Washington, D.C. 20549

(Mark One)

x Annual report under section 13 or 15(d) of the securities exchange act of 1934

o Transition report under section 13 or 15(d) of the securities exchange act of 1934 

(Exact name of registrant as specified in its charter)

DELAWARE	22-3181095
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
95 Rockwell Place
Brooklyn, New York	11217
(Address of principal executive offices)	(Zip Code)
(718) 522-7373
(Registrant's telephone number)

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.01 par value

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 preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No x

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant's most recently completed second fiscal quarter. Based on the average bid and ask price of the Company's Common Stock on June 30, 2004 of $5.15 per share. $24,229,000.

State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

 

    Track Data Corporation (the “Company”) is a Delaware corporation that was formed in 1981. The Company maintains offices in the U.S. and Europe, with executive offices located at 95 Rockwell Place, Brooklyn, New York 11217. Its telephone number is 212-943-4555 or 718-522-7373.

    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.

    Since its inception in 1981, the Company has been providing real-time financial market data to institutional customers through the operation of its own proprietary ticker plant. In 1998, the Company began to offer financial market data to individuals through the Internet. Later, through its wholly owned broker-dealer subsidiary, TDSC, the Company combined an online trading application with its market data in its myTrack service. In 2002, trading for institutional customers was introduced with proTrack. Further, the Company commenced operations of its Track ECN. During 2003, a new low priced trading application engineered for the hyper active traders was introduced as an additional service known as TrackTrade. The Company now offers trading and market data services to all members of the financial trading community. The offerings include trading in stocks, options, e-mini futures and foreign currency. Trading in foreign stocks is expected to be added in 2005.

 

A.	ONLINE TRADING, MARKET DATA SERVICES AND ECN SERVICES TO THE INSTITUTIONAL PROFESSIONAL INVESTMENT COMMUNITY

  MarkeTrack provides domestic and international market information, dynamically updating quotelines, options and futures displays, real-time spreadsheets, tick-by-tick updating graphics, news services and third-party databases, user-defined screen layouts, access to back-office order and execution services, and over 20 years of graphical price history. It allows users to calculate theoretical values of options and determine the most beneficial investment strategy through calculating returns on alternative investments, including options and futures. Service charges range between $250 and $600 per month per user. MarkeTrack currently serves approximately 1,600 customers in trading and institutional investment management positions. Customers include floor traders, block traders, market makers, OTC traders, options specialists, head traders, arbitrageurs and hedge fund managers.

  The Company offers proTrack as a direct access state-of-the-art trading system for the professional market. Among many trading features offered by proTrack are point and click equities and options trading, direct access to market makers and ECNs, hot keys, smart order routing, reserve book, quick modification of existing orders, multiple order types and a wide variety of market data and news. proTrack offers trading through the Company's wholly-owned broker-dealer subsidiary, TDSC, clearing through Penson Financial Services, Inc., and is also available for use by other broker dealers under a service bureau arrangement. Pricing is dependent on trading volume, market data services required and necessary clearing costs.

    TDSC operates an Electronic Communications Network (“ECN”) that enables traders to display and match limit orders for stocks. The ECN allows trading of Nasdaq National Market, SmallCap, Bulletin Board and exchange-listed securities on its platform. In order to set the Track ECN apart from others, the Company has incorporated state-of-the-art trading functionality into the ECN. This functionality is normally available only on sophisticated front-end trading platforms.

    Track ECN pays subscribers who add liquidity $.0027 per share on a monthly basis and charges $.003 per share to market participants who take liquidity. With a spread between rebate and charge of $.0003 per share, the Company needs to handle a significant volume to achieve a material financial result. In an effort to keep costs at a minimum, Track ECN has applied to become a self-clearing ECN. The Company received approval from the NASD in 2004 and is presently working with DTC to gain approval to commence self-clearing of its ECN business.

    The Company’s NewsWatch service includes a high-speed consolidated news ticker, an NT-resident database with full-text indexing, access to a variety of third-party databases, and multiple domestic/international exchanges. A typical installation is approximately $300/month at the 5-user level and is scaled down with increased users at a location.

    The Company markets MarkeTrack to the premium end of the trading markets. Typical customers are institutional sales people, arbitrageurs, market makers and traders.

    MarkeTrack, proTrack, Track ECN, as well as the NewsWatch service, are marketed primarily through a dedicated sales force, including 10 full-time sales persons. All services are sold directly, often as a result of on-site presentations and service demonstrations.

    In addition to its dedicated sales force, the Company maintains relationships with a number of brokerage firms that actively sell the Company’s services to the money management side of the industry for “soft dollars.” In a soft dollar arrangement, the brokerage firm pays the Company for services delivered to the money managers. These brokerage firms are typically also customers of the Company.

    The Company has ongoing advertising, direct mail, and public relations programs to promote product recognition and educate potential new customers in its targeted markets. In addition, the services are exhibited at major industry trade shows each year.

    The Company competes with many other providers of electronically transmitted financial information. The Company competes in its service offerings to varying extents through price and quality of service.

