**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

**FORM 10-Q**

 

**ý****Quarterly Report Pursuantto Section 13 or 15(d) ofthe Securities Exchange Act of 1934**

 

**For the quarterly period ended March 31, 2003**

** **

**Or**

 

**o****Transition Report Pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934**

 

**For the transition period from**

**                to                **

** **

 

**Commission file number 0-13093**

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

** **

**HYPERFEED TECHNOLOGIES, INC.**

(a Delaware Corporation)

 

**300 S. Wacker, Suite 300**

**Chicago, Illinois 60606**

**Telephone (312) 913-2800**

 

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

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act). Yes o   No ý.

 

Asof May 1, 2003, the registrant had 25,101,950 shares of $.001 par value commonstock outstanding.

 

 

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HYPERFEED TECHNOLOGIES, INC.

 

INDEX

 
| PART I. Financial Information    |
|----------------------------------|
|                             |   |
| Item 1.                          | Financial Statements |
|                             |   |
|                             | Consolidated Balance Sheets  as of March 31, 2003 (unaudited) and December 31, 2002 |
|                             |   |
|                             | Consolidated  Statements of Operations for the three-month periods ended March 31, 2003 and  2002 (unaudited) |
|                             |   |
|                             | Consolidated  Statements of Cash Flows for the three-month periods ended March 31, 2003 and  2002 (unaudited) |
|                             |   |
|                             | Notes  to Unaudited Interim Consolidated Financial Statements |
|                             |   |
| Item 2.                          | Management’s  Discussion and Analysis of Financial Condition and Results of  Operations |
|                             |   |
| Item  3.                         | Quantitative  and Qualitative Disclosures about Market Risk |
|                             |   |
| Item 4.                          | Controls and Procedures |
|                             |   |
|                             |   |
| PART II.  Other Information |
|                             |   |
| Item 1.                          | Legal  Proceedings |
|                             |   |
| Item  2.                         | Changes  in Securities and Use of Proceeds |
|                             |   |
| Item  5.                         | Other Information |
|                             |   |
| Item 6.                          | Exhibits and  Reports on Form 8-K |
|                             |   |
|                             | Company’s Signature Page |
|                             |   |
|                             | Certifications |

 

2

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HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

Consolidated Balance Sheets

March31, 2003 and December 31, 2002

 
|                                                                                                                                                                |   | **March 31,  2003** |      | **December 31,********2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|------------------------------|--------|
|                                                                                                                                                                |   | **(Unaudited)**     |      | **(Audited)**                |   |
| ASSETS                                                                                                                                                              |   |                |      |                         |   |
| Current Assets                                                                                                                                                      |   |                |      |                         |   |
| Cash and cash equivalents                                                                                                                                           |   | $                   | 525,886   |                         | $      | 1,096,711 |   |
| Accounts receivable, less allowance for doubtfulaccounts of: 2003: $85,013;  2002: $82,355                                                                          |   | 594,631             |      | 700,942                      |   |
| Note receivable, less allowance for doubtfulaccounts of: 2003: $150,000;  2002: $150,000                                                                            |   | 199,142             |      | 199,142                      |   |
| Prepaid expenses and other current assets                                                                                                                           |   | 404,939             |      | 328,128                      |   |
| TOTAL CURRENT ASSETS                                                                                                                                                |   | 1,724,598           |      | 2,324,923                    |   |
|                                                                                                                                                                |   |                |      |                         |   |
| Property and equipment                                                                                                                                              |   |                |      |                         |   |
| Computer equipment                                                                                                                                                  |   | 2,387,839           |      | 3,345,614                    |   |
| Communication equipment                                                                                                                                             |   | 1,405,152           |      | 1,463,954                    |   |
| Furniture and fixtures                                                                                                                                              |   | 82,839              |      | 108,947                      |   |
| Leasehold improvements                                                                                                                                              |   | 523,645             |      | 531,397                      |   |
|                                                                                                                                                                |   | 4,399,475           |      | 5,449,912                    |   |
| Less: Accumulated depreciation and amortization                                                                                                                     |   | 2,835,758           |      | 3,762,376                    |   |
|                                                                                                                                                                |   | 1,563,717           |      | 1,687,536                    |   |
|                                                                                                                                                                |   |                |      |                         |   |
| Intangible assets, net of accumulated amortization  of: 2003: $25,000; 2002: $10,000                                                                                |   | 155,000             |      | 170,000                      |   |
| Software development costs, net of accumulated  amortization of: 2003: $2,347,954; 2002: $3,189,313                                                                 |   | 1,934,808           |      | 2,013,703                    |   |
| Deposits and other assets                                                                                                                                           |   | 98,857              |      | 99,428                       |   |
| TOTAL ASSETS                                                                                                                                                        |   | $                   | 5,476,980 |                         | $      | 6,295,590 |   |
|                                                                                                                                                                |   |                |      |                         |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                           |   |                |      |                         |   |
| Current Liabilities                                                                                                                                                 |   |                |      |                         |   |
| Accounts payable                                                                                                                                                    |   | $                   | 1,231,344 |                         | $      | 1,249,350 |   |
| Accrued expenses                                                                                                                                                    |   | 531,913             |      | 717,519                      |   |
| Accrued restructuring charge                                                                                                                                        |   | 257,926             |      | 405,301                      |   |
| Accrued compensation                                                                                                                                                |   | 91,709              |      | 106,576                      |   |
| Unearned revenue                                                                                                                                                    |   | 1,231,050           |      | 1,173,402                    |   |
| TOTAL CURRENT LIABILITIES                                                                                                                                           |   | 3,343,942           |      | 3,652,148                    |   |
|                                                                                                                                                                |   |                |      |                         |   |
| Accrued expenses, less current portion                                                                                                                              |   | 286,695             |      | 36,089                       |   |
| Unearned revenue, less current portion                                                                                                                              |   | 11,236              |      | 12,536                       |   |
| TOTAL NONCURRENT LIABILITIES                                                                                                                                        |   | 297,931             |      | 48,625                       |   |
|                                                                                                                                                                |   |                |      |                         |   |
| TOTAL LIABILITIES                                                                                                                                                   |   | 3,641,873           |      | 3,700,773                    |   |
|                                                                                                                                                                |   |                |      |                         |   |
| Stockholders’ Equity                                                                                                                                           |   |                |      |                         |   |
| Common stock, $.001 par value; authorized  50,000,000shares;  issued and outstanding 25,101,950 shares at March 31, 2003 and 25,030,689 shares at December 31, 2002 |   | 25,102         |      | 25,031                  |   |
| Additional paid-in capital                                                                                                                                          |   | 44,578,167          |      | 44,563,060                   |   |
| Accumulated deficit                                                                                                                                                 |   | (42,768,162         | )         | (41,993,274                  | )      |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                     |   | 1,835,107           |      | 2,594,817                    |   |
|                                                                                                                                                                |   |                |      |                         |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                     |   | $                   | 5,476,980 |                         | $      | 6,295,590 |   |

 

See Notes to UnauditedInterim Consolidated Financial Statements.

 

3

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HYPERFEED TECHNOLOGIES,INC. AND SUBSIDIARY

Consolidated Statements ofOperations

 
|                                                          |   | **For The Three Months Ended** |      |
|---------------------------------------------------------------|--------|--------------------------------|-----------|
|                                                          |   | **March 31,  2003**            |      | **March 31,  2002** |   |
|                                                          |   | **(Unaudited)**                |      | **(Unaudited)** |   |
| REVENUE                                                       |   |                           |      |   |   |
| HyperFeed Services                                            |   | $                              | 3,034,173 |   | $ | 4,747,077 |   |
| PCQuote Services                                              |   | 618,493                        |      | 899,163 |   |
|                                                          |   |                           |      |   |   |
| TOTAL REVENUE                                                 |   | 3,652,666                      |      | 5,646,240 |   |
|                                                          |   |                           |      |   |   |
| DIRECT COST OF SERVICES                                       |   |                           |      |   |   |
| HyperFeed Services                                            |   | 2,148,093                      |      | 2,619,255 |   |
| PCQuote Services                                              |   | 261,510                        |      | 800,987 |   |
|                                                          |   |                           |      |   |   |
| TOTAL DIRECT COST OF SERVICES                                 |   | 2,409,603                      |      | 3,420,242 |   |
|                                                          |   |                           |      |   |   |
| GROSS MARGIN                                                  |   | 1,243,063                      |      | 2,225,998 |   |
|                                                          |   |                           |      |   |   |
| OPERATING EXPENSES                                            |   |                           |      |   |   |
| Sales                                                         |   | 449,078                        |      | 569,284 |   |
| General and administrative                                    |   | 776,415                        |      | 816,816 |   |
| Product and market development                                |   | 506,466                        |      | 595,689 |   |
| Depreciation and amortization                                 |   | 288,865                        |      | 488,437 |   |
|                                                          |   |                           |      |   |   |
| TOTAL OPERATING EXPENSES                                      |   | 2,020,824                      |      | 2,470,226 |   |
|                                                          |   |                           |      |   |   |
| LOSS FROM OPERATIONS                                          |   | (777,761                       | )         | (244,228 | ) |
|                                                          |   |                           |      |   |   |
| INTEREST INCOME (EXPENSE)                                     |   |                           |      |   |   |
| Interest income                                               |   | 2,873                          |      | 6,475 |   |
| Interest expense                                              |   | —                         |      | (2,772 | ) |
|                                                          |   |                           |      |   |   |
| NET INTEREST INCOME                                           |   | 2,873                          |      | 3,703 |   |
|                                                          |   |                           |      |   |   |
| LOSS BEFORE INCOME TAXES                                      |   | (774,888                       | )         | (240,525 | ) |
| Income taxes                                                  |   | —                         |      | — |   |
|                                                          |   |                           |      |   |   |
| NET LOSS                                                      |   | $                              | (774,888  | ) | $ | (240,525 | ) |
|                                                          |   |                           |      |   |   |
| Basic and diluted net loss per share                          |   | $                              | (0.03     | ) | $ | (0.01 | ) |
|                                                          |   |                           |      |   |   |
| Basic and diluted weighted-average common shares  outstanding |   | 25,030,689                     |      | 23,849,605 |   |

