**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

**FORM 10-Q**

 

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| **ý****Quarterly Report Pursuant  to Section 13 or 15(d) of  the Securities Exchange Act of 1934**                                                                                                 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                    |
| **For  the quarterly period ended September 30, 2002**                                                                                                                                                  |
|                                                                                                                                                                                                    |
| **Or**                                                                                                                                                                                                  |
|                                                                                                                                                                                                    |
| **o****Transition Report  Pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934**                                                                                                     |
|                                                                                                                                                                                                    |
| **For  the transition period from                 to               ** |

 

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**Commissionfile number 0-13093**

 

I.R.S. EmployerIdentification Number**36-3131704**

 
| **HYPERFEED TECHNOLOGIES, INC.**                  |
|--------------------------------------------------------|
| (a Delaware Corporation)                               |
|                                                   |
| **300 S.  Wacker, Suite 300  Chicago, Illinois 60606** |
| Telephone **(312) 913-2800**                           |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes  ý  No  o

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date: 24,955,077 sharesof the Company’s common stock ($.001 par value) were outstanding as of October31, 2002.

 

 

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HYPERFEED TECHNOLOGIES, INC.

 

INDEX

 
| PART I.   Financial Information |
|--------------------------------------|
|                                 |   |
| Item 1.                              | Financial Statements |
|                                 |   |
|                                 | Consolidated Balance Sheets  as of September 30, 2002 and December 31, 2001 |
|                                 |   |
|                                 | Consolidated  Statements of Operations for the nine month periods ended September 30, 2002  and 2001 |
|                                 |   |
|                                 | Consolidated Statements  of Operations for the three month periods ended September 30, 2002 and 2001 |
|                                 |   |
|                                 | Consolidated  Statements of Cash Flows for the nine month periods ended September 30, 2002  and 2001 |
|                                 |   |
|                                 | Notes to  Unaudited Interim Consolidated Financial Statements |
|                                 |   |
| Item  2.                             | Management’s  Discussion and Analysis of Results of Operations and Financial Condition |
|                                 |   |
| Item 3.                              | Quantitative  and Qualitative Disclosures about Market Risk |
|                                 |   |
| Item 4.                              | Controls and Procedures |
|                                 |   |
|                                 |   |
| PART II. Other Information           |
|                                 |   |
| Item 1.                              | Legal  Proceedings |
|                                 |   |
| Item  2.                             | Changes  in Securities and Use of Proceeds |
|                                 |   |
| Item 6.                              | Exhibits and  Reports on Form 8-K |
|                                 |   |
|                                 | Company’s Signature Page |
|                                 |   |
|                                 | Certifications |
|                                      |  |  |

 

2

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HYPERFEED TECHNOLOGIES, INC.

Consolidated Balance Sheets

September 30, 2002 and December 31, 2001

 
|                                                                                                                                                                      |   | **September  30,  2002** |      | **December  31,  2001** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-----------|-------------------------|--------|
|                                                                                                                                                                      |   | **(Unaudited)**          |      | **(Audited)**           |   |
| ASSETS                                                                                                                                                                    |   |                     |      |                    |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| Current Assets                                                                                                                                                            |   |                     |      |                    |   |
| Cash and cash  equivalents                                                                                                                                                |   | $                        | 1,261,156 |                    | $      | 607,263 |   |
| Restricted cash  equivalents                                                                                                                                              |   | —                   |      | 250,000                 |   |
| Accounts  receivable, less allowance for doubtful accounts of: 2002: $271,992; 2001: $413,554                                                                             |   | 786,713                  |      | 1,310,936               |   |
| Notes receivable                                                                                                                                                          |   | 350,000                  |      | 100,000                 |   |
| Prepaid license  fees                                                                                                                                                     |   | 70,000                   |      | 1,330,000               |   |
| Prepaid expenses  and other current assets                                                                                                                                |   | 286,194                  |      | 312,106                 |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| TOTAL CURRENT  ASSETS                                                                                                                                                     |   | 2,754,063                |      | 3,910,305               |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| Property and  equipment                                                                                                                                                   |   |                     |      |                    |   |
| Satellite  receiving equipment                                                                                                                                            |   | 89,417                   |      | 89,417                  |   |
| Computer  equipment                                                                                                                                                       |   | 3,274,463                |      | 3,214,129               |   |
| Communication  equipment                                                                                                                                                  |   | 1,459,217                |      | 1,631,960               |   |
| Furniture and  fixtures                                                                                                                                                   |   | 394,016                  |      | 430,996                 |   |
| Leasehold  improvements                                                                                                                                                   |   | 979,181                  |      | 962,288                 |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
|                                                                                                                                                                      |   | 6,196,294                |      | 6,328,790               |   |
| Less:  Accumulated depreciation and amortization                                                                                                                          |   | (3,816,420               | )         | (3,306,865              | )      |
|                                                                                                                                                                      |   |                     |      |                    |   |
|                                                                                                                                                                      |   | 2,379,874                |      | 3,021,925               |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| Goodwill and  other intangible assets, net of accumulated amortization of: 2002: $670,401; 2001: $327,895                                                                 |   | 888,696                  |      | 1,243,614               |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| Software  development costs, net of accumulated amortization of: 2002: $2,860,963;  2001: $7,199,318                                                                      |   | 2,090,260                |      | 2,069,975               |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| Deposits and  other assets                                                                                                                                                |   | 99,428                   |      | 128,936                 |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| TOTAL ASSETS                                                                                                                                                              |   | $                        | 8,212,321 |                    | $      | 10,374,755 |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                 |   |                     |      |                    |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| Current  Liabilities                                                                                                                                                      |   |                     |      |                    |   |
| Notes payable                                                                                                                                                             |   | $                        | —    |                    | $      | 250,000 |   |
| Accrued  satellite termination fees                                                                                                                                       |   | —                   |      | 225,000                 |   |
| Accounts payable                                                                                                                                                          |   | 986,496                  |      | 1,070,163               |   |
| Accrued expenses                                                                                                                                                          |   | 539,772                  |      | 340,286                 |   |
| Accrued  compensation                                                                                                                                                     |   | 197,654                  |      | 240,297                 |   |
| Income taxes  payable                                                                                                                                                     |   | —                   |      | 5,000                   |   |
| Unearned revenue                                                                                                                                                          |   | 1,263,394                |      | 1,565,446               |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| TOTAL CURRENT  LIABILITIES                                                                                                                                                |   | 2,987,316                |      | 3,696,192               |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| Accrued  expenses, less current portion                                                                                                                                   |   | 45,112                   |      | 72,178                  |   |
| Unearned  revenue, less current portion                                                                                                                                   |   | 40,735                   |      | 35,435                  |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| TOTAL NONCURRENT  LIABILITIES                                                                                                                                             |   | 85,847                   |      | 107,613                 |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| TOTAL  LIABILITIES                                                                                                                                                        |   | 3,073,163                |      | 3,803,805               |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| Stockholders’  Equity                                                                                                                                                |   |                     |      |                    |   |
| Common stock,  $.001 par value; authorized 50,000,000 shares; issued and outstanding  24,955,077 shares at September 30, 2002 and 23,849,605 shares at December 31,  2001 |   | 24,955                   |      | 23,850                  |   |
| Additional  paid-in capital                                                                                                                                               |   | 44,543,855               |      | 44,179,600              |   |
| Accumulated  deficit                                                                                                                                                      |   | (39,429,652              | )         | (37,632,500             | )      |
|                                                                                                                                                                      |   |                     |      |                    |   |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                                                                                          |   | 5,139,158                |      | 6,570,950               |   |
|                                                                                                                                                                      |   |                     |      |                    |   |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                          |   | $                        | 8,212,321 |                    | $      | 10,374,755 |   |

