**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| **(Mark one)**                                                                                                                                                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                     |
| **ý**                                                                                                                                                                                                               | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                     |   |   |
| **For the quarterly period ended:  March 31, 2005**                                                                                                                                                                      |
|                                                                                                                                                                                                                     |   |   |
| **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**

 

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**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)                            |   |
| ** **                                                                  | ** ** | ** **                            |   |
| Registrant’s telephone number, including area code: **(312) 913-2800** |

 

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

 

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes o  No ý

 

The number of shares of common stockoutstanding as of May 4, 2005 was 3,090,333 shares.

 

 

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HYPERFEED TECHNOLOGIES, INC. ANDSUBSIDIARY

 

INDEX

 
| PART I.  |   | Financial Information                                                                                         |   |
|----------|--------|---------------------------------------------------------------------------------------------------------------|--------|
|     |   |                                                                                                          |   |
| Item 1.  |   | Financial Statements                                                                                          |   |
|     |   |                                                                                                          |   |
|     |   | Consolidated Balance Sheets  as of March 31, 2005 and December 31, 2004 (unaudited)                           |   |
|     |   |                                                                                                          |   |
|     |   | Consolidated  Statements of Operations for the three ended March 31, 2005 and 2004  (unaudited)               |   |
|     |   |                                                                                                          |   |
|     |   | Consolidated  Statements of Cash Flows for the three month periods ended March 31, 2005 and  2004 (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 1.  |   | Legal Proceedings                                                                                             |   |
|     |   |                                                                                                          |   |
| Item 6.  |   | Exhibits and Reports on Form 8-K                                                                              |   |
|     |   |                                                                                                          |   |
|     |   | Company’s Signature Page                                                                                 |   |

 

2

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**PART I**

 

**ITEM 1. Financial Statements**

 

HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

Consolidated BalanceSheets (Unaudited)

 
| ** **                                                                                                                                                         | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| **Assets**                                                                                                                                                         |       |                |       |                   |       |
| **Current  Assets**                                                                                                                                                |       |                |       |                   |       |
| Cash and cash  equivalents                                                                                                                                         |       | $                   | 32,821     |                   | $          | 193,702 |   |
| Accounts  receivable, less allowance for doubtful accounts of: 2005: $31,626; 2004:  $34,031                                                                       |       | 339,592             |       | 576,092                |       |
| Notes  receivable, less allowance for doubtful accounts of: 2005: $10,830; 2004:  $60,830                                                                          |       | 90,493              |       | 93,798                 |       |
| Prepaid expenses  and other current assets                                                                                                                         |       | 258,533             |       | 125,890                |       |
| Assets related  to discontinued operations                                                                                                                         |       | 57,692              |       | 72,270                 |       |
| **Total  Current Assets**                                                                                                                                          |       | 779,131             |       | 1,061,752              |       |
|                                                                                                                                                               |       |                |       |                   |       |
| Property and  equipment                                                                                                                                            |       |                |       |                   |       |
| Computer  equipment                                                                                                                                                |       | 1,333,491           |       | 1,627,021              |       |
| Communication  equipment                                                                                                                                           |       | 783,430             |       | 1,031,370              |       |
| Furniture and  fixtures                                                                                                                                            |       | 84,426              |       | 106,559                |       |
| Leasehold  improvements                                                                                                                                            |       | 9,260               |       | 531,809                |       |
|                                                                                                                                                               |       | 2,210,607           |       | 3,296,759              |       |
| Less:  Accumulated depreciation and amortization                                                                                                                   |       | (1,462,472          | )          | (2,457,645             | )          |
| Property and  equipment, net                                                                                                                                       |       | 748,135             |       | 839,114                |       |
| Intangible  assets, net of accumulated amortization of: 2005: $286,667; 2004: $229,167                                                                             |       | 370,833             |       | 78,333                 |       |
| Software  development costs, net of accumulated amortization of: 2005: $1,765,606;  2004: $3,016,799                                                               |       | 1,767,393           |       | 1,686,975              |       |
| Deposits and  other assets                                                                                                                                         |       | 47,029              |       | 46,472                 |       |
| **Total  Assets**                                                                                                                                                  |       | $                   | 3,712,521  |                   | $          | 3,712,646 |   |
|                                                                                                                                                               |       |                |       |                   |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                     |       |                |       |                   |       |
| **Current  Liabilities**                                                                                                                                           |       |                |       |                   |       |
| Convertible note  payable to affiliate                                                                                                                             |       | $                   | 1,095,000  |                   | $          | — |   |
| Line of credit                                                                                                                                                     |       | 500,000             |       | 465,000                |       |
| Accounts payable                                                                                                                                                   |       | 863,409             |       | 634,299                |       |
| Accrued expenses                                                                                                                                                   |       | 241,058             |       | 170,547                |       |
| Accrued  professional fees                                                                                                                                         |       | 220,520             |       | 158,225                |       |
| Accrued  compensation                                                                                                                                              |       | 48,512              |       | 77,763                 |       |
| Income taxes  payable                                                                                                                                              |       | 27,270              |       | 27,270                 |       |
| Unearned revenue                                                                                                                                                   |       | 213,421             |       | 268,042                |       |
| Liabilities  related to discontinued operations                                                                                                                    |       | 967,271             |       | 849,172                |       |
| **Total  Current Liabilities**                                                                                                                                     |       | 4,176,461           |       | 2,650,318              |       |
|                                                                                                                                                               |       |                |       |                   |       |
| Accrued  expenses, less current portion                                                                                                                            |       | 389,367             |       | 297,164                |       |
| **Total  Noncurrent Liabilities**                                                                                                                                  |       | 389,367             |       | 297,164                |       |
| **Total  Liabilities**                                                                                                                                             |       | 4,565,828           |       | 2,947,482              |       |
|                                                                                                                                                               |       |                |       |                   |       |
| **Stockholders’  Equity**                                                                                                                                     |       |                |       |                   |       |
| Preferred stock,  $.001 par value; authorized 5,000,000 shares; none issued and outstanding                                                                        |       | —              |       | —                 |       |
| Common stock,  $.001 par value; authorized 50,000,000 shares; issued and outstanding  3,090,333 shares at March 31, 2005 and 3,064,493 shares at December 31, 2004 |       | 3,090               |       | 3,065                  |       |
| Additional paid-in  capital                                                                                                                                        |       | 46,461,669          |       | 46,111,516             |       |
| Accumulated  deficit                                                                                                                                               |       | (47,318,066         | )          | (45,349,417            | )          |
| **Total  Stockholders’ Equity**                                                                                                                               |       | (853,307            | )          | 765,164                |       |
| **Total  Liabilities and Stockholders’ Equity**                                                                                                               |       | $                   | 3,712,521  |                   | $          | 3,712,646 |   |

 

See Notes to UnauditedInterim Consolidated Financial Statements.

 

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HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

ConsolidatedStatements of Operations (Unaudited)