 

SeeNotes to Unaudited Interim Consolidated Financial Statements.

 

4

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HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

Consolidated Statements ofCash Flows

 
|                                                                                      |   | **For The Three Months Ended** |     |
|-------------------------------------------------------------------------------------------|--------|--------------------------------|----------|
|                                                                                      |   | **March 31,  2003**            |     | **March 31,********2002** |   |
|                                                                                      |   | **(Unaudited)**                |     | **(Unaudited)** |   |
| Cash Flows From Operating Activities:                                                     |   |                           |     |   |   |
| Net loss                                                                                  |   | $                              | (774,888 | ) | $ | (240,525 | ) |
| Adjustments to reconcile net loss to net cashprovided by (used in)  operating activities: |   |                           |     |   |   |
| Depreciation and amortization                                                             |   | 288,865                        |     | 488,437 |   |
| Provision for doubtful accounts                                                           |   | 30,000                         |     | — |   |
| Amortization of software development costs                                                |   | 341,750                        |     | 330,347 |   |
| Amortization of value assigned to warrant issued  in lieu oflicense  fees                 |   | —                         |     | 420,000 |   |
| Changes in assets and liabilities:                                                        |   |                           |     |   |   |
| Accounts receivable                                                                       |   | 76,311                         |     | 159,296 |   |
| Prepaid expenses and other current assets                                                 |   | (76,811                        | )        | (105,899 | ) |
| Deposits and other assets                                                                 |   | 571                            |     | (352 | ) |
| Accounts payable                                                                          |   | (18,006                        | )        | (81,239 | ) |
| Accrued expenses                                                                          |   | (97,242                        | )        | 157,466 |   |
| Accrued satellite termination fees                                                        |   | —                         |     | (75,000 | ) |
| Income taxes payable                                                                      |   | —                         |     | (5,000 | ) |
| Unearned revenue                                                                          |   | 56,348                         |     | (324,736 | ) |
| NET CASH PROVIDED BY (USED IN) OPERATING  ACTIVITIES                                      |   | (173,102                       | )        | 722,795 |   |
|                                                                                      |   |                           |     |   |   |
| Cash Flows From Investing Activities:                                                     |   |                           |     |   |   |
| Purchase of property and equipment                                                        |   | (150,046                       | )        | (74,172 | ) |
| Software development costs capitalized                                                    |   | (262,855                       | )        | (335,934 | ) |
| NET CASH USED IN INVESTING ACTIVITIES                                                     |   | (412,901                       | )        | (410,106 | ) |
|                                                                                      |   |                           |     |   |   |
| Cash Flows From Financing Activities:                                                     |   |                           |     |   |   |
| Proceeds from issuance of common stock                                                    |   | 15,178                         |     | 20,145 |   |
| Principal payments on notes payable                                                       |   | —                         |     | (250,000 | ) |
| NET CASH PROVIDED BY (USED IN) FINANCING  ACTIVITIES                                      |   | 15,178                         |     | (229,855 | ) |
|                                                                                      |   |                           |     |   |   |
| Net increase (decrease) in cash and cash  equivalents                                     |   | (570,825                       | )        | 82,834 |   |
| Cash and cash equivalents:                                                                |   |                           |     |   |   |
| Beginning of the period                                                                   |   | 1,096,711                      |     | 607,263 |   |
|                                                                                      |   |                           |     |   |   |
| End of the period                                                                         |   | $                              | 525,886  |   | $ | 690,097 |   |

 

SeeNotes to Unaudited Interim Consolidated Financial Statements.

 

5

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HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED INTERIMCONSOLIDATED FINANCIAL STATEMENTS

 

(1)BASIS OF PRESENTATION

 

PRINCIPLESOF CONSOLIDATION:  The accompanyingunaudited interim consolidated financial statements include the accounts ofHyperFeed Technologies, Inc. (“HyperFeed” or the “Company”) and its subsidiary,PCQuote.com, Inc. (“PCQuote”), and have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial information and in conjunction with the rules and regulationsof the Securities and Exchange Commission. Accordingly, they do not include allof the information and footnotes required by accounting principles generallyaccepted in the United States of America for complete financial statements. Theconsolidated interim financial statements include all adjustments, includingthe elimination of all significant intercompany transactions in consolidation,which, in the opinion of management, are necessary in order to make thefinancial statements not misleading. The amounts indicated as “audited” havebeen extracted from the Company’s December 31, 2002 annual report. For furtherinformation, refer to the consolidated financial statements and footnotesincluded in HyperFeed’s annual report on Form 10-K for the year ended December31, 2002.

 

SOFTWAREDEVELOPMENT COSTS:  The Company’scontinuing investment in software development consists primarily ofenhancements to its existing Windows-based market data distribution platform,the direct exchange services, the development of new data analysis software andprogrammer tools and the application of new technology to increase the datavolume and delivery speed of the Company’s distribution system.

 

Costsassociated with the planning and design phase of software development,including coding and testing activities necessary to establish technologicalfeasibility of computer software products to be licensed or otherwise marketed,are expensed as research and development costs as incurred. Once technologicalfeasibility has been determined, costs incurred in the construction phase ofsoftware development including coding, testing, and product quality assuranceare capitalized.

 

Amortizationcommences at the time of capitalization or, in the case of a new serviceoffering, at the time the service becomes available for use. Unamortizedcapitalized costs determined to be in excess of the net realizable value of theproduct are expensed at the date of such determination. The accumulatedamortization and related software development costs are removed from therespective accounts effective in the year following full amortization.

 

TheCompany’s policy is to amortize capitalized software costs by the greater of(a) the ratio that current gross revenue for a product bear to the total ofcurrent and anticipated future gross revenue for that product or (b) thestraight line method over three years, the remaining estimated economic life ofthe product including the period being reported. The Company assesses therecoverability 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.

 

FINANCIALINSTRUMENTS:  The Company has nofinancial instruments for which the carrying value materially differs from fairvalue.

 

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

 

6

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STOCKBASED COMPENSATION:  At March 31, 2003,the Company had one stock-based employee compensation plan. The Company hasadopted the disclosure-only provisions of FASB Statement No. 123, “Accountingfor Stock-Based Compensation” (SFAS 123), as amended by FASB Statement No. 148,“Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS148) and will continue to use the intrinsic value based method of accountingprescribed by APB No. 25, “Accounting for Stock Issued to Employees.” Under APBNo. 25, no compensation cost has been recognized for options granted with anoption price equal to the grant date market value of the Company’s commonstock. Had compensation cost for the Company’s options granted been determinedbased on the fair value of the option at the grant date consistent with theprovisions of SFAS 123, the Company’s net income and net income per share forthe quarters ended March 31, 2003 and 2002 would have been decreased to the proforma amounts indicated below:

 

|                                                                                                            |   | **Three months ended********March 31,** |     |
|-----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                                                            |   | **2003**                                |     | **2002** |   |
| Net loss, as reported                                                                                           |   | $                                       | (774,888 | ) | $ | (240,525 | ) |
|                                                                                                            |   |                                    |     |   |   |
| Less: Stock-based compensation expense determined  under fair value method for all awards, net of related taxes |   | (53,126                                 | )        | (773,334 | ) |
|                                                                                                            |   |                                    |     |   |   |
| Pro forma net loss                                                                                              |   | $                                       | (828,014 | ) | $ | (1,013,859 | ) |
|                                                                                                            |   |                                    |     |   |   |
| Basic and diluted net loss per share, as reported                                                               |   | $                                       | (0.03    | ) | $ | (0.01 | ) |
|                                                                                                            |   |                                    |     |   |   |
| Pro forma basic and diluted net loss per share                                                                  |   | $                                       | (0.03    | ) | $ | (0.04 | ) |

