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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-13093
PC QUOTE, INC.
Incorporated in the State of Delaware FEIN 36-3131704
Principal Executive Offices:
300 South Wacker Drive, #300, Chicago, Illinois 60606
Telephone Number: (312) 913-2800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par Value
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 17, 1997, the aggregate market value of the Common Stock of the
Registrant (based upon the closing price of the Common Stock as reported by the
American Stock Exchange) on such date held by non-affiliates of the Registrant
was approximately $12,853,094.
Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes X No
As of March 17, 1997, there were 7,412,849 shares of Common Stock of the
Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: See Page 3
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Annual Meeting of Stockholders to be held in
June 1997 are incorporated by reference into Part III hereof.
2
PART OF FORM 10-K DOCUMENT
PART I None
PART II None
PART III
ITEM 10 Directors, Executive Officers, Company's Proxy Statement
Promoters and Control Persons; to be filed in connection with
Compliance with Section 16(a) its Annual Meeting of
of the Exchange Act Stockholders
ITEM 11 Executive Compensation Company's Proxy Statement
to be filed in connection with
its Annual Meeting of
Stockholders
ITEM 12 Security Ownership of Company's Proxy Statement
Certain Beneficial Owners to be filed in connection with
and Management its Annual Meeting of
Stockholders
ITEM 13 Certain Relationships and Company's Proxy Statement
Related Transactions to be filed in connection with
its Annual Meeting of
Stockholders
PART IV
ITEM 14 Exhibits and Reports Exhibits as specified in Item
on Form 8-K 14 of this Report
3
PC QUOTE, INC.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
PC Quote, Inc. (the "Company" or the "Registrant") was incorporated in the State
of Illinois on June 23, 1980 as On-Line Response, Inc. and was incorporated in
Delaware on August 12, 1987. The Company provides real-time and delayed
securities quotations and news to professional and consumer markets worldwide.
Professional clients include brokerage firms, banks, insurance companies, fund
managers, institutional and professional traders. The Company's "web site"
offers non fee delayed quotes to all visitors and real time subscription market
data services to fee based subscribers.
PRODUCTS AND SERVICES
The Company's executive offices are located in Chicago, Illinois. The Company
also maintains sales offices in New York, San Diego, Dallas and Chicago.
GENERAL
The Company maintains a real-time database of last sale and bid/ask prices of
more than 225,000 issues, including stocks, major stock indices, options on
stocks and indices, Level 1 NASDAQ-quoted stocks, Level 2 NASDAQ market maker
quotes, mutual funds, money market funds, futures contracts and options on
futures contracts, traded on all U.S. stock, option and commodity exchanges.
Also covered are exchange-traded issues from 36 other countries in Europe and
Asia. The Company creates its database by gathering ticker and news feeds from
stock exchanges and other sources and processing such information into a single
data feed. The Company's primary processing plant is located in its executive
offices in Chicago, Illinois.
PC Quote software applications, running on the customer's computer, process
the data stream to allow the user to monitor securities on an on-going
real-time basis. They also create in the user's computer a complete database
of trading symbols, continuously updated by the data stream. This database
gives the user instant access to security prices.
The following is a description of the principal products and services marketed
by Company.
4
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
HYPERFEED-TM-
HyperFeed is the Registrant's digital real-time market data feed. It is
broadcast at 112,000 bits per second and covers over 250,000 issues traded on
145 exchanges in 55 countries. HyperFeed also carries:
- Dynamic Nasdaq Level II market maker quotes
- Dow Jones Composite News Service (up to 90-day retrieval of ninewires
"Broadtape," Professional Investor Report, Capital Markets Report,
International NewsWire, World Equities Report, European Corporate
Report, Electronic Wall St. Journal, International Petroleum Reports,
Federal Filings)
- Multiple levels of fundamental data
- Fixed income pricing
- Other types of fixed and dynamic financial data
HyperFeed underlies all of the Registrant's other products and services,
which basically function to access, view and utilize HyperFeed data in
different ways. To produce and transmit HyperFeed, PC Quote uses multiple
redundant, high speed data circuits to gather ticker and news feeds from
securities exchanges and other sources. The Sonet rings were introduced into
three markets in 1996, which allows for 1,024,000 bps at shared communication
rates that are lower than a standalone T-1 delivery. At the Registrant's
production centers in Chicago and St. Louis, these feeds are directed into
multiple redundant dynamic real-time databases from which HyperFeed is
generated. The Registrant also generates other data feeds which are
broadcast at 56,000 bps or 19,200 bps. These feeds, which are available at
lower monthly costs, carry portions of the universe of data found on
HyperFeed. They are not currently marketed by the Registrant, but are
maintained for customers who began using them before HyperFeed became
available in 1990.
HyperFeed is transmitted to customer sites by Spacecom Systems FM3 satellite
communications network, or by dedicated digital data circuits. At the customer
site HyperFeed is received by a QuoteServer, an industry standard PC which
creates and maintains data bases of real-time, news and fundamental information.
The QuoteServer can reside on a local area network, where the data it maintains
is accessible to software applications running on workstations on the network,
or it can function as a stand-alone unit, in which case its data is available to
software applications running on the QuoteServer itself. In both instances the
software applications accessing the data may be supplied
5
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
by the Registrant, by third parties, or by the customer itself.
Software supplied by third parties or customers utilize the Registrant's
high-performance application program interfaces to access the QuoteServer's
data. In this way the QuoteServer can supply data for virtually any purpose,
including proprietary order execution systems, analytical modeling, internal
risk management, order matching, or redistribution by on-line systems and
wide area networks. Third party developers and customers using the
application program interfaces for their own development pay a monthly fee
for the interfaces, in addition to monthly HyperFeed fees. Customers using
an application developed and marketed by a third party for use with HyperFeed
do not pay for the interfaces; they pay only for HyperFeed itself.
The Registrant also maintains QuoteServers that reside on the Internet. These
QuoteServers function just like any other QuoteServers, supporting applications
developed by the Registrant, or by third parties or customers using
Internet-enabled versions of the Registrant's application program interfaces.
In this way the Registrant and its customers are able to benefit
from the Internet's substantially lower costs for service, communications and
startup, its ease of access, and its worldwide availability.
SOFTWARE APPLICATIONS AND SERVICES MARKETED BY REGISTRANT
PC Quote 6.0 for Windows is a comprehensive suite of real-time professional
trading tools. Running under Microsoft -TM- Windows -TM- 3.1 or Windows -TM-
95, or Windows NT -TM-, PC Quote 6.0 offers unlimited quote pages, charting,
technical analysis, searchable news, time of sale and quote, Nasdaq Level II
market maker screens, dynamic data exchange into Microsoft-TM- Excel-TM-
tickets, alerts, baskets and more.
PC Quote 6.0 can be fed by QuoteServers on the customer's local area network or
on the Internet. Monthly fees for Internet service are lower than fees for
local area network service; this makes PC Quote 6.0 more affordable around the
world for individual investors and affords a wider range of the professional
marketplace.
MarketSmart is a consumer-level, non-professional service that is available on
the Internet's World Wide Web. Using leading World Wide Web "browsers" such as
Netscape Navigator-TM- and Microsoft Internet Explorer -TM-, subscribers log
in to Registrant-maintained "sites" on the Web to get unlimited real-time or
20-minute delayed quotes, charts, portfolio services, option pages, fund pages
and other pages of market information. Unlike PC Quote 6.0, these pages are
not dynamic; they present static snapshots of data, but can be refreshed
manually at any time and as often as the subscriber wishes. Data is currently
limited to U.S. and Canadian exchanges, although subscribers may be from any
country.
6
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
PC Quote for DOS and OS/2 displays the full range of HyperFeed data, including
news and fixed income data, in a variety of colorful, easy to use displays and
windows. The OS/2 version also displays dynamic Nasdaq Level II market maker
quotes.
