----

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**SECURITIES AND EXCHANGECOMMISSION****Washington, DC  20549**

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**FORM 10-Q**

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|   | **ý** | **Quarterly Report Pursuant to Section 13 or  15(d) of**  |   |
|--------|------------|-----------------------------------------------------------|--------|
|   |       | **the Securities Exchange Act of 1934**                   |   |
|   |       | **For the quarterly period ended June 30,  2001**         |   |
|   |       | **Or**                                                    |   |
|   | **o**      | **Transition Report Pursuant to Section 13 or  15(d) of** |   |
|   |       | **the Securities Exchange Act of 1934**                   |   |
|   |       | **For the transition period from**                        |   |
|   |       | **-------------to------------**                           |   |

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**Commission file number 0-13093I.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 theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter 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

Indicate the number of shares outstandingof each of the issuer’s classes of common stock, as of the latest practicabledate: 16,293,329 shares of the Company's common stock ($.001 par value) wereoutstanding as of July 31, 2001.

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HYPERFEEDTECHNOLOGIES, INC.

INDEX

| PART  I.  | Financial  Information                                                                           |   |
|-----------|--------------------------------------------------------------------------------------------------|--------|
|      |                                                                                             |   |
|      |                                                                                             |   |
| Item 1.   | Consolidated Balance Sheets  as of June 30, 2001 and December 31, 2000                           |   |
|      |                                                                                             |   |
|      | Consolidated  Statements of Operations for the six month periods ended June 30, 2001 and  2000   |   |
|      |                                                                                             |   |
|      | Consolidated  Statements of Operations for the three month periods ended June 30, 2001 and  2000 |   |
|      |                                                                                             |   |
|      | Consolidated  Statements of Cash Flows for the six month periods ended June 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 4.   | Submission of Matters to  a Vote of Security Holders                                             |   |
|      |                                                                                             |   |
| Item 6.   | Exhibits  and Reports on Form 8-K                                                                |   |
|      |                                                                                             |   |
|      | Company's Signature  Page                                                                        |   |

 

HYPERFEEDTECHNOLOGIES, INC.Consolidated Balance SheetsJune 30, 2001 and December 31, 2000

| ASSETS                                                                                               | June  30,  2001  (Unaudited)                                                                |       | December  31,  2000  (Audited) |      |
|------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|------------|--------------------------------|-----------|
|                                                                                                 |                                                                                             |       |                                |      |
| Current Assets                                                                                       |                                                                                        |       |                           |      |
|                                                                                                 | Cash and cash  equivalents                                                                  | $          | 2,628,937                      |      |   | $ | 2,522,593 |   |
|                                                                                                 | Restricted cash  equivalents                                                                | 200,000    |                           | 200,000   |   |
|                                                                                                 | Accounts receivable,  less allowance for doubtful accounts of: 2001: $87,367; 2000: $89,724 | 1,692,987  |                           | 2,848,983 |   |
|                                                                                                 | Note receivable                                                                             | 100,000    |                           | ---       |   |
|                                                                                                 | Prepaid license fees,  current                                                              | 1,680,000  |                           | 1,680,000 |   |
|                                                                                                 | Prepaid expenses and  other current assets                                                  | 630,027    |                           | 235,512   |   |
|                                                                                                 |                                                                                        |            |                           |           |   |
|                                                                                                 |                                                                                        |       |                           |      |
| TOTAL CURRENT ASSETS                                                                                 | 6,931,951                                                                                   |       | 7,487,088                      |      |
|                                                                                                 |                                                                                             |       |                                |      |
|                                                                                                 |                                                                                        |       |                           |      |
| Property and equipment                                                                               |                                                                                        |       |                           |      |
|                                                                                                 | Satellite receiving  equipment                                                              | 89,417     |                           | 282,474   |   |
|                                                                                                 | Computer equipment                                                                          | 3,044,219  |                           | 4,520,991 |   |
|                                                                                                 | Communication  equipment                                                                    | 1,580,502  |                           | 1,243,584 |   |
|                                                                                                 | Furniture and fixtures                                                                      | 369,627    |                           | 194,818   |   |
|                                                                                                 | Leasehold improvements                                                                      | 822,551    |                           | 831,348   |   |
|                                                                                                 |                                                                                        |            |                           |           |   |
|                                                                                                 |                                                                                        |       |                           |      |
|                                                                                                 | 5,906,316                                                                                   |       | 7,073,215                      |      |
| Less: Accumulated  depreciation and amortization                                                     | 2,585,469                                                                                   |       | 4,247,134                      |      |
|                                                                                                 |                                                                                             |       |                                |      |
|                                                                                                 |                                                                                        |       |                           |      |
|                                                                                                 | 3,320,847                                                                                   |       | 2,826,081                      |      |
|                                                                                                 |                                                                                             |       |                                |      |
|                                                                                                 |                                                                                        |       |                           |      |
| Prepaid license fees,  net of accumulated amortization of: 2001: $3,710,000; 2000: $2,870,000        | 490,000                                                                                     |       | 1,330,000                      |      |
|                                                                                                 |                                                                                        |            |                           |           |   |
|                                                                                                 |                                                                                        |       |                           |      |
| Goodwill and other  intangible assets, net of accumulated amortization of: 2001: $81,861             | 1,480,602                                                                                   |       | ---                            |      |
|                                                                                                 |                                                                                        |            |                           |           |   |
|                                                                                                 |                                                                                        |       |                           |      |
| Software development  costs, net of accumulated amortization of:  2001: $6,085,910; 2000: $7,795,215 | 2,459,349                                                                                   |       | 2,602,283                      |      |
|                                                                                                 |                                                                                        |            |                           |           |   |
|                                                                                                 |                                                                                        |       |                           |      |
| Deposits and other  assets                                                                           | 129,186                                                                                     |       | 80,808                         |      |
|                                                                                                 |                                                                                             |       |                                |      |
|                                                                                                 |                                                                                        |       |                           |      |
| TOTAL ASSETS                                                                                         | $                                                                                           | 14,811,935 |                           | $         | 14,326,260 |   |
|                                                                                                 |                                                                                             |       |                                |      |
|                                                                                                      |                                                                                             |            |                                |           |  |  |  |  |

See Notes to Consolidated FinancialStatements.

