** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC  20549**

 

**FORM 10-Q**

 

 

 

ý**Quarterly Report Pursuant to Section 13 or 15(d) of**

**the Securities Exchange Act of 1934**

**For the quarterly period ended March 31, 2002**

**Or**

o**Transition Report Pursuant to Section 13 or 15(d) of**

**the Securities Exchange Act of 1934**

**For the transition period from**

**              to              .**

 

 

**Commissionfile number 0-13093**

**I.R.S.Employer Identification Number 36-3131704**

** **

**HYPERFEED TECHNOLOGIES, INC.**

(a Delaware Corporation)

 

**300 S.Wacker, Suite 300**

**Chicago,Illinois 60606**

Telephone (312) 913-2800

 

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ýNo o

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date: 23,891,141 sharesof the registrant’s common stock ($.001 par value) were outstanding as of April30, 2002.

 

 

----

 

**HYPERFEEDTECHNOLOGIES, INC.**

** **

**INDEX**

 
|     |                                                                                              |   |
|----------|---------------------------------------------------------------------------------------------------|--------|
| PART I.  | Financial Information                                                                             |   |
|     |                                                                                              |   |
| Item 1.  | Consolidated Balance  Sheets as of March 31, 2002 and December 31, 2001                           |   |
|     |                                                                                              |   |
|     | Consolidated  Statements of Operations for the three-month periods ended March 31, 2002 and  2001 |   |
|     |                                                                                              |   |
|     | Consolidated  Statements of Cash Flows for the three-month periods ended March 31, 2002 and  2001 |   |
|     |                                                                                              |   |
|     | Notes  to Consolidated Financial Statements                                                       |   |
|     |                                                                                              |   |
| Item 2.  | Management’s  Discussion and Analysis of Results of Operations and Financial Condition       |   |
|     |                                                                                              |   |
| Item  3. | Quantitative  and Qualitative Disclosures about Market Risk                                       |   |
|     |                                                                                              |   |
| PART II. | Other Information                                                                                 |   |
|     |                                                                                              |   |
| Item  2. | Changes  in Securities and Use of Proceeds                                                        |   |
|     |                                                                                              |   |
| Item 6.  | Exhibits and  Reports on Form 8-K                                                                 |   |
|     |                                                                                              |   |
|     | Company’s Signature Page                                                                     |   |
|     |                                                                                              |   |

 

2

----

**HYPERFEEDTECHNOLOGIES, INC.**

**Consolidated Balance Sheets**

**March31, 2002 and December 31, 2001**

 

 
| **ASSETS**                                                                                                 |   | **March 31,  2002 (Unaudited)** |      | **December  31, 2001 (Audited)** |   |
|------------------------------------------------------------------------------------------------------------|--------|---------------------------------|-----------|----------------------------------|--------|
| Current Assets                                                                                             |   |                            |      |                             |   |
| Cash and cash  equivalents                                                                                 |   | $                               | 690,097   |                             | $      | 607,263 |   |
| Restricted cash  equivalents                                                                               |   | 250,000                         |      | 250,000                          |   |
| Accounts  receivable, less allowance for doubtful accounts of: 2002: $333,197; 2001:  $413,554             |   | 1,151,640                       |      | 1,310,936                        |   |
| Note receivable                                                                                            |   | 100,000                         |      | 100,000                          |   |
| Prepaid license  fees, current                                                                             |   | 910,000                         |      | 1,330,000                        |   |
| Prepaid expenses  and other current assets                                                                 |   | 418,005                         |      | 312,106                          |   |
|                                                                                                       |   |                            |      |                             |   |
| TOTAL CURRENT  ASSETS                                                                                      |   | 3,519,742                       |      | 3,910,305                        |   |
|                                                                                                       |   |                            |      |                             |   |
| Property and  equipment                                                                                    |   |                            |      |                             |   |
| Satellite  receiving equipment                                                                             |   | 89,417                          |      | 89,417                           |   |
| Computer  equipment                                                                                        |   | 2,979,103                       |      | 3,214,129                        |   |
| Communication  equipment                                                                                   |   | 1,427,646                       |      | 1,631,960                        |   |
| Furniture and  fixtures                                                                                    |   | 394,016                         |      | 430,996                          |   |
| Leasehold  improvements                                                                                    |   | 972,481                         |      | 962,288                          |   |
|                                                                                                       |   |                            |      |                             |   |
|                                                                                                       |   | 5,862,663                       |      | 6,328,790                        |   |
| Less:  Accumulated depreciation and amortization                                                           |   | 3,136,697                       |      | 3,306,865                        |   |
|                                                                                                       |   |                            |      |                             |   |
|                                                                                                       |   | 2,725,966                       |      | 3,021,925                        |   |
|                                                                                                       |   |                            |      |                             |   |
| Goodwill and  other intangible assets, net of accumulated amortization of: 2002: $446,201;  2001: $327,895 |   | 1,125,308                       |      | 1,243,614                        |   |
|                                                                                                       |   |                            |      |                             |   |
| Software  development costs, net of accumulated amortization of: 2002: $2,173,758;  2001: $7,199,318       |   | 2,075,562                       |      | 2,069,975                        |   |
| Deposits and  other assets                                                                                 |   | 129,288                         |      | 128,936                          |   |
|                                                                                                       |   |                            |      |                             |   |
| TOTAL ASSETS                                                                                               |   | $                               | 9,575,866 |                             | $      | 10,374,755 |   |
|                                                                                                            |        |                                 |           |                                  |        |  |  |  |  |

