**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark one)**

 

| **ý**                                             | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**       |
|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|
|                                                   |       |                                                                                               |
| **For the quarterly period ended: September 30, 2004** |
|                                                   |       |                                                                                               |
| **OR**                                                 |
|                                                   |       |                                                                                               |
| **o**                                                  | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from               to               **

 

**Commission file number 0-13093**

 

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**HYPERFEEDTECHNOLOGIES, INC.**

(Exactname of registrant as specified in its charter)

 
| **Delaware**                                                     |       | **36-3131704**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) | ** ** | (I.R.S. Employer  Identification No.) |
| ** **                                                       | ** ** | ** **                            |
| **300  S. Wacker Drive, Suite 300, Chicago, Illinois**           |       | **60606**                             |
| (Address of  Principal Executive Offices)                        | ** ** | (Zip Code)                            |

 

Registrant’s telephonenumber, including area code: **(312) 913-2800**

 

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

 

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

 

Thenumber of shares of common stock outstanding as of November 8, 2004 was3,088,100 shares.

 

 

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HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

 

INDEX

 
| PART I.  | Financial Information                                                                                                      |   |
|----------|----------------------------------------------------------------------------------------------------------------------------|--------|
|     |                                                                                                                       |   |
| Item  1. | Financial  Statements                                                                                                      |   |
|     |                                                                                                                       |   |
|     | Consolidated Balance Sheets  as of September 30, 2004 and December 31, 2003  (unaudited)                                   |   |
|     |                                                                                                                       |   |
|     | Consolidated  Statements of Operations for the three and nine month periods ended  September 30, 2004 and 2003 (unaudited) |   |
|     |                                                                                                                       |   |
|     | Consolidated  Statements of Cash Flows for the nine month periods ended  September 30, 2004 and 2003 (unaudited)           |   |
|     |                                                                                                                       |   |
|     | Notes  to Unaudited Interim Consolidated Financial Statements                                                              |   |
|     |                                                                                                                       |   |
| Item 2.  | Management’s Discussion and Analysis  of Financial Condition and Results of Operations                                |   |
|     |                                                                                                                       |   |
| Item 3.  | Quantitative and Qualitative  Disclosures about Market Risk                                                                |   |
|     |                                                                                                                       |   |
| Item 4.  | Controls and Procedures                                                                                                    |   |
|     |                                                                                                                       |   |
| PART II. | Other Information                                                                                                          |   |
|     |                                                                                                                       |   |
| Item 1.  | Legal  Proceedings                                                                                                         |   |
|     |                                                                                                                       |   |
| Item 6.  | Exhibits and Reports  on Form 8-K                                                                                          |   |
|     |                                                                                                                       |   |
|     | Company’s Signature Page                                                                                              |   |

 

2

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**PART I**

**ITEM 1. FinancialStatements**

 

HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

Consolidated Balance Sheets (Unaudited)

September30, 2004 and December 31, 2003

 
| ** **                                                                                                                                                             | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| **Assets**                                                                                                                                                             | ** ** | ** **              | ** ** | ** **             | ** ** |
| **Current Assets**                                                                                                                                                     |       |                    |       |                   |       |
| Cash and cash equivalents                                                                                                                                              |       | $                       | 146,089    |                   | $          | 4,668,038 |   |
| Accounts receivable, less allowance for  doubtful accounts of: 2004: $29,033; 2003: $0                                                                                 |       | 770,051                 |       | 797,048                |       |
| Notes receivable, less allowance for  doubtful accounts of: 2004: $60,830; 2003: $50,000                                                                               |       | 106,299                 |       | 150,465                |       |
| Prepaid expenses and other current assets                                                                                                                              |       | 248,352                 |       | 173,816                |       |
| Assets related to discontinued operations                                                                                                                              |       | 380,149                 |       | 811,878                |       |
| **Total Current Assets**                                                                                                                                               |       | 1,650,940               |       | 6,601,245              |       |
|                                                                                                                                                                   |       |                    |       |                   |       |
| Property and equipment                                                                                                                                                 |       |                    |       |                   |       |
| Computer equipment                                                                                                                                                     |       | 1,543,954               |       | 2,343,853              |       |
| Communication equipment                                                                                                                                                |       | 1,031,370               |       | 1,296,550              |       |
| Furniture and fixtures                                                                                                                                                 |       | 107,429                 |       | 82,839                 |       |
| Leasehold improvements                                                                                                                                                 |       | 531,809                 |       | 531,809                |       |
|                                                                                                                                                                   |       | 3,214,562               |       | 4,255,051              |       |
| Less: Accumulated depreciation and  amortization                                                                                                                       |       | (2,350,687              | )          | (3,019,964             | )          |
|                                                                                                                                                                   |       | 863,875                 |       | 1,235,087              |       |
| Intangible assets, net of accumulated  amortization of: 2004: $188,816; 2003: $70,000                                                                                  |       | 118,684                 |       | 110,000                |       |
| Software development costs, net of  accumulated amortization of: 2004: $2,807,127; 2003: $2,733,126                                                                    |       | 1,702,253               |       | 1,732,721              |       |
| Deposits and other assets                                                                                                                                              |       | 34,815                  |       | 35,205                 |       |
| **Total Assets**                                                                                                                                                       |       | $                       | 4,370,567  |                   | $          | 9,714,258 |   |
|                                                                                                                                                                   |       |                    |       |                   |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                          |       |                    |       |                   |       |
| **Current Liabilities**                                                                                                                                                |       |                    |       |                   |       |
| Line of credit                                                                                                                                                         |       | $                       | 195,000    |                   | $          | — |   |
| Accounts payable                                                                                                                                                       |       | 736,364                 |       | 605,644                |       |
| Accrued expenses                                                                                                                                                       |       | 463,436                 |       | 587,193                |       |
| Accrued compensation                                                                                                                                                   |       | 92,068                  |       | 73,157                 |       |
| Income taxes payable                                                                                                                                                   |       | 40,000                  |       | 40,000                 |       |
| Unearned revenue                                                                                                                                                       |       | 352,712                 |       | 15,000                 |       |
| Liabilities related to discontinued operations                                                                                                                         |       | 1,033,131               |       | 2,419,879              |       |
| **Total Current Liabilities**                                                                                                                                          |       | 2,912,711               |       | 3,740,873              |       |
|                                                                                                                                                                   |       |                    |       |                   |       |
| Accrued expenses, less current portion                                                                                                                                 |       | 296,524                 |       | 292,676                |       |
| **Total Noncurrent Liabilities**                                                                                                                                       |       | 296,524                 |       | 292,676                |       |
| **Total Liabilities**                                                                                                                                                  |       | 3,209,235               |       | 4,033,549              |       |
|                                                                                                                                                                   |       |                    |       |                   |       |
| **Stockholders’ Equity**                                                                                                                                          |       |                    |       |                   |       |
| Preferred stock, $.001 par value;  authorized 5,000,000 shares; none issued and outstanding                                                                            |       | —                  |       | —                 |       |
| Common stock, $.001 par value; authorized  50,000,000 shares; issued and outstanding 3,063,100 shares at September 30, 2004  and 3,051,989 shares at December 31, 2003 |       | 3,063                   |       | 3,052                  |       |
| Additional paid-in capital                                                                                                                                             |       | 46,108,314              |       | 46,070,113             |       |
| Accumulated deficit                                                                                                                                                    |       | (44,950,045             | )          | (40,392,456            | )          |
| **Total Stockholders’ Equity**                                                                                                                                    |       | 1,161,332               |       | 5,680,709              |       |
| **Total Liabilities and Stockholders’ Equity**                                                                                                                    |       | $                       | 4,370,567  |                   | $          | 9,714,258 |   |

 

See Notes to Unaudited Interim Consolidated Financial Statements.

