-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MAB3NtwsY41ecM/WQBjvAVxGo/KT15sc4ZjjYM++7Xg2/s3G2YD501CMyTSzFGxP x4uEfyNZYBgwCEry9gH7vA== 0000912057-00-022051.txt : 20000508 0000912057-00-022051.hdr.sgml : 20000508 ACCESSION NUMBER: 0000912057-00-022051 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HYPERFEED TECHNOLOGIES INC CENTRAL INDEX KEY: 0000745774 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 363131704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11108 FILM NUMBER: 620834 BUSINESS ADDRESS: STREET 1: 300 S WACKER DR STREET 2: STE 300 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129132848 MAIL ADDRESS: STREET 1: 300 SOUTH WACKER DR STREET 2: SUITE 300 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: PC QUOTE INC DATE OF NAME CHANGE: 19920703 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q --------------------------------- [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 2000 Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from -------------to-------------- --------------------------------------- Commission file number 0-13093 I.R.S. Employer Identification Number 36-3131704 HYPERFEED TECHNOLOGIES, INC. (a Delaware Corporation) 300 S. Wacker, Suite 300 Chicago, Illinois 60606 Telephone (312) 913-2800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 15,636,140 shares of the registrant's common stock ($.001 par value) were outstanding as of April 30, 2000. Page 1 HYPERFEED TECHNOLOGIES, INC. INDEX
PAGE PART I. Financial Information Item 1. Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 3 Consolidated Statements of Operations for the three month periods ended March 31, 2000 and 1999 5 Consolidated Statements of Cash Flows for the three month periods ended March 31, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of: Results of Operations and Financial Condition 11 Liquidity and Capital Resources 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 15 PART II. Other Information Item 2. Changes in Securities 15 Item 6. Exhibits and Reports on Form 8-K 16 Company's Signature Page 17
Page 2 HYPERFEED TECHNOLOGIES, INC. Consolidated Balance Sheets March 31, 2000 and December 31, 1999 ASSETS
March 31, December 31, 2000 1999 (Unaudited) (Audited) ----------- --------- Current Assets Cash and cash equivalents $ 1,644,944 $ 1,452,186 Accounts receivable, less allowance for doubtful accounts of: 2000: $507,926;1999: $442,276 3,943,431 2,652,350 Prepaid license fees, current 1,680,000 1,680,000 Prepaid expenses and other current assets 309,661 244,477 ----------- ----------- TOTAL CURRENT ASSETS 7,578,036 6,029,013 ----------- ----------- Property and equipment Satellite receiving equipment 282,474 436,759 Computer equipment 3,523,959 4,323,921 Communication equipment 1,071,787 1,173,595 Furniture and fixtures 112,312 263,941 Leasehold improvements 403,226 402,692 ----------- ----------- 5,393,758 6,600,908 Less: Accumulated depreciation and amortization 2,988,683 4,189,766 ----------- ----------- 2,405,075 2,411,142 ----------- ----------- Prepaid license fees, net of accumulated amortization of: 2000: $1,610,000; 1999: $1,190,000 2,590,000 3,010,000 ----------- ----------- Software development costs, net of accumulated amortization of: 2000: $6,006,689; 1999: $6,890,526 3,413,157 3,775,491 ----------- ----------- Deposits and other assets 65,000 69,538 ----------- ----------- TOTAL ASSETS $16,051,268 $15,295,184 =========== ===========
See Notes to Consolidated Financial Statements. Page 3 HYPERFEED TECHNOLOGIES, INC. Consolidated Balance Sheets (continued) March 31, 2000 and December 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31, 2000 1999 (Unaudited) (Audited) ----------- --------- Current Liabilities Notes payable $ 1,300,000 $ 1,050,000 Accrued satellite termination fees 516,000 558,000 Accounts payable 3,076,515 1,709,322 Accrued expenses 1,519,255 2,319,150 Accrued compensation 472,600 461,498 Income taxes payable 5,000 5,000 Unearned revenue 2,742,856 2,304,070 ----------- ----------- TOTAL CURRENT LIABILITIES 9,632,226 8,407,040 ----------- ----------- Notes payable, less current portion 1,124,634 1,449,634 Accrued satellite termination fees, less current portion 516,000 624,000 Unearned revenue, less current portion 66,779 78,315 Accrued expenses, less current portion 128,087 134,693 Minority interest -- 3,869 ----------- ----------- TOTAL NONCURRENT LIABILITIES 1,835,500 2,290,511 ----------- ----------- TOTAL LIABILITIES 11,467,726 10,697,551 ----------- ----------- Stockholders' Equity Preferred stock, $.001 par value; authorized 5,000,000 