    The Company offers its MarkeTrack service in a highly competitive market in which it competes with other distributors of financial and business information, many of which have substantially greater financial resources. The Company competes, among other things, on the basis of the quality and reliability of its data, the speed of delivery and on the flexibility of its services. In the equity, options and futures trading segments, and the investment management segment, the Company’s competitors include Bloomberg Financial and Bridge Information Systems. To a lesser degree, these Company services compete with ILX, a Thomson Financial Services company, and Quotron, a Reuters company, who dominate the retail brokerage market segment.

    The Company's proTrack service competes primarily with the Redi System offered by Goldman Sachs, Real-Tick offered by AT Financial and a proprietary system offered by Lava, Inc. There are also many proprietary systems that offer one-stop trading and limited access to other destinations, as well as many other direct access trading systems.

    The Track ECN competes with other ECNs that have substantially greater resources and have been operating for a longer period of time. The Company's competitors, among others, are Archipelago, Instinet, Island and Nasdaq/Brut.

    The Company offers its NewsWatch service in a highly competitive market in which it competes with other distributors of news information, many of which have substantially greater financial resources. NewsWatch competes, among other things, on the basis of the quality and reliability of its data, the speed of delivery and on the flexibility of its services. NewsWatch's principal competitor is NewsEdge.

 

B.	INTERNET-BASED ONLINE TRADING, MARKET DATA SERVICES, AND OTHER SERVICES TO THE NON-PROFESSIONAL INDIVIDUAL INVESTMENT COMMUNITY

    The Company offers internet-based online trading and market data service through its myTrack and TrackTrade products. myTrack and TrackTrade offer trading of U.S.-based stocks, options and mutual funds, as well as stock index-based futures and foreign currency. TrackTrade is especially designed for active individual investors. The Company has targeted active traders and believes that myTrack and TrackTrade are well suited to satisfy their requirements. For those traders who are the most active and engage in day trading, the Company's TrackTrade contains multi windows based features and enhancements that are designed to satisfy the needs of the hyperactive trader community. Equity trades on myTrack are currently offered at prices starting at $12.95 per trade, but volume trading rebates can result in trade costs as low as $8.20 per trade. Futures are generally priced at $7.00 per contract. Equity trades on TrackTrade are currently offered at 1/2 penny per share, with no ECN fees.

    myTrack provides access to comprehensive information on stocks, options, indices, and news, including bid and ask prices, charts, research and other information for any listed or Nasdaq-traded stock and many OTC-BB stocks, as well as the ability to establish and track securities, cash, margin and buying power positions on a real-time basis. Real-time quotes, news, charting and technical analysis are currently available in various pay packages from $19.95 per month plus exchange fees to $95.00 per month (including Nasdaq Level II) plus exchange fees. Volume trading can result in rebates equivalent to the service plan charges.

    Customers can also subscribe for TrackTrade market data. Real-time quotes, news, charting and technical analysis are currently available for $99 (including Nasdaq Level II) plus exchange fees. Volume trading can result in rebates equivalent to the service plan charges. A minimum $30,000 investment is required to open an account.

    AIQ Systems develops and markets artificial intelligence (AI) based stock market analysis and charting software for personal computers. By simulating the reasoning of top market technicians, AIQ’s “Expert Systems” delivers trading signals and valuable market insight, as well as state-of-the-art technical charting and screening capabilities. Prices for AIQ products vary from $39 to $79 per month.

    Dial/Data is an Internet-based service that provides historical and end-of-day pricing data for U.S., Canadian and European exchange-traded equities and related instruments, futures, equity options, futures options, mutual funds, bonds, government issues, money markets and indexes. Customers who subscribe to Dial/Data pay a flat monthly rate that ranges from $15 to $85, depending on the type of data received.

    The Company markets myTrack and TrackTrade by targeting active traders through advertisements. The Company’s marketing efforts have included advertisements in financial and various other publications that have a demographic similar to myTrack’s and TrackTrade’s target market. The Company also promotes these services through Internet web site and banner advertisements, direct mailings and trade shows.

    The marketing effort for the Dial/Data service is directed towards the software vendors who offer analytic programs for the individual investor. By agreeing to provide royalties to these vendors, the Company seeks to encourage these vendors to make their programs compatible with the Company’s databases, and to encourage customers to select the Company’s databases in preference to databases made available by others.

    The Company’s myTrack online trading service competes with services offered by online brokers, many of which have substantially greater resources. The Company faces direct competition from other discount brokerage firms, many of which provide touch-tone telephone and online brokerage services but do not maintain significant branch networks. The Company also encounters competition from established full commission brokerage firms. In addition, the Company competes with financial institutions, mutual fund sponsors and other organizations, some of which provide (or may in the future provide) electronic and other discount brokerage services.

    The Company believes its competition consists of large and small brokerage firms, utilizing the Internet to transact retail brokerage business. Among these competitors are E*Trade Group, Inc., Trade Station Group, Inc., Charles Schwab & Co., Inc., TD Waterhouse, Inc. and Ameritrade, Inc. The Company also faces competition for customers from full-commission brokerage firms, including Morgan Stanley Dean Witter & Co., Merrill Lynch and Salomon Smith Barney, as well as financial institutions and mutual funds.

 

    myTrack’s market data service competes with many providers of financial information over the Internet. It competes on quality and reliability, as well as speed and price. Principal competitors to myTrack are e-Signal, DTN, PC Quote, AT Financial, as well as many other Internet providers of financial information.