 

3

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HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

ConsolidatedStatements of Operations(Unaudited)

 
| ** **                                                              | ** ** | **For The Three Months  Ended  September 30,** | ** ** | **For The Nine months  Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                              | ** ** | **2004**                                       | ** ** | **2003**                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Revenue**                                                             |       |                                           |       |                                          |       |   |   |   |   |
| HyperFeed                                                               |       | $                                              | 1,953,808  |                                          | $          | 363,441 |   | $ | 3,820,986 |   | $ | 363,441 |   |
| HYPRWare                                                                |       | 107,512                                        |       | 115,617                                       |       | 348,063 |   | 456,646 |   |
| **Total Revenue**                                                       |       | 2,061,320                                      |       | 479,058                                       |       | 4,169,049 |   | 820,087 |   |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| **Direct Costs of Revenue**                                             |       | 372,017                                        |       | 402,136                                       |       | 1,293,482 |   | 1,078,521 |   |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| **Gross Margin**                                                        |       | 1,689,303                                      |       | 76,922                                        |       | 2,875,567 |   | (258,434 | ) |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| **Operating Expenses**                                                  |       |                                           |       |                                          |       |   |   |   |   |
| Sales and marketing                                                     |       | 473,572                                        |       | 222,975                                       |       | 1,452,313 |   | 365,950 |   |
| General and administrative                                              |       | 656,513                                        |       | 693,695                                       |       | 2,341,509 |   | 1,928,735 |   |
| Research and development                                                |       | 378,357                                        |       | 413,015                                       |       | 1,121,883 |   | 1,267,763 |   |
| Operations                                                              |       | 528,858                                        |       | —                                        |       | 1,809,538 |   | — |   |
| Depreciation and amortization                                           |       | 253,256                                        |       | 235,335                                       |       | 668,564 |   | 774,771 |   |
| **Total Operating Expenses**                                            |       | 2,290,556                                      |       | 1,565,020                                     |       | 7,393,807 |   | 4,337,219 |   |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| **Loss from Operations**                                                |       | (601,253                                       | )          | (1,488,098                                    | )          | (4,518,240 | ) | (4,595,653 | ) |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| **Other Income (Expense)**                                              |       |                                           |       |                                          |       |   |   |   |   |
| Interest income                                                         |       | 1,204                                          |       | 4,492                                         |       | 9,411 |   | 10,570 |   |
| Interest expense                                                        |       | (790                                           | )          | (855                                          | )          | (1,057 | ) | (1,167 | ) |
| **Other Income, Net**                                                   |       | 414                                            |       | 3,637                                         |       | 8,354 |   | 9,403 |   |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| **Loss from Continuing Operations Before  Income Taxes**                |       | (600,839                                       | )          | (1,484,461                                    | )          | (4,509,886 | ) | (4,586,250 | ) |
| Income tax benefit (expense)                                            |       | (23,000                                        | )          | 120,000                                       |       | (17,000 | ) | 649,000 |   |
| **Loss from Continuing Operations**                                     |       | (623,839                                       | )          | (1,364,461                                    | )          | (4,526,886 | ) | (3,937,250 | ) |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| **Discontinued Operations**                                             |       |                                           |       |                                          |       |   |   |   |   |
| Income (loss) from discontinued operations                              |       | (62,181                                        | )          | 306,895                                       |       | (422,703 | ) | 1,551,104 |   |
| Income tax benefit (expense) from  discontinued operations              |       | 23,000                                         |       | (120,000                                      | )          | 161,000 |   | (510,000 | ) |
| Gain on disposition of discontinued  operations                         |       | —                                         |       | —                                        |       | 375,000 |   | 362,189 |   |
| Income tax expense from gain on disposition  of discontinued operations |       | —                                         |       | —                                        |       | (144,000 | ) | (139,000 | ) |
| **Income (Loss) from Discontinued Operations**                          |       | (39,181                                        | )          | 186,895                                       |       | (30,703 | ) | 1,264,293 |   |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| **Net Loss**                                                            |       | $                                              | (663,020   | )                                             | $          | (1,177,566 | ) | $ | (4,557,589 | ) | ($2,672,957 | ) |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| Basic and diluted net income (loss) per  share:                         |       |                                           |       |                                          |       |   |   |   |   |
| Continuing operations                                                   |       | $                                              | (0.21      | )                                             | $          | (0.45 | ) | $ | (1.48 | ) | $ | (1.42 | ) |
| Discontinued operations                                                 |       | (0.01                                          | )          | 0.06                                          |       | (0.01 | ) | 0.46 |   |
| Basic and diluted net loss per share                                    |       | $                                              | (0.22      | )                                             | $          | (0.39 | ) | $ | (1.49 | ) | $ | (0.96 | ) |
|                                                                    |       |                                           |       |                                          |       |   |   |   |   |
| Basic and diluted weighted-average common  shares outstanding           |       | 3,061,733                                      |       | 3,043,805                                     |       | 3,057,858 |   | 2,776,315 |   |

 

SeeNotes to Unaudited Interim Consolidated Financial Statements.

 

4

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HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

Consolidated Statements ofCash Flows(Unaudited)

 
| ** **                                                                                 | ** ** | **For The Nine months  Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2004**                                      | ** ** | **2003** | ** ** |
| **Cash Flows from Operating Activities:**                                                  |       |                                          |       |   |   |
| Net loss                                                                                   |       | $                                             | (4,557,589 | ) | $ | (2,672,957 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |       |                                          |       |   |   |
| Depreciation and amortization                                                              |       | 668,564                                       |       | 774,771 |   |
| Amortization of software development costs                                                 |       | 985,798                                       |       | 1,012,547 |   |
| Provision for doubtful accounts                                                            |       | 49,762                                        |       | — |   |
| Gain on sale of equipment                                                                  |       | (6,708                                        | )          | — |   |
| Changes in assets and liabilities, net of  effects from dispositions:                      |       |                                          |       |   |   |
| Accounts receivable                                                                        |       | (22,765                                       | )          | (296,088 | ) |
| Prepaid expenses and other current assets                                                  |       | (74,536                                       | )          | (103,337 | ) |
| Deposits and other assets                                                                  |       | 390                                           |       | 34,814 |   |
| Accounts payable                                                                           |       | 130,720                                       |       | 187,944 |   |
| Accrued expenses                                                                           |       | (100,998                                      | )          | 197,391 |   |
| Unearned revenue                                                                           |       | 337,712                                       |       | 80,000 |   |
| Net cash used in continuing operations                                                     |       | (2,589,650                                    | )          | (784,915 | ) |
| Net cash used in discontinued operations                                                   |       | (955,019                                      | )          | (631,654 | ) |
| **Net Cash Used In Operating Activities**                                                  |       | (3,544,669                                    | )          | (1,416,569 | ) |
|                                                                                       |       |                                          |       |   |   |
| **Cash Flows from Investing Activities:**                                                  |       |                                          |       |   |   |
| Purchase of property and equipment                                                         |       | (204,526                                      | )          | (480,133 | ) |
| Software development costs capitalized                                                     |       | (955,330                                      | )          | (868,287 | ) |
| Proceeds from sale of discontinued  operations                                             |       | —                                        |       | 220,000 |   |
| Proceeds from disposal of equipment                                                        |       | 32,698                                        |       | — |   |
| Purchase of intangible asset                                                               |       | (127,500                                      | )          | — |   |
| Provision for doubtful notes receivable                                                    |       | 10,830                                        |       | — |   |
| Repayment of note receivable                                                               |       | 33,336                                        |       | — |   |
| **Net Cash Used In Investing Activities**                                                  |       | (1,210,492                                    | )          | (1,128,420 | ) |
|                                                                                       |       |                                          |       |   |   |
| **Cash Flows from Financing Activities:**                                                  |       |                                          |       |   |   |
| Proceeds from issuance of common stock                                                     |       | 38,212                                        |       | 1,469,430 |   |
| Issuance of notes payable, net                                                             |       | —                                        |       | 61,362 |   |
| Net borrowings under line of credit                                                        |       | 195,000                                       |       | — |   |
| **Net Cash Provided By Financing Activities**                                              |       | 233,212                                       |       | 1,530,792 |   |
|                                                                                       |       |                                          |       |   |   |
| **Net decrease in cash and cash equivalents**                                              |       | (4,521,949                                    | )          | (1,014,197 | ) |
| Cash and cash equivalents:                                                                 |       |                                          |       |   |   |
| Beginning of the period                                                                    |       | 4,668,038                                     |       | 1,096,711 |   |
|                                                                                       |       |                                          |       |   |   |
| **End of the period**                                                                      |       | $                                             | 146,089    |   | $ | 82,514 |   |
|                                                                                       |       |                                          |       |   |   |
| **Supplemental Disclosures of Noncash  Investing Activities:**                             |       |                                          |       |   |   |
| Note received as consideration for  disposition of discontinued operations                 |       | $                                             | —     |   | $ | 150,000 |   |

 

SeeNotes to Unaudited Interim Consolidated Financial Statements.