 

 

| LIABILITIES  AND STOCKHOLDERS' EQUITY                                                                                                                                                        | June  30,  2001  (Unaudited)                                                     |       | December  31,  2000  (Audited) |      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------|------------|--------------------------------|-----------|
|                                                                                                                                                                                         |                                                                                  |       |                                |      |
|                                                                                                                                                                                         |                                                                             |       |                           |      |
| Current Liabilities                                                                                                                                                                          |                                                                             |       |                           |      |
|                                                                                                                                                                                         | Notes payable                                                                    | $          | 799,634                        |      | $ | 1,199,634 |   |
|                                                                                                                                                                                         | Accrued satellite  termination fees                                              | 333,000    |                           | 399,000   |   |
|                                                                                                                                                                                         | Accounts payable                                                                 | 2,427,603  |                           | 1,744,102 |   |
|                                                                                                                                                                                         | Accrued expenses                                                                 | 572,680    |                           | 759,818   |   |
|                                                                                                                                                                                         | Accrued compensation                                                             | 330,307    |                           | 269,736   |   |
|                                                                                                                                                                                         | Income taxes payable                                                             | 60,000     |                           | 35,000    |   |
|                                                                                                                                                                                         | Unearned revenue                                                                 | 2,486,082  |                           | 2,559,252 |   |
|                                                                                                                                                                                         |                                                                             |            |                           |           |   |
|                                                                                                                                                                                         |                                                                             |       |                           |      |
| TOTAL CURRENT  LIABILITIES                                                                                                                                                                   | 7,009,306                                                                        |       | 6,966,542                      |      |
|                                                                                                                                                                                         |                                                                                  |       |                                |      |
|                                                                                                                                                                                         |                                                                             |       |                           |      |
| Notes payable, less  current portion                                                                                                                                                         | ---                                                                              |       | 250,000                        |      |
| Accrued satellite  termination fees, less current portion                                                                                                                                    | 75,000                                                                           |       | 225,000                        |      |
| Accrued expenses, less  current portion                                                                                                                                                      | 90,222                                                                           |       | 108,264                        |      |
| Unearned revenue, less  current portion                                                                                                                                                      | 60,365                                                                           |       | 82,090                         |      |
| Minority interest                                                                                                                                                                            | ---                                                                              |       | 1,829                          |      |
|                                                                                                                                                                                         |                                                                                  |       |                                |      |
|                                                                                                                                                                                         |                                                                             |       |                           |      |
| TOTAL NONCURRENT  LIABILITIES                                                                                                                                                                | 225,587                                                                          |       | 667,183                        |      |
|                                                                                                                                                                                         |                                                                             |       |                           |      |
| TOTAL LIABILITIES                                                                                                                                                                            | 7,234,893                                                                        |       | 7,633,725                      |      |
|                                                                                                                                                                                         |                                                                                  |       |                                |      |
| Stockholders’ Equity                                                                                                                                                                    |                                                                             |       |                           |      |
| Preferred Stock, $.001  par value; authorized 5,000,000 shares;   issued and outstanding:                                                                                                    |                                                                             |       |                           |      |
|                                                                                                                                                                                         | Series A 5%  convertible: 19,075 shares at   June 30, 2001 and December 31, 2000 | 19         |                           | 19        |   |
|                                                                                                                                                                                         | Series B 5%  convertible: 28,791 shares at  June 30, 2001 and December 31, 2000  | 29         |                           | 29        |   |
|  Common stock, $.001 par value; authorized  50,000,000    shares; issued and  outstanding 16,293,329 shares at June 30, 2001 and 15,756,310 shares at  December 31, 2000 | 16,293                                                                           |       | 15,756                         |      |
| Additional paid-in  capital - Series A 5% convertible preferred stock                                                                                                                        | 3,086,013                                                                        |       | 3,086,013                      |      |
| Additional paid-in  capital - Series B 5% convertible preferred stock                                                                                                                        | 4,664,891                                                                        |       | 4,664,891                      |      |
| Additional paid-in  capital - common stock                                                                                                                                                   | 26,815,680                                                                       |       | 25,555,214                     |      |
| Additional paid-in  capital - convertible subordinated debenture and warrants                                                                                                                | 8,630,491                                                                        |       | 8,630,491                      |      |
| Accumulated deficit                                                                                                                                                                          | (35,636,374                                                                      | )          | (35,259,878                    | )         |
|                                                                                                                                                                                         |                                                                             |            |                           |           |   |
|                                                                                                                                                                                         |                                                                             |       |                           |      |
| TOTAL STOCKHOLDERS’  EQUITY                                                                                                                                                             | 7,577,042                                                                        |       | 6,692,535                      |      |
|                                                                                                                                                                                         |                                                                                  |       |                                |      |
|                                                                                                                                                                                         |                                                                             |       |                           |      |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                                             | $                                                                                | 14,811,935 |                           | $         | 14,326,260 |   |
|                                                                                                                                                                                         |                                                                                  |       |                                |      |

SeeNotes to Consolidated Financial Statements.

 

HYPERFEEDTECHNOLOGIES, INC.Consolidated Statements ofOperations (Unaudited)

|                                                  | For  The Six Months Ended       |      |
|-------------------------------------------------------|---------------------------------|-----------|
|                                                  |                                 |      |
|                                                  | June  30,  2001                 |      | June  30,  2000 |   |
|                                                  |                                 |      |  |   |
| REVENUE                                               |                            |      |   |   |
|                                                  | HyperFeed Services              | $         | 13,383,064 |   | $ | 10,253,145 |   |
|                                                  | PCQuote Services                | 5,628,367 |   | 13,098,468 |   |
|                                                  |                            |           |   |  |   |
|                                                  |                            |      |   |   |
| TOTAL REVENUE                                         | 19,011,431                      |      | 23,351,613 |   |
|                                                  |                                 |      |  |   |
|                                                  |                            |      |   |   |
| DIRECT COST OF  SERVICES                              |                            |      |   |   |
|                                                  | HyperFeed Services              | 6,709,189 |   | 6,223,838 |   |
|                                                  | PCQuote Services                | 4,523,204 |   | 9,744,257 |   |
|                                                  |                            |           |   |  |   |
|                                                  |                            |      |   |   |
| TOTAL DIRECT COST OF  SERVICES                        | 11,232,393                      |      | 15,968,095 |   |
|                                                  |                                 |      |  |   |
|                                                  |                            |      |   |   |
| GROSS MARGIN                                          | 7,779,038                       |      | 7,383,518 |   |
|                                                  |                                 |      |  |   |
|                                                  |                            |      |   |   |
| OPERATING EXPENSES                                    |                            |      |   |   |
|                                                  | Sales                           | 1,972,601 |   | 2,048,293 |   |
|                                                  | General and  administrative     | 2,360,040 |   | 2,536,268 |   |
|                                                  | Product and market  development | 3,065,378 |   | 1,877,720 |   |
|                                                  | Depreciation and  amortization  | 761,069   |   | 889,020 |   |
|                                                  |                            |           |   |  |   |
|                                                  |                            |      |   |   |
| TOTAL OPERATING  EXPENSES                             | 8,159,088                       |      | 7,351,301 |   |
|                                                  |                                 |      |  |   |
|                                                  |                            |      |   |   |
| INCOME (LOSS) FROM  OPERATIONS                        | (380,050                        | )         | 32,217 |   |
|                                                  |                                 |      |  |   |
|                                                  |                            |      |   |   |
| OTHER INCOME  (EXPENSE)                |                            |      |   |   |
|                                                  | Interest income                 | 76,662    |   | 30,136 |   |
|                                                  | Interest expense                | (49,937   | ) | (107,378 | ) |
|                                                  |                            |           |   |  |   |
|                                                  |                            |      |   |   |
| NET OTHER INCOME  (EXPENSE)                           | 26,725                          |      | (77,242 | ) |
|                                                  |                                 |      |  |   |
|                                                  |                            |      |   |   |
| LOSS BEFORE INCOME  TAXES AND  MINORITY INTEREST | (353,325                        | )         | (45,025 | ) |
| INCOME TAXES                                          | 25,000                          |      | --- |   |
|                                                  |                                 |      |  |   |
|                                                  |                            |      |   |   |
| LOSS BEFORE MINORITY  INTEREST                        | (378,325                        | )         | (45,025 | ) |
|                                                  |                            |      |   |   |
|                                                  | Minority interest in  loss      | 1,829     |   | 3,869 |   |
|                                                  |                            |           |   |  |   |
|                                                  |                            |      |   |   |
| NET LOSS                                              | $                               | (376,496  | ) | $ | (41,156 | ) |
|                                                  |                                 |      |  |   |
|                                                  |                            |      |   |   |
| Basic net income  (loss) per share                    | $                               | (0.02     | ) | $ | 0.00 |   |
| Diluted net income  (loss) per share                  | $                               | (0.02     | ) | $ | 0.00 |   |
|                                                  |                            |      |   |   |
| Basic weighted-average  common shares outstanding     | 15,935,492                      |      | 15,621,768 |   |
| Diluted  weighted-average common shares outstanding   | 15,935,492                      |      | 15,621,768 |   |
|                                                  |                                 |      |  |   |
|                                                       |                                 |           |  |  |  |  |  |  |  |

