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UNITED STATES
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 June 30, 2004

 

Commission File Number: 0-24634

 
  
TRACK DATA CORPORATION
(Exact name of registrant as specified in its charter)
   
DELAWARE
(State or other jurisdiction of incorporation or organization)		 22-3181095
(I.R.S. Employer Identification No.)
   
95 Rockwell Place, Brooklyn, New York 
(Address of principal executive offices)		 11217
(Zip Code)
 
(718)-522-7373
(Registrant's telephone number, including area code)

 
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 o

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  o  No x
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of July 31, 2004 there were 48,619,000 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 12-18

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

  See page 19

Item 4.       Controls and Procedures
 
              See page 19


PART ll      OTHER INFORMATION

  See page 20



 
  1  
 
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
 
December 31,
 
 
 
2004
 
 
 
 
2003
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaudited
 
Derived from
 
 
 
 
 
 
 
audited
 
 
 
 
 
 
 
financial
 
 
 
 
 
 
 
statements
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CASH AND EQUIVALENTS
 
$
6,417
 
 
 
 
$
8,315
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACCOUNTS RECEIVABLE – net
 
 
1,411
 
 
 
 
 
1,099
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DUE FROM CLEARING BROKER
 
 
450
 
 
 
 
 
547
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DUE FROM BROKER
 
 
48,483
 
 
 
 
 
37,141
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MARKETABLE SECURITIES
 
 
21,896
 
 
 
 
 
21,427
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIXED ASSETS - at cost (net of accumulated depreciation)
 
 
1,923
 
 
 
 
 
2,140
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXCESS OF COST OVER NET ASSETS ACQUIRED – net
 
 
1,900
 
 
 
 
 
1,900
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER ASSETS
 
 
782
 
 
 
 
 
929
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
$
83,262
 
 
 
 
$
73,498
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
    Accounts payable and accrued expenses
 
$
4,235
 
 
 
 
$
4,112
 
 
    Notes payable - other
 
 
 -
 
 
 
 
 
494
 
 
    Trading securities sold but not yet purchased
 
 
52,624
 
 
 
 
 
40,996
 
 
    Net deferred income tax liabilities
 
 
1,924
 
 
 
 
 
2,475
 
 
    Other liabilities, including income taxes
 
 
491
 
 
 
 
 
1,616
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Total liabilities
 
 
59,274
 
 
 
 
 
49,693
 
 
 
 
 
 
 
 
 
 
 
 
 
 
COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
    Common stock - $.01 par value; 300,000,000 shares authorized; issued and
 
 
 
 
 
 
 
 
 
 
 
        outstanding – 48,681,000 shares in 2004 and 49,001,000 shares in 2003
 
 
487
 
 
 
 
 
490
 
 
    Additional paid-in capital
 
 
13,837
 
 
 
 
 
14,152
 
 
    Retained earnings
 
 
7,028
 
 
 
 
 
5,701
 
 
    Accumulated other comprehensive income
 
 
2,636
 
 
 
 
 
3,462
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Total stockholders’ equity
 
 
23,988
 
 
 
 
 
23,805
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
$
83,262
 
 
 
 
$
73,498
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 See notes to condensed consolidated financial statements   

 

  2  
 
 
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(in thousands, except earnings and dividends per share)
(Unaudited)

 
 
 
2004
 
 
 
2003
 
 
SERVICE FEES AND REVENUE
 
$
20,595
 
 
$
21,019
 
 
COSTS, EXPENSES AND OTHER:
 
 
 
 
 
 
 
 
 
    Direct operating costs
 
 
11,423
 
 
 
12,383
 
 
    Selling and administrative expenses
 
 
7,407
 
 
 
8,128
 
 
    Marketing and advertising
 
 
268
 
 
 
134
 
 
    Gain on marketable securities (including $542,000
 
 
 
 
 
 
 
 
 
        from sale of Innodata common stock in 2004)
 
 
(1,653
)
 
 
(766
)
 
    Interest expense – net
 
 
122
 
 
 
33
 
 
            Total
 
 
17,567
 
 
 
19,912
 
 
INCOME BEFORE INCOME TAXES
 
 
3,028
 
 
 
1,107
 
 
 
 
 
 
 
 
 
 
 
 
INCOME TAXES
 
 
1,211
 
 
 
443
 
 
 
 
 
 
 
 
 
 
 
 
NET INCOME
 
$
1,817
 
 
$
664
 
 
BASIC AND DILUTED NET INCOME PER SHARE
 
 
$.04
 
 
 
$.01
 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS PER SHARE
 
 
$.01
 
 
 
 
 
 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
 
 
48,929
 
 
 
50,376
 
 
ADJUSTED DILUTIVE SHARES OUTSTANDING
 
 
49,012
 
 
 
50,376
 
 
 
 
 
 
 
 
 
 
 
 

 

  See notes to condensed consolidated financial statements

 

  3  
 
 
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2004 AND 2003
(in thousands, except earnings per share)
(Unaudited)
 
 
 
2004
 
 
 