 

5

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HYPERFEEDTECHNOLOGIES, INC. AND SUBSIDIARY

NOTESTO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

(1)BASIS OF PRESENTATION

 

PRINCIPLESOF CONSOLIDATION:  The accompanyingunaudited interim consolidated financial statements include the accounts ofHyperFeed Technologies, Inc. and its subsidiary, HYPRWare, Inc. (collectively, “HyperFeed”or the “Company”), and have been prepared in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information and in conjunction with the rules and regulations of theSecurities and 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. Theconsolidated interim financial statements include all adjustments, includingthe elimination of all significant intercompany transactions in consolidation,which, in the opinion of management, are necessary in order to make thefinancial statements not misleading. For further information, refer to theconsolidated financial statements and footnotes included in the Company’s annualreport on Form 10-K for the year ended December 31, 2003.

 

REVENUERECOGNITION:  The Company principallyderives revenue from licensing technology, principally HTPX and HBox software,ticker plant technologies and managed services, and providing management andmaintenance services in connection with licensed technology. Additionally, theCompany derives revenue from developing customized software. Revenue isrecognized (1) ratably over the term of the agreement for licensing, managementand maintenance of HTPX and HBox and (2) based on the application of contractaccounting for the development of customized software.

 

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

 

Inaccordance with SOP 97-2, revenue from contracts that do not require significantproduction, modification, or customization of software is recognized when theabove criteria are met. Revenue from contracts that require significantproduction, modification, or customization of software is accounted for inconformity with the provisions of Accounting Research Bulletin No. 45, “Long-TermConstruction Contracts,” using the relevant guidance therein, and AICPAStatement of Position 81-1, “Accounting for Performance of Construction-Typeand Certain Production-Type Contracts” (“SOP 81-1”). SOP 81-1 provides forrevenue recognition under the “percentage-of-completion” or “completed contract”method depending on the facts and circumstances of contracts entered into andmanagement’s ability to reasonably estimate its progress toward completion.Contract losses, if any, are provided for in their entirety in the period theybecome known, without regard to the percentage-of-completion. For thosecontracts which the Company cannot reasonably estimate progress towardcompletion, the Company employs the completed contract method of accounting.Revenue from arrangements accounted for under contract accounting are allocatedamong licensed technologies, managed services, and consulting fees based on thecontractual terms of the arrangements.

 

Theuse of contract accounting inherently includes the use of estimates of progresstoward completion. Such estimates are subject to periodic revisions and, as aresult, the financial statements could be materially impacted.

 

OnOctober 31, 2003, the Company sold its institutional consolidated market datafeed business. Revenue recognized prior to October 31, 2003, related to theassets sold and included in discontinued operations, was principally derivedfrom service contracts for the provision of market data only and servicecontracts for the provision of market data together with analytical software.HyperFeed primarily serviced the business-to-business marketplace. Revenue fromservice contracts was recognized ratably over the contract term as thecontracted services were rendered.

 

SOFTWAREDEVELOPMENT COSTS:  On October 31, 2003,the Company sold its institutional consolidated market data feed business.Following the sale of its consolidated market data feed business, HyperFeed’scontinuing investment in software development related primarily to developingenhancements to its HTPX and HBox software products. Prior to the sale of itsconsolidated market data feed business, HyperFeed also invested in enhancementsto its Windows-based

 

6

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marketdata distribution platform and direct exchange services software; thedevelopment of new data analysis software and programmer tools; and theapplication of new technology to increase the data volume and delivery speed ofthe Company’s market data distribution system.

 

Softwaredevelopment costs are accounted for in accordance with SFAS No. 86, “Accountingfor the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.”Costs associated with the planning and design phase of software development,including coding and testing activities necessary to establish technologicalfeasibility of computer software products to be licensed or otherwise marketed,are expensed as research and development costs as incurred. Once technologicalfeasibility has been determined, costs incurred in the construction phase ofsoftware development including coding, testing, and product quality assuranceare capitalized.

 

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

 

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

 

STOCKBASED COMPENSATION:  At September 30,2004, the Company had one stock-based employee compensation plan as describedin Note 4 of the Notes to Consolidated Financial Statements in the Company’sannual report on Form 10-K for the year ended December 31, 2003. The plan isaccounted for under the recognition and measurement principles of AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued to Employees,”and related Interpretations. No stock-based employee compensation is reflectedin net income (loss), as all options granted under the plan had an exerciseprice equal to the market value of the underlying common stock on the date ofgrant. The following table illustrates the effect on net loss and earnings pershare if the Company had applied the fair value recognition provisions ofStatement of Financial Accounting Standards No. 123, “Accounting forStock-Based Compensation,” to stock-based employee compensation for the threeand nine months ended September 30, 2004 and 2003:

 
| ** **                                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine months Ended  September 30,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                             | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net loss, as reported                                  |       | $                                     | (663,020   | )                                    | $          | (1,177,566 | ) | $ | (4,557,589 | ) | $ | (2,672,957 | ) |
| Compensation expense related to stock  options granted |       | (20,843                               | )          | (43,718                              | )          | (23,886 | ) | (23,018 | ) |
| Pro forma net loss                                     |       | $                                     | (683,863   | )                                    | $          | (1,221,284 | ) | $ | (4,581,475 | ) | $ | (2,695,975 | ) |
|                                                   |       |                                  |       |                                 |       |   |   |   |   |
| Basic and diluted net loss per share, as  reported     |       | $                                     | (0.22      | )                                    | $          | (0.39 | ) | $ | (1.49 | ) | $ | (0.96 | ) |
| Pro forma basic and diluted net loss per  share        |       | $                                     | (0.22      | )                                    | $          | (0.40 | ) | $ | (1.50 | ) | $ | (0.97 | ) |

 

ACCOUNTSRECEIVABLE: Included in the Company’s accounts receivable balances in theConsolidated Balance Sheets are unbilled receivables of $356,000 at December31, 2003 and zero at September 30, 2004.

 

SOFTWARELICENSE INDEMNIFICATIONS: In November 2002, the Financial Accounting StandardsBoard (“FASB”) issued FASB Interpretation No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others” (“FIN 45”). FIN 45 requires that the Company recognizethe fair value for certain guarantee and indemnification arrangements issued ormodified by the Company after December 31, 2002. In addition, the Company mustcontinue to monitor the conditions that are subject to the guarantees andindemnifications, as required under previously existing generally acceptedaccounting principles, in order to identify if a loss has occurred. If the Companydetermines that a loss is probable, the estimated loss must be recognized as itrelates to applicable guarantees and indemnifications. Some of the softwarelicenses granted by the Company contain provisions that indemnify customers ofthe Company’s software from damages and costs resulting from claims allegingthat the Company’s software infringes on the intellectual property rights of athird party. Historically, the Company has not been required to pay materialamounts in connection with claims asserted under these provisions and,accordingly, the Company has not recorded a liability relating to theseindemnification provisions.

 

7

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(2)RECLASSIFICATIONS

 

Certainreclassifications have been made to the consolidated financial statements forthe prior year to reflect the sale on October 31, 2003 of the consolidatedmarket data feed service contracts and the sale on June 2, 2003 of theindividual retail investor unit and related assets, both of which have beenaccounted for as discontinued operations. Certain costs formerly reported as acomponent of data feed operations in direct costs of revenue are now reportedas operating expenses consistent with the current business model.

 

TheCompany has modified its method of tax allocation between quarterly periods. Asa result, the amounts reported for quarterly loss from continuing operations inunaudited Footnote 16 of the Company’s annual report on Form 10-K for the yearended December 31, 2003 have been adjusted from $(881,810), $(1,019,979),$(894,461), and $(1,259,120) to $(1,203,810), $(1,368,979), $(1,364,461), and$(118,120), respectively.

