**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC  20549**

** **

** **

**FORM 10-Q**

 

 

----

 

 

**ý****  Quarterly Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934**

** **

**For the quarterly period ended September 30, 2001**

** **

**Or**

** **

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

** **

 

**For thetransition period from__________________to____________________**

** **

** **

----

 

 

**Commissionfile number 0-13093**

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

 

 

**HYPERFEED TECHNOLOGIES, INC.**

(a Delaware Corporation)

 

 

**300 S.Wacker, Suite 300**

**Chicago,Illinois 60606**

**Telephone(312) 913-2800**

** **

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý  No o

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date: 23,796,336 sharesof the Company's common stock ($.001 par value) were outstanding as of October31, 2001.

 

HYPERFEED TECHNOLOGIES,INC.

 

INDEX

 
| PART I.  | Financial Information                                                                                 |   |
|----------|-------------------------------------------------------------------------------------------------------|--------|
|     |                                                                                                  |   |
| Item 1.  | Financial Statements                                                                                  |   |
|     |                                                                                                  |   |
|     | Consolidated Balance Sheets  as of September 30, 2001 and December 31, 2000                           |   |
|     |                                                                                                  |   |
|     | Consolidated  Statements of Operations for the nine month periods ended September 30, 2001  and 2000  |   |
|     |                                                                                                  |   |
|     | Consolidated  Statements of Operations for the three month periods ended September 30, 2001  and 2000 |   |
|     |                                                                                                  |   |
|     | Consolidated  Statements of Cash Flow for the nine month periods ended September 30,  2001 and 2000   |   |
|     |                                                                                                  |   |
|     | Notes  to Consolidated Financial Statements                                                           |   |
|     |                                                                                                  |   |
| Item 2.  | Management's Discussion and Analysis of  Results of Operations and Financial Condition                |   |
|     |                                                                                                  |   |
| Item  3. | Quantitative  and Qualitative Disclosures about Market Risk                                           |   |
|     |                                                                                                  |   |
| PART II. | Other Information                                                                                     |   |
|     |                                                                                                  |   |
| Item  2. | Changes  in Securities and Use of Proceeds                                                            |   |
|     |                                                                                                  |   |
| Item 6.  | Exhibits and  Reports on Form 8-K                                                                     |   |
|     |                                                                                                  |   |
|     | Signatures                                                                                            |   |

HYPERFEED TECHNOLOGIES, INC.

Consolidated BalanceSheets

September 30, 2001 and December 31, 2000

 

 
| **ASSETS**                                                                                           |   | **September 30, 2001** |       | **December 31, 2000** |   |
|------------------------------------------------------------------------------------------------------|--------|------------------------|------------|-----------------------|--------|
|                                                                                                 |   | **(Unaudited)**        |       | **(Audited)**         |   |
| Current Assets                                                                                       |   |                   |       |                  |   |
| Cash and cash  equivalents                                                                           |   | $                      | 743,569    |                  | $      | 2,522,593 |   |
| Restricted cash  equivalents                                                                         |   | 200,000                |       | 200,000               |   |
| Accounts  receivable, less allowance for doubtful accounts of: 2001: $179,295; 2000:  $89,724        |   | 1,844,386              |       | 2,848,983             |   |
| Note receivable                                                                                      |   | 100,000                |       | ---                   |   |
| Prepaid license  fees, current                                                                       |   | 1,680,000              |       | 1,680,000             |   |
| Prepaid expenses  and other current assets                                                           |   | 460,307                |       | 235,512               |   |
|                                                                                                 |   |                   |       |                  |   |
| TOTAL CURRENT  ASSETS                                                                                |   | 5,028,262              |       | 7,487,088             |   |
|                                                                                                 |   |                   |       |                  |   |
| Property and  equipment                                                                              |   |                   |       |                  |   |
| Satellite  receiving equipment                                                                       |   | 89,417                 |       | 282,474               |   |
| Computer  equipment                                                                                  |   | 3,141,891              |       | 4,520,991             |   |
| Communication  equipment                                                                             |   | 1,605,854              |       | 1,243,584             |   |
| Furniture and  fixtures                                                                              |   | 430,996                |       | 194,818               |   |
| Leasehold  improvements                                                                              |   | 954,560                |       | 831,348               |   |
|                                                                                                 |   |                   |       |                  |   |
|                                                                                                 |   | 6,222,718              |       | 7,073,215             |   |
| Less:  Accumulated depreciation and amortization                                                     |   | 2,937,508              |       | 4,247,134             |   |
|                                                                                                 |   |                   |       |                  |   |
|                                                                                                 |   | 3,285,210              |       | 2,826,081             |   |
|                                                                                                 |   |                   |       |                  |   |
| Prepaid license  fees, net of accumulated amortization   of: 2001: $4,130,000; 2000: $2,870,000 |   | 70,000                 |       | 1,330,000             |   |
|                                                                                                 |   |                   |       |                  |   |
| Goodwill and  other intangible assets, net of accumulated amortization of: 2001: $204,652            |   | 1,366,857              |       | ---                   |   |
|                                                                                                 |   |                   |       |                  |   |
| Software  development costs, net of accumulated amortization of: 2001: $6,625,955;  2000: $7,795,215 |   | 2,313,094              |       | 2,602,283             |   |
|                                                                                                 |   |                   |       |                  |   |
| Deposits and  other assets                                                                           |   | 133,966                |       | 80,808                |   |
|                                                                                                 |   |                   |       |                  |   |
| TOTAL ASSETS                                                                                         |   | $                      | 12,197,389 |                  | $      | 14,326,260 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

HYPERFEED TECHNOLOGIES,INC.

Consolidated Balance Sheets

September 30, 2001 and December 31, 2000

 
| **LIABILITIES  AND STOCKHOLDERS' EQUITY**                                                                                                                                 |   | **September 30, 2001 (Unaudited)** |       | **December 31, 2000**

