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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13093
HYPERFEED TECHNOLOGIES, 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 January 31, 2001, 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 $35,700,000.
As of January 31, 2001, there were 15,760,301 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 2001 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 Statement Exhibits as specified in Item
Schedules, and Reports on 14 of this Report
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
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 a financial markets content and 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, 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(R)", our IP Multicast digital datafeed.
HyperFeed 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 hot back up facility at our offices in Aurora,
Illinois.
We disseminate HyperFeed to our customers over the Internet, as well as by
satellite and digital data landlines. HyperFeed 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 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 and
from license fees charged for a packaged HyperFeed 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 Canada.
The following is a description of the principal services that we provide.
4
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES
HYPERFEED - MARKET DATA PRODUCTS
HYPERFEED(R) MARKET DATA
HyperFeed is our IP Multicast digital real-time financial market datafeed. We
create HyperFeed by collecting, analyzing, processing, storing, compressing,
and transmitting financial content in under 40 milliseconds. HyperFeed
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 enables servers at our customers' sites to receive HyperFeed data
and create real-time databases of financial markets activity, news and
fundamental security information. HyperFeed 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 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 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, our other services capitalize on the speed and
completeness of HyperFeed to access, view and utilize the financial content
we provide in a variety of ways.
HYPERSERVER(TM)
HyperFeed's Microsoft(R) Windows NT(R) HyperServer works as an independent
workhorse at the client site to effortlessly manage the massive intake,
processing and dissemination of real-time HyperFeed 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.
5
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
HYPERFEED(R) SDK
HyperFeed's Software Development Kit (SDK) provides developers with the
necessary tools for easy integration of HyperFeed market data into
proprietary software and Web based applications. Compatible with Microsoft(R)
Windows NT(R), LINUX, UNIX, JAVA 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.
HYPERFEED SMARTICKER(TM)
A cost-effective data consolidation, processing, and management solution,
HyperFeed SmarTicker provides businesses with the capabilities required to
receive real-time datafeeds directly from exchanges or to create their own
customized datafeed. HyperFeed SmarTicker provides clients with many of the
processing capabilities of a full tickerplant at a fraction of the
infrastructure. In addition, SmarTicker gives clients the capability to
produce a customized datafeed. Clients may combine their preferred
local/global content or even their own proprietary datafeed with HyperFeed
market data and output a combined feed in HyperFeed common format.
HYPERFEED - DISPLAY PRODUCTS
HyperFeed licenses high-end applications to subscribers for the purpose of
viewing, analyzing and manipulating HyperFeed's robust financial market
content.
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 market data, Apogee is available for use by individuals
and corporations and can be private-labeled for internal or external
redistribution.
REALTICK(TM) FROM HYPERFEED
RealTick is a Microsoft Windows-based suite of real-time professional
securities trading tools which is powered by HyperFeed 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 Excel, tickers, alerts, baskets and more. RealTick is
available with HyperFeed's satellite, landline, and Internet services.
HYPERFEED - WEB PRODUCTS
NEOSPHERE(TM)
Neosphere is a comprehensive e-business solution providing everything a
business needs to quickly offer real-time quotes and news fully integrated
into an analytic application-via the Internet. Neosphere reduces lengthy
development time and eases administrative processes. A turnkey solution,
Neosphere provides back-end tools for the client: administrative database,
online sign-up templates, exchange authorizations, automatic reports and
billing. Neosphere also takes care of the front-end with real-time Internet
delivered quotes, news and analytic software. Neosphere components include:
Apogee software, HyperFeed market data, news, HyperServers for HyperFeed data
processing and Internet delivery, a browser-based Neosphere DB administrative
SQL database for billing/reporting, Neosphere online client sign-up pages
plus onsite application and troubleshooting training.