 
| ** **                                                              | ** ** | **For The Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                              | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| **Revenue**                                                             |       |                                      |       |   |   |
| HyperFeed                                                               |       | $                                         | 794,181    |   | $ | 649,010 |   |
| HYPRWare                                                                |       | 94,873                                    |       | 126,301 |   |
| **Total  Revenue**                                                      |       | 889,054                                   |       | 775,311 |   |
|                                                                    |       |                                      |       |   |   |
| **Direct  Costs of Revenue**                                            |       | 283,243                                   |       | 463,668 |   |
|                                                                    |       |                                      |       |   |   |
| **Gross  Margin**                                                       |       | 605,811                                   |       | 311,643 |   |
|                                                                    |       |                                      |       |   |   |
| **Operating  Expenses**                                                 |       |                                      |       |   |   |
| Sales and  marketing                                                    |       | 343,324                                   |       | 487,847 |   |
| General and  administrative                                             |       | 800,069                                   |       | 1,022,088 |   |
| Research and  development                                               |       | 395,085                                   |       | 323,753 |   |
| Operations                                                              |       | 502,799                                   |       | 678,094 |   |
| Depreciation and  amortization                                          |       | 212,949                                   |       | 214,068 |   |
| **Total  Operating Expenses**                                           |       | 2,254,226                                 |       | 2,725,850 |   |
|                                                                    |       |                                      |       |   |   |
| **Loss  from Operations**                                               |       | (1,648,415                                | )          | (2,414,207 | ) |
|                                                                    |       |                                      |       |   |   |
| **Other  Income (Expense)**                                             |       |                                      |       |   |   |
| Interest income                                                         |       | 38                                        |       | 6,764 |   |
| Interest expense                                                        |       | (297,673                                  | )          | — |   |
| **Other  Income (Expense), Net**                                        |       | (297,635                                  | )          | 6,764 |   |
|                                                                    |       |                                      |       |   |   |
| **Loss  from Continuing Operations Before Income Taxes**                |       | (1,946,050                                | )          | (2,407,443 | ) |
| Income tax benefit  (expense)                                           |       | —                                    |       | 71,000 |   |
| **Loss  from Continuing Operations**                                    |       | (1,946,050                                | )          | (2,336,443 | ) |
|                                                                    |       |                                      |       |   |   |
| **Discontinued  Operations**                                            |       |                                      |       |   |   |
| Loss from  discontinued operations                                      |       | (22,599                                   | )          | (190,693 | ) |
| Income tax  benefit (expense) from discontinued operations              |       | —                                    |       | 73,000 |   |
| Gain on  disposition of discontinued operations                         |       | —                                    |       | 375,000 |   |
| Income tax  expense from gain on disposition of discontinued operations |       | —                                    |       | (144,000 | ) |
| **Income  (Loss) from Discontinued Operations**                         |       | (22,599                                   | )          | 113,307 |   |
|                                                                    |       |                                      |       |   |   |
| **Net  Loss**                                                           |       | $                                         | (1,968,649 | ) | $ | (2,223,136 | ) |
|                                                                    |       |                                      |       |   |   |
| Basic and  diluted net income (loss) per share:                         |       |                                      |       |   |   |
| Continuing  operations                                                  |       | $                                         | (0.64      | ) | $ | (0.77 | ) |
| Discontinued  operations                                                |       | (0.01                                     | )          | 0.04 |   |
| Basic and  diluted net loss per share                                   |       | $                                         | (0.65      | ) | $ | (0.73 | ) |
|                                                                    |       |                                      |       |   |   |
| Basic and  diluted weighted-average common shares outstanding           |       | 3,044,553                                 |       | 3,052,906 |   |

 

See Notes to UnauditedInterim Consolidated Financial Statements.

 

4

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HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

ConsolidatedStatements of Cash Flows (Unaudited)

 
| ** **                                                                                                   | ** ** | **For The Period Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                                   | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| **Cash  Flows from Operating Activities:**                                                                   |       |                                |       |   |   |
| Net loss                                                                                                     |       | $                                   | (1,968,649 | ) | $ | (2,223,136 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities:                   |       |                                |       |   |   |
| Depreciation and  amortization                                                                               |       | 212,949                             |       | 214,068 |   |
| Amortization of  software development costs                                                                  |       | 258,562                             |       | 339,490 |   |
| Provision for  doubtful accounts                                                                             |       | 7,878                               |       | 4,998 |   |
| Interest and  other expense related to convertible note payable to affiliate                                 |       | 348,750                             |       | — |   |
| Changes in  assets and liabilities, net of effects from dispositions:                                        |       |                                |       |   |   |
| Accounts  receivable                                                                                         |       | 228,622                             |       | (650,778 | ) |
| Prepaid expenses  and other current assets                                                                   |       | (132,643                            | )          | (60,527 | ) |
| Deposits and  other assets                                                                                   |       | (557                                | )          | — |   |
| Accounts payable                                                                                             |       | 229,110                             |       | (35,519 | ) |
| Accrued expenses                                                                                             |       | 195,758                             |       | 95,133 |   |
| Unearned revenue                                                                                             |       | (54,621                             | )          | 445,000 |   |
| Net cash used in  continuing operations                                                                      |       | (674,841                            | )          | (1,871,271 | ) |
| Net cash  provided by (used in) discontinued operations                                                      |       | 132,677                             |       | (1,183,846 | ) |
| **Net  Cash Used In Operating Activities**                                                                   |       | (542,164                            | )          | (3,055,117 | ) |
|                                                                                                         |       |                                |       |   |   |
| **Cash  Flows from Investing Activities:**                                                                   |       |                                |       |   |   |
| Purchase of  property and equipment                                                                          |       | (64,470                             | )          | (147,031 | ) |
| Software  development costs capitalized                                                                      |       | (338,980                            | )          | (334,489 | ) |
| Purchase of  intangible asset                                                                                |       | (350,000                            | )          | — |   |
| Repayment of  note receivable                                                                                |       | 3,305                               |       | 8,334 |   |
| **Net  Cash Used In Investing Activities**                                                                   |       | (750,145                            | )          | (473,186 | ) |
|                                                                                                         |       |                                |       |   |   |
| **Cash  Flows from Financing Activities:**                                                                   |       |                                |       |   |   |
| Proceeds from  issuance of common stock                                                                      |       | 1,428                               |       | 20,661 |   |
| Proceeds from  convertible note payable to affiliate                                                         |       | 1,095,000                           |       | — |   |
| Net borrowings  under line of credit                                                                         |       | 35,000                              |       | — |   |
| **Net  Cash Provided By Financing Activities**                                                               |       | 1,131,428                           |       | 20,661 |   |
|                                                                                                         |       |                                |       |   |   |
| **Net  decrease in cash and cash equivalents**                                                               |       | (160,881                            | )          | (3,507,642 | ) |
| Cash and cash  equivalents:                                                                                  |       |                                |       |   |   |
| Beginning of the  period                                                                                     |       | 193,702                             |       | 4,668,038 |   |
|                                                                                                         |       |                                |       |   |   |
| **End of  the period**                                                                                       |       | $                                   | 32,821     |   | $ | 1,160,396 |   |
|                                                                                                         |       |                                |       |   |   |
| **Supplemental  disclosures of noncash operating activities:**                                               |       |                                |       |   |   |
| Beneficial  conversion feature and commitment fee related to convertible note payable to  affiliate (Note 4) |       | $                                   | 348,750    |   | $ | — |   |

 

See Notes to UnauditedInterim Consolidated Financial Statements.

 

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 HYPERFEED TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO UNAUDITEDINTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

(1) NATURE OF BUSINESSAND SIGNIFICANT ACCOUNTING POLICIES

 

HyperFeed Technologies,Inc. (“HyperFeed” or the “Company”) is a provider of ticker plant and smartorder routing technologies and managed services to exchanges, financialinstitutions, content providers, channel partners, and value-added resellers.HyperFeed’s advanced software technology serves as a corporate-wide tickerplant, enabling firms in the financial services industry with the flexibilityand agility to control their own data sources and data content in acost-effective manner.

 

The Company has overtwenty years experience designing, building, and running ticker plants for theNorth American financial marketplace. Over 1,500 of HyperFeed’s highperformance single server HBOX products are currently deployed at customersites. HyperFeed’s technology supports many firms demanding transaction andorder routing systems.

 

The Company principallyderives revenue from licensing technology and providing management and maintenanceservices of HTPX and HBOX software, ticker plant technologies, and managedservices. Additionally, the Company derives revenue from the development ofcustomized software.

 

HYPRWare, Inc. (“HYPRWare”)is a majority-owned subsidiary of HyperFeed that receives royalties for formercustomers currently serviced by a channel partner.

 

CURRENT OPERATIONS:  The Company has sustained significant lossesin recent years and in the first quarter of 2005. In particular, the Companyincurred a net loss of $2.0 million for the first quarter of 2005, compared toa net loss of $2.2 million for the same period in 2004, and an overall net lossof $4.9 million for the fiscal year ended December 31, 2004.

 

However, the Companybelieves this was an important time for its business. In particular, followingthe sale of its institutional consolidated market data feed business in late2003, HyperFeed has completed more than a full year of operations under itscurrent business model; that is, a business model built on providing tickerplant technologies and related consulting services directly and through saleschannels in the financial services industry, rather than principally using ourticker plant technology internally as part of a consolidated market data feedbusiness to service customers. In addition, we announced in the first quarterof 2005 our acquisition of the assets of Focus Technology Group LLC, includingits Smart Order Routing Technology for Traders (“SORTT”). SORTT features theability to break apart an electronic order and send it to multiple executionvenues to gain price improvement.

 

The Company believes thatits current business model will permit it to take advantage of more significantopportunities within the financial services industry. In particular, with thesale of its institutional consolidated market data feed business, the Companybelieves that HyperFeed is no longer viewed as a competitor to certainparticipants in the financial services industry, which has enabled it to becomea provider of technology to its traditional competitors in the consolidatedmarket data feed business, including exchanges and content providers as well asfinancial institutions and redistributors. 

 

Under the currentbusiness model, HyperFeed entered into nineteen agreements to provide itstechnology and services to a variety of participants in the financial servicesindustry. Many of these agreements were entered into in the latter part of 2004and in the first quarter of 2005 (“Recent Agreements”). Substantially all of theseagreements are structured to provide a license fee that is payable monthly overa multiple year term. The Company believes that its revenues in any givenperiod will increase to the extent it recognizes revenue from the RecentAgreements. Further, the Company believes that it will continue to develop andrealize new customers for its technology and services. Although there can be noassurances in this regard, the Company believes that these two factors, amongother things, will assist it in achieving profitability.