    Competitors to the Dial/Data service include Interactive Data Corp., The Dow Jones Retrieval Service, Compuserve, Telescan and Commodity Systems, Inc. The Company competes in this market based on price, the quality and reliability of its data, the extent and breadth of historical information, ease of access and the negotiation of agreements with vendors that provide royalty arrangements they find attractive. Some of the Company’s competitors provide both software and data services. The Company competes with such full service providers by attempting to enter into agreements with vendors of superior software.

    Competitors of AIQ include Equis International (MetaStock), Omega Research (SuperCharts), Windows on Wall Street, and many others. Generally, these competitors’ products can be classified as “charting” packages. They concentrate their resources on general charting (graphical) and stock market back-testing capabilities, rather than the pre-programmed market analysis offered by the AIQ products. AIQ’s TradingExpert Pro competes with Omega’s TradeStation and MetaStock Professional.

    Track Data Securities Corp. ("TDSC") is a broker-dealer registered with the SEC and NASD and is licensed as a broker-dealer in 50 states.

    The securities industry in the United States is subject to extensive regulation under federal and state laws. In addition, the SEC, NASD, other self regulatory organizations, such as the various stock exchanges, and other regulatory bodies, such as state securities commissions, require strict compliance with their rules and regulations. As a matter of public policy, regulatory bodies are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of clients participating in those markets, and not with protecting the interests of the Company’s stockholders.

    Broker-dealers are subject to regulations covering all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of clients' funds and securities, capital structure, record keeping and the conduct of directors, officers and employees. Because of the number of complaints by online traders, the SEC, NASD and other regulatory organizations may adopt more stringent regulations for online firms and their practices. If the Company fails to comply with any laws, rules or regulations, the Company could be censured, fined, or issued a cease-and-desist order, or TDSC and/or its officers and employees could be suspended or expelled.

    The Company does not hold any funds or securities owned by its clients nor execute securities transactions. The Company clears all transactions for its clients, on a fully disclosed basis, with Penson Financial Services, Inc. ("Penson").

    The Company’s agreement with Penson provides that the clearing broker process all securities transactions for the Company’s clients for a fee. Services of the clearing broker include billing and credit control and receipt, custody and delivery of securities. The Company has agreed to indemnify and hold the clearing broker harmless from certain liabilities or claims, including claims arising from the transactions of its clients, which could be material in amount. The Company’s clearing agreement may be terminated by either party, upon 45 days’ written notice. The Company relies on the operational capacity and the ability of the clearing broker for the orderly processing of transactions.

    Clients’ securities transactions are effected on either a cash or margin basis. In connection with margin transactions, credit is extended to a client, collateralized by securities and cash in the client’s account, for a portion of the purchase price. The client is charged for margin financing at interest rates based on the broker call rate plus an additional amount of up to 2.50%. The broker call rate, also known as the “Call Money Rate,” is the prevailing interest rate charged by banks on secured loans to broker-dealers.

    Margin lending is subject to the margin rules of the Board of Governors of the Federal Reserve System. Margin lending subjects the Company to the risk of a market decline that would reduce the value of collateral below the client’s indebtedness before the collateral could be sold. Under applicable rules, in the event of a decline in the market value of the securities in a margin account, the client is required to deposit additional securities or cash in the account. The margin agreement allows the Company or Penson to sell securities owned by the client under certain circumstances.

    The Company’s external network consists of a series of routers and other Internet-networking equipment, mail, web and File Transfer Protocol (ftp) servers; these servers are connected to the Company's internal (i.e. protected) network. This permits a moderated connection to the Company’s intranet, so that any computer that can connect to the Internet can access authorized services.

    The Company’s technology is supported by an internal staff of programmers, developers, and operators 24 hours a day, seven days a week. The programming staff is supplemented by a team of quality control analysts, web page developers, technical writers, and design specialists who ensure the final product is user-friendly and dependable. In addition to supporting the systems, the staff continually enhances software and hardware and develops new services. Software is designed to be versatile and easily adaptable to new and emerging technologies.

    The SEC, NASD, and various other regulatory agencies have stringent rules requiring the maintenance of specific levels of net capital by securities brokers. These include 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 December 31, 2004, TDSC was required to maintain minimum net capital, in accordance with SEC rules, of approximately $1 million and had total net capital of $2,437,000, or approximately $1,437,000 in excess of minimum net capital requirements.

    If TDSC fails to maintain the required net capital, TDSC 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.

    The Company relies on a combination of copyright, trademark and trade secret laws and non-disclosure agreements to protect its proprietary technologies, ideas, know-how and other proprietary information. The Company holds a United States trademark registration for the myTrack name. The Company has no patents or registered copyrights. Third parties may copy or otherwise obtain and use the Company’s proprietary technologies, ideas, know-how and other proprietary information without authorization or independently develop technologies similar or superior to its technologies. Policing unauthorized use of its technologies and other intellectual property is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted.

    The financial information provided by the Company for its MarkeTrack, myTrack, proTrack, myTrack Pro, Dial/Data and NewsWatch services can be purchased from third-party sources and is not proprietary. The Company maintains proprietary economic and historical financial databases. The Company protects its proprietary information with standard secrecy agreements.