 

Thevalue of each option grant is estimated on the date of grant using theBlack-Scholes option pricing model with the following weighted-averageassumptions:

 

|                                           |   | **Three months ended  March 31,** |   |
|------------------------------------------------|--------|-----------------------------------|--------|
|                                           |   | **2003**                          |   | **2002** |   |
| Risk-free interest rate                        |   | 2.77                              | %      | 4.27 | % |
| Volatility factor                              |   | 100                               | %      | 106 | % |
| Dividend yield                                 |   | 0.00                              | %      | 0.00 | % |
| Expected term of options                       |   | 5 years                           |   | 5 years |   |
|                                           |   |                              |   |   |   |
| Weighted-average fair value of options granted |   | $                                 | 0.20   |   | $ | 0.50 |   |
|                                                |        |                                   |        |  |  |  |  |

 

TheBlack-Scholes option pricing model was developed for use in estimating the fairvalue of traded options which have no vesting restrictions. In addition, optionpricing models require the input of highly subjective assumptions includingexpected stock price characteristics which are significantly different fromthose of traded options. Because changes in the subjective input assumptionscan materially affect the fair value estimate, the existing models do not necessarilyprovide a reliable single measure of the fair value of stock-based compensationawards.

 

EARNINGS PER SHARE:  Basicearnings per share (“EPS”) is based on the weighted-average number of sharesoutstanding and excludes the dilutive effect of unexercised common stockequivalents. Diluted earnings per share includes the dilutive effect ofunexercised common stock equivalents. The Company had equity securities that,if exercised, would have had a dilutive effect on EPS had the Company generatedincome during the quarters ended March 31, 2003 and 2002. The dilutive effectof such securities would have been an additional 12,474 and 47,647weighted-average shares outstanding during the quarters ended March 31, 2003and 2002, respectively. For the quarters ended March 31, 2003 and 2002,weighted-average equity securities totaling 6,516,528 and 8,078,389,respectively, were excluded from the calculations as their effect wasanti-dilutive due to such securities having exercise prices in excess of theweighted-average fair value of the Company’s common stock during the quarterlyperiods.

 

7

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REVENUERECOGNITION:  The Company principallyderives its revenue from service contracts for the provision of market data only(“HyperFeed® license fees”), service contracts for the provision of market datatogether with analytical software (“Analytics license fees”), and the sale ofadvertising on its Web site, www.pcquote.com. Revenue from service contracts isrecognized ratably over the contract term as the contracted services arerendered. Revenue from the sale of advertising is recognized as the advertisingis displayed on the Web site. HyperFeed license fees and Analytics license feesfor satellite and landline services are generally billed one month in advancewith 30-day payment terms. License fees for Analytics on the Internet aregenerally paid by credit card within five days prior to the month of service.These and other payments received prior to services being rendered areclassified as unearned revenue on the balance sheet. Customers’ deposits onservice contracts are classified as either current unearned revenue, if thecontract expires in one year or less, or non-current unearned revenue, if thecontract expiration date is greater than one year. HyperFeed expects togenerate revenue in the future from the Managed Exchange Platform Services(“MEPS”) model (the licensing of its ticker plant technologies).

 

HyperFeedservices primarily consist of the provision of HyperFeed market data andHyperFeed market data with analytics to the business-to-business marketplace,while PCQuote services primarily consist of analytics service, powered by theHyperFeed data feed, to the consumer marketplace. HyperFeed licenses its  newly developed MEPS ticker planttechnologies to the business-to-business community.

 

TheCompany applies the provisions of Statement of Position 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 the Company’ssoftware products (including specified upgrades/enhancements) is recognizedupon delivery of the products. Revenue allocated to post contract customersupport is recognized ratably over the term of the support and revenueallocated to service elements (such as training) is recognized as the servicesare performed.

 

(2)INCOME TAXES

 

At December 31, 2002, the Company had Federal income tax net operatingloss carryforwards of $24.9 million for Federal income tax purposes and $24.5million for the alternative minimum tax. Of these net operating losses, $1.1million relates to exercise of incentive employee stock options and will becredited directly to stockholders’ equity when realized. The Company also hadresearch and development credits of $106,000 that will all expire by 2011 ifnot previously utilized. The future utilization of these net operating lossesand research and development credits will be limited due to changes in Companyownership. The net operating loss carryforwards expire through 2022. TheCompany has not recorded any tax benefits related to these net operating losscarryforwards.

 

8

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(3)SEGMENT INFORMATION

 

While the Company operates in one industry,financial services, in applying SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information”, the Company has identified two segmentswithin which it operates. The parent Company’s services are principally in thebusiness-to-business sector, while its subsidiary, PCQuote, operates in thebusiness-to-consumer marketplace. The Company evaluates performance andallocates resources based on operating profitability and growth potential. Theaccounting policies of the reportable segments are the same as those describedin Note 1. Financial information relating to industry segments for the quartersended March 31, 2003 and March 31, 2002 is as follows:

 

|                                 |   | **Three  months ended** |      |
|--------------------------------------|--------|-------------------------|-----------|
|                                 |   | **March 31,  2003**     |      | **March 31,  2002** |   |
|                                 |   | **Amount**              |      | **%** |   | **Amount** |   | **%** |   |
| **Sales to unaffiliated customers:** |   |                    |      |   |   |   |   |   |   |
| HyperFeed services                   |   | $                       | 3,034,173 |   | 83.1 | % | $ | 4,747,077 |   | 84.1 | % |
| PCQuote services                     |   | 618,493                 |      | 16.9 | % | 899,163 |   | 15.9 | % |
|                                 |   |                    |      |   |   |   |   |   |   |
| Total revenue                        |   | $                       | 3,652,666 |   | 100.0 | % | $ | 5,646,240 |   | 100.0 | % |
|                                 |   |                    |      |   |   |   |   |   |   |
| **Operating income (loss):**         |   |                    |      |   |   |   |   |   |   |
| HyperFeed services                   |   | $                       | (715,924  | ) | 92.0 | % | $ | 140,686 |   | * |   |
| PCQuote services                     |   | (61,837                 | )         | 8.0 | % | (384,914 | ) | * |   |
|                                 |   |                    |      |   |   |   |   |   |   |
| Total operating loss                 |   | $                       | (777,761  | ) | 100.0 | % | $ | (244,228 | ) | * |   |
|                                 |   |                    |      |   |   |   |   |   |   |
| **Identifiable assets:**             |   |                    |      |   |   |   |   |   |   |
| HyperFeed services                   |   | $                       | 5,149,176 |   | 94.0 | % | $ | 8,027,796 |   | 83.8 | % |
| PCQuote services                     |   | 327,804                 |      | 6.0 | % | 1,548,070 |   | 16.2 | % |
|                                 |   |                    |      |   |   |   |   |   |   |
| Total identifiable assets            |   | $                       | 5,476,980 |   | 100.0 | % | $ | 9,575,866 |   | 100.0 | % |

 

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* not meaningful

 

 

(4) LITIGATION

 

On July 3, 2002, the Company filed a two-countaction against PC Quote Canada asserting breach of Agency License Agreement(the “Agreement”) and fraud and unjust enrichment and requests damages, plusinterest, costs and attorneys fees. The defendant filed an answer, affirmativedefenses and counterclaim asserting that oral agreement modified the AgencyLicense Agreement and requests damages.

 

On January 28, 2003, the defendant filed a motion for a preliminaryinjunction to enjoin HyperFeed from terminating services provided under theAgreement and HyperFeed has agreed not to terminate such services until acourt-ordered audit of the defendant’s records has been completed.

 

On March 28, 2003, the defendant filed an amended counterclaim claimingbreach of the contract. In itsamended counterclaim, the defendant (1) claims unjust enrichment,(2) claims overpayment of communication fees, (3) claims that HyperFeedlicensed directly to users in Canada and/or allowed U.S. customers to do so inviolation of the defendant’s exclusive license in Canada, (4) claims breach ofcontract for terminating the Agreement, and (5) requests an injunction. Thedefendant requests damages in excess of $1.4 million. HyperFeed answered thecounterclaim denying all material allegations and believes the claims arewithout merit. HyperFeed intends to complete the audit, obtain answers tooutstanding discovery, aggressively seek to collect all past due amounts andvigorously defend against asserted claims.