6
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
NEOSPHERE DB(TM)
A turnkey online account management system, Neosphere DB (database) provides
businesses with the back office processing capabilities to set up,
invoice and maintain Internet clients using applications powered by HyperFeed
market data. Part of HyperFeed's unique Neosphere solution, Neosphere DB was
designed to interface with an existing back office. Features include:
complete account administration, reporting and online billing, easy sorting
and searching capabilities, database capacity for unlimited records.
Neosphere DB allows for access from multiple locations through its
browser-based software and makes it easy to configure and customize client
data.
PCQUOTE.COM - WEB SITE
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:
- 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.
- 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.
7
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
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 Spotlights.
Research and Analysis Tools - allows users to research and analyze
market quotations with tools and information:
- Stock Analysis provides investors access to three
free VectorVest analysis reports per day.
- Stock Criteria Search 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 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.
- Research Reports gives analysts recommendations and
in-depth analysis and commentary from multiple sources.
- Corporate Profiles gives investors access to corporate
profiles for most publicly traded companies.
- The IPO Resource Center 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.
PCQUOTE.COM - REAL-TIME INVESTMENT TOOLS
MARKETSMART
Our subscription-based Web site, www.marketsmart-real.pcquote.com, provides
real-time, snapshot 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.
www.marketsmart-real.pcquote.com uses sparse graphics, text indices, and
creative advertising to speed download times and gives investors faster
access to the site's content. www.marketsmart-real.pcquote.com can be
accessed from www.pcquote.com.
8
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
PCQUOTE ORBIT(R)
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, A REALTICK PRODUCT
PCQuote 6.0 RealTick 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.
PROSUITE 2000i FROM TRADESTATION TECHNOLOGIES
TradeStation Technologies (formerly Omega Research) offers a variety of
sophisticated analytics applications within its ProSuite package, powered by
HyperFeed market data, over the Internet. ProSuite applications are used
primarily by professional and individual investors for technical analysis and
charting.
9
PART I-ITEM 1. BUSINESS
PRODUCTS AND SERVICES, CONTINUED
PCQUOTE.COM - WEB SOLUTIONS
WEB TEMPLATES
Web Templates 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 includes 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 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(R)is a registered trademark of HyperFeed Technologies.
- - HyperServer(TM)is a trademark of HyperFeed Technologies.
- - HyperFeed SmarTicker(TM)is a trademark of HyperFeed Technologies.
- - Apogee(TM)is a trademark of HyperFeed Technologies.
- - It's All About the Data(TM)is a trademark of HyperFeed Technologies.
- - Neosphere(TM)is a trademark of HyperFeed Technologies.
- - Neosphere DB(TM)is a trademark of HyperFeed Technologies.
- - PCQuote.com(TM)is a trademark of PCQuote.com.
- - PCQuote Orbit(TM)is a trademark of PCQuote.com.
10
PART I-ITEM 1. BUSINESS
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 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.
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, 2000, 1999, and 1998, we expensed
$1,794,228, $1,070,346, and $634,884, 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, 2000, we employed 92 people and PCQuote.com employed 33
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.
11
PART I-ITEM 1. BUSINESS
MAJOR CUSTOMERS
Revenues from AB Watley, our largest customer, represent approximately 21% of
the Company's consolidated revenues in 2000. We did not have any customers
that accounted for 10% or more of consolidated revenue in either 1999 or 1998.
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 11,000 square feet of office space at two sites
in Aurora, Illinois, through March 2005. 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 claimed breach of a November 18, 1992 Marketing Agreement entered
into between the plaintiff and PC Quote (UK) Limited (a former subsidiary).
Mr. Clark claimed approximately $800,000 in damages and sought his attorney's
fees and costs. We filed a counterclaim for approximately $100,000 in
receivables owed by Mr. Clark to us. The legal proceedings were
satisfactorily resolved by settlement in October 2000. The settlement did not
have a material effect on our financial condition or results of operations.
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 2000 and 1999 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, 2000).
