-----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, E5BxJOrsyk5gxXCzFfkzYrYCZiypGL1Zgd1XwPLWqcTDY9y6s6hHQ3Bt16+lMphJ i1kf6RJMuexG8NQdZU7TvQ== 0001047469-99-032365.txt : 19990817 0001047469-99-032365.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032365 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HYPERFEED TECHNOLOGIES INC CENTRAL INDEX KEY: 0000745774 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 363131704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11108 FILM NUMBER: 99691980 BUSINESS ADDRESS: STREET 1: 300 S WACKER DR STREET 2: STE 300 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129132848 MAIL ADDRESS: STREET 1: 300 SOUTH WACKER DR STREET 2: SUITE 300 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: PC QUOTE INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10Q 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 June 30, 1999 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 HYPERFEED TECHNOLOGIES, INC. (a Delaware Corporation) (Formerly named PC Quote, Inc.) 300 S. Wacker Chicago, Illinois 60606 Telephone (312) 913-2800 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past twelve months, (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 15,000,671 shares of the Company's common stock ($.001 par value) and 47,866 shares of preferred stock ($.001 par value) were outstanding as of July 28, 1999. Page 1 HYPERFEED TECHNOLOGIES, INC. INDEX
PAGE PART I. Financial Information Item 1. Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3 Consolidated Statements of Operations for the six month periods ended June 30, 1999 and 1998 5 Consolidated Statements of Operations for the three month periods ended June 30, 1999 and 1998 6 Consolidated Statements of Cash Flows for the six month periods ended June 30, 1999 and 1998 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of: Results of Operations and Financial Condition 13 Liquidity and Capital Resources 17 PART II. Other Information Item 2. Changes in Securities 21 Item 6. Exhibits and Reports on Form 8-K 23 Company's Signature Page 24
Page 2 HYPERFEED TECHNOLOGIES, INC. Consolidated Balance Sheets June 30, 1999 and December 31, 1998
June 30, December 31, ASSETS 1999 1998 (Unaudited) (Audited) -------------- ------------- Current Assets Cash and cash equivalents $ 1,838,561 $ 1,139,785 Accounts receivable, less allowance for doubtful accounts of: 1999: $677,876;1998: $443,037 2,273,420 1,490,139 Prepaid license fees, current 1,680,000 --- Prepaid expenses and other current assets 593,893 114,011 -------------- ------------- TOTAL CURRENT ASSETS 6,385,874 2,743,935 -------------- ------------- Property and equipment Satellite receiving equipment 436,759 525,730 Computer equipment 3,748,486 4,260,589 Communication equipment 1,072,311 1,254,010 Furniture and fixtures 245,746 252,050 Leasehold improvements 402,692 402,692 -------------- ------------- 5,905,994 6,695,071 Less: Accumulated depreciation and amortization 3,464,353 4,613,526 -------------- ------------- 2,441,641 2,081,545 -------------- ------------- Prepaid license fees, net of accumulated amortization of $350,000 3,850,000 --- -------------- ------------- Software development costs, net of accumulated amortization of: 1999: $5,614,089; 1998: $4,442,673 4,450,717 5,012,971 -------------- ------------- Deposits and other assets 98,930 214,916 -------------- ------------- TOTAL ASSETS $ 17,227,162 $ 10,053,367 -------------- ------------- -------------- -------------
See Notes to Consolidated Financial Statements. Page 3 HYPERFEED TECHNOLOGIES, INC. Consolidated Balance Sheets (continued) June 30, 1999 and December 31, 1998
June 30, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 (Unaudited) (Audited) -------------- ------------- Current Liabilities Note payable, bank, current $ 300,000 $ 300,000 Accounts payable 3,245,020 4,138,517 Accrued expenses 1,722,089 218,866 Accrued compensation 451,987 313,838 Income taxes payable --- 3,161 Unearned revenue, current 1,952,848 1,241,933 -------------- ------------- TOTAL CURRENT LIABILITIES 7,671,944 6,216,315 -------------- ------------- Note payable, bank, noncurrent 349,634 499,634 Unearned revenue, noncurrent 30,200 261,027 Accrued expenses, noncurrent 115,739 161,120 Minority interests 66,564 --- -------------- ------------- TOTAL NONCURRENT LIABILITIES 562,137 921,781 -------------- ------------- TOTAL LIABILITIES 8,234,081 7,138,096 -------------- ------------- Stockholders' Equity Preferred Stock, $.001 par value; authorized 5,000,000 shares; issued and outstanding: Series A 5% convertible: 19,075 shares at June 30, 1999 and December 31, 1998 19 19 Series B 5% convertible: 28,791 shares at June 30, 1999 and December 31, 1998 29 29 Common stock, $.001 par value; authorized 50,000,000 shares; issued and outstanding 14,990,177 shares at June 30,1999 and 14,183,183 shares at December 31, 1998 14,990 14,183 Additional paid-in capital - Series A 5% convertible preferred stock 3,086,013 3,086,013 Additional paid-in capital - Series B 5% convertible preferred stock 4,664,891 4,664,891 Additional paid-in capital - common stock 22,987,933 19,950,981 Additional paid-in capital - convertible subordinated debenture and warrants 8,630,491 2,750,491 Accumulated deficit (30,391,285) (27,551,336) -------------- ------------- TOTAL STOCKHOLDERS' EQUITY 8,993,081 2,915,271 -------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,227,162 $ 10,053,367 -------------- ------------- -------------- -------------
See Notes to Consolidated Financial Statements. Page 4 HYPERFEED TECHNOLOGIES, INC. Consolidated Statements of Operations
For The Six Months Ended - ---------------------------------------------------------------- ----------------------- ------------------ June 30, June 30, 1999 1998 (Unaudited) (Unaudited) - ---------------------------------------------------------------- ----------------------- ------------------ REVENUE HyperFeed Services $ 8,528,508 $ 6,360,153 Internet Services 6,943,801 4,376,152 ------------ ------------ TOTAL REVENUE 15,472,309 10,736,305 ----------- ----------- DIRECT COST OF SERVICES HyperFeed Services 6,591,629 5,034,235 Internet Services 5,789,124 3,136,570 ------------ ------------ TOTAL DIRECT COST OF SERVICES 12,380,753 8,170,805 ----------- ------------ GROSS MARGIN 3,091,556 2,565,500 ------------ ------------ OPERATING EXPENSES Sales 1,792,089 2,036,208 General and administrative 2,390,227 1,635,345 Product and market development 1,150,677 1,138,552 Depreciation and amortization 525,635 595,018 ------------- ------------- TOTAL OPERATING EXPENSES 5,858,628 5,405,123 ------------ ------------ LOSS FROM OPERATIONS (2,767,072) (2,839,623) ------------ ------------ OTHER INCOME (EXPENSE) Interest income 22,584 11,956 Interest expense (28,897) (1,419,563) Loss on sale of minority interest in PCQuote.com, Inc. (88,386) --- -------------- ------------ NET OTHER EXPENSE (94,699) (1,407,607) --------------- ------------ LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (2,861,771) (4,247,230) INCOME TAXES --- --- --------------- ------------ LOSS BEFORE MINORITY INTEREST (2,861,771) (4,247,230) Minority interest in loss 21,822 --- --------------- ------------ NET LOSS ($ 2,839,949) ($ 4,247,230) --------------- ------------ --------------- ------------ Basic net loss per share ($0.19) ($0.34) Diluted net loss per share ($0.19) ($0.34) Weighted-average common shares outstanding 14,588,890 12,615,262 - ---------------------------------------------------------------- ----------------------- ----------------
See Notes to Consolidated Financial Statements. Page 5 HYPERFEED TECHNOLOGIES, INC. Consolidated Statements of Operations
For The Three Months Ended - ---------------------------------------------------------------- ----------------------- ------------------ June 30, June 30, 1999 1998 (Unaudited) (Unaudited) - ---------------------------------------------------------------- ----------------------- ------------------ REVENUE HyperFeed Services $ 4,366,871 $ 3,272,867 Internet Services 3,685,160 2,478,244 ------------ ------------ TOTAL REVENUE 8,052,031 5,751,111 ------------ ------------ DIRECT COST OF SERVICES HyperFeed Services 3,490,024 2,560,306 Internet Services 3,519,250 1,569,423 ------------ ------------ TOTAL DIRECT COST OF SERVICES 7,009,274 4,129,729 ------------ ------------ GROSS MARGIN 1,042,757 1,621,382 ------------ ------------ OPERATING EXPENSES Sales 911,251 1,088,996 General and administrative 1,340,540 908,705 Product and market development 556,912 631,559 Depreciation and amortization 282,805 306,634 ------------- ------------- TOTAL OPERATING EXPENSES 3,091,508 2,935,894 ------------ ------------ LOSS FROM OPERATIONS (2,048,751) (1,314,512) ------------ ------------ OTHER INCOME (EXPENSE) Interest income 15,072 4,294 Interest expense (13,905) (1,055,524) Loss on sale of minority interest in PCQuote.com, Inc. (88,386) --- ------------ ------------ NET OTHER (EXPENSE) (87,219) (1,051,230) ------------ ------------ LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (2,135,970) (2,365,742) INCOME TAXES --- --- ------------ ------------- LOSS BEFORE MINORITY INTEREST (2,135,970) (2,365,742) Minority interest in loss 21,822 --- ------------ ------------- NET LOSS ($ 2,114,148) ($ 2,365,742) ------------ ------------- ------------ ------------- Basic net loss per share ($0.14) ($0.19) Diluted net loss per share ($0.14) ($0.19) Weighted-average common shares outstanding 14,796,041 12,749,435 - -----------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. Page 6 HYPERFEED TECHNOLOGIES, INC. Consolidated Statements of Cash Flows
For The Six Months Ended ----------------------------------- June 30, June 30, 1999 1998 (Unaudited) (Unaudited) -------------- ------------- Cash Flows From Operating Activities: Net loss ($2,839,949) ($4,247,230) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of property and equipment 525,635 595,018 Provision for doubtful accounts 430,000 209,000 Amortization of software development costs 1,171,417 977,000 Amortization of deferred discount on convertible subordinated debenture --- 1,096,402 Amortization of value assigned to common stock warrant issued in lieu of cash license fees 350,000 --- Common stock issued in lieu of cash compensation 39,886 59,681 Minority interest in loss (21,822) --- Loss on sale of minority interest in PCQuote.com, Inc. 88,386 --- Changes in assets and liabilities: Accounts receivable (1,213,281) (598,369) Prepaid expenses and other current assets (479,882) (72,357) Deposits and other assets 115,986 38,213 Accounts payable (893,497) 1,117,931 Accrued expenses 1,595,991 (61,987) Accrued income taxes payable (3,161) (5,192) Unearned revenue 480,088 373,555 -------------- ------------- NET CASH USED IN OPERATING ACTIVITIES (654,203) (518,335) -------------- ------------- Cash Flows From Investing Activities: Purchase of property and equipment (885,731) (412,115) Software development costs capitalized (609,163) (967,112) -------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (1,494,894) (1,379,227) -------------- ------------- Cash Flows From Financing Activities: Proceeds from issuance of common stock 2,997,873 3,951,727 Purchase and retirement of common stock --- (2,988,949) Principal payments on note payable, bank (150,000) (150,000) -------------- ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,847,873 812,778 -------------- ------------- Net increase (decrease) in cash and cash equivalents 698,776 (1,084,784) Cash and cash equivalents: Beginning of the period 1,139,785 1,113,130 -------------- ------------- End of the period $1,838,561 $ 28,346 -------------- ------------- -------------- -------------
See Notes to Consolidated Financial Statements. Page 7 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION PRINCIPLES OF CONSOLIDATION: The accompanying interim consolidated financial statements include the accounts of HyperFeed Technologies, Inc. (the "Company", formerly PC Quote, Inc.) and its subsidiary, PCQuote.com, Inc., and 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 consolidated financial statements include all adjustments, including the elimination of all significant intercompany transactions in consolidation, which, 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, 1998 annual report. For further information, refer to the financial statements and footnotes included in PC Quote's annual report on Form 10-K for the year ended December 31, 1998. SOFTWARE DEVELOPMENT COSTS: The Company's continuing investment in software development consists primarily of enhancements to its existing Windows-based private network and Internet services, development of new data analysis software and programmer tools designed to afford easy access to its data-feed for data retrieval and analysis purposes, and application of new technology to increase the data volume and delivery speed of its distribution system and network. Costs associated with the planning and design phase of software development, including coding and testing activities necessary to establish technological feasibility of computer software products to be licensed 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 at the time of capitalization or, in the case of a new service offering, at the time the service becomes available for use. Unamortized capitalized costs determined to be in excess of the net realizable value of the product are expensed at the date of such determination. The accumulated amortization and related software development costs are removed from the respective accounts in the year following full amortization. HyperFeed Technologies, Inc.'s policy is to amortize capitalized software costs by the greater of (a) the ratio that current gross revenue for a product bear to the total of current and anticipated future gross revenue for that product or (b) the straight line method over the remaining estimated economic life of the product including the period being reported on, principally three to five years. The Company assesses the recoverability of its software development costs against estimated future undiscounted cash flows. Given the highly competitive environment and technological changes, it is reasonably possible that