 

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(5) PRIVATE PLACEMENT OFFERING

 

OnMarch 17, 2003, HyperFeed announced a planned private placement of 5,260,628shares of common stock (representing 17.4% of the Company’s outstanding commonstock including the shares from this transaction) at $0.2705 per share to itsexecutive officers, individual board members, and its largest investor, PICOHoldings, Inc. (“PICO”), for an aggregate purchase price of $1,423,000. Theprice per share was determined using the average closing price of the commonstock for the twenty trading days prior to and including the date the stock waspriced, March 13, 2003.

 

Thetransaction is expected to close in May after HyperFeed’s annual meeting, pendingshareholder approval. PICO has notified HyperFeed of its intent to approve theprivate placement.

 

Thesecurities to be issued in the private placement have not been registered underthe Securities Act of 1933 (the “Securities Act”) or other applicablesecurities laws and may not be sold or transferred except pursuant to aneffective registration statement under the Securities Act and other applicablesecurities laws or an appropriate exemption from any applicable registrationrequirements.

 

PART I. ITEM 2

Management’s Discussion andAnalysis ofFinancial Condition and Results of Operations

 

INTRODUCTION– SAFE HARBOR DISCLOSURE

 

Thefollowing discussion and analysis contains historical information. It alsocontains forward-looking statements within the meaning of the “safe harbor”provisions of the Private Securities Litigation Reform Act of 1995,particularly in reference to statements regarding our expectations, plans 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. HyperFeed undertakes no obligation topublicly release the results of any revision to these forward-lookingstatements which may be made to reflect events or circumstances after the dateshereof or to reflect the occurrence of unanticipated events. Forward-lookingstatements may be impacted by a number of factors, risks and uncertainties thatcould cause actual results to differ materially from those described in theforward-looking statements. Among these factors are:

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

 

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OVERVIEW

 

During2002 and in the first quarter of 2003, the Company has experienced a loss ofcustomers due to economic conditions and a shift in customer needs. In additionto a significant slow-down experienced by the day-trading industry, many ofHyperFeed’s largest institutional customers were retail brokerages affected bythe same financial market downturn. These conditions prompted the Company tofocus on products and services that produce the most revenue from its tickerplant technologies.

 

InAugust and September 2002, HyperFeed hired a new senior management team, whichsubsequently restructured the Company’s staff, product initiatives, andfacilities. In October 2002, HyperFeed reduced its workforce by 21%. Inaddition, facilities were consolidated to garner additional cost savings.

 

Thenew senior management team’s product restructuring was driven by the financialmarket industry’s need to get data feed connections directly from exchanges.The Company realized that the anticipated market for a consolidated data feedwould be coupled with the market’s need for ticker plant technologies.Accordingly, management constructed a new sales strategy for packaging andselling the Company’s services. The sales model includes direct sales, alliancepartner sales, and business development, which are expected to reflect revenuegrowth during 2003.

 

RECENT BUSINESS DEVELOPMENTS

 

**HyperFeed and TIBCO Establish Strategic Partnership to EmbedTIBCO Software in HyperFeed’s Ticker Plant Technologies**

 

OnMay 12, 2003, HyperFeed announced a partnership with TIBCO Software, Inc., aleading enabler of real-time business, to embed TIBCO’s software products intoHyperFeed’s ticker plant technologies and to resell the software into itsclients’ infrastructures. By offering TIBCO technology as a part of theCompany’s Managed Exchange Platform, HyperFeed is linking the TIBCO librariesto the HyperFeed executable and using these libraries to facilitatecommunications between the platform and the client. The synergy of TIBCOsoftware, HyperFeed’s ticker plant technologies, and the clients’infrastructures ensures speedy arrival and distribution of market data andgives HyperFeed customers more choices for connectivity. The agreement alsogives HyperFeed the power to re-sell TIBCO’s SmartSockets® family of solutionsto HyperFeed customers.

 

**Notification of Delisting from The Nasdaq SmallCap Market**

 

InMay 2003, the Company received notification from Nasdaq indicating that theCompany failed to comply with the minimum $1.00 per share continued listingrequirements set forth in NASD Marketplace Rule 4310(c)(4) and that it is not in compliance with listingmaintenance standards established by Nasdaq requiring that the Company havestockholders’ equity of at least $2.5 million, or a $35 million market value oflisted securities, or $500,000 of net income from continuing income for themost recently completed fiscal year or two of the three most recently completedfiscal years.

 

Nasdaqfurther informed the Company that if it did not appeal the decision, HyperFeed’s common stock would be delistedfrom The Nasdaq SmallCap Market at the opening of business on May 22, 2003. TheCompany has requested a hearing with Nasdaq to appeal Nasdaq’s determination todelist HyperFeed’s common stock from The Nasdaq SmallCap Market. During theappeal process, HyperFeed’s common stock will continue to be traded on TheNasdaq SmallCap Market. However, there can be no assurances that the appealwill be successful. If the Company’s appeal is unsuccessful, then its commonstock will be delisted from The Nasdaq SmallCap Market.

 

Ifthe Company were to be delisted from The Nasdaq SmallCap Market, its shares likely will trade in theover-the-counter (“OTC”) market. A switch to the OTC market will likely resultin more volatility for the Company’s stock, less volume, and no analystcoverage. As a result, the Company’s stock price would likely decline further and the ability of anypotential or future investors to achieve liquidity from HyperFeed’s commonstock could be severely limited, not only in the number of sharesthat could be bought and sold at a given price, but also through delays in thetiming of transactions and reduction in media coverage of the Company. This could inhibit, if not preclude,the Company’s ability to raise additional working capital on acceptable terms,if at all. In addition, current and prospective customers and strategicpartners may limit or cease their business relationships with the Companybecause of concerns or perceptions regarding its listing status and futureliquidity.

 

**Hyperfeed to Provide ManagedExchange Platform Services (MEPS) to a Major Exchange**

 

On May 1, 2003, HyperFeed signed its first customerfor HyperFeed’s ticker plant technologies in a MEPS model. The customer, amajor options exchange, will use MEPS to increase performance and reliabilityof market data for its innovative new hybrid trading system. HyperFeed’s MEPScoupled with one of the customer’s products will offer exchange membersexchange data with minimal latency and cost. HyperFeed’s MEPS will be installedat the customer’s physical location in a self-contained ticker plant whileHyperFeed remotely manages the data quality and exchange permissioning.

 

HyperFeed’s MEPS contains five components: FEPs(Front End Processors), Data Management, Value Added Services, Technologies,and Tools and Adaptors. The customer will be utilizing specific services withineach of the above MEPS components to power a variety of quote devices.

 

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**Restructure of Lease Agreement**

 

OnMarch 27, 2003, the Company executed an amendment to the leased space on the 3rdfloor of 300 South Wacker Drive. Concurrent with this amendment, the Companyalso terminated the lease on the 20th floor of 300 South Wacker. Theamendment and the termination were effective March 1, 2003 and primarilyprovided for a termination of the 20th floor lease, rent abatementand a tenant improvement allowance on the 3rd floor in 2005, andextension of the lease term on the 3rd floor for 5 years to December31, 2009. The Company secured a $75,000 letter of credit as part of theamendment.

 

**Line of Credit**

 

On March 24, 2003, HyperFeed announced that it hasreceived a $0.5 million line of credit from its current financial institution,Lakeside Bank. The line of credit was issued at the prime rate, and allows theCompany to borrow up to 80% of eligible accounts receivable and 50% of netproperty, plant and equipment. As of March 31, 2003, the Company had not borrowedon the line of credit.

 

**Private Placement**

 

OnMarch 17, 2003, HyperFeed announced a planned private placement of 5,260,628shares of common stock (representing 17.4% of the Company’s outstanding commonstock including the shares from this transaction) at $0.2705 per share to itsexecutive officers, individual board members, and its largest investor, PICOHoldings, Inc. (“PICO”), for an aggregate purchase price of $1,423,000. Theprice per share was determined using the average closing price of the commonstock for the twenty trading days prior to and including the date the stock waspriced, March 13, 2003.

 

Thetransaction is expected to close in May after HyperFeed’s annual meeting,pending shareholder approval. PICO has notified HyperFeed of its intent toapprove the private placement.

 

Thesecurities to be issued in the private placement have not been registered underthe Securities Act of 1933 (the “Securities Act”) or other applicablesecurities laws and may not be sold or transferred except pursuant to aneffective registration statement under the Securities Act and other applicablesecurities laws or an appropriate exemption from any applicable registrationrequirements.