12
PART II-ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, CONTINUED
2000 QUARTERLY INFORMATION HIGH LOW
- -------------------------- ---- ---
First 10-1/4 4-1/2
Second 6-17/32 2-3/4
Third 4-15/16 2-1/4
Fourth 3-1/8 1-13/32
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
As of January 31, 2001, we had 505 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 $689,000 at December 31, 2000.
ITEM 6. SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
INCOME DATA:
Net revenue $ 46,446,887 $ 33,128,059 $ 23,045,533 $ 17,119,372 $ 17,032,164
Operating income (loss) $ 1,875,851 ($ 9,352,153) ($ 4,699,426) ($ 8,920,726) ($ 2,957,830)
Income (loss) before minority
interest and income taxes $ 1,756,116 ($ 9,511,228) ($ 6,445,595) ($11,135,654) ($ 3,091,705)
Net income (loss) $ 1,723,156 ($ 9,431,698) ($ 6,449,208) ($11,141,416) ($ 3,255,969)
Net income (loss) available
for common stockholders $ 1,723,156 ($ 9,431,698) ($ 7,468,146) ($11,141,416) ($ 3,255,969)
BALANCE SHEET DATA:
Total assets $ 14,326,260 $ 15,295,184 $ 10,053,367 $ 10,536,448 $ 11,554,070
Long term obligations $ 667,183 $ 2,290,511 $ 921,781 $ 2,833,734 $ 2,291,178
Stockholders' equity $ 6,692,535 $ 4,597,633 $ 2,915,271 $ 66,329 $ 5,331,577
PER SHARE DATA:
Basic net income (loss) $0.11 ($0.63) ($0.57) ($1.33) ($0.45)
Diluted net income (loss) $0.08 ($0.63) ($0.57) ($1.33) ($0.45)
13
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
PCQUOTE.COM AND HYPERFEED LAUNCH MERCENARY SOFTWARE
On February 28, 2001, PCQuote.com and HyperFeed announced the availability of
Mercenary software. A "day-of execution tool", Mercenary is a real-time
tick-by-tick technical indicator that can help traders decide when to pull
the trigger. A technical analysis tool that monitors stock activity,
Mercenary identifies trading opportunities and visually depicts a selected
equity's momentum. Investors can input a selection of stocks (up to 50 ticker
symbols per screen) and, at a glance, decide whether to buy or sell, or just
keep a pulse on a market segment or specific issue's condition. Exclusively
available to online investors through PCQuote.com, Mercenary is also
available to financial institutions, Web portals and businesses through
HyperFeed.
RESULTS OF OPERATIONS FOR 2000 COMPARED TO 1999
Total revenue increased $13.3 million, or 40.2%, to $46.4 million in 2000
from $33.1 million in 1999. Our HyperFeed services and PCQuote.com services
both posted increases in 2000 over 1999. HyperFeed service revenue increased
$5.0 million, or 28.1%, to $22.7 million in 2000 from $17.7 million in 1999.
Revenue growth was achieved through increases in analytics subscriptions and
datafeed license fees to existing, as well as new customers, such as Charles
Schwab and National Discount Brokers. Revenue from PCQuote.com services
increased $8.3 million, or 54.2%, to $23.7 million in 2000 from $15.4 million
in 1999. The increase is principally due to the growth of our largest
customer, AB Watley, who grew from less than 10% of our revenue in 1999 to
approximately 21% of our revenue in 2000.
Direct costs of services increased $4.2 million, or 16.6%, to $29.7 million
in 2000 from $25.5 million in 1999. Principal components of the increase were
royalties and payments to providers of market data, directly attributable to
the growth of our largest customer. Amortization of software development
costs remained the same at $2.4 million in 2000 and 1999. Also included in
2000 is a $1.7 million non-cash charge, versus $1.2 million in 1999, for the
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 three-and-a-half
year license agreement with PCQuote.com.
