U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission File Number 0-24634
TRACK DATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-3181095
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
56 Pine Street
New York, NY 10005
(Address of principal executive offices)
(212) 943-4555
(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 April 30, 2002 there were
52,951,034 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 2-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See pages 10-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See page 13
PART ll. OTHER INFORMATION
See page 14
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
2002 2001
--------- -------
Unaudited Derived
from
audited
financial
statements
ASSETS
CASH AND EQUIVALENTS $ 4,748 $ 5,687
ACCOUNTS RECEIVABLE - net 1,651 1,813
DUE FROM CLEARING BROKER 747 735
DUE FROM BROKER 52,295 14,813
MARKETABLE SECURITIES 39,431 45,623
FIXED ASSETS - at cost (net of accumulated depreciation) 4,192 4,583
EXCESS OF COST OVER NET ASSETS ACQUIRED 1,900 1,920
OTHER ASSETS 1,780 1,746
-------- -------
TOTAL $106,744 $76,920
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 3,556 $ 3,099
Note payable - bank 1,868 1,865
Notes payable - other 929 918
Trading securities sold but not yet purchased 78,830 46,409
Capital lease obligations 343 480
Net deferred income tax liabilities 854 805
Other liabilities, including income taxes 151 183
-------- -------
Total liabilities 86,531 53,759
-------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $.01 par value;
300,000,000 shares authorized; issued and
outstanding - 53,131,810 shares in 2002 and
54,739,695 shares in 2001 531 547
Additional paid-in capital 16,115 18,585
Accumulated other comprehensive income 3,141 3,676
Retained earnings 426 353
-------- -------
Total stockholders' equity 20,213 23,161
--------- -------
TOTAL $106,744 $76,920
======== =======
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands, except earnings per share)
(unaudited)
2002 2001
------- --------
SERVICE FEES AND REVENUE $13,136 $17,391
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COSTS AND EXPENSES:
Direct operating costs 6,467 7,914
Selling and administrative expenses 4,835 4,937
Marketing and advertising 289 329
Gain on sale of investment in affiliate - (556)
Loss (gain) on marketable securities 1,053 (267)
Interest expense (income) - net 370 (45)
------- -------
Total 13,014 12,312
------- -------
INCOME BEFORE EQUITY IN NET INCOME
OF AFFILIATE AND INCOME TAXES 122 5,079
EQUITY IN NET INCOME OF AFFILIATE - 276
------- -------
INCOME BEFORE INCOME TAXES 122 5,355
INCOME TAXES 49 -
------- -------
NET INCOME $ 73 $ 5,355
======= =======
BASIC AND DILUTED NET INCOME PER SHARE $.00 $.08
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 53,904 63,981
======= =======
ADJUSTED DILUTIVE SHARES OUTSTANDING 54,856 64,195
======= ======
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY AND COMPREHENSIVE LOSS
THREE MONTHS ENDED MARCH 31, 2002
(in thousands)
(unaudited)
Accumulated
Additional Other Compre-
Common Paid-in Comprehensive hensive
Stock Capital Income Deficit Loss
BALANCE, JANUARY 1, 2002 $547 $18,585 $3,676 $353
Net income 73 $ 73
Stock options and warrants
exercised 2 176
Purchase and retirement of
treasury stock (11) (2,296)
Contribution of stock by
Chairman (7) 7
Tax effect of stock options
exercised (357)
Reclassification adjustment for
gain on marketable securities -
net of taxes (52)
Unrealized loss on marketable
securities - net of taxes (535) (535)
-----
Comprehensive loss $(514)
=====
---- ------- ------ ----
BALANCE, MARCH 31, 2002 $531 $16,115 $3,141 $426
==== ======= ====== ====
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands)
(unaudited)
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 73 $ 5,355
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 495 711
Equity in net income of affiliate - (276)
Gain on sale of Innodata common stock (59) (556)
Deferred taxes 49 -
Changes in operating assets and liabilities:
Accounts receivable and due from clearing broker 150 (230)
Due from broker (37,497) -
Marketable securities 5,259 (1,593)
Other assets (57) 210
Accounts payable and accrued expenses 457 234
Securities sold, but not yet purchased 32,421 17,717
Other liabilities (41) (8)
-------- -------
Net cash provided by operating activities 1,250 21,564
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (93) (519)
Proceeds from sale of Innodata and Edgar Online common stock 101 649
Loans from others - 5
-------- -------
Net cash provided by investing activities 8 135
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations (137) (272)
Net borrowings on note payable - bank 3 12
Net borrowings on notes payable - other 12 19
Purchase of treasury stock (2,291) (1,774)
Proceeds from exercise of stock options 188 27
Net proceeds (disbursements) on loans from employee savings program 27 (44)
-------- -------
Net cash used in financing activities (2,198) (2,032)
-------- -------
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH 1 3
-------- -------
NET (DECREASE) INCREASE IN CASH (939) 19,670
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 5,687 6,506
-------- -------
CASH AND EQUIVALENTS, END OF PERIOD $ 4,748 $26,176
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 428 $ 75
Income taxes 45 17
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(unaudited)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position as of March 31, 2002, and the results of operations and of cash
flows for the three months ended March 31, 2002 and 2001. The results of
operations for the three months ended March 31, 2002 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, 2001 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, 2001 financial statements.
