U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2007
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.)
|
95
Rockwell Place
Brooklyn,
NY 11217
(Address
of principal executive offices)
(718)
522-7373
(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
þ No
¨
Indicate
by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act. (Check one):
Large
Accelerated Filer
o Accelerated
Filer
o Non-Accelerated
Filer þ
Indicate
by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
o
Yes þ 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 July 31,
2007,
there were 8,392,000 shares of common stock outstanding.
|
|
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
Item
1.
|
|
Financial
Statements
|
|
|
|
|
|
See
pages 2-13
|
|
|
|
Item
2.
|
|
Management's
Discussion and Analysis of Financial Condition
and Results of Operations
|
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|
|
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|
See
pages 14 - 19
|
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|
Item
3.
|
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
|
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|
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|
See
page 20
|
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|
Item
4.
|
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Controls
and Procedures
|
|
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|
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|
See
page 20
|
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|
|
|
PART
ll. OTHER INFORMATION
|
|
|
|
|
|
See
page 21
|
Track
Data Corporation and
Subsidiaries
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except number of shares)
|
June
30,
|
|
December
31,
|
|
|
2007
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
(unaudited)
|
|
(audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND EQUIVALENTS
|
|
$
|
6,306
|
|
|
|
|
$
|
6,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS
RECEIVABLE – net of allowance for
doubtful
|
|
|
|
|
|
|
|
|
|
|
|
accounts
of $212 in 2007 and $326 in 2006
|
|
|
1,634
|
|
|
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DUE
FROM CLEARING BROKER
|
|
|
536
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DUE
FROM BROKER
|
|
|
6,354
|
|
|
|
|
|
12,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARKETABLE
SECURITIES
|
|
|
13,479
|
|
|
|
|
|
8,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS - at cost (net of accumulated
depreciation)
|
|
|
2,134
|
|
|
|
|
|
1,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXCESS
OF COST OVER NET ASSETS ACQUIRED–
net
|
|
|
1,900
|
|
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS, including income taxes
|
|
|
1,458
|
|
|
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
33,801
|
|
|
|
|
$
|
34,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
4,186
|
|
|
|
|
$
|
3,928
|
|
|
Note
payable -
bank
|
|
|
745
|
|
|
|
|
|
987
|
|
|
Trading
securities sold, but not yet purchased
|
|
|
4,915
|
|
|
|
|
|
6,102
|
|
|
Net
deferred
income tax liabilities
|
|
|
777
|
|
|
|
|
|
528
|
|
|
Other
liabilities
|
|
|
1,028
|
|
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
11,651
|
|
|
|
|
|
12,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock -
$.01 par value; 60,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
|
authorized;
issued and
outstanding –8,392,000 shares
|
|
|
84
|
|
|
|
|
|
84
|
|
|
Additional
paid-in capital
|
|
|
10,183
|
|
|
|
|
|
10,183
|
|
|
Retained
earnings
|
|
|
11,267
|
|
|
|
|
|
11,923
|
|
|
Accumulated
other comprehensive income
|
|
|
616
|
|
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
22,150
|
|
|
|
|
|
22,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
33,801
|
|
|
|
|
$
|
34,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated
financial statements
Track
Data Corporation and
Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF
OPERATIONS
SIX
MONTHS ENDED JUNE 30, 2007 AND 2006
(in
thousands, except earnings per share)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
SERVICE
FEES AND REVENUE
|
|
|
|
|
|
|
|
|
|
Market
Data
Services
|
|
$
|
9,465
|
|
|
$
|
11,044
|
|
|
ECN
Services
|
|
|
4,030
|
|
|
|
7,769
|
|
|
Broker-Dealer
Commissions (includes
|
|
|
|
|
|
|
|
|
|
$51 in 2007 and $24 in 2006 from related party)
|
|
|
3,839
|
|
|
|
3,706
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,334
|
|
|
|
22,519
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS,
EXPENSES AND OTHER:
|
|
|
|
|
|
|
|
|
|
Direct
operating costs (includes depreciation and amortization
|
|
|
|
|
|
|
|
|
|
of
$324 and $296 in 2007 and 2006, respectively)
|
|
|
13,133
|
|
|
|
16,314
|
|
|
Selling
and
administrative expenses (includes depreciation and
|
|
|
|
|
|
|
|
|
|
amortization
of $46 and $46 in 2007 and 2006,
respectively)
|
|
|
5,482
|
|
|
|
5,417
|
|
|
Rent
expense –
related party
|
|
|
315
|
|
|
|
315
|
|
|
Marketing
and
advertising
|
|
|
131
|
|
|
|
139
|
|
|
Gain
on
arbitrage trading
|
|
|
(637
|
)
|
|
|
(566
|
)
|
|
Gain
on sale of
marketable securities – Innodata and Edgar Online
|
|
|
-
|
|
|
|
(1,776
|
)
|
|
Interest
income
|
|
|
(268
|
)
|
|
|
(207
|
)
|
|
Interest
expense
|
|
|
270
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,426
|
|
|
|
19,827
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS)
INCOME BEFORE INCOME TAXES
|
|
|
(1,092
|
)
|
|
|
2,692
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES (BENEFIT) EXPENSE
|
|
|
(436
|
)
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS) INCOME |
|
$
|
(656
|
)
|
|
$ |
1,615
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET (LOSS) INCOME PER
SHARE
|
|
|
$(.08
|
)
|
|
|
$.19
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES
OUTSTANDING
|
|
|