14
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, RESULTS OF OPERATIONS FOR 2000 COMPARED TO 1999,
CONTINUED
The resulting gross margin increased $9.1 million, or 118.8%, to $16.8
million in 2000 from $7.7 million in 1999. As a percentage of revenue, gross
margin increased to 36.1% in 2000 from 23.1% in 1999. The expansion in
percentage gross margin is attributable to internal cost efficiencies
implemented in 1999, coupled with an increased sales focus in 2000 on higher
margin datafeed services.
Direct costs associated with HyperFeed services decreased $0.4 million, or
2.8%, to $12.3 million in 2000 from $12.7 million in 1999. Increases in
amortization of software development costs were offset by cost-savings
related to leased equipment in customer service and support and lower costs
of datafeed operations principally due to the termination of a lease for
satellite transmission space in the third quarter of 1999. Amortization of
software development costs increased to $1.5 million in 2000 from $1.4
million in 1999. The resulting gross margin on HyperFeed services increased
106.0%, to $10.4 million in 2000 from $5.0 million in 1999. HyperFeed
services gross margin as a percentage of HyperFeed services revenue increased
to 45.7% in 2000 from 28.4% in 1999.
Direct costs associated with PCQuote.com services increased $4.6 million, or
35.9%, to $17.4 million in 2000 from $12.8 million in 1999. Increases in
license and exchange fees, directly attributable to the increase in revenue,
were the principal components of the increase in direct costs. Amortization
of previously capitalized software development costs decreased to $0.9
million in 2000 from $1.1 in 1999. The gross margin on PCQuote.com services
increased $3.8 million, or 143.5%, to $6.4 million in 2000 from $2.6 million
in 1999. PCQuote.com services gross margin as a percentage of PCQuote.com
services revenue increased to 26.9% in 2000 from 17.0% in 1999.
Total operating expenses decreased $2.1 million, or 12.5%, to $14.9 million
in 2000 from $17.0 million in 1999. The two primary factors that contributed
to the decrease were (1) the $1.4 million one-time charge in 1999 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 (2)
the $1.8 million charge in 1999 for costs related to the PCQuote.com initial
public offering that we decided not to pursue due to market conditions.
Growth related increases were experienced in sales costs, product and market
development costs, and depreciation and amortization, while general and
administrative expenses declined slightly.
Sales costs increased 6.7%, to $3.9 million in 2000 from $3.7 million in
1999. The increase in sales costs was directly attributable to the growth in
revenue.
General and administrative expenses decreased $0.4 million, or 7.4%, to $4.9
million in 2000 from $5.3 million in 1999. The decrease was principally due
to a reduction in the bad debt expense.
Product and market development costs increased $0.8 million, or 20.8%, to
$4.4 million in 2000 from $3.6 million in 1999. The increase was due to an
expansion of our development and marketing efforts for our existing and new
services and markets.
Depreciation and amortization increased 34.8% to $1.7 million in 2000 from
$1.2 million in 1999. The increase is the result of communications and
computer equipment purchases for increased growth and new service offerings.
Interest expense increased to $0.2 million in 2000 from $0.1 million in 1999.
Interest expense in 2000 consists of interest on our bank term loan and
interest on PCQuote.com's $2.0 million borrowing from Motorola, Inc. in
September 1999.
15
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 datafeed and
fees for combined analytics and HyperFeed 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.
16
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, RESULTS OF OPERATIONS FOR 1999 COMPARED TO 1998,
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.
17
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Net cash and cash equivalents increased $1.1 million to $2.5 million at the
end of 2000 from the end of 1999. Expenditures for property and equipment
were $2.1 million in 2000, an increase of $0.5 million over 1999. We spent
approximately $0.4 million to build out new office facilities at our expanded
Aurora, Illinois location. Other expenditures were for equipment to support
the growth in our business, as well as to improve our communications,
processing and distribution networks and infrastructure. Capitalized software
costs of $1.3 million were $0.1 million, or 4.7%, higher for the year ended
December 31, 2000, compared to the prior year, principally due to the
development of new applications and services to be introduced in 2001. There
were no new direct borrowings during 2000, and we repaid $0.3 million of the
principal balance on our bank term loan and $0.8 million on our note payable
to Motorola, Inc. We received approximately $0.4 million in net proceeds from
the sale of shares of common stock to employees pursuant to our Employee
Stock Purchase Plan and the sale of shares of common stock to employees who
exercised options previously granted to them under our 1999 Combined
Incentive and Non-Statutory Stock Option Plan.