those estimates of anticipated future gross revenue, the remaining estimated economic life of the product, or both may be reduced significantly. In March 1998 the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use and provides guidance for determining whether computer software is for internal use. The Company adopted the provisions of SOP 98-1 effective January 1, 1999. FINANCIAL INSTRUMENTS: The Company has no financial instruments for which the carrying value materially differs from fair value. Page 8 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: The Company principally derives its revenue from service contracts for the provision of market data only ("HyperFeed license fees"), service contracts for the provision of market data together with analytical software ("PC Quote 6.0 license fees"), and the sale of advertising on its web-site www.pcquote.com. Revenue from service contracts is recognized using the percentage-of-completion method, ratably over the contract term as the contracted services are rendered. Revenue from the sale of advertising is recognized as the advertising is displayed on the web-site. HyperFeed license fees and PC Quote 6.0 license fees for satellite and landline services are generally billed one month in advance with 30-day payment terms. License fees for PC Quote 6.0 on the Internet are generally paid by credit card within five days prior to the month of service. These and other payments received prior to services being rendered are classified as unearned revenue on the balance sheet. Revenue and the related receivable for advance billings are not reflected in the financial statements. Customers' deposits on service contracts are classified as either current unearned revenue, if the contract expires in one year or less, or non-current unearned revenue, if the contract expiration date is greater than one year. The Company adopted the provisions of Statement of Position 97-2, "Software Revenue Recognition," on January 1, 1998. SOP 97-2 specifies the following four criteria that must be met prior to recognizing revenue: (1) persuasive evidence of the existence of an arrangement, (2) delivery, (3) fixed or determinable fee, and (4) probable collection. In addition, revenue earned on software arrangements involving multiple elements is allocated to each element based on the relative fair value of the elements. When applicable, revenue allocated to the Company's software products (including specified upgrades/enhancements) is recognized upon delivery of the products. Revenue allocated to post contract customer support is recognized ratably over the term of the support and revenue allocated to service elements (such as training and installation) is recognized as the services are performed. (2) RECLASSIFICATIONS The statement of operations has been modified to enhance information to the stockholder. The 1998 statements of operations and cash flows have been reclassified to conform to the 1999 presentation. (3) INCOME TAXES At December 31, 1998, the Company had federal income tax net operating loss carryforwards of approximately $26,005,000 for federal income tax purposes and approximately $24,843,000 for the alternative minimum tax. Approximately $1,058,000 of these net operating losses relate to the 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 will be limited due to changes in Company ownership. 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; 2004: $576,000; 2005: $1,557,000 and thereafter $19,778,000. Page 9 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) TRANSACTIONS WITH AFFILIATES On January 23, 1998, the Company completed a rights offering that entitled stockholders of record as of November 21, 1997 to purchase one additional share of common stock for each right at a price of $1.00 per share. The Company received approximately $3.0 million in gross proceeds from the sale of shares underlying exercised rights. Pursuant to the Stock and Warrant Purchase Agreement dated October 15, 1997 (the "Purchase Agreement"), between PC Quote and Imprimis Investors LLC and Wexford Spectrum Investors LLC (collectively, the "Wexford Affiliates"), the entire proceeds were used to fulfill the Company's obligation to repurchase shares from the Wexford Affiliates. During the second quarter of 1998, the Wexford Affiliates exercised 143,300 warrants, previously acquired pursuant to the Purchase Agreement, and purchased 143,300 shares of Common Stock of the Company for $286,600. In February 1999, the Wexford Affiliates exercised 267,200 warrants, previously acquired pursuant to the Purchase Agreement, and purchased 267,200 shares of Common Stock for $534,400. On May 19, 1998, PICO Holdings, Inc. exercised a portion of its warrant, acquired in connection with a May 1997 financing transaction with the Company, and purchased 320,000 shares of Common Stock of the Company for $500,000. (5) FINANCING AND EQUITY TRANSACTIONS On April 19, 1999, a third-party investor exercised its warrant, acquired in connection with a December 1998 private placement, and acquired 80,000 shares of the Company's common stock in exchange for $150,000. On April 22, 1999, the Company entered into Stock Purchase Agreements with four third-party investors. On April 23, 1999, the investors purchased 190,476 shares of common stock in exchange for $1,999,998. The investors acquired the common stock for investment purposes. On June 11, 1999, a third-party investor exercised its warrant, acquired in connection with a December 1998 private placement, and acquired 120,000 shares of the Company's common stock in exchange for $225,000. On June 16, 1999, the stockholders of the Company approved the 1999 Combined Incentive and Non-statutory Stock Option Plan, previously approved by the Company's Board of Directors in March 1999. There are 4,000,000 shares reserved for issuance under this Plan. The plan terminates in March 2009, unless terminated sooner by the Company's Board of Directors. The plan authorizes the award of options and restricted stock purchase rights. The plan will be administered by the Company's Board of Directors or a committee appointed by the Company's Board of Directors. The administrator has the authority to interpret the plan, grant awards and make all other determinations necessary to administer the plan. Stock options are exercisable for a period not to exceed ten years from the date of the grant and, to the extent determined at the time of grant, may be paid for in cash or by a reduction in the number of shares issuable upon exercise of the option. Page 10 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In December 1998, the Company segregated its Internet related services into a separate business unit within the Company. The Company is transferring its Internet-related services to PCQuote.com, Inc., which was incorporated in March 1999 as a wholly-owned subsidiary. On April 12, 1999, PCQuote.com, Inc. entered into a 3 1/2 year agreement with CNNFN. Under the limited exclusive licensing agreement, CNNFN granted PCQuote.com a license to display on PCQuote.com's web sites certain headlines from CNNFN original stories published on the CNNFN Web site at cnnfn.com. In connection with the agreement, PCQuote.com issued to CNNFN a warrant to acquire 515,790 shares (after giving effect to the 9,800-for-one stock split approved by PCQuote.com's Board of Directors) of common stock, representing a five percent interest in the common stock of PCQuote.com outstanding prior to its planned initial public offering. On June 9, 1999, PCQuote.com filed a registration statement with the Securities and Exchange Commission relating to a planned initial public offering of 7,750,000 shares of its common stock. The planned common stock offering consists of 5,800,000 shares to be issued by PCQuote.com and 1,950,000 shares to be sold by the Company. The Company estimated that the warrant had a fair value of $5.88 million. The fair value was recorded as additional paid in capital and current and non-current prepaid license fees, which will be amortized over the term of the agreement. The warrant vests 25% upon execution of the agreement with an additional 25% vested on each of the three succeeding anniversary dates after execution, and has an aggregate exercise price of $.52. On April 29, 1999, CNNFN exercised the vested portion of its warrant and acquired 128,948 shares of common stock. The minority interest owned by CNNFN as of and for the six months ended June 30, 1999 has been included in the accompanying consolidated financial statements. PCQuote.com adopted its 1999 Combined Incentive and Non-statutory Stock Option Plan in May 1999. There are 1,538,600 shares of common stock reserved for issuance under this plan. The plan terminates in September 2009, unless terminated sooner by PCQuote.com's Board of Directors. The plan authorizes the award of options and restricted stock purchase rights. The plan will be administered by PCQuote.com's Board of Directors or a committee appointed by PCQuote.com's Board of Directors. The administrator has the authority to interpret the plan, grant awards and make all other determinations necessary to administer the plan. Stock options are exercisable for a period not to exceed ten years from the date of the grant and, to the extent determined at the time of grant, may be paid for in cash or by a reduction in the number of shares issuable upon exercise of the option. On June 4, 1999, PCQuote.com amended its articles of incorporation to increase its authorized common stock to 74,000,000 shares and authorized 1,000,000 shares of $.01 par value preferred stock for future issuance. On June 8, 1999, the Board of Directors approved a 9,800-for-one stock split of PCQuote.com's outstanding common stock. Page 11 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) COMMITMENTS AND CONTINGENCIES In connection with the formation and transfer of its Internet business to its subsidiary, PCQuote.com, on May 28, 1999, the Company and Townsend Analytics, Ltd. ("Townsend") entered into an agreement to terminate their Software Distributor Agreement dated December 4, 1995. Pursuant to the terms of the termination agreement, the Company is obligated to pay Townsend one million dollars within ninety days after execution of the agreement. The Company and PCQuote.com subsequently entered into separate new license agreements with Townsend Analytics for the right to use the LAN and Internet versions, respectively, of the software application which is marketed as PCQuote 6.0 RealTick. The new agreements replaced the prior agreement between Townsend Analytics and the Company. The initial term of the agreements ends December 4, 2000. Pursuant to the terms of the new agreements, the Company and PCQuote.com are each required to pay a minimum royalty to Townsend of $220,000 per month and a cumulative minimum royalty of $5,000,000 each over the initial term of the agreements. Under the terms of its new agreement with Townsend, the Company guarantees the obligation of its subsidiary, PCQuote.com, and receives a credit towards its minimum commitment obligations to the extent that PCQuote.com's actual royalty payments exceed its minimum commitments. The Company is a party to various legal proceedings incidental to its business operations, none of which is expected to have a material effect on the financial condition or results of operations of the Company. Page 12 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition INTRODUCTION - SAFE HARBOR DISCLOSURE The following discussion and analysis contains historical information. It also contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, particularly in reference to statements regarding our expectations, plans and objectives. You can generally identify forward-looking statements by the use of the words "may," "will," "expect," "intend," "estimate," "anticipate," "believe," or "continue," or similar language. Forward-looking statements involve substantial risks and uncertainties. You should give careful consideration to cautionary statements made in this discussion and analysis. We base our statements on our current expectations. Forward-looking statements may be impacted by a number of factors, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Our filings with the Securities and Exchange Commission identify factors that could cause material differences. Among these factors are our ability to: (i) fund our current and future business strategies as a going-concern either through continuing operations or external financing; (ii) attract and retain key employees; (iii) compete successfully against competitive products and services; (iv) maintain relationships with key suppliers and providers of market data; and (v) respond to the effect of economic and business conditions generally. RECENT BUSINESS DEVELOPMENTS PC QUOTE CHANGES NAME TO HYPERFEED TECHNOLOGIES On June 16, 1999, at their annual meeting, shareholders of PC Quote, Inc. considered, voted on, and approved the proposal to change the corporate name to HyperFeed Technologies, Inc. As previously reported, the reason for the name change was to further differentiate HyperFeed and its subsidiary, PCQuote.com, Inc., and eliminate potential confusion in the marketplace. HYPERFEED INCORPORATES SUBSIDIARY PCQUOTE.COM, INC. In December 1998, the Company segregated its Internet related services into a separate business unit within the Company. HyperFeed is transferring its Internet-related services to PCQuote.com, Inc., which was incorporated in March 1999 as a wholly-owned subsidiary. Management believes that formally separating the two entities will permit the parent and subsidiary to focus on their relative strengths. In management's opinion, the separation will permit each entity to better (i) attract and retain key employees by relating compensation to relevant business performance, (ii) enter into strategic relationships with business partners, and (iii) permit each entity to pursue its own financing avenues. Page 13 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) PCQUOTE.COM FILES FOR INITIAL PUBLIC OFFERING On June 9, 1999, PCQuote.com filed a registration statement with the Securities and Exchange Commission relating to a planned