 

See Notes to UnauditedInterim Consolidated Financial Statements.

 

3

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HYPERFEED TECHNOLOGIES,INC.

Consolidated Statements ofOperations

 
|                                                          |   | **For The  Nine Months Ended** |       |
|---------------------------------------------------------------|--------|--------------------------------|------------|
|                                                          |   | **September  30,  2002**       |       | **September  30,  2001** |   |
|                                                          |   | **(Unaudited)**                |       | **(Unaudited)** |   |
| REVENUE                                                       |   |                           |       |   |   |
| HyperFeed  Services                                           |   | $                              | 12,928,875 |   | $ | 19,503,229 |   |
| PCQuote Services                                              |   | 2,371,078                      |       | 7,683,365 |   |
|                                                          |   |                           |       |   |   |
| TOTAL REVENUE                                                 |   | 15,299,953                     |       | 27,186,594 |   |
|                                                          |   |                           |       |   |   |
| DIRECT COST OF  SERVICES                                      |   |                           |       |   |   |
| HyperFeed  Services                                           |   | 7,466,307                      |       | 10,206,182 |   |
| PCQuote Services                                              |   | 2,300,366                      |       | 6,403,874 |   |
|                                                          |   |                           |       |   |   |
| TOTAL DIRECT  COST OF SERVICES                                |   | 9,766,673                      |       | 16,610,056 |   |
|                                                          |   |                           |       |   |   |
| GROSS MARGIN                                                  |   | 5,533,280                      |       | 10,576,538 |   |
|                                                          |   |                           |       |   |   |
| OPERATING  EXPENSES                                           |   |                           |       |   |   |
| Sales                                                         |   | 1,497,867                      |       | 2,865,906 |   |
| General and  administrative                                   |   | 2,640,190                      |       | 3,533,132 |   |
| Product and  market development                               |   | 1,801,713                      |       | 4,095,548 |   |
| Depreciation and  amortization                                |   | 1,404,769                      |       | 1,235,898 |   |
|                                                          |   |                           |       |   |   |
| TOTAL OPERATING  EXPENSES                                     |   | 7,344,539                      |       | 11,730,484 |   |
|                                                          |   |                           |       |   |   |
| LOSS FROM  OPERATIONS                                         |   | (1,811,259                     | )          | (1,153,946 | ) |
|                                                          |   |                           |       |   |   |
| OTHER INCOME  (EXPENSE)                                       |   |                           |       |   |   |
| Interest income                                               |   | 17,215                         |       | 96,223 |   |
| Interest expense                                              |   | (2,772                         | )          | (62,388 | ) |
|                                                          |   |                           |       |   |   |
| NET OTHER INCOME                                              |   | 14,443                         |       | 33,835 |   |
|                                                          |   |                           |       |   |   |
| LOSS BEFORE  INCOME TAXES AND MINORITY INTEREST               |   | (1,796,816                     | )          | (1,120,111 | ) |
| Income taxes                                                  |   | 337                            |       | 24,231 |   |
|                                                          |   |                           |       |   |   |
| LOSS BEFORE  MINORITY INTEREST                                |   | (1,797,153                     | )          | (1,144,342 | ) |
|                                                          |   |                           |       |   |   |
| Minority  interest in subsidiary                              |   | —                         |       | 1,829 |   |
|                                                          |   |                           |       |   |   |
| NET LOSS                                                      |   | (1,797,153                     | )          | (1,142,513 | ) |
| Preferred  dividends                                          |   | —                         |       | (927,455 | ) |
|                                                          |   |                           |       |   |   |
| NET LOSS  APPLICABLE TO COMMON STOCKHOLDERS                   |   | $                              | (1,797,153 | ) | $ | (2,069,968 | ) |
|                                                          |   |                           |       |   |   |
| Basic net loss  per share applicable to common stockholders   |   | $                              | (0.07      | ) | $ | (0.13 | ) |
| Diluted net loss  per share applicable to common stockholders |   | $                              | (0.07      | ) | $ | (0.13 | ) |
|                                                          |   |                           |       |   |   |
| Basic  weighted-average common shares outstanding             |   | 24,048,139                     |       | 16,411,456 |   |
| Diluted  weighted-average common shares outstanding           |   | 24,048,139                     |       | 16,411,456 |   |

 

See Notes toUnaudited Interim Consolidated Financial Statements.

 

4

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HYPERFEED TECHNOLOGIES,INC.

