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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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
HYPERFEED TECHNOLOGIES, INC.
(FORMERLY PC QUOTE, INC.)
Incorporated in the State of Delaware FEIN 36-3131704
Principal Executive Offices:
300 South Wacker Drive, #300, Chicago, Illinois 60606
Telephone Number: (312) 913-2800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par Value
Indicate by check mark whether the registrant (1) has filed all reports 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
1
As of February 29, 2000, the aggregate market value of the Common Stock of the
Registrant (based upon the closing price of the Common Stock as reported by the
Nasdaq National Market) on such date held by non-affiliates of the Registrant
was approximately $92,500,000.
As of February 29, 2000, there were 15,608,569 shares of Common Stock and 47,866
shares of Preferred Stock of the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: See Page 3
Portions of the Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the 2000 Annual Meeting
of Stockholders are incorporated by reference into Part III of this report.
2
PART OF FORM 10-K DOCUMENT
PART I None
PART II None
PART III
ITEM 10 Directors, Executive Officers, Company's Proxy Statement
Promoters and Control Persons; to be filed in connection with
Compliance with Section 16(a) its Annual Meeting of
of the Exchange Act Stockholders
ITEM 11 Executive Compensation Company's Proxy Statement
to be filed in connection with
its Annual Meeting of
Stockholders
ITEM 12 Security Ownership of Company's Proxy Statement
Certain Beneficial Owners to be filed in connection with
and Management its Annual Meeting of
Stockholders
ITEM 13 Certain Relationships and Company's Proxy Statement
Related Transactions to be filed in connection with
its Annual Meeting of
Stockholders
PART IV
ITEM 14 Exhibits, Financial Exhibits as specified in Item
Statement Schedules, and 14 of this Report
Reports on Form 8-K
3
HYPERFEED TECHNOLOGIES, INC.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
We were originally incorporated in the State of Illinois on June 23, 1980 as
On-Line Response, Inc. We changed our name to PC Quote, Inc. in 1983 and
incorporated in Delaware on August 12, 1987. In March 1999, we incorporated a
wholly-owned subsidiary, PCQuote.com, Inc., to focus on our web site and
consumer business. In June 1999, we changed our name to HyperFeed Technologies,
Inc. We are an Internet solutions provider servicing the business-to-business
and business-to-consumer financial marketplace. We collect financial content
directly from stock, options and commodities exchanges and other news and
financial information sources. We provide this content with a variety of
optional analytics packages to businesses for their internal use and
redistribution to their customers over the Internet, virtual private networks,
intranets, extranets, and local or wide area networks.
We use proprietary collection techniques to process financial market activity
reported to us directly from equities, options, and futures and options on
futures exchanges. We consolidate the information and update in real-time our
data warehouse of last sale, bid/ask, time and sales, and historical prices of
more than 600,000 securities and derivatives issues. The data warehouse includes
information on all North American equities, equity options, major stock indices,
Level 1 NASDAQ-quoted stocks, Level 2 NASDAQ market-maker quotes, mutual funds,
money market funds, futures contracts and options on futures contracts. We use
proprietary extraction routines and compression algorithms to create
"HyperFeed-Registered Trademark- 2000", our IP Multicast digital datafeed.
HyperFeed 2000 is created, and news and other financial content incorporated, at
our primary processing facility located at our executive offices in Chicago,
Illinois. We maintain a back up facility at our development offices in Aurora,
Illinois.
We disseminate HyperFeed 2000 to our customers over the Internet, as well as by
satellite and digital data landlines. HyperFeed 2000 populates databases
residing on computer servers at our customers' sites that are continuously and
instantaneously updated. This process is often referred to as "real-time
streaming data". Software applications on our customers' and their customers'
computers access the HyperFeed 2000 populated databases to allow the
end user to monitor securities activity and financial information on an on-going
real-time basis. PCQuote.com maintains multiple servers for customers' real-time
access, through Internet connections or through the World Wide Web. This
provides our customers the same institutional quality financial data without
the requirement of having their own server.
We derive our revenue from license fees charged for access to HyperFeed 2000 and
from license fees charged for a packaged HyperFeed 2000 plus analytical software
service. Our services are used primarily for trading analysis and as a price
engine for order routing, order matching, order execution, interactive voice
response, and alternative trading systems. Our customer base consists primarily
of financial market data redistributors: securities broker-dealers, on-line
brokerage firms, portfolio managers, other financial institutions, Internet
web-sites and financial portals. PCQuote.com services individual and
professional investors, in addition to selling advertising space on its web
site, www.pcquote.com. Our customers are located primarily in the United States
and North America.
The following is a description of the principal services that we provide.
4
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES
HYPERFEED-Registered Trademark- 2000
HyperFeed 2000 is our IP Multicast digital real-time financial market datafeed.
We create HyperFeed 2000 by collecting, analyzing, processing, storing,
compressing, and transmitting financial content in under 70 milliseconds.
HyperFeed 2000 contains:
- Last sale, bid/ask, time and sales, and historical prices of
more than 600,000 North American securities and derivatives
issues;
- Complete options chain information;
- Equity indices, mutual funds, money market funds;
- Dynamic Nasdaq Level II market maker quotes;
- Dow Jones Composite News Service (up to 90-day retrieval of
nine wires "Broadtape", Professional Investor Report, Capital
Markets Report, International News Wire, World Equities
Report, European Corporate Report, Electronic Wall Street
Journal, International Petroleum Reports, Federal Filings);
and
- Multiple levels of fundamental data.
HyperFeed 2000 enables servers at our customers' sites to receive HyperFeed
2000 data and create real-time databases of financial markets activity, news
and fundamental security information. HyperFeed 2000 is used primarily for
trading analysis and as a price engine for order routing, order matching,
order execution, interactive voice response, and alternative trading systems.
Our customers pay monthly HyperFeed licensing fees and per-user or per-unit
charges. HyperFeed 2000 licensees consist primarily of financial market data
redistributors: securities broker-dealers, on-line brokerage firms, portfolio
managers, other financial institutions, Internet web-sites and financial
portals.
HyperFeed 2000 provides PCQuote.com's customers the benefit of institutional
quality data, accessible over the Internet. Professional and individual
investors are also able to benefit from the Internet's substantially lower costs
for service and communications, its ease of access and its worldwide
availability.
Powered by HyperFeed 2000, our other services capitalize on the speed and
completeness of HyperFeed 2000 to access, view and utilize the financial content
we provide in a variety of ways.
SOFTWARE APPLICATIONS AND SERVICES MARKETED BY REGISTRANT
HyperFeed licenses high-end applications and programming tools to subscribers
for the purpose of viewing, analyzing and manipulating HyperFeed 2000's robust
financial market content.
REALTICK-TM- FROM HYPERFEED TECHNOLOGIES, INC.
RealTick is a Microsoft Windows-based ('95, '98, NT) suite of real-time
professional securities trading tools which is powered by HyperFeed 2000 market
data. RealTick's comprehensive functionality includes: unlimited quote pages,
charting, technical analytics, searchable news, time of sale and quote, Nasdaq
Level II market maker screens, options analytical tools, dynamic data exchange
into Microsoft-TM- Excel-TM-, tickers, alerts, baskets and more. RealTick is
available with HyperFeed's satellite, landline, and Internet services.
5
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
APOGEE-TM-
HyperFeed's proprietary display software, Apogee, is a collection of individual
financial applications which can be independently opened from the Launcher bar
on the user's desktop. User-friendly, flexible and customizable, each
application contributes to a full-scale real-time trading center. Apogee
includes quote grids, tickers, alarms, Nasdaq Level II market maker screens,
options, charts, analytics, time and sales, name look up and a spreadsheet
download feature for use with Microsoft Excel and other spreadsheet programs.
Powered by HyperFeed 2000 market data, Apogee is available for use by
individuals and corporations and can be private-labeled for internal or external
redistribution.
HYPERFEED-Registered Trademark- SDK
HyperFeed's Software Development Kit (SDK) provides developers with the
necessary tools for easy integration of HyperFeed 2000 market data into
proprietary software and web based applications. Compatible with
Microsoft-Registered Trademark- Windows NT-Registered Trademark-, LINUX, UNIX
and other operating systems, HyperFeed SDK is a complete toolkit which
includes a variety of programming interfaces, documentation, sample code and
API (Application Programming Interface), CGI (Common Gateway Interface) and
ActiveX programming tools.
HYPERSERVER-TM-
HyperFeed's Microsoft-Registered Trademark- Windows NT-Registered Trademark-
HyperServer works as an independent workhorse at the client site to effortlessly
manage the massive intake, processing and dissemination of real-time HyperFeed
2000 market data. Running proprietary HyperServer software, the HyperServer
performs three basic functions: decompress and decrypt the HyperFeed broadcast,
maintain the database, and make events/databases available to HyperFeed, third
party or the client's own applications. Designed specifically for real-time data
management, the HyperServer makes no demands on system resources and allows for
optimal client workstation performance.
PCQUOTE.COM-TM-
PCQuote.com services consist of comprehensive financial information and
market data combined with analytical tools that can be used by professional
and individual investors and businesses. Our service offerings complement
each other to provide a variety of timely market data, financial and business
news, and research and analytical tools.
WWW.PCQUOTE.COM
Our free Web site, www.pcquote.com, provides access to delayed quotes, news,
research and analytical tools and a broad range of financial information to
empower the individual investor. The site also serves as the primary
marketing and promotions engine for the rest of the services we provide.
www.pcquote.com provides the following tools and information:
Free Delayed Quote Tools Powered By HyperFeed 2000:
- Detailed Quote allows investors to request equity,
commodity, option, mutual and money market fund and
bond quotations by ticker search.
- Multiple Quote allows users to enter up to five
ticker symbols into the query at one time.
- Portfolio enables users to track up to five
portfolios of up to ten symbols each.
- Markets at a Glance provides a basic overview of
various market indices, including the current
position of the index as well as its net change for
the day.
6
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
- Detailed Indices provides a detailed list of the
individual securities underlying various indices.
- Top Ten allows the user to view the top ten gainers,
losers, and most active stocks on the primary
exchanges in North America.
- Futures offers market quotations from various futures
and commodities exchanges in a way that is intuitive
to the commodities trader.
- Options Strings shows relative prices for all options
for a particular security.
- Funds provides information with respect to the
various mutual funds within a particular fund family.
- Symbol Search enables investors to enter a company's
name and receive the matching ticker symbol.
News - provides users access to timely, original financial news
and stories from a variety of sources:
- CNNfn Headlines, provided through our strategic
relationship with CNNfn, gives investors access to
timely, original financial and business news
headlines and stories published by CNNfn.
- Wire-based news offers investors access to press
releases and other wire-based news provided by COMTEX
Scientific Corporation, including feeds from PR
Newswire, Business Newswire, M2 Communications, and
UPI Spots.
Research and Analysis Tools - allows users to research and analyze
market quotations with tools and information from a variety of
sources:
- Stock Analysis is available through our relationship
with VectorVest, Inc. and provides investors access
to three free VectorVest analysis reports per day.
- Stock Criteria Search is provided through our
relationship with IQC, Inc., and enables the investor
to run search queries on various stocks that fit
user-defined investment criteria. Queries can be
based on such factors as industry, price earnings
ratio and dividend history.
- Charting is provided by Silicon Investor and allows
investors to display historical and intra-day charts
for publicly traded securities and all major indices.
- Earnings Analysis and Reporting Tools gives consensus
earnings estimates and other earnings-related reports
provided by Zacks Investment Research.
- Research Reports give analysts recommendations and
in-depth analysis and commentary from multiple
sources provided by Multex.com.
- Corporate Profiles is provided by MarketGuide and
gives investors access to corporate profiles for most
publicly-traded companies.
- The IPO Resource Center is provided by IPO.com and
gives investors the ability to research new initial
public offerings (IPOs), monitor the post-offering
performance of IPOs, search filings made with the SEC
and receive news stories about upcoming IPOs.
7
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
MARKETSMART-REAL.PCQUOTE.COM
Our subscription-based Web site, www.marketsmart-real.pcquote.com, provides
real-time, snap-shot market quotations along with all of the news,
research, and analytical tools available on www.pcquote.com. This site is
targeted toward a more sophisticated investor than is www.pcquote.com.
marketsmart-real.pcquote.com uses sparse graphics, text indices, and creative
advertising to speed download times and give investors faster access to the
site's content. marketsmart-real.pcquote.com can be accessed from
www.pcquote.com.
PCQUOTE ORBIT
PCQuote Orbit provides our subscribers with streaming, real-time market
quotations delivered via an Internet-enabled desktop service. This
Internet-enabled desktop application allows users access to streaming real-time
quotes and more complex research and analytical tools.
PCQuote Orbit offers desktop versions of the quote tools available on
www.pcquote.com. These applications are similar to those offered on our Web
sites, but work with our streaming, real-time data. In addition, the following
tools are also offered:
- Quote Grid enables investors to enter into a grid hundreds of
ticker symbols for which they desire to receive market
quotations, such as high, low, bid, ask, last and close
prices.
- Charting provides high-end, tick by tick technical analysis.
- Scrolling Ticker enables investors to display current prices
and daily changes of selected stocks on a digital ticker tape
that scrolls across a user's screen.
PCQUOTE 6.0 REAL TICK
PCQuote 6.0 Real Tick is a professional-quality, NASDAQ level II, real-time
quote system that offers investors reliable, streaming real-time market data for
all North American equities and options. PCQuote 6.0 empowers sophisticated
investors by giving them the freedom to decide how and when to trade on a daily
basis. This service is online-trading enabled and offers access to order
execution through participating broker-dealers.
PCQuote 6.0 includes the same analytical tools as PCQuote Orbit, plus
the following:
- NASDAQ Level II Screens provides investors with access to
brokerage quotations.
- Technical Analysis enables subscribers to make use of a host
of technical analysis formulas through robust algorithms.
- Market Guide provides access to a company's financial and
other corporate information, such as income statements,
balance sheets and contact information.
- News allows investors to research companies through the
printed media. This service is provided by Dow Jones and
COMTEX. These news stories can be accessed via a scrolling
headline ticker or by keyword search of the database.
- Alarms enables users to set customizable alarms or alerts for
one or more stocks with a variety of parameters, such as
volume, price, highs and lows.
8
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
OMEGA PRO SUITE
Omega Pro Suite by Omega Research, Inc. is a sophisticated analytics application
powered by HyperFeed 2000 over the Internet. It is used primarily by
professional and individual investors for technical analysis and charting.
WEB TEMPLATES
Web Template allows clients to create their own "private label" Web sites with
many of the features of our own Web sites. These templates are created, hosted
and maintained by us. Web Templates include a variety of quote tools, both
delayed and real-time, as well as a variety of news and research and analytical
tools from our third-party vendors.
We offer companies and Web sites access to our delayed or real-time data.