**(Audited)** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|------------|--------------------------------------|--------|
|                                                                                                                                                                      |   |                               |       |                                 |   |
| Current  Liabilities                                                                                                                                                      |   |                               |       |                                 |   |
| Notes payable                                                                                                                                                             |   | $                                  | 500,000    |                                 | $      | 1,199,634 |   |
| Accrued satellite  termination fees                                                                                                                                       |   | 300,000                            |       | 399,000                              |   |
| Accounts payable                                                                                                                                                          |   | 1,858,106                          |       | 1,744,102                            |   |
| Accrued expenses                                                                                                                                                          |   | 627,170                            |       | 759,818                              |   |
| Accrued compensation                                                                                                                                                      |   | 163,197                            |       | 269,736                              |   |
| Income taxes payable                                                                                                                                                      |   | ---                                |       | 35,000                               |   |
| Unearned revenue                                                                                                                                                          |   | 1,775,744                          |       | 2,559,252                            |   |
|                                                                                                                                                                      |   |                               |       |                                 |   |
| TOTAL CURRENT  LIABILITIES                                                                                                                                                |   | 5,224,217                          |       | 6,966,542                            |   |
|                                                                                                                                                                      |   |                               |       |                                 |   |
| Notes payable,  less current portion                                                                                                                                      |   | ---                                |       | 250,000                              |   |
| Accrued  satellite termination fees, less current portion                                                                                                                 |   | ---                                |       | 225,000                              |   |
| Accrued  expenses, less current portion                                                                                                                                   |   | 81,200                             |       | 108,264                              |   |
| Unearned  revenue, less current portion                                                                                                                                   |   | 46,015                             |       | 82,090                               |   |
| Minority  interests                                                                                                                                                       |   | ---                                |       | 1,829                                |   |
|                                                                                                                                                                      |   |                               |       |                                 |   |
| TOTAL NONCURRENT  LIABILITIES                                                                                                                                             |   | 127,215                            |       | 667,183                              |   |
|                                                                                                                                                                      |   |                               |       |                                 |   |
| TOTAL LIABILITIES                                                                                                                                                         |   | 5,351,432                          |       | 7,633,725                            |   |
|                                                                                                                                                                      |   |                               |       |                                 |   |
| Stockholders’  Equity                                                                                                                                                |   |                               |       |                                 |   |
| Preferred Stock,  $.001 par value; authorized 5,000,000 shares; issued and outstanding:                                                                                   |   |                               |       |                                 |   |
| Series A 5%  convertible: 0 shares at September 30, 2001 and 19,075 

shares at December 31,  2000                                                                        |   | ---                                |       | 19                                   |   |
| Series B 5%  convertible: 0 shares at September 30, 2001 and 28,791 

shares at December 31,  2000                                                                        |   | ---                                |       | 29                                   |   |
| Common stock,  $.001 par value; authorized 50,000,000 shares; issued and outstanding  23,796,336 shares at September 30, 2001 and 15,756,310 shares at December 31,  2000 |   | 23,796                             |       | 15,756                               |   |
| Additional  paid-in capital - Series A 5% convertible preferred stock                                                                                                     |   | ---                                |       | 3,086,013                            |   |
| Additional  paid-in capital - Series B 5% convertible preferred stock                                                                                                     |   | ---                                |       | 4,664,891                            |   |
| Additional  paid-in capital - common stock                                                                                                                                |   | 37,292,910                         |       | 25,555,214                           |   |
| Additional  paid-in capital - convertible subordinated debenture and warrants                                                                                             |   | 6,859,097                          |       | 8,630,491                            |   |
| Accumulated  deficit                                                                                                                                                      |   | (37,329,846                        | )          | (35,259,878                          | )      |
|                                                                                                                                                                      |   |                               |       |                                 |   |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                                                                                          |   | 6,845,957                          |       | 6,692,535                            |   |
|                                                                                                                                                                      |   |                               |       |                                 |   |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                          |   | $                                  | 12,197,389 |                                 | $      | 14,326,260 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

HYPERFEED TECHNOLOGIES,INC.

Consolidated Statementsof Operations (Unaudited)

** **
|                                                                   |   | **For The Nine Months Ended** |       |
|------------------------------------------------------------------------|--------|-------------------------------|------------|
|                                                                   |   | **September 30, 2001**        |       | **September 30, 2000** |   |
| REVENUE                                                                |   |                          |       |   |   |
| HyperFeed Services                                                     |   | $                             | 19,503,229 |   | $ | 16,250,500 |   |
| PCQuote Services                                                       |   | 7,683,365                     |       | 19,468,098 |   |
|                                                                   |   |                          |       |   |   |
| TOTAL REVENUE                                                          |   | 27,186,594                    |       | 35,718,598 |   |
|                                                                   |   |                          |       |   |   |
| DIRECT COST OF  SERVICES                                               |   |                          |       |   |   |
| HyperFeed Services                                                     |   | 10,206,182                    |       | 9,231,065 |   |
| PCQuote Services                                                       |   | 6,403,874                     |       | 14,252,554 |   |
|                                                                   |   |                          |       |   |   |
| TOTAL DIRECT  COST OF SERVICES                                         |   | 16,610,056                    |       | 23,483,619 |   |
|                                                                   |   |                          |       |   |   |
| GROSS MARGIN                                                           |   | 10,576,538                    |       | 12,234,979 |   |
|                                                                   |   |                          |       |   |   |
| OPERATING  EXPENSES                                                    |   |                          |       |   |   |
| Sales                                                                  |   | 2,865,906                     |       | 3,072,955 |   |
| General and  administrative                                            |   | 3,533,132                     |       | 3,822,173 |   |
| Product and market  development                                        |   | 4,095,548                     |       | 3,231,721 |   |
| Depreciation and  amortization                                         |   | 1,235,898                     |       | 1,273,185 |   |
|                                                                   |   |                          |       |   |   |
| TOTAL OPERATING  EXPENSES                                              |   | 11,730,484                    |       | 11,400,034 |   |
|                                                                   |   |                          |       |   |   |
| INCOME (LOSS)  FROM OPERATIONS                                         |   | (1,153,946                    | )          | 834,945 |   |
|                                                                   |   |                          |       |   |   |
| OTHER INCOME  (EXPENSE)                                                |   |                          |       |   |   |
| Interest income                                                        |   | 96,223                        |       | 47,685 |   |
| Interest expense                                                       |   | (62,388                       | )          | (156,367 | ) |
|                                                                   |   |                          |       |   |   |
| NET OTHER INCOME  (EXPENSE)                                            |   | 33,835                        |       | (108,682 | ) |
|                                                                   |   |                          |       |   |   |
| INCOME (LOSS)  BEFORE INCOME TAXES AND MINORITY INTEREST               |   | (1,120,111                    | )          | 726,263 |   |
| INCOME TAXES                                                           |   | 24,231                        |       | --- |   |
|                                                                   |   |                          |       |   |   |
| INCOME (LOSS)  BEFORE MINORITY INTEREST                                |   | (1,144,342                    | )          | 726,263 |   |
|                                                                   |   |                          |       |   |   |
| Minority interest in  subsidiary                                       |   | 1,829                         |       | (984 | ) |
|                                                                   |   |                          |       |   |   |
| NET INCOME  (LOSS)                                                     |   | (1,142,513                    | )          | 725,279 |   |
| Preferred dividends                                                    |   | (927,455                      | )          | --- |   |
|                                                                   |   |                          |       |   |   |
| NET INCOME  (LOSS) AVAILABLE FOR COMMON STOCKHOLDERS                   |   | $                             | (2,069,968 | ) | $ | 725,279 |   |
|                                                                   |   |                          |       |   |   |
| Basic net income  (loss) per share available for common stockholders   |   | $                             | (0.13      | ) | $ | 0.05 |   |
| Diluted net  income (loss) per share available for common stockholders |   | $                             | (0.13      | ) | $ | 0.03 |   |
|                                                                   |   |                          |       |   |   |
| Basic  weighted-average common shares outstanding                      |   | 16,411,456                    |       | 15,637,322 |   |
| Diluted  weighted-average common shares outstanding                    |   | 16,411,456                    |       | 23,963,383 |   |

 

See Notes toConsolidated Financial Statements.

