U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
Commission File Number 0-24634
TRACK DATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
22-3181095
(I.R.S. Employer Identification No.)
56 PINE STREET
NEW YORK, NY 10005
(Address of principal executive offices)
(212) 422-4300
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of October 31, 1998 there
were 14,496,156 shares of common stock outstanding.
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PART I. FINANCIAL INFORMATION
- -------- ----------------------
Item 1. Financial Statements
---------------------
See pages 2-6
Item 2. Management's Discussion and Analysis of Financial
-----------------------------------------------------
Condition and Results of Operations
-------------------------------------
See pages 7-9
PART II. OTHER INFORMATION
- --------- ------------------
See page 10
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TRACK DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- -------------
Unaudited Derived
from audited
financial
ASSETS statements
CASH $ 551,686 $ 579,214
ACCOUNTS RECEIVABLE - net 1,813,622 1,955,142
FIXED ASSETS - net 8,418,173 8,876,718
INVESTMENT IN AFFILIATE 952,285 741,285
DUE FROM RELATED PARTIES 52,438 246,867
EXCESS OF COST OVER NET ASSETS ACQUIRED 3,100,704 3,312,613
NET DEFERRED INCOME TAX ASSETS 565,000 585,000
OTHER ASSETS 2,095,541 2,015,792
-------------- -------------
TOTAL $ 17,549,449 $ 18,312,631
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 4,204,965 $ 4,408,042
Note payable - bank 1,239,313 2,373,199
Notes payable - other 681,963 664,824
Capital lease obligations 3,137,030 3,121,502
Other liabilities 348,449 1,115,631
-------------- -------------
Total liabilities 9,611,720 11,683,198
-------------- -------------
STOCKHOLDERS' EQUITY (Note 3)
Common stock - $.01 par value; 30,000,000 shares authorized;
Issued and outstanding - 14,530,733 shares in 1998 and
14,308,967 shares in 1997 145,308 143,090
Additional paid-in capital 15,464,445 14,417,325
Foreign currency translation adjustment 17,692 22,999
Deficit (7,689,716) (7,953,981)
-------------- -------------
Total stockholders' equity 7,937,729 6,629,433
-------------- -------------
TOTAL $ 17,549,449 $ 18,312,631
============== =============
<FN>
See notes to condensed consolidated financial statements
</TABLE>
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TRACK DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<S> <C> <C>
1998 1997
----------- ------------
REVENUES $34,880,845 $35,575,020
----------- -----------
OPERATING COSTS AND EXPENSES:
Direct operating costs 19,638,179 19,217,297
Selling and administrative expenses 14,619,477 14,287,624
Interest expense - net 392,923 554,598
----------- -----------
Total 34,650,579 34,059,519
----------- -----------
INCOME BEFORE INCOME TAXES AND EQUITY
IN NET INCOME (LOSS) OF AFFILIATE 230,266 1,515,501
INCOME TAXES 177,000 543,303
----------- -----------
INCOME BEFORE EQUITY IN NET INCOME (LOSS) OF AFFILIATE 53,266 972,198
EQUITY IN NET INCOME (LOSS) OF AFFILIATE 211,000 (1,130,000)
----------- -----------
NET INCOME (LOSS) $ 264,266 $ (157,802)
=========== ===========
BASIC AND DILUTED INCOME (LOSS) PER SHARE $.02 $(.01)
==== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 14,455,002 14,610,000
=========== ===========
<FN>
See notes to condensed consolidated financial statements
</TABLE>
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TRACK DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<S> <C> <C>
1998 1997
----------- -----------
REVENUES $11,610,972 $11,763,207
----------- -----------
OPERATING COSTS AND EXPENSES:
Direct operating costs 6,711,266 6,329,615
Selling and administrative expenses 4,847,938 4,700,592
Interest expense - net 114,981 171,723
----------- -----------
Total 11,674,185 11,201,930
----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES AND EQUITY
IN NET INCOME (LOSS) OF AFFILIATE (63,213) 561,277
INCOME TAXES 5,000 191,912
----------- -----------
(LOSS) INCOME BEFORE EQUITY IN NET INCOME (LOSS) OF AFFILIATE (68,213) 369,365
EQUITY IN NET INCOME (LOSS) OF AFFILIATE 65,000 (360,000)
----------- -----------
NET (LOSS) INCOME $ (3,213) $ 9,365
=========== ===========
BASIC AND DILUTED (LOSS) INCOME PER SHARE $ - $ -
==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING 14,602,176 14,465,000
=========== ===========
<FN>