 

RESULTSOF OPERATIONS:

FORTHE THREE MONTHS ENDED MARCH 31, 2003 AND 2002

 

Total revenue decreased by 35.3% for the firstthree months of 2003 to $3.7 million from $5.6 million for the comparableperiod in 2002. Both our HyperFeed services and our PCQuote services posteddecreases in the first quarter of 2003 from 2002. HyperFeed service revenuedecreased $1.7 million, or 36.1%, from $4.7 million in 2002 to $3.0 million in2003. Decreases in the number of end users and related services associated withthe provision of analytics applications accounted for 45.3% of the decline in HyperFeedservice revenue. Additionally, decreases in data feed license fees accountedfor 53.9% of the decline in HyperFeed service revenue, of which 25.9% resultedfrom a reduction in services provided to our largest customer. Revenue from ourPCQuote services decreased $0.3 million, or 31.2%, to $0.6 million for thefirst three months of 2003 from $0.9 million for the same period in 2002.Decreases in consumer end users accounted for 49.5% of the decline in PCQuoteservice revenue. Also, decreases in revenue from Townsend Analytics, Ltd.accounted for 32.8% of the decline in PCQuote service revenue.

 

Direct costs of services decreased $1.0 million, or29.5%, to $2.4 million for the first quarter of 2003 from $3.4 million in 2002.Direct costs, as a percentage of revenue, increased to 66.0% from 60.6% for thethree months ended March 31, 2003. Principal components of the decrease wereroyalties and payments to providers of market data, attributable to the declinein analytics subscriptions, and the decrease in amortization of prepaid licensefees, which were fully amortized in the fourth quarter of 2002. Amortization ofsoftware development costs remained unchanged at $0.3 million for the threemonths ended March 31, 2003 and 2002. Gross margin decreased $1.0 million, or44.2%, to $1.2 million for the first three months of 2003 from $2.2 million forthe same period in 2002. As a percentage of revenue, gross margin decreased forthe first three months of 2003 to 34.0% from 39.4% for the same period in 2002.

 

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Direct costs associated with HyperFeed servicesdecreased from $2.6 million for the quarter ended March 31, 2002 to $2.1million for the quarter ended March 31, 2003, an 18.0% decrease. The principalcomponents of the decrease were costs related to product royalties and exchangefees, directly attributable to the decrease in analytics subscription revenue.The resulting gross margin for the first quarter decreased to $0.9 million in2003 from $2.1 million in 2002. HyperFeed services gross margin as a percentageof HyperFeed services revenue decreased to 29.2% for the first quarter of 2003from 44.8% for the comparable period in 2002. This decrease in gross margin isdue to declines in revenue exceeding the cost saving measures implemented inthe fourth quarter of 2002.

 

Direct costs associated with PCQuote servicesdecreased to $0.3 million for the 2003 quarter from $0.8 million in thecomparable 2002 quarter, a 67.4% decrease. The amortization of prepaid licensefees, which were fully amortized in the fourth quarter of 2002, was theprincipal component of the decrease in direct costs. The resulting gross marginfor the first quarter increased to $0.4 million in 2003 from $0.1 million in2002. PCQuote services gross margin as a percentage of PCQuote services revenueincreased to 57.7% for the first quarter of 2003 from 10.9% for the comparableperiod in 2002.

 

Total operating expenses decreased to $2.0 millionfor the first quarter of 2003 from $2.5 million for the comparable 2002 period,an 18.2% decrease. Decreases, principally due to cost saving measuresassociated with the restructuring in the fourth quarter of 2002, wereexperienced in all categories. As a percentage of revenue, total operatingexpenses increased to 55.3% for the first three months in 2003 from 43.7% forthe same period in 2002. This increase was due to declines in revenue exceedingthe cost saving measures implemented in the fourth quarter of 2002.

 

Sales costs decreased 21.1% to $0.4 million for thefirst quarter of 2003 as compared to $0.6 million for the same 2002 period, asa result of lower commission expense commensurate with the decrease in revenue.Sales costs as a percentage of revenue increased to 12.3% in the first quarterof 2003 from 10.1% for the comparable 2002 period.

 

General and administrative expenses remainedunchanged for the first quarter of 2003 at $0.8 million compared to the same2002 period. General and administrative expenses as a percentage of revenueincreased to 21.3% in the first quarter of 2003 from 14.5% for the comparable2002 period.

 

Product and market development costs decreased15.0% to $0.5 million for the 2003 quarter from $0.6 million for the 2002quarter, principally due to reductions in employee compensation and relatedexpenses attributable to the workforce reduction in the fourth quarter of 2002.Product and market development costs as a percentage of revenue increased to13.9% in the first quarter of 2003 from 10.6% for the comparable 2002 period.

 

Depreciationand amortization decreased to $0.3 million for the first quarter of 2003 from$0.5 million for the comparable 2002 period as a result of the write-down ofintangible assets and write-off of certain fixed assets relating to therestructuring in the fourth quarter of 2002. Depreciation and amortization as apercentage of revenue decreased to 7.9% in the first quarter of 2003 from 8.7%for the comparable 2002 period.

 

CRITICALACCOUNTING POLICIES

 

Management’sDiscussion and Analysis of Financial Condition and Results of Operationsdiscusses the Company’s unaudited interim consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America. The preparation of these financialstatements requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.

 

Onan on-going basis, management evaluates its estimates and judgments, includingthose related to bad debts and intangible assets. Management bases itsestimates and judgments on historical experience and on various other factorsthat are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates under different assumptions orconditions. Management believes the following critical accounting policies,among others, affect its more significant judgments and estimates used in thepreparation of its consolidated financial statements.

 

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ALLOWANCE FOR DOUBTFUL ACCOUNTS: We maintain allowances for doubtful accounts for estimated lossesresulting from the inability of our customers to make payments for services ordebtors to satisfy note receivable obligations. 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 and notes receivable. If the financial condition of our customers ordebtors deteriorates, resulting in an impairment of their ability to makepayments, additional allowances may be required.

 

VALUATIONOF INTANGIBLE ASSETS AND SOFTWARE DEVELOPMENT COSTS:  We assess the impairment of intangible assets whenever events orchanges in circumstances indicate that the carrying value may not berecoverable. Factors we consider important which could trigger an impairmentreview include significant underperformance relative to expected historical orprojected future operating results, significant changes in the manner of ouruse of the acquired assets or the strategy for our overall business, andsignificant negative industry or economic trends. The Company assesses therecoverability of its software development costs against estimated futurerevenue over the estimated remaining economic life of the software.

 

LIQUIDITYAND CAPITAL RESOURCES:

 

Netcash and cash equivalents decreased $570,825 from year-end 2002 to $525,886 atthe end of the first quarter of 2003. The decrease is primarily due to ourcontinuing investment in equipment and our developed technology.

 

Operatingactivities used $173,102 of cash and provided $722,795 of cash for the threemonths ended March 31, 2003 and 2002, respectively. Cash used in operatingactivities for the first quarter of 2003 is primarily attributable to our netloss, offset by non-cash items such as depreciation and amortization oflong-lived assets. Cash provided by operating activities for the first quarterof 2002 was primarily due to non-cash items, including amortization of prepaidlicense fees as a result of the value assigned to the warrant issued in April1999 to CNNfn, offset by changes in operating assets and liabilities.

 

Netcash used in investing activities was $412,901 and $410,106 for the threemonths ended March 31, 2003 and 2002, respectively. Capital expenditures were$150,046 for the quarter ended March 31, 2003 as compared to $74,172 for thesame 2002 quarter. The increase in capital expenditures is primarily due to ournew business strategy of licensing our ticker plant technology in a MEPS model.We anticipate our capital expenditures to continue to increase as we purchaseequipment to support and maintain our MEPS product. However, we expect tofinance capital expenditures relating to specific customers. Capitalizedsoftware costs were $262,855 and $335,934 for the quarters ended March 31, 2003and 2002, respectively.

 

Financingactivities provided $15,178 of cash and used $229,855 of cash for the threemonths ended March 31, 2003 and 2002, respectively. Net proceeds from the saleof shares of common stock to employees pursuant to our Employee Stock PurchasePlan provided $15,178 and $20,145 for the quarters ended March 31, 2003 and2002, respectively. In the first quarter of 2002, we made the last $250,000installment payment on our note payable to Motorola. There were no new directborrowings during the period.

 

On March 18, 2003, the Company obtained a $500,000 line of credit fromLakeside Bank bearing interest at the prime rate. The Company can borrow up to80% of eligible accounts receivable and 50% of net property, plant andequipment. As of March 31, 2003, the Company had not borrowed on the line ofcredit.

 

On March 17, 2003, HyperFeed announced a planned private placement of$1,423,000 (representing 17.4% of the Company’s outstanding common stockincluding the shares from this transaction) from its executive officers,individual board members, and its largest investor, PICO Holdings, Inc., whoseofficers are also HyperFeed board members. The transaction is expected to closein May after HyperFeed’s annual meeting, pending shareholder approval. PICOHoldings, Inc. has notified HyperFeed of its intent to approve the private placement.