Utilizing standard templates, the actual Web pages that house the data
applications are hosted at PCQuote.com and accessed by the client through a
simple series of links over the Web. Similar to www.pcquote.com, our clients are
able to offer the following tools: Detailed Quote, Multiple Quote, Portfolio,
Markets at a Glance, Detailed Indices, Top Ten and Option Strings. We also offer
access to third-party research and analysis.
HYPERSCRIPT
Hyperscript is a proprietary development tool used to create data-rich Web sites
and Internet-based market data applications. Hyperscript allows
business-to-business clients to develop their own data applications using
HyperFeed 2000 data. Utilizing standard development techniques to access data
and present it on third-party Web sites, Hyperscript makes development of
complex data applications a simple task. Customers can purchase Hyperscript for
either limited or unlimited access to data.
PATENTS, TRADEMARKS AND LICENSES
We do not have patent protection for our proprietary software. Although
applicable software is readily duplicated illegally by anyone having access to
appropriate hardware, we attempt to protect our proprietary software through
license agreements with our customers and common law trade secret protection and
non-disclosure contract provisions in our agreements with our employees. We use
security measures, including a hardware key, which restricts access to our
services unless proper password identification from a HyperFeed or PCQuote.com
user is provided. As an additional safeguard, we provide only the object code on
our diskette and retain the source code.
HyperFeed-Registered Trademark- is a registered trademark of HyperFeed
Technologies. HyperServer-TM- and Apogee-TM- are trademarks of HyperFeed
Technologies.
PCQuote.com-TM- and PCQuote.com Orbit-TM- are trademarks of PCQuote.com.
COMPETITION
The market for the on-line provision of financial information such as equities,
commodities, futures and options quotations and news through services and
software applications similar to those we provide includes a large number of
competitors and is subject to rapid change. We believe our primary competitors
include Reuters, Bloomberg, Bridge Information Systems, the ILX unit of Thomson
Corporation, the AT Financial unit of Primark Corporation, the Comstock unit of
Standard & Poors, and Data Broadcasting Corporation. Many of these competitors
have significantly greater financial, technical and marketing resources and
greater name recognition than we do.
9
PART I ITEM 1. BUSINESS
SEASONALITY
We have not experienced any material seasonal fluctuations in our business.
Barring any prolonged period of investor inactivity in trading securities, we do
not believe that seasonality is material to our business activities.
RESEARCH AND DEVELOPMENT
Our systems development personnel expend their time and effort developing new
software programs and high-speed data delivery systems and expanding or
enhancing existing ones. Development efforts focus on providing a solution to
the informational and analytical needs of both the professional and private
investors. Development activity has increased with the implementation of
high-level design and prototyping tools. Our investment in software development
consists primarily of:
- enhancements to our existing Windows-based private network and
Internet services;
- development of new data analysis software and programmer
tools; and
- application of new technology to increase the data volume and
delivery speed of our distribution system.
During the fiscal years ended December 31, 1999, 1998 and 1997, we expensed
$1,070,346, $634,884, and $873,579, respectively, for research and development.
ENVIRONMENT
Compliance with Federal, state, and local provisions with respect to the
environment has not had a material adverse effect on our capital expenditures,
earnings, or competitive position.
EMPLOYEES
As of December 31, 1999, we employed 82 people and PCQuote.com employed 53
people, none of whom are represented by a collective bargaining unit. We
believe we have a satisfactory relationship with our employees. From time to
time, we use the services of outside consultants on an hourly basis.
GOVERNMENT CONTRACTS
We have no material contracts with the Government.
BACKLOGS
Due to the nature of our business, backlogs are not a typical occurrence in our
industry.
MAJOR CUSTOMERS
We did not have any customers that accounted for 10% or more of total revenue in
either 1999, 1998 or 1997.
10
PART I-ITEM 1. BUSINESS
ITEM 2. PROPERTIES
Our executive offices and primary data center are located in approximately
15,000 square feet of leased space on the 3rd floor of 300 South Wacker Drive,
Chicago, Illinois. The lease for the premises expires on December 31, 2004.
Lease payments are subject to escalating base rent as well as adjustment for
changes in real estate taxes and other operating expenses. (See Note 7 of the
Notes to Consolidated Financial Statements.)
We also lease approximately 5,000 square feet of office space in Aurora,
Illinois, through March 2000. We intend to renew this lease for an additional
five years. The lease for 3,000 square feet of office space in New York City
expires in July 2002. (See Note 7 of the Notes to Consolidated Financial
Statements.)
ITEM 3. LEGAL PROCEEDINGS
GRAHAM R. CLARK V. PC QUOTE INCORPORATED (HYPERFEED) 1999 C 559, High Court of
Justice, Queens Bench Division, London. This lawsuit was filed on May 10, 1999.
It claims breach of a November 18, 1992 Marketing Agreement entered into between
the plaintiff and PC Quote (UK) Limited (a former subsidiary). Mr. Clark
claims approximately $800,000 in damages and seeks his attorney's fees and
costs. We have retained U.K. counsel to defend against these claims, and are
vigorously defending the lawsuit. In addition, we have filed a counterclaim for
approximately $100,000 in receivables owed by Mr. Clark to us. Given the early
stage of this litigation, no assessment of the likely financial exposure to us
in this lawsuit can be made.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On September 23, 1999, our common stock commenced trading on the NASDAQ National
Market under the symbol "HYPR." Prior to that date, our common stock was traded
on the American Stock Exchange under the symbol "PQT."
The following tables show for 1999 and 1998 the high and low sales prices of our
common stock for the periods indicated, as reported by the American Stock
Exchange (through September 22, 1999) and the Nasdaq National Market (from
September 23, 1999 through December 31, 1999).
1999 QUARTERLY INFORMATION HIGH LOW
- -------------------------- ---- ---
First 11-7/8 1-7/8
Second 15-1/2 6-1/2
Third 11-1/2 4-5/16
Fourth 8-5/16 4-1/8
1998 QUARTERLY INFORMATION HIGH LOW
- -------------------------- ---- ---
First 1-1/8 11/16
Second 4-15/16 11/16
Third 3-1/4 7/8
Fourth 3-3/4 1
11
PART II-ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, CONTINUED
As of January 31, 2000, we had 508 stockholders of record of our common stock.
DIVIDEND POLICY
We have not paid dividends on our common stock and do not currently plan to do
so in the near future. In December 1998, we issued preferred stock that has a
dividend rate of 5%. Preferred dividends are payable if, and when, we declare a
dividend payment. We have not, and currently do not plan in the near future, to
declare any preferred dividend payments. Preferred dividends are cumulative and
the entire accumulated dividend must be paid prior to the payment of any
dividends to common stockholders. The accumulated preferred dividend was
$350,000 at December 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995
INCOME DATA:
Net revenue $ 33,128,059 $ 23,045,533 $ 17,119,372 $ 17,032,164 $ 13,391,982
Operating income (loss) ($ 9,352,153) ($ 4,699,426) ($ 8,920,726) ($ 2,957,830) $ 1,559,995
Income (loss) before minority
interest and income taxes ($ 9,511,228) ($ 6,445,595) ($ 11,135,654) ($ 3,091,705) $ 1,376,597
Net income (loss) ($ 9,431,698) ($ 6,449,208) ($ 11,141,416) ($ 3,255,969) $ 1,512,239
Net income (loss) available
for common stockholders ($ 9,431,698) ($ 7,468,146) ($ 11,141,416) ($ 3,255,969) $ 1,512,239
BALANCE SHEET DATA:
Total assets $ 15,295,184 $ 10,053,367 $ 10,536,448 $ 11,554,070 $ 10,522,840
Long term obligations $ 2,290,511 $ 921,781 $ 2,833,734 $ 2,291,178 $ 712,904
Stockholders' equity $ 4,597,633 $ 2,915,271 $ 66,329 $ 5,331,577 $ 6,611,278
PER SHARE DATA:
Basic net income (loss) ($0.63) ($0.57) ($1.33) ($0.45) $ 0.21
Diluted net income (loss) ($0.63) ($0.57) ($1.33) ($0.45) $ 0.21
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
Recent Business Developments - HyperFeed Announces Internet Business Solution
Neosphere.
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, HyperFeed's new proprietary trading application, customizable online
client sign-up pages and HyperFeed's 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.
Recent Business Developments - Listing on the Nasdaq National Market.
We commenced trading of our common stock on the Nasdaq National Market on
September 23, 1999 under the symbol HYPR. Concurrent with the listing on the
Nasdaq National Market, trading in our common stock on the American Stock
Exchange under the symbol PQT was suspended.
Recent Business Developments - PCQuote.com.
In December 1998, we segregated our Internet consumer-oriented services into
a separate business unit, PCQuote.com, Inc., which was incorporated in March
1999 as a wholly-owned subsidiary. An outgrowth of our financial content web
site, www.pcquote.com, PCQuote.com's objective is to provide real-time
financial data, timely business news and comprehensive research and
analytical tools in order to allow users to make informed investment
decisions. Continued growth in page views, increasing attractive demographics
and subsequent increase in advertising revenue led to our decision to
segregate the web site into its own business unit.
13
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
On June 9, 1999, PCQuote.com filed a registration statement with the
Securities and Exchange Commission relating to a proposed initial public
offering of 7,750,000 shares of its common stock, consisting of 5,800,000
shares to be issued by PCQuote.com and 1,950,000 shares to be sold by us as
selling stockholder.
On August 30, 1999, we formally separated the business of PCQuote.com and its
associated assets and liabilities from our other businesses and operations.
We entered into agreements with PCQuote.com, effective March 31, 1999,
providing for its separation from us and governing interim and ongoing
relationships between PCQuote.com and us. These agreements include a
Contribution and Separation Agreement, Maintenance Agreement, DataFeed
License Agreement, Services Agreement, Non-Competition Agreement,
Registration Rights Agreement and Tax Indemnification and Allocation
Agreement. Under the Contribution and Separation Agreement, we transferred
assets related to our consumer Internet operations to PCQuote.com and
PCQuote.com assumed the liabilities related to those consumer Internet
operations. Under the Services Agreement, we agreed to perform transitional
services for, and provide office space to, PCQuote.com for $213,500 per month
through September 1999, $163,500 per month thereafter through December 1999,
$138,500 per month thereafter through March 2000 and $113,500 per month
thereafter through June 30, 2000. Under the Maintenance Agreement,
PCQuote.com will receive software features, upgrades and enhancements to
PCQuote Orbit and will pay us 3% of gross revenues obtained from use or
sublicensing of PCQuote Orbit. Under the Data Feed Agreement, PCQuote.com
will be entitled to use HyperFeed 2000 for a monthly fee based on the number
of users and quotes accessed.
Management believes that formally separating the two entities will permit the
parent and subsidiary to focus on their relative strengths. In management's
opinion, the separation will permit each entity to better (i) attract and
retain key employees by relating compensation to relevant business
development, (ii) enter into strategic relationships with business partners,
and (iii) permit each entity to pursue its own financing avenues.
On October 18, 1999, PCQuote.com announced that it postponed its initial
public offering of common stock due to market conditions. On March 8, 2000,
PCQuote.com filed an application to withdraw the registration statement with
the Securities and Exchange Commission.
RECENT BUSINESS DEVELOPMENTS - TOWNSEND ANALYTICS.
In connection with the formation and transfer of our Internet consumer
business to our subsidiary, PCQuote.com, on May 28, 1999, we entered into an
agreement with Townsend Analytics, Ltd. to terminate the Software Distributor
Agreement dated December 4, 1995. Pursuant to the terms of the termination
agreement, we paid Townsend Analytics one million dollars. We and PCQuote.com
entered into separate new license agreements with Townsend Analytics for the
right to use the LAN and Internet versions, respectively, of the software
application that is marketed as PCQuote 6.0 RealTick. The new agreements
replaced the prior agreement between Townsend Analytics and us. The initial term
of the agreements ends December 4, 2000. Pursuant to the terms of the new
agreements, we and PCQuote.com are each required to pay a minimum royalty to
Townsend Analytics 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 our
new agreement with Townsend Analytics, we guarantee the obligation of our
subsidiary, PCQuote.com, and receive a credit towards our minimum commitment
obligations to the extent that PCQuote.com's actual royalty payments exceed its
minimum commitments.
14
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS FOR 1999 COMPARED TO 1998
Total revenue increased $10.1 million, or 43.8%, to $33.1 million in 1999 from
$23.0 million in 1998. Our HyperFeed services and PCQuote.com services both
posted increases in 1999 over 1998. HyperFeed service revenue increased $4.6
million, or 35.0%, to $17.7 million in 1999 from $13.1 million in 1998. Revenue
growth was experienced in license fees for our HyperFeed 2000 datafeed and fees
for combined analytics and HyperFeed 2000 services. Revenue from PCQuote.com
services increased $5.5 million, or 55.3%, to $15.4 million in 1999 from $9.9
million in 1998. The number of subscribers to our PCQuote.com analytical
services grew to 9,800 at the end of 1999 from 6,300 at the end of 1998.
Direct costs of services increased $8.5 million, or 49.8%, to $25.5 million in
1999 from $17.0 million in 1998. Principal components of the increase were
royalties and payments to providers of market data, directly attributable to the
growth in subscribers, in addition to a one-time $1.0 million second quarter
charge incurred in connection with the termination of our software distributor
agreement with Townsend Analytics and entering into two separate new agreements
between Townsend and ourselves and our subsidiary, PCQuote.com. Offsetting these
increases to a degree were decreases in satellite distribution and leased
equipment costs, as a result of the early termination of our old satellite
distribution contract and the expiration of customer site equipment operating
leases. We have a new lower-cost satellite distribution network and our
customers are now purchasing their own equipment. Amortization of software
development costs increased to $2.4 million in 1999 from $1.8 million in 1998.
Also included in direct costs for 1999 is a non-cash charge of $1.2 million for
amortization of prepaid license fees as a result of the value assigned to the
warrant issued in April 1999 to CNNFN in exchange for the 3 1/2 year license
agreement with PCQuote.com.
The resulting gross margin increased $1.6 million, or 26.6%, to $7.6 million
in 1999 from $6.0 million in 1998. Excluding the one-time $1.0 million
termination charge and the $1.2 million non-cash amortization of prepaid
license fees, the gross margin increased $3.8 million, or 62.9%, to an
adjusted $9.8 million in 1999 as compared to 1998. As a percentage of
revenue, the gross margin was 23.1% in 1999, 29.7% excluding the one-time
termination and non-cash license fee amortization, as compared to 26.2% in
1998.
Direct costs associated with HyperFeed services increased $2.2 million, or
21.4%, to $12.7 million in 1999 from $10.5 million in 1998. Increases in license
and exchange fees, directly attributable to the growth in subscribers and
$500,000 of the $1.0 million termination payment, and amortization of software
development costs were offset to a degree by efficiencies in distribution and
support operations. Amortization of software development costs increased
$300,000 to $1.4 million in 1999 from $1.1 million in 1998. The resulting gross
margin on HyperFeed services increased $2.3 million, or 88.2%, to $5.0 million
in 1999 from $2.7 million in 1998. HyperFeed services gross margin as a
percentage of HyperFeed services revenue increased to 28.4% in 1999 from 20.4%
in 1998.
