1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual report under section 13 or 15(d) of the securities exchange act of
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
-----------------
/ / Transition report under section 13 or 15(d) of the securities exchange
act of 1934
COMMISSION FILE NUMBER 0-24634
TRACK DATA CORPORATION
(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)
56 PINE STREET
NEW YORK, NEW YORK 10005
(Address of principal executive offices) (Zip Code)
(212) 943-4555
(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
REDEEMABLE WARRANTS
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 / /
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/
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant based on the closing price of the Company's Common Stock on
February 28, 1997 of $1.19 per share. $2,898,379
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State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
14,731,452 SHARES OF COMMON STOCK, $.01 PAR VALUE, AS OF FEBRUARY 28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
[SEE INDEX TO EXHIBITS]
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PART I
ITEM 1. BUSINESS
On March 31, 1996, Track Data Corporation ("Track"), a principal
stockholder of Global Market Information, Inc. ("Global"), merged into Global
and the name of Global was changed to Track Data Corporation (the "Company").
Pursuant to the merger (the "Merger"), Global issued 12,000,000 shares of its
common stock in exchange for all of the outstanding stock of Track. The
1,599,837 shares of Global common stock owned by Track prior to the Merger
were cancelled.
Global, as the surviving corporation, assumed all of Track's assets,
liabilities and obligations. Effective March 31, 1996, the Company issued
835,905 shares of its common stock and transferred 74,281 shares of Innodata
Corporation common stock owned by Track prior to the Merger to a Trust held by
a bank trustee for the benefit of certain key employees and consultants of
Track to satisfy obligations under a deferred compensation plan maintained by
Track. These shares will be released to the participants upon termination of
employment, or earlier with approval of the Board of Directors.
For accounting purposes the Merger is treated as a combination of
entities under common control similar to a pooling-of-interests. Accordingly,
the historical financial position and results of operations of Track and
Global have been combined for all periods presented.
The new merged company is named Track Data Corporation and its common
stock and redeemable warrants are listed on the Nasdaq National Market System
under the symbols "TRAC" and "TRACW," respectively.
Track Data Corporation (the "Company" or "TDC") has been a supplier of
electronically delivered financial information since 1981. TDC provides
real-time financial market data, financial data bases and historical
information, analytical services, and data manipulation tools, through a
sophisticated private data network to high end users in the
equity/options/futures trading marketplace. TDC delivers information on
equities, options, futures, commodities, listed bonds, fixed income
securities, and foreign currencies from all North American exchanges and from
the principal exchanges in Europe, Latin America and the Far East. In
addition, TDC disseminates news and third party data base information from
more than 100 sources worldwide.
The Company maintains more than a dozen offices worldwide, with executive
offices located at 56 Pine Street, New York, New York 10005 and at 95 Rockwell
Place, Brooklyn, New York 11217. Its telephone number is 212-943-4555 or
718-522-7373.
The Company's services consist of the following:
- - MarkeTrack-MX and MarkeTrack-NT are real-time quote processing and
analytical systems that provide 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.
- - OpTrack and TOG services provide real-time screening and analytical
services relative to equity and index options, and to futures and non-equity
options, targeted to traders and strategist in the options, futures and
derivatives markets.
- - Dial/Data provides electronic access to daily and historical price data
on worldwide exchanges, primarily to individual investors who do not need
real-time information.
- - Track OnLine is a quotation system which provides current or delayed
price quotations, access to third party data base services, scrolling news
headlines, dynamically updated prices, the ability to manipulate screen
displays, and current best bids and offers by Nasdaq market makers. Track
OnLine provides real-time access to those who use such information in their
daily work.
- - InfoVest is an on-line data base combined with software which enables
securities analysts to develop complex, individually tailored analyses and
reports on publicly traded companies.
- - The Company's AIQ Systems Division develops and markets PC based
financial investment software for individual and professional users.
MARKETRACK-MX AND MARKETRACK-NT
TDC's MarkeTrack-MX and MarkeTrack-NT offer significant real-time quote
processing and analytical features, and has become distinguished over time for
its ability to consistently deliver real-time, market sensitive information.
The service provides domestic and international market information,
dynamically updating quotelines, options and futures displays, real-time
spreadsheets, tick-by-tick updating graphics, more than 30 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.
MX 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. In addition, MX users are able to
download real-time data to both Microsoft Excel and Lotus 1-2-3 spreadsheet
applications which allows the users to create individually tailored financial
applications to meet specific needs without additional programming.
MX gives investment professionals the ability to easily and rapidly
analyze, on a single service terminal, large volumes of real-time prices,
third party databases, historical information, and news services, to support
split second trading decisions. MX runs under DOS, Windows and UNIX operating
systems on a wide variety of personal computer and workstation platforms.
Pricing and Customers. Customers are charged a monthly service fee for
MX, and in addition a monthly communications or location charge which varies
typically with the location and size of the customer's installation. Service
charges vary with the number and types of functions to which an individual
subscribes, and are typically between $300 and $600 per month per user.
Typically subscribers who execute a subscriber agreement contract that
specifies both term and quantity of users may receive pricing discounts for
multi-year contracts. Such agreements allow subscribers to receive services
at a known cost, and ensure TDC of a recurring revenue stream into the future.
TDC currently serves over 3,100 MX 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.
OPTRACK AND TOG
TDC's OpTrack and TOG services provide real-time screening and analytical
services relative to equity and index options, and to futures and non-equity
options. Both of these services are targeted to sophisticated professionals,
both traders and strategists, in the options, futures and derivatives markets.
OpTrack identifies trading opportunities such as covered writes, spreads,
butterflies, overvalued/undervalued options, and many others, in a real-time
environment, scanning the "universe" of options, or just a group of
instruments selected by the user. OpTrack is also used by retail options
specialists in advising brokers on recommended strategies for their clients
based upon client objectives, such as maximizing return on investment.
OpTrack is used by thousands of traders, advisers and brokers in its various
modes of delivery.
TOG is used by non-equity options traders and derivatives specialists in
banks, hedge funds and trading firms. This service offers extremely
sophisticated types of analyses of non-equity and non-listed over-the-counter
options. These include interest rate caps, floors and swaps, also exotics,
knockouts, lookbacks, and Asian priced options. Users have the ability to
create artificial strategies or "synthetic" positions, and to analyze their
risk.
DIAL/DATA SERVICE
TDC's Dial/Data service provides historical and end of day pricing data
for all 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. In addition, fundamental data
is provided for equity issues such as splits, dividends, and earnings per
share. News headlines and full text stories from some of TDC's news vendors
can also be delivered to Dial/Data customers. Dial/Data is primarily marketed
through independent software vendors who provide analytical and charting
programs for analyzing financial information. The Company's AIQ division,
Equis International, Omega Research and other independent software vendors
include Dial/Data access as an integral part of the software that they market.
The Company encourages these vendors of charting software, through the payment
of commissions, to make their software compatible with the Company's Dial/Data
market information, and to advise customers by inserts and other means that
they may select Dial/Data as their source of market information by contacting
Dial/Data and entering into a month to month subscription agreement. A
customer that has subscribed to Dial/Data accesses the service directly using
the vendor's software program through modems on their PC's and is billed for
the Dial/Data service directly by the Company. Access to the Company's
database is provided by using telecommunications networks. The networks
currently being used to provide local access are Compuserve Data Network, ADP
Autonet or SprintNet. The Dial/Data service is also available through the
Internet. Although the software can operate on real-time information,
customers primarily apply their charting techniques to historical information
and there is substantially less emphasis on up-to-the-minute information for
this service than there is for other services provided by the Company.
Pricing and Customers. Customers who subscribe to Dial/Data have the
option of either paying a flat monthly rate which ranges from $15 to $125
depending on the type of data received, or being billed on a per quote basis.
Customers outside the continental U.S. are also billed a per-minute connection
charge. Customers pay for their services primarily by permitting the Company
to charge their credit cards. Customers may terminate Dial/Data services at
any time. At December 31, 1996, 1995 and 1994 there were 23,542, 19,771 and
14,431 customers of the Dial/Data service, respectively.
TRACK ONLINE SERVICE
The Track OnLine service provides current or delayed price quotations,
access to third party data base services, scrolling news headlines,
dynamically updating prices, the ability to manipulate screen displays, and
current best bids and offers by Nasdaq market makers. Customers receive the
service by telephone connection with the Company through telecommunications
networks such as Compuserve Data Network or ADP Autonet. The Track OnLine
service is also available through the Internet. Track OnLine is designed
primarily for high net worth individual investors and financial planners who
actively buy and sell stocks, options or futures, but who are generally not
professional traders.
Pricing and Customers. Customers are charged at a flat monthly rate
which depends on the services they select or on per minute usage at $0.29 per
minute with a minimum $15 charge per month. Monthly charges range from $15 to
$400. The Company has entered into agreements with national network carriers
that provide for a fixed monthly payment by the Company for communication
services without regard to the duration of connections. Customers pay for
their services primarily by permitting the Company to charge their credit
cards. The customers may select month to month, six month or one year
agreements. Discounts are offered for six month and one year commitments. As
of December 31, 1996 and 1995 the Company had approximately 1,400 and 1,200
monthly rate users, respectively.
INFOVEST SERVICE
TDC's InfoVest service is an on-line equity information system designed
for the investment professional. InfoVest is a complete data access system
equipped with a powerful set of data management, retrieval, screening and
manipulation tools for interfacing with economic, fundamental, pricing,
earnings and other databases. In addition to access to the Company's own
proprietary data bases, the InfoVest service provides access using databases
from companies such as S&P Compustat, Media General, Disclosure, Zacks, First
Call, IBES and others. InfoVest customers, primarily financial institutions
and corporations, require database services which are integrated with
proprietary software to allow complex, individually tailored analyses and
reports on publicly traded companies. In many instances, customers may
request customization of software to permit personalized analysis. The
Company provides such services on an on-line basis. Certain of the Company's
competitors also provide these services on an on-line basis, whereas others
provide such services on CD-ROM discs.
The InfoVest service has traditionally been directed to investors who
apply fundamental analysis. The InfoVest service enables the user to search,
retrieve and manipulate information on companies, industries and portfolios.
The user can easily integrate numeric, textual and graphic information, and
information from multiple on-line sources (e.g. financial, pricing and
dividend data). The service includes analytical tools which allow the user to
study numerous aspects of current and historical trends in the equity markets.
For example, the service permits the customer to find the 100 largest NYSE
companies with a price earnings multiple less than 10, a book value less than
$3, a return on equity greater than 15, and other qualifications. The results
of this search can be used to create custom reports ranked by size,
profitability, or other factors.
Pricing and Customers. InfoVest is sold on a fixed price basis for a
subscription term of one year. All software (including upgrades),
documentation and training are included in the subscription price. Annual
fees range from $12,000 to $30,000, depending on the options selected. At
December 31, 1996 and 1995 the Company had approximately 40 and 50 customers
of the InfoVest service, respectively.
AIQ SYSTEMS DIVISION
TDC's AIQ Systems division is an industry leader in developing 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.
AIQ's customer base consists of thousands of individual and professional
investors, world-wide, who rely on AIQ's accurate and unique timing
information for their daily trading decisions.
AIQ currently publishes three primary expert systems for market trading.
AIQ MarketExpert is an introductory level charting and analysis package that
can be downloaded free of charge from AIQ's award winning web site,
WWW.AIQ.COM. MarketExpert includes a data downloader and a free month of data
from TDC's Dial/Data service. AIQ StockExpert is an intermediate level
analysis system that includes AIQ's well known market timing model, as well as
hundreds of powerful stock timing tools. StockExpert retails for $498. AIQ's
most popular product is AIQ TradingExpert for Windows. This advanced analysis
package includes market timing, stock timing, and industry group analysis
capabilities. TradingExpert retails for $695. AIQ also develops a full line
of add-on modules for fundamental analysis, news retrieval, and data
correlation.
In addition, AIQ offers educational services including: the Opening Bell
Monthly educational newsletter, bi-annual educational seminars and workshops,
and a full line of educational video tapes.
MARKETING
MarkeTrack-MX, MarkeTrack-NT, OpTrack and TOG compete in several highly
competitive segments of the on-line real-time financial information
marketplace: equity, options and futures trading; and the investment
management segments of the professional investment community. The equities,
options and futures trading segment of this market is comprised of
approximately 30,000 professionals who spend an estimated $150 million per
year on financial information, and the investment management segment is
comprised of approximately 60,000 professionals who spend an estimated $320
million per year on financial information. TDC's focus is on the premium end
of these trading markets, appealing to institutional sales people,
arbitrageurs, market makers and traders. TDC estimates that the premium
segment of the trading market consists of approximately 16,000 terminals, of
which its share is approximately 18%.
These services are marketed primarily through a dedicated sales force,
including 10 full-time regional sales persons in the U.S. and an international
sales staff of 4 full-time sales persons. All services and new business are
sold directly, often as a result of on-site presentations and service
demonstrations by TDC's sales force.
In addition to its dedicated sales force, TDC maintains relationships
with a number of brokerage firms which actively sell TDC's services to the
money management side of the industry for "soft dollars." In a soft dollar
arrangement the brokerage firm pays TDC for services delivered to the money
managers. These brokerage firms are typically also customers of TDC.
TDC has ongoing advertising, direct mail, and public relations programs
to promote product recognition and educate potential new customers in its
targeted markets. In addition, TDC appears at major industry trade shows each
year.
All newly released service offerings and features are announced to
existing users via an inherent TDC system broadcast capability, and through
corporate newsletters. In addition, TDC plans to maintain a competitive
pricing strategy for its services.
The major marketing effort for the Dial/Data service is directed towards
the software vendors who offer analytic programs for the individual investor,
including the Company's AIQ Systems division. By agreeing to provide
commissions to these vendors, the Company seeks to encourage these vendors to
make their programs compatible with the Company's data bases, and to encourage
customers to select the Company's data bases in preference to data bases made
available by others. Such agreements typically are terminable upon 90 days'
notice after one year and provide for payment by the Company to the vendor of
amounts based on the Company's monthly database charges to its customers. The
Company understands that its competitors enter into similar arrangements with
such vendors. The Company also seeks to gain the support of vendors by
continually upgrading the flexibility, scope and convenience of its service,
and by adopting pricing systems which are attractive to the vendors'
customers.