shares; issued and outstanding: Series A 5% convertible: 19,075 shares at March 31, 2000 and December 31, 1999 19 19 Series B 5% convertible: 28,791 shares at March 31, 2000 and December 31, 1999 29 29 Common stock, $.001 par value; authorized 50,000,000 shares; issued and outstanding 15,636,140 shares at March 31, 2000 and 15,592,690 shares at December 31, 1999 15,636 15,593 Additional paid-in capital - Series A 5% convertible preferred stock 3,086,013 3,086,013 Additional paid-in capital - Series B 5% convertible preferred stock 4,664,891 4,664,891 Additional paid-in capital - common stock 25,318,568 25,183,631 Additional paid-in capital - convertible subordinated debenture and warrants 8,630,491 8,630,491 Accumulated deficit (37,132,105) (36,983,034) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 4,583,542 4,597,633 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,051,268 $15,295,184 =========== ===========
See Notes to Consolidated Financial Statements. Page 4 HYPERFEED TECHNOLOGIES, INC. Consolidated Statements of Operations
For The Three Months Ended -------------------------- - ------------------------------------------------------------------------------- March 31, March 31, 2000 1999 (Unaudited) (Unaudited) ----------- ----------- - ------------------------------------------------------------------------------- REVENUE HyperFeed Services $ 4,851,831 $ 4,161,637 PCQuote.com Services 5,999,946 3,258,641 ----------- ----------- TOTAL REVENUE 10,851,777 7,420,278 ----------- ----------- DIRECT COST OF SERVICES HyperFeed Services 3,021,888 3,101,605 PCQuote.com Services 4,462,428 2,269,874 ----------- ----------- TOTAL DIRECT COST OF SERVICES 7,484,316 5,371,479 ----------- ----------- GROSS MARGIN 3,367,461 2,048,799 ----------- ----------- OPERATING EXPENSES Sales 1,078,951 880,838 General and administrative 1,155,649 1,049,687 Product and market development 819,484 593,765 Depreciation and amortization 427,671 242,830 ----------- ----------- TOTAL OPERATING EXPENSES 3,481,755 2,767,120 ----------- ----------- LOSS FROM OPERATIONS (114,294) (718,321) ----------- ----------- INTEREST INCOME (EXPENSE) Interest income 13,403 7,512 Interest expense (52,049) (14,992) ----------- ----------- NET INTEREST EXPENSE (38,646) (7,480) ----------- ----------- LOSS BEFORE INCOME TAXES (152,940) (725,801) INCOME TAXES -- -- ----------- ----------- LOSS BEFORE MINORITY INTEREST (152,940) (725,801) Minority interest 3,869 -- ----------- ----------- NET LOSS ($ 149,071) ($ 725,801) =========== =========== Basic net loss per share ($0.01) ($0.05) Diluted net loss per share ($0.01) ($0.05) Weighted-average common shares outstanding 15,606,096 14,412,358 - -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. Page 5 HYPERFEED TECHNOLOGIES, INC. Consolidated Statements of Cash Flows
For The Three Months Ended -------------------------- March 31, March 31, 2000 1999 (Unaudited) (Unaudited) ----------- ----------- Cash Flows From Operating Activities: Net loss ($ 149,071) ($ 725,801) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 427,671 242,830 Provision for doubtful accounts 150,000 90,000 Amortization of software development costs 651,605 571,009 Amortization of value assigned to warrant issued in lieu of license fees 420,000 -- Common stock issued in lieu of cash compensation -- 17,900 Minority interest in loss (3,869) -- Changes in assets and liabilities: Accounts receivable (1,441,081) (575,918) Prepaid expenses and other current assets (65,184) 2,062 Deposits and other assets 4,538 31,012 Accounts payable 1,367,193 (216,377) Accrued expenses (795,399) 326,251 Accrued satellite termination fees (150,000) -- Accrued income taxes payable -- (3,161) Unearned revenue 427,250 66,796 ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 843,653 (173,397) ----------- ----------- Cash Flows From Investing Activities: Purchase of property and equipment (421,604) (238,504) Software development costs capitalized (289,271) (299,312) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (710,875) (537,816) ----------- ----------- Cash Flows From Financing Activities: Proceeds from issuance of common stock 134,980 667,038 Principal payments on notes payable (75,000) (75,000) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 59,980 592,038 ----------- ----------- Net increase (decrease) in cash and cash equivalents 192,758 (119,175) Cash and cash equivalents: Beginning of the period 1,452,186 1,139,785 ----------- ----------- End of the period $ 1,644,944 $ 1,020,610 =========== ===========
