U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission File Number 0-24634
TRACK DATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
56 Pine Street
New York, NY
(Address of principal executive offices)
10005
(Zip Code)
(212) 943-4555
(Registrant's telephone number)
22-3181095
(I.R.S. Employer Identification No.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes /x/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of April 30, 2001 there were
61,450,268 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 2-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See pages 10-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See page 12
PART ll. OTHER INFORMATION
See page 13
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
2001 2000
----------- -------------
Unaudited Derived from
audited
financial
statements
ASSETS:
CASH AND EQUIVALENTS $26,175,835 $ 6,505,756
ACCOUNTS RECEIVABLE-net 1,827,143 1,743,941
DUE FROM CLEARING BROKER 921,521 774,864
MARKETABLE SECURITIES 4,029,367 2,646,348
FIXED ASSETS-net 5,689,796 5,743,303
INVESTMENT IN AFFILIATE 2,056,981 1,873,958
EXCESS OF COST OVER NET ASSETS ACQUIRED 2,230,243 2,333,699
NET DEFERRED INCOME TAX ASSETS 450,000 450,000
OTHER ASSETS 2,148,377 2,406,932
----------- -----------
TOTAL $45,529,263 $24,478,801
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 3,572,133 $ 3,338,112
Note payable - bank 581,420 569,321
Notes payable - other 855,834 836,203
Trading securities sold but not yet purchased 19,209,188 1,492,484
Capital lease obligations 943,132 1,215,826
Other liabilities, including income taxes 238,793 294,588
----------- -----------
Total liabilities 25,400,500 7,746,534
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $.01 par value; 300,000,000
shares authorized; issued and
outstanding - 62,714,615 shares
in 2001 and 64,453,556 shares in 2000 627,146 644,536
Additional paid-in capital 24,321,182 26,136,695
Accumulated other comprehensive income 550,219 675,921
Deficit (5,369,784) (10,724,885)
----------- -----------
Total stockholders' equity 20,128,763 16,732,267
----------- -----------
TOTAL $45,529,263 $24,478,801
=========== ===========
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(unaudited)
2001 2000
------------ ------------
SERVICE FEES AND REVENUE $17,391,494 $12,890,331
----------- -----------
COSTS AND EXPENSES:
Direct operating costs 7,914,396 7,109,155
Selling and administrative expenses 4,937,228 6,126,816
Marketing and advertising 329,190 2,060,011
Gain on sale of investment in affiliate (555,658) -
Gain on marketable securities (267,306) (539,871)
Interest (income) expense - net (45,457) 44,448
----------- -----------
Total 12,312,393 14,800,559
----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET INCOME
OF AFFILIATE 5,079,101 (1,910,228)
EQUITY IN NET INCOME OF AFFILIATE 276,000 32,000
----------- -----------
NET INCOME (LOSS) $ 5,355,101 $(1,878,228)
=========== ===========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $.08 $(.03)
==== =====
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 63,981,000 63,377,000
=========== ===========
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2001
(unaudited)
Accumulated
Additional Other Compre-
Common Paid-in Comprehensive hensive
Stock Capital Income Deficit Income
-------- ----------- ------------ ------------- ---------
BALANCE,
JANUARY 1, 2001 $644,536 $26,136,695 $ 675,921 $(10,724,885)
Net income 5,355,101 $5,355,101
Stock options
and warrants
exercised 383 24,864
Purchase and
retirement of
treasury stock (17,773) (1,756,576)
Tax effect of
stock options
exercised (83,801)
Unrealized loss
on marketable
securities -
net of taxes (125,702) (125,702)
----------
Comprehensive
income $5,229,399
==========
-------- ----------- --------- ------------
BALANCE,
MARCH 31, 2001 $627,146 $24,321,182 $ 550,219 $ (5,369,784)
======== =========== ========= ============
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(unaudited)
2001 2000
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,355,101 $(1,878,228)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 711,338 795,165
Equity in net income of affiliate (276,000) (32,000)
Gain on sale of Innodata common stock (555,658) -
Net gain on other marketable securities (267,306) (539,871)
Net proceeds from marketable securities 16,391,487 -
Changes in operating assets and liabilities:
Accounts receivable and due
from clearing broker (229,859) (9,502)
Other assets 209,085 (770,592)
Accounts payable and accrued expenses 234,021 10,660
Other liabilities (7,930) (29,486)
----------- -----------
Net cash provided by (used in)
operating activities 21,564,279 (2,453,854)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (518,644) (175,665)
Proceeds from sale of Innodata and
Edgar Online securities 648,635 530,505
Loans from others 4,679 12,237
----------- -----------
Net cash provided by
investing activities 134,670 367,077
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations (272,695) (381,107)
Net proceeds (payments) on note payable - bank 12,099 (222,517)
Net borrowings on notes payable - other 19,631 17,889
Purchase of treasury stock (1,774,349) (14)
Proceeds from exercise of stock options 27,047 1,187,510
Net disbursements on loans from
employee savings program (44,086) (11,468)
----------- -----------
Net cash (used in) provided by
financing activities (2,032,353) 590,293
----------- -----------
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH 3,483 1,092
----------- -----------
NET INCREASE (DECREASE) IN CASH 19,670,079 (1,495,392)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 6,505,756 5,665,833
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $26,175,835 $ 4,170,441
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 75,103 $ 79,684
Income taxes 16,550 8,395
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(unaudited)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 2001, and the results of operations and of cash flows for the three
months ended March 31, 2001 and 2000. The results of operations for the three
months ended March 31, 2001 are not necessarily indicative of results that may
be expected for any other interim period or for the full year.
These financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 2000 included in
the Company's Annual Report on Form 10-K. The accounting policies used in
preparing these financial statements are the same as those described in the
December 31, 2000 financial statements.
2. During the three months ended March 31, 2001, options to purchase 38,330
shares were exercised at prices of $0.50 to $0.75, aggregating net proceeds to
the Company of $25,247.