Market Data Controls do not display information, but rather represent
application program interfaces that allow a Microsoft-TM- and Visual
Basic-TM-developer to write custom applications which include real-time market
data and related fundamental information. The Registrant recently released
Internet-enabled versions of the Market Data Controls, and plans to use its
World Wide Web site to market applications developed with the Controls.
PriceWare utilizes PC Quote's satellite communications and information
processing technology augmented by wide area networking capabilities to deliver
portfolio pricing services. This technology distinguishes PriceWare from other
pricing services, which utilize magnetic tapes or CPU to CPU transfer via land
lines. It enables PriceWare to furnish prices on demand,
with little incremental charge for frequent use.
A number of third party applications and services are also comarketed by the
Registrant. These include FirstAlert-- charting and technical analysis
FirstAlert-- software developed by Roberts-Slade, Inc., Market Guide fundamental
Slade, Inc., databases, S&P Electronic Stock Guide, Comtex News and Dow Jones
News.
In July of 1995, the Company established an internet web site offering free
delayed quotes and other information to all visitors. During 1996 PC Quote
began to sell advertising on its web site, provide market information for other
web sites, offer development tools for internet-based applications, and form
strategic relationships with other major internet players. The Company's
expanded web site now offers, in addition to links to unlimited free delayed
quote information, subscription fee real-time quote information, corporate
profiles and press releases, information about PC Quote's products and services
and paths for learning about and signing up for subscription services available
on the site.
The Company's primary Internet Services include MarketSmart and PC Quote 6.0 for
Windows ("Internet-based PC Quote 6.0") . MarketSmart, which was introduced in
1995, offers non-professional investors internet access to a range of quote
viewing options. Internet-based PC Quote 6.0 is identical to the Company's PC
QUOTE 6.0 for professional investors. Internet-based PC Quote provides data
powered by HyperFeed such as unlimited quote pages, news, charts, technical
analysis and time of sale quotes among other products.
Additionally, starting January 1997, queries to its web site are being shipped
with Microsoft Excel 97 as the in the box' implementation of Microsoft Excel's
new interactive Web Query technology.
7
PART I ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
In addition to its own Web site the Company makes its data available to those
accessing the Internet via on-line service providers through redistribution
agreements with Microsoft Network. CompuServe Information Service, CompuServe.
AT&T Interchange/Business Net, the Chicago Sun-Times, Apple e-word, and
Newscorp/MCI Ventures. Redistribution agreements are essentially wholesaling
arrangements whereby other organizations resell the Company's data to their
customers. Redistributors differ from the Company's web site service in that
redistributors have the Company's QuoteServer(s) at their operations center and
the redistributor becomes responsible for end-user billing.
PC Quote realizes revenue from its Internet Services through subscription
fees derived from real-time quotes, as well as from the sale of advertising
on the free quote pages and MarketSmart.
PATENTS, TRADEMARKS AND LICENSES
The Company does not have patent or federal copyright protection for its
proprietary software products. Although applicable software is readily
duplicated illegally by anyone having access to appropriate hardware, the
Company attempts to protect its proprietary software through license agreements
with customers and common law trade secret protection and non-disclosure
contract provisions in its agreements with its employees. The Company uses
security measures, including a hardware key, which restrict access to its
on-line services unless proper password identification from a PC Quote user is
provided. As an additional safeguard, the Company provides only the object code
on its diskette and retains the source code.
The following products are registered trademarks: BasketMaker-Registered
Trademark-, QuoteLan-Registered Trademark-, QuoteWare-Registered Trademark-,
PriceWare-Registered Trademark- and QuoteBlaster-Registered Trademark-. The
HyperFeed -TM- product is a servicemark of the Company.
COMPETITION
There are numerous companies that provide on-line securities quotations or
similar services and software programs that the Company currently provides to
the professional and consumer markets. Many of these companies are
substantially larger and have substantially greater assets than Company and
possess substantially greater financial, technological and personnel resources
than Company.
8
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
SEASONALITY
The Company has not experienced any material seasonal fluctuations in its
business. Barring any prolonged period of investor inactivity in trading
securities, the Company does not believe that seasonality is material to its
business activities.
RESEARCH AND DEVELOPMENT
The Company's system and programming employees expend their time and effort
developing new software programs and expanding or enhancing existing ones.
Development efforts focus on providing a solution to the informational and
analytical needs of both the professional and private investors. Development
activity has increased with the implementation of high level design and
prototyping tools. The Company's continuing investment in software
development consists primarily of enhancements for existing products and new
technology relative to its Internet quote and data products and Windows based
and network products. During the fiscal years ended December 31, 1996, 1995
and 1994, the Company expensed $706,618, $558,671 and $667,831, respectively,
for research and development. See "Management Discussion and Analysis."
ENVIRONMENT
Compliance with federal, state, and local provisions with respect to the
environment has not had a material adverse effect on the Company's capital
expenditures, earnings, or competitive position.
EMPLOYEES
As of December 31, 1996, the Company employed 104 employees, none of whom are
represented by a collective bargaining unit. The Company believes it has a
satisfactory relationship with its employees. From time to time the Company
retains the services of outside consultants on an hourly basis.
GOVERNMENT CONTRACTS
The Company has no material contracts with the Government.
BACKLOGS
Due to the nature of the business, backlogs are not a typical occurrence in the
industry.
MAJOR CUSTOMERS
For information concerning the Company's major customers, see the discussion
in the section of this report entitled "Management's Discussion and Analysis".
9
ITEM 2. PROPERTIES
The Company's executive offices and data center are located in approximately
15,500 square feet of leased space on the 3rd floor of 300 South Wacker Drive,
Chicago, Illinois. On September 1, 1994 a new lease was entered into for the
Chicago offices, commencing on September 1, 1994 and expiring on December 31,
2004. Lease payments are subject to escalating base rent as well as adjustment
for changes in real estate taxes and other operating expenses. (See Note 5 of
Notes to Financial Statements.)
The Company also leases approximately 5,000 square feet of office space in
Aurora, Illinois, through March 2000, 3,000 square feet of office space in New
York City through May 1997, and a single office in San Diego, California through
June 1997. ( See Note 5 of Notes to Financial Statements.)
ITEM 3. LEGAL PROCEEDINGS
Richard F. Chappetto, a former officer of the Company, filed a complaint
against the Company on December 31, 1996. The action entitled RICHARD F.
CAPPETTO VS. P.C. QUOTE, INC., was filed in the Circuit Court of Cook County,
Illinois bearing Case No. 96L015250, Mr. Chappetto's employment with the
Company ceased on November 1, 1996. Mr. Chappetto's complaint alleges that
the Company breached various verbal and written agreements by failing to pay
certain commission, bonuses and severance pay and failing to provide him with
certain stock options. Mr. Chappetto seeks monetary damages of approximately
$680,000. The Company has filed a Motion to Dismiss a major portion of the
complaint and is vigorously contesting the matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders, through the solicitation of
proxies or otherwise, during the fourth quarter of the fiscal year ended
December 31, 1996.
10
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following tables show for 1996 the high and low closing prices of the
Company's Common Stock for the periods indicated, as reported by the American
Stock Exchange. The following table shows for 1995 the representative high and
low bid prices of the Company's Common Stock for the periods indicated as
reported by National Quotation Bureau Inc.
TRADE
-----
1996 QUARTERLY INFORMATION HIGH LOW
- -------------------------- ---- ---
First 16 8-3/8
Second 14-1/8 6-3/4
Third 8 3-7/8
Fourth 5-1/2 2-1/4
1995 QUARTERLY INFORMATION
- --------------------------
First 1-3/4 1-1/16
Second 1-3/4 1-1/16
Third 8-1/2 1-7/8
Fourth 27-1/2 6-1/4
As of December 31, 1996, Company had 378 stockholders of record of its Common
Stock.
DIVIDEND POLICY
Company has not paid dividends on its Common Stock and it does not presently
anticipate making any such payments in the near future.