 

(3)SEGMENT INFORMATION

 

Whilethe Company operates in one industry, financial services, in applying SFAS No.131, “Disclosures about Segments of an Enterprise and Related Information,” theCompany has identified two segments within which it operates. HyperFeed derivesrevenue principally by providing ticker plant technologies and relatedconsulting services and HYPRWare derives revenue from royalties related tolicense fees collected by Townsend from subscribers to Townsend’s service overthe Internet who had been referred through HYPRWare. The accounting policies ofthe reportable segments are the same as those described in Note 1. Financialinformation relating to industry segments were as follows for the three andnine months ended September 30, 2004 and September 30, 2003:

 

8

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| ** **                                              | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine months Ended  September 30,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                              | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Sales to unaffiliated customers**                     |       |                                  |       |                                 |       |   |   |   |   |
| HyperFeed                                               |       | $                                     | 1,953,808  |                                 | $          | 363,441 |   | $ | 3,820,986 |   | $ | 363,441 |   |
| HYPRWare                                                |       | 107,512                               |       | 115,617                              |       | 348,063 |   | 456,646 |   |
| Total revenue                                           |       | $                                     | 2,061,320  |                                 | $          | 479,058 |   | $ | 4,169,049 |   | $ | 820,087 |   |
|                                                    |       |                                  |       |                                 |       |   |   |   |   |
| HyperFeed                                               |       | 94.8                                  | %          | 75.9                                 | %          | 91.7 | % | 44.3 | % |
| HYPRWare                                                |       | 5.2                                   | %          | 24.1                                 | %          | 8.3 | % | 55.7 | % |
| Total revenue                                           |       | 100.0                                 | %          | 100.0                                | %          | 100.0 | % | 100.0 | % |
|                                                    |       |                                  |       |                                 |       |   |   |   |   |
| **Operating income (loss) from continuing  operations** |       |                                  |       |                                 |       |   |   |   |   |
| HyperFeed                                               |       | $                                     | (691,773   | )                                    | $          | (1,558,926 | ) | $ | (4,827,032 | ) | $ | (4,944,830 | ) |
| HYPRWare                                                |       | 90,520                                |       | 70,828                               |       | 308,792 |   | 349,177 |   |
| Total operating loss from continuing  operations        |       | $                                     | (601,253   | )                                    | $          | (1,488,098 | ) | $ | (4,518,240 | ) | $ | (4,595,653 | ) |
|                                                    |       |                                  |       |                                 |       |   |   |   |   |
| HyperFeed                                               |       |                                  | *          |                                 | *          |   | * |   | * |
| HYPRWare                                                |       |                                  | *          |                                 | *          |   | * |   | * |
| Total operating loss from continuing  operations        |       |                                  | *          |                                 | *          |   | * |   | * |
|                                                    |       |                                  |       |                                 |       |   |   |   |   |
| **Identifiable assets**                                 |       |                                  |       |                                 |       |   |   |   |   |
| HyperFeed                                               |       | $                                     | 4,215,624  |                                 | $          | 4,397,569 |   | $ | 4,215,624 |   | $ | 4,397,569 |   |
| HYPRWare                                                |       | 154,943                               |       | 473,741                              |       | 154,943 |   | 473,741 |   |
| Total identifiable assets                               |       | $                                     | 4,370,567  |                                 | $          | 4,871,310 |   | $ | 4,370,567 |   | $ | 4,871,310 |   |
|                                                    |       |                                  |       |                                 |       |   |   |   |   |
| HyperFeed                                               |       | 96.5                                  | %          | 90.3                                 | %          | 96.5 | % | 90.3 | % |
| HYPRWare                                                |       | 3.5                                   | %          | 9.7                                  | %          | 3.5 | % | 9.7 | % |
| Total identifiable assets                               |       | 100.0                                 | %          | 100.0                                | %          | 100.0 | % | 100.0 | % |

 

----

*percentages not meaningful

 

(4)INTANGIBLES

 

OnSeptember 23, 2004, HyperFeed repurchased a customer contract that had beensold by HyperFeed to Interactive Data Corporation (“IDC”) as part of the saleof HyperFeed’s institutional consolidated market data feed business in October2003. As a result of this repurchase, the Company recorded an intangible assetof $127,500. At September 30, 2004, the intangible asset, net of accumulatedamortization, was $53,684.

 

(5)DISCONTINUED OPERATIONS

 

OnOctober 31, 2003, the Company sold its institutional consolidated market datafeed business to IDC for $8.5 million. The sale allowed HyperFeed to focus onits business model as a utility provider of technology, software, and managedservices for financial institutions. The sale price of $8.5 million included(1) an initial payment of $7.0 million cash paid on October 31, 2003, (2)$625,000 in holdbacks payable upon completion of custom software and thefulfillment of certain transition services and (3) an $875,000 indemnificationholdback, which was subsequently reduced by $90,000 to $785,000. The Companyalso entered into a transition services agreement whereby IDC reimbursesHyperFeed on a monthly basis for direct costs relative to the purchasedbusiness. These costs include costs associated with resources dedicated to thetransition, communications expenses, and other related costs. The Companyreceived $375,000 of the $625,000 in holdbacks related to completion ofcustomer software and fulfillment of certain transition services during thefirst quarter of 2004. The Company incurred inbound communications costsassociated with its obligations under the transition services agreement of$282,000 in the first quarter of 2004, $165,000 in the second quarter of 2004,and $115,000 in the third quarter of 2004. Both the inbound communicationscosts incurred and the $375,000 of holdback recorded are reflected indiscontinued operations.

 

OnJune 2, 2003, the Company sold the individual retail investor unit and relatedassets of its subsidiary, PCQuote.com, Inc., to Money.net, Inc. The sale waspart of the Company’s strategy to reduce its dependence on revenue from the

 

9

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individualinvestor and replace and grow that revenue with revenue from HTPX technologylicensing sales. The sale price consisted of (1) $150,000 cash received in June2003, (2) $70,000 cash received in July 2003, and (3) a $150,000 promissorynote due in twelve equal installments commencing on July 15, 2003 with aninterest rate of 8.0% per annum. At September 30, 2004, the principal balanceremaining on the promissory note was $90,493, net of an allowance of $10,830.HyperFeed is pursuing collection of this promissory note.

 

Thedispositions have been accounted for as discontinued operations in accordancewith SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets” and, accordingly, amounts in the consolidated statements of operationsfor all periods shown have been reclassified to reflect the dispositions asdiscontinued operations. The results of operations for the discontinuedbusinesses are as follows:

 
| ** **                                                          | ** ** | **Three Months Ended****September 30,** | ** ** | **Nine months Ended****September 30,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                                                          | ** ** | **2004**                                | ** ** | **2003**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Revenue**                                                         |       |                                    |       |                                   |       |   |   |   |   |
| HyperFeed                                                           |       | $                                       | —     |                                   | $          | 2,794,361 |   | $ | — |   | $ | 8,679,523 |   |
| HYPRWare                                                            |       | —                                  |       | 122,905                                |       | — |   | 883,965 |   |
| **Total Revenue**                                                   |       | —                                  |       | 2,917,266                              |       | — |   | 9,563,488 |   |
|                                                                |       |                                    |       |                                   |       |   |   |   |   |
| **Direct Costs of Revenue**                                         |       |                                    |       |                                   |       |   |   |   |   |
| HyperFeed                                                           |       | —                                  |       | 1,871,029                              |       | — |   | 5,356,255 |   |
| HYPRWare                                                            |       | —                                  |       | 105,916                                |       | — |   | 545,246 |   |
| **Total Direct Costs of Revenue**                                   |       | —                                  |       | 1,976,945                              |       | — |   | 5,901,501 |   |
|                                                                |       |                                    |       |                                   |       |   |   |   |   |
| **Gross Margin**                                                    |       | —                                  |       | 940,321                                |       | — |   | 3,661,987 |   |
|                                                                |       |                                    |       |                                   |       |   |   |   |   |
| Operating Expenses                                                  |       | 62,181                                  |       | 633,426                                |       | 422,703 |   | 2,110,883 |   |
|                                                                |       |                                    |       |                                   |       |   |   |   |   |
| **Income (loss) from discontinued operations  before income taxes** |       | (62,181                                 | )          | 306,895                                |       | (422,703 | ) | 1,551,104 |   |
|                                                                |       |                                    |       |                                   |       |   |   |   |   |
| Income tax expense (benefit)                                        |       | 23,000                                  |       | (120,000                               | )          | 161,000 |   | (510,000 | ) |
|                                                                |       |                                    |       |                                   |       |   |   |   |   |
| **Income (loss) from discontinued operations**                      |       | $                                       | (39,181    | )                                      | $          | 186,895 |   | $ | (261,703 | ) | $ | 1,041,104 |   |

 

Assetsand liabilities related to discontinued operations consist of the following:

 

| ** **                                                                                     | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| **Assets Related to Discontinued Operations**                                                  |       |                    |       |                   |       |
| Accounts receivable, net of allowance for  doubtful accounts of 2004: $209,318; 2003: $153,625 |       | $                       | 349,470    |                   | $          | 645,322 |   |
| Prepaid expenses and other current assets                                                      |       | 2,228                   |       | 138,105                |       |
| Deposits and other assets                                                                      |       | 28,451                  |       | 28,451                 |       |
| **Total Assets Related to Discontinued  Operations**                                           |       | $                       | 380,149    |                   | $          | 811,878 |   |
|                                                                                           |       |                    |       |                   |       |
| **Liabilities Related to Discontinued  Operations**                                            |       |                    |       |                   |       |
| Accounts payable                                                                               |       | $                       | 862,282    |                   | $          | 2,016,425 |   |
| Accrued expenses                                                                               |       | 107,413                 |       | 313,840                |       |
| Accrued compensation                                                                           |       | 14,296                  |       | 40,474                 |       |
| Unearned revenue                                                                               |       | 49,140                  |       | 49,140                 |       |
| **Total Liabilities Related to Discontinued  Operations**                                      |       | $                       | 1,033,131  |                   | $          | 2,419,879 |   |

 

10

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(6)SIGNIFICANT CUSTOMERS

 

HyperFeedsigned a contract in March 2004 with Telerate (formerly known as MoneyLineTelerate) to license HyperFeed’s HBox and HTPX technology to Telerate andprovide related maintenance (“Technology Agreement”). The Company willrecognize revenue from the Technology Agreement as payments from the customerbecome due in accordance with the terms of the contract. Separate from theTechnology Agreement, the Company entered into two contracts with Telerate todevelop customized software (“Development Agreements”). The Company recognizesrevenue from the Development Agreements under the percentage of completionmethod. The amount revenue from Telerate for the three and nine months endedSeptember 30, 2004 was $1.3 million and $2.6 million, respectively. Revenuefrom the Technology Agreement for the three and nine months ended September 30,2004 was $0.3 million and $1.1 million, respectively. Revenue from theDevelopment Agreements, all of which were completed in third quarter 2004, forthe three and nine months ended September 30, 2004 was $1.0 million and $1.5million, respectively.

 

(7)LITIGATION

 

OnJune 2, 2003, the Company sold the individual retail investor unit and relatedassets of its subsidiary, PCQuote.com, Inc., to Money.net, Inc. On August 24,2004, the Company filed a six-count complaint for breach of contract andamounts due in the Circuit Court of Cook County, Illinois against Money.net.The amounts sought in the complaint are $117,834 for a promissory note,including interest, $31,920 from a datafeed license agreement, and $63,917related to a transition services agreement. Money.net has advised HyperFeedthat it intends to file a counterclaim. As of September 30, 2004, the Companyhad a promissory note and accounts receivable, net of allowances, of $151,122due from Money.net.

 

(8)SUBSEQUENT EVENTS

 

OnNovember 2, 2004, the Company entered into a Secured Convertible PromissoryNote Agreement (“Note”) with the PICO Holdings, Inc. (“PICO”), the majoritystockholder.

 

Underthe terms of the Note, HyperFeed may borrow up to $1.5 million from PICO, at arate of interest of 8%. Any amounts borrowed under this Note, together withaccrued interest are to be repaid by November 1, 2005.

 

PICOcan elect to convert all or any part of the principal and interest outstandinginto common stock of HyperFeed. The conversion price per share is the lower ofeither the price per share on the date of PICO’s election to exercise its conversionright or the price per share as of the date of execution of the Note ($3.00).The maximum number of shares issuable upon conversion of the Note is 586,000.On November 2, 2004, the Company issued to PICO 25,000 shares of the Company’scommon stock as a commitment fee.

 

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

 

The unauditedconsolidated financial statements herein have been prepared by the Companypursuant to the rules and regulations of the Securities and ExchangeCommission. The accompanying interim consolidated financial statements havebeen prepared under the presumption that users of the interim financialinformation have either read or have access to the audited financial statementsfor the latest fiscal year ended December 31, 2003. Accordingly, footnotedisclosures which would substantially duplicate the disclosures contained inthe December 31, 2003 audited consolidated financial statements have beenomitted from these interim consolidated financial statements. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted pursuant to such rulesand regulations. In our opinion, the accompanying unaudited consolidatedfinancial statements contain all adjustments necessary for a fair presentation.Although the Company believes that the disclosures are adequate to make theinformation presented not misleading, it is suggested that these interimconsolidated financial statements be read in conjunction with the consolidatedfinancial statements and the notes thereto included in the Company’s latestAnnual Report on Form 10-K.

 

This Quarterly Reporton Form 10-Q contains forward-looking statements that involve risks anduncertainties, as well as assumptions that, if they never materialize or proveincorrect, could cause the results of HyperFeed Technologies, Inc. (“HyperFeed”)and its subsidiary, HYPRWare, Inc. (“HYPRWare”), (collectively, the “Company”)to differ materially from those expressed or implied by such forward-lookingstatements. All statements other than statements of historical fact arestatements that could be deemed forward-looking statements, including anystatements of the plans, strategies and objectives of management for futureoperations; any statements regarding future economic conditions or performance;any statement of expectation or belief; and any statements of assumptionsunderlying any of the foregoing. The risks,

 

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uncertainties, andassumptions referred to above include the performance of contracts bysuppliers, customers, and partners; the variability in quarterly operatingresults; the funding of current and future business strategies either throughcontinuing operations or external financing; attracting and retaining qualifiedmanagement and key employees; the timely development and introduction of newproduct and service initiatives at competitive prices and performance levels;pending or future legal proceedings; the effect of economic and businessconditions generally; and risks that are otherwise described in the Company’sannual report on Form 10-K for the year ended December 31, 2003 and from timeto time in the Company’s other reports and registration statements filed withthe Securities and Exchange Commission.

 

OVERVIEW

 

HyperFeed’s business model is built on providingticker plant technologies and related consulting services directly to andthrough sales channels in the financial services industry. Our transition toour current business model began in 2002 when we recruited a new managementteam, and began to restructure and pursue a new business strategy. We soldPCQuote.com, Inc. (“PCQuote”) to Money.net in June 2003 and sold the remainderof our consolidated market data feed business to Interactive Data Corporation (“IDC”)in October 2003. Beginning in May 2003, rather than principally supplying ourticker plant technology to customers as part of our consolidated market datafeed business, we began to provide our ticker plant technology directly andthrough sales channels.

 

Under our business model, we derive our revenues fromlicensing and consulting fees. In general, we expect that our licensing feeswill be structured either as a reoccurring monthly fee, based upon the nature,size, and scope of the licensee, or as a monthly fee, based upon the number ofend users that rely upon the products and services offered by the licensee.Consulting fees charged to clients are expected to vary based upon the nature,size, and scope of the projects undertaken.

 

Our direct costs of revenue are composed largely ofsoftware development amortization costs and labor associated with consultingservices.

 

Our ability to successfully execute our business modelwill be dependent on our ability to maintain and develop advanced ticker planttechnologies in a cost effective manner and aggressively license suchtechnologies to the financial services industry.

 

The sale of our institutional consolidated market datafeed business in October 2003 resulted in the reclassification of theconsolidated statements of operations data for all periods to reflect suchevents and are accounted for as discontinued operations. Certain costs formerlyreported as a component of the consolidated market data feed business includedin the direct costs of revenue are now reported as operating expenses.

 

RECENTDEVELOPMENTS

 

On August 31,2004, The NASDAQ Stock Market selected HyperFeed to supply the ticker plant todrive NASDAQ’s Data Factory Project. HyperFeed was selected as NASDAQ’s partnerunder a three-year agreement. The ticker plant is expected to handle marketdata from NASDAQ itself as well as data from a range of other sources includingother equity and option exchanges. The processed data is expected to feed intoa wide variety of existing internal applications as well as a range of newproducts as they are developed. We believe that our ticker plant, HTPX, wasultimately selected for its functionality, overall value, and performance. Thearchitecture of HTPX is designed to enable NASDAQ’s proprietary data to be fedinto the system. Furthermore, we believe that HTPX can incorporate NASDAQ’shighly efficient algorithms to produce new data sets that can be efficientlydistributed.