Direct costs associated with PCQuote.com services increased $6.2 million, or
95.3%, to $12.8 million in 1999 from $6.6 million in 1998. The significant
growth we experienced resulted in corresponding increases in license fees,
exchange fees and data distribution costs. Contributing to the increase was
$500,000 of the $1.0 million termination payment and the $1.2 million
non-cash charge for amortization related to the CNNFN warrant. Amortization
of software development costs increased $400,000 to $1.1 million in 1999 from
$700,000 in 1998. Consequently, gross margin on PCQuote.com services
decreased $800,000, or 22.3%, to $2.6 million in 1999 from $3.4 million in
1998. Gross margin increased $900,000, or 27.9%, after excluding the effects
of the non-cash amortization of prepaid license fees and the one-time
termination payment.
15
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Total operating expenses increased $6.3 million, or 58.3%, to $17.0 million in
1999 from $10.7 million in 1998. Three primary factors contributed to the
increase:
- the ramp-up of operations, including the hiring of a separate
management team, for our subsidiary, PCQuote.com, Inc., in
contemplation of its initial public offering;
- the $1.4 million charge for the early termination of our old
satellite distribution contract, which had the potential to
run through August 2006 at a cost of $56,000 per month; and
- a $1.8 million charge for costs related to the initial public
offering that we decided not to pursue at the current time due
to market conditions.
Growth related increases were experienced in general and administrative expenses
and product and market development costs, while sales costs declined slightly
and depreciation and amortization remained relatively unchanged.
Sales costs decreased 4.5%, to $3.7 million in 1999 from $3.8 million in 1998.
The decrease was the result of a change in our previous sales incentive
compensation structure, in addition to lower support costs.
General and administrative expenses increased $2.0 million, or 58.8%, to $5.3
million in 1999 from $3.3 million in 1998. The increase reflects the addition of
management personnel for our PCQuote.com subsidiary, as well as administrative
personnel required to service the growth in our operations and customer base.
Increases were also experienced in collection costs, in line with our revenue
growth, and legal, accounting and professional consulting fees.
Product and market development costs increased $1.3 million, or 54.6%, to $3.6
million in 1999 from $2.3 million in 1998. We significantly increased personnel
resources in new product development, in addition to personnel and promotional
efforts to expand our PCQuote.com web site and Internet service offerings.
Depreciation and amortization remained unchanged at $1.2 million year to year.
Interest expense decreased $1.7 million to slightly over $100,000 in 1999 from
$1.8 million in 1998. The decrease is the result of the conversion of the
convertible subordinated debenture and borrowings on the credit facility into
equity in December 1998. Interest expense in 1999 consists of interest on our
bank term loan and on PCQuote.com's $2.0 million borrowing from Motorola, Inc.
In December 1998, we converted current debt into convertible preferred stock.
The maximum conversion rates for the two series of preferred stock issued
were set at and above the closing market price of our common stock at the
time the conversion was approved by our Board in September 1998. Stockholder
approval, obtained in December, was a condition to closing the debt
conversion transactions. The market price of our common stock on the closing
date was slightly higher than the maximum conversion price agreed to in
September. Accounting and SEC pronouncements require this differential to be
treated as non-cash preferred dividends. Consequently, preferred dividends of
$1,018,938 were recognized in 1998 with a corresponding increase in
additional paid-in capital from the preferred stock issuance.
16
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS FOR 1998 COMPARED TO 1997
Total revenue increased 34.6% in 1998 to $23.0 million from $17.1 million in
1997. Our HyperFeed services and PCQuote.com services both posted increases in
1998 over 1997. HyperFeed service revenue increased $800,000, or 6.3%, from
$12.3 million in 1997 to $13.1 million in 1998. Revenue growth was experienced
through increased service offerings. Revenue from our PCQuote.com Internet
services increased $5.1 million, or 108%, to $9.9 million in 1998 from $4.8
million in 1997. The growth was principally due to our PC Quote 6.0 Internet
service where the number of subscribers grew from 2,500 at the end of 1997 to
4,300 at the end of 1998.
Direct costs of services increased approximately 17.6% to $17.0 million in 1998
from $14.5 million in 1997. Principal components of the increase were royalties,
leased equipment, communication costs, and compensation directly attributable to
PCQuote.com Internet services and PC Quote 6.0 subscriber growth, and payments
to providers of market data. Amortization of software development costs
decreased from $1.9 million in 1997 to $1.8 million in 1998 due to 1998 projects
not planned for release until 1999.
Direct costs associated with HyperFeed services increased from $10.3 million in
1997 to $10.5 million in 1998. Increases in license and exchange fees and the
cost of customer support were offset to a degree by efficiencies in data-feed
operations and a decrease in amortization of software development costs. The
resulting gross margin increased $600,000, or 27.3%, to $2.7 million in 1998
from $2.1 million in 1997.
Direct costs associated with PCQuote.com Internet services increased to $6.5
million from $4.2 million in 1997. The significant growth we experienced
caused us to incur increases in license and exchange fees, customer support
and operations devoted to these services. Software amortization also
increased as more resources were diverted to this portion of our business.
The gross margin on PCQuote.com services increased 500% from $562,000 in 1997
to $3.4 million in 1998, as we were able to leverage our infrastructure and
support operations.
Total operating expenses declined $840,000, or 7.2%, as a result of the
restructuring in 1997 and subsequent cost containment efforts. Decreases from
restructuring charges and in general and administrative expenses were offset
to a degree by increases in sales expenses and product and market development
costs.
Sales expenses increased 11.6% to $3.8 million in 1998 as compared to $3.4
million in 1997. The increase was due to additional sales personnel added at
the end of 1997 and early 1998, and higher total commission expense as a
result of increased sales of our PC Quote 6.0 Internet service offering.
General and administrative expenses decreased 16.2% to $3.3 million in 1998 from
$4.0 million in 1997. The decrease was principally due to reductions in
compensation and related employee costs, lower utilization of consultants and
external professionals and a decrease in bad debt expense as compared to the
prior year.
Product and market development costs increased 31.2% to $2.4 million in 1998
from $1.8 million in 1997. The increase was due to an increase in the number of
personnel devoted to these efforts and increased advertising expenditures, in
addition to costs of maintaining and enhancing previously developed products and
services.
Depreciation and amortization remained unchanged at $1.2 million year to year.
There were no restructuring charges recognized in 1998 like the $1.1 million
reported for 1997.
17
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Interest expense was $1.8 million for 1998, a decrease of 21.6% from the $2.3
million recognized in 1997. The decrease reflects the absence of non-cash
amortization of $979,097 recognized in 1997 for the value of common stock
purchase warrants that were issued to PICO Holdings, Inc. This was offset by an
increase in interest expense amortization to $1,096,402 in 1998 from $674,992 in
1997 for the value of the $2.5 million convertible subordinated debenture's
beneficial conversion feature. Also included is interest on our bank term loan,
the convertible subordinated debenture and borrowings from PICO Holdings, Inc.
(See Note 2 and Note 3 of the Notes to Consolidated Financial Statements.)
In December 1998, we converted current debt into convertible preferred stock.
The maximum conversion rates for the two series of preferred stock issued
were set at and above the closing market price of our common stock at the
time the conversion was approved by our Board in September 1998. Stockholder
approval, obtained in December, was a condition to closing the debt
conversion transactions. The market price of our common stock on the closing
date was slightly higher than the maximum conversion price agreed to in
September. Accounting and SEC pronouncements require this differential to be
treated as non-cash preferred dividends. Preferred dividends of $1,018,938
were recognized in 1998 with a corresponding increase in additional paid-in
capital from the preferred stock issuance. (See Note 3 of the Notes to
Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
Net cash and cash equivalents increased $300,000 to $1.5 million at the end of
1999 from the end of 1998. Expenditures for new equipment were $1.6 million in
1999, an increase of $800,000 over 1998. The increase in expenditures was to
support the growth in our business, as well as to improve our communications,
processing and distribution networks and infrastructure. Capitalized software
costs of $1.2 million were $800,000, or 39.4%, lower for the year ended December
31, 1999, compared to the prior year, principally as a result of lower
development costs associated with capitalized projects. We borrowed and repaid
$1.5 million during the year. We also repaid $300,000 of the principal balance
on our bank term loan. Additionally, 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. Payments are due
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. We received approximately $4.9 million in net proceeds from
(i) the sale of common stock to third-party investors in private
placements;
(ii) the purchase of common stock by third-party investors through
the exercise of previously issued warrants;
(iii) the sale of shares of common stock to employees pursuant to
our Employee Stock Purchase Plan; and
(iv) the sale of shares of common stock to employees who exercised
options previously granted to them under our Employee
Incentive Stock Option Plan.
Total revenue increased $10.1 million, or 43.8%, to $33.1 million in 1999
versus $23.0 million for the 1998 period, while direct costs of services
increased 49.8% to $25.5 million versus $17.0 million in 1998. The resulting
gross margin increased 26.6% to $7.6 million in 1999 from $6.0 million in
1999. Excluding the one-time $1.0 million contract termination charge and the
$1.2 million non-cash amortization of prepaid license fees, the gross margin
increased $3.8 million, or 62.9%, to an adjusted $9.8 million in 1999 as
compared to 1998. As a percentage of revenue, the gross margin excluding
these charges was 29.7% in 1999 as compared to 26.2% in 1998. While we
experienced an impressive 55.3% growth in revenue from PCQuote.com services,
we also experienced an even more impressive 35.0% growth, versus 8.4%
increase 1997 to 1998, in our higher margin HyperFeed services, which
includes our Internet business-to-business component. Gross margin on
HyperFeed services increased to 28.4% of HyperFeed service revenue in 1999
from 20.4% in 1998, and in dollar terms, the $2.4 million improvement
represented an 88.2% increase over the prior year. 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.
18
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
With the current trend, we anticipate being cash flow positive in the first
half of 2000 and profitable in the second half of 2000. 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.
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. We do not plan to
proceed with the offering for the time being.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We will implement the provisions of Statement of Financial Accounting Standards
No. 133, ("Statement 133") "Accounting for Derivative Instruments and Hedging
Activities" which is required to be adopted for financial statements issued for
the fiscal year ending December 31, 2000. Statement 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring us to recognize those items as assets
or liabilities in the statement of financial position and measure them at fair
value. We believe that adoption of Statement 133 will not have a material impact
on our consolidated financial statements.
OTHER
We do not believe general inflation materially impacts our sales and operating
results. We do not expect that current tax legislation will significantly affect
our future financial position, liquidity or operating results.
At December 31, 1999, we 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. 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. (See Note 6 of
the Notes to Consolidated Financial Statements.)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have a bank term loan that has an interest rate equal to the bank's prime
rate. PCQuote.com has a promissory note that has an interest rate equal to the
prime rate announced in the Wall Street Journal. We are exposed to market risk
as the prime rate is subject to fluctuations in the market. We do not believe
the market risk is material to our financial statements. At December 31, 1999 we
had excess cash invested in a money market account. We do not expect any
material loss, if at all, on this investment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
Pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, the
information called for by this Item is incorporated herein by reference to the
"Index of Financial Statements" that appears elsewhere in this report.
19
PART II - ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE
There have been no changes in or disagreements with accountants that would
require disclosure in this Report.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information about HyperFeed directors and executive officers will be included
in our proxy statement for our 2000 annual meeting of stockholders. This
information is incorporated by reference to that proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
Information about HyperFeed executive compensation will be included in our proxy
statement for our 2000 annual meeting of stockholders. This information is
incorporated by reference to that proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information about security ownership of certain beneficial owners and management
will be included in our proxy statement for our 2000 annual meeting of
stockholders. This information is incorporated by reference to that proxy
statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and related transactions will be
included in our proxy statement for our 2000 annual meeting of stockholders.
This information is incorporated by reference to that proxy statement.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Our consolidated financial statements are included in Item 8 of this report.
2. Financial Statement Schedules
The consolidated financial statement schedule for the valuation and
qualifying accounts is included in Item 8 of this report.
(b) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed during the fourth quarter of the period
covered by this report.
(c) EXHIBITS
3(a) Articles of Incorporation of Company, incorporated by reference to
Appendix B of Company's Proxy Statement dated July 2, 1987.
3(b) By-laws of the Company, as amended and restated, incorporated by
reference to Exhibit 3(b) to Company's Annual Report on Form 10-K
for the year ended December 31, 1987.
3(c) Certificate of Amendment, dated as of October 22, 1997, to
Company's Certificate of Incorporation, incorporated by reference
to Exhibit 4.12 of the Company's Report on Form 10-Q for the
quarter ended September 30, 1997.
3(d) Certificate of Amendment, dated as of December 18, 1998, to
Company's Certificate of Incorporation, incorporated by reference
to Exhibit 3(d) of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
3(e) Certificate of Amendment, dated as of June 18, 1999, to Company's
Certificate of Incorporation, located after the Consolidated
Financial Statements of this report.
4(a) Specimen Common Share Certificate of the Company, incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-18, Commission File No. 2-90939C.
4(b) $2,500,000 Convertible Subordinated Debenture due 2001 issued by
the Company to Physicians Insurance Company of Ohio, Inc.,
incorporated by reference to Exhibit 4(b) to Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
4(c) Form of First Amendment to Convertible Subordinated Debenture and
Debenture Agreement, incorporated by reference to Exhibit 10.2 of
the Company's Report on Form 10-Q for the quarter ended June 30,
1997.
4(d) Form of Loan and Security Agreement dated as of May 5, 1997
between the Company and PICO Holdings, Inc., incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q for
the quarter ended June 30, 1997.
4(e) Form of Promissory Note made by the Company to the order of PICO
Holdings, Inc., incorporated by reference to Exhibit 10.4 of the
Company's Report on Form 10-Q for the quarter ended June 30, 1997.
4(f) Form of Common Stock Purchase Warrant for 640,000 shares of the
Company's Common Stock issued to PICO Holdings, Inc., incorporated
by reference to Exhibit 10.3 of the Company's Report on Form 10-Q
for the quarter ended June 30, 1997.
21
PART IV - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K, CONTINUED
4(g) Form of First Amendment to Loan and Security Agreement dated as of
August 8, 1997 between the Company and PICO Holdings, Inc.,
incorporated by reference to Exhibit 10.5 of the Company's Report
on Form 10-Q for the quarter ended June 30, 1997.
4(h) Form of Common Stock Purchase Warrant for 500,000 shares of the
Company's Common Stock issued to PICO Holdings, Inc., incorporated
by reference to Exhibit 10.6 of the Company's Report on Form 10-Q
for the quarter ended June 30, 1997.
