**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM10-Q**

 

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| **ý****Quarterly Report Pursuant to Section 13 or  15(d) of  the Securities Exchange Act of 1934**                                                                                                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                            |
| **For the quarterly period ended September 30,  2003**                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                            |
| **OR**                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                            |
| **o****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**                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                            |
| **HYPERFEED TECHNOLOGIES, INC.**                                                                                                                                                                                                                                                |
| (Exact Name of Registrant as Specified in its Charter)                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                            | **Delaware** |   | **36-3131704** |   |
|                                                                                                                                                                                                                                                                            | (State or Other Jurisdiction  of Incorporation or  Organization) |   | (I.R.S. Employer Identification No.) |   |
|                                                                                                                                                                                                                                                                            |   |   |   |   |
|                                                                                                                                                                                                                                                                            | **300 S. Wacker Drive, Suite 300  Chicago, Illinois** |   | **60606** |   |
|                                                                                                                                                                                                                                                                            | (Address of Principal Executive Offices) |   | (Zip Code) |   |
|                                                                                                                                                                                                                                                                            |   |   |   |   |
|                                                                                                                                                                                                                                                                            | **(312) 913-2800** |   |
|                                                                                                                                                                                                                                                                            | (Registrant’s telephone number,  including area code) |   |
|                                                                                                                                                                                                                                                                                 |  |  |  |  |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes  ý  No  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).  Yes  o  No  ý.

 

As of November 13,2003, the registrant had 3,047,835 shares of $.001 par value common stockoutstanding.

 

 

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HYPERFEED TECHNOLOGIES, INC.

 

INDEX

 
| PART I.  | Financial Information                                                                                                           |
|----------|---------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                            |
| Item 1.  | Consolidated  Balance Sheets as of September 30, 2003 and December 31, 2002  (unaudited)                              |
|     |                                                                                                                            |
|     | Consolidated  Statements of Operations for the three and nine month periods ended September 30,  2003 and 2002 (unaudited) |
|     |                                                                                                                            |
|     | Consolidated  Statements of Cash Flows for the nine month periods ended September 30,  2003 and 2002 (unaudited)           |
|     |                                                                                                                            |
|     | Notes  to Unaudited Interim Consolidated Financial Statements                                                                   |
|     |                                                                                                                            |
| Item  2. | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                     |
|     |                                                                                                                            |
| Item  3. | Quantitative  and Qualitative Disclosures about Market Risk                                                                     |
|     |                                                                                                                            |
| Item 4.  | Controls and Procedures                                                                                                         |
|     |                                                                                                                            |
| PART II. | Other Information                                                                                                               |
|     |                                                                                                                            |
| Item  4. | Submission  of Matters to a Vote of Security Holders                                                                            |
|     |                                                                                                                            |
| Item 6.  | Exhibits and  Reports on Form 8-K                                                                                               |
|     |                                                                                                                            |
|     | Company’s Signature Page                                                                                                   |

 

2

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**PART I**

**ITEM 1. Financial Statements**

HYPERFEED TECHNOLOGIES,INC. AND SUBSIDIARY

ConsolidatedBalance Sheets (Unaudited)

September 30, 2003 andDecember 31, 2002

 
|                                                                                                                                                                             |   | **September 30,********2003** |       | **December 31,********2002** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|------------|-----------------------------------|------------|
| **Assets**                                                                                                                                                                       |   |                               | ** ** |                              | ** ** |
| **Current Assets**                                                                                                                                                               |   |                               |       |                              |       |
| Cash and cash equivalents                                                                                                                                                        |   | $                                  | 82,514     |                              | $          | 1,096,711 |   |
| Accounts receivable                                                                                                                                                              |   | 369,378                            |       | 73,290                            |       |
| Notes receivable, less allowance  for doubtful accounts of: 2003: $75,000; 2002: $150,000                                                                                        |   | 249,571                            |       | 199,142                           |       |
| Prepaid expenses and other  current assets                                                                                                                                       |   | 187,936                            |       | 85,893                            |       |
| Assets related to discontinued  operations                                                                                                                                       |   | 658,680                            |       | 1,083,196                         |       |
| **Total Current  Assets**                                                                                                                                                        |   | 1,548,079                          |       | 2,538,232                         |       |
|                                                                                                                                                                             |   |                               |       |                              |       |
| Property and equipment                                                                                                                                                           |   |                               |       |                              |       |
| Computer equipment                                                                                                                                                               |   | 2,281,700                          |       | 2,834,875                         |       |
| Communication equipment                                                                                                                                                          |   | 1,365,102                          |       | 1,402,652                         |       |
| Furniture and fixtures                                                                                                                                                           |   | 82,839                             |       | 108,947                           |       |
| Leasehold improvements                                                                                                                                                           |   | 531,809                            |       | 531,397                           |       |
|                                                                                                                                                                             |   | 4,261,450                          |       | 4,877,871                         |       |
| Less: Accumulated depreciation  and amortization                                                                                                                                 |   | (3,053,823                         | )          | (3,373,393                        | )          |
|                                                                                                                                                                             |   | 1,207,627                          |       | 1,504,478                         |       |
| Notes receivable, less allowance  for doubtful accounts of: 2003: $75,000                                                                                                        |   | 99,571                             |       | —                            |       |
| Intangible assets, net of  accumulated amortization of: 2003: $55,000; 2002: $10,000                                                                                             |   | 125,000                            |       | 170,000                           |       |
| Software development costs, net  of accumulated amortization of: 2003: $2,976,527; 2002: $3,189,313                                                                              |   | 1,856,670                          |       | 2,013,703                         |       |
| Deposits and other assets                                                                                                                                                        |   | 34,363                             |       | 69,177                            |       |
| **Total Assets**                                                                                                                                                                 |   | $                                  | 4,871,310  |                              | $          | 6,295,590 |   |
|                                                                                                                                                                             |   |                               |       |                              |       |
| **Liabilities and  Stockholders’ Equity**                                                                                                                                   |   |                               |       |                              |       |
| **Current  Liabilities**                                                                                                                                                         |   |                               |       |                              |       |
| Note payable                                                                                                                                                                     |   | $                                  | 23,011     |                              | $          | — |   |
| Accounts payable                                                                                                                                                                 |   | 375,385                            |       | 187,441                           |       |
| Accrued expenses                                                                                                                                                                 |   | 212,855                            |       | 234,878                           |       |
| Accrued compensation                                                                                                                                                             |   | 63,003                             |       | 72,801                            |       |
| Liabilities related to  discontinued operations                                                                                                                                  |   | 2,475,583                          |       | 3,169,564                         |       |
| **Total Current  Liabilities**                                                                                                                                                   |   | 3,149,837                          |       | 3,664,684                         |       |
|                                                                                                                                                                             |   |                               |       |                              |       |
| Note payable, less current  portion                                                                                                                                              |   | 38,351                             |       | —                            |       |
| Deferred rent                                                                                                                                                                    |   | 291,832                            |       | 36,089                            |       |
| **Total  Noncurrent Liabilities**                                                                                                                                                |   | 330,183                            |       | 36,089                            |       |
| **Total  Liabilities**                                                                                                                                                           |   | 3,480,020                          |       | 3,700,773                         |       |
|                                                                                                                                                                             |   |                               |       |                              |       |
| **Stockholders’  Equity**                                                                                                                                                   |   |                               |       |                              |       |
| Common stock, $.001 par value;  authorized 50,000,000 shares; issued and outstanding 3,047,835 shares at  September 30, 2003 and 2,503,069 shares at December 31, 2002 |   | 3,048                              |       | 2,503                             |       |
| Additional paid-in capital                                                                                                                                                       |   | 46,054,473                         |       | 44,585,588                        |       |
| Accumulated deficit                                                                                                                                                              |   | (44,666,231                        | )          | (41,993,274                       | )          |
| **Total  Stockholders’ Equity**                                                                                                                                             |   | 1,391,290                          |       | 2,594,817                         |       |
| **Total  Liabilities and Stockholders’ Equity**                                                                                                                             |   | $                                  | 4,871,310  |                              | $          | 6,295,590 |   |

 

See Notes to Unaudited Interim ConsolidatedFinancial Statements.

 

3

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HYPERFEED TECHNOLOGIES,INC. AND SUBSIDIARY

ConsolidatedStatements of Operations (Unaudited)

