-----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, WUuV0pl15t4GcI2tLWR1j9sZ7i4lJbP51vWJQptWdSEXQMQ/cKepv1F6yfpja+Yz OxsCpVHJayThUXHPJJr4hQ== /in/edgar/work/0001047469-00-000839/0001047469-00-000839.txt : 20001114 0001047469-00-000839.hdr.sgml : 20001114 ACCESSION NUMBER: 0001047469-00-000839 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HYPERFEED TECHNOLOGIES INC CENTRAL INDEX KEY: 0000745774 STANDARD INDUSTRIAL CLASSIFICATION: [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: 760125 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 0001.txt 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 quarterly period ended September 30, 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: 15,710,218 shares of the Company's common stock ($.001 par value) were outstanding as of October 31, 2000. Page 1 HYPERFEED TECHNOLOGIES, INC. INDEX PAGE PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 3 Consolidated Statements of Operations for the nine month periods ended September 30, 2000 and 1999 5 Consolidated Statements of Operations for the three month periods ended September 30, 2000 and 1999 6 Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2000 and 1999 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II. Other Information Item 2. Changes in Securities 17 Item 6. Exhibits and Reports on Form 8-K 17 Company's Signature Page 18 Page 2 HYPERFEED TECHNOLOGIES, INC. Consolidated Balance Sheets September 30, 2000 and December 31, 1999
September 30, December 31, ASSETS 2000 1999 (UNAUDITED) (AUDITED) ---------- ---------- Current Assets Cash and cash equivalents $ 2,484,095 $ 1,452,186 Accounts receivable, less allowance for doubtful accounts of: 2000: $94,412; 1999: $442,276 3,883,241 2,652,350 Prepaid license fees, current 1,680,000 1,680,000 Prepaid expenses and other current assets 330,643 244,477 ----------- ----------- TOTAL CURRENT ASSETS 8,377,979 6,029,013 ----------- ----------- Property and equipment Satellite receiving equipment 282,474 436,759 Computer equipment 4,194,985 4,323,921 Communication equipment 1,225,561 1,173,595 Furniture and fixtures 145,282 263,941 Leasehold improvements 429,084 402,692 ----------- ----------- 6,277,386 6,600,908 Less: Accumulated depreciation and amortization 3,834,195 4,189,766 ----------- ----------- 2,443,191 2,411,142 ----------- ----------- Prepaid license fees, net of accumulated amortization of: 2000: $2,450,000; 1999: $1,190,000 1,750,000 3,010,000 ----------- ----------- Software development costs, net of accumulated amortization of: 2000: $7,225,673; 1999: $6,890,526 2,823,940 3,775,491 ----------- ----------- Deposits and other assets 61,099 69,538 ----------- ----------- TOTAL ASSETS $15,456,209 $15,295,184 =========== ===========
See Notes to Consolidated Financial Statements. Page 3 HYPERFEED TECHNOLOGIES, INC. Consolidated Balance Sheets (continued) September 30, 2000 and December 31, 1999
September 30, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 (UNAUDITED) (AUDITED) ---------- ---------- Current Liabilities Notes payable $1,274,634 $1,050,000 Accounts payable 2,857,285 1,709,322 Accrued expenses 1,547,909 2,780,648 Accrued satellite termination expense 432,000 558,000 Accrued income taxes payable --- 5,000 Unearned revenue 2,713,781 2,304,070 ---------- ---------- TOTAL CURRENT LIABILITIES 8,825,609 8,407,040 ---------- ---------- Notes payable, less current portion 500,000 1,449,634 Accrued expenses, less current portion 114,871 134,693 Accrued satellite termination expense, less current portion 300,000 624,000 Unearned revenue, less current portion 77,430 78,315 Minority interest in subsidiary 4,853 3,869 ---------- ---------- TOTAL NONCURRENT LIABILITIES 997,154 2,290,511 ---------- ---------- TOTAL LIABILITIES 9,822,763 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 September 30, 2000 and December 31, 1999 19 19 Series B 5% convertible: 28,791 shares at September 30, 2000 and December 31, 1999 29 29 Common stock, $.001 par value; authorized 50,000,000 shares; issued and outstanding 15,710,218 shares at September 30, 2000 and 15,592,690 shares at December 31, 1999 15,710 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 25,494,047 25,183,631 Additional paid-in capital - convertible subordinated debenture and warrants 8,630,491 8,630,491 Accumulated deficit (36,257,754) (36,983,034) ----------- -----------. TOTAL STOCKHOLDERS' EQUITY 5,633,446 4,597,633 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,456,209 $15,295,184 =========== ============