The Track OnLine service is sold through four full-time salespersons, and
is marketed through print advertising and direct mail.
The InfoVest service is sold through in-house sales persons. The
marketing staff emphasizes on-site presentations and demonstrations, and
demonstrates the service at major industry trade shows annually.
AIQ Systems markets its software products through direct mail, the
internet, print advertising and seminars.
LIMITED PROPRIETARY INFORMATION
The financial information which is made available by the Company for its
MX, Track OnLine and Dial/Data services can be purchased from third party
sources and is not proprietary.
The Company considers its InfoVest analytic software to be proprietary.
The Company also maintains proprietary economic and historical financial
databases. The InfoVest business has developed and owns systems to provide
and transmit information to its customers, and to maintain customer billing
and other administrative records. The Company protects its proprietary
information with standard secrecy agreements.
Dial/Data and Track OnLine are registered service marks owned by the
Company.
AIQ has registered trademarks of StockExpert, MarketExpert, and
TradingExpert as well as Opening Bell for its newsletter.
COMPETITION
The Company competes with many other providers of electronically
transmitted financial information. The Company competes in its varied service
offerings to varying extents through price and quality of service.
The Company offers its MarkeTrack-MX, MarkeTrack-NT, OpTrack and TOG in a
highly competitive market in which it competes with other distributors of
financial and business information, all of whom have substantially greater
financial resources. TDC 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, TDC's competitors include
Bloomberg Financial, Shark Information, owned by ADP, and Bridge Data. To a
lesser degree, these TDC services compete with ADP Financial, ILX, a Thomson
Financial Services company, and Quotron, a Reuters company, who dominate the
retail brokerage market segment. There can be no assurance that TDC will not
encounter increased competition in the future, which could limit the Company's
ability to maintain or increase its market share or maintain its margins, and
which could have a material adverse effect on TDC's business, financial
condition or operating results.
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 and on the quality and
reliability of its data, the extent and breadth of historical information,
ease of access and price, and the negotiation of agreements with vendors that
provide commission 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.
The Track OnLine service competes with several relatively well
established companies including, Data Broadcasting Corporation and
Bonneville/Market/Ensign 5. Competition is based on price and on the
interactivity and other features that are offered to customers. The Company
believes that its prices are competitive, and that other features of its
service compare favorably with competitive offerings.
Competitors to the InfoVest service include OneSource Inc., PC Plus,
DAIS, IDD Tradeline, Compuserve Institutional and FactSet. The market is
dominated by FactSet. The Company competes in this market based on the
flexibility and reliability of its services.
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. Due to this approach, which tends to be less
support intensive, they compete at a lower price range of between $250 and
$450 per unit, as compared to AIQ Systems which sells its most popular
software product, "Trading Expert," for $695.
RESEARCH AND DEVELOPMENT
The Company has not made significant expenditures for research and
development, although expenditures were incurred to continue to update the
service offerings for each of the Company's services based on customer
requests and the Company's knowledge of the marketplace and competition.
EMPLOYEES
The Company employed approximately 250 persons on a full time basis as of
December 31, 1996. The Company believes that its relationship with its
employees is satisfactory.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located at 56 Pine Street, New
York, New York. The Company maintains office space and data centers at
locations in New York, NY, Brooklyn, NY and Chicago, IL that are leased from
family partnerships controlled by Barry Hertz, the Company's Chairman and
Chief Executive Officer. The aggregate annual rental of approximately 75,000
square feet is approximately $1,065,000. The Chicago lease, comprising
$180,000 of such annual rent expires in 2004, while the other leases expire in
1997. The Company believes that the terms of these leases are at least as
favorable to it as terms which it would have obtained in a comparable
transaction with unaffiliated persons.
The Company also maintains sales offices leased from unaffiliated
entities in Los Angeles, CA, San Francisco, CA, Boston, MA, Incline Village,
NV, Philadelphia, PA, Dallas, TX, Minneapolis, MN and Toronto and Montreal,
Canada with aggregate annual rentals of $242,000 expiring at various dates
through 2002. The Company also maintains a full service office in London,
England under leases for annual rentals of $133,000 expiring in 1999.
ITEM 3. LEGAL PROCEEDINGS
There is no material litigation pending to which the Company is a party
or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were voted on at the November 7, 1996 Annual
Meeting of Stockholders. The total shares voted were 13,898,583.
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BROKER
FOR AGAINST ABSTAIN WITHHELD NONVOTES
---------- ------- ------- -------- ---------
ELECTION OF DIRECTORS:
E. Bruce Fredrikson 13,849,733 48,850
Barry Hertz 13,848,733 49,850
Martin Kaye 13,849,733 48,850
Morton Mackof 13,849,733 48,850
Alan Schnelwar 13,849,733 48,850
Todd Solomon 13,849,733 48,850
Jack Spiegelman 13,849,733 48,850
Stanley Stern 13,849,733 48,850
1996 STOCK OPTION PLAN 12,694,818 134,331 23,640 1,045,794
APPOINTMENT OF AUDITORS 13,861,083 22,500 15,000
</TABLE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Redeemable Warrants are quoted on the
Nasdaq National Market System under the symbols "TRAC" and "TRACW,"
respectively. On February 28, 1997, there were 72 stockholders of record of
the Company's Common Stock, and 13 holders of record of the Redeemable
Warrants 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 1,400.
The following tables set forth the high and low sales prices for the
Company's Common Stock and Redeemable Warrants, as reported on Nasdaq NMS.
COMMON STOCK REDEEMABLE WARRANTS
SALE PRICE SALE PRICE
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HIGH LOW HIGH LOW
----- ----- ----- -----
1995
- --------------
First Quarter 6-1/8 3 1 3/8
Second Quarter 5-3/8 2-7/8 1-1/2 5/16
Third Quarter 6-1/4 4-5/8 1-5/8 1-1/4
Fourth Quarter 6-1/2 4-1/4 1-3/4 7/8
1996
- --------------
First Quarter 5-3/8 3-1/2 1-1/4 5/8
Second Quarter 5 2-1/2 7/8 1/8
Third Quarter 3-1/8 1-1/4 5/16 1/8
Fourth Quarter 1-3/4 1 5/32 1/32
</TABLE>
Dividends
The Company has never paid dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. 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 and financial condition and other relevant factors. Prior to the
Merger, Track paid dividends to its sole stockholder.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands)
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YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
SERVICE FEES AND REVENUE $47,138 $44,524 $40,594 $33,896 $29,218
-------- -------- -------- -------- -------
OPERATING COSTS AND EXPENSES:
Direct operating costs 25,898 25,139 21,578 17,995 14,978
Selling and administrative expenses 19,633 22,725 18,510 15,246 13,328
Deferred compensation expense 295 2,946 900 - -
Interest expense (net of interest income) 828 823 569 573 822
-------- -------- -------- -------- -------
Total 46,654 51,633 41,557 33,814 29,128
-------- -------- -------- -------- -------
INCOME (LOSS) FROM OPERATIONS 484 (7,109) (963) 82 90
OTHER INCOME (EXPENSE) 289 468 93 (40) 307
-------- -------- -------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND
EQUITY IN NET (LOSS) INCOME OF AFFILIATE 773 (6,641) (870) 42 397
INCOME TAXES (BENEFIT) 526 (708) (62) 105 73
-------- -------- -------- -------- -------
INCOME (LOSS) BEFORE EQUITY IN NET
(LOSS) INCOME OF AFFILIATE 247 (5,933) (808) (63) 324
EQUITY IN NET (LOSS) INCOME OF AFFILIATE (184) 422 89 218 404
-------- -------- -------- -------- -------
NET INCOME (LOSS) $ 63 $(5,511) $ (719) $ 155 $ 728
NET INCOME (LOSS) PER SHARE $ - $ (.40) $ (.06) $ .01 $ .06
WEIGHTED AVERAGE SHARES OUTSTANDING 14,622 13,911 12,849 12,240 12,240
DECEMBER 31, 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
TOTAL ASSETS $21,305 $26,250 $25,617 $16,601 $14,820
TOTAL LIABILITIES 13,649 20,343 14,893 11,234 11,598
STOCKHOLDERS' EQUITY 7,656 5,907 10,724 5,367 3,222
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
The Company provides real-time financial market data, fundamental
research, charting and analytical services to both institutional and
individual investors. The Company also redistributes news and third party data
base information from more than 100 sources worldwide. The Company's lead
products include MarkeTrack MX and MarkeTrack NT, Dial/Data, Track OnLine and
InfoVest. Its AIQ Systems division provides expert systems software,
including artificial intelligence products for market timing and stock
selection.
YEARS ENDED DECEMBER 31, 1996 AND 1995
For the year ended December 31, 1996, the Company's revenues were
$47,138,539, an increase of 6% over revenues for the similar period in 1995 of
$44,523,762. The increase in revenues is primarily attributable to an
increase in the subscriber base for the Company's Dial/Data service (23,542 in
1996 compared to 19,771 in 1995).
Direct operating costs were $25,898,461 for the year ended December
31,1996 and $25,138,844 for the similar period in 1995, an increase of 3%.
Direct operating costs as a percentage of revenues was 55% in 1996 and 56% in
1995. Direct operating costs include direct payroll, direct telecommunication
costs, computer supplies, depreciation and equipment lease expense and the
amortization of software development costs.
Selling and administrative expenses were $19,632,953 and $22,724,632 in
the years 1996 and 1995, respectively, a decrease of 14%. Selling and
administrative expenses as a percentage of revenues was 42% in 1996 and 51% in
1995. The dollar and percentage decrease primarily reflects a charitable
contribution expense of approximately $800,000 in 1995, a reduction of
approximately $1,200,000 in salary expense for the Company's Chairman in 1996
as compared to 1995, reduced salaries and bonuses of $400,000, the write off
of approximately $200,000 in Track Data (Japan) that closed operations during
1995 and operating expenses for the Japan offices and payroll in 1995 with no
such expenses in 1996.
The Company incurred deferred compensation expense of $294,893 in 1996
and $2,946,128 in 1995. This change relates to the Company's phantom stock
plan which was discontinued as of March 31, 1996. The underlying 835,905
shares of the Company's common stock and 74,281 shares of Innodata Corporation
common stock to which certain employees were vested were placed in a trust for
the benefit of the participants. Accordingly, future changes in the market
price of the respective stocks will not be reflected as changes in deferred
compensation expense.
Other income was $288,419 for the year ended December 31, 1996 and
$468,145 for the year ended December 31, 1995. The income in 1995 and 1996
resulted principally from gains from Innodata Corporation common stock given
as charitable contributions in 1995, and gains from Innodata shares given to
the Company's Phantom Stock Plan Trust in 1996. The gain represents the
difference between the carrying value of such securities and the market price
at date of disposition.
The income tax expense in the 1996 period of $525,969 is due principally
to an increase in the Company's deferred tax valuation allowance. In 1995,
the income tax benefit was lower than the federal statutory rate as the loss
incurred by Track as an S corporation provided no corporate tax benefit.
As a result of the above mentioned factors, the Company realized net
income of $62,463 in 1996 compared to a loss of $5,511,278 in 1995, which
included equity in the net loss of an affiliate of $184,355 in 1996 and equity
in net income of that affiliate of $421,627 in 1995.
YEARS ENDED DECEMBER 31, 1995 AND 1994
For the year ended December 31, 1995, the Company's revenues were
$44,523,762, an increase of 10% over revenues for the similar period in 1994
of $40,594,191. The increase in revenue is primarily attributable to a
significant increase in Dial/Data's subscriber base (19,771 in 1995 compared
to 14,431 in 1994). The increase in the subscriber base reflects the general
growth in the financial information market. Further, revenues contributed by
the acquisition of the AIQ division and All-Quotes customers was approximately
$1,700,000.
Direct operating costs were $25,138,844 for the year ended December 31,
1995 and $21,578,501 for the similar period in 1994, an increase of 16% in
1995 from 1994, due principally to the increased subscriber base. Direct
operating costs as a percentage of revenues was 56% in 1995 and 53% in 1994.
The increase as a percentage of revenues is primarily attributable to
increased programming salaries.
Selling and administrative expenses were $22,724,632 and $18,509,639 for
the years ended December 31, 1995 and 1994, respectively, an increase of 23%.
Selling and administrative expenses as a percentage of revenues were 51% and
46% in 1995 and 1994, respectively. The dollar increase primarily reflects
the additional expenses required to support the expansion of the Company's
customer base, including additional personnel and the expansion of the sales
and marketing efforts.
The Company incurred deferred compensation expense of $2,946,128 and
$900,522 in 1995 and 1994, respectively. These changes relate to the change
in the value of the shares included in the Company's Phantom Stock Plan that
was discontinued in 1996.
Interest expense, net of interest income, was $823,134 and $568,748 in
the years ended December 31, 1995 and 1994, respectively, resulting from
increased borrowings in 1995.
Other income was $468,145 for the year ended December 31, 1995 and
$93,237 for the year ended December 31, 1994. The increase in income in 1995
resulted principally from gains in Innodata Corporation common stock given as
charitable contributions.
The Company incurred a net loss of $5,511,278 for the year ended December
31, 1995, and a net loss of $718,849 in 1994, which included equity in the net
income of an affiliate of $421,627 in 1995 and $89,244 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the years ended December 31, 1996 and 1995, cash provided by
operating activities was $4,621,818 and $2,563,638, respectively. The
increase was due principally to profitable operations in 1996. Cash flows
used in investing activities was $1,735,251 and $4,118,555 for the years ended
December 31, 1996 and 1995, respectively. Purchases of fixed assets decreased
by approximately $900,000 in 1996 compared to 1995. The 1995 amount also
includes the acquisition of the All-Quotes business. Cash used in financing
activities was $4,788,756 and $1,546,981 for the years ended December 31, 1996
and 1995, respectively. The increase in 1996 is primarily due to a repayment
of bank loans.
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 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 accounts receivable and is
required to maintain a compensating balance of 10% of the outstanding loans.