 

Additionally, in thefirst quarter of 2005, the Company amended and restated an existing ConvertibleNote with PICO HoldingsInc. (“PICO”), the Company’s majority stockholder, increasing the amountavailable for borrowing from $1.5 million up to $4.0 million, payable one yearfrom the date of the amendment, as described in Note 4 of the Notes to Unaudited Interim Consolidated FinancialStatements.

 

PRINCIPLES OFCONSOLIDATION:  The accompanyingunaudited interim consolidated financial statements include the accounts ofHyperFeed Technologies, Inc. and its subsidiary, HYPRWare and have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and in conjunction withthe 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

 

6

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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, 2004.

 

REVENUE RECOGNITION:  The Company principally derives revenue fromlicensing technology and providing management and maintenance services of HTPXand HBOX software, ticker plant technologies, and managed services. Additionally,the Company derives revenue from the development of customized software.

 

Revenue is recognizedfrom the licensing of HTPX and HBOX (1) as payments from customers become duewhen the fee is not fixed or determinable at the outset of the arrangement or(2) ratably over the term of the agreement when post contract customer support(“PCS”) has a duration of one year or less. PCS is recognized ratably over theterm. Revenue for the development of customized software, consulting, andimplementation services is recognized based on time and materials from theapplication of contract accounting for the development of customized software,or based on an hourly rate when it is not a fixed fee arrangement. Forlicensing of the Company’s software through its sales channels, revenue isrecognized as payments from the reseller become due and generally commencesafter the software is installed at the reseller’s customer site.

 

The Company applies theprovisions of Statement of Position (“SOP”) 97-2, “Software RevenueRecognition,” as amended, which specifies the following four criteria that mustbe met prior to recognizing revenue: (1) persuasive evidence of the existenceof an arrangement, (2) delivery, (3) fixed or determinable fee, and (4)probable collection. In addition, revenue earned on software arrangementsinvolving multiple elements is allocated to each element based on the relativefair values of the elements. When applicable, revenue allocated to HyperFeed’ssoftware products (including specified upgrades/enhancements) is recognizedupon delivery of the products. If the fee is considered fixed and determinable,it is recognized as revenue when the sale is effected. If the fee is notconsidered fixed and determinable, it is recognized as revenue as payments fromcustomers become due. Revenue allocated to post contract customer support isrecognized ratably over the term of the support and revenue allocated toservice elements (such as training) is recognized as the services areperformed.

 

In accordance with SOP97-2, revenue from contracts that do not require significant production,modification, or customization of software is recognized when the abovecriteria are met. Revenue from contracts that require significant production,modification, or customization of software is accounted for in conformity withthe provisions of Accounting Research Bulletin No. 45, “Long-Term ConstructionContracts,” using the relevant guidance therein, and AICPA SOP 81-1, “Accountingfor Performance of Construction-Type and Certain Production-Type Contracts.”SOP 81-1 provides for revenue recognition under the “percentage-of-completion”or “completed contract” method depending on the facts and circumstances ofcontracts entered into and management’s ability to reasonably estimate itsprogress toward completion. Contract losses, if any, are provided for in theirentirety in the period they become known, without regard to thepercentage-of-completion. For those contracts which the Company cannotreasonably estimate progress toward completion, the Company employs the completedcontract method of accounting. Revenue from arrangements accounted for undercontract accounting are allocated among licensed technologies, managedservices, and consulting fees based on the contractual terms of thearrangements.

 

The use of contract accountinginherently includes the use of estimates of progress toward completion. Suchestimates are subject to periodic revisions and, as a result, the financialstatements could be materially impacted.

 

The Company applies theprovisions of Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accountingfor Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addressescertain aspects of the accounting by a vendor for arrangements under which itwill perform multiple revenue-generating activities. Specifically, EITF 00-21addresses how to determine whether an arrangement involving multipledeliverables contains more than one earnings process and, if it does, how todivide the arrangement into separate units of accounting consistent with theidentified earnings processes for revenue recognition purposes. EITF 00-21 alsoaddresses how arrangement consideration should be measured and allocated to theseparate units of accounting in the arrangement.

 

HYPRWare derives revenuefrom royalties related to license fees for customers it referred to TownsendAnalytics, Ltd. (“Townsend”) prior to December 31, 2002. Revenue is recorded asroyalties are reported from Townsend.

 

SOFTWARE DEVELOPMENTCOSTS:  Software development costs areaccounted for in accordance with Statement of Financial Accounting Standards (“SFAS”)No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, orOtherwise Marketed.” Costs associated with the planning and design phase ofsoftware development, including coding and testing activities necessary toestablish technological feasibility of computer software products to belicensed or otherwise marketed, are expensed as research and development costsas incurred. Once technological feasibility has been determined, costs incurredin the construction phase of software development including coding, testing,and product quality assurance are capitalized.

 

7

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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 and relatedsoftware development costs are removed from the respective accounts effectivein the year following full amortization.

 

The Company’s policy isto amortize capitalized software costs by the greater of (1) the ratio thatcurrent gross revenue for a product bear to the total of current andanticipated future gross revenue for that product or (2) 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.

 

STOCK BASEDCOMPENSATION:  At March 31, 2005, theCompany had one stock-based employee compensation plan as described in Note 4of the Notes to Consolidated Financial Statements in the Company’s annualreport on Form 10-K for the year ended December 31, 2004. The plan is accountedfor under the recognition and measurement principles of Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees,” and relatedInterpretations. No stock-based employee compensation is reflected in netincome (loss), as all options granted under the plan had an exercise priceequal to the market value of the underlying common stock on the date of grant.The following table illustrates the effect on net loss and earnings per shareif the Company had applied the fair value recognition provisions of Statementof Financial Accounting Standards No. 123, “Accounting for Stock-BasedCompensation,” to stock-based employee compensation for the three months endedMarch 31 2005 and 2004:

 
| ** **                                                                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                       | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| Net loss, as  reported                                                                                           |       | $                                 | (1,968,649 | ) | $ | (2,223,136 | ) |
| Compensation  expense related to stock options granted and employee stock purchase plan  issuances, net of taxes |       | (52,998                           | )          | (68,672 | ) |
| Pro forma net  loss                                                                                              |       | $                                 | (2,021,647 | ) | $ | (2,291,808 | ) |
|                                                                                                             |       |                              |       |   |   |
| Basic and  diluted net loss per share, as reported                                                               |       | $                                 | (0.65      | ) | $ | (0.73 | ) |
| Pro forma basic  and diluted net loss per share                                                                  |       | $                                 | (0.66      | ) | $ | (0.75 | ) |

 

ACCOUNTS RECEIVABLE:Included in the Company’s accounts receivable balances in the ConsolidatedBalance Sheets are unbilled receivables of zero at December 31, 2004 and$20,000 at March 31, 2005.

 

SOFTWARE LICENSEINDEMNIFICATIONS: In November 2002, the Financial Accounting Standards Board (“FASB”)issued FASB Interpretation No. 45, “Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers” (“FIN 45”). FIN 45 requires that the Company recognize the fair value forcertain guarantee and indemnification arrangements issued or modified by theCompany after December 31, 2002. In addition, the Company must continue tomonitor the conditions that are subject to the guarantees and indemnifications,as required under previously existing generally accepted accounting principles,in order to identify if a loss has occurred. If the Company determines that aloss is probable, the estimated loss must be recognized as it relates toapplicable guarantees and indemnifications. Some of the software licensesgranted by the Company contain provisions that indemnify customers of theCompany’s software from damages and costs resulting from claims alleging thatthe Company’s software infringes on the intellectual property rights of a thirdparty. Historically, the Company has not been required to pay material amountsin connection with claims asserted under these provisions and, accordingly, theCompany has not recorded a liability relating to these indemnificationprovisions.