See Notes to Consolidated Financial Statements. Page 6 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) BASIS OF PRESENTATION PRINCIPLES OF CONSOLIDATION: The accompanying interim consolidated financial statements include the accounts of HyperFeed Technologies, Inc. (the "Company") and its subsidiary, PCQuote.com, Inc., and have been prepared in accordance with generally accepted accounting principles for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated interim financial statements include all adjustments, including the elimination of all significant intercompany transactions in consolidation, which, in the opinion of management, are necessary in order to make the financial statements not misleading. The amounts indicated as "audited" have been extracted from the Company's December 31, 1999 annual report. For further information, refer to the financial statements and footnotes included in HyperFeed Technologies' annual report on Form 10-K for the year ended December 31, 1999. SOFTWARE DEVELOPMENT COSTS: The Company's continuing investment in software development consists primarily of enhancements to its existing Windows-based private network and Internet services, development of new data analysis software and programmer tools designed to afford easy access to its data-feed for data retrieval and analysis purposes, and application of new technology to increase the data volume and delivery speed of its distribution system and network. Costs associated with the planning and design phase of software development, including coding and testing activities necessary to establish technological feasibility of computer software products to be licensed or otherwise marketed, are charged to research and development as incurred. Once technological feasibility has been determined, costs incurred in the construction phase of software development including coding, testing, and product quality assurance are capitalized. Amortization commences at the time of capitalization or, in the case of a new service offering, at the time the service becomes available for use. Unamortized capitalized costs determined to be in excess of the net realizable value of the product are expensed at the date of such determination. The accumulated amortization and related software development costs are removed from the respective accounts in the year following full amortization. HyperFeed Technologies, Inc.'s policy is to amortize capitalized software costs by the greater of (a) the ratio that current gross revenue for a product bear to the total of current and anticipated future gross revenue for that product or (b) the straight line method over the remaining estimated economic life of the product including the period being reported on, principally three to five years. The Company assesses the recoverability of its software development costs against estimated future undiscounted cash flows. Given the highly competitive environment and technological changes, it is reasonably possible that those estimates of anticipated future gross revenue, the remaining estimated economic life of the product, or both may be reduced significantly. FINANCIAL INSTRUMENTS: The Company has no financial instruments for which the carrying value materially differs from fair value. Page 7 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) INCOME TAXES: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets 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 assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. REVENUE RECOGNITION: The Company principally derives its revenue from service contracts for the provision of market data only ("HyperFeed-Registered Trademark- 2000 license fees"), service contracts for the provision of market data together with analytical software ("HyperFeed analytics license fees"), and the sale of advertising on its web-site, www.pcquote.com. Revenue from service contracts is recognized ratably over the contract term as the contracted services are rendered. Revenue from the sale of advertising is recognized as the advertising is displayed on the web-site. HyperFeed 2000 license fees and HyperFeed analytics license fees for satellite and landline services are generally billed one month in advance with 30-day payment terms. License fees for PC Quote 6.0 on the Internet are generally paid by credit card within five days prior to the month of service. These and other payments received prior to services being rendered are classified as unearned revenue on the balance sheet. Revenue and the related receivable for advance billings are not reflected in the financial statements. Customers' deposits