<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------------------------------
For Quarter Ended: Commission File Number: 000-19619
September 30, 1999
HOENIG GROUP INC.
- ------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3625520
- ------------------------------------ ------------------------
(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
Reckson Executive Park
4 International Drive
Rye Brook, NY 10573
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 935-9000
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year
if 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 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
----- -----
As of November 10, 1999, there were 8,618,173 shares of common stock, par value
$.01 per share, outstanding.
<PAGE>
HOENIG GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1999 and December 31, 1998 1
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1999 and 1998 2
Consolidated Statements of Comprehensive Income -
Nine Months Ended September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 4
Notes to Unaudited Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16-17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 23,400,980 $ 19,575,824
U.S. Government obligations, at market value 16,626,540 10,909,066
Receivables from correspondent brokers and dealers 14,568,154 8,179,525
Receivables from customers 8,437,656 78,864
Equipment, furniture and leasehold improvements,
net of accumulated depreciation and amortization 1,740,560 1,704,407
Securities owned, at market value 4,619,951 9,016,826
Exchange memberships, at cost 1,321,235 1,321,235
Investment management fees receivable 1,840,342 1,963,374
Deferred research/services expense 1,606,099 1,153,861
Investment in limited partnerships 1,772,098 5,343,787
Other assets 3,276,808 4,092,770
------------ ------------
Total Assets $ 79,210,423 $ 63,339,539
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued research/services payable $ 9,271,946 $ 11,927,766
Accrued compensation 7,423,613 7,317,812
Payable to brokers and dealers 8,681,549 269,997
Payable to customers 7,262,228 1,688,298
Accrued expenses 1,046,378 1,474,478
Short-term bank loan payable 17,958 --
Other liabilities 1,232,756 644,003
------------ ------------
Total Liabilities 34,936,428 23,322,354
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock $.01 par value per share;
Voting-authorized 40,000,000 shares, issued
10,883,950 shares in 1999 and 10,846,150 in 1998 108,840 108,462
Additional paid in capital 27,661,959 27,301,478
Accumulated other comprehensive loss (860,608) (883,750)
Retained earnings 29,498,862 24,876,560
------------ ------------
56,409,053 51,402,750
Less restricted stock (37,500) (150,000)
Less treasury stock at cost - 2,265,777
shares in 1999 and 2,202,911 shares in 1998 (12,097,558) (11,235,565)
------------ ------------
Total Stockholders' Equity 44,273,995 40,017,185
------------ ------------
Total Liabilities and Stockholders' Equity $ 79,210,423 $ 63,339,539
============ ============
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Gross commissions $19,793,163 $19,803,593 $60,880,396 $55,480,358
Investment management fees 2,036,124 1,789,005 5,975,677 5,727,181
Other (6,248) 27,721 17,856 122,975
----------- ----------- ----------- -----------
Total operating revenues 21,823,039 21,620,319 66,873,929 61,330,514
EXPENSES
Clearing, floor brokerage and
exchange charges 2,552,935 2,524,795 8,100,435 7,115,892
Employee compensation 5,702,495 5,633,220 17,355,000 16,127,820
Independent research and services 8,845,124 8,003,410 26,683,984 24,636,086
Other 2,486,687 2,922,558 8,318,686 7,986,312
----------- ----------- ----------- -----------
Total expenses 19,587,241 19,083,983 60,458,105 55,866,110
----------- ----------- ----------- -----------
OPERATING INCOME 2,235,798 2,536,336 6,415,824 5,464,404
INVESTMENT INCOME AND OTHER
Interest, dividends 545,961 424,643 1,485,235 1,353,422
Gain (loss) on investments, other (200,305) (907,758) 139,928 (767,869)
----------- ----------- ----------- -----------
Net investment income and other 345,656 (483,115) 1,625,163 585,553
Income before income taxes 2,581,454 2,053,221 8,040,987 6,049,957
Provision for income taxes 1,047,146 978,470 3,418,685 2,755,681
----------- ----------- ----------- -----------
Net income $1,534,308 $ 1,074,751 $4,622,302 $ 3,294,276
========== =========== ========== ===========
NET INCOME PER SHARE
Basic $ .18 $ .13 $ .54 $ .37
========== =========== ========== ===========
Diluted $ .16 $ .12 $ .49 $ .35
========== =========== ========== ===========
Weighted average shares outstanding
Basic 8,611,783 8,572,743 8,604,941 8,897,316
========= ========= ========= =========
Diluted 9,640,786 9,165,260 9,508,886 9,448,538