4(i) Form of Second Amendment to Loan and Security Agreement dated as
of September 22, 1997 between the Company and PICO Holdings, Inc.,
incorporated by reference to Exhibit 10.1 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(j) Form of Common Stock Purchase Warrant for 129,032 shares of the
Company's Common Stock issued to PICO Holdings, Inc., incorporated
by reference to Exhibit 4.1 of the Company's Report on Form 10-Q
for the quarter ended September 30, 1997.
4(k) Form of Stock and Warrant Purchase Agreement dated as of October
15, 1997 between the Company and Imprimis Investors LLC and
Wexford Spectrum Investors LLC, incorporated by reference to
Exhibit 10.2 of the Company's Report on Form 10-Q for the quarter
ended September 30, 1997.
4(l) Form of Common Stock Purchase Warrant for 350,000 shares of the
Company's Common Stock issued to Imprimis Investors LLC,
incorporated by reference to Exhibit 4.2 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(m) Form of Common Stock Purchase Warrant for 150,000 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC,
incorporated by reference to Exhibit 4.3 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(n) Form of Common Stock Purchase Warrant for 101,500 shares of the
Company's Common Stock issued to Imprimis Investors LLC,
incorporated by reference to Exhibit 4.4 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(o) Form of Common Stock Purchase Warrant for 43,500 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC,
incorporated by reference to Exhibit 4.5 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(p) Form of Common Stock Purchase Warrant for 38,500 shares of the
Company's Common Stock issued to Imprimis Investors LLC,
incorporated by reference to Exhibit 4.6 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(q) Form of Common Stock Purchase Warrant for 16,500 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC,
incorporated by reference to Exhibit 4.7 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(r) Form of Common Stock Purchase Warrant for 175,000 shares of the
Company's Common Stock issued to Imprimis Investors LLC,
incorporated by reference to Exhibit 4.8 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(s) Form of Common Stock Purchase Warrant for 75,000 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC,
incorporated by reference to Exhibit 4.9 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(t) Form of Common Stock Purchase Warrant for 35,000 shares of the
Company's Common Stock issued to Imprimis Investors LLC,
incorporated by reference to Exhibit 4.10 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
22
PART IV - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K, CONTINUED
4(u) Form of Common Stock Purchase Warrant for 15,000 shares of the
Company's Common Stock issued to Wexford Spectrum Investors LLC,
incorporated by reference to Exhibit 4.11 of the Company's Report
on Form 10-Q for the quarter ended September 30, 1997.
4(v) Form of Third Amendment to Loan and Security Agreement dated as of
December 30, 1997 between the Company and PICO Holdings, Inc.,
incorporated by reference to Exhibit 4(v) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
4(w) Form of Fourth Amendment to Loan and Security Agreement dated as
of February 5, 1998 between the Company and PICO Holdings, Inc.,
incorporated by reference to Exhibit 4(w) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
4(x) Form of Fifth Amendment to Loan and Security Agreement dated as of
March 10, 1998 between the Company and PICO Holdings, Inc.,
incorporated by reference to Exhibit 4(x) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
4(y) Form of First Amendment to the Amendment of the Convertible
Subordinated Debenture Agreement, dated as of March 30, 1998,
incorporated by reference to Exhibit 4(a) of the Company's Report
on Form 10-Q for the quarter ended March 31, 1998.
4(z) Form of Sixth Amendment to Loan and Security Agreement dated as of
May 5, 1998 between the Company and PICO Holdings, Inc.,
incorporated by reference to Exhibit 4(b) of the Company's Report
on Form 10-Q for the quarter ended March 31, 1998.
4(aa) Form of Amendment No. 2 to the Amendment of the Convertible
Subordinated Debenture Agreement, dated as of May 11, 1998,
incorporated by reference to Exhibit 4(c) of the Company's Report
on Form 10-Q for the quarter ended March 31, 1998.
4(ab) Form of Seventh Amendment to Loan and Security Agreement dated as
of June 1, 1998 between the Company and PICO Holdings, Inc.,
incorporated by reference to Exhibit 4(a) of the Company's Report
on Form 10-Q for the quarter ended June 30, 1998.
4(ac) Form of Amendment No. 3 to the Amendment of the Convertible
Subordinated Debenture Agreement, dated as of July 16, 1998,
incorporated by reference to Exhibit 4(b) of the Company's Report
on Form 10-Q for the quarter ended June 30, 1998.
4(ad) Form of Eighth Amendment to Loan and Security Agreement dated as
of July 24, 1998 between the Company and PICO Holdings, Inc.,
incorporated by reference to Exhibit 4(c) of the Company's Report
on Form 10-Q for the quarter ended June 30, 1998.
4(ae) Form of Amendment No. 4 to the Amendment of the Convertible
Subordinated Debenture Agreement, dated as of July 24, 1998,
incorporated by reference to Exhibit 4(d) of the Company's Report
on Form 10-Q for the quarter ended June 30, 1998.
4(af) Form of Ninth Amendment to Loan and Security Agreement dated as of
July 31, 1998 between the Company and PICO Holdings, Inc.,
incorporated by reference to Exhibit 4(e) of the Company's Report
on Form 10-Q for the quarter ended June 30, 1998.
4(ag) Securities Purchase Agreement between PC Quote, Inc. and PICO
Holdings, Inc. and Physicians Insurance Company of Ohio dated as
of September 23, 1998, incorporated by reference to Exhibit 4.1 of
the Company's Report on Form 8-K dated October 6, 1998.
23
PART IV - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K, CONTINUED
4(ah) Form of Registration Rights Agreement between PC Quote, Inc. and
PICO Holdings, Inc. and Physicians Insurance Company of Ohio,
incorporated by reference to Exhibit 4.3 of the Company's Report
on Form 8-K dated October 6, 1998.
4(ai) Form of Common Stock Purchase Warrant issued to PICO Holdings,
Inc., incorporated by reference to Exhibit 4.4 of the Company's
Report on Form 8-K dated October 6, 1998.
4(aj) Form of First Amendment to Common Stock Purchase Warrant dated May
5, 1997, incorporated by reference to Exhibit 4.5 of the Company's
Report on Form 8-K dated October 6, 1998.
4(ak) Form of First Amendment to Common Stock Purchase Warrant dated
August 8, 1997, incorporated by reference to Exhibit 4.6 of the
Company's Report on Form 8-K dated October 6, 1998.
4(al) Form of First Amendment to Common Stock Purchase Warrant dated
September 22, 1997, incorporated by reference to Exhibit 4.7 of
the Company's Report on Form 8-K dated October 6, 1998.
4(am) Form of Second Amendment to Convertible Subordinated Debenture
dated as of September 23, 1998, incorporated by reference to
Exhibit 4(h) of the Company's Report on Form 10-Q for the quarter
ended September 30, 1998.
4(an) Form of Stock and Warrant Purchase Agreement between PC Quote,
Inc. and Howard Todd Horberg dated December 29, 1998, incorporated
by reference to Exhibit 4(an) of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
4(ao) Form of Common Stock Purchase Warrant for 120,000 shares issued to
Howard Todd Horberg, incorporated by reference to Exhibit 4(ao) of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
4(ap) Form of Stock and Warrant Purchase Agreement between PC Quote,
Inc. and Steve Levy dated December 29, 1998, incorporated by
reference to Exhibit 4(ap) of the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
4(aq) Form of Common Stock Purchase Warrant for 120,000 shares issued to
Steve Levy, incorporated by reference to Exhibit 4(aq) of the
Company's Annual Report on Form 10-K for the year ended December
31, 1998.
4(ar) Form of Stock and Warrant Purchase Agreement between PC Quote,
Inc. and Cranshire Capital, LP dated December 29, 1998,
incorporated by reference to Exhibit 4(ar) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
4(as) Form of Common Stock Purchase Warrant for 80,000 shares issued to
Cranshire Capital, LP, incorporated by reference to Exhibit 4(as)
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
4(at) Form of Stock and Warrant Purchase Agreement between HyperFeed
Technologies, Inc. and Howard Todd Horberg dated November 22,
1999, located after the Consolidated Financial Statements of
this report.
4(au) Form of Stock and Warrant Purchase Agreement between HyperFeed
Technologies, Inc. and David Horberg dated November 22, 1999,
located after the Consolidated Financial Statements of this
report.
4(av) Form of Common Stock Purchase Warrant for 125,000 shares issued to
Howard Todd Horberg, located after the Consolidated Financial
Statements of this report.
24
PART IV - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K, CONTINUED
4(aw) Form of Common Stock Purchase Warrant for 10,000 shares issued to
David Horberg, located after the Consolidated Financial
Statements of this report.
4(ax) Form of Common Stock Purchase Warrant for 30,000 shares issued to
Wildman, Harrold, Allen & Dixon, located after the Consolidated
Financial Statements of this report.
10(a) Vendor Agreement with the Option Price Reporting Authority,
incorporated by reference to Exhibit 10.4 of Company's
Registration Statement on Form S-18, Commission File No. 2-90939C.
10(b) Vendor Agreement with the New York Stock Exchange, Inc.,
incorporated by reference to Exhibit 10.5 of Company's
Registration Statement on Form S-18, Commission File No. 2-90939C.
10(c) Vendor Agreements with the National Association of Securities
Dealers, Inc. incorporated by reference to Exhibit 10(d) of
Company's Annual Report on Form 10-K for the year ended December
31, 1989.
10(d) Form of Employee Non-Disclosure Agreement, incorporated by
reference to Exhibit 10.10 of Company's Registration Statement on
Form S-18, Commission File No. 2-90939C.
10(e) Amended and Restated PC Quote, Inc. Employees' Combined Incentive
and Non-Statutory Stock Option Plan, incorporated by reference to
Appendix E to Company's Proxy Statement dated July 2, 1987 and
Company's Proxy Statement dated September 15, 1997.
10(f) Lease regarding office space at 50 Broadway, New York City, dated
January 31, 1987, as amended by First Amendatory Agreement dated
May 18, 1987, by and between Company and 50 Broadway Joint
Venture, incorporated by reference to Exhibit 10(y) to Company's
Annual Report on Form 10-K for the year ended December 31, 1987.
10(g) Satellite Service Agreement dated June 12, 1991 between Company
and SpaceCom Systems, Inc. incorporated by reference to Exhibit
10(r) to Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
10(h) Amendment to satellite service agreement dated September 6, 1991
between Company and SpaceCom Systems, Inc. incorporated by
reference to Exhibit 10(s) to Company's Annual Report on Form 10-K
for the year ended December 31, 1991.
10(i) Amendment to point-to-multipoint satellite network service
agreement dated November 22, 1989 between Company and GTE SpaceNet
Satellite Services Corporation incorporated by reference to
Exhibit 10(v) to Company's Annual Report on Form 10-KSB for the
year ended December 31, 1992.
10(j) Amendment to satellite service agreement dated October 4, 1993
between Company and SpaceCom Systems, Inc. incorporated by
reference to Exhibit 10(z) to Company's Annual Report on Form
10-KSB for the year ended December 31, 1993.
10(k) Satellite Service Agreement dated September 15, 1994 between
Company and SpaceCom Systems, Inc. incorporated by reference to
Exhibit 11(a) to Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
10(l) Satellite Service Agreement dated October 15, 1993 between Company
and SpaceCom Systems, Inc. incorporated by reference to Exhibit
11(b) to Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
10(m) Satellite Service Agreement dated June 1, 1993 between Company and
SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(b)
to Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
25
PART IV - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K, CONTINUED
10(n) Vendor Agreement with Global Information Systems Inc.
incorporated by reference to Exhibit 11(d) of Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
10(o) Lease regarding office space at 300 South Wacker Drive, Chicago,
Illinois dated June 1, 1994, by and between Company and
Markborough 300 WJ Limited Partnership, incorporated by reference
to Exhibit 11(e) to Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10(p) Agreement dated November 14, 1996 between the Company and
Physicians Insurance Company of Ohio, Inc., incorporated by
reference to Exhibit 10(p) to Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
10(q) Employment agreement dated July 16, 1996 between the Company and
Howard Meltzer, incorporated by reference to Exhibit 10(q) to
Company's Annual Report on Form 10-K for the year ended December
31, 1996.
10(r) Employment agreement dated December 2, 1996 between the Company
and Louis J. Morgan, incorporated by reference to Exhibit 10(r) to
Company's Annual Report on Form 10-K for the year ended December
31, 1996.
10(s) Termination Agreement by and between Townsend Analytics, Ltd and
PC Quote, Inc., dated May 28, 1999, incorporated by reference to
Exhibit 10(a) of the Company's Report on Form 10-Q for the quarter
ended June 30, 1999.
10(t) Software Distributor Agreement dated August 9, 1999 by and between
Townsend Analytics, Ltd. and HyperFeed Technologies, Inc.,
incorporated by reference to Exhibit 10(a) of the Company's Report
on Form 10-Q for the quarter ended June 30, 1999.
10(u) PC Quote, Inc. 1999 Combined Incentive and Non-Statutory Stock
Option Plan, located after the Consolidated Financial Statements
of this report.
21 Subsidiaries of Registrant: PCQuote.com, Inc., incorporated in
the State of Delaware.
23 Consent of KPMG LLP.
27 Financial Data Schedule.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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.
By:
/s/ JIM R. PORTER
---------------------------
Jim R. Porter, Chairman of the Board and
Chief Executive Officer
March 13, 2000
By:
/s/ JOHN E. JUSKA
---------------------------
John E. Juska, Chief Financial Officer and
Principal Accounting Officer
March 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ JIM R. PORTER
- ------------------------------------
Jim R. Porter, Chairman of the Board and
Chief Executive Officer
March 13, 2000
/s/ JOHN R. HART
- ------------------------------------
John R. Hart, Director
March 13, 2000
/s/ TIMOTHY K. KRAUSKOPF
- ------------------------------------
Timothy K. Krauskopf, Director
March 13, 2000
/s/ RONALD LANGLEY
- ------------------------------------
Ronald Langley, Director
March 13, 2000
/s/ LOUIS J. MORGAN
- ------------------------------------
Louis J. Morgan, Director
March 13, 2000
/s/ KENNETH J. SLEPICKA
- ------------------------------------
Kenneth J. Slepicka, Director
March 13, 2000
27
CONTENTS
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets F-2-3
Consolidated statements of operations F-4
Consolidated statements of stockholders' equity F-5
Consolidated statements of cash flows F-6-7
Notes to consolidated financial statements F-8-24
Independent Auditors' Report on Schedule II F-25
Supplemental Schedule II F-26
28
INDEPENDENT AUDITORS' REPORT
The Board of Directors
HyperFeed Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of HyperFeed
Technologies, Inc. and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HyperFeed
Technologies, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois
March 8, 2000
F-1
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
---- ----
Current Assets
Cash and cash equivalents $ 1,452,186 $ 1,139,785
Accounts receivable, less allowance for doubtful
accounts of: 1999: $442,276; 1998: $443,037 2,652,350 1,490,139
Prepaid license fees, current 1,680,000 ---
Prepaid expenses and other current assets 244,477 114,011
---------- ----------
TOTAL CURRENT ASSETS 6,029,013 2,743,935
--------- ---------
Property and Equipment
Satellite receiving equipment 436,759 525,730
Computer equipment 4,323,921 4,260,589
Communication equipment 1,173,595 1,254,010
Furniture and fixtures 263,941 252,050
Leasehold improvements 402,692 402,692
---------- ----------
6,600,908 6,695,071
Less: accumulated depreciation and amortization 4,189,766 4,613,526
---------- ----------
2,411,142 2,081,545
---------- ----------
Prepaid license fees, net of accumulated
amortization of $1,190,000 3,010,000 ---
--------- ----------
Software development costs, net of accumulated
amortization of: 1999: $6,890,526; 1998: $4,442,673 3,775,491 5,012,971
--------- ---------
Deposits and other assets 69,538 214,916
------ -------
TOTAL ASSETS $ 15,295,184 $ 10,053,367
============ ============
See Notes to Consolidated Financial Statements.