3. In March, 2001, the Company completed its buyback announced during 2000
of 2 million shares of its common stock and the Board authorized the purchase of
up to an additional 2.5 million shares. During the first quarter, 1,777,300
shares were purchased at a cost of $1,774,000. In May, 2001, the Company
completed the purchase of the additional 2.5 million shares and the Board
authorized the purchase of up to an additional 3 million shares.
4. During the three months ended March 31, 2001, the Company issued options
to purchase an aggregate of 1,150,000 shares of its common stock (1 million to
its Chairman) at an exercise price of $1.50 per share.
5. The Company charges all costs incurred to establish the technological
feasibility of a product or product enhancement to research and development
expense. Research and development expenses were $77,000 and $95,000 for the
three months ended March 31, 2001 and 2000, respectively.
6. Advertising costs, charged to operations when incurred, were
approximately $329,000 and $2,060,000 for the three months ended March 31, 2001
and 2000, respectively.
7. The Company has accounted for its investment in Innodata Corporation
("Innodata"), a publicly traded company, using the equity method. The Company's
Chairman and its CFO held similar positions with Innodata until May 7, 2001,
when they resigned as officers and directors of Innodata. The Company's
investment in Innodata will be accounted for as available for sale securities
after such date. As of April 30, 2001, the Company owned 2,096,000 shares of
Innodata common stock, or approximately 10% of its outstanding common stock.
8. Marketable securities consists of the following:
March 31 December 31
2001 2000
----------- ------------
Edgar Online - Available for sale securities -at market $ 926,380 $ 1,135,884
Trading securities - at market 3,102,987 1,510,464
----------- ------------
$ 4,029,367 $ 2,646,348
=========== ============
Trading securities sold but not yet purchased - at market $19,209,188 $ 1,492,484
=========== ============
The Company owns 712,600 shares of Edgar Online, Inc. ("EOL"), an Internet-based
supplier of business, financial and competitive intelligence derived from U.S.
Securities and Exchange Commission data. The Company carries the investment at
$926,380, the market value at March 31, 2001. The difference between the cost of
$9,349 and fair market value of these securities, net of $366,812 in deferred
taxes, or $550,219, is classified as a component of accumulated other
comprehensive income included in stockholders' equity.
Trading securities have a long market value of $3,102,987 with a cost of
$3,670,632, or a net unrealized loss of $(567,645). Securities sold but not yet
purchased, have a short market value of $19,209,188 with a cost of $19,715,942,
or a net unrealized gain of $506,754. The Company pledged its holdings in EOL
and Innodata as collateral for its trading accounts.
The Company received proceeds as of March 31, 2001 of approximately $19 million
from the sale of trading securities sold but not yet purchased. The Company's
arbitrage trading strategy is to fully cover its open positions during each
month with covering option positions that expire in the succeeding month with a
view to generate interest income. The March 31, 2001 positions were closed
during April 2001 and other positions with the same strategy have been
established since that date.
9. Earnings (Loss) Per Share--Basic earnings (loss) per share is based on
the weighted average number of common shares outstanding without consideration
of potential common stock. Diluted earnings (loss) per share is based on the
weighted average number of common and potential dilutive common shares
outstanding. In 2000, such result would be anti-dilutive. There was no effect
on earnings per share in 2001 as a result of potential dilution. The
calculation takes into account the shares that may be issued upon exercise of
stock options, reduced by the shares that may be repurchased with the funds
received from the exercise, based on the average price during the period.
10. Segment Information
TDC is a financial services company that owns Track Data Securities Corp., a
registered securities broker-dealer and member of the National Association of
Securities Dealers, Inc. TDC provides a proprietary, fully integrated
Internet-based online trading and market data system, myTrack. TDC provides
real-time financial market data, fundamental research, charting, and analytical
services to institutional and individual investors through dedicated
telecommunication lines and the Internet. TDC also disseminates news and
third-party database information from more than 100 sources worldwide. TDC's
operations are classified in two business segments: Internet-based online
trading and market data services to the non-professional individual investor
community, and market data services to the institutional professional investment
community.
Segment data includes charges allocating corporate overhead to each segment.
The Company has not disclosed asset information by segment as the information is
not produced internally. Substantially all long-lived assets are located in the
U.S. The Company's business is predominantly in the U.S. Revenues and net
income from international operations are not material. Information concerning
operations in its business segments is as follows:
Three Months Ended March 31,
Revenues 2001 2000
Professional Market $ 8,740,052 $ 7,721,669
Non-Professional Market 8,651,442 5,168,662
----------- -----------
Total $17,391,494 $12,890,331
=========== ===========
Income (loss) before unallocated amounts, equity
in netincome of affiliate and income taxes:
Professional Market $ 2,235,646 $ (26,674)
Non-Professional Market 2,537,437 (1,730,218)
Unallocated amounts:
Depreciation and amortization (562,403) (648,759)
Gain on marketable securities and
sale of investment in affiliate 822,964 539,871
Interest income (expense), net 45,457 (44,448)
----------- -----------
Income (loss) before equity in net income of
affiliate and income taxes 5,079,101 (1,910,228)
Equity in net income of affiliate 276,000 32,000
----------- -----------
Income (loss) before taxes $ 5,355,101 $(1,878,228)
=========== ===========
11. Broker-Dealer Service Agreement--From April 1999 to August 2000 when the
Company obtained its own broker-dealer license, the Company offered online
trading through its myTrack service utilizing Track Securities Corporation
("TSC") as its broker-dealer. TSC is a broker-dealer owned and operated by a
director of the Company. The Company licensed its myTrack trading system to a
subsidiary of TSC. The Company received $2.25 per trade pursuant to the
agreement, which aggregated $1,084,000 for the three months ended March 31,
2000. In addition, TSC paid a share of the marketing and advertising costs
incurred by the Company, which aggregated $815,000 during this period. Further,
the director has a five-year consulting agreement with the Company pursuant to
which he is to be paid an annual fee of the greater of $50,000 or 5% of the
after-tax earnings, if any, from trading activities. In 2001 and 2000, the fee
was $12,500. In August 2000, the Company terminated the relationship with TSC,
except for the director consulting agreement, and transferred all the trading
accounts from TSC to the Company's broker-dealer, Track Data Securities Corp
("TDSC").