========= ========= ========= =========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
Net income $4,622,302 $3,294,276
Other comprehensive income,
net of tax
Foreign currency translation adjustment 43,005 41,803
Tax expense 19,863 19,037
---------- ----------
23,142 22,766
Comprehensive income $4,645,444 $3,317,042
========== ==========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,622,302 $ 3,294,276
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 865,218 978,366
Loss on Write-off of Fixed Assets 7,090 193,210
Foreign currency translation adjustment 23,142 22,766
Issuance of stock compensation 118,123 139,404
Issuance of restricted stock 112,500 --
Changes in assets and liabilities:
Securities owned, net 4,396,875 843,208
Receivable from correspondent brokers and dealers (6,388,629) (3,429,205)
Receivable from customers (8,358,792) 2,869,329
Investment management fees receivable 123,032 37,055
Payable to customers 5,573,930 2,103,465
Deferred research/services expense (452,238) (983,081)
Other assets 538,770 (508,981)
Payable to brokers and dealers 8,411,552 (3,017,019)
Accrued research/services payable (2,655,820) 3,062,627
Accrued compensation 105,801 112,329
Accrued expenses (428,100) 427,395
Other liabilities 588,753 (100,309)
----------- -----------
Net cash provided by operations 7,203,509 6,044,835
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in U.S. Government obligations (5,717,474) 7,838,360
Investment in limited partnerships, at equity 3,571,689 (4,522,829)
Investment in securities -- (7,661,598)
Purchases of equipment, furniture and leasehold
improvements (631,269) (494,330)
----------- -----------
Net cash used in investing activities (2,777,054) (4,840,397)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 269,325 212,779
Treasury stock purchased (1,094,474) (5,346,416)
Issuance of treasury stock 205,892 202,522
Short-term bank loan payable 17,958 29,097
----------- -----------
Net cash used in financing activities (601,299) (4,902,018)
Net increase (decrease) in cash and equivalents 3,825,156 (3,697,580)
Cash and equivalents beginning of period 19,575,824 20,468,926
----------- -----------
Cash and equivalents end of period $23,400,980 $16,771,346
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 72,940 $ 90,190
=========== ===========
Taxes paid $ 2,484,873 $ 2,532,796
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
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 consolidated
financial position of Hoenig Group Inc. (the "Company") and its subsidiaries as
of September 30, 1999 and December 31, 1998, and the consolidated results of
operations, changes in comprehensive income and changes in cash flows for the
periods ended September 30, 1999 and 1998. The consolidated financial statements
included herein have been prepared by the Company without independent audit.
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 and notes
thereto should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. The results of operations for the periods ended
September 30, 1999 are not necessarily indicative of operating results for the
full year.
NOTE 2 - NET CAPITAL AND RESERVE REQUIREMENTS.
Hoenig & Co., Inc. ("Hoenig"), the Company's principal operating
subsidiary, is subject to the Uniform Net Capital Rule (Rule 15c3-1) which
requires that Hoenig maintain net capital equal to the greater of $100,000 or
one-fifteenth of aggregate indebtedness. At September 30, 1999, Hoenig's minimum
required net capital was approximately $714,000, its net capital ratio was .69
to 1, and its actual net capital was approximately $15,410,000, which was
approximately $14,696,000 in excess of regulatory requirements. Hoenig's Tokyo
office (a branch of Hoenig) satisfied its September 30, 1999 capital requirement
of approximately (yen)34,000,000 ($320,000). Hoenig & Company Limited
("Limited"), the Company's United Kingdom brokerage subsidiary, is required to
maintain financial resources of at least 110% of its capital requirement (as
defined). Limited's financial resources requirement at September 30, 1999 was
approximately (pounds)425,000 ($700,000); it had actual capital of approximately
(pounds)854,000 ($1,406,000), and excess financial resources at such date of
approximately (pounds)429,000 ($706,000). Hoenig (Far East) Limited ("Far
East"), the Company's Hong Kong brokerage subsidiary, is required to maintain
liquid capital equal to the greater of HK$3,000,000 ($386,000) or 5% of average
quarterly total liabilities. Far East's required liquid capital was
approximately HK$12,150,000 ($1,564,000) at September 30, 1999, and it had
actual liquid capital of approximately HK$53,227,000 ($6,850,000) and excess
liquid capital of approximately HK$41,077,000 ($5,286,000).