 

See Notes to Consolidated Financial Statements.

 

3

----

 
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                       |   | **March 31,  2002 (Unaudited)** |      | **December  31, 2001 (Audited)** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|-----------|----------------------------------|--------|
|                                                                                                                                                                 |   |                            |      |                             |   |
| Current  Liabilities                                                                                                                                                 |   |                            |      |                             |   |
| Notes payable                                                                                                                                                        |   | $                               | --        |                             | $      | 250,000 |   |
| Accrued  satellite termination fees                                                                                                                                  |   | 150,000                         |      | 225,000                          |   |
| Accounts payable                                                                                                                                                     |   | 988,924                         |      | 1,070,163                        |   |
| Accrued expenses                                                                                                                                                     |   | 455,647                         |      | 340,286                          |   |
| Accrued  compensation                                                                                                                                                |   | 291,424                         |      | 240,297                          |   |
| Income taxes  payable                                                                                                                                                |   | --                              |      | 5,000                            |   |
| Unearned revenue                                                                                                                                                     |   | 1,269,155                       |      | 1,565,446                        |   |
|                                                                                                                                                                 |   |                            |      |                             |   |
| TOTAL CURRENT  LIABILITIES                                                                                                                                           |   | 3,155,150                       |      | 3,696,192                        |   |
|                                                                                                                                                                 |   |                            |      |                             |   |
| Unearned  revenue, less current portion                                                                                                                              |   | 6,990                           |      | 35,435                           |   |
| Accrued  expenses, less current portion                                                                                                                              |   | 63,156                          |      | 72,178                           |   |
|                                                                                                                                                                 |   |                            |      |                             |   |
| TOTAL NONCURRENT  LIABILITIES                                                                                                                                        |   | 70,146                          |      | 107,613                          |   |
|                                                                                                                                                                 |   |                            |      |                             |   |
| TOTAL  LIABILITIES                                                                                                                                                   |   | 3,225,296                       |      | 3,803,805                        |   |
|                                                                                                                                                                 |   |                            |      |                             |   |
| Stockholders’  Equity                                                                                                                                           |   |                            |      |                             |   |
| Common stock,  $.001 par value; authorized 50,000,000 shares; issued and outstanding 23,891,141  shares at March 31, 2002 and 23,849,605 shares at December 31, 2001 |   | 23,891                     |      | 23,850                      |   |
| Additional  paid-in capital                                                                                                                                          |   | 44,199,704                      |      | 44,179,600                       |   |
| Accumulated  deficit                                                                                                                                                 |   | (37,873,025                     | )         | (37,632,500                      | )      |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                                                                                     |   | 6,350,570                       |      | 6,570,950                        |   |
|                                                                                                                                                                 |   |                            |      |                             |   |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                     |   | $                               | 9,575,866 |                             | $      | 10,374,755 |   |
|                                                                                                                                                                      |        |                                 |           |                                  |        |  |  |  |

 

See Notes to ConsolidatedFinancial Statements.

 

4

----

**HYPERFEED TECHNOLOGIES, INC.**

**Consolidated Statements of Operations**

 

