UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2004
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o 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.
(Exact name of registrant as specified in its charter)
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Delaware |
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36-3131704 |
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(State or Other Jurisdiction of |
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(I.R.S. Employer |
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300 S. Wacker Drive, Suite 300, Chicago, Illinois |
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60606 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code: (312) 913-2800 |
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of
the Act:
Common stock, par value $.001 per share
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 ý No o
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. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes o No ý
The aggregate market value of the registrant’s common stock held by non-affiliates was approximately $6,555,178 based upon the reported last sales price of common stock on June 30, 2004, which is the last business day of the registrant’s most recently completed second fiscal quarter.
The number of shares of common stock outstanding as of March 18, 2005 was 3,089,493 shares.
Portions of the Registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2005 Annual Meeting of Stockholders are incorporated by reference into Parts I and III of this report.
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This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of HyperFeed Technologies, Inc. (“HyperFeed”) and its subsidiary, HYPRWare, Inc. (“HYPRWare”), (collectively, the “Company”) to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statement of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties, and assumptions referred to above include risks related to the possibility of requiring additional financing; the possible dilution associated with financing arrangements; the execution of our business plan; the fluctuations in our financial results; our history of operating losses; attracting and retaining qualified management and key employees; the timely development and introduction of new product and service initiatives at competitive prices and performance levels; pending or future legal proceedings; the effect of economic and business conditions generally; and other risks that are described herein, including but not limited to, the items discussed in “Factors that May Affect Future Results” set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report and that are otherwise described from time to time in the Company’s reports and registration statements filed with the Securities and Exchange Commission.
Item 1. Business.
Company Overview
HyperFeed is a leading provider of ticker plant and smart order routing technologies and managed services to exchanges, financial institutions, hedge funds, and channel partners. HyperFeed’s advanced software technology serves as a corporate-wide ticker plant, enabling firms in the financial services industry with the flexibility and agility to control their own data sources and data content in a cost-effective manner. HyperFeed’s HTPX, which includes HyperFeed’s HVAULT and HBOX products, is designed to support low latency yet high value real-time market data and data services for use in receiving and distributing financial content with a competitive edge. Its dynamic smart order routing utilities are designed to offer price improvement in order execution while assisting firms with compliance with proposed Regulation NMS (“REG-NMS”). HyperFeed’s Data Delivery Utility (“DDU”) is a global, highly-distributed, fully-managed financial content distribution utility with extremely low latency and an end-to-end Service Level Agreement (“SLA”) - a completely new alternative for reliable market data delivery. Smart Order Routing Technology for Traders (“SORTT”) is a smart order routing platform designed to improve direct access trading by dynamically scanning providers of liquidity for both the fastest possible execution and price improvement.
Beginning with a comprehensive understanding of the diverse needs of the financial services industry, the Company applies advanced technologies to the processing, delivery, distribution of, and access to, financial market data. We believe that HyperFeed offers one of the fastest, most complete and reliable management exchange platform services, which can be used with industry-leading application programming interfaces (“APIs”), third-party applications or proprietary solutions. HTPX, DDU and SORTT have flexible licensing models that can fulfill the needs of financial institutions, exchanges, buy and sell side analysts, content providers, redistributors, channel partners and value-added resellers. It is HyperFeed’s twenty years of experience, human capital, and established product offerings that differentiates us from our competition. With our commitment to our customers and our desire to succeed, we continue to change the marketplace with our leading technologies.
General Development Of Business
HyperFeed was originally incorporated in Illinois on June 23, 1980 as On-Line Response, Inc. The Company changed its name to PCQuote, Inc. in 1983 and incorporated in Delaware on August 12, 1987. In an effort to focus on the Web site and consumer business, the Company incorporated a subsidiary, PCQuote.com, Inc. (“PCQuote”), in March 1999. In June 1999, the Company changed its name to HyperFeed Technologies, Inc. In May 2003, the Company divested its individual retail investor unit and changed the name of its subsidiary, PCQuote, to HYPRWare, Inc. In October 2003, the Company divested its institutional consolidated market data feed business, and in February 2005, the Company purchased the business of Focus Technology Group LLC, a smart order routing technology company. HyperFeed is now focused on providing ticker plant and smart order routing technologies and managed services to exchanges, financial institutions, hedge funds, and channel partners.