SeeNotes to Consolidated Financial Statements.

 

HYPERFEEDTECHNOLOGIES, INC.Consolidated Statements ofOperations (Unaudited)

|                                                           | For  The Three Months Ended     |       |
|----------------------------------------------------------------|---------------------------------|------------|
|                                                           |                                 |       |
|                                                           | June  30,  2001                 |       | June  30,  2000 |   |
|                                                           |                                 |       |  |   |
| REVENUE                                                        |                            |       |   |   |
|                                                           | HyperFeed Services              | $          | 6,516,669 |   | $ | 5,401,314 |   |
|                                                           | PCQuote Services                | 2,738,445  |   | 7,098,522 |   |
|                                                           |                            |            |   |  |   |
|                                                           |                            |       |   |   |
| TOTAL REVENUE                                                  | 9,255,114                       |       | 12,499,836 |   |
|                                                           |                                 |       |  |   |
|                                                           |                            |       |   |   |
| DIRECT COST OF  SERVICES                                       |                            |       |   |   |
|                                                           | HyperFeed Services              | 3,433,212  |   | 3,201,950 |   |
|                                                           | PCQuote Services                | 2,286,113  |   | 5,281,829 |   |
|                                                           |                            |            |   |  |   |
|                                                           |                            |       |   |   |
| TOTAL DIRECT COST OF  SERVICES                                 | 5,719,325                       |       | 8,483,779 |   |
|                                                           |                                 |       |  |   |
|                                                           |                            |       |   |   |
| GROSS MARGIN                                                   | 3,535,789                       |       | 4,016,057 |   |
|                                                           |                                 |       |  |   |
|                                                           |                            |       |   |   |
| OPERATING EXPENSES                                             |                            |       |   |   |
|                                                           | Sales                           | 1,054,576  |   | 969,342 |   |
|                                                           | General and  administrative     | 1,128,994  |   | 1,380,619 |   |
|                                                           | Product and market  development | 1,961,592  |   | 1,058,236 |   |
|                                                           | Depreciation and  amortization  | 433,242    |   | 461,349 |   |
|                                                           |                            |            |   |  |   |
|                                                           |                            |       |   |   |
| TOTAL OPERATING  EXPENSES                                      | 4,578,404                       |       | 3,869,546 |   |
|                                                           |                                 |       |  |   |
|                                                           |                            |       |   |   |
| INCOME (LOSS) FROM  OPERATIONS                                 | (1,042,615                      | )          | 146,511 |   |
|                                                           |                                 |       |  |   |
|                                                           |                            |       |   |   |
| OTHER INCOME (EXPENSE)                                         |                            |       |   |   |
|                                                           | Interest income                 | 40,184     |   | 16,733 |   |
|                                                           | Interest expense                | (19,926    | ) | (55,329 | ) |
|                                                           |                            |            |   |  |   |
|                                                           |                            |       |   |   |
| NET OTHER INCOME  (EXPENSE)                                    | 20,258                          |       | (38,596 | ) |
|                                                           |                                 |       |  |   |
|                                                           |                            |       |   |   |
| INCOME (LOSS) BEFORE  INCOME TAXES AND  MINORITY INTEREST | (1,022,357                      | )          | 107,915 |   |
| INCOME TAXES                                                   | ---                             |       | --- |   |
|                                                           |                                 |       |  |   |
|                                                           |                            |       |   |   |
| INCOME (LOSS) BEFORE  MINORITY INTEREST                        | (1,022,357                      | )          | 107,915 |   |
|                                                           |                            |       |   |   |
|                                                           | Minority interest in  loss      | ---        |   | --- |   |
|                                                           |                            |            |   |  |   |
|                                                           |                            |       |   |   |
| NET INCOME (LOSS)                                              | $                               | (1,022,357 | ) | $ | 107,915 |   |
|                                                           |                                 |       |  |   |
|                                                           |                            |       |   |   |
| Basic net income  (loss) per share                             | $                               | (0.06      | ) | $ | 0.01 |   |
| Diluted net income  (loss) per share                           | $                               | (0.06      | ) | $ | 0.00 |   |
|                                                           |                            |       |   |   |
| Basic weighted-average  common shares outstanding              | 16,109,767                      |       | 15,636,791 |   |
| Diluted  weighted-average common shares outstanding            | 16,109,767                      |       | 23,408,903 |   |
|                                                           |                                 |       |  |   |

SeeNotes to Consolidated Financial Statements.