12. Transactions with Clearing Broker and Customers--The Company conducts
business through a clearing broker which settles all trades for the Company, on
a fully disclosed basis, on behalf of its customers. The Company earns
commissions as an introducing broker for the transactions of its customers. In
the normal course of business, the Company's customer activities involve the
execution of various customer securities transactions. These activities may
expose the Company to off-balance-sheet risk in the event the customer or other
broker is unable to fulfill its contracted obligations and the Company has to
purchase or sell the financial instrument underlying the contract at a loss.
The Company's customer securities activities are transacted on either a cash or
margin basis. In margin transactions, the clearing broker extends credit to the
Company's customers, subject to various regulatory margin requirements,
collateralized by cash and securities in the customers' accounts. However, the
Company is required to either obtain additional collateral or to sell the
customer's position if such collateral is not forthcoming. The Company is
responsible for any losses on such margin loans, and has agreed to indemnify its
clearing broker for losses that the clearing broker may sustain from the
customer accounts introduced by the Company.
13. Net Capital Requirements--The SEC, NASD, and various other regulatory
agencies have stringent rules requiring the maintenance of specific levels of
net capital by securities brokers, including the SEC's uniform net capital rule,
which governs TDSC. Net capital is defined as assets minus liabilities, plus
other allowable credits and qualifying subordinated borrowings less mandatory
deductions that result from excluding assets that are not readily convertible
into cash and from valuing other assets, such as a firm's positions in
securities, conservatively. Among these deductions are adjustments in the market
value of securities to reflect the possibility of a market decline prior to
disposition.
As of March 31, 2001, TDSC was required to maintain minimum net capital, in
accordance with SEC rules, of approximately $111,000 and had total net capital
of $433,000, or approximately $322,000 in excess of minimum net capital
requirements.
If TDSC fails to maintain the required net capital it may be subject to
suspension or revocation of registration by the SEC and suspension or expulsion
by the NASD and other regulatory bodies, which ultimately could require TDSC's
liquidation. In addition, a change in the net capital rules, the imposition of
new rules, a specific operating loss, or any unusually large charge against net
capital could limit those operations of TDSC that require the intensive use of
capital and could limit its ability to expand its business.
14. Comprehensive income (loss) is as follows:
Three Months Ended
March 31,
2001 2000
---------- -----------
Net income (loss) $5,355,101 $(1,878,228)
Unrealized (loss) gain on
marketable securities-net of taxes (125,702) 708,156
---------- -----------
Comprehensive income (loss) $5,229,399 $(1,170,072)
========== ===========
Track Data Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months ended March 31, 2001 and 2000
Revenues for the three months ended March 31, 2001 and 2000 were
$17,391,000 and $12,890,000, respectively, an increase of 35%. The Company's
Professional Market segment had revenues for the three months ended March 31,
2001 and 2000 of $8,740,000 and $7,722,000, respectively, an increase of 13% for
this segment. The Company's Non-Professional Market segment had revenues of
$8,651,000 and $5,169,000, respectively, for the three months ended March 31,
2001 and 2000, an increase of 67% for this segment. The revenue increase in
2001 is due principally to myTrack's online trading and market data services.
The Company obtained its own broker-dealer license and its registration in all
of the states by August 2000. Prior thereto, trading revenues include only
revenues from the licensing of its trading system, rather than a full amount of
commissions paid by customers.
Direct operating costs were $7,914,000 for the three months ended March 31,
2001 and $7,109,000 for the similar period in 2000, an increase of 11%. Direct
operating costs as a percentage of revenues were 46% in 2001 and 55% in 2000.
The decrease in 2001 is due principally to the greater revenues recognized after
obtaining the broker-dealer license. Without giving effect to unallocated
depreciation and amortization expense, the Company's Professional Market segment
had $3,664,000 and $4,476,000 of direct costs for the three months ended March
31, 2001 and 2000, respectively. Direct operating costs as a percentage of
revenues for the Professional segment were 42% in 2001 and 58% in 2000. The
decline in dollars and percent in 2001 is due to reduced cost of
telecommunications and greater sharing of the overhead by the Non-Professional
segment. The Company's Non-Professional Market segment had $3,777,000 and
$3,102,000 in direct costs for the three months ended March 31, 2001 and 2000,
respectively. Direct operating costs as a percentage of revenues for the
Non-Professional segment were 44% in 2001 and 60% in 2000. The reduction in
percentage is due to the recognition of full commission from the broker-dealer.
Direct operating costs include direct payroll, direct telecommunication costs,
computer supplies, depreciation, equipment lease expense and the amortization of
software development costs. Since August 2000, when the Company commenced
recording the full commissions from customers, direct costs include costs of
clearing, back office payroll and other direct broker-dealer expenses.
Selling and administrative expenses were $4,937,000 and $6,127,000 in the
2001 and 2000 periods, respectively, a decrease of 19%. Selling and
administrative expenses as a percentage of revenues was 28% in 2001 and 48% in
2000. Without giving effect to unallocated depreciation and amortization
expense, selling and administrative expenses for the Professional Market segment
were $2,831,000 and $3,171,000 in the 2001 and 2000 periods, respectively, a
decrease of 11%. For the Professional Market segment selling and administrative
expenses as a percentage of revenues was 32% in 2001 and 41% in 2000. Selling
and administrative expenses for the Non-Professional segment were $2,017,000 and
$2,947,000 in the 2001 and 2000 periods, respectively, a decrease of 32%. For
the Non-Professional segment selling and administrative expense as a percentage
of revenue was 23% in 2001 and 57% in 2000. The dollar and percentage decreases
in 2001 compared to 2000 was principally due to decreased payroll and related
expenses for myTrack's online trading and market data services.