See notes to condensed consolidated financial statements
</TABLE>
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TRACK DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<S> <C> <C>
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 264,266 $ (157,802)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 2,866,397 2,818,952
Equity in net (income) loss of affiliate (211,000) 1,130,000
Deferred income taxes 20,000 511,450
Changes in operating assets and liabilities:
Accounts receivable 141,520 (59,800)
Other assets 14,888 (175,869)
Accounts payable and accrued expenses (203,077) 314,165
Other liabilities (697,628) 184
----------- -----------
Net cash provided by operating activities 2,195,366 4,381,280
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (451,142) (499,325)
Repayment of related party loans 201,905 41,709
Loans to related parties (7,476) (577,184)
Loans (to) from others (11,677) 43,015
Purchase of marketable securities - (10,000)
----------- -----------
Net cash used in investing activities (268,390) (1,001,785)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations (1,487,685) (2,136,351)
Net payments on note payable - bank (1,133,886) (403,272)
Net proceeds (payments) on notes payable - other 17,140 (17,285)
Net proceeds on loans from employee savings program 18,723 42,996
Purchase of treasury stock (669,070) (597,533)
Payments of acquisition notes - (187,601)
Proceeds from exercise of stock options 1,318,409 -
----------- -----------
Net cash used in financing activities (1,936,369) (3,299,046)
----------- -----------
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH (18,135) 1,081
----------- -----------
NET (DECREASE) INCREASE IN CASH (27,528) 81,530
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 579,214 65,589
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 551,686 $ 147,119
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 348,271 $ 537,186
Income taxes 784,708 29,532
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Equipment acquisitions financed by capital leases $ 1,497,979 $ 1,375,798
<PAGE>
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
TRACK DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of September 30, 1998, and the results of operations for the three and nine
month periods ended September 30, 1998 and 1997 and of cash flows for the nine
months ended September 30, 1998 and 1997. The results of operations for the
nine months ended September 30, 1998 are not necessarily indicative of results
that may be expected for any other interim period or for the full year.
These financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1997 included in
the Company's Annual Report on Form 10-K. The accounting policies used in
preparing these financial statements are the same as those described in the
December 31, 1997 financial statements.
2. On November 7, 1997, the Company's Chairman and principal stockholder
contributed to the Company for no consideration his 100% ownership interest in
Newsware, Inc. which provides on-line news services to its customers. The
results of operations for the three and nine months ended September 30, 1997
have been restated to give effect to the combination of Newsware, Inc. and the
Company which has been accounted for similar to a pooling of interests.
3. During the nine months ended September 30, 1998 the Company purchased and
retired 338,355 shares for $669,070.
4. In April 1998, the Company granted options to purchase 390,000 shares of
its common stock at $3.00 per share. Further, in April and May 1998 options to
purchase 560,121 shares were exercised at prices of $2.00-$3.00 aggregating net
proceeds to the Company of $1,318,409.
<PAGE>
TRACK DATA CORPORATION AND SUBSIDIARIES
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 institutional and individual investors
through dedicated telecommunication lines and the Internet. It also
disseminates news and third party database information from more than 100
sources worldwide. The Company's main products include MarkeTrack,
MarkeTrack98, Track OnLine, Dial/Data, NewsWatch, NewsWeb, myTrack and ProTrack.
Track Data's AIQ Systems division offers expert systems software, including
artificial intelligence products for market timing and stock selection.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues for the three months ended September 30, 1998 and 1997 were
$11,610,972 and $11,763,207, respectively.