Total revenue increased $13.3 million, or 40.2%, to $46.4 million in 2000
versus $33.1 million for the 1999 period, while direct costs of services
increased 16.6% to $29.7 million versus $25.5 million in 1999. The resulting
gross margin increased 118.8% to $16.8 million in 2000 from $7.7 million in
1999. As a percentage of revenue, the gross margin was 36.1% in 2000 as
compared to 23.1% in 1999. Given anticipated increases in the number of
investors trading online and the expected demand for financial market data,
we expect continued growth in revenue, gross margin and net income.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased to a positive $7.7 million in 2000 from a $4.5 million EBITDA
deficit in 1999. Reducing EBITDA by capitalized software development costs
and equipment purchases resulted in positive cash flows, before working
capital and financing activities, of $4.3 million in 2000 as compared to a
deficit of $7.2 million in 1999. We believe our existing capital resources,
cash generated from continuing operations, and our ability to access external
capital, if necessary, 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.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, which is effective for all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a
comprehensive standard for the recognition and measurement of derivative
instruments and hedging activities. The Company does not expect the adoption
of the new standard to have a material effect on its financial position,
liquidity, or results of operations.
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, 2000, we had federal income tax net operating loss
carryforwards of approximately $28,175,000 for federal income tax purposes
and approximately $26,519,000 for the alternative minimum tax. The net
operating loss carryforwards will expire, if not previously utilized, as
follows: 2001: $1,539,000; 2002: $560,000; 2003: $79,000; 2004: $576,000;
2005: $1,557,000; 2006: $301,000 and thereafter $23,563,000. (See Note 6 of
the Notes to Consolidated Financial Statements.)
18
PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
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, 2000, 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 "Table of Contents" that appears elsewhere in this report.
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 2001 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 2001 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 2001 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 2001 annual meeting of stockholders.
This information is incorporated by reference to that proxy statement.
19
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 Schedule
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, incorporated by reference to Exhibit
3(e) of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
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.
20
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.
21
PART IV - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K, CONTINUED
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.
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.
22
PART IV - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K, CONTINUED
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.
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, incorporated by reference to Exhibit 4(at) of the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
23
PART IV - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K, CONTINUED
4(au) Form of Stock and Warrant Purchase Agreement between HyperFeed
Technologies, Inc. and David Horberg dated November 22, 1999,
incorporated by reference to Exhibit 4(au) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
4(av) Form of Common Stock Purchase Warrant for 125,000 shares issued to
Howard Todd Horberg, incorporated by reference to Exhibit 4(av) of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
4(aw) Form of Common Stock Purchase Warrant for 10,000 shares issued to
David Horberg, incorporated by reference to Exhibit 4(aw) of the
Company's Annual Report on Form 10-K for the year ended December
31, 1999.
4(ax) Form of Common Stock Purchase Warrant for 30,000 shares issued to
Wildman, Harrold, Allen & Dixon, incorporated by reference to
Exhibit 4(ax) of the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
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.
24
PART IV - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K, CONTINUED
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.
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, incorporated by reference to Exhibit 10(u) of the
Company's Annual Report on Form 10-K for the year ended December
31, 1999.
21 Subsidiaries of Registrant: PCQuote.com, Inc., incorporated in
the State of Delaware.