Marketing and advertising costs were $329,000 in 2001 and $2,060,000 in
2000. The substantial majority of these costs were incurred by the
Non-Professional segment of the Company which incurred $320,000 in 2001, and
$1,886,000 in 2000. The Company intends to spend less on marketing and
advertising during the first half of 2001 than in 2000. Marketing costs in 2000
are net of $815,000 received from Track Securities under a licensing agreement.
These costs were principally incurred in connection with the Company's myTrack
online trading and market data systems. The Professional Market segment spent
$9,000 in 2001 and $174,000 in 2000.
As a result of the above-mentioned factors, the Professional Market segment
realized $2,236,000 in income before unallocated amounts, equity in net income
of affiliate and income taxes in 2001 compared to a loss of $27,000 in 2000.
The Non-Professional Market segment realized income of $2,537,000 in 2001 and a
net loss of $1,730,000 in 2000 before unallocated amounts, equity in net income
of affiliate and income taxes.
In 2001 and 2000, the Company realized a gain of approximately $823,000 and
$540,000, respectively, on the sale of certain shares of Edgar Online, Inc.,
Innodata Corporation and other marketable securities.
As a result of the above mentioned factors, the Company realized income
before equity in net income from an affiliate of $5,079,000 in the 2001 period
compared to a loss of $1,910,000 in 2000.
The Company had a valuation allowance of $5,727,000 at December 31, 2000 as
management believes it may not be able to realize all of its net operating loss
carryforwards in the future. The establishment of a valuation allowance results
in not recognizing tax benefits currently. However, in the event such benefits
are realized or determined at a later date to be realizable, such future periods
will benefit, net of amounts credited to paid-in capital, from such change and
reflect greater income or a decreased loss.
The equity in net income from an affiliate, Innodata Corporation, was
$276,000 and $32,000 in 2001 and 2000, respectively.
The Company realized net income of $5,355,000 in 2001 principally from
increased revenues from myTrack's online trading and market data services and a
significant reduction in expenses, including marketing and advertising, compared
to a net loss of $1,878,000 in 2000 principally due to marketing and advertising
of the Company's myTrack service.
Liquidity and Capital Resources
During the three months ended March 31, 2001 cash provided by operating
activities was $21,564,000 compared to cash used in operating activities of
$2,454,000 in the three months ended March 31, 2000. The increase in 2001 was
primarily due to net proceeds from trading securities sold but not yet purchased
pursuant to an arbitrage trading strategy described below, and to operating
income, compared to a loss incurred in 2000. Cash flows provided by investing
activities was $135,000 and $367,000 in 2001 and 2000, respectively, principally
from the sale of Innodata and Edgar Online common stock, offset by increased
purchases of fixed assets in 2001. Cash flows used in financing activities in
the three months ended March 31, 2001 was $2,032,000, principally from the
purchase of treasury stock, compared to cash flows from financing activities of
$590,000 in the 2000 period, principally from the exercise of stock options and
warrants.
The Company has a line of credit with a bank. The line is collateralized by the
assets of the Company and is guaranteed by its Chairman. Interest is charged at
1.75% above the bank's prime rate and is due on demand. The Company may borrow
up to 80% of eligible accounts receivable and is required to maintain a
compensating balance of 10% of the outstanding loans. At March 31, 2001, the
Company had outstanding borrowings under the line of $581,000. The line of
credit is sufficient for the Company's present cash requirements. The Company
received proceeds as of March 31, 2001 of approximately $19 million from the
sale of trading securities sold but not yet purchased. The Company's arbitrage
trading strategy is to fully cover its open positions during each month with
covering option positions that expire in the succeeding month with a view to
generate interest income. The March 31, 2001 positions were closed during April
2001 and other positions with the same strategy have been established since
that date. The Company reduced its advertising costs in 2001 and will continue
to do so in the first half of 2001. The Company may seek additional financing
and or dispose of certain of its marketable securities to support increased
advertising costs in the future. There are no major capital expenditures
anticipated beyond the normal replacement of equipment and additional equipment
to meet customer requirements.
Inflation and Seasonality
To date, inflation has not had a significant impact on the Company's
operations. The Company's revenues are not affected by seasonality.
Disclosures in this Form 10-Q contain certain forward-looking statements,
including without limitation, statements concerning the Company's operations,
economic performance and financial condition. These forward-looking statements
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The words "believe," "expect," "anticipate" and
other similar expressions generally identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. These forward-looking statements are based
largely on the Company's current expectations and are subject to a number of
risks and uncertainties, including without limitation, changes in external
market factors, changes in the Company's business or growth strategy or an
inability to execute its strategy due to changes in its industry or the economy
generally, the emergence of new or growing competitors, various other
competitive factors and other risks and uncertainties indicated from time to
time in the Company's filings with the Securities and Exchange Commission.
Actual results could differ materially from the results referred to in the
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the results referred to in the forward-looking statements
contained in this Form 10-Q will in fact occur.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate change market risk with respect to
its credit facility with a financial institution, which is priced based on the
prime rate of interest. At March 31, 2001, $581,000 was outstanding under the
credit facility. Changes in the prime interest rate during fiscal 2001 will have
a positive or negative effect on the Company's interest expense. Such exposure
will increase accordingly should the Company maintain higher levels of borrowing
during 2001.
The Company has investments in marketable securities consisting principally of
its investments in Innodata Corporation and Edgar Online, Inc., both publicly
traded companies listed on Nasdaq. The market value of such securities is
dependent on future market conditions for these companies over which the Company
has little or no control.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities. Not Applicable
Item 3. Defaults upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable
Item 5. Other Information. None
Item 6. (a) Exhibits. None
(b) There were no reports on Form 8-K filed during the first quarter of
2001.
SIGNATURES
Pursuant to the requirements 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.