 

(2) SEGMENT INFORMATION

 

While the Companyoperates in one industry, financial services, in applying SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” the Company hasidentified two segments within which it operates. HyperFeed derives revenueprincipally by providing ticker plant technologies and related consultingservices and HYPRWare derives revenue from royalties related to license feescollected by Townsend from subscribers to Townsend’s service over the Internetwho had been referred through HYPRWare. The accounting policies of thereportable segments are the same as those described in Note 1. Financialinformation relating to industry segments were as follows for the three monthsended March 31, 2005 and March 31, 2004:

 

8

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| ** **                                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                          | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| Sales to  unaffiliated customers                    |       |                              |       |   |   |
| HyperFeed                                           |       | $                                 | 794,181    |   | $ | 649,010 |   |
| HYPRWare                                            |       | 94,873                            |       | 126,301 |   |
| Total revenue                                       |       | $                                 | 889,054    |   | $ | 775,311 |   |
|                                                |       |                              |       |   |   |
| HyperFeed                                           |       | 89.3                              | %          | 83.7 | % |
| HYPRWare                                            |       | 10.7                              | %          | 16.3 | % |
| Total revenue                                       |       | 100.0                             | %          | 100.0 | % |
|                                                |       |                              |       |   |   |
| Operating income  (loss) from continuing operations |       |                              |       |   |   |
| HyperFeed                                           |       | $                                 | (1,739,889 | ) | $ | (2,527,089 | ) |
| HYPRWare                                            |       | 91,474                            |       | 112,882 |   |
| Total operating  loss from continuing operations    |       | $                                 | (1,648,415 | ) | $ | (2,414,207 | ) |
|                                                |       |                              |       |   |   |
| HyperFeed                                           |       |                              | *          |   | * |
| HYPRWare                                            |       |                              | *          |   | * |
| Total operating  loss from continuing operations    |       |                              | *          |   | * |
|                                                |       |                              |       |   |   |
| Identifiable  assets                                |       |                              |       |   |   |
| HyperFeed                                           |       | $                                 | 3,570,648  |   | $ | 6,291,331 |   |
| HYPRWare                                            |       | 141,873                           |       | 356,307 |   |
| Total identifiable  assets                          |       | $                                 | 3,712,521  |   | $ | 6,647,638 |   |
|                                                |       |                              |       |   |   |
| HyperFeed                                           |       | 96.2                              | %          | 94.6 | % |
| HYPRWare                                            |       | 3.8                               | %          | 5.4 | % |
| Total  identifiable assets                          |       | 100.0                             | %          | 100.0 | % |

 

----

* percentages notmeaningful

 

(3) INTANGIBLES

 

On September 23, 2004,HyperFeed repurchased a customer contract that had been sold by HyperFeed toInteractive Data Corporation (“IDC”) as part of the sale of HyperFeed’sinstitutional consolidated market data feed business in October 2003. As aresult of this repurchase, the Company recorded an intangible asset of$127,500. At March 31, 2005, the intangible asset, net of accumulatedamortization, was $7,083.

 

On February 16, 2005, theCompany acquired Focus Technology Group LLC (“Focus”), a Delaware limitedliability company, developer of Smart Order Routing Technology for Traders (“SORTT”).The acquisition strengthens the Company’s position as a leading neutralprovider of high performance financial utilities for electronic trading byadding broker-neutral smart order routing technology to the Company’s productofferings.

 

The terms and conditionsof the acquisition including the purchase of the SORTT technology are specifiedin an Asset Purchase Agreement, by and among the Company and Focus. The Companypurchased substantially all of the assets of Focus, which primarily consistedof developed technology, a customer contract and relationships. The aggregatepurchase price consists of guaranteed and contingent payments. The guaranteedportion of the purchase price is $350,000, with $250,000 paid at closing and $100,000due on the first anniversary following closing. The Company’s obligation tomake the contingent payments will depend on the achievement of certain growthtargets for license and maintenance revenues from the SORTT applications, andwill be accounted for as royalty expense in the appropriate periods. Thecontingent portion will be paid, if at all, during the three year periodfollowing the closing and may not exceed $3.4 million in the aggregate. TheCompany also entered into employment agreements with two principals of Focus.

 

The acquisition of Focuswas considered to be an acquisition of a development stage enterprise, asdefined under SFAS No. 141, “Business Combinations,” and was not considered abusiness combination As a result, the transaction was accounted for under SFASNo. 142, “Goodwill and Other Intangible Assets.” The purchase price of $350,000is allocated to the identifiable intangible assets acquired including developedtechnology, customer contracts and relationships, and non-compete conditions asnoted in the Asset

 

9

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Purchase Agreement on thebasis of their estimated fair values on the acquisition date. The Companyallocated $250,000 to developed technology, $80,000 to non-compete agreements,and $20,000 to customer contracts, with amortization periods of three years,two years, and one year, respectively. The results of operations of Focus willbe included in the 2005 Consolidated Statement of Operations from the date ofthe acquisition. In connection with the Focus acquisition, the Company incurredtransaction fees of approximately $26,000, including legal and accounting fees.

 

Intangible asset data isas follows as of March 31, 2005:

 
| ** **                                  | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| Amortized  intangibles                      |       |                        |       |                          |       |   |   |
| Developed  technology                       |       | $                           | 430,000    |                          | $          | (158,750 | ) |
| Non-compete  agreements                     |       | 80,000                      |       | (5,000                        | )          |
| Acquired  customer contract                 |       | 147,500                     |       | (122,917                      | )          |
| Total                                       |       | $                           | 657,500    |                          | $          | (286,667 | ) |
|                                        |       |                        |       |                          |       |
| Estimated  amortization, for the year ended |       |                        |       |                          |       |
| December 31,  2005                          |       | $                           | 203,750    |                          |       |   |
| December 31,  2006                          |       | 125,833                     |       |                          |       |
| December 31,  2007                          |       | 88,333                      |       |                          |       |
| December 31,  2008                          |       | 10,417                      |       |                          |       |

 

The net amortizedintangibles at March 31, 2005 are $370,833. The weighted average amortizationperiod is 2.53 years in total.

 

(4) LINE OF CREDIT ANDRESTATED CONVERTIBLE NOTE

 

TheCompany has a line of credit under which it may borrow up to $500,000 at prime.The Company is obligated to make monthly payments in respect of accruedinterest. Outstanding principal, together with all accrued and unpaid interest,is due upon demand. The line of credit is secured by the assets of the Company,and contains customary representations, warranties, covenants, and events ofdefault. As of March 31, 2005, the Company had borrowings under the line ofcredit of $500,000.

 

OnNovember 2, 2004, the Company issued to PICO a Secured Convertible PromissoryNote (the “Convertible Note”). Under the terms of the Convertible Note, theCompany may borrow up to $1.5 million from PICO, at an interest rate of 8%. Inconnection with issuing the Convertible Note and concurrent with the firstdraw, the Company recorded a commitment fee by issuing to PICO 25,000 shares ofcommon stock of the Company with a fair value of $75,000 in the first quarter of2005. As a result, the Company recorded a prepaid asset of $75,000. AtMarch 31, 2005, the prepaid asset was $65,857, net of amortization of $9,143.

 

On March 28, 2005, theCompany and PICO amended and restated the Convertible Note (the “RestatedConvertible Note”). Under the terms of the Restated Convertible Note, theCompany may borrow up to $4.0 million at an interest rate of prime plus 2.75%.The Company is obligated to repay all outstanding principal and accruedinterest under the Restated Convertible Note on March 28, 2006. The RestatedConvertible Note, which is convertible by PICO at any time, provides that thenumber of shares that PICO would receive in connection with a conversion of anyamounts outstanding under the Restated Convertible Note would be determined bydividing the total outstanding amount to be converted by the lesser of 80% ofthe five-day moving average per share price of the Company’s common stock onthe date the note was given and 80% of the five-day moving average per shareprice of the Company’s common stock on the date of conversion. The five-daymoving average per share price of the Company’s common stock on the date theRestated Convertible Note was given on March 28, 2005 was $2.03. The number ofshares of the Company’s common stock issuable upon conversion of the RestatedConvertible Note is not subject to a cap.

 

The Restated ConvertibleNote contains a beneficial conversion feature and, as a result, the Companyrecorded $0.3 million of additional paid in capital and interest expense atMarch 31, 2005 for the three months then ended, in accordance with EITF IssueNo. 00-27, "Application of EITF Issue No. 98-5, "Accounting forConvertible Securities with Beneficial Conversion Features or Contingently AdjustableConversion Ratios," to Certain Convertible Instruments." The RestatedConvertible Note is secured by the assets of the Company, subordinate to thesecurity interest granted under the line of credit, and contains customary representations,warranties, covenants, and events of default. As of March 31, 2005, the Company had borrowed $1.1 million under theterms of the Restated Convertible Note and recorded accrued interest of $8,556.

