**SECURITIES
      AND EXCHANGE COMMISSION**





Washington,
      D.C. 20549





**FORM
      10-K**





(Mark
      One)





þ  Annual
      Report Pursuant to Section 13 or 15( d ) of the
      Securities Exchange Act of 1934


**For
      the fiscal year ended** **December
      31, 2005**





o  Transition
      Report Pursuant to 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)**95
                Rockwell Place****Brooklyn,
                New York**
            **11217**(Address
                of principal executive offices)
            (Zip
                Code)**(718)
                522-7373**(Registrant's
                telephone number)





Securities
      registered pursuant to Section 12(b) of the Exchange Act:  **None**





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





Indicate
      by check mark if the Registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


o Yes þ No





Indicate
      by check mark if the Registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Act.


o Yes þ No





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 þ No o





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





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      Accelerated Filer o   Accelerated Filer o   Non-Accelerated
      Filer þ





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the
      Exchange Act ).


o Yes þ No





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold, or the average bid and asked price of such common equity, as of
      the
      last business day of the Registrant's most recently completed second fiscal
      quarter. Based on the average bid and ask price of the Company's Common Stock
      on
      June 30, 2005 of $2.45 per share. $11,219,000





Indicate
      the number of shares outstanding of each of the Registrant’s classes of common
      stock, as of the latest practicable date.





**8,380,000
      shares of common stock, $.01 par value, as of February 28,
      2006.**





DOCUMENTS
      INCORPORATED BY REFERENCE


**[SEE
      INDEX TO EXHIBITS]**















**TABLE
      OF CONTENTS**




**PART
                  1**
              
              **I-1**ITEM
                  1.
              BUSINESS
              I-1ITEM
                  1A.
              RISK
                  FACTORS
              I-8ITEM
                  2.
              PROPERTIES
              I-18ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              I-18ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              I-18PART
                  II
              
              II-1ITEM
                  5.
              MARKET
                  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS
                  AND ISSUER PURCHASES OF EQUITY SECURITIES
              II-1ITEM
                  6.
              SELECTED
                  FINANCIAL DATA
              II-3ITEM
                  7.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
                  OF OPERATIONS
              II-4ITEM
                  7A.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              II-12ITEM
                  8.
              FINANCIAL
                  STATEMENTS
              II-13ITEM
                  9.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL
                  DISCLOSURES
              II-34ITEM
                  9A.
              CONTROL
                  AND PROCEDURES
              II-34**PART
                  III**
              
              **III-1**ITEM
                  10.
              DIRECTORS
                  AND EXECUTIVE OFFICERS OF REGISTRANT
              III-1ITEM
                  11.
              EXECUTIVE
                  COMPENSATION
              III-3ITEM
                  12.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              III-5ITEM
                  13.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              III-6ITEM
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              III-7**PART
                  IV**
              
              **IV-1**ITEM
                  15.
              EXHIBITS,
                  FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
              IV-1


i


**PART
      I**




*Disclosures
      in this
      Form 10-K contain certain forward-looking statements, including, without
      limitation, statements concerning the Company's operations, economic performance
      and financial condition. These forward-looking statements are made pursuant
      to
      the safe harbor provisions of the Private Securities Litigation Reform Act
      of
      1995. The words "believe," "expect," "anticipate" and other similar expressions
      generally identify forward-looking statements. Readers are cautioned not to
      place undue reliance on these forward-looking statements, which speak only
      as of
      their dates. These forward-looking statements are based largely on the Company's
      current expectations and are subject to a number of risks and uncertainties,
      including, without limitation, changes in external market factors, changes
      in
      the Company's business or growth strategy or an inability to execute its
      strategy due to changes in its industry or the economy generally, the emergence
      of new or growing competitors, various other competitive factors and other
      risks
      and uncertainties indicated from time to time in the Company's filings with
      the
      Securities and Exchange Commission. Actual results could differ materially
      from
      the results referred to in the forward-looking statements. In light of these
      risks and uncertainties, there can be no assurance that the results referred
      to
      in the forward-looking statements contained in this Form 10-K will in fact
      occur. The Company makes no commitment to revise or update any forward looking
      statements in order to reflect events or circumstances after the date any such
      statement is made.*





**ITEM
                1.**
            **BUSINESS**




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




The
      Company is a
      financial services company that provides real-time financial market data,
      fundamental research, charting and analytical services to institutional and
      individual investors through dedicated telecommunication lines and the Internet.
      The Company also disseminates news and third-party database information from
      more than 100 sources worldwide. The Company owns Track Data Securities Corp.
      ("TDSC"), a registered securities broker-dealer and member of the National
      Association of Securities Dealers, Inc. The Company provides a proprietary,
      fully integrated Internet-based online trading and market data system, proTrack,
      for the professional institutional traders, and myTrack and myTrack Pro, for
      the
      individual trader. The Company also operates Track ECN, an electronic
      communications network that enables traders to display and match limit orders
      for stocks.





**Background**





Since
      its inception
      in 1981, the Company has been providing real-time financial market data to
      institutional customers through the operation of its own proprietary ticker
      plant. In 1998, the Company began to offer financial market data to individuals
      through the Internet. Later, through its wholly owned broker-dealer subsidiary,
      TDSC, the Company combined an online trading application with its market data
      in
      its myTrack service. In 2002, trading for institutional customers was introduced
      with proTrack. Further, the Company commenced operations of its Track ECN.
      The
      Company has recently introduced a new low priced trading application, myTrack
      Pro, engineered for the hyperactive traders, with a particular focus on options
      traders. The Company now offers trading and market data services to all members
      of the financial trading community. The offerings include trading in stocks,
      options, e-mini futures and foreign currency. Trading in foreign stocks is
      expected to be added in 2006.





**Segments**





The
      Company’s
      operations are classified in three business segments: (1) Internet-based online
      trading, market data services and ECN services to the institutional professional
      investment community, (2) online trading and market data services to the
      non-professional individual investor community, and (3) arbitrage trading.
      See
      Notes C and E of Notes to Consolidated Financial Statements.





I-1


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





**MarkeTrack**




MarkeTrack
      provides
      domestic and international market information, dynamically updating quotelines,
      options and futures displays, real-time spreadsheets, tick-by-tick updating
      graphics, news services and third-party databases, user-defined screen layouts,
      access to back-office order and execution services, and over 20 years of
      graphical price history. It allows users to calculate theoretical values of
      options and determine the most beneficial investment strategy through
      calculating returns on alternative investments, including options and futures.
      Service charges range between $250 and $600 per month per user. MarkeTrack
      currently serves approximately 1,300 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.





**proTrack
      Online Trading**




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





**Electronic
      Communications Network**




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




Track
      ECN pays
      subscribers who add liquidity $.0027 per share on a monthly basis and charges
      $.003 per share to market participants who take liquidity. When takers of
      liquidity send their orders directly to Track ECN, instead of going through
      the
      Nasdaq facility, Track ECN pays $.0023 per share to the adder and charges a
      net
      of $.0025 to the taker of liquidity. With a spread between rebate and charge
      of
      $.0002 to $.0003 per share, the Company needs to handle a significant volume
      to
      achieve a material financial result. In an effort to keep costs at a minimum,
      Track ECN became a self-clearing ECN in August 2005. Although TDSC has approval
      from NASD-R for “clearing” of its Track ECN business, it is a limited approval
      for it to submit two sided trade data respecting trades which were executed
      by
      broker-dealers on the Track ECN. TDSC submits this data to the National
      Securities Clearing Corporation so that the actual trading counterparties can
      compare, clear and settle their trades and, except in the case of a rare error,
      TDSC “drops out” of the clearing process. This effort to "self-clear" was a step
      to reduce costs of having a third party handle this function.





**NewsWatch
      Service**





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





I-2


**Marketing**




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





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




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




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





**Competition**




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




The
      Company offers
      its MarkeTrack service in a highly competitive market in which it competes
      with
      other distributors of financial and business information, many of which have
      substantially greater financial resources. The Company competes, among other
      things, on the basis of the quality and reliability of its data, the speed
      of
      delivery and on the flexibility of its services. In the equity, options and
      futures trading segments, and the investment management segment, the Company’s
      competitors include Bloomberg Financial and Reuters Group. To a lesser degree,
      these Company services compete with Thomson One, a Thomson Financial Services
      company, and various trading/quotation applications provided by market makers
      and clearing firms.




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




The
      Track ECN
      competes with other ECNs that have substantially greater resources and have
      been
      operating for a longer period of time. The Company's competitors, among others,
      are Archipelago, Instinet, Island and Nasdaq/Brut. Recent acquisitions of
      Archipelago by the NYSE and Island by Nasdaq have created two outsized
      competitors far larger than Track ECN or any other ECN or regional
      exchange.




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


I-3


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





**Internet-Based
      Online Trading and Market Data Services**




The
      Company offers
      internet-based online trading and market data service through its myTrack and
      myTrack Pro products. myTrack and myTrack Pro offer trading of U.S.-based
      stocks, options and mutual funds, as well as stock index-based futures and
      foreign currency. myTrack Pro is designed for active individual investors with
      a
      special focus on option traders. The Company has targeted active traders and
      believes that myTrack and myTrack Pro are well suited to satisfy their
      requirements. For those traders who are the most active and engage in day
      trading, the Company's myTrack Pro contains multi windows based features and
      enhancements that are designed to satisfy the needs of the hyperactive trader
      community. Equity trades on myTrack Pro are currently offered at 1/2 penny
      per
      share; options at $1.00 per contract; and futures at $2.30 per contract. Equity
      trades on myTrack are currently offered at prices starting at $12.95 per trade,
      but volume trading rebates can result in trade costs as low as $8.20 per trade.
      Futures are generally priced at $7.00 per contract.




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




Customers
      can also
      subscribe for myTrack Pro market data. Real-time quotes, news, charting and
      technical analysis are currently available for $99 (including Nasdaq Level
      II)
      plus exchange fees. Volume trading can result in rebates equivalent to the
      service plan charges.





**Other
      Internet-Based Market Data Services**





***AIQ
      Systems***




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





***Dial/Data
      Service***




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





**Marketing**




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





I-4


AIQ
      Systems markets
      its software products through direct mail, the Internet, print advertising
      and
      seminars.




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





**Competition**





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





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





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





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





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





**MATTERS
      RELATED TO SEGMENTS, OTHER THAN ARBITRAGE TRADING**





**Securities
      Regulation**





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





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





I-5


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





**Operations**





***Clearing
      and Order Processing***




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





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





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





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




Although
      TDSC has
      approval by NASD-R for “clearing” of its Track ECN business, it is a unique and
      limited approval for it to submit two sided trade data respecting trades which
      were executed by broker-dealers on the Track ECN. TDSC submits this data to
      the
      National Securities Clearing Corporation so that the actual trading
      counterparties can and do compare, clear and settle their trades and, except
      in
      the case of a rare error, TDSC “drops out” of the clearing process. This effort
      to “self-clear” was a step to reduce costs of having a third part handle this
      function.





***Network
      Infrastructure***




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





I-6


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





**Net
      Capital Requirements**





The
      SEC, NASD, and
      various other regulatory agencies have stringent rules requiring the maintenance
      of specific levels of net capital by securities brokers. These include the
      SEC’s
      uniform net capital rule, which governs TDSC. Net capital is defined as assets
      minus liabilities, plus other allowable credits and qualifying subordinated
      borrowings less mandatory deductions that result from excluding assets that
      are
      not readily convertible into cash and from valuing other assets, such as a
      firm’s positions in securities, conservatively. Among these deductions are
      adjustments in the market value of securities to reflect the possibility of
      a
      market decline prior to disposition.





As
      of December 31,
      2005, TDSC was required to maintain minimum net capital, in accordance with
      SEC
      rules, of approximately $1 million and had total net capital of $1,935,000,
      or
      approximately $935,000 in excess of minimum net capital requirements.





If
      TDSC fails to
      maintain the required net capital, TDSC may be subject to suspension or
      revocation of registration by the SEC and suspension or expulsion by the NASD
      and other regulatory bodies, which ultimately could require TDSC's liquidation.
      In addition, a change in the net capital rules, the imposition of new rules,
      a
      specific operating loss, or any unusually large charge against net capital
      could
      limit those operations of TDSC that require the intensive use of capital and
      could limit its ability to expand its business.





**Limited
      Proprietary Information**





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





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





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





I-7


**Research
      and Development**




Expenditures
      for
      research and development incurred primarily to establish technological
      feasibility of a product or for product enhancement were approximately $210,000,
      $238,000 and $242,000 for the years ended December 31, 2005, 2004 and 2003,
      respectively.





**Employees**





The
      Company employed
      approximately 150 persons on a full-time basis as of December 31, 2005. The
      Company believes that its relationship with its employees is
      satisfactory.





**C.**  **ARBITRAGE
      TRADING**




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





In
      connection with the arbitrage trading activity, the Company incurs margin loans.
      The Company is exposed to interest rate change market risk with respect to
      these
      margin loans. The level of trading in the arbitrage trading account is partially
      dependent on the margin value of Track Data common stock pledged by its CEO,
      and
      Innodata and Edgar Online common stock, which is used as collateral. The market
      value of such securities is dependent on future market conditions for these
      companies over which the Company has little or no control.





**ITEM
                1A.**
            **RISK
                FACTORS**





**Risks
      Relating to Owning Our Stock**





***Market
      volatility may cause our stock price and the value of your investment to
      decline.***





From
      January 1, 2004 through December 31, 2005, the price per share of our common
      stock has ranged from a low of $1.95 to a high of $9.80. The market price of
      our
      common stock has been, and is likely to continue to be, highly volatile and
      subject to wide fluctuations. In the past, volatility in the market price of
      a
      company’s securities has often led to securities class action litigation. Such
      litigation could result in substantial costs to us and divert our attention
      and
      resources, which could harm our business. Declines in the market price of our
      common stock or failure of the market price to increase could also harm our
      ability to retain key employees, reduce our access to capital and otherwise
      harm
      our business.





Broad
      market and industry factors may adversely affect the market price of our common
      stock, regardless of our actual operating performance. Factors that could cause
      fluctuations in our stock price may include, among other things:





I-8


·
            actual
                or anticipated variations in quarterly operating
                results;


·
            conditions
                or trends in our industry, including trading volumes, regulatory
                changes
                or changes in the securities
                marketplace;


·
            changes
                in the market valuations of other companies operating in our
                industry;


·
            announcements
                by us or our competitors of significant acquisitions, strategic
                partnerships or divestitures;


·
            announcements
                of investigations or regulatory scrutiny of our operations or lawsuits
                filed against us;


·
            additions
                or departures of key personnel; and


·
            sales
                of our common stock, including sales of our common stock by our directors
                and officers.








***We
      have incurred losses in the past and we cannot assure you that we will be
      profitable.***





We
      have
      incurred losses in the past and we may do so in the future. While we reported
      net income for 2004 and 2003, we reported a net loss of $37,000 for 2005.





Our
      Professional Market segment revenues experienced significant declines since
      2001
      from a combination of staffing reductions in the securities industry, the use
      by
      customers of internally developed services, or lower priced services offered
      by
      us or other vendors. This trend has continued in 2006. Track ECN currently
      offers the highest published rebate in the industry and has recently been
      successful in attracting new subscribers. Despite the addition of new
      subscribers, the Company has not been able to significantly increase revenues.
      Profit margins are very low in this business and significant volume is necessary
      to have an impact on the results of operations. The Company commenced
      self-clearing of its ECN business at the end of the third quarter of 2005 in
      an
      effort to decrease costs associated with ECN revenues.





Our
      Non-Professional Market segment revenues have been inconsistent month to month
      but have been down overall when compared to the same periods in the prior year.
      The Company is attempting to grow revenues in this segment, principally through
      marketing alliances and limited advertising to attract new customers, and by
      offering additional services to existing customers. The Company presently offers
      trading of U.S. based stocks, options, e-mini futures and foreign currency.
      Although the Company has recently introduced a new low priced trading
      application, myTrack Pro, engineered for the hyperactive traders, with a
      particular focus on options traders, there is no assurance the Company will
      be
      successful in marketing such new services.





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





The
      Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (Revised
      2004), Share-Based Payment, which among other things requires public companies
      to expense employee stock options and other share-based payments at their fair
      value when issued commencing January 1, 2006. At December 31, 2005, all of
      our
      outstanding stock options were fully vested. We expect that the adoption of
      this
      statement may have a material impact on our net income (loss) and earnings
      per
      share in future periods, upon the issuance of new awards. As a result of this
      impact on our financial results, we may be forced to decrease or eliminate
      employee stock option grants, which could, in turn, have a negative impact
      on
      our ability to attract and retain qualified employees.





I-9


***Our
      officers, directors and largest stockholder have the ability to control all
      matters submitted to stockholders for approval and control the issuance of
      preferred stock.***





Our
      principal stockholder may be able to control matters requiring a stockholder
      vote, such as unsolicited takeovers which may prevent investors from receiving
      a
      premium on their shares. As of February 28, 2006, Barry Hertz, our Chairman,
      directly or indirectly controlled approximately 56% of our shares. He is in
      a
      position to control the outcome of matters requiring a stockholder vote,
      including the election of directors. Such control could have the effect of
      discouraging, or making more difficult, an unsolicited acquisition of us by
      means of a tender offer, a proxy contest or otherwise, even though an
      unsolicited acquisition could have resulted in our stockholders receiving a
      premium for their shares or be otherwise economically beneficial to
      them.





Our
      right
      to issue preferred stock could dilute or diminish the value of existing
      investors' common stock. Our governing documents authorize the issuance of
      up to
      five million shares of preferred stock without stockholder approval, with
      dividend, liquidation, conversion, voting or other rights which could adversely
      affect the voting power or other rights of the holders of our common stock.
      Depending on the designations, rights and preferences of a particular issuance
      of preferred stock, such issuance could adversely affect the market value of
      our
      common stock.





Our
      right
      to issue preferred stock could also make a third-party acquisition of us
      difficult. In the event of issuance, the preferred stock could be utilized,
      under certain circumstances, as a method of discouraging, delaying or preventing
      a change in control. Although we have no present intention to issue any shares
      of preferred stock, there can be no assurance that we will not do so in the
      future.





Success
      of stockholder actions against directors is less likely as our directors'
      liability for their actions is limited and we may indemnify them if they are
      sued. Our governing documents limit the liability of our directors for breach
      of
      their fiduciary duty of care. The effect is to eliminate liability of directors
      for monetary damages arising out of negligent or grossly negligent conduct.
      Stockholder actions against our directors for monetary damages can only be
      maintained upon a showing of certain factors and not for director's negligence
      or gross negligence in satisfying their duty of care. The factors required
      to
      obtain monetary damages are a breach of the individual director's duty of
      loyalty, a failure to act in good faith, intentional misconduct, a knowing
      violation of the law, an improper personal benefit, or an illegal dividend
      or
      stock purchase. These documents also provide for indemnification as permitted
      by
      Delaware law. However, insofar as indemnification for liabilities arising under
      the Securities Act of 1933 may be permitted to our directors, officers or
      controlling persons pursuant to the foregoing provisions, we have been informed
      that in the opinion of the Commission such indemnification is against public
      policy as expressed in the Act and is therefore unenforceable.





***Current
      litigation against our Chairman and CEO.***





On
      June
      14, 2005, the SEC filed a civil complaint against Barry Hertz, our Chairman
      and
      CEO, in the U.S. District Court for the Eastern District of New York in Brooklyn
      alleging violations of various provisions of the federal securities laws in
      connection with certain transactions in Track Data stock owned by others. The
      SEC seeks various remedies including an injunction, disgorgement of profits
      and
      an order barring Mr. Hertz from serving as an officer or director of a public
      company. Mr. Hertz has denied wrongdoing.





