidenced by a subscription certificate, either you or your bank or broker must instruct the Subscription Agent as to the action to be taken with respect to the Rights not sold, or you or your bank or broker must first have your subscription certificate divided into subscription certificates of appropriate denominations by following the instructions in paragraph 4 of these instructions. The subscription certificates evidencing the number of Rights you intend to sell can then be transferred by your bank or broker in accordance with the instructions in this paragraph 3(a). (B) TRANSFER OF RIGHTS TO A DESIGNATED TRANSFEREE. To transfer all of your Rights evidenced by your subscription certificate to a transferee other than a bank or broker, you must check the box for Form 2 and complete Form 2 in its entirety, execute the subscription certificate and have your signature guaranteed by an Eligible Institution. If Form 2 is completed without designating a transferee, the Subscription Agent may thereafter treat the bearer of the subscription certificate as the absolute owner of all of the Rights evidenced by such subscription certificate for all purposes, and the Subscription Agent shall not be affected by any notice to the contrary. Only the Subscription Agent can issue subscription certificates. If you wish to transfer less than all of the Rights evidence by your subscription certificates of appropriate smaller denominations by following the instructions in paragraph 4 below. The subscription certificate the number of Rights you intend to transfer can then be transferred by following the instructions in this paragraph 3(b). 4. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS. To have a subscription certificate divided into smaller denominations, you must send your subscription certificate, together with complete separate instructions (including specification of the denominations into which you wish your Rights to be divided) signed by you, to the Subscription Agent, allowing a sufficient amount of time for new subscription certificates to be issued and returned so that they can be used prior to the Expiration Date. Alternatively, you may ask a bank or broker to effect such actions on your behalf. Your signature must be guaranteed by an Eligible Institution if any of the new subscription certificates are to be issued in a name other than that in which the old subscription certificate was issued. Subscription certificates may not be divided into units to purchase fractional shares and any instruction to do so will be rejected. As a result of delays in the mail, the time of the transmittal, the necessary processing time and other factors, you or your transferee may not receive such new subscription certificates in time to enable the Holder to complete a sale or exercise by the Expiration Date. Neither the company nor the Subscription Agent will be liable to either a transferor or transferee for any such delays. 5. EXECUTION. (A) EXECUTION BY REGISTERED HOLDER. The signature on the subscription certificate must correspond with the name of the registered Holder exactly as it appears on the face of the subscription certificate without any alteration or change whatsoever. Persons who sign the subscription certificate in a representative or other fiduciary capacity must indicate their capacity when signing and, unless waived by the Subscription Agent in its sole and absolute discretion, must certify to the Subscription Agent and the Company as to their authority to so act. (B) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the subscription certificate is executed by a person other than the Holder named on the face of the subscription certificate, proper evidence of authority of the person executing the subscription certificate must accompany the same unless, for good cause, the Subscription Agent dispenses with proof of authority. (C) SIGNATURE GUARANTEES. Your signature must be guaranteed by an Eligible Institution if you wish to transfer your Rights, as specified 3(b) above, to a transferee including a bank or broker. 6. METHOD OF DELIVERY. The method of delivery of subscription certificates and payment of the Exercise Price to the Subscription Agent will be at the election and risk of the Holder, but, if sent by mail, it is recommended that they be sent by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed by ensure delivery to the Subscription Agent and the clearance of any checks sent in payment of the Exercise Price prior to 4:30 p.m., Chicago time, on the Expiration Date. 7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE DEPOSITORY TRUST COMPANY. In the case of holders of Rights that are held of record through The Depository Trust Company ("DTC"), the exercise of the Subscription Privileges may be effected by instructing DTC to transfer Rights (such Rights being "DTC Exercised Rights"), from the DTC account of such Holder to the DTC account of the Subscription Agent, together with payment of the Subscription Price for each Underlying Share subscribed for pursuant to the Subscription Privileges. NOTICE OF GUARANTEED DELIVERY FOR SUBSCRIPTION CERTIFICATES ISSUED BY PC QUOTE, INC. This form, or one substantially equivalent hereto, must be used to exercise Rights pursuant to the Rights Offering described in the Prospectus dated _______, 1997 (the "Prospectus"), of PC Quote, Inc., a Delaware corporation (the "Company"), if a holder of Rights cannot deliver the subscription