<PAGE>
CONFORMED
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended February 28, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
-------------- -------------
Commission file number 1-9480
- ----------------------------------------------------------------
The Sherwood Group, Inc.
- -----------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 22-2394480
- -----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Exchange Plaza, New York, New York 10006
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Not Applicable
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
12,386,511 shares of Common Stock, par value $.01 per share, were
outstanding on March 31, 1995.
<PAGE>
<TABLE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
INDEX
<CAPTION>
PAGE
----
<S> <C> <S>
Part I - Financial Information
Item 1. - Financial Statements
Consolidated Statements of Financial Condition
(Unaudited) - February 28, 1995 and May 31, 1994 3 - 4
Consolidated Statements of Operations (Unaudited) -
Three Months Ended February 28, 1995 and 1994 5 - 6
Consolidated Statements of Operations (Unaudited) -
Nine Months Ended February 28, 1994 and 1993 7 - 8
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended February 28, 1995 and 1994 9 - 10
Notes to Consolidated Financial Statements
<C> <C> <C> <C> <C> <C>
(Unaudited) - February 28, 1995 11 - 12
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13 - 16
Part II - Other Information
Item 1. - Legal Proceedings 17
Item 6. - Exhibits and Reports on Forms 8-K 17
Signatures 18
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
February 28, May 31,
1995 1994
ASSETS (Unaudited) (Unaudited)
----------- -----------
Cash $ 294,741 $ 474,733
Receivables:
<S> <C> <C>
Brokers and dealers 26,066,672 43,987,208
Other 596,144 378,455
Marketable securities owned, at
market value 34,387,941 15,441,598
Investment securities not readily
marketable, at fair value 401,320 424,520
Investment in partnerships 5,022,984 3,869,779
Notes receivable 649,490 1,438,642
Furniture, fixtures and equipment, and
leasehold improvements - at cost, net of
accumulated depreciation and amortization
of $6,259,632 at February 28, 1995 and
$5,346,945 at May 31, 1994 3,349,605 3,239,562
Computer software, net of accumulated
amortization of $286,964 at February 28,
1995 and $172,873 at May 31, 1994 410,668 522,164
Identified intangible assets, net of accumulated
amortization of $931,725 at February 28, 1995
and $667,735 at May 31, 1994 606,555 870,545
Exchange membership (market value $800,000
at February 28, 1995 and $700,000 at
May 31, 1994) 351,496 351,496
Subordinated notes receivable 12,250,000 3,500,000
Other assets 8,318,166 3,117,758
------------- -------------
$ 92,705,782 $ 77,616,460
============= =============
(Continued)
(3)
<PAGE>
</TABLE>
<TABLE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
<CAPTION>
February 28, May 31,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) (Unaudited)
------------ -----------
Liabilities:
Securities sold, not yet purchased,
<S> <C> <C>
at market value $ 10,770,342 $ 8,407,023
Accounts payable and accrued expenses,
including compensation payable to
officers and employees of $7,164,357
at February 28, 1995 and $9,450,030
at May 31, 1994 11,949,415 13,182,843
Secured demand notes payable 7,250,000 2,500,000
Income taxes payable 653,939 215,855
------------ ------------
Total liabilities 30,623,696 24,305,721
------------ ------------
Commitments and Contingencies (Note 4)
Stockholders' equity (Note 5)
Preferred stock - $.01 par value;
authorized 1,000,000 shares, none issued - -
Class A common stock - par value $.01
per share; authorized 50,000,000 shares;
none issued - -
Common stock - $.01 par value; authorized