I-10


***We
      may not pay dividends on our common stock.***





We
      have
      paid dividends in the past but have not done so since March, 2004. There is
      currently no plan to pay dividends in the near future. Dividends in the future,
      if any, will be based on factors, among others, relating to future earnings
      and
      capital requirements and to the discretion of our board of
      directors.





**Risks
      Relating to the Nature of the Financial Services Business**





***Many
      of our competitors have greater financial, technical, marketing and other
      resources.***





Many
      of
      our competitors have greater resources than we do and offer a wider range of
      financial products and services. Many also have greater name recognition,
      greater market acceptance and larger customer bases. These competitors may
      conduct extensive promotional activities and offer better terms, lower prices
      and/or different products and services than we do. Moreover, some of our
      competitors have established relationships among themselves or with third
      parties to enhance their products and services. This means that our competitors
      may be able to respond more quickly to new or changing opportunities and demands
      and withstand changing market conditions better than we can.





This
      intense competition has resulted in several trends that may adversely affect
      our
      financial condition and results of operations, including the implementation
      of
      new pricing strategies, consolidation in the industry and increased emphasis
      on
      advertising and promotional efforts.





We
      face
      direct competition from numerous online and software-based brokerage firms,
      including Charles Schwab & Co., Inc., E*TRADE Group, Inc., Ameritrade, Inc.
      and TradeStation Group, Inc. We also encounter competition from the
      broker-dealer affiliates of established full commission brokerage firms, as
      well
      as from financial institutions, mutual fund sponsors and other organizations,
      some of which provide online brokerage services.





We
      believe that the general financial success of companies within the online
      securities industry will continue to attract new competitors to the industry,
      such as banks, software development companies, insurance companies, providers
      of
      online financial information and others. These companies may provide a more
      comprehensive suite of services than we do. We may not be able to compete
      effectively with our current or future competitors.





***A
      decline in activity levels in the securities markets could lower demand for
      our
      services.***





Our
      business is dependent upon the health of the financial markets as well as the
      financial health of the participants in those markets. Some of the demand for
      financial data and information is dependent upon activity levels in the
      securities markets while other demand is static and is not dependent on activity
      levels. In the event that the U.S. or international financial markets suffer
      a
      prolonged downturn that results in a significant decline in investor activity,
      our revenue levels could be materially adversely affected. We have experienced
      higher than normal cancellations or downgrades as a result of the cost cutting
      pressures evident in the financial services sector in recent years and such
      cancellations or downgrades may continue.





***Consolidation
      of financial services within and across industries could lower demand for our
      services.***





As
      consolidation occurs and synergies are achieved, the number of potential
      customers for our services decreases. This consolidation has two forms:
      consolidations within an industry, such as banking, and across industries,
      such
      as consolidations of insurance, banking and brokerage companies. When two
      companies that separately subscribe to or use our services combine, they may
      terminate or reduce duplicative subscriptions for our services or if they are
      billed on a usage basis, usage may decline due to synergies created by the
      business combination. We experienced higher than normal cancellations in recent
      years as a result of this trend and these consolidations and cancellations
      may
      continue. A large number of cancellations, or lower utilization resulting from
      consolidations, could have a material adverse effect on our revenue.




I-11





***The
      continuing impact of cost-cutting pressures across the financial services
      industry could cause lower demand for our services.***





Many
      customers within the financial services industry are striving to reduce their
      operating costs. To achieve this goal, customers may seek to reduce their
      spending on market data services. If customers elect to reduce their spending with us, our results
      of
      operations could be materially adversely affected. Alternatively, customers
      may
      use other strategies to reduce their overall spending on market data services,
      either by consolidating their spending with a fewer number of vendors or by
      selecting vendors with lower-cost offerings. If customers elect to consolidate
      their spending on market data services with other vendors and not us, or if
      we
      cannot price our services as aggressively as the competition, our results of
      operations could be materially adversely affected.





***Servicing
      customers outside the United States involves special challenges that we may
      not
      be able to meet, which could negatively impact our financial
      results.***





To
      date,
      our operations are principally located in the United States, with Internet
      access to our products from outside the United States. Since our services are
      available over the Internet in foreign countries and we have customers residing
      in foreign countries, foreign jurisdictions may claim that we are required
      to
      qualify to do business in their country. We believe that the number of our
      customers residing outside of the United States will increase over time. We
      are
      required to comply with the laws and regulations of each country in which we
      conduct business, including laws and regulations currently in place or which
      may
      be enacted related to Internet services available to their citizens from service
      providers located elsewhere. Any failure to develop effective compliance and
      reporting systems could result in regulatory penalties in the applicable
      jurisdiction, which could have a material adverse effect on our business,
      financial condition and operating results.





In
      addition, in the future we may choose to offer foreign securities brokerage
      services. There are certain risks inherent in doing so. Among other risks,
      we
      may face less developed technological infrastructures, less developed automation
      in exchanges, depositories and national clearing systems, exchange rate
      fluctuations, increased credit risk and unexpected changes in regulatory
      requirements, tariffs and other trade barriers. If we choose to do business
      through an international entity, we may also face barriers to repatriation
      of
      foreign earnings. Any of these factors could have a material adverse effect
      on
      our future international operations and consequently on our business, financial
      condition and operating results.





***If
      we fail to attract customers in a cost-effective manner, our profitability
      and
      growth may be impaired.***





Our
      profitability and growth depends on increasing our customer base in a
      cost-effective manner. We expect to increase our advertising and related
      expenses. There are no assurances that these efforts will be cost-effective
      at
      attracting new customers. In particular, we believe that rates for desirable
      advertising and marketing placements are likely to increase in the foreseeable
      future, and we may be disadvantaged relative to our larger competitors in our
      ability to expand or maintain our advertising and marketing commitments.
      Additionally, filter software programs that limit or prevent our advertisements
      and other communications from being displayed on or delivered to our current
      and
      potential customers’ computers are becoming increasingly available. If this type
      of software becomes widely accepted, it would negatively affect Internet
      advertising. Finally, our sales and marketing methods are subject to regulation
      by the NASD. Their rules and regulations impose specific limitations on our
      sales methods, including our advertising and payments to non-broker-dealers.
      If
      we do not achieve our advertising objectives, our profitability and growth
      may
      be impaired.




I-12





***We
      are subject to various forms of credit risk, and those risks could have a
      material adverse effect on our financial
      situation.***





Through
      an arrangement with our clearing firms, we extend margin credit and leverage
      to
      our customers, which is subject to various regulatory and clearing firm margin
      requirements. Margin credit is collateralized by cash and securities in the
      customers’ accounts. Leverage involves securing a large potential future
      obligation with a proportional amount of cash or securities. The risks
      associated with margin credit and leverage increase during periods of fast
      market movements or in cases where leverage or collateral is concentrated and
      market movements occur. During such times, customers who utilize margin credit
      or leverage and who have collateralized their obligations with securities may
      find that the securities have a rapidly depreciating value and may not be
      sufficient to cover their obligations in the event of a liquidation. We are
      also
      exposed to credit risk when our customers execute transactions, such as short
      sales of options and equities that can expose them to risk beyond their invested
      capital.





We
      expect
      this kind of exposure to increase with growth in our overall business. Because
      we indemnify and hold harmless our clearing firms from certain liabilities
      or
      claims, the use of margin credit, leverage and short sales may expose us to
      significant off-balance-sheet risk in the event that collateral requirements
      are
      not sufficient to fully cover losses that customers may incur and those
      customers fail to satisfy their obligations. As of December 31, 2005, we
      had $14 million in margin credit extended to our customers through our clearing
      firms. The amount of risk to which we are exposed from the leverage we extend
      to
      our customers and from short sale transactions by our customers is unlimited
      and
      not quantifiable as the risk is dependent upon analysis of a potential
      significant and undeterminable rise or fall in stock prices.





***Our
      risk management policies and procedures may not be effective and may leave
      us
      exposed to unidentified or unexpected risks.***





Our
      policies, procedures and practices used to identify, monitor and control a
      variety of risks may fail to be effective. As a result, we face the risk of
      losses, including losses resulting from firm errors, customer defaults, market
      movements, fraud and money-laundering. Our risk management methods rely on
      a
      combination of technical and human controls and supervision that are subject
      to
      error and failure. Some of our methods of managing risk are based on internally
      developed controls and observed historical market behavior, and also involve
      reliance on industry standard practices. These methods may not adequately
      prevent future losses, particularly as they relate to extreme market movements,
      which may be significantly greater than the historical measures indicate. These
      methods also may not adequately prevent losses due to technical errors if our
      testing and quality control practices are not effective in preventing technical
      software or hardware failures.





***We
      may suffer losses if our reputation is harmed.***





Our
      ability to attract and retain customers and employees may be adversely affected
      to the extent our reputation is damaged. If we fail, or appear to fail, to
      deal
      with various issues that may give rise to reputational risk, we could harm
      our
      business prospects. These issues include, but are not limited to, appropriately
      dealing with potential conflicts of interest, legal and regulatory requirements,
      ethical issues, money-laundering, privacy, record-keeping, sales and trading
      practices, and the proper identification of the legal, reputational, credit,
      liquidity, and market risks inherent in our business. Failure to appropriately
      address these issues could also give rise to additional legal risk to us, which
      could, in turn, increase the size and number of claims and damages asserted
      against us or subject us to regulatory enforcement actions, fines, and
      penalties.





I-13


***Systems
      failures and delays could harm our business.***





We
      receive and process trade orders through a variety of electronic channels.
      Our
      online trading services are heavily dependent on the integrity of the systems
      supporting them. Our systems and operations, including our Web servers, and
      those of our third-party service providers are vulnerable to damage or
      interruption from human error, sabotage, encryption failures, break-ins,
      intentional acts of vandalism, earthquakes, terrorist attacks, floods, fires,
      power loss, telecommunications failures, computer viruses, computer denial
      of
      service attacks or other attempts to harm our systems and operations, and
      similar events. Our disaster recovery planning cannot account for all
      eventualities. In addition, extraordinary trading volumes could cause our
      computer systems to operate at an unacceptably low speed or even fail. While
      we
      have invested significant amounts to upgrade the reliability and scalability
      of
      our systems, there can be no assurance that our systems will be sufficient
      to
      handle such extraordinary trading volumes.





Systems
      failures or delays may occur in the future and could cause, among other things,
      unanticipated disruptions in service to our customers, slower system response
      time resulting in transactions not being processed as quickly as our customers
      desire, decreased levels of customer service and customer satisfaction and
      harm
      to our reputation. If any of these events were to occur, we could suffer: a
      loss
      of customers or a reduction in the growth of our customer base; increased
      operating expenses; financial losses; litigation or other customer claims;
      and
      regulatory sanctions or additional regulatory burdens.





Our
      business also depends on the continued reliability of the Internet
      infrastructure. This includes maintenance of a reliable network backbone with
      the necessary speed, data capacity and security for providing reliable Internet
      services. Internet infrastructure may be unable to support the demands placed
      on
      it if the number of Internet users continues to increase, or if existing or
      future Internet users access the Internet more often or increase their bandwidth
      requirements. In addition, viruses, worms and similar programs may harm the
      performance of the Internet. The Internet has experienced a variety of outages
      and other delays as a result of damage to portions of its infrastructure, and
      it
      could face outages and delays in the future. These outages and delays could
      reduce the level of Internet usage and our business could be materially
      adversely affected.





***Our
      networks and those of our third-party service providers may be vulnerable to
      security risks.***





The
      secure transmission of confidential information over public networks is a
      critical element of our operations. Our networks and those of our third-party
      service providers may be vulnerable to unauthorized access, computer viruses
      and
      other security problems. Persons who circumvent security measures could
      wrongfully use our confidential information or our customers’ confidential
      information or cause interruptions or malfunctions in our operations. We or
      our
      service providers may be required to expend significant additional resources
      to
      protect against the threat of security breaches or to alleviate problems caused
      by any breaches. We or our service providers may not be able to implement
      security measures that will protect against all security risks.





***Our
      inability to protect our intellectual property rights or our infringement of
      the
      intellectual property rights of others could adversely affect our
      business.***





Our
      success and
      ability to compete in the online securities industry depends in part upon our
      technology. Laws and our contractual terms may not be sufficient to protect
      our
      technology from use or theft by third parties. For instance, a third party
      might
      try to reverse engineer or otherwise obtain and use our technology without
      our
      permission and without our knowledge, allowing competitors to duplicate our
      products. We may have legal or contractual rights that we could assert against
      such illegal use, but lawsuits claiming infringement or misappropriation are
      complex and expensive, and the outcome would not be certain. We may choose
      not
      to enforce or protect our intellectual property rights, depending on our
      strategic evaluation and judgment regarding the best use of our intellectual
      property portfolio and the recourse available to us.





I-14




Patents
      of third parties may have an important bearing on our ability to offer certain
      of our products and services. Our major competitors as well as other companies
      and individuals may obtain and may have obtained patents related to the
      technologies for trading the types of products and providing the services we
      offer or plan to offer. We cannot assure you that we are or will be aware of
      all
      patents containing claims that may pose a risk of infringement by our products
      and services. In addition, some patent applications in the United States are
      confidential until a patent is issued and, therefore, we cannot evaluate the
      extent to which technology concerning our products and services may be covered
      or asserted to be covered by claims contained in pending patent applications.
      In
      general, if one or more of our products or services were found by a court to
      infringe patents held by others, we may be required to stop developing or
      marketing the products or services, to obtain licenses to develop and market
      the
      services from the holders of the patents or to redesign the products or services
      in such a way as to avoid infringing those patents. An adverse ruling arising
      out of any intellectual property dispute could also subject us to significant
      liability for damages.





We
      cannot
      assess the extent to which we may be required in the future to obtain licenses
      with respect to patents held by others, whether such licenses would be available
      or, if available, whether we would be able to obtain such licenses on
      commercially reasonable terms. If we are unable to obtain licenses with respect
      to patents held by others, and are unable to redesign our products or services
      to avoid infringement of any such patents, this could materially adversely
      affect our business, financial condition and operating results.





Also,
      protection may not be available for our other intellectual property. Although
      we
      have registered trademarks in the United States, there can be no assurance
      that
      we will be able to secure significant protection for these marks. It is possible
      that our competitors will adopt product or service names similar to ours,
      thereby impeding our ability to build brand identity and possibly leading to
      customer confusion. Our inability to adequately protect our marks could have
      a
      material adverse effect on our business, financial condition and operating
      results.





***We
      will need to introduce new products and services to remain
      competitive.***





Our
      future success depends in part on our ability to develop and enhance our
      products and services. The financial services industry is characterized by
      rapid
      technological change and the emergence of new industry standards and practices
      that could render our existing technology and systems obsolete. There are
      significant technical and financial risks in the development of new or enhanced
      products and services, including the risk that we will be unable to effectively
      use new technologies or adapt our services to emerging industry standards,
      or
      develop, introduce and market enhanced or new products and services. In
      addition, the adoption of new Internet, networking or telecommunications
      technologies or other technological changes could require us to incur
      substantial expenditures to modify or adapt our services or
      infrastructure.





***We
      may make acquisitions, and we may be unable to successfully integrate those
      acquisitions with our business, impairing our financial
      performance.***





If
      appropriate opportunities present themselves, we may acquire businesses,
      products or technologies that we believe are strategic. If we do succeed in
      acquiring a business, product or technology, we have limited experience in
      integrating an acquisition into our business. The process of integration may
      produce unforeseen operating difficulties and expenditures and may absorb
      significant attention of our management that would otherwise be available for
      the ongoing development of our business, which may harm our business, financial
      condition or results of operations.





***We
      are dependent on our clearing agent, Penson Financial Services, Inc., and any
      failure by them or difficulties in our relationship could materially harm our
      business.***





We
      are
      dependent on Penson Financial Services, Inc. and certain other clearing agents
      for the orderly processing of transactions. Our principal relationship is with
      Penson.





Our
      clearing agreement with Penson may be terminated by either party upon 45 days
      prior written notice. Breaches or termination of these agreements or the
      clearing firms’ agreements with their third-party suppliers could harm our
      business. Termination of our relationship with Penson could expose us to certain
      capital reserve requirements and other complex regulatory requirements imposed
      by federal and state securities laws, which could have a material adverse effect
      on our business. Moreover, we have agreed to indemnify and hold harmless our
      clearing firms from certain liabilities or claims, including claims arising
      from
      the transactions of our customers, and may incur significant costs as a
      result.





I-15




***The
      loss of or change in our third-party vendors may adversely affect our
      business.***





We
      rely
      on a number of third parties for various services. These include the services
      of
      market makers and exchanges to execute customer orders and other third parties
      for back-office services and other information necessary to run our business,
      including transaction summaries, data feeds for compliance and risk management,
      execution reports and trade confirmations. The stock and option exchange and
      other third-party content providers provide us with all of the financial
      information, market news, charts, option and stock quotes, research reports
      and
      other fundamental data that we offer to customers. Our Track ECN business is
      currently dependent on Nasdaq’s trading platform to display and execute most of
      the ECNs business, as to which there is no assurance that such venue will
      continue to be available under the same or similar business terms.




We
      cannot
      assure you that any of these providers will be able to continue to provide
      these
      services in an efficient, cost-effective manner or that they will be able to
      adequately expand their services to meet our needs. An interruption in or the
      cessation of service by any third-party service provider as a result of systems
      failures, capacity constraints, unanticipated trading market closures or for
      any
      other reason, and our inability to make alternative arrangements in a smooth
      and
      timely manner, if at all, may have a material adverse effect on our business,
      financial condition and operating results.





***Our
      exposure to possible litigation could adversely affect our
      business.***





Because
      of the extent and complexity of our regulatory environment and the products
      we
      offer, many aspects of our business involve substantial risks of liability.
      In
      recent years, there has been an increasing incidence of litigation involving
      the
      securities brokerage industry, including class action and other suits that
      generally seek substantial damages, including in some cases punitive damages.
      Any such litigation brought in the future could have a material adverse effect
      on our business, financial condition and operating results.





We
      also
      face potential indirect liability for claims of defamation, negligence,
      copyright, patent or trademark infringement, violation of the securities laws
      and other claims based upon the third-party content that we distribute online.
      Computer failures may also result in our widely publishing and distributing
      incorrect data. Our insurance may not necessarily cover any of these claims
      or
      may not be adequate to protect us against all liability that may be imposed.
      Any
      such litigation brought in the future could have a material adverse effect
      on
      our business, financial condition and operating results.





***Losses
      due to employee or customer fraud could have an adverse effect on our
      business.***





We
      are
      exposed to potential losses resulting from fraud and other misconduct by
      employees and customers. Employees may bind us to transactions that exceed
      authorized limits or present unacceptable risks, hide from us unauthorized
      or
      unsuccessful activities or improperly use confidential information. Customers
      may engage in fraudulent activities, including fraudulent access to legitimate
      customer accounts or the use of a false identity to open an account, or the
      use
      of forged or counterfeit checks for payment. Such types of fraud may be
      difficult to prevent or detect, and we may not be able to recover the losses
      caused by such activities. Any such losses could have a material adverse effect
      on our business, financial condition and operating results.