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS.
Axe-Houghton Associates, Inc., the Company's wholly-owned asset
management subsidiary, is the general partner of two limited partnerships and
maintains investments in each of the partnerships. Axe-Houghton's partnership
investments were 19.0% ($604,444) and 0.51% ($46,919) at September 30, 1999.
Axe-Houghton does not maintain control of the partnerships for consolidation
purposes. These investments are accounted for under the equity method.
During the periods presented, the Company also maintained investments
in two unaffiliated multi-manager, market-neutral limited partnerships. These
multi-manager limited partnerships, which are managed by professional money
managers, make investments in other unaffiliated limited partnerships and funds
which employ a variety of alternative investment strategies. These strategies
include relative-value, event-driven, hedged-directional, convertible arbitrage,
convertible hedging and basis spread trading.
5
<PAGE>
During the first six months of 1999, the Company reduced its
investments in these unaffiliated limited partnerships by a total of $3.6
million, by reducing its investment in one to approximately $1.1 million and
withdrawing its $1.7 million investment in the other. The remaining investment
represents less than a 5% interest in the respective partnership at September
30, 1999 and is accounted for at fair market value.
NOTE 4 - FINANCIAL INSTRUMENTS.
The Company maintains a diversified portfolio of investment grade
preferred stock and U.S. Treasury futures used to hedge the preferred stock
positions. This investment is managed by a professional money manager and uses
or includes derivative financial instruments for the purpose of reducing
exposure to certain investment risks, including interest rate fluctuations. This
investment is accounted for at fair market value based upon available market
information and valuations received from the manager. Changes in the market
value, as well as gains or losses resulting from the termination or maturity of
these instruments, are recognized as gains or losses on investments in the
period in which they occur. During the three months ended September 30, 1999 the
Company reduced its investment in this portfolio by $4.0 million to
approximately $4.5 million as of September 30, 1999. The $4.0 million has been
invested in U.S Treasury securities and money market funds.
During 1998 and the first quarter 1999, the Company maintained an
investment in a bank-sponsored deposit account which maintained investments in
U.S. foreign equity indices, floating rate deposits, baskets of European equity
securities and a U.S. Treasury zero coupon bond. The deposit account matured in
March 1999, and the Company did not renew the investment.
The Company does not hold financial instruments for trading purposes.
NOTE 5 - STOCKHOLDERS' EQUITY.
From January 1, 1999 through March 31, 1999, the Company repurchased
131,750 shares of Common Stock at an aggregate cost of $1.1 million under the
Company's 1998 one million-share repurchase program. The Company did not
repurchase any shares during second and third quarter 1999. As of September 30,
1999, the Company has repurchased a total of 397,462 shares under the 1998
repurchase program. As of September 30, 1999, the Company has repurchased a
total of 2,397,462 shares under the 1998 repurchase program and two earlier
repurchase programs. The Company purchased an additional 650,000 shares of
Common Stock in December 1995 from the Estate of Ronald H. Hoenig pursuant to an
agreement with Mr. Hoenig. The total cost of the purchases under the repurchase
programs and the purchase from the Estate (net of 781,685 shares issued out of
Treasury Stock) is $12,097,558.
NOTE 6- EARNINGS PER SHARE.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Basic
earnings per share is calculated by dividing net income by the weighted average
number of common shares outstanding. Diluted earnings per share is similar to
basic, but adjusts for the effect of potential common shares.