 

OnSeptember 14, 2004, the Company received a notice from the Nasdaq ListingQualifications staff (“Nasdaq staff”) stating that HyperFeed was not incompliance with the stockholders’ equity/market value of listed securities/netincome continued listing requirement set forth in NASD Marketplace Rule4310(c)(2)(B). Having considered various business, legal and compliance aspectsof this matter, the Board of Directors of HyperFeed determined not to appealthe Nasdaq staff’s determination and to move the listing of the Company’scommon stock to the OTC Bulletin Board. On September 23, 2004, HyperFeed commonstock began being quoted under the same symbol on the OTC Bulletin Board.

 

InJune 2004, the Company’s management and Audit Committee initiated a review andanalysis of HyperFeed’s requirements with respect to its independentaccountants. In August 2004, the Audit Committee determined to narrow itsreview to a single firm. On August 31, 2004, KPMG LLP resigned as the Company’sprincipal accountants. On October 8,

 

12

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2004,HyperFeed engaged Deloitte & Touche LLP to serve as its independentaccountants for the fiscal year ended December 31, 2004.

 

OnNovember 2, 2004, the Company entered into a Secured Convertible PromissoryNote Agreement (“Note”) with the PICO Holdings, Inc. (“PICO”), the majoritystockholder. Under the terms of the Note, HyperFeed may borrow up to $1.5million from PICO, at a rate of interest of 8%. Any amounts borrowed under thisNote, together with accrued interest are to be repaid by November 1, 2005. PICOcan elect to convert all or any part of the principal and interest outstandinginto common stock of HyperFeed. The conversion price per share is the lower ofeither the price per share on the date of PICO’s election to exercise itsconversion right or the price per share as of the date of execution of the Note($3.00). The maximum number of shares issuable upon conversion of the Note is586,000. On November 2, 2004, the Company issued to PICO 25,000 shares of theCompany’s common stock as a commitment fee.

 

RESULTSOF OPERATIONS: FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

 

**Revenue**

 

Totalrevenue for the nine months ended September 30, 2004 increased 408.4% to $4.2million compared with $0.8 million for the nine months ended September 30,2003. Total revenue for the three months ended September 30, 2004 increased330.3% to $2.1 million compared with $0.5 million for the three months endedSeptember 30, 2003. While HyperFeed revenue increased for the three and ninemonths ended September 30, 2004 compared to the same periods in 2003, HYPRWarerevenue decreased for the same comparable periods.

 

HyperFeedrevenue increased 951.3% to $3.8 million for the nine months ended September30, 2004 compared with $0.4 million for the nine months ended September 30,2003. For the three months ended September 30, 2004, HyperFeed revenueincreased 437.6% to $2.0 million compared with $0.4 million for the threemonths ended September 30, 2003. These increases are due to increases in thenumber of new customers quarter over quarter as well as the completion of thecustom software development for Telerate. The increase attributable to thecustom software development for Telerate is $0.7 million and $1.2 million forthe three and nine month periods ended September 30, 2004, respectively.HyperFeed revenue is derived from HTPX and HBox software and ticker plant technologiesand includes license and consulting revenue, including revenue from multi-yearcontracts with CBOE, Telerate, Philadelphia Stock Exchange, ComStock,Susquehanna, and Nasdaq. All HyperFeed revenue associated with the consolidatedmarket data feed service contracts sold to IDC has been included indiscontinued operations for the three and nine months ended September 30, 2003.

 

HYPRWarerevenue decreased 23.8% to $0.3 million for the nine months ended September 30,2004 compared with $0.5 million for the nine months ended September 30, 2003.HYPRWare revenue remained unchanged at $0.1 million compared with the threemonths ended September 30, 2004 and 2003. HYPRWare derives revenue fromroyalties related to license fees for customers it referred to Townsend priorto December 31, 2002. The decline in HYPRWare service revenue is due to adecrease in royalties from Townsend as former HYPRWare customers serviced byTownsend decrease. All HYPRWare revenue associated with the consolidated marketdata feed service contracts sold to IDC and to Money.net has been included indiscontinued operations for the three and nine months ended September 30, 2003.HyperFeed currently expects that any future revenue recognized by HYPRWare willbe derived exclusively from royalties from the licensing agreement withTownsend.

 

**Total Expenses**

 

Totalexpenses (including direct costs of revenue, operating expenses, and expensesin discontinued operations) decreased 32.2% to $9.1 million for the nine monthsended September 30, 2004 compared with $13.4 million for the nine months endedSeptember 30, 2003. Total expenses decreased 40.5% to $2.7 million for thethree months ended September 30, 2004 compared with $4.6 million for the threemonths ended September 30, 2003. The decreases were principally due toreductions in labor costs, communications costs, and third-party fees resultingfrom the sale of individual retail investor unit and related assets of itssubsidiary, PCQuote.com, on June 2, 2003 and of the institutional consolidatedmarket data feed business on October 31, 2003, as well as the streamlining ofcontinuing operations.

 

**Direct Costs of Revenue**

 

Totaldirect costs of revenue increased 19.9% to $1.3 million for the nine monthsended September 30, 2004 compared with $1.1 million for the nine months endedSeptember 30, 2003. Total direct costs of revenue remained unchanged at $0.4million for the three months ended September 30, 2004 and 2003. The principalcomponent of this increase for the nine months was software development laborcosts resulted from changes in the employee mix related to a shift fromdevelopment of capitalized software products to development of customerspecific software. Amortization of software

 

13

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developmentcosts remained unchanged at $1.0 million for the nine months ended September30, 2004 and 2003 and at $0.3 million for the three months ended September 30,2004 and 2003. There are no direct costs of revenue related to HYPRWare servicerevenue as such amounts consist solely of royalty income. Gross marginincreased to $2.9 million for the nine months ended September 30, 2004 comparedwith a loss of $0.3 million for the nine months ended September 30, 2003. Grossmargin increased to $1.7 million for the three months ended September 30, 2004compared with $0.1 million for the three months ended September 30, 2003.Direct costs as a percentage of total revenue decreased to 31.0% for the ninemonths ended September 30, 2004 compared with 131.5% for the nine months endedSeptember 30, 2003 as a result of the increase in revenue. Direct costs as apercentage of total revenue decreased to 18.0% for the three months endedSeptember 30, 2004 compared with 83.9% for the three months ended September 30,2003 as a result of the increase in revenue.

 

**Operating Expenses**

 

Totaloperating expenses increased 70.5% to $7.4 million for the nine months endedSeptember 30, 2004 compared with $4.3 million for the nine months endedSeptember 30, 2003. For the three months ended September 30, 2004, totaloperating expenses increased 46.4% to $2.3 million compared with $1.6 millionfor the three months ended September 30, 2003. Under the Company’s currentbusiness model, the Company began to recognize sales costs in May 2003 andmarketing and operations costs in November 2003, having reclassified costsprior to those periods to discontinued operations. These increases and anincrease in general and administrative expenses for the nine months endedSeptember 30, 2004 were partially offset by decreases in depreciation andamortization and in research and development costs for the nine months endedSeptember 30, 2004. Total operating expenses as a percentage of total revenuedecreased to 177.3% for the nine months ended September 30, 2004 compared to528.9% for the nine months ended September 30, 2003. Total operating expensesas a percentage of total revenue decreased to 111.1% for the three months endedSeptember 30, 2004 compared to 326.7% for the three months ended September 30,2003.

 

Salesand marketing costs increased 296.9% to $1.5 million for the nine months endedSeptember 30, 2004 compared with $0.4 million for the nine months endedSeptember 30, 2003. For the three months ended September 30, 2004, sales andmarketing costs increased 112.4% to $0.5 million compared with $0.2 million forthe three months ended September 30, 2003. Beginning in May 2003, the Companyrecognized sales costs resulting from the licensing of HTPX and HBox asoperating expenses. Sales costs prior to May 2003 of $0.2 million and $1.0million for the three and nine months ended September 30, 2003, respectively,have been reclassified as discontinued operations as these costs fullysupported the old business model. The increase for the three-month period wasprimarily due to additional personnel focused on the current business model.Sales costs as a percentage of total revenue were 34.8% for the nine monthsended September 30, 2004 compared to 44.6% for the nine months ended September30, 2003. Sales costs as a percentage of total revenue were 23.0% for the threemonths ended September 30, 2004 compared to 46.5% for the three months endedSeptember 30, 2003.