Direct operating costs were $6,711,266 for the third quarter of 1998 and
$6,329,615 for the similar period in 1997, an increase of 6%. Direct operating
costs as a percentage of revenues was 58% in 1998 and 54% in 1997.
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 $4,847,938 and $4,700,592 in the
1998 and 1997 periods, respectively. Selling expenses are expected to increase
during the remainder of 1998 as there has been recent additions to sales and
customer support personnel and increased media advertising for the Company's new
myTrack and ProTrack Internet based products. Selling and administrative
expenses as a percentage of revenues was 42% in 1998 and 40% in 1997.
Interest expense decreased to $114,981 in the 1998 period compared to
$171,723 in 1997 due to decreased borrowings.
As a result of the above mentioned factors, the Company realized a loss
before equity in net income from an affiliate of $68,213 in the 1998 period
compared to income before equity in net loss of affiliate of $369,365 in 1997.
The equity in income from an affiliate was $65,000 in the 1998 period as
compared to a loss from that affiliate of $360,000 in 1997.
The Company incurred a net loss of $3,213 in 1998 and net income of $9,365
in 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues for the nine months ended September 30, 1998 and 1997 were
$34,880,845 and $35,575,020, respectively.
Direct operating costs were $19,638,179 for the first nine months of 1998
and $19,217,297 for the similar period in 1997. Direct operating costs as a
percentage of revenues was 56% in the 1998 period compared to 54% in the 1997
period.
Selling and administrative expenses were $14,619,477 and $14,287,624 in the
1998 and 1997 periods, respectively. Selling and administrative expenses as a
percentage of revenues was 42% in 1998 and 40% in 1997. The increase in 1998 was
due to additional sales and customer support personnel and increased media
advertising for the Company's new myTrack and ProTrack Internet based products.
The dollar and percentage increase primarily reflects an increase in marketing
expenses.
Interest expense decreased to $392,923 in the 1998 period compared to
$554,598 in 1997 due to decreased borrowings.
As a result of the above mentioned factors, the Company realized income
before equity in net income (loss) of an affiliate of $53,266 in the 1998
period compared to $972,198 in 1997.
The equity in income from an affiliate was $211,000 in the 1998 period
compared with a loss from such affiliate of $1,130,000 in 1997. The 1997 loss
included a significant charge by the affiliate for restructuring costs and an
asset impairment write-down.
Net income was $264,266 in 1998 compared to a net loss of $157,802 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1998 and 1997 cash provided by
operating activities was $2,195,366 and $4,381,280, respectively. The decrease
was due principally to a decrease in income before equity in earnings (losses)
of affiliate and $780,000 of taxes paid in 1998. Cash flows used in investing
activities was $268,390 and $1,001,785 for the nine months ended September 30,
1998 and 1997, respectively. Cash used in financing activities was $1,936,369
and $3,299,046 for the nine months ended September 30, 1998 and 1997,
respectively. Financing activities included cash received from the exercise of
stock options in 1998.
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 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 customer requirements.
The Company is in the process of reviewing its products, information
systems and critical suppliers to identify those that may be affected by the
year 2000 (Year 2000) issue. Most of the Company's products and networks are
substantially Year 2000 compliant already. There is presently certain data
provided to customers from mainframe hardware, which is in the process of moving
to a Year 2000 compliant server environment. This is expected to be completed in
early 1999. The Company has sought compliance statements from each of its
significant suppliers, most of which have provided positive assurances regarding
their compliance. The Company will continue to work with those who are not yet
Year 2000 compliant. In the normal course of business, the Company is replacing
certain administrative systems and hardware. The new systems will be Year 2000
compliant and will cost approximately $500,000, most of which will be
capitalized as fixed assets. These costs are capitalized because they relate to
the implementation of new systems which include substantial new functionality
speed and scalability, in addition to being Year 2000 compliant. All historical
and future costs have been and will continue to be funded out of existing cash
and cash flows from operations.
