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 SEPTEMBER 30, 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)I
22-3181095
(I.R.S. Employer
dentification No.)
56 PINE STREET
NEW YORK, NY 10005
(Address of principal executive offices)
(212) 422-4300
(Registrant's telephone number)
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 October 31, 2001 there
were 56,194,230 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 2-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See pages 12 - 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See page 16
PART II. OTHER INFORMATION
See page 17
TRACK DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
Unaudited Derived from
Audited
Financial
statements
ASSETS
CASH $22,887,261 $ 6,505,756
ACCOUNTS RECEIVABLE - NET 3,030,917 1,743,941
DUE FROM CLEARING BROKER 392,720 774,864
MARKETABLE SECURITIES 12,430,110 2,646,348
FIXED ASSETS - NET 4,931,997 5,743,303
INVESTMENT IN AFFILIATE - 1,873,958
EXCESS OF COST OVER NET ASSETS ACQUIRED - NET 2,023,331 2,333,699
NET DEFERRED INCOME TAX ASSETS - 450,000
OTHER ASSETS 1,801,410 2,406,932
----------- -----------
TOTAL $47,497,746 $24,478,801
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 3,301,083 $ 3,338,112
Note payable - bank 1,101,673 569,321
Notes payable - other 896,493 836,203
Trading securities sold but not yet
purchased 19,808,914 1,492,484
Capital lease obligations 638,284 1,215,826
Net deferred income tax liabilities 2,943,137 -
Other liabilities 465,313 294,588
----------- -----------
Total liabilities 29,154,897 7,746,534
----------- -----------
STOCKHOLDERS' EQUITY
Common stock - $.01 par value;
300,000,000 shares authorized;
issued and outstanding, 56,795,393
shares in 2001 and
64,453,556 shares in 2000 567,954 644,536
Additional paid-in capital 16,808,878 26,136,695
Accumulated other comprehensive income 1,705,998 675,921
Deficit (739,981) (10,724,885)
----------- -----------
Total stockholders' equity 18,342,849 16,732,267
----------- -----------
TOTAL $47,497,746 $24,478,801
=========== ===========
See notes to condensed consolidated financial statements
TRACK DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(unaudited)
2001 2000
----------- -----------
REVENUES $48,243,691 $40,794,294
----------- -----------
OPERATING COSTS AND EXPENSES:
Direct operating costs 22,795,120 23,014,199
Selling and administrative expenses 14,573,020 16,952,037
Marketing and advertising 1,124,737 4,761,871
Gain on sale of investments in affiliate (948,793) (409,316)
Gain on marketable securities (1,719,243) (503,172)
Gain on sale of Internet domain name (1,000,000) -
Interest (income) expense - net (174,054) 220,086
----------- -----------
Total 34,650,787 44,035,705
----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET INCOME
OF AFFILIATE AND INCOME TAXES 13,592,904 (3,241,411)
EQUITY IN NET INCOME OF AFFILIATE 276,000 261,000
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 13,868,904 (2,980,411)
INCOME TAXES 3,884,000 -
----------- -----------
NET INCOME (LOSS) $ 9,984,904 $(2,980,411)
=========== ============
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $.16 $(.05)
==== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 60,835,000 63,589,000
=========== ===========
ADJUSTED DILUTIVE SHARES OUTSTANDING 61,099,000 63,741,000
=========== ===========
See notes to condensed consolidated financial statements
TRACK DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(unaudited)
2001 2000
------------ ------------
REVENUES $14,529,942 $14,871,050
----------- -----------
OPERATING COSTS AND EXPENSES:
Direct operating costs 7,021,493 8,668,155
Selling and administrative expenses 4,674,382 4,676,494
Marketing and advertising 316,082 400,325
Gain on sale of investments in affiliate - (409,316)
Gain on marketable securities (730,569) (20,329)
Gain on sale of Internet domain name (1,000,000) -
Interest (income) expense - net (51,822) 90,759
----------- -----------
Total 10,229,566 13,406,088
----------- -----------
INCOME BEFORE EQUITY IN NET INCOME
OF AFFILIATE AND INCOME TAXES 4,300,376 1,464,962
EQUITY IN NET INCOME OF AFFILIATE - 176,000
----------- -----------