 

Earnings before interest, taxes, depreciation, and amortization(“EBITDA”) was a loss of $147,000 for the first quarter of 2003 versus incomeof  $995,000 for the same period in2002. We believe our existing capital resources, available line of credit, cashgenerated from continuing operations, proceeds from the planned privateplacement of shares of our common stock, and our ability to access externalcapital, if necessary, are sufficient for working capital and to fundoperations over the next twelve months.

 

 

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As previously reported, we have explored multiple alternatives that maybe available for the purpose of enhancing stockholder value, including amerger, a spin-off or sale of part of our business, a strategic relationship orjoint venture with another technology or financial services firm and equityfinancing. We continue to explore opportunities to enhance stockholder value.

 

EFFECTOF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

InDecember 2002, the FASB issued SFAS No. 148, “Accounting for Stock-BasedCompensation - Transition and Disclosure, an amendment of FASB Statement No.123”. This Statement amends FASB Statement No. 123, “Accounting for Stock-BasedCompensation”, to provide alternative methods of transition for a voluntarychange to the fair value method of accounting for stock-based employeecompensation. In addition, this Statement amends the disclosure requirements ofStatement No. 123 to require prominent disclosures in both annual and interimfinancial statements. Certain of the disclosure modifications are required forfiscal years ending after December 15, 2002 and are included in the notes tothese unaudited interim consolidated financial statements. Management does notbelieve the adoption of SFAS 148 will have a significant impact on theCompany’s consolidated financial statements.

 

InNovember 2002, the FASB reached a consensus on EITF Issue 00-21, “Accountingfor Revenue Arrangements with Multiple Deliverables” (“the Issue”). Theguidance in this Issue is effective for revenue arrangements entered into forfiscal years beginning after June 15, 2003. The Issue addresses certain aspectsof the accounting by a vendor for arrangements under which it will performmultiple revenue-generating activities. Specifically, the Issue addresses howto determine whether an arrangement involving multiple deliverables containsmore than one earnings process and, if it does, how to divide the arrangementinto separate units of accounting consistent with the identified earningsprocesses for revenue recognition purposes. The Issue also addresses howarrangement consideration should be measured and allocated to the separateunits of accounting in the arrangement. Management is currently reviewing theimpact that EITF 00-21 will have on the Company’s future results of operations,but upon our initial review the Company does not believe the Issue will have asignificant impact on its accounting for multiple element arrangements.

 

 

FACTORSTHAT MAY AFFECT FUTURE RESULTS

 

*You should read the followingfactors in conjunction with the factors discussed elsewhere in this and ourother filings with the SEC and in materials incorporated by reference in thesefilings. The following is intended to highlight certain factors that may affectthe financial condition and results of operations of HyperFeed and are notmeant to be an exhaustive discussion of risks that apply to HyperFeed. Likeother businesses, HyperFeed is susceptible to macroeconomic downturns in theUnited States or abroad, as were experienced in fiscal year 2002, and continuesinto fiscal year 2003, that may affect the general economic climate andperformance of HyperFeed or its customers.*

 

**Nasdaq may delist our common stock, which could decrease themarket price of our common stock and make it more difficult for ourstockholders to dispose of or obtain quotations for our common stock and for usto obtain financing.**

 

InMay 2003, we received notification from Nasdaq indicating that we failed to complywith the minimum $1.00 per share continued listing requirements set forth in NASD Marketplace Rule 4310(c)(4) and that weare not in compliance withlisting maintenance standards established by Nasdaq requiring that we havestockholders’ equity of at least $2.5 million, or a $35 million market value oflisted securities, or $500,000 of net income from continuing income for themost recently completed fiscal year or two of the three most recently completedfiscal years.

 

Nasdaqfurther informed us that if we did not appeal its decision, our common stock would be delisted from TheNasdaq SmallCap Market at the opening of business on May 22, 2003. We haverequested a hearing with Nasdaq to appeal Nasdaq’s determination to delist ourcommon stock from The Nasdaq SmallCap Market. During the appeal process, ourcommon stock will continue to be traded on The Nasdaq SmallCap Market. However,there can be no assurances that the appeal will be successful. If our appeal isunsuccessful, then our common stock will be delisted from The Nasdaq SmallCapMarket.

 

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Ifwe were to be delisted from The Nasdaq SmallCap Market, our shares likely will trade in theover-the-counter (“OTC”) market. A switch to the OTC market will likely resultin more volatility for our stock, less volume, and no analyst coverage. As aresult, our stock price wouldlikely decline further and the ability of any potential or future investors toachieve liquidity from our common stock could be severely limited, notonly in the number of shares that could be bought and sold at a given price,but also through delays in the timing of transactions and reduction in mediacoverage of the Company. Thiscould inhibit, if not preclude, our ability to raise additional working capitalon acceptable terms, if at all. In addition, current and prospective customersand strategic partners may limit or cease their business relationships with usbecause of concerns or perceptions regarding our listing status and futureliquidity.

 

**HyperFeed has experienced and expects to continue toexperience significant period-to-period fluctuations in its revenues andoperating results, which may result in volatility in the price of its stock.**

 

HyperFeed’squarterly revenues and operating results have varied significantly in the pastand are likely to vary substantially from quarter to quarter in the future.Accordingly, you should not rely on period-to-period comparisons as anindication of future performance. In addition, these variations may cause ourstock price to fluctuate. If quarterly results fail to meet publicexpectations, the price of our stock may decline.

 

HyperFeed’srevenues and operating results are affected by a wide variety of factors,including factors that generally affect everyone in its industry and factorsthat are more specific to its business and products. The principal risk we facein our business include the following:

 

•                  Our ability to fund our current and futurebusiness strategies either through continuing operations or external financing;

•                  Our ability to successfully compete againstcompetitive products and services;

•                  Our ability to maintain our existingcustomer base while increasing the Company’s presence in the financialinstitutional marketplace;

•                  The loss or gain of important customers;

•                  Our ability to maintain relationships withkey suppliers and providers of market data;

•                  Our ability to successfully attract, retainand integrate qualified management and key employees;

•                  Our ability to develop and introduce newproducts and services in a timely manner and at competitive price andperformance levels;

•                  The timing of the development andintroduction of new products or enhanced versions of existing products;

•                  Market acceptance of new products;

•                  Increased competition, and competitivepricing pressure;

•                  Our ability to anticipate evolving trends inthe industry and changing customer product requirements;

•                  The competitiveness of our customers;

•                  Risks related to pending or future legalproceedings; and

•                  Acts of terrorism and internationalconflicts.

 

Theabove factors have affected our business in the past and may affect us in thefuture.

 

**HyperFeed has a recent history ofoperating losses and may not become or remain profitable.**

 

HyperFeedhas sustained significant losses in recent years and may not become profitablein the future. If we incur additional losses or fail to achieve profitabilityin the future, this will hinder our ability to operate our current business andmay affect the trading price of our common stock. We incurred a net loss of$1.4 million for the fiscal year ended December 31, 2001 and a net loss of $4.4million for the fiscal year ended December 31, 2002. As of December 31, 2002,we had an accumulated deficit of approximately $42.0 million. These conditionsraise doubt about our ability to operate profitably in the future.

 

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**We may require additionalfinancing to continue to operate our business that may not be readily availableor available on favorable terms to us.**

 

Inorder to remain competitive, HyperFeed must continue to make investments inresearch and development and capital equipment. We believe that existing liquidresources and funds generated from operations, if any, combined with theability to borrow funds will be adequate to meet our operating and capitalrequirements and obligations into the foreseeable future. We may, from time totime, seek additional equity or debt financing. However, those funds, whenneeded, might not be available on terms that we find acceptable. Any futureequity financing will also lead to dilution to existing shareholders. We haveexplored, and continue to explore, multiple alternatives that may be availablefor the purpose of enhancing stockholder value. These alternatives may includea merger, a spin-off or sale of part or all of our business, a strategicrelationship or joint venture and future equity financings. There can be noassurances, however, that we will conclude a transaction.

 

**If the recent restructuring andnew business strategy implemented by HyperFeed is unsuccessful, its businesswill be adversely affected.**

 

InOctober 2002, as part of its transition to a financial services providerserving institutional customers, HyperFeed restructured its operations byreducing its workforce, streamlining operating expenses, and consolidatingexcess facilities. HyperFeed has implemented a new business plan, fiscalframework, product strategy, and sales methodology focused on serving the financialinstitutional marketplace. For over 20 years, HyperFeed’s ticker planttechnologies were proprietary and used behind-the-scenes to process itsconsolidated market data feed, HyperFeed® Market Data, *for*its customers. But in response tomarket trends demanding direct exchange connectivity, the current model allowsthe same advanced and robust ticker plant technologies to be used *by*its customers in a MEPS model. Thisopens new markets for HyperFeed to serve exchanges and content providers aswell as financial institutions and redistributors. If HyperFeed is unsuccessfulin implementing its new business strategy or if the anticipated benefits of therestructuring and new business strategy is not realized or does not receivemarket acceptance, HyperFeed’s business will be adversely affected.