2003
 
 
SERVICE FEES AND REVENUE
 
$
9,822
 
 
$
10,324
 
 
COSTS, EXPENSES AND OTHER :
 
 
 
 
 
 
 
 
 
    Direct operating costs
 
 
5,688
 
 
 
6,029
 
 
    Selling and administrative expenses
 
 
3,648
 
 
 
3,837
 
 
    Marketing and advertising
 
 
153
 
 
 
56
 
 
    Gain on marketable securities (including $98,000
 
 
 
 
 
 
 
 
 
        from sale of Innodata common stock in 2004)
 
 
(867
)
 
 
(397
)
 
    Interest expense – net
 
 
45
 
 
 
8
 
 
            Total
 
 
8,667
 
 
 
9,533
 
 
INCOME BEFORE INCOME TAXES
 
 
1,155
 
 
 
791
 
 
 
 
 
 
 
 
 
 
 
 
INCOME TAXES
 
 
462
 
 
 
317
 
 
NET INCOME
 
$
693
 
 
$
474
 
 
BASIC AND DILUTED NET INCOME PER SHARE
 
 
$.01
 
 
 
$.01
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
48,882
 
 
 
50,088
 
 
ADJUSTED DILUTIVE SHARES OUTSTANDING
 
 
48,891
 
 
 
50,088
 
 

  See notes to condensed consolidated financial statements

 

  4  
 
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY AND COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2004
(in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
Other
 
Stock-
 
Compre-
 
Common
 
Paid-in
 
Retained
 
Comprehensive
 
holders’
 
hensive
 
Stock
 
Capital
 
Earnings
 
Income
 
Equity
 
Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2004
 
$
490
 
 
 
 
$
14,152
 
 
 
 
$
5,701
 
 
 
 
$
3,462
 
 
 
 
$
23,805
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,817
 
 
 
 
 
 
 
 
 
 
 
1,817
 
 
 
 
$
1,817
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Stock options and warrants exercised
 
 
 
 
 
 
 
 
11
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Dividends paid
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(490
)
 
 
 
 
 
 
 
 
 
 
(490
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Purchase and retirement of treasury stock
 
 
(3
)
 
 
 
 
(326
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(329
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Reclassification adjustment for gain on
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        marketable securities-net of taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(319
)
 
 
 
 
(319
)
 
 
 
 
(319
)
 
                                                                       
    Unrealized loss on marketable securities -
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        net of taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(507
)
 
 
 
 
(507
)
 
 
 
 
(507
)
 
    Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
991
 
 
BALANCE, JUNE 30, 2004
 
$
487
 
 
 
 
$
13,837
 
 
 
 
$
7,028
 
 
 
 
$
2,636
 
 
 
 
$
23,988
 
 
 
 
 
 
 
 
 

  See notes to condensed consolidated financial statements

 

  5  
 
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(in thousands)
(Unaudited)
 
 
 
2004
 
 
 
2003
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
    Net income
 
$
1,817
 
 
$
664
 
 
    Adjustments to reconcile net income to net cash (used in) provided
 
 
 
 
 
 
 
 
 
        by operating activities:
 
 
 
 
 
 
 
 
 
            Depreciation and amortization
 
 
564
 
 
 
723
 
 
            Gain on sale of Innodata common stock
 
 
(542
)
 
 
(17
)
 
            Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
                Accounts receivable and due from clearing broker
 
 
(215
)
 
 
2,102
 
 
                Due from broker
 
 
(11,376
)
 
 
(13,405
)
 
                Marketable securities
 
 
(2,015
)
 
 
(4,369
)
 
                Other assets
 
 
140
 
 
 
(158
)
 
                Accounts payable and accrued expenses
 
 
123
 
 
 
(221
)
 
                Securities sold, but not yet purchased
 
 
11,628
 
 
 
17,732
 
 
                Other liabilities
 
 
(1,189
)
 
 
8
 
 
 
 
 
 
 
 
 
 
 
 
                    Net cash (used in) provided by operating activities
 
 
(1,065
)
 
 
3,059
 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
    Purchase of fixed assets
 
 
(337
)
 
 
(125
)
 
    Proceeds from sale of Innodata common stock
 
 
711
 
 
 
182
 
 
 
 
 
 
 
 
 
 
 
 
                    Net cash provided by investing activities
 
 
374
 
 
 
57
 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
    Payments under capital lease obligations
 
 
       -
 
 
 
(54
)
 
    Net payments on note payable - bank
 
 
       -
 
 
 
(1,030
)
 
    Net payments from notes payable - other
 
 
(494
)
 
 
(388
)
 
    Dividends paid
 
 
(490
)
 
 
       -
 
 
    Net proceeds on loans from employee savings program
 
 
62
 
 
 
74
 
 
    Purchase of treasury stock
 
 
(296
)
 
 
(1,227
)
 
    Proceeds from exercise of stock options
 
 
11
 
 
 
       -
 
 
 
 
 
 
 
 
 
 
 