11
PART II - ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992
----------------------------------------------------------------------------------
INCOME DATA:
Net Sales $ 17,032,164 $ 13,391,982 $ 12,903,645 $ 12,205,916 $10,950,769
Gross profit $ 5,908,644 $ 7,700,031 $ 6,496,441 $ 5,860,869 $ 5,323,688
Income (loss) before income taxes $ (3,091,705) $ 1,376,597 $ 312,410 $ 211,055 $ 118,087
Net income (loss) $ (3,255,969) $ 1,512,239 $ 305,410 $ 185,407 $ 118,087
BALANCE SHEET DATA:
Total assets $ 11,554,070 $ 10,522,840 $ 9,071,731 $ 8,226,053 $ 7,312,733
Debt, long term $ 2,084,636 $ 487,367 $ 1,053,457 $ 1,242,783 $ 1,038,463
Shareholders' equity $ 5,331,577 $ 6,611,278 $ 4,830,369 $ 4,427,444 $ 4,243,131
PER SHARE DATA:
Net Income (loss) $ (0.45) $ 0.21 $ 0.04 $ 0.03 $ 0.017
Weighted average shares outstanding 7,248,000 7,263,000 6,966,000 7,103,000 $ 6,864,830
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The statements made herein that are not historical facts may contain
forward-looking information that involve substantial risks and uncertainties.
The Company's actual results, performance or achievements could differ
materially from the results, performance or achievements expressed in, or
implied by, these forward-looking statements. Among the factors that could
cause or contribute to such differences include the Company's ability to (i)
obtain adequate financing to fund its current and future business strategies,
(ii) attract and retain its key employees, (iii) compete successfully against
competitive products and services and (iv) the effect of economic and
business conditions generally.
RESULTS OF OPERATIONS FOR 1996 COMPARED TO 1995
Service revenue increased 27% to $17,032,164 in 1996 from $13,391,982 in
1995. The increase in service revenue continues from the release of a new
product in December 1995, PC Quote for Windows 6.0 in the Company's core and
internet business. Net income decreased 315% to a loss ($3,255,969) in 1996
from $1,512,239 in 1995. The loss was due to significantly higher costs
(Direct and Overhead departments) and Research and Development relative to
revenue increases in the traditional business.
Direct cost of services increased approximately 95% to $11,123,520 in 1996
from $5,691,951 in 1995. This primarily reflects an increase in staffing
levels in customer support and operations and royalty and communications
costs related to the increase in volume in the core business. Additional
technological infrastructure costs, principally, staffing, equipment and
communications, were incurred in scaling up the core business and the
internet operations for anticipated revenues which were not fully realized.
12
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, RESULTS OF OPERATIONS FOR 1996 COMPARED TO 1995,
CONTINUED
Research and Development expenses increased approximately 26% to $706,618 in
1996 from $558,671 in 1995. The increase in research costs is related
primarily to internet based projects.
Sales and marketing costs increased 36% to $3,078,384 in 1996 from $2,267,798 in
1995. The increase was due to the increase in commissions costs relating to the
increase in service revenues and higher commission rate.
General and administrative costs increased 61% to $3,836,950 in 1996 from
$2,384,336 in 1995. The main increases were in salaries and related costs
due to additional staffing and reallocation of personnel to support major
business opportunities. There was also an increase in the bad debt expense
and shareholders services compared to 1995.
Interest income decreased 56% to $9,743 in 1996 from $22,037 in 1995. Interest
income decreased due to the Company's use of cash over credit for some equipment
needs.
Interest expense decreased 30% to $143,618 in 1996 from $205,435 in 1995. The
decrease was primarily due to a decrease in the amount of outstanding capital
lease indebtedness and a change in the use of capital leases to operating leases
for financing customer server equipment.
RESULTS OF OPERATIONS FOR 1995 COMPARED TO 1994
Service revenue in 1995 increased 4% to $13,391,982 from $12,903,645 in 1994.
This increase was due to the continuing success of the Company's core product
line PC Quote for Windows 5.0 and the introduction of PC Quote for Windows 6.0
during the fourth quarter. Net income in 1995 increased 395% to $1,512,239 from
$305,410 in 1994. The increase in net income was due to increased revenues,
continued cost controls which began with the reorganiztion in 1994, an income
tax credit of $135,642, and the increase in capitalization as the Company moved
to finish new products for release in early 1996.
Direct cost of service decreased approximately 11% to $5,691,951 in 1995 from
$6,407,204 in 1994. The decrease was due to the overall decrease in costs
mainly related to the reallocation of resources into developmental capitalized
costs.
Research and Development expenses decreased approximately 16% to $558,671 in
1995 from $667,831 in 1994. The Development Department has facilitated the
development of new products for the Internet through the use of developmental
productivity tools lowering the design phase and time to market. This effort
has lead to the inroduction of the MarketSmart product
13
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, RESULTS OF OPERATIONS FOR 1995 COMPARED TO 1994,
CONTINUED
offering and other Internet based services for 1996. The Company has continued
to control R&D expenses.
Sales and marketing cost decreased 3% to $2,267,798 in 1995 from $2,341,529
in 1994. Sales costs have decreased during this period due to restructuring
of compensation plans for the sales people and a reduction in the amount of
advertising used in 1995. Sales have increased due to focusing on sales into
niche markets such as firms interested in trading NASDAQ Level II securities.
The fourth quarter also saw sales of the Company's new product PC Quote
Windows 6.0 increase over the previous quarters.
General and administrative costs increased 43% to $2,384,336 in 1995 from
$1,672,052 in 1994. The increases were due to higher equipment rental costs,
related to the switch from capital leases to operating leases, increased one
time consulting fees and exchange fees relating to move from the Emerging Market
section of the American Stock Exchange to that of a fully listed AMEX Company.
Compensation incurred in the establishment of the PC Quote Internet service.
Interest expense decreased 21% to $205,435 in 1995 from $257,240 in 1994. The
decrease was primarily due to a decrease in the amount of outstanding capital
lease indebtedness and a change in the use of capital leases to operating leases
for financing customer server equipment.
LIQUIDITY AND CAPITAL RESOURCES
While the Company continued to generate positive cash flow from operating
activities it decreased $3,142,271 from the prior year. Additional
investments in equipment were $914,898 for the year ended December 31, 1996,
versus $668,178 for the year ended December 31, 1995. These investments in
equipment were necessary to take advantage of new technology. New equipment
was also required to support the increased number of servers provided by the
Company to new and expanding clients. New technology has provided for faster
processing of the PC Quote's HyperFeed and better performance for the end
users. Approximately 95% of the equipment investments were financed with
operating leases in 1996 as compared to 60% in 1995. The cost of equipment
leased under operating leases in 1996 was approximately $4,076,000.
14
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
In August 1996 the Company entered into an agreement with its lender providing
for a $1,500,000 term loan, bearing interest at the lender's prime rate.
Advances under the credit facility are secured by substantially all of the
Company's assets. (See Note 2 of Notes to Financial Statements.)
In November 1996, the Company entered into an agreement with a 30% stockholder
to issue $2,500,000 of subordinated convertible bonds due December 31, 2001.
The document also contains an agreement for the related party to underwrite a
stock rights offering by the Company to all stockholders (excluding the 30%
related party) of 1,250,000 shares at $2 per share. (See Note 2 of Notes to
Financial Statements).
Due to the decline in cash flow from Operating Activities, to levels expected
to be insufficient for Working Capital, Capital Expenditures, and Debt
Services, in February 1997, the Company hired a financial consultant to
explore strategic alternatives to raise capital. Such a transaction might
include a merger, a sale of substantially all or part of the Company's
assets, a strategic relationship or joint venture with another technology or
financial service firm. By securing additional capital, management believes
that operations will generate sufficient cash to meet all capital
requirements, there can be no assurance that such level of operations will be
achieved in the near term. In addition, any funds raised may be costly to the
Company and/or dilutive to stockholders. If the Company is not able to secure
additional capital, the lack of funds may significantly limit the Company's
ability to realize value from its assets and its product offerings, and its
ability to continue its business as currently conducted. (See Note 14 in
Notes to Financial Statements).