ConsolidatedStatements of Operations

 
|                                                          |   | **For The  Three Months Ended** |      |
|---------------------------------------------------------------|--------|---------------------------------|-----------|
|                                                          |   | **September  30,  2002**        |      | **September  30,  2001** |   |
|                                                          |   | **(Unaudited)**                 |      | **(Unaudited)** |   |
| REVENUE                                                       |   |                            |      |   |   |
| HyperFeed  Services                                           |   | $                               | 3,982,487 |   | $ | 6,120,165 |   |
| PCQuote Services                                              |   | 700,150                         |      | 2,054,998 |   |
|                                                          |   |                            |      |   |   |
| TOTAL REVENUE                                                 |   | 4,682,637                       |      | 8,175,163 |   |
|                                                          |   |                            |      |   |   |
| DIRECT COST OF  SERVICES                                      |   |                            |      |   |   |
| HyperFeed  Services                                           |   | 2,451,397                       |      | 3,496,993 |   |
| PCQuote Services                                              |   | 763,776                         |      | 1,880,670 |   |
|                                                          |   |                            |      |   |   |
| TOTAL DIRECT  COST OF SERVICES                                |   | 3,215,173                       |      | 5,377,663 |   |
|                                                          |   |                            |      |   |   |
| GROSS MARGIN                                                  |   | 1,467,464                       |      | 2,797,500 |   |
|                                                          |   |                            |      |   |   |
| OPERATING  EXPENSES                                           |   |                            |      |   |   |
| Sales                                                         |   | 470,987                         |      | 893,305 |   |
| General and  administrative                                   |   | 870,515                         |      | 1,173,092 |   |
| Product and  market development                               |   | 570,506                         |      | 1,030,170 |   |
| Depreciation and  amortization                                |   | 460,564                         |      | 474,829 |   |
|                                                          |   |                            |      |   |   |
| TOTAL OPERATING  EXPENSES                                     |   | 2,372,572                       |      | 3,571,396 |   |
|                                                          |   |                            |      |   |   |
| LOSS FROM  OPERATIONS                                         |   | (905,108                        | )         | (773,896 | ) |
|                                                          |   |                            |      |   |   |
| OTHER INCOME  (EXPENSE)                                       |   |                            |      |   |   |
| Interest income                                               |   | 4,689                           |      | 19,561 |   |
| Interest expense                                              |   | —                          |      | (12,451 | ) |
|                                                          |   |                            |      |   |   |
| NET OTHER INCOME                                              |   | 4,689                           |      | 7,110 |   |
|                                                          |   |                            |      |   |   |
| LOSS BEFORE  INCOME TAXES AND MINORITY INTEREST               |   | (900,419                        | )         | (766,786 | ) |
| Income taxes                                                  |   | —                          |      | (769 | ) |
|                                                          |   |                            |      |   |   |
| LOSS BEFORE  MINORITY INTEREST                                |   | (900,419                        | )         | (766,017 | ) |
|                                                          |   |                            |      |   |   |
| Minority  interest in subsidiary                              |   | —                          |      | — |   |
|                                                          |   |                            |      |   |   |
| NET LOSS                                                      |   | (900,419                        | )         | (766,017 | ) |
| Preferred  dividends                                          |   | —                          |      | (927,455 | ) |
|                                                          |   |                            |      |   |   |
| NET LOSS  APPLICABLE TO COMMON STOCKHOLDERS                   |   | $                               | (900,419  | ) | $ | (1,693,472 | ) |
|                                                          |   |                            |      |   |   |
| Basic net loss  per share applicable to common stockholders   |   | $                               | (0.04     | ) | $ | (0.10 | ) |
| Diluted net loss  per share applicable to common stockholders |   | $                               | (0.04     | ) | $ | (0.10 | ) |
|                                                          |   |                            |      |   |   |
| Basic  weighted-average common shares outstanding             |   | 24,397,647                      |      | 17,347,863 |   |
| Diluted  weighted-average common shares outstanding           |   | 24,397,647                      |      | 17,347,863 |   |

 

See Notes toUnaudited Interim Consolidated Financial Statements.

 

5

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HYPERFEED TECHNOLOGIES, INC.

Consolidated Statements of Cash Flows

 
|                                                                                        |   | **For The  Nine Months Ended** |       |
|---------------------------------------------------------------------------------------------|--------|--------------------------------|------------|
|                                                                                        |   | **September  30,  2002**       |       | **September  30,  2001** |   |
|                                                                                        |   | **(Unaudited)**                |       | **(Unaudited)** |   |
| Cash Flows From  Operating Activities:                                                      |   |                           |       |   |   |
| Net loss                                                                                    |   | $                              | (1,797,153 | ) | $ | (1,142,513 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities:            |   |                           |       |   |   |
| Depreciation and  amortization                                                              |   | 1,404,769                      |       | 1,235,898 |   |
| Provision for  doubtful accounts                                                            |   | 17,000                         |       | 245,000 |   |
| Amortization of  software development costs                                                 |   | 1,017,552                      |       | 1,514,133 |   |
| Amortization of  value assigned to common stock warrant issued in lieu of cash license fees |   | 1,260,000                      |       | 1,260,000 |   |
| Minority interest  in subsidiary                                                            |   | —                         |       | (1,829 | ) |
| Changes in  assets and liabilities:                                                         |   |                           |       |   |   |
| Accounts  receivable                                                                        |   | 507,223                        |       | 759,597 |   |
| Prepaid expenses  and other current assets                                                  |   | 25,912                         |       | (224,795 | ) |
| Deposits and  other assets                                                                  |   | 29,508                         |       | (53,158 | ) |
| Accounts payable                                                                            |   | (83,667                        | )          | 114,004 |   |
| Accrued expenses                                                                            |   | 129,777                        |       | (266,251 | ) |
| Income taxes  payable                                                                       |   | (5,000                         | )          | (35,000 | ) |
| Accrued  satellite termination expense                                                      |   | (225,000                       | )          | (324,000 | ) |
| Unearned revenue                                                                            |   | (296,752                       | )          | (819,583 | ) |
|                                                                                        |   |                           |       |   |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                  |   | 1,984,169                      |       | 2,261,503 |   |
| Cash Flows From  Investing Activities:                                                      |   |                           |       |   |   |
| Purchase of  property and equipment                                                         |   | (407,799                       | )          | (1,490,375 | ) |
| Purchase of  Marketscreen.com, net of cash acquired                                         |   | —                         |       | (424,009 | ) |
| Software  development costs capitalized                                                     |   | (1,037,837                     | )          | (1,224,944 | ) |
| Issuance of note  receivable                                                                |   | —                         |       | (100,000 | ) |
|                                                                                        |   |                           |       |   |   |
| NET CASH USED IN  INVESTING ACTIVITIES                                                      |   | (1,445,636                     | )          | (3,239,328 | ) |
| Cash Flows From  Financing Activities:                                                      |   |                           |       |   |   |
| Proceeds from  issuance of common stock                                                     |   | 365,360                        |       | 148,435 |   |
| Proceeds from  sale of restricted cash equivalents                                          |   | 250,000                        |       | — |   |
| Payment to bank  for assignment of note receivable                                          |   | (250,000                       | )          | — |   |
| Principal  payments on notes payable                                                        |   | (250,000                       | )          | (949,634 | ) |
|                                                                                        |   |                           |       |   |   |
| NET CASH  PROVIDED BY (USED IN) FINANCING ACTIVITIES                                        |   | 115,360                        |       | (801,199 | ) |
|                                                                                        |   |                           |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                       |   | 653,893                        |       | (1,779,024 | ) |
| Cash and cash  equivalents:                                                                 |   |                           |       |   |   |
| Beginning of the  period                                                                    |   | 607,263                        |       | 2,522,593 |   |
|                                                                                        |   |                           |       |   |   |
| End of the  period                                                                          |   | $                              | 1,261,156  |   | $ | 743,569 |   |
|                                                                                        |   |                           |       |   |   |
| **Supplemental disclosure of non-cash transactions:**                                       |   |                           |       |   |   |
| Value of stock consideration for acquisition of Marketscreen.com                            |   | $                              | —     |   | $ | 1,147,500 |   |
| Preferred stock  dividend paid in common stock                                              |   | $                              | —     |   | $ | 927,455 |   |

 

See Notes to Unaudited Interim Consolidated Financial Statements.

