SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------------------------------
For Quarter Ended: Commission File Number: 0-19619
March 31, 1996
HOENIG GROUP INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3625520
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(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
Royal Executive Park
4 International Drive
Rye Brook, NY 10573
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(Address of principal executive offices) (zip code)
(914) 935-9000
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(Registrant's Telephone Number, including area code)
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(Former name, former address and former fiscal year
is changed since last report)
Indicated 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 shorted 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 [ ]
As of May 14, 1996, there were 9,182,810 shares of common stock outstanding.
<PAGE>
HOENIG GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDING MARCH 31, 1996
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Statement of Financial Condition -
March 31, 1996 and December 31, 1995 1
Consolidated Statement of Income -
Three Months Ended March 31, 1996 and 1995 2
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
ITEM 2 - Management's Discussion and Analysis
of Results of Operations and
Financial Condition 5-6
PART II - OTHER INFORMATION
ITEMS 1 - 6 7
Signatures 8
Exhibits 9
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HOENIG GROUP INC.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF MARCH 31, 1996 & DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
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<S> <C> <C>
ASSETS
Cash & equivalents $15,721,052 $18,115,361
U.S. Government obligations, at market value 11,478,099 11,655,594
Securities owned, at market value 2,224,639 2,231,868
Investment in limited partnerships 1,051,264 998,745
Receivables from correspondent brokers and dealers 5,177,945 4,749,703
Exchange memberships - at cost 836,250 836,250
Equipment, furniture and leasehold improvements
- net of depreciation and amortization 1,926,213 1,921,225
Deferred research/services expense 1,205,971 869,923
Other assets 3,823,158 3,756,806
--------- ---------
Total Assets $43,444,591 $45,135,475
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Payable to brokers and dealers $205,000 $162,428
Accrued research/services payable 4,808,076 4,846,939
Accrued compensation 1,852,686 2,373,905
Accrued expenses 635,616 2,565,284
Other liabilities 789,518 728,674
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Total Liabilities 8,290,896 10,677,230
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STOCKHOLDERS' EQUITY
Common stock $.01 par value per share
Voting-authorized 40,000,000 shares
- 10,709,850 and 10,637,160 shares issued
in 1996 and 1995, respectively 107,099 106,372
Additional paid in capital 25,975,794 25,724,382
Foreign currency translation adjustment (897,056) (814,382)
Retained earnings 15,182,393 14,656,408
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40,368,230 39,672,780
Less treasury stock at cost - 1,532,040 shares
in 1996 and 1995, respectively (5,214,535) (5,214,535)
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Total Stockholders' Equity 35,153,695 34,458,245
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Total Liabilities and Stockholders' Equity $43,444,591 $45,135,475
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1
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HOENIG GROUP INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1996 1995
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<S> <C> <C>
REVENUES
Gross commissions $14,584,490 $10,837,033
Investment management fees 1,167,202 497,906
Other 36,042 79,807
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Total operating revenues 15,787,734 11,414,746
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EXPENSES
Clearing, floor brokerage and exchange charges 2,499,413 1,635,343
Employee compensation 3,900,673 2,946,809
Independent research and services 6,512,329 6,805,525
Other 1,843,302 1,799,508
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Total expenses 14,755,717 13,187,185
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OPERATING INCOME (LOSS) 1,032,017 (1,772,439)
INVESTMENT INCOME AND OTHER
Interest, dividends 367,144 326,039
Gain (loss) on investments, other (26,071) 514,704
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Net investment income and other 341,073 840,743
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Income (loss) before income taxes 1,373,090 (931,696)
Provision for income taxes 617,660 (314,103)
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Net income (loss) $ 755,430 $ (617,593)
============ ===========
Net income (loss) per share primary and fully diluted $ .08 $ (.06)
============ ===========
Weighted average shares outstanding 9,197,305 9,740,587
============ ===========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2
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HOENIG GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1996 & MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $755,430 $(617,593)
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 207,110 186,233
Foreign currency translation adjustment (82,674) 108,125
Issuance of stock options 15,896 23,482
Change in unrealized appreciation/loss on investments 111,354 (517,361)
Changes in assets and liabilities:
Securities owned, net 26,930 (164,378)
Receivables from correspondent brokers and dealers (428,242) 1,081,345
Deferred research/services expense (336,048) (858,731)
Other assets (121,544) (759,526)
Payable to brokers and dealers 42,572 (35,403)
Accrued research/services payable (38,863) (298,287)
Accrued compensation (284,976) (712,343)
Accrued expenses (1,929,668) (7,735)
Other liabilities 72,542 (17,048)
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Net cash (used in) operations (1,990,181) (2,589,220)
CASH FLOWS FROM INVESTING ACTIVITIES:
U.S. Government obligations 656 2,656,823
Investment in securities (18,433) -
Purchase of equipment, furniture and leasehold
improvements (156,906) (126,769)
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Net cash provided by (used in) investing activities: (174,683) 2,530,054
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term bank loans payable - 32,285
Dividends (229,445) (243,565)
Issuance of common stock - 300
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Net cash (used in) financing activities: (229,445) (210,980)
Net (decrease) in cash and equivalents (2,394,309) (270,146)
Cash and equivalents beginning of period 18,115,361 10,379,934
---------- ----------
Cash and equivalents end of period $15,721,052 $10,109,788
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid: $ 10,089 $ 44,024
Taxes paid: $ 69,976 $ 125,784
</TABLE>
1996 Non Cash item: Conversion of subordinated
debentures to common stock - $62,500.