 
                    Net cash used in financing activities
 
 
(1,207
)
 
 
(2,625
)
 
 
 
 
 
 
 
 
 
 
 
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH
 
 
       -
 
 
 
(9
)
 
NET (DECREASE) INCREASE IN CASH
 
 
(1,898
)
 
 
482
 
 
 
 
 
 
 
 
 
 
 
 
CASH, BEGINNING OF PERIOD
 
 
8,315
 
 
 
5,491
 
 
CASH, END OF PERIOD
 
$
6,417
 
 
$
5,973
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
 
 
 
 
 
    Cash paid for:
 
 
 
 
 
 
 
 
 
        Interest
 
$
389
 
 
$
105
 
 
        Income taxes
 
 
2,389
 
 
 
441
 
 

 See notes to condensed consolidated financial statements
 
 
  6  

Track Data Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(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 June 30, 2004, and the results of operations for the three and six month periods ended June 30, 2004 and 2003 and of cash flows for the six months ended June 30, 2004 and 2003. The results of operations for the six months ended June 30, 2004 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, 2003 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, 2003 financial statements.

2.   During the six months ended June 30, 2004, the Company purchased 305,935 shares of its common stock at a cost of $329,000.

3.   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 $133,000 and $161,000 for the six months ended June 30, 2004 and 2003, respectively.

4.   Advertising costs, charged to operations when incurred, were $268,000 and $134,000 for the six months ended June 30, 2004 and 2003, respectively.

5.   Marketable securities consists of the following (in thousands):

 
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
 
2004
 
2003
                       
Edgar Online – Available for sale securities – at market
 
$
744
 
 
 
 
$
1,150
 
 
Innodata – Available for sale securities – at market
 
 
4,948
 
 
 
 
 
6,088
 
 
Trading securities – at market
 
 
16,204
 
 
 
 
 
14,189
 
 
Marketable securities
 
$
21,896
 
 
 
 
$
21,427
 
 
Trading securities sold but not yet purchased – at market
 
$
52,624
 
 
 
 
$
40,996
 
 

The Company owns 688,800 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 $744,000, the market value at June 30, 2004. The difference between the cost of $9,000 and market value of these securities, net of $294,000 in deferred taxes, or $441,000 is classified as a component of accumulated other comprehensive income included in stockholders’ equity.
 
  7  
 
 
The Company owns 1,344,218 shares of Innodata, a provider of digital content outsourcing services. The Company carries the investment at $4,948,000, the market value at June 30, 2004. The difference between the cost of $1,290,000 and market value of these securities, net of $1,463,000 in deferred taxes, or $2,195,000 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 equity and option positions in its trading accounts during each month with covering equity and option positions that expire in succeeding months. As of June 30, 2004, trading securities had a long market value of $16,204,000 with a cost of $16,414,000, or a net unrealized loss of $210,000. Securities sold but not yet purchased, had a short market value of $52,624,000 with a cost/short proceeds of $52,600,000, or a net unrealized loss of $24,000. The Company expects that its June 30, 2004 positions will be closed during the third quarter of 2004 and that other positions with the same strategy will be established. The Company pledged its holdings in EOL and Innodata as collateral for its trading accounts. In addition, the Company’s Chairman pledged approximately 12 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 $52,000 and $25,000 for the six months ended June 30, 2004 and 2003, respectively.

At December 31, 2003, trading securities had a long market value of $14,189,000 with a cost of $14,371,000, or a net unrealized loss of $182,000. Securities sold but not yet purchased, had a short market value of $40,996,000 with a cost/short proceeds of $41,076,000, or a net unrealized gain of $80,000.
 
 6.
Earnings Per Share--Basic earnings per share is based on the weighted average number of common shares outstanding without consideration of potential common stock issuance. Diluted earnings per share is based on the weighted average number of common and potential dilutive common shares outstanding. There was no effect on earnings per share 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. The calculation did not take into account options to purchase 6,660,000 and 7,714,000 shares for the three months ended June 30, 2004 and 2003, respectively, and 7,115,000 and 7,716,000 shares for the six months ended June 30, 2004 and 2003, respectively, as they were anti-dilutive.
   

Earnings per share (in thousands, except per share)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
 
June 30
 
 
 
June 30
 
 
 
 
2004
 
 
 
2003
 
 
 
2004
 
 
 
2003
 
                                 
Net income
 
$
693
 
 
$
474
 
 
$
1,817
 
 
$
664
 
Weighted average common shares outstanding
 
 
48,882
 
 
 
50,088
 
 
 
48,929
 
 
 
50,376
 
Dilutive effect of outstanding warrants and options
 
 
9
 
 
 
      -
 
 
 
83
 
 
 
     -
 
Adjusted for dilutive computation
 
 
48,891
 
 
 
50,088
 
 
 
49,012
 
 
 
50,376
 
Basic income per share
 
 
$.01
 
 
 
$.01
 
 
 
$.04
 
 
 
$.01
 
Diluted income per share
 
 
$.01
 
 
 
$.01
 
 
 
$.04
 
 
 