initial public offering of 7,750,000 shares of its common stock. The planned common stock offering consists of 5,800,000 shares to be issued by PCQuote.com and 1,950,000 shares to be sold by HyperFeed. The initial filing range of the public offering price for the common stock was between $12.00 and $14.00 per share. In contemplation of the planned initial public offering, HyperFeed and our subsidiary, PCQuote.com, will enter into agreements, effective March 31, 1999, governing interim and ongoing relationships, including a Contribution and Separation Agreement, Maintenance Agreement, DataFeed License Agreement, Services Agreement, Non-Competition Agreement, Registration Rights Agreement and Tax Indemnification and Allocation Agreement. Under the Contribution and Separation Agreement, HyperFeed would transfer assets related to its Internet operations to PCQuote.com and PCQuote.com would assume the liabilities related to those Internet operations. Under the Services Agreement, HyperFeed will perform transitional services for, and provide office space to PCQuote.com for $213,500 per month through September 1999, $163,500 per month thereafter through December 1999, $138,500 per month thereafter through March 2000 and $113,500 per month thereafter through June 30, 2000. Under the Maintenance Agreement, PCQuote.com will receive software features, upgrades and enhancements to PCQuote Orbit and will pay HyperFeed 3% of gross revenues obtained from use or sublicensing of PCQuote Orbit. Under the Data Feed Agreement, PCQuote.com will be entitled to use HyperFeed 2000 for a monthly fee based on the number of users and quotes accessed. HYPERFEED 2000 NOW AVAILABLE FOR OMEGA RESEARCH PRODUCTS On March 22, 1999, we announced the culmination of our previously announced agreement with Omega Research, Inc. (NASDAQ: OMGA). Omega Research's new 2000i series of software products is now fully compatible with HyperFeed 2000, our recently released premier datafeed. The products are available for delivery via broadcast and Internet. Our datafeed is now available for some of the most popular high-end trading software on the market. Omega Research software users can subscribe to HyperFeed 2000 online at www.pcquote.com. HYPERFEED 2000 In March 1999, we released HyperFeed 2000, the next generation in market data technology. Combining advanced IP Multicast technologies with a new proprietary compression technique, HyperFeed 2000 boasts the flexibility and expandability to consistently deliver massive volumes of market data in true real-time. Our proprietary compression technology actually reduces bandwidth consumption allowing HyperFeed 2000 recipients to enjoy the benefits of the full T-1 HyperFeed with over 350,000 equity, option and commodity issues, including full option chains, at a fraction of the current communications cost. Our product introduction came at a time when an increasing number of data vendors were faced with imminent threats to their capacity and bandwidth capabilities. We are committed to delivering execution-quality, complete, real-time market data faster, more reliably, and cost-effectively than our competition. Page 14 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) RESULTS OF OPERATIONS: FOR THE SIX MONTHS AND QUARTER ENDED JUNE 30, 1999 Total revenue increased 44.1% to $15.5 million for the six months ended June 30, 1999, and 40.0% to $8.1 million for the quarter ended June 30, 1999 versus the comparable prior year periods. Our HyperFeed services and Internet services both posted increases for the first six months of 1999 over 1998 and for the quarter ended June 30, 1999 over 1998. For the first six months of 1999, HyperFeed service revenue increased $2.2 million, or 34.1%, from $6.3 million in same period in 1998 to $8.5 million in 1999. For the quarter ended June 30, 1999, HyperFeed service revenue increased $1.1 million, or 33.4%, from $3.3 million in 1998 to $4.4 million in 1999. Revenue growth was experienced through increases in PC Quote 6.0 subscriptions and datafeed sales. Revenue from our Internet services increased $2.5 million, or 58.7%, to $6.9 million for the first six months of 1999 from $4.4 million for the same period in 1998. For the second quarter in 1999, revenue from Internet services increased $1.2 million, or 48.7%, from $2.5 million in 1998 to $3.7 million in 1999. The increase is directly attributable to the growth in the number of subscribers to our PC Quote 6.0 Internet service offering. Direct costs of services increased 51.5% to $12.4 million for the six months ended June 30, 1999 from $8.2 million for the comparable 1998 period, and increased 69.7% to $7.0 million for the quarter ended June 30,1999 as compared to $4.1 million for the comparable 1998 period. Principal components of the increase were royalties and payments to providers of market data, directly attributable to the growth in subscribers to both of our PC Quote 6.0 services, Internet and HyperFeed, in addition to a one-time $1.0 million charge incurred in connection with the termination of our software distributor agreement with Townsend Analytics and entering into two separate new agreements between Townsend and ourselves and our subsidiary, PCQuote.com. Amortization of software development costs increased for the six months from $977,000 in 1998 to $1,171,000 in 1999. Also included in direct costs for the quarter and six months ended June 30, 1999 is a non-cash charge of $350,000 for amortization of prepaid license fees as a result of the value assigned to the warrant issued to CNNFN in exchange for the 3 1/2 year license agreement with PCQuote.com. Direct costs associated with HyperFeed services increased from $5.0 million for the six months ended June 30, 1998 to $6.6 million for the first six months of 1999, a 30.9% increase. For the quarter ended June 30, 1999, direct costs associated with HyperFeed services were $3.5 million, a 36.3% increase from $2.6 million in the same period of 1998. Increases in license and exchange fees, including $500,000 of the $1.0 million termination payment, and data-feed operations were offset to a degree by cost-savings related to leased equipment and personnel costs effected in customer service and support. Amortization of software development costs increased 7.7% to $630,000 for the first six months of 1999 from $585,000 for the same period in 1998. For the quarter ended June 30, 1999, amortization of software development costs increased 19.7% to $328,000, from $274,000 in the second quarter of 1998. For the first six months of 1999, resulting gross margin increased 46.1% to $1.9 million in 1999 from $1.3 million in 1998. For the quarter ended June 30, 1999, the resulting gross margin for HyperFeed services was $877,000, an increase of 23.1% from $713,000 in the second quarter of 1998. Page 15 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Direct costs associated with Internet services increased to $5.8 million for the first six months of 1999 from $3.1 million in the comparable 1998 period, an 84.6% increase. For the quarter ended June 30, 1999, direct costs associated with Internet services were $3.5 million, a 124.2% increase from $1.6 million in the same period of 1998. The significant growth we experienced caused us to incur increases in license and exchange fees and data acquisition and distribution costs. Also contributing to the increase was $500,000 of the $1.0 million termination charge. Software amortization increased 38.3% for the first six months to $542,000 in 1999 from $392,000 in 1998, as a result of the increase in development resources directed to this portion of our business. Software amortization increased for the second quarter from $183,000 in 1998 to $273,000 in 1999. The gross margin on Internet services was unchanged at $1.2 million for the first six months of 1998 and 1999. Internet services gross margin decreased from $909,000 in the second quarter of 1998 to $166,000 for the same period in 1999. Total operating expenses increased 8.4% to $5.9 million for the six months ended June 30, 1999 from $5.4 million for the comparable 1998 period, and increased 5.3% to $3.1 million for the quarter ended June 30,1999 as compared to $2.9 million for the comparable 1998 period. Sales costs decreased 12.0% to $1.8 million for the first six months of 1999 as compared to $2.0 million for the same 1998 period. For the second quarter of 1999, sales costs were $911,000, a 16.3% decrease from the prior year period of $1.1 million. The decrease was the result of a change in our previous sales incentive compensation structure, in addition to lower sales support costs. General and administrative expenses increased 46.2% to $2.4 million in the first six months of 1999 from $1.6 million for the first six months of 1998. For the quarter ended June 30, 1999, general and administrative expenses increased 47.5% to $1.3 million from $909,000 in same period in 1998. The increase was principally due to additional personnel and related costs required in support of the increase in business, an increase in the provision for bad debts, reflective of the higher sales level, increases in professional and additional management personnel and related costs associated with the staffing of PCQuote.com as a separate entity. Product and market development costs increased 1.1% to $1,151,000 for the six months ended June 30, 1999 from $1,139,000 for the comparable 1998 period, and decreased 11.8% to $557,000 for the quarter ended June 30,1999 as compared to $632,000 for the comparable 1998 period. The increase was due to an increase in the number of development personnel and related costs, in addition to an increase in promotional activities. The decrease for the quarter is due to lower market development expenditures as compared to the prior year. Depreciation and amortization decreased 11.7% to $526,000 for the first six months of 1999 from $595,000 for the comparable 1998 period, and decreased 7.8% to $283,000 in the second quarter of 1999 from $307,000 for the comparable 1998 period. The decrease is a result of a combination of lower overall equipment purchases in recent years and lower prices for equipment additions. Interest expense was $29,000 for the first six months of 1999 or $1.4 million less than the first six months of 1998. For the second quarter of 1999, interest expense was $14,000 compared to $1.1 million in the same period of 1998. The decrease is the result of the conversion of the convertible subordinated debenture and borrowings on the credit facility into equity in December 1998. With the debt conversion the only debt on which interest is due is on our bank term loan. Page 16 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) LIQUIDITY AND CAPITAL RESOURCES: FOR THE SIX MONTHS AND QUARTER ENDED JUNE 30, 1999 Net cash and cash equivalents increased $699,000 from year-end 1998 to $1,839,000 at the end of the second quarter of 1999. Prepaid expenses and other current assets increased $480,000 for the six months ended June 30, 1999 compared to $72,000 for the same period of 1998. The principal reason for this increase was expenditures relating to our planned stock offering in our subsidiary, PCQuote.com, Inc. Expenditures for new equipment were $886,000, an increase of $474,000, or 115%, from $412,000 for the same period in 1998. The increase in expenditures was to support the growth in our business, as well as improve our communications and ticker processing infrastructure. Capitalized software costs of $609,000 were $358,000, or 37%, lower for the six months ended June 30, 1999, compared to the same period for 1998, principally as a result of lower development costs associated with capitalized projects. There were no new direct borrowings during the six months, and the Company repaid $150,000 of the principal balance on the bank term loan. The Company received approximately $3.0 million in net proceeds from (i) the sale of common stock to four third-party investors in a private placement, (ii) the purchase of common stock by two third-party investors through exercise of previously issued warrants, (iii) the sale of shares of common stock to employees pursuant to the Company's Employee Stock Purchase Plan and (iv) the sale of shares of common stock to employees who exercised options previously granted to them under the Company's Employee Incentive Stock Option Plan. Total revenue for the first six months of 1999 increased 44% to $15.5 million versus $10.7 million for the 1998 period, while direct costs of services increased 51.5% to $12.4 million versus $8.2 million in 1998. The resulting gross margin increased 20.5% from $2.6 million for the first six months of 1998 to $3.1 million for the first six months of 1999. The increase in revenue was due to the growth in subscriptions to our PC Quote 6.0 services, both HyperFeed and Internet, as well as an increase in datafeed sales. This together with operating cost containment contributed to our gross margin improvement. Although cash flows have improved, they are still negative and insufficient to fund operations and future growth. Consequently, we have explored, and continue to explore multiple alternatives that may be available for the purpose of enhancing stockholder value. These alternatives include a merger, a spin-off or sale of part of our business, a strategic relationship or joint venture with another technology or financial services firm and future equity financing to further fund our business. In December 1998, we segregated our Internet related services into a separate internal business unit. We incorporated the business as a wholly-owned subsidiary, PCQuote.com, Inc., on March 19, 1999 and are transferring our Internet-related services to the subsidiary. On June 9, 1999, PCQuote.com filed a registration statement with the Securities and Exchange Commission relating to a planned initial public offering of 7,750,000 shares of its common stock. The planned common stock offering consists of 5,800,000 shares to be issued by PCQuote.com and 1,950,000 shares to be sold by us. The initial filing range of the public offering price for the common stock was between $12.00 and $14.00 per share. We believe net proceeds from the offering will be sufficient