F-2
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
---- ----
Current Liabilities
Notes payable $1,050,000 $ 300,000
Accrued satellite termination fees 558,000 ---
Accounts payable 1,709,322 4,138,517
Accrued expenses 2,319,150 218,866
Accrued compensation 461,498 313,838
Income taxes payable 5,000 3,161
Unearned revenue 2,304,070 1,241,933
--------- ---------
TOTAL CURRENT LIABILITIES 8,407,040 6,216,315
--------- ---------
Notes payable, less current portion 1,449,634 499,634
Accrued satellite termination fees, less current portion 624,000 ---
Unearned revenue, less current portion 78,315 261,027
Accrued expenses, less current portion 134,693 161,120
Minority interest 3,869 ---
--------- ---------
TOTAL NONCURRENT LIABILITIES 2,290,511 921,781
--------- ---------
TOTAL LIABILITIES 10,697,551 7,138,096
---------- ---------
Stockholders' Equity
Preferred stock, $.001 par value; authorized 5,000,000 shares;
issued and outstanding:
Series A 5% convertible: 19,075 shares at December 31, 1999
and December 31, 1998 19 19
Series B 5% convertible: 28,791 shares at December 31, 1999
and December 31, 1998 29 29
Common stock, $.001 par value; authorized 50,000,000 shares;
issued and outstanding 15,592,690 shares at December 31, 1999
and 14,183,183 shares at December 31, 1998 15,593 14,183
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 25,183,631 19,950,981
Additional paid-in capital - convertible subordinated
debenture and warrants 8,630,491 2,750,491
Accumulated deficit (36,983,034) (27,551,336)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,597,633 2,915,271
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,295,184 $ 10,053,367
============ ============
See Notes to Consolidated Financial Statements.
F-3
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
REVENUE
HyperFeed services $ 17,733,813 $ 13,133,422 $ 12,356,460
PCQuote.com services 15,394,246 9,912,111 4,762,912
------------ ------------ ------------
TOTAL REVENUE 33,128,059 23,045,533 17,119,372
------------ ------------ ------------
DIRECT COST OF SERVICES
HyperFeed services 12,697,106 10,456,647 10,253,756
PCQuote.com services 12,774,875 6,542,787 4,201,310
------------ ------------ ------------
TOTAL DIRECT COST OF SERVICES 25,471,981 16,999,434 14,455,066
------------ ------------ ------------
GROSS MARGIN 7,656,078 6,046,099 2,664,306
------------ ------------ ------------
OPERATING EXPENSES
Sales 3,676,887 3,848,798 3,448,151
General and administrative 5,257,617 3,310,843 3,951,437
Product and market development 3,640,457 2,354,761 1,795,045
Depreciation and amortization 1,251,048 1,231,123 1,243,722
Satellite and offering termination expense 3,182,222 --- ---
Restructuring charges --- --- 1,146,677
------------ ------------ ------------
TOTAL OPERATING EXPENSES 17,008,231 10,745,525 11,585,032
------------ ------------ ------------
LOSS FROM OPERATIONS (9,352,153) (4,699,426) (8,920,726)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 50,062 19,279 37,873
Interest expense (120,751) (1,765,448) (2,252,801)
Loss on sale of minority interest (88,386) --- ---
------------ ------------ ------------
NET OTHER EXPENSE (159,075) (1,746,169) (2,214,928)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (9,511,228) (6,445,595) (11,135,654)
INCOME TAXES 5,000 3,613 5,762
------------ ------------ ------------
LOSS BEFORE MINORITY INTEREST (9,516,228) (6,449,208) (11,141,416)
Minority interest 84,530 --- ---
------------ ------------ ------------
NET LOSS (9,431,698) (6,449,208) (11,141,416)
Preferred dividends --- 1,018,938 ---
------------ ------------ ------------
NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS ($ 9,431,698) ($ 7,468,146) ($11,141,416)
============ ============ ============
Basic and diluted net loss per share ($0.63) ($0.57) ($1.33)
Weighted-average common shares outstanding 14,878,160 13,001,058 8,353,400
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-4
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------------------
Series A Series B Series A Series B Additional
5% 5% 5% 5% Paid-In
- ---------------------------------------------------------------------------------------------------------------------------
Convertible Convertible Convertible Convertible Capital
Preferred Preferred Preferred Preferred Common Common Series A
Stock Stock Stock Stock Stock Stock Convertible
Shares Shares Amount Amount Shares Amount Preferred
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 --- --- $--- $--- 7,355,621 $ 7,356 $---
- ---------------------------------------------------------------------------------------------------------------------------
Net loss --- --- --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------
Issuance of common stock --- --- --- --- 5,081,179 5,081 ---
- ---------------------------------------------------------------------------------------------------------------------------
Value assigned to
amendment of convertible
debenture and warrants
issued --- --- --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------
Value assigned to
employee stock options --- --- --- --- --- --- ---
issued
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 --- --- --- --- 12,436,800 12,473 ---
- ---------------------------------------------------------------------------------------------------------------------------
Net loss --- --- --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------
Issuance of preferred 19,075 28,791 19 29 --- --- 2,966,794
stock
- ---------------------------------------------------------------------------------------------------------------------------
Issuance of common stock --- --- --- --- 4,735,332 4,735 ---
- ---------------------------------------------------------------------------------------------------------------------------
Purchase and retirement
of common stock --- --- --- --- (2,988,949) (2,989) ---
- ---------------------------------------------------------------------------------------------------------------------------
Value assigned to
beneficial conversion
feature of convertible --- --- --- --- --- --- 119,219
preferred stock
- ---------------------------------------------------------------------------------------------------------------------------
Value assigned to
employee stock options --- --- --- --- --- --- ---
issued
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 19,075 28,791 19 29 14,183,183 14,183 3,086,013
- ---------------------------------------------------------------------------------------------------------------------------
Net loss --- --- --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------
Issuance of common stock --- --- --- --- 1,409,507 1,410 ---
- ---------------------------------------------------------------------------------------------------------------------------
Value assigned to
PCQuote.com,
Inc. warrant issued --- --- --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 19,075 28,791 $19 $29 15,592,690 $15,593 $3,086,013
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Additional Additional
Paid-In Paid-In
- ----------------------------------------------------------------------------------------------
Capital Additional Capital
Series B Paid-In Convertible
Convertible Capital Debenture Accumulated
Preferred Common and Warrants Deficit Total
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1996 $--- $12,615,995 $1,650,000 ($8,941,774) $5,331,577
- ----------------------------------------------------------------------------------------------
Net loss --- --- --- (11,141,416) (11,141,416)
- ----------------------------------------------------------------------------------------------
Issuance of common stock --- 4,751,520 --- --- 4,756,601
- ----------------------------------------------------------------------------------------------
Value assigned to
amendment of convertible
debenture and warrants
issued --- --- 1,100,491 --- 1,100,491
- ----------------------------------------------------------------------------------------------
Value assigned to
employee stock options --- 19,076 --- --- 19,076
issued
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1997 --- 17,386,591 2,750,491 (20,083,190) 66,329
- ----------------------------------------------------------------------------------------------
Net loss --- --- --- (6,449,208) (6,449,208)
- ----------------------------------------------------------------------------------------------
Issuance of preferred 3,765,172 --- --- --- 6,732,014
stock
- ----------------------------------------------------------------------------------------------
Issuance of common stock --- 5,432,571 --- --- 5,437,306
- ----------------------------------------------------------------------------------------------
Purchase and retirement
of common stock --- (2,985,960) --- --- (2,988,949)
- ----------------------------------------------------------------------------------------------
Value assigned to
beneficial conversion
feature of convertible 899,719 --- --- (1,018,938) ---
preferred stock
- ----------------------------------------------------------------------------------------------
Value assigned to
employee stock options --- 117,779 --- --- 117,779
issued
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1998 4,664,891 19,950,981 2,750,491 (27,551,336) 2,915,271
- ----------------------------------------------------------------------------------------------
Net loss --- --- --- (9,431,698) (9,431,698)
- ----------------------------------------------------------------------------------------------
Issuance of common stock --- 5,232,650 --- --- 5,234,060
- ----------------------------------------------------------------------------------------------
Value assigned to
PCQuote.com, Inc.
warrant issued --- --- 5,880,000 --- 5,880,000
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 4,664,891 $ 25,183,631 $ 8,630,491 ($36,983,034) $ 4,597,633
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-5
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
Cash Flows From Operating Activities:
Net loss ($ 9,431,698) ($ 6,449,208) ($11,141,416)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of property and equipment 1,251,048 1,231,123 1,243,722
Provision for doubtful accounts 650,000 397,873 683,639
Amortization of software development costs 2,447,854 1,810,553 1,909,652
Amortization of value assigned to warrant issued in lieu of
license fees 1,190,000 --- ---
Amortization of deferred discount on convertible
subordinated debenture --- 1,096,402 674,992
Amortization of deferred debt on warrants --- --- 979,097
Interest on converted debt, net of conversion costs --- 553,761 ---
Common stock issued in lieu of cash compensation 70,204 91,522 ---
Common stock issued in lieu of cash payments for professional fees 300,000 163,725 ---
Write-off of capitalized software development costs --- 300,401 571,647
Compensation value assigned to employee stock options granted --- 117,779 19,076
Loss on sale of minority interest 88,399 --- ---
Minority interest in loss (84,530) --- ---
Changes in assets and liabilities:
Accounts receivable (1,812,211) (452,562) (1,018,836)
Income tax refunds receivable --- --- 40,000
Prepaid expenses and other current assets (130,466) (52,030) 123,090
Deposits and other assets 145,378 82,387 55,879
Accounts payable (2,429,195) 1,304,057 1,060,070
Accrued expenses 2,221,517 (676,930) 880,089
Accrued satellite termination fees 1,182,000 --- ---
Unearned revenue 879,425 424,732 (52,008)
Income taxes payable 1,839 (2,031) (1,072)
-------------- ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (3,460,436) (58,446) (3,972,379)
-------------- ------------ ------------
Cash Flows From Investing Activities:
Purchase of property and equipment (1,580,645) (810,557) (1,037,569)
Proceeds from sale of equipment --- --- 55,943
Software development costs capitalized (1,210,374) (1,997,452) (1,817,927)
-------------- ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,791,019) (2,808,009) (2,799,553)
-------------- ------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 4,863,856 5,182,059 4,756,601
Purchase and retirement of common stock --- (2,988,949) ---
Proceeds from issuance of notes payable 3,500,000 --- ---
Borrowings under credit facility --- 1,000,000 2,250,000
Principal payments under capital lease obligations --- --- (142,685)
Principal payments on notes payable (1,800,000) (300,000) (300,366)
-------------- ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,563,856 2,893,110 6,563,550
-------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 312,401 26,655 (208,382)
Cash and cash equivalents:
Beginning of year 1,139,785 1,113,130 1,321,512
-------------- ------------ ------------
End of year $ 1,452,186 $ 1,139,785 $ 1,113,130
============== ============ ============
See Notes to Consolidated Financial Statements.
F-6
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
- --------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
- --------------------------------------------------------------------------------------------------------------------
Interest paid $ 67,167 $ 83,925 $ 218,531
- --------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 3,161 $ 3,517 $ 6,834
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Noncash Investing and
Financing Activities:
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital - value assigned to PCQuote.com,
Inc. warrant issued in lieu of license fees $ 5,880,000 --- ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital from amendment of convertible
debenture agreement and issuance of warrants --- --- $ 1,100,491
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital from issuance of
employee stock options --- $ 117,779 $ 19,076
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Series A preferred stock issued for converted debt --- $ 19 ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital - Series A preferred stock - from
conversion of convertible subordinated debenture
principal, plus accrued interest, net of conversion costs --- $ 2,966,794 ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital - Series A preferred stock - value
assigned to beneficial conversion feature of
preferred stock --- $ 119,219 ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Series B preferred stock issued for converted debt --- $ 29 ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital - Series B preferred stock - from
conversion of credit facility borrowings, plus facility
fee and accrued interest, net of conversion costs --- $ 3,765,172 ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital - Series B preferred stock - value
assigned to beneficial conversion feature of
preferred stock --- $ 899,719 ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Convertible subordinated debenture principal balance
converted into Series A convertible preferred stock --- ($ 2,500,000) ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Credit facility borrowings converted into Series B
convertible preferred stock --- ($ 3,250,000) ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Common stock issued in lieu of cash compensation $ 70,204 $ 91,522 ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Common stock issued in lieu of cash payments for professional
fees $ 300,000 $ 163,725 ---
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-7
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
HyperFeed Technologies, Inc. (PC Quote or the "Company") is an Internet
solutions provider servicing the business-to-business and business-to-consumer
financial marketplace. We collect financial content directly from stock, options
and commodities exchanges and other news and financial information sources. We
provide this content with a variety of optional analytics packages to businesses
for their internal use and redistribution to their customers over the Internet,
virtual private networks, intranets, extranets, and local or wide area networks.
We use proprietary collection techniques to process financial market activity
reported to us directly from equities, options, and futures and options on
futures exchanges. We consolidate the information and update in real-time our
data warehouse of last sale, bid/ask, time and sales, and historical prices of
more than 600,000 securities and derivatives issues. The data warehouse includes
information on all North American equities, equity options, major stock indices,
Level 1 NASDAQ-quoted stocks, Level 2 NASDAQ market-maker quotes, mutual funds,
money market funds, futures contracts and options on futures contracts. We use
proprietary extraction routines and compression algorithms to create
"HyperFeed-TM- 2000", our IP Multicast digital data stream.
We disseminate HyperFeed 2000 to our customers over the Internet, as well as
by satellite and digital data landlines. HyperFeed 2000 populates databases
residing on computer servers at our customers' sites that are continuously
and instantaneously updated. This is often referred to as "real-time
streaming data" within the industry. Software applications on our customers'
and their customers' computers access the HyperFeed 2000 populated databases
to allow the end user to monitor securities activity and financial
information on an on-going real-time basis. PCQuote.com maintains multiple
servers for customers' real-time access, through Internet connections or
through the World Wide Web, to equivalent institutional quality financial
data without the requirement of having their own server.