INCOME BEFORE INCOME TAXES 4,300,376 1,640,962
INCOME TAXES 1,205,000 -
----------- -----------
NET INCOME $ 3,095,376 $ 1,640,962
=========== ===========
BASIC AND DILUTED NET INCOME PER SHARE $.05 $.03
==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING 57,814,000 63,793,000
=========== ===========
ADJUSTED DILUTIVE SHARES OUTSTANDING 58,092,000 64,250,000
=========== ===========
See notes to condensed consolidated financial statements
TRACK DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2001
(unaudited)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE
STOCK CAPITAL INCOME DEFICIT
------------- ------------- -------------- -------------
BALANCE, JANUARY 1, 2001 $644,536 $26,136,695 $ 675,921 $(10,724,885)
Net income 9,984,904
Stock options and
warrants exercised 864 58,783
Purchase and retirement
of treasury stock (77,446) (10,073,319)
Tax effect of stock
options exercised 686,719
Unrealized gain on
marketable securities
- net of taxes 1,030,077
-------- ------------ ---------- ------------
BALANCE, SEPTEMBER 30, 2001 $567,954 $ 16,808,878 $1,705,998 $ (739,981)
======== ============ ========== ============
See notes to condensed consolidated financial statements
TRACK DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(unaudited)
2001 2000
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 9,984,904 $(2,980,411)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,123,970 2,433,396
Deferred taxes 3,537,587 -
Equity in net income of affiliate (276,000) (261,000)
Gain on sale of Internet domain name (1,000,000) -
Gain on sale of Innodata and Edgar
Online common stock (948,793) -
Net gain on other marketable securities (1,719,242) (912,488)
Net proceeds from other marketable
securities 13,429,841 -
Changes in operating assets
and liabilities:
Accounts receivable and
due from clearing broker (904,832) 178,090
Other assets 437,108 45,960
Accounts payable and accrued
expenses (87,029) (385,520)
Other liabilities 56,859 243,798
----------- -----------
Net cash provided by (used in)
operating activities 24,634,373 (1,638,175)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (745,919) (816,785)
Loans from others 30,000 13,029
Proceeds from sale of Internet domain name 1,000,000 -
Proceeds from sale of Innodata and
Edgar Online securities 1,687,614 443,313
----------- -----------
Net cash provided by (used in)
investing activities 1,971,695 (360,443)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations (700,912) (1,122,317)
Net proceeds (payments) on note
payable - bank 532,352 (438,893)
Net proceeds from notes payable - other 60,290 54,939
Net payments on loans from employee
savings program (26,394) (178,651)
Purchase of treasury stock (10,150,765) (478,246)
Proceeds from exercise of stock options 61,447 1,302,572
------------ -----------
Net cash used in
financing activities (10,223,982) (860,596)
------------ -----------
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH (581) 8,112
------------ -----------
NET INCREASE (DECREASE) IN CASH 16,381,505 (2,851,102)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 6,505,756 5,665,833
------------ -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 22,887,261 $ 2,814,731
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 318,797 $ 324,393
Income taxes $ 370,549 $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Equipment acquisitions financed by
capital leases $ 123,370 $ 519,215
Investment in private companies acquired
through issuance of common stock $ - $ 469,843
See notes to condensed consolidated financial statements
TRACK DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2001, and the results of operations for the
three and nine month periods ended September 30, 2001 and 2000, and of cash
flows for the nine months ended September 30, 2001 and 2000. The results of
operations for the three and nine months ended September 30, 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 nine months ended September 30, 2001, options to purchase 86,430
shares of the Company's common stock were exercised at prices of $.50 to
$1.50, aggregating net proceeds to the Company of $59,647.