 

10

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(5) DISCONTINUEDOPERATIONS

 

On October 31, 2003, theCompany sold its institutional consolidated market data feed business to IDCfor $8.5 million. The sale allowed HyperFeed to focus on its business model asa utility provider of technology, software, and managed services for financialinstitutions. The sale price of $8.5 million included (1) an initial payment of$7.0 million cash paid on October 31, 2003, (2) $625,000 in holdbacks payableupon completion of custom software and the fulfillment of certain transitionservices and (3) an $875,000 indemnification holdback. The Company also enteredinto a transition services agreement whereby IDC reimburses HyperFeed on amonthly basis for direct costs relative to the purchased business. These costsinclude costs associated with resources dedicated to the transition,communications expenses, and other related costs. The Company received $375,000of the $625,000 in holdbacks related to completion of customer software andfulfillment of certain transition services during the first quarter of 2004. Asof March 31, 2005, the Company remains, subject to satisfaction of certainconditions, eligible to receive $785,000 from the holdbacks. The Companyincurred inbound communications costs associated with its obligations under thetransition services agreement of $282,000 in the first quarter of 2004. Boththe inbound communications costs incurred and the $375,000 of holdback recordedin first quarter 2004 are reflected in discontinued operations.

 

On June 2, 2003, theCompany sold the individual retail investor unit and related assets of itssubsidiary, PCQuote.com, Inc., to Money.net, Inc. 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 HTPX technologylicensing sales. The sale price consisted of (1) $150,000 cash received in June2003, (2) $70,000 cash received in July 2003, and (3) a $150,000 promissorynote due in twelve equal installments commencing on July 15, 2003 with aninterest rate of 8.0% per annum. At March 31, 2005, the principal balanceremaining on the promissory note was $90,493, net of an allowance of $10,830.HyperFeed is pursuing collection of this promissory note.

 

The dispositions havebeen accounted for as discontinued operations in accordance with SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets” and, accordingly, amountsin the consolidated statements of operations for all periods shown have beenreclassified to reflect the dispositions as discontinued operations. Theresults of operations for the discontinued businesses are as follows:

 

Operating expenses fromdiscontinued operations were $22,599, unadjusted for taxes, and $117,693, netof a $73,000 tax benefit, for the three months ended March 31, 2005 and 2004,respectively. There were no revenue or direct costs of revenue fromdiscontinued operations for the three months ended March 31, 2005 and 2004.

 

Assets and liabilitiesrelated to discontinued operations consist of the following:

 
| ** **                                                                                      | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| **Assets  Related to Discontinued Operations**                                                  |       |                |       |                   |       |
| Accounts  receivable, net of allowance for doubtful accounts of 2005: $219,948; 2004:  $219,848 |       | $                   | 57,094     |                   | $          | 57,090 |   |
| Prepaid expenses  and other current assets                                                      |       | 598                 |       | 15,180                 |       |
| **Total  Assets Related to Discontinued Operations**                                            |       | $                   | 57,692     |                   | $          | 72,270 |   |
|                                                                                            |       |                |       |                   |       |
| **Liabilities  Related to Discontinued Operations**                                             |       |                |       |                   |       |
| Accounts payable                                                                                |       | $                   | 933,022    |                   | $          | 771,390 |   |
| Accrued expenses                                                                                |       | 14,594              |       | 56,711                 |       |
| Accrued  compensation                                                                           |       | 9,844               |       | 10,631                 |       |
| Unearned revenue                                                                                |       | 9,811               |       | 10,440                 |       |
| **Total  Liabilities Related to Discontinued Operations**                                       |       | $                   | 967,271    |                   | $          | 849,172 |   |

 

(6) SIGNIFICANT CUSTOMERS

 

BetweenJune 2003 and May 2004, HyperFeed signed contracts with Telerate(formerly known as MoneyLine Telerate) to license HyperFeed’s HBOX and HTPXtechnology to Telerate, provide related maintenance and to develop customizedsoftware. As a result of theupcoming sale of Telerate to Reuters, Telerate elected on November 19, 2004 toexercise its contractual right to terminate their agreements between HyperFeedand Telerate. Telerate accounted for 0% and 47% of the Company’s consolidatedrevenue for the first quarter 2005 and 2004, respectively. ComStock accountedfor approximately 22% and 21% of the Company’s consolidated revenue in thefirst quarter of 2005 and 2004, respectively. Susquehanna International Group,LLP accounted for approximately 14% and 0% of the Company’s consolidatedrevenue in the first quarter of 2005 and 2004, respectively. Townsend accountedfor approximately 11% and 16% of the Company’s consolidated revenue in thefirst quarter of 2005 and 2004, respectively. 

 

11

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(7) LITIGATION

 

On June 2, 2003, theCompany sold the individual retail investor unit and related assets of itssubsidiary, PCQuote.com, Inc., to Money.net, Inc. On August 24, 2004, theCompany filed a six-count complaint for breach of contract and amounts due inthe Circuit Court of Cook County, Illinois against Money.net. The amounts soughtin the complaint are $117,834 for a promissory note, including interest,$31,920 from a datafeed license agreement, and $63,917 related to a transitionservices agreement. On November 17, 2004, Money.net filed a motion to dismissand, as a result, the Company filed an amended complaint on December 7, 2004.On January 7, 2005, Money.net filed answers to the amended complaint and acounterclaim. On February 3, 2005, the Company answered Money.net’scounterclaim, which included seven affirmative defenses. The Company isproceeding with discovery requests pursuant to the amended complaint. As ofMarch 31, 2005, the Company had a promissory note and accounts receivable, netof allowances, of $151,122 due from Money.net.

 

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

 

The unauditedconsolidated financial statements herein have been prepared by the Companypursuant to the rules and regulations of the Securities and ExchangeCommission. The accompanying interim consolidated financial statements havebeen prepared under the presumption that users of the interim financialinformation have either read or have access to the audited financial statementsfor the latest fiscal year ended December 31, 2004. Accordingly, footnotedisclosures which would substantially duplicate the disclosures contained inthe December 31, 2004 audited consolidated financial statements have beenomitted from these interim consolidated financial statements. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted pursuant to such rulesand regulations. In our opinion, the accompanying unaudited consolidatedfinancial statements contain all adjustments necessary for a fair presentation.Although the Company believes that the disclosures are adequate to make theinformation presented not misleading, it is suggested that these interimconsolidated financial statements be read in conjunction with the consolidatedfinancial statements and the notes thereto included in the Company’s latestAnnual Report on Form 10-K.

 

This Quarterly Report onForm 10-Q contains forward-looking statements that involve risks anduncertainties, as well as assumptions that, if they never materialize or proveincorrect, could cause the results of HyperFeed Technologies, Inc. (“HyperFeed”)and its subsidiary, HYPRWare, Inc. (“HYPRWare”), (collectively, the “Company”)to differ materially from those expressed or implied by such forward-lookingstatements. All statements other than statements of historical fact arestatements that could be deemed forward-looking statements, including anystatements of the plans, strategies and objectives of management for futureoperations; any statements regarding future economic conditions or performance;any statement of expectation or belief; and any statements of assumptionsunderlying any of the foregoing. The risks, uncertainties, and assumptionsreferred to above include risks related to the possibility of requiringadditional financing; the possible issuance of additional shares andsignificant dilution of our stockholders’ ownership percentage associated withour secured convertible note payable; the execution of our business plan; thefluctuations in our financial results; our history of operating losses;attracting and retaining qualified management and key employees; the timelydevelopment and introduction of new product and service initiatives atcompetitive prices and performance levels; pending or future legal proceedings;the effect of economic and business conditions generally; and risks that areotherwise described in the Company’s annual report on Form 10-K for the yearended December 31, 2004 and from time to time in the Company’s other reportsand registration statements filed with the Securities and Exchange Commission.

 

OVERVIEW

 

We believe that the firstquarter of 2005 was an important period for us. In particular, we completed afull year of operations under our current business model; that is, a businessmodel built on providing ticker plant technologies and related consultingservices directly and through sales channels in the financial servicesindustry, rather than principally using our ticker plant technology internallyas part of a consolidated market data feed business to service customers. Inaddition, we announced in the first quarter of 2005 our acquisition of theassets of Focus Technology Group LLC, including its Smart Order RoutingTechnology for Traders (“SORTT”). SORTT features the ability to break apart anelectronic order and send it to multiple execution venues to gain priceimprovement.

 

Under our currentbusiness model, we derive our revenues from licensing and consulting fees. Ingeneral, we expect that our licensing fees will be structured either as areoccurring monthly fee, based upon the nature, size, and scope of thelicensee, or as a monthly fee, based upon the number of end users that relyupon the products and services offered by the licensee. Consulting fees chargedto customers are expected to vary based upon the nature, size, and scope of theprojects undertaken.

 

Our direct costs ofrevenue are composed largely of software development amortization costs,royalty fees and labor associated with consulting services.