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
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HOENIG GROUP INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments (which include only
normal recurring accruals) necessary to present fairly the Company's financial
position as of March 31, 1996 and December 31, 1995, the results of its
operations for the three months ended March 31, 1996 and 1995 and changes in
cash flows for the three months ended March 31, 1996 and 1995. Certain
information normally included in the financial statements and related notes
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These consolidated financial statements should be read
in conjunction with the Company's December 31, 1995 annual report on Form
10-K.
NOTE 2 - NET CAPITAL AND RESERVE REQUIREMENTS.
Hoenig & Co., Inc., the Company's principal operating subsidiary, is
subject to the SEC Net Capital Rule 15c3-1 which requires that Hoenig maintain
net capital of the greater of $100,000 or one-fifteenth of aggregate
indebtedness. As of March 31, 1996 Hoenig & Co., Inc.'s net capital ratio was
.51 to 1 and its net capital was approximately $11,840,000, which was
$11,436,000 in excess of regulatory requirements. Hoenig's Tokyo office's (a
branch of Hoenig & Co., Inc.) capital requirement at March 31, 1996 was JPY
26,000,000 ($243,000). Hoenig & Company Limited ("Limited") is required to
maintain financial resources of at least 110% of its capital requirement.
Limited's financial resources requirement as of March 31, 1996 was British
pounds 648,000 ($989,000); it had excess financial resources at such date of
approximately British pounds 588,000 ($897,000). Hoenig (Far East) Limited
("Hoenig Far East") is required to maintain liquid capital of the greater of
HK$ 3,000,000 ($388,000) or 5% of the average quarterly total liabilities.
Hoenig Far East's required liquid capital was approximately HK$ 15,988,000
($2,068,000) and it had excess liquid capital of approximately HK$ 9,346,000
($1,208,000).
NOTE 3 - STOCKHOLDERS EQUITY.
On February 26, 1996, the Company declared a regular quarterly
dividend on its Common Stock of $0.025 per share payable on April 8, 1996 to
shareholders of record at the close of business on March 22, 1996.
4
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company's principal source of revenues is commissions for
executing trades on behalf of its clients. Commission income is a function of
commissions received in exchange for providing research, other services and
commission rebates to the Company's clients ("Soft Dollar Brokerage") and
competing for institutional execution-only business. The Company executes
trades in equity securities on all of the world's major stock exchanges,
acting as agent for its customers and, in certain instances, as principal. The
Company also executes trades in fixed income securities on an agency and
riskless principal basis.
The Company believes that Soft Dollar Brokerage will continue to grow
slowly in the United States and the United Kingdom and to a greater extent in
foreign markets, particularly in the Far East. However, there continues to be
pressure on soft dollar ratios in the United States, United Kingdom, Europe,
and the Far East as a result of client demands and competition for Soft Dollar
Brokerage. Ratios generally have decreased throughout the soft dollar industry
during the past several years, resulting in lower profit margins. The average
ratio charged by the Company has also decreased during the past several years
resulting in lower profit margins on the Company's Soft Dollar Brokerage
business. Continued decreases in soft dollar ratios will result in lower
profit margins on the Company's Soft Dollar Brokerage.
In late 1994 and 1995 the Company committed increased capital and
hired additional personnel in its Far East operations in Hong Kong and Tokyo.
Management believes these expenditures, which negatively affected the
Company's net income in 1995, were necessary for future growth of the
Company's global securities business. Management does not expect these
operations to generate revenues in 1996 sufficient to offset added
expenditures and thus expects the Hong Kong and Tokyo operations to operate at
a loss during 1996. Management expects to hire additional personnel and invest
additional capital as the needs and activities of the Hong Kong and Tokyo
operations further develop.
The Company's second largest source of revenues is investment
management fees from institutional clients received by Axe-Houghton Associates,
Inc., the Company's investment management subsidiary. The Company intends to
devote substantial resources to its investment management business. The
Company will continue to evaluate opportunities to increase assets under
management and expand its product line through acquisition and the hiring of
additional personnel.
THREE MONTHS ENDED MARCH 31, 1996 VERSUS THREE MONTHS ENDED MARCH 31, 1995.