I-16


**Risks
      Relating to Regulation of Our Business**





***We
      operate in a highly regulated industry and compliance failures could adversely
      affect our business.***





We
      operate under extensive regulation, which increases our cost of doing business
      and is a limiting factor on the operations and development of our business.
      The
      Securities and Exchange Commission, or SEC, commissions regulate us. Outside
      the
      United States, we also may be subject to regulation by securities regulatory
      authorities in the countries where our customers are located. The securities
      industry in the United States is subject to extensive regulation covering all
      aspects of the securities business, including: sales methods; trade practices;
      use and safekeeping of customer funds and securities; capital structure;
      record-keeping; financing of customers’ purchases; and conduct of directors,
      officers and employees.





Failure
      to comply with any of the laws, rules or regulations applicable to us, even
      inadvertently, could lead to adverse consequences including censure, fine,
      the
      issuance of cease-and-desist orders or the suspension or disqualification of
      directors, officers or employees. Any of these adverse consequences could affect
      our business. It is also possible that any noncompliance could subject us to
      criminal penalties and civil lawsuits. An adverse ruling against us or our
      officers or other employees could cause our subsidiaries or our officers and
      other employees to pay a substantial fine or settlement, and could result in
      their suspension or expulsion. Any of these events could have a material adverse
      effect on our business.





***Changes
      in legislation or regulations may affect our ability to conduct our business
      or
      reduce our profitability.***





The
      regulatory environment in which we operate may change. These changes may affect
      our ability to conduct our business or reduce our profitability. Our activities
      may be affected not only by legislation or regulations of general applicability,
      but also by industry-specific legislation or regulations. The SEC, other U.S.
      or
      foreign governmental authorities, the NASD or other SROs may adopt new or
      revised regulations which affect our business. Changes in the interpretation
      or
      enforcement of existing laws and rules by those entities may also affect our
      business.





Track
      ECN
      presently displays orders submitted by its subscribers on Nasdaq's trading
      platform. Broker-dealers can access this liquidity through Nasdaq. Nasdaq is
      presently authorized to operate as an exchange and has published information
      about anticipated changes that it prefers that could be detrimental to Track
      ECNs continued ability to do business on Nasdaq. If these or other changes
      were
      to occur, Track ECN may have to seek alternative venues to conduct its business.
      Presently, there are no such viable alternatives to conduct its business in
      the
      same manner as it does presently. A change of venues, if available, could likely
      result in significantly less volume of transactions executed through Track
      ECN,
      resulting in a significant reduction in revenues.





In
      addition, we use the Internet as the distribution channel to provide services
      to
      our customers. A number of regulatory agencies have recently adopted regulations
      regarding customer privacy and the use of customer information by service
      providers. Additional laws and regulations relating to the Internet may be
      adopted in the future, including regulations regarding the pricing, taxation,
      content and quality of products and services delivered over the Internet.
      Complying with these laws and regulations is expensive and time consuming and
      could limit our ability to use the Internet as a distribution
      channel.





***Failure
      to comply with net capital requirements could adversely affect our
      business.***





The
      SEC,
      the NASD and other SROs have stringent rules with respect to the maintenance
      of
      specific levels of net capital by securities broker-dealers. Our broker-dealer
      subsidiary is required to comply with the net capital requirements. If we fail
      to maintain the required net capital, the SEC could fine us or even suspend
      or
      revoke our registration, or the NASD could sanction us, including by limiting
      our growth or expelling us from membership. Any of these actions could have
      a
      material adverse effect on our business.





I-17


The
      net
      capital requirements also provide that the SEC may restrict for up to 20
      business days any withdrawal of equity capital, or unsecured loans or advances
      to stockholders, employees or affiliates, commonly called capital withdrawal,
      if
      the capital withdrawal, together with all other net capital withdrawals during
      a
      30-day period, exceeds 30% of excess net capital and the SEC concludes that
      the
      capital withdrawal may be detrimental to the financial integrity of the
      broker-dealer.





***Procedures
      and requirements of the Patriot Act may expose us to significant costs or
      penalties.***





As
      participants in the financial services industry, our subsidiary is subject
      to
      laws and regulations, including the Patriot Act of 2001, that require that
      it
      know its customers and monitor transactions for suspicious financial activities.
      The cost of complying with the Patriot Act and related laws and regulations
      is
      significant. We face the risk that our policies, procedures, technology and
      personnel directed toward complying with the Patriot Act are insufficient and
      that we could be subject to significant criminal and civil penalties due to
      noncompliance. Such penalties could have a material adverse effect on our
      business, financial condition and operating results. As an online broker with
      customers worldwide, we may face particular difficulties in identifying our
      customers and monitoring their activities.





**ITEM
                2.**
            **PROPERTIES**





The
      Company’s
      executive offices are located at 95 Rockwell Place, Brooklyn, NY. These offices
      are leased from a family partnership controlled by the Company’s Chairman. The
      annual rental of approximately 36,000 square feet is approximately $623,000.
      The
      lease expires in April, 2006 and is expected to be renewed for another one-year
      period. The Company believes that the terms of this lease are at least as
      favorable to it as terms which it would have obtained in a comparable
      transaction with unaffiliated persons.





The
      Company maintains
      sales and/or service offices in Brooklyn, NY, Chicago, IL, Los Angeles, CA,
      San
      Francisco, CA, Boston, MA, Incline Village, NV, Philadelphia, PA, Boca Raton,
      FL, and Dallas, TX with aggregate annual rentals of $1,045,000 in 2005. The
      Company also maintains a full service office in London, England under a lease
      with annual rental of $27,000 in 2005. These leases expire at various dates
      through 2010.





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





**ITEM
                3.**
            **LEGAL
                PROCEEDINGS**





The
      Company is
      subject to legal proceedings and claims that arise in the ordinary course of
      its
      business. In the opinion of management, the amount of ultimate liability with
      respect to these actions will not materially affect the Company's financial
      position.





On
      June
      14, 2005, the SEC filed a civil complaint against Barry Hertz, the Company’s
      Chairman and CEO, in the U.S. District Court for the Eastern District of New
      York in Brooklyn alleging violations of various provisions of the federal
      securities laws in connection with certain transactions in Track Data stock
      owned by others. The SEC seeks various remedies including an injunction,
      disgorgement of profits and an order barring Mr. Hertz from serving as an
      officer or director of a public company. Mr. Hertz has denied wrongdoing and
      filed a motion for summary judgment dismissing the complaint. The SEC has filed
      a cross-motion for partial summary judgment. Those motions are currently pending
      before the Court.





I-18


**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





The
      Company held its
      Annual Meeting on December 1, 2005. The results of matters voted at that Meeting
      are presented below:





**Election
                of Directors:*****Nominee***
            
            ***For***
            
            
            ***Withheld***
            
            ***Abstain***
            
            ***Against***Abraham
                Biderman
            
            7,075,226
            
            
            
            28,520Albert
                Drillick
            
            7,075,626
            
            
            
            28,120E.
                Bruce Fredrikson
            
            7,076,641
            
            
            
            27,105Barry
                Hertz
            
            7,071,544
            
            
            
            32,202Martin
                Kaye
            
            7,075,793
            
            
            
            27,953Philip
                Ort
            
            7,075,866
            
            
            
            27,880Shaya
                Sofer
            
            7,070,973
            
            
            
            32,773Stanley
                Stern
            
            7,072,852
            
            
            
            30,894**Appointment
                of Auditors:**
            
            7,081,623
            
            
            
            
            
            
            
            2,107
            
            
            
            20,015





I-19


**PART
      II**




**ITEM
                5.**
            **MARKET
                FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY
                SECURITIES**





The
      Company's Common
      Stock is quoted on the Nasdaq National Market System under the symbol "TRAC."
      On
      February 28, 2006, there were 262 stockholders of record of the Company's Common
      Stock based on information provided by the Company's transfer agent. Virtually
      all of the Company's publicly held shares are held in "street name" and the
      Company believes the actual number of beneficial holders of its Common Stock
      to
      be approximately 13,000.





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


**Common
                Stock****Sale
                Price****High**
            
            
            **Low****2004**First
                Quarter
            
            $
            9.80
            
            
            $
            5.05Second
                Quarter
            
            
            8.00
            
            
            
            4.10Third
                Quarter
            
            
            5.70
            
            
            
            3.60Fourth
                Quarter
            
            
            5.35
            
            
            
            3.30**2005**First
                Quarter
            
            $
            5.00
            
            
            $
            2.50Second
                Quarter
            
            
            3.21
            
            
            
            1.95Third
                Quarter
            
            
            3.41
            
            
            
            2.30Fourth
                Quarter
            
            
            3.55
            
            
            
            2.70


On
      January 18, 2005, the Board of Directors authorized a one-for-five reverse
      stock
      split, which was consented to by the Company’s Chairman, CEO and principal
      stockholder. The stock split became effective on February 28, 2005. All share
      and per share information in this report retroactively reflect such stock
      split.





*Dividends*





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





II-1


*Issuer
      Purchases of Equity Securities*


Total
                Numberof
                SharesNumber
                of
            
            
            
            Purchased
                as
            
            Maximum
                NumberShares
                of
            
            Average
            
            Part
                of
            
            of
                Shares That MayPeriod
            
            Common
                Stock
            
            Price
                Paid
            
            Publicly
            
            Yet
                be PurchasedPurchased
            
            Purchased
            
            Per
                Share
            
            Announced
                Plans
            
            Under
                the PlansOctober,
                2005November,
                2005December,
                2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,000,000Total
            
            
            None
            
            
            
            
            
            
            
            None





On
      November 1, 2005,
      the Board of Directors approved a buy back of up to 1,000,000 shares of the
      Company’s Common Stock in market or private negotiated transactions from time to
      time.





II-2


**ITEM
                6.**
            **SELECTED
                FINANCIAL DATA******


**Year
                Ended December 31,**
            
            
            **2005**
            
            
            
            **2004**
            
            
            
            **2003**
            
            
            
            **2002**
            
            
            
            **2001**(in
                thousands, except earnings and dividends per share)**SERVICE
                FEES AND REVENUE**
            
            $
            36,094
            
            
            $
            40,093
            
            
            $
            40,881
            
            
            $
            57,188
            
            
            $
            62,217**COSTS,
                EXPENSES AND OTHER:****Direct
                operating costs**
            
            
            25,002
            
            
            
            23,544
            
            
            
            23,201
            
            
            
            31,309
            
            
            
            29,539**Selling
                and administrative expenses**
            
            
            13,108
            
            
            
            14,415
            
            
            
            15,098
            
            
            
            19,307
            
            
            
            19,560**Marketing
                and
                advertising**
            
            
            274
            
            
            
            414
            
            
            
            394
            
            
            
            659
            
            
            
            1,243**(Gain)
                write off of investments in private companies**
            
            
            (412
            )
            
            
            -
            
            
            
            -
            
            
            
            716
            
            
            
            -**Gain
                on
                arbitrage trading**
            
            
            (819
            )
            
            
            (1,512
            )
            
            
            (1,891
            )
            
            
            (445
            )
            
            
            (1,800
            )**Gain
                on
                marketable securities-Innodata and Edgar Online**
            
            
            (1,067
            )
            
            
            (5,887
            )
            
            
            (624
            )
            
            
            (124
            )
            
            
            -**Other
                income**
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,949
            )**Interest
                expense (income) - net**
            
            
            223
            
            
            
            305
            
            
            
            107
            
            
            
            657
            
            
            
            (58
            )**Total**
            
            
            36,309
            
            
            
            31,279
            
            
            
            36,285
            
            
            
            52,079
            
            
            
            46,535**(LOSS)
                INCOME BEFORE EQUITY IN NET INCOME****OF
                AFFILIATE AND INCOME TAXES**
            
            
            (215
            )
            
            
            8,814
            
            
            
            4,596
            
            
            
            5,109
            
            
            
            15,682**EQUITY
                IN NET INCOME OF AFFILIATE**
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            276**(LOSS)
                INCOME BEFORE INCOME TAXES**
            
            
            (215
            )
            
            
            8,814
            
            
            
            4,596
            
            
            
            5,109
            
            
            
            15,958**INCOME
                TAXES (BENEFIT) EXPENSE**
            
            
            (178
            )
            
            
            3,614
            
            
            
            1,750
            
            
            
            2,118
            
            
            
            4,880**NET
                (LOSS) INCOME**
            
            $
            (37
            )
            
            $
            5,200
            
            
            $
            2,846
            
            
            $
            2,991
            
            
            $
            11,078**BASIC
                AND DILUTED NET (LOSS) INCOME PER SHARE**
            
            
            $(.00
            )
            
            
            $.53
            
            
            
            $.29
            
            
            
            $.28
            
            
            
            $.93**DIVIDENDS
                PER SHARE**
            
            
            $.00
            
            
            
            $.05
            
            
            
            $.05
            
            
            
            $.00
            
            
            
            $.00**WEIGHTED
                AVERAGE SHARES OUTSTANDING**
            
            
            9,221
            
            
            
            9,732
            
            
            
            9,942
            
            
            
            10,525
            
            
            
            11,919**ADJUSTED
                DILUTIVE SHARES OUTSTANDING**
            
            
            9,221
            
            
            
            9,740
            
            
            
            9,960
            
            
            
            10,580
            
            
            
            11,975**December
                31,**
            
            
            **2005**
            
            
            
            **2004**
            
            
            
            **2003**
            
            
            
            **2002**
            
            
            
            **2001**(in
                thousands)**TOTAL
                ASSETS**
            
            $
            36,207
            
            
            $
            69,438
            
            
            $
            73,498
            
            
            $
            46,416
            
            
            $
            76,920**TOTAL
                LIABILITIES**
            
            
            14,658
            
            
            
            42,570
            
            
            
            49,693
            
            
            
            26,809
            
            
            
            53,759**STOCKHOLDERS’
                EQUITY**
            
            
            21,549
            
            
            
            26,868
            
            
            
            23,805
            
            
            
            19,607
            
            
            
            23,161








II-3


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





***Business***





Track
      Data
      Corporation (the "Company") is a financial services company that provides
      real-time financial market data, fundamental research, charting and analytical
      services to institutional and individual investors through dedicated
      telecommunication lines and the Internet. The Company also disseminates news
      and
      third-party database information from more than 100 sources worldwide. The
      Company owns Track Data Securities Corp. ("TDSC"), a registered securities
      broker-dealer and member of the National Association of Securities Dealers,
      Inc.
      The Company provides a proprietary, fully integrated Internet-based online
      trading and market data system, proTrack, for the professional institutional
      traders, and myTrack and myTrack Pro, for the individual trader. The Company
      also operates Track ECN, an electronic communications network that enables
      traders to display and match limit orders for stocks. The Company's operations
      are classified in three business segments: (1) Professional Market -- Market
      data services and trading, including ECN services, to the institutional
      professional investment community, (2) Non-Professional Market -- Internet-based
      online trading and market data services to the non-professional individual
      investor community, and (3) Arbitrage trading.





***Relevant
      Factors***





The
      Company's Professional Market segment revenues experienced significant declines
      since 2001 from a combination of staffing reductions in the securities industry,
      the use by customers of internally developed services, or lower priced services
      offered by the Company or other vendors. This trend has continued into 2006.
      Track ECN currently offers the highest published rebate in the industry and
      has
      recently been successful in attracting new subscribers. Despite the addition
      of
      new subscribers, the Company has not been able to significantly increase
      revenues. Profit margins are very low in this business and significant volume
      is
      necessary to have an impact on the results of operations. In addition, Track
      ECN
      is presently dependent on Nasdaq’s trading platform to display and execute most
      of its subscriber orders. Any changes that Nasdaq may implement in the future
      could have an adverse effect on Track ECN’s ability to conduct its business in
      the same way it does presently. The Company commenced self-clearing of its
      ECN
      business at the end of the third quarter of 2005 in an effort to decrease costs
      associated with ECN revenues. Although TDSC has approval from NASD-R for
“clearing” of its Track ECN business, it is a limited approval for it to submit
      two sided trade data respecting trades which were executed by broker-dealers
      on
      the Track ECN. TDSC submits this data to the National Securities Clearing
      Corporation so that the actual trading counterparties can compare, clear and
      settle their trades and, except in the case of a rare error, TDSC “drops out” of
      the clearing process. This effort to "self-clear" was a step to reduce costs
      of
      having a third party handle this function.





The
      Non-Professional Market segment revenues have been inconsistent month to month
      but have been down overall when compared to the same periods in the prior year.
      The Company recently introduced myTrack Pro, a trading software for the active
      trader, with a focus on options trading. The Company is attempting to grow
      revenues in this segment, principally through marketing alliances and limited
      advertising to attract new customers, and by offering additional services to
      existing customers. The Company presently offers trading of U.S. based stocks,
      options, e-mini futures and foreign currency.





The
      trading and market data services for both segments require the Company to
      maintain a market data ticker plant on a 24/7 basis, as well as all back office
      trading functions. The Company's focus is to increase revenues in both segments,
      as the underlying costs of maintaining the operations and back office will
      not
      increase commensurate with any revenue increase, allowing greater operating
      margins on incremental revenues.


II-4


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





In
      connection with
      the arbitrage trading activity, the Company incurs margin loans. The Company
      is
      exposed to interest rate change market risk with respect to these margin loans.
      The level of trading in the arbitrage trading account is partially dependent
      on
      the margin value of Track Data common stock pledged by its CEO, and Innodata
      and
      Edgar Online common stock, which is used as collateral. The market value of
      such
      securities is dependent on future market conditions for these companies over
      which the Company has little or no control.





***Results
      of Operations***




***Years
      ended December 31, 2005 and 2004***





Revenues
      for the
      years ended December 31, 2005 and 2004 were $36,094,000 and $40,093,000,
      respectively, a decrease of 10%. The Company’s Professional Market segment had
      revenues for the years ended December 31, 2005 and 2004 of $24,419,000 and
      $25,103,000, respectively, a decrease of 3% for this segment. The Company’s
      Non-Professional Market segment had revenues of $11,675,000 and $14,990,000,
      respectively, for the years ended December 31, 2005 and 2004, a decrease of
      22%
      for this segment. Since 2001, the Company has experienced a decline in revenues
      from its market data services to the Professional Market segment due principally
      to staffing reductions in the securities industry, the use by customers of
      internally developed services, or lower priced services that are offered by
      the
      Company or other vendors. This trend has continued into 2006, negatively
      impacting revenues and profits. Increased revenues from the Company’s Track ECN
      and its Newsware division mostly offset the decline in market data revenues;
      however, these increased revenues did not offset the reduction in profits due
      to
      the low margins realized on increased ECN revenues compared to higher margins
      lost from reduced market data services. The Company commenced self-clearing
      of
      its ECN operations at the end of the third quarter which has reduced clearing
      costs. Track ECN currently offers the highest published rebate in the industry
      and has recently been successful in attracting new subscribers. In the
      Non-Professional Market segment, the Company experienced a decline in the number
      of customers actively trading and, accordingly, reduced revenues due to
      significantly lower trading volumes and market data revenues.





Direct
      operating
      costs were $25,002,000 for the year ended December 31, 2005 and $23,544,000
      for
      the similar period in 2004, an increase of 6%. Direct operating costs as a
      percentage of revenues were 69% in 2005 and 59% in 2004. Without giving effect
      to unallocated depreciation, amortization expense and costs directly allocated
      to the Arbitrage segment, the Company’s Professional Market segment had
      $18,161,000 and $14,960,000 of direct costs for the years ended December 31,
      2005 and 2004, respectively, an increase of 21%. Direct operating costs as
      a
      percentage of revenues for the Professional segment were 74% in 2005 and 60%
      in
      2004. The significant dollar and percentage increase was principally due to
      costs associated with the increased ECN revenues which have minimal gross
      margins replacing the higher gross margins lost to the reduced market data
      revenues. The Professional Market segment includes a credit in 2005 of $370,000
      for telecommunication costs recognized in prior periods. The Company’s
      Non-Professional Market segment had $6,026,000 in 2005 and $7,611,000 in direct
      costs for the years ended December 31, 2005 and 2004, respectively, a decrease
      of 21%. Direct operating costs as a percentage of revenues for the
      Non-Professional segment were 52% in 2005 and 51% in 2004. The dollar decline
      was principally due to the decreased revenues. Certain direct operating costs
      are allocated to each segment based on revenues. Direct operating costs include
      direct payroll, direct telecommunication costs, computer supplies, depreciation,
      equipment lease expense and the amortization of software development costs,
      costs of clearing, back office payroll and other direct broker-dealer expenses
      and ECN customer commissions and clearing.