 

6

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HYPERFEED TECHNOLOGIES, INC.

NOTES TO UNAUDITEDINTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

(1) BASIS OF PRESENTATION

 

PRINCIPLES OF CONSOLIDATION: The accompanying unaudited interim consolidated financial statementsinclude the accounts of HyperFeed Technologies, Inc. (“HyperFeed” or the“Company”) and its subsidiary, PCQuote.com, Inc. (“PCQuote”), and have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and in conjunctionwith the rules and regulations of the Securities and Exchange Commission.Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America forcomplete financial statements. The consolidated interim financial statementsinclude all adjustments, including the elimination of all significantintercompany transactions in consolidation, which, in the opinion of management,are necessary in order to make the financial statements not misleading. Theamounts indicated as “audited” have been extracted from the Company’s December31, 2001 annual report. For further information, refer to the consolidatedfinancial statements and footnotes included in HyperFeed’s annual report onForm 10-K for the year ended December 31, 2001.

 

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

 

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

 

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

 

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

 

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

 

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

 

7

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

 

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

 

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

 

GOODWILL AND OTHER INTANGIBLE ASSETS: Intangible assets consist principally of developed technology,noncompete agreements, customer lists, and the excess of acquisition costs overthe estimated fair value of net assets acquired (goodwill). The fair value ofintangible assets acquired is determined primarily through the use ofindependent appraisals. Amortization is calculated using the straight-linemethod over the respective estimated useful lives, three years for developedtechnology and customer lists and five years for noncompete agreements. Duringthe first quarter of 2002, the Company implemented SFAS 142, “Goodwill andOther Intangible Assets,” which replaces the requirements to amortizeintangible assets with indefinite lives and goodwill with a requirement for anannual impairment test. See Note 4.

 

(2) INCOME TAXES

 

At December 31, 2001, the Company had Federal income tax net operatingloss carryforwards of approximately $22,878,000 for Federal income tax purposesand approximately $22,393,000 for the alternative minimum tax. Approximately$1,058,000 of these net operating losses relates to exercise of incentiveemployee stock options and will be credited directly to stockholders’ equitywhen realized. The future utilization of these net operating losses will belimited due to changes in Company ownership. The net operating losscarryforwards will expire, if not previously utilized, as follows: 2002: $560,000;2003: $79,000; 2004: $576,000; 2005: $1,557,000; 2006: $301,000; andthereafter: $19,805,000. The Company has not recorded any tax benefits relatedto these net operating loss carryforwards.

 

8

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(3) SEGMENT INFORMATION

 

While the Company operates in one industry, financial services, inapplying SFAS No. 131, “Disclosures about Segments of an Enterprise and RelatedInformation”, the Company has identified two segments within which it operates.The parent Company’s services are principally in the business-to-businesssector, while its subsidiary, PCQuote, operates in the business-to-consumermarketplace. The Company evaluates performance and allocates resources based onoperating profitability and growth potential. The accounting policies of thereportable segments are the same as those described in Note 1. Financialinformation relating to the segments for the quarters ended September 30, 2002and September 30, 2001 is as follows:

 
|                                  |   | **September  30, 2002** |      | **September  30, 2001** |   |
|---------------------------------------|--------|-------------------------|-----------|-------------------------|--------|
|                                  |   | **Amount**              |      | **%**                   |   | **Amount** |   | **%** |   |
| **Sales  to unaffiliated customers:** |   |                    |      |                    |   |   |   |   |   |
| HyperFeed  services                   |   | $                       | 3,982,487 |                    | 85.0   | % | $ | 6,120,165 |   | 74.9 | % |
| PCQuote services                      |   | 700,150                 |      | 15.0                    | %      | 2,054,998 |   | 25.1 | % |
|                                  |   |                    |      |                    |   |   |   |   |   |
| Total revenue                         |   | $                       | 4,682,637 |                    | 100.0  | % | $ | 8,175,163 |   | 100.0 | % |
|                                  |   |                    |      |                    |   |   |   |   |   |
| **Operating  loss:**                  |   |                    |      |                    |   |   |   |   |   |
| HyperFeed  services                   |   | $                       | (381,045  | )                       | 42.1   | % | $ | 346,390 |   |   | * |
| PCQuote services                      |   | (524,063                | )         | 57.9                    | %      | (1,120,286 | ) |   | * |
|                                  |   |                    |      |                    |   |   |   |   |   |
| Total operating  loss                 |   | $                       | (905,108  | )                       | 100.0  | % | $ | (773,896 | ) |   | * |
|                                  |   |                    |      |                    |   |   |   |   |   |
| **Identifiable  assets:**             |   |                    |      |                    |   |   |   |   |   |
| HyperFeed  services                   |   | $                       | 7,625,117 |                    | 92.8   | % | $ | 9,230,863 |   | 75.7 | % |
| PCQuote services                      |   | 587,204                 |      | 7.2                     | %      | 2,966,526 |   | 24.3 | % |
|                                  |   |                    |      |                    |   |   |   |   |   |
| Total  identifiable assets            |   | $                       | 8,212,321 |                    | 100.0  | % | $ | 12,197,389 |   | 100.0 | % |

 

----

* not meaningful

 