 

12

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During the quarter, weamended and restated an existing Convertible Note with PICO Holdings Inc. (“PICO”), our majoritystockholder, increasing the amount available for borrowing from $1.5million up to $4.0 million, payable one year from the date of the amendment, asdescribed in Note 4 of the Notesto Unaudited Interim Consolidated Financial Statements. Our ability tosuccessfully execute our business model will be dependent on our ability tomaintain and develop advanced ticker plant technologies in a cost effectivemanner and aggressively license such technologies to the financial servicesindustry.

 

RESULTS OF OPERATIONS:FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

 

**Revenue**

** **

Total revenue for thethree months ended March 31, 2005 increased 14.7% to $0.9 million compared with$0.8 million for the three months ended March 31, 2004. While HyperFeed revenueincreased for the three months ended March 31, 2005 compared to the sameperiods in 2004, HYPRWare revenue decreased for the same comparable periods.

 

HyperFeed revenueincreased 22.4% to $0.8 million for the three months ended March 31, 2005compared with $0.6 million for the three months ended March 31, 2004. Theincrease is due to an increase in the number of new customers quarter overquarter. For the three months ended March 31, 2004, $0.4 million, or 47.3%, ofHyperFeed’s revenue was from Telerate. As a result of the upcoming sale ofTelerate to Reuters, Telerate elected on November 19, 2004 to exercise itscontractual right to terminate the license agreement between HyperFeed andTelerate. The Company did not record any revenue from Telerate during firstquarter 2005 and does not currently expect future revenue from Telerate.HyperFeed revenue is derived from HTPX and HBOX software and ticker planttechnologies and includes license and consulting revenue, including revenuefrom multi-year contracts with Chicago Board Options Exchange, PhiladelphiaStock Exchange, ComStock, Susquehanna International Group, LLP, and The NasdaqStock Market, Inc.

 

HYPRWare revenuedecreased 24.9% to $94,873 for the three months ended March 31, 2005 comparedwith $126,301 for the three months ended March 31, 2004. HYPRWare derivesrevenue from royalties related to license fees for customers it referred toTownsend Analytics, Ltd. (“Townsend”) prior to December 31, 2002. The declinein HYPRWare service revenue is due to a decrease in royalties from Townsend asformer HYPRWare customers serviced by Townsend decrease. HyperFeed currentlyexpects that any future revenue recognized by HYPRWare will be derivedexclusively from royalties from the licensing agreement with Townsend.

 

**TotalExpenses**

 

Total expenses (includingdirect costs of revenue, operating expenses, and expenses in discontinuedoperations) decreased 15.5% to $2.9 million for the three months ended March31, 2005 compared with $3.4 million for the three months ended March 31, 2004.The decrease was principally due to expenses of $0.4 million incurred inconnection with the severance agreement entered into with the Company’s formerChief Executive Officer in the first quarter of 2004 and $0.4 million reductionof labor costs, communications costs, and third-party fees resulting from thestreamlining of operations, offset by $0.3 million interest expense related tothe amended and restated SecuredConvertible Promissory Note issued by the Company to PICO described in Note 4 of the Notesto Unaudited Interim Consolidated Financial Statements.

 

**DirectCosts of Revenue**

 

Total direct costs ofrevenue decreased 38.9% to $0.3 million for the three months ended March 31,2005 compared with $0.5 million for the three months ended March 31, 2004. Theprincipal component of this decrease for the three months was softwaredevelopment labor costs resulting from changes in the employee mix related to ashift from development of customer specific software to development ofcapitalized software products. Amortization of software development costsremained relatively unchanged at $0.3 million for the three months ended March31, 2005 and 2004. There are no direct costs of revenue related to HYPRWareservice revenue as such amounts consist solely of royalty income. Gross marginincreased 94.4% to $0.6 million for the three months ended March 31, 2005compared with $0.3 million for the three months ended March 31, 2004. Directcosts as a percentage of total revenue decreased to 31.9% for the three monthsended March 31, 2005 compared with 59.8% for the three months ended March 31,2004.

 

**OperatingExpenses**

 

Total operating expensesdecreased 17.3% to $2.3 million for the three months ended March 31, 2005compared with $2.7 million for the three months ended March 31, 2004. Decreaseswere experienced in all categories of operating expenses except research anddevelopment. Total operating expenses as a percentage of total revenuedecreased to 253.6% for the three months ended March 31, 2005 compared to351.6% for the three months ended March 31, 2004.

 

13

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Sales and marketing costsdecreased 29.6% to $0.3 million for the three months ended March 31, 2005compared with $0.5 million for the three months ended March 31, 2004. Thedecrease for the three-month period was primarily due to a reduction in laborcosts of $0.9 million resulting from a reduction in personnel and in travel andentertainment of $0.4 million. Sales costs as a percentage of total revenuewere 38.6% for the three months ended March 31, 2005 compared to 62.9% for thethree months ended March 31, 2004.

 

General andadministrative expenses decreased 21.7% to $0.8 million for the three monthsended March 31, 2005 compared with $1.0 million for the three months endedMarch 31, 2004. The decrease for the three-month period was primarily due toexpenses of $0.4 million incurred in connection with the severance agreemententered into with the Company’s former Chief Executive Officer in the firstquarter of 2004, offset by $0.2 million increase in professional fees andrelated expenses. General and administrative expenses as a percentage of totalrevenue decreased to 90.0% for the three months ended March 31, 2005 comparedto 131.8% for the three months ended March 31, 2004.

 

Research and developmentcosts increased 22.0% to $0.4 million for the three months ended March 31, 2005compared with $0.3 million for the three months ended March 31, 2004. Theincrease for the three-month period resulted from the allocation of softwaredevelopment labor related to development of customer specific software todirect costs of revenue in first quarter 2004. Research and development costsas a percentage of total revenue increased to 44.4% for the three months endedMarch 31, 2005 compared to 41.8% for the three months ended March 31, 2004.

 

Operations costsdecreased 25.9% to $0.5 million for the three months ended March 31, 2005compared with $0.7 million for the three months ended March 31, 2004. Thedecrease is principally due to a reduction in labor costs resulting from areduction in personnel and consulting services. Operations costs consist oftechnical support, data maintenance, data access, and communications costs.Operations costs as a percentage of total revenue were 56.6% for the threemonths ended March 31, 2005 compared to87.5% for the three months ended March31, 2004.

 

Depreciation andamortization remained unchanged at $0.2 million for the three months endedMarch 31, 2005 and March 31, 2004. Depreciation and amortization as apercentage of total revenue was 24.0% for the three months ended March 31, 2005compared to 27.6% for the three months ended March 31, 2004.

 

**DiscontinuedOperations**

 

In June 2003, the Companysold the individual retail investor unit and related assets of its subsidiary,PCQuote.com, Inc., and, in October 2003, the Company sold its institutionalconsolidated market data feed business. The Company recorded a net loss fromdiscontinued operations of $22,599, unadjusted for tax, for the three monthsended March 31, 2005 compared with net loss of $0.1 million, net of tax benefitof $0.1 million, for the three months ended March 31, 2004. The net loss forthe three months ended March 31, 2005 and 2004 resulted from the incurrence ofinbound communications costs associated with the Company’s obligation under atransition services agreement related to the sale of its consolidated marketdata feed business. The Company recorded $0.2 million, net of tax expense of$0.1 million, as a gain on disposition of discontinued operations during thefirst quarter of 2004 related to holdbacks from the sale of the consolidatedmarket data feed business.

 

Assets related todiscontinued operations consist of (1) a receivable for the reimbursement ofexpenses from IDC and accounts receivable, net of allowance, prior to November1, 2003 and (2) prepaid accounts from data access and communications vendors.Liabilities related to discontinued operations consist of (1) payables tocommunications vendors, (2) accruals for data costs, severance, and rentassociated with discontinued properties, and (3) accrued vacation for employeesdedicated to the transition service. See Note 5 “Discontinued Operations” inthe Notes to the Consolidated Financial Statements.

 

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LIQUIDITY AND CAPITALRESOURCES

 

Net cash and cashequivalents of $32,821 at March 31, 2005 decreased $0.2 million from $0.2million at December 31, 2004. This decrease was primarily due to the Company’soperating loss.

 

Operating activities usednet cash of $0.5 million for the three months ended March 31, 2005 compared tonet cash used of $3.1 million for the three months ended March 31, 2004. Forthe three months ended March 31, 2005, continuing operations used $0.7 millionof cash compared to net cash used of $1.9 million for the three months endedMarch 31, 2004. For the three months ended March 31, 2005, discontinuedoperations provided $0.1 million, resulting from an increase in accountspayables, compared to cash used of $1.2 million for the three months endedMarch 31, 2004.