 
|                                                |   | **For The Three Months Ended**  |      |
|-----------------------------------------------------|--------|---------------------------------|-----------|
|                                                |   | **March 31,  2002 (Unaudited)** |      | **March 31,  2001 (Unaudited)** |   |
| REVENUE                                             |   |                            |      |   |   |
| HyperFeed  Services                                 |   | $                               | 4,747,077 |   | $ | 6,866,395 |   |
| PCQuote Services                                    |   | 899,163                         |      | 2,889,922 |   |
|                                                |   |                            |      |   |   |
| TOTAL REVENUE                                       |   | 5,646,240                       |      | 9,756,317 |   |
|                                                |   |                            |      |   |   |
| DIRECT COST OF  SERVICES                            |   |                            |      |   |   |
| HyperFeed  Services                                 |   | 2,619,255                       |      | 3,275,977 |   |
| PCQuote Services                                    |   | 800,987                         |      | 2,237,091 |   |
|                                                |   |                            |      |   |   |
| TOTAL DIRECT  COST OF SERVICES                      |   | 3,420,242                       |      | 5,513,068 |   |
|                                                |   |                            |      |   |   |
| GROSS MARGIN                                        |   | 2,225,998                       |      | 4,243,249 |   |
|                                                |   |                            |      |   |   |
| OPERATING  EXPENSES                                 |   |                            |      |   |   |
| Sales                                               |   | 569,284                         |      | 918,025 |   |
| General and  administrative                         |   | 816,816                         |      | 1,231,046 |   |
| Product and  market development                     |   | 595,689                         |      | 1,103,786 |   |
| Depreciation and  amortization                      |   | 488,437                         |      | 327,827 |   |
|                                                |   |                            |      |   |   |
| TOTAL OPERATING  EXPENSES                           |   | 2,470,226                       |      | 3,580,684 |   |
|                                                |   |                            |      |   |   |
| INCOME (LOSS)  FROM OPERATIONS                      |   | (244,228                        | )         | 662,565 |   |
|                                                |   |                            |      |   |   |
| INTEREST INCOME  (EXPENSE)                          |   |                            |      |   |   |
| Interest income                                     |   | 6,475                           |      | 36,478 |   |
| Interest expense                                    |   | (2,772                          | )         | (30,011 | ) |
|                                                |   |                            |      |   |   |
| NET INTEREST  INCOME                                |   | 3,703                           |      | 6,467 |   |
|                                                |   |                            |      |   |   |
| INCOME (LOSS)  BEFORE INCOME TAXES                  |   | (240,525                        | )         | 669,032 |   |
| INCOME TAXES                                        |   | —                          |      | 25,000 |   |
|                                                |   |                            |      |   |   |
| INCOME (LOSS)  BEFORE MINORITY INTEREST             |   | (240,525                        | )         | 644,032 |   |
| Minority  interest                                  |   | —                          |      | 1,829 |   |
|                                                |   |                            |      |   |   |
| NET INCOME  (LOSS)                                  |   | $                               | (240,525  | ) | $ | 645,861 |   |
|                                                |   |                            |      |   |   |
| Basic net income  (loss) per share                  |   | $                               | (0.01     | ) | $ | 0.04 |   |
| Diluted net  income (loss) per share                |   | $                               | (0.01     | ) | $ | 0.03 |   |
|                                                |   |                            |      |   |   |
| Basic  weighted-average common shares outstanding   |   | 23,849,605                      |      | 15,759,281 |   |
| Diluted  weighted-average common shares outstanding |   | 23,849,605                      |      | 21,749,619 |   |

 

See Notes toConsolidated Financial Statements.

 

5

----

**HYPERFEED TECHNOLOGIES, INC.**

**Consolidated Statements of Cash Flows**

** **

 
|                                                                                      |   | **For The Three Months Ended**   |     |
|-------------------------------------------------------------------------------------------|--------|----------------------------------|----------|
|                                                                                      |   | **March 31,  2002  (Unaudited)** |     | **March 31,  2001  (Unaudited)** |   |
|                                                                                      |   |                             |     |   |   |
| Cash Flows From Operating Activities:                                                     |   | $                                | (240,525 | ) | $ | 645,861 |   |
| Net income (loss)                                                                         |   |                             |     |   |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |   | 488,437                          |     | 327,827 |   |
| Depreciation and  amortization                                                            |   |                             |     |   |   |
| Provision for doubtful  accounts                                                          |   | —                           |     | 66,000 |   |
| Amortization of  software development costs                                               |   | 330,347                          |     | 469,047 |   |
| Amortization of  value assigned to warrant issued in lieu of license fees                 |   | 420,000                          |     | 420,000 |   |
| Minority  interest in loss                                                                |   | —                           |     | (1,829 | ) |
| Changes in  assets and liabilities:                                                       |   |                             |     |   |   |
| Accounts  receivable                                                                      |   | 159,296                          |     | 625,134 |   |
| Prepaid expenses  and other current assets                                                |   | (105,899                         | )        | (860,288 | ) |
| Deposits and  other assets                                                                |   | (352                             | )        | (43,730 | ) |
| Accounts payable                                                                          |   | (81,239                          | )        | 633,687 |   |
| Accrued expenses                                                                          |   | 157,466                          |     | (173,398 | ) |
| Accrued  satellite termination fees                                                       |   | (75,000                          | )        | (108,000 | ) |
| Income taxes  payable                                                                     |   | (5,000                           | )        | 25,000 |   |
| Unearned revenue                                                                          |   | (324,736                         | )        | 97,979 |   |
|                                                                                      |   |                             |     |   |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                |   | 722,795                          |     | 2,123,290 |   |
| Cash Flows From  Investing Activities:                                                    |   |                             |     |   |   |
| Purchase of  property and equipment                                                       |   | (74,172                          | )        | (709,504 | ) |
| Software  development costs capitalized                                                   |   | (335,934                         | )        | (395,759 | ) |
|                                                                                      |   |                             |     |   |   |
| NET CASH USED IN  INVESTING ACTIVITIES                                                    |   | (410,106                         | )        | (1,105,263 | ) |
| Cash Flows From  Financing Activities:                                                    |   |                             |     |   |   |
| Proceeds from  issuance of common stock                                                   |   | 20,145                           |     | 57,349 |   |
| Principal  payments on notes payable                                                      |   | (250,000                         | )        | (325,000 | ) |
|                                                                                      |   |                             |     |   |   |
| NET CASH USED IN  FINANCING ACTIVITIES                                                    |   | (229,855                         | )        | (267,651 | ) |
|                                                                                      |   |                             |     |   |   |
| Net increase in  cash and cash equivalents                                                |   | 82,834                           |     | 750,376 |   |
| Cash and cash equivalents:                                                                |   |                             |     |   |   |
| Beginning of the  period                                                                  |   | 607,263                          |     | 2,522,593 |   |
| End of the  period                                                                        |   | $                                | 690,097  |   | $ | 3,272,969 |   |