$.01
 
 
  8  
 
 
7.   Accounting for Stock Options--On December 31, 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS 148 amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The adoption of SFAS 148 disclosure requirements did not have an effect on the Company's consolidated financial statements. At June 30, 2004, the Company has seven stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. No stock-based employee compensati on cost is reflected in net income, as all options granted under those plans were issued to employees and directors and had exercise prices equal to or greater than the market value of the underlying common stock on the date of grant.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months
 
Six Months
 
 
 
Ended June 30,
 
Ended June 30,
 
 
 
2004
 
2003
 
2004
 
2003
 
 
 
(in thousands, except earnings per share)
 
Net income, as reported
 
$
693
 
 
$
474
 
 
$
1,817
 
 
$
664
 
 
Deduct: Total stock-based employee compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
expense determined under fair value based method for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
all awards, net of related tax effects
 
 
(248
)
 
 
(227
)
 
 
(448
)
 
 
(464
)
 
Net income as adjusted
 
$
445
 
 
$
247
 
 
$
1,369
 
 
$
200
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted --as reported
 
 
$.01
 
 
 
$.01
 
 
 
$.04
 
 
 
$.01
 
 
Basic and diluted --as adjusted
 
 
$.01
 
 
 
$.00
 
 
 
$.03
 
 
 
$.00
 
 

In January, March and June, 2004, the Company granted five-year options to officers, directors and employees to purchase an aggregate of 1,449,650 shares at an exercise price of $1.50 per share vesting over two years. The weighted average fair value of the options was $.86 per share. The fair value of options at date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: an expected life of four years; risk free interest rate of 2.7%; expected volatility of 112%; and a zero dividend yield. The effects of applying SFAS 123 in this proforma disclosure are not indicative of future results.

8.   Segment Information--The Company is a financial services company that provides real-time financial market data, fundamental research, charting and analytical services to institutional and individual investors through dedicated telecommunication lines and the Internet. The Company also disseminates news and third-party database information from more than 100 sources worldwide. The Company 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, proTrack, for the professional institutional traders, and myTrack and TrackTrade, for the individual trader. The Company also operates Track ECN, an electronic communications network that enables traders to display and match limit orders for stocks. The Company's operations are classified in two busi ness segments: (1) market data services and trading, including ECN services, to the institutional professional investment community, and (2) Internet-based online trading and market data services to the non-professional individual investor community. The Company also engages in arbitrage trading. See Note 5.
 
  9  
 
 
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 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months
 
 
 
Six Months
 
 
 
Ended June 30,
 
 
Ended June 30,
 
 
 
2004
 
2003
 
 
2004
 
 
 
2003
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Professional Market
 
$
6,092
 
 
$
6,015
 
 
$
12,493
 
 
$
12,841
 
    Non-Professional Market
 
 
3,730
 
 
 
4,309
 
 
 
8,102
 
 
 
8,178
 
        Total
 
$
9,822
 
 
$
10,324
 
 
$
20,595
 
 
$
21,019
 
Income before unallocated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    amounts and income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Professional Market
 
$
160
 
 
$
72
 
 
$
552
 
 
$
356
 
    Non-Professional Market
 
 
470
 
 
 
677
 
 
 
1,509
 
 
 
741
 
Unallocated amounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Depreciation and amortization
 
 
(297
)
 
 
(347
)
 
 
(564
)
 
 
(723
)
    Gain on marketable securities
 
 
867
 
 
 
397
 
 
 
1,653
 
 
 
766
 
    Interest expense, net
 
 
(45
)
 
 
(8
)
 
 
(122
)
 
 
(33
)
Income before income taxes
 
$
1,155
 
 
$
791
 
 
$
3,028
 
 
$
1,107
 

9.   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 obligation 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's Chairman and CEO has a margin loan of approximately $3 million as a customer of the Company's broker-dealer which is collateralized by 12.5 million of the Company's shares owned by him with a market value of $13.4 million as of June 30, 2004, and which is also subject to such indemnity by the Company in t he event the clearing broker were to sustain losses.
 
  10  
 
 
The Company and its clearing broker seek to control the risks associated with customer activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company and its clearing broker monitor required margin levels daily and, pursuant to such guidelines, require the customer to deposit additional collateral or to reduce positions when necessary.

10. 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 Track Data Securities Corp. ("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 June 30, 2004, TDSC was required to maintain minimum net capital, in accordance with SEC rules, of $1 million and had total net capital of $3,073,000, or approximately $2,073,000 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.

11. Comprehensive income is as follows (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
 
 
June 30,
 
 
 
2004
 
2003
 
 
 
2004
 
2003
 
Net income
 
$
693
 
 
$
474
 
 
 
 
$
1,817
 
 
$
664
 
 
Reclassification adjustment for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
gain on marketable securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- net of taxes
 
 
(55
)
 
 
(2
)
 
 
 
 
(319
)
 
 
(2
)
 
Unrealized (loss) gain on marketable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
securities-net of taxes
 
 
(164
)
 
 
461
 
 
 
 
 
(507
)
 
 
116
 
 
   
   
       
   
   
Comprehensive income
 
$
474
 
 
$
933
 
 
 
 
$
991
 
 
$
778
 
 

12. Dividends--On February 19, 2004, the Company declared a cash dividend of $.01 per common share payable on March 22, 2004 to holders of record on March 8, 2004. The Board expects to consider future dividends semi-annually, based on such factors as the Company's earnings, financial condition, cash requirements, future prospects and other factors.
 