The following table presents the computations and basic and diluted
earnings per share for the periods indicated:
6
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income available to common stockholders $1,534,308 $1,074,751 $4,622,302 $3,294,276
Weighted average shares outstanding 8,611,783 8,572,743 8,604,941 8,897,316
Effect of dilutive instruments
Employee stock awards 1,029,003 592,517 903,945 551,222
---------- ---------- ---------- ----------
Total weighted average diluted shares 9,640,786 9,165,260 9,508,886 9,448,538
========== ========== ========== ==========
Basic earnings per share $ .18 $ .13 $ .54 $ .37
========== ========== ========== ==========
Diluted earnings per share $ .16 $ .12 $ .49 $ .35
========== ========== ========== ==========
</TABLE>
NOTE 7- COMMITMENTS AND CONTINGENCIES.
In 1998, a former employee of Hoenig instituted an arbitration before
NASD Regulation, Inc. against Hoenig and Fredric P. Sapirstein, Hoenig's
Chairman and Chief Executive Officer. The former employee principally alleges
that the defendants wrongfully terminated his employment in breach of an
employment agreement and falsely stated the reason for his termination in a
securities regulatory filing on Form U-5. The former employee is seeking
approximately $2.2 million in compensatory damages against each of the
defendants, plus punitive damages, liquidated damages, interest, reasonable
attorneys' fees and modification of the Form U-5. The defendants have filed an
answer, denying the former employee's allegations, and Hoenig has filed a
counter-claim against the former employee seeking damages of not less than
$220,000, based on the former employee's breach of his employment agreement with
Hoenig. The defendants believe that they have meritorious defenses to the
arbitration, and intend to vigorously oppose the claims and pursue the
counter-claim against the former employee if the matter proceeds to an
arbitration hearing. In the opinion of management, resolution of this matter is
not expected to have a material adverse affect on the Company's financial
condition, results of operations or cash flows.
NOTE 8- SEGMENT REPORTING.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), effective for fiscal years beginning after
December 15, 1997, to assist financial statement users in assessing the
performance of an enterprise and its prospects for future cash flows, and in
making informed decisions about an enterprise. For the year ended December 31,
1998, the Company changed its reporting of business segments in accordance with
SFAS No. 131. The Company has restated information regarding periods ended prior
to December 31, 1998 to reflect this change. The Company has three reportable
operating segments: domestic brokerage, international brokerage and asset
management. The Company's brokerage segments provide independent third-party and
proprietary research, global securities brokerage and other services primarily
to institutional clients from its domestic (United States) and international
(United Kingdom, Hong Kong and Tokyo) brokerage operations. In attributing
commission revenues to its brokerage segments, the Company primarily relies on
the geographic location of the customer. The Company's wholly-owned asset
management subsidiary provides professional asset management to U.S. public and
corporate employee benefit plans, investment partnerships and other U.S.
institutional clients from its U.S. office.
The accounting policies of the segments are the same as those described
in Note 2 of the Notes to Consolidated Financial Statements contained in the
Company's Annual Report on Form 10-K for the year
7
<PAGE>
ended December 31, 1998. There have been no material changes to the Company's
segment presentation in 1999. The Company evaluates performance based upon
operating income or loss, not including interest and investment income, as well
as certain intercompany expenses. The Company does not allocate certain
corporate assets (goodwill and certain fixed assets) to its reportable segments.