II-5


Selling
      and
      administrative expenses were $13,108,000 and $14,415,000 in the 2005 and 2004
      periods, respectively, a -----decrease of 9%. Selling and administrative
      expenses as a percentage of revenues was 36% in 2005 and 2004. Without giving
      effect to unallocated depreciation, amortization expense and costs directly
      allocated to the Arbitrage segment, selling and administrative expenses for
      the
      Professional Market segment were $8,976,000 and $9,513,000 in the 2005 and
      2004
      periods, respectively, a decrease of 6%. For the Professional Market segment
      selling and administrative expenses as a percentage of revenues was 37% in
      2005
      and 38% in 2004. The decline in dollars and percentage includes a reversal
      of a
      judgment on sales taxes assessed of $245,000. Selling and administrative
      expenses for the Non-Professional segment were $3,991,000 and $4,553,000 in
      the
      2005 and 2004 periods, respectively, a decrease of 12%. For the Non-Professional
      segment selling and administrative expense as a percentage of revenue was 34%
      in
      2005 and 30% in 2004. The decrease in selling and administrative expenses was
      due principally to reduced allocations of shared expenses due to reduced
      revenues. Certain selling and administrative expenses are allocated to each
      segment based on revenues.




Marketing
      and
      advertising costs were $274,000 in 2005 and $414,000 in 2004. The Professional
      Market segment spent $226,000 in 2005 and $369,000 in 2004. The Non-Professional
      segment incurred marketing costs of $48,000 in 2005 and $45,000 in
      2004.




The
      Professional
      Market segment realized a loss of $2,944,000 in 2005 compared to a loss of
      $494,000 before unallocated amounts and income taxes in 2004. The
      Non-Professional Market segment realized income of $1,611,000 in 2005 and
      $3,537,000 in 2004 before unallocated amounts and income taxes. The Arbitrage
      segment realized income of $406,000 in 2005 compared to income of $933,000
      in
      2004 before unallocated amounts and income taxes.





In
      2005 and 2004, the
      Company recognized gains of $1,067,000 and $5,887,000, respectively, from the
      sale of shares of Innodata and Edgar Online common stock.




The
      Company realized
      a gain of $512,000 from the sale of an investment in a private company, offset
      by a $100,000 impairment charge on an investment in another private company.





Net
      interest expense in 2005 was $223,000 compared to $305,000 in 2004. The decrease
      in interest expense in 2005 is due principally to reduced levels of margin
      debt
      in connection with the Company's arbitrage trading program.




As
      a result of the
      above-mentioned factors, the Company realized a loss before income taxes of
      $215,000 in the 2005 period compared to income before income taxes of $8,814,000
      in the 2004 period.




The
      Company's
      effective tax rate was (83)% in 2005 and 41% in 2004. The unusually high rate
      in
      2005 was due to a reversal of an over estimate of state income taxes in 2004
      related to state apportionments.





The
      Company realized
      a net loss of $37,000 in 2005 compared to net income of $5,200,000 in
      2004.





***Years
      ended December 31, 2004 and 2003***




Revenues
      for the
      years ended December 31, 2004 and 2003 were $40,093,000 and $40,881,000,
      respectively, a decrease of 2%. The Company’s Professional Market segment had
      revenues for the years ended December 31, 2004 and 2003 of $25,103,000 and
      $24,118,000, respectively, an increase of 4% for this segment. The Company’s
      Non-Professional Market segment had revenues of $14,990,000 and $16,763,000,
      respectively, for the years ended December 31, 2004 and 2003, a decrease of
      11%
      for this segment. Since 2001, the Company has experienced a decline in revenues
      from its market data services to the Professional Market segment due principally
      to staffing reductions in the securities industry, the use by customers of
      internally developed services, or lower priced services that are offered by
      the
      Company or other vendors. Increased revenues from the Company’s Track ECN and
      its Newsware division offset the decline in market data revenues; however,
      these
      increased revenues did not offset the reduction in profits. In the
      Non-Professional Market segment, the Company experienced a decline in revenues
      due to lower trading volumes and market data revenues.





II-6


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




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





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





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





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





Net
      interest expense
      in 2004 was $305,000 compared to $107,000 in 2003. The increase in interest
      expense in 2004 is due principally to higher levels of margin debt in connection
      with the Company's arbitrage trading program.





As
      a result of the
      above-mentioned factors, the Company realized income before income taxes of
      $8,814,000 in the 2004 period compared to $4,596,000 in the 2003
      period.





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





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





II-7


***Liquidity
      and Capital Resources***




During
      the year ended
      December 31, 2005, cash used in operating activities was $656,000 compared
      to
      $6,149,000 in 2004. The decrease in 2005 was principally due to lower income
      from operations offset by lower net marketable security purchases. Cash flows
      provided by investing activities in 2005 was $789,000 compared to $6,295,000
      in
      2004. The significant reduction in 2005 was due to reduced proceeds from sales
      of Innodata common stock. Cash used in financing activities was $2,473,000
      in
      2005 compared to $1,625,000 in 2004. The increase in 2005 was principally due
      to
      increased purchases of treasury stock, offset by increased bank
      borrowings.





The
      Company has a line of credit with a bank up to a maximum of $3 million. The
      line
      is collateralized by the assets of the Company and is guaranteed by its
      Chairman. Interest is charged at 1.75% above the bank’s prime rate and is due on
      demand. The Company may borrow up to 80% of eligible market data service
      receivables as defined, and is required to maintain a compensating balance
      of
      10% of the outstanding loans. At December 31, 2005, the Company had borrowings
      of $1,137,000 under the line. Borrowings available on the line of credit at
      December 31, 2005 were $51,000 based on these formulas.





The
      Company has significant positions in stocks and options and receives significant
      proceeds from the sale of trading securities sold but not yet purchased under
      the arbitrage trading strategy described in Note C of Notes to Consolidated
      Financial Statements. The Company expects that its December 31, 2005 positions
      will be closed during the first quarter of 2006 and that other positions with
      the same strategy will be established. The level of trading activity is
      partially dependent on the value of the shares of Track Data pledged by its
      CEO,
      and Innodata and Edgar Online common stock that is held as collateral.





The
      Company purchased
      1,247,000 shares of its common stock in 2005 at a cost of $3,676,000. The
      purchases were paid with cash that was part of the total capital used in
      Arbitrage trading. The Board recently authorized the purchase of up to 1 million
      shares from time to time in market purchases or in negotiated transactions.
      No
      major capital expenditures are anticipated beyond the normal replacement of
      equipment and additional equipment to meet customer requirements. The Company
      believes that borrowings available under the Company’s line of credit, its
      present cash position, including cash available in its Arbitrage trading, and
      any cash that may be generated from operations are sufficient for the Company’s
      cash requirements for the next 12 months.





The
      Company’s
      broker-dealer subsidiary, TDSC, is subject to a minimum net capital requirement
      of $1 million by the NASD.





The
      Company is
      subject to legal proceedings and claims that arise in the ordinary course of
      its
      business. In the opinion of management, the amount of ultimate liability with
      respect to these actions will not materially affect the Company's financial
      position.





***Off
      Balance Sheet Risk***





In
      connection with
      the Company's broker-dealer operations, certain customer securities activities
      are transacted on a margin basis. The Company's clearing broker extends credit
      to the Company's customers, subject to various regulatory margin requirements,
      collateralized by cash and securities in the customers' accounts. In the event
      of a decline in the market value of the securities in a margin account, the
      Company is required to either obtain additional collateral from the customer
      or
      to sell the customer's position if such collateral is not forthcoming. The
      Company is responsible for any losses on such margin loans, and has agreed
      to
      indemnify its clearing broker for losses that the clearing broker may sustain
      from the customer accounts introduced by the Company. The Company and its
      clearing broker seek to control the risks associated with customer activities
      by
      monitoring required margin levels daily and, pursuant to such guidelines,
      requiring the customer to deposit additional collateral or to reduce positions
      when necessary. At December 31, 2005, the Company had $14 million in margin
      credit extended to its customers. The Company believes it is unlikely it will
      have to make material payments under the indemnification agreement and has
      not
      recorded any contingent liability in the Consolidated Financial
      Statements.





II-8


***Contractual
      Obligations and Commitments***




At
      December 31, 2005,
      the Company had operating lease obligations aggregating $1,328,000 pursuant
      to
      which payments are due as follows: $609,000 in 2006; $277,000 in 2007; $212,000
      in 2008; $154,000 in 2009; and $76,000 in 2010. In addition, the Company had
      $1,137,000 due on demand under its line of credit financing with a
      bank.




In
      connection with
      the Company's broker-dealer operations, certain customer securities activities
      are transacted on a margin basis. The Company is responsible for any losses
      on
      such margin loans, and has agreed to indemnify its clearing broker for losses
      that the clearing broker may sustain from the customer accounts introduced
      by
      the Company.





***Critical
      Accounting Policies***




Critical
      accounting
      policies are defined as those that are reflective of significant judgments
      and
      uncertainties, and potentially result in materially different results when
      different assumptions are utilized. We believe that our principal critical
      accounting policies are described below. For a detailed discussion on the
      application of these and other accounting policies, see Note A of Notes to
      Consolidated Financial Statements.




**Revenue
      Recognition**




The
      Company ** recognizes
      revenue from market data and ECN services as services are performed. Billings
      in
      advance of services provided are recorded as unearned revenues. All other
      revenues collected in advance of services are deferred until services are
      rendered. The Company earns commissions as an introducing broker and for
      licensing its trading system for the transactions of its customers. Commissions
      and related clearing expenses are recorded on a trade-date basis as securities
      transactions occur.





For
      ECN
      services, transaction fees are earned on a per trade basis, based on shares
      transacted, and are recognized as transactions occur. For each transaction
      executed, there is an associated liquidity payment or routing charge paid.
      Pursuant to Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting
      Revenue Gross as a Principal versus Net as an Agent” (“EITF 99-19”), the Company
      records such expenses as liquidity payments or routing charges in the
      consolidated statements of operations.





**Marketable
      Securities**




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





The
      Company
      classifies its investments in Innodata and Edgar Online as available for sale
      securities. The Company carries these investments at fair value, based on quoted
      market prices, and unrealized gains and losses, net of taxes, are included
      in
      accumulated other comprehensive income, which is reflected as a separate
      component of stockholders' equity. Realized gains and losses are recognized
      in
      the consolidated statement of income when realized. The Company reviews these
      holdings on a regular basis to evaluate whether or not each security has
      experienced an other-than-temporary decline in fair value. If the Company
      believes that an other-than-temporary decline exists in the marketable
      securities, the equity investments are written down to market value and an
      investment loss is recorded in the consolidated statement of income.





II-9


**Long-lived
      Assets**




In
      assessing the
      recoverability of the Company's goodwill and other intangibles, the Company
      must
      make assumptions regarding estimated undiscounted expected future cash flows
      to
      be generated by the assets to determine the fair value of the respective assets.
      If these estimated cash flows and related assumptions change in the future,
      the
      Company may be required to record an impairment charge in the consolidated
      statement of income.





**New
      Pronouncements**




In
      December 2004, the
      Financial Accounting Standards Board (“FASB”) issued SFAS 123(R), “Share-Based
      Payment.” SFAS 123(R) amends certain provisions of SFAS 123 with respect to
      transactions with employees. In April 2005, the Securities and Exchange
      Commission (“SEC”) announced a deferral of the effective date of SFAS 123(R) for
      calendar year companies until the beginning of 2006. The adoption of the new
      requirements will result in compensation charges to the Company’s statement of
      operations for the fair value of options granted to employees after December
      31,
      2005, as well as the compensation cost for the portion of outstanding awards
      for
      which the requisite service has not yet been rendered as of December 31, 2005.
      The Company will apply the modified prospective transition method. At December
      31, 2005, all of the Company's outstanding stock options were fully vested.
      The
      Company expects that the adoption of this statement may have a material impact
      on net income (loss) and earnings per share in future periods upon the issuance
      of new awards.




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




In
      June 2005, the
      FASB issued SFAS 154, “Accounting Changes and Error Corrections, a replacement
      of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting
      Accounting Changes in Interim Financial Statements.” SFAS 154 changes the
      requirements for the accounting for and reporting of a change in accounting
      principle. Previously, most voluntary changes in accounting principles required
      recognition via a cumulative effect adjustment within net income of the period
      of the change. SFAS 154 requires retrospective application to prior periods’
financial statements, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. SFAS 154 is
      effective for accounting changes made in fiscal years beginning after December
      15, 2005; however, SFAS 154 does not change the transition provisions of any
      existing accounting pronouncements. Management does not believe the adoption
      of
      SFAS 154 will have a material impact on the Company’s financial
      statements.





In
      June 2005, the
      EITF reached consensus on Issue No. 05-6, ”Determining the Amortization Period
      for Leasehold Improvements” ("EITF 05-6"). EITF 05-6 provides guidance on
      determining the amortization period for leasehold improvements acquired in
      a
      business combination or acquired subsequent to lease inception. The guidance
      in
      EITF 05-6 will be applied prospectively and is effective for periods beginning
      after June 29, 2005. The adoption of EITF 05-6 did not have a material impact
      on
      the Company's consolidated financial condition or results of
      operations.


II-10





In
      November 2005, the FASB issued FASB Staff Position FAS 115-1 and FAS 124-1,
“The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments” (“FSP 115-1”), which provides guidance on determining when
      investments in certain debt and equity securities are considered impaired,
      whether that impairment is other-than-temporary, and on measuring such
      impairment loss. FSP 115-1 also includes accounting considerations subsequent
      to
      the recognition of an other-than temporary impairment and requires certain
      disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. FSP 115-1 is required to be applied to
      reporting periods beginning after December 15, 2005. We do not expect the
      adoption of FSP 115-1 will have a material impact on the Company’s consolidated
      financial condition or results of operations.





***Inflation
      and Seasonality***





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





II-11


**ITEM
                7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




The
      Company is
      exposed to interest rate change market risk with respect to its credit facility
      with a financial institution, which is priced based on the prime rate of
      interest. At December 31, 2005, there was $1,137,000 outstanding under the
      credit facility. Changes in the prime interest rate during fiscal 2006 will
      have
      a positive or negative effect on the Company's interest expense. Such exposure
      will increase should the Company maintain higher levels of borrowing during
      2006. Assuming debt remains constant, a 1% change in interest rates would not
      be
      material to the Company’s interest expense.




The
      Company has
      significant positions in stocks and options and receives significant proceeds
      from the sale of trading securities sold but not yet purchased under the
      arbitrage trading strategy described in Note C of Notes to Consolidated
      Financial Statements. In connection with the arbitrage trading activity, the
      Company incurs margin loans. The Company is exposed to interest rate change
      market risk with respect to these margin loans. Such exposure will increase
      should the Company maintain higher levels of borrowing. The level of trading
      in
      the arbitrage trading account is partially dependent on the value of Track
      Data
      common stock pledged by its CEO, and Innodata and Edgar Online common stock,
      which is used as collateral. The market value of such securities is dependent
      on
      future market conditions for these companies over which the Company has little
      or no control. If the stock collateral is not available, the Company will
      decrease its trading or seek additional collateral.




The
      Company conducts
      business through a clearing broker, which settles all trades for the Company,
      on
      a fully disclosed basis, on behalf of its customers. The Company earns
      commissions as an introducing broker for the transactions of its customers.
      In
      the normal course of business, the Company's customer activities involve the
      execution of various customer securities transactions. These activities may
      expose the Company to off-balance-sheet risk in the event the customer or other
      broker is unable to fulfill its contracted obligations and the Company has
      to
      purchase or sell the financial instrument underlying the obligation at a loss.
      At December 31, 2005, the Company had $14 million in margin credit extended
      to
      its customers.


II-12


**ITEM
                8.**
            **FINANCIAL
                STATEMENTS**







**INDEX
      TO FINANCIAL STATEMENTS**




**REPORTS
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS**
              **II-14-15****CONSOLIDATED
                  BALANCE SHEETS**
              **II-16****CONSOLIDATED
                  STATEMENT OF OPERATIONS**
              **II-17****CONSOLIDATED
                  STATEMENTS OF STOCKHOLDERS’ EQUITY AND****COMPREHENSIVE
                  INCOME (LOSS)**
              **II-18****CONSOLIDATED
                  STATEMENT OF CASH FLOWS**
              **II-19****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
              **II-20-33**






II-13


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Audit Committee of the Board of Directors


and
      Stockholders of


Track
      Data Corporation








We
      have
      audited the accompanying consolidated balance sheet of Track Data Corporation
      (the “Company”) as of December 31, 2005, and the related consolidated statements
      of operations, changes in stockholders’ equity and comprehensive income (loss)
      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 the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides 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 as of December 31, 2005, and the results of its operations and
      its
      cash flows for the year then ended in conformity with United States generally
      accepted accounting principles.