The Company did not meet this requirement from time to time during 1996. The
line of credit is sufficient for the Company's cash requirements. There are
no major capital expenditures anticipated beyond the normal replacement of
equipment and additional equipment to meet increased customer demand.
Prior to the Merger, Track paid a dividend to its sole stockholder, Mr.
Hertz, of approximately $2,100,000, equivalent to the previously taxed income
to Mr. Hertz as the sole stockholder of Track, a subchapter S corporation.
The dividend was paid by assigning to Mr. Hertz receivables from him or
entities controlled by him. Further, Mr. Hertz has agreed to reduce
compensation paid to him by the Company from approximately $1,500,000 in 1995
to $350,000 for each of 1996 and 1997.
INFLATION AND SEASONALITY
To date, inflation has not had a significant impact on the Company's
operations. The Company's services are generally terminable by its customers
at-will. The Company's revenues are not affected by seasonality.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
----------------
TRACK DATA CORPORATION AND SUBSIDIARIES
Independent Auditors' Reports II-7, II-8, II-9
Consolidated Balance Sheets as of December 31, 1996 and 1995 II-10
Consolidated Statements of Operations for the three years ended II-11
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the three years ended II-12
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the three years ended II-13
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements II-14-24
INNODATA CORPORATION AND SUBSIDIARIES - SIGNIFICANT SUBSIDIARY
Independent Auditors' Report II-25
Consolidated Balance Sheets as of December 31, 1996 and 1995 II-26
Consolidated Statements of Operations for the three years ended II-27
December 31, 1996
Consolidated Statements of Stockholders' Equity for the three years ended II-28
December 31, 1996
Consolidated Statements of Cash Flows for the three years ended II-29
December 31, 1996
Notes to Consolidated Financial Statements II-30-39
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
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, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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 consolidated 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, 1996 and 1995,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
We previously audited and reported on the balance sheet of Global Market
Information, Inc. as of December 31, 1994 and the related consolidated
statements of earnings, stockholders' equity and cash flows for the year then
ended, prior to their restatement for the 1996 merger described in Note A of
the consolidated financial statements. The contribution of Global Market
Information, Inc. to 1994 revenues represented 21.9 percent of the respective
restated total. Separate financial statements of the other merged company
included in the 1994 restated consolidated statements of earnings,
stockholders' equity and cash flows were audited by another independent
auditor whose report was dated March 27, 1995.
We also have audited the combination of the accompanying consolidated
statements of earnings, stockholders' equity and cash flows for the year ended
December 31, 1994, after restatement for the 1996 merger; in our opinion, such
consolidated statements have been properly combined on the basis described in
Note A of the notes to the consolidated financial statements.
Grant Thornton LLP
Melville, New York
February 28, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Track Data Corporation
We have audited the consolidated balance sheet of Track Data Corporation and
subsidiaries as of December 31, 1994, and the related consolidated statements
of operations, stockholder's equity and cash flows for the year then ended,
prior to their restatement for the merger described in Note A of the
consolidated financial statements. 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 audit. We did not audit
the financial statements of Track Data (Japan) Limited, a 79% owned
subsidiary, or Global Market Information, Inc., a 45% owned subsidiary, which
statements reflect total assets and revenues constituting 38.5 percent and 14
percent, respectively, of the related consolidated totals. Those statements
were audited by other auditors whose reports have been furnished to us and our
opinion, insofar as it relates to the amounts included for Track Data (Japan)
Limited and Global Market Information, Inc. is based solely on the reports of
the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of the other
auditors provides a reasonable basis for our opinion.
In our opinion, based on our report and the reports of the other auditors, 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, 1994, and the consolidated results of their
operations and their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles, prior to their
restatement for the merger described in Note A of the consolidated financial
statements.
Richard A. Eisner & Company LLP
New York, New York
March 27, 1995
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Track Data (Japan), Ltd.
We have audited the accompanying balance sheet of Track Data (Japan), Ltd.
(the "Company") as of December 31, 1994, and the related statements of
operations and accumulated deficit and cash flows for the year then ended.
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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1994, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States
of America.
Deloitte Touche Tohmatsu
Tokyo, Japan
February 17, 1995
<PAGE>
TRACK DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------ ------------
ASSETS
CASH AND EQUIVALENTS $ 63,482 $ 2,004,827
ACCOUNTS RECEIVABLE - (net of allowance for doubtful accounts of
$148,000 in 1996 and 1995) (Note A) 1,596,628 2,122,605
FIXED ASSETS - at cost (net of accumulated depreciation) (Notes A, B and I) 9,561,083 9,092,324
SOFTWARE - at cost (net of accumulated amortization of $5,319,478 in 1996
and $5,209,839 in 1995) (Note A) 296,543 393,208
DATABASE COSTS - at cost (net of accumulated amortization of $808,342 in
1996 and $646,634 in 1995) (Note A) 808,880 970,450
INVESTMENT IN AFFILIATE (Notes A, C and J) 2,577,662 2,705,155
MARKETABLE EQUITY SECURITIES - 324,979
DUE FROM RELATED PARTIES (Note D) 878,084 2,609,078
EXCESS OF COST OVER NET ASSETS ACQUIRED (Notes A and F) 3,581,029 3,892,951
NET DEFERRED INCOME TAX ASSETS (Notes A and H) 511,450 1,037,419
OTHER ASSETS 1,430,514 1,097,368
------------ ------------
TOTAL $21,305,355 $26,250,364
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 4,258,944 $ 4,574,138
Note payable - bank (Note E) 2,787,082 4,444,451
Acquisition notes payable (Note F) 208,333 458,333
Notes payable - other (Note G) 1,486,950 1,545,222
Capital lease obligations (Note I) 4,185,017 4,528,312
Deferred compensation payable (Note J) - 3,877,571
Unearned revenues (Note A) 213,662 321,574
Other liabilities (Notes M and N) 509,216 593,549
------------ ------------
Total liabilities 13,649,204 20,343,150
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes I and M)
STOCKHOLDERS' EQUITY (Notes A, D, J, K and L)
Common stock - $.01 par value; 30,000,000 shares authorized; issued and
outstanding - 14,782,552 shares in 1996 and 13,976,967 shares in 1995 147,826 139,770
Additional paid-in capital 13,915,989 9,958,640
Unrealized gain on available-for-sale securities - 174,801
Foreign currency translation adjustment 44,085 59,517
Deficit (6,451,749) (4,425,514)
------------ ------------
Total stockholders' equity 7,656,151 5,907,214
------------ ------------
TOTAL $21,305,355 $26,250,364
============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
TRACK DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
SERVICE FEES AND REVENUE (Note A) $47,138,539 $44,523,762 $40,594,191
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Direct operating costs 25,898,461 25,138,844 21,578,501
Selling and administrative expenses 19,632,953 22,724,632 18,509,639
Deferred compensation expense (Note J) 294,893 2,946,128 900,522
Interest expense (net of interest income of $148,788, $252,224
and $139,814 in 1996, 1995 and 1994, respectively) 827,864 823,134 568,748
------------ ------------ ------------
Total 46,654,171 51,632,738 41,557,410
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 484,368 (7,108,976) (963,219)
------------ ------------ ------------
OTHER INCOME:
Gain on securities 288,419 452,518 20,638
Other - 15,627 72,599
------------ ------------
288,419 468,145 93,237
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY
IN NET (LOSS) INCOME OF AFFILIATE 772,787 (6,640,831) (869,982)
INCOME TAXES (BENEFIT) (Notes A and H) 525,969 (707,926) (61,889)
------------ ------------ ------------
INCOME (LOSS) BEFORE EQUITY IN NET (LOSS)
INCOME OF AFFILIATE 246,818 (5,932,905) (808,093)
EQUITY IN NET (LOSS) INCOME OF AFFILIATE (Notes A and C) (184,355) 421,627 89,244
------------ ------------ ------------
NET INCOME (LOSS) $ 62,463 $(5,511,278) $ (718,849)
============ ============ ============
NET INCOME (LOSS) PER SHARE (Note A) $ - $ (.40) $ (.06)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 14,622,000 13,911,000 12,849,000
============ ============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
TRACK DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
UNREALIZED
GAIN ON FOREIGN
ADDITIONAL AVAILABLE- CURRENCY RETAINED
COMMON PAID-IN FOR-SALE TRANSLATION EARNINGS
STOCK CAPITAL SECURITIES ADJUSTMENT (DEFICIT)
--------- ------------ ------------ ------------- ------------
BALANCE, JANUARY 1, 1994 $122,402 $ 2,849,241 $ 91,089 $ 2,304,613
Sale of common stock and redeemable
warrants in public offering 13,800 5,530,536
Issuance of common stock as partial
acquisition cost for AIQ 2,033 647,967
Issuance of common stock to Company
pension plan 400 249,600
Foreign currency translation adjustment 18,766
Unrealized gain on available-for-sale securities $ 112,230
Dividend paid to Track sole stockholder (500,000)
Net loss (718,849)
--------- ------------ ------------ ------------- ------------
BALANCE, DECEMBER 31, 1994 138,635 9,277,344 112,230 109,855 1,085,764
Issuance of common stock to Company
pension plan 200 104,800
Contribution of common stock to charity 1,000 599,000
Purchase and retirement of treasury stock (65) (22,504)
Foreign currency translation adjustment (50,338)
Unrealized gain on available-for-sale securities 62,571
Net loss (5,511,278)
--------- ------------ ------------ ------------- ------------
BALANCE, DECEMBER 31, 1995 139,770 9,958,640 174,801 59,517 (4,425,514)
Issuance of common stock to Trust in
satisfaction of Track phantom stock
plan obligation 8,359 3,836,703
Issuance of common stock in satisfaction
of bonus obligation 624 233,377
Purchase and retirement of treasury stock (927) (112,731)
Foreign currency translation adjustment (15,432)
Dividend paid to Track sole stockholder (2,088,698)
Realized gain on transfer of affiliate shares
to Trust (174,801)
Net income 62,463
--------- ------------ ------------ ------------- ------------
BALANCE, DECEMBER 31, 1996 $147,826 $13,915,989 $ - $ 44,085 $(6,451,749)
========= ============ ============ ============= ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
TRACK DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 62,463 $(5,511,278) $ (718,849)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 3,507,217 4,242,335 3,909,389
Minority interest in net (loss) income of subsidiary 5,263 9,549 (519)
Equity in net loss (income) of affiliate 184,355 (421,627) (89,244)
Deferred compensation 294,893 2,946,128 900,522
Profit sharing and charitable contributions paid in stock - 889,983 292,030
Gain on contribution of stock of affiliate - (95,851) 18,464
Gain on sale of marketable securities (335,340) (283,804) -
Gain in market value of securities 46,922 (50,432) (83,665)
Loss on investment in Track Data Japan - 179,976 -
Write-down of amounts due from related parties 200,000 400,000 591,903
Deferred taxes 525,969 (731,919) (135,500)
Provision for doubtful accounts - 450,000 (41,617)
Changes in operating assets and liabilities:
Accounts receivable 525,977 (374,532) (681,715)
Other assets (146,213) 385,737 (399,781)
Accounts payable and accrued expenses (81,194) 664,212 870,611
Other liabilities (168,494) (134,839) (44,792)
------------ ------------ ------------
Net cash provided by operating activities 4,621,818 2,563,638 4,387,237
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ( 946,384) (1,869,330) (2,058,757)
Repayment of related party loans 770,661 1,883,233 365,690
Loans to related parties (1,426,497) (2,598,321) (1,567,216)
Loans to others (25,450) 84,148 (100,000)
Proceeds from sale of marketable securities - 557,297 -
Purchase of marketable securities (76,931) - -
Purchase of shares of affiliate (30,650) - -
Acquisition costs - (2,175,582) (788,729)
------------ ------------ ------------
Net cash used in investing activities (1,735,251) (4,118,555) (4,149,012)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations (2,756,554) (2,348,426) (927,723)
Net (payments) proceeds from note payable to bank (1,657,369) 841,254 719,510
Net proceeds (payments) on notes payable - other 38,757 103,174 (547,835)
Net (payments) proceeds on loans from employee savings program (49,932) 129,586 78,495
Dividend to Track sole stockholder - - (500,000)
Proceeds from issuance of common stock - - 5,544,336
Payments of acquisition notes (250,000) (250,000) -
Purchase of treasury stock (113,658) (22,569) -
------------ ------------ ------------
Net cash (used in) provided by financing activities (4,788,756) (1,546,981) 4,366,783
------------ ------------ ------------
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH (39,156) (48,407) 18,766
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (1,941,345) (3,150,305) 4,623,774
CASH AND EQUIVALENTS, BEGINNING OF YEAR 2,004,827 5,155,132 531,358
------------ ------------ ------------
CASH AND EQUIVALENTS, END OF YEAR $ 63,482 $ 2,004,827 $ 5,155,132
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for: Interest $ 898,285 $ 992,620 $ 665,510
Income taxes 31,629 139,963 63,065
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquisitions financed by capital leases $ 2,401,001 $ 3,531,746 $ 1,906,919
Payment of dividend by distribution of related party receivables 2,088,698 - -
<FN>
See notes to consolidated financial statements
</TABLE>
TRACK DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
A. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION--Track Data Corporation
("TDC") and its subsidiaries (the "Company") provide sophisticated market
information services to the investment community under continuing contracts,
and lease dedicated communication lines to customers which link such customers
to databases on a real-time basis. The Company, like other entities involved
in businesses similar to leasing, uses a non-classified balance sheet because
such presentation appropriately reflects the Company's operations. Its
operating cycle is not the conventional one-year period.
On March 31, 1996, Track Data Corporation ("Track"), a principal stockholder
of Global Market Information, Inc. ("Global"), merged into Global and the name
of Global was changed to Track Data Corporation (the "Company"). Pursuant to
the merger (the "Merger"), Global issued 12,000,000 shares of its common stock
in exchange for all of the outstanding stock of Track. The 1,599,837 shares
of Global common stock owned by Track prior to the Merger were cancelled.