 

HYPERFEEDTECHNOLOGIES, INC.Consolidated Statements of Cash Flows(Unaudited)

|                                                       | For  The Six Months Ended                                                                    |       |
|------------------------------------------------------------|----------------------------------------------------------------------------------------------|------------|
|                                                       |                                                                                              |       |
|                                                       | June  30,  2001                                                                              |       | June  30,  2000 |   |
|                                                       |                                                                                              |       |  |   |
| Cash Flows from  Operating Activities:                     |                                                                                         |       |   |   |
|                                                       | Net loss                                                                                     | $          | (376,496) |   | $ | (41,156) |   |
| Adjustments to  reconcile net loss to net cash provided by |                                                                                         |       |   |   |
| operating activities:                                      |                                                                                         |       |   |   |
|                                                       | Depreciation and  amortization                                                               | 761,069    |   | 889,020 |   |
|                                                       | Provision for doubtful  accounts                                                             | 95,000     |   | 180,000 |   |
|                                                       | Amortization of  software development costs                                                  | 974,088    |   | 1,332,311 |   |
|                                                       | Amortization of value  assigned to common stock warrant  issued in lieu of cash license fees | 840,000    |   | 840,000 |   |
|                                                       | Minority interest in  loss                                                                   | (1,829     | ) | (3,869 | ) |
|                                                       |                                                                                         |       |   |   |   |
|                                                       | Changes in assets and  liabilities:                                                          |       |   |   |   |
|                                                       | Accounts receivable                                                                          | 1,060,996  |   | (2,226,436 | ) |
|                                                       | Prepaid expenses and  other current assets                                                   | (394,515   | ) | (95,890 | ) |
|                                                       | Deposits and other  assets                                                                   | (48,378    | ) | 5,138 |   |
|                                                       | Accounts payable                                                                             | 683,501    |   | 1,268,222 |   |
|                                                       | Accrued expenses                                                                             | (144,609   | ) | (1,101,198 | ) |
|                                                       | Accrued satellite  termination fees                                                          | (216,000   | ) | (300,000 | ) |
|                                                       | Income taxes payable                                                                         | 25,000     |   | --- |   |
|                                                       | Unearned revenue                                                                             | (94,895    | ) | 580,635 |   |
|                                                       |                                                                                         |            |   |  |   |
|                                                       |                                                                                         |       |   |   |
| NET CASH PROVIDED BY  OPERATING ACTIVITIES                 | 3,162,932                                                                                    |       | 1,326,777 |   |
|                                                       |                                                                                              |       |  |   |
| Cash Flows From  Investing Activities:                     |                                                                                         |       |   |   |
|                                                       | Purchase of property  and equipment                                                          | (1,138,974 | ) | (993,732 | ) |
|                                                       | Purchase of  Marketscreen, net of cash acquired                                              | (449,963   | ) | --- |   |
|                                                       | Software development  costs capitalized                                                      | (831,154   | ) | (602,976 | ) |
|                                                       | Issuance of note  receivable                                                                 | (100,000   | ) | --- |   |
|                                                       |                                                                                         |            |   |  |   |
|                                                       |                                                                                         |       |   |   |
| NET CASH USED IN  INVESTING ACTIVITIES                     | (2,520,091                                                                                   | )          | (1,596,708 | ) |
|                                                       |                                                                                              |       |  |   |
| Cash Flows From  Financing Activities:                     |                                                                                         |       |   |   |
|                                                       | Proceeds from issuance  of common stock                                                      | 113,503    |   | 228,784 |   |
|                                                       | Principal payments on  notes payable                                                         | (650,000   | ) | (400,000 | ) |
|                                                       |                                                                                         |            |   |  |   |
|                                                       |                                                                                         |       |   |   |   |
| NET CASH USED IN  FINANCING ACTIVITIES                     | (536,497                                                                                     | )          | (171,216 | ) |
|                                                       |                                                                                              |       |  |   |
|                                                       |                                                                                         |       |   |   |
| Net increase  (decrease) in cash and cash equivalents      | 106,344                                                                                      |       | (441,147 | ) |
| Cash and cash  equivalents:                                |                                                                                         |       |   |   |
|                                                       | Beginning of the  period                                                                     | 2,522,593  |   | 1,452,186 |   |
|                                                       |                                                                                         |            |   |  |   |
|                                                       |                                                                                         |       |   |   |
|                                                       | End of the period                                                                            | $          | 2,628,937 |   | $ | 1,011,039 |   |
|                                                       |                                                                                         |            |   |  |   |
|                                                       |                                                                                         |       |   |   |
| **Supplemental disclosure of  non-cash transactions:**     |                                                                                         |       |   |   |
|                                                       | Value of stock  consideration for acquisition of Marketscreen                                | $          | 1,147,500 |   | $ | --- |   |
|                                                       |                                                                                         |       |   |   |
|                                                            |                                                                                              |            |  |  |  |  |  |  |  |  |

See Notes to Consolidated FinancialStatements.

 

HYPERFEEDTECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)

(1) BASIS OF PRESENTATION

PRINCIPLES OF CONSOLIDATION:  The accompanying interim consolidatedfinancial statements include the accounts of HyperFeed Technologies, Inc.(“HyperFeed” or the “Company”) and its subsidiary, PCQuote.com, Inc.(“PCQuote”), and have been prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financialinformation and in conjunction with the rules and regulations of the Securitiesand Exchange Commission. Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America for complete financial statements. The interimconsolidated financial statements include all adjustments, including theelimination 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" have been extracted from the Company's December 31, 2000annual report. For further information, refer to the consolidated financialstatements and footnotes included in HyperFeed’s annual report on Form 10-K forthe year ended December 31, 2000.

SOFTWARE DEVELOPMENT COSTS:  The Company's continuing investment insoftware development consists primarily of enhancements to its existingWindows-based private network and Internet services, development of new dataanalysis software and programmer tools designed to afford easy access to itsdata-feed for data retrieval and analysis purposes, and application of newtechnology to increase the data volume and delivery speed of its distributionsystem and network.

Costs associated with the planning anddesign phase of software development, including coding and testing activitiesnecessary to establish technological feasibility of computer software productsto be licensed or otherwise marketed, are charged to research and developmentas incurred. Once technological feasibility has been determined, costs incurredin the construction phase of software development including coding, testing,and product quality assurance are capitalized.

Amortization commences at the time ofcapitalization or, in the case of a new service offering, at the time theservice becomes available for use. Unamortized capitalized costs determined tobe in excess of the net realizable value of the product are expensed at thedate of such determination. The accumulated amortization and related softwaredevelopment costs are removed from the respective accounts in the yearfollowing full amortization.

The Company's policy is to amortizecapitalized software costs by the greater of (a) the ratio that current grossrevenue for a product bear to the total of current and anticipated future grossrevenue for that product or (b) the straight line method over the remainingestimated economic life of the product including the period being reported on,principally three years. The Company assesses the recoverability of itssoftware development costs against estimated future undiscounted cash flows.Given the highly competitive environment and technological changes, it isreasonably possible that those estimates of anticipated future gross revenue, theremaining estimated economic life of the product, or both may be reducedsignificantly.