50,000,000 shares, issued 14,343,201
shares at February 28, 1995 and
May 31, 1994 143,432 143,432
Additional paid-in capital 58,134,052 58,134,052
Retained earnings 13,450,107 3,189,324
----------- ----------
71,727,591 61,466,808
Less: Treasury stock - at cost (9,645,505) (8,156,069)
------------ -----------
Total stockholders' equity 62,082,086 53,310,739
----------- -----------
$ 92,705,782 $ 77,616,460
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
(4)
<PAGE>
<TABLE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended February 28,
-------------------------------
1995 1994
------------ -------------
Revenues:
<S> <C> <C> <C>
Firm securities transactions - net $19,096,150 $ 22,421,518
Commission income 3,782,006 676,514
Equity income in partnerships 1,252,845 992,449
Investment securities gains realized - -
Interest income 936,081 351,890
Other revenues 283,564 33,238
---------- ------------
25,350,646 24,475,609
---------- ------------
Expenses:
Compensation and benefits 7,394,684 9,287,523
Clearing and related charges 8,668,466 6,928,066
Communications 1,570,388 1,111,179
Other expenses 2,604,925 2,798,578
Interest expense 898 151
---------- ---------
20,239,361 20,125,497
---------- ----------
Income before income taxes 5,111,285 4,350,112
----------- ----------
Income taxes:
Currently payable:
Federal 100,186 81,664
State and local 742,248 426,713
----------- ---------
842,434 508,377
----------- ---------
Net income $ 4,268,851 $ 3,841,735
=========== ===========
</TABLE>
(Continued)
(5)
<PAGE>
<TABLE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Continued)
<CAPTION>
Three Months Ended February 28,
-------------------------------
1995 1994
------------ ----------
Income per common and common
equivalent share (a):<F1>
<S> <C> <C>
Net income $ 0.31 $ 0.28
=========== ==========
<S> <C> <C>
Weighted average common shares outstanding 13,567,444 13,858,372
========== ==========
<FN>
<F1>(a) For presentation purposes, primary and fully diluted are
identical.
</FN>
</TABLE>
The accompanying notes are an integral part of these statements.
(6)
<PAGE>
<TABLE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Nine Months Ended February 28,
------------------------------
1995 1994
------------ ----------
Revenues:
<S> <C> <C> <C>
Firm securities transactions - net $ 54,727,359 $61,209,206
Commission income 9,292,014 1,942,339
Equity income in partnerships 3,548,599 2,106,215
Investment securities gains
realized 76,375 -
Interest income 2,277,980 940,668
Other revenues 693,145 125,843
----------- -----------
70,615,472 66,324,271
----------- -----------
Expenses:
Compensation and benefits 21,040,328 23,489,571
Clearing and related charges 23,941,637 19,460,167
Communications 4,557,076 2,552,270
Other expenses 8,779,089 5,685,048
Interest expense 10,333 36,333
---------- ----------
58,328,463 51,223,389
---------- ----------
Income before income taxes 12,287,009 15,100,882
---------- ----------
Income taxes:
Currently payable:
Federal 237,027 322,044
State and local 1,789,199 1,301,864
---------- ----------
2,026,226 1,623,908
---------- ----------
Net income $ 10,260,783 $ 3,476,974
============ ==========
</TABLE>
(Continued)
(7)
<PAGE>
<TABLE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Continued)
<CAPTION>
Nine Months Ended February 28,
------------------------------
1995 1994
-------------- -----------
Income per common and common
equivalent share (a):<F1>
Net income $ 0.75 $ 0.97
============ ==========
<S> <C> <C>
Weighted average common shares outstanding 13,678,448 13,880,995
============ ==========
<FN>
<F1>(a) For presentation purposes, primary and fully diluted are
identical.
</FN>
</TABLE>
The accompanying notes are an integral part of these statements.