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For over twenty years, HyperFeed’s proprietary ticker plant technologies were used behind-the-scenes to process its consolidated market data feed, HyperFeed® Market Data, for our customers. In response to market trends demanding direct exchange connectivity, we divested our institutional consolidated market data feed business to focus on offering directly the same advanced and robust ticker plant technologies to our customers. With the sale of HyperFeed’s institutional consolidated market data feed business, we believe that HyperFeed is no longer viewed as a competitor to certain participants in the financial services industry, which has enabled us to become a provider of technology to our traditional competitors in the consolidated market data feed business. We believe that this shift in focus has opened other new markets for HyperFeed including exchanges and content providers as well as financial institutions and redistributors. Additionally, we believe that DDU will open our market to include hedge funds.
HyperFeed’s HTPX evolved as a result of changing trends in the financial services industry. Deteriorating financial markets over recent years have led to retrenchment and consolidation within the industry. Financial markets are undergoing fundamental changes as a result of excess capacity, growing data volumes, new market participants, and regulatory pressure. We believe these changes have resulted in fewer people, with tighter budgets, working harder and handling more information under the increasingly watchful eyes of regulators. The proliferation of program trading, the growth of electronic trading and electronic exchanges, the advent of new exchange depth products, and the effect of current economic conditions are collectively influencing financial institutions to seek to receive market data feeds directly from each source of market data, including traditional exchanges and newer electronic trading systems. We believe that financial institutions pursuing direct market data feeds are focused on issues of performance management and redundancy, bandwidth requirements and latency reduction. Despite the difficult market conditions, we believe this trend creates opportunities for us.
In addition to those noted above, there exist several other key factors that we believe have spurred the shift toward direct market data feeds. In particular, we believe that merger and acquisition activity among traditional consolidated market data feed vendors has caused financial institutions to reevaluate relying on third parties for consolidated market data feeds. In recent years, Reuters acquired Bridge and Multex, SunGard acquired Fame, and Interactive Data Corporation (“IDC”) / ComStock acquired our institutional consolidated market data feed business. As a result, financial institutions are now considering direct market data feeds for both primary and secondary data sources.
We believe that the increasing presence of program trading has influenced financial institutions and their desire to implement direct market data feeds. As more active and complex program trading proliferates, faster access to market data is necessary to maintain a competitive edge. Direct market data feeds minimize latency while providing the large volume of data required to support the trading applications.
We also believe that the proliferation of electronic exchanges entering new marketplaces and the introduction by existing exchanges of new products have influenced financial institutions and their desire to implement direct market data feeds. This expansion in the breadth and diversity of market data sources and the increase in the number of products traded have produced unsurpassed volumes of data that must be processed. For example, the arrival of NASDAQ’s SuperMontage, NYSE’s OpenBook, ECNs, exchange auto-execution systems, and Boston Options Exchange to the trading community has increased already high data volumes. These new products and exchanges magnify the number of updates requiring even greater amounts of bandwidth. High update rates also require more ticker plant processing power, which in turn can result in data processing latency. We believe that in order to ensure performance and reliability, financial institutions must seriously investigate eliminating the consolidated market data feed vendor and obtaining their market data directly from each data source.
We believe that the proposed REG-NMS will also shape market conditions. REG-NMS could have dramatic ramifications for market data bandwidth, order routing technology, and real-time compliance and monitoring systems. We believe that our purchase of a smart order routing technology company will allow us to offer customers compliance with the proposed regulations while permitting greater efficiency and lower costs with a highly customizable routing system.
Implementing direct market data feeds is not a simple solution. Market data sources broadcast market data in different formats that continually require modification, and have very granular and detailed user reporting and permissioning requirements. Many traders rely on special ratios and calculations like Volume Weighted Average Price (“VWAP”), time/sales, best bid, or money flow to make split second trading decisions. These are complex algorithms only handled by robust and flexible ticker plant technologies. The algorithms need to be calculated in real-time, simultaneously, as the data is received or they have little value. In addition, true latency reduction requires more than just a direct connection and a source server. Each market data feed must be developed to and supported for systems and data management. We believe that these problems can be solved by utilizing HyperFeed’s HTPX, which allows users to pick and choose any configuration of a direct market data feed with consolidated market data feed in a managed services platform.