The following table illustrates significant financial data for each reportable
segment for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DOMESTIC INTERNATIONAL
SEPTEMBER 30, 1999 BROKERAGE BROKERAGE ASSET MGMT TOTAL
- ------------------ --------- --------- ---------- -----
<S> <C> <C> <C> <C>
Revenues from external customers $15,044,782 $4,742,133 $2,036,124 $21,823,039
Segment operating income 2,245,130 271,046 715,598 3,231,774
Segment assets 31,613,203 30,686,394 6,363,084 68,662,681
----------- ---------- ---------- -----------
THREE MONTHS ENDED DOMESTIC INTERNATIONAL
SEPTEMBER 30, 1998 BROKERAGE BROKERAGE ASSET MGMT TOTAL
- ------------------ --------- --------- ---------- -----
Revenues from external customers $16,257,292 $3,574,022 $1,789,005 $21,620,319
Segment operating income (loss) 3,541,537 (173,756) 574,870 3,942,651
Segment assets 30,547,657 17,057,631 4,809,425 52,414,713
----------- ---------- ---------- -----------
NINE MONTHS ENDED DOMESTIC INTERNATIONAL
SEPTEMBER 30, 1999 BROKERAGE BROKERAGE ASSET MGMT TOTAL
- ------------------ --------- --------- ---------- -----
Revenues from external customers $47,013,158 $13,885,094 $5,975,677 $66,873,929
Segment operating income 7,402,820 192,003 1,931,061 9,525,884
----------- ---------- ---------- -----------
NINE MONTHS ENDED DOMESTIC INTERNATIONAL
SEPTEMBER 30, 1998 BROKERAGE BROKERAGE ASSET MGMT TOTAL
- ------------------ --------- --------- ---------- -----
Revenues from external customers $44,254,215 $11,349,118 $5,727,181 $61,330,514
Segment operating income (loss) 7,677,562 (798,052) 1,995,673 8,875,183
----------- ---------- ---------- -----------
</TABLE>
Information for the Company's reportable segments as it relates to the
consolidated totals is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Domestic brokerage $15,044,782 $16,257,292 $47,013,158 $44,254,215
International brokerage 4,742,133 3,574,022 13,885,094 11,349,118
Asset management 2,036,124 1,789,005 5,975,677 5,727,181
----------- ----------- ----------- -----------
Total operating revenues $21,823,039 $21,620,319 $66,873,929 $61,330,514
=========== =========== =========== ===========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
---------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING INCOME (LOSS):
Domestic brokerage $2,245,130 $3,541,537 $7,402,820 $7,677,562
International brokerage 271,046 (173,756) 192,003 (798,052)
Asset management 715,598 574,870 1,931,061 1,995,673
General corporate (995,976) (1,406,315) (3,110,060) (3,410,779)
---------- ---------- ---------- ----------
Total operating income 2,235,798 2,536,336 6,415,824 5,464,404
Interest & investment income(loss) 345,656 (483,115) 1,625,163 585,553
---------- ---------- ---------- ----------
Income before income taxes $2,581,454 $2,053,221 $8,040,987 $6,049,957
========== ========== ========== ==========
</TABLE>
NOTE 9 - SUBSEQUENT EVENTS
On November 4, 1999, the Company's Board of Directors authorized the management
of the Company to repurchase up to one million shares of the Company's Common
Stock from time to time in open-market and privately negotiated transactions
subject to the availability of shares for repurchase at prices that the Company
considers to be attractive. This repurchase program replaces the 1998 stock
repurchase program, under which the Company had purchased a total of 397,462
shares as of November 4, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in this report that relate to future plans, events or
performance are forward-looking statements. Such statements may include, but are
not limited to, those relating to the effects of future growth, cost reduction
measures taken to address operating losses in certain international operations,
including the risk that restructuring Tokyo brokerage operations will not
improve the profitability of international brokerage operations, industry
consolidation, acquisition and expansion plans, strategic alliances, joint
ventures and other business combinations, plans to address the Year 2000 issue
and other technology issues, market risk, the Company's investment activities
and its current equity capital requirements. Actual events might differ
materially due to a variety of important factors that cannot be predicted with
certainty. These factors involve risks and uncertainties relating to, among
other things, general economic conditions, market fluctuations, competitive
conditions within the brokerage and asset management businesses, stock market
prices and trading volumes, changes in demand for asset management and
securities brokerage services, the Company's ability to recruit and retain key
employees, changes in U.S. and foreign securities laws and regulations,
particularly regarding independent research and directed brokerage arrangements,
trading and investment activities, litigation and other factors discussed
throughout this report and in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
INTRODUCTION
The Company provides global securities brokerage to institutional clients
through its wholly-owned brokerage subsidiaries in the United States, United
Kingdom, Hong Kong and Japan. The Company's wholly-owned subsidiary,
Axe-Houghton Associates, Inc., provides professional asset management to U.S.
public and corporate employee benefit plans, investment partnerships and other
U.S. institutional clients from its offices in the United States.