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

INCOME TAXES:  Income taxes are accounted for under the asset and liabilitymethod whereby deferred tax assets are recognized for deductible temporarydifferences and operating loss and tax credit carryforwards and deferred taxliabilities are recognized for taxable temporary differences. Temporarydifferences are the differences between the reported amounts of assets andliabilities and their tax bases. Deferred tax assets are reduced by a valuationallowance when, in the opinion of management, it is more likely than not thatsome portion or all of the deferred tax assets will not be realized. Deferredtax assets and liabilities are adjusted for the effects of changes in tax lawsand rates on the date of enactment.

REVENUE RECOGNITION:  The Company principally derives its revenuefrom service contracts for the provision of market data only (“HyperFeed®license fees”), service contracts for the provision of market data togetherwith 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. Revenue and the relatedreceivable for advance billings are not reflected in the financial statements.Customers' deposits on service contracts are classified as either currentunearned revenue, if the contract expires in one year or less, or non-currentunearned revenue, if the contract expiration date is greater than one year.

HyperFeed services primarily consist ofthe provision of HyperFeed market data and HyperFeed market data with analyticsto the business-to-business marketplace, while PCQuote services primarilyconsist of analytics service, powered by the HyperFeed datafeed, to theconsumer marketplace. In addition, PCQuote sells advertising on its Web site.Web advertising revenues are recognized in the period in which the advertisingis displayed.

TheCompany applies the provisions of Statement of Position 97-2, “Software RevenueRecognition,”, as amended, which specifies the following four criteria thatmust be met prior to recognizing revenue: (1) persuasive evidence of theexistence of 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.

GOODWILLAND OTHER INTANGIBLE ASSETS:  Intangible assets consist principally ofdeveloped technology, noncompete agreements, customer lists, and the excess ofacquisition costs over the estimated fair value of net assets acquired(goodwill). The fair value of intangible assets acquired is determined primarilythrough the use of independent appraisals. Amortization is calculated using thestraight-line method over the respective estimated useful lives, generallythree to five years.

 

(2) NOTES PAYABLE

The Company has a $1,500,000 term loanwith a bank, payable in monthly installments of $25,000 plus interest at prime(6.75% at June 30, 2001). The loan is collateralized by substantially allassets of the Company. At June 30, 2001, the outstanding balance was $49,634.

On September 3, 1999, the Company’ssubsidiary, PCQuote.com, Inc., borrowed $2.0 million from Motorola, Inc. Thepromissory note bears interest at the prime rate from time to time as announcedin the Wall Street Journal (6.75% at June 30, 2001). Payments are due in eightequal installments on a quarterly basis commencing June 30, 2000 through March31, 2002 and are subject to early repayment upon the closing of an initialpublic offering of PCQuote’s common stock. At June 30, 2001, the outstandingbalance was $750,000.

 

(3) INCOME TAXES

At December 31, 2000, the Company hadfederal income tax net operating loss carryforwards of approximately$28,175,000 for federal income tax purposes and approximately $26,519,000 forthe alternative minimum tax. Approximately $1,058,000 of these net operatinglosses relates to the exercise of incentive employee stock options and will becredited directly to stockholders' equity when realized.  The Company also had research anddevelopment credits of $106,000 which will expire in years 2010 to 2011 if notpreviously utilized. The future utilization of these net operating losses andresearch and development credits will be limited due to changes in Companyownership. The net operating loss carryforwards will expire, if not previouslyutilized, as follows: 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

While the Company operates in oneindustry, financial services, in applying SFAS No. 131, “Disclosures aboutSegments of an Enterprise and Related Information”, the Company has identifiedtwo segments within which it operates. The parent Company’s services areprincipally in the business-to-business sector, while its subsidiary, PCQuote,operates in the business-to-consumer marketplace. The Company evaluatesperformance and allocates resources based on operating profitability and growthpotential. The accounting policies of the reportable segments are the same asthose described in Note 1. Financial information relating to the segments forthe quarters ended June 30, 2001 and June 30, 2000 is as follows:

 

|                                  | June 30, 2001 | June 30, 2000 |
|---------------------------------------|---------------|---------------|
|                                  |               |               |
|                                  | **Amount**    |          | % | **Amount** |   | % |
|                                  | ****          |          |  | **** |   |  |
| **Sales  to unaffiliated customers:** |          |          |   |   |   |   |   |   |
| HyperFeed  services                   | $             | 6,516,669     |   | 70.4 | % | $ | 5,401,314 |   | 43.2 | % |
| PCQuote  services                     | 2,738,445     |          | 29.6 | % | 7,098,522 |   | 56.8 | % |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| Total  revenue                        | $             | 9,255,114     |   | 100.0 | % | $ | 12,499,836 |   | 100.0 | % |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| **Operating  income (loss):**         |          |          |   |   |   |   |   |   |
| HyperFeed  services                   | $             | 760,932       |   | * |   | $ | 2,470 |   | 1.7 | % |
| PCQuote  services                     | (1,803,547    | )             | * |   | 144,041 |   | 98.3 | % |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| Total  operating income (loss)        | $             | (1,042,615    | ) | * |   | $ | 146,511 |   | 100.0 | % |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| **Identifiable  assets:**             |          |          |   |   |   |   |   |   |
| HyperFeed  services                   | $             | 10,812,140    |   | 73.0 | % | $ | 6,439,574 |   | 41.5 | % |
| PCQuote  services                     | 3,999,795     |          | 27.0 | % | 9,087,028 |   | 58.5 | % |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| Total  identifiable assets            | $             | 14,811,935    |   | 100.0 | % | $ | 15,526,602 |   | 100.0 | % |
|                                  |               |          |   |   |  |   |   |   |

----

* not meaningful

 

Financial information relating to thesegments for the six months ended June 30, 2001 and June 30, 2000 is asfollows:

|                                  | June 30, 2001 | June 30, 2000 |
|---------------------------------------|---------------|---------------|
|                                  |               |               |
|                                  | **Amount**    |          | % | **Amount** |   | % |
|                                  | ****          |          |  | **** |   |  |
| **Sales  to unaffiliated customers:** |          |          |   |   |   |   |   |   |
| HyperFeed  services                   | $             | 13,383,064    |   | 70.4 | % | $ | 10,253,145 |   | 43.9 | % |
| PCQuote  services                     | 5,628,367     |          | 29.6 | % | 13,098,468 |   | 56.1 | % |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| Total  revenue                        | $             | 19,011,431    |   | 100.0 | % | $ | 23,351,613 |   | 100.0 | % |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| **Operating  income (loss):**         |          |          |   |   |   |   |   |   |
| HyperFeed  services                   | $             | 2,323,319     |   | * |   | $ | 160,182 |   | * |   |
| PCQuote  services                     | (2,703,369    | )             | * |   | (127,965 | ) | * |   |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| Total  operating income (loss)        | $             | (380,050      | ) | * |   | $ | 32,217 |   | * |   |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| **Identifiable  assets:**             |          |          |   |   |   |   |   |   |
| HyperFeed  services                   | $             | 10,812,140    |   | 73.0 | % | $ | 6,439,574 |   | 41.5 | % |
| PCQuote  services                     | 3,999,795     |          | 27.0 | % | 9,087,028 |   | 58.5 | % |
|                                  |               |          |   |   |  |   |   |   |
|                                  |          |          |   |   |   |   |   |   |
| Total  identifiable assets            | $             | 14,811,935    |   | 100.0 | % | $ | 15,526,602 |   | 100.0 | % |
|                                  |               |          |   |   |  |   |   |   |