 

HYPERFEED TECHNOLOGIES,INC.

Consolidated Statementsof Operations (Unaudited)

 
|                                                                   |   | **For The Three Months Ended** |       |
|------------------------------------------------------------------------|--------|--------------------------------|------------|
|                                                                   |   | **September 30, 2001**         |       | **September 30, 2000** |   |
| REVENUE                                                                |   |                           |       |   |   |
| HyperFeed Services                                                     |   | $                              | 6,120,165  |   | $ | 5,997,355 |   |
| PCQuote Services                                                       |   | 2,054,998                      |       | 6,369,630 |   |
|                                                                   |   |                           |       |   |   |
| TOTAL REVENUE                                                          |   | 8,175,163                      |       | 12,366,985 |   |
|                                                                   |   |                           |       |   |   |
| DIRECT COST OF  SERVICES                                               |   |                           |       |   |   |
| HyperFeed Services                                                     |   | 3,496,993                      |       | 3,007,227 |   |
| PCQuote Services                                                       |   | 1,880,670                      |       | 4,508,297 |   |
|                                                                   |   |                           |       |   |   |
| TOTAL DIRECT  COST OF SERVICES                                         |   | 5,377,663                      |       | 7,515,524 |   |
|                                                                   |   |                           |       |   |   |
| GROSS MARGIN                                                           |   | 2,797,500                      |       | 4,851,461 |   |
|                                                                   |   |                           |       |   |   |
| OPERATING  EXPENSES                                                    |   |                           |       |   |   |
| Sales                                                                  |   | 893,305                        |       | 1,024,662 |   |
| General and  administrative                                            |   | 1,173,092                      |       | 1,285,905 |   |
| Product and market  development                                        |   | 1,030,170                      |       | 1,354,001 |   |
| Depreciation and  amortization                                         |   | 474,829                        |       | 384,165 |   |
|                                                                   |   |                           |       |   |   |
| TOTAL OPERATING  EXPENSES                                              |   | 3,571,396                      |       | 4,048,733 |   |
|                                                                   |   |                           |       |   |   |
| INCOME (LOSS)  FROM OPERATIONS                                         |   | (773,896                       | )          | 802,728 |   |
|                                                                   |   |                           |       |   |   |
| OTHER INCOME  (EXPENSE)                                                |   |                           |       |   |   |
| Interest income                                                        |   | 19,561                         |       | 17,549 |   |
| Interest expense                                                       |   | (12,451                        | )          | (48,989 | ) |
|                                                                   |   |                           |       |   |   |
| NET OTHER INCOME  (EXPENSE)                                            |   | 7,110                          |       | (31,440 | ) |
|                                                                   |   |                           |       |   |   |
| INCOME (LOSS)  BEFORE INCOME TAXES AND MINORITY INTEREST               |   | (766,786                       | )          | 771,288 |   |
| INCOME TAXES                                                           |   | (769                           | )          | --- |   |
|                                                                   |   |                           |       |   |   |
| INCOME (LOSS)  BEFORE MINORITY INTEREST                                |   | (766,017                       | )          | 771,288 |   |
|                                                                   |   |                           |       |   |   |
| Minority interest in  subsidiary                                       |   | ---                            |       | (4,853 | ) |
|                                                                   |   |                           |       |   |   |
| NET INCOME  (LOSS)                                                     |   | (766,017                       | )          | 766,435 |   |
| Preferred dividends                                                    |   | (927,455                       | )          | --- |   |
|                                                                   |   |                           |       |   |   |
| NET INCOME  (LOSS) AVAILABLE FOR COMMON STOCKHOLDERS                   |   | $                              | (1,693,472 | ) | $ | 766,435 |   |
|                                                                   |   |                           |       |   |   |
| Basic net income (loss)  per share available for common stockholders   |   | $                              | (0.10      | ) | $ | 0.05 |   |
| Diluted net income  (loss) per share available for common stockholders |   | $                              | (0.10      | ) | $ | 0.03 |   |
|                                                                   |   |                           |       |   |   |
| Basic weighted-average  common shares outstanding                      |   | 17,347,863                     |       | 15,668,724 |   |
| Diluted  weighted-average common shares outstanding                    |   | 17,347,863                     |       | 23,994,785 |   |

 

See Notes toConsolidated Financial Statements.

 

HYPERFEED TECHNOLOGIES,INC.

Consolidated Statements of Cash Flows (Unaudited)