8,392
|
|
|
|
8,378
|
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTED
DILUTIVE SHARES OUTSTANDING
|
|
|
8,392
|
|
|
|
8,378
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated
financial statements
Track
Data Corporation and
Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF
OPERATIONS
THREE
MONTHS ENDED JUNE 30, 2007 AND 2006
(in
thousands, except earnings per share)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
SERVICE
FEES AND REVENUE
|
|
|
|
|
|
|
|
|
|
Market
Data
Services
|
|
$
|
4,490
|
|
|
$
|
5,499
|
|
|
ECN
Services
|
|
|
1,826
|
|
|
|
4,568
|
|
|
Broker-Dealer
Commissions
(includes $27 in 2007
|
|
|
|
|
|
|
|
|
|
and
$24 in 2006 from related party)
|
|
|
1,870
|
|
|
|
1,928
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,186
|
|
|
|
11,995
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS,
EXPENSES AND OTHER:
|
|
|
|
|
|
|
|
|
|
Direct
operating
costs (includes depreciation and amortization
|
|
|
|
|
|
|
|
|
|
of
$162
and $154 in 2007 and 2006, respectively)
|
|
|
6,212
|
|
|
|
8,960
|
|
|
Selling
and
administrative expenses (includes depreciation and
|
|
|
|
|
|
|
|
|
|
amortization
of
$23 and $23 in 2007 and 2006, respectively)
|
|
|
2,713
|
|
|
|
2,643
|
|
|
Rent
expense – related
party
|
|
|
158
|
|
|
|
158
|
|
|
Marketing
and
advertising
|
|
|
84
|
|
|
|
107
|
|
|
Gain
on arbitrage
trading
|
|
|
(153
|
)
|
|
|
(309
|
)
|
|
Gain
on sale of
marketable securities – Innodata and Edgar Online
|
|
|
-
|
|
|
|
(1,088
|
)
|
|
Interest
income
|
|
|
(136
|
)
|
|
|
(102
|
)
|
|
Interest
expense
|
|
|
122
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,000
|
|
|
|
10,471
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS)
INCOME BEFORE INCOME
TAXES
|
|
|
(814
|
)
|
|
|
1,524
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES (BENEFIT) EXPENSE
|
|
|
(325
|
)
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS) INCOME
|
|
$
|
(489
|
)
|
|
$
|
914
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET (LOSS) INCOME PER
SHARE
|
|
|
$(.06
|
)
|
|
|
$.11
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES
OUTSTANDING
|
|
|
8,392
|
|
|
|
8,377
|
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTED
DILUTIVE SHARES OUTSTANDING
|
|
|
8,392
|
|
|
|
8,377
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated
financial statements
Track
Data Corporation and
Subsidiaries
CONDENSED
CONSOLIDATED STATEMENT OF
STOCKHOLDERS’
EQUITY
AND COMPREHENSIVE LOSS
SIX
MONTHS ENDED JUNE 30, 2007
(in
thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
Stock-
|
|
Compre-
|
|
|
|
of
|
|
Common
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
holders’
|
|
hensive
|
|
|
|
Shares
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Income
|
|
Equity
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JANUARY
1, 2007
|
|
|
8,392
|
|
|
|
$
|
84
|
|
|
|
|
$
|
10,183
|
|
|
|
|
$
|
11,923
|
|
|
|
|
$
|
243
|
|
|
|
|
$
|
22,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(656
|
)
|
|
|
|
|
|
|
|
|
|
|
(656
|
)
|
|
|
|
$
|
(656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374
|
|
|
|
|
|
374
|
|
|
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
(1
|
)
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE
30, 2007
|
|
|
8,392
|
|
|
|
$
|
84
|
|
|
|
|
$
|
10,183
|
|
|
|
|
$
|
11,267
|
|
|
|
|
$
|
616
|
|
|
|
|
$
|
22,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated
financial statements
Track
Data Corporation and
Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF CASH
FLOWS
SIX
MONTHS ENDED JUNE 30, 2007 AND 2006
(in
thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(656
|
)
|
|
$
|
1,615
|
|
|
Adjustments
to reconcile net
(loss) income to net cash provided by
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
370
|
|
|
|
342
|
|
|
Gain
on sale of Innodata and Edgar Online common stock
|
|
|
-
|
|
|
|
(1,776
|
)
|
|
Other
|
|
|
-
|
|
|
|
2
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable and due from clearing broker
|
|
|
(398
|
)
|
|
|
(1,204
|
)
|
|
Due
from broker
|
|
|
6,608
|
|
|
|
1,905
|
|
|
Marketable
securities
|
|
|
(4,099
|
)
|
|
|
674
|
|
|
Other
assets
|
|
|
(488
|
)
|
|
|
432
|
|
|
Accounts
payable and accrued expenses
|
|
|
258
|
|
|
|
646
|
|
|
Trading
securities sold, but not yet purchased
|
|
|
(1,187
|
)
|
|
|
(2,758
|
)
|
|
Other
liabilities, including deferred income taxes
|
|
|
22
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
430
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(526
|
)
|
|
|
(539
|
)
|
|
Investment
in private
company
|
|
|
-
|
|
|
|
(150
|
)
|
|
Proceeds
from sale of Innodata
and Edgar Online common stock
|
|
|
-
|
|
|
|
1,785
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by investing activities
|
|
|
(526
|
)
|
|
|
1,096
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
payments of note payable -
bank
|
|
|
(242
|
)
|
|
|
(46
|
)
|
|
Net
proceeds on loans from
employee savings program
|
|
|
137
|
|
|
|
84
|
|
|
Purchase
of treasury
stock
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(105
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE DIFFERENCES ON
CASH
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH AND
EQUIVALENTS
|
|
|
(202
|
)
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND EQUIVALENTS, BEGINNING OF
PERIOD
|
|
|
6,508
|
|
|
|
4,469
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND EQUIVALENTS, END OF PERIOD
|
|
$
|
6,306
|
|
|
$
|
5,675
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
270
|
|
|
$
|
191
|
|
|
Income
taxes
|
|
|
67
|
|
|
|
293
|
|
|
See notes to condensed consolidated
financial statements
Track
Data Corporation and
Subsidiaries
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
|
SIX MONTHS ENDED JUNE 30, 2007 AND
2006
|
(unaudited)
1.