The Company incurred operating income before income taxes for the
three months ended March 31, 1996 of $1,032,017, versus an operating loss of
($1,772,439) in 1995. The operating income is primarily attributable to a
34.6% increase in commission revenues without a commensurate increase in
expenses associated with research and other services, as well as an increase
of 134.4% in investment management fees. The increase in commission revenues
is attributable to higher trading volume from the Company's clients, as well
as the addition of certain new clients. The increase in investment management
fees primarily reflects additional assets under management from existing as
well as new clients.
5
<PAGE>
Operating revenues increased to $15.8 million for three months ended
March 31, 1996 from $11.4 million for the three months ended March 31, 1995
(increasing 38.3%). Commission revenues increased to $14.6 million for the
three months ended March 31, 1996 from $10.8 million for three months ended
March 31, 1995 (increasing 34.6%). This increase resulted primarily from an
increase in the Company's commission revenues in the Far East and domestic
equity markets of $2.8 million and $0.9 million, respectively.
Investment management fees increased to $1.2 million for the period
ended March 31, 1996, from $0.5 million in 1995 (increasing 134.4%), as assets
under management increased to $3.84 billion at March 31, 1996 from $1.85
billion at March 31, 1995.
Research and other services provided to the Company's brokerage
clients during the first quarter 1996 decreased 4.3% to $6.5 million as
compared to $6.8 million for the same period in 1995. These expenses were
44.7% of commission revenues for the quarter ended March 31, 1996 as compared
with 62.8% for the corresponding period in 1995. Expenses related to research
and other services as a percentage of commission revenues for the first
quarter 1996 was less than the comparable period in 1995, primarily due to the
following: (1) the incurrence of research and services expense in advance of
the realization of related commission revenues during the first quarter 1995,
and (2) an increase in commission revenues not associated with soft dollar
arrangements during the first quarter 1996.
Clearing, execution, exchange charges and related expenses increased
52.8% to $2.5 million in 1996 from $1.6 million in 1995. These expenses
represented 17.1% of commissions in 1996 and 15.1% of commissions in 1995.
These expenses increased as a percentage of commissions primarily due to a
increase in the percentage of commissions generated in certain Far East
markets, where such expenses are charged at higher rates than comparable
domestic equity trades.
Employee compensation increased to $3.9 million in 1996 from $2.9
million in 1995 (increasing 32.4%). This resulted primarily from an increase
in the compensation of additional personnel hired in the Company's operations
in Hong Kong and Tokyo during 1995, and an increase in reserves for bonus and
performance based compensation for the period ended March 31, 1996.
Net investment income and other was $0.3 million in 1996 versus $0.8
million in 1995. The decrease resulted primarily from unrealized losses of
($0.1) million on cash invested primarily in U.S. Government obligations,
corporate bonds and securities during the first quarter 1996 versus unrealized
gains of $0.6 million during the First Quarter 1995.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996 the Company had cash, U.S. Government obligations
and accounts receivable of $32.4 million. All receivables from correspondent
broker/dealers are fully collectible and no provision for uncollectibles is
required.
The Company believes that its cash resources and liquidity plus
additional funds generated by operations will be sufficient to meet current
and future needs. The Company is currently exploring opportunities to expand
existing businesses and/or to acquire new businesses, which could potentially
have an impact on liquidity and capital resources.
6
<PAGE>
HOENIG GROUP INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 19, 1995, a complaint was filed in the Supreme Court of
the State of New York, County of Westchester, by Thomas C. Hellman
against Hoenig Group Inc., Hoenig & Co., Inc. and certain
individuals, as directors and officers of Hoenig & Co., Inc.
Information regarding this litigation previously was disclosed in
Item 3 of the Company's annual report on Form 10-K for the fiscal
year ended December 31, 1995.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: Computation of Earnings Per Share (Exhibit 11)
Reports on Form 8-K: None.
7
<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.
Hoenig Group Inc.
Date: May 14, 1996 Joseph A. D'Andrea
------------------
Joseph A. D'Andrea
Chairman and
Chief Executive Officer
Date: May 14, 1996 Alan B. Herzog
--------------
Alan B. Herzog
Chief Operating Officer
Date: May 14, 1996 Louis T. Lynn
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Louis T. Lynn
Chief Financial Officer and
Principal Financial/Accounting
Officer
8
<PAGE>
EXHIBIT 11
HOENIG GROUP INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
3/31/96 3/31/95
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<S> <C> <C>
EARNINGS:
Income (loss) before extraordinary item $755,430 $(617,593)
NUMBER OF SHARES:
Weighted average of shares outstanding 9,125,090 9,740,587
Additional shares assuming conversion
of outstanding options and warrants 72,215 N/A
--------- ---------
Average shares and equivalents outstanding 9,197,305 9,740,587
========= =========
Primary and fully diluted earnings (loss) per share $ .08 $ (.06)
========= =========
</TABLE>
9