 
|                                                                                        |   | **For the Nine Months Ended** |       |
|---------------------------------------------------------------------------------------------|--------|-------------------------------|------------|
|                                                                                        |   | **September 30, 2001**        |       | **September 30, 2000** |   |
| Cash Flows From  Operating Activities:                                                      |   |                          |       |   |   |
| Net income (loss)                                                                           |   | $                             | (1,142,513 | ) | $ | 725,279 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities:   |   |                          |       |   |   |
| Depreciation and  amortization                                                              |   | 1,235,899                     |       | 1,273,184 |   |
| Provision for doubtful  accounts                                                            |   | 245,000                       |       | 180,000 |   |
| Amortization of  software development costs                                                 |   | 1,514,133                     |       | 1,870,589 |   |
| Amortization of value  assigned to common stock warrant issued in lieu of cash license fees |   | 1,260,000                     |       | 1,260,000 |   |
| Minority interest in  subsidiary                                                            |   | (1,829                        | )          | 984 |   |
| Changes in assets and  liabilities:                                                         |   |                          |       |   |   |
| Accounts receivable                                                                         |   | 759,597                       |       | (1,410,891 | ) |
| Prepaid expenses and  other current assets                                                  |   | (224,795                      | )          | (86,166 | ) |
| Deposits and other  assets                                                                  |   | (53,158                       | )          | 8,439 |   |
| Accounts payable                                                                            |   | 114,004                       |       | 1,147,963 |   |
| Accrued expenses                                                                            |   | (266,251                      | )          | (1,252,561 | ) |
| Income taxes payable                                                                        |   | (35,000                       | )          | (5,000 | ) |
| Accrued satellite  termination expense                                                      |   | (324,000                      | )          | (450,000 | ) |
| Unearned revenue                                                                            |   | (819,583                      | )          | 408,826 |   |
|                                                                                        |   |                          |       |   |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                  |   | 2,261,504                     |       | 3,670,646 |   |
| Cash Flows From  Investing Activities:                                                      |   |                          |       |   |   |
| Purchase of property  and equipment                                                         |   | (1,490,376                    | )          | (1,305,232 | ) |
| Purchase of  Marketscreen, net of cash acquired                                             |   | (424,009                      | )          | --- |   |
| Software development  costs capitalized                                                     |   | (1,224,944                    | )          | (919,038 | ) |
| Issuance of note  receivable                                                                |   | (100,000                      | )          | --- |   |
|                                                                                        |   |                          |       |   |   |
| NET CASH USED IN  INVESTING ACTIVITIES                                                      |   | (3,239,329                    | )          | (2,224,270 | ) |
| Cash Flows From  Financing Activities:                                                      |   |                          |       |   |   |
| Proceeds from issuance  of common stock                                                     |   | 148,435                       |       | 310,533 |   |
| Principal payments on  notes payable                                                        |   | (949,634                      | )          | (725,000 | ) |
|                                                                                        |   |                          |       |   |   |
| NET CASH USED IN  FINANCING ACTIVITIES                                                      |   | (801,199                      | )          | (414,467 | ) |
|                                                                                        |   |                          |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                       |   | (1,779,024                    | )          | 1,031,909 |   |
| Cash and cash  equivalents:                                                                 |   |                          |       |   |   |
| Beginning of the period                                                                     |   | 2,522,593                     |       | 1,452,186 |   |
|                                                                                        |   |                          |       |   |   |
| End of the period                                                                           |   | $                             | 743,569    |   | $ | 2,484,095 |   |
|                                                                                        |   |                          |       |   |   |
| **Supplemental disclosure of non-cash transactions:**                                       |   |                          |       |   |   |
| Value of stock  consideration for acquisition of Marketscreen                               |   | $                             | 1,147,500  |   | $ | --- |   |
| Preferred stock  dividend paid in common stock                                              |   | $                             | 927,455    |   | $ | --- |   |

 

See Notes to Consolidated Financial Statements.

 

 

HYPERFEED TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

(1) BASIS OF PRESENTATION

 

PRINCIPLES OF CONSOLIDATION: The accompanying interim consolidated financial statements include theaccounts of HyperFeed Technologies, Inc. (“HyperFeed” or the “Company”) and itssubsidiary, PCQuote.com, Inc. (“PCQuote”), and have been prepared in accordancewith accounting principles generally accepted in the United States of Americafor interim financial information and in conjunction with the rules andregulations of the Securities and Exchange Commission. Accordingly, they do notinclude all of the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements. The consolidated interim financial statements include alladjustments, including the elimination of all significant intercompanytransactions in consolidation, which, in the opinion of management, arenecessary in order to make the financial statements not misleading. The amountsindicated as "audited" have been extracted from the Company'sDecember 31, 2000 annual report. For further information, refer to thefinancial statements and footnotes included in HyperFeed’s annual report onForm 10-K for the year ended December 31, 2000.

 

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

 

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

 

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

 

The Company's policy is to amortize capitalized software costs by thegreater of (a) the ratio that current gross revenue for a product bear to thetotal of current and anticipated future gross revenue for that product or (b)the straight line method over the remaining estimated economic life of theproduct including the period being reported on, principally three years. TheCompany assesses the recoverability of its software development costs againstestimated future undiscounted cash flows. Given the highly competitiveenvironment and technological changes, it is reasonably possible that thoseestimates of anticipated future gross revenue, the remaining estimated economiclife of the product, or both may be reduced significantly.

 

FINANCIAL INSTRUMENTS:  The Companyhas no financial instruments for which the carrying value materially differsfrom fair value.

 

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

 

 

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

 

HyperFeed services primarily consist of the provision of HyperFeedmarket data and HyperFeed market data with analytics to thebusiness-to-business marketplace, while PCQuote services primarily consist ofanalytics service, powered by the HyperFeed datafeed, to the consumermarketplace. In addition, PCQuote sells advertising on its Web site. Webadvertising revenues are recognized in the period in which the advertising isdisplayed.

 

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

 

GOODWILL AND OTHERINTANGIBLE ASSETS:  Intangible assets consistprincipally of developed technology, noncompete agreements, customer lists, andthe excess of acquisition costs over the estimated fair value of net assetsacquired (goodwill). The fair value of intangible assets acquired is determinedprimarily through the use of independent appraisals. Amortization is calculatedusing the straight-line method over the respective estimated useful lives,generally three to five years.

 

 

(2) NOTES PAYABLE

 

On September 3, 1999, the Company’s subsidiary, PCQuote.com, Inc.,borrowed $2.0 million from Motorola, Inc. The promissory note bears interest atthe prime rate from time to time as announced in the Wall Street Journal (6.0%at September 30, 2001). Payments are due in eight equal installments on aquarterly basis commencing June 30, 2000 through March 31, 2002 and are subjectto early repayment upon the closing of an initial public offering of PCQuote’scommon stock. The balance, as of September 30, 2001, is $0.5 million.

 

 

(3) INCOME TAXES

 

At December 31, 2000, the Company had federal income tax net operatingloss carryforwards of approximately $28,175,000 for federal income tax purposesand approximately $26,519,000 for the alternative minimum tax. Approximately$1,058,000 of these net operating losses relates to the exercise of incentiveemployee stock options and will be credited directly to stockholders' equitywhen realized. The Company also had research and development credits of$106,000 which will expire in years 2010 to 2011 if not previously utilized.The future utilization of these net operating losses and research anddevelopment credits may be limited due to changes in Company ownership. The netoperating loss carryforwards will expire, if not previously utilized, asfollows: 2001: $1,539,000; 2002: $560,000; 2003: $79,000; 2004: $576,000; 2005:$1,557,000; 2006: $301,000 and thereafter $23,563,000.