For accounting purposes the Merger has been treated as a combination of
entities under common control similar to a pooling-of-interests. Accordingly,
the historical financial position and results of operations of Track and
Global have been combined for all periods presented.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements of the
Company include the accounts of TDC and its 63 percent-owned subsidiary, Fast
Track Systems, Inc. All significant intercompany transactions and accounts
have been eliminated in consolidation.
FIXED ASSETS--Fixed assets are depreciated on a straight-line basis over their
estimated useful lives which are as follows:
<TABLE>
<CAPTION>
<S> <C>
ESTIMATED USEFUL LIVES
CATEGORY (in years)
Equipment 3-10
Furniture and fixtures 10
Transportation equipment 4
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
respective lease term or estimated useful life, whichever is less.
SOFTWARE AND DATABASE COSTS--Costs of internally developed software are
capitalized from the time technological feasibility has been established and
are amortized at the greater of the ratio that current gross revenues bear to
the total of current and anticipated future gross revenues or the
straight-line method, generally five years. Other software costs are
amortized on a straight-line basis over their estimated useful lives,
generally five years. Database costs are amortized on a straight-line basis
over their estimated useful lives of ten years. Management assesses the
recoverability of its software development and database costs based
principally upon a comparison of the carrying value of the asset to the
undiscounted expected future cash flows to be generated by the asset, plus
estimated salvage value less any applicable costs. If management concludes
that the asset is impaired, its carrying value is adjusted to its fair value.
EXCESS OF COST OVER NET ASSETS ACQUIRED--The unamortized excess of the
purchase price of acquired businesses over the fair value of net assets on the
dates of acquisition amounts to $3,581,029 and $3,892,951, net of accumulated
amortization of $812,877 and $604,924 as of December 31, 1996 and 1995,
respectively. The unamortized excess is being amortized on the straight-line
basis over ten to fifteen years. Management assesses the recoverability of
the remaining unamortized costs based principally upon a comparison of the
carrying value of the asset to the undiscounted expected future cash flows to
be generated by the asset. If management concludes that the asset is
impaired, its carrying value is adjusted to its net realizable value.
REVENUE RECOGNITION--The Company recognizes revenue 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.
FOREIGN CURRENCY TRANSLATION--The Company has several divisions which operate
in foreign countries for which the functional currency is not U.S. dollars.
Balance sheet accounts are translated at the exchange rates in effect at
December 31, 1996 and 1995, and the income statement accounts are translated
at the weighted average rates prevailing during the years ended December 31,
1996, 1995 and 1994. Unrealized foreign exchange gains and losses resulting
from this translation are included as a separate component of stockholders'
equity.
INCOME TAXES--Through the date of the Merger, Track had elected to be treated
as an S Corporation. As a result, federal and certain state income taxes
attributable to the earnings of Track were payable by Track's stockholder
rather than the Corporation. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates applicable to periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense (benefit) is the tax
payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities. Deferred taxes have been
provided for temporary differences between financial and tax reporting.
INVESTMENT IN AFFILIATE--The Company's investment in Innodata Corporation
("Innodata"), a publicly traded company, whose Chairman is also the Chairman
of the Company, is accounted for using the equity method under which the
Company's share of the affiliate's earnings (or losses) is included in its
results of operations. Innodata performs data entry, coding, indexing and
abstracting services tailored to customer requirements.
STATEMENTS OF CASH FLOWS--For financial statement purposes (including cash
flows), the Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash equivalents.
USE OF ESTIMATES--In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company has estimated the fair value
of financial instruments using available market information and other
valuation methodologies in accordance with SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments." Management of the Company believes that
the fair value of financial instruments, consisting of accounts receivable and
payable, notes payable and capital lease obligations, approximate carrying
value due to the short payment terms associated with its accounts receivable
and payable and the interest rates associated with its notes payable and
capital lease obligations.
NET (LOSS) INCOME PER SHARE--Net (loss) income per share is based on the
weighted average number of shares outstanding during each period. The effect
of outstanding options and warrants on the net (loss) income per share was not
material in 1996 and anti-dilutive in 1995 and 1994.
B. FIXED ASSETS
Fixed assets consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Equipment $28,691,021 $25,653,188
Telephone system 589,084 499,334
Furniture and fixtures 903,821 823,387
Transportation equipment 105,980 114,434
Leasehold improvements 1,947,461 1,791,766
----------- -----------
32,237,367 28,882,109
Less accumulated depreciation
and amortization 22,676,284 19,789,785
----------- -----------
Fixed assets - net $ 9,561,083 $ 9,092,324
=========== ===========
</TABLE>
Equipment financed by capital leases has a net carrying value of $6,445,636
and $5,862,828 at December 31, 1996 and 1995, respectively. Depreciation and
amortization expense (including assets held under capital leases) for the
years ended December 31, 1996, 1995 and 1994 was $2,883,841, $2,947,250 and
$2,976,892, respectively.
C. INVESTMENT IN AFFILIATE
As discussed in Note A, the Company has an equity interest in Innodata of 28%,
28% and 29% at December 31, 1996, 1995 and 1994, respectively, which is
carried at the Company's equity in the underlying net assets.
Summarized information for Innodata is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Total assets $12,416,296 $12,538,694 $10,077,049
Total liabilities 2,938,825 2,791,039 1,747,448
Revenues 20,536,448 20,767,405 14,344,914
Net (loss) income (602,498) 1,511,388 306,824
</TABLE>
The Company's equity in the net (loss) income of Innodata for the years ended
December 31, 1996, 1995 and 1994 was $(184,355), $421,627 and $89,244,
respectively.
D. DUE FROM RELATED PARTIES
The amounts due from related parties consist of:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Majority stockholder (a)(e) $ 69,529 $1,507,131
Hertz Investors Group I (a)(d) 11,150 10,502
Hertz Investors Group II (b)(d)(e) 116,317 265,142
Hertz Investors Group III (b)(d)(e) - 399,269
Newsware Inc. (net of allowance of
$600,000 and $400,000 in 1996 and
1995, respectively) (c)(d) 660,338 232,914
Track Leasing (a)(d)(e) 20,393 192,663
Other 357 1,457
-------- ----------
Total $878,084 $2,609,078
======== ==========
<FN>
(a) Noninterest-bearing and unsecured.
(b) Bears interest at 2.5% and is unsecured.
(c) Consists of several loans bearing interest from 4% to one percent
above the prime rate and are unsecured.
(d) Related by ownership controlled by the Company's Chairman.
(e) A dividend was declared on March 26, 1996 and was paid on that date by
the assignment to the Company's then sole stockholder of amounts due to the
Company.
</TABLE>
TDC provides facilities management and other services to Newsware. Track
provided such services to Newsware without charge in 1996 and 1995. Such
services have an estimated value of $100,000.
Interest income recognized on amounts due from related parties was $96,175,
$107,700 and $52,547 for the years ended December 31, 1996, 1995 and 1994,
respectively.
E. NOTE PAYABLE - BANK
The note payable - bank bears interest at 1.75% above the bank's prime rate
(8.25% at December 31, 1996) and is due on demand. The note is collateralized
by substantially all of the Company's assets and is guaranteed by its
principal stockholder. The Company may borrow up to 80% of eligible accounts
receivable and is required to maintain a compensating cash balance of not less
than 10% of the outstanding loan obligation. At December 31, 1996 and at
times during the year, the Company did not meet these requirements. These
requirements were waived by the bank for the year ended December 31, 1996.
F. ACQUISITIONS
On October 17, 1994, the Company acquired certain assets of AIQ Systems
Incorporated ("AIQ"), an unaffiliated corporation. AIQ develops financial
investment software for individual and professional users. The purchase price
consisted of $750,000 cash, three-year subordinated notes in the principal
amount of $750,000, payable in 36 equal monthly installments of $20,833 plus
interest at prime, and 203,304 restricted shares of the Company's common
stock with piggy-back registration rights valued at approximately $650,000.
The acquisition was treated as a purchase for accounting purposes. The assets
acquired consist principally of certain fixed assets and the excess of cost
over net assets acquired, which is being amortized on a straight-line basis
over 15 years. Amortization expense in 1996, 1995 and 1994 was $141,132,
$141,132 and $23,522, respectively.
On October 13, 1994, the Company agreed to manage the financial information
service business of All-Quotes, Inc. ("AQ") and on January 9, 1995 acquired
this business. The Company provides its Track OnLine service to the former AQ
customers. The aggregate consideration was $1,800,000 in cash and $200,000
payable to certain affiliates of AQ for non-compete agreements. The
acquisition was treated as a purchase for accounting purposes. The assets
acquired consist principally of the excess of cost over net assets acquired,
which is being amortized on a straight-line basis over 15 years. Amortization
expense was $180,656 for each of the years ended December 31, 1996 and 1995.
G. NOTES PAYABLE - OTHER
Notes payable - other consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Related parties $ 896,712 $ 993,744
Other 590,238 551,478
---------- ----------
Total $1,486,950 $1,545,222
========== ==========
</TABLE>
RELATED PARTIES--The loans payable to related parties (i) are due to various
individuals and entities related by ownership controlled by the Company's
Chairman, (ii) are unsecured and (iii) bear interest at rates ranging from 6
to 9 percent per annum.
Notes payable to related parties are scheduled to mature as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
- ------------------------
1997 $ 52,294
1998 57,200
1999 62,565
2000 68,434
2001 74,854
Thereafter 581,365
--------
Total $896,712
========
</TABLE>
Interest expense on amounts due to related parties was $82,985, $89,147 and
$94,847 for the years ended December 31, 1996, 1995 and 1994, respectively.
OTHER--Notes payable - other (i) are due on demand, (ii) bear interest at
rates ranging from 9 to 10 percent per annum, and (iii) approximately $140,000
is guaranteed by the Company's Chairman.
H. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Federal:
Current $ - $ - $ -
Deferred 447,000 (350,000) (57,000)
-------- ---------- ---------
Total federal 447,000 (350,000) (57,000)
-------- ---------- ---------
State and local:
Current - 23,993 73,611
Deferred 78,969 (381,919) (78,500)
-------- ---------- ---------
Total state and local 78,969 (357,926) (4,889)
-------- ---------- ---------
Provision for (benefit
from) income taxes $525,969 $(707,926) $(61,889)
======== ========== =========
</TABLE>
Reconciliation of the U.S. statutory rate with the Company's effective tax
rate is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Federal statutory rate 34.0% (34.0)% (34.0)%
Income (losses) not subject to Federal income taxes
(taxes were payable by stockholder) (20.7) 27.7 22.8
Utilization of net operating loss carryforward (15.2) - -
Increase in valuation allowance 88.5 - -
Losses for which no tax benefit was available - - 4.7
Other 2.8 (5.0) (1.4)
------ ------ ------
Effective rate 89.4% (11.3) % (7.9) %
====== ======== ========
</TABLE>
The components of the Company's net deferred taxes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Deferred tax assets:
Net operating loss carryforwards $ 810,635 $ 986,000
Deferred compensation 1,491,539 298,573
Other (principally reserves for uncollectible accounts) 517,654 73,156
------------ -----------
2,819,828 1,357,729
Less valuation allowance 1,000,000 -
-----------
1,819,828 1,357,729
------------ -----------
Deferred tax liabilities:
Unrealized gain on Innodata shares (70,890) -
Accelerated depreciation for tax (742,288) (76,310)
Excess of book basis over cost of
investment in affiliate (143,590) (40,000)
Amortization of software and database costs
deducted for tax, not for financial reporting (351,610) (204,000)
------------ -----------
(1,308,378) (320,310)
------------ -----------
Net deferred tax asset $ 511,450 $1,037,419
============ ===========
</TABLE>
The valuation allowance in 1996 reduces total deferred tax assets to an amount
management believes will likely be realized. As of December 31, 1996, the
Company has net operating loss carryforwards for Federal income tax purposes
totaling approximately $2,000,000 which expire $200,000 in 2007; $650,000 in
2008; $150,000 in 2009; and $1,000,000 in 2010. These net operating losses
may be limited to annual use based on IRS regulations.
I. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various lease agreements covering office space
and computer equipment. The lease agreements for office space contain
escalation clauses based principally on increases in real estate taxes,
building maintenance and utility costs. A summary of such commitments as of
December 31, 1996 follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OPERATING
LEASES
----------------------------------
YEAR ENDING OFFICE COMPUTER CAPITAL
DECEMBER 31, SPACE EQUIPMENT TOTAL LEASES
1997 $1,055,830 $1,218,976 $2,274,806 $2,890,841
1998 507,091 530,488 1,037,579 1,246,072
1999 448,974 232,614 681,588 504,555
2000 355,346 - 355,346 -
2001 387,180 - 387,180 -
Thereafter 491,320 - 491,320 -
---------- ---------- ----------
Total $3,245,741 $1,982,078 $5,227,819 4,641,468
========== ========== ==========
Less amounts representing interest 456,451
----------
Capital lease obligations $4,185,017
==========
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994 amounted to
$1,613,846, $1,589,347 and $1,512,292 for office space and $1,943,633,
$2,547,965 and $2,647,705 for computer equipment, respectively.
The Company leases its office facilities in Brooklyn, Manhattan and Chicago
from limited partnerships owned by the Company's principal stockholder and
members of his family. These leases provide for TDC to pay aggregate rentals,
excluding escalation charges, of $508,000 through August 1997 and annual
rentals of $181,500 through February 2004. Other rentals, presently on a
month-to-month basis, aggregate approximately $1,000,000 per annum. The
Company also guarantees the partnerships' mortgages on two of these premises,
having an unpaid balance of $2,887,000 at December 31, 1996. Certain
financial covenants required in a mortgage with an outstanding balance of
approximately $2,100,000 have not been met. The partnership and the Company
intend to renegotiate the terms of the mortgage. The Company paid these
partnerships aggregate rent of $1,190,245 and $1,188,465 for the years ended
December 31, 1996 and 1995.
J. DEFERRED COMPENSATION PLAN
Track had a deferred compensation plan pursuant to which certain employees are
entitled to payments after termination of their employment. The plan was
based on these employees having phantom stock units in Track. As the phantom
stock units included a certain ownership in Global and Innodata, two publicly
traded subsidiaries of Track, in 1994 management amended the plan to provide
for the employees, at their option, to elect to receive a portion of their
Track vested phantom units in a certain number of shares of Global and
Innodata. At December 31, 1994, the aggregate fair value of such benefit was
$886,944. In March 1995, 6,460 of such shares were distributed to a
participant.