  11  
 
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 co mpetitors, 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.


Track Data Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Business

    Track Data Corporation (the "Company") is a financial services company that provides real-time financial market data, fundamental research, charting and analytical services to institutional and individual investors through dedicated telecommunication lines and the Internet. The Company also disseminates news and third-party database information from more than 100 sources worldwide. The Company owns Track Data Securities Corp. ("TDSC"), 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, proTrack, for the professional institutional traders, and myTrack and TrackTrade, for the individual trader. The Company also operates Track ECN, an electronic communications network that enables traders to display and match limit orders for stocks. The Company's operations are classified in two business segments: (1) Professional Market -- Market data services and trading, including ECN services, to the institutional professional investment community, and (2) Non-Professional Market -- Internet-based online trading and market data services to the non-professional individual investor community. The Company also engages in arbitrage trading.

Relevant Factors

    The Company's Professional Market segment revenues experienced significant declines during the last three years from a combination of staffing reductions in the securities industry, the use by customers of internally developed services, or lower priced services offered by the Company or other vendors. This trend has continued in 2004. Revenues from Track ECN declined dramatically in 2003 principally from the introduction of Nasdaq's SuperMontage trading system in late 2002. In March 2004, Nasdaq eliminated the preferencing of market makers over ECNs in SuperMontage. It is anticipated that this change could result in increased revenues for the Track ECN in 2004. Track ECN profit margins are very low and significant volume would have to be realized to have an impact on the results of operations. The Company anticipates obtaining approval for self-clearing of its ECN business in an effort to decrease costs associated wit h ECN revenues. The Company has recently focused more attention to attracting professional trading customers to its online trading business in an effort to increase overall revenues and profits.
 
  12  
 
    The Non-Professional Market segment revenues increased during the second half of 2003 and the first quarter of 2004, but have been declining since then. The Company is expecting to grow revenues in this segment by offering additional services such as foreign stock trading which is expected in the second half of 2004. The Company presently offers trading of U.S. based stocks, options, e-mini futures and recently introduced trading in foreign currency.

    The trading and market data services for both segments require the Company to maintain a market data ticker plant on a 24/7 basis, as well as all back office trading functions. The Company's focus is to increase revenues in both segments, as the underlying costs of maintaining the operations and back office will not increase commensurate with any revenue increase allowing greater operating margins on incremental revenues.


Results of Operations

Three Months ended June 30, 2004 and 2003

    Revenues for the three months ended June 30, 2004 and 2003 were $9,822,000 and $10,324,000, respectively, a decrease of 5%. The Company’s Professional Market segment had revenues for the three months ended June 30, 2004 and 2003 of $6,092,000 and $6,015,000, respectively, an increase of 1% for this segment. The Company’s Non-Professional Market segment had revenues of $3,730,000 and $4,309,000, respectively, for the three months ended June 30, 2004 and 2003, a decrease of 13% for this segment. Since 2001, the Company has experienced a decline in revenues from its market data services to the Professional Market segment due principally to staffing reductions in the securities industry, the use by customers of internally developed services, or lower priced services that are offered by the Company or other vendors. Management expects this trend to continue through 2004 negatively impacting revenues and profits. During the second quarter of 2004 revenues from Track ECN and the Company’s Newsware division offset the decline in market data revenues. The Company's Non-Professional segment revenues declined in the second quarter of 2004 compared to the second quarter of 2003 due to lower trading volume.

    Direct operating costs were $5,688,000 for the three months ended June 30, 2004 and $6,029,000 for the similar period in 2003, a decrease of 6%. Direct operating costs as a percentage of revenues were 58% in 2004 and 2003. Without giving effect to unallocated depreciation and amortization expense, the Company’s Professional Market segment had $3,594,000 and $3,731,000 of direct costs for the three months ended June 30, 2004 and 2003, respectively, a decrease of 4%. Direct operating costs as a percentage of revenues for the Professional segment were 59% in 2004 and 62% in 2003. Without giving effect to unallocated depreciation and amortization expense, the Company’s Non-Professional Market segment had $1,865,000 and $2,017,000 in direct costs for the three months ended June 30, 2004 and 2003, respectively, a decrease of 8%. Direct operating costs as a percentage of revenues for the Non-Professional segment we re 50% in 2004 and 47% in 2003. The decreased dollars in the Non-Professional segment reflects a realization of cost cutting measures in its trading operations, however, trading revenues declined at a greater rate. Direct operating costs include direct payroll, direct telecommunication costs, computer supplies, depreciation, equipment lease expense and the amortization of software development costs, costs of clearing, back office payroll and other direct broker-dealer expenses and ECN customer commissions and clearing. Certain direct operating costs are allocated to each segment based on revenues.
 