/S/
                Marcum & Kliegman LLPMelville,
                New YorkMarch
                8, 2006





II-14








**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








Board
      of
      Directors and Stockholders





Track
      Data Corporation





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





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





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


/S/
                Grant Thornton LLPNew
                York, New YorkMarch
                16, 2005








II-15


**Track
      Data Corporation and Subsidiaries**


**Consolidated
      Balance Sheets**


**December
      31, 2005 and 2004**


(in
      thousands, except number of shares)





**2005**
            
            
            
            **2004****ASSETS****CASH
                AND EQUIVALENTS**
            
            $
            4,469
            
            
            $
            6,818**ACCOUNTS
                RECEIVABLE**-
                net of allowance for doubtfulaccounts
                of
                $225 in 2005 and 2004
            
            
            1,950
            
            
            
            2,160**DUE
                FROM CLEARING BROKER**
            
            
            154
            
            
            
            269**DUE
                FROM BROKER**
            
            
            15,591
            
            
            
            35,751**MARKETABLE
                SECURITIES**
            
            
            9,492
            
            
            
            20,132**FIXED
                ASSETS**-
                at cost (net of accumulated depreciation)
            
            
            1,701
            
            
            
            1,787**EXCESS
                OF COST OVER NET ASSETS ACQUIRED**-
                net
            
            
            1,900
            
            
            
            1,900**OTHER
                ASSETS**
            
            
            950
            
            
            
            621**TOTAL**
            
            $
            36,207
            
            
            $
            69,438**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****LIABILITIES**Accounts
                payable and accrued expenses
            
            $
            3,707
            
            
            $
            4,713Note
                payable - bank
            
            
            1,137
            
            
            
            -Trading
                securities sold, but not yet purchased
            
            
            8,223
            
            
            
            33,615Net
                deferred income tax liabilities
            
            
            959
            
            
            
            2,052Other
                liabilities, including income taxes
            
            
            632
            
            
            
            2,190Total
                liabilities
            
            
            14,658
            
            
            
            42,570**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS’
                EQUITY**Common
                stock - $.01 par value; 60,000,000 sharesauthorized;
                issued and outstanding - 8,380,000 sharesin
                2005
                and 9,627,000 shares in 2004
            
            
            84
            
            
            
            96Additional
                paid-in capital
            
            
            10,136
            
            
            
            13,786Retained
                earnings
            
            
            10,374
            
            
            
            10,411Accumulated
                other comprehensive income
            
            
            955
            
            
            
            2,575Total
                stockholders’ equity
            
            
            21,549
            
            
            
            26,868**TOTAL**
            
            $
            36,207
            
            
            $
            69,438








See
          notes to consolidated financial statements.
 II-16


**Track
      Data Corporation and Subsidiaries**


**Consolidated
      Statements of Operations**


**Years
      Ended December 31, 2005, 2004 and 2003**


(in
      thousands, except earnings and dividends per share)


**2005**
            
            
            
            **2004**
            
            
            
            **2003****SERVICE
                FEES AND REVENUE**
            
            $
            36,094
            
            
            $
            40,093
            
            
            $
            40,881**COSTS,
                EXPENSES AND OTHER:****Direct
                operating costs**(includes depreciation and amortizationof
                $614, $766 and $1,002 in 2005, 2004 and 2003,
                respectively)
            
            
            25,002
            
            
            
            23,544
            
            
            
            23,201**Selling
                and administrative expenses**(includes
                depreciation and****amortization
                of
                $141, $287 and $308 in 2005, 2004 and 2003, respectively)
            
            
            12,485
            
            
            
            13,815
            
            
            
            14,515**Rent
                expense - related party**
            
            
            623
            
            
            
            600
            
            
            
            583**Marketing
                and
                advertising**
            
            
            274
            
            
            
            414
            
            
            
            394**Gain
                on
                arbitrage trading**
            
            
            (819
            )
            
            
            (1,512
            )
            
            
            (1,891
            )**Gain
                on
                sale of marketable securities - Innodata and Edgar
                Online**
            
            
            (1,067
            )
            
            
            (5,887
            )
            
            
            (624
            )**Net
                gain on sale of investment in private companies**
            
            
            (412
            )
            
            
            -
            
            
            
            -**Interest
                income**
            
            
            (241
            )
            
            
            -
            
            
            
            (142
            )**Interest
                expense**
            
            
            464
            
            
            
            305
            
            
            
            249**Total**
            
            
            36,309
            
            
            
            31,279
            
            
            
            36,285**(LOSS)
                INCOME BEFORE INCOME TAXES**
            
            
            (215
            )
            
            
            8,814
            
            
            
            4,596**INCOME
                TAXES (BENEFIT) EXPENSE**
            
            
            (178
            )
            
            
            3,614
            
            
            
            1,750**NET
                (LOSS) INCOME**
            
            $
            (37
            )
            
            $
            5,200
            
            
            $
            2,846**BASIC
                AND DILUTED NET (LOSS) INCOME PER SHARE**
            
            
            $(.00
            )
            
            
            $.53
            
            
            
            $.29**DIVIDENDS
                PER SHARE**
            
            
            $.00
            
            
            
            $.05
            
            
            
            $.05**WEIGHTED
                AVERAGE NUMBER OF SHARES OUTSTANDING**
            
            
            9,221
            
            
            
            9,732
            
            
            
            9,942**ADJUSTED
                DILUTIVE SHARES OUTSTANDING**
            
            
            9,221
            
            
            
            9,740
            
            
            
            9,960





See
          notes to consolidated financial statements.
 II-17


**Track
      Data Corporation and Subsidiaries**


**Consolidated
      Statements of Stockholders’ Equity and Comprehensive Income
      (Loss)**


**Years
      Ended December 31, 2005, 2004 and 2003**


*(in
      thousands)*


**Accumulated**
            
            
            
            
            
            
            
            **Compre-****Number**
            
            
            
            **Additional**
            
            
            
            
            
            
            
            **Other**
            
            **Stock-**
            
            **hensive****of**
            
            **Common**
            
            **Paid-in**
            
            **Retained**
            
            **Comprehensive**
            
            **holders’**
            
            **Income****Shares**
            
            **Stock**
            
            **Capital**
            
            **Earnings**
            
            **Income**
            
            **Equity**
            
            **(Loss)****BALANCE,
                JANUARY 1, 2003**
            
            
            **10,238**
            
            
            
            **$**
            **102**
            
            
            
            
            **$**
            **15,426**
            
            
            
            
            **$**
            **3,344**
            
            
            
            
            **$**
            **735**
            
            
            
            
            **$**
            **19,607**Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,846
            
            
            
            
            
            
            
            
            
            
            
            2,846
            
            
            
            
            $
            2,846Stock
                options and warrants exercised
            
            
            
            
            
            
            
            
            
            
            
            
            
            399
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            399Dividends
                paid
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (489
            )
            
            
            
            
            
            
            
            
            
            
            (489
            )Purchase
                and
                retirement of treasury stock
            
            
            (438
            )
            
            
            
            (4
            )
            
            
            
            
            (1,363
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,367
            )Tax
                effect of stock options exercised
            
            
            
            
            
            
            
            
            
            
            
            
            
            82
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            82Reclassification
                adjustment for gainon
                marketable securities - net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (179
            )
            
            
            
            
            (179
            )
            
            
            
            
            (179
            )Unrealized
                gain
                on marketable securities -net
                of
                taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,906
            
            
            
            
            
            2,906
            
            
            
            
            
            2,906Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **$**
            **5,573****BALANCE,
                DECEMBER 31, 2003**
            
            
            **9,800**
            
            
            
            
            **98**
            
            
            
            
            
            **14,544**
            
            
            
            
            
            **5,701**
            
            
            
            
            
            **3,462**
            
            
            
            
            
            **23,805**Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,200
            
            
            
            
            
            
            
            
            
            
            
            5,200
            
            
            
            
            $
            5,200Stock
                options exercised
            
            
            
            
            
            
            
            
            
            
            
            
            
            11
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11Dividends
                paid
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (490
            )
            
            
            
            
            
            
            
            
            
            
            (490
            )Purchase
                and
                retirement of treasury stock
            
            
            (173
            )
            
            
            
            (2
            )
            
            
            
            
            (804
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (806
            )Tax
                effect of stock options exercised
            
            
            
            
            
            
            
            
            
            
            
            
            
            35
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            35Reclassification
                adjustment for gainon
                marketable securities - net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,176
            )
            
            
            
            
            (2,176
            )
            
            
            
            
            (2,176
            )Unrealized
                gain
                on marketable securities -net
                of
                taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,289
            
            
            
            
            
            1,289
            
            
            
            
            
            1,289Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **$**
            **4,313****BALANCE,
                DECEMBER 31, 2004**
            
            
            **9,627**
            
            
            
            
            **96**
            
            
            
            
            
            **13,786**
            
            
            
            
            
            **10,411**
            
            
            
            
            
            **2,575**
            
            
            
            
            
            **26,868**Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (37
            )
            
            
            
            
            
            
            
            
            
            
            (37
            )
            
            
            
            $
            (37
            )Purchase
                and
                retirement of treasury stock
            
            
            (1,247
            )
            
            
            
            (12
            )
            
            
            
            
            (3,664
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,676
            )Tax
                effect on distribution ofphantom
                shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            14
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            14Reclassification
                adjustment for gainon
                marketable securities - net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (472
            )
            
            
            
            
            (472
            )
            
            
            
            
            (472
            )Unrealized
                loss
                on marketable securities -net
                of
                taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,148
            )
            
            
            
            
            (1,148
            )
            
            
            
            
            (1,148
            )Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            **(1,657**
            )**BALANCE,
                DECEMBER 31, 2005**
            
            
            **8,380**
            
            
            
            **$**
            **84**
            
            
            
            
            **$**
            **10,136**
            
            
            
            
            **$**
            **10,374**
            
            
            
            
            **$**
            **955**
            
            
            
            
            **$**
            **21,549**








See
          notes to consolidated financial statements.
 II-18


**Track
      Data Corporation and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**Years
      Ended December 31, 2005, 2004 and 2003**


(in
      thousands)





**2005**
            
            **2004**
            
            **2003****CASH FLOWS FROM OPERATING ACTIVITIES:**Net (loss) income
            
            $
            (37
            )
            
            $
            5,200
            
            
            $
            2,846Adjustments to reconcile net (loss) income to
                net cash (used in)provided by operating
                activities:Depreciation and
                amortization
            
            
            755
            
            
            
            1,053
            
            
            
            1,310Deferred
                taxes
            
            
            (13
            )
            
            
            168
            
            
            
            362Tax effect of phantom
                shares and stock options exercised
            
            
            14
            
            
            
            35
            
            
            
            82Net gain on sale of
                investment in private companies
            
            
            (412
            )
            
            
            -
            
            
            
            -Loss on sale of fixed
                assets
            
            
            51
            
            
            
            -
            
            
            
            -Gain on sale of
                Innodata and Edgar Online common stock
            
            
            (1,067
            )
            
            
            (5,887
            )
            
            
            (624
            )Changes in operating
                assets and liabilities:Accounts
                receivable and due from clearing broker
            
            
            325
            
            
            
            (783
            )
            
            
            2,539Due
                from broker
            
            
            20,160
            
            
            
            1,390
            
            
            
            (17,027
            )Marketable
                securities
            
            
            7,916
            
            
            
            (1,295
            )
            
            
            (6,217
            )Other
                assets
            
            
            137
            
            
            
            296
            
            
            
            (107
            )Accounts
                payable and accrued expenses
            
            
            (1,006
            )
            
            
            712
            
            
            
            (226
            )Trading
                securities sold, but not yet purchased
            
            
            (25,392
            )
            
            
            (7,381
            )
            
            
            21,271Other
                liabilities, including income taxes
            
            
            (2,087
            )
            
            
            343
            
            
            
            1,077Net
                cash (used in) provided by operating activities
            
            
            (656
            )
            
            
            (6,149
            )
            
            
            5,286**CASH FLOWS FROM INVESTING ACTIVITIES:**Purchase of fixed assets
            
            
            (726
            )
            
            
            (683
            )
            
            
            (557
            )Investment in private companies
            
            
            (100
            )
            
            
            -
            
            
            
            -Proceeds from sale of fixed assets
            
            
            8
            
            
            
            -
            
            
            
            -Proceeds from sale of investment in private
                company
            
            
            522
            
            
            
            -
            
            
            
            -Proceeds from sale of Innodata and Edgar
                Online common stock
            
            
            1,085
            
            
            
            6,978
            
            
            
            980Net
                cash provided by investing activities
            
            
            789
            
            
            
            6,295
            
            
            
            423**CASH FLOWS FROM FINANCING ACTIVITIES:**Payments under capital lease
                obligations
            
            
            -
            
            
            
            -
            
            
            
            (83
            )Net proceeds (payments) on note payable -
                bank
            
            
            1,137
            
            
            
            -
            
            
            
            (1,030
            )Net payments on notes payable -
                other
            
            
            -
            
            
            
            (494
            )
            
            
            (376
            )Net proceeds on loans from employees
            
            
            66
            
            
            
            154
            
            
            
            77Dividends paid
            
            
            -
            
            
            
            (490
            )
            
            
            (489
            )Proceeds from exercise of stock options and
                warrants
            
            
            -
            
            
            
            11
            
            
            
            399Purchase of treasury stock
            
            
            (3,676
            )
            
            
            (806
            )
            
            
            (1,367
            )Net
                cash used in financing activities
            
            
            (2,473
            )
            
            
            (1,625
            )
            
            
            (2,869
            )**EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH**
            
            
            (9
            )
            
            
            (18
            )
            
            
            (16
            )**NET (DECREASE) INCREASE IN CASH AND
                EQUIVALENTS**
            
            
            (2,349
            )
            
            
            (1,497
            )
            
            
            2,824**CASH AND EQUIVALENTS, BEGINNING OF YEAR**
            
            
            6,818
            
            
            
            8,315
            
            
            
            5,491**CASH AND EQUIVALENTS, END OF YEAR**
            
            $
            4,469
            
            
            $
            6,818
            
            
            $
            8,315**SUPPLEMENTAL DISCLOSURES OF CASH FLOW
                INFORMATION:**Cash paid for:    Interest
            
            $
            465
            
            
            $
            535
            
            
            $
            222Income
                taxes
            
            
            1,943
            
            
            
            3,135
            
            
            
            472




See
          notes to consolidated financial statements.
 II-19


**Track
      Data Corporation and Subsidiaries**


**Notes
      To Consolidated Financial Statements**


**Years
      Ended December 31, 2005, 2004 and 2003**





**A.**  **The
      Company and Summary of Significant Accounting Policies**





***Description
      of Business and Basis of Presentation*** --Track
      Data Corporation (the "Company") is a financial services company that provides
      real-time financial market data, fundamental research, charting and analytical
      services to institutional and individual investors through dedicated
      telecommunication lines and the Internet. The Company also disseminates news
      and
      third-party database information from more than 100 sources worldwide. The
      Company’s wholly-owned subsidiary, Track Data Securities Corp. ("TDSC"), is a
      registered securities broker-dealer and member of the National Association
      of
      Securities Dealers, Inc. (“NASD”). The Company provides a proprietary, fully
      integrated Internet-based online trading and market data system, proTrack,
      for
      the professional institutional traders, and myTrack and myTrack Pro, for the
      individual trader. The Company also operates Track ECN, an electronic
      communications network that enables traders to display and match limit orders
      for stocks. The Company operates in a highly competitive environment, and
      competes based on its service, reliability and price. Many of the Company’s
      competitors have significantly greater resources than the Company. The Company's
      operations are classified in three business segments: (1) Professional Market
      --
      Market data services and trading, including ECN services, to the institutional
      professional investment community, (2) Non-Professional Market -- Internet-based
      online trading and market data services to the non-professional individual
      investor community, and (3) Arbitrage trading.





Certain
      reclassifications of prior year amounts were made to conform to the 2005
      presentation.





On
      January 18, 2005, the Board of Directors authorized a one-for-five reverse
      stock
      split, which was consented to by the Company’s Chairman, CEO and principal
      stockholder. The stock split became effective on February 28, 2005. All share,
      per share, related equity accounts and stock option information in this report
      have been retroactively adjusted to reflect such stock split.





***Principles
      of Consolidation*** --The
      consolidated financial statements of the Company include its subsidiaries,
      all
      of which are wholly owned. All significant intercompany transactions and
      accounts have been eliminated in consolidation.





***Cash
      and Cash 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 and money market funds to be cash equivalents. The Company has
      cash balances in banks in excess of the maximum amount insured by the FDIC
      as of
      December 31, 2005.





***Accounts
      Receivable*** --Accounts
      receivable, principally trade, are generally due within 30 days and are stated
      at amounts due from customers net of an allowance for doubtful accounts. The
      Company continuously monitors agings, collections and payments from customers
      and a provision for estimated credit losses is maintained based upon its
      historical experience and any specific customer collection issues that have
      been
      identified. While such credit losses have historically been within the Company’s
      expectation and the provisions established, the Company cannot guarantee that
      the same credit loss rates will be experienced in the future. The Company writes
      off accounts receivable when they become uncollectible. The Company’s allowance
      for doubtful accounts was $225,000 at December 31, 2005 and 2004, respectively.
      There have been no significant write offs during the three years ended December
      31, 2005.





II-20


***Marketable
      Securities*** --The
      Company accounts for securities owned in accordance with Statement of Financial
      Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
      in
      Debt and Equity Securities." SFAS 115 requires investments in debt and equity
      securities to be classified as either "held to maturity," "trading," or
      "available for sale." The accounting treatment for unrealized gains and losses
      on those securities is then determined by the classification chosen. Arbitrage
      trading securities transactions, consisting of stocks and options, are recorded
      on a trade-date basis. Securities are valued at quoted market value. The
      resulting difference between cost and market (or fair value) is included in
      trading gains or losses, net. Securities sold, but not yet purchased, consist
      of
      trading securities at market values. The difference between the proceeds
      received from securities sold short and the current market value is included
      in
      gain on arbitrage trading. Securities available for sale are carried at fair
      value, with unrealized gains and losses, net of deferred taxes, reported as
      comprehensive income (loss), a separate component of stockholders' equity,
      and
      realized gains and losses, determined on a specific identification basis, are
      included in earnings. The Company reviews these holdings on a regular basis
      to
      evaluate whether or not each security has experienced an other-than-temporary
      decline in fair value. If the Company believes that an other-than-temporary
      decline exists in the marketable securities, the equity investments are written
      down to market value and an investment loss is recorded in the consolidated
      statement of operations.





***Due
      From Broker*** --All
      cash, securities owned and securities sold, but not yet purchased reflected
      in
      the balance sheet are positions carried by and amounts due from broker.





***Fixed
      Assets*** --Fixed
      assets are depreciated on a straight-line basis over their estimated useful
      lives which are as follows: equipment - 3-10 years; furniture and fixtures
      - 10
      years; and transportation equipment - 4 years. 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*** --Certain
      costs of internally developed software are capitalized 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. Costs incurred for internal
      use software in the preliminary project stage and for application maintenance
      are expensed. Costs incurred for application development are capitalized. Most
      costs are incurred for upgrades and enhancements that are constantly upgraded
      and changed with useful lives of less than one year. Accordingly, these costs
      are expensed as incurred. No development costs have been capitalized during
      the
      three years ended December 31, 2005. Database costs are amortized on a
      straight-line basis over their estimated useful lives of ten years. Amortization
      expense for the years ended December 31, 2005, 2004 and 2003 was $4,000, $18,000
      and $40,000, respectively. At each balance sheet date, the unamortized
      capitalized costs of a computer software product is compared to the net
      realizable value of that product. The amount by which the unamortized
      capitalized costs of a computer software product exceed the net realizable
      value
      of that asset is written off. The net realizable value is the estimated future
      gross revenues from that product reduced by the estimated future costs of
      completing and disposing of that product, including the costs of performing
      maintenance and customer support required to satisfy the enterprise’s
      responsibility set forth at the time of sale. The reduced amount of capitalized
      computer software costs that have been written down to net realizable value
      at
      the close of an annual fiscal period shall be considered to be the costs for
      subsequent accounting purposes, and the amount of the write-down shall not
      be
      subsequently restored.





***Long-lived
      Assets*** --In
      accordance with SFAS 142, "Goodwill and Other Intangible Assets," all intangible
      assets acquired that are obtained through contractual or legal right, or are
      capable of being separately sold, transferred, licensed, rented or exchanged
      shall be recognized as an asset apart from goodwill. Goodwill and intangibles
      with indefinite lives are not subject to amortization, but are subject to at
      least an annual assessment for impairment by applying a fair value based test.
      The excess of the purchase price of acquired businesses over the fair value
      of
      net assets ("goodwill") on the dates of acquisition amounts to $1,900,000,
      net
      of accumulated amortization of $2,494,000 as of December 31, 2005 and 2004.





II-21


In
      accordance with SFAS 144, "Accounting for the Impairment or Disposal of
      Long-Lived Assets," management assesses the recoverability of the remaining
      unamortized costs of long-lived assets other than goodwill 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. To date, the Company
      has not provided an impairment charge.





***Foreign
      Currency Translation*** --The
      Company has a division which operates in a foreign country for which the
      functional currency is not U.S. dollars. Balance sheet accounts are translated
      at the exchange rates in effect at December 31, 2005 and 2004, and the income
      statement accounts are translated at the weighted average rates prevailing
      during the years ended December 31, 2005, 2004 and 2003. Unrealized foreign
      exchange gains and losses resulting from this translation are
      insignificant.