for working capital purposes of both PCQuote.com and HyperFeed Technologies. There can be no assurances, however, that the offering will occur. If the offering does not occur, we would pursue other alternatives to raise capital. We raised a substantial amount of capital in 1998 and 1999 through the debt conversion, exercise of warrants and other sales of common stock. These transactions have significantly improved our financial condition. In order to minimize dilution to existing stockholders, our objective is to raise the minimal amount of capital for operations, if and when necessary. We believe we have the ability to raise external capital. However, any capital raised could be costly to us and/or dilutive to stockholders. There can be no assurances, however, that we will be successful in concluding a transaction. Page 17 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) YEAR 2000 ISSUES 1. Overview The Company does not have or use mainframe computers in its internal operations. Consequently, we do not have the extent of Y2K issues other companies have that depend on what is commonly known as "legacy" systems. We use PC's and "server class" computers in our operations. Our end-user applications also run on the same type of hardware. These systems still may have Y2K issues. We have implemented a plan to attempt to assess, remediate, and correct any year 2000 critical issues. A "Year 2000" problem will occur where date-sensitive software uses two digit year date fields, sorting the year 2000 ("00") before the year 1999 ("99"). The Year 2000 problem may result in data corruption and processing errors occurring where software, technology equipment, or any other equipment or process uses date-dependent software. Our plan has been structured to address the following areas: A. Processing Plant and Communications Network B. HyperFeed Retail Applications C. Operational Infrastructure 2. State of Readiness We have approached each of the above areas in four phases: assessment, remediation, testing, and contingency planning. "Assessment" summarizes the process of issue identification. "Remediation" refers to the process of taking corrective action to best mitigate identified Year 2000 risks. "Testing" is the process of validating a specific Company remediation effort or confirming a third party capability or certification of Year 2000 compliance. "Contingency planning" means the process by which we identify an alternate course of action and/or procedure in the event we cannot or fail to remediate or mitigate a known Year 2000 risk. We may or may not engage in contingency planning for individual subproject components where successful Year 2000 remediation has been validated through the testing process or other methods. The following is a status report on our state of readiness. A. Processing Plant and Communications Network Assessment phase has been completed. A full inventory has been taken of the processing plant, our data-feed input, consolidation and output process, and communications areas. We are in the final stages of the remediation and testing phases. This includes verifying Y2K compliance of outside vendors and suppliers and testing all mission critical items. Testing also includes all PC's, routers, modems, phone lines, Internet service providers (ISP's), and production computers, known as servers, used internally in the communications room. We are also checking our outbound satellite, phone companies and ISP's distribution network, in addition to some ISP's that our customers may use. Page 18 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) The compliant numbers percentages as of July 12, 1999 are as follows:
---------------------------------------- ---------------- -------------------- Areas Equipment/Systems Compliant ---------------------------------------- ---------------- -------------------- Processing Plant 301 269 ---------------------------------------- ---------------- -------------------- Communications Network 35 22 ---------------------------------------- ---------------- --------------------
On May 1, 1999, the Company participated in the SIA/FIF Year 2000 Market Data Test which tested our production Processing Plant and Communications Network with quotes dated in the future to January 3, 2000. This data was transmitted to us from all of the major exchanges. The Company has passed this Y2K test on this "mission critical" software and hardware. Currently we are finishing the upgrades of all other hardware and software to match the tested components. We are approximately 90% complete and expect to be completed by August 31, 1999. B. HyperFeed Retail Applications Our retail applications include proprietary and 3rd party software applications, licensed to our customers for use only with our data-feed. These applications include Internet web-site and browser-based applications, local area network (LAN) based applications, and Windows NT client/server applications. One OS/2 based application will become obsolete in 2000. Customers using this application will be converted to a compliant application. We have participated in the full "end-to-end" Year 2000 scenario test sponsored by the Financial Information Forum in conjunction with the Securities Industry Association. This industry-wide test provided securities, options and futures exchanges and market data providers with the ability to test their systems under simulated Year 2000 conditions. Time was essentially moved forward to January 3, 2000 for that test day. During this test we had a large Y2K team in-house monitoring all of our major products. This testing was performed on several different operating systems, data servers, and methods of transmission. We compared all final data and reported our results to the SIA/FIF, which informed us that we had passed the test. We have release the Y2K simulated data to our customers so they may do their own internal testing.
--------------------------------- ---------------------- --------------------- Applications Tested Compliant --------------------------------- ---------------------- --------------------- HyperFeed Customer Apps 14 14 --------------------------------- ---------------------- --------------------- 3rd Party Customer Apps 5 5 --------------------------------- ---------------------- ---------------------
All major end user applications have now been tested and are compliant. C. Operational Infrastructure We are assessing our main facility and field offices for compliance in the security systems, HVAC systems, pagers, phone system, utility providers and other mission critical systems. We have started to upgrade, at minimal cost, non-compliant equipment. Based on our current assessment, we believe we will be able to meet our Y2K compliance goals. Page 19 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) 3. Costs As part of the ordinary course of our business, we continually develop major enhancements to our operating systems and applications. For instance, we spent three years developing the first 100% Windows NT based processing plant that was put into production in 1998. In addition to many other benefits, it is fully Y2K compliant. We have not in the past separately tracked the cost of Y2K remediation, as these efforts were incorporated into our on-going maintenance and equipment replacement program. We have started to track costs in 1999 and have spent approximately $111,000 so far this year on the cost of Year 2000. This includes internal personnel resources, hardware, software and equipment replacement and upgrades necessary to be Y2K compliant. We will be upgrading various administrative systems that use commercial third party software for accounting, billing and customer management. The total remaining cost of software, replacement equipment, and internal resources for remediation and testing to become Y2K compliant is not expected to exceed $500,000. Based upon currently available information, we do not believe that the cost of Y2K compliance will have a material impact on our financial condition, results of operations or liquidity. 4. Risks Achieving Y2K compliance depends on many factors. Some factors may be beyond our control, because we use services of others. Should our internal systems or the internal system of one of our critical vendors fail to achieve Y2K compliance and fail in the year 2000, our business and results of operations could be adversely affected. For example: A piece of communications equipment has an internal clock that is not Y2K compliant. Although end-to-end testing is done, for some reason, we or a vendor of ours fail to detect the non-compliance. Y2K comes and the clock shuts down, causing an inability to transmit over that channel. Our customers on that channel do not receive our service. We or our vendor have the cost of finding and fixing the problem. Our customer could make a claim against us for the lost service. Many of our customers have back-up systems in place with us which could mitigate any damage caused by the disruption. In the event that there are claims for damages, our contracts with our customers limit our liability in such instances. However, if there were a large number of customers affected for a prolonged period of time, we could be put in a position of either granting credits or risk losing the customers and our reputation could be adversely effected. We have customers that use our Quote Tools to access our data-feed for software applications. Quote Tools is a set of programmer tools known as application programming interfaces or APIs for short. Our Quote Tools are written and tested to be Y2K compliant. If for some reason Y2K came and our Quote Tools did not function properly because of the date change, we would have to spend money and resources to fix the bug. If the bug could not be fixed, and we had no alternative solution, for our customers using the service, we could lose the customers and related revenue. Our contracts with our customers generally limit our liability to total fees paid over the preceding year, which in 1998 was under $200,000 for Quote Tools' customers. Page 20 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) 5. Contingency Plans We have completed approximately 90% of the testing related to the Processing Plant/Communications Network, and Retail Applications. All testing, including internal infrastructure, is scheduled to be completed by September 15, 1999. We have not started extensive contingency planning because we are concentrating our efforts on remediation and testing. We believe effective contingency planning should not begin until after these phases are complete. We expect to begin comprehensive contingency planning at the start of the third quarter of 1999. EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS We will implement the provisions of Statement of Financial Accounting Standards No. 133, ("Statement 133") "Accounting for Derivative Instruments and Hedging Activities" which is required to be adopted for financial statements issued for the fiscal year ending December 31, 2001. Statement 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring us to recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. We believe that adoption of Statement 133 will not have a material impact on our financial statements. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS GRAHAM R. CLARK v. P.C. QUOTE INCORPORATED (HYPERFEED) 1999 C 559, High Court of Justice, Queens Bench Division, London: This lawsuit was filed on May 10, 1999. It claims breach of a November 18, 1992 Marketing Agreement entered into between the plaintiff and PC Quote (UK) Limited (a former subsidiary). The Company has retained U.K. counsel to defend against these claims, and various defenses were filed on August 11, 1999. The Company intends to vigorously pursue its defenses. The claimed damages are for three (3) years of lost profits at L205,080 per year. Given the early stage of this litigation, no assessment of the likely financial exposure of the Company in this lawsuit can be made. ITEM 2. CHANGES IN SECURITIES On February 4, 1999, Imprimis Investors LLC and Wexford Spectrum Investors LLC exercised the remaining portion of their common stock purchase warrants, previously acquired pursuant to the Stock and Warrant Purchase Agreement dated October 15, 1997, and purchased 267,200 shares of common stock for $534,400. During the first and second quarters of 1999, we issued 32,922 and 14,004 shares of our common stock, respectively, to employees, who purchased the shares under our Employee Stock Purchase Plan. During the first and second quarters of 1999, 61,225 and 34,132 shares of our common stock, respectively, were purchased by employees who exercised stock options granted to them under our Employee Incentive Stock Option Plan. During the first and second quarters of 1999, we issued 4,746 and 2,289 shares of our common stock, respectively, to our Chairman and Chief Executive Officer, in lieu of cash salary payments, under an agreement approved by our Board Of Directors in which the Chairman would receive the shares at market price. On April 19, 1999, a third-party investor exercised its warrant, acquired in connection with a December 1998 private placement, and acquired 80,000 shares of our common stock in exchange for $150,000. Page 21 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES (CONTINUED) On April 22, 1999, we entered into Stock Purchase Agreements with four third-party investors. On April 23, 1999, the investors purchased 190,476 shares of our common stock in exchange for $1,999,998. The investors acquired the common stock for investment purposes. On June 11, 1999, a third-party investor exercised its warrant, acquired in connection with a December 1998 private placement, and acquired 120,000 shares of our common stock in exchange for $225,000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the stockholders of HyperFeed Technologies, Inc. was held on June 16, 1999. The following proposals were submitted, considered and voted upon, as indicated below, by the stockholders. 1. To elect six members to our Board of Directors to serve until the 2000 Annual Meeting, or until their successors are elected and shall have qualified.