    MarkeTrack, NewsWatch, myTrack, myTrack Pro, proTrack and Dial/Data are registered service marks owned by the Company. AIQ has registered trademarks for StockExpert, MarketExpert, OptionExpert and TradingExpert, as well as Opening Bell for its newsletter.

    Expenditures for research and development incurred primarily to establish technological feasibility of a product or for product enhancement were $238,000, $242,000 and $315,000 and for the years ended December 31, 2004, 2003 and 2002, respectively.

    The Company employed approximately 170 persons on a full-time basis as of December 31, 2004. The Company believes that its relationship with its employees is satisfactory.

  The Company engages in arbitrage trading activity. The Company's trading strategy consists principally of establishing hedged positions consisting of stocks and options. The Company is subject to market risk in attempting to establish a hedged position, as the market prices could change, precluding a profitable hedge. In these instances, any positions that were established for this hedge would be immediately sold, usually resulting in small losses. If the hedged positions are successfully established at the prices sought, the positions generally stay until the next option expiration date, resulting in small gains, regardless of market value changes in these securities. While virtually all positions are liquidated at option expiration date, certain stock positions remain. The liquidation of these positions generally results in small profits or losses. From time to time, losses may result from certain dividends that may have to be delivered on positions held, as well as from certain corporate restructurings and mergers that may not have been taken into account when the positions were originally established.

    In connection with the arbitrage trading activity, the Company incurs margin loans. The Company is exposed to interest rate change market risk with respect to these margin loans. The level of trading in the arbitrage trading account is substantially dependent on the margin 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’s executive offices are located at 95 Rockwell Place, Brooklyn, NY. These offices are leased from a family partnership controlled by the Company’s Chairman. The annual rental of approximately 36,000 square feet is approximately $600,000. The lease expires in April, 2005. The Company believes that the terms of this lease are at least as favorable to it as terms which it would have obtained in a comparable transaction with unaffiliated persons.

    The Company maintains sales and/or service offices in Brooklyn, NY, Chicago, IL, Los Angeles, CA, San Francisco, CA, Boston, MA, Incline Village, NV, Philadelphia, PA, Boca Raton, FL, and Dallas, TX with aggregate annual rentals of $1,105,000. These leases expire at various dates through 2007. The Company also maintains a full service office in London, England under a lease for annual rentals of $57,000, which is renewed on a monthly basis.

    The Company's facilities are fully utilized and are suitable and adequate for their purpose.

    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.

    The Company held its Annual Meeting on August 18, 2004. The results of matters voted at that Meeting were reported in Part II, Item 4 of the Company's Form 10-Q for the period ended September 30, 2004.

 

The Company's Common Stock is quoted on the Nasdaq National Market System under the symbol "TRAC." On February 28, 2005, there were 288 stockholders of record of the Company's Common Stock based on information provided by the Company's transfer agent. Virtually all of the Company's publicly held shares are held in "street name" and the Company believes the actual number of beneficial holders of its Common Stock to be approximately 13,000.

The following table sets forth the high and low sales prices for the Company's Common Stock as reported on Nasdaq:

    On August 24, 2004, the Company received notice from Nasdaq that its common stock had not met the minimum $1.00 per share closing price required to avoid delisting from Nasdaq’s National Market. On January 18, 2005, the Board of Directors authorized a one-for-five reverse stock split, which was consented to by the Company’s Chairman, CEO and principal stockholder. The stock split became effective on February 28, 2005. All share and per share information in this report have been adjusted to reflect such stock split.

    The Company paid its first cash dividend of $.05 per share on its Common Stock on September 22, 2003. The Company declared a second dividend on February 19, 2004 of $.05 per share. The future payment of dividends, if any, on the Common Stock is within the discretion of the Board of Directors and will depend on the Company’s earnings, its capital requirements, financial condition, and other relevant factors.

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

October, 2004

5,820

$3.94

5,820

231,898

November, 2004

00-0000

000-

231,898

December, 2004

29,395

$4.82

29,395

202,503

Total

35,215

35,215

    On June 3, 2003, the Board of Directors approved a buy back of up to 400,000 shares of the Company’s Common Stock in market transactions from time to time.