 

See Notes to Consolidated Financial Statements.

 

6

----

**HYPERFEED TECHNOLOGIES, INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

 

 

(1) BASIS OF PRESENTATION

 

PRINCIPLES OF CONSOLIDATION: The accompanying interim consolidated financial statements include theaccounts of HyperFeed Technologies, Inc. (“HyperFeed” or the “Company”) and itssubsidiary, PCQuote.com, Inc. (“PCQuote”), and have been prepared in accordancewith accounting principles generally accepted in the United States of Americafor interim financial information and in conjunction with the rules andregulations of the Securities and Exchange Commission. Accordingly, they do notinclude all of the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements. The consolidated interim financial statements include alladjustments, including the elimination of all significant intercompanytransactions in consolidation, which, in the opinion of management, arenecessary in order to make the financial statements not misleading. The amountsindicated as “audited” have been extracted from the Company’s December 31, 2001annual report. For further information, refer to the financial statements andfootnotes included in HyperFeed’s annual report on Form 10-K for the year endedDecember 31, 2001.

 

SOFTWARE DEVELOPMENT COSTS:  TheCompany’s continuing investment in software development consists primarily ofenhancements to its existing Windows-based private network and Internetservices, development of new data analysis software and programmer toolsdesigned to afford easy access to its data-feed for data retrieval and analysispurposes, and application of new technology to increase the data volume anddelivery speed of its distribution system and network.

 

Costs associated with the planning and design phase of softwaredevelopment, including coding and testing activities necessary to establishtechnological feasibility of computer software products to be licensed orotherwise marketed, are expensed as research and development costs as incurred.Once technological feasibility has been determined, costs incurred in theconstruction phase of software development including coding, testing, andproduct quality assurance are capitalized.

 

Amortization commences at the time of capitalization or, in the case ofa new service offering, at the time the service becomes available for use.Unamortized capitalized costs determined to be in excess of the net realizablevalue of the product are expensed at the date of such determination. Theaccumulated amortization and related software development costs are removedfrom the respective accounts in the year following full amortization.

 

The Company’s policy is to amortize capitalized software costs by thegreater of (a) the ratio that current gross revenue for a product bear to thetotal of current and anticipated future gross revenue for that product or (b)the straight line method over three years, the remaining estimated economiclife of the product including the period being reported. The Company assessesthe recoverability of its software development costs against estimated futureundiscounted cash flows. Given the highly competitive environment andtechnological changes, it is reasonably possible that those estimates ofanticipated future gross revenue, the remaining estimated economic life of theproduct, or both may be reduced significantly.

 

FINANCIAL INSTRUMENTS:  TheCompany has no financial instruments for which the carrying value materiallydiffers from fair value.

 

INCOME TAXES:  Income taxes areaccounted for under the asset and liability method whereby deferred tax assetsare recognized for deductible temporary differences and operating loss and taxcredit carryforwards and deferred tax liabilities are recognized for taxabletemporary differences. Temporary differences are the differences between thereported amounts of assets and liabilities and their tax bases. Deferred taxassets are reduced by a valuation allowance when, in the opinion of management,it is more likely than not that some portion or all of the deferred tax assetswill not be realized. Deferred tax assets and liabilities are adjusted for theeffects of changes in tax laws and rates on the date of enactment.