Financial information relating to the segments for the nine monthsended September 30, 2002 and September 30, 2001 is as follows:

 
|                                  |   | **September  30, 2002** |       | **September  30, 2001** |   |
|---------------------------------------|--------|-------------------------|------------|-------------------------|--------|
|                                  |   | **Amount**              |       | **%**                   |   | **Amount** |   | **%** |   |
| **Sales  to unaffiliated customers:** |   |                    |       |                    |   |   |   |   |   |
| HyperFeed  services                   |   | $                       | 12,928,875 |                    | 84.5   | % | $ | 19,503,229 |   | 71.7 | % |
| PCQuote services                      |   | 2,371,078               |       | 15.5                    | %      | 7,683,365 |   | 28.3 | % |
|                                  |   |                    |       |                    |   |   |   |   |   |
| Total revenue                         |   | $                       | 15,299,953 |                    | 100.0  | % | $ | 27,186,594 |   | 100.0 | % |
|                                  |   |                    |       |                    |   |   |   |   |   |
| **Operating  loss:**                  |   |                    |       |                    |   |   |   |   |   |
| HyperFeed  services                   |   | $                       | (465,387   | )                       | 25.7   | % | $ | 2,669,709 |   |   | * |
| PCQuote services                      |   | (1,345,872              | )          | 74.3                    | %      | (3,823,655 | ) |   | * |
|                                  |   |                    |       |                    |   |   |   |   |   |
| Total operating  loss                 |   | $                       | (1,811,259 | )                       | 100.0  | % | $ | (1,153,946 | ) |   | * |
|                                  |   |                    |       |                    |   |   |   |   |   |
| **Identifiable  assets:**             |   |                    |       |                    |   |   |   |   |   |
| HyperFeed services                    |   | $                       | 7,625,117  |                    | 92.8   | % | $ | 9,230,863 |   | 75.7 | % |
| PCQuote services                      |   | 587,204                 |       | 7.2                     | %      | 2,966,526 |   | 24.3 | % |
|                                  |   |                    |       |                    |   |   |   |   |   |
| Total  identifiable assets            |   | $                       | 8,212,321  |                    | 100.0  | % | $ | 12,197,389 |   | 100.0 | % |

 

----

* not meaningful

 

9

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(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

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

 

Intangible asset data as of September 30, 2002 is as follows:

 
|                                          |   | **As of September 30, 2002** |      |
|-----------------------------------------------|--------|------------------------------|-----------|
|                                          |   | **Gross Carrying  Amount**   |      | **Accumulated  Amortization** |   |
| Amortized  intangible assets                  |   |                         |      |   |   |
| Developed  technology                         |   | $                            | 1,327,239 |   | $ | (626,752 | ) |
| Noncompete  agreements                        |   | 132,724                      |      | (37,605 | ) |
| Customer lists                                |   | 12,800                       |      | (6,044 | ) |
|                                          |   |                         |      |   |   |
| Unamortized  intangible assets                |   |                         |      |   |   |
| Goodwill                                      |   | $                            | 86,334    |   |   |   |
|                                          |   |                         |      |   |   |
| Aggregate  amortization expense               |   |                         |      |   |   |
| For the quarter  ended September 30, 2002     |   | $                            | 118,306   |   |   |   |
| For the nine  months ended September 30, 2002 |   | $                            | 354,919   |   |   |   |
|                                          |   |                         |      |   |   |
| Estimated  amortization                       |   |                         |      |   |   |
| For the year  ended December 31, 2002         |   | $                            | 473,225   |   |   |   |
| For the year  ended December 31, 2003         |   | 473,225                      |      |   |   |
| For the year  ended December 31, 2004         |   | 175,438                      |      |   |   |
| For the year  ended December 31, 2005         |   | 26,545                       |      |   |   |
|                                               |        |                              |           |  |  |  |  |

 

The Company’s net loss for the three and nine month periods endedSeptember 30, 2001 would have been $1,688,987 and $2,062,493, respectively, ifthe Company had initially applied SFAS 142 on January 1, 2001. The Company’sbasic and diluted net loss per share for the three and nine month periods endedSeptember 30, 2001 would have been $0.10 and $0.13, respectively, if theCompany had initially applied SFAS 142 on January 1, 2001.

 

In October 2002, the Company restructured to streamline operations andceased development of MarketScreen. As a result, management is currentlyassessing the net realizable value of certain tangible and intangible assets.

 

(5) SUBSEQUENT EVENTS

 

In October 2002, HyperFeed restructured its operations to positionitself for long-term growth and to remain competitive in meeting the changingneeds of its customers.  Specifically,HyperFeed reduced its workforce by 20 employees, representing 21% of theCompany’s workforce, and streamlined operations with reductions in thefollowing departments: operations, customer and technical support, sales,administration, and product and market development. HyperFeed also ceaseddevelopment and marketing of its MarketScreen product, but will continue toservice customers using the product. In addition, the Company will eliminatecertain facilities. During the fourth quarter of 2002, the Company will recorda restructuring expense related to these actions.

 

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PART I. ITEM2

Management’s Discussion and Analysis ofResults of Operations and Financial Condition

 

INTRODUCTION – SAFE HARBOR DISCLOSURE

 

The following discussion and analysis contains historical information.It also contains forward-looking statements within the meaning of the “safeharbor” provisions of the Private Securities Litigation Reform Act of 1995,particularly in reference to statements regarding our expectations, plans andobjectives. You can generally identify forward-looking statements by the use ofthe words “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,”“believe,” “continue,” or similar language. Forward-looking statements involvesubstantial risks and uncertainties. You should give careful consideration tocautionary statements made in this discussion and analysis. We base ourstatements on our current expectations. HyperFeed undertakes no obligation to publicly release the results ofany revision to these forward-looking statements which may be made to reflectevents or circumstances after the dates hereof or to reflect the occurrence ofunanticipated events.  Forward-lookingstatements may be impacted by a number of factors, risks and uncertainties thatcould cause actual results to differ materially from those described in theforward-looking statements. Among these factors are:

 

(i)                                     thatthe information is of a preliminary nature and may be subject to furtheradjustment;

 

(ii)                                  variabilityin HyperFeed’s quarterly operating results;

 

(iii)                               ourability to fund our current and future business strategies either throughcontinuing operations or external financing;

 

(iv)                              ourability to attract and retain qualified management and key employees;

 

(v)                                 ourability to successfully compete against competitive products and services;

 

(vi)                              ourability to maintain relationships with key suppliers and providers of marketdata;

 

(vii)                           ourability to maintain our existing customer base while increasing the Company’spresence in the financial institutional marketplace;

 

(viii)                        ourability to develop and introduce new product and service initiatives in atimely manner and at competitive price and performance levels;

 

(ix)                                theeffect of economic and business conditions generally;

 

(x)                                   risksrelated to pending or future legal proceedings; and

 

(xi)                                otherrisks identified from time to time in HyperFeed’s reports and registrationstatements filed with the Securities and Exchange Commission.