ITEM 6. SELECTED FINANCIAL DATA

Year Ended December 31,				2004				2003				2002				2001				2000
				(in thousands, except earnings and dividends per share)
SERVICE FEES AND REVENUE				$	40,093			$	40,881			$	57,188			$	62,217			$	58,767
COSTS, EXPENSES AND OTHER:
	Direct operating costs				23,544				23,201				31,309				29,539				31,484
	Selling and administrative expenses				14,415				15,098				19,307				19,560				21,564
	Marketing and advertising				414				394				659				1,243				5,472
	Write off of investment in private companies				-0000				00-0000				716				00-0000				254
	Gain on arbitrage trading				(1,512	)			(1,891	)			(445	)			(1,800	)			(783	)
	Gain on marketable securities-Innodata and Edgar Online				(5,887	)			(624	)			(124	)			-0000				-0000
	Other income								-0000				0-0000				(1,949	)			(900	)
	Interest expense (income) - net				305				107				657				(58	)			288
		Total			31,279				36,285				52,079				46,535				57,379
INCOME BEFORE EQUITY IN
	NET INCOME OF AFFILIATE
		AND INCOME TAXES			8,814				4,596				5,109				15,682				1,388
EQUITY IN NET INCOME OF AFFILIATE					00-0000				00-0000				00-0000				276				718
INCOME BEFORE INCOME TAXES					8,814				4,596				5,109				15,958				2,106
INCOME TAXES					3,614				1,750				2,118				4,880				47
NET INCOME				$	5,200			$	2,846			$	2,991			$	11,078			$	2,059
BASIC AND DILUTED NET
	INCOME PER SHARE				$.53				$.29				$.28				$.93				$.16
DIVIDENDS PER SHARE					$.05				$.05
WEIGHTED AVERAGE SHARES OUTSTANDING					9,732				9,942				10,525				11,919				12,732
ADJUSTED DILUTIVE SHARES OUTSTANDING					9,740				9,960				10,580				11,975				12,811
		December 31,			2004				2003				2002				2001				2000
					(in thousands)
TOTAL ASSETS				$	69,438			$	73,498			$	46,416			$	76,920			$	24,479
TOTAL LIABILITIES					42,570				49,693				26,809				53,759				7,747
STOCKHOLDERS’ EQUITY					26,868				23,805				19,607				23,161				16,732

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    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 three business segments: (1) Professional Market -- Market data services and trading, including ECN services, to the institutional professional investment community, (2) Non-Professional Market -- Internet-based online trading and market data services to the non-professional individual investor community, and (3) Arbitrage trading.

 

    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 the early part of 2005. 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. This change resulted in increased revenues for the Track ECN in 2004. Track ECN currently offers the highest published rebate in the industry and has recently been successful in attracting new subscribers, resulting in increased revenues. Profit margins are very low in this business and significant volume is necessary to have an impact on the results of operations. The Company anticipates obtaining approval for self clearing of its ECN business in 2005 in an effort to decrease costs associated with 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.

 

    The Non-Professional Market segment revenues have been inconsistent month to month. The Company is expecting to grow revenues in this segment, principally through marketing alliances and limited advertising to attract new customers, and by offering additional services to existing customers by introducing foreign stock trading in 2005. The Company presently offers trading of U.S. based stocks, options, e-mini futures and 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.

 

    The Company engages in arbitrage trading activity. The Company's trading strategy consists principally of establishing hedged positions consisting of stocks and options. The Company is subject to market risk in attempting to establish a hedged position, as the market prices could change, precluding a profitable hedge. In these instances, any positions that were established for this hedge would be immediately sold, usually resulting in small losses. If the hedged positions are successfully established at the prices sought, the positions generally stay until the next option expiration date, resulting in small gains, regardless of market value changes in these securities. While virtually all positions are liquidated at option expiration date, certain stock positions remain. The liquidation of these positions generally results in small profits or losses. From time to time, losses may result from certain dividends that may have to be delivered on positions held, as well as from certain corporate restructurings and mergers that may not have been taken into account when the positions were originally established.

    In connection with the arbitrage trading activity, the Company incurs margin loans. The Company is exposed to interest rate change market risk with respect to these margin loans. The level of trading in the arbitrage trading account is substantially dependent on the margin 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.

    Revenues for the years ended December 31, 2004 and 2003 were $40,093,000 and $40,881,000, respectively, a decrease of 2%. The Company’s Professional Market segment had revenues for the years ended December 31, 2004 and 2003 of $25,103,000 and $24,118,000, respectively, an increase of 4% for this segment. The Company’s Non-Professional Market segment had revenues of $14,990,000 and $16,763,000, respectively, for the years ended December 31, 2004 and 2003, a decrease of 11% 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 in 2005, negatively impacting revenues and profits. Increased revenues from the Company’s Track ECN and its Newsware division offset the decline in market data revenues; however, these increased revenues did not offset the reduction in profits. Track ECN currently offers the highest published rebate in the industry and has recently been successful in attracting new subscribers, resulting in increased revenues. In the Non-Professional Market segment, the Company experienced a decline in revenues due to lower trading volumes and market data revenues.

    Direct operating costs were $23,544,000 for the year ended December 31, 2004 and $23,201,000 for the similar period in 2003, an increase of 1%. Direct operating costs as a percentage of revenues were 59% in 2004 and 57% in 2003. Without giving effect to unallocated depreciation, amortization expense and costs directly allocated to the Arbitrage segment, the Company’s Professional Market segment had $14,960,000 and $13,274,000 of direct costs for the years ended December 31, 2004 and 2003, respectively, an increase of 13%. Direct operating costs as a percentage of revenues for the Professional segment were 60% in 2004 and 55% in 2003. The significant dollar and percentage increase was principally due to costs associated with the increased ECN revenues which have minimal gross margins. Further, telecommunications credits of $300,000 were recognized in 2003. The Company’s Non-Professional Market segment had $7,611,000 and $8,729,000 in direct costs for the years ended December 31, 2004 and 2003, respectively, a decrease of 13%. Direct operating costs as a percentage of revenues for the Non-Professional segment were 51% in 2004 and 52% in 2003. The dollar decline was principally due to the decreased 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 and ECN customer commissions and clearing.