 

 

(4) SEGMENT INFORMATION

 

Whilethe Company operates in one industry, financial services, in applying SFAS No.131, “Disclosures about Segments of an Enterprise and Related Information”, theCompany has identified two segments within which it operates. The parent Company’sservices are principally in the business-to-business sector, while itssubsidiary, PCQuote, operates in the business-to-consumer marketplace. TheCompany evaluates performance and allocates resources based on operatingprofitability and growth potential. The accounting policies of the reportablesegments are the same as those described in Note 1. Financial informationrelating to the segments for the quarters ended September 30, 2001 andSeptember 30, 2000 is as follows:

 
|                                 |   | **September 30, 2001** |       | **September 30, 2000** |   |
|--------------------------------------|--------|------------------------|------------|------------------------|--------|
|                                 |   | **Amount**             |       | **%**                  |   | **Amount** |   | **%** |   |
| **Sales to unaffiliated customers:** |   |                   |       |                   |   |   |   |   |   |
| HyperFeed  services                  |   | $                      | 6,120,165  |                   | 74.9   | % | $ | 5,997,355 |   | 48.5 | % |
| PCQuote  services                    |   | 2,054,998              |       | 25.1                   | %      | 6,369,630 |   | 51.5 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| Total  revenue                       |   | $                      | 8,175,163  |                   | 100.0  | % | $ | 12,366,985 |   | 100.0 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| **Operating income (loss):**         |   |                   |       |                   |   |   |   |   |   |
| HyperFeed  services                  |   | $                      | 346,390    |                   | *      |   | $ | 479,401 |   | 59.7 | % |
| PCQuote  services                    |   | (1,120,286             | )          | *                      |   | 323,327 |   | 40.3 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| Total  operating income (loss)       |   | $                      | (773,896   | )                      | *      |   | $ | 802,728 |   | 100.0 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| **Identifiable assets:**             |   |                   |       |                   |   |   |   |   |   |
| HyperFeed  services                  |   | $                      | 9,230,863  |                   | 75.7   | % | $ | 7,073,916 |   | 45.8 | % |
| PCQuote  services                    |   | 2,966,526              |       | 24.3                   | %      | 8,382,293 |   | 54.2 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| Total  identifiable assets           |   | $                      | 12,197,389 |                   | 100.0  | % | $ | 15,456,209 |   | 100.0 | % |

 

----

*not meaningful

 

Financial information relating to the segments for the nine monthsended September 30, 2001 and September 30, 2000 is as follows:

 
|                                 |   | **September 30, 2001** |       | **September 30, 2000** |   |
|--------------------------------------|--------|------------------------|------------|------------------------|--------|
|                                 |   | **Amount**             |       | **%**                  |   | **Amount** |   | **%** |   |
| **Sales to unaffiliated customers:** |   |                   |       |                   |   |   |   |   |   |
| HyperFeed  services                  |   | $                      | 19,503,229 |                   | 71.7   | % | $ | 16,250,500 |   | 45.5 | % |
| PCQuote  services                    |   | 7,683,365              |       | 28.3                   | %      | 19,468,098 |   | 54.5 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| Total  revenue                       |   | $                      | 27,186,594 |                   | 100.0  | % | $ | 35,718,598 |   | 100.0 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| **Operating income (loss):**         |   |                   |       |                   |   |   |   |   |   |
| HyperFeed  services                  |   | $                      | 2,669,709  |                   | *      |   | $ | 639,583 |   | 76.6 | % |
| PCQuote  services                    |   | (3,823,655             | )          | *                      |   | 195,362 |   | 23.4 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| Total  operating income (loss)       |   | $                      | (1,153,946 | )                      | *      |   | $ | 834,945 |   | 100.0 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| **Identifiable assets:**             |   |                   |       |                   |   |   |   |   |   |
| HyperFeed  services                  |   | $                      | 9,230,863  |                   | 75.7   | % | $ | 7,073,916 |   | 41.5 | % |
| PCQuote  services                    |   | 2,966,526              |       | 24.3                   | %      | 8,382,293 |   | 58.5 | % |
|                                 |   |                   |       |                   |   |   |   |   |   |
| Total  identifiable assets           |   | $                      | 12,197,389 |                   | 100.0  | % | $ | 15,456,209 |   | 100.0 | % |

 

----

*not meaningful

 

 

(5) OTHER COMMITMENTS

 

TheCompany and SpaceCom Systems, Inc. (“SpaceCom”) entered into a settlementagreement as of November 1, 1999 related to the lease of satellite transmissionspace by the Company from SpaceCom. The lease was for 112 kilobits (“kb”) oftransmission capacity for payment of approximately $56,000 per month until,under certain circumstances, either August 1, 2002 or January 1, 2006. TheCompany and SpaceCom agreed to terminate the lease, and any and all claims orobligations thereunder, in exchange for the Company’s agreement to pay SpaceComan aggregate of $1,411,245 as follows: $179,245 on November 1, 1999, and tenequal monthly installments of $50,000 each from December 1, 1999 throughSeptember 1, 2000, and twelve equal monthly installments of $36,000 each fromOctober 1, 2000 through September 1, 2001, and twelve equal monthlyinstallments of $25,000 each from October 1, 2001 and ending on September 1,2002.

 

OnJuly 31, 2001, PCQuote and Townsend Analytics, Ltd. (“Townsend”) entered intoan agreement to terminate their Software License and Distributor Agreementdated May 28, 1999. PCQuote subsequently entered into a new agreement withTownsend to market the Internet version of the software application currentlymarketed as PCQuote 6.0 RealTick. Under the new agreement, Townsend willprovide the services, formerly provided by PCQuote, to our existing subscribersof its software and pay to PCQuote a portion of the license fee collected fromthose subscribers and new subscribers referred through PCQuote. The newagreement replaced the prior agreement between Townsend Analytics and theCompany’s subsidiary, PCQuote.

 

 

(6) PURCHASE OF MARKETSCREEN.COM, INC. ASSETS

 

On April 30, 2001, HyperFeed acquired certain assets ofMarketscreen.com, Inc. (“Marketscreen”) for $100,000 and 450,000 shares ofHyperFeed common stock and, in conjunction with the Marketscreen acquisition,acquired certain assets of Lasdorf Corporate Services, Inc. (“Lasdorf”) for$300,000. Marketscreen is a provider of comprehensive stock screens tailored tothe needs of financial resource providers, including online brokerages,investment firms, and financial portals. Lasdorf licensed certain technologyand intellectual property to Marketscreen. The 450,000 shares of HyperFeed commonstock are held in escrow. The ultimate payout of such shares is subject tocertain restrictions as defined within the asset purchase agreement. Theacquisition of Marketscreen and of Lasdorf’s intellectual property wereaccounted for under the purchase method of accounting.

 

The purchase price allocation of Marketscreen is as follows:

 
| Fair value of common stock issued |   | $          | 1,147,500 |   |
|-----------------------------------|--------|------------|-----------|--------|
| Cash consideration                |   | 400,000    |      |
| Acquisition fees and expenses     |   | 60,109     |      |
|                              |   |       |      |
| Total purchase price              |   | $          | 1,607,609 |   |
| Tangible net assets acquired      |   | (36,100    | )         |
| Technology                        |   | (1,327,239 | )         |
| Noncompete agreements             |   | (132,724   | )         |
| Customer Lists                    |   | (12,800    | )         |
| Excess purchase price (goodwill)  |   | $          | 98,746    |   |

 

The fair value of identifiable intangible assets acquired was obtainedthrough an independent appraisal. The identifiable intangible assets acquiredwill be amortized using the straight-line method over their estimated usefullives of three to five years.