TRACK DATA CORPORATION
Date: 5/11/01 /s/
------- ------------------------
Barry Hertz
Chairman of the Board
Chief Executive Officer
Date: 5/11/01 /s/
------- ------------------------
Martin Kaye
V.P. Finance
Principal Financial Officer
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission File Number 0-24634
TRACK DATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
56 Pine Street
New York, NY
(Address of principal executive offices)
10005
(Zip Code)
(212) 943-4555
(Registrant's telephone number)
22-3181095
(I.R.S. Employer Identification No.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes /x/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of April 30, 2001 there were
61,450,268 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 2-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See pages 10-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See page 12
PART ll. OTHER INFORMATION
See page 13
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
2001 2000
----------- -------------
Unaudited Derived from
audited
financial
statements
ASSETS:
CASH AND EQUIVALENTS $26,175,835 $ 6,505,756
ACCOUNTS RECEIVABLE-net 1,827,143 1,743,941
DUE FROM CLEARING BROKER 921,521 774,864
MARKETABLE SECURITIES 4,029,367 2,646,348
FIXED ASSETS-net 5,689,796 5,743,303
INVESTMENT IN AFFILIATE 2,056,981 1,873,958
EXCESS OF COST OVER NET ASSETS ACQUIRED 2,230,243 2,333,699
NET DEFERRED INCOME TAX ASSETS 450,000 450,000
OTHER ASSETS 2,148,377 2,406,932
----------- -----------
TOTAL $45,529,263 $24,478,801
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 3,572,133 $ 3,338,112
Note payable - bank 581,420 569,321
Notes payable - other 855,834 836,203
Trading securities sold but not yet purchased 19,209,188 1,492,484
Capital lease obligations 943,132 1,215,826
Other liabilities, including income taxes 238,793 294,588
----------- -----------
Total liabilities 25,400,500 7,746,534
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $.01 par value; 300,000,000
shares authorized; issued and
outstanding - 62,714,615 shares
in 2001 and 64,453,556 shares in 2000 627,146 644,536
Additional paid-in capital 24,321,182 26,136,695
Accumulated other comprehensive income 550,219 675,921
Deficit (5,369,784) (10,724,885)
----------- -----------
Total stockholders' equity 20,128,763 16,732,267
----------- -----------
TOTAL $45,529,263 $24,478,801
=========== ===========
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(unaudited)
2001 2000
------------ ------------
SERVICE FEES AND REVENUE $17,391,494 $12,890,331
----------- -----------
COSTS AND EXPENSES:
Direct operating costs 7,914,396 7,109,155
Selling and administrative expenses 4,937,228 6,126,816
Marketing and advertising 329,190 2,060,011
Gain on sale of investment in affiliate (555,658) -
Gain on marketable securities (267,306) (539,871)
Interest (income) expense - net (45,457) 44,448
----------- -----------
Total 12,312,393 14,800,559
----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET INCOME
OF AFFILIATE 5,079,101 (1,910,228)
EQUITY IN NET INCOME OF AFFILIATE 276,000 32,000
----------- -----------
NET INCOME (LOSS) $ 5,355,101 $(1,878,228)
=========== ===========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $.08 $(.03)
==== =====
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 63,981,000 63,377,000
=========== ===========
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2001
(unaudited)
Accumulated
Additional Other Compre-
Common Paid-in Comprehensive hensive
Stock Capital Income Deficit Income
-------- ----------- ------------ ------------- ---------
BALANCE,
JANUARY 1, 2001 $644,536 $26,136,695 $ 675,921 $(10,724,885)
Net income 5,355,101 $5,355,101
Stock options
and warrants
exercised 383 24,864
Purchase and
retirement of
treasury stock (17,773) (1,756,576)
Tax effect of
stock options
exercised (83,801)
Unrealized loss
on marketable
securities -
net of taxes (125,702) (125,702)
----------
Comprehensive
income $5,229,399
==========
-------- ----------- --------- ------------
BALANCE,
MARCH 31, 2001 $627,146 $24,321,182 $ 550,219 $ (5,369,784)
======== =========== ========= ============
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(unaudited)
2001 2000
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,355,101 $(1,878,228)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 711,338 795,165
Equity in net income of affiliate (276,000) (32,000)
Gain on sale of Innodata common stock (555,658) -
Net gain on other marketable securities (267,306) (539,871)
Net proceeds from marketable securities 16,391,487 -
Changes in operating assets and liabilities:
Accounts receivable and due
from clearing broker (229,859) (9,502)
Other assets 209,085 (770,592)
Accounts payable and accrued expenses 234,021 10,660
Other liabilities (7,930) (29,486)
----------- -----------
Net cash provided by (used in)
operating activities 21,564,279 (2,453,854)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (518,644) (175,665)
Proceeds from sale of Innodata and
Edgar Online securities 648,635 530,505
Loans from others 4,679 12,237
----------- -----------
Net cash provided by
investing activities 134,670 367,077
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations (272,695) (381,107)
Net proceeds (payments) on note payable - bank 12,099 (222,517)
Net borrowings on notes payable - other 19,631 17,889
Purchase of treasury stock (1,774,349) (14)
Proceeds from exercise of stock options 27,047 1,187,510
Net disbursements on loans from
employee savings program (44,086) (11,468)
----------- -----------
Net cash (used in) provided by
financing activities (2,032,353) 590,293
----------- -----------
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH 3,483 1,092
----------- -----------
NET INCREASE (DECREASE) IN CASH 19,670,079 (1,495,392)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 6,505,756 5,665,833
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $26,175,835 $ 4,170,441
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 75,103 $ 79,684
Income taxes 16,550 8,395
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(unaudited)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 2001, and the results of operations and of cash flows for the three
months ended March 31, 2001 and 2000. The results of operations for the three
months ended March 31, 2001 are not necessarily indicative of results that may
be expected for any other interim period or for the full year.
These financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 2000 included in
the Company's Annual Report on Form 10-K. The accounting policies used in
preparing these financial statements are the same as those described in the
December 31, 2000 financial statements.
2. During the three months ended March 31, 2001, options to purchase 38,330
shares were exercised at prices of $0.50 to $0.75, aggregating net proceeds to
the Company of $25,247.