(8)
<PAGE>
<TABLE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended February 28,
------------------------------
1995 1994
------------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 10,260,783 $ 13,476,974
Non-cash items included in net income:
Equity income in partnerships (3,548,599) (2,106,215)
Depreciation and amortization 1,290,768 1,009,623
Gain on sales of investment
securities not readily marketable (76,375) -
------------ ------------
(2,334,206) (1,096,592)
------------ ------------
(Increase) decrease in operating assets:
Receivables:
Brokers and dealers 17,920,536 (13,687,967)
Other (217,689) (307,331)
Marketable securities owned, at
<S> <C> <C>
market value (18,946,343) (876,844)
Other assets (5,446,970) (2,128,760)
------------ ------------
(6,690,466) (17,000,902)
------------ ------------
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased, at
market value 2,363,319 3,930,221
Accounts payable and accrued expenses (1,233,428) 3,023,863
Income taxes payable 438,084 194,347
---------- -----------
1,567,975 7,148,431
------------ ----------
Net cash provided by operating
activities 2,804,086 2,527,911
------------ ----------
</TABLE>
(Continued)
(9)
<PAGE>
<TABLE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
<CAPTION>
Nine Months Ended February 28,
------------------------------
1995 1994
------------ ------------
Cash flows from investing activities:
Purchase of investment securities
not readily marketable - (410,000)
Proceeds from sales of investment
securities not readily marketable 99,575 -
Distribution from partnership 2,641,956 1,602,244
<S> <C> <C>
Loans made (242,500) (1,036,860)
Principal collected on notes receivable 1,031,652 72,587
Purchases of furniture, fixtures and
equipment, and leasehold improvements (1,022,730) (1,236,863)
Purchases of computer software (2,595) (2,598)
Purchase of identified intangible asset - (25,030)
Principal collected on subordinated note 1,000,000 -
<S> <C> <C>
Issuance of subordinated note (5,000,000) -
------------ ------------
Net cash used in investing activities (1,494,642) (1,036,520)
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (1,489,436) (1,346,259)
------------ ------------
Net cash used in financing activities (1,489,436) (1,346,259)
------------ ------------
Net increase (decrease) in cash (179,992) 145,132
Cash at beginning of period 474,733 81,547
------------ ------------
Cash at end of period $ 294,741 $ 226,679
============ ============
</TABLE>
Supplemental disclosure of non-cash investing activities:
During July 1994, Sherwood Securities Corp.'s commitment under its
subordination agreement with Anvil Institutional Services Inc. was
amended to $250,000 from $500,000. Concurrently, the Company
contributed an additional $246,562, in the form of treasury securities
with a face value of $250,000 which were included in other assets at
May 31, 1994, to Anvil Institutional Services Company.
During February 1995, Sherwood Securities Corp. entered into a
collateralized $5,000,000 subordinated agreement with Equitrade
Partners, L.P. (see Note 7).
The accompanying notes are an integral part of these statements.
(10)
<PAGE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
February 28, 1995
Note 1 - Business and organization
- ----------------------------------
The Sherwood Group, Inc. and its subsidiaries (the "Company")
are primarily engaged in the securities business and in providing
related financial services. The Company has a principal registered
broker-dealer wholly owned subsidiary, Sherwood Securities Corp.
("Sherwood Securities"). National Discount Brokers ("NDB"), another
registered broker-dealer, is a division of the Company's wholly owned
subsidiary, Triak Services Corp. The Company has a 60% special
limited partnership interest in Equitrade Partners ("Equitrade"),
which is a specialist for securities listed on The New York Stock
Exchange. In addition, Sherwood Securities is a specialist for
securities listed on the American Stock Exchange.
Note 2 - Basis of presentation
- ------------------------------
The accompanying unaudited consolidated financial statements do
not include all of the information and notes required by generally
accepted accounting principles for complete consolidated financial
statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of consolidated financial condition
and results of operations for the periods presented have been
included. All adjustments are of a normal and recurring nature. It is
suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the
related notes included in the Company's 1994 Annual Report on Form
10-K. Certain prior year amounts have been reclassified to conform
with the three months and nine months ended February 28, 1995
presentations.
Note 3 - Net income per common share
- ------------------------------------
Net income per common share is computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding. Common stock equivalents include stock issuable under
stock options. The treasury stock method of accounting was used in
computing the common stock equivalents for the computation of
earnings per common share.