|
In the opinion of the Company, the accompanying
unaudited condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary
to
present fairly the financial position as of June 30, 2007, and
the results
of operations for the three and six month periods ended June 30,
2007 and
2006 and cash flows for the six months ended June 30, 2007 and
2006. The results of operations for the six months ended June
30, 2007 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, 2006
included in the Company’s Annual Report on Form 10-K. The accounting policies
used in preparing these financial statements is the same as those described
in
the December 31, 2006 financial statements.
2.
|
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, included
in
direct operating costs, were approximately $81,000 and $80,000
for the six
months and $40,000 and $40,000 for the three months ended June
30, 2007
and 2006, respectively.
|
3.
|
Marketable securities consists of the following
(in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
Innodata
- Available for sale securities - at market
|
|
$
|
1,353
|
|
|
|
|
$
|
730
|
|
|
|
Arbitrage
trading securities - at market
|
|
|
12,126
|
|
|
|
|
|
8,027
|
|
|
|
Marketable
securities
|
|
$
|
13,479
|
|
|
|
|
$
|
8,757
|
|
|
|
Arbitrage
trading securities sold but not yet purchased – at
market
|
|
$
|
4,915
|
|
|
|
|
$
|
6,102
|
|
|
During
the year ended December 31, 2006, the Company sold its
remaining 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 received proceeds of $1,771,000
and
recorded a gain of $1,766,000 during the six months ended June 30, 2006.
The
Company owns 337,898 shares of Innodata, a provider of digital
content outsourcing services. The Company carries the investment at
$1,353,000 the market value at June 30, 2007. The difference between
the cost of $324,000 and fair market value of these securities, net of $412,000
in deferred taxes, or $617,000 is classified as a component of accumulated
other
comprehensive income included in stockholders’ equity as of June 30,
2007. At December 31, 2006, the Company owned 337,898 shares of
Innodata. The Company carried the investment at $730,000, the market
value at December 31, 2006. The difference between the cost of $324,000 and
fair
market value of these securities, net of $163,000 in deferred taxes, or $243,000
is classified as a component of accumulated other comprehensive income included
in stockholders’ equity at December 31, 2006. The Company sold 3,500
shares, received proceeds of $14,000 and recorded a gain of $10,000 during
the
six months ended June 30, 2006.
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.
As
of June 30, 2007, trading securities had a long market value of
$12,126,000 with a cost of $12,076,000 or a net unrealized gain of $50,000.
Securities sold but not yet purchased, had a short market value of $4,915,000
with a cost/short proceeds of $4,816,000, or a net unrealized loss of
$99,000. The Company expects that its June 30, 2007 positions will be
closed during the third quarter of 2007 and that other positions with the
same
strategy will be established. The Company pledged its holdings in
Innodata as collateral for its trading accounts. In addition, the
Company's Principal Stockholder, who served as its Chairman and CEO until
his
resignation on March 16, 2007 (referred to hereafter as “Principal
Stockholder”), pledged approximately 1.3 million shares of his holdings in the
Company's common stock as collateral for these accounts. These shares
were removed in July 2007 and may be repledged at a later date. The
Company is paying its Principal Stockholder at the rate of 2% per annum on
the
value of the collateral pledged. Such payments aggregated $20,000 and
$19,000 for the six months and $9,000 and $11,000 for the three months ended
June 30, 2007 and 2006, respectively.
The
Company recognized gains from arbitrage trading of $637,000
and $566,000 for the six months ended June 30, 2007 and 2006, respectively.
The
Company recognized gains from arbitrage trading of $153,000 and $309,000
for the
three months ended June 30, 2007 and 2006, respectively.
At
December 31, 2006, trading securities had a long market value
of $8,027,000 with a cost of $8,013,000, or a net unrealized gain of
$14,000. Securities sold but not yet purchased, had a short market
value of $6,102,000 with a cost/short proceeds of $6,102,000.
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 partially dependent on the margin value
of
Track Data common stock pledged by its Principal Stockholder, and Innodata
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.
4.
|
The Company has a line of credit with a bank
up to a
maximum of $3 million. The line is collateralized by the assets
of the Company and is guaranteed by its Principal
Stockholder. Interest is charged at 1.75% above the bank’s
prime rate (11% at June 30, 2007) and is due on demand. The
Company may borrow up to 80% of eligible market data service receivables
as defined, and is required to maintain a compensating balance
of 10% of
the outstanding loans. At June 30, 2007, the Company had
borrowings of $745,000 under the line. Additional borrowings
available on the line of credit at June 30, 2007 were $129,000
based on
these formulas.
|
5.
|
Earnings (Loss) Per Share--Basic earnings (loss)
per
share is computed based on the weighted average number of common
shares
outstanding without consideration of potential common stock
equivalents. Diluted earnings per share are 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. For
the three
and six months ended June 30, 2007 and 2006, the Company had 685,000
and
1,260,000 stock options outstanding, respectively, that were not
included
in the dilutive calculation because the effect on earnings (loss)
per
share is antidilutive.