    Selling and administrative expenses were $14,415,000 and $15,098,000 in the 2004 and 2003 periods, respectively, a decrease of 5%. Selling and administrative expenses as a percentage of revenues was 36% in 2004 and 37% in 2003. Without giving effect to unallocated depreciation, amortization expense and costs directly allocated to the Arbitrage segment, selling and administrative expenses for the Professional Market segment were $9,513,000 and $9,278,000 in the 2004 and 2003 periods, respectively, an increase of 3%. For the Professional Market segment selling and administrative expenses as a percentage of revenues was 38% in 2004 and 2003. Selling and administrative expenses for the Non-Professional segment were $4,553,000 and $5,433,000 in the 2004 and 2003 periods, respectively, a decrease of 16%. For the Non-Professional segment selling and administrative expense as a percentage of revenue was 30% in 2004 and 32% in 2003. The decrease in selling and administrative expenses was due principally to reduced payroll.

    Marketing and advertising costs were $414,000 in 2004 and $394,000 in 2003. The Professional Market segment spent $369,000 in 2004 and $162,000 in 2003. The Non-Professional segment incurred marketing costs of $45,000 in 2004 and $232,000 in 2003.

    The Professional Market segment realized a loss of $494,000 before unallocated amounts and income taxes in 2004 compared to income of $1,405,000 in 2003. The Non-Professional Market segment realized $3,537,000 in income in 2004 and $2,368,000 in income in 2003 before unallocated amounts and income taxes. The Arbitrage segment realized income of $933,000 in 2004 compared to $1,521,000 in 2003 before unallocated amounts and income taxes.

    In 2004 and 2003, the Company recognized gains of $5,887,000 and $624,000, respectively, from the sale of shares of Innodata and Edgar Online common stock.

    Net interest expense in 2004 was $305,000 compared to $107,000 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 income before income taxes of $8,814,000 in the 2004 period compared to $4,596,000 in the 2003 period.

    The Company's effective tax rate was 41% in 2004 and 38% in 2003.

    The Company realized net income of $5,200,000 in 2004 compared to $2,846,000 in 2003.

    Revenues for the years ended December 31, 2003 and 2002 were $40,881,000 and $57,188,000, respectively, a decrease of 29%. The Company’s Professional Market segment had revenues for the years ended December 31, 2003 and 2002 of $24,118,000 and $37,675,000, respectively, a decrease of 36% for this segment. The Company’s Non-Professional Market segment had revenues of $16,763,000 and $19,513,000, respectively, for the years ended December 31, 2003 and 2002, a decrease of 14% 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. Further, the Company experienced a significant decline in revenues from its Track ECN since Nasdaq's SuperMontage trading system was introduced in late 2002. The Company experienced significantly lower trading volumes because of the preferencing of trades in SuperMontage to market makers and others that do not charge access fees, compared to no such preference in Nasdaq's SuperSoes that was available prior to SuperMontage. In the Non-Professional Market segment, the Company experienced a significant decline in revenues and profits as individual investors left the market, curtailed trading or are trading with competitors.

    Direct operating costs were $23,201,000 for the year ended December 31, 2003 and $31,309,000 for the similar period in 2002, a decrease of 26%. Direct operating costs as a percentage of revenues were 57% in 2003 and 55% in 2002. Without giving effect to unallocated depreciation, amortization expense and costs directly allocated to the arbitrage segment, the Company’s Professional Market segment had $13,274,000 and $20,159,000 of direct costs for the years ended December 31, 2003 and 2002, respectively, a decrease of 34%. Direct operating costs as a percentage of revenues for the Professional segment were 55% in 2003 and 54% in 2002. The significant dollar decline was principally due to the decreased revenues, the majority of which related to the lower ECN revenues. Further, telecommunications credits of $300,000 were recognized in 2003. The Company’s Non-Professional Market segment had $8,729,000 and $9,374,000 in direct costs for the years ended December 31, 2003 and 2002, respectively, a decrease of 7%. Direct operating costs as a percentage of revenues for the Non-Professional segment were 52% in 2003 and 48% in 2002. The dollar decline was principally due to the decreased revenues. Both segments experienced an increase in direct costs as a percentage of revenues due principally to infrastructure fixed costs of payroll and other services that could not be reduced commensurate with revenues.

    Selling and administrative expenses were $15,098,000 and $19,307,000 in the 2003 and 2002 periods, respectively, a decrease of 22%. Selling and administrative expenses as a percentage of revenues was 37% in 2003 and 34% in 2002. Without giving effect to unallocated depreciation, amortization expense, and costs directly allocated to the Arbitrage segment, selling and administrative expenses for the Professional Market segment were $9,278,000 and $12,859,000 in the 2003 and 2002 periods, respectively, a decrease of 28%. For the Professional Market segment selling and administrative expenses as a percentage of revenues was 38% in 2003 and 34% in 2002. Selling and administrative expenses in 2003 declined from reductions in payroll, telecommunications, rent, legal fees and a $150,000 government grant received in connection with the terrorist attack in New York City. Selling and administrative expenses for the Non-Professional segment were $5,433,000 and $5,591,000 in the 2003 and 2002 periods, respectively, a decrease of 3%. For the Non-Professional segment selling and administrative expense as a percentage of revenue was 32% in 2003 and 29% in 2002. Both segments experienced an increase in selling and administrative expenses as a percentage of revenues due principally to infrastructure fixed costs of payroll and other services that could not be reduced commensurate with revenues.