3. During the nine months ended September 30, 2001, 7,744,593 shares of the
Company's common stock were purchased and retired at a cost of $10,150,765.
4. During the nine months ended September 30, 2001, the Company issued options
to purchase an aggregate of 1,186,000 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 $76,000 and $73,000 for the
three months and $230,000 and $252,000 for the nine months ended September
30, 2001 and 2000, respectively.
6. Advertising costs, charged to operations when incurred, were $316,000 and
$400,000 for the three months and $1,125,000 and $4,762,000 for the nine
months ended September 30, 2001 and 2000, respectively.
7. The Company had accounted for its 10% investment in Innodata Corporation
("Innodata"), a publicly traded company, using the equity method until May
7, 2001 when the Company's Chairman and CFO resigned as officers and
directors of Innodata. The Company's investment in Innodata has been
accounted for as available for sale securities since that date. See Note 8.
8. Marketable securities consists of the following:
SEPTEMBER 30, DECEMBER 31,
2001 2000
----------- ----------
Edgar Online - Available for sale securities - at market $ 819,490 $1,135,884
Innodata - Available for sale securities - at market 3,905,760 -
Trading securities - at market 7,704,860 1,510,464
----------- ----------
$12,430,110 $2,646,348
=========== ==========
Trading securities sold but not yet purchased - at market $19,808,914 $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 $819,490, the market value at September 30, 2001.
The difference between the cost of $9,349 and fair market value of these
securities, net of $324,056 in deferred taxes, or $486,085, is classified
as a component of accumulated other comprehensive income included in
stockholders' equity.
The Company owns 1,952,880 shares of Innodata, a provider of digital
Content outsourcing services. The Company carries the investment at
$3,905,760, the market value at September 30, 2001. The difference between
the cost of $1,872,542 and fair market value of these securities, net of
$813,275 in deferred taxes, or $1,219,943, is classified as a component of
accumulated other comprehensive income included in stockholders' equity.
The Company engages in arbitrage trading activity in which it seeks to
fully cover open positions in its trading accounts during each month with
covering positions that expire in the succeeding month. As of September 30,
2001, trading securities had a long market value of $7,704,860 with a cost
of $9,541,894, or a net unrealized loss of $1,837,034. Securities sold but
not yet purchased, had a short market value of $19,808,914 with a cost of
$21,857,661, or a net unrealized gain of $2,048,747. The Company pledged
its holdings in EOL and Innodata as collateral for its trading accounts. In
addition, the Company's Chairman pledged approximately 15 million shares of
his holdings in the Company's common stock as collateral for these
accounts. The Company is paying its Chairman at the rate of 2% per annum on
the value of the collateral pledged. Such payments aggregated $73,161 for
the nine months ended September 30, 2001.
The Company received proceeds as of September 30, 2001 of approximately $22
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. The September 30, 2001 positions were closed during
October 2001 and other positions with the same strategy have been
established since that date.
9. During the second quarter, as stated in Note 7, the Company commenced
accounting for its investment in Innodata as available for sale securities.
Management has determined that it is no longer necessary to maintain its
income tax valuation allowance due to the unrealized gain on Innodata
securities and the related deferred tax liability, combined with the
Company continuing to realize profitable operations. As a result, the
Company reduced its deferred tax valuation allowance by $5,727,000, of
which $3,427,000 has been considered in the Company's expected tax rate for
2001. The balance has been recognized as a component of stockholders'
equity related to the tax effect of stock options exercised. Based on
current estimates, the annualized tax rate is expected to approximate 28%
due to the utilization of tax loss carryforwards.
10. 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.