 

Marketscreencommenced operations during 2000. The following unaudited pro forma summarypresents the Company’s results of operations as if the acquisition accountedfor as a purchase had occurred at the beginning of the respective year. Thissummary is provided for information purposes only. It does not necessarilyreflect the actual results that could have occurred had the acquisition been asof the beginning of the respective years or of results that may occur in thefuture.

 
|                                                                   |   | **For the Nine Months Ended** |       |
|------------------------------------------------------------------------|--------|-------------------------------|------------|
|                                                                   |   | **September  30, 2001**       |       | **September  30, 2000** |   |
| Revenues                                                               |   | $                             | 27,186,594 |   | $ | 35,723,340 |   |
| Net  income (loss) available for common stockholders                   |   | (2,274,120                    | )          | 334,104 | ** ** |
| Basic net income (loss)  per share available for common stockholders   |   | $                             | (0.14      | ) | $ | 0.02 |   |
| Diluted net income (loss)  per share available for common stockholders |   | $                             | (0.14      | ) | $ | 0.01 |   |

 

 

(7) CONVERSION OF PREFERRED STOCK TO COMMON STOCK

 

On September 17, 2001, PICO Holdings, Inc. and its affiliates, CitationInsurance Company and Sequoia Insurance Company, converted all of their SeriesA and Series B convertible preferred stock to HyperFeed common stock.

Under the terms on which the Series A and Series B preferredstock was issued on December 18, 1998, PICO converted 19,075 shares of Series Apreferred stock into 3,290,717 shares of HyperFeed common stock. PICO and itsaffiliates converted 28,791 shares of Series B preferred stock into 4,172,139shares of HyperFeed common stock. The conversion price was $1.03, being thelast reported sale price for HyperFeed common shares at the close of regulartrading on Monday, September 10, 2001. As part of the conversion formula, thepreferred stockholders were entitled to include all accrued and unpaiddividends. At the time of the conversion, the accumulated dividend was$927,455. Although no cash was paid, accounting treatment for the conversion requiredthe recording of a non-cash preferred dividend in the consolidated results ofoperations. Also as a result of the conversion, there are no preferred sharesoutstanding.

 

 

PART I. ITEM 2

Management's Discussion and Analysis of

Results of Operations and Financial Condition

 

INTRODUCTION – SAFE HARBOR DISCLOSURE

 

The following discussion and analysis contains historical information.It also contains forward-looking statements within the meaning of the"safe harbor" provisions of the Private Securities Litigation ReformAct of 1995, particularly in reference to statements regarding ourexpectations, plans and objectives. You can generally identify forward-lookingstatements by the use of the words "may," "will,""expect," "intend," "estimate," "anticipate,""believe," "continue," or similar language. Forward-lookingstatements involve substantial risks and uncertainties. You should give carefulconsideration to cautionary statements made in this discussion and analysis. Webase our statements on our current expectations. Forward-looking statements maybe impacted by a number of factors, risks and uncertainties that could causeactual results to differ materially from those described in the forward-lookingstatements. Our filings with the Securities and Exchange Commission identifyfactors that could cause material differences. Among these factors are ourability to:

 

(i)            fund our current and future businessstrategies either through continuing operations or external financing;

(ii)           attract and retain key employees;

(iii)          compete successfully againstcompetitive products and services;

(iv)          maintain relationships with keysuppliers and providers of market data; and

(v)           respond to the effect of economic andbusiness conditions generally.

 

 

##### **RECENT BUSINESS DEVELOPMENTS**

 

**HyperFeed TechnologiesRestructures for Institutional Push**

 

On September 24, 2001, HyperFeed announced a major step in positioningthe Company for long-term growth. In an effort to stay competitive in today'seconomic slowdown, the Company completed its streamlining process by shiftingits focus to better meet the needs of the institutional market. This resultedin the elimination of 47 employees, representing approximately 30 percent ofthe Company's workforce.

 

The majority of positions being eliminated supported HyperFeed'sconsumer services subsidiary, PCQuote. In the future, PCQuote will focus itefforts on providing its Web services to the business community.

 

**HyperFeed is Market DataProvider to Charles Schwab's StreetSmart Pro And Velocity Trading Software**

**Schwab Expands Contract for HyperFeedServices**

 

On August 22, 2001, HyperFeed announced that it is the primary providerof streaming real-time market data to Charles Schwab & Co. Inc.'s newStreetSmart Pro® and VelocityTM trading software applications. Schwab's firststreaming Nasdaq Level II application, StreetSmart Pro is available toqualified Schwab Signature Platinum customers and offers real-time streamingNasdaq Level II market maker and ECN quotes, news, interactive technicalcharting, customizable quote watch lists and time and sales. Velocity tradingsoftware is available to Schwab Signature Service Clients and provides userswith the ability to customize real-time quote watch lists, make equity tradesand monitor their portfolios. Both applications, powered by streaming HyperFeedmarket data, provide users with access to over 650,000 equity, option andcommodity issues.

 

Schwab had previously been using HyperFeed to supplement the provisionof market data to its Internet and on-line service offerings. This announcementmarks an expansion of Schwab's contract for services with HyperFeed.

 

**HyperFeed TechnologiesSelected to Supply Stock Quotes to Nasdaq.com**

 

On August 21, 2001, HyperFeed announced that it was selected by TheNasdaq Stock Market as the primary market data supplier to www.nasdaq.com,Nasdaq's official Web site. HyperFeed's delayed market data was launched on thenasdaq.com Web site in July 2001. Nasdaq.com visitors will see a "poweredby HyperFeed" logo when searching for quotes.

 

 

RESULTS OF OPERATIONS:

FOR THE NINE MONTHS AND QUARTERS ENDED SEPTEMBER 30, 2001 AND 2000

 

Totalrevenue decreased $8.5 million, or 23.9%, to $27.2 million for the nine monthsended September 30, 2001, and $4.2 million, or 33.9%, to $8.2 million for thequarter ended September 30, 2001 versus the comparable prior year periods. OurHyperFeed services posted increases for the first nine months of 2001 over 2000and for the quarter ended September 30, 2001; however, our PCQuote servicesposted decreases for the same periods. For the first nine months of 2001,HyperFeed service revenue increased $3.3 million, or 20.0%, to $19.5 millionfrom $16.3 million in the same period in 2000. For the quarter ended September30, 2001, HyperFeed service revenue increased $0.1 million, or 2.0%, to $6.1million from $6.0 million in 2000. Revenue growth was experienced throughincreases in analytics subscriptions and datafeed license fees. Revenue fromour PCQuote services decreased $11.8 million, or 60.5%, to $7.7 million for thefirst nine months of 2001 from $19.5 million for the same period in 2000. Forthe third quarter of 2001, revenue from PCQuote services decreased $4.3million, or 67.7%, from $6.4 million in 2000 to $2.1 million in 2001. Thisdecline is principally due to the transition of AB Watley, formerly our largestclient, from a private-label version of third-party software through PCQuote toa HyperFeed datafeed only customer.