GLOBAL FINANCIAL SERVICES (FORMERLY BRIDGE INFORMATION SYSTEMS, INC.) AGREEMENT
The Company entered into an agreement with Global Financial Services,
(formerly Bridge Information Systems) ("Global") on January 25, 1995, whereby
the Company would provide domestic data to Global for $2,100,000 (1996) and
$450,000 through March 31, 1997. For the remainder of the contract term,
amounts will be charged on a per-site basis at December 31, 1996. In
September 1996, the Company agreed to accelerate the termination date of the
fixed fee portion of this agreement to January 1, 1997. (See Note 7 in the
Notes to Financial Statements)
On July 6, 1995, Global divested 100% of its holdings of PC Quote, Inc. in a
private sale to an unrelated party. (See Note 7 in Notes to Financial
Statements)
MAJOR CUSTOMER
In December 1996, the Company discontinued providing services to Charles
Schwab and Company that accounted for net revenues of approximately
$1,693,000, $557,000, $591,000, in 1996,1995, and 1994, respectively.
For the fiscal year ending December 31, 1996, 1995, and 1994, Global
accounted for revenues approximately of $3,414,000, $3,920,000, and
$3,555,000, respectively.
SEGMENT INFORMATION
Information regarding segment information is incorporated herein by reference to
Note 12 of Notes to the Financial Statements, which appears elsewhere in this
report.
15
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
OTHER
The Company believes general inflation does not materially impact its sales
and operating results nor is it expected that the effect of current tax
legislation will significantly affect its future financial position,
liquidity or operating results. The Company has net operating loss
carryforwards for federal income tax purposes of approximately $12,018,000
(and $3,600 for alternative minimum tax) which, if not previously utilized,
will expire during the years 1999 through 2011. (See Note 4 of Notes to
Financial Statements)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
Pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, the
information called for by this Item is incorporated herein by reference to the
"Index of Financial Statements", which appears elsewhere in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
There have been no changes or disagreements with accountants that would
require disclosure.
16
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information concerning directors and executive officers of the Company will be
set forth in the Company's proxy statement to be used in connection with its
June 1997 annual meeting of stockholders, which proxy statement will be filed
with the Commission within 120 days after the end of the Company's last fiscal
year, and such information is herein incorporated by reference
thereto.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation will be set forth in Company's
proxy statement to be used in connection with its June 1997 annual meeting of
stockholders, which proxy statement will be filed with the Commission within 120
days after the end of Company's last fiscal year and such information is herein
incorporated by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management will be set forth in Company's proxy statement to be used in
connection with its June 1997 annual meeting of stockholders. The proxy
statement will be filed with the Commission within 120 days after the end of
Company's last fiscal year and such information is herein incorporated by
reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relations and related transactions will be set
forth in Company's proxy statement to be used in connection with its June 1997
annual meeting of stockholders. The proxy statement will be filed with the
Commission within 120 days after the end of Company's last fiscal year, and such
information is herein incorporated by reference thereto.
17
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements of the Company filed herewith are included in Item 8 of
this Report.
2. Financial Statement Schedules
The financial statement schedule for the valuation and qualifying accounts is
included in Item 8 of this report.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the last quarter of the
period covered by this Report.
(c) EXHIBITS
3(a) Articles of Incorporation of Company, incorporated by reference to
Appendix B of Company's Proxy Statement dated July 2, 1987.
3(b) By-laws of the Company, as amended and restated, incorporated by
reference to Exhibit 3(b) to Company's Annual Report on Form 10-K for
the year ended December 31, 1987.
4(a) Specimen Common Share Certificate of the Company, incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement on
Form S-18, Commission File No. 2-90939C.
4(b) $2,500,000 Convertible Subordinated Debenture due 2001 issued by the
Company to Physicians Insurance Company of Ohio, Inc., located after
the Financial Statements of this report.
10(a) Vendor Agreement with the Option Price Reporting Authority,
incorporated by reference to Exhibit 10.4 of Company's Registration
Statement on Form S-18, Commission File No. 2-90939C.
10(b) Vendor Agreement with the New York Stock Exchange, Inc.,
incorporated by reference to Exhibit 10.5 of Company's Registration
Statement on Form S-18, Commission File No. 2-90939C.
10(c) Vendor Agreements with the National Association of Securities
Dealers, Inc. incorporated by reference to Exhibit 10(d) of Company's
Annual Report on Form 10-K for the year ended December 31, 1989.
10(d) Form of Employee Non-Disclosure Agreement, incorporated by
reference to Exhibit 10.10 of Company's Registration Statement on Form
S-18, Commission File No. 2-90939C.
10(e) Amended and Restated PC Quote, Inc. Employees' Combined Incentive
and Non-Statutory Stock Option Plan, incorporated by reference to
18
PART IV - ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
Appendix E to Company's Proxy Statement dated July 2, 1987.
10(f) Lease regarding office space at 50 Broadway, New York City, dated
January 31, 1987, as amended by First Amendatory Agreement dated
May 18, 1987, by and between Company and 50 Broadway Joint Venture,
incorporated by reference to Exhibit 10(y) to Company's Annual Report
on Form 10-K for the year ended December 31, 1987.
10(g) Satellite Service Agreement dated June 12, 1991 between Company
and SpaceCom Systems, Inc. incorporated by reference to Exhibit 10(r)
to Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
10(h) Amendment to satellite service agreement dated September 6, 1991
between Company and SpaceCom Systems, Inc. incorporated by reference
to Exhibit 10(s) to Company's Annual Report on Form 10-K for the year
ended December 31, 1991,
10(i) Amendment to point-to-multipoint satellite network service
agreement dated November 22, 1989 between Company and GTE SpaceNet
Satellite Services Corporation incorporated by reference to
Exhibit 10(v) to Company's Annual Report on Form 10-KSB for the year
ended December 31, 1992.
10(j) Amendment to satellite service agreement (exhibit 10(r)) dated
October 4, 1993 between Company and SpaceCom Systems, Inc.
incorporated by reference to Exhibit 10(z) to Company's Annual Report
on Form 10-KSB for the year ended December 31, 1993.
10(k) Satellite Service Agreement dated September 15, 1994 between
Company and SpaceCom Systems, Inc. incorporated by reference to
Exhibit 11(a) to Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
10(l) Satellite Service Agreement dated October 15, 1993 between
Company and SpaceCom Systems, Inc. incorporated by reference to
Exhibit 11(b) to Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
19
PART IV - ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
10(m) Satellite Service Agreement dated June 1, 1993 between Company and
SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(b)
to Company's Annual Report on Form 10-K for the year ended December
31, 1994.
10(n) Vendor Agreement with Global Information Systems Inc. incorporated
by reference to Exhibit 11(d) of Company's Annual Report on Form
10-K for the year ended December 31, 1994.
10(o) Lease regarding office space at 300 South Wacker Drive, Chicago,
Illinois dated June 1, 1994, by and between Company and Markborough
300 WJ Limited Partnership, incorporated by reference to Exhibit
11(e) to Company's Annual Report on Form 10-SKB for the year ended
December 31, 1994.
10(p) Agreement dated November 14, 1996 between the Company and
Physicians Insurance Company of Ohio, Inc. located after the
Financial Statements of this report.
10(q) Employment agreement dated July 16, 1996 between the Company and
Howard Meltzer, located after the Financial Statements of
this report.
10(r) Employment agreement dated as of December 2, 1996 between the
Company and Louis J. Morgan located after the Financial Statements
of this report.
20
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PC QUOTE, INC.