Note 4 - Commitments and contingencies
- --------------------------------------
The Company has been named as a defendant in lawsuits and as a
party to arbitrations that allege violations of Federal and state
securities and related laws. Management believes that the resolution
of these lawsuits is not likely to result in any material, adverse
effect on the Company's consolidated financial position.
(11)
<PAGE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
February 28, 1995
Note 5 - Net capital requirements
- ---------------------------------
As registered broker-dealers, Sherwood Securities and NDB, are
subject to the Securities and Exchange Commission Uniform Net Capital
Rule 15c3-1 (the "Rule"). As of February 28, 1995, the net capital of
Sherwood Securities and NDB exceeded their required net capital by
$30,170,000 and $3,364,000, respectively.
The Rule also provides that the equity capital may not be
withdrawn or cash dividends be paid if the resulting net capital of a
broker-dealer would be less than the amount required under the Rule.
Accordingly, at February 28, 1995, the payment of dividends and
advances to the Company by Sherwood Securities and NDB is limited
to $29,970,000 and $3,314,000, respectively, under the most restrictive
of these requirements. The SEC may, by order, restrict the withdrawal
to be detrimental to the financial integrity of the broker-dealer or
the financial community.
Note 6 - Income taxes
- ---------------------
During the nine months ended February 28, 1995, the Company
utilized the remainder (approximately $12,031,000) of its net
operating loss carryforwards.
Note 7 - Subordinated Demand Notes
- ----------------------------------
Effective February 22, 1995, the Company entered into two
additional subordination agreements with Equitrade. The first note
has a stated interest rate of 0% and matures on February 28, 1998.
In connection with this agreement, the Company has pledged U.S.
Treasury securities with a market value in excess of $5,000,000.
Such securities are included in other assets at February 28, 1995.
The second note has a stated interest rate of 8% and matures on
February 28, 1998. In connection with this agreement, the Company
loaned Equitrade $5,000,000.
(12)
<PAGE>
Item - 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The results of the Sherwood Group, Inc. and subsidiaries (the
"Company") for the nine months and three months ended February 28,
1995 reflect primarily the activities of Sherwood Securities Corp.
("Sherwood Securities") which is primarily engaged in the securities
business as a wholesale market maker in NASDAQ/OTC securities. In
addition, during January 1994, National Discount Brokers ("NDB"), a
division of the Company's subsidiary, Triak Services Corp. ("Triak"),
commenced operations consisting of deep discount retail brokerage.
The Company's net income for the nine and three months ended
February 28, 1995 was $10,261,000 and $4,269,000, respectively. The
net income for the nine and three months ended February 28, 1994 was
$13,477,000 and $3,842,000, respectively. Sherwood Securities had
net income for the nine and three months ended February 28, 1995 of
$12,365,000 and $4,021,000, respectively, compared to net income for
the nine and three months ended February 28, 1994 of $17,030,000 and
$6,045,000 respectively. Triak had a net loss for the nine months
ended February 28, 1995 of $2,244,000 and net income of $165,000 for
the three months ended February 28, 1995. For the nine and three
months ended February 28, 1994, Triak had net losses of $1,786,000
and $1,779,000, respectively.
Total revenue for the Company increased by approximately
$4,291,000, or 6%, and $875,000, or 4%, for the nine and three months
ended February 28, 1995, respectively, compared with the previous
year. Revenues from firm securities transactions decreased
approximately $6,482,000, or 11%, and $3,325,000, or 15%, for the
nine and three months ended February 28, 1995, respectively, when
compared to the prior year. Sherwood Securities' overall trading
volume increased approximately 5% and 11%, respectively, for the nine
and three months ended February 28, 1995 when compared with the
previous year. Market conditions had an overall negative effect on
the positions of marketable securities owned or securities sold, not
yet purchased for Sherwood Securities when compared with the previous
year. A trendless market and new regulatory requirements accounted
for the significant portion of the decreased trading profits of
Sherwood Securities.