 

Directcosts of services decreased $6.9 million, or 29.3%, to $16.6 million for thenine months ended September 30, 2001 from $23.5 million for the comparable 2000period, and decreased $2.1 million, or 28.4%, to $5.4 million for the quarterended September 30, 2001 from $7.5 million for the comparable 2000 period.Principal components of the decrease were royalties and payments to providersof market data, principally attributable to the transition of AB Watley fromPCQuote to HyperFeed. Amortization of software development costs remainedunchanged quarter-to-quarter at $0.5 million, and decreased for the nine monthsfrom $1.9 million in 2000 to $1.5 million in 2001. Gross margin decreased $1.7million, or 13.6%, to $10.6 million for the first nine months of 2001 from$12.2 million for the same period in 2000, and $2.1 million, or 42.3%, to $2.8million for the quarter ended September 30, 2001 from $4.9 million for thecomparable 2000 period.

 

Directcosts associated with HyperFeed services increased from $9.2 million for thenine months ended September 30, 2000 to $10.2 million for the first nine monthsof 2001, a 10.6% increase. For the quarter ended September 30, 2001, directcosts associated with HyperFeed services were $3.5 million, a 16.3% increasefrom $3.0 million in the same period of 2000. Increases in datafeed operations,directly attributable to the increase in revenue, were offset by decreases inlicense and exchange fees related to the September 1, 2000 reduction of thefees charged by Nasdaq NMS for professional subscriptions to their data. Amortizationof software development was unchanged at $1.1 million for the first nine monthsof 2001 and 2000 and at $0.4 million for the quarters ended September 30, 2001and 2000. For the first nine months of 2001, resulting gross margin increased$2.3 million, or 32.4%, to $9.3 million in 2001 from $7.0 million in 2000. Forthe quarter ended September 30, 2001, the resulting gross margin for HyperFeedservices was $2.6 million, a decrease of 12.3%, from $3.0 million in the thirdquarter of 2000.

 

Directcosts associated with PCQuote services decreased to $6.4 million for the firstnine months of 2001 from $14.3 million in the comparable 2000 period, a 55.1%decrease. For the quarter ended September 30, 2001, direct costs associatedwith PCQuote services were $1.9 million, a 58.3% decrease from $4.5 million inthe same period of 2000. The transfer of AB Watley from PCQuote’sprivate-labeled third-party software to a HyperFeed datafeed clientsubstantially reduced royalty and exchange fees, the principal component ofdirect costs. Software amortization decreased to $0.4 million for the firstnine months of 2001 from $0.7 million for the 2000 period, and decreased forthe third quarter to $0.1 million for 2001 from $0.2 million for 2000. Thegross margin on PCQuote services decreased $3.9 million, or 75.5%, to $1.3million for the first nine months of 2001 from $5.2 million for the same periodof 2000. PCQuote services gross margin decreased $1.7 million, or 90.6%, to$0.2 million for the third quarter of 2001 from $1.9 million for the same 2000period.

 

 

Totaloperating expense increased $0.3 million, or 2.9% to $11.7 million for the ninemonths ended September 30, 2001 from $11.4 million for the comparable 2000period, and decreased $0.5 million to $3.6 million for the quarter endedSeptember 30, 2001 from $4.0 million. The increase for the nine months was dueto our consumer marketing campaign, offset by reductions in general andadministrative and sales expenses. The decrease for the three months was due toa reduction in our advertising expenditures.

 

Salescosts decreased $0.2 million, or 6.7%, to $2.9 million for the first ninemonths of 2001 from $3.1 million for the same 2000 period. For the thirdquarter of 2001, sales costs were $0.9 million, a $0.1 million, or 12.8%,decrease from $1.0 million for the prior year period. The decrease in salescosts was attributable to a reduction in PCQuote sales personnel, effected in2000, in addition to a change in the compensation structure.

 

General and administrative expenses decreased $0.3 million, or 7.6%, to$3.5 million for the first nine months of 2001 from $3.8 million for the firstnine months of 2000. For the quarter ended September 30, 2001, general andadministrative expenses decreased $0.1 million, or 8.8%, to $1.2 million from$1.3 million for the same quarter in 2000. The decreases were principally dueto reductions in professional fees and consulting fees.

 

Productand market development costs increased $0.9 million, or 26.7%, to $4.1 millionfor the nine months ended September 30, 2001 from $3.2 million for thecomparable 2000 period, and decreased 23.9% to $1.0 million for the quarterended September 30, 2001 as compared to $1.4 million in same period in 2000.The increase for the nine months was due to our consumer marketing campaign topromote our new services, which was primarily in the second quarter of 2001.The decrease for the three months was due to a reduction in our advertisingexpenditures.

 

Depreciation and amortization decreased to $1.2 million for the firstnine months of 2001 from $1.3 million for the comparable 2000 period, andincreased $0.1 million to $0.5 million for the third quarter of 2001 from $0.4million for the comparable 2000 period.

 

 

LIQUIDITY AND CAPITAL RESOURCES:

 

Net cash and cash equivalents decreased $1.8 million from year-end 2000to $0.7 million at the end of the third quarter of 2001. Expenditures for newequipment were $1.5 million, an increase of $0.2 million, or 14.2%, from $1.3million for the same period in 2000. The increase in expenditures was tosupport the growth in our business, as well as to enhance our communicationsand market data processing infrastructures. Capitalized software costs of $1.2million for the nine months ended September 30, 2001 were 33.3%, higher thanthe $0.9 million recorded for the same period for 2000, principally due to thedevelopment of new applications and services to be introduced this year. Therewere no new direct borrowings during the nine months, and we repaid $0.2million of the principal balance on our bank term loan and $0.8 million on ournote payable to Motorola, Inc. We received approximately $0.1 million inproceeds from the sale of shares of common stock to employees pursuant to ourEmployee Stock Purchase Plan and the sale of shares of common stock toemployees who exercised options previously granted to them under our 1999Combined Incentive and Non-Statutory Stock Option Plan.

 

In the second quarter of 2001, HyperFeed acquired certain assets ofMarketscreen for $100,000 and 450,000 shares of HyperFeed common stock and, inconjunction with the Marketscreen acquisition, acquired certain assets ofLasdorf Corporate Services, Inc. (“Lasdorf”) for $300,000. The 450,000 sharesof HyperFeed common stock are held in escrow. The ultimate payout of suchshares is subject to certain restrictions as defined within the asset purchaseagreement.