See Notes to Consolidated Financial Statements. Page 4 HYPERFEED TECHNOLOGIES, INC. Consolidated Statements of Operations
FOR THE NINE MONTHS ENDED - --------------------------------------------------------------------------------------- September 30, September 30, 2000 1999 (UNAUDITED) (UNAUDITED) - --------------------------------------------------------------------------------------- REVENUE HyperFeed Services $16,250,500 $13,089,419 PCQuote.com Services 19,468,098 10,955,571 ----------- ----------- TOTAL REVENUE 35,718,598 24,044,990 ----------- ----------- DIRECT COST OF SERVICES HyperFeed Services 9,231,065 9,685,148 PCQuote.com Services 14,252,554 9,124,242 ----------- ------------ TOTAL DIRECT COST OF SERVICES 23,483,619 18,809,390 ----------- ------------ GROSS MARGIN 12,234,979 5,235,600 ----------- ------------ OPERATING EXPENSES Sales 3,072,955 2,669,883 General and administrative 3,822,173 3,771,312 Product and market development 3,231,721 2,496,573 Depreciation and amortization 1,273,185 855,446 Satellite termination expense --- 1,411,245 ------------- ------------ TOTAL OPERATING EXPENSES 11,400,034 11,204,459 ----------- ----------- INCOME (LOSS) FROM OPERATIONS 834,945 (5,968,859) ----------- ----------- OTHER INCOME (EXPENSE) Interest income 47,685 36,967 Interest expense (156,367) (67,501) Loss on sale of minority interest in PCQuote.com, Inc. --- (88,386) ----------- ----------- NET OTHER EXPENSE (108,682) (118,920) ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY 726,263 (6,087,779) INTEREST INCOME TAXES --- --- ----------- ----------- INCOME (LOSS) BEFORE MINORITY INTEREST 726,263 (6,087,779) Minority interest in subsidiary (984) 44,961 ----------- ----------- NET INCOME (LOSS) $ 725,279 ($6,042,818) ============ ============ Basic net income (loss) per share $0.05 ($0.41) Diluted net income (loss) per share $0.03 ($0.41) Basic weighted-average common shares outstanding 15,637,322 14,735,037 Diluted weighted-average common shares outstanding 23,963,383 14,735,037 - --------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. Page 5 HYPERFEED TECHNOLOGIES, INC. Consolidated Statements of Operations
FOR THE THREE MONTHS ENDED - --------------------------------------------------------------------------------------------- September 30, September 30, 2000 1999 (UNAUDITED) (UNAUDITED) - --------------------------------------------------------------------------------------------- REVENUE HyperFeed Services $ 5,997,355 $ 4,560,911 PCQuote.com Services 6,369,630 4,011,770 ------------ ------------ TOTAL REVENUE 12,366,985 8,572,681 ------------ ------------ DIRECT COST OF SERVICES HyperFeed Services 3,007,227 3,093,519 PCQuote.com Services 4,508,297 3,335,118 ------------ ------------ TOTAL DIRECT COST OF SERVICES 7,515,524 6,428,637 ------------ ------------ GROSS MARGIN 4,851,461 2,144,044 ------------ ------------ OPERATING EXPENSES Sales 1,024,662 877,794 General and administrative 1,285,905 1,381,085 Product and market development 1,354,001 1,345,896 Depreciation and amortization 384,165 329,811 Satellite termination expense --- 1,411,245 ------------ ------------ TOTAL OPERATING EXPENSES 4,048,733 5,345,831 ------------ ------------ INCOME (LOSS) FROM OPERATIONS 802,728 (3,201,787) ------------ ------------ OTHER INCOME (EXPENSE) Interest income 17,549 14,383 Interest expense (48,989) (38,604) ------------ ------------ NET OTHER EXPENSE (31,440) (24,221) ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 771,288 (3,226,008) INCOME TAXES --- --- ------------ ------------ INCOME (LOSS) BEFORE MINORITY INTEREST 771,288 (3,226,008) Minority interest in subsidiary (4,853) 23,139 ------------ ------------ NET INCOME (LOSS) $ 766,435 ($ 3,202,869) ============ ============ Basic net income (loss) per share $0.05 ($0.22) Diluted net income (loss) per share $0.03 ($0.22) Weighted-average common shares outstanding 15,668,724 15,022,593 Diluted weighted-average common shares outstanding 23,994,785 15,022,593 - ---------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements Page 6 HYPERFEED TECHNOLOGIES, INC. Consolidated Statements of Cash Flows