3. In March, 2001, the Company completed its buyback announced during 2000
of 2 million shares of its common stock and the Board authorized the purchase of
up to an additional 2.5 million shares. During the first quarter, 1,777,300
shares were purchased at a cost of $1,774,000. In May, 2001, the Company
completed the purchase of the additional 2.5 million shares and the Board
authorized the purchase of up to an additional 3 million shares.
4. During the three months ended March 31, 2001, the Company issued options
to purchase an aggregate of 1,150,000 shares of its common stock (1 million to
its Chairman) at an exercise price of $1.50 per share.
5. The Company charges all costs incurred to establish the technological
feasibility of a product or product enhancement to research and development
expense. Research and development expenses were $77,000 and $95,000 for the
three months ended March 31, 2001 and 2000, respectively.
6. Advertising costs, charged to operations when incurred, were
approximately $329,000 and $2,060,000 for the three months ended March 31, 2001
and 2000, respectively.
7. The Company has accounted for its investment in Innodata Corporation
("Innodata"), a publicly traded company, using the equity method. The Company's
Chairman and its CFO held similar positions with Innodata until May 7, 2001,
when they resigned as officers and directors of Innodata. The Company's
investment in Innodata will be accounted for as available for sale securities
after such date. As of April 30, 2001, the Company owned 2,096,000 shares of
Innodata common stock, or approximately 10% of its outstanding common stock.
8. Marketable securities consists of the following:
March 31 December 31
2001 2000
----------- ------------
Edgar Online - Available for sale securities -at market $ 926,380 $ 1,135,884
Trading securities - at market 3,102,987 1,510,464
----------- ------------
$ 4,029,367 $ 2,646,348
=========== ============
Trading securities sold but not yet purchased - at market $19,209,188 $ 1,492,484
=========== ============
The Company owns 712,600 shares of Edgar Online, Inc. ("EOL"), an Internet-based
supplier of business, financial and competitive intelligence derived from U.S.
Securities and Exchange Commission data. The Company carries the investment at
$926,380, the market value at March 31, 2001. The difference between the cost of
$9,349 and fair market value of these securities, net of $366,812 in deferred
taxes, or $550,219, is classified as a component of accumulated other
comprehensive income included in stockholders' equity.
Trading securities have a long market value of $3,102,987 with a cost of
$3,670,632, or a net unrealized loss of $(567,645). Securities sold but not yet
purchased, have a short market value of $19,209,188 with a cost of $19,715,942,
or a net unrealized gain of $506,754. The Company pledged its holdings in EOL
and Innodata as collateral for its trading accounts.
The Company received proceeds as of March 31, 2001 of approximately $19 million
from the sale of trading securities sold but not yet purchased. The Company's
arbitrage trading strategy is to fully cover its open positions during each
month with covering option positions that expire in the succeeding month with a
view to generate interest income. The March 31, 2001 positions were closed
during April 2001 and other positions with the same strategy have been
established since that date.
9. Earnings (Loss) Per Share--Basic earnings (loss) per share is based on
the weighted average number of common shares outstanding without consideration
of potential common stock. Diluted earnings (loss) per share is based on the
weighted average number of common and potential dilutive common shares
outstanding. In 2000, such result would be anti-dilutive. There was no effect
on earnings per share in 2001 as a result of potential dilution. The
calculation takes into account the shares that may be issued upon exercise of
stock options, reduced by the shares that may be repurchased with the funds
received from the exercise, based on the average price during the period.
10. Segment Information
TDC is a financial services company that owns Track Data Securities Corp., a
registered securities broker-dealer and member of the National Association of
Securities Dealers, Inc. TDC provides a proprietary, fully integrated
Internet-based online trading and market data system, myTrack. TDC provides
real-time financial market data, fundamental research, charting, and analytical
services to institutional and individual investors through dedicated
telecommunication lines and the Internet. TDC also disseminates news and
third-party database information from more than 100 sources worldwide. TDC's
operations are classified in two business segments: Internet-based online
trading and market data services to the non-professional individual investor
community, and market data services to the institutional professional investment
community.
Segment data includes charges allocating corporate overhead to each segment.
The Company has not disclosed asset information by segment as the information is
not produced internally. Substantially all long-lived assets are located in the
U.S. The Company's business is predominantly in the U.S. Revenues and net
income from international operations are not material. Information concerning
operations in its business segments is as follows:
Three Months Ended March 31,
Revenues 2001 2000
Professional Market $ 8,740,052 $ 7,721,669
Non-Professional Market 8,651,442 5,168,662
----------- -----------
Total $17,391,494 $12,890,331
=========== ===========
Income (loss) before unallocated amounts, equity
in netincome of affiliate and income taxes:
Professional Market $ 2,235,646 $ (26,674)
Non-Professional Market 2,537,437 (1,730,218)
Unallocated amounts:
Depreciation and amortization (562,403) (648,759)
Gain on marketable securities and
sale of investment in affiliate 822,964 539,871
Interest income (expense), net 45,457 (44,448)
----------- -----------
Income (loss) before equity in net income of
affiliate and income taxes 5,079,101 (1,910,228)
Equity in net income of affiliate 276,000 32,000
----------- -----------
Income (loss) before taxes $ 5,355,101 $(1,878,228)
=========== ===========
11. Broker-Dealer Service Agreement--From April 1999 to August 2000 when the
Company obtained its own broker-dealer license, the Company offered online
trading through its myTrack service utilizing Track Securities Corporation
("TSC") as its broker-dealer. TSC is a broker-dealer owned and operated by a
director of the Company. The Company licensed its myTrack trading system to a
subsidiary of TSC. The Company received $2.25 per trade pursuant to the
agreement, which aggregated $1,084,000 for the three months ended March 31,
2000. In addition, TSC paid a share of the marketing and advertising costs
incurred by the Company, which aggregated $815,000 during this period. Further,
the director has a five-year consulting agreement with the Company pursuant to
which he is to be paid an annual fee of the greater of $50,000 or 5% of the
after-tax earnings, if any, from trading activities. In 2001 and 2000, the fee
was $12,500. In August 2000, the Company terminated the relationship with TSC,
except for the director consulting agreement, and transferred all the trading
accounts from TSC to the Company's broker-dealer, Track Data Securities Corp
("TDSC").