We derive our revenue from license fees charged for access to HyperFeed 2000
and from license fees charged for a packaged HyperFeed 2000 plus analytical
software service. Our services are used primarily for trading analysis and as
a price engine for order routing, order matching, order execution,
interactive voice response, and alternative trading systems. Our customer
base consists primarily of financial market data redistributors: securities
broker-dealers, on-line brokerage firms, portfolio managers, other financial
institutions, Internet web-sites and financial portals. PCQuote.com services
individual and professional investors, in addition to selling advertising
space on its web site, www.pcquote.com.
Significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of HyperFeed Technologies, Inc. (the "Company", formerly PC
Quote, Inc.) and its subsidiary, PCQuote.com, Inc., and have been prepared in
accordance with generally accepted accounting principles. The 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.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS: The Company considers all cash and cash investments
with an original maturity of three months or less to be cash equivalents. The
Company typically invests excess cash in a money market account at a financial
institution which management believes has a strong credit rating.
F-8
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation on owned assets is provided using the straight-line method over
the following estimated useful lives: satellite receiving, computer and
communications equipment: 3 to 5 years; furniture, fixtures and leasehold
improvements: 5 to 10 years. Leasehold improvements are amortized over the
lesser of the estimated useful lives or the terms of the respective leases.
Maintenance and repair costs are charged to earnings as incurred. Costs of
improvements are capitalized. Upon retirement or disposition, the cost and
related accumulated depreciation and amortization are removed from the
accounts and any gain or loss is included in the statements of operations.
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 effective 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.
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.
F-9
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION: The Company principally derives its revenue from service
contracts for the provision of market data only ("HyperFeed-TM- 2000 license
fees"), service contracts for the provision of market data together with
analytical software ("PC Quote 6.0 license fees"), and the sale of
advertising on its web-site, www.pcquote.com. Revenue from service contracts
is recognized using the percentage-of-completion method, 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 PC Quote 6.0 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 with
analytics to the business-to-business marketplace, while PCQuote.com services
primarily consist of analytics services, powered by HyperFeed 2000, to the
consumer marketplace. In addition, PCQuote.com sells advertising on its
web site.
The Company adopted the provisions of Statement of Position (SOP) 97-2, Software
Revenue Recognition, on January 1, 1998. SOP 97-2 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.
COMPUTATION OF NET INCOME (LOSS) PER SHARE: The Company applies the
provisions of SFAS No. 128, "Earnings Per Share," which established new
methods for computing and presenting earnings per share ("EPS") and replaced
the presentation of primary and fully-diluted EPS with basic ("Basic") and
diluted EPS. Basic earnings per share is based on the weighted average number
of shares outstanding and excludes the dilutive effect of unexercised common
stock equivalents. Diluted earnings per share includes the dilutive effect of
unexercised common stock equivalents. The Company has equity securities that,
if exercised, would have had a dilutive effect on EPS had the Company
generated income during 1999 and 1998. The dilutive effect of such securities
would have been an additional 9,118,000 and 225,500 average shares
outstanding during the years ended December 31, 1999 and 1998, respectively.
RECLASSIFICATIONS: Certain amounts in the consolidated financial statements
have been reclassified to conform to the 1999 presentation.
NOTE 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 (8.5% at December 31, 1999).
The loan is collateralized by substantially all assets of the Company. At
December 31, 1999 and 1998, the outstanding balance was $499,634 and
$799,634, respectively.
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 (8.5% on
December 31, 1999). 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. At December 31, 1999, the outstanding principal
balance was $2,000,000. Accrued interest is payable at the same time as the
principal installments. At December 31, 1999, accrued interest on the note
was $53,584.
F-10
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. TRANSACTIONS WITH AFFILIATES
On November 14, 1996, the Company entered into an agreement (the "Debenture
Agreement") with Physicians Insurance Company of Ohio, ("Physicians"), a
wholly-owned subsidiary of PICO Holdings, Inc. ("PICO"), which then owned
approximately 30% of the Company's outstanding shares of common stock. Pursuant
to the Debenture Agreement, Physicians invested $2.5 million in the Company in
exchange for a Subordinated Convertible Debenture (the "Debenture") in the
principal amount of $2.5 million with interest at 1% over prime. Interest was
payable semiannually, beginning January 1, 1998. Physicians made the investment
and the Debenture was issued on December 2, 1996. The Debenture was to mature on
December 31, 2001 and was convertible at any time by Physicians into 1.25
million shares of common stock of the Company (subject to adjustment in certain
cases). Using the Black-Scholes option-pricing model, a value of $1,650,000 was
assigned by the Company to the subordinated debenture's beneficial conversion
feature and recognized as additional paid-in capital and unamortized discount
upon issuance in 1996.
On May 5, 1997, the Company and PICO entered into a Loan and Security Agreement
(the "Loan Agreement"), under which PICO agreed to make a secured loan to the
Company in an aggregate principal amount of up to $1.0 million at a fixed rate
equal to 14% per annum. Unless otherwise extended, the entire principal balance
and all accrued interest due under the Loan Agreement was payable on September
30, 1997. All advances under the Loan Agreement were secured by a pledge of
substantially all of the assets of the Company. These liens were subject to the
prior lien of the Company's primary lender, Lakeside Bank. PICO was also
entitled to be paid a "facility fee" of $40,000 on the maturity date of the loan
contemplated by the Loan Agreement.
In connection with the Loan Agreement, the Company and Physicians entered into a
First Amendment to the Debenture and Debenture Agreement (the "Debenture
Amendment"), pursuant to which the terms of the Debenture were restructured as
follows: (a) the maturity date of the Debenture was changed to April 30, 1999
instead of December 31, 2001; (b) the Debenture could not be prepaid or redeemed
without the consent of Physicians; (c) the conversion rate on the Debenture was
changed from $2.00 per share to the lower of (i) the mean of the closing bid
price per share for the 20 trading days preceding conversion of the Debenture or
(ii) $1.5625 per share (the market price of the Company's common stock on the
date of the Debenture Amendment); (d) certain negative covenants were added to
the Debenture Agreement; and (e) the rights offering contemplated by the
Debenture Agreement would be at such time as determined by the Company and at a
price as determined by Physicians. Interest under the Debenture would continue
to be payable in cash or, at the option of Physicians, in shares of the
Company's common stock at the market value of such shares at the time of
payment.
Also on May 5, 1997, in consideration of the loan by PICO to the Company, the
Company issued a Common Stock Purchase Warrant (the "Warrant") to PICO entitling
PICO to purchase a minimum of 640,000 shares of the Company's common stock at a
price per share (the "Warrant Price") equal to the lesser of (a) the mean of the
closing bid price per share for the 20 trading days preceding exercise of the
Warrant or (b) $1.5625 per share (the market value of the Company's common stock
on the date the Warrant was issued). The Warrant was to expire on April 30,
2000. In lieu of exercising the Warrant for cash, PICO may elect to receive
shares of the Company's common stock equal to the "value" of the Warrant
determined in accordance with a formula specified in the Warrant (the
"Conversion Value"). The number of shares of the Company's common stock subject
to the Warrant and the Warrant Price will be adjusted to reflect stock
dividends; reclassifications or changes of outstanding securities of the
Company; any consolidation, merger or reorganization of the Company; stock
splits; issuances of rights, options or warrants to all holders of shares of the
Company's common stock exercisable at less than the current market price per
share; and other distributions to all holders of shares of the Company's common
stock. In the event of any sale, license or other disposition of all or
substantially all of the assets of the Company or any reorganization,
consolidation or merger involving the Company in which the holders of the
Company's securities before the
F-11
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
transaction beneficially own less than 50% of the outstanding voting securities
of the surviving entity (an "Acquisition"), if the successor entity does not
assume the obligations of the Warrant and PICO has not fully exercised the
Warrant, the unexercised portion of the Warrant will be deemed automatically
converted into shares of the Company's common stock at the Conversion Value.
Alternatively, PICO may elect to cause the Company to purchase the unexercised
portion of the Warrant for cash upon the closing of any Acquisition for an
amount equal to (a) the fair market value of any consideration that would have
been received had PICO exercised the unexercised portion of the Warrant
immediately before the record date for determining stockholders entitled to
participate in the proceeds of the Acquisition, less (b) the aggregate Warrant
Price. The Warrant also provides for certain piggyback registration rights and a
one-time demand registration right.
In connection with the May 5, 1997 transactions, using the Black-Scholes
option-pricing model, an aggregate value of $572,192 was assigned to the value
of the Debenture Amendment and Warrant and recorded as additional
paid-in capital and discounts on the Debenture and the Loan.
In August 1997, the Company and PICO agreed to amend the Loan Agreement and
related documents to increase the amount of the secured loan from PICO to the
Company from $1.0 million up to $2.0 million. The terms of the Loan Agreement
otherwise remained substantially the same, except that the "facility fee" of
$40,000 was eliminated for new advances. In connection with the increase of the
loan amount pursuant to such amendment, the Company granted PICO an additional
Common Stock Purchase Warrant for a minimum of 500,000 shares of the Company's
common stock. The terms of the additional warrant are substantially the same as
those contained in the Warrant, except that the conversion price is the lesser
of (a) $2.00 per share or (b) the mean of the closing bid price per share for
the 20 trading days preceding exercise of the additional warrant. The additional
warrant also provides for certain piggyback registration rights and a one-time
demand registration right. Using the Black-Scholes option-pricing model, a value
of $428,640 was assigned to the value of the additional warrants issued and
recorded as paid-in capital and discount on the loan.
On September 22, 1997, the Company and PICO executed a second amendment to the
Loan Agreement to further increase the amount of the secured loan from PICO to
the Company from $2.0 million to $2.25 million. The terms of the Loan Agreement
otherwise remained substantially the same, except that the maturity date was
extended to December 31, 1997. In consideration of the amendment to the Loan
Agreement, the Company granted PICO another Common Stock Purchase Warrant for up
to 129,032 shares of common stock. The terms of such warrant are substantially
the same as contained in the Warrant, except that the conversion price is the
lesser of (a) $1.9375 per share or (b) the mean of the closing bid price per
share for the 20 trading days preceding exercise of this warrant. This warrant
also provides for certain piggyback registration rights and a one-time demand
registration right. Using the Black-Scholes option-pricing model, a value of
$99,659 was assigned to the value of the additional warrants issued and recorded
as paid-in capital and discount on the loan.
On December 30, 1997, February 5, 1998, March 10, 1998, May 5, 1998, June 1,
1998, and July 24, 1998, the Company and PICO executed the third, fourth, fifth,
sixth, seventh, and eighth amendments to the Loan Agreement, respectively,
extending the due date for borrowings by the Company, plus accrued interest, to
January 31, 1998, February 28, 1998, April 30, 1998, May 31, 1998, August 31,
1998, and December 31, 1998, respectively. No further warrants were issued in
connection with the third, fourth, fifth, sixth, seventh, or eighth amendments
to the loan agreement.
On May 19, 1998, PICO exercised a portion of one of their warrants and purchased
320,000 shares of common stock of the Company for $500,000.
F-12
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
On July 31, 1998, the Company and PICO executed the ninth amendment to the Loan
Agreement to further increase the amount of the secured loan from PICO to the
Company from $2.25 million to $3.25 million. No further warrants were issued in
connection with the ninth amendment.
On September 23, 1998, the Company entered into a Securities Purchase Agreement
(the "Securities Agreement"), subject to shareholder approval, with PICO and
Physicians. Under the terms of the Securities Agreement, the Company and
Physicians, as the holder of the Debenture in the principal amount of
$2,500,000, plus accrued interest in the amount of $423,123 as of September 23,
1998, plus interest accruing at the rate of $651 per day thereafter (such
principal and all accrued interest through the Closing Date, the "Debenture
Balance"), and PICO, to whom the Company was indebted in the principal amount of
$3,290,000, plus accrued interest in the amount of $377,742 as of September 23,
1998, plus interest accruing at the rate of $1,262 per day thereafter (such
principal and all accrued interest through the Closing Date, the "PICO
Indebtedness") provided for the purchase of Series A 5% Convertible Preferred
Stock by Physicians through the conversion of the Debenture Balance and for the
purchase of Series B 5% Convertible Preferred Stock by PICO in consideration for
the cancellation of the PICO Indebtedness.
Concurrently with the execution of the Securities Agreement, the Company and
Physicians entered into the Second Amendment to the Debenture and Debenture
Agreement to revise the conversion language therein in order to make it
consistent with the Securities Agreement.
Shareholder approval of the terms and conditions of the Securities Agreement for
the debt conversion and the transactions contemplated by the Securities
Agreement was obtained on December 17, 1998. The closing date for the Securities
Agreement transactions was December 18, 1998.
Subject to the terms and conditions of the Securities Agreement, Physicians
purchased and the Company issued to Physicians 19,075 shares of Series A 5%
Convertible Preferred Stock determined by dividing the Debenture Balance by one
hundred times $1.5625 (the Debenture conversion rate on the date of the
Securities Agreement). The Series A 5% Convertible Preferred Stock was deemed to
have a beneficial conversion feature because the fair market value of the
Company's common stock was in excess of its per share conversion price at the
date of issuance. The value of the beneficial conversion feature of $119,219 was
recorded in 1998 as an increase in additional paid-in capital Series A preferred
stock and a decrease to retained earnings (preferred dividend).
Subject to the terms and conditions of the Securities Agreement, PICO purchased
and the Company issued to PICO on December 18, 1998, 28,791 shares of Series B
5% Convertible Preferred Stock determined by dividing the PICO Indebtedness by
one hundred times $1.3125 (the market price of the Company's Common Stock on
September 21, 1998, the date the Securities Agreement was approved by the
Company's Board of Directors). The Series B 5% Convertible Preferred Stock was
deemed to have a beneficial conversion feature because the fair market value of
the Company's common stock was in excess of its per share conversion price at
the date of issuance. The value of the beneficial conversion feature of $899,719
was recorded in 1998 as an increase in additional paid-in capital Series B
preferred stock and a decrease to retained earnings (preferred dividend).
A holder of Series A Preferred is entitled to receive cash dividends, when and
as declared by the Board out of funds legally available for such purpose, in the
annual amount of 5% of the per share purchase price, payable quarterly on the
15th day of September, December, March and June, in each year. A holder of
Series B Preferred is entitled to receive cash dividends, when and as declared
by the Board out of funds legally available for such purpose, in the annual
amount of 5% of the per share purchase price, payable quarterly on the 15th day
of September, December, March and June, in each year. Dividends payable for any
period less than a full quarter shall be computed on and paid for the actual
number of days elapsed. Dividends shall accrue on each share of Preferred Stock
from the date of issue of such share of stock (the "Issuance Date").