In December 1995, the Board of Directors agreed to satisfy all obligations to
participants under the phantom stock plan by committing to pay upon
termination of employment 729,600 shares of Global, in addition to the
aforementioned shares of Innodata and Global. Accordingly, at December 31,
1995 the fair value of these shares was recorded as deferred compensation
expense of $3,100,800 to recognize the obligation to participants at the
quoted market price on that date. These shares were placed in a trust as of
March 31, 1996 in accordance with terms of the Merger.
K. CAPITAL STOCK
COMMON STOCK--In August 1994, the Company sold, pursuant to a public offering,
1,380,000 shares of its common stock at $5.00 per share and 1,380,000 warrants
("Redeemable Warrants") at $.125 per warrant and realized net proceeds from
the offering, after all expenses, of approximately $5,544,000. Until August
10, 1997, the holders may exchange two Redeemable Warrants for one share of
common stock upon payment of $6.00 per share. No fractional shares will be
issued. The warrants are redeemable by the Company at $.01 per warrant on 30
days' written notice provided the average closing bid and asked quotations of
the common stock exceed $7.75 per share for 20 trading days within a period of
25 consecutive trading days ending on the third trading day prior to the date
of the notice of redemption.
In connection with the offering, the Company sold to the underwriter for
nominal consideration warrants to purchase up to 120,000 shares of common
stock at $7.625 per share and 120,000 warrants at $.20 per warrant for a
period of four years commencing August 10, 1995. The warrants are
substantially identical to the Redeemable Warrants, except they are not
redeemable. The underwriter warrants contain piggy-back registration rights
through August 10, 2000 with respect to the underlying securities and a
one-time demand registration right through August 10, 1999 at the Company's
expense.
PREFERRED STOCK--The Company is authorized to issue up to 1,000,000 shares of
$.01 par value preferred stock. The Board of Directors is authorized to fix
the terms, rights, preferences and limitations of the preferred stock and to
issue the preferred stock in series which differ as to their relative terms,
rights, preferences and limitations. No preferred shares have been issued.
COMMON STOCK RESERVED--At December 31, 1996, the Company reserved for issuance
2,845,000 shares of its common stock as follows: (a) 1,875,000 shares pursuant
to the Company's Stock Option Plans and options issued which were not granted
under the plans; (b) 690,000 shares upon conversion of Redeemable Warrants;
(c) 180,000 shares issuable upon exercise of underwriter's warrants; and (d)
100,000 shares issuable upon exercise of consultant's warrants.
L. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS--The Company adopted, with stockholder approval, the 1994, 1995
and 1996 Stock Option Plans (the "1994 Plan," "1995 Plan," "1995 DD Plan" and
the "1996 Plan") which provide for the granting of options to purchase not
more than an aggregate of 300,000, 500,000, 50,000 and 800,000 shares of
common stock, respectively, subject to adjustment under certain circumstances.
Such options may be incentive stock options ("ISOs") within the meaning of the
Internal Revenue Code of 1986, as amended, or options that do not qualify as
ISOs ("Non-Qualified Options").
The option exercise price per share for a Non-Qualified Option may not be less
than 85% of the fair market value per share of common stock on the date of
grant and for an ISO may not be less than the fair market value per share of
common stock on the date of grant (110% of such fair market value for an ISO,
if the grantee owns stock possessing more than 10% of the combined voting
power of all classes of the Company's stock). Options may be granted under
the Stock Option Plan to all officers, directors and employees of the Company
and, in addition, Non-Qualified Options may be granted to other parties who
perform services for the Company. No options may be granted under the 1994
Plan after March 31, 2004, under the 1995 Plan and 1995 DD Plan after May 15,
2005, and under the 1996 Plan after July 8, 2006.
The Stock Option Plans may be amended from time to time by the Board of
Directors of the Company. However, the Board of Directors may not, without
stockholder approval, amend the Stock Option Plans to increase the number of
shares of common stock which may be issued under the Stock Option Plans
(except upon changes in capitalization as specified in the Stock Option
Plans), decrease the minimum exercise price provided in the Plans or change
the class of persons eligible to participate in the Plans.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation." Accordingly, no compensation expense has been recognized for
stock options granted to employees. Had compensation cost for the Company's
stock option grants been determined based on the fair value at the grant date
for awards in 1996 and 1995 consistent with the provisions of SFAS No. 123,
the Company's net income (loss) and income (loss) per share would have been
changed to the pro forma amounts as follows: the loss would have been
$(207,232), or $(.01) per share, in 1996 and $(5,727,190), or $(.41) per
share, in 1995. The fair value of options at date of grant was estimated
using the Black-Scholes option pricing model with the following weighted
average assumptions: an expected life of four years; risk free interest rate
of 6.4% in 1996 and of 6.2% in 1995; expected volatility of 25%; and a zero
dividend yield. The effects of applying SFAS No. 123 in this proforma
disclosure are not indicative of future disclosures. SFAS No. 123 does not
apply to awards prior to 1995.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED- FAIR
PER SHARE REMAINING AVERAGE AVERAGE VALUE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE DATE OF
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE GRANT
---------------- ------------ ----------- ---------- ----------- ---------- --------
Balance 1/1/94 -0-
Granted and
balance
12/31/94 $ 4.75 - 5.0625 488,750 4 $ 5.00 81,250 $ 5.00
===========
Canceled $ 5.00 (44,334) 4 $ 5.00
Repriced $ 4.75 - 5.00 (362,416)
Repriced $ 3.00 362,416 4 $ 3.00 $ .76
Granted $ 5.00 - 6.00 75,000 5 $ 5.13 $ 1.60
------------
Balance 12/31/95 $ 3.00 362,416 3 $ 3.00 202,746 $ 3.00
$ 5.00 - 6.00 157,000 4 $ 5.09 37,000 $ 5.30
------------
519,416 239,746
===========
Canceled $ 2.00 - 5.00 (59,166) 4 $ 3.33
Granted and
repriced $ 1.50 - 2.00 570,900 5 $ 1.94 $ .50
------------
Balance 12/31/96 $ 1.50 - 3.00 896,150 4 $ 2.35 614,311 $ 2.44
$ 5.00 - 6.00 135,000 3 $ 5.10 71,666 $ 5.17
-----------
1,031,150 685,977
============ ===========
</TABLE>
The options have a term of five years. No options have been exercised to
date. The above table includes options to purchase 280,000 shares which were
not granted pursuant to any plan, but contain the same conditions as those
provided in the Plans.
WARRANTS--In August 1995, the Company entered into a financial consulting
arrangement pursuant to which the consultant is to assist the Company for a
two-year period in merger and acquisition transactions and developing
financial strategies and plans. The consultant was granted warrants to
purchase 100,000 shares of the Company's common stock at $6.00 per share,
exercisable commencing April 1996 and expiring on December 31, 1997. The
warrants contain demand and piggyback registration rights after April 1996.
M. RETIREMENT PLAN AND CONTRIBUTIONS
RETIREMENT PLAN--The Company has a profit sharing plan which qualifies under
Section 401(k) of the Internal Revenue Code. The plan covers substantially
all employees who have completed six months of service. Company contributions
to the plan are discretionary and vest at a rate of 20% after three years of
service, and 20% each year thereafter until employees are fully vested after 7
years. The accrued contribution at December 31, 1996 is $72,000 and is
included in accounts payable. Contributions to the plan for the years ended
December 31, 1996, 1995 and 1994 were $72,000, $132,317 and $234,531,
respectively.
During the year ended December 31, 1994, the Company contributed 40,000 shares
of its common stock and 30,000 shares of Innodata common stock to the plan.
In February 1995, the Company contributed 20,000 shares of its common stock to
the plan in satisfaction of a portion of its 1994 obligation.
CONTRIBUTIONS--In 1995, the Company made a charitable contribution of 100,000
shares of common stock of the Company and 50,000 shares of common stock of
Innodata.
N. EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan under which employees may make
deposits to the savings plan and receive interest at the prime rate. Amounts
due to employees under the plan aggregated $233,364 at December 31, 1996 and
are included in other liabilities.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Innodata Corporation
Brooklyn, New York
We have audited the accompanying consolidated balance sheets of Innodata
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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 Innodata
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Margolin, Winer & Evens LLP
Garden City, New York
March 14, 1997
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,097,193 $ 1,566,654
Accounts receivable-net of allowance for doubtful accounts of $140,000
in 1996 and $175,000 in 1995 (Note 10) 3,718,283 5,057,028
Short-term investments (Note 2) - 1,259,784
Prepaid expenses and other current assets 1,130,510 638,101
Deferred income taxes (Notes 1 and 4) 220,000 72,000
------------ ------------
TOTAL CURRENT ASSETS 7,165,986 8,593,567
FIXED ASSETS-NET (NOTES 1 AND 3) 3,617,939 2,965,596
GOODWILL (NOTES 1 AND 5) 1,159,946 782,270
OTHER ASSETS 472,425 197,261
------------ ------------
TOTAL $12,416,296 $12,538,694
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Notes 5 and 6) $ 208,298 $ 87,500
Accounts payable and accrued expenses 1,279,519 813,565
Accrued salaries and wages 625,479 524,488
Taxes, other than income taxes 278,569 194,112
Income taxes payable (Notes 1 and 4) - 726,194
------------ ------------
TOTAL CURRENT LIABILITIES 2,391,865 2,345,859
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION (NOTES 5 AND 6) 195,960 92,180
------------ ------------
DEFERRED INCOME TAXES (NOTES 1 AND 4) 351,000 353,000
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 7, 8 AND 9)
STOCKHOLDERS' EQUITY (NOTES 2, 5, 8 AND 9):
Common stock, $.01 par value-authorized 20,000,000 shares;
issued 4,565,210 shares in 1996 and 4,477,273 shares in 1995 45,652 44,773
Additional paid-in capital 8,824,696 8,497,453
Unrealized loss on available-for-sale securities - (4,192)
Retained earnings 751,000 1,353,498
------------ ------------
9,621,348 9,891,532
Less: treasury stock - at cost; 41,500 shares (143,877) (143,877)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,477,471 9,747,655
------------ ------------
TOTAL $12,416,296 $12,538,694
============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
REVENUES (NOTE 10) $20,536,448 $20,767,405 $14,344,914
------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Direct operating costs 16,783,595 14,044,067 10,764,658
Costs resulting from project termination (Note 11) - - 393,195
Selling and administrative expenses 4,799,739 4,344,793 2,834,534
Interest expense 36,383 18,476 7,392
Interest income (123,771) (151,319) (160,689)
------------ ------------ ------------
TOTAL 21,495,946 18,256,017 13,839,090
------------ ------------ ------------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES (959,498) 2,511,388 505,824
(BENEFIT) PROVISION FOR INCOME TAXES (NOTES 1 AND 4) (357,000) 1,000,000 199,000
------------ ------------ ------------
NET (LOSS) INCOME $ (602,498) $ 1,511,388 $ 306,824
============ ============ ============
(LOSS) INCOME PER SHARE (NOTE 1) $ (.13) $ .32 $ .07
============ ============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
---COMMON STOCK--- ADDITIONAL UNREALIZED
------------------ PAID-IN LOSS ON RETAINED TREASURY
SHARES AMOUNT CAPITAL SECURITIES EARNINGS STOCK
--------- ------- ----------- ------------ ------------ ----------
JANUARY 1, 1994 4,210,000 $42,100 $ 6,984,445 $ - $ 850,967 $ -
Net income - - - - 306,824 -
Unrealized loss on
available-for-sale
securities - - - (56,735) - -
Payment of 5%
stock dividend 210,509 2,105 1,313,576 - (1,315,681) -
Issuance of common stock
as partial acquisition cost 56,764 568 199,432 - - -
--------- ------- ----------- ------------ ------------ ----------
DECEMBER 31, 1994 4,477,273 44,773 8,497,453 (56,735) (157,890) -
Net income - - - - 1,511,388 -
Unrealized gain on
available-for-sale
securities - - - 52,543 - -
Purchase of treasury stock - - - - - (143,877)
--------- ------- ----------- ------------ ------------ ----------
DECEMBER 31, 1995 4,477,273 44,773 8,497,453 (4,192) 1,353,498 (143,877)
Net loss - - - - (602,498) -
Issuance of common stock
upon exercise of stock
options 22,937 229 65,539 - - -
Issuance of common stock
as partial acquisition costs 65,000 650 193,303 - - -
Warrant costs for
consulting arrangement - - 68,401 - - -
Redemption of available-
for-sale securities - - - 4,192 - -
--------- ------- ----------- ------------ ------------ ----------
DECEMBER 31, 1996 4,565,210 $45,652 $ 8,824,696 $ - $ 751,000 $(143,877)
========= ======= =========== ============ ============ ==========
<S> <C>
TOTAL
-----------
JANUARY 1, 1994 $7,877,512
Net income 306,824
Unrealized loss on
available-for-sale
securities (56,735)
Payment of 5%
stock dividend -
Issuance of common stock
as partial acquisition cost 200,000
-----------
DECEMBER 31, 1994 8,327,601
Net income 1,511,388
Unrealized gain on
available-for-sale
securities 52,543
Purchase of treasury stock (143,877)
-----------
DECEMBER 31, 1995 9,747,655
Net loss (602,498)
Issuance of common stock
upon exercise of stock
options 65,768
Issuance of common stock
as partial acquisition costs 193,953
Warrant costs for
consulting arrangement 68,401
Redemption of available-
for-sale securities 4,192
-----------
DECEMBER 31, 1996 $9,477,471
===========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
OPERATING ACTIVITIES:
Net (loss) income $ (602,498) $ 1,511,388 $ 306,824
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 1,372,731 972,669 717,300
Deferred income taxes (150,000) 240,000 41,000
Changes in operating assets and liabilities:
Accounts receivable 1,380,498 (2,299,781) (696,539)
Prepaid expenses and other current assets (479,251) (462,274) 137,572
Other assets (271,413) (46,957) (115,782)
Accounts payable and accrued expenses 187,764 (103,117) 313,990
Accrued salaries and wages 100,991 211,029 119,409
Taxes, other than income taxes 84,457 93,727 30,997
Income taxes payable (726,194) 537,938 42,004
------------ ------------ ------------
Net cash provided by operating activities 897,085 654,622 896,775
------------ ------------ ------------
INVESTING ACTIVITIES:
Expenditures for fixed assets (1,231,273) (1,193,973) (773,485)
Payments in connection with acquisitions (410,646) - (527,270)
Short-term investments 1,240,000 - -
------------ ------------ ------------
Net cash used in investing activities (401,919) (1,193,973) (1,300,755)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings 626,014 - -
Proceeds from exercise of stock options 65,768 - -
Purchase of treasury stock - (143,877) -
Payments of borrowings (656,409) (111,986) (234,686)
Redemption of preferred stock - (2,000) -
------------ ------------ ------------
Net cash provided by (used in) financing activities 35,373 (257,863) (234,686)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 530,539 (797,214) (638,666)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,566,654 2,363,868 3,002,534
------------ ------------ ------------
CASH AND EQUIVALENTS, END OF YEAR $ 2,097,193 $ 1,566,654 $ 2,363,868
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ 35,238 $ 14,963 $ 6,253
============ ============ ============
Income taxes $ 922,789 $ 222,062 $ 116,000
============ ============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION - Innodata Corporation and
subsidiaries (the "Company") performs data entry, data conversion, scanning,
imaging and document management systems, indexing and abstracting, and
typesetting and composition services tailored to customer requirements. The
Company also offers medical transcription services to health care providers.