 
|                                                          |   | **For The Three Months  Ended********September 30,** |       | **For The Nine Months  Ended********September 30,** |   |
|---------------------------------------------------------------|--------|-----------------------------------------------------------|------------|----------------------------------------------------------|--------|
|                                                          |   | **2003**                                                  |       | **2002**                                                 |   | **2003** |   | **2002** |   |
| **Revenue**                                                   |   |                                                      |       |                                                     |   |   |   |   |   |
| HyperFeed Services                                            |   | $                                                         | 363,441    |                                                     | $      | — |   | $ | 363,441 |   | $ | — |   |
| HYPRWare Services                                             |   | 115,617                                                   |       | 211,494                                                  |   | 456,646 |   | 716,219 |   |
| **Total Revenue**                                             |   | 479,058                                                   |       | 211,494                                                  |   | 820,087 |   | 716,219 |   |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| **Direct Cost of  Services**                                  |   |                                                      |       |                                                     |   |   |   |   |   |
| HyperFeed Services                                            |   | 402,136                                                   |       | 340,665                                                  |   | 1,078,521 |   | 1,001,811 |   |
| HYPRWare Services                                             |   | —                                                    |       | —                                                   |   | — |   | — |   |
| **Total Direct  Cost of Services**                            |   | 402,136                                                   |       | 340,665                                                  |   | 1,078,521 |   | 1,001,811 |   |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| **Gross Margin**                                              |   | 76,922                                                    |       | (129,171                                                 | )      | (258,434 | ) | (285,592 | ) |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| **Operating  Expenses**                                       |   |                                                      |       |                                                     |   |   |   |   |   |
| Sales                                                         |   | 208,870                                                   |       | —                                                   |   | 341,205 |   | — |   |
| General and administrative                                    |   | 693,695                                                   |       | 626,155                                                  |   | 1,928,735 |   | 1,872,753 |   |
| Product and market development                                |   | 427,120                                                   |       | 363,748                                                  |   | 1,292,508 |   | 1,052,049 |   |
| Depreciation and amortization                                 |   | 235,335                                                   |       | 439,177                                                  |   | 774,771 |   | 1,339,543 |   |
| **Total Operating  Expenses**                                 |   | 1,565,020                                                 |       | 1,429,080                                                |   | 4,337,219 |   | 4,264,345 |   |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| **Loss from  Operations**                                     |   | (1,488,098                                                | )          | (1,558,251                                               | )      | (4,595,653 | ) | (4,549,937 | ) |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| **Other Income  (Expense)**                                   |   |                                                      |       |                                                     |   |   |   |   |   |
| Interest income                                               |   | 4,492                                                     |       | 4,689                                                    |   | 10,570 |   | 17,215 |   |
| Interest expense                                              |   | (855                                                      | )          | —                                                   |   | (1,167 | ) | (2,772 | ) |
| **Net Other  Income**                                         |   | 3,637                                                     |       | 4,689                                                    |   | 9,403 |   | 14,443 |   |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| **Loss from  Continuing Operations Before Income Taxes**      |   | (1,484,461                                                | )          | (1,553,562                                               | )      | (4,586,250 | ) | (4,535,494 | ) |
| Income tax benefit                                            |   | 119,075                                                   |       | 253,419                                                  |   | 742,356 |   | 1,062,606 |   |
| **Loss from  Continuing Operations**                          |   | (1,365,386                                                | )          | (1,300,143                                               | )      | (3,843,894 | ) | (3,472,888 | ) |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| **Discontinued  Operations**                                  |   |                                                      |       |                                                     |   |   |   |   |   |
| Income from discontinued  operations, net of tax              |   | 187,820                                                   |       | 399,724                                                  |   | 949,277 |   | 1,675,735 |   |
| Gain on disposition of discontinued  operations, net of tax   |   | —                                                    |       | —                                                   |   | 221,660 |   | — |   |
| **Income from  Discontinued Operations**                      |   | 187,820                                                   |       | 399,724                                                  |   | 1,170,937 |   | 1,675,735 |   |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| **Net Loss**                                                  |   | $                                                         | (1,177,566 | )                                                        | $      | (900,419 | ) | $ | (2,672,957 | ) | $ | (1,797,153 | ) |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| Basic and diluted net income  (loss) per share:               |   |                                                      |       |                                                     |   |   |   |   |   |
| Continuing operations                                         |   | $                                                         | (0.45      | )                                                        | $      | (0.53 | ) | $ | (1.38 | ) | $ | (1.45 | ) |
| Discontinued operations                                       |   | 0.06                                                      |       | 0.16                                                     |   | 0.42 |   | 0.70 |   |
| Basic and diluted net loss per  share                         |   | $                                                         | (0.39      | )                                                        | $      | (0.37 | ) | $ | (0.96 | ) | $ | (0.75 | ) |
|                                                          |   |                                                      |       |                                                     |   |   |   |   |   |
| Basic and diluted  weighted-average common shares outstanding |   | 3,043,805                                                 |       | 2,439,765                                                |   | 2,776,315 |   | 2,404,814 |   |

 

See Notes to UnauditedInterim Consolidated Financial Statements.

 

4

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HYPERFEED TECHNOLOGIES,INC. AND SUBSIDIARY

ConsolidatedStatements of Cash Flows (Unaudited)

 
|                                                                                       |   | **For The Nine Months  Ended********September 30,** |       |
|--------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|------------|
|                                                                                       |   | **2003**                                                 |       | **2002** |   |
| **Cash Flows from  Operating Activities:**                                                 |   |                                                     |       |   |   |
| Net loss                                                                                   |   | $                                                        | (2,672,957 | ) | $ | (1,797,153 | ) |
| Adjustments to reconcile net  loss to net cash provided by (used in) operating activities: |   |                                                     |       |   |   |
| Depreciation and amortization                                                              |   | 774,771                                                  |       | 1,339,543 |   |
| Amortization of software  development costs                                                |   | 1,012,547                                                |       | 1,001,811 |   |
| Gain on disposition of  discontinued operations                                            |   | (362,189                                                 | )          | — |   |
| Changes in assets and  liabilities, net of effects from dispositions:                      |   |                                                     |       |   |   |
| Accounts receivable                                                                        |   | (296,088                                                 | )          | 26,132 |   |
| Prepaid expenses and other  current assets                                                 |   | (103,337                                                 | )          | (37,539 | ) |
| Deposits and other assets                                                                  |   | 34,814                                                   |       | 7,873 |   |
| Accounts payable                                                                           |   | 187,944                                                  |       | 110,040 |   |
| Accrued expenses                                                                           |   | (58,352                                                  | )          | (52,996 | ) |
| Deferred rent                                                                              |   | 255,743                                                  |       | (27,066 | ) |
| Unearned revenue                                                                           |   | 80,000                                                   |       | — |   |
| Net cash provided by (used in)  continuing operations                                      |   | (1,147,104                                               | )          | 570,645 |   |
| Net cash provided by (used in)  discontinued operations                                    |   | (269,465                                                 | )          | 1,340,487 |   |
| **Net Cash  Provided By (Used In) Operating Activities**                                   |   | (1,416,569                                               | )          | 1,911,132 |   |
|                                                                                       |   |                                                     |       |   |   |
| **Cash Flows from  Investing Activities:**                                                 |   |                                                     |       |   |   |
| Purchase of property and  equipment                                                        |   | (480,133                                                 | )          | (450,503 | ) |
| Software development costs  capitalized                                                    |   | (868,287                                                 | )          | (1,022,096 | ) |
| Proceeds from sale of  discontinued operations                                             |   | 220,000                                                  |       | — |   |
| Provision for doubtful notes  receivable                                                   |   | —                                                   |       | (150,000 | ) |
| Proceeds from sale of restricted  cash equivalents                                         |   | —                                                   |       | 250,000 |   |
| **Net Cash Used  In Investing Activities**                                                 |   | (1,128,420                                               | )          | (1,372,599 | ) |
|                                                                                       |   |                                                     |       |   |   |
| **Cash Flows from  Financing Activities:**                                                 |   |                                                     |       |   |   |
| Proceeds from issuance of common  stock                                                    |   | 1,469,430                                                |       | 365,360 |   |
| Issuance (repayment) of notes  payable                                                     |   | 61,362                                                   |       | (250,000 | ) |
| **Net Cash  Provided By Financing Activities**                                             |   | 1,530,792                                                |       | 115,360 |   |
|                                                                                       |   |                                                     |       |   |   |
| **Net increase  (decrease) in cash and cash equivalents**                                  |   | (1,014,197                                               | )          | 653,893 |   |
| Cash and cash equivalents:                                                                 |   |                                                     |       |   |   |
| Beginning of the period                                                                    |   | 1,096,711                                                |       | 607,263 |   |
|                                                                                       |   |                                                     |       |   |   |
| **End of the  period**                                                                     |   | $                                                        | 82,514     |   | $ | 1,261,156 |   |
|                                                                                       |   |                                                     |       |   |   |
| **Supplemental  Disclosures of Noncash Investing Activities:**                             |   |                                                     |       |   |   |
| Note received as consideration  for disposition of discontinued operations                 |   | $                                                        | 150,000    |   | $ | — |   |

 

See Notes to UnauditedInterim Consolidated Financial Statements.

 

5

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HYPERFEED TECHNOLOGIES,INC. AND SUBSIDIARY

NOTESTO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

(1) BASIS OF PRESENTATION

 

PRINCIPLES OFCONSOLIDATION:  The accompanyingunaudited interim consolidated financial statements include the accounts ofHyperFeed Technologies, Inc. and its subsidiary, HYPRWare, Inc. (“HYPRWare” fkaPCQuote.com, Inc.) (collectively, “HyperFeed” or the “Company”), and have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and in conjunctionwith the rules and regulations of the Securities and Exchange Commission.Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America forcomplete financial statements. The consolidated interim financial statementsinclude all adjustments, including the elimination of all significantintercompany transactions in consolidation, which, in the opinion ofmanagement, are necessary in order to make the financial statements notmisleading. For further information, refer to the consolidated financialstatements and footnotes included in the Company’s annual report on Form 10-Kfor the year ended December 31, 2002.

 

SOFTWARE DEVELOPMENTCOSTS:  The Company’s continuinginvestment in software development consists primarily of enhancements to itsManaged Exchange Platform Service (“MEPS”) and H!BOX, its existingWindows-based market data distribution platform, the direct exchange services,the development of new data analysis software and programmer tools and theapplication of new technology to increase the data volume and delivery speed ofthe Company’s distribution system.

 

Costs associated with theplanning and design phase of software development, including coding and testingactivities necessary to establish technological feasibility of computersoftware products to be licensed or otherwise marketed, are expensed asresearch and development costs as incurred. Once technological feasibility hasbeen determined, costs incurred in the construction phase of softwaredevelopment including coding, testing, and product quality assurance arecapitalized.

 

Amortization commences atthe time of capitalization or, in the case of a new service offering, at thetime the service becomes available for use. Unamortized capitalized costsdetermined to be in excess of the net realizable value of the product areexpensed at the date of such determination. The accumulated amortization andrelated software development costs are removed from the respective accountseffective in the year following full amortization.

 

The Company’s policy is toamortize capitalized software costs by the greater of (a) the ratio thatcurrent gross revenue for a product bear to the total of current andanticipated future gross revenue for that product or (b) the straight linemethod over three years, the remaining estimated economic life of the productincluding the period being reported. The Company assesses the recoverability ofits software development costs against estimated future undiscounted cashflows. Given the highly competitive environment and technological changes, itis reasonably possible that those estimates of anticipated future grossrevenue, the remaining estimated economic life of the product, or both may bereduced significantly.

 

FINANCIAL INSTRUMENTS:  The Company has no financial instruments forwhich the carrying value materially differs from fair value.