12. Transactions with Clearing Broker and Customers--The Company conducts
business through a clearing broker which settles all trades for the Company, on
a fully disclosed basis, on behalf of its customers. The Company earns
commissions as an introducing broker for the transactions of its customers. In
the normal course of business, the Company's customer activities involve the
execution of various customer securities transactions. These activities may
expose the Company to off-balance-sheet risk in the event the customer or other
broker is unable to fulfill its contracted obligations and the Company has to
purchase or sell the financial instrument underlying the contract at a loss.
The Company's customer securities activities are transacted on either a cash or
margin basis. In margin transactions, the clearing broker extends credit to the
Company's customers, subject to various regulatory margin requirements,
collateralized by cash and securities in the customers' accounts. However, the
Company is required to either obtain additional collateral or to sell the
customer's position if such collateral is not forthcoming. The Company is
responsible for any losses on such margin loans, and has agreed to indemnify its
clearing broker for losses that the clearing broker may sustain from the
customer accounts introduced by the Company.
13. Net Capital Requirements--The SEC, NASD, and various other regulatory
agencies have stringent rules requiring the maintenance of specific levels of
net capital by securities brokers, including the SEC's uniform net capital rule,
which governs TDSC. Net capital is defined as assets minus liabilities, plus
other allowable credits and qualifying subordinated borrowings less mandatory
deductions that result from excluding assets that are not readily convertible
into cash and from valuing other assets, such as a firm's positions in
securities, conservatively. Among these deductions are adjustments in the market
value of securities to reflect the possibility of a market decline prior to
disposition.
As of March 31, 2001, TDSC was required to maintain minimum net capital, in
accordance with SEC rules, of approximately $111,000 and had total net capital
of $433,000, or approximately $322,000 in excess of minimum net capital
requirements.
If TDSC fails to maintain the required net capital it may be subject to
suspension or revocation of registration by the SEC and suspension or expulsion
by the NASD and other regulatory bodies, which ultimately could require TDSC's
liquidation. In addition, a change in the net capital rules, the imposition of
new rules, a specific operating loss, or any unusually large charge against net
capital could limit those operations of TDSC that require the intensive use of
capital and could limit its ability to expand its business.
14. Comprehensive income (loss) is as follows:
Three Months Ended
March 31,
2001 2000
---------- -----------
Net income (loss) $5,355,101 $(1,878,228)
Unrealized (loss) gain on
marketable securities-net of taxes (125,702) 708,156
---------- -----------
Comprehensive income (loss) $5,229,399 $(1,170,072)
========== ===========
Track Data Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months ended March 31, 2001 and 2000
Revenues for the three months ended March 31, 2001 and 2000 were
$17,391,000 and $12,890,000, respectively, an increase of 35%. The Company's
Professional Market segment had revenues for the three months ended March 31,
2001 and 2000 of $8,740,000 and $7,722,000, respectively, an increase of 13% for
this segment. The Company's Non-Professional Market segment had revenues of
$8,651,000 and $5,169,000, respectively, for the three months ended March 31,
2001 and 2000, an increase of 67% for this segment. The revenue increase in
2001 is due principally to myTrack's online trading and market data services.
The Company obtained its own broker-dealer license and its registration in all
of the states by August 2000. Prior thereto, trading revenues include only
revenues from the licensing of its trading system, rather than a full amount of
commissions paid by customers.
Direct operating costs were $7,914,000 for the three months ended March 31,
2001 and $7,109,000 for the similar period in 2000, an increase of 11%. Direct
operating costs as a percentage of revenues were 46% in 2001 and 55% in 2000.
The decrease in 2001 is due principally to the greater revenues recognized after
obtaining the broker-dealer license. Without giving effect to unallocated
depreciation and amortization expense, the Company's Professional Market segment
had $3,664,000 and $4,476,000 of direct costs for the three months ended March
31, 2001 and 2000, respectively. Direct operating costs as a percentage of
revenues for the Professional segment were 42% in 2001 and 58% in 2000. The
decline in dollars and percent in 2001 is due to reduced cost of
telecommunications and greater sharing of the overhead by the Non-Professional
segment. The Company's Non-Professional Market segment had $3,777,000 and
$3,102,000 in direct costs for the three months ended March 31, 2001 and 2000,
respectively. Direct operating costs as a percentage of revenues for the
Non-Professional segment were 44% in 2001 and 60% in 2000. The reduction in
percentage is due to the recognition of full commission from the broker-dealer.
Direct operating costs include direct payroll, direct telecommunication costs,
computer supplies, depreciation, equipment lease expense and the amortization of
software development costs. Since August 2000, when the Company commenced
recording the full commissions from customers, direct costs include costs of
clearing, back office payroll and other direct broker-dealer expenses.
Selling and administrative expenses were $4,937,000 and $6,127,000 in the
2001 and 2000 periods, respectively, a decrease of 19%. Selling and
administrative expenses as a percentage of revenues was 28% in 2001 and 48% in
2000. Without giving effect to unallocated depreciation and amortization
expense, selling and administrative expenses for the Professional Market segment
were $2,831,000 and $3,171,000 in the 2001 and 2000 periods, respectively, a
decrease of 11%. For the Professional Market segment selling and administrative
expenses as a percentage of revenues was 32% in 2001 and 41% in 2000. Selling
and administrative expenses for the Non-Professional segment were $2,017,000 and
$2,947,000 in the 2001 and 2000 periods, respectively, a decrease of 32%. For
the Non-Professional segment selling and administrative expense as a percentage
of revenue was 23% in 2001 and 57% in 2000. The dollar and percentage decreases
in 2001 compared to 2000 was principally due to decreased payroll and related
expenses for myTrack's online trading and market data services.