23 Consent of KPMG LLP.
25
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 16, 2001
By: /s/ JOHN E. JUSKA
---------------------------
John E. Juska, Chief Financial Officer and
Principal Accounting Officer
March 16, 2001
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 16, 2001
/s/ JOHN L. BORLING
- ---------------------------
John L. Borling, Director
March 16, 2001
/s/ JOHN R. HART
- ---------------------------
John R. Hart, Director
March 16, 2001
/s/ CHARLES HENRY
- ---------------------------
Charles Henry, Director
March 16, 2001
/s/ RONALD LANGLEY
- ---------------------------
Ronald Langley, Director
March 16, 2001
/s/ LOUIS J. MORGAN
- ---------------------------
Louis J. Morgan, Director
March 16, 2001
/s/ KENNETH J. SLEPICKA
- ---------------------------
Kenneth J. Slepicka, Director
March 16, 2001
26
TABLE OF 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-8-23
Independent Auditors' Report on Schedule II F-24
Supplemental Schedule II F-25
- ----------------------------------------------------------------------------------------
27
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, 2000 and 1999, 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, 2000.
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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Chicago, Illinois
March 5, 2001
F-1
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999
---- ----
Current Assets
Cash and cash equivalents $ 2,522,593 $ 1,452,186
Restricted cash equivalents 200,000 ---
Accounts receivable, less allowance for doubtful
accounts of: 2000: $89,724; 1999: $442,276 2,848,983 2,652,350
Prepaid license fees, current 1,680,000 1,680,000
Prepaid expenses and other current assets 235,512 244,477
----------- -----------
TOTAL CURRENT ASSETS 7,487,088 6,029,013
----------- -----------
Property and Equipment
Satellite receiving equipment 282,474 436,759
Computer equipment 4,520,991 4,323,921
Communication equipment 1,243,584 1,173,595
Furniture and fixtures 194,818 263,941
Leasehold improvements 831,348 402,692
----------- -----------
7,073,215 6,600,908
Less: accumulated depreciation and amortization 4,247,134 4,189,766
----------- -----------
2,826,081 2,411,142
----------- -----------
Prepaid license fees, net of accumulated
amortization of: 2000: $2,870,000; 1999: $1,190,000 1,330,000 3,010,000
----------- -----------
Software development costs, net of accumulated
amortization of: 2000: $7,795,215; 1999: $6,890,526 2,602,283 3,775,491
----------- -----------
Deposits and other assets 80,808 69,538
----------- -----------
TOTAL ASSETS $14,326,260 $15,295,184
=========== ===========
See Notes to Consolidated Financial Statements.
F-2
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
---- ----
Current Liabilities
Notes payable $1,199,634 $1,050,000
Accrued satellite termination fees 399,000 558,000
Accounts payable 1,744,102 1,709,322
Accrued expenses 759,818 2,319,150
Accrued compensation 269,736 461,498
Income taxes payable 35,000 5,000
Unearned revenue 2,559,252 2,304,070
------------ ------------
TOTAL CURRENT LIABILITIES 6,966,542 8,407,040
------------ ------------
Notes payable, less current portion 250,000 1,449,634
Accrued satellite termination fees, less current portion 225,000 624,000
Unearned revenue, less current portion 82,090 78,315
Accrued expenses, less current portion 108,264 134,693
Minority interest 1,829 3,869
------------ ------------
TOTAL NONCURRENT LIABILITIES 667,183 2,290,511
------------ ------------
TOTAL LIABILITIES 7,633,725 10,697,551
------------ ------------
Stockholders' Equity
Preferred stock, $.001 par value; authorized 5,000,000 shares; issued and
outstanding:
Series A 5% convertible: 19,075 shares at December 31, 2000
and December 31, 1999 19 19
Series B 5% convertible: 28,791 shares at December 31, 2000
and December 31, 1999 29 29
Common stock, $.001 par value; authorized 50,000,000 shares;
issued and outstanding: 15,756,310 shares at December 31, 2000
and 15,592,690 shares at December 31, 1999 15,756 15,593
Additional paid-in capital - Series A 5% convertible preferred stock 3,086,013 3,086,013
Additional paid-in capital - Series B 5% convertible preferred stock 4,664,891 4,664,891
Additional paid-in capital - common stock 25,555,214 25,183,631
Additional paid-in capital - convertible subordinated
debenture and warrants 8,630,491 8,630,491
Accumulated deficit (35,259,878) (36,983,034)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,692,535 4,597,633
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,326,260 $ 15,295,184
============ ============
See Notes to Consolidated Financial Statements.