|
(Loss)
earnings per share (in thousands, except per
share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Six
Months
Ended
|
|
|
|
|
June
30,
|
|
|
|
June
30,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2006
|
|
Net
(loss) income
|
|
$
|
(489
|
)
|
|
$
|
914
|
|
|
$
|
(656
|
)
|
|
$
|
1,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
8,392
|
|
|
|
8,377
|
|
|
|
8,392
|
|
|
|
8,378
|
|
Dilutive
effect of outstanding options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
- |
|
Adjusted
for dilutive computation
|
|
|
8,392
|
|
|
|
8,377
|
|
|
|
8,392
|
|
|
|
8,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(loss) income per share
|
|
|
$(.06
|
)
|
|
|
$.11
|
|
|
|
$(.08
|
)
|
|
|
$.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
(loss) income per share
|
|
|
$(.06
|
)
|
|
|
$.11
|
|
|
|
$(.08
|
)
|
|
|
$.19
|
|
6.
|
At June 30, 2007, the Company had seven stock-based
employee compensation plans of which there were outstanding awards
exercisable into 685,000 shares of common stock. No stock-based
employee
compensation cost is reflected in the statement of operations,
as there
was no vesting of outstanding stock option awards in 2006 or
2007.
|
The
Company accounts for employee stock-based compensation in
accordance with SFAS 123(R), “Share-Based Payment.” The requirements of SFAS
123(R) result in compensation charges to the Company’s statement of operations
for the fair value of options granted to employees. At December 31, 2005,
all of
the Company's outstanding stock options were fully vested and the Company
made
no option grants since December 31, 2005.
7.
|
Segment Information--The Company is a financial
services company that provides real-time financial market data,
fundamental research, charting and analytical services to institutional
and individual investors through dedicated telecommunication lines
and the
Internet. The Company also disseminates news and third-party database
information from more than 100 sources worldwide. The Company
owns Track Data Securities Corp. (“TDSC”), a registered securities
broker-dealer and member of the National Association of Securities
Dealers, Inc (“NASD”). The Company provides a proprietary,
fully integrated Internet-based online trading and market data
system,
proTrack, for the professional institutional traders, and myTrack
and
myTrack Pro, 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. See Note
3.
|
The
accounting policies of the segments are the same as those
described in Note A, Summary of Significant Accounting Policies in the Company’s
financial statements for the year ended December 31, 2006 included in Form
10-K. 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 excess of the
purchase price of acquired businesses over the fair value of net assets
(“goodwill”) on the dates of acquisition amounts to $1,900,000, net of
accumulated amortization of $2,494,000 as of June 30, 2007 and
December 31, 2006. The Company's business is predominantly in the
U.S. Revenues and net income from international operations are not
material.
Information
concerning operations in its business segments is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Six
Months
|
|
|
|
|
Ended June 30,
|
|
|
|
Ended
June 30,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2006
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
Market
|
|
$
|
5,305
|
|
|
$
|
8,712
|
|
|
$
|
11,412
|
|
|
$
|
16,161
|
|
Non-Professional
Market
|
|
|
2,881
|
|
|
|
3,283
|
|
|
|
5,922
|
|
|
|
6,358
|
|
Total
Revenues
|
|
$
|
8,186
|
|
|
$
|
11,995
|
|
|
$
|
17,334
|
|
|
$
|
22,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitrage
Trading – gain on sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
marketable securities
|
|
$
|
153
|
|
|
$
|
309
|
|
|
$
|
637
|
|
|
$
|
566
|
|
(Loss)
income before unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amounts
and income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
Market
|
|
$
|
(980
|
)
|
|
$
|
(422
|
)
|
|
$
|
(1,854
|
)
|
|
$
|
(476
|
)
|
Non-Professional
Market
|
|
|
214
|
|
|
|
775
|
|
|
|
587
|
|
|
|
1,247
|
|
Arbitrage
Trading (including
interest)
|
|
|
120
|
|
|
|
254
|
|
|
|
518
|
|
|
|
474
|
|
Unallocated
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(185
|
)
|
|
|
(177
|
)
|
|
|
(370
|
)
|
|
|
(342
|
)
|
Gain
on sale of Innodata and Edgar Online
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
-
|
|
|
|
1,088
|
|
|
|
-
|
|
|
|
1,776
|
|
Interest
income, net
|
|
|
17
|
|
|
|
6
|
|
|
|
27
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes
|
|
$
|
(814
|
)
|
|
$
|
1,524
|
|
|
$
|
(1,092
|
)
|
|
$
|
2,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Transactions with Clearing Broker and Customers--The
Company conducts business through a clearing broker which settles
all
trades for the Company, on a fully disclosed basis, on behalf of
its
customers. The Company earns commissions as an introducing
broker for the transactions of its customers. In the normal
course of business, the Company's customer activities involve the
execution of various customer securities transactions. These
activities may expose the Company to off-balance-sheet risk in
the event
the customer or other broker is unable to fulfill its contracted
obligations and the Company has to purchase or sell the financial
instrument underlying the obligation at a
loss.
|
The
Company's customer securities activities are transacted on
either a cash or margin basis. In margin transactions, the clearing
broker extends credit to the Company's customers, subject to various regulatory
margin requirements, collateralized by cash and securities in the customers'
accounts. However, the Company is required to either obtain
additional collateral or to sell the customer's position if such collateral
is
not forthcoming. The Company is responsible for any losses on such
margin loans, and has agreed to indemnify its clearing broker for losses
that
the clearing broker may sustain from the customer accounts introduced by
the
Company. At June 30, 2007, the Company had $15 million in margin
credit extended to its customers. The Company believes it is unlikely
it will have to make material payments under the indemnification agreement
and
has not recorded any contingent liability in the condensed consolidated
financial statements.
The
Company and its clearing broker seek to control the risks
associated with customer activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal guidelines.