 

INCOME TAXES:  Income taxes are accounted for under theasset and liability method whereby deferred tax assets are recognized fordeductible temporary differences and operating loss and tax creditcarryforwards and deferred tax liabilities are recognized for taxable temporarydifferences. Temporary differences are the differences between the reportedamounts of assets and liabilities and their tax bases. Deferred tax assets arereduced by a valuation allowance when, in the opinion of management, it is morelikely than not that some portion or all of the deferred tax assets will not berealized. Deferred tax assets and liabilities are adjusted for the effects ofchanges in tax laws and rates on the date of enactment.

 

6

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STOCK BASEDCOMPENSATION:  At September 30,2003, the Company had one stock-based employee compensation plan. The Companyhas adopted the disclosure-only provisions of Financial Accounting StandardsBoard (“FASB”) Statement No. 123, “Accounting for Stock-Based Compensation”(“SFAS 123”), as amended by FASB Statement No. 148, “Accounting for Stock-BasedCompensation – Transition and Disclosure” (“SFAS 148”), and will continue touse the intrinsic value based method of accounting prescribed by AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees.” Consistent with APB No. 25, the Company does not recognizecompensation cost for options granted with an option price equal to the grantdate market value of the Company’s common stock. Had the Company recognizedcompensation cost for options granted based on the fair value of the option atthe grant date consistent with the provisions of SFAS 123, the Company’s netloss and net loss per share for the three and nine months endedSeptember 30, 2003 and 2002 would have been adjusted to the pro formaamounts indicated below:

 
|                                                                                |   | **Three months ended********September 30,** |       | **Nine months ended********September 30,** |   |
|-------------------------------------------------------------------------------------|--------|--------------------------------------------------|------------|-------------------------------------------------|--------|
|                                                                                |   | **2003**                                         |       | **2002**                                        |   | **2003** |   | **2002** |   |
| Net loss, as reported                                                               |   | $                                                | (1,177,566 | )                                               | $      | (900,419 | ) | $ | (2,672,957 | ) | $ | (1,797,153 | ) |
|                                                                                |   |                                             |       |                                            |   |   |   |   |   |
| Stock-based compensation expense  determined under fair value method for all awards |   | (43,718                                          | )          | (663,725                                        | )      | (23,018 | ) | (2,066,145 | ) |
|                                                                                |   |                                             |       |                                            |   |   |   |   |   |
| Pro forma net loss                                                                  |   | $                                                | (1,221,284 | )                                               | $      | (1,564,144 | ) | $ | (2,695,975 | ) | $ | (3,863,298 | ) |
|                                                                                |   |                                             |       |                                            |   |   |   |   |   |
| Basic and diluted net loss per  share, as reported                                  |   | $                                                | (0.39      | )                                               | $      | (0.37 | ) | $ | (0.96 | ) | $ | (0.75 | ) |
|                                                                                |   |                                             |       |                                            |   |   |   |   |   |
| Pro forma basic and diluted net  loss per share                                     |   | $                                                | (0.40      | )                                               | $      | (0.64 | ) | $ | (0.97 | ) | $ | (1.61 | ) |

 

EARNINGS PER SHARE:  Basic earnings per share (“EPS”) is based on the weighted-averagenumber of shares outstanding and excludes the dilutive effect of unexercisedcommon stock equivalents. Diluted earnings per share includes the dilutiveeffect of unexercised common stock equivalents. The Company had equitysecurities that, if exercised, would have had a dilutive effect on EPS had theCompany generated income during the three and nine months endedSeptember 30, 2003. The dilutive effect of such securities would have beenan additional 35,963 weighted-average shares outstanding during the threemonths ended September 30, 2003 and an additional 20,489 weighted-averageshares outstanding during the nine months ended September 30, 2003. Thedilutive effect of such securities would have been an additional 6,005weighted-average shares outstanding during the three months endedSeptember 30, 2002 and an additional 6,660 weighted-average sharesoutstanding during the nine months ended September 30, 2002. For the threemonths ended September 30, 2003 and 2002, weighted-average equity securitiestotaling 507,437 and 777,875, respectively, were excluded from the calculationsas their effect was anti-dilutive due to such securities having exercise pricesin excess of the weighted-average fair value of the Company’s common stockduring the three month periods. For the nine months ended September 30,2003 and 2002, weighted-average equity securities totaling 555,397 and1,801,420, respectively, were excluded from the calculations as their effectwas anti-dilutive due to such securities having exercise prices in excess ofthe weighted-average fair value of the Company’s common stock during the ninemonth periods.

 

REVENUE RECOGNITION:  The Company principally derives its revenue from licensingtechnology and providing management and maintenance services of MEPS and H!BOXsoftware, ticker plant technologies, and managed services. Additionally, theCompany derives revenue from the development of customized software. Revenue isrecognized (1) ratably over the term of the agreement for MEPS and H!BOX and(2) based on time and materials for the development of customized software.

 

On October 31, 2003,the Company sold its lower margin consolidated market data feed servicecontracts. Revenue recognized prior to October 31, 2003, related to theassets sold and included in discontinued operations was principally derivedfrom service contracts for the provision of market data only and servicecontracts for the provision of market data together with analytical software.HyperFeed primarily serviced the business-to-business marketplace. Revenue fromservice contracts was recognized ratably over the contract term as thecontracted services were rendered. HyperFeed customers were generally billedone month in advance with 30-day payment terms. Payments received prior toservices being rendered and customers’ deposits on service contracts areclassified on the balance sheet as liabilities related to discontinuedoperations.

 

On June 2, 2003, theCompany sold certain assets of HYPRWare, consisting of its retail investor unitand Web site. Revenue recognized prior to June 2, 2003 related to theHYPRWare assets sold was primarily derived from analytics service, powered bythe HyperFeed data feed, for Internet users in the consumer marketplace andfrom the sale of

 

7

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advertising on its Web site. Revenue from the sale of advertising wasrecognized as the advertising was displayed on the Web site.

 

HYPRWare derives revenuefrom royalties related to license fees for customers it referred to TownsendAnalytics, Ltd. (“Townsend”) prior to December 31, 2002.

 

The Company applies theprovisions of Statement of Position 97-2, “Software Revenue Recognition,” asamended, which specifies the following four criteria that must be met prior torecognizing revenue: (1) persuasive evidence of the existence of anarrangement, (2) delivery, (3) fixed or determinable fee, and (4) probablecollection. In addition, revenue earned on software arrangements involvingmultiple elements is allocated to each element based on the relative fair valueof the elements. When applicable, revenue allocated to the Company’s softwareproducts (including specified upgrades/enhancements) is recognized upondelivery of the products. Revenue allocated to post contract customer supportis recognized ratably over the term of the support and revenue allocated toservice elements (such as training) is recognized as the services areperformed.

 

(2) RECLASSIFICATIONS

 

The Company hasreclassified its consolidated statements of operations data for all periodspresented to reflect the plan to sell as of September 30, 2003 and theconsummation of the sale on October 31, 2003 of its consolidated marketdata feed service contracts and the sale on June 2, 2003 of the individualretail investor unit and related assets of its subsidiary, both of which havebeen accounted for as a discontinued operation. Certain costs formerly reportedas a component of datafeed operations in direct costs of services are nowreported as operating expenses consistent with the Company's current businessmodel.

 

(3) INCOME TAXES

 

At December 31, 2002, the Company had Federalincome tax net operating loss carryforwards of $24.9 million for Federal incometax purposes and $24.5 million for the alternative minimum tax. Of these netoperating losses, $1.1 million related to exercise of incentive employee stockoptions and has been, or will be, credited directly to stockholders’ equitywhen realized. The Company also had research and development credits of $106,000that will all expire by 2011 if not previously utilized. The future utilizationof these net operating losses and research and development credits will belimited due to historical changes in Company ownership. The Company’s netoperating loss carryforwards are limited to $10.1 million in 2003 and anadditional $1.2 million for each subsequent year thereafter. The net operatingloss carryforwards expire through 2022. The Company has not recorded any taxbenefits related to these net operating loss carryforwards.

 

(4) SEGMENT INFORMATION

 

While the Company operates in one industry, financial services, inapplying SFAS No. 131, “Disclosures about Segments of an Enterprise and RelatedInformation”, the Company has identified two segments within which it operates.The Company’s services are principally in the business-to-business sector,while its subsidiary, HYPRWare, derives revenue from royalties related tolicense fees collected by Townsend from subscribers referred through HYPRWare.The Company evaluates performance and allocates resources based on operatingprofitability and growth potential. The accounting policies of the reportablesegments are the same as those described in Note 1. Financial informationrelating to industry segments for the three and nine months endedSeptember 30, 2003 and September 30, 2002 is as follows:

 