The Company's principal source of revenues is commissions earned for executing
trades on behalf of its customers. The Company executes trades in equity
securities on the world's major stock exchanges,
9
<PAGE>
acting primarily as agent for its customers, and also executes trades in U.S.
fixed income securities on an agency and riskless principal basis. The Company
earns commissions in connection with four types of brokerage services:
commissions received in connection with providing independent research and other
services to investment managers; commissions received in exchange for paying
expenses of, or commission refunds to, customers under directed brokerage
arrangements; commissions received in connection with providing proprietary
research; and commissions received for execution-only services.
The Company's profit margin on execution-only brokerage and commissions earned
in connection with providing proprietary research is higher than that on
commissions earned in connection with independent research and directed
brokerage arrangements because the Company does not incur direct expenses for
research and other services in connection with such activities.
The Company generally expects a certain amount of commissions for every $1 in
independent research, other services and commission refunds provided under
independent research and directed brokerage arrangements. This ratio is
negotiated on an individual customer basis. Ratios continue to be under modest
downward competitive pressure in most of the markets in which the Company
conducts brokerage activities.
The Company's earnings in any period are affected by its ability to earn
commissions under independent research and directed brokerage arrangements on a
timely basis, because revenues are recorded only when earned, and related
expenses are recorded when incurred. The timing of the receipt of commissions
could cause variations in earnings from year to year and quarter to quarter.
The Company's second largest source of revenues is investment management fees
earned by Axe-Houghton, the Company's asset management subsidiary, in connection
with the provision of asset management services to institutional clients.
Investment management fee revenues are a function of assets under management and
the management fee charged. The profit margin on the Company's asset management
business is higher than those on the Company's brokerage activities and also
varies with the types of asset management services provided by the Company.
The amount of assets under management is affected by numerous factors, including
the ability to attract and retain clients and investment personnel, investment
performance results, the number and variety of investment disciplines offered
and the capacity limitations of such disciplines (such as small capitalization
growth equities), the market performance of particular investment disciplines,
as well as the performance of the securities markets generally. Certain of the
Axe-Houghton investment professionals who manage small capitalization growth
equity assets are employed under contracts expiring on December 31, 2000.
For the year ended December 31 1998, the Company changed its reporting of
business segments in accordance with new Statement of Financial Accounting
Standards No. 131 ("Disclosures About Segments of an Enterprise and Related
Information") and to reflect the restructuring of the Company's brokerage
operations in Japan. The Company has three reportable operating segments --
domestic brokerage, international brokerage and asset management -- and has
restated information for periods ending prior to December 31, 1998 to reflect
this change. In determining whether brokerage commissions earned are domestic or
international, the Company primarily relies on the geographic location of the
customer.
10
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS SEPTEMBER 30, 1998
The Company's operating income before income taxes for the three months ended
September 30, 1999 decreased 11.8% to $2.2 million, as compared to $2.5 million
during the same period in 1998. The decrease in operating income for the three
months ended September 30, 1999 is primarily attributable to a 36.6% decrease in
the operating income of the Company's domestic brokerage operations, offset by
an increase in the operating income of international brokerage operations to
$0.3 million from a loss of $0.2 million for the third quarter 1998. The
Company's net income for the three months ended September 30, 1999 increased
42.8% to $1.5 million, versus $1.1 million during the third quarter 1998.
Operating revenues increased 9.4% to $21.8 million for the three months ended
September 30, 1999 from $21.6 million during the same period in 1998. This
increase resulted primarily from a 32.7% increase in operating revenues from
international brokerage operations. Operating revenues from international
brokerage operations represented 21.7% of the operating revenues during the
three months ended September 30, 1999, as compared to 16.5% during the same
period in 1998. Operating revenues from asset management for the three months
ended September 30, 1999 increased 13.8% to $2.0 million as compared to $1.8
million during the same period in 1998.
Operating revenues from the Company's domestic brokerage operations for the
three months ended September 30, 1999 decreased 7.5% to $15.0 million as
compared to $16.2 million in 1998. Operating income before income taxes of the
Company's domestic brokerage operations decreased 36.6% to $2.2 million in the
third quarter 1999, as compared to $3.5 million in the third quarter 1998,
primarily due to a decrease in operating revenues coupled with an increase in
independent research and services expenses for the three months ended September
30, 1999.