FOR THE NINE MONTHS ENDED ------------------------- September 30, September 30, 2000 1999 (UNAUDITED) (UNAUDITED) Cash Flows From Operating Activities: Net income (loss) $ 725,279 ($6,042,818) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 1,273,184 855,446 Provision for doubtful accounts 180,000 509,394 Amortization of software development costs 1,870,589 1,796,985 Amortization of value assigned to common stock warrant issued in lieu of cash license fees 1,260,000 770,000 Common stock issued in lieu of cash compensation --- 70,204 Minority interest in subsidiary 984 (44,961) Loss on sale of minority interest in PCQuote.com, Inc. --- 88,386 Changes in assets and liabilities: Accounts receivable (1,410,891) (1,286,276) Prepaid expenses and other current assets (86,166) (1,631,584) Deposits and other assets 8,439 132,709 Accounts payable 1,147,963 (1,647,472) Accrued expenses (1,252,561) 2,213,336 Accrued income taxes payable (5,000) (3,161) Accrued satellite termination expense (450,000) 1,411,245 Unearned revenue 408,826 565,222 ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,670,646 (2,243,345) ----------- ----------- Cash Flows From Investing Activities: Purchase of property and equipment (1,305,232) (1,118,260) Software development costs capitalized (919,038) (904,525) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (2,224,270) (2,022,785) ----------- ----------- Cash Flows From Financing Activities: Proceeds from issuance of common stock, net 310,533 3,412,530 Proceeds from issuance of notes payable, net --- 3,500,000 Principal payments on notes payable (725,000) (1,725,000) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (414,467) 5,187,530 ----------- ----------- Net increase in cash and cash equivalents 1,031,909 921,400 Cash and cash equivalents: Beginning of the period 1,452,186 1,139,785 ----------- ----------- End of the period $ 2,484,095 $ 2,061,185 =========== ===========
See Notes to Consolidated Financial Statements. Page 7 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION PRINCIPLES OF CONSOLIDATION: The accompanying interim consolidated financial statements include the accounts of HyperFeed Technologies, Inc. ("HyperFeed" or 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 interim consolidated 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's 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 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. 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. The Company'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 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. 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. Page 8 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS REVENUE RECOGNITION: The Company principally derives its revenue from service contracts for the provision of market data only ("HyperFeed -Registered Trademark- 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 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 and HyperFeed with analytics to the business-to-business marketplace, while PCQuote.com services primarily consist of analytics service, powered by HyperFeed, 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 (9.5% at September 30, 2000). The loan is collateralized by substantially all assets of the Company. The balance, as of September 30, 2000, is $274,634. On September 3, 1999, the Company's 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 (9.5% at September 30, 2000). Payments are due in eight equal installments on a quarterly basis commencing June 30, 2000 through March 31, 2002 and are subject to early repayment upon the closing of an initial public offering of PCQuote.com's common stock. The balance, as of September 30, 2000, is $1.5 million. Page 9 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 the 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) 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., principally 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 September 30, 2000 and September 30, 1999 is as follows:
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ------------------ ------------------ AMOUNT % AMOUNT % SALES TO UNAFFILIATED CUSTOMERS: HyperFeed services $ 5,997,355 48.5% $ 4,560,911 53.2% PCQuote.com services 6,369,630 51.5% 4,011,770 46.8% ------------ ------------- Total revenue $ 12,366,985 100.0% $ 8,572,681 100.0% ============ ============= OPERATING INCOME (LOSS): HyperFeed services $ 479,401 59.7% ($ 1,358,467) 42.4% PCQuote.com services 323,327 40.3% ( 1,843,320) 57.6% ------------ ------------- Total operating income (loss) $ 802,728 100.0% ($ 3,201,787) 100.0% ============ ============= IDENTIFIABLE ASSETS: HyperFeed services $ 7,073,916 45.8% $ 6,072,339 48.1% PCQuote.com services 8,382,293 45.2% 6,548,540 51.9% ------------ ------------ Total identifiable assets $ 15,456,209 100.0% $ 12,620,879 100.0% ============ ============