8

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|                                                    |   | **Three Months Ended**September 30, |       | **Nine Months Ended  September 30,** |   |
|---------------------------------------------------------|--------|------------------------------------------|------------|-------------------------------------------|--------|
|                                                    |   | **2003**                                 |       | **2002**                                  |   | **2003** |   | **2002** |   |
| **Sales to unaffiliated customers**                     |   |                                     |       |                                      |   |   |   |   |   |
| HyperFeed services                                      |   | $                                        | 363,441    |                                      | $      | — |   | $ | 363,441 |   | $ | — |   |
| HYPRWare services                                       |   | 115,617                                  |       | 211,494                                   |   | 456,646 |   | 716,219 |   |
| Total revenue                                           |   | $                                        | 479,058    |                                      | $      | 211,494 |   | $ | 820,087 |   | $ | 716,219 |   |
|                                                    |   |                                     |       |                                      |   |   |   |   |   |
| HyperFeed services                                      |   | 75.9                                     | %          | —                                    | %      | 44.3 | % | — | % |
| HYPRWare services                                       |   | 24.1                                     | %          | 100.0                                     | %      | 55.7 | % | 100.0 | % |
| Total revenue                                           |   | 100.0                                    | %          | 100.0                                     | %      | 100.0 | % | 100.0 | % |
|                                                    |   |                                     |       |                                      |   |   |   |   |   |
| **Operating income (loss) from  continuing operations** |   |                                     |       |                                      |   |   |   |   |   |
| HyperFeed services                                      |   | $                                        | (1,558,926 | )                                         | $      | (1,726,504 | ) | $ | (4,944,830 | ) | $ | (5,123,241 | ) |
| HYPRWare services                                       |   | 70,828                                   |       | 168,253                                   |   | 349,177 |   | 573,304 |   |
| Total operating loss from  continuing operations        |   | $                                        | (1,488,098 | )                                         | $      | (1,558,251 | ) | $ | (4,595,653 | ) | $ | (4,549,937 | ) |
|                                                    |   |                                     |       |                                      |   |   |   |   |   |
| HyperFeed services                                      |   |                                     | *          |                                      | *      |   | * |   | * |
| HYPRWare services                                       |   |                                     | *          |                                      | *      |   | * |   | * |
| Total operating loss from  continuing operations        |   |                                     | *          |                                      | *      |   | * |   | * |
|                                                    |   |                                     |       |                                      |   |   |   |   |   |
| **Identifiable assets**                                 |   |                                     |       |                                      |   |   |   |   |   |
| HyperFeed services                                      |   | $                                        | 4,397,569  |                                      | $      | 7,625,117 |   | $ | 4,397,569 |   | $ | 7,625,117 |   |
| HYPRWare services                                       |   | 473,741                                  |       | 587,204                                   |   | 473,741 |   | 587,204 |   |
| Total identifiable assets                               |   | $                                        | 4,871,310  |                                      | $      | 8,212,321 |   | $ | 4,871,310 |   | $ | 8,212,321 |   |
|                                                    |   |                                     |       |                                      |   |   |   |   |   |
| HyperFeed services                                      |   | 90.3                                     | %          | 92.8                                      | %      | 90.3 | % | 92.8 | % |
| HYPRWare services                                       |   | 9.7                                      | %          | 7.2                                       | %      | 9.7 | % | 7.2 | % |
| Total identifiable assets                               |   | 100.0                                    | %          | 100.0                                     | %      | 100.0 | % | 100.0 | % |

 

----

* not meaningful

 

(5) DISCONTINUED OPERATIONS

 

On October 31, 2003, the Company sold its lower margin consolidatedmarket data feed service contracts to Interactive Data Corporation (“IDC”) for$8.5 million and expects to recognize a gain on the sale of approximately $6.4million in the fourth quarter of 2003. The Company expects to recognize anadditional gain of $1.5 million as and if certain milestones are met. The saleallows HyperFeed to focus on its business model as a utility provider oftechnology, software, and managed services for financial institutions. The saleprice of $8.5 million includes (1) an initial payment of $7.0 million cash dueon October 31, 2003, (2) $625,000 in holdbacks payable upon completion ofcustom software and the fulfillment of a transition services agreement, and (3)an $875,000 indemnification holdback.

 

On June 2, 2003, the Company sold the individual retail investorunit and related assets of its subsidiary to Money.net, Inc. and recorded again on the sale of $0.2 million, net of taxes. The sale was part of theCompany’s strategy to reduce its dependence on revenue from the individualinvestor and replace and grow that revenue with revenue from MEPS technologylicensing sales. It also allowed the Company to expand and transition its customerbase from two target markets (retail and institutional) to six target markets,including exchanges, content providers, re-distributors, institutions, channelpartners, and value added resellers. The sale price consisted of (1) $150,000cash received in June 2003, (2) $70,000 cash received in July 2003,and (3) a $150,000 promissory note due in twelve equal installments commencingon July 15, 2003 with an interest rate of 8.0% per annum. The Companytransferred net assets with a net book value of $7,811 to Money.net.

 

The dispositions have been accounted for as discontinued operations inaccordance with SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets” and, accordingly, amounts in the consolidated statements ofoperations for all periods shown have been reclassified to reflect thedispositions as discontinued operations. The results of operations for thediscontinued business are as follows:

 

9

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|                                                         |   | **Three months ended********September 30,** |      | **Nine months ended********September 30,** |   |
|--------------------------------------------------------------|--------|--------------------------------------------------|-----------|-------------------------------------------------|--------|
|                                                         |   | **2003**                                         |      | **2002**                                        |   | **2003** |   | **2002** |   |
| **Revenue**                                                  |   |                                             |      |                                            |   |   |   |   |   |
| HyperFeed Services                                           |   | $                                                | 2,794,361 |                                            | $      | 3,982,487 |   | $ | 8,679,523 |   | $ | 12,928,875 |   |
| HYPRWare Services                                            |   | 122,905                                          |      | 488,656                                         |   | 883,965 |   | 1,654,859 |   |
| **Total Revenue**                                            |   | 2,917,266                                        |      | 4,471,143                                       |   | 9,563,488 |   | 14,583,734 |   |
|                                                         |   |                                             |      |                                            |   |   |   |   |   |
| **Direct Cost of  Services**                                 |   |                                             |      |                                            |   |   |   |   |   |
| HyperFeed Services                                           |   | 1,871,029                                        |      | 1,958,958                                       |   | 5,356,255 |   | 6,046,200 |   |
| HYPRWare Services                                            |   | 105,916                                          |      | 763,776                                         |   | 545,246 |   | 2,300,366 |   |
| **Total Direct  Cost of Services**                           |   | 1,976,945                                        |      | 2,722,734                                       |   | 5,901,501 |   | 8,346,566 |   |
|                                                         |   |                                             |      |                                            |   |   |   |   |   |
| **Gross Margin**                                             |   | 940,321                                          |      | 1,748,409                                       |   | 3,661,987 |   | 6,237,168 |   |
|                                                         |   |                                             |      |                                            |   |   |   |   |   |
| Operating Expenses                                           |   | 633,426                                          |      | 1,095,266                                       |   | 2,110,883 |   | 3,498,490 |   |
|                                                         |   |                                             |      |                                            |   |   |   |   |   |
| **Income from  discontinued operations before income taxes** |   | 306,895                                          |      | 653,143                                         |   | 1,551,104 |   | 2,738,678 |   |
|                                                         |   |                                             |      |                                            |   |   |   |   |   |
| Income taxes                                                 |   | (119,075                                         | )         | (253,419                                        | )      | (601,827 | ) | (1,062,943 | ) |
|                                                         |   |                                             |      |                                            |   |   |   |   |   |
| **Income from  discontinued operations**                     |   | $                                                | 187,820   |                                            | $      | 399,724 |   | $ | 949,277 |   | $ | 1,675,735 |   |

 

As described above, the Company sold its consolidated market data feedservice contracts on October 31, 2003. The accompanying consolidated interim financial statements reflect thesale as a discontinued operation as of September 30, 2003 and December 31,2002, and for the three and nine months ended September 30, 2002 and 2003.  In accordance with Article 11 of RegulationS-X, the following unaudited pro forma information reflects the Company'sresults of operations for the year ended December 31, 2002 as if the sale ofthe date feed service contracts occurred on January 1, 2002.  The unaudited pro forma financialinformation has been prepared based upon available information that the Companybelieves is reasonable and is presented for illustrative purposes only. It isnot necessarily indicative of the results of operations that would have beenobtained had the sale actually occurred prior to December 31, 2002, nor isit necessarily indicative of future operating results of the Company.

 
|                                                          |   | **Year Ended********December 31, 2002** |       |
|---------------------------------------------------------------|--------|----------------------------------------------|------------|
|                                                          |   | **Historical**                               |       | **Eliminations** |   | **As Adjusted** |   |
| **Revenue**                                                   |   |                                         |       |   |   |   |   |
| HyperFeed Services                                            |   | $                                            | 16,783,348 |   | $ | 16,783,348 |   | $ | — |   |
| HYPRWare Services                                             |   | 3,041,723                                    |       | 2,130,582 |   | 911,141 |   |
| **Total Revenue**                                             |   | 19,825,071                                   |       | 18,913,930 |   | 911,141 |   |
|                                                          |   |                                         |       |   |   |   |   |
| **Direct Cost of  Services**                                  |   |                                         |       |   |   |   |   |
| HyperFeed Services                                            |   | 10,038,231                                   |       | 8,695,392 |   | 1,342,839 |   |
| HYPRWare Services                                             |   | 2,665,844                                    |       | 2,665,844 |   | — |   |
| **Total Direct  Cost of Services**                            |   | 12,704,075                                   |       | 11,361,236 |   | 1,342,839 |   |
|                                                          |   |                                         |       |   |   |   |   |
| **Gross Margin**                                              |   | 7,120,996                                    |       | 7,552,694 |   | (431,698 | ) |
|                                                          |   |                                         |       |   |   |   |   |
| Operating Expenses                                            |   | 11,547,332                                   |       | 5,882,941 |   | 5,664,391 |   |
| **Loss from  operations**                                     |   | (4,426,336                                   | )          | 1,669,753 |   | (6,096,089 | ) |
|                                                          |   |                                         |       |   |   |   |   |
| Net other income                                              |   | 19,263                                       |       | — |   | 19,263 |   |
| **Loss from  operations before income taxes**                 |   | (4,407,073                                   | )          | 1,669,753 |   | (6,076,826 | ) |
|                                                          |   |                                         |       |   |   |   |   |
| Income tax benefit                                            |   | 46,299                                       |       | 46,299 |   | — |   |
| **Net loss**                                                  |   | $                                            | (4,360,774 | ) | $ | 1,716,052 |   | $ | (6,076,826 | ) |
|                                                          |   |                                         |       |   |   |   |   |
| Basic and diluted loss per  common share                      |   | $                                            | (1.80      | ) |   |   | $ | (2.50 | ) |
| Basic and diluted  weighted-average common shares outstanding |   | 2,427,675                                    |       |   |   | 2,427,675 |   |

 