  13  
 
    Selling and administrative expenses were $3,648,000 and $3,837,000 in the 2004 and 2003 periods, respectively, a decrease of 5%. Selling and administrative expenses as a percentage of revenues was 37% in 2004 and 2003. Without giving effect to unallocated depreciation and amortization expense, selling and administrative expenses for the Professional Market segment were $2,203,000 and $2,188,000 in the 2004 and 2003 periods, respectively, an increase of 1%. For the Professional Market segment selling and administrative expenses as a percentage of revenues was 36% in 2004 and 2003. Without giving effect to unallocated depreciation and amortization expense, selling and administrative expenses for the Non-Professional segment were $1,346,000 and $1,583,000 in the 2004 and 2003 periods, respectively, a decrease of 15%. For the Non-Professional segment selling and administrative expense as a percentage of revenue was 36% in 2004 and 37% in 2003. The decrease in dollars was due to a realization of cost cutting in all Non-Professional service lines. Certain selling and administrative expenses are allocated to each segment based on revenues.

    Marketing and advertising costs were $153,000 in 2004 and $56,000 in 2003. The Professional Market segment spent $135,000 in 2004 and $24,000 in 2003. The Non-Professional segment incurred marketing costs of $18,000 in 2004 and $32,000 in 2003.

    The Professional Market segment realized $160,000 in income before unallocated amounts and income taxes in 2004 compared to income of $72,000 in 2003. The Non-Professional Market segment realized $470,000 in 2004 and $677,000 in income in 2003 before unallocated amounts and income taxes.

    In 2004 and 2003, the Company recognized a gain of $867,000 and $397,000, respectively, on the sale of certain shares of Innodata Corporation ($98,000 in 2004), and from other marketable securities due to its arbitrage trading strategy.

    Net interest expense in 2004 was $45,000 compared to net interest expense of $8,000 in 2003. The increase in interest expense in 2004 is due principally to higher levels of margin debt in connection with the Company's arbitrage trading program.

    As a result of the above-mentioned factors, the Company realized net income of $693,000 in the 2004 period compared to $474,000 in 2003.

Six Months ended June 30, 2004 and 2003

    Revenues for the six months ended June 30, 2004 and 2003 were $20,595,000 and $21,019,000, respectively, a decrease of 2%. The Company’s Professional Market segment had revenues for the six months ended June 30, 2004 and 2003 of $12,493,000 and $12,841,000, respectively, a decrease of 3% for this segment. The Company’s Non-Professional Market segment had revenues of $8,102,000 and $8,178,000, respectively, for the six months ended June 30, 2004 and 2003, a decrease of 1% for this segment. Since 2001, the Company has experienced a decline in revenues from its market data services to the Professional Market segment due principally to staffing reductions in the securities industry, the use by customers of internally developed services, or lower priced services that are offered by the Company or other vendors. Management expects this trend to continue through 2004, negatively impacting revenues and profits. Duri ng the six months ended June 30, 2004, increased revenues from Track ECN and the Company’s Newsware division principally offset declines in market data revenues.

    Direct operating costs were $11,423,000 for the six months ended June 30, 2004 and $12,383,000 for the similar period in 2003, a decrease of 8%. Direct operating costs as a percentage of revenues were 55% in 2004 and 59% in 2003. Without giving effect to unallocated depreciation and amortization expense, the Company’s Professional Market segment had $7,056,000 and $7,291,000 of direct costs for the six months ended June 30, 2004 and 2003, respectively, a decrease of 3%. Direct operating costs as a percentage of revenues for the Professional segment were 56% in 2004 and 57% in 2003. Without giving effect to unallocated depreciation and amortization expense, the Company’s Non-Professional Market segment had $3,970,000 and $4,533,000 in direct costs for the six months ended June 30, 2004 and 2003, respectively, a decrease of 12%. Direct operating costs as a percentage of revenues for the Non-Professional segmen t were 49% in 2004 and 55% in 2003. The decreased dollars and percentage in the Non-Professional segment reflects a realization of cost cutting measures in its trading operations.

 
  14  
 
 
    Selling and administrative expenses were $7,407,000 and $8,128,000 in the 2004 and 2003 periods, respectively, a decrease of 9%. Selling and administrative expenses as a percentage of revenues was 36% in 2004 and 39% in 2003. Without giving effect to unallocated depreciation and amortization expense, selling and administrative expenses for the Professional Market segment were $4,640,000 and $5,138,000 in the 2004 and 2003 periods, respectively, a decrease of 10%. For the Professional Market segment selling and administrative expenses as a percentage of revenues was 37% in 2004 and 40% in 2003. The dollar and percentage decline was due to selling and administrative expenses associated with the revenues from the Track ECN. Without giving effect to unallocated depreciation and amortization expense, selling and administrative expenses for the Non-Professional segment were $2,600,000 and $2,826,000 in the 2004 and 2003 per iods, respectively, a decrease of 8%. For the Non-Professional segment selling and administrative expense as a percentage of revenue was 32% in 2004 and 35% in 2003.