Revenues from AB Watley, PCQuote.com's largest customer, represent approximately 24.3% of the Company's consolidated revenues for the quarter ended September 30, 2000. Page 10 HYPERFEED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Financial information relating to industry segments for the nine months ended September 30, 2000 and September 30, 1999 is as follows:
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ------------------ ------------------ AMOUNT % AMOUNT % SALES TO UNAFFILIATED CUSTOMERS: HyperFeed services $16,250,500 45.5% $13,089,419 54.4% PCQuote.com services 19,468,098 54.5% 10,955,571 45.6% ----------- ----------- Total revenue $35,718,598 100.0% $24,044,990 100.0% =========== =========== OPERATING INCOME (LOSS): HyperFeed services $ 639,583 76.6% ($ 2,163,671) 36.2% PCQuote.com services 195,362 23.4% ( 3,805,188) 63.8% ----------- ----------- Total operating income (loss) $ 834,945 100.0% ($ 5,968,859) 100.0% =========== =========== IDENTIFIABLE ASSETS: HyperFeed services $ 7,073,916 41.5% $ 6,072,339 48.1% PCQuote.com services 8,382,293 58.5% 6,548,540 51.9% ------------ ------------ Total identifiable assets $ 15,456,209 100.0% $ 12,620,879 100.0% ============ ============
Revenues from AB Watley, PCQuote.com's largest customer, represent approximately 24.3% of the Company's consolidated revenues for the nine months ended September 30, 2000. (5) COMMITMENTS AND CONTINGENCIES In connection with the formation and transfer of its Internet consumer business to its subsidiary, PCQuote.com, on May 28, 1999, the Company and Townsend Analytics, Ltd. ("Townsend") entered into an agreement to terminate their Software Distributor Agreement dated December 4, 1995. Pursuant to the terms of the termination agreement, the Company was obligated and paid Townsend one million dollars within ninety days after execution of the agreement. The Company and PCQuote.com subsequently entered into separate new license agreements with Townsend for the right to use the LAN and Internet versions, respectively, of the software application which is marketed as PCQuote 6.0 RealTick. The new agreements replaced the prior agreement between Townsend and the Company. The initial term of the agreements ends December 4, 2000. Pursuant to the terms of the new agreements, the Company and PCQuote.com are each required to pay a minimum royalty to Townsend of $220,000 per month and a cumulative minimum royalty of $5,000,000 each over the initial term of the agreements. Under the terms of its new agreement with Townsend, the Company guarantees the obligation of its subsidiary, PCQuote.com, and receives a credit towards its minimum commitment obligations to the extent that PCQuote.com's actual royalty payments exceed its minimum commitments. The Company is a party to various legal proceedings incidental to its business operations, none of which is expected to have a material effect on the financial condition or results of operations of the Company. (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 11 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 MARKET DATA FEATURED ON GLOBENET ATS On August 30, 2000, we announced that GlobeNet Capital Corporation signed a contract to use HyperFeed market data for the company's alternative trading system (ATS), GlobeNet ATS. As part of the agreement, our real-time, streaming market data will not only be incorporated into GlobeNet's transaction processing system, but also offered as a component of its suite of online trading display mechanisms. GlobeNet's Internet-based trading platform brings automation and leading technologies to trading over-the-counter-bulletin-board (OTCBB) securities, which traditionally have not experienced the access, liquidity and visibility of traditional large cap stocks. Page 12 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) HYPERFEED LAUNCHES SMARTICKER IN ASIA, SIGNS CONTRACT WITH KOREA'S BLASHNET On August 15, 2000, we announced that Blashnet, a Seoul, Korea-based financial content and analytical software company, signed a contract to resell an integrated datafeed consisting of our North American data and Asian financial content. As part of the agreement, Blashnet became the first-ever client for HyperFeed SmarTicker, our newly launched technology that seamlessly integrates local financial content, such as exchange data and news content, into the HyperFeed datafeed. Blashnet will use SmarTicker to integrate Asian market data content that currently is not available within the HyperFeed datafeed, North America's most extensive market data source with quotes on over 600,000 equity, option, and commodity issues including full option chains. One of SmarTicker's key features is that it allows Blashnet to