    Marketing and advertising costs were $394,000 in 2003 and $659,000 in 2002. The Professional Market segment spent $162,000 in 2003 and $324,000 in 2002. The Non-Professional segment incurred marketing costs of $232,000 in 2003 and $335,000 in 2002.

    The Professional Market segment realized $1,405,000 in income before unallocated amounts and income taxes in 2003 compared to income of $4,332,000 in 2002. The Non-Professional Market segment realized $2,368,000 in income in 2003 and $4,133,000 in income in 2002 before unallocated amounts and income taxes. The Arbitrage segment realized income of $1,521,000 in 2003 compared to a loss of $144,000 in 2002 before unallocated amounts and income taxes. The Company expanded its arbitrage trading program to include a greater risk profile trading program that resulted in a pre-tax loss of $1,400,000 in the first quarter of 2002. The Company continued its arbitrage trading program, but discontinued the greater risk trading program.

    In 2003 and 2002, the Company recognized gains of $624,000 and $124,000, respectively, from the sale of shares of Innodata and Edgar Online common stock.

    In 2002, the Company wrote off its investments in two privately held companies in the aggregate amount of $716,000.

    Net interest expense in 2003 was $107,000 compared to $657,000 in 2002. The decrease in interest expense in 2003 is due principally to lower 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 income taxes of $4,596,000 in the 2003 period compared to $5,109,000 in the 2002 period.

    The Company's effective tax rate was 38% in 2003 and 42% in 2002.

    The Company realized net income of $2,846,000 in 2003 compared to $2,991,000 in 2002.

    During the year ended December 31, 2004, cash used in operating activities was $6,149,000 compared to cash provided by operating activities of $5,286,000 in 2003. The decrease in 2004 was principally due to lower income from operations, lower collections of receivables, reduced sales of securities sold short, and increased payments of liabilities, principally for income taxes. Cash flows provided by investing activities in 2004 was $6,295,000 compared to $423,000 in 2003 due principally to increased proceeds from sales of Innodata common stock. Cash flows used in financing activities was $1,625,000 in 2004 compared to $2,869,000 in 2003, principally due to reduced purchases of treasury stock and debt payments in 2004.

    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 December 31, 2004, the Company had no outstanding borrowings under the line. Borrowings available on the line of credit at December 31, 2004 was $565,000.

    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 C of Notes to Consolidated Financial Statements. The Company expects that its December 31, 2004 positions will be closed during the first quarter of 2005 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.

    The Company paid a dividend of $.05 per common share on March 22, 2004 to its stockholders of $490,000. The Company authorized a buy back of its common stock in June, 2003 of up to 400,000 shares (202,000 shares remain under the buyback authorization at December 31, 2004). The future payment of dividends and further buyback of shares 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 2.5 million of the Company's shares owned by him with a market value at December 31, 2004 of $11.9 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.

    At December 31, 2004, the Company had operating lease obligations aggregating $1,598,000 pursuant to which payments are due as follows: $630,000 in 2005; $350,000 in 2006; $222,000 in 2007; $167,000 in 2008; and $229,000 in 2009.

    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 2.5 million of the Company's shares owned by him with a market value at December 31, 2004 of $11.9 million, and which is also subject to such indemnity in the event the clearing broker were to sustain losses.

    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. Management believes that its 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.

    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.

    Arbitrage marketable securities transactions are recorded on trade date. Gains and losses are recognized based on closed transactions and the difference between market value and cost at balance sheet date.

    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.

    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.

    In December 2004, the FASB issued SFAS 123(R), “Share-Based Payment.” SFAS 123(R) amends certain provisions of SFAS 123 with respect to transactions with employees. The adoption of the new requirements will result in compensation charges to the Company’s income statement for the fair value of options granted to employees after June 15, 2005, as well as the compensation cost for the portion of outstanding awards for which the requisite service has not yet been rendered as of June 15, 2005. The Company is not required to, but may apply, the provisions of SFAS 123(R) retroactively. The Company is currently evaluating the impact SFAS 123(R) will have on additional compensation expense in future periods, which may be material.

    In March 2004, the FASB issued Emerging Issues Task Force Issues No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF No. 03-1”), which provides guidance for assessing impairment losses on debt and equity investments. Additionally, EITF No. 03-1 includes new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting provisions of EITF No. 03-1; however, the disclosure requirements remain effective and have been adopted by the Company. Management does not anticipate that issuance of a final consensus will materially impact the Company’s financial condition or results of operations.

    To date, inflation has not had a significant impact on the Company’s operations. The Company’s revenues are not affected by seasonality.

 

ITEM 7A. 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 December 31, 2004, there was no outstanding balance under the credit facility. Changes in the prime interest rate during fiscal 2005 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 2005.

    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 C of Notes to Consolidated Financial Statements. In connection with the arbitrage trading activity, 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. The level of trading in the arbitrage trading account is dependent 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 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.