on service contracts are classified as either current unearned revenue, if the contract expires in one year or less, or non-current unearned revenue, if the contract expiration date is greater than one year. HyperFeed services primarily consist of the provision of HyperFeed 2000 and HyperFeed 2000 with analytics to the business-to-business marketplace, while PCQuote.com services primarily consist of analytics service, powered by HyperFeed 2000, to the consumer marketplace. In addition, PCQuote.com sells advertising on its web-site. The Company applies the provisions of Statement of Position 97-2, "Software Revenue Recognition," which specifies the following four criteria that must be met prior to recognizing revenue: (1) persuasive evidence of the existence of an arrangement, (2) delivery, (3) fixed or determinable fee, and (4) probable collection. In addition, revenue earned on software arrangements involving multiple elements is allocated to each element based on the relative fair value of the elements. When applicable, revenue allocated to the Company's software products (including specified upgrades/enhancements) is recognized upon delivery of the products. Revenue allocated to post contract customer support is recognized ratably over the term of the support and revenue allocated to service elements (such as training and installation) is recognized as the services are performed. (2) NOTES PAYABLE The Company has a $1,500,000 term loan with a bank, payable in monthly installments of $25,000 plus interest at prime (9.0% at March 31, 2000). The loan is collateralized by substantially all assets of the Company. On September 3, 1999, our subsidiary, PCQuote.com, Inc., borrowed $2.0 million from Motorola, Inc. The promissory note bears interest at the prime rate from time to time as announced in the Wall Street Journal (9.0% at March 31, 2000). Payments are due in eight equal installments on a quarterly basis commencing June 30, 2000 through March 31, 2002, subject to early repayment upon the closing of an initial public offering of PCQuote.com's common stock. Page 8 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (3) INCOME TAXES At December 31, 1999, the Company had federal income tax net operating loss carryforwards of approximately $29,908,000 for federal income tax purposes and approximately $28,071,000 for the alternative minimum tax. Approximately $1,058,000 of these net operating losses relate to the exercise of incentive employee stock options and will be credited directly to stockholders' equity when realized. The Company also had research and development credits of $106,000 which will expire in years 2010 to 2011 if not previously utilized. The future utilization of these net operating losses and research and development credits will be limited due to changes in Company ownership. The net operating loss carryforwards will expire, if not previously utilized, as follows: 2000: $1,370,000; 2001: $1,539,000; 2002: $560,000; 2003: $79,000; 2004: $576,000; 2005: $1,557,000; 2006 $301,000 and thereafter $23,926,000. (4) TRANSACTIONS WITH AFFILIATES In February 1999, Imprimis Investors LLC and Wexford Spectrum Investors LLC (collectively, the "Wexford Affiliates") exercised common stock purchase warrants, previously acquired pursuant to the Stock and Warrant Purchase Agreement dated October 15, 1997, between HyperFeed Technologies and the Wexford Affiliates and purchased 267,200 shares of Common Stock for $534,400. (5) SEGMENT INFORMATION While the Company operates in one industry, financial services, in applying SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", the Company has identified two industry segments within which it operates. The parent Company's services are principally in the business-to-business sector, while its subsidiary, PCQuote.com, Inc., operates in the business-to-consumer marketplace. The Company evaluates performance and allocates resources based on operating profitability and growth potential. The accounting policies of the reportable segments are the same as those described in Note 1. Financial information relating to industry segments for the quarters ended March 31, 2000 and March 31, 1999 is as follows:
March 31, 2000 March 31, 1999 ------------------------ ------------------------ AMOUNT % AMOUNT % ----- ----- SALES TO UNAFFILIATED CUSTOMERS: HyperFeed services $ 4,851,831 44.7% $ 4,161,637 56.1% PCQuote.com services 5,999,946 55.3% 3,258,641 43.9% ------------ ------------ Total revenue $ 10,851,777 100.0% $ 7,420,278 100.0% ============ ============ OPERATING INCOME (LOSS): HyperFeed services $ 157,712 N/A ($ 435,077) 60.6% PCQuote.com services (272,006) N/A (283,244) 39.4% ------------ ------------ Total operating loss ($ 114,294) N/A ($ 718,321) 100.0% ============ ============ IDENTIFIABLE ASSETS: HyperFeed services $ 6,782,224 42.3% $ 6,535,603 64.6% PCQuote.com services 9,269,044 57.7% 3,575,410 35.4% ------------ ------------ Total identifiable assets $ 16,051,268 100.0% $ 10,111,013 100.0% ============ ============
Page 9 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (6) OTHER COMMITMENTS The Company and SpaceCom Systems, Inc. ("SpaceCom") entered into a settlement agreement as of November 1, 1999 related to the lease of satellite transmission space by the Company from SpaceCom. The lease was for 112 kilobits ("kb") of transmission capacity for payment of approximately $56,000 per month until, under certain circumstances, either August 1, 2002 or January 1, 2006. The Company and SpaceCom agreed to terminate the lease, and any and all claims or obligations thereunder, in exchange for the Company's agreement to pay SpaceCom an aggregate of $1,411,245 as follows: $179,245 on November 1, 1999, and ten equal monthly installments of $50,000 each from December 1, 1999 through September 1, 2000, and twelve equal monthly installments of $36,000 each from October 1, 2000 through September 1, 2001, and twelve equal monthly installments of $25,000 each from October 1, 2001 and ending on September 1, 2002. Page 10 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition INTRODUCTION - SAFE HARBOR DISCLOSURE The following discussion and analysis contains historical information. It also contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, particularly in reference to statements regarding our expectations, plans and objectives. You can generally identify forward-looking statements by the use of the words "may," "will," "expect," "intend," "estimate," "anticipate," "believe," or "continue," or similar language. Forward-looking statements involve substantial risks and uncertainties. You should give careful consideration to cautionary statements made in this discussion and analysis. We base our statements on our current expectations. Forward-looking statements may be impacted by a number of factors, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Our filings with the Securities and Exchange Commission identify factors that could cause material differences. Among these factors are our ability to: (i) fund our current and future business strategies either through continuing operations or external financing; (ii) attract and retain key employees; (iii) compete successfully against competitive products and services; (iv) maintain relationships with key suppliers and providers of market data; and (v) respond to the effect of economic and business conditions generally. RECENT BUSINESS DEVELOPMENTS HYPERFEED AND COMPAQ ANNOUNCE LAUNCH OF HYPERSERVER On March 6, 2000, we announced the launch of the HyperServer-TM-. Compaq (NYSE:CPQ) will configure its ProLiant class servers to our stringent specifications for processing, databasing, and redistributing the massive volumes of real-time HyperFeed-Registered Trademark- 2000 financial market data. HyperServer is an integral component of our newly released e-business solution, Neosphere, for Internet redistribution of real-time financial content. Under the joint marketing, sales and service agreement, HyperServer is available exclusively through Compaq DirectPlus with special financing terms from Compaq Financial Services. Our technicians will provide service and support. CHARLES SCHWAB SELECTS HYPERFEED TECHNOLOGIES AS MARKET DATA VENDOR On March 1, 2000, we announced that Charles Schwab & Co. (NYSE: SCH) is now using HyperFeed-Registered Trademark- 2000 to supplement the provision of market data to their Internet and on-line service offerings. HyperFeed 2000 is an IP Multicast datafeed that incorporates proprietary compression technologies to deliver over 600,000 North American stock and option issues, in true real-time. Schwab will also use HyperFeed 2000 to power their Interactive Voice Response systems. Page 11 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) CYBERCORP SELECTS HYPERFEED 2000 MARKET DATA FOR TWO NEW TRADING APPLICATIONS On February 28, 2000, we announced that we were selected as the primary provider of financial market data for CyBerCorp's new electronic stock trading software, CyBerX. In addition to CyBerX, CyBerCorp is also offering HyperFeed 2000 market data with its most recent product introduction, CyBerQuant, a