By:
/s/ LOUIS J. MORGAN
- --------------------------------------------------
Louis J. Morgan, Chairman
By:
/s/ HOWARD MELTZER
- -------------------------------------------------
Howard Meltzer President and Chief Operating Officer
By:
/s/ MICHAEL PRESS
- --------------------------------------------------------
Michael Press Vice President, Finance, Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ LOUIS J. MORGAN
- ---------------------------------------------
Louis J. Morgan, Director
March 31, 1997
/s/ RONALD LANGLEY
- ----------------------------------------
Ronald Langley, Director
March 31, 1997
/s/ PAUL DIBIASIO
- ----------------------------------------
Paul DiBiasio, Director
March 31, 1997
21
C O N T E N T S
- ---------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORTS F1-2
- ---------------------------------------------------------------
FINANCIAL STATEMENTS
Balance sheets F3-4
Statements of operations F-5
Statements of stockholders equity F-6
Statements of cash flows F7-8
Notes to financial statements F9-19
Auditors Opinion on Schedule II F-20
Supplemental Schedule II F-21
- ---------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PC Quote, Inc.
Chicago, Illinois
We have audited the accompanying balance sheets of PC Quote, Inc. as of December
31, 1996 and 1995, and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PC Quote, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that PC
Quote, Inc. will continue as a going concern. As more fully described in
Note 13, the Company has experienced significant operating losses, which has
adversely affected the Company's current results of operations and liquidity.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note 14. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ McGladrey & Pullen, LLP
Schaumburg, Illinois
March 7, 1997
F-1
PC QUOTE, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of PC Quote, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of PC Quote, Inc. for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion to these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
/s/ Cooper & Lybrand LLP
Chicago, Illinois
March 17, 1995
F-2
PC QUOTE, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
- --------------------------------------------------------------------------------
Current Assets
Cash $ 1,321,512 $ 1,043,478
Accounts receivable, less allowance for
doubtful accounts
1996 $234,000; 1995 $95,000 1,100,253 1,320,508
Income tax refunds receivable 40,000 40,000
Prepaid expenses and other current assets 185,071 294,536
Deferred tax asset - 158,000
---------------------------
TOTAL CURRENT ASSETS 2,646,836 2,856,522
---------------------------
Property and Equipment
Satellite receiving equipment 865,454 785,718
Computer equipment 6,382,179 6,158,855
Communication equipment 2,656,057 2,437,279
Furniture and fixtures 293,240 256,260
Leasehold improvements 359,126 340,271
---------------------------
10,556,056 9,978,383
Less accumulated depreciation and amortization 7,791,849 6,759,973
---------------------------
2,764,207 3,218,410
---------------------------
Software Development Costs, net of accumulated
amortization 1996 $3,600,204; 1995 $3,088,146 5,789,845 4,172,215
---------------------------
Deposits and Other Assets 353,182 275,693
---------------------------
TOTAL ASSETS $ 11,554,070 $ 10,522,840
---------------------------
---------------------------
See Notes to Financial Statements.
F-3
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ----------------------------------------------------------------------------------------------------
Current Liabilities
Note payable, bank, current $ 300,000 $ 100,000
Capital lease obligations, current 142,685 587,731
Accounts payable 1,774,390 1,616,404
Accrued expenses 918,918 573,191
Income taxes payable 6,264 -
Unearned revenue 995,600 546,869
-----------------------------
TOTAL CURRENT LIABILITIES 4,137,857 3,424,195
-----------------------------
Note Payable, Bank, noncurrent 1,100,000 100,000
-----------------------------
Convertible subordinated debenture bond payable, net
of unamortized discount of $1,650,000 850,000 -
-----------------------------
Capital Lease Obligations, noncurrent - 133,176
-----------------------------
Unearned Revenue 134,636 254,191
-----------------------------
Stockholders' Equity
Common stock, $.001 par value;authorized 10,000,000 shares;
issued and outstanding 1996 7,355,621; 1995 7,185,732 7,356 7,186
Additional paid-in capital 12,615,995 12,289,897
Additional paid-in capital - convertible subordinated debenture 1,650,000 -
Accumulated deficit (8,941,774) (5,685,805)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 5,331,577 6,611,278
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,554,070 $10,522,840
-----------------------------
-----------------------------
F-4
PC QUOTE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
Net revenues:
Services $ 17,032,164 $ 11,417,388 $ 9,548,971
Services - related party - 1,974,594 3,354,674
-----------------------------------------------------
17,032,164 13,391,982 12,903,645
Direct cost of services 11,123,520 5,691,951 6,407,204
-----------------------------------------------------
5,908,644 7,700,031 6,496,441
-----------------------------------------------------
Operating costs and expenses:
Amortization of software development costs 1,244,522 929,231 972,000
Research and development 706,618 558,671 667,831
Selling and marketing 3,078,384 2,267,798 2,341,529
General and administrative 3,836,950 2,384,336 1,672,052
Restructuring - - 314,260
-----------------------------------------------------
8,866,474 6,140,036 5,967,672
-----------------------------------------------------
OPERATING INCOME (LOSS) (2,957,830) 1,559,995 528,769
-----------------------------------------------------
Financial income (expense):
Interest income 9,743 22,037 40,881
Interest expense (143,618) (205,435) (257,240)
-----------------------------------------------------
(133,875) (183,398) (216,359)
-----------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (3,091,705) 1,376,597 312,410
Income taxes (credits) 164,264 (135,642) 7,000
-----------------------------------------------------
NET INCOME (LOSS) $ (3,255,969) $ 1,512,239 $ 305,410
-----------------------------------------------------
-----------------------------------------------------
Net income (loss) per share $ (0.45) $ 0.21 $ 0.04
Weighted average number of common and common
equivalent shares outstanding 7,248,000 7,263,000 6,996,000
See Notes to Financial Statements.
F-5
PC QUOTE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Additional Cumulative
Paid-in Foreign
Common Common Additional Capital Currency
Stock Stock Paid-in Convertible Translation Accumulated
Shares Amount Capital Debentures Adjustment Deficit Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1993 6,865,130 $6,865 $11,921,235 $ - $2,798 ($7,503,454) $4,427,444
Net income - - - - - 305,410 305,410
Issuance of common stock 104,044 104 100,209 - - - 100,313
Translation adjustment - - - - (2,798) - (2,798)
-------------------------------------------------------------------------------------------
Balances, December 31, 1994 6,969,174 6,969 12,021,444 - - (7,198,044) 4,830,369
Net income - - - - - 1,512,239 1,512,239
Issuance of common stock 216,558 217 268,453 - - - (268,670)
-------------------------------------------------------------------------------------------
Balances, December 31, 1995 7,185,732 7,186 12,289,897 - - (5,685,805) 6,611,278
Net (loss) - - - - - (3,255,969) (3,255,969)
Issuance of convertible debentures - - - 1,650,000 - - 1,650,000
Issuance of common stock 169,889 170 326,098 - - - 326,268
-------------------------------------------------------------------------------------------
Balances, December 31, 1996 7,355,621 $7,356 $12,615,995 $1,650,000 $ - $(8,941,774) $5,331,577
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
See Notes to Financial Statements.
F-6
PC QUOTE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income (loss) $(3,255,969) $1,512,239 $ 305,410
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of property and equipment 1,230,809 1,289,506 1,493,054
Provision for doubtful accounts 734,346 361,369 156,140
Amortization of software development costs 1,244,522 929,231 972,000
Deferred income taxes 158,000 (158,000) -
(Gain) loss on disposal of equipment 52,206 (15,975) 31,718
Changes in assets and liabilities:
Accounts receivable (514,091) (1,126,643) (263,977)
Accounts receivable - related party - 287,334 165,721
Income tax refunds receivable - (40,000) -
Prepaid expenses and other current assets 109,465 20,257 (35,717)
Deposits and other assets (77,489) (100,074) (44,921)
Accounts payable 157,986 266,669 398,806
Accrued expenses 345,727 108,480 101,499
Unearned revenue 329,176 224,418 (30,316)
Income taxes payable 6,264 - -
-----------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 416,540 3,558,811 3,249,417
-----------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (914,898) (668,178) (1,085,746)
Proceeds from sale of equipment 190,498 15,975 -
Software development costs capitalized (2,862,152) (2,586,519) (1,580,844)
-----------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (3,586,552) (3,238,722) (2,666,590)
-----------------------------------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 326,268 268,670 100,313
Proceeds from notes payable 2,500,000 - -
Proceeds from issuance of subordinated
convertible debentures 2,500,000 - -
Principal payments under capital lease obligations (578,222) (829,367) (838,710)
Principal payments on note payable, bank (1,300,000) (100,000) (100,000)
-----------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,448,046 (660,697) (838,397)
-----------------------------------------
Effect of exchange rate changes on cash and cash equivalents - - 14,686
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 278,034 (340,608) (240,884)
Cash and cash equivalents:
Beginning 1,043,478 1,384,086 1,624,970
-----------------------------------------
Ending $ 1,321,512 $1,043,478 $1,384,086
-----------------------------------------
-----------------------------------------
(continued)
F-7
PC QUOTE,INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Interest paid $ 143,618 $205,435 $259,818
Income taxes paid 1,000 37,950 -
Supplemental Schedule of Noncash Investing and Financing
Activities
Capital lease obligations incurred for purchase of equipment - - 911,474
Additional paid-in-capital from issuance of subordinated
convertible debenture bonds 1,650,000 - -
See Notes to Financial Statements.