 

7

----

 

REVENUE RECOGNITION:  TheCompany principally derives its revenue from service contracts for theprovision of market data only (“HyperFeed® license fees”), service contractsfor the provision of market data together with analytical software (“Analyticslicense fees”), and the sale of advertising on its Web site, www.pcquote.com.Revenue from service contracts is recognized ratably over the contract term asthe contracted services are rendered. Revenue from the sale of advertising isrecognized as the advertising is displayed on the Web site. HyperFeed licensefees and Analytics license fees for satellite and landline services aregenerally billed one month in advance with 30-day payment terms. License feesfor Analytics on the Internet are generally paid by credit card within fivedays prior to the month of service. These and other payments received prior toservices being rendered are classified as unearned revenue on the balancesheet.  Customers’ deposits on servicecontracts are classified as either current unearned revenue, if the contractexpires in one year or less, or non-current unearned revenue, if the contractexpiration date is greater than one year.

 

HyperFeed services primarily consist of the provision of HyperFeedmarket data and HyperFeed market data with analytics to the business-to-businessmarketplace, while PCQuote services primarily consist of analytics service,powered by the HyperFeed datafeed, to the consumer marketplace.

 

The Company applies the provisions of Statement of Position 97-2,“Software Revenue Recognition,”, as amended, which specifies the following fourcriteria that must be met prior to recognizing revenue: (1) persuasive evidenceof the existence of an arrangement, (2) delivery, (3) fixed or determinablefee, and (4) probable collection. In addition, revenue earned on softwarearrangements involving multiple elements is allocated to each element based onthe relative fair value of the elements. When applicable, revenue allocated tothe Company’s software products (including specified upgrades/enhancements) isrecognized upon delivery of the products. Revenue allocated to post contractcustomer support is recognized ratably over the term of the support and revenueallocated to service elements (such as training) is recognized as the servicesare performed.

 

GOODWILL AND OTHER INTANGIBLE ASSETS: Intangible assets consist principally of developed technology,noncompete agreements, customer lists, and the excess of acquisition costs overthe estimated fair value of net assets acquired (goodwill). The fair value ofintangible assets acquired is determined primarily through the use ofindependent appraisals. Amortization is calculated using the straight-linemethod over the respective estimated useful lives, three years for developedtechnology and customer lists and five years for noncompete agreements. Duringthe first quarter of 2002, the Company implemented SFAS 142, “Goodwill andOther Intangible Assets,” which replaces the requirements to amortizeintangible assets with indefinite lives and goodwill with a requirement for anannual impairment test.

 

 

(2) INCOME TAXES

 

At December 31, 2001, the Company had Federal income tax net operatingloss carryforwards of approximately $22,878,000 for Federal income tax purposesand approximately $22,393,000 for the alternative minimum tax. Approximately$1,058,000 of these net operating losses relates to exercise of incentiveemployee stock options and will be credited directly to stockholders’ equitywhen realized.  The Company also hadresearch and development credits of $106,000 which will expire in years 2010and 2011 if not previously utilized. The future utilization of these netoperating losses and research and development credits will be limited due tochanges in Company ownership. The net operating loss carryforwards will expire,if not previously utilized, as follows: 2002: $560,000; 2003: $79,000; 2004:$576,000; 2005: $1,557,000; 2006: $301,000; and thereafter $19,805,000.

 

8

----

 

(3) SEGMENT INFORMATION

 

Whilethe Company operates in one industry, financial services, in applying SFAS No.131, “Disclosures about Segments of an Enterprise and Related Information”, theCompany has identified two segments within which it operates. The parentCompany’s services are principally in the business-to-business sector, whileits subsidiary, PCQuote, operates in the business-to-consumer marketplace. TheCompany evaluates performance and allocates resources based on operatingprofitability and growth potential. The accounting policies of the reportablesegments are the same as those described in Note 1. Financial informationrelating to industry segments for the quarters ended March 31, 2002 and March31, 2001 is as follows:

 
|                                 |   | **March 31, 2002** |      | **March 31, 2001** |   |
|--------------------------------------|--------|--------------------|-----------|--------------------|--------|
|                                 |   | **Amount**         |      | **%**              |   | **Amount** |   | **%** |   |
| **Sales to unaffiliated customers:** |   |               |      |               |   |   |   |   |   |
| HyperFeed  services                  |   | $                  | 4,747,077 |               | 84.1   | % | $ | 6,866,395 |   | 70.4 | % |
| PCQuote  services                    |   | 899,163            |      | 15.9               | %      | 2,889,922 |   | 29.6 | % |
|                                 |   |               |      |               |   |   |   |   |   |
| Total  revenue                       |   | $                  | 5,646,240 |               | 100.0  | % | $ | 9,756,317 |   | 100.0 | % |
|                                 |   |               |      |               |   |   |   |   |   |
| **Operating income (loss):**         |   |               |      |               |   |   |   |   |   |
| HyperFeed  services                  |   | $                  | 140,686   |               | *      |   | $ | 1,562,387 |   | * |   |
| PCQuote  services                    |   | (384,914           | )         | *                  |   | (899,822 | ) | * |   |
|                                 |   |               |      |               |   |   |   |   |   |
| Total  operating income (loss)       |   | ($244,228          | )         | *                  |   | $ | 662,565 |   | * |   |
|                                 |   |               |      |               |   |   |   |   |   |
| **Identifiable assets:**             |   |               |      |               |   |   |   |   |   |
| HyperFeed  services                  |   | $                  | 8,027,796 |               | 83.8   | % | $ | 9,295,038 |   | 61.2 | % |
| PCQuote  services                    |   | 1,548,070          |      | 16.2               | %      | 5,882,871 |   | 38.8 | % |
|                                 |   |               |      |               |   |   |   |   |   |
| Total  identifiable assets           |   | $                  | 9,575,866 |               | 100.0  | % | $ | 15,177,909 |   | 100.0 | % |

 

----

*not meaningful

 

 

(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

On January 1, 2002, the Company adopted Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS142”). SFAS 142 addresses how intangible assets that are acquired individuallyor with a group of other assets (but not those acquired in a businesscombination) should be accounted for in financial statements upon theiracquisition. SFAS 142 also addresses how goodwill and other intangible assetsshould be accounted for after they have been initially recognized in thefinancial statements.

 

Also on January 1, 2002, the Company adopted SFAS No. 144,"Accounting for Impairment of Long-Lived Assets" ("SFAS144").  Management has determinedthat the adoption of SFAS 144 will not have a material impact on itsconsolidated financial statements.

 

9

----

 

Intangible asset data as of March 31, 2002 is as follows:

 
|                                  |   | **As of March 31, 2002**   |       |
|---------------------------------------|--------|----------------------------|------------|
|                                  |   | **Gross  Carrying Amount** | ** ** | **Accumulated Amortization** | ** ** |
| Amortized intangible  assets          |   |                       |       |   |   |
| Developed  technology                 |   | $                          | 1,327,239  |   | $ | (405,545 | ) |
| Noncompete  agreements                |   | 132,724                    |       | (24,333 | ) |
| Customer lists                        |   | 12,800                     |       | (3,911 | ) |
|                                  |   |                       |       |   |   |
| Unamortized  intangible assets        |   |                       |       |   |   |
| Goodwill                              |   | $                          | 86,334     |   |   |   |
|                                  |   |                       |       |   |   |
| Aggregate  amortization expense       |   |                       |       |   |   |
| For the quarter  ended March 31, 2002 |   | $                          | 118,306    |   |   |   |
|                                  |   |                       |       |   |   |
| Estimated  amortization               |   |                       |       |   |   |
| For the year  ended December 31, 2002 |   | $                          | 473,225    |   |   |   |
| For the year  ended December 31, 2003 |   | 473,225                    |       |   |   |
| For the year  ended December 31, 2004 |   | 175,438                    |       |   |   |
| For the year  ended December 31, 2005 |   | 26,545                     |       |   |   |
|                                       |        |                            |            |  |  |  |  |

 

The Company’s operating results for the first quarter of 2001 do notinclude any amortization of goodwill and other intangible assets as such assetsarose from business combinations consumated subsequent to March 31, 2001.

 

 

**PARTI. ITEM 2**

** **

**Management’s Discussion and Analysisof**

**Results of Operations and FinancialCondition**

 

INTRODUCTION — SAFE HARBOR DISCLOSURE

 

The following discussion and analysis contains historical information.It also contains forward-looking statements within the meaning of the “safeharbor” provisions of the Private Securities Litigation Reform Act of 1995,particularly in reference to statements regarding our expectations, plans andobjectives. You can generally identify forward-looking statements by the use ofthe words “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,”“believe,” “continue,” or similar language. Forward-looking statements involvesubstantial risks and uncertainties. You should give careful consideration tocautionary statements made in this discussion and analysis. We base ourstatements on our current expectations. Forward-looking statements may beimpacted by a number of factors, risks and uncertainties that could causeactual results to differ materially from those described in the forward-lookingstatements. Our filings with the Securities and Exchange Commission identifyfactors that could cause material differences. Among these factors are ourability to:

 

                                i.           fund our current andfuture business strategies either through continuing operations or externalfinancing;

                               ii.           attractand retain key employees;

                             iii.           competesuccessfully against competitive products and services;

                             iv.           maintainrelationships with key suppliers and providers of market data; and

                              v.           respondto the effect of economic and business conditions generally.