 

RECENT BUSINESS DEVELOPMENTS

 

**New Management Team and ProductStrategy**

In September 2002, the Company hired new management team members. JimPorter remains as HyperFeed’s Chairman and CEO and Mike Kreutzjans now servesas Executive Vice President of Technology Business Development. Management teamadditions consist of Paul Pluschkell, President and COO; Randall Frapart,Senior Vice President and CFO; Frank Guerrera, Senior Vice President and CTOand Tom Wojciechowski, Senior Vice President of Sales.

 

HyperFeed is implementing a new business plan, fiscal framework,product strategy and sales methodology focused on serving the financialinstitutional marketplace. The Company intends to market high performance,managed, exchange services that would free HyperFeed’s customers fromproprietary platforms, restrictive rules and high costs. The strategy leveragesHyperFeed’s tickerplant and Zero Loss Compression (ZLC) technologies and offersthem to financial institutions in a managed services model. The Companyanticipates that the new product and service line will be available byyear-end.

 

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**HyperFeed to Deliver Data OverReuters Market Data System (RMDS)**

On October 11, 2002, HyperFeed announced an agreement with Reuters thatallows the Company to deliver HyperFeed Market Data over the Reuters MarketData System (RMDS). This agreement provides new opportunities for the Companyas any financial institution using the RMDS middleware platform can accessHyperFeed as a primary or secondary market data source.

 

**HyperFeed Restructures by Reducingits Workforce and Streamlining Operations**

In October 2002, HyperFeed positioned the Company for long-term growthby reducing its workforce, streamlining operating expenses, and consolidatingexcess facilities. This resulted in the elimination of 20 employees, or 21% ofthe Company’s workforce, the cessation of MarketScreen development andmarketing, and the consolidation of excess facilities. This restructuring is animportant step in HyperFeed’s transition to a financial services providerserving institutional customers. The Company is focusing on its tickerplanttechnology and HyperFeed® Market Data, while pursuing new product and serviceinitiatives better suited to the structure of the modern financial institution.The Company believes that these steps will result in a reduction in annualexpense of approximately $2.5 to $3.0 million per year. During the fourthquarter of 2002, the Company will record a restructuring expense related tothese actions.

 

**HyperFeed Revenue**

HyperFeed was notified that a large customer is evaluating its vendorrelations for 2003. As a result, certain services could be reduced. HyperFeedbelieves it will remain the key vendor and primary partner for this customer’stickerplant technology. While still under negotiation, HyperFeed believes thatit will continue providing services at a reduced level in 2003.

 

RESULTS OF OPERATIONS:

FOR THE NINE MONTHS AND QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001

 

Total revenue decreased $11.9 million, or 43.7%, to $15.3 million forthe nine months ended September 30, 2002, and $3.5 million, or 42.7%, to $4.7million for the quarter ended September 30, 2002 versus the comparable prioryear periods. Both our HyperFeed services and PCQuote services posted decreasesfor the first nine months of 2002 and for the quarter ended September 30, 2002from the same periods of 2001. For the first nine months of 2002, HyperFeedservice revenue decreased $6.6 million, or 33.7%, to $12.9 million from $19.5million in the same period in 2001. For the quarter ended September 30, 2002,HyperFeed service revenue decreased $2.1 million, or 34.9%, to $4.0 millionfrom $6.1 million in 2001. Decreases in the number of end users and relatedservices associated with the provision of the RealTick analytics applicationaccounted for $3.9 million of the decline in HyperFeed service revenue for thenine months ended September 30, 2002 and $0.8 million for the quarter. Revenuefrom our PCQuote services decreased $5.3 million, or 69.1%, to $2.4 million forthe first nine months of 2002 from $7.7 million for the same period in 2001.For the third quarter of 2002, revenue from PCQuote services decreased $1.4million, or 65.9%, from $2.1 million in 2001 to $0.7 million in 2002. Thedeclines in PCQuote services are principally due to the transfer at the end ofthe third quarter 2001 of PCQuote 6.0 RealTick Internet customers to TownsendAnalytics, Ltd. (“Townsend”).

 

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

 

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Direct costs of services decreased $6.8 million, or 41.2%, to $9.8million for the nine months ended September 30, 2002 from $16.6 million for thecomparable 2001 period, and decreased $2.2 million, or 40.2%, to $3.2 millionfor the quarter ended September 30, 2002 from $5.4 million for the comparable2001 period. Direct costs, as a percentage of revenue, increased to 63.8% from61.1% for the nine months ended September 30, 2002. For the quarter endedSeptember 30, 2002 gross margin decreased to 31.3% from 34.2%. Principalcomponents of the decrease were royalties and payments to providers of marketdata, principally attributable to the transfer at the end of the third quarter2001 of PCQuote 6.0 RealTick Internet customers to Townsend and the decline inanalytics subscriptions. Amortization of software development costs decreasedfor the nine months from $1.5 million in 2001 to $1.0 million in 2002 anddecreased for the quarter ended September 30, 2002 to $0.4 million from $0.5million. Gross margin decreased $5.0 million, or 47.7%, to $5.5 million for thefirst nine months of 2002 from $10.6 million for the same period in 2001, and$1.3 million, or 47.5%, to $1.5 million for the quarter ended September 30,2002 from $2.8 million for the comparable 2001 period.

 

For the first nine months of 2002, the gross margin for HyperFeedservices decreased $3.8 million, or 41.2%, to $5.5 million in 2002 from $9.3million in 2001, or to 42.3% from 47.7%, respectively. For the quarter endedSeptember 30, 2002, the gross margin for HyperFeed services was $1.5 million,or 38.4%, a decrease of 41.6%, from $2.6 million, or 42.9%, in the thirdquarter of 2001. The gross margin on PCQuote services decreased $1.2 million,or 94.5%, to $0.1 million for the first nine months of 2002 from $1.3 millionfor the same period of 2001, or to 3.0% from 16.7%, respectively. PCQuoteservices gross margin decreased to $(0.1) million, or (9.1)%, for the thirdquarter of 2002 from $0.2 million, or 8.5%, for the same 2001 period.