***Revenue
      Recognition*** --The
      Company recognizes revenue from market data and ECN services as services are
      performed. Billings in advance of services provided are recorded as unearned
      revenues. All other revenues collected in advance of services are deferred
      until
      services are rendered. The Company earns commissions as an introducing broker
      and for licensing its trading system for the transactions of its customers.
      Commissions and related clearing expenses are recorded on a trade-date basis
      as
      securities transactions occur.





For
      ECN
      services, transaction fees are earned on a per trade basis, based on shares
      transacted, and are recognized as transactions occur. For each transaction
      executed, there is an associated liquidity payment or routing charge paid.
      Pursuant to Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting
      Revenue Gross as a Principal versus Net as an Agent,” the Company records such
      expenses as liquidity payments or routing charges in the consolidated statements
      of operations.





***Income
      Taxes*** --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 and are adjusted when conditions
      indicate that deferred assets will 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.





***Research
      and Development*** --The
      Company charges all costs incurred to establish the technological feasibility
      of
      a product or product enhancement to research and development expense. Research
      and development expenses, included in direct operating costs, were approximately
      $210,000, $238,000 and $242,000 for the years ended December 31, 2005, 2004
      and
      2003, respectively.





***Marketing
      and Advertising*** --Marketing
      and advertising costs are charged to expense when incurred. Marketing and
      advertising costs were approximately $274,000, $414,000 and $394,000 for the
      years ended December 31, 2005, 2004 and 2003, respectively.





***Segment
      Reporting*** --The
      Company uses the "management approach" as defined by SFAS 131, "Disclosures
      about Segments of Enterprise and Related Information" for its segment reporting.
      The management approach designates the internal organization that is used by
      management for making operating decisions and assessing performance as the
      disclosures about products and services, geographic areas, and major
      customers.





***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
      107, “Disclosures About Fair Value of Financial Instruments.” Management of the
      Company believes that the fair values of financial instruments, consisting
      of
      accounts receivable and payable and note payable, approximate carrying value
      due
      to the short payment terms associated with its accounts receivable and payable
      and the floating interest rate associated with its note payable.





II-22


***Use
      of Estimates*** --In
      preparing financial statements in conformity with accounting principles
      generally accepted in the United States of America, 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. Significant estimates
      relate to: useful lives and recoverability of long-lived assets, including
      goodwill; fair values of marketable securities; and, allowances for doubtful
      accounts.





***Comprehensive
      Income (Loss)*** **--** The
      Company reports comprehensive income (loss) in accordance with SFAS 130,
      "Reporting Comprehensive Income." SFAS 130 requires foreign currency translation
      adjustments and unrealized gains and losses on available for sale securities
      to
      be included in accumulated other comprehensive income.





***Earnings
      Per Share*** --Basic
      earnings per share is based on the weighted average number of common shares
      outstanding without consideration of potential common stock. Diluted earnings
      per share are based on the weighted average number of common and potential
      dilutive common shares outstanding. There was no affect on earnings per share
      as
      a result of potential dilution. The calculation takes into account the shares
      that may be issued upon exercise of stock options (Note J), reduced by the
      shares that may be repurchased with the funds received from the exercise, based
      on the average price during the year.





***Accounting
      for Stock Options*** --SFAS
      148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
      requires disclosure in the summary of significant accounting policies of the
      effects of an entity's accounting policy with respect to stock-based employee
      compensation on reported net (loss) income and per share amounts in annual
      and
      interim financial statements. At December 31, 2005, the Company has seven
      stock-based employee compensation plans, which are described more fully in
      Note
      J. The Company accounts for those plans under the recognition and measurement
      principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock
      Issued to Employees” and related Interpretations. No stock-based employee
      compensation cost is reflected in the statement of operations, as all options
      granted under those plans had an exercise price equal to or greater than the
      market value of the underlying common stock on the date of grant.





The
      following table illustrates the effect on net (loss) income and net (loss)
      income per share as if the Company had applied the fair value recognition
      provisions of SFAS 123, “Accounting for Stock-Based Compensation,” to
      stock-based employee compensation.


**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**(in
                thousands, except earnings per share)Net
                (loss) income, as reported
            
            $
            (37
            )
            
            $
            5,200
            
            
            $
            2,846Deduct:
                Total stock-based employee compensationexpense
                determined under fair value based method forall
                awards, net of related tax effects
            
            
            (476
            )
            
            
            (943
            )
            
            
            (935
            )Net
                (loss) income, as adjusted
            
            $
            (513
            )
            
            $
            4,257
            
            
            $
            1,911Net
                (loss) income per share:Basic
                and diluted --as reported
            
            
            $(.00
            )
            
            
            $.53
            
            
            
            $.29Basic
                and diluted --as adjusted
            
            
            $(.05
            )
            
            
            $.44
            
            
            
            $.20





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 4.4% in 2005, 2.7% in 2004 and 4%
      in
      2003; expected volatility of 86% in 2005, 112% in 2004 and 135% in 2003; and
      a
      zero dividend yield. The effects of applying SFAS 123 in this proforma
      disclosure are not indicative of future results.


II-23





***New
      Pronouncements*** --In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS
      123(R), “Share-Based
      Payment.” SFAS 123(R) amends certain provisions of SFAS 123 with respect to
      transactions with employees. In April 2005, the Securities and Exchange
      Commission (“SEC”) announced a deferral of the effective date of SFAS 123(R) for
      calendar year companies until the beginning of 2006. The adoption of the new
      requirements will result in compensation charges to the Company’s statement of
      operations for the fair value of options granted to employees after December
      31,
      2005, as well as the compensation cost for the portion of outstanding awards
      for
      which the requisite service has not yet been rendered as of December 31, 2005.
      The Company will apply the modified prospective transition method. At December
      31, 2005, all of the Company's outstanding stock options were fully vested.
      The
      Company expects that the adoption of this statement may have a material impact
      on net income (loss) and earnings per share in future periods upon issuance
      of
      new awards.





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





In
      June
      2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections, a
      replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3,
      Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 changes
      the requirements for the accounting for and reporting of a change in accounting
      principle. Previously, most voluntary changes in accounting principles required
      recognition via a cumulative effect adjustment within net income of the period
      of the change. SFAS 154 requires retrospective application to prior periods’
financial statements, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. SFAS 154 is
      effective for accounting changes made in fiscal years beginning after December
      15, 2005; however, SFAS 154 does not change the transition provisions of any
      existing accounting pronouncements. Management does not believe the adoption
      of
      SFAS 154 will have a material impact on the Company’s financial
      statements.





In
      June
      2005, the EITF reached consensus on Issue No. 05-6, “Determining the
      Amortization Period for Leasehold Improvements” ("EITF 05-6"). EITF 05-6
      provides guidance on determining the amortization period for leasehold
      improvements acquired in a business combination or acquired subsequent to lease
      inception. The guidance in EITF 05-6 will be applied prospectively and is
      effective for periods beginning after June 29, 2005. The adoption of EITF 05-6
      did not have a material impact on the Company's consolidated financial condition
      or results of operations.





In
      November 2005, the FASB issued FASB Staff Position FAS 115-1 and FAS 124-1,
“The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments” (“FSP 115-1”), which provides guidance on determining when
      investments in certain debt and equity securities are considered impaired,
      whether that impairment is other-than-temporary, and on measuring such
      impairment loss. FSP 115-1 also includes accounting considerations subsequent
      to
      the recognition of an other-than temporary impairment and requires certain
      disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. FSP 115-1 is required to be applied to
      reporting periods beginning after December 15, 2005. Management does not expect
      the adoption of FSP 115-1 will have a material impact on the Company’s
      consolidated financial condition or results of operations.


II-24


**B.**  **Fixed
      Assets**





Fixed
      assets consist of the following at December 31, 2005 and 2004 (in
      thousands):


**2005**
            
            **2004**Equipment
            
            
            $
            4,442
            
            
            $
            14,874Telephone
                systems
            
            
            
            868
            
            
            
            904Furniture
                and fixtures
            
            
            
            405
            
            
            
            432Transportation
                equipment
            
            
            
            42
            
            
            
            42Leasehold
                improvements
            
            
            
            380
            
            
            
            9676,137
            
            
            
            17,219Less
                accumulated depreciationand
                amortization
            
            
            
            4,436
            
            
            
            15,432Fixed
                assets - net
            
            
            $
            1,701
            
            
            $
            1,787


Depreciation
      and amortization expense for the years ended December 31, 2005, 2004 and 2003
      was $751,000, $1,035,000 and $1,270,000, respectively.





**C.**  **Marketable
      Securities**





Marketable
      securities consists of the following (in thousands):


**December
                31,****2005**
            
            **2004**Edgar
                Online - Available for sale securities - at market
            
            $
            734
            
            
            $
            1,054Innodata
                - Available for sale securities - at market
            
            
            1,193
            
            
            
            3,597Arbitrage
                trading securities - at market
            
            
            7,565
            
            
            
            15,481Marketable
                securities
            
            $
            9,492
            
            
            $
            20,132Arbitrage
                trading securities sold but not yet purchased - at market
            
            $
            8,223
            
            
            $
            33,615


The
      Company owns 403,498 shares of Edgar Online, Inc. (“EOL”), an Internet-based
      supplier of business, financial and competitive intelligence derived from U.S.
      Securities and Exchange Commission data. The Company carries the investment
      at
      $734,000, the market value at December 31, 2005. The difference between the
      cost
      of $5,000 and fair market value of these securities, net of $292,000 in deferred
      taxes, or $437,000 is classified as a component of accumulated other
      comprehensive income included in stockholders’ equity. At
      December 31, 2004, the Company owned 688,800 shares
      of EOL. The Company carried the investment at $ 1,054,000, the
      market value at December 31, 2004. The difference between the cost of $9,000 and fair
      market value of these securities, net of $ 418,000 in
      deferred taxes, or $ 627,000 is
      classified as a component of accumulated other comprehensive income included
      in
      stockholders’ equity.





The
      Company owns 344,548 shares of Innodata, a provider of digital content
      outsourcing services. The Company carries the investment at $1,193,000, the
      market value at December 31, 2005. The difference between the cost of $329,000
      and fair market value of these securities, net of $346,000 in deferred taxes,
      or
      $518,000 is classified as a component of accumulated other comprehensive income
      included in stockholders' equity. At
      December 31, 2004, the Company owned 365,603 shares
      of
      Innodata. The Company carried the investment at $ 3,597,000, the
      market value at December 31, 2004. The difference between the cost of
      $ 351,000 and fair
      market value of these securities, net of $1,298,000 in
      deferred taxes, or $1,948,000 is
      classified as a component of accumulated other comprehensive income included
      in
      stockholders’ equity.


II-25


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





As
      of
      December 31, 2005, trading securities had a long market value of $7,565,000,
      with a cost of $7,567,000, or a net unrealized loss of $2,000. Securities sold
      but not yet purchased, had a short market value of $8,223,000 with a cost/short
      proceeds of $8,253,000, or a net unrealized gain of $30,000. The Company expects
      that its December 31, 2005 positions will be closed during the first quarter
      of
      2006 and that other positions with the same strategy will be established. The
      Company pledged its holdings in EOL and Innodata as collateral for its trading
      accounts. In addition, the Company's Chairman pledged approximately 1.8 million
      shares of his holdings in the Company's common stock as collateral for these
      accounts. The Company is paying its Chairman at the rate of 2% per annum on
      the
      value of the collateral pledged. Such payments aggregated $44,000, $87,000
      and
      $87,000, respectively, for the years ended December 31, 2005, 2004 and 2003,
      respectively.





The
      Company recognized gains from arbitrage trading of $819,000, $1,512,000 and
      $1,891,000 for the years ended December 31, 2005, 2004 and 2003,
      respectively.





At
      December 31, 2004, trading securities had a long market value of $15,481,000
      with a cost of $15,481,000. Securities sold but not yet purchased, had a short
      market value of $33,615,000 with a cost/short proceeds of $35,534,000, or a
      net
      unrealized loss of $81,000.





**D.**  **Note
      Payable - Bank**





The
      note
      payable - bank is a revolving line of credit up to a maximum of $3 million
      which
      bears interest at a per annum rate of 1.75% above the bank’s prime rate (8.25%
      at December 31, 2005) and is due on demand. The note is collateralized by
      substantially all of the assets of Track Data Corporation and is guaranteed
      by
      its principal stockholder, who is also Chairman and CEO of the Company. 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. Borrowings available under the line of credit at December
      31,
      2005 was $51,000 based on these formulas.





**E.**  **Segment
      Information**





The
      Company is a financial services company that provides real-time financial market
      data, fundamental research, charting and analytical services to institutional
      and individual investors through dedicated telecommunication lines and the
      Internet. The Company also disseminates news and third-party database
      information from more than 100 sources worldwide. The Company owns Track Data
      Securities Corp., a registered securities broker-dealer and member of the
      National Association of Securities Dealers, Inc. The Company provides a
      proprietary, fully integrated Internet-based online trading and market data
      system, proTrack, for the professional institutional traders, and myTrack and
      myTrack Pro, for the individual trader. The Company also operates Track ECN,
      an
      electronic communications network that enables traders to display and match
      limit orders for stocks. The Company's operations are classified in three
      business segments: (1) market data services and trading, including ECN services,
      to the institutional professional investment community, and (2) Internet-based
      online trading and market data services to the non-professional individual
      investor community, and (3) arbitrage trading. See Note C.


II-26





The
      accounting policies of the segments are the same as those described in Note
      A,
      Summary of Significant Accounting Policies. Segment data includes charges
      allocating corporate overhead to each segment. The Company has not disclosed
      asset information by segment as the information is not produced internally.
      Substantially all long-lived assets are located in the U.S. The Company's
      business is predominantly in the U.S. Revenues and net (loss) income from
      international operations are not material.





Information
      concerning operations in its business segments is as follows (in thousands):


Revenues
            
            **2005**
            
            **2004**
            
            **2003**Professional
                Market
            
            $
            24,419
            
            
            $
            25,103
            
            
            $
            24,118Non-Professional
                Market
            
            
            11,675
            
            
            
            14,990
            
            
            
            16,763Total
                Revenues
            
            $
            36,094
            
            
            $
            40,093
            
            
            $
            40,881Arbitrage
                Trading - Gain on sale of marketable securities
            
            $
            819
            
            
            $
            1,387
            
            
            $
            1,891(Loss)
                income
                before unallocated amounts and income taxes:Professional
                Market
            
            $
            (2,944
            )
            
            $
            (494
            )
            
            $
            1,405Non-Professional
                Market
            
            
            1,611
            
            
            
            3,537
            
            
            
            2,368Arbitrage
                Trading (including interest)
            
            
            406
            
            
            
            933
            
            
            
            1,521Unallocated
                amounts:Depreciation
                and amortization
            
            
            (755
            )
            
            
            (1,053
            )
            
            
            (1,310
            )Gain
                on
                sale of Innodata common stock
            
            
            1,067
            
            
            
            5,887
            
            
            
            624Net
                gain on sale of investment in private companies
            
            
            412
            
            
            
            -
            
            
            
            -Interest
                income
                (expense)-net
            
            
            (12
            )
            
            
            4
            
            
            
            (12
            )(Loss)
                income before taxes
            
            $
            (215
            )
            
            $
            8,814
            
            
            $
            4,596





**F.**  **Income
      Taxes**





The
      components of the (benefit from) provision for income taxes are as follows
      (in
      thousands):


**2005**
            
            **2004**
            
            **2003**Federal:Current
            
            $
            17
            
            
            $
            2,325
            
            
            $
            894Deferred
            
            
            (12
            )
            
            
            151
            
            
            
            326Total federal
            
            
            5
            
            
            
            2,476
            
            
            
            1,220State
                and local:Current
            
            
            (196
            )
            
            
            1,086
            
            
            
            412Deferred
            
            
            (1
            )
            
            
            17
            
            
            
            36Total state and local
            
            
            (197
            )
            
            
            1,103
            
            
            
            448Tax
                effect of stock options
            
            
            14
            
            
            
            35
            
            
            
            82(Benefit)
                provision for income taxes
            
            $
            (178
            )
            
            $
            3,614
            
            
            $
            1,750





Reconciliation
      of the U.S. statutory rate with the Company's effective tax rate is summarized
      as follows:





**2005**
            
            **2004**
            
            **2003**Federal
                statutory rate
            
            
            (34.0
            )%
            
            
            34.0
            %
            
            
            34.0
            %State
                and local income taxes
            
            
            (60.0
            )
            
            
            6.4
            
            
            
            5.9Non-deductible
                penalties
            
            
            14.0
            
            
            
            0.0
            
            
            
            0.0Other
            
            
            (3.0
            )
            
            
            0.6
            
            
            
            (1.8
            )Effective
                rate
            
            
            (83.0
            )%
            
            
            41.0
            %
            
            
            38.1
            %





The
      difference between the federal statutory rate and the effective rate in 2005
      was
      due to a reversal of an over estimate of state income taxes in 2004 related
      to
      state apportionments.


II-27





The
      components of the Company’s net deferred taxes are as follows (in
      thousands):


**2005**
            
            
            
            **2004**Deferred
                tax assets:Charitable
                contributions
            
            $
            129
            
            
            $
            -Deferred
                compensation
            
            
            65
            
            
            
            94Other
            
            
            104
            
            
            
            146298
            
            
            
            240Deferred
                tax liabilities:Unrealized
                gain
                on marketable securities
            
            
            (292
            )
            
            
            (417
            )Excess
                of book basis over tax basis of investment
            
            
            (430
            )
            
            
            (1,377
            )Accelerated
                depreciation
            
            
            (535
            )
            
            
            (498
            )(1,257
            )
            
            
            (2,292
            )Net
                deferred tax liability
            
            $
            (959
            )
            
            $
            (2,052
            )





**G.**  **Commitments
      and Contingencies**





***Leases*** --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,
      2005 follows (in thousands):


**Operating
                Leases****Year
                Ending**
            
            **Office**
            
            **Computer****December
                31,**
            
            **Space**
            
            **Equipment**
            
            **Total**2006
            
            $
            564,000
            
            
            
            $
            45,000
            
            
            
            $
            609,0002007
            
            
            240,000
            
            
            
            
            37,000
            
            
            
            
            277,0002008
            
            
            193,000
            
            
            
            
            19,000
            
            
            
            
            212,0002009
            
            
            154,000
            
            
            
            
            -
            
            
            
            
            154,0002010
            
            
            76,000
            
            
            
            
            -
            
            
            
            
            76,000Total
            
            $
            1,227,000
            
            
            
            $
            101,000
            
            
            
            $
            1,328,000





Rent
      expense for the years ended December 31, 2005, 2004 and 2003 amounted to
      $1,072,000, $1,167,000 and $1,357,000 for office space and $66,000, $172,000
      and
      $240,000 for computer equipment, respectively.




The
      Company leases its executive office facilities in Brooklyn from a limited
      partnership owned by the Company’s Chairman and members of his family. The
      Company paid the partnership rent of $623,000 in 2005, $600,000 in 2004 and
      $583,000 in 2003, respectively. The lease provides for the Company to pay
      $630,000 per annum through April 1, 2006. This lease is expected to be renewed
      for another one-year period.





***Transactions
      with Clearing Broker and Customers*** --The
      Company conducts business through a clearing broker which settles all trades
      for
      the Company, on a fully disclosed basis, on behalf of its customers. The Company
      earns commissions as an introducing broker for the transactions of its
      customers. In the normal course of business, the Company's customer activities
      involve the execution of various customer securities transactions. These
      activities may expose the Company to off-balance-sheet risk in the event the
      customer or other broker is unable to fulfill its contracted obligations and
      the
      Company has to purchase or sell the financial instrument underlying the
      obligation at a loss.