----

* not meaningful

 

(5) OTHER COMMITMENTS

The Company and SpaceCom Systems, Inc.(“SpaceCom”) entered into a settlement agreement as of November 1, 1999 relatedto the lease of satellite transmission space by the Company from SpaceCom. Thelease was for 112 kilobits (“kb”) of transmission capacity for payment ofapproximately $56,000 per month until, under certain circumstances, eitherAugust 1, 2002 or January 1, 2006. The Company and SpaceCom agreed to terminatethe lease, and any and all claims or obligations thereunder, in exchange forthe Company’s agreement to pay SpaceCom an aggregate of $1,411,245 as follows:$179,245 on November 1, 1999, and ten equal monthly installments of $50,000each from December 1, 1999 through September 1, 2000, and twelve equal monthlyinstallments of $36,000 each from October 1, 2000 through September 1, 2001,and twelve equal monthly installments of $25,000 each from October 1, 2001 andending on September 1, 2002.

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

On April 30, 2001, HyperFeed acquiredcertain assets of Marketscreen.com, Inc. (“Marketscreen”) for $100,000 and450,000 shares of HyperFeed common stock and, in conjunction with theMarketscreen acquisition, acquired certain assets of Lasdorf CorporateServices, Inc. (“Lasdorf”) for $300,000. Marketscreen is a provider ofcomprehensive stock screens tailored to the needs of financial resourceproviders, including online brokerages, investment firms, and financialportals. Lasdorf licensed certain technology and intellectual property toMarketscreen. The 450,000 shares of HyperFeed common stock are held in escrow.The ultimate payout of such shares is subject to certain restrictions asdefined within the asset purchase agreement. The acquisition of Marketscreenand of Lasdorf’s intellectual property were accounted for under the purchasemethod of accounting. The purchase price allocation is preliminary. Upon thecompletion of the valuation of the identifiable intangible assets acquired,these assets will be amortized using the straight-line method over theirestimated useful lives, expected to be three to five years. Any excess purchaseprice will be allocated to goodwill. The pro forma effect of this acquisitionwas not material.

 

(7) SUBSEQUENT EVENTS

On July 31, 2001, PCQuote and TownsendAnalytics, Ltd. (“Townsend”) entered into an agreement to terminate theirSoftware License and Distributor Agreement dated May 28, 1999. PCQuotesubsequently entered into a new agreement with Townsend to market the Internetversion of the software application currently marketed as PCQuote 6.0 RealTick.Under the new agreement, Townsend will provide the services, formerly providedby PCQuote, to our existing subscribers of its software and pay to PCQuote aportion of the license fee collected from those subscribers and new subscribersreferred through PCQuote. The new agreement replaced the prior agreementbetween Townsend Analytics and the Company’s subsidiary, PCQuote.

 

PART I. ITEM 2

Management's Discussionand Analysis ofResults of Operations and Financial Condition

 

INTRODUCTION – SAFE HARBOR DISCLOSURE

The following discussion and analysiscontains historical information. It also contains forward-looking statementswithin the meaning of the "safe harbor" provisions of the PrivateSecurities Litigation Reform Act of 1995, particularly in reference to statementsregarding our expectations, plans and objectives. You can generally identifyforward-looking statements by the use of the words "may,""will," "expect," "intend," "estimate,""anticipate," "believe," "continue," or similarlanguage. Forward-looking statements involve substantial risks anduncertainties. You should give careful consideration to cautionary statementsmade in this discussion and analysis. We base our statements on our currentexpectations. Forward-looking statements may be impacted by a number offactors, risks and uncertainties that could cause actual results to differmaterially from those described in the forward-looking statements. Our filingswith the Securities and Exchange Commission identify factors that could causematerial differences. Among these factors are our ability to:

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

(ii)         attract and retain key employees;

(iii)        compete successfully against competitiveproducts and services;

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

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

 

**RECENT BUSINESS DEVELOPMENTS**

**HyperFeed Releases SmarTicker**

On June 19, 2001, HyperFeed announced therelease of SmarTicker, HyperFeed's proprietary technology that allows financialinstitutions to receive quote data and other financial market informationdirectly from multiple exchanges and other data sources. HyperFeed unveiledSmarTicker at the Securities Industry Association's annual conference in NewYork City where exchanges, brokerages, market data vendors, and other industryconstituents gathered to address a variety of issues, including revamping thestructure of market data dissemination.

SmarTicker is the equivalent of puttingHyperFeed's own ticker processing capabilities at the customer's site. Thesoftware is a cost-effective way to reduce instances of latency, badinformation, or missed quotes, as there is no intermediary-the institutionconnects directly to the data source. Moreover, HyperFeed is also offeringremote maintenance services for those customers that want HyperFeed to performdata integrity and quality control functions, thereby mitigating the need foradditional staff.

Key features of SmarTicker include:Customized data: Subscribers can process customized data feeds with preferredlocal/global content; a proprietary datafeed; or specialized content currentlyunavailable within the existing HyperFeed datafeed.

Immediate access: The capabilitiesalready include many exchanges, reducing the amount of research and developmentcosts.

Maintenance and monitoring: HyperFeed canremotely perform maintenance function providing corrections for bad ticks andother incomplete information, reducing or eliminating the need for additionaldata integrity staff.

 

**HyperFeed Announces the Addition of International Data**

On May 22, 2001, HyperFeed announced thatit has added international market data to its proprietary datafeed. This will allowinstitutions to receive quotes and trade information on international issues,on a real-time basis, through HyperFeed.

HyperFeed plans a phased rollout ofinternational exchange data beginning with major European markets followed bymajor Asian markets, Australia, Brazil and Mexico. Remaining world markets willbe added based upon customer demand.

**HyperFeed Adds Fundamental Content of FT InteractiveData**

On May 16,2001, HyperFeed announced that it has expanded the offerings of its datafeed toinclude access to content provided by FT Interactive Data, a supplier of globalsecurities pricing, dividend, corporate action and descriptive information onmore than 3.5 million securities.

FT InteractiveData's content greatly enhances the quality and depth of fundamental data onthe equities carried on HyperFeed. Fundamental data, used to assess a stock'sinvestment quality, includes information such as dividend frequency, earningsper share and beta, a common measure of an issue's volatility.

FT InteractiveData's fundamental data will be integrated into HyperFeed's datafeed in twophases. In the first phase, HyperFeed has replaced fundamental content that itpreviously offered with that of FT Interactive Data's. In phase two, a broaderarray of descriptive information will become available.