- ----------------------------------- --------------------------------- ----------------------- --------------------------------- Director Shares For Shares Against Shares Withheld - ----------------------------------- --------------------------------- ----------------------- --------------------------------- Jim R. Porter 18,324,881 334,790 - ----------------------------------- --------------------------------- ----------------------- --------------------------------- John R. Hart 18,271,801 387,070 - ----------------------------------- --------------------------------- ----------------------- --------------------------------- Timothy K. Krauskopf 18,326,281 333,390 - ----------------------------------- --------------------------------- ----------------------- --------------------------------- Ronald Langley 18,273,201 386,470 - ----------------------------------- --------------------------------- ----------------------- --------------------------------- Louis J. Morgan 18,259,292 400,379 - ----------------------------------- --------------------------------- ----------------------- --------------------------------- Kenneth J. Slepicka 18,319,721 339,950 - ----------------------------------- --------------------------------- ----------------------- ---------------------------------
Vote totals include count of 100 votes for each of the 47,866 preferred shares voted. 2. To approve and ratify the 1999 Combined Incentive and Non-Statutory Stock Option Plan.
- ----------------------------------- ------------------------ ------------------------ --------------------------------- Shares For Shares Against Abstentions - ----------------------------------- ------------------------ ------------------------ --------------------------------- 10,410,121 655,436 311,695 - ----------------------------------- ------------------------ ------------------------ ---------------------------------
Vote totals include count of 100 votes for each of the 47,866 preferred shares voted. 3. To approve and ratify the appointment of KPMG LLP as our independent auditors for 1999.
- ----------------------------------- ------------------------ ------------------------ --------------------------------- Shares For Shares Against Abstentions - ----------------------------------- ------------------------ ------------------------ --------------------------------- 18,566,510 61,320 31,841 - ----------------------------------- ------------------------ ------------------------ ---------------------------------
Vote totals include count of 100 votes for each of the 47,866 preferred shares voted. 4. To amend Article FIRST of our Certificate of Incorporation to read as follows: FIRST: The name of the Corporation is HyperFeed Technologies, Inc.
- ----------------------------------- ------------------------ ------------------------ --------------------------------- Shares For Shares Against Abstentions - ----------------------------------- ------------------------ ------------------------ --------------------------------- 18,416,740 204,092 36,839 - ----------------------------------- ------------------------ ------------------------ ---------------------------------
Vote totals include count of 100 votes for each of the 47,866 preferred shares voted. No other matters were submitted for vote. Page 22 Part II. OTHER INFORMATION ITEM 6. EXHIBITS and REPORTS on FORM 8-K (a) FINANCIAL STATEMENTS The financial statements of the Company are filed herewith in Item 1 of this report. (b) REPORTS ON FORM 8-K In the second quarter of the period covered by this report, we filed a Report on Form 8-K dated April 29, 1999 reporting, in Item 5. Other Events, our subsidiary's agreement with CNNFN, our intent to seek stockholder approval for our name change, and our subsidiary's intent to file a registration statement for an initial public offering. We filed a Report on Form 8-K dated June 22, 1999 reporting, in Item 5. Other Events, that our subsidiary has filed a registration statement with the Securities and Exchange Commission relating to a proposed initial public offering of 7,750,000 shares of its common stock. (c) EXHIBITS 10 (a) Termination Agreement by and between Townsend Analytics, Ltd and PC Quote, Inc., dated May 28, 1999. 10 (b) Software Distributor Agreement dated August 9, 1999 by and between Townsend Analytics, Ltd. and HyperFeed Technologies, Inc. 27. Financial Data Schedule Page 23 SIGNATURES Pursuant to the requirements of the Exchange Act of 1934, the Company caused this report to be signed on its behalf by the undersigned, there unto duly authorized. HYPERFEED TECHNOLOGIES, INC. Date: August 16, 1999 By: /s/ Jim R. Porter ----------------- Jim R. Porter Chairman and Chief Executive Officer By: /s/ John E. Juska ----------------- John E. Juska Chief Financial Officer and Principal Accounting Officer Page 24 EX-10.(A) 2 EXHIBIT 10(A) EXHIBIT 10(a) TERMINATION AGREEMENT This Termination Agreement (the "Termination Agreement") is entered into and made this 28th day of May, 1999, by and between Townsend Analytics, Ltd., an Illinois corporation, having a principal place business at 100 South Wacker Drive, Chicago, Illinois 60606 ("Townsend") and PC Quote, Inc., a Delaware corporation, its successors and assigns, whose principal office is located at 300 S. Wacker Drive, Chicago, Illinois 60606 ("PCQ"). WITNESSETH: WHEREAS, Townsend and PCQ entered into a Software Distributor Agreement ("Distributor Agreement") and an Addendum to Distributor Agreement ("Addendum"), both dated December 4, 1995, copies of which are attached hereto as Exhibit 1; WHEREAS, Townsend and PCQ desire to terminate the Distributor Agreement and Addendum except for certain surviving clauses contained therein, and to provide for the satisfaction of all amounts presently owed by PCQ to Townsend in connection with PCQ's obligations under the Distributor Agreement and Addendum; NOW, THEREFORE, Townsend and PCQ agree as follows: 1. SATISFACTION OF AMOUNTS OWED BY PCQ TO TOWNSEND. Upon execution of this Agreement, PCQ agrees to pay all royalties, as determined by Townsend, which are owed to Townsend pursuant to the Distribution Agreement and Addendum, for the months of April, 1999 and May, 1999. In addition, within ninety (90) days of execution of this Agreement, PCQ agrees to pay to Townsend the amount of one million dollars ($1,000,000.00) in settlement of any disputes related to past dealings between TAL and PCQ, except that said amount does not include any amounts which PCQ will owe to Townsend as a result of future claim(s) made by Townsend pursuant to Paragraph 9(b), Indemnification, of the Distributor Agreement. 2. SURVIVING CLAUSES OF THE DISTRIBUTOR AGREEMENT. The following paragraphs of the Distributor Agreement shall survive termination of said Agreement and shall be fully enforceable, except as otherwise provided below: a. The following sentence contained in Paragraph 4(b), TERMINATION, shall survive termination of the Distributor Agreement: "Termination does not relieve distributor for obligations already incurred ongoing [sic] lease terms." The remainder of Paragraph 4(b) shall not survive termination of the Distributor Agreement. b. Paragraphs 6, WARRANTIES; c. Paragraph 7, DISTRIBUTOR STANDARDS OF OPERATIONS, except that subsection 7(a) shall not survive termination; 1 d. Paragraph 8, CONFIDENTIALITY OF TRADE SECRETS; and e. Paragraph 9, MISCELLANEOUS. 3. SURVIVING CLAUSES OF THE ADDENDUM. No clauses of the Addendum shall survive termination of the Addendum. 4. WAIVER OF TERMINATION PROVISIONS OF DISTRIBUTOR AGREEMENT. Townsend and PCQ agree that this Termination Agreement shall serve to terminate the Distributor Agreement and the Addendum and to set forth the agreed upon terms of the termination. To effectuate this termination, Townsend and PCQ agree to waive the termination provisions set forth in their entirety in Paragraph 4, Termination, of the Distributor Agreement, except as provided in Paragraph 2(a) above. 5. INDEMNIFICATION CLAIMS. PCQ hereby represents and warrants that as of the execution of this Agreement, it has no knowledge of any indemnification claims, pending or otherwise. PCQ agrees to immediately notify TAL in writing of any indemnification claims which may arise subsequent to execution of this Agreement. 6. MISCELLANEOUS. (a) NON-WAIVER. No failure to exercise, and no delay in exercising, on the part of either party hereto, of any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by either party of any right, power or privilege hereunder preclude any other or further exercise thereof. (b) ENTIRE AGREEMENT. This Agreement is intended to be the entire agreement of the parties and supercedes all other written and oral agreements pertaining to the subject matter hereof. This Agreement may not be modified except by a writing signed by a duly authorized officer of Townsend and PCQ. (c) GOVERNING LAW. The validity, construction, and enforceability of this Agreement shall be governed in all respects by the law of the state of Illinois. (d) SEVERABILITY. If any provision of this Agreement shall be held invalid under applicable law, the remaining provisions shall remain in full force and effect. AGREED TO: Townsend Analytics, Ltd. PC Quote, Inc. BY: BY: ----------------------------- ----------------------------- MarrGwen Townsend, Vice-President Jim Porter, President Date: May 28, 1999 2 EX-10.(B) 3 EXHIBIT 10(B) EXHIBIT 10(b) SOFTWARE DISTRIBUTOR AGREEMENT THIS AGREEMENT (the "Agreement") is entered into and made this 9th day of August, 1999, by and between Townsend Analytics, Ltd., an Illinois corporation, having its principal office at 100 South Wacker Drive. Suite 2040, Chicago, Illinois 60606 ("TAL"), and HyperFeed Technologies, Inc., a Delaware corporation, whose principal office is located at 300 S. Wacker Drive, Suite 300 Chicago, Illinois 60606 ("HTI"). W I T N E S S E T H: WHEREAS, TAL (a) designs, develops, markets and licenses computer software and computer-based software systems and has developed a suite of real time software products called "TAL Trading Tools Package" ("the Product") that performs a variety of functions such as: (1) the display of market price quotations, news, and other information for analysis ("RealTick - -TM-"); (2) order entry including initiating and transmitting of trading orders, position management, etc. ("RealTrade-TM-"); (3) the provision of software server applications including permissioning, real-time and historical market prices and news to the Product (PermSrv-TM-, TA_SRV-TM-, and TALNet-TM-, among others) ("Software Server Applications"); and (b) the operation of an Internet and frame relay site for distribution of market quotes, trades, and other services ("TAL site"); and WHEREAS, HTI is in the business of distributing market data, and selling, licensing, supporting, installing and servicing computer software, and has represented that it has the resources, facilities and personnel necessary to maintain the high standards of performance which are necessary to achieve maximum sales of TAL's products through satisfaction of the end user ("Customer"); and WHEREAS, HTI desires to market the Product for LAN customers; and WHEREAS, HTI acknowledges that the Product constitutes valuable property of TAL not within the public domain, and that, but for this Agreement, and rights granted herein, HTI would have no rights with respect thereto; and WHEREAS, TAL and HTI have agreed that throughout the course of this Agreement and in terminating this Agreement they will act in a fair, equitable and ethical manner to each other as well as to the end user; WHEREAS, HTI, the entity formerly known as PC Quote, Inc., is affiliated with PC Quote.Com, Inc. ("PQT"); and WHEREAS, PQT and TAL have entered into a Software License and Distributor Agreement ("PQT Agreement"), dated May 28th, 1999, which obligates PQT to pay TAL certain license fees for its use of the Product; NOW, THEREFORE, TAL and HTI agree as follows: 1. APPOINTMENT AND ACCEPTANCE. TAL hereby appoints HTI, subject to the provisions, terms and conditions set forth in this Agreement, a non-exclusive distributor in the location(s) listed in the attached Schedule 1 for the licensing, support and servicing of the Product or Products listed in the attached Schedule 2 to this Agreement, which Schedule may be amended from time to time. HTI hereby accepts such appointment, and by accepting said appointment, acknowledges that it has read and understood this Agreement and the Schedules attached hereto. 2. RESERVATION OF RIGHTS. TAL reserves the right to license, sell, support, and service the Product in competition with HTI and to appoint, without limitation, other distributors for the Product. Nothing in this Agreement prohibits TAL from offering the Product on any other data feed including its own data feed. Subject to Section 13, HTI reserves the right to license, sell, support, and service its products, including HyperFeed 2000 in conjunction with other products which may compete with TAL Products and to appoint, without limitation, other distributors for the such products. Except as explicitly provided in Section 13, nothing in this Agreement prohibits HTI from offering the such products with its data feed. 3. HTI OWNERSHIP, MANAGEMENT AND BUSINESS. This Agreement is entered into by TAL in reliance upon the representations and agreements by HTI regarding its ownership, management and conduct of its business. HTI agrees to give TAL thirty (30) days prior written notice of its intention to effect any of the following changes, and no such change shall be made without the prior written approval of TAL, which approval shall not be unreasonably withheld. (a) A change or transfer which would materially affect, either directly or indirectly, the ownership, management or control of HTI. (b) A sale or transfer of any substantial portion of HTI's business property or business assets other than in the ordinary course of business. 