2. During the three months ended March 31, 2002, options to purchase 178,450
shares were exercised at prices of $0.50 to $1.50, aggregating net proceeds
to the Company of $178,000.
3. During the three months ended March 31, 2002, 1,136,335 shares of the
Company's common stock were purchased at a cost of $2,307,000.
4. 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 $79,000 and $77,000 for the
three months ended March 31, 2002 and 2001, respectively.
5. Advertising costs, charged to operations when incurred, were $289,000 and
$329,000 for the three months ended March 31, 2002 and 2001, respectively.
6. Until May 7, 2001, when the Company's Chairman and CFO resigned as officers
and directors of Innodata, the Company accounted for its investment in
Innodata using the equity method under which the Company's share of the
affiliate's earnings is included in its results of operations. The
Company's investment in Innodata has been accounted for as available for
sale securities after such date. As of April 30, 2002, the Company owned
1,904,656 shares of Innodata common stock, or approximately 9% of its
outstanding common stock.
7. Marketable securities consists of the following (in thousands):
March 31, December 31,
2002 2001
Edgar Online - Available for sale securities - at market $ 2,302 $ 2,209
Innodata - Available for sale securities - at market 4,774 5,800
Trading securities - at market 32,355 37,614
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Marketable securities $39,431 $45,623
======= =======
Trading securities sold but not yet purchased - at market $78,830 $46,409
======= =======
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 $2,302,000 the market value at March 31, 2002.
The difference between the cost of $9,000 and fair market value of these
securities, net of $918,000 in deferred taxes, or $1,375,000 is classified
as a component of accumulated other comprehensive income included in
stockholders' equity.
The Company owns 1,909,656 shares of Innodata, a provider of digital
content outsourcing services. The Company carries the investment at
$4,774,000, the market value at March 31, 2002. The difference between the
cost of $1,831,000 and fair market value of these securities, net of
$1,177,000 in deferred taxes, or $1,766,000 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 positions in its trading accounts during each month with
covering positions that expire in succeeding months. As of March 31, 2002,
trading securities had a long market value of $32,355,000 with a cost of
$30,025,000, or a net unrealized gain of $2,330,000. Securities sold but
not yet purchased, had a short market value of $78,830,000 with a
cost/short proceeds of $76,959,000, or a net unrealized loss of $1,871,000.
The Company pledged its holdings in EOL and Innodata as collateral for its
trading accounts. In addition, the Company's Chairman pledged approximately
17 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 $59,000 for the three months ended March 31, 2002.
The Company has significant positions in stocks and options and receives
significant proceeds 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 succeeding months. The March 31, 2002 positions were closed during the
second quarter of 2002 and other positions with the same strategy have been
established.
In the fourth quarter of 2001, the Company expanded its arbitrage trading
program to include a greater risk profile trading program. The greater risk
portion of the trading program incurred a pre-tax loss of $1,400,000 in the
first quarter of 2002. The Company is continuing its arbitrage trading
program but has discontinued the greater risk trading program. The
Company's Chairman contributed 650,000 shares of Company stock owned by him
to the capital of the Company upon discontinuance of this program.