The Company's services are principally performed in production facilities
located in the Philippines, Sri Lanka and the United States. The consolidated
financial statements include the accounts of the Company and its subsidiaries,
all of which are wholly-owned. All intercompany transactions and balances
have been eliminated in consolidation. Track Data Corporation owns
approximately 28% of the Company and shares certain management.
The financial statements have been prepared in conformity with generally
accepted accounting principles, which requires the use of management's
estimates.
REVENUE RECOGNITION - Revenue is recognized in the period in which the
service is performed. The Company's typesetting and composition service
projects are generally performed over four to six month periods. Revenues
from these projects are recognized using the percentage of completion method.
WORK-IN-PROCESS - Work-in-process, included in other current assets,
consists of actual labor and certain other costs incurred for uncompleted and
unbilled projects.
FOREIGN CURRENCY - The functional currency for the Company's production
operations located in the Philippines and Sri Lanka is U.S. dollars. As such,
transactions denominated in Philippine pesos and Sri Lanka rupees were
translated to U.S. dollars at rates which approximate those in effect on
transaction dates. Monetary assets and liabilities denominated in foreign
currencies at December 31, 1996 and 1995 were translated at the exchange rate
in effect as of those dates. Exchange gains and losses resulting from these
transactions were immaterial. In addition, the Company periodically enters
into contracts to purchase foreign currency as a hedge against a portion of
its foreign production costs. Gains and losses resulting from these contracts
are included as a component of the related transactions.
CASH AND EQUIVALENTS - For financial statement purposes (including cash
flows), the Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash equivalents.
During 1996, the Company leased equipment under capital leases for
approximately $237,000. Supplemental disclosure of non-cash investing and
financing activities is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Acquisition costs $ 563,771 $ - $1,027,270
Notes issued - - (300,000)
Common stock issued (153,125) - (200,000)
---------- ----- -----------
Payments in connection with acquisitions $ 410,646 - $ 527,270
========== ===== ===========
</TABLE>
DEPRECIATION - Depreciation is provided on the straight-line method over
the estimated useful lives of the related assets which are as follows:
<TABLE>
<CAPTION>
<S> <C>
ESTIMATED USEFUL
CATEGORY LIVES
Equipment 3-5 years
Furniture and fixtures 10 years
</TABLE>
Leasehold improvements are amortized on the straight-line basis over the
shorter of their estimated useful lives or the lives of the leases.
INCOME TAXES - Deferred taxes are determined based on the difference
between the financial statement and tax basis of assets and liabilities, using
enacted tax rates, as well as any net operating loss or tax credit
carryforwards expected to reduce taxes payable in future years.
GOODWILL - Goodwill arising from acquisition costs exceeding net assets
acquired is being amortized on a straight-line basis over a 15 year period.
Management assesses the recoverability of the remaining unamortized costs
based principally upon a comparison of the carrying value of the asset to the
undiscounted expected future cash flows to be generated by the asset whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. If management concludes that the asset is impaired, its
carrying value is adjusted to its net realizable value.
ACCOUNTING FOR STOCK-BASED COMPENSATION - The Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," which became effective in
1996. As permitted by SFAS No. 123, the Company has elected to continue to
account for employee stock options under APB No. 25, "Accounting for Stock
Issued to Employees."
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company has estimated the fair
value of financial instruments using available market information and other
valuation methodologies in accordance with SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments." Management of the Company believes that
the fair value of financial instruments for which estimated fair value has not
been specifically presented is not materially different than the related
carrying value. Determinations of fair value are based on subjective data and
significant judgment relating to timing of payments and collections and the
amounts to be realized. Different assumptions and/or estimation methodologies
might have a material effect on the fair value estimates. Accordingly, the
estimates of fair value are not necessarily indicative of the amounts the
Company would realize in a current market exchange.
(LOSS) INCOME PER SHARE - (Loss) income per share is computed based on
the weighted average number of shares outstanding. In 1995, pursuant to the
modified treasury stock calculation method, the calculation includes the
effects of the assumed exercise of all outstanding options and warrants, the
repurchase of 20% of the outstanding shares of the Company, and after giving
effect to assumed interest earned on the net proceeds from the exercise and
repurchase. The number of common and common equivalent shares utilized in the
per share computations were 4,509,588, 5,456,266 and 4,425,239 in 1996, 1995
and 1994, respectively. Outstanding options and warrants were not considered
in 1996 and 1994 as they would have been antidilutive in 1996 and were not
dilutive in 1994.
2. SHORT-TERM INVESTMENTS
At December 31, 1995, short-term investments consisted of corporate debt
securities due in 1996. These securities were classified as
available-for-sale. At December 31, 1995, the fair market value of such
securities was less than their net cost by approximately $4,000, and a
valuation allowance was established as a reduction of stockholders' equity.
3. FIXED ASSETS
Fixed assets, stated at cost less accumulated depreciation and
amortization, consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DECEMBER 31,
1996 1995
Equipment $6,092,985 $4,401,308
Furniture and fixtures 375,465 316,697
Leasehold improvements 401,987 308,563
---------- ----------
Total 6,870,437 5,026,568
Less accumulated depreciation
and amortization 3,252,498 2,060,972
---------- ----------
$3,617,939 $2,965,596
========== ==========
</TABLE>
As of December 31, 1996 and 1995, the net book value of fixed assets
located at the Company's production facilities in the Philippines and Sri
Lanka was approximately $1,513,000 and $1,476,000, respectively. In addition,
equipment financed by capital leases has a net book value of $337,000 at
December 31, 1996.
4. INCOME TAXES
The significant components of the (benefit from) provision for income
taxes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Current income tax (benefit) expense:
Foreign $ - $ 10,000 $ 60,000
Federal (159,000) 535,000 69,000
State and local (48,000) 215,000 29,000
---------- ---------- --------
(207,000) 760,000 158,000
Deferred income tax (benefit) expense (150,000) 240,000 41,000
---------- ---------- --------
(Benefit from) provision for income taxes $(357,000) $1,000,000 $199,000
========== ========== ========
</TABLE>
Reconciliation of the U.S. statutory rate with the Company's effective
tax rate is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Federal statutory rate (34.0)% 34.0% 34.0%
Effect of:
State income taxes (net of federal tax benefit) (5.4) 6.1 3.8
Other 2.2 (0.3) 1.5
------- ----- -----
Effective rate (37.2)% 39.8% 39.3%
======= ===== =====
</TABLE>
As of December 31, 1996 and 1995, the composition of the Company's net
deferred taxes is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Deferred income tax assets:
Allowances not currently deductible $ 105,000 $ 72,000
Expenses not deductible until paid 115,000 -
Net operating loss carryforward 700,000 -
------------ ----------
920,000 72,000
------------ ----------
Deferred income tax liabilities:
Foreign source income, not taxable
unless repatriated (815,000) (235,000)
Depreciation and amortization (236,000) (118,000)
------------ ----------
(1,051,000) (353,000)
------------ ----------
Net deferred income tax liability $ (131,000) $(281,000)
============ ==========
</TABLE>
The Company's net operating loss carryforward of approximately $1,750,000
expires in 2011.
5. ACQUISITIONS
On December 1, 1994, the Company acquired certain assets of Engineering
Images ("EI"), an unaffiliated partnership. EI is a provider of imaging and
document management systems and scanning/conversion services. The purchase
price consisted of $427,270 cash (including expenses of $27,270), three-year
subordinated notes in the aggregate principal amount of $300,000 payable in 36
equal monthly installments commencing December 15, 1994 plus interest at the
prime rate (8.25% at December 31, 1996), and 56,764 restricted shares of the
Company's common stock with piggy-back registration rights valued at $200,000.
The assets acquired consist principally of certain fixed assets and goodwill.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of EI are included since the date of acquisition.
Further, in January 1994, the Company acquired the medical transcription
business of Statline, Inc. for approximately $100,000 cash, principally
consisting of fixed assets.
On January 2, 1996, the Company acquired certain assets of International
Imaging, Inc. ("II"). II is located in Azusa, California and provides imaging
and document management systems and scanning/conversion services. The
purchase price consisted of $40,000 cash and 50,000 shares of the Company's
restricted common stock. The Company also paid approximately $300,000 of II's
outstanding lease obligations. II's revenues for the year ended December 31,
1995 were approximately $1,000,000.
6. LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Equipment leases, at 9.6% to 13.5% $365,846 $ -
Acquisition notes - subordinated, at prime 91,667 179,680
-------- --------
457,513 179,680
Less: deferred interest 53,255 -
-------- --------
Total 404,258 179,680
Less: current portion of long-term debt 208,298 87,500
-------- --------
Long-term debt $195,960 $ 92,180
======== ========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $236,855
1998 139,038
1999 55,458
2000 19,043
2001 7,119
$457,513
========
</TABLE>
7. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES - The Company is obligated under various operating lease
agreements for office and production space. The agreements contain escalation
clauses and requirements that the Company pay taxes, insurance and maintenance
costs. The lease agreements for production space in the Philippines, which
expire through 2001, contain provisions pursuant to which the Company may
cancel the leases at any time. The annual rental for the leased space in the
Philippines is approximately $500,000. For the years ended December 31, 1996,
1995 and 1994, rent expense totaled approximately $825,000, $500,000 and
$408,000, respectively.
At December 31, 1996, future minimum annual rental commitments on
noncancellable leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $314,000
1998 275,000
1999 275,000
2000 80,000
--------
$944,000
========
</TABLE>
EMPLOYMENT AGREEMENTS - The Company has an employment agreement with its
President that expires on September 30, 1999, pursuant to which he receives
annual compensation consisting of $231,000 plus a bonus of up to an additional
15% based upon performance criteria, and options to purchase 31,000 shares of
the Company's common stock in each year of the agreement at the market price
of the common stock at each date of grant. In addition, if certain
performance criteria are achieved, he is eligible to receive, on an annual
basis, options to purchase up to an additional 30,000 shares of common stock.
Furthermore, if the President is employed on September 30, 1999 and the
Company has met certain earnings criteria, as defined, for a period of 30 days
ending October 30, 1999, he may "put" up to 400,000 shares of the Company's
common stock owned by him, to the Company at $5.00 per share. If the "put" is
exercised, payment is to be made in equal monthly installments over a three
year period.
OTHER COMMITMENTS - The Company has a commitment to purchase a perpetual
license for certain production process software for cash totaling $190,000 and
35,000 shares of the Company's common stock. Payment is contingent upon the
successful completion and testing of the software, expected to occur during
1997. In addition, the Company has contracts to purchase an aggregate of
$1,500,000 of Philippine pesos on various dates through February 1997.
The Company has entered into agreements to lease production facilities
currently under construction in India. Upon completion of the facilities, the
Company will be obligated to make payments aggregating approximately $150,000
per year for an initial term of five years.
Employees at the Company's Manila facilities voted to join a union. The
Company reached agreement in 1996 on a collective bargaining agreement which
provides for approximately 10% wage increases per annum plus one-half of any
government mandated increases for the five years ended March 31, 2001.
PHILIPPINE PENSION REQUIREMENT - The Philippine government enacted
legislation requiring businesses to provide a lump-sum pension payment to
employees working at least five years and who are employed by the Company at
age 60. Those eligible employees are to receive approximately 59% of one
month's pay for each year of employment with the Company. The terms of the
collective bargaining agreement provide benefits similar to the government.
Based on actuarial assumptions and calculations in accordance with SFAS No.
87, "Employers' Accounting for Pensions," the liability for the future payment
is insignificant at December 31, 1996. Under the legislation, the Company is
not required to fund future costs, if any.
8. CAPITAL STOCK
COMMON STOCK DIVIDEND - On August 9, 1994 the Board of Directors declared
a 5% stock dividend to holders of record on August 25, 1994, payable on
September 19, 1994. All share and per share information have been adjusted to
reflect such dividend.
COMMON STOCK AND REDEEMABLE WARRANTS - In August and September 1993 the
Company sold pursuant to a public offering 1,610,000 shares (1,690,500 after
dividend) of its common stock at $5.00 per share and 2,415,000 warrants
("Redeemable Warrants") at $.10 per warrant and realized net proceeds after
all expenses of the offering of $6,752,585. From August 10, 1994 until August
9, 1997 the holders may exchange four Redeemable Warrants for 1.05 shares of
common stock upon payment of $6.68 per whole share. No fractional shares will
be issued. The warrants are redeemable by the Company at $.10 per warrant
upon 30 days prior written notice, provided the closing bid price of the
common stock equals or exceeds $9.50 per share for 20 trading days within a
period of 30 consecutive trading days.