The additionof FT Interactive Data is just part of a series of new content launches thatHyperFeed intends to roll out and is in conjunction with the company's strategyto further penetrate the institutional and retail marketplace. HyperFeed alsoplans to add content from electronic communications networks (ECNs) andinternational exchanges.

**HyperFeed Announces Agreement to Provide Portfolio ManagementCapabilities**

On May 10, 2001, HyperFeed announced itsigned a development agreement with Quantitative Science Technologies, LLC(QST) to provide a Web-based, portfolio management tool to HyperFeed's PCQuotecustomers. QST will develop a software product customized for HyperFeed'sdatafeed with functionality comparable to QST's "Virtual PortfolioManager" software currently marketed to professional money managers. Thisagreement, targeted squarely at the individual investor, further supportsHyperFeed's new and comprehensive strategy for PCQuote customers.

 

RESULTS OF OPERATIONS:FOR THE SIX MONTHS AND QUARTERS ENDED JUNE 30, 2001 AND 2000

Total revenue decreased $4.3 million, or18.6%, to $19.0 million for the six months ended June 30, 2001, and decreased$3.2 million, or 26.0%, to $9.3 million for the quarter ended June 30, 2001versus the comparable prior year periods. Our HyperFeed services postedincreases for the first six months of 2001 over 2000 and for the quarter endedJune 30, 2001 over 2000; however, our PCQuote services posted decreases for thesame periods. For the first six months of 2001, HyperFeed service revenueincreased $3.1 million, or 30.5%, to $13.4 million in 2001 as compared to thesame period in 2000. For the quarter ended June 30, 2001, HyperFeed servicerevenue increased $1.1 million, or 20.6%, from $5.4 million in 2000 to $6.5million in 2001. Revenue growth was experienced through increases in analyticssubscriptions and datafeed license fees. Revenue from our PCQuote servicesdecreased $7.5 million, or 57.0%, to $5.6 million for the first six months of2001 from $13.1 million for the same period in 2000. For the second quarter in2001, revenue from PCQuote services decreased $4.4 million, or 61.4%, from $7.1million in 2000 to $2.7 million in 2001. This decline is principally due to thetransition of AB Watley, formerly our largest client, from a private-labelversion of third-party software through PCQuote to a HyperFeed datafeed onlycustomer.

Direct costs of services decreased $4.7million, or 29.7%, to $11.2 million for the six months ended June 30, 2001 from$16.0 million for the comparable 2000 period, and decreased $2.8 million, or32.6%, to $5.7 million for the quarter ended June 30, 2001 as compared to $8.5million for the comparable 2000 period. Principal components of the decreasewere royalties and payments to providers of market data, principallyattributable to the transition of AB Watley from PCQuote to HyperFeed.Amortization of software development costs decreased for the six months from$1.3 million in 2000 to $1.0 million in 2001. Gross margin increased $0.4million, or 5.4%, to $7.8 million for the first six months of 2001 from $7.4million for the same period in 2000, but decreased $0.5 million, or 12.0%, to$3.5 million for the quarter ended June 30, 2001 from $4.0 million for the comparable2000 period.

Direct costs associated with HyperFeedservices increased from $6.2 million for the six months ended June 30, 2000 to$6.7 million for the first six months of 2001, a 7.8% increase. For the quarterended June 30, 2001, direct costs associated with HyperFeed services were $3.4million, a 7.2% increase from $3.2 million in the same period of 2000.Increases in datafeed operations, directly attributable to the increase inrevenue, were offset by decreases in license and exchange fees related to theSeptember 1, 2000 reduction of the fees charged by Nasdaq NMS for professionalsubscriptions to their data. Amortization of software development costsdecreased 6.6% to $731,000 for the first six months of 2001 from $783,000 forthe same period in 2000. For the quarter ended June 30, 2001, amortization ofsoftware development costs decreased 5.5% to $384,000, from $406,000 in thesecond quarter of 2000. For the first six months of 2001, resulting grossmargin for HyperFeed services increased $2.6 million, or 65.6%, to $6.7 millionin 2001 from $4.0 million in 2000. For the quarter ended June 30, 2001, theresulting gross margin for HyperFeed services was $3.1 million, an increase of$0.9 million, or 40.2%, from the $2.2 million recognized in the second quarterof 2000.

Direct costs associated with PCQuoteservices decreased to $4.5 million for the first six months of 2001 from $9.7million in the comparable 2000 period, a 53.6% decrease. For the quarter endedJune 30, 2001, direct costs associated with PCQuote services were $2.3 million,a 56.7% decrease from $5.3 million in the same period of 2000. The transfer ofAB Watley from PCQuote’s private-labeled third-party software to a HyperFeeddatafeed client substantially reduced royalty and exchange fees, the principalcomponent of direct costs. Software amortization decreased 55.8% for the firstsix months to $243,000 in 2001 from $549,000 in 2000, and decreased 55.8% forthe second quarter to $121,000 in 2001 from $274,000 in 2000. The gross margin onPCQuote services decreased 67.1% to $1.1 million for the first six months of2001 from $3.4 million in the comparable 2000 period. PCQuote services grossmargin decreased 75.1% from $1.8 million in the second quarter of 2000 to$452,000 for the same period in 2001.

Total operating expenses increased 11.0%to $8.2 million for the six months ended June 30, 2001 from $7.4 million forthe comparable 2000 period, and increased 18.3% to $4.6 million for the quarterended June 30, 2001 as compared to $3.9 million for the comparable 2000 period.The increases are due to our consumer marketing campaign.

Sales costs remained essentiallyunchanged at $2.0 million for the first six months of 2001 as compared to thesame 2000 period. For the second quarter of 2001, sales costs were $1.1million, an 8.8% increase from the prior year period of $1 million. Theincrease in sales costs for the quarter was the result of additional salespersonnel added during the quarter.

General and administrative expensesdecreased 6.9% to $2.4 million in the first six months of 2001 from $2.5million for the first six months of 2000. For the quarter ended June 30, 2001, general and administrative expensesdecreased 18.2% to $1.1 million from $1.4 million in same period in 2000. Thedecreases were principally due to reductions in professional fees andconsulting fees.

Product and market development costsincreased 63.3% to $3.1 million for the six months ended June 30, 2001 from$1.9 million for the comparable 2000 period, and increased 85.4% to $2.0million for the quarter ended June 30, 2001 as compared to $1.1 million for thecomparable 2000 period. The increase was due to our consumer marketing campaignto promote our new services.