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Capturing direct data feeds from many different market data sources requires financial institutions to write code and develop separate Front End Processors (“FEPs”) for each market data source. They must also keep up with the multitude of changes and new products from market data sources. The FEPs must be able to process trade corrections, perform data integrity checks, and read complex symbology. Once the FEPs receive the data, it must be consolidated and normalized into a single format for output so it can be processed by applications or viewed on a desktop by an end-user. HyperFeed has FEPs that currently process market data from Canadian/Toronto Stock Exchange, Chicago Board of Trade, Chicago Mercantile Exchange, Montreal Stock Exchange, NASDAQ, New York Board of Trade, New York Mercantile Exchange/Commodity Exchange, New York Stock Exchange, American Stock Exchange, Options Price Reporting Authority, BRUT, ARCA, INET, and historical and fundamental data providers.
In addition, each exchange has specific detailed reporting and user-management requirements. A robust back-end database is necessary to administer this function. HyperFeed’s HKEY is an extensible system built to manage exchange vendor of record functions and is offered for use as part of HTPX.
Large financial institutions often create proprietary calculations and data feeds that give them a competitive edge in trading and analysis. HyperFeed’s Software Development Kits (“SDKs”) allow companies to seamlessly integrate the proprietary information market data from other market data sources.
We believe that HyperFeed’s twenty years of experience as a provider of consolidated market data feeds will create additional opportunities within our marketplace. In particular, in connection with our market data feed products, we have historically provided ticker plant technologies to Bridge, PCQuote, Charles Schwab & Co. (“Schwab”), Inc., Townsend Analytics, Ltd. (“Townsend”), and IDC/Comstock. We further believe that our knowledge and experience designing, building and operating ticker plants provide us with the insight to understand complexities such as data integrity, real-time performance, data exchange entitlements and multicast transmission and position us well to take advantage of opportunities within our marketplace.
Products and Services
All HyperFeed products and services are currently built around our HTPX technology. HyperFeed offers and licenses its HTPX platform in a variety of manners to meet our client’s needs. Examples of the flexibility of HyperFeed and its solutions include: complete ticker plant outsourcing and management; prepackaged HBOX solutions; and licensing and proprietary custom development around HTPX. Additionally, HyperFeed offers flexible IP licensing scenarios.
HTPX
HTPX is offered as a complete turnkey solution for the normalization, databasing, integration and transmission of high performance, real-time data sources from market data sources, content providers, and proprietary in-house sources. It provides direct access to market data from Canadian/Toronto Stock Exchange; Chicago Board of Trade; Chicago Mercantile Exchange; Montreal Stock Exchange; NASDAQ; New York Board of Trade; New York Mercantile Exchange/Commodity Exchange; New York Stock Exchange; American Stock Exchange; Options Price Reporting Authority; BRUT; ARCA; and INET, in addition to a FEP for ComStock, and offers a complete set of data cleansing and management tools for remote or on-site use. It provides adaptors to a number of widely used middleware platforms, and can be used collectively as a complete solution or individually to augment the functionality of other vendor system products.
There are five components to HyperFeed’s HTPX: Front End Processors, Data Switch, Caching and Analytics, Management, and Toolkits and Adaptors. In addition, the new Data Delivery Utility allows distributed and managed access to HTPX technology while SORTT offers customers the option of broker-agnostic smart order routing.
Front End Processors
Front End Processors, also known as HSOURCE, process trade corrections, perform data integrity checks and read complex symbology. By leveraging HSOURCE, customers choose the different types of data they want to receive directly from multiple data sources (exchanges, electronic trading systems, fundamental data providers, historical data providers, news, or proprietary data) and the FEPs transform it into a normalized protocol. Customers choose only the data they want and HyperFeed manages and controls the process remotely.
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Data Switch
HTPX has a scaleable distribution architecture, known as Data Switch, that uses both multicast and uni-cast forms of network traffic, according to the demands of our customers’ network design. We believe that data fan-out rates are limitless due to Data Switch’s unique cascadable capability. Data Switch’s modular design enables the HTPX platform to scale to handle the dramatically increasing message rates of market data and reduces the demand for high end processors. A single Data Switch will scale to handle over 100,000 inbound messages per second – we believe sufficient capacity to handle predicted growth for the foreseeable future.
Assisting in handling increasing message rates is HyperFeed’s Zero Loss Compaction (“ZLC”) technology, another component of its HTPX. ZLC can alleviate the latency problems and reduce the bandwidth costs financial institutions face with direct market data feeds. It compacts data up to a 10:1 ratio, allowing customers to receive complete data sets over less bandwidth.