In connection with the offering, the Company sold to the underwriter for
nominal consideration warrants to purchase up to 147,887 shares of common
stock at $7.81 per share and 210,000 warrants at $.157 per warrant to purchase
55,015 shares of common stock at $6.68 per share through August 9, 1998. The
warrants are substantially identical to the Redeemable Warrants, except they
are not redeemable. The underwriter's warrants contain piggy-back
registration rights for a period of seven years with respect to the underlying
securities and a demand registration right for a period of five years for two
registration filings, one of which is at the Company's expense.
PREFERRED STOCK - The Board of Directors is authorized to fix the terms,
rights, preferences and limitations of the preferred stock and to issue the
preferred stock in series which differ as to their relative terms, rights,
preferences and limitations. During 1995, the Company redeemed its Series A
and Series B preferred stock for an aggregate consideration of $2,000.
COMMON STOCK RESERVED - At December 31, 1996, the Company reserved for
issuance 2,878,637 shares of its common stock as follows: (a) 1,728,063 shares
pursuant to the Company's Stock Option Plans (including 21,000 options issued
to the Company's Chairman which were not granted under the plans); (b) 632,672
shares upon conversion of Redeemable Warrants; (c) 202,902 shares issuable
upon exercise of underwriter's warrants; and (d) 315,000 shares issuable upon
exercise of warrants issued to consultants.
9. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The Company adopted, with stockholder approval, 1993, 1994, 1995 and 1996
Stock Option Plans (the "1993 Plan," "1994 Plan," "1994 DD Plan," "1995 Plan"
and the "1996 Plan") which provide for the granting of options to purchase not
more than an aggregate of 262,500, 315,000, 52,500, 600,000 and 500,000 shares
of common stock, respectively, subject to adjustment under certain
circumstances. Such options may be incentive stock options ("ISOs") within
the meaning of the Internal Revenue Code of 1986, as amended, or options that
do not qualify as ISOs ("Non-Qualified Options").
The option exercise price per share may not be less than the fair market
value per share of common stock on the date of grant (110% of such fair market
value for an ISO, if the grantee owns stock possessing more than 10% of the
combined voting power of all classes of the Company's stock). Options may be
granted under the Stock Option Plan to all officers, directors and employees
of the Company and, in addition, Non-Qualified Options may be granted to other
parties who perform services for the Company. No options may be granted under
the 1993 Plan after April 30, 2003, under the 1994 Plan and 1994 DD Plan,
after May 19, 2004, under the 1995 Plan, after May 16, 2005 and under the 1996
Plan, after July 8, 2006.
The Plans may be amended from time to time by the Board of Directors of
the Company. However, the Board of Directors may not, without stockholder
approval, amend the Plans to increase the number of shares of common stock
which may be issued under the Plans (except upon changes in capitalization as
specified in the Plans), decrease the minimum exercise price provided in the
Plans or change the class of persons eligible to participate in the Plans.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation." Accordingly, no compensation expense has been recognized for
stock options granted to employees. Had compensation cost for the Company's
stock option grants been determined based on the fair value at the grant date
for awards in 1996 and 1995 consistent with the provisions of SFAS No. 123,
the Company's net loss would have been $(738,987), or $(.16) per share, in
1996 and net income would have been $1,496,341, or $.32 per share, in 1995.
The fair value of options at date of grant was estimated using the
Black-Scholes pricing model with the following weighted average assumptions:
expected life of four years; risk free interest rate of 6.4% in 1996 and 6.2%
in 1995; expected volatility of 40%; and a zero dividend yield. The effects
of applying SFAS No. 123 in this disclosure are not indicative of future
disclosures. SFAS No. 123 does not apply to awards prior to 1995.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE WEIGHTED WEIGHTED FAIR
PER SHARE REMAINING AVERAGE AVERAGE VALUE,
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE DATE OF
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE GRANT
---------------- ------------ ----------- --------- ----------- --------- ---------
Balance 1/1/94 $ 4.76 - 7.38 262,763 4 $ 5.15
Canceled $ 4.76 (8,400)
Repriced $ 4.76 - 7.38 (241,763)
Repriced $ 2.63 - 3.01 199,763 3 $ 2.86
Repriced $ 4.33 - 5.63 42,000 3 $ 5.31
Granted $ 2.63 - 3.25 220,600 5 $ 2.63
Granted $ 4.20 - 5.95 78,000 5 $ 4.73
------------
Balance 12/31/94 $ 2.63 - 3.25 420,363 4 $ 2.74
$ 4.20 - 5.95 132,600 4 $ 4.92
------------
552,963 143,791 $ 3.66
Canceled $ 2.63 - 4.63 (24,275)
Granted $ 3.38 - 4.63 274,550 5 $ 3.91 $ 1.57
------------
Balance 12/31/95 $ 2.63 - 3.25 398,088 3 $ 2.75
$ 3.38 - 5.95 405,150 3 $ 4.31
------------
803,238 360,295 $ 3.46
Canceled $ 3.01 (500)
Granted $ 2.31 - 3.93 89,000 5 $ 3.06 $ 1.22
Exercised $ 2.63 - 3.01 (22,937)
------------
Balance 12/31/96 $ 2.31 - 3.25 416,151 3 $ 2.71 334,541 $ 2.96
$ 3.38 - 5.95 452,650 3 $ 4.23 267,473 $ 4.39
-----------
868,801 602,014
============ ===========
</TABLE>
The majority of options become exercisable one-third on each of the first
three anniversary dates.
WARRANTS
In February 1995, the Company entered into financial consulting
arrangements with an entity and two individuals pursuant to which the
consultants are to assist the Company for a two year period in merger and
acquisition transactions and developing financial strategies and plans. Two
of the consultants were granted warrants to purchase 150,000 and 50,000
shares, respectively, at $4.50 per share exercisable in 25% cumulative
quarterly increments commencing April 1995 and expiring on December 31, 1997.
Another consultant was granted warrants to purchase 65,000 shares at $4.00 per
share exercisable in 25% cumulative increments commencing September 1, 1995
and expiring on December 31, 1997. All warrants contain demand and piggyback
registration rights after the warrants first become exercisable.
In addition, in connection with a consulting agreement on December 18,
1995, the Company issued a warrant to purchase 50,000 shares at a price of
$3.8125 per share. The warrant is exercisable commencing December 18, 1996
and expires in 2000.
10. REVENUES AND ACCOUNTS RECEIVABLE
During 1996, 1995 and 1994, one customer that is comprised of twelve
affiliated companies, accounted for 24%, 29% and 37% (14% from one of the
companies), of the Company's revenues, respectively. No other customer
accounted for 10% or more of the Company's revenues. Further, in 1996, 1995
and 1994, export revenues, all of which were derived from European customers,
accounted for 19%, 18% and 16%, respectively, of total revenues.
A significant amount of the Company's revenues are derived from customers
in the publishing industry. Accordingly, the Company's accounts receivable
generally include significant amounts due from such customers.
11. COSTS RESULTING FROM PROJECT TERMINATION
Costs resulting from project termination represent the provision for
expenses and losses that were attributable to the termination in 1994 of an
unprofitable project that commenced in 1993.
12. SUBSEQUENT EVENT
In January 1997, the Company entered into a revolving credit agreement
with a bank providing for borrowings up to $1,000,000 for equipment purchases.
The borrowings will convert to a term loan payable over a three year period
commencing January 1998. During 1997 interest is payable at % over prime and
interest has been fixed on the term loan at 10.1% per annum. In addition, the
bank has provided a line of credit up to $2,000,000 based on eligible
receivables, as defined. Interest is payable at % over prime. The line of
credit is reviewed annually on June 30 and borrowings are collateralized by a
lien on the assets of the Company.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Not reviewed by independent accountants.
<TABLE>
<CAPTION>
(in thousands, except per share)
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1994
Revenues $ 3,088 $ 3,414 $ 3,702 $ 4,141
Net (loss) income (355) 134 244 284
Net (loss) income per share $ (.08) $ .03 $ .06 $ .06
1995
Revenues $ 4,442 $ 5,219 $ 5,532 $ 5,574
Net income 316 372 408 415
Net income per share $ .07 $ .08 $ .09 $ .08
1996
Revenues $ 5,590 $ 5,250 $ 4,951 $ 4,745
Net income (loss) 326 13 (405) (536)
Net income (loss) per share $ .07 $ - $ (.09) $ (.11)
</TABLE>
<PAGE>
ITEM 9. CHANGE IN ACCOUNTANTS
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
OFFICERS AND DIRECTORS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION
- ------------------- --- ------------------------------------------------
Barry Hertz 47 Chairman of the Board, Chief Executive Officer
Alan Schnelwar 57 Senior Vice President and Director
Martin Kaye 49 Vice President - Finance, Secretary and Director
David Hubbard 39 Chief Technology Officer
E. Bruce Fredrikson 59 Director
Morton Mackof 49 Director
Todd Solomon 35 Director
Jack Spiegelman 58 Director
Stanley Stern 46 Director
</TABLE>
On March 31, 1996, Track Data Corporation ("Track") merged (the "Merger")
into Global Market Information, Inc. ("Global"). Upon consummation of the
merger the name Global was changed to Track Data Corporation ("TDC" or the
"Company").
BARRY HERTZ has served as the Company's Chairman and Chief Executive
Officer since its inception. In April 1994 he was elected Secretary of the
Company and served until August 1994. Mr. Hertz also founded Track in 1981.
He was Track's sole owner and its Chief Executive Officer until its merger
with Global. He holds a Masters degree in Computer Science from New York
University (1973), and a B.S. degree in Mathematics from Brooklyn College
(1971). Mr. Hertz is also Chairman of Innodata Corporation ("Innodata"), a
public company co-founded by Mr. Hertz, of which TDC is a principal
stockholder and which is engaged in the data entry and conversion business.
ALAN SCHNELWAR has been a Vice President of Track in charge of the
Dial/Data service since 1988, and was elected President of the Company in
August 1994. He served as President until March 1996 and became its Senior
Vice President upon the Merger. He holds a B.S. degree in Civil Engineering
from the City University of New York (1967).
MARTIN KAYE has been Vice President-Finance and Director of the Company
since April 1994. He was elected Secretary of the Company in August 1994.
Mr. Kaye is a certified public accountant and has served as Chief Financial
Officer of Innodata since October 1993 and was appointed as a Director in
March 1995. He had been an audit partner with Deloitte & Touche LLP for more
than five years until his resignation in 1993. Mr. Kaye holds a B.B.A. in
accounting from Baruch College (1970).
DAVID HUBBARD has served as Chief Technology Officer of Track and in
predecessor positions for more than five years and as Chief Technology Officer
of the Company since the Merger.
DR. E. BRUCE FREDRIKSON has been a Director of the Company since June
1994. He is currently a professor of finance at Syracuse University School of
Management where he has taught since 1966 and has previously served as
chairman of the finance department. Dr. Fredrikson has a B.A. in economics
from Princeton University and a M.B.A. and a Ph.D. in finance from Columbia
University. He serves as director of Eagle Finance Corp., a company which
acquires and services non-prime automobile installment sales contracts. He is
also an independent general partner of Fiduciary Capital Partners, L.P. and
Fiduciary Capital Pension Partners, L.P. He is also a director of Innodata.
MORTON MACKOF has been a Director of the Company since April 1994 and
became its President in March 1996 upon the Merger and resigned as President
in November 1996. He was Executive Vice President of Track since February
1991 and was elected its President in December 1994. From 1986 to 1991, he
was President of Medical Leasing of America, Inc. He holds a B.S. degree in
electrical engineering from Rensselaer Polytechnic Institute (1970) and did
graduate work in computer science. He is also a director of Innodata.
TODD SOLOMON has been a Director of the Company since September 1994.
Mr. Solomon has also been President and a Director of Innodata since its
founding in 1988. Since August 1995, Mr. Solomon has been the Chief Executive
Officer of Innodata. Mr. Solomon holds an A.B. in history and physics from
Columbia University (1986).
JACK SPIEGELMAN has been a Director of the Company since April 1996.
Since February 1996 he has been a registered representative of J. W. Charles
Securities, Inc. and prior thereto for more than five years was a registered
representative of Fahnestock & Company, Inc. Mr. Spiegelman holds a B.A. in
economics from Brooklyn College (1963).
STANLEY STERN has been a Director of the Company since April 1994 and
became its Executive Vice President upon the Merger and resigned as Executive
Vice President in December 1996. Mr. Stern has served as Chief Operating
Officer of Track and in predecessor positions for more than five years. Mr.
Stern holds a B.B.A. from Baruch College (1973). He is also a director of
Innodata.
First Hanover Securities, Inc., the underwriter of the Company's initial
public offering, is entitled to designate one member of the Board of Directors
for five years ending August 10, 1999. To date no such member has been
designated. Directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers
serve at the discretion of the Board. There are no family relationships among
directors or officers.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation
paid by the Company or its predecessors, Track and Global, for services to it
during the three fiscal years ended December 31, 1996 to the Company's Chief
Executive Officer and to the executive officers whose aggregate cash and cash
equivalent compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
NUMBER
OF STOCK
FISCAL ANNUAL OPTIONS
NAME AND POSITION YEAR SALARY BONUS TOTAL AWARDED
- ---------------------------- ------ ---------- -------- ---------- --------
Barry Hertz 1996 $ 350,000 $ - $ 350,000 40,000
Chairman, CEO 1995 1,173,000 - 1,173,000 100,000 (A)
1994 1,535,600 - 1,535,600 100,000
Alan Schnelwar 1996 $ 165,000 $ - $ 165,000 25,500
Senior Vice President 1995 170,000 - 170,000 40,000 (A)
1994 140,000 - 140,000 40,000
Morton Mackof 1996 $ 277,000 $ - $ 277,000 30,000
President (B) 1995 308,600 240,000 (C) 548,600 2,000 (A)
1994 272,740 - 272,740 2,000
Stanley Stern 1996 $ 173,990 $ - $ 173,990 10,000
Executive Vice President (B) 1995 181,600 - 181,600 2,000 (A)
1994 179,433 - 179,433 2,000
David Hubbard 1996 $ 149,450 $ - $ 149,450 12,500
Chief Technology Officer 1995 141,283 - 141,283 1,000 (A)
1994 151,983 - 151,983 1,000
<FN>
(A) Options granted in 1994 and repriced in 1995
(B) Mssrs. Mackof and Stern resigned in November 1996 and December 1996, respectively.