certificate(s) evidencing the Rights (the "subscription certificate(s)") to the Subscription Agent listed below (the "Subscription Agent"), at or prior to 4:30 p.m. Chicago time, on December 19, 1997 (such date, subject to extension as provided in the Prospectus, is referred to as the "Expiration Date"). Such form must be delivered by hand or sent by facsimile transmission or mail to the Subscription Agent, and must be received by the Subscription Agent on or prior to the Expiration Date. See "The Rights Offering-Exercise of Rights" in the Prospectus. Payment of the Subscription Price of $1.00 per share for each share of the Company's Common Stock subscribed for upon exercise of such Rights must be received by Subscription Agent in the manner specified in the Prospectus at or prior to 4:30 p.m. Chicago time, on the Expiration Date, even if the subscription certificate evidencing such Rights is being delivered pursuant to the procedure for guaranteed delivery thereof. The Subscription Agent is: American Securities Transfer & Trust, Inc. Attn: John G. Harmann 938 Quail Street, Suite 101 Lakewood, CO 80215 Telephone: (303) 234-5300 Telecopier: (303) 234-5340 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: The undersigned hereby represents that he, she or it is the holder of subscription certificate(s) representing Rights and that such subscription certificate(s) cannot be delivered to the Subscription Agent at or before 4:30 p.m., Chicago time on the Expiration Date. Upon the terms and subject to the conditions set forth in the Prospectus, receipt of which is hereby acknowledged, the undersigned hereby elects to irrevocably exercise one or more Rights evidenced by the subscripting certificate to subscribe for shares of Common Stock as indicated below. (a) Number of shares subscribed for pursuant x $1.00 per share = $________ to the Basic Subscription Privilege. (Number of shares - whole (One Right equals one share.) number only) (b) Number of shares subscribed for pursuant x $1.00 per share = $________ to the Oversubscription Privilege. (No (Number of shares - whole shares may be subscribed for pursuant to number only) the Oversubscription Privilege unless all of the Rights represented by this Subscription Certificate are fully exercised pursuant to the Basic Subscription Privilege.) (c) Total Subscription Price. (Add far right $________ columns in (a) and (b).) The undersigned understands that payment in full of the Subscription Price, as computed above, of $1.00 per share for each share of Common Stock subscribed for pursuant to the Basic Subscription Privilege and Oversubscription Privilege must be received by the Subscription Agent at or before 4:30 p.m. Chicago time on the Expiration Date and represents that such payment either (check or appropriate box): [_] is being delivered to the Subscription Agent herewith or [_] has been delivered separately to the Subscription Agent, and is or was delivered in the manner set forth below (check appropriate box and complete information relating thereto): [_] wire transfer of funds name of transferor institution _________________________________________ date of transfer _______________________________________________________ confirmation number (if available) _____________________________________ [_] uncertified check (Payment by uncertified check will not be deemed to have been received by the Subscription Agent until such check has cleared. Holders paying by such means are urged to make payment sufficiently in advance of the Expiration Date to ensure that such payment clears by such date.) [_] certified check [_] bank draft (cashier's check) [_] money order name of maker __________________________________________________________ date of check, draft or money order ____________________________________ check, draft or money order number _____________________________________ bank on which check is drawn or issuer of money order __________________ Signature(s) ________________________ Address _______________________________ _____________________________________ _____________________________________ Name(s) _____________________________ _____________________________________ _____________________________________ Area Code and Tel. No(s). ___________ PLEASE TYPE OR PRINT Subscription Certificate No(s). (if Available) ______________________________ GUARANTEE OF DELIVERY (NOT TO BE USED FOR SUBSCRIPTION CERTIFICATE SIGNATURE GUARANTEE) The undersigned, an "Eligible Institution" within the meaning of Rule 17Ad- 15 under the Securities Exchange Act of 1934, guarantees that the undersigned will deliver to the Subscription Agent the certificates representing the Rights being exercised hereby, with any required signature guarantees and any other required documents, all within five (5) American Stock Exchange trading days after the date hereof. Dated: ___________________________________ _____________________ ___________________________________ ___________________________ (NAME OF FIRM) ___________________________________ (ADDRESS) ___________________________ ___________________________________ (AUTHORIZED SIGNATURE) (AREA CODE AND TELEPHONE NUMBER) The institution which completes this form must communicate the guarantee to the Subscription Agent and must deliver the subscription certificate(s) to the Subscription Agent within the time period shown herein. Failure to do so could result in a financial loss to such institution. -----END PRIVACY-ENHANCED MESSAGE-----