 

Investing activities usednet cash of $0.8 million for the three months ended March 31, 2005 compared tonet cash used of $0.5 million for the three months ended March 31, 2004. Duringthe three months ended March 31, 2005, the Company invested $0.1 million inequipment and $0.3 million in its developed technology. During the three monthsended March 31, 2004, the Company invested $0.1 million in equipment and $0.3million in its developed technology. Additionally, on February 16, 2005, theCompany acquired the assets of Focus Technology Group LLC for $0.4 million, asdescribed in Note 3 ofthe Notes to Unaudited Interim Consolidated Financial Statements.

 

Financing activitiesprovided net cash of $1.1 million for the three months ended March 31, 2005compared to net cash provided of $20,661 million for the three months endedMarch 31, 2004.

 

TheCompany has a line of credit under which it may borrow up to $500,000 at prime.The Company is obligated to make monthly payments in respect of accruedinterest and outstanding principal, together with all accrued and unpaidinterest, is due upon demand. The line of credit is secured by the assets ofthe Company, and contains customary representations, warranties, covenants, andevents of default. As of March 31, 2005, the Company had borrowings under theline of credit of $500,000.

 

OnNovember 2, 2004, the Company issued to PICO a Secured Convertible PromissoryNote, which is referred to as the Convertible Note. Under the terms of theConvertible Note, the Company may borrow up to $1.5 million from PICO, at aninterest rate of 8%. In connection with issuing the Convertible Note andconcurrent with the first draw, the Company issued to PICO 25,000 shares ofcommon stock of the Company with a fair value of $75,000 in the first quarterof 2005.

 

On March 28, 2005, theCompany and PICO amended and restated the Convertible Note, which the Companyrefers to as the Restated Convertible Note. Under the terms of the RestatedConvertible Note, the Company may borrow up to $4.0 million at an interest rateof prime plus 2.75%. The Company is obligated to repay all outstandingprincipal and accrued interest under the Restated Convertible Note on March 28,2006. The Restated Convertible Note, which is convertible by PICO at any time,provides that the number of shares that PICO would receive in connection with aconversion of any amounts outstanding under the Restated Convertible Note wouldbe determined by dividing the total outstanding amount to be converted by thelesser of 80% of the five-day moving average per share price of the Company’scommon stock on the date the note was given and 80% of the five-day movingaverage per share price of the Company’s common stock on the date ofconversion. The five-day moving average per share price of the Company’s commonstock on the date the Restated Convertible Note was given on March 28, 2005 was$2.03. The number of shares of the Company’s common stock issuable uponconversion of the Restated Convertible Note is not subject to a cap.

 

The Restated ConvertibleNote contains a beneficial conversion feature and, as a result, the Companyrecorded $0.3 million of additional paid in capital and interest expense atMarch 31, 2005. The Restated Convertible Note is secured by the assets of theCompany, subordinate to the security interest granted under the line of credit and contains customary representations,warranties, covenants, and events of default. As of March 31, 2005, the Company had borrowed $1.1 million under theterms of the Restated Convertible Note and recorded accrued interest of $8,556.

 

The Company believes thatits current business model will permit it to take advantage of more significantopportunities within the financial services industry. In particular, with thesale of its institutional consolidated market data feed business,the Company believes that HyperFeed is no longer viewed as a competitor tocertain participants in the financial services industry, which has enabled itto become a provider of technology to its traditional competitors in theconsolidated market data feed business, including exchanges and contentproviders as well as financial institutions and redistributors.

 

Underthe current business model, the Company entered into twenty-five agreements toprovide its technology and services to a variety of participants in thefinancial services industry. Many of these agreements were entered into in thelatter part of 2004 and first quarter of 2005 (“Recent Agreements”).Substantially all of these agreements are structured to provide a license feethat is payable monthly over a multiple year term. The Company believes thatits revenues in any given period will increase to the extent it recognizesrevenue from the Recent Agreements. Further, the Company believes that it willcontinue to develop and realize new customers for its

 

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technologyand services. Although there can be no assurances in this regard, the Companybelieves that these two factors, among other things, will assist it inachieving profitability.

 

Althoughthere can be no assurances in this regard, the Company currently believes thatits existing capital resources, including cash and cash equivalents, accountsreceivable, assets related to discontinued operations, cash expected to bereceived from holdbacks associated with the sale of its institutionalconsolidated market data feed business, and available credit under the RestatedConvertible Note are sufficient to fund its operations over the next twelvemonths. However, the Company may not have sufficient capital resources to repayor refinance the Restated Convertible Note when it comes due in March of 2006.In the event that PICO chooses not to convert the Restated Convertible Note andthe Company is unable to repay or refinance the Restated Convertible Note atsuch time, PICO will also have the right to declare the Restated ConvertibleNote in default and may, at its option, pursue any other remedies available toit. If the Company requires additional capital resources, there can be noassurances that such capital will be available or available on termssatisfactory to the Company.

 

The Company hasconsidered and is willing to consider further various alternatives to enhancingstockholder value, including mergers and acquisitions and other strategictransactions. In addition, the Company has explored and is willing to explorefurther strategic relationships and joint ventures with other technology andfinancial services firms.

 

OFF BALANCE SHEET ARRANGEMENTS

 

The Company has an existing letter of credit in the amount of $75,000.The Company is not a party to any other off-balance sheet arrangements thathave, or are reasonably likely to have, a current or future material effect onthe Company’s financial condition, revenues, expenses, results of operations,liquidity, capital expenditures or capital resources. 

 

CRITICAL ACCOUNTINGPOLICIES AND ESTIMATES

 

**General**: Management’s Discussion and Analysisof Financial Condition and Results of Operations discusses the Company’sconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America. Thepreparation of these financial statements requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenue and expenses duringthe 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.

 

**RevenueRecognition**: The Company principally derives revenue fromlicensing technology and providing management and maintenance services of HTPXand HBOX software, ticker plant technologies, and managed services.Additionally, the Company derives revenue from the development of customizedsoftware.

 

Revenue is recognizedfrom the licensing of HTPX and HBOX (1) as payments from customers become duewhen the fee is not fixed or determinable at the outset of the arrangement or(2) ratably over the term of the agreement when post contract customer support(“PCS”) has a duration of one year or less. PCS is recognized ratably over theterm. Revenue for the development of customized software, consulting, andimplementation services is recognized based on time and materials from theapplication of contract accounting for the development of customized software,or based on an hourly rate when it is not a fixed fee arrangement. Forlicensing of the Company’s software through its sales channels, revenue isrecognized as payments from the reseller become due and generally commencesafter the software is installed at the reseller’s customer site.

 

The Company applies theprovisions of Statement of Position (“SOP”) 97-2, “Software RevenueRecognition,” as amended, which specifies the following four criteria that mustbe met prior to recognizing revenue: (1) persuasive evidence of the existenceof an arrangement, (2) delivery, (3) fixed or determinable fee, and (4)probable collection. In addition, revenue earned on software arrangementsinvolving multiple elements is allocated to each element based on the relativefair value of the elements. When applicable, revenue allocated to HyperFeed’ssoftware products (including specified upgrades/enhancements) is recognizedupon delivery of the products. If the fee is considered fixed and determinable,it is recognized as revenue when the sale is effected. If the fee is notconsidered fixed and determinable, it is recognized as revenue as payments fromcustomers become due. Revenue allocated to post contract customer support isrecognized ratably over the term of the support and revenue allocated toservice elements (such as training) is recognized as the services areperformed.

 

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In accordance with SOP97-2, revenue from contracts that do not require significant production,modification, or customization of software is recognized when the abovecriteria are met. Revenue from contracts that require significant production,modification, or customization of software is accounted for in conformity withthe provisions of Accounting Research Bulletin No. 45, “Long-Term ConstructionContracts,” using the relevant guidance therein, and AICPA SOP 81-1, “Accountingfor Performance of Construction-Type and Certain Production-Type Contracts.”SOP 81-1 provides for revenue recognition under the “percentage-of-completion”or “completed contract” method depending on the facts and circumstances ofcontracts entered into and management’s ability to reasonably estimate itsprogress toward completion. Contract losses, if any, are provided for in theirentirety in the period they become known, without regard to thepercentage-of-completion. For those contracts which the Company cannot reasonablyestimate progress toward completion, the Company employs the completed contractmethod of accounting. Revenue from arrangements accounted for under contractaccounting are allocated among licensed technologies, managed services, andconsulting fees based on the contractual terms of the arrangements.

 

The use of contractaccounting inherently includes the use of estimates of progress towardcompletion. Such estimates are subject to periodic revisions and, as a result,the financial statements could be materially impacted.