II-28


The
      Company's customer securities activities are transacted on either a cash or
      margin basis. In margin transactions, the clearing broker extends credit to
      the
      Company's customers, subject to various regulatory margin requirements,
      collateralized by cash and securities in the customers' accounts. However,
      the
      Company is required to either obtain additional collateral or to sell the
      customer's position if such collateral is not forthcoming. The Company is
      responsible for any losses on such margin loans, and has agreed to indemnify
      its
      clearing broker for losses that the clearing broker may sustain from the
      customer accounts introduced by the Company. The Company's Chairman and CEO
      had
      a margin loan of approximately $3 million as a customer of the Company's
      broker-dealer which was subject to such indemnity in the event the clearing
      broker were to sustain losses. The loan was repaid in November, 2005. At
      December 31, 2005, The Company had $14 million in margin credit extended to
      its
      customers. The Company believes it is unlikely it will have to make material
      payments under the indemnification agreement and has not recorded any contingent
      liability in the Consolidated Financial Statements.





The
      Company and its clearing broker seek to control the risks associated with
      customer activities by requiring customers to maintain margin collateral in
      compliance with various regulatory and internal guidelines. The Company and
      its
      clearing broker monitor required margin levels daily and, pursuant to such
      guidelines, require the customer to deposit additional collateral or to reduce
      positions when necessary.





***Net
      Capital Requirements*** --The
      SEC, NASD, and various other regulatory agencies have stringent rules requiring
      the maintenance of specific levels of net capital by securities brokers,
      including the SEC’s uniform net capital rule, which governs TDSC. Net capital is
      defined as assets minus liabilities, plus other allowable credits and qualifying
      subordinated borrowings less mandatory deductions that result from excluding
      assets that are not readily convertible into cash and from valuing other assets,
      such as a firm’s positions in securities, conservatively. Among these deductions
      are adjustments in the market value of securities to reflect the possibility
      of
      a market decline prior to disposition.





As
      of
      December 31, 2005, TDSC was required to maintain minimum net capital, in
      accordance with SEC rules, of approximately $1 million and had total net capital
      of $1,935,000, or approximately $935,000 in excess of minimum net capital
      requirements.





If
      TDSC
      fails to maintain the required net capital it may be subject to suspension
      or
      revocation of registration by the SEC and suspension or expulsion by the NASD
      and other regulatory bodies, which ultimately could require TDSC's liquidation.
      In addition, a change in the net capital rules, the imposition of new rules,
      a
      specific operating loss, or any unusually large charge against net capital
      could
      limit those operations of TDSC that require the intensive use of capital and
      could limit its ability to expand its business.





***Litigation*** --The
      Company is subject to legal proceedings and claims which arise in the ordinary
      course of its business. In the opinion of management, the amount of ultimate
      liability with respect to these actions will not materially affect the Company's
      financial position or results of operations.





On
      June
      14, 2005, the SEC filed a civil complaint against Barry Hertz, the Company's
      Chairman and CEO, in the U.S. District Court for the Eastern District of New
      York in Brooklyn alleging violations of various provisions of the federal
      securities laws in connection with certain transactions in the Company’s stock
      owned by others. The SEC seeks various remedies including an injunction,
      disgorgement of profits and an order barring Mr. Hertz from serving as an
      officer or director of a public company. Mr. Hertz has denied wrongdoing and
      filed a motion for summary judgment dismissing the complaint. The SEC has filed
      a cross-motion for partial summary judgment. Those motions are currently pending
      before the Court.





**H.**  **Deferred
      Compensation and Savings Program**





The
      Company had a deferred compensation plan pursuant to which certain employees
      were entitled to payments after termination of their employment. The plan was
      based on these employees having phantom stock units prior to its public
      offering. 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, or sooner upon approval of the Board, an
      aggregate of 247,284 shares of Innodata common stock and 600,880 shares of
      the
      Company's common stock. As of December 31, 2005, all stock had been distributed
      to the participants.


II-29





In
      addition, the Company has an employee savings program under which employees
      may
      make deposits and receive interest at the prime rate. As of December 31, 2005,
      the Company’s Chief Financial Officer had deposits in the program of $328,000
      and received interest of $16,000, $6,000 and $1,000 during the years ended
      December 31, 2005, 2004 and 2003, respectively. Amounts due to employees under
      the program aggregated $513,000 which is included in other liabilities at
      December 31, 2005.





**I.**  **Capital
      Stock and Dividends**





***Common
      Stock*** --On
      January 18, 2005, The Board of Directors authorized a one-for-five reverse
      stock
      split, which was consented to by the Company’s Chairman, CEO and principal
      stockholder. The stock split became effective on February 28, 2005.





During
      the year ended December 31, 2005, the Company purchased 1,247,000 shares of
      its
      common stock at a cost of $3,676,000. The purchases include 300,000 shares
      purchased from the Company’s Chairman for $837,000, including 200,000 shares
      purchased in the Company's tender offer. The purchases include 1,042,000 shares
      (200,000 shares tendered by the Company's Chairman) pursuant to a tender offer
      made on August 17, 2005 to purchase shares at $3.00 per share. The total costs
      relating to the tender offer were $3,179,000, including transaction
      costs.





In
      November 2005, the Board of Directors authorized the buy-back of up to 1 million
      additional shares from time to time in open market or privately negotiated
      transactions. As of December 31, 2005, no shares were repurchased under this
      program.





During
      the years ended December 31, 2004 and 2003, the Company purchased pursuant
      to
      announced buyback programs, 170,292 and 437,800 shares of its common stock,
      respectively, at a cost of $806,000 and $1,367,000, respectively. The purchases
      in 2004 and 2003 include 4,000 and 320,000 shares purchased from the Company's
      Chairman for $16,000 and $928,000, respectively.





***Dividends*** --On
      August 21, 2003, the Company declared its first cash dividend of $.05 per common
      share payable September 22, 2003 to holders of record on September 8, 2003.
      On
      February 19, 2004, the Company declared a cash dividend of $.05 per common
      share
      payable on March 22, 2004 to holders of record on March 8, 2004. No dividends
      were declared during the year ended December 31, 2005. The Board expects to
      consider future dividends, if any, based on such factors as the Company's
      earnings, financial condition, cash requirements, future prospects and other
      factors.





***Preferred
      Stock*** --The
      Company is authorized to issue up to 5,000,000 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, 2005, the Company reserved for issuance 2,019,000 shares of its
      common stock pursuant to the Company's Stock Option Plans.





**J.**  **Stock
      Options**





The
      Company adopted, with stockholder approval, the 1994, 1995, 1995 Disinterested
      Director, 1996, 1998, 2001 and 2002 Stock Option Plans (the “1994 Plan,” “1995
      Plan,” “1995 DD Plan,” “1996 Plan,” “1998 Plan, ” “2001 Plan” and the “2002
      Plan”) which provide for the granting of options to purchase not more than an
      aggregate of 240,000, 400,000, 40,000, 640,000, 640,000, 560,000 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"). 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, under the 1996 Plan after July 8, 2006, under the 1998 Plan after
      July
      9, 2008, under the 2001 Plan after May 3, 2011 and under the 2002 Plan after
      May
      2, 2012. At December 31, 2005, the total available for issuance under the plans
      were options to purchase 759,000 shares.


II-30





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.





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.





In
      December 2005, the Company granted five-year options to purchase 202,650 shares
      (102,500 shares to officers and directors) of its common stock at exercise
      prices of $3.00 - 3.05 per share, the market value at date of grant. The options
      are exercisable immediately.





A
      summary
      of the Company's Stock Option Plans is as follows:


**Weighted****Weighted**
            
            
            
            
            
            
            
            
            
            
            
            
            
            **Average****Per
                Share**
            
            
            
            
            
            **Average**
            
            **Weighted**
            
            
            
            
            
            **Weighted**
            
            **Fair****Range
                of**
            
            
            
            
            
            **Remaining**
            
            **Average**
            
            
            
            
            
            **Average**
            
            **Value****Exercise**
            
            **Number**
            
            **Contractual**
            
            **Exercise**
            
            **Number**
            
            **Exercise**
            
            **Date
                of****Prices**
            
            **Outstanding**
            
            **Life
                (Years)**
            
            **Price**
            
            **Exercisable**
            
            **Price**
            
            **Grant**Balance
                01/01/03
            
            $
            3.75
            
            
            
            
            
            102,200
            
            
            1
            
            $
            3.75
            
            
            
            102,200
            
            
            $
            3.75$
            7.50
            -
            8.75
            
            
            
            1,001,970
            
            
            3
            
            $
            7.50
            
            
            
            673,437
            
            
            $
            7.50$
            10.00
            -
            33.75
            
            
            
            158,560
            
            
            2
            
            $
            17.10
            
            
            
            139,780
            
            
            $
            18.501,262,730
            
            
            
            
            
            
            
            
            
            915,417Canceled
            
            $
            3.75
            -
            33.75
            
            
            
            (220,884
            )
            
            1
            
            $
            8.25Exercised
            
            $
            2.50
            -
            7.50
            
            
            
            (51,426
            )
            
            1
            
            $
            7.10Granted
            
            $
            5.00
            -
            6.25
            
            
            
            281,070
            
            
            4
            
            $
            5.65
            
            
            
            
            
            
            
            
            
            
            $
            2.75Balance
                12/31/03
            
            $
            5.00
            -
            6.25
            
            
            
            254,220
            
            
            4
            
            $
            5.65
            
            
            
            141,670
            
            
            $
            5.65$
            7.50
            -
            10.00
            
            
            
            904,750
            
            
            3
            
            $
            7.55
            
            
            
            822,583
            
            
            $
            7.50$
            12.50
            -
            18.75
            
            
            
            94,420
            
            
            1
            
            $
            15.05
            
            
            
            95,020
            
            
            $
            15.05$
            21.25
            -
            33.75
            
            
            
            18,100
            
            
            1
            
            $
            32.90
            
            
            
            18,100
            
            
            $
            32.901,271,490
            
            
            
            
            
            
            
            
            
            1,077,373Canceled
            
            $
            5.00
            -
            27.50
            
            
            
            (219,190
            )
            
            1
            
            $
            11.35Exercised
            
            $
            5.00
            -
            7.50
            
            
            
            (1,800
            )
            
            3
            
            $
            5.95Granted
            
            $
            7.50
            
            
            
            
            
            289,930
            
            
            4
            
            $
            7.50
            
            
            
            
            
            
            
            
            
            
            $
            6.25Balance
                12/31/04
            
            $
            5.00
            -
            6.25
            
            
            
            247,660
            
            
            3
            
            $
            5.65
            
            
            
            247,660
            
            
            $
            5.65$
            7.50
            
            
            
            
            
            1,076,770
            
            
            4
            
            $
            7.50
            
            
            
            881,253
            
            
            $
            7.50$
            33.75
            
            
            
            
            
            16,000
            
            
            1
            
            $
            33.75
            
            
            
            16,000
            
            
            $
            33.751,340,430
            
            
            
            
            
            
            
            
            
            1,144,913Canceled
            
            $
            5.00
            -
            33.75
            
            
            
            (283,170
            )
            
            1Granted
            
            $
            3.00
            -
            3.05
            
            
            
            202,650
            
            
            5
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            2.95Balance
                12/31/05
            
            $
            3.00
            -
            3.05
            
            
            
            202,650
            
            
            5
            
            $
            2.86
            
            
            
            202,650
            
            
            $
            2.86$
            5.00
            -
            6.25
            
            
            
            240,300
            
            
            2
            
            $
            5.63
            
            
            
            240,300
            
            
            $
            5.63$
            7.50
            
            
            
            
            
            816,960
            
            
            3
            
            $
            7.50
            
            
            
            816,960
            
            
            $
            7.501,259,910
            
            
            
            
            
            
            
            
            
            1,259,910





The
      options have a life of five years and are all exercisable at December 31, 2005.


II-31


**K.**  **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 two years of service, and 20%
      each
      year thereafter until employees are fully vested after 6 years. Company
      contributions to the plan for the years ended December 31, 2005, 2004 and 2003,
      were approximately $7,000, $42,000 and $42,000, respectively.





**L.**  **Sale
      of Minority Interest**





In
      August, 2000, the Company acquired a minority interest in ODL Securities, Ltd.,
      a broker-dealer in the U.K., for $10,000. The Company had a put option and
      extended a call option on its minority interest with certain other shareholders.
      On December 28, 2005, the other shareholders exercised the call at an aggregate
      price of approximately $522,000. The resulting gain of $512,000 was recorded
      during the year ended December 31, 2005 and included in the Consolidated
      Statement of Operations in net gain on sale of investment in private
      companies.





**M.**  **Investment
      in Private Company**





In
      July,
      2005, the Company acquired for an initial payment of $100,000, an equity
      interest in txtQuotes, Inc., a privately held start-up operation, intending
      to
      commence business delivering stock quotes and other related information through
      premium text messaging using cell phones. As a result of an amended agreement,
      the Company received a 15% equity interest (non-dilutible, except in connection
      with a public offering) in exchange for the Company’s initial investment with no
      further investment obligations. Although txtQuotes is still attempting to
      commence its business, the Company determined that the investment was impaired
      and recorded a charge of $100,000 during the year ended December 31, 2005.
      The
      impairment charge is included in the Consolidated Statement of Operations in
      net
      gain on sale of private companies.





**N.** **(Loss)
      Income Per Share (in thousands, except per share)**


**Year
                Ended December 31****2005**
            
            **2004**
            
            **2003**Net
                (loss) income
            
            $
            (37
            )
            
            $
            5,200
            
            
            $
            2,846Weighted
                average common shares outstanding
            
            
            9,221
            
            
            
            9,732
            
            
            
            9,942Dilutive
                effect of outstanding options
            
            
            -
            
            
            
            8
            
            
            
            18Adjusted
                for dilutive computation
            
            
            9,221
            
            
            
            9,740
            
            
            
            9,960Basic
                (loss) income per share
            
            
            $(.00
            )
            
            
            $.53
            
            
            
            $.29Diluted
                (loss) income per share
            
            
            $(.00
            )
            
            
            $.53
            
            
            
            $.29





Diluted
      net (loss) income per share is based on the weighted average number of common
      and potential dilutive common shares outstanding. The calculation takes into
      account the shares that may be issued upon exercise of stock options (Note
      J),
      reduced by the shares that may be repurchased with the funds received from
      the
      exercise, based on the average price during the year. The calculation did not
      take into account options to purchase 1,250,000, 1,332,000 and 136,600 shares
      at
      December 31, 2005, 2004 and 2003, respectively, as they were
      antidilutive.





II-32


**O.**  **QUARTERLY
      RESULTS OF OPERATIONS (UNAUDITED)**


**First**
            
            **Second**
            
            **Third**
            
            **Fourth****Quarter**
            
            **Quarter**
            
            **Quarter**
            
            **Quarter****(in
                thousands, except per share)****2005**Revenues
            
            $
            10,109
            
            
            $
            8,478
            
            
            $
            8,798
            
            
            $
            8,709Net
                income (loss)
            
            
            286
            
            
            
            (305
            )
            
            
            (274
            )
            
            
            256
            (A)Basic
                and diluted net income (loss) per share
            
            
            $.03
            
            
            
            $(.03
            )
            
            
            $(.03
            )
            
            
            $.03
            (A)**2004**Revenues
            
            $
            10,773
            
            
            $
            9,822
            
            
            $
            9,222
            
            
            $
            10,276Net
                income (loss)
            
            
            1,124
            
            
            
            693
            
            
            
            (76
            )
            
            
            3,459
            (B)Basic
                and diluted income per share
            
            
            $.11
            
            
            
            $.07
            
            
            
            $(.01
            )
            
            
            $.36
            (B)**2003**Revenues
            
            $
            10,695
            
            
            $
            10,324
            
            
            $
            9,872
            
            
            $
            9,990Net
                income
            
            
            190
            
            
            
            474
            
            
            
            793
            
            
            
            1,389
            (C)Basic
                and diluted income per share
            
            
            $.02
            
            
            
            $.05
            
            
            
            $.08
            
            
            
            $.14
            (C)


(A)
            Includes
                $247, or $.03 per share, from the sale of investment in private
                companies.


(B)
            Includes
                $3,085, or $.32 per share, from the sale of Innodata common
                stock.


(C)
            Includes
                $599, or $.06 per share, from the sale of Innodata common
                stock.





II-33


**ITEM
                9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURES**





See
      8-K
      filed on January 20, 2006 with respect to reporting on a change in
      accountants.





**ITEM
                9A.**
            **CONTROLS
                AND PROCEDURES**





An
      evaluation has been carried out under the supervision and with the participation
      of our management, including our Chief Executive Officer and Chief Financial
      Officer, of the effectiveness of the design and the operation of our "disclosure
      controls and procedures" (as such term is defined in Rules 13a-15(e) under
      the
      Securities Exchange Act of 1934) as of December 31, 2005 (“Evaluation Date”).
      Based on such evaluation, our Chief Executive Officer and Chief Financial
      Officer have concluded that, as of the Evaluation Date, the disclosure controls
      and procedures are reasonably designed and effective to ensure that (i)
      information required to be disclosed by us in the reports we file or submit
      under the Securities Exchange Act of 1934 is recorded, processed, summarized
      and
      reported within the time periods specified in the SEC's rules and forms, and
      (ii) such information is accumulated and communicated to our management,
      including our Chief Executive Officer and Chief Financial Officer, as
      appropriate to allow timely decisions regarding required
      disclosure.








II-34


**PART
      III**





**ITEM
                10.**
            **DIRECTORS
                AND EXECUTIVE OFFICERS OF REGISTRANT******


**Officers
      and Directors**





The
      officers and
      directors of the Company are as follows:





**Name**
            
            **Age**
            
            **Position**Barry
                Hertz
            
            55
            
            Chairman
                of the Board, Chief Executive OfficerMartin
                Kaye
            
            58
            
            Chief
                Operating Officer, Chief Financial Officer,Secretary
                and DirectorStanley
                Stern
            
            55
            
            Chief
                Compliance Officer, TDSC, DirectorAlbert
                Drillick
            
            59
            
            Senior
                Systems Analyst, DirectorAbraham
                Biderman
            
            57
            
            DirectorE.
                Bruce Fredrikson
            
            67
            
            DirectorPhilip
                Ort
            
            56
            
            DirectorShaya
                Sofer
            
            56
            
            Director





**Barry
      Hertz** has
      served as the Company's Chairman and Chief Executive Officer since its
      inception. He holds a Masters degree in Computer Science from New York
      University (1973) and a B.S. degree in Mathematics from Brooklyn College (1971).
      Until his resignation in May 2001, Mr. Hertz also served as Chairman of Innodata
      Corporation ("Innodata"), a public company co-founded by Mr. Hertz, of which
      the
      Company was a principal stockholder, and which is a global outsourcing provider
      of Internet and on-line digital content services.





**Martin
      Kaye** has been
      Chief Operating Officer since August 2001, and has been Chief Financial Officer,
      Secretary and a Director of the Company since 1994. Mr. Kaye is a certified
      public accountant. Mr. Kaye served as Chief Financial Officer of Innodata from
      October 1993 and Director from March 1995 until his resignation from those
      positions in May 2001. 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).