F-3
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- ---------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
REVENUE
HyperFeed services $ 22,713,264 $ 17,733,813 $ 13,133,422
PCQuote.com services 23,733,623 15,394,246 9,912,111
-------------- -------------- --------------
TOTAL REVENUE 46,446,887 33,128,059 23,045,533
-------------- -------------- --------------
DIRECT COST OF SERVICES
HyperFeed services 12,337,640 12,697,106 10,456,647
PCQuote.com services 17,356,548 12,774,875 6,542,787
-------------- -------------- --------------
TOTAL DIRECT COST OF SERVICES 29,694,188 25,471,981 16,999,434
-------------- -------------- --------------
GROSS MARGIN 16,752,699 7,656,078 6,046,099
-------------- -------------- --------------
OPERATING EXPENSES
Sales 3,924,601 3,676,887 3,848,798
General and administrative 4,868,007 5,257,617 3,310,843
Product and market development 4,398,116 3,640,457 2,354,761
Depreciation and amortization 1,686,124 1,251,048 1,231,123
Satellite and offering termination expense --- 3,182,222 ---
-------------- -------------- --------------
TOTAL OPERATING EXPENSES 14,876,848 17,008,231 10,745,525
-------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS 1,875,851 (9,352,153) (4,699,426)
-------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest income 77,875 50,062 19,279
Interest expense (197,610) (120,751) (1,765,448)
Loss on sale of minority interest --- (88,386) ---
-------------- -------------- --------------
NET OTHER EXPENSE (119,735) (159,075) (1,746,169)
-------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST 1,756,116 (9,511,228) (6,445,595)
INCOME TAXES 35,000 5,000 3,613
-------------- -------------- --------------
INCOME (LOSS) BEFORE MINORITY INTEREST 1,721,116 (9,516,228) (6,449,208)
Minority interest 2,040 84,530 ---
-------------- -------------- --------------
NET INCOME (LOSS) 1,723,156 (9,431,698) (6,449,208)
Preferred dividends --- --- 1,018,938
------------- ------------- -------------
NET INCOME (LOSS) AVAILABLE FOR
COMMON STOCKHOLDERS $ 1,723,156 ($ 9,431,698) ($ 7,468,146)
============ ============ ============
Basic net income (loss) per share $0.11 ($0.63) ($0.57)
Diluted net income (loss) per share $0.08 ($0.63) ($0.57)
Basic weighted-average common shares outstanding 15,655,643 14,878,160 13,001,058
Diluted weighted-average common shares outstanding 21,240,018 14,878,160 13,001,058
- ---------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-4
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Series A Series B Series A Series B
5% 5% 5% 5%
Convertible Convertible Convertible Convertible
Preferred Preferred Preferred Preferred Common Common
Stock Stock Stock Stock Stock Stock
Shares Shares Amount Amount Shares Amount
----------- ----------- ----------- ----------- ---------- --------
Balance at December 31, 1997 --- --- $ --- $ --- 12,436,800 $ 12,437
Net loss --- --- --- --- --- ---
Issuance of preferred stock 19,075 28,791 19 29 --- ---
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
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
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
Net income --- --- --- --- --- ---
Issuance of common stock --- --- --- --- 163,620 163
Balance at December 31, 2000 19,075 28,791 $ 19 $ 29 15,756,310 $ 15,756
Additional Additional Additional
Paid-In Paid-In Paid-In
Capital Capital Additional Capital
Series A Series B Paid-In Convertible
Convertible Convertible Capital Debenture Accumulated
Preferred Preferred Common and Warrants Deficit Total
----------- ----------- ----------- ------------ ------------ -----------
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 stock 2,966,794 3,765,172 --- --- --- 6,732,014
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
preferred stock 119,219 899,719 --- --- (1,018,938) ---
Value assigned to employee
stock options issued --- --- 117,779 --- --- 117,779
Balance at December 31, 1998 3,086,013 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 3,086,013 4,664,891 25,183,631 8,630,491 (36,983,034) 4,597,633
Net income --- --- --- --- 1,723,156 1,723,156
Issuance of common stock --- --- 371,583 --- --- 371,746
Balance at December 31, 2000 $3,086,013 $4,664,891 $25,555,214 $ 8,630,491 ($35,259,878) $ 6,692,535
See Notes to Consolidated Financial Statements.