The
Company and its clearing broker monitor required margin levels daily and,
pursuant to such guidelines, require the customer to deposit additional
collateral or to reduce positions when necessary.
9.
|
Net Capital Requirements -- The Securities
and Exchange
Commission (“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 June 30, 2007, TDSC was required to maintain minimum net
capital, in accordance with SEC rules, of $1 million and had total net capital
of $4,400,000, or approximately $3,400,000 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.
The
operations of TDSC are subject to reviews by regulators within
its industry, which include the SEC and the NASD. In the past, certain reviews
have resulted in the Company incurring fines and required the Company to
change
certain of its internal controls and operating procedures. In April 2007,
the
Company settled one such review by the NASD for $185,000 which was accrued
at
December 31, 2006. Ongoing and future reviews may result in the
Company incurring additional fines and changes in its internal control and
operating procedures. Management does not expect any ongoing reviews to have
a
material affect on the Company’s financial position or statement of
operations.
10. Comprehensive
(loss) income is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Six
Months
Ended
|
|
|
June
30,
|
|
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
2007
|
|
2006
|
|
Net
(loss) income
|
|
$
|
(489
|
)
|
|
$
|
914
|
|
|
|
|
$
|
(656
|
)
|
|
$
|
1,615
|
|
|
Unrealized
(loss) gain on marketable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities-net
of taxes
|
|
|
228
|
|
|
|
(96
|
)
|
|
|
|
|
374
|
|
|
|
311
|
|
|
Reclassification
adjustment for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gain
on marketable
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
net of taxes
|
|
|
-
|
|
|
|
(772
|
)
|
|
|
|
|
-
|
|
|
|
(944
|
)
|
|
Foreign
currency translation adjustment
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
Comprehensive
(loss) income
|
|
$
|
(262
|
)
|
|
$
|
46
|
|
|
|
|
$
|
(283
|
)
|
|
$
|
982
|
|
|
11.
|
The
Company leases
its executive office facilities in Brooklyn from a limited
partnership
owned by the Company’s Principal Stockholder and members of his
family. The Company paid the partnership rent of $158,000 for
each of the three months and $315,000 for each of the six months
ended
June 30, 2007 and 2006, respectively. The lease provided for
the Company to pay $630,000 per annum through April 1,
2006. The Company is presently paying at the same rate without
a new lease. This lease is expected to be renewed for another
one-year
period.
|
12.
|
From
time to time
the Company is subject to legal proceedings and claims, which
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 or results of
operations.
|
13.
|
In
May 2006, the
Company purchased a non-dilutable 15% interest in SFB Market
Systems, Inc.
(“SFB”) for $150,000 cash. SFB is a privately held company that
provides an online centralized securities symbol management
system and
related equity and option information for updating and loading
master
files. The Company currently has a representative on SFB’s four member
Board of Directors. The Company accounts for its investment in
SFB under the cost method, and is included in other assets
in the balance
sheet as of June 30, 2007 and December 31,
2006.
|
14.
|
In
April 2006, the
Company’s Principal Stockholder formed a private limited partnership
of
which he is the general partner for the purpose of operating
a hedge fund
for trading in certain options strategies. The Company has
no financial
interest in or commitments related to, the hedge fund. The
hedge fund
opened a trading account with the Company’s broker-dealer. The Company
charged commissions to the hedge fund of $27,000 and $24,000
for the three
months and $51,000 and $24,000 for the six months ended June
30, 2007 and
2006, respectively.
|
15.
|
The
Company has an
employee savings program under which employees may make deposits
and
receive interest at the prime rate. As of June 30, 2007, the
Company’s
CEO/CFO had savings in the program of $561,000 and received
interest of
$11,000 and $21,000 during the three and six months ended June
30, 2007,
respectively. Amounts due to employees under the program
aggregated $883,000 which is included in other liabilities
at June 30,
2007.
|
16.
|
In
April 2007, the
Company entered into an agreement with EuroECN S.A. ("EURO"),
a Luxembourg
based company that intends to develop and operate an electronic
trading
system for the European market. EURO has not as yet commenced
operations. The agreement provides for the Company to sell its
ECN matching engine software to EURO for its exclusive use
in the European
market in exchange for $250,000 cash and an initial 8% equity
position in
EURO. The equity interest is non-dilutable to less than
5%. EURO has not made the payments required in the agreement
and the Company has not delivered the software. The Company
views the non-payment as a termination of the agreement by
EURO, although
the Company may agree to amend this arrangement at a later
date. The Company has not recorded this transaction and has
been unsuccessful in its efforts to contact
EURO.
|
17.
|
On
June 14, 2005,
the SEC filed a civil complaint against Barry Hertz, the Company’s
Chairman and CEO at that time, alleging violations of various
provisions
of the federal securities laws in connection with certain transactions
in
the Company’s stock owned by others. Mr. Hertz reached a settlement with
the SEC in March, 2007 regarding these charges. Mr. Hertz consented,
without admitting or denying the allegations in the SECs complaint,
to a
permanent injunction from violations of Section 10(b) and 10b-5
of the
Exchange Act and Section 17(a) of the Securities Act of 1933,
a two-year
bar from serving as an officer or director of a publicly traded
company, a
two-year bar from association with a broker or dealer, and
also agreed to
pay approximately $136,000 in disgorgement, interest and civil
penalties. In May, 2007, the Board of Directors agreed to
reimburse Mr. Hertz under the indemnification provisions of
Delaware law,
$75,000 for the disgorgement and interest portion of the amounts
paid to
the SEC by him.
|
18.
|
The
Company has
adopted the provisions of Financial Accounting Standards Board
("FASB")
Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"), on January
1,
2007. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in
accordance
with FASB Statement 109, "Accounting for Income Taxes," and
prescribes a
recognition threshold and measurement process for financial
statement
recognition and measurement of a tax position taken or expected
to be
taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure and
transition.
|
The
Company has identified its federal tax return and its state tax return
in New
York as "major" tax jurisdictions, as defined. Based on the Company's
evaluation, it has been concluded that there are no significant uncertain
tax
positions requiring recognition in the Company's financial
statements. The Company's evaluation was performed for tax years
ended 2001 through 2006, the only periods subject to examination. The
Company believes that its income tax positions and deductions will be
sustained
on audit and does not anticipate any adjustments that will result in
a material
change to its financial position. In addition, the Company did not
record a cumulative effect adjustment related to the adoption of FIN
48.