**Stanley
      Stern** has been
      Chief Compliance Officer of the Company’s broker-dealer subsidiary, TDSC, since
      April, 2005. He served as Senior Vice President - Customer Relations from June
      2000 to November 2005. He has been a Director of the Company since May 1999.
      He
      previously served as Director from April 1994 until his resignation in September
      1997. He served as Vice President of the Company and in other capacities for
      more than five years until his resignation in December 1996. From January 1998
      through May 2000, Mr. Stern was Chief Operating Officer of Integrated Medical
      Technologies, Inc., an Internet-based provider of medical services information.
      Mr. Stern holds a B.B.A. from Baruch College (1973).





**Albert
      Drillick** has been
      a Director of the Company since February 2004. He has served as a Director
      of
      Applications and Senior Systems Analyst for the Company for more than the past
      five years. He holds a Ph.D. degree in Mathematics from New York University
      Courant Institute (1971).





III-1


**Abraham
      Biderman** has been
      a Director of the Company since August 2002. Mr. Biderman is Chairman of Eagle
      Advisers, LLC, a diversified financial services and money management firm.
      From
      January 1990 to September 2003, he was Executive Vice President of Lipper &
Company, Inc., a diversified financial services firm. Prior thereto, he served
      as special advisor to the Deputy Mayor and then the Mayor during New York City's
      Koch Administration. From January 1988 through December 1989, Mr. Biderman
      was
      Commissioner of New York City's Department of Housing, Preservation and
      Development. Prior thereto, he served as Commissioner of New York City's
      Department of Finance and as Chairman of New York City's Employee Retirement
      System. Mr. Biderman is a member of the Fiscal Opportunities Task Force of
      the
      New York City Partnership, a member of the Housing Committee of the Real Estate
      Board of New York, a Director of m-Phase Technologies, Inc., a company that
      manufactures and markets high-bandwidth telecommunications products
      incorporating DSL technology, and is also on the boards of numerous
      not-for-profit and philanthropic organizations. Mr. Biderman is a certified
      public accountant and graduated with a B.A. in Accounting from Brooklyn College
      (1970).





**Dr.
      E. Bruce
      Fredrikson** has been
      a Director of the Company since June 1994. Dr. Fredrikson is currently an
      independent consultant in corporate finance and governance. He is Professor
      of
      Finance, Emeritus, at Syracuse University's Martin J. Whitman School of
      Management where he taught from 1966 until his retirement in May 2003. He is
      a
      director of Consumer Portfolio Services, Inc., a consumer finance company,
      and
      Colonial Commercial Corp, a supplier of HVAC products and supplies. Dr.
      Fredrikson holds an A.B. in economics from Princeton University and a M.B.A.
      in
      accounting and a Ph.D. in finance from Columbia University.





**Philip
      Ort** has been
      a Director of the Company since June 2004. Mr. Ort has been the owner/operator
      of a family Real Estate Management and Investment business comprising
      residential and commercial properties since 1972. He serves on the boards of
      several non-profit organizations. He attended Brooklyn College from 1967 to
      1970.





**Shaya
      Sofer** has been
      a director of the Company since June 2004. Since January 2001, he has been
      Senior Managing Project Director of Energy Spectrum Inc., an energy consulting
      firm focusing on CHP "Combine Heat and Power" (Cogeneration). Prior thereto,
      he
      was a consultant. He served as Director of Facilities for Track Data Corp.
      and
      as Executive Vice President of Fast Track Systems, a disaster recovery business,
      from 1985 through 1998. He also was a member of the board of directors of Track
      Data Corp. from 1986 through 1995, prior to its merger with Global Market
      Information, Inc. Mr. Sofer holds a B.A. in Mathematics from Queens College
      (1972).





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. Albert
      Drillick is the father of David Drillick, Chief Operating Officer of TDSC,
      the
      Company’s broker-dealer subsidiary.





**Audit
      Committee**





The
      Company has a
      separately designated standing audit committee established in accordance with
      Section 3(a)(58)(A) of the Exchange Act. Serving on the Committee are Dr. E.
      Bruce Fredrikson, Abraham Biderman and Philip Ort. The Board of Directors has
      determined that it has an audit committee financial expert serving on the audit
      committee, Abraham Biderman. Mr. Biderman is an independent director as defined
      in Item 7(d)(3)(iv) of Schedule 14A.





**Code
      of Ethics**





The
      Company has
      adopted a Code of Ethics that applies to its Chief Executive Officer and Chief
      Financial Officer. The Code as well as any amendments and waivers of the Code,
      if any, is posted on the Company’s website at
      http://www.trackdata.com/codeofethics.





III-2


**Compliance
      With Section 16(a) of the Securities Exchange Act of 1934**





The
      Company believes
      that during the period from January 1, 2005 through December 31, 2005 all
      Section 16(a) filing requirements applicable to its officers, directors and
      greater than ten-percent beneficial owners were complied with.





**ITEM
                11.**
            **EXECUTIVE
                COMPENSATION**





The
      following table
      sets forth information with respect to compensation paid by the Company for
      services to it during the three fiscal years ended December 31, 2005 to the
      Company's Chief Executive Officer and to the executive officers whose aggregate
      annual salary and bonus exceeded $100,000 in 2005.





**Summary
      Compensation Table**


**Fiscal**
            
            **Annual**
            
            
            
            **Number
                of Stock****Name
                and Position**
            
            **Year**
            
            **Salary**
            
            **Bonus**
            
            **Options
                Awarded**Barry
                Hertz
            
            2005
            
            $454,500
            
            -
            
            -Chairman,
                CEO
            
            2004
            
            $450,000
            
            -
            
            -2003
            
            $450,000
            
            -
            
            100,
            000
            (A)Martin
                Kaye
            
            2005
            
            $303,000
            
            -
            
            50,
            000Chief
                Operating Officer,
            
            2004
            
            $300,000
            
            -
            
            -Chief
                Financial Officer
            
            2003
            
            $300,000
            
            -
            
            40,
            000
            (A)**Key
                Employees**Stanley
                Stern
            
            2005
            
            $154,500
            
            -
            
            10,
            000Senior
                Vice President until December 1, 2005,
            
            2004
            
            $153,000
            
            -
            
            -Chief
                Compliance Officer of TDSC since
            
            2003
            
            $153,000
            
            -
            
            4,
            000
            (A)April
                1, 2005David
                Drillick
            
            2005
            
            $165,000
            
            $9,000
            
            10,
            000Chief
                Operating Officer of TDSCsince
                December 1, 2005





(A)
      Granted in March, 2004 for the 2003 calendar year.





The
      above
      table does not include certain perquisites and other personal benefits, the
      total value of which does not exceed the lesser of $50,000 or 10% of such
      person's compensation.





**Option
      Grants In Last Fiscal Year**


**Individual
      Grants**





**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(A)**
            
            **Year**
            
            **Price**
            
            **Date**
            
            **5%**
            
            **10%**Barry
                Hertz
            
            NoneMartin
                Kaye
            
            50,000
            
            25%
            
            $3.00
            
            12/27/2010
            
            $41,500
            
            $91,500Stanley
                Stern
            
            10,000
            
            5%
            
            $3.00
            
            12/27/2010
            
            $8,300
            
            $18,300David
                Drillick
            
            10,000
            
            5%
            
            $3.00
            
            12/27/2010
            
            $8,300
            
            $18,300


III-3


**Aggregate
      Option Exercises in Last Fiscal Year;**


**Fiscal
      Year End Option Values**





**Number
                of****Securities****Underlying****Unexercised**
            
            **Value
                of Unexercised In-****Options
                at Fiscal**
            
            **the-Money
                Options at****Shares**
            
            
            
            **Year
                End**
            
            **Fiscal
                Year End****Acquired
                on**
            
            **Value**
            
            **Exercisable/**
            
            **Exercisable/****Name**
            
            **Exercise**
            
            **Realized**
            
            **Unexercisable**
            
            **Unexercisable**Barry
                Hertz
            
            None
            
            -
            
            600,000/0
            
            $-0-/$-0-Martin
                Kaye
            
            None
            
            -
            
            170,000/0
            
            $-0-/$-0-Stanley
                Stern
            
            None
            
            -
            
            22,000/0
            
            $-0-/$-0-David
                Drillick
            
            None
            
            -
            
            21,000/0
            
            $-0-/$-0-





There
      are
      no employment agreements, stock appreciation rights, pension plans or long-term
      incentive plans.





**Directors
      Compensation**





Messrs.
      Biderman,
      Fredrikson, Ort and Sofer are compensated at the rate of $1,250 per month,
      plus
      $500 out-of-pocket expenses for each meeting attended. No other director is
      paid
      cash compensation for his services as director.





In
      2005, Messrs.
      Biderman, Fredrikson, Ort and Sofer each received five-year options to purchase
      10,000 shares at an exercise price of $3.06 per share, exercisable immediately
      upon grant.





**Compensation
      Committee Interlocks and Insider Participation**





For
      the Company's
      fiscal year ended December 31, 2005, Messrs. Hertz and Kaye were officers of
      the
      Company and were members of the Board of Directors (there is no compensation
      committee).





III-4


**ITEM
                12.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT******





The
      following table
      sets forth, as of February 28, 2006, information regarding the beneficial
      ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
      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, 95 Rockwell Place, Brooklyn, New York 11217.


**Shares
                Owned Beneficially (1)****Name**
            
            **No.
                of Shares**
            
            **%
                of Class**Barry
                Hertz (2)
            
            5,302,775
            
            
            59.
            1%Martin
                Kaye (3)
            
            177,680
            
            
            2.
            1%Stanley
                Stern (4)
            
            31,953
            
            
            *Albert
                Drillick (5)
            
            41,780
            
            
            *Abraham
                Biderman (6)
            
            24,000
            
            
            *E.
                Bruce Fredrikson (7)
            
            29,600
            
            
            *Philip
                Ort (6)
            
            14,000
            
            
            *Shaya
                Sofer (6)
            
            14,000
            
            
            *All
                Officers and Directors as a Group(eight
                persons)(8)
            
            5,635,788
            
            
            60.
            9%


---------------


*
      = less
      than 1%


(1)
            Unless
                otherwise indicated, (i) each person has sole investment and voting
                power
                with respect to the shares indicated and (ii) the shares indicated
                are
                currently outstanding shares. For purposes of this table, a person
                or
                group of persons is deemed to have "beneficial ownership" of any
                shares as
                of a given date which such person has the right to acquire within
                60 days
                after such date. For purposes of computing the percentage of outstanding
                shares held by each person or group of persons named above on a given
                date, any security which such person or persons has the right to
                acquire
                within 60 days after such date is deemed to be outstanding for the
                purpose
                of computing the percentage ownership of such person or persons,
                but is
                not deemed to be outstanding for the purpose of computing the percentage
                ownership of any other person. Subject to the foregoing, the percentages
                are calculated based on 8,379,778 shares
                outstanding.





(2)
            Consists
                of 4,049,906 shares owned by Mr. Hertz, 633,880 shares owned by Trusts
                established in the names of Mr. Hertz’s children and 18,989 shares held by
                a family LLC managed by Mr. Hertz who owns 8% of such LLC. Mr. Hertz
                disclaims beneficial interest in shares owned by the Trust and 92%
                of the
                family LLC not owned by him. Also includes 600,000 shares issuable
                upon
                the exercise of presently exercisable options under the Company’s Stock
                Option Plans.





(3)
            Consists
                of 7,680 shares owned of record and 170,000 shares issuable upon
                the
                exercise of presently exercisable options granted under the Company's
                Stock Option Plans.





(4)
            Consists
                of 9,953 shares owned of record and 22,000 shares issuable upon the
                exercise of presently exercisable options granted under the Company's
                Stock Option Plans.





(5)
            Consist
                of 30,220 shares owned of record jointly with his wife, 660 shares
                owned
                by a trust in the name of his child, and 10,900 shares issuable upon
                the
                exercise of presently exercisable options granted under the Company's
                Stock Option Plans.





(6)
            Consists
                of shares issuable upon the exercise of presently exercisable options
                granted under the Company’s Stock Option
                Plans.





(7)
            Consists
                of 5,600 shares owned of record and 24,000 shares issuable upon the
                exercise of presently exercisable options granted under the Company's
                Stock Option Plans.





(8)
            Consists
                of 4,756,888 outstanding shares and 878,900 shares issuable upon
                exercise
                of options described in footnotes 2 through 7 above.


III-5


**Potential
      Change in Control**





Mr.
      Hertz has pledged
      approximately 1.8 million shares owned by him as collateral for the Company's
      arbitrage trading program and 2.2 million shares in connection with certain
      family related accounts. A change in control could occur in the event Mr. Hertz
      lost control of these pledged shares.





**Equity
      Compensation Plan Information**





All
      equity
      compensation plans have been approved by the Company's
      stockholders.





At
                December 31, 2005a)
            Number
                of securities to be issued upon exercise of outstanding
            1,260,000optionsb)
            Weighted-average
                exercise price of outstanding options
            $6.42c)
            Number
                of securities remaining available for future issuanceunder
                equity compensation plans (excluding securities reflectedin
                (a) above)
            759,000





**ITEM
                13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS******





The
      Company leases
      its executive office facilities in Brooklyn from a limited partnership owned
      by
      the Company’s Chairman and members of his family. The Company paid the
      partnership rent of $623,000 and $600,000 for the years ended December 31,
      2005
      and 2004, respectively. The lease provides for the Company to pay $630,000
      per
      annum through April 1, 2006.




In
      connection with
      the Company's arbitrage trading program, the Company's Chairman pledged
      approximately 1.8 million shares of his holdings of the Company's common stock
      as additional collateral for the arbitrage trading accounts. The Company is
      paying its Chairman at the rate of 2% per annum on the value of the collateral
      pledged. Such payments aggregated $44,000 and $87,000 for the years ended
      December 31, 2005 and 2004, respectively.





The
      Company's
      Chairman had a margin loan of approximately $3 million as a customer of the
      Company's broker-dealer that was collateralized by 2.5 million of the Company's
      shares owned by him. The loan was repaid in November 2005.





In
      2005 and 2004, the
      Company's Chairman sold 300,000 and 4,000 shares of the Company's common stock
      to the Company for $837,000 and $16,000, respectively.





The
      Company has an
      employee savings program under which employees may make deposits and receive
      interest at the prime rate. As of December 31, 2005, the Company’s Chief
      Financial Officer had deposits in the program of $328,000 and received interest
      of $16,000 and $6,000 during the years ended December 31, 2005 and 2004,
      respectively.





In
      2005, the Company
      granted five-year options to purchase an aggregate of 102,500 shares to its
      officers and directors at exercise prices of $3.00 - $3.05 per share, the market
      value at date of grant. The options are exercisable
      immediately.


III-6


**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND SERVICES******





Audit
      Fees.


The
      audit
      fees for 2005 and 2004 were $100,000 for Marcum & Kliegman LLP and $200,000
      for Grant Thornton LLP, respectively. All services provided by independent
      accountants were approved by the audit committee.





Tax
      Fees.


Tax
      fees
      consisted of consulting and preparation of tax returns. The fees were $25,000
      in
      2005 and 2004 for Marcum & Kliegman LLP.





Audit
      Committee
      Pre-Approval Policies and Procedures.


The
      Audit
      Committee is directly and solely responsible for oversight, engagement and
      termination of any independent auditor employed by the Company for the purpose
      of preparing or issuing an audit report or related work.





The
      Committee:


Meets
      with the independent auditor prior to the audit and discusses the planning
      and
      staffing of the audit;





Approves
      in advance the engagement of the independent auditor for all audit services
      and
      non-audit services and approves the fees and other terms of any such
      engagement;





Obtains
      periodically from the independent auditor a formal written statement of the
      matters required to be discussed by Statement of Auditing Standards No. 61,
      as
      amended, and, in particular, describing all relationships between the auditor
      and the Company; and





Discusses
      with the auditor any disclosed relationships or services that may impact auditor
      objectivity and independence.








III-7


**PART
      IV**





**ITEM
                15.**
            **EXHIBITS,
                FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
                8-K**





(a)
            1.
            Financial
                Statements. See Item 8. Index to Financial Statements.2.
            Financial
                Statement Schedules. Not applicable3.
            **Exhibits**
            
            **Description**3.1
            
            Certificate
                of Incorporation, as amended (1)3.2
            
            By-Laws
                (1)4.2
            
            Specimen
                of Common Stock certificate (1)10.1
            
            1994
                Stock Option Plan (1)10.2
            
            Form
                of indemnity agreement with directors (1)10.3
            
            Fully
                Disclosed Clearing Agreement with Penson Financial Services, Inc.,dated
                October 13, 2000 (2)10.4
            
            1995
                Stock Option Plan (3)10.5
            
            1995
                Disinterested Directors’ Stock Option Plan (4)10.6
            
            1996
                Stock Option Plan (5)10.7
            
            1998
                Stock Option Plan (6)10.8
            
            2001
                Stock Option Plan (7)10.9
            
            2002
                Stock Option Plan (8)10.10
            
            No
                Action Letter issued by Securities Exchange Commission dated October
                21,
                2005to operate Track ECN through June 28, 200623.1
            
            Consent
                of Marcum & Kliegman LLP filed herewith23.2
            
            Consent
                of Grant Thornton LLP filed herewith31.1
            
            Certification
                of Barry Hertz pursuant to Rule 13a-14(a) of the Securities Exchange
                Act
                of 1934.31.2
            
            Certification
                of Martin Kaye pursuant to Rule 13a-14(a) under the Securities Exchange
                Act of 1934.32
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 ofthe Sarbanes-Oxley Act of 2002_
                _
                _ _ _ _ _ _ _ _ _ _ _ _ _(1)
            Incorporated
                by reference to Exhibits 3.1, 3.2, 4.2, 10.3 and 10.4 to Form S-1
                Registration Statement No. 33-78570.(2)
            Incorporated
                by reference to Exhibit 10.3 to 10-K Annual Report for the year ended
                December 31, 2001(3)
            Incorporated
                by reference to Exhibit A to Definitive Proxy for August 10, 1995,
                Annual
                Meeting of Stockholders(4)
            Incorporated
                by reference to Exhibit B to Definitive Proxy for August 10, 1995,
                Annual
                Meeting of Stockholders(5)
            Incorporated
                by reference to Appendix A to Definitive Proxy for November 7, 1996,
                Annual Meeting of Stockholders(6)
            Incorporated
                by reference to Appendix A to Definitive Proxy for November 5, 1998,
                Annual Meeting of Stockholders(7)
            Incorporated
                by reference to Appendix A to Definitive Proxy for November 1, 2001,
                Annual Meeting of Stockholders(8)
            Incorporated
                by reference to Appendix A to Definitive Proxy for August 13, 2002,
                Annual
                Meeting of Stockholders


IV-1


**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 HertzBarry 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.








**Signature**
            
            **Title**
            
            **Date**/s/
                Barry Hertz
            
            Chairman
                of the Board and
            
            March
                29, 2006Chief
              Executive OfficerBarry
                Hertz/s/
                Martin Kaye
            
            Chief
                Operating Officer, Chief
            
            March
                29, 2006Financial
                Officer, Secretary and Director
              (Principal
                Financial and Accounting Officer)Martin
                Kaye/s/
                Stanley Stern
            
            Director
            
            March
                29, 2006Stanley
                Stern/s/
                Albert Drillick
            
            Director
            
            March
                29, 2006Albert
                Drillick/s/
                Abraham Biderman
            
            Director
            
            March
                29, 2006Abraham
                Biderman/s/
                E. Bruce Fredrikson
            
            Director
            
            March
                29, 2006E.
                Bruce Fredrikson/s/
                Philip Ort
            
            Director
            
            March
                29, 2006Philip
                Ort/s/
                Shaya Sofer
            
            Director
            
            March
                29, 2006Shaya
                Sofer