quantitative analysis, stock screening and signal generation tool. As the primary market data provider to CyBerCorp, an electronic trading technology and brokerage group, we have been providing HyperFeed 2000 market data to CyBerCorp's clients for the past two years including many of the traders using CyBerTrader 2.0, a professional trading software application. CyBerCorp's new CyBerX offers point-and-click execution technology, immediate order status, and account portfolio management capabilities suited for both occasional investors and active traders. It provides the ability to forward an order, via CyBerBroker, to any and all NASDAQ Market Makers, ECNs and listed exchanges, using a high speed, electronic, intelligent, execution technology via the Internet. The electronic brain of CyBerBroker is CyBerXchange, which some have described as a "Super ECN." CyBerXchange receives real time Level II data from HyperFeed on Market Makers, ECNs and listed exchanges. When it receives an order, CyBerXchange searches electronically among all the possible Market Makers and ECNs, scanning their bids, offers and volume of shares available, before forwarding the order to the best price in that moment. HYPERFEED UNVEILS NEOSPHERE: E-BUSINESS SOLUTION FOR COMPANIES SERVING THE ONLINE FINANCIAL COMMUNITY. INCLUDES APOGEE - HYPERFEED'S LATEST PROPRIETARY SOFTWARE APPLICATION. On February 14, 2000, we announced the launch of Neosphere, a complete e-business solution for companies serving the online trading and financial community. Neosphere provides financial portals and brokerage firms with the front-end software and back-end administration required to offer online market data display and analysis software to their clients. Neosphere seamlessly integrates HyperFeed 2000 financial market data, a private-label version of Apogee, our new proprietary trading application, customizable online client sign-up pages and our Account Administration System ("AAS") which performs all administrative functions including billing, reporting, service authorization and exchange-required VARS reporting. Ideally suited for broker-dealers, websites and Internet portals, Neosphere's all-encompassing system automates the customer application, authorization, data delivery and control, billing and reporting process significantly lowering the barriers to Internet market data redistribution. Our research indicates that the market for Neosphere includes over 5,500 currently registered broker-dealers, approximately 300 ISP's and over 375 financial websites and search engines. According to industry sources, the online trading market is projected to grow to 9.7 million US households who will manage more than $3 trillion in invested assets in 20.4 million on-line accounts by 2003. Additionally, Neosphere allows e-businesses and traditional brokerage firms to quickly complete their financial Internet offerings with cost-effective real-time quotes, news and analytics. Microsoft-Registered Trademark- Windows-based, Apogee is comprised of eleven trading applications including quote grids, charting, time and sales, options, news, Nasdaq Level II, top ten and more. Powered by HyperFeed 2000 market data, Apogee was designed for user flexibility and convenience. Page 12 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Our web-based Account Administration System performs requisite back office functions with minimal human intervention. AAS includes private-labeled online signup pages which can be integrated into the client's website, automatic billing and credit card approval, unlimited data basing of client information, exchange required VARS reports and a variety of customizable user reports. AAS's VARS reporting system has been standardized according to North American exchange specifications and significantly lowers the barrier to redistributing market data. AAS runs on a Microsoft SQL server and is available for use in conjunction with Apogee display software or the client's proprietary application. RESULTS OF OPERATIONS: FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 Total revenue increased 46% for the first three months of 2000 to $10.9 million from $7.4 million for the comparable period in 1999. Our HyperFeed services and PCQuote.com services both posted increases for the first quarter of 2000 over 1999. HyperFeed service revenue increased $700,000, or 17%, from $4.2 million in 1999 to $4.9 million in 2000. Revenue growth was experienced through increases in analytics subscriptions and datafeed license fees. Revenue from our PCQuote.com services increased $2.7 million, or 