Caching and Analytics
HTPX is fully compatible with the latest Blade Server technology. A large number of pre-programmed data calculations are included with the HTPX Analytics Engine, which performs complex calculations based on data that the system is receiving (for example, calculating VWAP) and injecting the newly calculated data fields into the real-time data stream. The Analytics Engine on HTPX facilitates the creation of custom market indices, in addition to a wide range of pre-programmed indices. Time and sales and historical data can be collected and stored in the newly designed HTPX Data Cache.
In addition, the HTPX Data Cache stores many types of data - records, page, news, reference, self-describing, time and sales and historical data. The system’s data model can store equities, futures, options, treasuries and FX data. Access to the data is simplified by the use of symbol translations and abstraction layers that ensure receiving data in a form that can be easily integrated into systems. Additional flexibility is built into the HTPX Data Cache with its ability to store self-describing data.
Management
Compliance with exchange requirements, tracking and auditing datafeeds, handling corrections, splits, symbology, and options chaining, and data line tracking and switching are handled by HyperFeed’s Management products. These products include:
• HKEY
Each market data source has specific detailed reporting and user-management requirements. A robust back-end database is necessary to administer this function. HyperFeed’s HKEY is an extensible system built to manage administrative exchange vendor of record functions. It is designed to be a complete back-office entitlement system to monitor and manage enterprise data set permissions and automatically record and accurately report this information to the market data sources. HKEY is Vendor Reporting XML (“VRXML”) compliant and approved by Canadian/Toronto Stock Exchange, Chicago Board of Trade, Chicago Mercantile Exchange, Montreal Stock Exchange, NASDAQ, New York Board of Trade, New York Mercantile Exchange/Commodity Exchange, New York Stock Exchange, American Stock Exchange, Options Price Reporting Authority, BRUT, ARCA, and INET.
• HROOM
HyperFeed’s HROOM is a set of over 200 monitoring tools that manage and audit incoming lines and alerts for problems. In addition to allowing the viewing of incoming lines, it also provides statistics such as: sequence number, baud rate, and sensitivity status. It has completely customizable alarms, task management capabilities, and remote accessibility along with supplying data management capabilities. Control Room also handles all data manipulation, restores, and corrective actions.
• HLINE
The Data Cleansing layer of HyperFeed’s HTPX is designed to manage corrections, splits, symbology, and options chaining. Line arbitration is a feature that simultaneously monitors pairs of lines and selects the most timely data on a packet by packet basis, ensuring that customers receive the most complete data sets possible with minimal latency. HyperFeed also offers a proprietary maintenance line to process corrective actions contained by a remote operational and data integrity staff. The line is designed to also handle the processing of the master options file, corporate actions, and splits and dividends.
Tools and Adaptors
HyperFeed’s tools and adaptors are designed to allow customers to supply data to any required environment or application. These products include:
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• SDKs
HyperFeed’s SDKs are designed to allow customers to quickly and easily integrate all HyperFeed’s database content into their own financial applications without enduring long development cycles or incurring high development costs. Available development tools currently include: .Net, COM, JAVA, C/C++ (for UNIX/LINUX and Windows), Visual Basic, and CGI. HyperFeed develops SDKs to support the latest technology standard, Microsoft.NET.
• RMDS Adaptor (Reuters Market Data System)
RMDS Adaptor is an adaptor that allows financial institutions with the RMDS infrastructure to access, publish, manipulate, and display HyperFeed processed data within RMDS applications.
Data Delivery Utility
DDU is a global, highly-distributed, fully-managed financial content distribution utility with extremely low latency and an end-to-end SLA. DDU combines HyperFeed’s HTPX ticker plant technology with SAVVIS’ global communications network to provide high-performance access to financial content in a utility model. DDU is designed to allow customers to “plug into” a high-performance, yet turnkey, utility service for the normalization, caching, integration, entitlement control, and transmission of high performance, real-time direct data sources. DDU is designed to provide managed access, managed content, standardization, and managed interfaces that redefine financial content distribution. With DDU, the network becomes the Ticker Plant – there is no central caching or data processing facilities.
SORTT
SORTT is designed to take advantage of hidden liquidity and fast markets by using its proprietary analysis and hundreds of customizable customer preferences to segment and route stock orders in a most efficient and profitable way. By looking at depth-of-book data, SORTT can interact with both depth-of-book and top-of-book data to offer the opportunity to achieve best execution. SORTT includes its own proprietary FIX Engine. FIX or a proprietary API can be used by SORTT to connect to route and receive orders from the client. SORTT is designed to be compliant with the proposed REG-NMS.