10

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Assets and liabilities related to discontinued operations consist of thefollowing:

 
|                                                         |   | **September 30,********2003** |      | **December 31,********2002** |   |
|--------------------------------------------------------------|--------|------------------------------------|-----------|-----------------------------------|--------|
| **Assets Related  to Discontinued Operations**               |   |                               |      |                              |   |
| Accounts receivable, net of  allowance for doubtful accounts |   | $                                  | 353,225   |                              | $      | 627,652 |   |
| Prepaid expenses and other  current assets                   |   | 190,957                            |      | 242,235                           |   |
| Property and equipment, net of  accumulated depreciation     |   | 84,247                             |      | 183,058                           |   |
| Deposits and other assets                                    |   | 30,251                             |      | 30,251                            |   |
| **Total Assets  Related to Discontinued Operations**         |   | $                                  | 658,680   |                              | $      | 1,083,196 |   |
|                                                         |   |                               |      |                              |   |
| **Liabilities  Related to Discontinued Operations**          |   |                               |      |                              |   |
| Accounts payable                                             |   | $                                  | 979,807   |                              | $      | 1,061,909 |   |
| Accrued expenses                                             |   | 328,782                            |      | 887,942                           |   |
| Accrued compensation                                         |   | 40,245                             |      | 33,775                            |   |
| Unearned revenue                                             |   | 1,126,749                          |      | 1,185,938                         |   |
| **Total  Liabilities Related to Discontinued Operations**    |   | $                                  | 2,475,583 |                              | $      | 3,169,564 |   |

 

(6) REVERSE STOCK SPLIT

 

On August 13, 2003, the Company effected a one-for-ten (1:10)reverse split of its common stock. All share and per share data of the Companyin the accompanying unaudited interim consolidated financial statements and inthese notes to the unaudited consolidated financial statements give effect tothe reverse stock split.

 

(7) SUBSEQUENT EVENTS

 

On October 31, 2003, the Company sold its lower margin consolidatedmarket data feed service contracts to IDC. The sale allows HyperFeed to focuson its business model as a utility provider of ticker plant technology,software, and managed services for financial institutions. The sale price of$8.5 million includes (1) an initial payment of $7.0 million cash due onOctober 31, 2003, (2) $625,000 in holdbacks payable upon completion ofcustom software and the fulfillment of a transition services agreement, and (3)an $875,000 indemnification holdback.

 

The Company expects to record a gain on the sale and a correspondingincrease in stockholders’ equity of approximately $6.4 million in the fourthquarter of 2003. The Company expects to record an additional gain of $1.5million as and if certain milestones are met. The gain expected to be recordedin the fourth quarter of 2003 will consist of the $7.0 million cash paymentreceived on October 31, 2003 reduced by (1) professional fees directlyrelated to the sale, (2) the write-off of certain fixed assets and softwaredevelopment costs, and (3) other costs related to the transaction.

 

In addition to the sale of its consolidated market data feed servicecontracts, the Company also entered into a licensing agreement with IDC toutilize HyperFeed’s customer premise technologies for a period of five yearsand a transition services agreement for operating HyperFeed’s currentconsolidated ticker plant during a transition period.

 

**ITEM 2 Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

INTRODUCTION – SAFE HARBORDISCLOSURE

 

The following discussionand analysis contains historical information. It also contains forward-lookingstatements within the meaning of the “safe harbor” provisions of the PrivateSecurities Litigation Reform Act of 1995, particularly in reference tostatements regarding our expectations, plans, and objectives. You can generallyidentify forward-looking statements by the use of the words “may,” “will,” “expect,”“intend,” “estimate,” “anticipate,” “believe,” “continue,” or similar language.Forward-looking statements involve substantial risks and uncertainties. Youshould give careful consideration to cautionary statements made in thisdiscussion and analysis. We base our statements on our current expectations.HyperFeed undertakes no obligation to publicly release the results of anyrevision to these forward-looking statements which may be made to reflectevents or circumstances after the dates hereof or to reflect the occurrence ofunanticipated events.

 

11

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Forward-looking statementsmay be impacted by a number of factors, risks, and uncertainties that couldcause actual results to differ materially from those described in theforward-looking statements. Among these factors are:

 
| (i)    | that the information is  of a preliminary nature and may be subject to further adjustment;                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)   | variability in our  quarterly operating results;                                                                                                         |
| (iii)  | our ability to fund our current  and future business strategies either through continuing operations or  external financing;                             |
| (iv)   | our ability to  successfully attract and retain qualified management and key employees;                                                                  |
| (v)    | our ability to  successfully compete against competitive products and services;                                                                          |
| (vi)   | our ability to deliver  and maintain performance standards according to the terms and conditions of  our customer contracts;                             |
| (vii)  | our ability to maintain  relationships with key suppliers and providers of market data;                                                                  |
| (viii) | our ability to maintain  our existing customer base while increasing our presence in the financial  institutional marketplace;                           |
| (ix)   | our ability to develop,  complete and introduce new product and service initiatives in a timely manner  and at competitive price and performance levels; |
| (x)    | our ability to manage the  timing of the development and introduction of new products or enhanced  versions of existing products;                        |
| (xi)   | our ability to gain the  market’s acceptance of new products;                                                                                       |
| (xii)  | our ability to  successfully license ticker plant technology, software, and managed services;                                                            |
| (xiii) | the effect of economic  and business conditions generally;                                                                                               |
| (xiv)  | risks related to pending  or future legal proceedings;                                                                                                   |
| (xv)   | risks relating to  possible delisting from The Nasdaq SmallCap Market; and                                                                               |
| (xvi)  | other risks identified  from time to time in our reports and registration statements filed with the  Securities and Exchange Commission.                 |

 

OVERVIEW

 

In the three month periodended September 30, 2003, the Company’s unadjusted revenue increased 2% overthe prior quarter, representing the first quarter-to-quarter increase inrevenue since the second quarter of 2000. Following the end of the period, theCompany completed an important strategic divesture.

 

On October 31, 2003, the Company sold its lower margin consolidatedmarket data feed service contracts to Interactive Data Corporation (“IDC”) for$8.5 million and expects to recognize a gain on the sale of approximately $6.4million in the fourth quarter of 2003. The Company expects to recognize anadditional gain of $1.5 million as and if certain milestones are met. The saleallows HyperFeed to focus on its business model as a utility provider oftechnology, software, and managed services for financial institutions. The saleprice of $8.5 million includes (1) an initial payment of $7.0 million cash dueon October 31, 2003, (2) $625,000 in holdbacks payable upon completion ofcustom software and the fulfillment of a transition services agreement, and (3)an $875,000 indemnification holdback.

 

The divestiture of theCompany’s consolidated market data feed business was the culminating step inits year-long evolution from consolidated data vendor to provider and developerof ticker plant technologies, software, and managed services. HyperFeed endedits workstation and desktop application initiatives earlier in the year andsold the individual investorunitof its subsidiary in June 2003. Over the past four quarters, the Companybelieves it has made significant progress in creating a solid customer base andlong-term revenue streams for its MEPS and H!BOX products and services. Currentcustomers include Chicago Board Options Exchange, MoneyLine Telerate (“MLT”),and now, IDC. HyperFeed believes that it has established itself as a marketleader in the licensing of ticker plant technologies, software, and managedservices, allowing it to take the final step of divesting its lower marginconsolidated market data feed business. While HyperFeed will no longer own ormaintain a proprietary consolidated market data feed, the Company will continueoffering consolidated market data feeds to its technology, software, andmanaged services customers through its partners, including IDC, Telekurs,Reuters, and MLT. HyperFeed believes that the sale of its consolidated marketdata feed service contracts has also expanded sales channels by eliminating theCompany as a competitor in the application and consolidated market data feedbusiness.

 

In the third quarter of 2003, HyperFeed achieved major milestones in theexecution of its strategy to license its core MEPS and H!BOX ticker plant technologies in a managed services model. These milestonesset the stage for the subsequent sale of its consolidated market data feedbusiness. Section (i) describes in more detail the current business model,product offerings, and market potential. Section (ii) outlines the newcontracts entered into by HyperFeed in the third quarter of 2003 that relateexclusively to its technology licensing strategy. Section (iii) discusseshow HyperFeed intends to avoid a potential Nasdaq de-listing. Section (iv)illustrates HyperFeed’s initiative to support industry standards by joining theLiberty Alliance Project.

 

12

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**(i)Description of the Technology, Software, and Managed Services LicensingStrategy and Market Potential**

 

Following the sale of its consolidated marketdata feed service contracts, HyperFeed will focus on being a developer andprovider of ticker plant technologies, software, and managed services. Itsproducts serve as corporate-wide ticker plants, and enable financialinstitutions with the flexibility and agility to control their own data sourcesand data content in a cost-effective manner. HyperFeed’s Managed ExchangePlatform Services (“MEPS”) and H!BOX products are data agnostic productsdesigned specifically to support real-time market data, data management, datareporting, and value added services for use in delivering and receivingfinancial content with a competitive edge. These software and technologies canbe used with industry-leading APIs, third-party applications, or online desktopsolutions. MEPS and H!BOX have flexible licensing models that can fulfill theneeds of financial institutions, exchanges, content providers, re-distributors,channel partners, and value added resellers.

 

HyperFeed’s managementexpects that these technologies, software, and services will enable the Companyto be a market leader in managed ticker plant services. HyperFeed currently hasthe ability to deliver through its MEPS four of the top six consolidated dataservices and all direct exchange based data. HyperFeed does not believe thatits competitors offer complete solutions for processing and transmission ofdata inclusive of data integrity services as a packaged solution, which isagnostic of content. HyperFeed believes that it is positioned to offer superiorservice through a single architecture.

 

HyperFeed has the abilityto package its ticker plant technologies to be used at the customer’s site asan on-site ticker plant. These technologies include the software that reads thedata sources, as well as Neosphere and other proprietary solutions. Neosphereis the Company’s entitlement system that is approved by all North AmericanExchanges and three of the top five market data aggregators (Telekurs, Reuters,and ComStock). Neosphere is the only exchange compliant entitlement systemwithin the industry. Neosphere can therefore be sold on its own to other marketdata companies, exchanges, or financial institutions.