    Marketing and advertising costs were $268,000 in 2004 and $134,000 in 2003. The Professional Market segment spent $244,000 in 2004 and $55,000 in 2003. The Non-Professional segment incurred marketing costs of $24,000 in 2004 and $79,000 in 2003.

    The Professional Market segment realized $552,000 in income before unallocated amounts and income taxes in 2004 compared to income of $356,000 in 2003. The Non-Professional Market segment realized $1,509,000 in income in 2004 and $741,000 in 2003 before unallocated amounts and income taxes.

    In 2004 and 2003, the Company recognized a gain of $1,653,000 and $766,000, respectively, on the sale of certain shares of Innodata Corporation ($542,000 in 2004), and from other marketable securities due to its arbitrage trading strategy.

    Net interest expense in 2004 was $122,000 compared to net interest expense of $33,000 in 2003. The increase in interest expense in 2004 is due principally to higher levels of margin debt in connection with the Company's arbitrage trading program.

    As a result of the above-mentioned factors, the Company realized net income of $1,817,000 in the 2004 period compared to $664,000 in 2003.

Liquidity and Capital Resources

    During the six months ended June 30, 2004, cash used in operating activities was $1,065,000 compared to cash provided by operating activities of $3,059,000 for the same period in 2003. The decrease in 2004 was principally due to lower collections of receivables and increased payments of liabilities, principally for income taxes and marketable securities. Cash flows provided by investing activities in 2004 was $374,000 compared to $57,000 in 2003. The increase in 2004 was principally due to the sales of Innodata common stock. Cash flows used in financing activities was $1,207,000 in 2004, compared to $2,625,000 in 2003, principally from reduced purchases of treasury stock and debt payments, offset by dividends paid in 2004.
 
  15  
 
    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 market data service receivables and is required to maintain a compensating balance of 10% of the outstanding loans. At June 30, 2004, the Company had no outstanding borrowings under the line. Borrowings available on the line of credit at June 30, 2004 were $710,000.

    The Company has significant positions in stocks and options and receives significant proceeds from the sale of trading securities sold but not yet purchased under the arbitrage trading strategy described in Note 5 of Notes to Consolidated Financial Statements. The Company expects that its June 30, 2004 positions will be closed during the third quarter of 2004 and that other positions with the same strategy will be established. The level of trading activity is substantially dependent on the value of the shares of Track Data pledged by its CEO, and Innodata and Edgar Online common stock that is held as collateral.

    Since August 2001, the Company has experienced a decline in revenues and profits from its Professional Market segment due principally to staffing reductions in the securities industry, the use by customers of internally developed services, or lower priced services that are offered by the Company or other vendors. This downtrend is continuing in 2004.

    During the six months ended June 30, 2004, the Company paid a dividend of $.01 per common share on March 22, 2004 to its stockholders of $490,000. The Company authorized a buy back in June, 2003 of up to 2 million shares (1.5 million shares remain under the buyback at June 30, 2004) and plans to consider dividends semi-annually. Both of these expenditures will be based on a review of then current operations and cash flow requirements. No major capital expenditures are anticipated beyond the normal replacement of equipment and additional equipment to meet customer requirements. The Company believes that borrowings available under the Company’s line of credit, its present cash position, and any cash that may be generated from operations are sufficient for the Company’s cash requirements for the next 12 months.

    The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the Company's financial position.

    In connection with the Company's broker-dealer operations, certain customer securities activities are transacted on a margin basis. The Company's clearing broker extends credit to the Company's customers, subject to various regulatory margin requirements, collateralized by cash and securities in the customers' accounts. In the event of a decline in the market value of the securities in a margin account, the Company is required to either obtain additional collateral from the customer 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's Chairman and CEO has a margin loan of approximately $3 million as a customer of the Company's broker-dealer that is collateralized by 12.5 mi llion of the Company's shares owned by him with a market value at June 30, 2004 of $13.4 million, and which is also subject to such indemnity by the Company in the event the clearing broker were to sustain losses. The Company and its clearing broker seek to control the risks associated with customer activities by monitoring required margin levels daily and, pursuant to such guidelines, requiring the customer to deposit additional collateral or to reduce positions when necessary.
 
  16  
 
Contractual Obligations and Commitments

    At December 31, 2003, the Company had operating lease obligations aggregating $1,534,000 pursuant to which payments are due as follows: $867,000 in 2004; $337,000 in 2005; $212,000 in 2006; $87,000 in 2007; and $31,000 in 2008. There are no significant changes in such commitments as of June 30, 2004.

    In connection with the Company's broker-dealer operations, certain customer securities activities are transacted on a margin basis. 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's Chairman and CEO has a margin loan of approximately $3 million as a customer of the Company's broker-dealer, which is carried by its clearing broker, that is collateralized by 12.5 million of the Company's shares owned by him with a market value at June 30, 2004 of $13.4 million, and which is also subject to such indemnity in the event the clearing broker were to sustain losses.

