<PAGE>
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
---------------------------------
[x] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the period ended 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
<PAGE>
HYPERFEED TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
</TABLE>
Page 2
<PAGE>
HYPERFEED TECHNOLOGIES, INC.
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
(Unaudited) (Audited)
-------------- -------------
<S> <C> <C>
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
-------------- -------------
-------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3
<PAGE>
HYPERFEED TECHNOLOGIES, INC.
Consolidated Balance Sheets (continued)
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
(Unaudited) (Audited)
-------------- -------------
<S> <C> <C>
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
-------------- -------------
-------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 4
<PAGE>
HYPERFEED TECHNOLOGIES, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For The Six Months Ended
- ---------------------------------------------------------------- ----------------------- ------------------
June 30, June 30,
1999 1998
(Unaudited) (Unaudited)
- ---------------------------------------------------------------- ----------------------- ------------------
<S> <C> <C>
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
- ---------------------------------------------------------------- ----------------------- ----------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 5
<PAGE>
HYPERFEED TECHNOLOGIES, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For The Three Months Ended
- ---------------------------------------------------------------- ----------------------- ------------------
June 30, June 30,
1999 1998
(Unaudited) (Unaudited)
- ---------------------------------------------------------------- ----------------------- ------------------
<S> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 6
<PAGE>
HYPERFEED TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For The Six Months Ended
-----------------------------------
June 30, June 30,
1999 1998
(Unaudited) (Unaudited)
-------------- -------------
<S> <C> <C>
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
-------------- -------------
-------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 7
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
---------------------------------------- ---------------- --------------------
Areas Equipment/Systems Compliant
---------------------------------------- ---------------- --------------------
<S> <C> <C>
Processing Plant 301 269
---------------------------------------- ---------------- --------------------
Communications Network 35 22
---------------------------------------- ---------------- --------------------
</TABLE>
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.
<TABLE>
<CAPTION>
--------------------------------- ---------------------- ---------------------
Applications Tested Compliant
--------------------------------- ---------------------- ---------------------
<S> <C> <C>
HyperFeed Customer Apps 14 14
--------------------------------- ---------------------- ---------------------
3rd Party Customer Apps 5 5
--------------------------------- ---------------------- ---------------------
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
- ----------------------------------- --------------------------------- ----------------------- ---------------------------------
Director Shares For Shares Against Shares Withheld
- ----------------------------------- --------------------------------- ----------------------- ---------------------------------
<S> <C> <C> <C>
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
- ----------------------------------- --------------------------------- ----------------------- ---------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------------ ------------------------ ---------------------------------
Shares For Shares Against Abstentions
- ----------------------------------- ------------------------ ------------------------ ---------------------------------
<S> <C> <C> <C>
10,410,121 655,436 311,695
- ----------------------------------- ------------------------ ------------------------ ---------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------------ ------------------------ ---------------------------------
Shares For Shares Against Abstentions
- ----------------------------------- ------------------------ ------------------------ ---------------------------------
<S> <C> <C> <C>
18,566,510 61,320 31,841
- ----------------------------------- ------------------------ ------------------------ ---------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------------ ------------------------ ---------------------------------
Shares For Shares Against Abstentions
- ----------------------------------- ------------------------ ------------------------ ---------------------------------
<S> <C> <C> <C>
18,416,740 204,092 36,839
- ----------------------------------- ------------------------ ------------------------ ---------------------------------
</TABLE>
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
<PAGE>
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS and REPORTS on FORM 8-K
(a) FINANCIAL STATEMENTS
The financial statements of the Company are filed herewith in Item 1 of this
report.
(b) REPORTS ON FORM 8-K
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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the Company caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,838,561
<SECURITIES> 0
<RECEIVABLES> 2,273,420
<ALLOWANCES> 677,876
<INVENTORY> 0
<CURRENT-ASSETS> 6,385,874
<PP&E> 5,905,994
<DEPRECIATION> 3,464,353
<TOTAL-ASSETS> 17,227,162
<CURRENT-LIABILITIES> 7,671,944
<BONDS> 0
0
48
<COMMON> 14,990
<OTHER-SE> 8,978,043
<TOTAL-LIABILITY-AND-EQUITY> 17,227,162
<SALES> 15,472,309
<TOTAL-REVENUES> 15,472,309
<CGS> 12,380,753
<TOTAL-COSTS> 12,380,753
<OTHER-EXPENSES> 5,858,628
<LOSS-PROVISION> 340,000
<INTEREST-EXPENSE> 28,897
<INCOME-PRETAX> (2,839,949)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,839,949)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,839,949)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