manipulate the integrated feed so that the Korean financial services firm can redistribute financial content based on its clients' unique needs. Blashnet will redistribute the integrated HyperFeed datafeed via the Internet. Its primary users include individual investors, institutions, Web portals, and trading rooms. NETSTOCK DIRECT SELECTS HYPERFEED MARKET DATA FOR SHAREBUILDER.COM On July 17, 2000, we announced that we have agreed to provide delayed HyperFeed market data to Netstock Direct Corporation for use with their new ShareBuilder product, an online investing service for long-term investors. Using our technology, Netstock Direct, a leading online source for long-term investing, will be incorporating the data into its main site and co-branded ShareBuilder services. Page 13 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) RESULTS OF OPERATIONS: FOR THE NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 2000 Total revenue increased $11.7 million, or 48.5%, to $35.7 million for the nine months ended September 30, 2000, and $3.8 million, or 44.3%, to $12.4 million for the quarter ended September 30, 2000 versus the comparable prior year periods. Our HyperFeed services and PCQuote.com services both posted increases for the first nine months of 2000 over 1999 and for the quarter ended September 30, 2000 over 1999. For the first nine months of 2000, HyperFeed service revenue increased $3.2 million, or 24.1%, to $16.3 million from $13.1 million in the same period in 1999. For the quarter ended September 30, 2000, HyperFeed service revenue increased $1.4 million, or 31.5%, to $6.0 million from $4.6 million in 1999. Revenue growth was experienced through increases in analytics subscriptions and datafeed license fees to existing, as well as new customers, such as Charles Schwab and National Discount Brokers. Revenue from our PCQuote.com services increased $8.5 million, or 77.7%, to $19.5 million for the first nine months of 2000 from $11.0 million for the same period in 1999. For the third quarter of 2000, revenue from PCQuote.com services increased $2.4 million, or 58.8%, from $4.0 million in 1999 to $6.4 million in 2000. The increase is principally due to the growth of our largest customer, AB Watley, who has grown from less than 10% of our revenue for all of 1999 to approximately 24% of our revenue for the first nine months of 2000. Effective September 1, 2000, NASDAQ NMS lowered the fees they charge for professional subscriptions to their data. These fees, which we are obligated to pay to NASDAQ on behalf of our professional customers, are charged to those customers by us. We estimate that the fourth quarter impact of the lower fees will be a decrease of approximately $1.0 million in revenue and direct costs as compared to the third quarter. As previously reported, our largest client, AB Watley, commenced in the third quarter their transition from a private-label version of third-party software, provided by our subsidiary, PCQuote.com, to a HyperFeed datafeed only customer using their proprietary software application. The private-label service is subject to payment of royalty fees to the third-party software provider, in addition to the collection and payment of exchange fees since we are the vendor of record with the exchanges for that business. As Watley's customers are moved, PCQuote.com's revenue will decrease, with a corresponding decrease in related royalties and exchange fees direct costs, while HyperFeed service revenue will increase. Since the private-label per user charge has a higher gross price, we expect the Watley transition, coupled with NASDAQ's lowered fees, to result in a decline in consolidated revenue in the fourth quarter from the third quarter, and a corresponding decline in direct costs resulting in an increase in the gross margin percentage. Considering these two factors, and anticipated offsetting revenue increases from new and existing customers, annual revenue for the year ending December 31, 2000 is expected to be approximately $46 million, which would be $13 million, or 39% greater than annual revenue for 1999. Direct costs of services increased $4.7 million, or 24.9%, to $23.5 million for the nine months ended September 30, 2000 from $18.8 million for the comparable 1999 period, and increased $1.1 million, or 16.9%, to $7.5 million for the quarter ended September 30, 2000 from $6.4 million for the comparable 1999 period. Principal components of the increase were royalties and payments to providers of market data, directly attributable to the growth of our largest customer. Amortization