84%, to $6.0 million for the first three months of 2000 from $3.3 million for the same period in 1999. The growth is principally due to the increase in the number of subscribers to our analytical services, which grew from 7,900 at the end of the first quarter of 1999 to 12,600 at the end of the first quarter of 2000. Direct costs of services increased 39% to $7.5 million for the first quarter of 2000 from $5.4 million in 1999. Principal components of the increase were royalties and payments to providers of market data, directly attributable to the growth in subscribers to both of our PCQuote.com and HyperFeed analytics services. Amortization of software development costs increased 14% for the quarter from $571,000 in 1999 to $652,000 in 2000. Also included in the first quarter of 2000 is a $420,000 non-cash charge for the amortization of the value assigned to the warrant issued in April 1999 to CNNFN in exchange for the three-and-a-half year license agreement with PCQuote.com. Gross margin increased 64% to $3.4 million for the quarter from $2.0 million for the prior year quarter. Direct costs associated with HyperFeed services decreased from $3.1 million for the quarter ended March 31, 1999 to $3.0 million for the March 31, 2000 quarter, a 3% decrease. Increases in license and exchange fees were offset by cost-savings related to leased equipment in customer service and support and lower costs of datafeed operations principally due to the termination of a lease for satellite transmission space in the third quarter of 1999. Amortization of software development costs increased 25% to $377,000 for the 2000 quarter from $302,000 for the 1999 quarter. The resulting gross margin increased 73% to $1.8 million in 2000 from $1.1 million in 1999. Direct costs associated with PCQuote.com services increased to $4.5 million for the 2000 quarter from $2.3 million in the comparable 1999 quarter, a 97% increase. The significant growth we experienced caused us to incur increases in license and exchange fees and data distribution costs. Software amortization was essentially unchanged at $274,000 for the 2000 quarter and $269,000 for the 1999 quarter. Also included in the first quarter of 2000 is a $420,000 non-cash charge for the amortization of the value assigned to the warrant issued in April 1999 to CNNFN in exchange for the three-and-a-half year license agreement with PCQuote.com. The gross margin on PCQuote.com services increased 56% from $989,000 for the first quarter of 1999 to $1.5 million for the first quarter of 2000. Page 13 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Total operating expenses increased $700,000, or 26%, to $3.5 million for the first quarter of 2000 from $2.8 million for the comparable 1999 period. Increases were experienced in all catagories to support the growth in revenue and new service offerings. Sales costs increased 23% to $1.1 million for the first three months of 2000 as compared to $881,000 for the same 1999 period. The increase in sales costs was directly attributable to the growth in revenue. General and administrative expenses increased 10% to $1.2 million in the first quarter of 2000 from $1.0 million for the first quarter of 1999. The increase was principally due to additional personnel and related costs required in support of the increase in business, as well as the ramp-up of PCQuote.com operations. Also contributing was an increase in the provision for doubtful accounts, in line with our revenue growth. Product and market development costs increased $226,000, or 38%, to $819,000 for the 2000 quarter from $594,000 for the 1999 quarter. The increase was due to an expansion of our development and marketing efforts for our existing and new services and markets. Depreciation and amortization increased $185,000, or 76%, to $428,000 for the first three months of 2000 from $243,000 for the comparable 1999 period. The increase is the result of communications and computer equipment purchases for increased growth and new service offerings. Interest expense was $52,000 for the first quarter of 2000, or $37,000 more than the $15,000 recognized for the first quarter of 1999. The increase reflects the interest incurred on the $2.0 million borrowing from Motorola, Inc. by PCQuote.com in September 1999. LIQUIDITY AND CAPITAL RESOURCES: FOR THE THREE MONTHS AND QUARTER ENDED MARCH 31, 2000 Net cash and cash equivalents increased $193,000 from year-end 1999 to $1,645,000 at the end of the first quarter of 2000. Expenditures for new equipment were $422,000 for the first three months of 2000 versus $239,000 