F-8
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company maintains a real-time database of last sale, bid/ask, and
historical prices of more than 225,000 security issues, including stocks,
major stock indices, options on stocks and indices, Level I NASDAQ-quoted
stocks, Level II NASDAQ market maker quotes, mutual funds, money market funds,
futures contracts and options on futures contracts, traded on all U.S. stock,
option and commodity exchanges. Also covered are exchange-traded issues from
over 36 other countries in Europe and Asia. The Company generates a digital
data stream from the Company's database and broadcasts it to the customer's
personal computer. The Company's software applications, running on the
user's computer, process the data stream to allow the user to monitor
securities on an on-going real-time basis. They also create in the user's
computer a complete database of trading symbols, continuously updated by the
data stream. This database gives the user instant access to security prices.
The Company's continuing investment in software development consists primarily
of enhancements for existing products and new technology relative to the new
family of Internet quote and data products and Windows based and network
products.
The Company's customer base consists primarily of professional investors,
securities brokers, dealers and traders, and portfolio managers. The Company
performs ongoing credit evaluations of its customers as well as requiring
certain collateral. Customers are located primarily in the United States and
North America, but also in Europe, Central and South America, and the Pacific
Rim.
Significant accounting policies are as follows.
ACCOUNTING ESTIMATES: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION: The accompanying financial statements for 1994
include the accounts of PC Quote, Inc. and its subsidiary. All intercompany
accounts and transactions have been eliminated in consolidation. In 1994, as
part of a restructuring plan, the activities of the subsidiary were
discontinued.
CASH AND CASH CONCENTRATION: The Company considers all highly liquid debt
investments with a maturity of three months or less when purchased to be cash
equivalents. The Company typically invests excess cash in a money market
account which is at a financial institution which management believes has a
strong credit rating.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation on owned assets is provided using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the estimated useful lives or the terms of the respective leases.
Amortization of leased assets is included with depreciation on owned assets.
F-9
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Maintenance and repair costs are charged to earnings as incurred. Costs of
improvements are capitalized. Upon retirement or disposition, the cost and
related accumulated depreciation and amortization are removed from the accounts
and any gain or loss is included in the statements of income.
SOFTWARE DEVELOPMENT COSTS: Costs associated with the planning and designing
phase of software development, including coding and testing activities necessary
to establish technological feasibility of computer software products to be sold,
leased or otherwise marketed, are charged to research and development as
incurred. Once technological feasibility has been determined, costs incurred in
the construction phase of software development including coding, testing and
product quality assurance are capitalized.
Amortization commences when the product is available for general release to
customers. Unamortized capitalized costs determined to be in excess of the net
realizable value of the product are expensed at the date of such determination.
The accumulated amortization and related software development costs are removed
from the respective accounts effective in the year following full amortization.
PC Quote, Inc.'s policy is to amortize capitalized software costs by the greater
of (a) the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product or (b) the
straight line method over the remaining estimated economic life of the product
including the period being reported on, primarily five years. It is reasonably
possible that those estimates of anticipated future gross revenues, the
remaining estimated economic life of the product, or both will be reduced
significantly in the near term.
FINANCIAL INSTRUMENTS: The Company has no financial instruments for which the
carrying value materially differs from fair value.
INCOME TAXES: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
REVENUE RECOGNITION: Revenues from service contracts are recognized as the
contracted services are rendered. The Company bills for services one month in
advance; billings are due within 30 days. The unearned revenue has been
reflected net of the related receivables on the balance sheet. Customers'
deposits or prepayments are classified as unearned revenue. Customers' deposits
on contracts greater than one year are classified as long-term unearned revenue.
COMPUTATION OF NET INCOME PER SHARE: Net income (loss) per share is based upon
the weighted average number of shares of common stock outstanding, and when
dilutive, common equivalent shares from stock options and warrants (using the
treasury stock method).
F-10
PC QUOTE, INC.
NOTES TO FIANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION: Results of operations for the subsidiary
during 1994 are translated using the average exchange rate during the period.
Resulting translation adjustments are recorded in a separate component of
stockholders' equity, cumulative foreign currency translation adjustment. In
conjunction with a restructuring in the third quarter of 1994, the Company's
only foreign subsidiary was closed down and the cumulative foreign currency
translation adjustment was written off as part of the loss.
RECLASSIFICATION: Certain items in the 1995 balance sheet and related statement
of cash flows have been reclassified, with no effect on net income, to be
consistent with the classifications adopted for December 31, 1996.
NOTE 2. NOTES PAYABLE AND RELATED PARTY TRANSACTIONS
The Company has a $1,500,000 term loan with a bank, payable in monthly
installments of $25,000 plus interest at prime (prime was 8.25% at December 31,
1996). The loan is collateralized by substantially all assets of the Company.
At December 31, 1996, the outstanding balance was $1,400,000.
The Company has an agreement with a bank providing for a $1,000,000 revolving
line of credit. The line of credit is collateralized by the same assets as the
term loan. There were no borrowings outstanding at December 31, 1996. The line
of credit subsequently expired in February 1997.
In November 1996, the Company entered into an agreement with a 30% stockholder
to issue $2,500,000 of subordinated convertible debenture bonds due December 31,
2001. The bonds bear interest at prime plus 1%. Interest is payable
semiannually beginning January 1, 1998. The bonds contain a conversion feature
allowing the holder to convert the principle amount to 1,250,000 shares of
common stock at $2 per share. The document also contains an agreement for the
related party to underwrite a stock rights offering by the Company to all
stockholders (excluding the 30% related party) of 1,250,000 shares at $2 per
share. The conversion feature has been determined to have a value of
$1,650,000. The value of the conversion was recorded as additional paid-in
capital and a discount on the bonds was recorded.
F-11
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. STOCK OPTIONS AND WARRANTS
The Company has an Employees' Combined Incentive and Non-Statutory Stock Option
Plan. The Plan provides that at all times optional shares outstanding plus
shares available for grant equal 1,000,000 shares. These options may be granted
to key employees of the Company at a purchase price equal to the fair value of
the Company's common stock at date of grant and are exercisable for a period of
up to five years from the date of grant.
Other information with respect to the plan is as follows:
Weighed
Average
Number of Price Per
Shares Share
--------------------------
Balance, December 1, 1993 515,816 1.20
Granted 2,500 1.56
Exercised (104,044) (1.30)
Canceled (20,759) (0.88)
--------------------------
Balance, December 31, 1994 393,513 1.30
Granted 261,435 4.57
Exercised (166,282) (1.06)
Canceled (29,000) (1.50)
--------------------------
Balance, December 31, 1995 459,666 3.70
Granted 130,000 4.94
Exercised (89,663) (1.41)
Canceled (60,000) (3.88)
--------------------------
Balance, December 31, 1996 440,003 4.51
--------------------------
--------------------------
Shares
Exercisable Available
Shares for Grant
--------------------------
December 31, 1996 157,338 559,997
December 31, 1995 145,001 540,334
December 31, 1994 279,147 502,143
The options granted under the plan become exercisable at an annual cumulative
rate of one-third of the total number of options granted. The price for options
outstanding at December 31, 1996, ranged from $.8750 to $15.125 per share.