The Company's commission income increased by approximately
$7,350,000, or 378%, and $3,105,000, or 459%, respectively for the
nine and three months ended February 28, 1995 when compared with the
prior year. A full nine months of operations by NDB which did not
commence operations until January 1994 accounted for all of the
increase.
The primary portion of equity income in partnerships is equity
income from Equitrade Partners ("Equitrade") of approximately
$3,521,000 and $1,240,000 for the nine and three months ended
February 28, 1995, respectively. For the nine and three months ended
February 28, 1994, equity income from Equitrade was $2,167,000 and
$979,000, respectively, which included amortization of intangible
(13)
<PAGE>
assets of $314,000 and $105,000, respectively. The increased revenue
from Equitrade Partners is due to an increase in the number of stocks
in which they are a specialist and more effective trading.
Gains on sales of investment securities aggregated $76,000 for
the nine months ended February 28, 1995 resulting entirely from the
sale of 11,600 shares of Network Imaging Corp. (IMGX). There were no
investment securities transactions for the three months ended
February 28, 1995 or for the nine and three months ended February 28,
1994.
Interest income increased by approximately $1,337,000, or 142%,
and $584,000, or 166%, for the nine and three months ended February
28, 1995, respectively, as compared to the previous year. The
increase is primarily due to the availability of larger amounts of
cash for investment, increasing market interest rates and the
investment of certain funds at above market rates.
Total expenses for the nine months ended February 28, 1995
increased approximately $7,105,000, or 14%, from $51,223,000 in 1994
to $58,328,000 in 1995. Total expenses for the three months ended
February 28, 1995 increased approximately $114,000, or 1%, from
$20,125,000 in 1994 to $20,239,000 in 1995. The reasons for the
increase in expenses are set forth below.
Compensation and benefits decreased $2,449,000, or 10%, and
$1,893,000, or 20%, for the nine and three months ended February 28,
1995, respectively, compared with the prior year. The decrease is on
account of lower commissions paid to traders due to lower trading
profits and lower bonuses accrued for all officers and staff as a
result of lower overall profits of the Company as compared to the
prior year. Partially offsetting these decreases was an increase in
office salaries and related benefits due primarily to the hiring of
approximately 110 employees for NDB since it commenced operations in
January 1994.
Clearing and related charges increased by approximately
$4,481,000, or 23%, and $1,740,000, or 25%, for the nine and three
months ended February 28, 1995, respectively, as compared to the
previous year. The increase was primarily due to the operations of
NDB for which clearance charges amounted to approximately $4,883,000
and $2,014,000 for the nine and three months ended February 28, 1995,
respectively.
Communications expense increased by $2,005,000, or 79%, and
$459,000, or 41%, for the nine and three months ended February 28,
1995, respectively, as compared to the previous year. The increase
was mainly due to an increase in the activities of NDB, namely
telephone and quotations expense.
Other expenses increased by approximately $3,094,000, or 54%,
and decreased by approximately $194,000, or 7%, for the nine and
three months ended February 28, 1995, respectively, as compared to
the previous year. The increase during the nine month period is
primarily due to an extensive advertising campaign undertaken in
connection with the commencement of operations of NDB. By September
1994, the amount and frequency of advertising for NDB had lessened
significantly. Also contributing to the increase in other expenses
(14)
<PAGE>
were increases in professional fees and depreciation and
amortization.
Interest expense decreased by approximately $26,000, or 72%, for
the nine months ended February 28, 1995 as compared to the previous
year.
During the nine months ended February 28, 1995, the Company
utilized the remainder (approximately $12,031,000) of its net
operating loss carryforwards, the benefit of which was used to reduce
income tax expense by approximately $4,002,000.