 

**We may not be able to keep pacewith continuing changes in information processing technology, evolving industrystandards, and client preferences.**

 

The financial information industry and thesecurities industry are constantly changing and evolving. Recent trends inthese industries have included rampant data vendor consolidation, the proliferation of program trading,and the advent of new exchange depth products. Together with the effect ofcurrent economic conditions, these factors are influencing financialinstitutions to get market data feeds directly from each exchange. WhileHyperFeed’s MEPS model was introduced in response to these emerging trends, financial market data and securities industries will likely continue to change and evolve.The success of our business will depend on our ability to successfully foresee,identify, and adapt to evolving trends in the industries in which we operate.

 

Inaddition, the financial information industry has experienced and is continuingto experience rapid technological advances and developments. We are activelyengaged in research and development activities to try to meet our customers’needs and preferences. There can be no assurance, however, that we will besuccessful in addressing technological advances and developments on a timelybasis or that, if addressed, we will be successful in the marketplace. A delayor failure to address technological advances and developments could have amaterial adverse effect on our results of operations. In addition, there can beno assurance that technologies developed by others will not render our productsand services noncompetitive or obsolete.

 

**HyperFeed’s financial performanceis highly dependent on the timely and successful introduction of new productsand services.**

 

Ourfinancial performance depends in large part upon our ability to successfullydevelop and market next generation and new products and services in a rapidlychanging technological and economic environment. If we fail to successfullyidentify new product opportunities and timely develop and introduce newproducts that achieve market acceptance, we may lose our market share and ourfuture revenue and earnings may suffer.

 

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**The continued economic downturnand decrease in the activity in financial markets could negatively affect ourrevenue, which would reduce our profitability.**

 

Ourrevenue is derived from supplying financial data and quotations related to U.S.financial exchanges and markets. The current financial market downturn andresulting decrease in activity in the financial markets has and may continue tonegatively affect our revenue.

 

**We may not be able to successfullyintegrate new management.**

 

InAugust and September 2002, HyperFeed hired a new senior management team. If weare unable to successfully integrate these new members into our business, itcould have a material adverse effect upon our business, financial condition,and results of operations.

 

**A principal stockholder is in aposition to control matters requiring stockholder vote, which may impairinvestors from realizing maximum returns on their investment in HyperFeed.**

 

Aprincipal stockholder, PICO Holdings, Inc. (“PICO”), owns or has the right toacquire approximately 50.2% of our shares of common stock that would beoutstanding after they exercised their rights to acquire additional shares. Inaddition, PICO intends to purchase additional shares in a proposed privateplacement of our common stock. Accordingly, PICO is in a position to controlthe outcome of matters requiring a stockholder vote, including the election ofdirectors. Such control could have the effect of discouraging, or making moredifficult, an unsolicited acquisition of us by means of a tender offer, a proxycontest or otherwise, even though an unsolicited acquisition could haveresulted in our stockholders receiving a premium for their shares or beotherwise economically beneficial to them.

 

**Our agreements with exchanges,entitling us to receive information that is necessary for us to conduct ourbusiness, could be terminated.**

 

Wehave agreements in place with various exchanges, which permit us to gather theinformation we need for our services. These exchanges include:

 

•                  Canadian/Toronto;

•                  Chicago Board of Trade/Mid America CommodityExchange;

•                  Chicago Mercantile Exchange;

•                  Montreal;

•                  NASDAQ;

•                  New York Board of Trade;

•                  New York Mercantile Exchange/CommodityExchange;

•                  New York Stock Exchange/American StockExchange; and

•                  Options Price Reporting Authority.

 

Ouragreement with NASDAQ expires on August 2nd of each year, withautomatic one-year renewals. However, either party may terminate the agreement,for any reason whatsoever, upon 90-days written notice. Our agreements with allof the other exchanges listed above have a perpetual duration. However, each ofthose agreements may be terminated, for any reason whatsoever, upon 30-dayswritten notice. All of our agreements with the exchanges listed above may beterminated by such exchanges if any of the following events occur:

 

•                  non-payment of amounts due;

•                  inadequate control systems overdissemination of data; or

•                  failure to report the proper number of oursubscribers.

 

Thetermination, expiration, or non-renewal of any of these agreements couldinhibit our ability to provide high quality services to our clients and have amaterial adverse effect upon our business, financial condition, and results ofoperations.

 

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**We rely on software licensingagreements from third parties that could be terminated or allowed to expire.**

 

Welicense significant software applications from unaffiliated third parties. Thetermination of these license agreements by unaffiliated third parties couldhave a material adverse effect on our business, financial condition, andresults of operations. These license agreements are for initial terms andprovide for automatic renewals unless terminated by delivering written noticeprior to the renewal date.

 

**We compete with companies thathave greater financial, technical, and monetary resources than we do, whichcould result in additional pricing pressures on us and reduce ourprofitability.**

 

Themarket for ticker plant technologies used to facilitate and manage the directexchange feeds of financial institutions in a MEPS model is opportune andrecently developed. Direct competitors on this front include small consultingshops that sell source servers and in-house development teams. Currently, theyonly compete with HyperFeed on the first level of service involving FEPs and donot presently offer value added services.

 

Themarket for the provision of a domestic consolidated data feed containingreal-time streaming financial information such as equities, commodities,futures and options quotations, and news through services and softwareapplications similar to those we provide includes a large amount of competitorsand is subject to rapid change. The industry has also seen unprecedented mergerand acquisition activity. We believe our primary competitors include Reuters,the ILX unit of Thomson Corporation and the Comstock unit of Standard andPoor’s, which was recently acquired by IDC. These competitors havesignificantly greater financial, technical, and marketing resources and greatername recognition than we do. Our goal is not to compete with these premieredata providers but to license our technology to them. Nonetheless, there can beno assurance that we will be able to achieve our goal or otherwise competesuccessfully with our existing competitors or with any new competitors.

 

**Our subscription contracts forservices and software applications may subject us to litigation, which may becostly for us to defend.**

 

Manyof our subscription contracts are for services and software applications thatare critical to the operations of our customers’ businesses. The failure orinability to deliver services and software to our customers’ satisfaction couldhave a material adverse effect on their operations and could consequently subjectus to litigation. Any litigation could cause us to incur legal fees and usemanagement resources, which could have a material adverse effect on ourbusiness, financial condition, and results of operations.

 

**Our software may infringe onintellectual property rights of others, which may subject us to litigation.**

 

Webelieve that our services and software applications do not infringe upon theintellectual property rights of others and that we have all rights necessary toutilize the intellectual property employed in our business. However, we aresubject to the risk of litigation alleging infringement of third-partyintellectual property rights. We typically license the software we develop foruse by our customers, and we generally agree to indemnify our customers againstpotential third-party intellectual property rights claims. Any claims couldrequire us to:

 

•                  spend significant sums in litigation;

•                  pay damages;

•                  develop non-infringing intellectualproperty; and/or

•                  acquire licenses to the intellectual propertythat is the subject of asserted infringement.

 

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**HyperFeed depends on a limitednumber of customers for a substantial portion of its revenues and a loss ofcurrent major customers would significantly reduce HyperFeed’s revenues.**

 

Alimited number of customers historically have accounted for a substantialportion of HyperFeed’s revenues. In the first quarter of 2003, revenues fromour largest customer represented approximately 9.1% of the Company’s consolidatedrevenues. In the fiscal year ending December 31, 2002, revenues from onecustomer represented approximately 16% of the Company’s consolidated revenuesfor that year. We did not have any customers that accounted for 10% or more ofconsolidated revenue in 2001. Revenues from our largest customer in 2000represented approximately 21% of the Company’s consolidated revenues for thatyear. We cannot predict whether our current customers will continue to use ourproducts. We have experienced significant changes from year to year in thecomposition of our major customer base and believe this pattern will continue.The loss of or a significant reduction in purchases by current major customersthat are not offset by corresponding increases from other current or futurecustomers would have a material adverse effect on our business, financialcondition, and results of operations.