 

Generaland administrative expenses increased 21.4% to $2.3 million for the nine monthsended September 30, 2004 compared with $1.9 million for the nine months endedSeptember 30, 2003. General and administrative expenses remained unchanged at$0.7 million for the three months ended September 30, 2004 and 2003. Theincrease for the nine-month period was primarily due to expenses of $0.4million incurred in connection with the severance agreement entered into withthe Company’s former Chief Executive Officer in the first quarter of 2004.General and administrative expenses as a percentage of total revenue decreasedto 56.2% for the nine months ended September 30, 2004 compared to 235.2% forthe nine months ended September 30, 2003. General and administrative expensesas a percentage of total revenue decreased to 31.8% for the three months endedSeptember 30, 2004 compared to 144.8% for the three months ended September 30,2003.

 

Researchand development costs decreased 11.5% to $1.1 million for the nine months endedSeptember 30, 2004 compared with $1.3 million for the nine months endedSeptember 30, 2003. Research and development costs remained unchanged at $0.4million for the three months ended September 30, 2004 and 2003. The decreasefor the nine-month period resulted from the allocation of software developmentlabor related to development of customer specific software to direct costs ofrevenue. Research and development costs as a percentage of total revenuedecreased to 26.9% for the nine months ended September 30, 2004 compared to154.6% for the nine months ended September 30, 2003. Research and developmentcosts as a percentage of total revenue decreased to 18.4% for the three monthsended September 30, 2004 compared to 86.2% for the three months ended September30, 2003.

 

Operationscosts were $1.8 million for the nine months ended September 30, 2004 and $0.5million for the three months ended September 30, 2004. Operations costs consistof technical support, data maintenance, data access, and communications costs.All operations costs prior to November 2003 have been reclassified asdiscontinued operations. Beginning in November 2003, the Company recognizedoperations costs pertaining to HTPX and HBox as operating

 

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expenses.Operations costs as a percentage of total revenue were 43.4% for the nine monthsended September 30, 2004 and 25.7% for the three months ended September 30,2004.

 

Depreciationand amortization decreased 13.7% to $0.7 million for the nine months endedSeptember 30, 2004 compared with $0.8 million for the nine months ended September30, 2003. For the three months ended September 30, 2004, depreciation andamortization increased 7.6% to $0.3 million compared with $0.2 million for thethree months ended September 30, 2003. The decrease for the nine monthsprimarily resulted from assets that became fully depreciated during 2003.Depreciation and amortization as a percentage of total revenue decreased to16.0% for the nine months ended September 30, 2004 compared to 94.5% for thenine months ended September 30, 2003. Depreciation and amortization as apercentage of total revenue decreased to 12.3% for the three months endedSeptember 30, 2004 compared to 49.1% for the three months ended September 30,2003.

 

**Discontinued Operations**

 

InJune 2003, the Company sold the individual retail investor unit and relatedassets of its subsidiary, PCQuote.com, Inc., and, in October 2003, the Companysold its institutional consolidated market data feed business. The Companyrecorded a net loss from discontinued operations of $0.3 million, net of a tax benefitof $0.2 million, for the nine months ended September 30, 2004 compared with netincome of $1.0 million, net of tax expense of $0.5 million, for the nine monthsended September 30, 2003. For the three months ended September 30, 2004, theCompany recorded a net loss from discontinued operations of $39,000, net of atax benefit of $23,000 compared with net income of $0.2 million, net of taxexpense of $0.1 million, for the three months ended September 30, 2003. The netloss for the three and nine months ended September 30, 2004 resulted from theincurrence of inbound communications costs associated with the Company’sobligation under a transition services agreement related to the sale of itsconsolidated market data feed business. The Company recorded $0.2 million, netof tax expense of $0.1 million, as a gain on disposition of discontinuedoperations during the first quarter of 2004 related to holdbacks from the saleof the consolidated market data feed business. The Company recorded $0.2million, net of tax expense of $0.1 million, as a gain on disposition ofdiscontinued operations during the second quarter of 2003 related to the saleon June 2, 2003 of the Company’s individual retail investor unit and relatedassets of its subsidiary, PCQuote.com.

 

Assets related todiscontinued operations consist of (1) a receivable for the reimbursement ofexpenses from IDC and accounts receivable, net of allowance, prior to November1, 2003, (2) prepaid accounts from data access and communications vendors, and(3) deposits with communications vendors. Liabilities related to discontinuedoperations consist of (1) payables to communications vendors, (2) accruals fordata costs, severance, and rent associated with discontinued properties, and(3) accrued vacation for employees dedicated to the transition service. SeeNote 5 “Discontinued Operations” in the Notes to the Consolidated FinancialStatements.

 

LIQUIDITYAND CAPITAL RESOURCES

 

Netcash and cash equivalents of $0.1 million at September 30, 2004 decreased $4.5million from $4.7 million at December 31, 2003. This decrease was primarily dueto the Company’s operating loss.

 

Operatingactivities used net cash of $3.5 million for the nine months ended September30, 2004 compared to net cash used of $1.4 million for the nine months endedSeptember 30, 2003. For the nine months ended September 30, 2004, continuingoperations used $2.6 million of cash compared to net cash used of $0.8 millionfor the nine months ended September 30, 2003. For the nine months ended September30, 2004, discontinued operations used $1.0 million, resulting from a reductionin accounts payables, compared to cash used of $0.6 million for the nine monthsended September 30, 2003.

 

Investingactivities used net cash of $1.2 million for the nine months ended September30, 2004 compared to net cash used of $1.1 million for the nine months endedSeptember 30, 2003. During the nine months ended September 30, 2004, theCompany invested $0.2 million in equipment and $1.0 million in its developedtechnology. During the nine months ended September 30, 2003, the Companyinvested $0.5 million in equipment and $0.9 million in its developedtechnology. The Company also repurchased a customer contract that had been soldby HyperFeed to IDC as part of the sale of the Company’s institutionalconsolidated market data feed business in October 2003 for $0.1 millionfinanced partly by cash and partly from a $0.1 million reduction in theholdback from the sale. Additionally, in connection with the sale on June 2,2003 of the Company’s individual retail investor unit and related assets of itssubsidiary, PCQuote.com, Inc., to Money.net, Inc., the Company received$220,000 in cash and issued a $150,000 promissory note due in twelve equalinstallments commencing on July 15, 2003 with an interest rate of 8.0% perannum. HyperFeed is pursuing collection of this promissory note.

 

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Financingactivities provided net cash of $0.2 million for the nine months endedSeptember 30, 2004 compared to net cash provided of $1.5 million for the ninemonths ended September 30, 2003, primarily due to the $1.4 private placement ofcommon stock with our executive officers, individual board members, and theCompany’s majority stockholder, PICO Holdings, Inc. (“PICO”), completed in May2003.

 

The Company has anexisting line of credit for $500,000 at prime, secured by the assets of theCompany. As of September 30, 2004, the Company had borrowings against the lineof credit of $195,000.

 

OnNovember 2, 2004, the Company entered into a Secured Convertible PromissoryNote Agreement (“Note”) with PICO for $1.5 million. (See Note 8 “SubsequentEvents” in the Notes to the Consolidated Financial Statements.) As of September30, 2004, HyperFeed had not borrowed any funds under the terms of this Note.

 

HyperFeedrestructured its operations in July and August 2004, which included as part ofsuch restructuring a reduction in staff equal to 19% of HyperFeed’s laborcosts. The Company recorded approximately $89,000 of severance during the thirdquarter related to the restructuring. Labor and benefits expenses were reducedby approximately $106,000 per month beginning in August 2004 as a result ofthis restructuring. The Company also further streamlined its inbound communicationscosts relating to the ticker plant operations, which reduced costs byapproximately $45,000 per month beginning in August 2004.

 

The Companybelieves its existing capital resources, including cash and cash equivalents,accounts receivable, and assets related to discontinued operations, cashexpected to be received from holdbacks associated with the sale of itsinstitutional consolidated market data feed business, available line of credit,and ability to raise capital, if necessary, will provide sufficient capital tofund its operations over the next twelve months.

 

Although theCompany has taken actions, and intends to take further actions, to reduce itscosts, there can be no assurances that such reductions in costs will ensurethat the Company has sufficient working capital to fund its operations over thenext twelve months if one or more anticipated sources of working capital arenot realized by the Company. In particular, the Company’s ability to fund itsoperations over the next twelve months will be dependent upon, among otherthings, its ability to convert accounts receivable and assets related todiscontinued operations into cash, cash flow from operations, on the receipt ofholdbacks associated with the sale of our consolidated market data feedbusiness, and on its ability to raise capital. There can be no assurances thatthe Company will realize capital from any of these sources.