The
Company's policy for recording interest and penalties associated with
audits is
to record such items as a component of income before income
taxes. Penalties are recorded in other expense and interest paid or
received is recorded in interest expense or interest income, respectively,
in
the statement of operations. For the six months ended June 30, 2007,
penalties and interest related to the settlements of audits was
insignificant.
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. The Company makes no commitment to revise or update any
forward looking statements in order to reflect events or circumstances after
the
date any such statement is made.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND
RESULTS OF OPERATIONS
Business
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
myTrack Pro, 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.
Relevant
Factors
The
Company's Professional Market segment revenues experienced
significant declines since 2001 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 into 2007. One customer, with monthly revenues of
approximately $90,000, cancelled a customized market data service in March,
2007. Despite the addition of new subscribers to Track ECN, the
Company has not been able to significantly increase revenues. Profit
margins are very low in this business and significant volume is necessary
to
have an impact on the results of operations. Until October, 2006,
Track ECN displayed orders submitted by its subscribers on Nasdaq's trading
platform. Broker-dealers could access this liquidity through
Nasdaq. Nasdaq was authorized to operate as an exchange and Track ECN
was no longer able to operate its business on Nasdaq’s
platform. Track ECN currently displays its orders on the National
Stock Exchange. This change has resulted in significantly lower
revenues. Recently, Track ECN has experienced increases in its
business although it has not reached the revenue levels it achieved on Nasdaq.
In addition, revenues were reduced in the second quarter of 2007 by a new
regulation that limited ECN charges for trading of stocks under
$1.00. The Company commenced self-clearing of its ECN business at the
end of the third quarter of 2005 in an effort to decrease costs associated
with
ECN revenues. Although TDSC has approval from NASD-R for “clearing”
of its Track ECN business, it is a limited approval for it to submit two
sided
trade data respecting trades which were executed by broker-dealers on the
Track
ECN. TDSC submits this data to the National Securities Clearing
Corporation so that the actual trading counterparties can compare, clear
and
settle their trades and, except in the case of a rare error, TDSC “drops out” of
the clearing process. This effort to "self-clear" was a step to
reduce costs of having a third party handle this function.
The
Non-Professional Market segment revenues have been
inconsistent month to month but have been down overall when compared to the
same
periods in the prior year. The Company is attempting 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. The Company presently offers trading of U.S. based stocks,
options and e-mini futures.
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 partially dependent on the margin value
of
Track Data common stock pledged by its Principal Stockholder, and Innodata
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.
Results
of Operations
Three
Months Ended June 30, 2007 and
2006
Revenues
for the three months ended June 30, 2007 and 2006 were
$8,186,000 and $11,995,000, respectively, a decrease of 32%. The
Company’s Professional Market segment had revenues for the three months ended
June 30, 2007 and 2006 of $5,305,000 and $8,712,000 respectively, a decrease
of
39% for this segment. The Company’s Non-Professional Market segment
had revenues of $2,881,000 and $3,283,000, respectively, for the three months
ended June 30, 2007 and 2006, a decrease of 12% for this segment. The
decrease in revenues was principally attributable to the Company’s Track ECN
which revenues decreased approximately $2.7 million. Until October,
2006, Track ECN displayed orders submitted by its subscribers on Nasdaq's
trading platform. Broker-dealers could access this liquidity through
Nasdaq. Nasdaq was authorized to operate as an exchange and Track ECN
was no longer able to operate its business on Nasdaq’s
platform. Track ECN currently displays its quotes on the National
Stock Exchange. This change has resulted in significantly lower ECN revenues
since November, 2006. In addition, ECN revenues were reduced by a new
regulation that limited the charges for trading of stocks priced under
$1.00. ECN revenues have been increasing recently, although not to
levels experienced on Nasdaq. 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. This trend has continued in
2007, negatively impacting revenues and profits. One customer, with
monthly revenues of approximately $90,000, cancelled a customized market
data
service in March, 2007.
Direct
operating costs were $6,212,000 for the three months ended
June 30, 2007 and $8,960,000 for the similar period in 2006, a decrease of
31%. Direct operating costs as a percentage of revenues were 76% in
2007 and 75% in 2006. Without giving effect to unallocated
depreciation, amortization expense and costs directly allocated to the Arbitrage
segment, the Company’s Professional Market segment had $4,265,000 and $7,033,000
of direct costs for the three months ended June 30, 2007 and 2006, respectively,
a decrease of 39%. Direct operating costs as a percentage of
revenues for the Professional segment were 80% in 2007 and 81% in
2006. The dollar decrease is due principally to the decreased ECN and
market data revenues. The Company’s Non-Professional Market segment had
$1,755,000 and $1,724,000 in direct costs for the three months ended June
30,
2007 and 2006, respectively, an increase of 2%. Direct operating
costs as a percentage of revenues for the Non-Professional segment were 61%
in
2007 and 53% in 2006. Certain direct operating costs are allocated to each
segment based on 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 $2,713,000 and $2,643,000
in the 2007 and 2006 periods, respectively, an increase of
3%. Selling and administrative expenses as a percentage of revenues
was 33% in 2007 and 22% in 2006. 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 $1,873,000 and $1,911,000 in the 2007 and 2006 periods, respectively,
a
decrease of 2%. For the Professional Market segment selling and
administrative expenses as a percentage of revenues was 35% in 2007 and 22%
in
2006. Selling and administrative expenses for the Non-Professional
segment were $817,000 and $709,000 in the 2007 and 2006 periods, respectively,
an increase of 15%. For the Non-Professional segment selling and
administrative expense as a percentage of revenue was 28% in 2007 and 22%
in
2006. Certain selling and administrative expenses are allocated to
each segment based on revenues.