F-12
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. STOCK OPTIONS AND WARRANTS (CONTINUED)
As permitted under generally accepted accounting principles, grants under the
plan are accounted for following the provisions of APB Opinion No. 25 and its
related interpretations. Accordingly, no compensation cost has been recognized
for grants made to date. Had compensation cost been determined based on the
fair value method prescribed in FASB Statement No. 123, (which became effective
for grants issued beginning in 1995) reported net income (loss) and net income
(loss) per share would have been as follows:
Earnings Earnings
1996 per Share 1995 per Share
----------------------------------------------------------
Net income (loss) $(3,255,969) $ (0.45) $1,512,239 $ 0.21
Compensation expense related to stock
options granted (628,141) (0.09) (83,589) (0.01)
---------------------------------------------------------
Adjusted net income
(loss) $(3,884,110) $ (0.54) $1,428,650 $ 0.20
----------------------------------------------------------
----------------------------------------------------------
The fair value of each grant is estimated using the Black-Scholes option-pricing
model with the following assumptions for 1996 and 1995, respectively: an
expected life of three years, dividend rate of 0%, and risk-free interest rate
of 6% for both years; turnover rates of 23 and 27%, and a volatility factor of
81 and 99%.
A further summary about options outstanding at December 31, 1996, is as follows:
Weighted Exercisable
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------------
.8750 to .9375 21,500 1.00 $0.8750 21,500 $0.8750
1.4375 80,837 4.00 1.4349 46,673 1.4375
2.0 to 2.625 52,166 3.21 2.2436 30,499 2.0000
5.25 to 7.125 283,000 4.39 5.9885 58,666 6.3856
15.125 2,500 4.00 15.1250 - -
---------------- --------------
440,003 157,338
---------------- --------------
---------------- --------------
On February 25, 1993, the Company issued warrants entitling the holders to
purchase 74,500 shares of common stock at a price of $1.25 per share and 12,500
shares of common stock at a price of $1.00 per share. During the year ended
December 31, 1996, 50,000 shares at $1.25 per share were exercised. During the
year ended December 31, 1995, 24,500 shares at $1.25 per shares and 12,500
shares at $1.00 per share were exercised. No warrants were previously
exercised.
F-13
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. INCOME TAXES
The deferred tax assets and liabilities consist of the following components as
of December 31, 1996 and 1995:
1996 1995
-----------------------
Deferred tax assets:
Unearned revenue $ 384,300 $ 272,400
Receivable allowances 79,700 32,300
Property and equipment 98,800 29,700
Accrued expenses 45,900 35,600
Net operating loss carryforwards 4,100,060 2,683,200
Research and development credit carryforward 106,000 44,100
-----------------------
4,814,760 3,097,300
Valuation allowance 2,864,700 1,525,100
-----------------------
1,968,500 1,575,800
-----------------------
Deferred tax liabilities:
Software capitalization 1,968,500 1,417,800
-----------------------
Net current deferred tax asset $ - $ 158,000
-----------------------
-----------------------
The deferred tax assets and the valuation allowance at December 31, 1995, have
been increased by $319,300 from the amounts previously reported due to
additional tax deductions determined upon filing the 1995 tax return.
The components of income (loss) before income taxes are as follows:
1996 1995 1994
------------------------------------
Foreign $ - $ - $ 950
Domestic (3,091,705) 1,376,597 311,460
------------------------------------
$(3,091,705) $1,376,597 $ 312,410
------------------------------------
------------------------------------
Income tax expense (credits) for the years ended December 31, 1996, 1995, and
1994, consists of the following:
1996 1995 1994
------------------------------------
Current:
Foreign $ - $ - $ -
State and local 6264 22358 7000
Deferred 158000 (158000) -
--------------------------------------
$ 164,264 $(135,642) $ 7,000
--------------------------------------
--------------------------------------
F-14
NOTE 4. INCOME TAXES (CONTINUED)
Reconciliations of income tax expense computed at the statutory federal income
tax rate to the Company's income tax expense for the years ended December 31,
1996, 1995 and 1994, are as follows:
1996 1995 1994
----------------------------------
Statutory rate provision $(1,051,200) $ 468,000 $103,800
Increase (decrease) resulting from:
Utilization of net operating loss - - (95,700)
Nondeductible expenses 26,000 11,000 11,000
State income taxes (net of federal benefit) 4,100 14,800 4,500
Change in valuation allowance 1,200,460 (551,100)
Other (15,096) (78,442) (16,600)
----------------------------------
$ 164,264 $(135,642) $ 7,000
----------------------------------
----------------------------------
The valuation allowance for the years ended December 31, 1996 and 1995, was
also increased by $124,300 and $235,300 with regard to unrealized income tax
benefits related to incentive employee stock options.
At December 31, 1996, the company had federal income tax net operating loss
carryforwards of approximately $12,059,000 for federal income tax purposes and
approximately $9,794,000 for the alternative minimum tax. The net operating
loss carryforwards will expire, if not previously utilized, as follows: 1999
$546,000; 2000 $1,370,000; 2001, $1,539,000; 2002 $560,000; 2003 $79,000; and
thereafter $7,965,000.
Approximately $1,058,000 of these net operating losses relates to exercise of
incentive employee stock options and will be credited directly to
stockholders' equity when realized. The company also had research and
development credits of $106,000 which will expire in years 2010 to 2011 if
not previously utilized. The future utilization of these net operating losses
and research and development credits may be limited due to changes in Company
ownership.
F-15
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. LEASE COMMITMENTS AND SUBSEQUENT EVENTS
The Company is obligated as lessee under certain noncancelable capital and
operating leases for equipment and office space, and is also obligated to pay
insurance, maintenance and other executory costs associated with the leases. On
September 1, 1994, the Company entered into a new lease agreement in conjunction
with the move of its corporate headquarters, which is subject to escalating base
rent as well as adjustments for changes in real estate taxes and other operating
expenses. Expense under the lease is being recognized on a straight-line basis.
Future minimum lease payments for the Company as lessee are as follows as of
December 31, 1996:
Capitol Operating
Leases Leases
----------------------
Years ending December 31:
1997 $172,580 $2,746,484
1998 2,374,614
1999 834,968
2000 97,377
2001 85,022
Thereafter 369,074
----------------------
Total minimum lease payments 172,580 $6,507,539
Less amount representing interest (at 6% to 7.7%) 29,895 ----------
--------- ----------
Present value of net minimum lease payments, due currently $142,685
---------
---------
Assets under capital leases, included as property and equipment, are as follows
at December 31:
1996 1995
-------------------------
Equipment:
Satellite receiving $ 273,600 $ 273,600
Communication 1,907,626 1,907,626
Computer 3,576,736 3,576,736
Furniture and fixtures 156,944 156,944
-------------------------
5,914,906 5,914,906
Accumulated amortization 5,209,342 4,786,700
-------------------------
$ 705,564 $1,128,206
-------------------------
-------------------------
Rent expensed, under operating leases amounted to $2,408,879, $662,947 and
$443,092 for the years ended December 31, 1996, 1995 and 1994, respectively.
Subsequent to December 31, 1996, the Company entered into various operating
lease agreements requiring monthly payments totaling $22,411 through January
2000. The leases result in additional commitments as follows: 1997 $227,023;
1998 $268,935; 1999 $268,935; 2000 $43,595.
F-16
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. OTHER COMMITMENTS
Under a Satellite Network Service agreement which expires in November 1997, the
Company is required to pay an annual base fee of approximately $456,000 plus
related service fees. The Company expensed $653,083, $478,480 and $483,697 in
1996, 1995 and 1994, respectively, for the base fee plus related service fees.