F-13
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
No dividends shall be declared on any other series or class or classes of stock
unless there shall be or have been declared on all shares of Preferred Stock
then outstanding the dividends for all quarter-yearly periods coinciding with or
ending before such quarter-yearly period. Dividends shall be cumulative. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment which is in arrears. If in any quarter-yearly dividend
period, dividends in the annual amount have not been declared and paid or set
apart for payment for such quarter-yearly dividend period and all preceding such
periods from the first day from which dividends are cumulative, then, until the
aggregate deficiency is declared and fully paid or set apart for payment, the
Company shall not (i) declare or pay or set apart for payment any dividends or
make any other distribution on any other capital stock or securities having an
equity interest in the Company ranking junior to or on a parity with the
Preferred Stock with respect to the payment of dividends or distribution of
assets on liquidation, dissolution or winding up of the Company (the "Secondary
Stock") (other than dividends or distributions paid in shares of, or options,
warrants or rights to subscribe for or purchase Secondary Stock) or (ii) make
any payment on account of the purchase, redemption, other retirement or
acquisition of any Secondary Stock with respect to the payment of dividends or
distribution of assets on liquidation, dissolution or winding up of the Company.
At any time or times on or after the Issuance Date, any holder of Preferred
Stock shall be entitled to convert any whole number of shares of Preferred Stock
into fully paid and nonassessable shares (rounded to the nearest whole share).
The number of shares of common stock issuable upon conversion of the Preferred
Stock shall be determined by multiplying the product of one hundred (100) and
the number of shares of Preferred Stock to be converted into common stock by:
(i) in the case of Series A Preferred, $1.5625 and then adding the
amount of any accrued but unpaid dividends attributable to such
Preferred Stock, and then dividing by the lower of (X) $1.5625, (Y) the
average Closing Sale Price of the common stock over the twenty-day
period immediately prior to the day the Series A Preferred is to be
converted into common stock; or (Z) the Closing Sale Price one day
prior to the day the Series A Preferred is to be converted into common
stock (the "Series A Conversion Rate").
(ii) in the case of Series B Preferred, $1.3125 and then adding the
amount of any accrued but unpaid dividends attributable to such
Preferred Stock, and then dividing by the lower of (X) $1.3125, (Y) the
average Closing Sale Price of the common stock over the twenty-day
period immediately prior to the day the Series B Preferred is to be
converted into common stock; or (Z) the Closing Sale Price one day
prior to the day the Series B Preferred is to be converted into common
stock (the "Series B Conversion Rate").
In order to prevent dilution of the rights granted, the Series A and Series B
Conversion Rates will be subject to adjustment for issuance of additional
securities of the Company, including common stock, options or convertible
securities, and reclassifications or changes of outstanding securities (by any
stock split, reverse stock split, combination, stock dividend, recapitalization
or otherwise).
If any Preferred Stock remains outstanding on the fifth anniversary after the
Issuance Date, then such Preferred Stock shall automatically convert to common
stock on such fifth anniversary.
The holders of Series A or Series B Preferred Stock shall be entitled to notice
of any shareholders' meeting and to vote upon any matter submitted to the
shareholders for a vote on the following basis. Each Holder of Preferred Stock
shall have the number of votes equal to the number of shares of common stock
into which the Preferred Stock then held by such holder is convertible, as
adjusted from time to time.
F-14
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Subject to the terms and conditions of the Securities Agreement, the Company
issued to PICO a warrant to purchase 3,106,163 shares of common stock of the
Company at an exercise price of $1.575 per share (120% of the Series B Closing
Price), and an expiration date of April 30, 2005. In lieu of exercising the
warrant for cash, the holder may elect to receive shares of the Company's common
stock equal to the "value" of the warrant determined in accordance with a
formula specified in the warrant (the "Conversion Value"). The number of shares
of the Company's common stock subject to the warrant and the exercise price will
be adjusted to reflect stock dividends; reclassifications or changes of
outstanding securities of the Company; any consolidation, merger or
reorganization of the Company; stock splits; issuances of rights, options or
warrants to all holders of shares of the Company's common stock exercisable at
less than the current market price per share; and other distributions to all
holders of shares of the Company's common stock. In the event of any sale,
license or other disposition of all or substantially all of the assets of the
Company or any reorganization, consolidation or merger involving the Company in
which the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity (an "Acquisition"), if the successor entity does not assume the
obligations of the warrant and the holder has not fully exercised the warrant,
the unexercised portion of the warrant will be deemed automatically converted
into shares of the Company's common stock at the Conversion Value.
Alternatively, the holder may elect to cause the Company to purchase the
unexercised portion of the warrant for cash upon the closing of any Acquisition
for an amount equal to (a) the fair market value of any consideration that would
have been received had the holder exercised the unexercised portion of the
warrant immediately before the record date for determining stockholders entitled
to participate in the proceeds of the Acquisition, less (b) the aggregate
exercise price.
Subject to the terms and conditions of the Securities Agreement, the Company and
PICO, as the holder of three Common Stock Purchase Warrants to purchase an
aggregate of 949,032 shares of common stock of the Company (the "Existing
Warrants"), each of which was to expire on April 30, 2000, entered into
Amendments of the Existing Warrants to extend the term of the Existing Warrants
until April 30, 2005.
In October 1997, Imprimis Investors LLC and Wexford Spectrum Investors LLC
(collectively, the "Wexford Affiliates") purchased five million shares of common
stock and warrants to purchase five hundred thousand shares of common stock at
an exercise price of $2.00 per share, exercisable at any time prior to October
15, 2002 (the "Initial Warrants"), in exchange for $5.0 million.
The Wexford Affiliates acquired the Common Stock and the Warrants for investment
purposes pursuant to a certain Stock and Warrant Purchase Agreement dated
October 15, 1997, between PC Quote and the Wexford Affiliates (the "Purchase
Agreement"). Up to four million of the shares of Common Stock purchased by the
Wexford Affiliates were subject to repurchase by PC Quote at a purchase price of
$1.00 per share pursuant to the terms of the Purchase Agreement (the
"Repurchase"). Pursuant to the terms of the Purchase Agreement, PC Quote was
required to use its best efforts to consummate the Repurchase from the proceeds
of a rights offering.
On October 31, 1997, the Company filed a Form S-2 Registration Statement with
the Securities and Exchange Commission for the rights offering. The
Registration Statement was amended on November 20, 1997 and became effective
on November 21, 1997. The Company distributed 7,402,246 transferable
subscription rights to shareholders of record as of the close of business on
November 21, 1997, entitling them to purchase one additional share of Common
Stock for each right at a price of $1.00 per share.
On January 23, 1998, the Company completed the rights offering. The Company
received approximately $3.0 million in gross proceeds from the sale of shares
underlying exercised rights. Pursuant to the Purchase Agreement, the entire
proceeds were used to fulfill the Company's obligation to repurchase shares from
the Wexford Affiliates.
F-15
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
During the second quarter of 1998, the Wexford Affiliates exercised a portion of
their warrants and purchased 143,300 shares of Common Stock of the Company for
$286,600. During the third quarter of 1998, the Wexford Affiliates exercised a
portion of their warrants and purchased 89,500 shares of Common Stock of the
Company for $179,000.
In February 1999, the Wexford Affiliates exercised the remaining portion of
their warrants and the Company issued 267,200 shares of common stock to them in
exchange for $534,400.
NOTE 4. FINANCING AND EQUITY TRANSACTIONS
On December 29, 1998, the Company entered into Stock and Warrant Purchase
Agreements with three third-party investors. On December 30, 1998, the
investors purchased 640,000 shares of common stock and warrants to purchase
320,000 shares of common stock at an exercise price of $1.875 per share,
exercisable at any time on or prior to December 30, 2001, in exchange for
$1.0 million. The investors acquired the common stock and warrants for
investment purposes.
On April 19, 1999, a third-party investor exercised its warrant, acquired in
connection with a December 1998 private placement, and acquired 80,000 shares of
the Company's common stock in exchange for $150,000.
On April 22, 1999, the Company entered into Stock Purchase Agreements with four
third-party investors. On April 23, 1999, the investors purchased 190,476 shares
of common stock in exchange for $1,999,998. The investors acquired the common
stock for investment purposes.
On June 11, 1999, a third-party investor exercised its warrant, acquired in
connection with a December 1998 private placement, and acquired 120,000 shares
of the Company's common stock in exchange for $225,000.
On June 16, 1999, the stockholders of the Company approved the 1999 Combined
Incentive and Non-statutory Stock Option Plan, previously approved by the
Company's Board of Directors in March 1999. There are 4,000,000 shares reserved
for issuance under this plan. The plan terminates in March 2009, unless
terminated sooner by the Company's Board of Directors. The plan authorizes the
award of options and restricted stock purchase rights. The plan will be
administered by the Company's Board of Directors or a committee appointed by the
Company's Board of Directors. The administrator has the authority to interpret
the plan, grant awards and make all other determinations necessary to administer
the plan. Stock options are exercisable for a period not to exceed ten years
from the date of the grant and, to the extent determined at the time of grant,
may be paid for in cash or by a reduction in the number of shares issuable upon
exercise of the option.
In December 1998, the Company segregated its Internet consumer related services
into a separate business unit within the Company, which was incorporated in
March 1999 as PCQuote.com, Inc., a wholly-owned subsidiary. On August 30, 1999,
we formally separated the business of PCQuote.com and its associated assets and
liabilities from our other businesses and operations.
F-16
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. FINANCING AND EQUITY TRANSACTIONS, CONTINUED
On April 12, 1999, PCQuote.com, Inc. entered into a 3 1/2 year agreement with
CNNfn. Under the limited exclusive licensing agreement, CNNfn granted
PCQuote.com a license to display on PCQuote.com's web sites certain headlines
from CNNfn original stories published on the CNNfn Web site at www.cnnfn.com. In
connection with the agreement, PCQuote.com issued to CNNfn a warrant to acquire
515,790 shares (after giving effect to the 9,800-for-one stock split approved by
PCQuote.com's Board of Directors) of common stock, representing a five percent
interest in the common stock of PCQuote.com outstanding prior to its planned
initial public offering. On June 9, 1999, PCQuote.com filed a registration
statement with the Securities and Exchange Commission relating to a planned
initial public offering of 7,750,000 shares of its common stock. The Company
estimated that the warrant had a fair value of $5.88 million. The fair value was
recorded as additional paid-in capital and current and non-current prepaid
license fees, which will be amortized over the term of the agreement. The
warrant vests 25% upon execution of the agreement with an additional 25% vested
on each of the three succeeding anniversary dates after execution, and has an
aggregate exercise price of $.52. In the event PCQuote.com does not complete
an initial public offering by October 12, 2000, CNNfn has a one-time right to
convert the then value of its interest in PCQuote.com into an equivalent
interest in HyperFeed in the form of HyperFeed common stock.
On April 29, 1999, CNNfn exercised the vested portion of its warrant and
acquired 128,948 shares of PCQuote.com common stock. The minority interest
owned by CNNfn has been included in the accompanying consolidated financial
statements.
PCQuote.com adopted its 1999 Combined Incentive and Non-statutory Stock Option
Plan in May 1999. There are 1,538,600 shares of common stock reserved for
issuance under this plan. The plan terminates in September 2009, unless
terminated sooner by PCQuote.com's Board of Directors. The plan authorizes the
award of options and restricted stock purchase rights. The plan will be
administered by PCQuote.com's Board of Directors or a committee appointed by
PCQuote.com's Board of Directors. The administrator has the authority to
interpret the plan, grant awards and make all other determinations necessary to
administer the plan. Stock options are exercisable for a period not to exceed
ten years from the date of the grant and, to the extent determined at the time
of grant, may be paid for in cash or by a reduction in the number of shares
issuable upon exercise of the option. No stock options were issued under this
plan during 1999.
On June 4, 1999, PCQuote.com amended its articles of incorporation to increase
its authorized common stock to 74,000,000 shares and authorized 1,000,000 shares
of $.01 par value preferred stock for future issuance. On June 8, 1999, the
Board of Directors approved a 9,800-for-one stock split of PCQuote.com's
outstanding common stock.
On August 31, 1999, the Company borrowed $1.5 million, on an unsecured basis,
and subsequently repaid the loan on September 30, 1999. The loan had an interest
rate of 3% over the prime rate as quoted in the Wall Street Journal.
On September 15, 1999, a third-party investor exercised its warrant, acquired in
connection with the December 1998 private placement, and acquired 120,000 shares
of our common stock in exchange for $225,000.
On November 22, 1999, the Company entered into Stock and Warrant Purchase
Agreements with three third-party investors. On November 30, 1999, two of the
investors purchased 270,000 shares of common stock and warrants to purchase
135,000 shares of common stock at an exercise price of $7.50 per share,
exercisable at any time on or prior to November 30, 2001, in exchange for
$1,350,000. Also on November 30, 1999, a service provider to the Company
acquired 60,000 shares of common stock and warrants to purchase 30,000 shares of
common stock at an exercise price of $7.50 per share, exercisable at any time on
or prior to November 30, 2001, in lieu of a cash payment of $300,000 for
services previously rendered. The investors acquired the common stock and
warrants for investment purposes.
As a result of the foregoing, in connection with the Company's financing,
equity, and related party transactions, the Company has the following
warrants for purchase of shares of common stock, issued and outstanding at
December 31, 1999:
F-17
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. FINANCING AND EQUITY TRANSACTIONS, CONTINUED
Number Remaining Life in Years
of Expiration Exercise at
Shares Date Price December 31, 1999
------ ---- ----- -----------------
320,000 04/30/2005 (1) 5.33
500,000 04/30/2005 (2) 5.33
129,032 04/30/2005 (3) 5.33
3,106,163 04/30/2005 $1.575 5.33
165,000 11/30/2001 $7.50 1.92
(1) lesser of the mean of the closing bid price per share for the 20 trading
days preceding exercise of the warrant or $1.5625 per share.
(2) lesser of the mean of the closing bid price per share for the 20 trading
days preceding exercise of the warrant or $2.00 per share.
(3) lesser of the mean of the closing bid price per share for the 20 trading
days preceding exercise of the warrant or $1.9375 per share.
NOTE 5. EMPLOYEE STOCK OPTIONS
The Company has an Employees' Combined Incentive and Non-Statutory Stock Option
Plan (the "Plan"). The Plan provides that at all times optional shares
outstanding plus shares available for grant equal 4,000,000 shares. Generally,
these options may be granted to key employees of the Company at a purchase price
equal to the fair value of the Company's common stock at date of grant and are
generally exercisable for a period of up to five years from the date of grant.