 

Other significantcomponents of HyperFeed’s proprietary technologies include Zero LossCompaction, Line Arbitration, and Channelization. HyperFeed believes that thesetechnologies have the following competitive advantages:

 

•                  **ZeroLoss Compaction**: HyperFeed’s Zero Loss Compaction, another component of the MEPS, canreduce the latency problems and the bandwidth costs financial institutions facewith direct-to-exchange data feeds. It currently provides up to a 10:1compression ratio, allowing clients to receive complete data sets over lessbandwidth.

•                  **LineArbitration:**  HyperFeed’s Line Arbitrationallows critical redundancy at the application layer. This is a technology thathas been developed to ensure that the MEPS receives the most reliable datapossible by simultaneously reading two diverse paths and forwarding the mosttimely and accurate source to the MEPS.

•                  **Channelization:**  HyperFeed’s Channelization technology is thedata distribution system of the MEPS. This technology allows for flexibility inthe distribution of financial market information from a single system to bedeployed in any combination of datasets to fit the need of the user.

 

HyperFeed developed thesetechnologies through years of significant investment in time and resources.

 

**MarketPotential**

 

The sale of HyperFeed’s consolidated market data feed service contractscompletes the year-long transformation of its business model from providinglower margin consolidated market data feed to licensing higher margin tickerplant technologies, software, and managed services. HyperFeed believes that itsopportunities within the technology industry are greater as a software licenserthan as a data feed provider.  However,there can be no assurances that HyperFeed will be successful in executing itsbusiness model as a software licenser or in realizing these opportunities.

 

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HyperFeed has strategicallyevolved its business from providing a market data feed to two sales channels,financial institutions and re-distributors, to licensing its ticker planttechnologies, software, and managed services to the following six saleschannels:

 

•                  **Content Providers:** Over 1,000 global content providerscurrently exist. MLT is an example of a content provider;

•                  **Exchanges:** Over 200 global exchanges currently exist,some of which HyperFeed believes are in the market for its technologies;

•                  **Institutions:** HyperFeed believes institutions are a saleschannel for the consolidated market data feeds of its partners, as well as forits MEPS and H!BOX products bundled with managed services;

•                  **Re-distributors:** HyperFeed believes that re-distributors area sales channel for the consolidated market data feeds of its partners, as wellas for its MEPS and H!BOX products bundled with managed services;

•                  **Channel Partners:** HyperFeed believes that many companies maywant to be channel partners by combining technology. For example, HyperFeed recentlyentered into a software license agreement with Tibco Software, Inc, to embed Tibco’ssoftware products into HyperFeed’s ticker plant technologies and to resell thesoftware into its clients’ infrastructures; and

•                  **Value Added Resellers(“VARs”):** HyperFeed expectsto selectively assign VARs to specific markets to sell its software.

 

HyperFeed believes that the recently completed sale of its consolidatedmarket data feed service contracts provides it with several opportunities,including the following:

 

•                  **Improved liquidity**: The proceeds of the sale improve theCompany’s liquidity and will provide it with funds to reinvest in its business.

•                  **Sales into higher marginsales channels**: HyperFeedbelieves the sale will remove barriers between HyperFeed and certain potentialcustomers. Many potential clients of HyperFeed’s software technology are alsoproviders of data or suppliers to providers of data. Following the sale,HyperFeed will generally no longer compete with these potential customers andcan license its technologies to those organizations. As a software provider,HyperFeed expects that it will gain better access to the content provider,exchange, and VARs client base.

•                  **Transformation from MissionCritical Operations to Mission Critical Technology:**The completion of this transaction removescustomer issues when small companies support mission critical operations, asbusinesses are more accustomed to dealing with small, dynamic softwarecompanies. This is the final step to complete HyperFeed’s transformation to aprovider of ticker plant technologies, software, and managed services.

 

**(ii)Exclusive Technology Licensing Customers**

 

On July 10, 2003,HyperFeed announced that MLT signed an agreement to license and deployHyperFeed’s MEPS and H!BOX ticker plant technologies globally. MLT, a leadingglobal provider of real-time information and transaction services, is usingHyperFeed’s MEPS and H!BOX to augment its own global ticker plant, Crucible,and as the distribution technology for its data. It is expected thatHyperFeed’s MEPS and H!BOX software and technologies will be integrated intoMLT’s Crucible infrastructure to accelerate MLT’s migration from its legacyticker plant. HyperFeed understands that MLT intends to also use MEPS and H!BOXas a source for distribution, delivery, and transmission of multipleinformation sources in a global infrastructure.

 

This agreement, as well asothers like it, contribute directly to HyperFeed’s current business model —licensing its ticker plant technologies, software, and managed services. Thesecustomers were not included in the recent sale of HyperFeed’s consolidatedmarket data feed customers to IDC.

 

In addition, subsequent tothe third quarter of 2003, HyperFeed acquired another customer for itsproprietary technologies in IDC simultaneous with the sale of its consolidatedmarket data feed service contracts to IDC.

 

**(iii)Potential Nasdaq Delisting**

 

On June 19, 2003, theCompany’s executive management appeared at an oral hearing (the “Hearing”)before a Nasdaq Listing Qualifications Panel (the “Panel”) to present its planof compliance with the stockholders’ equity/net income/market value of listedsecurities and minimum bid price continued listing requirements. OnJuly 15, 2003, the Panel issued a determination outlining the terms andprovisions of the exception to the Nasdaq continued listing criteria (the“Exception”). Under the terms and conditions of the Exception, the Company wasrequired to meet certain interim performance and disclosure milestones.Specifically, on or before August 14, 2003 and for ten consecutive tradingdays thereafter, the Company was required to demonstrate a closing bid pricefor its securities of at least $1.00 per share for the requisite

 

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tradingperiod. Further, on or before the same date, the Company was required to fileits Quarterly Report on Form 10-Q for the quarter ended June 30, 2003evidencing stockholders’ equity of at least $2.5 million. Finally, on or beforeNovember 14, 2003, the Company was required to file its Quarterly Reporton Form 10-Q for the quarter ended September 30, 2003 evidencingshareholders’ equity of at least $2.5 million. The Company has complied withthe first and second provisions of the Exception which compliance was confirmedby the Nasdaq staff in its September 2, 2003 correspondence to theCompany.

 

As a result of theCompany’s compliance with the first provision of the Exception, the “C”qualifier has beenremoved from the Company’s trading symbol as of September 5, 2003. The tradingsymbol reverted to “HYPRD.” The “D” qualifier was added to the Company’s trading symbol to denote therecent reverse split of the Company’s common stock and, on September 10,2003, the symbol reverted to its original “HYPR.”

 

In accordance with the third provision of the Exception, theCompany must file, on or before November 14, 2003, its Quarterly Report onForm 10-Q for the quarter ended September 30, 2003 evidencingshareholders’ equity of at least $2.5 million. The Company’s consolidatedbalance sheets as of September 30, 2003 reflected stockholder’s equity of$1.4 million, which does notinclude the $8.5 million for the asset purchase and sale agreement that closedon October 31, 2003 and is described in Footnote 7 of the Company’s notesto unaudited interim consolidated financial statements. As a result ofthis transaction, the Company expects to recognize a gain of approximately $6.4million and a corresponding increase in stockholders’ equity in the fourthquarter of 2003. The Company believes that as of December 31, 2003,stockholders’ equity will be inexcess of the $2.5 million required by the Exception. In light of the foregoing, the Companyrequested that the Panel confirm that the Company is in compliance with thethird and final provision of the Exception. However, there is no assurance thatthe Panel will grant the Company’s request. In the event the Panel does notgrant the Company’s request, the Company’s securities will be subject todelisting from The Nasdaq SmallCap Market.

 

Should the Company’s securities cease to be listed on The NasdaqSmallCap Market, the Company’s securities may continue to be quoted on the OTCBulletin Board. Quotation on the OTC Bulletin Board will likely result in morevolatility in the price of the Company’s stock, less volume, and no analystcoverage. As a result, the Company’s stock price would likely decline furtherand the ability of any potential or future investors to achieve liquidity fromthe Company’s common stock could be severely limited, not only in the number ofshares that could be bought and sold at a given price, but also through delaysin the timing of transactions and reduction in media coverage of the Company.This could inhibit, if not preclude, the Company’s ability to raise additionalworking capital on acceptable terms, if at all. In addition, current andprospective customers and strategic partners may limit or cease their businessrelationships with the Company because of concerns or perceptions regarding itslisting status and future liquidity.

 

**(iv)Support of Industry Standards**

 

During the third quarter, HyperFeed continued itssupport of industry standards by joining the Liberty Alliance Project, whichpromotes federated identities.

 

OnJuly 28, 2003, HyperFeed joined the Liberty Alliance Project as anassociate member as part of an effort to help lead the securities industry inan initiative to implement a standards based, federated network identitysystem. The Liberty Alliance Project is a consortium of more than 170technology, government, and end-user organizations that is developing specificationsand best practices to make federated identities a reality.

 

Conductingsecurities industry business online today requires users to verify theiridentity each time they visit a Web site or access an online application. Thisprocess makes Internet-based transactions very complex and reduces the qualityof the end-user experience. A federated identity allows for a single login, anda one-time entry of identity information for a consumer, an employee, abusiness, a supplier, even a machine or device, which is stored and accesseddigitally. This might include name, address, phone numbers, email, pagers,licenses, accreditations, applications, associations, and more.

 

Asa member of the Alliance, HyperFeed will lend the open standards expertise ithas developed on the deployment of its MEPS and its exchange approved,VRXML-enabled Neosphere administration, billing, and reporting technology, tohelp the securities industry create the business rules and other technologysolutions required for implementation of a federated, single sign-on identitymodel to simplify and secure the process of conducting business online.

 

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RECENT BUSINESSDEVELOPMENTS

 

**Divestiture of HyperFeed’sConsolidated Market Data Feed Customers**

 

On October 31, 2003, the Company sold its lower margin consolidatedmarket data feed service contracts to IDC. The sale allows HyperFeed to focuson its business model as a utility provider of ticker plant technology,software, and managed services for financial institutions. The sale price of$8.5 million includes (1) an initial payment of $7.0 million cash due onOctober 31, 2003, (2) $625,000 in holdbacks payable upon the completion ofcustom software and the fulfillment of a transition services agreement, and (3)an $875,000 indemnification holdback.