4. TERM. (a) This Agreement shall become effective as of the date first above written and shall remain in effect until December 4, 2000, unless earlier terminated in accordance with the provisions of Paragraph 5. Notwithstanding the foregoing, this Agreement shall continue for the period, not to exceed one year, of any customer agreement entered into prior to December 4, 2000 by HTI. (b) This Agreement shall thereafter be automatically renewed for successive one (1) year periods unless either party notifies the other not less than ninety (90) days prior to the end of any particular term that it does not agree to such an automatic renewal. 5. TERMINATION. (a) By TAL. TAL may terminate this Agreement if, at any time during the term of this Agreement or any renewal hereof, HTI is in material breach of any of the terms, conditions, duties or obligations contained in or 2 referred to in this Agreement, and such breach remains uncorrected for a period of ten (10) days following written notice by TAL to HTI of said breach and TAL's intention to terminate this Agreement, provided, however, that TAL may elect to terminate this Agreement immediately upon written notice to HTI, if: (a) HTI has violated any material terms, conditions, duties or obligations contained in or referred to in Paragraph 6(c) (Site License Agreement) or (b) upon dissolution or insolvency of HTI; (c) upon the filing by HTI of a voluntary petition in bankruptcy or for an arrangement, composition, or reorganization or the appointment of a receiver, trustee or custodian for any substantial part of HTI's property or business, or an assignment by HTI for the benefit of its creditors; or (d) upon the filing against HTI of an involuntary petition in bankruptcy or for an arrangement, composition or reorganization, which is not dismissed within sixty (60) days or reorganization or the appointment of a receiver, trustee or custodian for any substantial part of HTI's property or business, or an assignment by HTI for the benefit of its creditors. For purposes of this Paragraph, but without limiting TAL's right to terminate, a material breach shall include without limitation the following events: (i) Failure by HTI to make any payment when such payment becomes validly due to TAL, provided that nothing contained herein shall, or is intended to, change or limit either TAL's right to take any other or further action or pursue any remedy at law or in equity to collect any sums past due. (ii) HTI's violation of any of the provisions of Paragraph 3 (HTI Ownership, Management and Business); Paragraph 7 (Warranties); Paragraph 13 (Redistribution); Paragraph 14 (Distribution); Paragraph 16 (Private Label); Paragraph 18 (Distribution of Product with Order Entry; Paragraph 19 (Distribution of Data to TAL); Paragraph 20 (International Distribution); and Paragraph 22 (Confidentiality of Trade Secrets) as set forth below; (iii) Submission by HTI of any information in connection with this Agreement which proves to be false or incorrect in any material respect on the date submitted; omission by HTI to submit information materially required under this Agreement; or failure to update information previously supplied, if such causes other information submitted to be false or incorrect in any material respect. (b) By HTI. HTI may terminate this Agreement if, at any time during the term of this Agreement or any renewal hereof, TAL is in material breach of any of the terms, conditions, duties or obligations contained in or referred to in this Agreement, and such breach remains uncorrected for a period of ten (10) days following written notice by HTI to TAL of said breach and HTI's intention to terminate this Agreement. (c) Termination does not relieve either party of obligations already incurred or accrued for current or prior transactions. 3 6. TERMS OF LICENSE. (a) LICENSE FEES. TAL's fee for HTI for the Product shall be the fee established by TAL from time to time plus all delivery costs, insurance premiums, communications costs, freight and all other charges and expenses incurred by TAL for delivery to HTI and its customers, provided that the effective date of any customer license fee modification shall be the first day of the next customer renewal term referenced in Paragraph 8 below. The fees applicable on the date of this Agreement are set forth in Schedule 2 attached hereto. HTI shall be solely responsible for any and all taxes arising from each order for the Product placed with TAL. TAL may change at the time of renewal of this Agreement, upon thirty (30) days prior written notice to HTI, the fee and/or terms of payment by HTI for new and renewing Customers, provided that changes in fees or terms that are less favorable to HTI shall not be applied to orders placed by HTI and accepted by TAL prior to the date of notice, and scheduled for immediate installation. Such changes in fees or terms that are more favorable to HTI shall be applied to all orders not delivered. (b) PAYMENT. HTI shall pay for the use of all Products in advance of the month of service to HTI by TAL. A ten (10) day grace period will be allowed if all license fees are otherwise current. Upon receipt of payment, TAL will provide passwords to enable use of the Product for the month. (c) SITE LICENSE AGREEMENT. HTI shall not distribute the Product or permit a customer to use the Product without first obtaining from each Customer a signed Site License Agreement, the form and content of which has been approved in writing by TAL. If Site License Agreements were previously or are hereafter not obtained by HTI or its predecessor PC Quote, Inc., HTI agrees to remedy the situation by obtaining signed Site License Agreements which have been approved by TAL within a reasonable time frame. HTI shall indemnify TAL from any and all losses, claims, damages, expenses, and any causes of action of every nature whatsoever, including attorneys' fees, which arise from claims brought by customers who have not signed Site License Agreements. HTI and its directors, officers and employees shall represent TAL and its directors, officers and employees in a positive and reasonable manner in any communications with customers pertaining to TAL's requirement that such customers execute TAL's Site License Agreement. (d) RISK OF LOSS. TAL's responsibility for loss or damage occurring in shipment, storage, delivery or otherwise, to any items being sent to HTI, or being sent to others for HTI, shall under all circumstances cease after such items have been delivered by TAL to any carrier. (e) If the license fees owing by any current customer for the Product are understated by HTI or its predecessor, PC Quote, Inc., HTI agrees to: (i) pay to TAL any and all correct license fees owed for all customers who are being charged incorrect license fees, unless TAL has expressly agreed in writing to waive payment of fees in specific cases, and notwithstanding whether HTI has collected 4 the fees, and (ii) remedy the situation within a reasonable time frame so that customers are charged the correct license fees, unless TAL has expressly agreed in writing to waive this requirement in specific cases. HTI shall indemnify TAL from any and all losses, claims, damages, expenses, and any causes of action of every nature whatsoever, including attorneys' fees, which arise from claims brought by customers regarding said understated license fees. HTI agrees that it will not offer or provide any such customers another product in lieu of the Product or similar to the Product for a period of six (6) months after the date on which such customer is notified of such understatement. HTI and its directors, officers and employees shall represent TAL and its directors, officers and employees in a positive and reasonable manner in any communications with customers pertaining to any understatement of licensing fees. 7. WARRANTIES. TAL expressly disclaims all warranties, express or implied with respect to the Product and related materials, or their quality of performance including warranties of merchantability and fitness for a particular purpose. TAL makes no representation concerning the likelihood of profitable trading using the Product. The Product is licensed "as is" and "with all faults". HTI shall not extend any warranties for or on behalf of TAL and shall make no representation or warranty regarding the Product or the likelihood of profitable trading based on the Product. In no event shall TAL incur any liability to HTI or any customer of HTI arising out of any contract or arrangement between HTI and any of its customers unless TAL shall expressly and in writing agree to the contrary. ALL WARRANTIES, EXPRESS OR IMPLIED, WHETHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR USE ARE HEREBY DISCLAIMED IN THEIR ENTIRETY. TAL DOES NOT ASSUME, NOR AUTHORIZE ANY OTHER PERSON TO ASSUME FOR IT, ANY OTHER LIABILITY IN CONNECTION WITH THE DESIGN, MANUFACTURE, LICENSING, INSTALLATION, OR USE OF ANY OF ITS PRODUCTS. NEITHER PARTY SHALL HAVE ANY LIABILITY WHATSOEVER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THE LICENSING, DESIGN, MANUFACTURE, INSTALLATION OR USE OF ANY PRODUCTS, WHETHER DUE TO NEGLIGENCE OR ANY OTHER CAUSE. If any Product is defective in a material manner, then TAL's liability, if any, under this Agreement, shall in all events be limited to repair or replacement at TAL's sole option, and such repair or replacement shall be HTI's sole and exclusive remedy; provided, however, that if any such defective Product cannot in TAL's sole opinion be repaired or replaced, then TAL's liability shall be limited to the return of the last month's license payment thereof paid in connection with or for such defective Product. Either party shall have the option to terminate this Agreement upon notice to the other party delivered within fifteen (15) days after such payment. Any unauthorized modification or improvement to the Product which affects the Product as delivered to HTI will void TAL's then-current warranty. 8. CUSTOMERS' TERM. HTI agrees that the maximum term of any license of the Product to Customers will be no more than one year unless TAL otherwise agrees in writing and that HTI will not license the Product to new Customers after the delivery of 5 notice of termination pursuant to the terms of this Agreement unless otherwise agreed in writing by the parties. 9. ONGOING LICENSE FEE OBLIGATIONS. Except as otherwise specifically provided herein (including with respect to any grant of rights and licenses herein, any continuing fee payments provided for herein and the continued furnishing of the Product to customers after expiration of the Term), upon expiration of the Term or upon termination, neither party shall have any further obligations under this Agreement; provided, that termination or expiration hereof shall not affect or impair any right or obligation of a party hereto arising prior to termination or expiration. As soon as HTI's fee obligations under this Agreement shall have ceased, HTI will stop using, reproducing, displaying, marketing, and distributing the Product and make reasonable efforts to cause Customers to stop using the Product. 10. MINIMUM AGGREGATE LICENSE FEE PAYMENTS. (a) HTI agrees to pay a minimum aggregate license fee payment ("Minimum Aggregate License Fee Payment") to TAL of five million dollars ($5,000,000) during the initial term of this Agreement. The minimum monthly license fee payment ("Minimum Monthly License Fee Payment") that shall be due and payable hereunder to TAL shall be $220,000 per month until the Minimum Aggregate License Fee Payment has been paid in full. From and after the month in which the Minimum Aggregate License Fee Payment is paid in full, HTI shall pay the license fee set forth in Schedule 2 without regard to the Minimum Monthly License Fee Payment amount. (b) Notwithstanding anything to the contrary contained herein, half of the amount of license fees paid by HTI's predecessor, PC Quote, Inc., pursuant to the Software Distributor Agreement, during the period between April 1, 1999 and June 1, 1999, shall be applied to the Minimum Aggregate License Fee Payment due TAL from HTI. Thereafter, payments made by HTI for the periods of June and July wholly apply to the Minimum Aggregate License Fee Payment due to TAL from HTI. (c) If this agreement is terminated for any reason, HTI shall pay the unpaid balance of the Minimum Aggregate License Fee Payment immediately, unless this Agreement has been terminated by HTI pursuant to Paragraph 5(b) of this Agreement. (d) HTI's payment of the Minimum Aggregate License Fee Payment shall not relieve HTI from its continuing obligation to pay license fees hereunder. (e) The combined Minimum Aggregate License Fee Payments under this Agreement and the PQT Agreement shall be ten million dollars ($10,000,000.00). HTI hereby guarantees payment in full of such combined Minimum Aggregate License Fee Payments over the term of this Agreement. If PQT (pursuant to its separate agreement with TAL) makes a Minimum Aggregate License Fee Payment to TAL which exceeds five million dollars ($5,000,000.00), such excess payment will reduce the Minimum Aggregate License Fee Payment due TAL from HTI pursuant to this Agreement. 