Depreciation and amortization decreased14.4% to $761,000 for the first six months of 2001 from $889,000 for thecomparable 2000 period, and decreased 6.1% to $433,000 in the second quarter of2001 from $461,000 for the comparable 2000 period

 

LIQUIDITY AND CAPITAL RESOURCES

Net cash and cash equivalents increased$106,000 from year-end 2000 to $2.6 million at the end of the second quarter of2001. Expenditures for new equipment were $1,139,000, a 14.6% increase from the$994,000 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$831,000 for the six months ended June 30, 2001 were $228,000, or 37.8%, higherthan the $603,000 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 six months ended June 30, 2001, andthe Company repaid $150,000 of the principal balance on the bank term loan and$500,000 on the note payable to Motorola. We received approximately $114,000 innet proceeds from the sale of shares of common stock to employees pursuant toour Employee 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, HyperFeedacquired certain assets of 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. The 450,000 shares of HyperFeed common stock are held in escrow. Theultimate payout of such shares is subject to certain restrictions as definedwithin the asset purchase agreement.

In the second quarter of 2001, HyperFeedloaned $100,000 to Quantitative Science Technologies, LLC (QST) in connectionwith its agreement to develop and provide a Web-based, portfolio managementtool to HyperFeed's PCQuote customers. HyperFeed received a warrant to purchasea 5% interest of QST at an aggregate exercise price of $.01 and an exerciseterm of ten years.

Earnings before interest, taxes,depreciation and amortization (“EBITDA”) decreased to $2.2 million for thefirst six months of 2001 from $3.1 million for the comparable 2000 period, anddecreased to $316,000 for the second quarter of 2001 as compared to $1.7million for the same period in 2000. We believe our existing capital resources,our ability to access external capital, if necessary, and cash generated fromcontinuing operations are sufficient for working capital purposes for at leastthe next twelve months.

As we have previously reported, we haveexplored multiple alternatives that may be available for the purpose ofenhancing stockholder value, including a merger, a spin-off or sale of part ofour business, a strategic relationship or joint venture with another technologyor financial services firm and equity financing. We continue to exploreopportunities to enhance stockholder value.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial AccountingStandards Board ("FASB") issued SFAS No. 141, "BusinessCombinations" ("SFAS 141") which supersedes APB Opinion No. 16,"Business Combinations", and SFAS No. 38, "Accounting forPreacquisition Contingencies of Purchased Enterprises". SFAS 141 addressesfinancial accounting and reporting for business combinations and requires thatall business combinations within the scope of the SFAS 141 be accounted forusing only the purchase method. SFAS 141 is required to be adopted for allbusiness combinations initiated after June 30, 2001. Management is currentlyevaluating the impact that adoption of SFAS 141 will have on its consolidatedfinancial statements.

Also in June 2001, the FASB issued SFASNo. 142, "Goodwill and Other Intangible Assets" ("SFAS142") which supersedes APB Opinion No. 17, "Intangible Assets".SFAS 142 addresses how intangible assets that are acquired individually or witha group of other assets (but not those acquired in a business combination)should be accounted for in financial statements upon their acquisition. SFAS142 also addresses how goodwill and other intangible assets should be accountedfor after they have been initially recognized in the financial statements. Theprovisions of SFAS 142 are required to be applied starting with fiscal yearsbeginning after December 15, 2001. SFAS 142 is required to be applied at thebeginning of an entity's fiscal year and to be applied to all goodwill andother intangible assets recognized in its financial statements at that date.Management is currently evaluating the impact that adoption of SFAS 142 willhave on its consolidated financial statements.

 

ITEM3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK

There have been no material changes inthe Company’s market risk during the six-month period ended June 30, 2001. Foradditional information, refer to the Company’s Annual Report on Form 10-K forthe fiscal year ended December 31, 2000.

 

PART II. OTHER INFORMATION

 

ITEM 2. CHANGES INSECURITIES AND USE OF PROCEEDS

During the first and second quarters of2001, we issued 41,849 and 34,346 shares of our common stock, respectively, toemployees, who purchased the shares under our Employee Stock Purchase Plan.

During the first and second quarters of2001, 3,991 and 6,833 shares of our common stock, respectively, were purchasedby employees who exercised stock options granted to them under our 1999Combined Incentive and Non-Statutory Stock Option Plan.

In the second quarter of 2001, as part ofthe consideration by HyperFeed for the acquisition of certain assets ofMarketscreen, HyperFeed issued 450,000 shares of HyperFeed common stock. The450,000 shares of HyperFeed common stock are held in escrow. The ultimatepayout of such shares is subject to certain restrictions as defined within theasset purchase agreement.

 

ITEM 4. SUBMISSION OFMATTERS TO A VOTE OF SECURITYHOLDERS

The annual meeting of the stockholders ofHyperFeed Technologies, Inc. was held on May 22, 2001. The following proposalswere submitted, considered and voted upon, as indicated below, by thestockholders.

1. To elect seven members to our Board ofDirectors to serve until the 2002 Annual Meeting, or until their successors areelected and shall have qualified.

 

| Director            | Shares  For |   | Shares  Against |   | Shares  Withheld |   |
|---------------------|-------------|--------|-----------------|--------|------------------|--------|
|                     |             |   |                 |   |                  |   |
| Jim R. Porter       | 14,909,779  |   |            |   | 58,502           |   |
| John R. Hart        | 14,909,779  |   |            |   | 58,502           |   |
| Charles J. Henry    | 14,909,779  |   |            |   | 58,502           |   |
| Ronald Langley      | 14,894,938  |   |            |   | 73,343           |   |
| Louis J. Morgan     | 14,909,779  |   |            |   | 58,502           |   |
| Kenneth J. Slepicka | 14,909,779  |   |            |   | 58,502           |   |
| John L. Borling     | 14,909,779  |   |            |   | 58,502           |   |

Vote totals include count of 100 votesfor each of the 47,866 preferred shares voted.

2. To approve and ratify the appointmentof KPMG LLP as our independent auditors for 2001.

 

|   | Shares  For |   | Shares  Against |   | Abstentions |   |
|--------|-------------|--------|-----------------|--------|-------------|--------|
|   |             |   |                 |   |             |   |
|   | 14,887,135  |   | 52,013          |   | 29,133      |   |

Vote totals include count of 100 votesfor each of the 47,866 preferred shares voted.

No other matters were submitted for vote.

 

ITEM 6. EXHIBITS andREPORTS on FORM 8-K

 

EXHIBITS

4 (a) Statement of Registration Rightsbetween HyperFeed Technologies, Inc. and Marketscreen.com, Inc. dated April 27,2001.

10 (a) Asset Purchase Agreement and Planof Reorganization between HyperFeed Technologies, Inc. and Marketscreen.com,Inc. dated April 27, 2001.

10 (b) Asset Purchase Agreement betweenHyperFeed Technologies, Inc. and Lasdorf Corporate Services, Inc. dated April27, 2001.

 

REPORTSON FORM 8-K

There were no reports on Form 8-K filedduring the period covered by this report.

 

SIGNATURES

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

HYPERFEED TECHNOLOGIES, INC.

 

| Date:  | August  14, 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 |