At December 31, 2001, trading securities have a long market value of
$37,614,000 with a cost of $38,325,000, or a net unrealized loss of
$711,000. Securities sold but not yet purchased, have a short market value
of $46,409,000 with a cost/short proceeds of $47,129,000, or a net
unrealized gain of $720,000.
8. Earnings Per Share--Basic earnings per share is based on the weighted
average number of common shares outstanding without consideration of
potential common stock. 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.
9. Segment Information--The Company is a financial services company that owns
Track Data Securities Corp., a registered securities broker-dealer and
member of the National Association of Securities Dealers, Inc. The Company
provides a proprietary, fully integrated Internet-based online trading and
market data system, myTrack, for the individual trader and proTrack, for
the professional institutional traders. The Company 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's operations are classified in two business
segments: Internet-based online trading and market data services to the
non-professional individual investor community, and online trading and
market data services to the institutional professional investment
community. The Company also engages in arbitrage trading. See Note 7. The
Company commenced operation of its Track ECN (Electronic Communications
Network) in the second quarter of 2002.
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 Ended March 31,
Revenues 2002 2001
Professional Market $ 7,557 $ 8,740
Non-Professional Market 5,579 8,651
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Total $13,136 $17,391
======= =======
Income before unallocated amounts, equity in net
income of affiliate and income taxes:
Professional Market $ 1,416 $ 2,236
Non-Professional Market 612 2,537
Unallocated amounts:
Depreciation and amortization (483) (562)
(Loss) gain on marketable securities and
sale of investment in affiliate (1,053) 823
Interest (expense) income, net (370) 45
------- -------
Income before equity in net income of
affiliate and income taxes 122 5,079
Equity in net income of affiliate - 276
------- -------
Income before taxes $ 122 $ 5,355
======= =======
10. 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 seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. The Company
monitors required margin levels daily and, pursuant to such guidelines,
requires the customer to deposit additional collateral or to reduce
positions when necessary.
11. Net Capital Requirements--The SEC, NASD, and various other regulatory
agencies have stringent rules requiring the maintenance of specific levels
of net capital by securities brokers, including the SEC's uniform net
capital rule, which governs TDSC. Net capital is defined as assets minus
liabilities, plus other allowable credits and qualifying subordinated
borrowings less mandatory deductions that result from excluding assets that
are not readily convertible into cash and from valuing other assets, such
as a firm's positions in securities, conservatively. Among these deductions
are adjustments in the market value of securities to reflect the
possibility of a market decline prior to disposition.
As of March 31, 2002, TDSC was required to maintain minimum net capital, in
accordance with SEC rules, of $1 million and had total net capital of
$1,233,000, or approximately $233,000 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.
12. Comprehensive (loss) income is as follows (in thousands):
Three Months Ended
March 31,
2002 2001
Net income $ 73 $5,355
Unrealized loss on marketable
securities-net of taxes (535) (126)
Reclassification adjustment for gain
on marketable securities - net of taxes (52) -
----- ------
Comprehensive (loss) income $(514) $5,229
===== ======
Track Data Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months ended March 31, 2002 and 2001
Revenues for the three months ended March 31, 2002 and 2001 were
$13,136,000 and $17,391,000, respectively, a decrease of 24% The Company's
Professional Market segment had revenues for the three months ended March 31,
2002 and 2001 of $7,557,000 and $8,740,000, respectively, a decrease of 14% for
this segment. The Company's Non-Professional Market segment had revenues of
$5,579,000 and $8,651,000, respectively, for the three months ended March 31,
2002 and 2001, a decrease of 36% for this segment. Since August 2001, the
Company has experienced a decline in revenues from its Professional Market
segment due principally to customers' staffing reductions which has continued
during the first half of 2002 negatively impacting revenues and profits. In
addition, the Company has also experienced a significant decline in revenues
from its retail trading business. The rate of decline increased in the fourth
quarter of 2001 as a result of new day trader rules instituted by the NASD.
These rules qualified a large number of customers as day traders and required
that greater equity balances be maintained by such customers.
Direct operating costs were $6,467,000 for the three months ended March 31,
2002 and $7,914,000 for the similar period in 2001, a decrease of 18%. Direct
operating costs as a percentage of revenues were 49% in 2002 and 46% in 2001.