F-5
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
Cash Flows From Operating Activities:
Net income (loss) $1,723,156 ($9,431,698) ($6,449,208)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and equipment 1,686,122 1,251,048 1,231,123
Provision for doubtful accounts 180,000 650,000 397,873
Amortization of software development costs 2,440,131 2,447,854 1,810,553
Amortization of value assigned to warrant issued in lieu of
license fees 1,680,000 1,190,000 ---
Amortization of deferred discount on convertible
subordinated debenture --- --- 1,096,402
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
Compensation value assigned to employee stock options granted --- --- 117,779
Loss on sale of minority interest --- 88,399 ---
Minority interest in loss (2,040) (84,530) ---
Changes in assets and liabilities:
Accounts receivable (376,633) (1,812,211) (452,562)
Restricted cash equivalents (200,000) --- ---
Prepaid expenses and other current assets 8,965 (130,466) (52,030)
Deposits and other assets (11,270) 145,378 82,387
Accounts payable 34,780 (2,429,195) 1,304,057
Accrued expenses (1,777,523) 2,221,517 (676,930)
Accrued satellite termination fees (558,000) 1,182,000 ---
Unearned revenue 258,957 879,425 424,732
Income taxes payable 30,000 1,839 (2,031)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,116,645 (3,460,436) (58,446)
----------- ----------- -----------
Cash Flows From Investing Activities:
Purchase of property and equipment (2,101,061) (1,580,645) (810,557)
Software development costs capitalized (1,266,923) (1,210,374) (1,997,452)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (3,367,984) (2,791,019) (2,808,009)
----------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 371,746 4,863,856 5,182,059
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
Principal payments on notes payable (1,050,000) (1,800,000) (300,000)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (678,254) 6,563,856 2,893,110
----------- ----------- -----------
Net increase in cash and cash equivalents 1,070,407 312,401 26,655
Cash and cash equivalents:
Beginning of year 1,452,186 1,139,785 1,113,130
----------- ----------- -----------
End of year $ 2,522,593 $ 1,452,186 $ 1,139,785
=========== =========== ===========
See Notes to Consolidated Financial Statements.
F-6
HYPERFEED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---- ---- ----
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 251,194 $ 67,167 $ 83,925
Income taxes paid $ 4,378 $ 3,161 $ 3,517
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 issuance of
employee stock options --- --- $ 117,779
- --------------------------------------------------------------------------------------------------------------------
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. (the "Company") is a financial markets content
and 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, 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", our IP Multicast digital data stream.
We disseminate HyperFeed to our customers over the Internet, as well as by
satellite and digital data landlines. HyperFeed 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 populated databases to allow the
end user to monitor securities activity and financial information on an
on-going real-time basis. PCQuote.com, our majority owned subsidiary,
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 and
from license fees charged for a packaged HyperFeed 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") and its
subsidiary, PCQuote.com, Inc., and have been prepared in accordance with
accounting principles generally accepted in the United States of America. 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 accounting principles generally accepted in the United States of America
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. The accumulated depreciation
and related property and equipment costs are removed from the respective
accounts effective in the year following full depreciation.
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 developm