(C) Bonus paid by issuance of 60,000 shares of the Company's common stock.
</TABLE>
The above table does not include certain insurance and other personal
benefits, the total value of which does not exceed $50,000 or 10% of such
person's cash compensation.
Prior to the Merger, Mr. Hertz received compensation from Track, an S
Corporation 100% owned by Mr. Hertz. In connection with the Merger, Mr. Hertz
agreed to receive compensation of $350,000 for 1996 and 1997.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENT OF POTENTIAL REALIZED
TOTAL OPTIONS VALUE AT ASSUMED
GRANTED TO ANNUAL RATES OF
NUMBER OF EMPLOYEES STOCK APPRECIATION
OPTIONS IN FISCAL EXERCISE EXPIRATION FOR OPTION TERM
NAME GRANTED YEAR PRICE DATE 5% 10%
- -------------- --------- -------------- -------- ----------- ------------------- --------
Barry Hertz 40,000 7.0% $ 2.00 4/2001 $22,400 $37,200
Alan Schnelwar 25,500 4.5% $ 2.00 4/2001 $14,280 $23,715
Morton Mackof 30,000 5.3% $ 2.00 4/2001 $16,800 $27,900
Stanley Stern 10,000 1.8% $ 2.00 4/2001 $ 5,600 $ 9,300
David Hubbard 12,500 2.2% $ 2.00 4/2001 $ 7,000 $11,625
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR;
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS AT
SHARES YEAR END FISCAL YEAR END
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE UNEXERCISABLE UNEXERCISABLE
- -------------- ----------- ----------------- --------------------------
Barry Hertz - 86,667/53,333 $ - /$-
Alan Schnelwar - 39,666/25,834 $ - /$-
Morton Mackof - 17,000/15,000 $ - /$-
Stanley Stern - 7,000/5,000 $ - /$-
David Hubbard - 7,250/6,250 $ - /$-
</TABLE>
There are no employment agreements, stock appreciation rights or long-term
incentive plans.
DIRECTORS COMPENSATION
Dr. Fredrikson and Mr. Spiegelman are compensated at the rate of $1,250
and $1,000 per month, respectively, plus out-of-pocket expenses for each
meeting attended. No other director is compensated for his services as
director.
Messrs. Fredrikson and Spiegelman will each receive options to purchase
5,000 shares annually under the 1995 Disinterested Directors' Stock Option
Plan as compensation for their services as administrators of the 1995 Stock
Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the Company's fiscal year ended December 31, 1996, Messrs. Hertz,
Mackof, Stern, Schnelwar and Kaye were officers of the Company and were
members of the Board of Directors (there is no compensation committee). Mr.
Hertz is Chairman of Innodata Corporation and Mr. Solomon, a director of the
Company, is President and a director of Innodata Corporation. Mr. Kaye is
chief financial officer and a director of Innodata Corporation. Messrs. Mackof
and Stern are also directors of Innodata Corporation.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company believes that during the period from January 1, 1996 through
December 31, 1996 all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten-percent beneficial owners were
complied with.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 28, 1997, information
regarding the beneficial ownership of the Company's Common Stock based upon
the most recent information available to the Company for (i) each person known
by the Company to own beneficially more than five (5%) percent of the
Company's outstanding Common Stock, (ii) each of the Company's officers and
directors and (iii) all officers and directors of the Company as a group.
Unless otherwise indicated, each stockholder's address is c/o the Company, 56
Pine Street, New York, New York 10005.
SHARES OWNED BENEFICIALLY (1)
<TABLE>
<CAPTION>
<S> <C> <C>
NAME NO. OF SHARES % OF CLASS
- --------------------------------------- ------------- -----------
Barry Hertz (2) 12,118,000 81.6%
Morton Mackof (3) 273,405 1.9%
Stanley Stern (4) 38,434 *
Alan Schnelwar (5) 61,500 *
Martin Kaye (6) 21,250 *
David Hubbard (7) 50,562 *
Todd Solomon (8) 15,250 *
Jack Spiegelman (9) 6,000 *
E. Bruce Fredrikson (10)
Syracuse University
School of Management
Syracuse, NY 13244 21,000 *
All Officers and Directors as a Group
(nine persons)(2)(3)(4)(5)(6)(7)(8)(9)(10) 12,605,401 84.0%
---------------
<FN>
* = less than 1%
</TABLE>
(1) Except as noted otherwise, all shares are owned beneficially and of
record. Based on 14,731,452 shares outstanding.
(2) Consists of 11,798,000 shares owned by Mr. Hertz and 200,000 shares
owned by Trusts established in the names of Mr. Hertz's children. Also
includes 120,000 options which are presently exercisable from aggregate grants
to purchase 140,000 shares of Common Stock granted to Mr. Hertz under the
Company's Stock Option Plans.
(3) Consists of 17,000 shares issuable upon the exercise of presently
exercisable options granted under the Company's Stock Option Plans and 256,405
shares held in the Track Data Phantom Unit Trust (the "TDC Trust") to be
released upon his termination of employment, or earlier with approval of the
Board of Directors.
(4) Consists of 7,000 shares issuable upon the exercise of presently
exercisable options granted under the Company's Stock Option Plans and 31,434
shares held in the TDC Trust to be released upon his termination of
employment, or earlier with approval of the Board of Directors.
(5) Consists of 6,000 shares owned of record, 53,000 shares issuable upon
the exercise of presently exercisable options granted under the Company's
Stock Option Plans and 2,500 shares exercisable pursuant to warrants.
(6) Consists of 500 shares owned of record, 20,500 shares issuable upon
the exercise of presently exercisable options granted under the Company's
Stock Option Plans and 250 shares exercisable pursuant to warrants.
(7) Consists of 500 shares owned of record, 7,250 shares issuable upon
the exercise of presently exercisable options granted under the Company's
Stock Option Plans and 250 shares exercisable pursuant to warrants
and 42,562 shares held in the TDC Trust to be released upon his termination
of employment, or earlier with approval of the Board of Directors.
(8) Consists of 1,500 shares owned of record, 13,000 shares issuable upon
the exercise of presently exercisable options granted under the Company's
Stock Option Plans and 750 shares exercisable pursuant to warrants.
(9) Consists of 1,000 shares owned by his wife as to which Mr. Spiegelman
disclaims beneficial interest and 5,000 shares issuable upon the exercise of
presently exercisable options granted under the Company's Stock Option Plans.
(10) Consists of 1,000 shares owned of record and 20,000 shares issuable
upon presently exercisable options granted under the Company's Stock Option
Plans.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 Track made cash advances to Mr. Hertz, without interest, and
to three real estate partnerships owned by Mr. Hertz and members of his
family, with interest at 6% per annum. The loans were unsecured and totaled
approximately $873,000 in the aggregate. These amounts were transferred to
Mr. Hertz in partial satisfaction of a dividend declared prior to the Merger
in accordance with the terms of the Merger Agreement. TDC guarantees
mortgages on two real estate partnerships owned by Mr. Hertz and members of
his family. At December 31, 1996, such mortgages provided for interest at 10%
per annum and had balances of $1,890,000 due May 2000 and $997,000 due June
1998. Track also made cash advances with interest principally at 1% over
prime (9.25% at December 31, 1996) and performed certain services for
Newsware, Inc., a company in the business of delivering and processing
real-time news, which is controlled by Mr. Hertz and Morton Mackof. Newsware
has incurred losses since its inception. TDC provides facilities management
and other services to Newsware. Track provided such services to Newsware
without charge in 1996 and 1995. Such services have an estimated value of
$100,000. The cash advances made by Track were approximately $572,000 during
1996. At December 31, 1996, Newsware was indebted to Track for approximately
$1,260,000, including accrued interest. The advances made in 1996 were made
pursuant to a note due December 1997, bearing interest at 9%, which is
convertible to a 25% common stock interest in Newsware.
See Item 2. "Properties" for information on leases from partnerships
affiliated with Mr. Hertz.
IV-1
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT DESCRIPTION
- -------- --------------------------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended (1)
3.2 By-Laws (1)
4.1 Form of Warrant Agreement (1)
4.2 Specimens of Common Stock and Redeemable Warrant certificates (1)
10.1 Agreement dated July 1, 1993 among TDC, Warner Insurance Services, Inc. and Warner Information
Technologies, Inc. (1)
10.2 Agreement dated as of July 1, 1992 among TDC, Warner Insurance Services, Inc. and Warner Information
Technologies, Inc. (1)
10.3 1994 Stock Option Plan (1)
10.4 Form of indemnity agreement with directors (1)
10.5 Dial Data Marketing Agreement dated April 22, 1993 between TDC and Omega Research Inc. (subject to request
for confidential treatment) (1)
10.6 Dial Data Marketing Agreement dated August 1, 1992 between TDC and Equis International (subject to request
for confidential treatment) (1)
10.7 Agreement dated September 29, 1986 between Hale Systems and CSI/Criterion Software (subject to request for
confidential treatment) (1)
10.8 Form of Database Management Agreement with Track Data Corporation (1)
10.9 Form of Asset Purchase Agreement between the Company and TDC (1)
10.10 Agreement of Purchase and Sale between the Company and AIQ dated October 2, 1994 as amended on October
17, 1994 (2)
10.11 Agreement of Purchase and Sale between the Company and All-Quotes dated October 13, 1994, as amended
January 9, 1995 (3)
10.12 1995 Stock Option Plan (4)
10.13 1995 Disinterested Directors' Stock Option Plan (5)
10.14 Merger Agreement between the Company and TDC (6)
10.15 1996 Stock Option Plan (7)
23 Consent of Grant Thornton LLP filed herewith
23.1 Consent of Richard A. Eisner & Company LLP filed herewith
23.2 Consent of Deloitte Touche Tohmatsu filed herewith
23.3 Consent of Margolin, Winer & Evens LLP filed herewith
27 Financial Data Schedule filed herewith
_ _ _ _
<FN>
(1) Previously filed as exhibit to Form S-1 Registration Statement No. 33-78570.
(2) Previously filed as exhibit to Form 8-K dated as of October 17, 1994.
(3) Previously filed as exhibit to Form 8-K dated as of January 9, 1995.
(4) Previously filed as Exhibit A to Definitive Proxy for August 10, 1995, Annual Meeting of Stockholders
(5) Previously filed as Exhibit B to Definitive Proxy for August 10, 1995, Annual Meeting of Stockholder
(6) Previously filed as Appendix A to Definitive Proxy for March 19, 1996, Special Meeting of Stockholders
(7) Previously filed as Appendix A to Definitive Proxy for November 7, 1996, Annual Meeting of Stockholders
</TABLE>
(b) Reports on Form 8-K during fourth quarter
None
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRACK DATA CORPORATION
By /s/
---
Barry Hertz, Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- ------------------- ----------------------------------- --------------
/s/ Chairman of the Board and March 25, 1997
- -------------------
Barry Hertz Chief Executive Officer
/s/ Senior Vice President and Director March 25, 1997
- -------------------
Alan Schnelwar
/s/ Vice President - Finance, Secretary March 25, 1997
- -------------------
Martin Kaye and Director
/s/ Director March 25, 1997
- -------------------
E. Bruce Fredrikson
/s/ Director March 25, 1997
- -------------------
Morton Mackof
/s/ Director March 25, 1997
- -------------------
Todd Solomon
/s/ Director March 25, 1997
- -------------------
Jack Speigelman
/s/ Director March 25, 1997
- -------------------
Stanley Stern
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We have issued our report dated February 28, 1997, accompanying the
consolidated financial statements included in the Annual Report of Track Data
Corporation and Subsidiaries on Form 10-K for the year ended December 31,
1996. We hereby consent to the incorporation by reference of said report in
the Registration Statements of Track Data Corporation on Form S-3 (File No.
333-4780, effective July 11, 1996) and on Form S-8 (File No. 333-4532,
effective May 2, 1996).
GRANT THORNTON LLP
Melville, New York
February 28, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
No. 333-4780 and 333-4532 on Forms S-3 and S-8, respectively, of Track Data
Corporation, our report dated March 27, 1995 (relating to the 1994 financial
statements of Track Data Corporation, before giving effect to the 1996 merger,
not presented separately herein) in this Annual Report on Form 10-K of Track
Data Corporation for the year ended December 31, 1996.
Richard A. Eisner & Company LLP
New York, New York
March 25, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
No. 333-4780 and 333-4532 on Forms S-3 and S-8, respectively, of Track Data
Corporation, our report dated February 17, 1995 (relating to the 1994
financial statements of Track Data (Japan) Ltd., not presented separately
herein) in this Annual Report on Form 10-K of Track Data Corporation for the
year ended December 31, 1996.
Deloitte Touche Tohmatsu
Tokyo, Japan
March 24, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Track Data Corporation on Form S-3 (File No. 333-4780, effective July 11,
1996) and on Form S-8 (File No. 333-4532, effective May 2, 1996) of our report
dated March 14, 1997, appearing in this Annual Report on Form 10-K of Track
Data Corporation as to the Financial Statements of Innodata Corporation for
the years ended December 31, 1996, 1995 and 1994.
Margolin, Winer & Evens LLP
Garden City, New York
March 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922811
<NAME> TRACK DATA CORPORATION
<CAPTION>
<S>
<C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 63,482
<SECURITIES> 0
<RECEIVABLES> 1,596,628
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,561,083
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,305,355
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 147,826
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,305,355
<SALES> 0
<TOTAL-REVENUES> 47,138,539
<CGS> 25,898,461
<TOTAL-COSTS> 46,654,171
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 827,864
<INCOME-PRETAX> 772,787
<INCOME-TAX> 525,969
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,463
<EPS-PRIMARY> .00
<EPS-DILUTED> 0
</TABLE>