The
Professional Market segment realized a loss of $980,000 in
2007 compared to a loss of $422,000 before unallocated amounts and income
taxes
in 2006. The Non-Professional Market segment realized income of
$214,000 in 2007 and $775,000 in 2006 before unallocated amounts and income
taxes. The Arbitrage segment realized income of $120,000 in 2007 compared
to
$254,000 in 2006 before unallocated amounts and income taxes.
In
2006, the Company recognized a gain of $1,088,000 from the sale
of shares of Innodata and Edgar Online common stock.
Net
interest income in 2007 was $14,000 compared to net interest
expense of $0 in 2006. The increase in interest income in 2007 is due
principally to reduced levels of margin debt in connection with the Company's
arbitrage trading program.
As
a result of the above-mentioned factors, the Company realized a
loss before taxes of $814,000 in the 2007 period compared to income before
taxes
of $1,524,000 in 2006.
The
Company realized a net loss of $489,000 in 2007 compared to
net income of $914,000 in 2006.
Six
Months Ended June 30, 2007 and
2006
Revenues
for the six months ended June 30, 2007 and 2006 were
$17,334,000 and $22,519,000, respectively, a decrease of 23%. The
Company’s Professional Market segment had revenues for the six months ended June
30, 2007 and 2006 of $11,412,000 and $16,161,000, respectively, a decrease
of
29% for this segment. The Company’s Non-Professional Market segment
had revenues of $5,922,000 and $6,358,000, respectively, for the six months
ended June 30, 2007 and 2006, a decrease of 7% for this segment. The decrease
in
revenues was principally attributable to the Company’s Track ECN which revenues
decreased approximately $3.7 million. Until October, 2006, Track ECN
displayed orders submitted by its subscribers on Nasdaq's trading
platform. Broker-dealers could access this liquidity through
Nasdaq. Nasdaq was authorized to operate as an exchange and Track ECN
was no longer able to operate its business on Nasdaq’s
platform. Track ECN currently displays its quotes on the National
Stock Exchange. This change has resulted in significantly lower ECN revenues
since November, 2006. ECN revenues have been increasing recently,
although not to levels experienced on Nasdaq. Market data revenues decreased
approximately $1.5 million in 2007 compared to 2006. 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. This trend has continued in 2007, negatively impacting
revenues and profits. One customer, with monthly revenues of
approximately $90,000, cancelled a customized market data service in March,
2007.
Direct
operating costs were $13,133,000 for the six months ended
June 30, 2007 and $16,314,000 for the similar period in 2006, a decrease
of
19%. Direct operating costs as a percentage of revenues were 76% in
2007 and 72% in 2006. Without giving effect to unallocated
depreciation, amortization expense and costs directly allocated to the Arbitrage
segment, the Company’s Professional Market segment had $9,264,000 and
$12,547,000 of direct costs for the six months ended June 30, 2007 and 2006,
respectively, a decrease of 26%. Direct operating costs as a
percentage of revenues for the Professional segment were 81% in 2007 and
78% in
2006. The dollar decrease is due principally to the decreased ECN and
market data revenues. The Company’s Non-Professional Market segment had
$3,455,000 in 2007 and $3,375,000 in direct costs for the six months ended
June
30, 2007 and 2006, respectively, an increase of 2%. Direct operating
costs as a percentage of revenues for the Non-Professional segment were 58%
in
2007 and 53% in 2006. Certain direct operating costs are allocated to
each segment based on revenues.
Selling
and administrative expenses were $5,482,000 and $5,417,000
in the 2007 and 2006 periods, respectively, an increase of
1%. Selling and administrative expenses as a percentage of revenues
was 32% in 2007 and 24% in 2006. 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 $3,737,000 and $3,784,000 in the 2007 and 2006 periods, respectively,
a
decrease of 1%. For the Professional Market segment selling and
administrative expenses as a percentage of revenues was 33% in 2007 and 23%
in
2006. Selling and administrative expenses for the Non-Professional
segment were $1,699,000 and $1,587,000 in the 2007 and 2006 periods,
respectively, an increase of 7%. For the Non-Professional segment
selling and administrative expense as a percentage of revenue was 29% in
2007
and 25% in 2006. Certain selling and administrative expenses are
allocated to each segment based on revenues.
The
Professional Market segment realized a loss of $1,854,000 in
2007 compared to a loss of $476,000 before unallocated amounts and income
taxes
in 2006. The Non-Professional Market segment realized income of
$587,000 in 2007 and $1,247,000 in 2006 before unallocated amounts and income
taxes. The Arbitrage segment realized income of $518,000 in 2007 compared
to
income of $474,000 in 2006 before unallocated amounts and income taxes.
In
2006, the Company recognized a gain of $1,776,000 from the sale
of shares of Innodata and Edgar Online common stock.
Net
interest expense in 2007 was $2,000 compared to net interest
income of $16,000 in 2006. The decrease in interest income in 2007 is due
principally to increased levels of margin debt in connection with the Company's
arbitrage trading program.