 

TheCompany continues to explore multiple alternatives that may be available forthe purpose of enhancing stockholder value, including a merger, a spin-off orsale of part of its business, a strategic relationship or joint venture withanother technology or financial services firm and equity financing.

 

CRITICALACCOUNTING POLICIES AND ESTIMATES

 

Management’sDiscussion and Analysis of Financial Condition and Results of Operationsdiscusses the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America. The preparation of these financial statementsrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting period.

 

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

 

**Revenue Recognition**: The Company principally derives revenue from licensing technology andproviding management and maintenance services of HTPX and HBox software, tickerplant technologies, and managed services. Additionally, the Company derivesrevenue from the development of customized software. Revenue is recognized (1)ratably over the term of the agreement for HTPX and HBox and (2) based on theapplication of contract accounting for the development of customized software.

 

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TheCompany applies the provisions of Statement of Position 97-2, “Software RevenueRecognition,” as amended, which specifies the following four criteria that mustbe met prior to recognizing revenue: (1) persuasive evidence of the existenceof an arrangement, (2) delivery, (3) fixed or determinable fee, and (4)probable collection. In addition, revenue earned on software arrangementsinvolving multiple elements is allocated to each element based on the relativefair value of the elements. When applicable, revenue allocated to HyperFeed’ssoftware products (including specified upgrades/enhancements) is recognizedupon delivery of the products. If the fee is considered fixed and determinable,it should be recognized as revenue when the sale is effected. If the fee is notconsidered fixed and determinable, it should be recognized as revenue aspayments from customers become due. 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.

 

Inaccordance with SOP 97-2, revenue from contracts that do not requiresignificant production, modification, or customization of software isrecognized when the above criteria are met. Revenue from contracts that requiresignificant production, modification, or customization of software is accountedfor in conformity with the provisions of Accounting Research Bulletin No. 45, “Long-TermConstruction Contracts,” using the relevant guidance therein, and AICPAStatement of Position 81-1, “Accounting for Performance of Construction-Typeand Certain Production-Type Contracts” (“SOP 81-1”). SOP 81-1 provides forrevenue recognition under the “percentage-of-completion” or “completed contract”method depending on the facts and circumstances of contracts entered into andmanagement’s ability to reasonably estimate its progress toward completion.Contract losses, if any, are provided for in their entirety in the period theybecome known, without regard to the percentage-of-completion. For thosecontracts which the Company cannot reasonably estimate progress towardcompletion, the Company employs the completed contract method of accounting.Revenue from arrangements accounted for under contract accounting are allocatedamong licensed technologies, managed services, and consulting fees based on thecontractual terms of the arrangements.

 

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

 

OnOctober 31, 2003, the Company sold its institutional consolidated market datafeed business. Revenue recognized prior to October 31, 2003, related to theassets sold and included in discontinued operations was principally derivedfrom service contracts for the provision of market data only and servicecontracts for the provision of market data together with analytical software.HyperFeed primarily serviced the business-to-business marketplace. Revenue fromservice contracts was recognized ratably over the contract term as thecontracted services were rendered.

 

OnJune 2, 2003, the Company sold certain assets of HYPRWare, consisting of itsretail investor unit and Web site. Revenue recognized prior to June 2, 2003related to the HYPRWare assets sold was primarily derived from analyticsservice, powered by the HyperFeed data feed, for Internet users in the consumermarketplace and from the sale of advertising on its Web site. Revenue from thesale of advertising was recognized as the advertising was displayed on the Website.

 

HYPRWarederives revenue from royalties related to license fees for customers itreferred to Townsend prior to December 31, 2002.

 

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

 

**Valuation of Intangible Assets and Software Development Costs**: The Company assesses the impairment ofintangible assets on an annual basis or whenever events or changes incircumstances indicate that the carrying value may not be recoverable. Factorsthe Company considers important which could trigger an impairment reviewinclude significant underperformance relative to expected historical orprojected future operating results, significant changes in the manner of itsuse of the acquired assets or the strategy for its overall business, andsignificant negative industry or economic trends. The Company assesses therecoverability of its software development costs against estimated futurerevenue over the estimated remaining economic life of the software.

 

**Software Development Costs**: Software development costs are accountedfor in accordance with SFAS No. 86, “Accounting for the Costs of ComputerSoftware to Be Sold, Leased, or Otherwise Marketed.” Costs associated with theplanning and design phase of software development, including coding and testingactivities necessary to establish

 

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

 

Amortizationcommences at the time of capitalization or, in the case of a new service offering,at the time the service becomes available for use. Unamortized capitalizedcosts determined to be in excess of the net realizable value of the product areexpensed at the date of such determination. The accumulated amortization andrelated software development costs are removed from the respective accountseffective in the year following full amortization.

 

TheCompany’s policy is to amortize capitalized software costs by the greater of(1) the ratio that current gross revenue for a product bear to the total ofcurrent and anticipated future gross revenue for that product or (2) thestraight line method over three years, the remaining estimated economic life ofthe product including the period being reported. The Company assesses therecoverability of its software development costs against estimated futureundiscounted cash flows. Given the highly competitive environment andtechnological changes, it is reasonably possible that those estimates ofanticipated future gross revenue, the remaining estimated economic life of theproduct, or both may be reduced significantly.

 

**ITEM 3****. Quantitative and Qualitative Disclosures About Market Risk**

 

AtSeptember 30, 2004, the Company had excess cash invested in a money marketaccount. The Company does not expect any material loss, if at all, on theseinvestments. The Company had $195,000 drawn on its line of credit at September30, 2004.

 

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

 

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

 

(b)         *Internal Control Over Financial Reporting.*Therehave not been any changes in the Company’s internal control over financialreporting (as such term is defined in Rule 15d-15(f) under the Exchange Act)during the fiscal quarter to which this report relates that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**Part II**

 

**ITEM 1. Legal Proceedings**

 

OnJune 2, 2003, the Company sold the individual retail investor unit and relatedassets of its subsidiary, PCQuote.com, Inc., to Money.net, Inc. On August 24,2004, the Company filed a six-count complaint for breach of contract andamounts due in the Circuit Court of Cook County, Illinois against Money.net.The amounts sought in the complaint are $117,834 for a promissory note,including interest, $31,920 from a datafeed license agreement, and $63,917related to a transition services agreement. Money.net has advised HyperFeedthat it intends to file a counterclaim. As of September 30, 2004, the Companyhad a promissory note and accounts receivable, net of allowances, of $151,122due from Money.net.

 

**ITEM 6. Exhibitsand Reports on Form 8-K**

 

(a)Exhibits

 

Exhibit31.1 - Certification of the Chief Executive Officer Pursuant to Rules 13a-14(a)and 15d-14(a) under the Exchange Act.

 

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Exhibit31.2 - Certification of the Chief Financial Officer Pursuant to Rules 13a-14(a)and 15d-14(a) under the Exchange Act.

 

Exhibit32 – Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of theUnited States Code.

 

(b)Reports on Form 8-K

 

AForm 8-K was filed on August 9, 2004 attaching a copy of the press releasereporting the second quarter 2004 results.

 

AForm 8-K was filed on September 7, 2004 reporting the resignation of KPMG as theCompany’s principal accountants.

 

AForm 8-K was filed on September 14, 2004 reporting the delisting from theNasdaq SmallCap Market and the move to the OTC Bulletin Board.

 

AForm 8-K was filed on October 8, 2004 reporting the engagement of Deloitte& Touche LLP to serve as the Company’s independent accountants for thefiscal year ended December 31, 2004.

 

AForm 8-K was filed on November 8, 2004 reporting the Company issued a SecuredConvertible Promissory Note Agreement to PICO Holdings, Inc. dated November 2,2004.

 

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SIGNATURES

 

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

 

 
| HYPERFEED  TECHNOLOGIES, INC. |
|-------------------------------|
|                          |   |
|                          |   |
| Date:                         | November  9, 2004 |
|                          |   |
| By:                           | /s/  Paul Pluschkell |   |
|                          |   |
|                          | Paul  Pluschkell |
|                          | President  and Chief Executive Officer |
|                          |   |
| By:                           | /s/  Randall J. Frapart |   |
|                          |   |
|                          | Randall  J. Frapart |
|                          | Chief  Financial Officer and Principal Accounting Officer |

 

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