Without giving effect to unallocated depreciation and amortization expense, the
Company's Professional Market segment had $3,227,000 and $3,664,000 of direct
costs for the three months ended March 31, 2002 and 2001, respectively. Direct
operating costs as a percentage of revenues for the Professional segment were
43% in 2002 and 42% in 2001. The Company's Non-Professional Market segment had
$2,847,000 and $3,777,000 in direct costs for the three months ended March 31,
2002 and 2001, respectively. Direct operating costs as a percentage of revenues
for the Non-Professional segment were 51% in 2002 and 44% in 2001. The increased
percentage in 2002 is due to certain fixed costs that could not be reduced
commensurate with the reduced revenues. 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.
Selling and administrative expenses were $4,835,000 and $4,937,000 for the
three months ended March 31, 2002 and 2001, respectively, a decrease of 2%.
Selling and administrative expenses as a percentage of revenues was 37% in 2002
and 28% in 2001. Without giving effect to unallocated depreciation and
amortization expense, selling and administrative expenses for the Professional
Market segment were $2,697,000 and $2,831,000 in the 2002 and 2001 periods,
respectively, a decrease of 5%. For the Professional Market segment selling and
administrative expenses as a percentage of revenues was 36% in 2002 and 32% in
2001. Selling and administrative expenses for the Non-Professional segment were
$2,049,000 and $2,017,000 in the 2002 and 2001 periods, respectively, an
increase of 2%. For the Non-Professional segment selling and administrative
expense as a percentage of revenue was 37% in 2002 and 23% in 2001. The increase
in selling and administrative expenses as a percentage of revenue in 2002 is due
to certain fixed costs that could not be reduced commensurate with the reduced
revenues.
Marketing and advertising costs were $289,000 in 2002 and $329,000 in 2001.
The Non-Professional segment of the Company incurred $71,000 in 2002 and
$320,000 in 2001. The Professional Market segment spent $218,000 in 2002 and
$9,000 in 2001. The increase in 2002 was attributable to marketing related to
the Company's new proTrack online trading for professionals.
The Professional Market segment realized $1,416,000 in income before
unallocated amounts, equity in net income of affiliate and income taxes in 2002
compared to $2,236,000 in 2001. The Non-Professional Market segment realized
income of $612,000 in 2002 and $2,537,000 in 2001 before unallocated amounts,
equity in net income of affiliate and income taxes.
In 2002, the Company realized a loss of $1,053,000 and in 2001, a gain of
$823,000 on the sale of certain shares of Edgar Online, Inc., Innodata
Corporation and other marketable securities. In the fourth quarter of 2001, the
Company expanded its arbitrage trading program to include a greater risk profile
trading program. The greater risk portion of the trading program incurred a
pre-tax loss of $1,400,000 in the first quarter of 2002. The Company is
continuing its arbitrage trading program but has discontinued the greater risk
trading program.
Interest expense in 2002 was $370,000 compared to interest income of
$45,000 in 2001. The increase in 2002 is due principally to interest on margin
debt in connection with the Company's arbitrage trading program.
As a result of the above mentioned factors, the Company realized income
before equity in net income from an affiliate and income taxes of $122,000 in
the 2002 period compared to $5,079,000 in 2001.
The equity in net income from an affiliate, Innodata Corporation, was
$276,000 in 2001.
Taxes were provided at an anticipated annualized rate of 40% for 2002.
There was no taxes in the 2001 period as the Company had established a valuation
allowance with respect to future use of its net operating loss carryforwards.
The Company realized net income of $73,000 in 2002 compared to $5,355,000
in 2001.
Liquidity and Capital Resources
During the three months ended March 31, 2002, cash provided by operating
activities was $1,250,000 compared to $21,564,000 in 2001. The decrease in 2002
was due to reduced operating income and net purchases of trading securities
compared to the 2001 period that included net proceeds from marketable
securities of approximately $16,000,000. Cash flows provided by investing
activities in 2002 was $8,000 compared to $135,000 in 2001 due to reduced
purchases of fixed assets and lower proceeds from sales of Innodata and Edgar
Online common stock. Cash flows used in financing activities, principally from
the purchase of treasury stock, was $2,198,000 in 2002 compared to $2,032,000
used in the 2001 period.