of software development costs decreased quarter-to-quarter from $0.6 million in 1999 to $0.5 million in 2000, and increased for the nine months from $1.8 million in 1999 to $1.9 million in 2000. Also included in the first nine months of 2000 is a $1.3 million non-cash charge, versus $0.8 million for the same 1999 period, 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. Page 14 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) For the first nine months of 2000, resulting gross margin increased $7.0 million, or 133.7%, to $12.2 million in 2000 from $5.2 million in 1999. For the quarter ended September 30, 2000, the resulting gross margin was $4.9 million, an increase of $2.7 million, or 126.3%, from $2.1 million in the third quarter of 1999. As a percentage of revenue, gross margins increased to 39.2% for the third quarter of 2000 from 25.0% for the third quarter of 1999, and increased to 34.3% for the first nine months of 2000 from 21.8% for the comparable 1999 period. The expansion in percentage gross margins is attributable to internal cost efficiencies implemented in 1999, coupled with an increased sales focus in 2000 on higher margin datafeed services. Direct costs associated with HyperFeed services decreased from $9.7 million for the nine months ended September 30, 1999 to $9.2 million for the first nine months of 2000, a 4.7% decrease. For the quarter ended September 30, 2000, direct costs associated with HyperFeed services were $3.0 million, a 2.8% decrease from $3.1 million in the same period of 1999. Increases in amortization of software development costs 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 17.0% to $1.1 million for the first nine months of 2000 from $1.0 million for the same period in 1999. For the quarters ended September 30, amortization of software development costs was unchanged at $0.4 million. For the first nine months of 2000, resulting gross margin increased $3.6 million, or 106.2%, to $7.0 million in 2000 from $3.4 million in 1999. For the quarter ended September 30, 2000, the resulting gross margin for HyperFeed services was $3.0 million, an increase of $1.5 million, or 103.8%, from $1.5 million in the third quarter of 1999. Direct costs associated with PCQuote.com services increased to $14.3 million for the first nine months of 2000 from $9.1 million in the comparable 1999 period, a 56.2% increase. For the quarter ended September 30, 2000, direct costs associated with PCQuote.com services were $4.5 million, a 35.2% increase from $3.3 million in the same period of 1999. Increases in license and exchange fees, directly attributable to the increase in revenue, were the principal components of the quarterly and nine-month increases in direct costs. Amortization of previously capitalized software development costs decreased to $0.7 million for the first nine months of 2000 from $0.8 for the 1999 period, and decreased for the third quarter to $0.2 million for 2000 from $0.3 million for 1999. The gross margin on PCQuote.com services increased $3.4 million, or 184.8%, to $5.2 million for the first nine months of 2000 from $1.8 million for the same period of 1999. PCQuote.com services gross margin increased $1.2 million, or 175.1%, to $1.9 million for the third quarter of 2000 from $0.7 million for the same 1999 period. Total operating expense increased $0.2 million, or 1.7%, to $11.4 million for the nine months ended September 30, 2000 from $11.2 million for the comparable 1999 period, and decreased $1.3 million to $4.0 million for the quarter ended September 30, 2000 from $5.3 million, including a $1.4 million charge related to terminating a satellite services agreement in 1999, for the comparable 1999 quarter. Sales costs increased $0.4 million, or 15.1%, to $3.1 million for the first nine months of 2000 from $2.7 million for the same 1999 period. For the third quarter of 2000, sales costs were $1.0 million, a $0.1 million, or 16.7%, increase from $0.9 million for the prior year period. The increase in sales costs was directly attributable to the growth in revenue. General and administrative expenses remained unchanged at $3.8 million for the first nine months of 2000 and 1999. For the quarter ended September 30, 2000, general and administrative expenses decreased $0.1 million, or 6.9%, to $1.3 million from $1.4 million for the same quarter in 1999. The decrease for the quarter was principally due to lower legal and other professional fees. Product and market development costs increased $0.7 million, or 29.4%, to $3.2 million for the nine months ended September 