The Company is considering certain contingency plans that are available in
the event of a Year 2000 failure. For example, if any of the direct lines that
are used by the Company's financial network were to fail, it is possible that
the Company could shift customers to its Internet-based products. In another
example, if one data provider fails, it is possible that there is another data
provider that provides substantially similar information that could be
integrated into the Company's data feed. The Company will continue to develop
potential solutions so that it is as prepared as possible in the event of a
failure.
Based upon currently available information, management has no reason to believe
that the Company will not meet its compliance goals and does not anticipate that
the cost of effecting Year 2000 compliance will have a material impact on the
Company's financial condition or results of operations. Nevertheless, achieving
Year 2000 compliance is dependent upon many factors, some of which are not
completely within the Company's control. Should either the Company's internal
systems or the internal systems of one or more of its critical vendors fail to
achieve Year 2000 compliance, the Company's business and its results of
operations could be adversely affected.
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.
Disclosures in this Form 10-Q contain certain forward-looking statements,
including without limitation, statements concerning the Company's operations,
economic performance and financial condition, including in particular, Year 2000
information. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
words "believe," "expect," "anticipate" and other similar expressions generally
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties,
including without limitation, changes in external market factors, changes in the
Company's business or growth strategy or an inability to execute its strategy
due to changes in its industry or the economy generally, the emergence of new or
growing competitors, various other competitive factors and other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission. Actual results could differ materially from
the results referred to in the forward-looking statements. In light of these
risks and uncertainties, there can be no assurance that the results referred to
in the forward-looking statements contained in this Form 10-Q will in fact
occur. Additionally, the Company makes no commitment to disclose any revisions
to forward-looking statements, or any facts, events or circumstances after the
date hereof that may bear upon forward-looking statements.
<PAGE>
- ------
PART II. OTHER INFORMATION
- -------- ------------------
Item 1. Legal Proceedings. Not Applicable
------------------
Item 2. Changes in Securities. Not Applicable
-----------------------
Item 3. Defaults upon Senior Securities. Not Applicable
----------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
-----------------------------------------------------------
The following matters were voted on at the November 5, 1998 Annual Meeting
of Stockholders. The total shares voted were 13,969,337.
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BROKER
FOR AGAINST ABSTAIN NON-VOTES
---------- ------- ------- ---------
ELECTION OF DIRECTORS:
E. Bruce Fredrikson 13,941,057 28,280
Barry Hertz 13,941,057 28,280
Martin Kaye 13,941,057 28,280
Morton Mackof 13,941,057 28,280
Alan Schnelwar 13,941,057 28,280
Jack Spiegelman 13,941,057 28,280
APPROVAL OF 1998 STOCK
OPTION PLAN: 12,370,763 102,600 11,623 1,484,351
APPOINTMENT OF AUDITORS: 13,925,334 30,180 13,823
</TABLE>
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Item 5. Other Information. Not Applicable.
------------------
Item 6. (a) Exhibits.
--------
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K. None.
----------------------
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRACK DATA CORPORATION
Date: 11/11/98 /s/
-------- --------------------------
Barry Hertz
Chairman of the Board
Chief Executive Officer
Date: 11/11/98 /s/
-------- --------------------------
Martin Kaye
V.P. Finance,
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 551,686
<SECURITIES> 0
<RECEIVABLES> 1,813,622
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,418,173
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,549,449
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 145,308
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,549,449
<SALES> 0
<TOTAL-REVENUES> 34,880,845
<CGS> 0
<TOTAL-COSTS> 34,650,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 392,923
<INCOME-PRETAX> 230,266
<INCOME-TAX> 177,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264,266
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 147,119
<SECURITIES> 0
<RECEIVABLES> 1,702,431
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,128,304
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,822,092
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 144,228
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,822,092
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<TOTAL-REVENUES> 35,575,020
<CGS> 0
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<OTHER-EXPENSES> 0
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<INCOME-TAX> 543,303
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<CHANGES> 0
<NET-INCOME> (157,802)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