Liquidity
- ---------
The Company's tangible assets are highly liquid with more than
65% of these tangible assets consisting of cash or assets readily
convertible into cash. The Company's operations have generally been
financed by internally generated funds. In addition, margin account
borrowings are available to the Company from its clearing brokers.
The Company's broker-dealer entities, Sherwood Securities and
NDB, are subject to the minimum net capital requirement of the
Securities and Exchange Commission ("SEC") which is designed to
measure the general financial soundness and liquidity of
broker-dealers. As of February 28, 1995, Sherwood Securities and NDB
had approximately $30,170,000 and $3,364,000, respectively, in excess
of the required minimum net capital. The net capital rule imposes
financial restrictions upon Sherwood Securities' and NDB's businesses
which are more severe than those imposed on most other businesses.
Cash flows from operations will vary on a daily basis as the
Company's portfolio of marketable securities changes. The Company's
ability to convert marketable securities owned into cash is
determined by the depth of the market and size of the Company's
security positions in relation to the market as a whole. The
portfolio mix also affects the regulatory capital requirements
imposed on Sherwood Securities which directly affects the amount of
funds available for operating, investing and financing activities.
The operations of an American Stock Exchange Specialist book
continue to be funded by the income generated by the book.
Cash flows from the Company's investment activities are directly
related to market conditions.
On July 29, 1994, the Company made an additional contribution of
$246,562, in the form of treasury securities with a face value of
$250,000, to Anvil Institutional Services Company ("Anvil"). Anvil,
the parent company of a qualified minority broker-dealer, is a joint
venture between the Company and Edward Siedle, an individual.
On January 31, 1995, Sherwood Securities received $1,000,000
from Initio, Inc. as repayment on its subordinated note.
(15)
<PAGE>
Effective February 22, 1995, the Company entered into two
additional subordination agreements with Equitrade. The first note
has a stated interest rate of 0% and matures on February 28, 1998.
In connection with this agreement, the Company purchased U.S.
Treasury securities with a face value of $5,364,000 for approximately
$5,052,000 to secure the note. The second note has a stated interest
rate of 8% and matures on February 28, 1998. In connection with this
agreement, the Company loaned Equitrade $5,000,000.
In addition, the Company continued with its December 1992 plan
to buy back up to 1.5 million shares of the Company's common stock
from time to time in the open market or through privately negotiated
transactions. As of February 28, 1995, 704,618 shares had been
acquired of which 261,900 were repurchased during the nine months
ended February 28, 1995. The source of funds for these purchases
were internally generated.
During December 1994, Sherwood Securities signed a new lease
agreement in Jersey City, New Jersey for the purpose of relocating
its and the Company's offices and trading facilities. The lease,
for approximately 36,600 square feet, commences on January 1, 1995 and
expires on January 31, 2007. Sherwood Securities' obligation to pay
base rent begins on May 13, 1997. The obligation for any operating
escalations, as defined in the lease agreement, is effective as of
January 1, 1995. Commencing May 13, 1997, base rent on the new space
is approximately $1,025,000 per annum to July 31, 2000 and $1,172,000
from August 1, 2000 to January 31, 2007.
Effects of Inflation
- --------------------
The Company's assets are not significantly affected by inflation
because they are primarily monetary in nature. Management believes
that replacement costs of furniture, equipment and leasehold
improvements will not materially affect operations. However, the
rate of inflation affects the Company's principal expenses such as
employee compensation, rent and communication, which may not be
readily recoverable from increased revenues. Because of market forces
and competitive conditions in the securities industry, a
broker-dealer may be unable to unilaterally increase spreads and
commissions in order to recover increased costs related to inflation.
Consequently, the Company must rely on increased volume for this
purpose. However, the Company has significant cash balances on
deposit with its principal clearing broker on which interest is paid
which, in the event there are higher interest rates which normally
result from inflation, would offset some of the costs.