11. Segment Information
The Company is a financial services entity that owns Track Data Securities
Corp., a registered securities broker-dealer and member of the National
Association of Securities Dealers, Inc. The Company provides a proprietary,
fully integrated Internet-based online trading and market data system,
myTrack. It provides real-time financial market data, fundamental research,
charting, and analytical services to institutional and individual investors
through dedicated telecommunication lines and the Internet. It also
disseminates news and third-party database information from more than 100
sources worldwide. The Company'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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2001 2000 2001 2000
Revenues
Professional Market $ 9,246,321 $ 8,579,759 $26,925,220 $24,188,551
Non-Professional Market 5,283,621 6,291,291 21,318,471 16,605,743
----------- ----------- ----------- -----------
Total $14,529,942 $14,871,050 $48,243,691 $40,794,294
=========== =========== =========== ===========
Income (loss) before
unallocated amounts,
equity in net income of
affiliate and income taxes:
Professional Market $ 2,493,652 $1,136,158 $ 7,612,708 $ 1,733,029
Non-Professional Market 584,556 637,304 3,815,280 (3,672,523)
Unallocated amounts:
Depreciation and amortization (560,223) (647,386) (1,677,174) (1,994,319)
Gain on marketable
securities and sale
of investment in affiliate 730,569 429,645 2,668,036 912,488
Gain on sale of
Internet domain name 1,000,000 - 1,000,000 -
Interest income (expense), net 51,822 (90,759) 174,054 (220,086)
----------- ----------- ----------- -----------
Income (loss) before equity in
net income of affiliate
and income taxes 4,300,376 1,464,962 13,592,904 (3,241,411)
Equity in net income of
affiliate - 176,000 276,000 261,000
------------ ----------- ----------- -----------
Income (loss) before taxes $ 4,300,376 $1,640,962 $13,868,904 $(2,980,411)
============ ========== =========== ===========
12. 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 $2,279,878 for the nine months ended
September 30, 2000. In addition, TSC paid a share of the marketing and
advertising costs incurred by the Company, which aggregated $685,304 during
that 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. For the nine months ended September 30, 2001 and 2000, the fee
was $37,500. 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").
13. 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. The Company has not experienced any significant losses in 2001.
14. 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 September 30, 2001, TDSC was required to maintain minimum net
capital, in accordance with SEC rules, of approximately $105,000 and had
total net capital of $488,000, or approximately $382,000 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.
15. Comprehensive income (loss) is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
Net income (loss) $ 3,095,376 $1,640,962 $ 9,984,904 $(2,980,411)
Unrealized (loss) gain on
marketable securities
-net of taxes (2,419,305) 599,291 1,030,077 (98,104)
Reclassification adjustment for
gain on marketable securities
- net of taxes - - - (302,000)
----------- ---------- ----------- -----------
Comprehensive income (loss) $ 676,071 $2,240,253 $11,014,981 $(3,380,515)
=========== ========== =========== ===========
16. In July 2001, the Company sold its tdc.com domain name to a European entity
for $1 million. The Company's present domain is Trackdata.com, which it
already owned.
17. Effect of Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board approved the
issuance of SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill
and Other Intangible Assets." The new standards require that all business
combinations initiated after June 30, 2001 must be accounted for under the
purchase method. In addition, all intangible assets acquired that are
obtained through contractual or legal right, or are capable of being
separately sold, transferred, licensed, rented or exchanged shall be
recognized as an asset apart from goodwill. Goodwill and intangibles with
indefinite lives will no longer be subject to amortization, but will be
subject to at least an annual assessment for impairment by applying a fair
value based test.
The Company will continue to amortize goodwill existing at September 30,
2001 under its current method until December 31, 2001. Thereafter, annual
and quarterly goodwill amortization of $414,000 and $103,000 respectively,
will no longer be recognized. The Company will perform a transitional fair
value based impairment test at March 31, 2002 and if the fair value is less
than the recorded value at January 1, 2002, the Company will record an
impairment loss in the March 31, 2002 quarter as a cumulative effect of a
change in accounting principle.
TRACK DATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS
The Company is a financial services entity that owns Track Data Securities
Corp., a registered securities broker-dealer and member of the National
Association of Securities Dealers, Inc. The Company provides a proprietary,
fully integrated Internet-based online trading and market data system, myTrack.