 

10

----

 

RECENT BUSINESSDEVELOPMENTS

 

##### **HyperFeed RetainsTrimedia and the Tolan Company**

 

OnApril 12, 2002, HyperFeed announced that it has retained New York-basedTrimedia for public relations services, and the Chicago-based Tolan Company forinvestor relations services.  Trimediawill develop and implement a media relations program to help communicate to thepublic HyperFeed’s commitment to providing top-notch data delivery systems. TheTolan Company will be relied upon to execute and strategically expandHyperFeed’s existing investor relations programs.

 

 

RESULTS OF OPERATIONS:

FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

 

Totalrevenue decreased 42.1% for the first three months of 2002 to $5.6 million from$9.8 million for the comparable period in 2001. Both our HyperFeed services andour PCQuote services posted decreases in the first quarter of 2002 from 2001.HyperFeed service revenue decreased $2.1 million, or 30.9%, from $6.9 millionin 2001 to $4.7 million in 2002. Decreases in the number of end users andrelated services associated with the provision of the RealTick analyticsapplication accounted for $1.4 million of the decline in HyperFeed servicerevenue. Revenue from our PCQuote services decreased $2.0 million, or 68.9%, to$0.9 million for the first three months of 2002 from $2.9 million for the sameperiod in 2001. This decline is principally due to the transfer at the end of thethird quarter 2001 of PCQuote 6.0 RealTick Internet customers to TownsendAnalytics, Ltd. (“Townsend”).

 

On July 31, 2001, PCQuote and Townsend entered into an agreement toterminate their Software License and Distributor Agreement dated May 28, 1999.PCQuote subsequently entered into a new agreement with Townsend to market theInternet version of the software application currently marketed as PCQuote 6.0RealTick. Under the new agreement, Townsend will provide the services, formerlyprovided by PCQuote, to our existing subscribers of its software and pay toPCQuote a portion of the license fee collected from those subscribers and newsubscribers referred through PCQuote. The new agreement replaced the prioragreement between Townsend Analytics and the Company’s subsidiary, PCQuote.

 

Directcosts of services decreased 38.0% to $3.4 million for the first quarter of 2002from $5.5 million in 2001. Principal components of the decrease were royaltiesand payments to providers of market data, principally attributable to thetransfer at the end of the third quarter 2001 of PCQuote 6.0 RealTick Internetcustomers to Townsend and the decline in analytics subscriptions. Amortizationof software development costs decreased 29.6% for the quarter from $469,000 in2001 to $330,000 in 2002. Gross margin decreased 47.5% to $2.2 million for thequarter from $4.2 million for the prior year quarter.

 

Directcosts associated with HyperFeed services decreased from $3.3 million for thequarter ended March 31, 2001 to $2.6 million for the March 31, 2002 quarter, a20.0% decrease. The principal components of the decrease were costs related tolicense and exchange fees, directly attributable to the decrease in analyticssubscription revenue. Amortization of software development costs decreased 5.0%to $330,000 for the 2002 quarter from $348,000 for the 2001 quarter. Theresulting gross margin for the first quarter decreased to $2.1 million in 2002from $3.6 million in 2001.

 

Directcosts associated with PCQuote services decreased to $0.8 million for the 2002quarter from $2.2 million in the comparable 2001 quarter, a 64.2% decrease. Thetransfer at the end of the third quarter 2001 of PCQuote 6.0 RealTick Internetcustomers to Townsend substantially reduced royalty and exchange fees, theprincipal component of direct costs. There were no software amortization costsfor the 2002 quarter versus $121,000 for the 2001 quarter.

 

11

----

 

Totaloperating expenses decreased to $2.5 million for the first quarter of 2002 from$3.6 million for the comparable 2001 period, a 31.0% decrease. Decreases,principally due to cost saving measures implemented in the third quarter of2001, were experienced in all categories except for depreciation and amortization.

 

Salescosts decreased 38.0% to $0.6 million for the first quarter of 2002 as comparedto $0.9 million for the same 2001 period, as a result of the elimination of ourconsumer sales force in the third quarter of 2001 and lower commission expensecommensurate with the decrease in revenue.

 

Generaland administrative expenses decreased 33.6% to $0.8 million for the firstquarter of 2002 from $1.2 million for the same 2001 period due to a reductionin personnel at the end of the third quarter of 2001.

 

Productand market development costs decreased 46.0% to $0.6 million for the 2002quarter from $1.1 million for the 2001 quarter, principally due to loweradvertising expenditures.

 

Depreciation and amortization increased to $0.5 million for the firstquarter of 2002 from $0.3 million for the comparable 2001 period as a result ofthe amortization of intangible assets acquired from Marketscreen.com, Inc. andLasdorf Corporate Services, Inc. in the second quarter of 2001.

 

 

CRITICAL ACCOUNTING POLICIES

 

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations discusses the Company’s consolidated financial statements, whichhave been prepared in accordance with accounting principles generally acceptedin 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 revenues and expenses duringthe reporting period.