Marketing and advertising costs were $329,000 in 2001 and $2,060,000 in
2000. The substantial majority of these costs were incurred by the
Non-Professional segment of the Company which incurred $320,000 in 2001, and
$1,886,000 in 2000. The Company intends to spend less on marketing and
advertising during the first half of 2001 than in 2000. Marketing costs in 2000
are net of $815,000 received from Track Securities under a licensing agreement.
These costs were principally incurred in connection with the Company's myTrack
online trading and market data systems. The Professional Market segment spent
$9,000 in 2001 and $174,000 in 2000.
As a result of the above-mentioned factors, the Professional Market segment
realized $2,236,000 in income before unallocated amounts, equity in net income
of affiliate and income taxes in 2001 compared to a loss of $27,000 in 2000.
The Non-Professional Market segment realized income of $2,537,000 in 2001 and a
net loss of $1,730,000 in 2000 before unallocated amounts, equity in net income
of affiliate and income taxes.
In 2001 and 2000, the Company realized a gain of approximately $823,000 and
$540,000, respectively, on the sale of certain shares of Edgar Online, Inc.,
Innodata Corporation and other marketable securities.
As a result of the above mentioned factors, the Company realized income
before equity in net income from an affiliate of $5,079,000 in the 2001 period
compared to a loss of $1,910,000 in 2000.
The Company had a valuation allowance of $5,727,000 at December 31, 2000 as
management believes it may not be able to realize all of its net operating loss
carryforwards in the future. The establishment of a valuation allowance results
in not recognizing tax benefits currently. However, in the event such benefits
are realized or determined at a later date to be realizable, such future periods
will benefit, net of amounts credited to paid-in capital, from such change and
reflect greater income or a decreased loss.
The equity in net income from an affiliate, Innodata Corporation, was
$276,000 and $32,000 in 2001 and 2000, respectively.
The Company realized net income of $5,355,000 in 2001 principally from
increased revenues from myTrack's online trading and market data services and a
significant reduction in expenses, including marketing and advertising, compared
to a net loss of $1,878,000 in 2000 principally due to marketing and advertising
of the Company's myTrack service.
Liquidity and Capital Resources
During the three months ended March 31, 2001 cash provided by operating
activities was $21,564,000 compared to cash used in operating activities of
$2,454,000 in the three months ended March 31, 2000. The increase in 2001 was
primarily due to net proceeds from trading securities sold but not yet purchased
pursuant to an arbitrage trading strategy described below, and to operating
income, compared to a loss incurred in 2000. Cash flows provided by investing
activities was $135,000 and $367,000 in 2001 and 2000, respectively, principally
from the sale of Innodata and Edgar Online common stock, offset by increased
purchases of fixed assets in 2001. Cash flows used in financing activities in
the three months ended March 31, 2001 was $2,032,000, principally from the
purchase of treasury stock, compared to cash flows from financing activities of
$590,000 in the 2000 period, principally from the exercise of stock options and
warrants.
The Company has a line of credit with a bank. The line is collateralized by the
assets of the Company and is guaranteed by its Chairman. Interest is charged at
1.75% above the bank's prime rate and is due on demand. The Company may borrow
up to 80% of eligible accounts receivable and is required to maintain a
compensating balance of 10% of the outstanding loans. At March 31, 2001, the
Company had outstanding borrowings under the line of $581,000. The line of
credit is sufficient for the Company's present cash requirements. The Company
received proceeds as of March 31, 2001 of approximately $19 million from the
sale of trading securities sold but not yet purchased. The Company's arbitrage
trading strategy is to fully cover its open positions during each month with
covering option positions that expire in the succeeding month with a view to
generate interest income. The March 31, 2001 positions were closed during April
2001 and other positions with the same strategy have been established since
that date. The Company reduced its advertising costs in 2001 and will continue
to do so in the first half of 2001. The Company may seek additional financing
and or dispose of certain of its marketable securities to support increased
advertising costs in the future. There are no major capital expenditures
anticipated beyond the normal replacement of equipment and additional equipment
to meet customer requirements.
Inflation and Seasonality
To date, inflation has not had a significant impact on the Company's
operations. The Company's revenues are not affected by seasonality.
Disclosures in this Form 10-Q contain certain forward-looking statements,
including without limitation, statements concerning the Company's operations,
economic performance and financial condition. These forward-looking statements
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The words "believe," "expect," "anticipate" and
other similar expressions generally identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. These forward-looking statements are based
largely on the Company's current expectations and are subject to a number of
risks and uncertainties, including without limitation, changes in external
market factors, changes in the Company's business or growth strategy or an
inability to execute its strategy due to changes in its industry or the economy
generally, the emergence of new or growing competitors, various other
competitive factors and other risks and uncertainties indicated from time to
time in the Company's filings with the Securities and Exchange Commission.
Actual results could differ materially from the results referred to in the
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the results referred to in the forward-looking statements
contained in this Form 10-Q will in fact occur.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate change market risk with respect to
its credit facility with a financial institution, which is priced based on the
prime rate of interest. At March 31, 2001, $581,000 was outstanding under the
credit facility. Changes in the prime interest rate during fiscal 2001 will have
a positive or negative effect on the Company's interest expense. Such exposure
will increase accordingly should the Company maintain higher levels of borrowing
during 2001.
The Company has investments in marketable securities consisting principally of
its investments in Innodata Corporation and Edgar Online, Inc., both publicly
traded companies listed on Nasdaq. The market value of such securities is
dependent on future market conditions for these companies over which the Company
has little or no control.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities. Not Applicable
Item 3. Defaults upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable
Item 5. Other Information. None
Item 6. (a) Exhibits. None
(b) There were no reports on Form 8-K filed during the first quarter of
2001.
SIGNATURES
Pursuant to the requirements 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.
TRACK DATA CORPORATION
Date: 5/11/01 /s/
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Barry Hertz
Chairman of the Board
Chief Executive Officer
Date: 5/11/01 /s/
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Martin Kaye
V.P. Finance
Principal Financial Officer