It provides real-time financial market data, fundamental research, charting, and
analytical services to institutional and individual investors through dedicated
telecommunication lines and the Internet. It also disseminates news and
third-party database information from more than 100 sources worldwide. The
Company'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. The Company is also engaged in arbitrage trading as
described in Note 8.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Revenues for the three months ended September 30, 2001 and 2000 were
$14,530,000 and $14,871,000, respectively, a decrease of 2%. The Company's
Professional Market segment had revenues for the three months ended September
30, 2001 and 2000 of $9,246,000 and $8,580,000, respectively, an increase of 8%
for this segment. The increase was due to additional desktop market data
services, increased Newsware news services and a price increase that was
instituted in the fourth quarter of 2000. The Company's Non-Professional Market
segment had revenues of $5,284,000 and $6,291,000, respectively, for the three
months ended September 30, 2001 and 2000, a decrease of 16% for this segment.
The revenue decrease in 2001 is due principally to reduced trading volume from
myTrack's online trading and market data services.
Direct operating costs were $7,021,000 for the three months ended September
30, 2001 and $8,668,000 for the similar period in 2000, a decrease of 19%.
Direct operating costs as a percentage of revenues were 48% in 2001 and 58% in
2000. Without giving effect to unallocated depreciation and amortization
expense, the Company's Professional Market segment had $3,740,000 and $4,876,000
of direct costs for the three months ended September 30, 2001 and 2000,
respectively. Direct operating costs as a percentage of revenues for the
Professional segment were 40% in 2001 and 57% in 2000. The decline in dollars
and percent in 2001 is due to reduced cost of telecommunications and greater
sharing of the overhead to the Non-Professional segment. The Company's
Non-Professional Market segment had $3,058,000 and $3,227,000 in direct costs
for the three months ended September 30, 2001 and 2000, respectively. Direct
operating costs as a percentage of revenues for the Non-Professional segment
were 58% in 2001 and 51% in 2000. The increase in the percentage is due to the
recognition of full commission from the broker-dealer and all the related costs
of clearing and back office expenses as well as a lower revenue base to absorb
fixed costs in 2001. Direct operating costs include direct payroll, direct
telecommunication costs, computer supplies, depreciation and equipment lease
expense. 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 $4,674,000 and $4,676,000 in the
2001 and 2000 periods, respectively. Selling and administrative expenses as a
percentage of revenues was 32% in 2001 and 31% in 2000. Without giving effect
to unallocated depreciation and amortization expense, selling and administrative
expenses for the Professional Market segment were $2,891,000 and $2,471,000 in
the 2001 and 2000 periods, respectively, an increase of 17%. For the
Professional Market segment selling and administrative expenses as a percentage
of revenues was 31% in 2001 and 29% in 2000. Selling and administrative expenses
for the Non-Professional segment were $1,446,000 and $2,124,000 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 27% in 2001
and 34% 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 $316,000 in 2001 and $400,000 in 2000.
The substantial majority of these costs were incurred by the Non-Professional
segment of the Company which incurred $194,000 in 2001 and $303,000 in 2000,
principally for its myTrack online trading and market data systems. The
Professional Market segment spent $122,000 in 2001 and $97,000 in 2000.
As a result of the above-mentioned factors, the Professional Market segment
realized $2,494,000 in income before unallocated amounts, equity in net income
of affiliate and income taxes in 2001 compared to $1,136,000 in 2000. The
Non-Professional Market segment realized income of $585,000 in 2001 compared to
$637,000 in 2000 before unallocated amounts, equity in net income of affiliate
and income taxes.
In 2001 and 2000, the Company recognized gains of approximately $731,000
and $430,000, respectively, on the sale of certain shares of Edgar Online, Inc.,
Innodata Corporation and other marketable securities.
In July 2001, the Company sold an Internet domain name to a European entity
for $1 million.
As a result of the above mentioned factors, the Company realized income
before equity in net income from an affiliate and income taxes of $4,300,000 and
$1,465,000 in the 2001 and 2000 periods, respectively.