 

In addition to sale of itsconsolidated market data feed service contracts, HyperFeed also entered into alicensing agreement with IDC to utilize its customer premise technologies for aperiod of five years and a transition services agreement for operating itscurrent consolidated ticker plant during a transition period. By exiting theconsolidated data feed business, the Company estimates that it will be able toreduce its overhead by more than $8.0 million annually.

 

RESULTS OF OPERATIONS: FORTHE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

 

The Company hasreclassified its consolidated statements of operations data for all periodspresented to reflect the sale on October 31, 2003 of its consolidatedmarket data feed service contracts and the sale on June 2, 2003 of theindividual retail investor unit and related assets of its subsidiary, both ofwhich have been accounted for as discontinued operations.

 

**Revenue**

 

Total revenue for the nine months ended September 30, 2003increased 14.5% to $0.8 million compared with $0.7 million for the nine monthsended September 30, 2002. Total revenue for the three months endedSeptember 30, 2003 increased 126.5% to $0.5 million compared with $0.2 millionfor the three months ended September 30, 2002. HyperFeed services revenueincreased for the nine months and three months ended September 30, 2003compared to the same periods in 2002. HYPRWare services revenue decreased forthe nine months and three months ended September 30, 2003 compared to thesame periods in 2002.

 

HyperFeed services revenue increased to $0.4 million for the three andnine months ended September 30, 2003. HyperFeed had no comparable revenuefor the three and nine months ended September 30, 2002. HyperFeed servicesrevenue in 2003 is derived from MEPS and H!BOX software and ticker planttechnologies. All HyperFeed services revenue associated with the consolidatedmarket data feed service contracts sold to IDC has been reclassified asdiscontinued operations. HyperFeed currently expects that future revenue willbe derived principally from licensing ticker plant technologies, software, andmanaged services.  There is no assurancethat the Company will be able to successfully license its ticker planttechnologies, software, and managed services.

 

HYPRWare service revenue decreased 36.2% to $0.5 million for the ninemonths ended September 30, 2003 compared with $0.7 million for the ninemonths ended September 30, 2002. For the three months endedSeptember 30, 2003, HYPRWare service revenue decreased 45.3% to $0.1million compared with $0.2 million for the three months endedSeptember 30, 2002. The decline in HYPRWare service revenue is due todecreases in royalties from Townsend. All HYPRWare services revenue associatedwith the consolidated market data feed service contracts sold to IDC has beenreclassified as discontinued operations. HyperFeed currently expects that any future revenue recognized byHYPRWare will be derived exclusively from royalties from the licensingagreement with Townsend.

 

**DirectCosts of Services**

 

Total direct costs of services increased 7.7% to $1.1 million for thenine months ended September 30, 2003 compared with $1.0 million for thenine months ended September 30, 2002. For the three months endedSeptember 30, 2003, total direct costs of services increased 18.0% to $0.4million compared with $0.3 million for the three months endedSeptember 30, 2002. The principal component of the increase in bothperiods was software development labor related to customer specific software.Amortization of software development costs remained unchanged at $1.0 millionfor the nine months ended September 30, 2003 and 2002 and at $0.3 millionfor the three months ended September 30, 2003 and 2002. There are nodirect costs of services related to HYPRWare service revenue as such amountsconsist solely of royalty income.  Grossmargin remained unchanged at a loss of $0.3 million for the nine months endedSeptember 30, 2003 and 2002. Gross margin increased to $0.1 million forthe three months ended September 30, 2003 compared with a loss of $0.1million for the three months ended September 30, 2002. Direct costs, as apercentage of revenue decreased to 131.5% for the nine months ended September 30,2003 compared with 139.9% for the nine months ended September 30, 2002.Direct costs as a percentage of revenue decreased to 83.9% for the three monthsended September 30, 2003 compared with 161.1% for the three months ended September 30,2002.

 

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**OperatingExpenses**

 

Total operating expenses remained relatively unchanged at $4.3 millionfor the nine months ended September 30, 2003 and 2002. For the threemonths ended September 30, 2003, total operating expenses increased 9.5%to $1.6 million compared with $1.4 million for the three months endedSeptember 30, 2002. Increases were experienced in all categories ofoperating expenses for the three and nine months ended September 30, 2003except depreciation and amortization. As a percentage of revenue, totaloperating expenses decreased to 528.9% for the nine months endedSeptember 30, 2003 compared to 595.4% for the nine months endedSeptember 30, 2002 and decreased to 326.7% for the three months endedSeptember 30, 2003 compared to 675.7% for the three months endedSeptember 30, 2002. The decreases in the proportion of total operatingexpenses to total revenue were due to the increase in HyperFeed revenue.

 

Sales costs were $0.3 million for the nine months endedSeptember 30, 2003 and $0.2 million for the three months endedSeptember 30, 2003. All sales costs prior to May 2003 have beenreclassified as discontinued operations. Beginning in May 2003, theCompany recognized sales costs pertaining to MEPS and H!BOX sales as operatingexpenses. Sales costs as a percentage of revenue were 41.6% for the nine monthsended September 30, 2003 and 43.6% for the three months endedSeptember 30, 2003.

 

General and administrativeexpenses remained relatively unchanged at $1.9 million for the nine monthsended September 30, 2003 and 2002. For the three months endedSeptember 30, 2003, general and administrative expenses increased 10.8% to$0.7 million compared with $0.6 million for the three months endedSeptember 30, 2002. The increase was due in part to expenses associatedwith the special meeting of shareholders held in August 2003. General andadministrative expenses as a percentage of revenue decreased to 235.2% for thenine months ended September 30, 2003 compared to 261.5% for the ninemonths ended September 30, 2002 and decreased to 144.8% for the threemonths ended September 30, 2003 compared to 296.1% for the three monthsended September 30, 2002.

 

Product and market development costs increased 22.9% to $1.3 million forthe nine months ended September 30, 2003 compared with $1.1 million forthe nine months ended September 30, 2002. This increase was principallydue to travel and related expenses. For the three months endedSeptember 30, 2003, product and market development costs remainedrelatively unchanged at $0.4 million compared with the three months endedSeptember 30, 2002. Product and market development costs as a percentageof revenue increased to 157.6% for the nine months ended September 30,2003 compared to 146.9% for the nine months ended September 30, 2002 anddecreased to 89.2% for the three months ended September 30, 2003 comparedto 172.0% for the three months ended September 30, 2002.

 

Depreciation and amortization decreased 42.2% to $0.8 million for thenine months ended September 30, 2003 compared with $1.3 million for thenine months ended September 30, 2002. For the three months endedSeptember 30, 2003, depreciation and amortization decreased 46.4% to $0.2million compared with $0.4 million for the three months endedSeptember 30, 2002. This decrease primarily resulted from the write-downof intangible assets and the write-off of certain fixed assets relating to therestructuring in the fourth quarter of 2002. Depreciation and amortization as apercentage of revenue decreased to 94.5% for the nine months endedSeptember 30, 2003 compared to 187.0% for the nine months endedSeptember 30, 2002 and decreased to 49.1% for the three months endedSeptember 30, 2003 compared to 207.7% for the three months endedSeptember 30, 2002.

 

**DiscontinuedOperations**

 

On October 31, 2003,the Company sold its lower margin consolidated market data feed servicecontracts and, on June 2, 2003, the Company sold the individual retailinvestor unit and related assets of its subsidiary. The Company recorded netincome from discontinued operations of $0.9 million, net of income taxes of$0.6 million, for the nine months ended September 30, 2003 compared withnet income of $1.7 million, net of income taxes of $1.1 million, for the ninemonths ended September 30, 2002. For the three months endedSeptember 30, 2003, the Company recorded net income from discontinuedoperations of $0.2 million, net of income taxes of $0.1 million, compared withnet income of $0.4 million, net of income taxes of $0.3 million, for the threemonths ended September 30, 2002. The Company recorded a gain ondisposition of the individual retail investor unit and related assets of itssubsidiary of $0.2 million in the second of quarter 2003, net of income taxesof $0.2 million.

 

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CRITICAL ACCOUNTING POLICIES

 

Management’s Discussion andAnalysis of Financial Condition and Results of Operations discusses theCompany’s unaudited interim consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America. The preparation of these financial statementsrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.

 

On an on-going basis,management evaluates its estimates and judgments, including those related tobad debts and intangible assets. Management bases its estimates and judgmentson historical experience and on various other factors that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. Management believes thefollowing critical accounting policies, among others, affect its moresignificant judgments and estimates used in the preparation of its consolidatedfinancial statements.

 

**AllowanceFor Doubtful Accounts**:  The Company maintains allowances for doubtfulaccounts for estimated losses resulting from the inability of its customers tomake payments for services or debtors to satisfy note receivable obligations.The Company analyzes accounts receivable, customer credit-worthiness, currenteconomic trends and changes in its customer payment terms when evaluating theadequacy of the allowance for doubtful accounts and notes receivable. If thefinancial condition of the Company’s customers or debtors deteriorates,resulting in an impairment of their ability to make payments, additionalallowances may be required.

 

**Valuationof Intangible Assets and Software Development Costs**: The Company assesses the impairment of intangible assets whenever eventsor changes in circumstances indicate that the carrying value may not berecoverable. Factors the Company considers important which could trigger animpairment review include significant underperformance relative to expectedhistorical or projected future operating results, significant changes in themanner of its use of the acquired assets or the strategy for its overallbusiness, and significant negative industry or economic trends. The Companyassesses the recoverability of its software development costs against estimatedfuture revenue over the estimated remaining economic life of the software.

 

LIQUIDITY AND CAPITALRESOURCES

 

Net cash and cashequivalents of $0.1 million at September 30, 2003 decreased $1.0 millionfrom $1.1 million at December 31, 2002. This decrease was due to theCompany’s operating loss as well as its continuing investment in equipment andits developed technology.