6 11. HTI STANDARDS OF OPERATION. HTI shall use its best efforts to promote the licensing of the Product. HTI shall also undertake to maintain high standards of performance, and shall conduct its business at all times in such a manner as will reflect favorably on TAL, as reasonably determined by TAL, and its products and avoid in any way any deceptive, misleading or unethical practices or advertising. HTI shall comply with each of the following standards: (a) FINANCIAL RESPONSIBILITY. At TAL's request, HTI shall provide TAL with financial information about HTI's operations in order to establish and maintain lines of credit. (b) RECORDS AND RECORD KEEPING. HTI agrees to keep accurate books and records of account for a period of up to three (3) years after the close of each calendar year showing all information necessary for the accurate determination of the number of units of the Product sold and the gross proceeds thereof and agrees that an independent firm of accountants selected by TAL, shall have right to inspect the books and records of HTI, it being agreed that any books or records reviewed in connection with such inspection shall be kept strictly confidential and shall not be utilized in any commercial manner other than in connection with determining compliance with this Agreement. In the event such inspection discloses a liability to TAL as the result of the failure of HTI to properly discharge its obligations hereunder in the amount of ten (10%) percent or more, HTI shall pay to TAL the cost of such audit in addition to the amount of such discrepancy. The provisions of this Paragraph shall survive termination of this Agreement for a period of twenty-four (24) months after termination. (c) MODIFICATION OR CONVERSION OF PRODUCTS. HTI shall not remove, deface or otherwise change any descriptive markings, labels, the language of the Site License Agreement, or the copyright notice on any of the Products. HTI shall not, without the prior written consent of TAL, make, sell, license or distribute any modifications or improvements to the Products which affect the Product as delivered to HTI. HTI will not knowingly maintain or support software which has been modified or converted without TAL's prior authorization. 12. MARKETING. (a) HTI will comply with TAL's then-current policies regarding advertising and promotion and the use of TAL's service marks and the like, which policies may be amended by TAL at any time, or from time to time. Additionally, HTI will prominently feature the Product in promotional activities. As part of its general promotional activities for the Product, HTI will feature the appropriate TAL tradename or trademark wherever practicable and in a form approved by TAL. HTI shall not, under any circumstance, use the words "agent", "agency" or other such words in connection with its display of TAL's trade name. 7 Prior to any use, HTI shall provide TAL with copies, duplicates, photographs or samples of packaging, advertising, copy, brochures, marketing and promotional materials, documentation and technical materials, and other documents and materials of HTI bearing any trademark of TAL for review of the manner in which such trademarks are proposed to be used. TAL shall be deemed to have consented to any proposed use of the trademarks of which it has been given notice as provided herein if it does not object to such use in writing to HTI within five (5) business days of receipt of such notice of proposed use. From time to time TAL may furnish HTI with manuals and technical material prepared to facilitate HTI's sales efforts. All such materials, manuals and lists remain the property of TAL and are to be returned to TAL upon the termination or expiration of this Agreement, except as TAL and HTI may otherwise agree in writing. (b) HTI agrees to provide similar advertising placement for the Product should it market HTI Orbit or any product similar to HTI Orbit or the Product. HTI also agrees to profile TAL on its website as a strategic business ally. TAL agrees to profile HTI as a strategic business ally on its website. (c) HTI agrees to spend at least as much in advertising dollars for the Product as it spends in the aggregate on HTI Orbit and other products similar to HTI Orbit or the Product. (d) TAL agrees that HTI RealTick has been marketed by its predecessor, PC Quote, Inc. under the name "PC Quote 6.0 for Windows". HTI will change the branding of the Product to another label that is reasonably approved by TAL. Notwithstanding the provisions of clause (j) below (which provisions shall be effective immediately), in no event shall HTI be forced to change the branding in a period of time which is less than six (6) months from the date of this Agreement. (e) HTI agrees to market RealTrade provided by TAL, subject to terms and conditions to be mutually agreed upon. (f) HTI will set the sales and commission structure of the Product such that they shall be equivalent or better on a percentage of revenue basis to other HTI products similar to the Product. TAL, with HTI's prior written consent, may offer an incentive to HTI sales representatives directly to promote TAL product lines. (g) HTI will, at TAL's request, provide TAL with certified copies of sales and marketing data and reports to enable TAL to monitor HTI's compliance with the terms herein, within a reasonable period of time. (h) HTI agrees to use its best efforts to market the Product. 8 (i) All Products licensed by HTI shall bear the appropriate TAL trademarks and copyrights. HTI shall not be deemed by anything contained in or done pursuant to this Agreement to acquire any right, title or interest in or to the use of any TAL tradename, trademark or service mark, and shall do nothing to prejudice the value or validity of TAL's rights therein or ownership thereof. HTI shall not use any TAL tradename, trademark, service mark, symbols or the like in connection with the offer and/or sale of any other product or in any manner found objectionable by TAL. Upon termination or nonrenewal of this Agreement, HTI shall discontinue any use of TAL's trademarks and service marks, tradenames, identifying symbols and the like, and all labels, brochures, displays and any and all literature and advertising media relating to TAL or any of its products. (j) HTI agrees that all marketing efforts and all documentation related to the Product, including but not limited to print and electronic advertisements and literature, shall state that the Product is the property of Townsend Analytics and shall mention RealTick and TAL in a form which shall be approved prior to use by TAL. (k) Notwithstanding anything to the contrary contained in the Agreement, TAL agrees that HTI may develop, license, distribute, market and otherwise commercially exploit HTI proprietary products which may be competitive with the Product, including, but not limited to the HTI Orbit product. 13. THIRD PARTY PRODUCTS. TAL agrees that HTI will license HyperFeed 2000 to redistributors and developers on the LAN, private WANs, RAS and WEB. HTI agrees that it shall not license, sell or otherwise market redistributors' or developers' products that are similar to the Product. It is agreed that HTI will not benefit from the sale of these products except through the data feed sale. Redistributors' products may be listed in ads, on a web page and in HyperFeed literature as part of a suite of applications powered by HyperFeed 2000. 14. METHOD OF DISTRIBUTION. (a) HTI is licensed to distribute the Product or components of the Product to customer's sites in which HTI has installed a HyperFeed data feed. (b) HTI agrees that it does not have the right to distribute the Product over the public Internet. (c) HTI agrees that it does not have the right to license its customers to distribute the Product via the public Internet or nonprivate networks. HTI agrees to use all reasonable means to identify any customers who may be distributing the Product over the Internet. If the Product or components of the Product are being distributed over the Internet or nonprivate networks by customers of HTI or its predecessor, PC Quote, Inc., HTI agrees to remedy this situation at its own expense and shall indemnify TAL from any and all losses, claims, damages, expenses, and any causes of action of every nature whatsoever, including attorneys' fees, which arise from claims brought by customers regarding redistribution of the Product over 9 the Internet. HTI agrees that it will not offer or provide any such customers a similar product in lieu of the Product or similar to the Product for a period of six (6) months after the date on which such customer is notified of any improper redistribution for Internet redistribution. HTI and its directors, officers and employees shall represent TAL and its directors, officers and employees in a positive and reasonable manner in any communications with customers pertaining to the prohibition on redistribution over the Internet. (d) TAL agrees to allow HTI to allow customers to use RAS and WAN connections to the customer's site subject to an agreed upon site license which includes coverage for the remote user, the form and content of which shall be approved by TAL in writing. 15. SUPPORT. (a) HTI SUPPORT TO TAL. (i) HTI agrees to provide TAL with technical support necessary for TAL to maintain the driver and feed handler with adequate notice of changes in the feed specifications and in the market data. (ii) HTI agrees to provide support to end users of the Product and Services. (iii) HTI shall be adequately familiar with the Product to provide assistance to customers in the installation and use of the Product. (iv) HTI agrees to provide TAL with a computer similar to the computer that will be installed for customer's server, communication equipment required to receive HTI data at TAL's offices and real time market data including exchange, news, and fundamental data necessary for development. (v) HTI agrees to provide HyperFeed 2000 data, including exchange and source data, at no charge to TAL at TAL's site. This data shall be used only for testing, development and provision of data for the Product as specified in Schedule 2. (b) TAL SUPPORT TO HTI. (i) TAL agrees to provide HTI with TAL's customary support and provide sales personnel with TAL's customary training from time to time in Chicago. 10 (ii) TAL agrees to provide HTI's support personnel with ongoing backup support during TAL's regular business hours. (iii) TAL agrees to provide ongoing software debugging services for software problems that can be duplicated at HTI's offices in Chicago. (iv) TAL agrees to provide HTI with upgrades within a reasonable time frame after they become available. Additional features that become available as part of the Product as set forth in Schedule 2 will be made available to HTI. TAL is not obligated to offer any other additional features or products to HTI. (c) Each party will assign a key representative for license fee, relationship, and product management. 16. PRIVATE LABEL. TAL agrees that HTI may offer certain customers a private label version of the Product. Such service shall be subject to the following terms and conditions: (a) No order execution may be attached to the private labeled versions of the Product, unless approved by TAL in writing for each customer (b) The resale of the end user product must be at the minimum price of the Product as defined in Schedule 2, Section 1. (c) TAL must approve in writing all customers who are offered a private label version pursuant to this Paragraph 16. Schedule 3, which may be amended from time to time, lists all customers who have been approved by TAL as of the execution of this Agreement; (d) All customers must execute a mutual license agreement with HTI and TAL. This agreement will be developed with the cooperation of HTI and TAL. (e) The parties will develop a private label licensing program offering that includes a substantial non-recurring engineering fee and/or minimum number of end users. TAL agrees that the non-recurring engineering fee charged to HTI customers will not be greater than the fee TAL charges similar customers. 17. NON-SOLICITATION FOR EMPLOYMENT. HTI and TAL agree not to solicit for employment or hire, either as a consultant or employee, any individual known by such party to be a current employee of the other party or to have been an employee of the other party during the twelve (12) month period preceding the date of such solicitation. 18. DISTRIBUTION OF PRODUCT WITH ORDER ENTRY. HTI agrees that it does not have the right to provide or market order entry enabled software with the Product nor to allow customers to do so without the specific written agreement of TAL. If order entry is to be enabled with the Product, each customer must enter into a direct written agreement with TAL. TAL and HTI agree that customers may enter orders to other sites besides the 11 TAL service bureau through the web browser button in the Product but agree that HTI will not endorse or directly benefit from customers entering such orders to such sites without the prior written agreement of TAL. HTI will not knowingly provide order entry enabled software without TAL's written authorization. 