Other information with respect to the Plan is as follows:
- ---------------------------------- ------------------- --------------------------
Number Weighted-
of Average Exercise
Shares Price Per Share
------------------ --------------------------
- ---------------------------------- ------------------- --------------------------
Balance, December 31, 1996 440,003 4.51
Granted 636,612 1.61
Exercised (18,833) (0.90)
Canceled (283,917) (4.64)
---------
Balance, December 31, 1997 773,865 2.16
Granted 1,192,200 1.52
Exercised (95,015) (1.19)
Canceled (76,751) (2.39)
---------
Balance, December 31, 1998 1,794,299 1.78
Granted 1,277,340 5.89
Exercised (210,514) (1.36)
Canceled (10,669) (4.66)
---------
Balance, December 31, 1999 2,850,456 3.64
---------
- ---------------------------------- ------------------- --------------------------
F-18
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. EMPLOYEE STOCK OPTIONS (CONTINUED)
Shares
Exercisable Available
Shares for Grant
---------------- ------------------
December 31, 1999 1,445,772 1,149,544
December 31, 1998 1,457,466 205,701
December 31, 1997 592,113 1,226,135
Options granted under the Plan generally become exercisable at an annual
cumulative rate of one-third of the total number of options granted. The
exercise price for options outstanding at December 31, 1999 ranged from
$0.9375 to $8.875 per share.
The Company applies the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
provide pro forma net income and pro forma net income per share disclosures as
if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123. Had the Company determined
compensation cost based on the fair value at the grant date for its stock-based
compensation plans under SFAS No. 123, the Company's net loss and net loss per
share would have been for the years ended December 31, 1999, 1998 and 1997 the
pro forma amounts indicated below:
Basic and Basic and Basic and
Diluted Loss Diluted Loss Diluted Loss
1999 per Share 1998 Share 1997 per Share
------------- --------- ------------- --------- ------------- ---------
Net loss available for common
stockholders ($ 9,431,698) ($ 0.63) ($ 7,468,146) ($ 0.57) ($11,141,416) ($ 1.33)
Compensation expense related
to stock options granted (1,504,536) (0.10) (1,254,336) (0.10) (523,646) (0.06)
------------- --------- ------------- --------- ------------- ---------
Pro forma net loss available
for common stockholders ($10,936,234) ($ 0.73) ($ 8,722,482) ($ 0.67) ($11,665,062) ($ 1.39)
============= ========= ============= ========= ============= =========
The fair value of each grant is estimated using the Black-Scholes option-pricing
model with the following weighted-average assumptions:
1999 1998 1997
---- ---- ----
Expected life 5.00 years 7.18 years 6.83 years
Dividend rate 0% 0% 0%
Risk-free interest rate 5.45% 5.16% 6.11%
Volatility factors 117% 134% 123%
The weighted-average exercise price and weighted-average fair value of options
granted during 1999, 1998 and 1997 where the market price equals, exceeds or is
less than the exercise price at the time of grant is as follows:
F-19
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. EMPLOYEE STOCK OPTIONS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------
Stock Price ______ Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Is Less Is Less Is Less
Equals Exceeds Than Equals Exceeds Than Equals Exceeds Than
------ ------- ---- ------ ------- ---- ------ ------- ----
- ----------------------------------------------------------------------------------------------------------------------
Exercise price $5.89 --- --- $1.29 $1.59 $1.75 $1.53 $1.69 $1.70
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Fair value of option $4.91 --- --- $1.09 $2.01 $1.10 $1.29 $2.00 $0.96
- ----------------------------------------------------------------------------------------------------------------------
No compensation expense from stock-based compensation awards was recognized in
the Statement of Operations for 1999. Compensation expense from stock-based
compensation awards recognized in the Statement of Operations for 1998 and 1997
was $117,779 and $19,076, respectively.
A further summary about options outstanding at December 31, 1999, is as follows:
Weighted-
Average
Remaining
Number Contractual Number
Exercise Price Outstanding Life in Years Exercisable
- ------------------------------ -------------- ---------------- ---------------
$ 0.9375 16,667 3.11 ---
$ 1.0000 17,612 1.85 10,945
$ 1.1250 110,000 3.68 39,999
$ 1.3750 571,235 6.72 537,901
$ 1.4375 255,168 3.28 235,494
$ 1.5000 26,183 3.05 12,516
$ 2.0000 487,901 7.45 487,901
$ 2.9375 5,000 3.38 1,666
$ 5.2500 97,500 4.63 10,000
$ 5.3750 25,000 1.58 25,000
$ 5.8125 205,000 4.97 ---
$ 5.9375 958,840 4.21 15,000
$ 6.3750 64,350 0.82 64,350
$ 8.8750 10,000 4.72 5,000
--------- ---------
2,850,456 5.10 1,445,772
========= =========
F-20
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES
The deferred tax assets and liabilities consist of the following components as
of December 31, 1999 and 1998:
1999 1998
---- ----
Deferred tax assets:
Unearned revenue $ 833,835 $ 526,036
Receivable allowances 154,797 155,063
Property and equipment 306,380 266,800
Accrued expenses 88,418 54,231
Other 1,033,541 ---
Net operating loss carryforwards 10,467,671 9,101,895
Research and development credit carryforward 106,000 106,000
---------- ---------
12,990,642 10,210,025
Valuation allowance (11,571,671) (8,455,486)
---------- ---------
1,418,971 1,754,539
Deferred tax liabilities:
Software capitalization (1,321,422) (1,754,539)
Other (97,549) ---
---------- ----------
(1,418,971) (1,754,539)
--------- ---------
Net current deferred tax asset --- ---
========== =========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion, or all, of the deferred
tax assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the scheduled
reversal of the capitalized software, management believes it is more likely
than not that the Company will realize the benefits of these deductible
differences, net of the existing valuation allowance at December 31, 1999.
Income tax expense for the years ended December 31, 1999, 1998, and 1997,
consists of the following:
1999 1998 1997
---- ---- ----
Current:
State and local $ 5,000 $ 3,613 $ 5,762
Deferred --- --- ---
-------- ------- -------
Total income tax expense $ 5,000 $ 3,613 $ 5,762
======== ======= =======
Reconciliations of income tax expense computed at the statutory federal income
tax rate to the Company's income tax expense for the years ended December 31,
1999, 1998 and 1997, are as follows:
1999 1998 1997
---- ---- ----
Statutory rate provision ($3,299,344) ($ 2,257,223) ($ 3,899,496)
Increase (decrease) resulting from:
Nondeductible expenses 12,303 393,613 8,468
State income taxes (net of Federal benefit) 3,250 2,348 3,745
Change in valuation allowance 3,116,185 1,701,895 3,907,331
Other 172,606 162,980 (14,286)
--------- ----------- ------------
$ 5,000 $ 3,613 $ 5,762
========= =========== ============
F-21
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES (CONTINUED)
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 relates to 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.
NOTE 7. LEASE COMMITMENTS
The Company is obligated, as lessee under certain noncancelable operating
leases, for lease payments for equipment and office space, as well as insurance,
maintenance and other executory costs associated with the leases. On September
1, 1994, the Company entered into a lease agreement in conjunction with the move
of its corporate headquarters, which is subject to escalating base rent, as well
as adjustments for changes in real estate taxes and other operating expenses.
Expense under the lease is recognized on a straight-line basis.
Future minimum lease payments for the Company as lessee as of December 31, 1999
are as follows:
Operating
Leases
------
Years ending December 31:
2000 $ 363,363
2001 197,480
2002 162,450
2003 100,827
2004 94,684
2005 and thereafter ---
------------
Total minimum lease payments $ 918,804
============
Rental expense for operating leases was $1,806,350, $3,187,945 and $3,314,402
for the years ended December 31, 1999, 1998 and 1997, respectively.
NOTE 8. OTHER COMMITMENTS
In connection with the formation and transfer of its consumer-oriented
Internet 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
to pay Townsend $1.0 million within ninety days after execution of the
agreement. The Company paid the $1.0 million to Townsend in the third quarter
of 1999. 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
F-22
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. OTHER COMMITMENTS, CONTINUED
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 and its subsidiary recognized a combined $4.9 million of royalty
expense for the year ended December 31, 1999 pursuant to the terms of the new
agreements.
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. The
Company ceased utilizing the SpaceCom satellite transmission services in the
third quarter of 1999, and accordingly recorded the entire settlement amount as
a charge against operations and the related payment liability as current and
non-current accrued satellite termination fees. The Company expensed, as
direct cost of services, $346,102, $679,680 and $677,347 for the years ended
December 31, 1999, 1998 and 1997, respectively, for services utilized prior to
termination of the agreement.
NOTE 9. 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 and products of the reportable
segments are the same as those described in Note 1. Financial information
relating to industry segments for the years ended December 31, 1999, 1998,
and 1997 is as follows:
1999 1998 1997
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
Sales to unaffiliated customers:
HyperFeed services $ 17,733,813 53.5% $ 13,133,422 57.0% $ 12,356,461 72.2%
PCQuote.com services 15,394,246 46.5% 9,912,111 43.0% 4,762,912 27.8%
------------ ------------ ------------
Total revenue $ 33,128,059 100.0% $ 23,045,533 100.0% $ 17,119,373 100.0%
============ ============ ============
Operating loss:
HyperFeed services ($ 2,420,796) 25.9% ($ 3,041,329) 64.7% ($ 5,632,960) 63.1%
PCQuote.com services (6,931,357) 74.1% (1,658,097) 35.3% (3,287,764) 36.9%
------------ ------------ ------------
Total operating loss ($ 9,352,153) 100.0% ($ 4,699,426) 100.0% ($ 8,920,724) 100.0%
============ ============ ============
Identifiable assets:
HyperFeed services $ 7,057,029 46.1% $ 6,747,277 67.1% $ 7,651,383 72.6%
PCQuote.com services 8,238,155 53.9% 3,306,090 32.9% 2,885,065 27.4%
------------ ------------ ------------
Total identifiable assets $ 15,295,184 100.0% $ 10,053,367 100.0% $ 10,536,448 100.0%
============ ============ ============
F-23
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. DEFINED CONTRIBUTION PLAN
In 1993, the Company established a 401(k) retirement savings plan for employees
meeting certain eligibility requirements. Under the plan, the Company is
required to match employee contributions at 25% of the first 5% contributed by
an employee. The Company recorded expenses related to its matching of
contributions of $58,356, $49,205 and $36,200 for the years ended December 31,
1999, 1998 and 1997, respectively.
NOTE 11. EMPLOYEE STOCK PURCHASE PLAN
In 1995, the Company established an employee stock purchase plan. The plan
allows employees to have up to 10% of their annual salary withheld to purchase
common stock of HyperFeed Technologies, Inc. on the final day of each quarter at
85% of the market price on either the first or last day of the quarter,
whichever is lower. The Company has reserved 1,000,000 shares of common stock
for issuance pursuant to the terms of the plan. Shares sold to employees totaled
79,874, 288,513 and 60,610 for the years ended December 31, 1999, 1998 and
1997, respectively.
NOTE 12. LITIGATION
The Company is a defendant in the lawsuit GRAHAM R. CLARK V. PC QUOTE
INCORPORATED (HYPERFEED) 1999 C 559, High Court of Justice, Queens Bench
Division, London, filed on May 10, 1999. The lawsuit claims breach of a November
18, 1992 Marketing Agreement entered into between the plaintiff and PC Quote
(UK) Limited, a former subsidiary of the Company. Mr. Clark claims approximately
$800,000 in damages and seeks his attorney's fees and costs. The Company has
retained U.K. counsel to defend against these claims, and is vigorously
defending the lawsuit. In addition, the Company has filed a counterclaim for
approximately $100,000 in receivables owed by Mr. Clark to the Company. Given
the early stage of this litigation, no assessment of the likely financial
exposure to the Company in this lawsuit can be made. Management believes the
claim is without merit; accordingly, no provision has been made in the financial
statements for any loss that may result from this litigation.
The Company is a party to various other 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.
NOTE 13. OFFERING TERMINATION AND RESTRUCTURING
On October 18, 1999, PCQuote.com announced that it postponed its initial
public offering of common stock due to market conditions. Management believes
that the shift in market sentiment from PCQuote.com's Internet
business-to-consumer model to HyperFeed's business-to-business model
significantly reduces the likelihood of a PCQuote.com offering occurring in
the near future. Given this uncertainty, and to avoid the added cost of
maintaining the registration statement, the Company filed an application to
withdraw the S-1 Registration Statement for the initial public offering of
PCQuote.com, Inc. on March 8, 2000. The Company recorded approximately $1.8
million of costs associated with the preparation and filing of the S-1
Registration Statement and the initial public offering as a charge against
operations in the fourth quarter of its year ended December 31, 1999.
F-24
HYPERFEED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. OFFERING TERMINATION AND RESTRUCTURING, CONTINUED
In June 1997, the Board of Directors of the Company approved a plan to
restructure the operations of the Company. The plan provided for the exiting of
certain activities and the termination of three senior executive's employment
agreements. The activities exited by the Company resulted in a write off of
approximately $572,000 of unamortized software development costs for previously
capitalized software projects that were discontinued and a payment of $150,000
for early termination of a contractual arrangement. The management
reorganization resulted in the Company incurring employment related termination
costs of $425,000. Management classified these costs as "restructuring expense,"
as the costs at the time of recognition: 1) were not associated with or did not
benefit activities that would be continued, 2) were not associated with or
incurred to generate future revenue, and 3) represented amounts to be incurred
by the Company under a contractual arrangement. Total restructuring costs
recognized by the Company in 1997, as a result of its reorganization plan, was
$1.1 million. There was $97,195 of restructuring costs included in accrued
expenses at December 31, 1997, and subsequently paid in 1998.
NOTE 14. RESEARCH AND DEVELOPMENT
During the fiscal years ended December 31, 1999, 1998 and 1997, the Company
expensed $1,070,346, $634,884 and $873,579, respectively, for research and
development. These expenses are included in product and market development
costs in the statements of operations.
F-25
HYPERFEED TECHNOLOGIES, INC.
SUPPLEMENTAL SCHEDULE II OF CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
The Board of Directors
HyperFeed Technologies, Inc.:
Under date of March 8, 2000, we reported on the consolidated balance sheets
of HyperFeed Technologies, Inc. and subsidiary as of December 31, 1999 and
1998 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999. In connection with our audits of the aforementioned
financial statements, we also audited the related consolidated
financial statement schedule of valuation and qualifying accounts. This
financial schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG LLP
Chicago, Illinois
March 8, 2000
F-26
HYPERFEED TECHNOLOGIES, INC.
SUPPLEMENTAL SCHEDULE II TO THE CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
- ------------------------------ ---------------- ----------------- ---------------- -----------------
Balance at
Beginning of Charged to Deductions Balance at
Description Year Operations From Reserves End of Year
- ------------------------------ ---------------- ----------------- ---------------- -----------------
- ------------------------------ ---------------- ----------------- ---------------- -----------------
Allowance for doubtful
- ------------------------------ ---------------- ----------------- ---------------- -----------------
accounts
- ------------------------------ ---------------- ----------------- ---------------- -----------------
1999 $443,037 $650,000 ($650,761) $442,276
- ------------------------------ ---------------- ----------------- ---------------- -----------------
1998 $346,000 $397,873 ($300,836) $443,037
- ------------------------------ ---------------- ----------------- ---------------- -----------------
1997 $234,000 $683,639 ($571,639) $346,000
- ------------------------------ ---------------- ----------------- ---------------- -----------------
F-27