Under an agreement for satellite transmission services, including "FM3"
satellite transmissions, the Company is required to pay a monthly base fee of
$52,888 through January 2006 plus related service fees. The Company expensed
$618,648, $457,650 and $403,763 for the years ended December 31, 1996, 1995 and
1994, respectively, for these services.
NOTE 7. MAJOR CUSTOMER, RELATED PARTY AND TRANSACTIONS WITH GLOBAL FINANCIAL
SERVICES, FORMERLY BRIDGE INFORMATION SYSTEMS
Global Financial Services (Global), formerly Bridge Information Systems owned
1,523,573 shares of the Company's common stock. The Company had net services
to Global which comprised 10% or more of total net services for the years
ended December 31, 1996, 1995 and 1994. These services totaled approximately
$3,414,000, $3,920,000 and $3,355,000, respectively. The trade receivable
balances due from Global at December 31, 1996 and 1995, were approximately
$10,700 and $379,000, respectively.
On January 25, 1995, the Company entered into an agreement with Global, whereby
the Company would provide domestic data to Global for $2,100,000(1996)and
$450,000 through March 31, 1997. For the remainder of the contract term,
amounts will be charged on a per-site basis at December 31, 1996. In September
1996, the Company agreed to accelerate the termination date of this agreement to
January 1, 1997.
On July 6, 1995, Global divested 100% of its holdings of PC Quote, Inc. in a
private sale to an unrelated party. The stock transaction did not affect the
business agreements between Global and the Company. Revenues from Global are
reflected as services - related party through the date of the divestiture.
Subsequent sales are included with service revenue. Likewise receivables from
Global through that date are reflect as accounts receivable, related party.
In December 1996, the Company discontinued providing services to another
significant customer that accounted for net revenues of approximately
$1,693,000, $557,000, and $591,000 in 1996, 1995, and 1994, respectively.
NOTE 8. DEFINED CONTRIBUTION PLAN
In 1993, the Company established a 401(k) retirement savings plan for employees
meeting certain eligibility requirements. Under the Plan, the Company is
required to match employee contributions at 25% of the first 5% contributed by
an employee. The Company recorded expenses related to its matching of
contributions of approximately $30,000, $22,300 and $32,600 for the years ended
December 31, 1996, 1995 and 1994, respectively.
F-17
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. EMPLOYEE STOCK PURCHASE PLAN
In 1995, the Company established an employee stock purchase plan and reserved
100,000 shares of its common stock. The Plan allows employees to have up to 10%
of their annual salary withheld to purchase common stock of PC Quote, Inc. on
the final day of each quarter at 85% of the market price on either the first or
last day of the quarter, whichever is lower. Shares sold to employees totaled
30,228 and 13,376 for the years ended December 31, 1996 and 1995, respectively.
NOTE 10. LITIGATION
On December 31, 1996, a lawsuit was filed against the Company, by a former
officer, alleging breach of various verbal and written agreements by failing to
pay certain commissions, bonuses and severance pay and failing to provide him
with certain stock options. The lawsuit seeks monetary damages of approximately
$680,000. The Company's legal counsel has indicated that the outcome of the
lawsuit cannot be determined at this time. Management believes the claim is
without merit; accordingly, no provision has been made in the financial
statements for any loss that may result from litigation.
NOTE 11. RESTRUCTURING
The results of operations for 1994 include charges of $314,260 ($0.045 per
share) for costs associated with a reduction of headcount, the closure of the
foreign subsidiary and the movement of corporate headquarters. These charges
were recorded in the third quater of 1994. This restructuring resulted in a
workforce reduction of approximately 10 employees ($149,000), and write off of
leasehold improvements and equipment on prior corporate headquarters ($75,100)
in the U.S. operations. Restructuring cost related to the U.K. operation
include employee costs ($59,360), write-down of equipment ($15,000) and
miscellaneous other costs ($15,800). The customers previously serviced by the
U.K. subsidiary are now being serviced by the U.S. operations.
NOTE 12. FOURTH QUARTER ADJUSTMENTS
Based on its periodic review of the software capitalization, the Company
determined in the fourth quarter of 1996 and 1995 that certain adjustments were
appropriate to properly reflect the capitalization of development costs relating
to products which had reached technological feasibility during 1996 and 1995.
In addition, during the fourth quarters, the Company determined that adjustments
to certain other accounts were necessary. The net effect of these fourth
quarter adjustments did not materially effect the operating results of the first
three quarters.
NOTE 13. GEOGRAPHIC INFORMATION
Operating profit by geographic area is total operating revenue less expenses
which are deemed to be related to the unit's operating revenue.
Information about the Company's operations by geographic area for the year ended
December 31, 1994 are as follows:
Purchase of
Property,
Net Service Operating Depreciation Plant and
Revenues Profit/Loss Expense Equipment
- ------------------------------------------------------------------------------
United States $ 12,345,752 $ 534,415 $ 1,441,612 $ 1,085,746
United Kingdom 557,893 (5,646) 51,442
----------------------------------------------------------
$ 12,903,645 $ 528,769 $ 1,493,054 $ 1,085,746
----------------------------------------------------------
----------------------------------------------------------
F-18
PC QUOTE
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTES 14. MANAGEMENT'S PLANS AND INTENTIONS FOR CONTINUING OPERATIONS
The Company incurred a loss of approximately $3,256,000 for the year ended
December 31, 1996, and as of December 31, 1996, had an accumulated deficit of
approximately $8.9 million and deficit working capital of $1.5 million. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management has taken several actions to address these
circumstances.
In November 1996, the Company entered into an agreement with a 30%
stockholder to issue $2.5 million in subordinated convertible debenture
bonds. The document also contains an agreement for the related party to
underwrite a stock rights offering by the Company to all stockholders
(excluding the 30% related party) of 1,250,000 shares at $2.00 per share.
In February 1997, the Company hired a financial consultant to explore strategic
alternatives which may be available to the Company with the purpose of enhancing
stockholder value. Such a transaction might include a merger, a sale of
substantially all or part of the Company's assets, a strategic relationship or
joint venture with another technology or financial service firm or the
exploration of various financing alternatives to further fund the Company's
business.
F-19
PC QUOTE, INC.
SUPPLEMENTAL SCHEDULE II OF FINANCIAL STATEMENTS, CONTINUED
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To the Board of Directors
PC Quote, Inc.
Chicago, Illinois
Our audit of the financial statements of PC Quote, Inc. as of and for the
years ended December 31, 1996 and 1995 included the 1996 and 1995 information
on Schedule II contained herein. Such schedule is presented for purposes of
complying with the Security and Exchange Commission's rule and is not a
required part of the basic financial statements. In our opinion, such
schedule presents fairly the information set forth therein in conformity with
generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Schaumburg, Illinois
March 7, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors
PC Quote, Inc.
Our report on the statement of operations, stockholder equity, and cash flows
of PC Quote, Inc. and Subsidiary for the year ended December 31, 1994 is
included on page F-2 of this Form 10-K. In connection with our audit of such
financial statements, we have also audited the related financial statement
schedule for the year ended December 31, 1994 listed in the index on page
of the Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
represents fairly, in all material aspects, the information required to be
included herein.
COOPERS & LYBRAND LLP
Chicago, Illinois
F-20
March 17, 1997
PC QUOTE, INC.
SUPPLEMENTAL SCHEDULE II TO THE FINANCIAL STATEMENTS
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
Balance at
DESCRIPTION Beginning of Charged to Deductions Balance at
Period Operations from End of
Reserves Period
-----------------------------------------------------
Allowance for doubtful
accounts-trade receivable
in the balance sheets:
1996 95,000 734,346 (595,346) 234,000
1995 100,000 361,369 (366,369) 95,000
1994 49,000 156,140 (105,140) 100,000
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's financial statements for the period ending December 31, 1996
and December 31, 1995 were audited by McGladrey & Pullen, L.L.P. The
Company's financial statements for the year ended 1994 were audited by
Coopers & Lybrand L.L.P.
F-21