The equity in net income from an affiliate, Innodata Corporation, was $-0-
and $176,000 in 2001 and 2000, respectively. The Company had accounted for its
investment in Innodata using the equity method until May 7, 2001 when the
Company's Chairman and its CFO resigned as officers and directors of Innodata.
The Company's investment in Innodata has been accounted for as available for
sale securities since that date.
The Company realized net income of $3,095,000 in 2001 and $1,641,000 in
2000.
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Revenues for the nine months ended September 30, 2001 and 2000 were
$48,244,000 and $40,794,000, respectively, an increase of 18%. The Company's
Professional Market segment had revenues for the nine months ended September 30,
2001 and 2000 of $26,925,000 and $24,189,000, respectively, an increase of 11%
for this segment. The increase was due to additional desktop market data
services, increased Newsware news services and a price increase that was
instituted in the fourth quarter of 2000. The Company's Non-Professional Market
segment had revenues of $21,318,000 and $16,606,000, respectively, for the nine
months ended September 30, 2001 and 2000, an increase of 28% 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 $22,795,000 for the nine months ended September
30, 2001 and $23,014,000 for the similar period in 2000, a decrease of 1%.
Direct operating costs as a percentage of revenues were 47% in 2001 and 56% in
2000. Without giving effect to unallocated depreciation and amortization
expense, the Company's Professional Market segment had $10,607,000 and
$13,732,000 of direct costs for the nine months ended September 30, 2001 and
2000, respectively. Direct operating costs as a percentage of revenues for the
Professional segment were 39% in 2001 and 57% 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 $11,030,000 and $7,533,000 in direct costs
for the nine months ended September 30, 2001 and 2000, respectively. Direct
operating costs as a percentage of revenues for the Non-Professional segment
were 52% in 2001 and 45% in 2000. The increase in dollars and percentage is due
to the recognition of full commission from the broker-dealer and all the related
costs of clearing and back office expenses.
Selling and administrative expenses were $14,573,000 and $16,952,000 in the
2001 and 2000 periods, respectively, a decrease of 14%. Selling and
administrative expenses as a percentage of revenues was 30% in 2001 and 42% in
2000. Without giving effect to unallocated depreciation and amortization
expense, selling and administrative expenses for the Professional Market segment
were $8,502,000 and $8,293,000 in the 2001 and 2000 periods, respectively, an
increase of 3%. For the Professional Market segment selling and administrative
expenses as a percentage of revenues was 32% in 2001 and 34% in 2000. Selling
and administrative expenses for the Non-Professional segment were $5,552,000 and
$8,415,000 in the 2001 and 2000 periods, respectively, a decrease of 34%. For
the Non-Professional segment selling and administrative expense as a percentage
of revenue was 26% in 2001 and 51% 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 combined with
increased revenues.
Marketing and advertising costs were $1,125,000 in 2001 and $4,762,000 in
2000. The substantial majority of these costs were incurred by the
Non-Professional segment of the Company which incurred $921,000 in 2001 and
$4,331,000 in 2000. The Company will continue to spend less on marketing and
advertising during 2001 than in 2000. Marketing costs in 2000 are net of
$685,000 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 $204,000
in 2001 and $431,000 in 2000.
As a result of the above-mentioned factors, the Professional Market segment
realized $7,613,000 in income before unallocated amounts, equity in net income
of affiliate and income taxes in 2001 compared to $1,733,000 in 2000. The
Non-Professional Market segment realized income of $3,815,000 in 2001 compared
to a loss of $3,673,000 in 2000 before unallocated amounts, equity in net income
of affiliate and income taxes.
In 2001 and 2000, the Company recognized gains of approximately $2,668,000
and $912,000, respectively, on the sale of certain shares of Edgar Online, Inc.,
Innodata Corporation and other marketable securities from its arbitrage trading
strategy.
In July 2001, the Company sold an Internet domain name to a European entity
for $1 million.