 

Total operating expense decreased $4.4 million, or 37.4%, to $7.3million for the nine months ended September 30, 2002 from $11.7 million for thecomparable 2001 period, and decreased $1.2 million, or 33.6%, to $2.4 millionfor the quarter ended September 30, 2002 from $3.6 million. Decreases,principally due to cost saving measures implemented in the third quarter of2001, were experienced in all categories except for depreciation andamortization. As a percentage of revenue, total operating expenses increasedfor the nine months ended September 30, 2002 to 48.0% from 43.1% for the sameperiod in 2001, and increased to 50.7% for the quarter ended September 30, 2002from 43.7% for the comparable 2001 period. Increases in operating margins as apercentage of revenue for general and administrative expenses and indepreciation and amortization were offset by decreases in sales and in product andmarket development.

 

Sales costs decreased $1.4 million, or 47.7%, to $1.5 million for thefirst nine months of 2002 from $2.9 million for the same 2001 period. For thethird quarter of 2002, sales costs were $0.5 million, a 47.3%, decrease from$0.9 million for the prior year period. The decrease in sales costs result fromthe elimination of our consumer sales force in the third quarter of 2001 andlower commission expense commensurate with the decrease in revenue. Sales costsas a percentage of revenue decreased for the nine months ended September 30,2002 to 9.8% from 10.5% for the same period in 2001, and to 10.1% for thequarter ended September 30, 2002 from 10.9% for the comparable 2001 period.

 

General and administrative expenses decreased $0.9 million, or 25.3%,to $2.6 million for the first nine months of 2002 from $3.5 million for thefirst nine months of 2001. For the quarter ended September 30, 2002, generaland administrative expenses decreased $0.3 million, or 25.8%, to $0.9 millionfrom $1.2 million for the same quarter in 2001. The decreases were principallydue to a reduction in personnel at the end of the third quarter of 2001.General and administrative expenses as a percentage of revenue increased forthe nine months ended September 30, 2002 to 17.3% from 13.0% for the sameperiod in 2001, and to 18.6% for the quarter ended September 30, 2002 from14.3% for the comparable 2001 period.

 

13

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Product and market development costs decreased $2.3 million, or 56.0%,to $1.8 million for the nine months ended September 30, 2002 from $4.1 millionfor the comparable 2001 period, and decreased 44.6% to $0.6 million for thequarter ended September 30, 2002 as compared to $1.0 million the in same periodin 2001. The decreases were due to lower advertising expenditures and reductionin personnel at the end of the third quarter of 2001. Product and marketdevelopment costs as a percentage of revenue decreased for the nine monthsended September 30, 2002 to 11.8% from 15.1% for the same period in 2001, andto 12.2% for the quarter ended September 30, 2002 from 12.6% for the comparable2001 period.

 

Depreciation and amortization expense increased to $1.4 million for thefirst nine months of 2002 from $1.2 million for the comparable 2001 period as aresult of the amortization of intangible assets acquired from Marketscreen.com,Inc. and Lasdorf Corporate Services, Inc. in the second quarter of 2001, andremained unchanged at $0.5 million for the third quarter of 2002 compared tothe same 2001 period. Depreciation and amortization expense as a percentage ofrevenue increased for the nine months ended September 30, 2002 to 9.2% from4.5% for the same period in 2001, and to 9.8% for the quarter ended September30, 2002 from 5.8% for the comparable 2001 period.

 

CRITICAL ACCOUNTING POLICIES

 

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations discusses the Company’s unaudited interim consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America.  The preparation of these financial statements requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and the disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues andexpenses during the reporting period.

 

On an on-going basis, management evaluates its estimates and judgments,including those related to bad debts and intangible assets.  Management bases its estimates and judgmentson historical experience and on various other factors that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. Management believes thefollowing critical accounting policies, among others, affect its moresignificant judgments and estimates used in the preparation of its consolidatedfinancial statements.

 

ALLOWANCE FOR DOUBTFUL ACCOUNTS: We maintain allowances for doubtful accounts for estimated losses resultingfrom the inability of our customers to make payments for services.  We analyze accounts receivable, customercredit-worthiness, current economic trends and changes in our customer paymentterms when evaluating the adequacy of the allowance for doubtful accounts.  If the financial condition of our customersdeteriorates, resulting in an impairment of their ability to make payments,additional allowances may be required.

 

VALUATION OF INTANGIBLE ASSETS AND SOFTWARE DEVELOPMENT COSTS:  We assess the impairment of intangibleassets whenever events or changes in circumstances indicate that the carryingvalue may not be recoverable. Factors we consider important which could triggeran impairment review include significant underperformance relative to expectedhistorical or projected future operating results, significant changes in themanner of our use of the acquired assets or the strategy for our overallbusiness, and significant negative industry or economic trends. The Companyassesses the recoverability of its software development costs against estimatedfuture revenue over the estimated remaining economic life of the software. Asdiscussed in Note 4 of the unaudited interim consolidated financial statements,the Company is assessing the valuation of certain tangible and intangibleassets during the fourth quarter of 2002.

 

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LIQUIDITY AND CAPITAL RESOURCES:

 

Net cash and cash equivalents increased $0.7 million from year-end 2001to $1.3 million at the end of the third quarter of 2002. Despite a net loss of$1.8 million, operating activities provided $2.0 million of cash. Investingactivities used $1.4 million of cash, including expenditures for new equipmentof $0.4 million, a decrease of 72.6%, from $1.5 million for the same period in2001. The decrease is the result of improved tickerplant hardware acquisitionsmade in 2001, coupled with infrastructure expenditures in 2001 for expandedfacilities, and the generally lower prices for computer and communicationsequipment in 2002. Also, capitalized software development costs of $1.0 millionfor the nine months ended September 30, 2002 were 15.3% lower than the $1.2million recorded for the same period for 2001. Financing activities provided$0.1 million for the nine months ended September 30 ,2002. There were no newdirect borrowings during the nine months ended September 30, 2002. We receivedapproximately $60,000 in proceeds from the sale of shares of common stock toemployees pursuant to our Employee Stock Purchase Plan. We also received$305,000 from PICO Holdings, Inc., our principal shareholder, for the exerciseof three previously issued Common Stock Purchase Warrants.

 

Earnings before interest, taxes, depreciation and amortization(“EBITDA”) decreased to $1.9 million for the first nine months of 2002 from$2.9 million for the comparable 2001 period, and decreased to $0.3 million forthe third quarter of 2002 as compared to $0.7 million for the same period in2001. We believe our existing capital resources, our ability to access externalcapital, if necessary, and cash generated from continuing operations aresufficient for working capital purposes for at least the next twelve months.

 

In September 2002, restricted cash of $250,000 was used to purchase a noteguaranteed by the Company to a former officer. The note carries interest at theprime rate and matures in November 2002.