Critical Accounting Policies

    Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results when different assumptions are utilized. We believe that our principal critical accounting policies are described below. For a detailed discussion on the application of these and other accounting policies, see Note A of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Revenue Recognition

    The Company recognizes revenue from market data and ECN services as services are performed. Billings in advance of services provided are recorded as unearned revenues. All other revenues collected in advance of services are deferred until services are rendered. The Company earns commissions as an introducing broker and for licensing its trading system for the transactions of its customers. Commissions and related clearing expenses are recorded on a trade-date basis as securities transactions occur.

Marketable Securities

    The Company classifies its investments in Innodata and Edgar Online as available for sale securities. The Company carries these investments at fair value, based on quoted market prices, and unrealized gains and losses, net of taxes, are included in accumulated other comprehensive income, which is reflected as a separate component of stockholders' equity. Realized gains and losses are recognized in the consolidated statement of income when realized. The Company reviews these holdings on a regular basis to evaluate whether or not each security has experienced an other-than-temporary decline in fair value. If the Company believes that an other-than-temporary decline exists in the marketable securities, the equity investments are written down to market value and an investment loss is recorded in the consolidated statement of income.

 
  17  
 
    Long-lived Assets

    In assessing the recoverability of the Company's goodwill and other intangibles, the Company must make assumptions regarding estimated undiscounted expected future cash flows to be generated by the assets to determine the fair value of the respective assets. If these estimated cash flows and related assumptions change in the future, the Company may be required to record an impairment charge in the consolidated statement of income.

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.

 
  18  
 
ITEM 3.    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 June 30, 2004, there was no outstanding balance under the credit facility. Changes in the prime interest rate during fiscal 2004 will have a positive or negative effect on the Company's interest expense. Such exposure will increase should the Company maintain higher levels of borrowing during 2004.

    The Company has significant positions in stocks and options and receives significant proceeds from the sale of trading securities sold but not yet purchased under the arbitrage trading strategy described in Note 5 of Notes to Consolidated Financial Statements. The Company's arbitrage trading strategy is to fully cover its open positions during each month with covering option positions that expire in succeeding months. The Company expects that its June 30, 2004 positions will be closed during the third quarter of 2004 and that other positions with the same strategy will be established. In connection with the arbitrage trading program, the Company incurs margin loans. The Company is exposed to interest rate change market risk with respect to these margin loans. Such exposure will increase should the Company maintain higher levels of borrowing during 2004. The level of trading in the arbitrage trading account is dependen t on the value of Track Data common stock pledged by its CEO, and Innodata and Edgar Online common stock which is used as collateral. The market value of such securities is dependent on future market conditions for these companies over which the Company has little or no control.

    The Company has investments in Innodata and Edgar Online, 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.

ITEM 4.     CONTROLS AND PROCEDURES

    An evaluation has been carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and the operation of our "disclosure controls and procedures" (as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2004 ("Evaluation Date"). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the disclosure controls and procedures are reasonably designed and effective to ensure that (i) information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) such information is accumulated and communicated to our management, inc luding our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
  19  
 
PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings . Not Applicable

Item 2.    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer Purchases of Equity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
of Shares
 
 
 
 
 
 
Number of
 
 
 
 
 
Purchased as
 
Maximum Number
 
 
Shares of
 
Average
 
Part of
 
of Shares That May
Period
 
Common Stock
 
Price Paid
 
Publicly
 
Yet be Purchased
Purchased
 
Purchased
 
Per Share
 
Announced Plans
 
Under the Plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
April, 2004
 
 
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May, 2004
 
 
82,360
 
 
 
$1.00
 
 
 
82,360
 
 
 
1,771,011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June, 2004
 
 
212,974
 
 
 
$1.10
 
 
 
212,974
 
 
 
1,558,037
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
295,334
 
 
 
 
 
 
 
295,334
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On June 3, 2003, the Board of Directors approved a buy back of up to 2 million shares of the Company’s Common Stock in market transactions from time to time.

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. Not Applicable

Item 6.    Exhibits and Report on Form 8-K

   (a)     Exhibits .
                31.1    Certification of Barry Hertz pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
                31.2    Certification of Martin Kaye pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
                32     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

          (b)    Reports on Form 8-K filed during the second quarter of 2004.
 
On April 23, 2004, the Company filed a report on Form 8-K regarding a Wells Notice that its CEO received from the Securities and Exchange Commission.

During the second quarter of 2004, the Company filed a report on Form 8-K on May 13, 2004, that included the Company’s first quarter earnings release.


  20  

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:
8/13/04
 
/s/
 
 
 
Barry Hertz
 
 
 
Chairman of the Board
 
 
 
Chief Executive Officer
 
 
 
 
Date:
8/13/04
 
/s/
 
 
 
Martin Kaye
 
 
 
Chief Operating Officer
 
 
 
Principal Financial Officer