 

**We rely heavily on executiveofficers who do not have employment contracts.**

 

Our success is highly dependent upon the effortsand abilities of our executive officers. The loss of services of one or more ofour executive officers or other key personnel for any reason could have amaterial adverse effect upon our business, financial condition, and results ofoperations. Although our executive officers have entered into agreements withus that contain nondisclosure covenants, those agreements do not guaranteetheir continued employment with us. We continue to recruit financial,technical, and operational personnel. Competition for these people is intenseand we may not be able to attract and retain qualified replacements oradditional technical or operational personnel. We may not be successful infinding suitable replacements for any senior management personnel who may leaveHyperFeed.

 

**Our anti-takeover provisions maynot be in the best interests of our stockholders.**

 

OurCertificate of Incorporation and By-laws, the Delaware General Corporation Lawand the Exchange Act contain certain provisions that could have the effect ofdiscouraging or making more difficult the acquisition of us by means of atender offer, a proxy contest or otherwise, even though an acquisition might beeconomically beneficial to our stockholders.

 

Ouranti-takeover provisions include:

 

•                  only the Board of Directors or an authorizedspecial committee of the Board of Directors may call meetings of stockholders;and

•                  stockholders must comply with certainadvance notice procedures to nominate candidates for election as directors andto submit proposals for consideration at stockholders’ meetings.

 

Theseprovisions may make the removal of management more difficult, even in caseswhere such removal would be favorable to the interests of our stockholders.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

 

There have been no material changes in theCompany’s market risk during the three-month period ended March 31, 2003. Foradditional information, refer to the Company’s Annual Report on Form 10-K forthe fiscal year ended December 31, 2002.

 

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ITEM 4. CONTROLS AND PROCEDURES

 

Within 90 days prior to the filing date of this report, the Companycarried out an evaluation, under the supervision and with the participation ofthe Company’s management, including the Company’s Chief Executive Officer andChief Financial Officer, of the effectiveness of the Company’s disclosurecontrols and procedures pursuant to Rules 13a-14 and 15d-14 of the SecuritiesExchange Act of 1934, as amended. Based upon that evaluation, the Company’sChief Executive Officer and Chief Financial Officer concluded that theCompany’s disclosure controls and procedures are effective in timely alertingthem to material information required to be included in the Company’s periodicfilings with the Securities and Exchange Commission. There have been nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of theevaluation referred to above.

 

 

PARTII. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On July 3, 2002, the Company filed a two-countaction against PC Quote Canada asserting breach of Agency License Agreement(the “Agreement”) and fraud and unjust enrichment and requests damages, plusinterest, costs and attorneys fees. The defendant filed an answer, affirmativedefenses and counterclaim asserting that oral agreement modified the AgencyLicense Agreement and requests damages.

 

On January 28, 2003, the defendant filed a motion for a preliminary injunctionto enjoin HyperFeed from terminating services provided under the Agreement andHyperFeed has agreed not to terminate such services until a court-ordered auditof the defendant’s records has been completed.

 

On March 28, 2003, the defendant filed an amended counterclaim claimingbreach of the contract. In itsamended counterclaim, the defendant (1) claims unjust enrichment,(2) claims overpayment of communication fees, (3) claims that HyperFeedlicensed directly to users in Canada and/or allowed U.S. customers to do so inviolation of the defendant’s exclusive license in Canada, (4) claims breach ofcontract for terminating the Agreement, and (5) requests an injunction. Thedefendant requests damages in excess of $1.4 million. HyperFeed answered the counterclaimdenying all material allegations and believes the claims are without merit.HyperFeed intends to complete the audit, obtain answers to outstandingdiscovery, aggressively seek to collect all past due amounts and vigorouslydefend against asserted claims.

 

ITEM 2. CHANGES INSECURITIES AND USE OF PROCEEDS

 

Duringthe first quarter of 2003, we issued 71,261 shares of our common stock toemployees who purchased the shares under our Employee Stock Purchase Plan.

 

ITEM 5. OTHER INFORMATION

 

InMay 2003, the Company received notification from Nasdaq indicating that theCompany failed to comply with the minimum $1.00 per share continued listingrequirements set forth in NASD Marketplace Rule 4310(c)(4) and that it is not in compliance with listingmaintenance standards established by Nasdaq requiring that the Company havestockholders’ equity of at least $2.5 million, or a $35 million market value oflisted securities, or $500,000 of net income from continuing income for themost recently completed fiscal year or two of the three most recently completedfiscal years.

 

Nasdaqfurther informed the Company that if it did not appeal the decision, HyperFeed’s common stock would be delistedfrom The Nasdaq SmallCap Market at the opening of business on May 22, 2003. TheCompany has requested a hearing with Nasdaq to appeal Nasdaq’s determination todelist HyperFeed’s common stock from The Nasdaq SmallCap Market. During theappeal process, HyperFeed’s common stock will continue to be traded on TheNasdaq SmallCap Market. However, there can be no assurances that the appealwill be successful. If the Company’s appeal is unsuccessful, then its commonstock will be delisted from The Nasdaq SmallCap Market.

 

Ifthe Company were to be delisted from The Nasdaq SmallCap Market, its shares likely will trade in theover-the-counter (“OTC”) market. A switch to the OTC market will likely resultin more volatility for the Company’s stock, less volume, and no analystcoverage. As a result, the Company’s stock price would likely decline further and the ability of anypotential or future investors to achieve liquidity from HyperFeed’s commonstock could be severely limited, not only in the number of sharesthat could be bought and sold at a given price, but also through delays in thetiming of transactions and reduction in media coverage of the Company. This could inhibit, if notpreclude, the Company’s ability to raise additional working capital onacceptable terms, if at all. In addition, current and prospective customers andstrategic partners may limit or cease their business relationships with theCompany because of concerns or perceptions regarding its listing status andfuture liquidity.

 

ITEM 6. EXHIBITS andREPORTS on FORM 8-K

 

(a)  Exhibits

 

Exhibit99 – Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of theUnited States Code.

 

Exhibit 99.1 – Press release dated May 14, 2003.

 

(b)  No reports on Form 8-K were filed during theperiod covered by this report.

 

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SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
| HYPERFEED TECHNOLOGIES, INC. |
|------------------------------|
|                         |   |
| Date:                        | May 15, 2003 |
|                         |   |
| By:                          | /s/ Jim R. Porter |   |
|                         |   |   |
|                         | Jim R. Porter |   |
|                         | Chairman and Chief Executive Officer |
|                         |   |   |
| By:                          | /s/ Randall J. Frapart |   |
|                         |   |
|                         | Randall J. Frapart |
|                         | Chief Financial Officer and Principal Accounting Officer |

 

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**CERTIFICATION**

 

Certificationof the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002

 

I, Jim R. Porter, certifythat:

 

1.             I have reviewed this quarterly report on Form 10-Q ofHyperFeed Technologies, Inc.;

 

2.             Based on my knowledge, this quarterly report does notcontain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.             Based on my knowledge, the financial statements, andother financial information included in this quarterly report, fairly presentin all material respects the financial condition, results of operations andcash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.             The registrant’s other certifying officers and I areresponsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and wehave:

 

(a)           designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

(b)           evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)           presentedin this quarterly report our conclusions about the  effectiveness of the disclosure controls and procedures based onour evaluation as of the Evaluation Date;

 

5.             The registrant’s other certifying officers and I havedisclosed, based on our most recent evaluation, to the registrant’s auditorsand the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

(a)           allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)           anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.             The registrant’s other certifying officers and I haveindicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date:  May 15, 2003 |   |   |                                                             |   |   |   |
|--------------------------|--------|--------|------------------------------------------------------------------|--------|--------|--------|
|                     |   |   |                                                             |   |   |   |
|                     |   |   | /s/ Jim R. Porter                                                |   |
|                     |   |   | Jim R. Porter                                                    |   |
|                     |   |   | Chairman of the Board of Directors,  and Chief Executive Officer |   |

 

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**CERTIFICATION**

 

Certificationof the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002

 

I,Randall J. Frapart, certify that:

 

1.             I have reviewed this quarterly report on Form 10-Q ofHyperFeed Technologies, Inc.;

 

2.             Based on my knowledge, this quarterly report does notcontain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.             Based on my knowledge, the financial statements, andother financial information included in this quarterly report, fairly presentin all material respects the financial condition, results of operations andcash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.             The registrant’s other certifying officers and I areresponsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and wehave:

 

(a)           designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

(b)           evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)           presentedin this quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.             The registrant’s other certifying officers and I havedisclosed, based on our most recent evaluation, to the registrant’s auditorsand the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

(a)           allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)           anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.             The registrant’s other certifying officers and I haveindicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date:  May 15, 2003 |   |   |                    |   |   |   |
|--------------------------|--------|--------|-------------------------|--------|--------|--------|
|                     |   |   |                    |   |   |   |
|                     |   |   | /s/ Randall J. Frapart  |   |
|                     |   |   | Randall J. Frapart      |   |
|                     |   |   | Chief Financial Officer |   |

 

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