 

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

 

EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

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

 

In July 2002, the FASB issued Statement of Financial AccountingStandards No. 146, “Accounting for Costs Associated with Exit or DisposalActivities” (“SFAS 146”). This standard requires companies to recognize costsassociated with exit or disposal activities when they are incurred rather thanat the date of a commitment to an exit or disposal plan. Examples of costscovered by the standard include lease termination costs and certain employeeseverance costs that are associated with a restructuring, discontinuedoperation, or other exit or disposal activity. This standard will be appliedprospectively to exit or disposal activities initiated after December 15, 2002.Management does not believe the adoption of SFAS 146 will have a significantimpact on the Company’s consolidated financial statements.

 

15

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes in the Company’s market risk duringthe three and nine month periods ended September 30, 2002. For additionalinformation, refer to the Company’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2001.

 

ITEM 4. CONTROLS AND PROCEDURES

 

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

 

PART II. OTHERINFORMATION

 

ITEM 1. LEGALPROCEEDINGS

 

On July 24, 2002, the Company filed an action against QuantitativeScience Technologies, Inc to recover payment under a Promissory Note, plusinterest, costs and attorneys fees. Defendant filed an answer, affirmativedefenses and counterclaim for declaratory judgment and breach of a separate,License Agreement, requesting damages. The Company denies the allegations of theDefendant, believes the counterclaim is a device intended to avoid payment ofamounts owed, and intends to move forward with its collection efforts.

 

On July 3, 2002, the Company filed a two-count action against PC QuoteCanada asserting breach of Agency License Agreement, fraud and unjustenrichment and requesting damages, plus interest, costs and attorneys fees.Defendant filed an answer, affirmative defenses and counterclaim asserting thatoral agreement modified the Agency License Agreement and requesting damages.The Company denies the allegations by the defendant, believes the counterclaimis a device intended to avoid payment of amounts owed, and intends to moveforward with its collection efforts.

 

On October 1, 2001, the Company filed a collection action against ABWatley Group (“AB Watley”), Inc. seeking damages. While the parties enteredinto a settlement agreement in which AB Watley agreed to pay the Company inthree installments, Defendant failed to make the third installment payment onSeptember 26, 2002. Accordingly, pursuant to the terms of the settlementagreement, HyperFeed is seeking to have a consent judgment entered againstDefendant plus fees.

 

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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

 

During the first, second and third quarters of 2002, we issued 41,536,73,252, and 41,652 shares of our common stock, respectively, to employees, whopurchased the shares under our Employee Stock Purchase Plan.

 

On August 19, 2002, PICO Holdings, Inc., our principal shareholder,exercised three previously issued Common Stock Purchase Warrants. In accordancewith the terms of the Warrants, PICO acquired 949,032 shares of HyperFeedTechnologies, Inc. common stock for $305,114 or $0.3215 per share, the averageclosing bid price for the twenty trading days preceding the date of exercise.

 

ITEM 6. EXHIBITS and REPORTS on FORM 8-K

 

REPORTS ON FORM 8-K

 

A Form 8-K was filed on August 23, 2002 to report the exercise ofCommon Stock Purchase Warrants held by PICO Holdings, Inc.

 

A Form 8-K was filed on August 13, 2002 to certify the Form 10-Q forthe period ended June 30, 2002.

 

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SIGNATURES

 

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

 

 
| HYPERFEED TECHNOLOGIES, INC. |
|------------------------------|
|                         |
|                         |
| Date:                        | November 13, 2002 |
|                         |   |
| By:                          | /s/ Jim R. Porter |   |
|                         |   |
|                         | Jim R. Porter |
|                         | Chairman and Chief Executive Officer |
|                         |   |
| By:                          | /s/ Randall J. Frapart |   |
|                         |   |
|                         | Randall J. Frapart |
|                         | Chief Financial Officer and Principal Accounting  Officer |
|                              |  |  |  |

 

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**CERTIFICATIONS**

 

Certification of the Chief Executive Officer Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002

 

I, Jim R. Porter, certify that:

 

1.             Ihave reviewed this quarterly report on Form 10-Q of Hyperfeed Technologies,Inc.;

 

2.             Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.             Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

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

 

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

 

(c)           presented in thisquarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.             Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

(a)           all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize and reportfinancial data and have identified for the registrant’s auditors any materialweaknesses in internal controls; and

 

(b)           any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.             Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:   November 13, 2002 |                                                             |   |
|--------------------------------|------------------------------------------------------------------|--------|
|                           |                                                             |   |
|                           | /s/ Jim R. Porter                                                |   |
|                           | Jim R. Porter                                                    |   |
|                           | Chairman of the Board of Directors,  and Chief Executive Officer |   |

 

 

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Certification of the Chief Financial Officer Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002

 

I, Randall J. Frapart, certify that:

 

1.             Ihave reviewed this quarterly report on Form 10-Q of Hyperfeed Technologies,Inc.;

 

2.             Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.             Theregistrant’s other certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

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

 

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

 

(c)           presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.             Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

(a)           all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

(b)           any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.             Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:   November 13, 2002 |                    |   |
|--------------------------------|-------------------------|--------|
|                           |                    |   |
|                           | /s/ Randall J. Frapart  |   |
|                           | Randall J. Frapart      |   |
|                           | Chief Financial Officer |   |

 

Certification of theChief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of2002

 

In connection with this quarterlyreport on Form 10-Q (the “Report”) of Hyperfeed Technologies, Inc. (the “Company”), I, Jim R. Porter, ChiefExecutive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-OxleyAct of 2002, that:

 

1.             The Report fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.             The information contained in theReport fairly presents, in all material respects, the financial condition andresult of operations of the Company.

 
| Date:   November 13, 2002 |                                                             |   |
|--------------------------------|------------------------------------------------------------------|--------|
|                           |                                                             |   |
|                           | /s/ Jim R. Porter                                                |   |
|                           | Jim R. Porter                                                    |   |
|                           | Chairman of the Board of Directors,  and Chief Executive Officer |   |

 

Certification of theChief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of2002

 

In connection with this quarterlyreport on Form 10-Q (the “Report”) of Hyperfeed Technologies, Inc. (the“Company”), I, Randall J. Frapart, Chief Financial Officer of the Company,certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.             The Report fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.             The information contained in the Report fairly presents,in all material respects, the financial condition and result of operations ofthe Company.

 
| Date:   November 13, 2002 |                    |   |
|--------------------------------|-------------------------|--------|
|                           |                    |   |
|                           | /s/ Randall J. Frapart  |   |
|                           | Randall J. Frapart      |   |
|                           | Chief Financial Officer |   |

 

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