As a result of the above mentioned factors, the Company realized income
before equity in net income from an affiliate and income taxes of $13,593,000 in
the 2001 period compared to a loss of $3,241,000 in 2000.
The equity in net income from an affiliate, Innodata Corporation, was
$276,000 and $261,000 in 2001 and 2000, respectively. The Company had accounted
for its investment in Innodata using the equity method until May 7, 2001 when
the Company's Chairman and its CFO resigned as officers and directors of
Innodata. The Company's investment in Innodata has been accounted for as
available for sale securities since that date.
During the second quarter, the Company commenced accounting for its
investment in Innodata as available for sale securities. Management has
determined that it is no longer necessary to maintain its income tax valuation
allowance due to the unrealized gain on Innodata securities and the related
deferred tax liability, combined with the Company continuing to realize
profitable operations. Based on current estimates, the annualized tax rate is
expected to approximate 28% due to the utilization of tax loss carry forwards in
2001. The tax at this rate has been provided for the nine month period.
The Company realized net income of $9,985,000 in 2001 principally from
increased revenues from myTrack's online trading and market data services,
arbitrage trading activities, gains on sales of marketable securities and an
Internet domain name, and a significant reduction in expenses, including
marketing and advertising, compared to a net loss of $2,980,000 in 2000
principally due to marketing and advertising of the Company's myTrack service.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2001, cash provided by operating
activities was $24,634,000 compared to cash used in operating activities of
$1,638,000 in the nine months ended September 30, 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 an operating loss incurred in 2000. Cash flows
provided by investing activities in 2001 was $1,972,000 compared to cash used in
investing activities of $360,000 in 2000 principally from significantly
increased proceeds from the sale of Innodata common stock in 2001 and the sale
of an Internet domain name. Cash flows used in financing activities in the nine
months ended September 30, 2001 were $10,224,000 principally from the purchase
of treasury stock, compared to $861,000 in the 2000 period, including $1,303,000
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 September 30, 2001,
the Company had outstanding borrowings under the line of $1,102,000. The line
of credit is sufficient for the Company's present cash requirements.
The Company received proceeds as of September 30, 2001 of approximately $22
million from the sale of trading securities that had been sold but not yet
purchased under the trading strategy described in Note 8. The September 30,
2001 positions were closed during October 2001 and other positions with the same
strategy have been established since that date.
The Company substantially reduced its advertising costs in the first nine
months of 2001 and does not expect to significantly increase advertising for the
remainder of 2001. The Company may seek additional financing and/or dispose of
certain of its marketable securities to support increased advertising costs, if
deemed appropriate, 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 September 30, 2001, $1,102,000 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 received proceeds as of September 30, 2001 of approximately $22
million from the sale of trading securities sold but not yet purchased. It also
has purchased trading securities with a market value of approximately $7.7
million. 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. The September 30, 2001 positions were closed during October
2001 and other positions with the same strategy have been established since that
date.
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.
The following matters were voted on at the November 1, 2001 Annual Meeting of
Stockholders. The total shares voted were 50,486,592.
Election of Directors:
Nominee For Against Abstain
------------------------------ ---------- ------- -------
E. Bruce Fredrikson 50,336,117 150,475
Jay Gelman 50,334,297 152,295
Barry Hertz 50,302,508 184,084
Martin Kaye 50,334,497 152,095
Isaac Schlesinger 50,337,517 149,075
Jack Spiegelman 50,335,147 151,445
Stanley Stern 50,299,597 186,995
Charles Zabatta 50,339,717 146,875
Approval of Stock Option Plan: 49,596,922 848,694 40,976
Appointment of Auditors: 50,284,065 168,229 34,298
Item 5. Other Information. None
Item 6. (a) Exhibits. None
(b) There were no reports on Form 8-K filed during the third 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: 11/09/01 /s/
---------------------------------
Barry Hertz
Chairman of the Board
Chief Executive Officer
Date: 11/09/01 /s/
---------------------------------
Martin Kaye
COO, CFO,
Principal Financial Officer