As
a result of the above-mentioned factors, the Company realized a
loss before taxes of $1,092,000 in the 2007 period compared to income before
taxes of $2,692,000 in 2006.
The
Company realized a net loss of $656,000 in 2007 compared to
net income of $1,615,000 in 2006.
Liquidity
and Capital Resources
During
the six months ended June 30, 2007, cash provided by
operating activities was $430,000 compared to $95,000 in 2006. The
increase in 2007 was principally due to decreased receivables. Cash flows
used
in investing activities in 2007 were $526,000 compared to cash provided by
investing activities of $1,096,000 in 2006. The decrease was due
principally to sales of Innodata and Edgar Online common stock in 2006. Cash
flows used in financing activities were $105,000 in 2007 compared to cash
provided by financing activities of $18,000 in 2006. The decrease was due
to
repayment of bank obligations in 2007.
The
Company has a line of credit with a bank up to a maximum of $3
million. The line is collateralized by the assets of the Company and
is guaranteed by its Principal Stockholder. 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 as defined,
and
is required to maintain a compensating balance of 10% of the outstanding
loans. At June 30, 2007, the Company had borrowings of $745,000 under
the line. Additional borrowings available on the line of credit at
June 30, 2007 were $129,000 based on these formulas.
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 3 of
Notes
to the accompanying Condensed Consolidated Financial Statements. The
Company expects that its June 30, 2007 positions will be closed during the
third
quarter of 2007 and that other positions with the same strategy will be
established. The level of trading activity is partially dependent on
the value of the shares of Track Data pledged by its Principal Stockholder
and
Innodata common stock that is held as collateral.
In
November, 2005, the Board authorized the purchase of up to 1
million shares of the Company’s common stock from time to time in market
purchases or in negotiated transactions. Since that authorization,
the Company purchased 6,000 shares of its common stock in 2006 at a cost
of
$20,000. 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, including cash
available in its Arbitrage trading, and any cash that may be generated from
operations are sufficient for the Company’s cash requirements for the next 12
months.
The
Company’s broker-dealer subsidiary, TDSC, is subject to a
minimum net capital requirement of $1 million by the NASD. TDSC
operations are subject to reviews by regulators within its industry, which
include the SEC and the NASD. In the past, certain reviews have
resulted in the Company incurring fines and required the Company to change
certain of its internal control and operating procedures. Ongoing and
future reviews may result in the Company incurring additional fines and changes
in its internal control and operating procedures. Management does not
expect any ongoing reviews to have a material affect on the Company's financial
position or statement of operations.
From
time to time 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.
Off
Balance Sheet Risk
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 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 June 30, 2007, the Company had $15 million in
margin credit extended to its customers. The Company believes it is
unlikely it will have to make material payments under the indemnification
agreement and has not recorded any contingent liability in the Condensed
Consolidated Financial Statements.
Contractual
Obligations and
Commitments
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.
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.
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT
MARKET RISK
|
The
Company is exposed to interest rate change market risk with
respect to its credit facility with a financial institution, which is priced
based on the prime rate of interest. At June 30, 2007, there was $745,000
outstanding under the credit facility. Changes in the prime interest rate
during
fiscal 2007 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 2007.
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 3 of
Notes
to the accompanying Condensed 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 partially dependent on the value of the
Company’s common stock pledged by its Principal Stockholder and Innodata 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. If the stock collateral
is not available, the Company will decrease its trading or seek additional
collateral.
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. At June 30,
2007, the Company had $15 million in margin credit extended to its
customers.
ITEM
4. CONTROLS AND PROCEDURES
An
evaluation has been carried out under the supervision and with
the participation of our management, including our Chief Executive Officer,
Chief Financial Officer, of the effectiveness of the design and the operation
of
our "disclosure controls and procedures" (as such term is defined in Rules
13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2007
(“Evaluation Date”). Based on such evaluation, our Chief Executive Officer,
Chief Financial Officer has concluded that, as of the Evaluation Date, the
disclosure controls and procedures are reasonably designed and effective
to
ensure that (i) information required to be disclosed by us in the reports
we
file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and
forms, and (ii) such information is accumulated and communicated to our
management, including our Chief Executive Officer, Chief Financial Officer,
as
appropriate to allow timely decisions regarding required disclosure.
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PART
II.
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OTHER
INFORMATION
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Item
1.
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Legal
Proceedings. Not Applicable
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Item
1a.
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Risk
Factors. There were no material changes
from Risk Factors disclosed in the Company’s Form 10-K for the year ended
December 31, 2006.
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Item
2.
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Unregistered
Sales of Equity Securities and Use of
Proceeds.
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Total
Number
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of
Shares
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Number
of
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Purchased
as
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Maximum
Number
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Shares
of
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Average
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|
Part
of
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|
of
Shares That May
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Period
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Common
Stock
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Price
Paid
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Publicly
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Yet
be Purchased
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Purchased
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Purchased
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Per
Share
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Announced
Plans
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Under
the Plans
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April,
2007
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May,
2007
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June,
2007
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Total
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None
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None
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993,501
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On
November 1, 2005, the Board of Directors approved a buy back
of up to 1,000,000 shares of the Company’s Common Stock in market or
privately negotiated transactions from time to time.
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Item
3.
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Defaults
upon Senior Securities. Not Applicable
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Item
4.
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Submission
of Matters to a Vote of Security Holders. Not
Applicable
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Item
5.
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Other
Information. Not Applicable
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Item
6.
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Exhibits
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31
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Certification
of Martin Kaye pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934.
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32
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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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
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Date:
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8/13/07
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/s/ Martin
Kaye
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Martin
Kaye
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Chief
Executive Officer
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Principal
Financial Officer
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