 

Operating activities usednet cash of $1.4 million for the nine months ended September 30, 2003compared to net cash provided of $1.9 million for the nine months endedSeptember 30, 2002. The net loss for the nine months endedSeptember 30, 2003 was offset in part by non-cash items such asdepreciation and amortization of long-lived assets. The increase in deferredrent relates to the amendment to the lease agreement for the Company’sprincipal executive offices executed in the first quarter of 2003. The net lossfor the nine months ended September 30, 2002 was offset in part bynon-cash items such as depreciation and amortization of long-lived assets. Cashprovided by discontinued operations for the nine months endedSeptember 30, 2002 includes $1.2 million of amortization of the valueassigned to the warrant issued in April 1999 to CNN*fn* in exchange for a three-and-a-half yearlicense agreement.

 

Investing activities usednet cash of $1.1 million for the nine months ended September 30, 2003compared to net cash used of $1.4 million for the nine months endedSeptember 30, 2002. During the nine months ended September 30, 2003,the Company invested $0.5 million in equipment and $0.9 million in itsdeveloped technology. The Company received $0.2 million of proceeds from thesale of its discontinued operation in the second quarter of 2003. During thenine months ended September 30, 2002, the Company invested $0.5 million inequipment and $1.0 million in its developed technology.

 

On June 2, 2003, theCompany sold the individual retail investor unit and related assets of itssubsidiary to Money.net, a HyperFeed customer and a leading provider ofstreaming real time market data and custom financial software and technology.The Company recorded a gain of $0.2 million, net of taxes, related to the sale.The consideration included (1) $150,000 cash received in June 2003, (2)$70,000 cash received in July 2003, and (3) a $150,000 promissory note.The Company transferred net assets with a net book value of $7,811 toMoney.net.

 

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Financing activitiesprovided net cash of $1.5 million for the nine months ended September 30,2003 compared to net cash provided of $0.1 million for the nine months endedSeptember 30, 2002. During the nine months ended September 30, 2003,the Company received $1.4 million from the private placement of common stockwith its executive officers, individual board members, and the Company’smajority stockholder, PICO Holdings, Inc. (“PICO”). The Company had netborrowings of $61,000 to finance capital expenditures relating to specificcustomers. During the nine months ended September 30, 2002 the Companyreceived $305,000 from PICO for the exercise of three previously issued CommonStock Purchase Warrants. In the first quarter of 2002, the Company made thelast $250,000 installment payment on its note payable to Motorola.

 

On October 31, 2003, the Company sold its lower margin consolidatedmarket data feed service contracts to IDC. The sale allows HyperFeed to focuson its business model as a utility provider of ticker plant technology,software, and managed services for financial institutions. The sale price of$8.5 million includes (1) an initial payment of $7.0 million due onOctober 31, 2003, (2) $625,000 in holdbacks payable upon the completion ofcustom software and the fulfillment of a transition services agreement, and (3)an $875,000 indemnification holdback. On October 31, 2003, the Companyreceived the first cash installment on the sale of $5.6 million which consistedof the initial $7.0 million less (1) cash held by the Company for customers’deposits, (2) payments received from customers in advance of service rendered,(3) payment of the Company’s outstanding borrowings, and (4) certainprofessional fees directly related to the sale.

 

In addition the sale of its consolidated market data feed servicecontracts, HyperFeed also entered into a licensing agreement with IDC toutilize the Company’s customer premise technologies for a period of five yearsand a transition services agreement for operating its current consolidatedticker plant during a transition period. By exiting the consolidated data feedbusiness, the Company estimates that it will be able to reduce its overhead bymore than $8.0 million annually.

 

The Company believes its existing capitalresources, cash received from the sale of the consolidated market data feedservice contracts, available line of credit, cash generated from continuingoperations and its ability to access external capital, if necessary, aresufficient for working capital and to fund operations over the next twelvemonths.

 

As previously reported, the Company has exploredmultiple alternatives that may be available for the purpose of enhancingstockholder value, including a merger, a spin-off or sale of part of itsbusiness, a strategic relationship or joint venture with another technology orfinancial services firm and equity financing. The Company continues to exploreopportunities to enhance stockholder value.

 

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EFFECT OF RECENTLY ISSUEDACCOUNTING PRONOUNCEMENTS

 

In May 2003, the FASBissued SFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.” This statement establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity. Financialinstruments that fall within the scope of SFAS No. 150 must be classified bythe issuer as liabilities (or assets in some circumstances). The statement iseffective for financial instruments entered into or modified after May 31,2003, and otherwise is effective at the beginning of the first interim periodbeginning after June 15, 2003. The Company currently has no instrumentsimpacted by the adoption of this statement and therefore the adoption did nothave an effect on the Company’s consolidated financial position, results ofoperations, or cash flows.

 

In November 2002, theFASB issued Interpretation No. 45, “Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers”. The interpretation addresses the disclosures to be made by a guarantorin its financial statements about its obligations under guarantee. In addition,it also clarifies the requirements related to the recognition of a liability bya guarantor at the inception of a guarantee for the obligations the guarantorhas undertaken in issuing that guarantee. The initial recognition andmeasurement provisions of this interpretation are applicable on a prospectivebasis to guarantees issued or modified after December 31, 2002. Theprovisions became effective December 15, 2002 and did not have a materialimpact on the Company’s Consolidated Financial Statements.

 

In November 2002, theFASB reached a consensus on EITF Issue 00-21, “Accounting for RevenueArrangements with Multiple Deliverables” (“the Issue”). The guidance in thisIssue is effective for revenue arrangements entered into for fiscal periodsbeginning after June 15, 2003. The Issue addresses certain aspects of theaccounting by a vendor for arrangements under which it will perform multiple revenue-generatingactivities. Specifically, the Issue addresses how to determine whether anarrangement involving multiple deliverables contains more than one earningsprocess and, if it does, how to divide the arrangement into separate units ofaccounting consistent with the identified earnings processes for revenuerecognition purposes. The Issue also addresses how arrangement considerationshould be measured and allocated to the separate units of accounting in thearrangement.  The adoption of the Issuedid not have a significant impact on the Company's consolidated financialstatements during the three months ended September 30, 2003 and management iscurrently reviewing the impact that EITF 00-21 will have on the Company’sfuture results of operations.

 

**ITEM 3. Quantitative and Qualitative Disclosures About MarketRisk**

 

At September 30, 2003,the Company had excess cash invested in a money market account and does notexpect any material loss, if at all, on this investment.

 

HyperFeed had a promissorynote payable ($61,000 at September 30, 2003) with an interest rate equalto the prime rate plus 1%. The Company was exposed to market risk as the primerate is subject to fluctuations in the market. The Company does not believe themarket risk is material to its financial statements. The promissory note waspaid on October 31, 2003 from the proceeds of the sales of the Company’sconsolidated market data feed business.

 

**ITEM 4. Controls and Procedures**

 

(a)          *Disclosure Controls andProcedures.* The Company’smanagement, with the participation of the Company’s Chief Executive Officer andChief Financial Officer, has evaluated the effectiveness of the Company’sdisclosure controls and procedures (as such term is defined in Rule 15d-15(e)under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) asof the end of the period covered by this quarterly report. Based on suchevaluation, the Company’s Chief Executive Officer and Chief Financial Officerhave concluded that, as of the end of such period, the Company’s disclosurecontrols and procedures are effective in recording, processing, summarizing andreporting, on a timely basis, information required to be disclosed by us in thereports that the Company file or submit under the Exchange Act.

 

(b)         *Internal Control OverFinancial Reporting.*Therehave not been any changes in the Company’s internal control over financialreporting (as such term is defined in Rule 15d-15(f) under the Exchange Act)during the fiscal quarter to which this report relates that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

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**PART II. Other Information**

 

**ITEM 4. Submission of Matters to a Vote of Security Holders**

 

On August 8, 2003, theCompany held a special meeting of stockholders. The following proposal wassubmitted, considered and voted upon, as indicated below, by the stockholders.The share amounts listed below have not been adjusted for the reverse stocksplit, effective August 13, 2003.

 

1. To approve a reversesplit of HyperFeed Technologies, Inc.’s common stock, to be implemented in thediscretion of the board of directors, if and to the extent that the board ofdirectors deems appropriate to maintain the listing of HyperFeed Technologies,Inc.’s common stock on the Nasdaq SmallCap Market.

 
| **Shares For** |   | **Shares Against** |   | **Abstentions** |   |
|----------------|--------|--------------------|--------|-----------------|--------|
| 2,863,213      |   | 41,881             |   | 2,037           |   |

 

Following the specialmeeting of stockholders, the Board of Directors voted to execute a one-for-tenreverse stock split.

 

No other matters weresubmitted for vote.

 

**ITEM 6. Exhibits and Reports on Form 8-K**

 

(a)  Exhibits

 

Exhibit 31.1 -Certification of the Chief Executive Officer Pursuant to Rules 13a-14(a) and15d-14(a) under the Exchange Act.

 

Exhibit 31.2 -Certification of the Chief Financial Officer Pursuant to Rules 13a-14(a) and15d-14(a) under the Exchange Act.

 

Exhibit 32 - CertificationPursuant to Section 1350 of Chapter 63 of Title 18 of the United StatesCode.

 

(b)  A Form 8-K was filed on August 8, 2003attaching a copy of the press release reporting the second quarter 2003results.

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
| HYPERFEED TECHNOLOGIES,  INC. |                                                                         |
|-------------------------------|------------------------------------------------------------------------------|
|                          |                                                                         |
|                          |
| Date:                         | November 13, 2003                                                       |
|                          |                                                                         |
| By:                           | /s/ Jim R. Porter                                                            |   |
|                          |                                                                         |
|                          | Jim R. Porter  Chairman and Chief Executive Officer                          |
|                          |                                                                         |
| By:                           | /s/ Randall J. Frapart                                                       |   |
|                          |                                                                         |
|                          | Randall J. Frapart  Chief Financial Officer and Principal Accounting Officer |
|                               |                                                                              |  |  |  |

 

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