30, 2000 from $2.5 million for the comparable 1999 period, and were unchanged at approximately $1.3 million for the quarters ended September 30, 2000 and 1999. The increase for the nine months was due to an expansion of our development and marketing efforts for our existing and new services and markets. Page 15 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Depreciation and amortization increased $0.4 million to $1.3 million for the first nine months of 2000 from $0.9 million for the comparable 1999 period, and increased $0.1 million to $0.4 million for the third quarter of 2000 from $0.3 million 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 $0.2 million for the first nine months of 2000, $0.1 million more than the first nine months 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 NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 2000 Net cash and cash equivalents increased $1.0 million from year-end 1999 to $2.5 million at the end of the third quarter of 2000. Expenditures for new equipment were $1.3 million, an increase of $0.2 million, or 16.7%, from $1.1 million 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 were unchanged at $0.9 million for the nine-month periods ended September 30, 2000 and 1999. There were no new direct borrowings during the nine months, and we repaid $0.2 million of the principal balance on our bank term loan and $0.5 million on our note payable to Motorola, Inc. We received approximately $0.3 million 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. Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased to a positive $5.2 million for the first nine months of 2000 from a $2.5 million EBITDA deficit for the comparable 1999 period, and increased to a positive $2.1 million for the third quarter of 2000 as compared to an $1.8 million EBITDA deficit for the same period in 1999. Reducing EBITDA by capitalized software costs and equipment purchases resulted in positive cash flows, before working capital and financing activities, of $3.0 million for the nine months ending September 30, 2000 as compared to a deficit of $4.6 million for the same period in 1999, and, for the quarter ending September 30, 2000, resulted in a positive $1.5 million as compared to a deficit of $2.4 million for the 1999 quarter. 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a comprehensive standard for the recognition and measurement of derivative instruments and hedging activities. The Company does not expect the adoption of the new standard to have a material effect on its financial position, liquidity, or results of operations. Page 16 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Financial Accounting Standards Board Interpretation No.44 (FIN No. 44), "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of Accounting Principles Board Opinion No. 25, is effective for financial statements beginning after July 1, 2000. FIN No. 44 establishes accounting and reporting standards for transactions involving stock compensation. The Company does not believe that FIN No. 44 will have a significant impact on its financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, as amended, which is effective no later than the fourth fiscal quarter of fiscal 2000. The Company does not expect the adoption of this accounting pronouncement to have a significant impact on its results of operations, financial position or cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's market risk during the nine-month period ended September 30, 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, second and third quarters of 2000, we issued 20,651, 30,054, and 38,975 shares of our common stock, respectively, to employees, who purchased the shares under our Employee Stock Purchase Plan. During the first, second and third quarters of 2000, 22,799, 834, and 4,215 shares of our common stock, respectively, were purchased by employees who exercised stock options granted to them under our 1999 Combined Incentive and Non-Statutory Stock Option Plan. 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 17 SIGNATURES Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HYPERFEED TECHNOLOGIES, INC. Date: November 13, 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 18 EX-27 2 0002.txt EXHIBIT 27
5 9-MOS DEC-31-2000 SEP-30-2000 SEP-30-2000 2,484,095 0 3,883,241 94,412 0 8,377,979 6,277,386 3,834,195 15,456,209 8,825,609 0 0 48 15,710 5,617,688 15,456,209 35,718,598 35,718,598 23,483,619 23,483,619 11,400,034 0 156,367 725,279 0 725,279 0 0 0 725,279 0.05 0.03
-----END PRIVACY-ENHANCED MESSAGE-----