The Company has a line of credit with a bank. The line is collateralized by
the assets of the Company and is guaranteed by its Chairman. Interest is charged
at 1.75% above the bank's prime rate and is due on demand. The Company may
borrow up to 80% of eligible accounts receivable and is required to maintain a
compensating balance of 10% of the outstanding loans. At March 31, 2002, the
Company had outstanding borrowings under the line of $1,868,000. The Company
believes that its line of credit is sufficient for the Company's present cash
requirements.
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 trading strategy described in Note 7 of Notes to Condensed
Consolidated Financial Statements. The March 31, 2002 positions were closed
during the second quarter of 2002 and other positions with the same strategy
have been established. In the fourth quarter of 2001, the Company expanded its
arbitrage trading program to include a greater risk profile trading program. The
greater risk portion of the trading program incurred a pre-tax loss of
$1,400,000 in the first quarter of 2002. The Company is continuing its arbitrage
trading program but has discontinued the greater risk trading program.
Since August 2001, the Company has experienced a decline in revenues from
its Professional Market segment due principally to customers' staffing
reductions which have continued during the first half of 2002 negatively
impacting revenues and profits. In addition, the Company experienced a decline
in revenues from its retail trading business in the fourth quarter after the new
day trader rules were instituted by the NASD. These revenues have not been
replaced. The Company substantially reduced its advertising costs in 2001 and
does not expect to significantly increase advertising for 2002. During the first
quarter of 2002, the Company repurchased under its buy back program
approximately 1.1 million shares of its common stock for approximately $2.3
million. 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 or to support its working capital or other
requirements. No major capital expenditures are anticipated beyond the normal
replacement of equipment and additional equipment to meet customer requirements.
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 seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in compliance
with various regulatory and internal guidelines. The Company monitors required
margin levels daily and, pursuant to such guidelines, requires the customer to
deposit additional collateral or to reduce positions when necessary.
Inflation and Seasonality
To date, inflation has not had a significant impact on the Company's
operations. The Company's revenues are not affected by seasonality.
Disclosures in this Form 10-Q contain certain forward-looking statements,
including without limitation, statements concerning the Company's operations,
economic performance and financial condition. These forward-looking statements
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The words "believe," "expect," "anticipate" and
other similar expressions generally identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. These forward-looking statements are based
largely on the Company's current expectations and are subject to a number of
risks and uncertainties, including without limitation, changes in external
market factors, changes in the Company's business or growth strategy or an
inability to execute its strategy due to changes in its industry or the economy
generally, the emergence of new or growing competitors, various other
competitive factors and other risks and uncertainties indicated from time to
time in the Company's filings with the Securities and Exchange Commission.
Actual results could differ materially from the results referred to in the
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the results referred to in the forward-looking statements
contained in this Form 10-Q will in fact occur.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate change market risk with respect to
its credit facility with a financial institution, which is priced based on the
prime rate of interest. At March 31, 2002, $1,868,000 was outstanding under the
credit facility. Changes in the prime interest rate during fiscal 2002 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
2002.
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 trading strategy described in Note 7. 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
March 31, 2002 positions were closed during the second quarter of 2002 and other
positions with the same strategy have been established. In the fourth quarter
of 2001, the Company expanded its arbitrage trading program to include a greater
risk profile trading program. The greater risk portion of the trading program
incurred a pre-tax loss of $1,400,000 in the first quarter of 2002. The Company
is continuing its arbitrage trading program but has discontinued the greater
risk trading program.
The Company has investments in marketable securities consisting principally
of its investments in Innodata Corporation and Edgar Online, Inc., both publicly
traded companies listed on Nasdaq. The market value of such securities is
dependent on future market conditions for these companies over which the Company
has little or no control.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2 Changes in Securities. Not Applicable
Item 3. Defaults upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable
Item 5. Other Information. None
Item 6. (a) Exhibits. None
(b) There were no reports on Form 8-K filed during the first
quarter of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRACK DATA CORPORATION
Date: 5/13/02 /s/
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Barry Hertz
Chairman of the Board
Chief Executive Officer
Date: 5/13/02 /s/
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Martin Kaye
Chief Operating Officer
Principal Financial Officer