(16)
<PAGE>
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
The Company initially reported in its Form 10-K for the year
ended May 31, 1994 that certain class action complaints, Charles Kaye
and Sulochana Dessi, et al. v. Herzog, Heine, Geduld, et al. (United
States District Court for the Southern District of New York); Jerome
Robinson v. Herzog, Heine, Geduld, et al. United States District
Court for the Southern District of New York); and Lawrence A. Abel,
et al. v. Merrill Lynch Incorporated & Co., et al. (Superior Court of
California, County of San Diego), were filed on May 27, 1994 against
Sherwood Securities and several other market makers on the NASDAQ
exchange. Subsequent to May 27, 1994, several additional class
action complaints were filed which contained the same or similar
allegations and request similar relief.
By Order dated October 14, 1994, the Judicial Panel on
Multidistrict Litigation consolidated the above matters, other
similar matters reported on by the Company in its Form 10-K, and any
later-filed "tag along" cases for pre-trial proceedings in the United
States District Court for the Southern District of New York, entitled
In Re NASDAQ Market-Makers Antitrust Litigation, 94 Civ. 3996(RWX).
The Amended Consolidated Complaint repeated most of the allegations
of the various earlier filed complaints, except that plaintiffs are
no longer alleging violations of the Securities Exchange Act of 1934,
as amended. Rather, their claims are limited to those previously
alleged under the Federal antitrust laws. Together with the other
defendant market makers, the Company has joined in a motion to
dismiss the Amended Consolidated Complaint, which is currently
scheduled for oral argument on April 26, 1995. The Company intends
to vigorously defend itself against these allegations.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Computation of Earnings Per Share
(b) The Company filed one Form 8-K dated February 28,
1995 during the quarter ended February 28, 1995.
(17)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
The Sherwood Group, Inc.
-----------------------
Date: April 11, 1995 By: Dennis Marino
---------------------- ------------------------
Dennis Marino
(Executive Vice President
and Chief Administrative
Officer)
Date: April 11, 1995 By: William Karsh
---------------------- ------------------------
William Karsh
(Vice President and
Chief Financial Officer)
(18)
<PAGE>
<TABLE>
THE SHERWOOD GROUP, INC. EXHIBIT 11
AND SUBSIDIARIES ----------
COMPUTATION OF NET INCOME PER COMMON SHARE
<CAPTION>
Three Months Ended February 28,
--------------------------------
1995 1994
------------- ------------
Common stock and common stock equivalents:
<S> <C> <C>
Average common stock outstanding 12,492,537 12,589,987
Average common stock equivalents
issuable under stock options 1,074,907 1,268,385
------------- ------------
Total average common stock and common
stock equivalents used for earnings
per share computation 13,567,444 13,858,372
============= ============
Income:
Net income $ 4,268,851 $ 3,841,735
============== ============
Income per common and common
equivalent share (a):<F1>
Net income $ 0.31 $ 0.28
============= ===========
<FN>
<F1>(a) For presentation purposes, primary and fully diluted are identical.
<FN>
</TABLE>
<PAGE>
<TABLE>
THE SHERWOOD GROUP, INC. EXHIBIT 11
AND SUBSIDIARIES ----------
COMPUTATION OF NET INCOME PER COMMON SHARE
<CAPTION>
Nine Months Ended February 28,
-------------------------------
1995 1994
-------------- -------------
Common stock and common stock equivalents:
<S> <C> <C>
Average common stock outstanding 12,581,903 12,664,125
Average common stock equivalents
issuable under stock options 1,096,545 1,216,870
------------- ------------
Total average common stock and common
stock equivalents used for earnings per
share computation 13,678,448 13,880,995
=========== ===========
Income:
Net income $ 10,260,783 $ 13,476,974
============= =============
Income per common and common
equivalent share (a):<F1>
Net income $ 0.75 $ 0.97
============ ============
<FN>
<F1>(a) For presentation purposes, primary and fully diluted are identical.
</FN>
</TABLE>