HBOX
HBOX is an offering born from HyperFeed’s HTPX that allows customers to have a complete on-site financial ticker plant solution. While HTPX is designed to be a high level solution offering the utmost in flexibility and customization, HBOX is an off-the-shelf solution for customers who want the benefits associated with direct exchange access, but who don’t require the development and breadth of customization HTPX offers.
Consulting Services
HyperFeed’s experienced employees can manage a ticker plant entirely or consult with customers to help them manage their own. The two basic categories of consulting services include:
• Managed Services
HyperFeed offers complete management of client’s onsite or remote ticker plants.
• Software Customization
HyperFeed offers consulting services to customers for customized integration into their existing applications and infrastructure.
Key advantages of HyperFeed’s products and services include:
• Cost Effective: HyperFeed’s HTPX is designed to provide optimal performance and cost efficiency, which is intended to reduce direct costs of capital, indirect infrastructure, and support costs of our customers.
• Experience: HyperFeed has experience working with some of the largest financial firms and exchanges, assembling innovative low latency high performance solutions.
• Expertise: HyperFeed has been developing ticker plants for over twenty years and now brings that expertise directly to the client premise.
• Products and Services: HyperFeed’s solutions are designed to solve many of the hurdles and costly operational issues associated with implementing direct exchange solutions. In addition, we generally offer flexible licensing solutions to meet the needs of our customers.
• Excellence in Execution: We are committed to both the highest levels of quality and continuous improvement in our business processes, our products, our services, and our support.
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• Strategy: With input from our customers, we continue to build ticker plant products derived from our HTPX technologies that meet the performance standards at the cost points the market demands.
• Industry Participation: HyperFeed is a member and participates in several industry associations keeping us up to date with current and proposed changes and standards.
• Widely Deployed: HyperFeed has over 1,500 HBOX installations live today and our HTPX technology is currently deployed at three US exchanges and numerous flagship financial institutions.
Because of these key advantages, HyperFeed believes there are no true competitors with respect to the completeness of its technologies and service offerings. HyperFeed is a leader in providing managed ticker plant solutions and the technology for direct exchange connectivity. With our commitment to our customers and our desire to succeed, we continue to change the marketplace with our leading technologies.
Major Customers
HyperFeed’s major customers fall into four categories: exchanges, financial institutions, hedge funds, and channel partners. HyperFeed sells directly to its customers and has entered into partnership agreements with several channel partners that have the ability to resell or refer HyperFeed products to the marketplace. In addition, HyperFeed’s HTPX allows for the aggregation and delivery of exchange based data and services via alliance partners that utilize HyperFeed’s technology to enhance the direct delivery of data from exchanges to financial institutions. Telerate accounted for approximately 60% of the Company’s consolidated revenue from continuing operations in 2004 and approximately 52% of the Company’s consolidated revenue from continuing operations in 2003. ComStock accounted for approximately 12% of the Company’s consolidated revenue from continuing operations in 2004. Townsend accounted for approximately 36% of the Company’s consolidated revenue from continuing operations in 2003 and 100% of its revenue in 2002. As a result of the upcoming sale of Telerate to Reuters, Telerate elected on November 19, 2004 to exercise its contractual right to terminate their Agreement between HyperFeed and Telerate. The loss of another one or more of these customers could have a material adverse affect on the Company.
Patents, Trademarks, and Licenses
Our proprietary software is protected from unauthorized use by the U.S. Copyright Act and trade secret laws and all distributed copies of the software and supporting materials bear a copyright notice. We also attempt to protect our rights in proprietary software by entering into license agreements with customers and suppliers and confidentiality and non-disclosure agreements with our employees and other third parties. We use security measures to restrict access to our services to only those with proper password identification. As an additional safeguard, we generally retain source code and provide only object code bearing a copyright notice to third party users of our proprietary software.
The following are trademarks we use in our business:
• HyperFeed® and the HyperFeed® logos are registered trademarks.
• HyperServer™ is a trademark of HyperFeed Technologies, Inc.
• HyperFeed SmarTicker™ is a trademark of HyperFeed Technologies, Inc.
• Neosphere™ is a trademark of HyperFeed Technologies, Inc.
• Neosphere DB™ is a trademark of HyperFeed Technologies, Inc.