for the same period in 1999. The increase in expenditures was to support the growth in our business, as well as to enhance our communications and market data processing infrastructures. Capitalized software costs of $289,000 for the quarter ended March 31, 2000 were essentially the same as the $299,000 for the same period in 1999. There were no new direct borrowings during the period, and we repaid $75,000 of the principal balance on our bank term loan. We received approximately $135,000 in net proceeds from the sale of shares of common stock to employees pursuant to our Employee Stock Purchase Plan and the sale of shares of common stock to employees who exercised options previously granted to them under our 1999 Combined Incentive and Non-Statutory Stock Option Plan. Total revenue for the first quarter of 2000 increased 46% to $10.9 million versus $7.4 million for the 1999 period, while direct costs of services increased only 39% to $7.5 million versus $5.4 million in 1999. The resulting gross margin increased 64% to $3.4 million in the first quarter of 2000 from $2.0 million in the first quarter of 1999. While there can be no assurances, given the projected increases in online trading and the expected demand for financial market data by web-sites and broker-dealers for their users, we expect the trend of revenue growth and margin improvement to continue. Page 14 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased to $1.4 million for the first quarter of 2000 from $95,000 for the comparable 1999 quarter. Reducing EBITDA by capitalized software costs and equipment purchases resulted in positive cash flow of $674,000 for the 2000 quarter as compared to a deficit of $442,000 for the same period in 1999. We believe our existing capital resources, our ability to access external capital, if necessary, and cash generated from continuing operations are sufficient for working capital purposes for at least the next twelve months. As we have previously reported, we have explored multiple alternatives that may be available for the purpose of enhancing stockholder value, including a merger, a spin-off or sale of part of our business, a strategic relationship or joint venture with another technology or financial services firm and equity financing. We continue to explore opportunities to enhance stockholder value. In December 1998, we segregated our web-sites and consumer-oriented Internet services into a separate internal business unit. We incorporated the business as a wholly-owned subsidiary, PCQuote.com, Inc., on March 19, 1999. On June 9, 1999, PCQuote.com filed a registration statement with the Securities and Exchange Commission relating to a planned initial public offering of shares of its common stock. On October 18, 1999, PCQuote.com announced that it was postponing the offering due to market conditions and filed an application to withdraw the registration statement on March 8, 2000. By order dated March 8, 2000, the Securities and Exchange Commission consented to the withdrawal of the registration statement. We do not plan to proceed with the offering for the time being. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's market risk during the three-month period ended March 31, 2000. For additional information, refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES During the first quarter of 2000, we issued 20,651 shares of our common stock to employees who purchased the shares under our Employee Stock Purchase Plan. During the first quarter of 2000, 22,799 shares of our common stock were purchased by employees who exercised stock options granted to them under our 1999 Combined Incentive and Non-Statutory Stock Option Plan. Page 15 PART II. OTHER INFORMATION (continued) ITEM 6. EXHIBITS and REPORTS on FORM 8-K (a) EXHIBITS Exhibit 27 - Financial Data Schedule. (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the period covered by this report. Page 16 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HYPERFEED TECHNOLOGIES, INC. Date: May 5, 2000 By: /s/ Jim R. Porter ----------------- Jim R. Porter Chairman and Chief Executive Officer By: /s/ John E. Juska ----------------- John E. Juska Chief Financial Officer and Principal Accounting Officer Page 17 EX-27 2 EXHIBIT 27
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1,644,944 0 3,943,431 507,926 0 7,578,036 5,393,758 2,988,683 16,051,268 9,632,226 0 0 48 15,636 4,567,858 16,051,268 10,851,777 10,851,777 7,484,316 7,484,316 3,481,755 150,000 52,049 (149,071) 0 (149,071) 0 0 0 (149,071) (0.01) (0.01)
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