 

On an on-going basis, management evaluates its estimates and judgments,including those related to bad 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.

 

ALLOWANCE FOR DOUBTFUL ACCOUNTS: We maintain allowances for doubtful accounts for estimated lossesresulting from the inability of our customers to make payments forservices.  We analyze accounts receivable,customer credit-worthiness, current economic trends and changes in our customerpayment terms when evaluating the adequacy of the allowance for doubtfulaccounts.  If the financial condition ofour customers deteriorates, resulting in an impairment of their ability to makepayments, additional allowances may be required.

 

VALUATION OF INTANGIBLE ASSETS AND SOFTWARE DEVELOPMENT COSTS:  We assess the impairment of intangibleassets whenever events or changes in circumstances indicate that the carryingvalue may not be recoverable. Factors we consider important which could triggeran impairment review include significant underperformance relative to expectedhistorical or projected future operating results, significant changes in themanner of our use of the acquired assets or the strategy for our overallbusiness, and significant negative industry or economic trends.  The Company assesses the recoverability ofits software development costs against estimated future revenue over theestimated remaining economic life of the software.

 

12

----

 

LIQUIDITY AND CAPITAL RESOURCES:

 

Net cash and cash equivalents increased $83,000 from year-end 2001 to$690,000 at the end of the first quarter of 2002. Expenditures for newequipment were $74,000 for the first three months of 2002 versus $710,000 forthe same period in 2001. Capitalized software costs of $336,000 for the quarterended March 31, 2002 were $60,000, or 15.2%, lower than the $396,000 recordedfor the same period in 2001. There were no new direct borrowings during theperiod, and we made the last $250,000 installment payment on our note payableto Motorola. As of March 31, 2002, we retired the note payable to Motorola,making all scheduled payments on time when due, and, as a result, we have nonotes payable outstanding. We received approximately $20,000 in net proceedsfrom the sale of shares of common stock to employees pursuant to our EmployeeStock Purchase Plan.

 

Earnings before interest, taxes, depreciation and amortization(“EBITDA”) was a positive $1.0 million for the first quarter of 2002. Webelieve our existing capital resources, cash generated from continuingoperations, and our ability to access external capital, if necessary, aresufficient for working capital purposes.

 

As we have previously reported, we have explored multiple alternativesthat may be available for the purpose of enhancing stockholder value, includinga merger, a spin-off or sale of all or part of our business, a strategicrelationship or joint venture with another technology or financial servicesfirm and equity financing. We continue to explore opportunities to enhancestockholder value.

 

 

EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In August 2001, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards No. 143, “Accounting forAsset Retirement Obligations” (“SFAS 143”), which applies to legal obligationsthat are associated with the retirement of long-lived assets that result fromthe acquisition, construction, development, and (or) normal operation of along-lived asset, except for certain obligations of lessees. SFAS 143 requiresthat an asset retirement liability be recorded at fair value when an enterpriseincurs the legal obligation to retire a long-lived asset. The enterprise alsowould record the carrying amount of the related long-lived asset and depreciatethat asset over its useful life. In subsequent periods, the asset retirementliability would be adjusted to reflect (1) the passage of time and (2) changesin the undiscounted estimates of cash flows that were associated with theinitial measurement. SFAS 143 is effective for financial statements issued forfiscal years beginning after June 15, 2002, with earlier applicationencouraged. Management is currently evaluating the impact that adoption of SFAS143 will have on its consolidated financial statements.

 

13

----

**PARTII. OTHER INFORMATION**

 

 

ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Therehave been no material changes in the Company’s market risk during thethree-month period ended March 31, 2002. For additional information, refer tothe Company’s Annual Report on Form 10-K for the fiscal year ended December 31,2001.

 

 

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

 

During the first quarter of 2002, we issued 41,536 shares of our commonstock to employees who purchased the shares under our Employee Stock PurchasePlan.

 

 

ITEM 6. EXHIBITS and REPORTS on FORM 8-K

 

REPORTS ON FORM 8-K

 

There were no reports on Form 8-K filed during the period covered bythis report.

 

14

----

 

 

**SIGNATURES**

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 

HYPERFEED TECHNOLOGIES,INC.

 
| Date:  | May 9, 2002                                               |
|--------|-----------------------------------------------------------|
|   |                                                      |
| By:    | /s/ Jim R. Porter                                         |
|   |                                                      |
|   | Jim R. Porter                                             |
|   | Chairman and Chief Executive Officer                      |
|   |                                                      |
| By:    | /s/ John E. Juska                                         |
|   |                                                      |
|   | John E. Juska                                             |
|   | Chief Financial Officer and Principal Accounting  Officer |

 

15

----