 

In the second quarter of 2001, HyperFeed loaned $100,000 toQuantitative Science Technologies, LLC (QST) in connection with its agreementto develop and provide a Web-based, portfolio management tool to HyperFeed'sPCQuote customers. HyperFeed received a warrant to purchase a 5% interest ofQST at an aggregate exercise price of $.01 and an exercise term of ten years.

 

 

In September 2001, we restructured our operations to increase our focuson the institutional marketplace. As part of the restructuring, we eliminated47 positions, principally related to our consumer services. The workforce andrelated reductions are expected to result in savings of approximately $300,000per month beginning in the fourth quarter of 2001.

 

Earnings before interest, taxes, depreciation and amortization(“EBITDA”) decreased to $2.9 million for the first nine months of 2001 from$5.2 million for the comparable 2000 period, and decreased to $0.7 million forthe third quarter of 2001 as compared to $2.1 million for the same period in2000. We believe our existing capital resources, our ability to access externalcapital, if necessary, and cash generated from continuing operations aresufficient for working capital purposes for at least the next twelve months.

 

Aswe have previously reported, we have explored multiple alternatives that may beavailable for the purpose of enhancing stockholder value, including a merger, aspin-off or sale of part of our business, a strategic relationship or jointventure with another technology or financial services firm and equityfinancing. We continue to explore opportunities to enhance stockholder value.

 

 

RECENTLYISSUED ACCOUNTING PRONOUNCEMENTS

 

InAugust 2001, the Financial Accounting Standards Board ("FASB") issuedStatement of Financial Accounting Standards No. 143, "Accounting for AssetRetirement Obligations" ("SFAS 143"), which applies to legalobligations that are associated with the retirement of long-lived assets thatresult from the acquisition, construction, development, and (or) normaloperation of a long-lived asset, except for certain obligations of lessees.SFAS 143 requires that an asset retirement liability be recorded at fair valuewhen an enterprise incurs the legal obligation to retire a long-lived asset.The enterprise also would record the carrying amount of the related long-livedasset and depreciate that asset over its useful life. In subsequent periods,the asset retirement liability would be adjusted to reflect (1) the passage oftime and (2) changes in the undiscounted estimates of cash flows that wereassociated with the initial measurement. SFAS 143 is effective for financialstatements issued for fiscal years beginning after June 15, 2002, with earlierapplication encouraged. Management is currently evaluating the impact thatadoption of SFAS 143 will have on its consolidated financial statements.

 

Also in August2001, the FASB issued SFAS No. 144, “Accounting for Impairment of Long-LivedAssets” (“SFAS 144”). The newstandard supercedes FASB Statement No. 121, “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“SFAS 121”).Althoughretaining many of the fundamental recognition and measurement provisions ofSFAS 121, the new rules significantly change the criteria that would have to bemet to classify an asset as held-for-sale. The new standard also supercedes theprovisions of Accounting Principles Board Opinion No. 30, “Reporting theResults of Operations—Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions” (“APB 30”), and will require expected future operating lossesfrom discontinued operations to be displayed in discontinued operations in theperiod(s) in which the losses are incurred rather than as of the measurementdate as presently required by APB 30. The provisions of SFAS 144 are effectivefor financial statements beginning after December 15, 2001, but allow for earlyapplication. The provisions of SFAS 144 generally are to be appliedprospectively; therefore, the adoption of this standard will not affectpreviously reported financial information. Management is currently evaluatingthe impact that the adoption of SFAS 144 will have on its consolidatedfinancial statements.

 

 

In June 2001, the FASB issued SFAS No. 142, "Goodwill and OtherIntangible Assets" ("SFAS 142") which supersedes APB Opinion No.17, "Intangible Assets". SFAS 142 addresses how intangible assetsthat are acquired individually or with a group of other assets (but not thoseacquired in a business combination) should be accounted for in financialstatements upon their acquisition. SFAS 142 also addresses how goodwill andother intangible assets should be accounted for after they have been initiallyrecognized in the financial statements. The provisions of SFAS 142 are requiredto be applied starting with fiscal years beginning after December 15, 2001.SFAS 142 is required to be applied at the beginning of an entity's fiscal yearand to be applied to all goodwill and other intangible assets recognized in itsfinancial statements at that date. Management is currently evaluating theimpact that adoption of SFAS 142 will have on its consolidated financialstatements.

 

 

ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Therehave been no material changes in the Company’s market risk during thenine-month period ended September 30, 2001. For additional information, referto the Company’s Annual Report on Form 10-K for the fiscal year ended December31, 2000.

 

 

PART II. OTHERINFORMATION

 

 

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

 

During the first, second and third quarters of 2001, we issued 41,849,34,346, and 40,151 shares of our common stock, respectively, to employees, whopurchased the shares under our Employee Stock Purchase Plan.

 

During the first and second quarters of 2001, 3,991 and 6,833 shares ofour common stock, respectively, were purchased by employees who exercised stockoptions granted to them under our 1999 Combined Incentive and Non-StatutoryStock Option Plan. No employees exercised stock options during the thirdquarter of 2001.

 

On September 17, 2001, PICO Holdings, Inc. and its affiliates, CitationInsurance Company and Sequoia Insurance Company, converted all of their SeriesA and Series B preferred stock to HyperFeed common stock. PICO converted 19,075shares of Series A preferred stock into 3,290,717 shares of HyperFeed commonstock. PICO and its affiliates converted 28,791 shares of Series B preferredstock into 4,172,139 shares of HyperFeed common stock. The conversion price ofboth Series A and Series B was $1.03, based on HyperFeed’s closing price onMonday, September 10, 2001.As a result of the conversion, there are no preferred sharesoutstanding.

 

 

ITEM 6. EXHIBITS and REPORTS on FORM 8-K

 

REPORTS ON FORM 8-K

 

A Form 8-K was filed on September 21, 2001 to report the conversion ofall Series A and Series B Preferred Stock held by PICO Holdings, Inc. and its affiliates, CitationInsurance Company and Sequoia Insurance Company, into Common Stock.

 

 

SIGNATURES

 

 

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

 

 

HYPERFEED TECHNOLOGIES, INC.

 

 
| Date:  | November 9, 2001                                          |
|--------|-----------------------------------------------------------|
|   |                                                      |
| By:    | /s/ Jim R. Porter                                         |
|   |                                                      |
|   | Jim R. Porter                                             |
|   | Chairman and Chief Executive Officer                      |
|   |                                                      |
| By:    | /s/ John E. Juska                                         |
|   |                                                      |
|   | John E. Juska                                             |
|   | Chief Financial Officer and Principal Accounting  Officer |