Competition
We believe the market for ticker plant technologies used to facilitate and manage direct market data feeds in an HTPX model is opportune and has recently developed due to key trends in the financial services industry. Direct competitors include small consulting firms that sell market data feed servers and in-house development teams, but these firms only compete with HyperFeed on the first level of service (source servers) involving FEPs. Examples of these types of firms are InfoDyne and Wombat consulting. We do not believe that these firms currently offer ticker plant services such as time/sales, money flow and bid/ask, data management tools like HROOM and HKEY, ZLC technologies, SDKs and adaptors or smart order routing. We believe that there are a multitude of consultancy and software providers that can offer once-off solutions that compare with our offerings but, to our knowledge, these consultancy and software providers do not offer the highly configurable software and customized development offered by HyperFeed.
Seasonality
We have not experienced any material seasonal fluctuations in our business.
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Research And Development
Our research and development personnel expend their time and effort developing and enhancing HyperFeed’s HTPX technology. Recent development projects related to the HTPX include the completion of a .Net SDK, enhancements to core components to scale to handle increasing message rates (Data Switch), enhancement to the ComStock FEP to support customer rollout, development of new FEPs to support ECNs, including ARCA, BRUT, INET, and development of the SORTT smart order routing system.
During the fiscal years ended December 31, 2004, 2003 and 2002, we expensed $1,441,472, $1,827,975, and $1,426,502, 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, 2004, we employed 48 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.
Available Information
Our Internet address is www.hyperfeed.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. Our SEC reports can be accessed through the investor relations section of our Web site. The information found on our Web site is not part of this or any other report we file with or furnish to the SEC.
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, 2009. 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 lease approximately 11,000 square feet of office space at two sites in Aurora, Illinois, through March 2005 and we are currently negotiating to extend this lease. We lease approximately 3,000 square feet of office space in New York City through July 2007. We lease approximately 1,300 square feet of office space in San Francisco, California, through March 2008.
We believe that these facilities are adequate for our needs.
Item 3. Legal Proceedings.
On June 2, 2003, the Company sold the individual retail investor unit and related assets of its subsidiary, PCQuote.com, Inc., to Money.net, Inc. On August 24, 2004, the Company filed a six-count complaint for breach of contract and amounts due in the Circuit Court of Cook County, Illinois against Money.net. The amounts sought in the complaint are $117,834 for a promissory note, including interest, $31,920 from a datafeed license agreement, and $63,917 related to a transition services agreement. On November 17, 2004, Money.net filed a motion to dismiss and, as a result, the Company filed an amended complaint on December 7, 2004. On January 7, 2005, Money.net filed answers to the amended complaint and a counterclaim. On February 3, 2005, the Company answered Money.net’s counterclaim, which included seven affirmative defenses. The Company is proceeding with discovery requests pursuant to the amended complaint. As of December 31, 2004, the Company had a promissory note and accounts receivable, net of allowances,
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of $151,122 due from Money.net.
On December 17, 2002, the Company filed a one-count complaint action in the Circuit Court of Cook County, Illinois, against a former officer of HyperFeed, which seeks to collect on a promissory note, originally given by such officer to a bank, that the Company guaranteed and then assumed following the former officer’s departure when it became likely that the officer would default on the note. The Company requested damages in excess of $250,000, plus interest through the date of payment, costs and attorneys fees. On February 23, 2004, the former officer filed for Chapter 7 bankruptcy in U.S. Bankruptcy Court, Northern District of Illinois. The Company had reserved $100,000 for the note in the fourth quarter of 2002. With this bankruptcy filing, the Company has written-off the note and additional $150,000 is recorded in general and administrative expenses in the fourth quarter of 2003. The Company is pursuing collection of a minimal amount from approximately $25,000 of proceeds available to the claimants from the former officer.
On October 1, 2001, the Company filed a collection action in the Circuit Court of Cook County, Illinois against AB Watley seeking damages. While the parties entered into a settlement agreement in which the defendant agreed to pay the Company in three installments, the defendant failed to make the third installment payment on September 26, 2002. Accordingly, pursuant to the terms of the settlement agreement, a consent judgment was entered in the total amount of $180,503 on January 10, 2003. HyperFeed is taking steps necessary to enforce and collect on this judgment. As of December 31, 2004, the Company has fully written off the receivable due from AB Watley.
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.
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Market for Common Equity
Our common stoc