19. DISTRIBUTION OF DATA TO TAL. HTI agrees to provide TAL with backup or primary data for TAL's redistribution at prices and terms to be agreed upon but not higher than HTI normally charges for such services. TAL will be allowed to sell RealTick directly with HyperFeed 2000 data. HTI agrees that the prices charged to TAL or TAL customers for HyperFeed data will not be greater than prices charged to companies with similar products. HTI will receive a credit towards the Minimum Aggregate License Fee Payment for a TAL site similar to the credit that HTI would have received for a HyperFeed RealTick site. For example, if TAL sells HyperFeed 2000 with RealTick and the data fees are $60 a terminal and had HTI sold the same site with RealTick and owed to TAL $100 per terminal then $100 will apply to HTI's minimums. 20. INTERNATIONAL DISTRIBUTION. TAL and HTI each agree that in the absence of an agreement for international distribution, HTI will only sell data feed products and TAL will sell TAL software products bundled together to international clients subject to each party's prior written agreement. Any such client will be required to enter two separate contracts (one with TAL for the Product and one with HTI for data feed products). Currently the parties have separate agreements with PC Quote located in Canada. HTI may enter into international agreements which provide exclusive territories where the Product and HTI's HyperFeed product are packaged together only with the prior written consent of the parties. Any such exclusive agreement that HTI enters into will not prevent TAL's distribution of RealTick or HyperFeed 2000 within such territory. TAL and HTI acknowledge that HTI may offer its data feed or its proprietary products internationally without the Product without further amendment to this Agreement. 21. COMPLIANCE WITH LICENSE AND LAWS. TAL and HTI shall comply with all requirements imposed on TAL (and its distributors) and with all federal, state and local laws, regulations, rules and ordinances pertaining to the operations and conduct of its business and the sale of the Product, including but not limited to all laws pertaining to the export of Products to foreign countries and to the Internet. 22. CONFIDENTIALITY OF TRADE SECRETS. HTI agrees, on behalf of itself and its predecessor, PC Quote, Inc., that all confidential information received from TAL prior to and following execution of this Agreement, including without limitation all technical information and service manuals received in training sessions, is and shall remain the property and confidential information of TAL. Similarly, TAL agrees that all confidential information received from HTI is and shall remain the property and confidential information of HTI. Both parties agree, on behalf of themselves and their employees, to use their best efforts to maintain such information in the strictest confidence and not to disclose the same to any third party, including their employees not having a need to know. Neither party shall copy or reproduce any such confidential information without the prior written approval of the other. Both parties agree to obtain from each of its employees having access to such information a written agreement that states that the employee has been informed of the confidential nature of such information and that the employee agrees to maintain such information in confidence. Each party further agrees to return all such 12 information and all copies thereof to the other immediately upon termination of this Agreement. The obligations of confidence set forth herein above, however, shall impose no obligation upon either party with respect to any confidential information which: (i) is now or which subsequently becomes generally known or available by publication, commercial use or otherwise; (ii) is known by the receiving party at the time of receiving such information; (iii) is furnished to third parties without restriction on disclosure; (iv) is subsequently rightfully furnished by a third party without a restriction on disclosure; or (v) is independently developed by HTI or TAL, provided that the person or persons developing same have not had access to the confidential information. The obligations set forth in this Paragraph 22 shall survive the expiration of or any earlier termination of this Agreement. 23. MISCELLANEOUS. (a) RELATIONSHIP OF PARTIES. The relationship between the parties to this Agreement is that of independent contractors. Neither is an agent or employee of the other nor has any right or authority to assume or create any obligation of any kind, expressed or implied, on behalf of the other, nor shall the acts or omissions of either create any liability for the other. Subject to the provisions of this Agreement, HTI shall conduct its business at its own initiative, responsibility and expense. Nothing herein is intended to create a partnership, joint venture, or other similar relationship between the parties. (b) INDEMNIFICATION. HTI agrees that it will indemnify, defend and hold harmless TAL, its officers, directors, employees and agents from any and all losses, claims, damages, expenses and causes of action of every nature whatsoever, including attorneys' fees, which are caused by the breach of this Agreement by HTI or breach of the Software Distributor Agreement by its predecessor, PC Quote, Inc., or by the negligent acts, omissions or intentional wrongdoing of HTI in connection with the performance or nonperformance of its obligations hereunder. HTI shall hold, indemnify and save TAL, its officers, directors, employees and agents from any and all costs, expenses (including attorneys' fees), judgments, settlements, losses, or other liabilities incurred by TAL, directly or indirectly, as a result of any claim, action, suit or litigation brought against TAL by any party arising out of or relating to (a) any failure by HTI or its predecessor, PC Quote, Inc., to perform any obligation under this Agreement or the prior software distributor agreement ("Software Distributor Agreement"), dated December 4, 1995, between TAL and PC Quote, Inc.; (b) any representations or warranties made by HTI except as provided herein; or (c) any damages or claims resulting from the termination or expiration of this Agreement. TAL agrees to indemnify and hold harmless HTI, its officers, directors, employees, and agents from any and all claims, demands, liabilities, actions, suits or proceedings, including reasonable attorneys' fees and expenses, alleging 13 infringement or misappropriation relating to the Product, provided that HTI must promptly notify TAL in writing of any such claim, action or proceeding. (c) ASSIGNABILITY. Neither this Agreement, nor any right or obligation hereunder, is assignable in whole or in part, whether by operation of law or otherwise, by HTI without the prior written consent of TAL. This Agreement may be assigned by TAL and its duties hereunder may be delegated. (d) TAXES AND FEES. (i) HTI will be responsible for paying, as and when due, any taxes and fees, such as sales, use, and communications taxes and exchange fees, required to be paid in connection with the distribution of the Product. (ii) TAL agrees to rely upon any appropriately completed resale certificate provided by HTI that relates to the transactions contemplated hereby which is attached as Schedule 4. (iii) TAL will be responsible for paying, as and when due, any income taxes required to be paid in connection with the license fees payable to TAL under this Agreement. (iv) This Paragraph shall survive the termination of this Agreement for any reason. (e) NOTICES AND OTHER COMMUNICATIONS. Unless otherwise provided, every notice hereunder shall be in writing and deemed given when delivered in person or when mailed, postage prepaid, to the intended recipient at the address specified in this Agreement, or other address previously designated by the intended recipient by written notice, provided, however, that notices to TAL shall be addressed Attention: Vice-President. Any notice of termination or nonrenewal shall be sent by registered or certified mail. (f) FORCE MAJEURE EVENTS. If either party to this Agreement is prevented from or delayed in performing any of its obligations under this Agreement by reason of a Force Majeure Event (as defined below), such party shall notify the other party in writing as soon as practicable after the onset of such Force Majeure Event and shall be excused from the performance of its obligations under this Agreement to the extent such Force Majeure Event has interfered with such performance. The party whose performance under this Agreement is prevented or delayed as the result of a Force Majeure Event shall use reasonable efforts to remedy its inability to perform. As used herein, "Force Majeure Event" shall mean circumstances found to be beyond the parties' control and without the gross negligence or willful misconduct on the part of either party. Such circumstances may include, without limitation, acts of God, acts of government in its sovereign or contractual capacity, power shortages or failures, utility or communication failure or delays, labor disputes, strikes, or shortages, supply shortages, equipment failures, 14 or software malfunctions. Neither TAL nor HTI shall be liable for any loss, damage, delay, or other consequence resulting from a Force Majeure Event. (g) NON-WAIVER. No failure to exercise, and no delay in exercising, on the part of either party hereto, of any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by either party of any right, power or privilege hereunder preclude any other or further exercise thereof. (h) ENTIRE AGREEMENT. This Agreement and the attached Schedules set forth the entire understanding of, and supersedes and revokes all prior agreements between the parties relating to the subject matter contained herein and merges all prior discussions between them. This Agreement may not be modified except by a writing signed by a duly authorized officer of TAL. (i) GOVERNING LAW. The validity, construction, and enforceability of this Agreement shall be governed in all respects by the law of the state of Illinois. (j) SEVERABILITY. If any provision of this Agreement shall be held invalid under applicable law, the remaining provisions shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the day first above written. - ------------------------------------- HyperFeed Technologies, Inc. By: ----------------------------- Title: ----------------------------- ACCEPTED: Townsend Analytics, Ltd. By: ----------------------------- Title: ----------------------------- 15 SCHEDULE 2 REALTICK POWERED BY HYPERFEED 2000 (LAN, WAN OR RAS) 32 bit version of RealTick with Features listed below NT driver Servers: 32-bit version of TA_SRV & NewSrv On line help on all programs MINIMUM PRICES: A. MONTHLY SITE FEE FOR EACH CUSTOMER LOCATION $795.00 per site B. MONTHLY FEES FOR REALTICK FEATURES i. Quotes: $100.00 per user ** ii. Charts: $25.00 per user iii. News: $25.00 per user iv. Level 2: $50.00 per user C. MONTHLY FEES FOR FULL REALTICK WITH ALL AVAILABLE FEATURES INCLUDING CHARTS, NEWS, AND LEVEL 2 i. $200.00 per user (for customers with 0 to 50 users) ii. $180.00 per user (for customers with 51 to 200 users) iii. $170.00 per user (for customers with more 201 or above) NATIONAL ACCOUNTS: Customers will be allowed to aggregate workstations licensed to use RealTick at any wholly owned subsidiary or branch office of the Customer. Certain other conditions may apply to National Accounts that will be agreed to in writing by HTI and TAL from time to time. ** HTI has certain customers who were licensed subject to the TAL/PC Quote, Inc. contract dated December 4, 1995. These customers will be allowed to complete the term of their license on the price schedule that applied to the TAL/PC Quote, Inc. contract. The primary difference is that the price of the Quotes module was discounted to $85/month at 10 users. HTI is responsible for paying TAL the correct license fees for such customers based on the TAL/PC Quote, Inc contract regardless of what prices the customer is actually being charged LICENSE FEE. The royalty split on LAN business will be thirty-three percent (33%) to TAL on the first $500,000.00 of monthly revenue and fifty percent (50%) to TAL of monthly revenue above $500,000.00. Monthly revenue is defined as fees that HTI charges to the customer of the Product which is at least equal to the minimum prices above but which may be greater such as if additional services are charged to the customer but from which exchange and news vendor fees that have been charged to the customer may be deducted. EX-27 4 EXHIBIT 27
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1,838,561 0 2,273,420 677,876 0 6,385,874 5,905,994 3,464,353 17,227,162 7,671,944 0 0 48 14,990 8,978,043 17,227,162 15,472,309 15,472,309 12,380,753 12,380,753 5,858,628 340,000 28,897 (2,839,949) 0 (2,839,949) 0 0 0 (2,839,949) (0.19) (0.19)
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