 

The Company applies theprovisions of Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accountingfor Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addressescertain aspects of the accounting by a vendor for arrangements under which itwill perform multiple revenue-generating activities. Specifically, EITF 00-21addresses how to determine whether an arrangement involving multipledeliverables contains more than one earnings process and, if it does, how todivide the arrangement into separate units of accounting consistent with theidentified earnings processes for revenue recognition purposes. EITF 00-21 alsoaddresses how arrangement consideration should be measured and allocated to theseparate units of accounting in the arrangement.

 

On October 31, 2003, theCompany sold its institutional consolidated market data feed business. Revenuerecognized prior to October 31, 2003, related to the assets sold and includedin discontinued operations was principally derived from service contracts forthe provision of market data only and service contracts for the provision ofmarket data together with analytical software. HyperFeed primarily serviced thebusiness-to-business marketplace. Revenue from service contracts was recognizedratably over the contract term as the contracted services were rendered.

 

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 the HYPRWareassets sold was primarily derived from analytics service, powered by theHyperFeed data feed, for Internet users in the consumer marketplace and fromthe sale of advertising on its Web site. Revenue from the sale of advertisingwas recognized as the advertising was displayed on the Web site.

 

HYPRWare derives revenuefrom royalties related to license fees for customers it referred to Townsendprior to December 31, 2002. Revenue is recorded as royalties are reported fromTownsend.

 

**AllowanceFor Doubtful Accounts**: The Company maintains allowances fordoubtful accounts for estimated losses resulting from the inability of itscustomers to make payments for services or debtors to satisfy note receivableobligations. The Company analyzes accounts receivable, customercredit-worthiness, current economic trends and changes in its customer paymentterms when evaluating the adequacy of the allowance for doubtful accounts andnotes receivable. If the financial condition of the Company’s customers ordebtors deteriorates, resulting in an impairment of their ability to makepayments, additional allowances may be required.

 

**Valuationof Intangible Assets and Software Development Costs**: TheCompany assesses the impairment of intangible assets on an annual basis orwhenever events or changes in circumstances indicate that the carrying valuemay not be recoverable. Factors the Company considers important which couldtrigger an impairment review include significant underperformance relative toexpected historical or projected future operating results, significant changesin the manner 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.

 

**SoftwareDevelopment Costs**: Software development costs are accountedfor in accordance with Statement of Financial Accounting Standards (“SFAS”) No.86, “Accounting for the Costs of Computer Software to Be Sold, Leased, orOtherwise Marketed.” Costs associated with the planning and design phase ofsoftware development, including coding and testing activities necessary toestablish technological feasibility of computer software products to belicensed or otherwise marketed, are expensed as research and development costsas incurred. Once technological feasibility has been determined, costs incurredin the construction phase of software development including coding, testing,and product quality assurance are capitalized.

 

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

 

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the date of suchdetermination. The accumulated amortization and related software developmentcosts are removed from the respective accounts effective in the year followingfull amortization.

 

The Company’s policy isto amortize capitalized software costs by the greater of (1) the ratio thatcurrent gross revenue for a product bear to the total of current andanticipated future gross revenue for that product or (2) 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 be reducedsignificantly.

 

RECENT ACCOUNTINGPRONOUNCEMENTS

 

In December 2004, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised) (“No.123R”), “Share-Based Payment”, which is effective as of the first interimreporting period that begins after January 1, 2006. SFAS No. 123R eliminatesthe intrinsic value method under Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees,” as an alternative method of accounting forstock-based awards. SFAS No. 123R also revises the fair value-based method ofaccounting for share-based payment liabilities, forfeitures and modificationsof stock-based awards and clarifies SFAS No. 123’s guidance in several areas,including measuring fair value, classifying an award as equity or as aliability and attributing compensation cost to reporting periods. In addition,SFAS No. 123R amends SFAS No. 95, “Statement of Cash Flows,” to require thatexcess tax benefits be reported as a financing cash inflow rather than as areduction of taxes paid, which is included within operating cash flows. TheCompany is in the process of evaluating the impact of SFAS No.123R, but doesnot currently believe that the adoption of SFAS No. 123R will have a materialimpact on the Company. 

 

**ITEM 3****. Quantitative and Qualitative Disclosures AboutMarket Risk**

 

At March 31, 2005, theCompany had excess cash invested in a money market account. The Company doesnot expect any material loss, if at all, on these investments. The Company hasa line of credit for $500,000 at prime, secured by the assets of the Company.As of March 31, 2005, the Company had borrowings against the line of credit of$500,000.

 

OnNovember 2, 2004, the Company issues to PICO Holdings Inc. (“PICO”), theCompany’s majority stockholder, a Secured Convertible Promissory Note, which isreferred to as the Convertible Note. Under the terms of the Convertible Note,the Company may borrow up to $1.5 million from PICO, at an interest rate of 8%.

 

On March 28, 2005, theCompany and PICO amended and restated the Convertible Note, which the Companyrefers to as the Restated Convertible Note. Under the terms of the RestatedConvertible Note, the Company may borrow up to $4.0 million at an interest rateof prime plus 2.75%. The Company is obligated to repay all outstandingprincipal and accrued interest under the Restated Convertible Note on March 28,2006. The Restated Convertible Note provides that the number of shares thatPICO would receive in connection with a conversion of any amounts outstanding underthe Restated Convertible Note would be determined by dividing the totaloutstanding amount to be converted by the lesser of 80% of the five-day movingaverage per share price of the Company’s common stock on the date the note wasgiven and 80% of the five-day moving average per share price of the Company’scommon stock on the date of conversion. The five-day moving average per shareprice of the Company’s common stock on the date the Restated Convertible Notewas given on March 28, 2005 was $2.03. The number of shares of the Company’scommon stock issuable upon conversion of the Restated Convertible Note is notsubject to a cap.

 

Asof March 31, 2005, the Company had borrowed $1.1 million under the terms of theRestated Convertible Note and recorded accrued interest of $8,556.

 

The Company is subject tovariable interest rates that could fluctuate with market conditions.

 

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**ITEM 4****. Controls and Procedures**

 

a)              *Disclosure Controls and Procedures.* TheCompany’s management, with the participation of the Company’s Chief ExecutiveOfficer and Chief Financial Officer, has evaluated the effectiveness of theCompany’s disclosure controls and procedures (as such term is defined in Rule15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) as of the end of the period covered by this quarterly report. Based onsuch evaluation, the Company’s Chief Executive Officer and Chief FinancialOfficer have concluded that, as of the end of such period, the Company’sdisclosure controls and procedures are effective in recording, processing,summarizing and reporting, on a timely basis, information required to bedisclosed by us in the reports that the Company files or submits under theExchange Act.

 

b)             *Internal Control Over Financial 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.

 

**Part II**

 

**ITEM 1. Legal Proceedings**

 

On June 2, 2003, theCompany sold the individual retail investor unit and related assets of itssubsidiary, PCQuote.com, Inc., to Money.net, Inc. On August 24, 2004, theCompany filed a six-count complaint for breach of contract and amounts due inthe Circuit Court of Cook County, Illinois against Money.net. The amountssought in the complaint are $117,834 for a promissory note, including interest,$31,920 from a datafeed license agreement, and $63,917 related to a transitionservices agreement. On November 17, 2004, Money.net filed a motion to dismissand, as a result, the Company filed an amended complaint on December 7, 2004.On January 7, 2005, Money.net filed answers to the amended complaint and acounterclaim. On February 3, 2005, the Company answered Money.net’scounterclaim, which included seven affirmative defenses. The Company isproceeding with discovery requests pursuant to the amended complaint. As ofMarch 31, 2005, the Company had a promissory note and accounts receivable, netof allowances, of $151,122 due from Money.net.

 

**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 –Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the UnitedStates Code.

 

(b) Reports on Form 8-K

 

A Form 8-K was filed onMarch 17, 2005 attaching a copy of the press release reporting the results ofoperations and financial condition of the Company for the year ended December31, 2004.

 

A Form 8-K was filed onFebruary 22, 2005 reporting the acquisition of Focus Technology Group LLC.

 

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SIGNATURES

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
| HYPERFEED TECHNOLOGIES,  INC. |
|-------------------------------|
|                          |
|                          |
| Date:                         | May 5, 2005 |
|                          |   |
| By:                           | /s/ Paul Pluschkell |   |
|                          |   |
|                          | Paul Pluschkell |
|                          | President and Chief  Executive Officer |
|                          |   |
| By:                           | /s/ Randall J. Frapart |   |
|                          |   |
|                          | Randall J. Frapart |
|                          | Chief Financial Officer  and Principal Accounting Officer |

 

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