ITEM 8. FINANCIAL STATEMENTS

		PAGE
Track Data Corporation and Subsidiaries
Report of Independent Registered Public Accounting Firm		II-12
Consolidated Balance Sheets as of December 31, 2004 and 2003		II-13
Consolidated Statements of Income for the three years ended
December 31, 2004, 2003 and 2002		II-14
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the three years ended December 31, 2004, 2003 and 2002		II-15
Consolidated Statements of Cash Flows for the three years ended
December 31, 2004, 2003 and 2002		II-16
Notes to Consolidated Financial Statements		II-17-28

Board of Directors and Stockholders

Track Data Corporation

We have audited the accompanying consolidated balance sheets of Track Data Corporation and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Track Data Corporation and subsidiaries as of December 31, 2004 and 2003, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

/S/ Grant Thornton LLP

New York, New York

March 16, 2005

		2004				2003
ASSETS
CASH AND EQUIVALENTS		$	6,818			$	8,315
ACCOUNTS RECEIVABLE - net of allowance for doubtful
accounts of $159 in 2004 and 2003			2,160				1,099
DUE FROM CLEARING BROKER			269				547
DUE FROM BROKER			35,751				37,141
MARKETABLE SECURITIES			20,132				21,427
FIXED ASSETS - at cost (net of accumulated depreciation)			1,787				2,140
EXCESS OF COST OVER NET ASSETS ACQUIRED - net			1,900				1,900
OTHER ASSETS			621				929
TOTAL		$	69,438			$	73,498
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Accounts payable and accrued expenses		$	4,713			$	4,112
Notes payable - other			000-				494
Trading securities sold but not yet purchased			33,615				40,996
Net deferred income tax liabilities			2,052				2,475
Other liabilities, including income taxes			2,190				1,616
Total liabilities			42,570				49,693
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock - $.01 par value; 60,000,000 shares authorized; issued and
outstanding 9,627,000 shares in 2004 and 9,800,000 shares in 2003			96				98
Additional paid-in capital			13,786				14,544
Retained earnings			10,411				5,701
Accumulated other comprehensive income			2,575				3,462
Total stockholders’ equity			26,868				23,805
TOTAL		$	69,438			$	73,498

		2004				2003				2002
SERVICE FEES AND REVENUE		$	40,093			$	40,881			$	57,188
COSTS, EXPENSES AND OTHER:
Direct operating costs			23,544				23,201				31,309
Selling and administrative expenses			14,415				15,098				19,307
Marketing and advertising			414				394				659
Gain on arbitrage trading			(1,512	)			(1,891	)			(445	)
Gain on sale of marketable securities - Innodata and Edgar Online			(5,887	)			(624	)			(124	)
Write off of investment in private companies			000-				000-				716
Interest income			000-				(142	)			(300	)
Interest expense			305				249				957
Total			31,279				36,285				52,079
INCOME BEFORE INCOME TAXES			8,814				4,596				5,109
INCOME TAXES			3,614				1,750				2,118
NET INCOME		$	5,200			$	2,846			$	2,991
BASIC AND DILUTED NET INCOME PER SHARE			$.53				$.29				$.28
DIVIDENDS PER SHARE			$.05				$.05
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING			9,732				9,942				10,525
ADJUSTED DILUTIVE SHARES OUTSTANDING			9,740				9,960				10,580

																				Accumulated								Total
								Additional												Other						Stock-						Compre-
		Common						Paid-in						Retained						Comprehensive						holders’						hensive
		Stock						Capital						Earnings						Income						Equity						Income
BALANCE, JANUARY 1, 2002			$	109					$	19,023					$	353					$	3,676					$	23,161
Net income																2,991												2,991					$	2,991
Stock options and warrants exercised										205																		205
Purchase and retirement of treasury stock				(6	)					(4,030	)																	(4,036	)
Contribution of stock by Chairman				(1	)					1
Tax effect of stock options exercised										227																		227
Reclassification adjustment for gain
on marketable securities - net of taxes																						(88	)					(88	)					(88	)
Unrealized loss on marketable securities -
net of taxes																						(2,853	)					(2,853	)					(2,853	)
Comprehensive income																																	$	50
BALANCE, DECEMBER 31, 2002				102						15,426						3,344						735						19,607
Net income																2,846												2,846					$	2,846
Stock options and warrants exercised										399																		399
Dividends paid																(489	)											(489	)
Purchase and retirement of treasury stock				(4	)					(1,363	)																	(1,367	)
Tax effect of stock options exercised										82																		82
Reclassification adjustment for gain
on marketable securities - net of taxes																						(179	)					(179	)					(179	)
Unrealized gain on marketable securities -
net of taxes																						2,906						2,906						2,906
Comprehensive income																																	$	5,573
BALANCE, DECEMBER 31, 2003				98						14,544						5,701						3,462						23,805
Net income																5,200												5,200					$	5,200
Stock options exercised										11																		11
Dividends paid																(490	)											(490	)
Purchase and retirement of treasury stock				(2	)					(804	)																	(806	)
Tax effect of stock options exercised										35																		35
Reclassification adjustment for gain
on marketable securities - net of taxes																						(2,176	)					(2,176	)					(2,176	)
Unrealized gain on marketable securities -
net of taxes																						1,289						1,289						1,289
Comprehensive income																																	$	4,313
BALANCE, DECEMBER 31, 2004			$	96					$	13,786					$	10,411					$	2,575					$	26,868