Operating revenues from international brokerage operations increased 32.7% to
$4.7 million during the three months ended September 30, 1999, as compared to
$3.6 million during the same period in 1998 due to an increase in commission
revenues of the Company's Hong Kong operations. International brokerage
operations had operating income of $0.3 million in the third quarter 1999, as
compared to an operating loss of $0.2 million in the third quarter 1998.
Investment management fee revenues increased 13.8% for the three months ended
September 30, 1999 to $2.0 million, as compared to $1.8 million during the same
period in 1998. Total assets under management were $3.9 billion as of September
30, 1999 as compared to $4.0 billion as of June 30, 1999 and $3.9 billion as of
September 30, 1998. Management fee revenues increased 13.8% during the third
quarter 1999 as compared to the same period in 1998, primarily due to an
increase in small capitalization growth equities assets under management, which
are managed at the Company's highest fee rate. Assets managed in small
capitalization growth equities increased 51.6% to $782.2 million as of September
30, 1999 from $516.0 million as of September 30, 1998. Small capitalization
growth equity assets under management were $812.0 million as of June 30, 1999.
Operating income of the Company's asset management operations for the third
quarter 1999 increased 24.5% to $0.7 million from $0.6 million during the same
period in 1998.
Expenses related to independent research and other services provided to the
Company's brokerage clients, including commission refunds, during the three
months ended September 30, 1999 increased 10.5% to $8.8 million from $8.0
million during the third quarter 1998. These expenses were 44.7% of commission
revenues during the third quarter 1999, as compared to 40.4% during the third
quarter 1998. These expenses increased as a percentage of commission revenues in
the third quarter 1999 primarily due to (1) the timing of research expenses
incurred relative to the receipt of commissions earned and (2) a decrease in
execution-only commissions for the three months ended September 30, 1999.
11
<PAGE>
Clearing, floor brokerage and exchange charges increased 1.1% to $2.6 million
during the three months ended September 30, 1999 from $2.5 million during the
same period in 1998. These expenses represented 12.9% of commissions earned in
the third quarter 1999 and 12.7% of commissions earned in the third quarter
1998. The increase in these expenses as a percentage of commissions is primarily
due to an increase in the percentage of commissions earned in certain Asian
markets, where such expenses are charged at higher rates than comparable U.S.
equity trades.
Employee compensation increased 1.2% to $5.7 million for the three months ended
September 30, 1999 from $5.6 million for the same period in 1998. This resulted
primarily from an increase in discretionary and performance-based bonus
compensation expense for the three months ended September 30, 1999.
All other expenses decreased 14.9% to $2.5 million in the three months ended
September 30, 1999, as compared to $2.9 million during the same period in 1998.
This resulted primarily from a decrease in consulting and marketing related
expenses and the absence of write-offs for certain fixed assets that the Company
incurred during the third quarter 1998.
Net investment income and other for the third quarter ended September 30, 1999
increased to $0.3 million, as compared to a loss of $0.5 million during the same
period in 1998. This increase was attributed to realized and unrealized losses
of $0.9 million incurred on the Company's investments during the third quarter
of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS SEPTEMBER 30, 1998
The Company's operating income before income taxes for the nine months ended
September 30, 1999 increased 17.4% to $6.4 million, as compared to $5.5 million
during the same period in 1998. The increase in operating income for the nine
months ended September 30, 1999 is primarily attributable to a an increase in
operating income from international brokerage operations to $0.2 million from a
loss of $0.8 million during the same period in 1998. The Company's net income
for the nine months ended September 30, 1999 increased 40.3% to $4.6 million, as
compared to $3.3 million during the same period in 1998.
Operating revenues increased 9.0% to $66.9 million for the nine months ended
September 30, 1999 from $61.3 million during the same period in 1998. This
increase resulted primarily from a 6.2% increase in operating revenues from
domestic brokerage operations and a 22.3% increase in operating revenues from
international brokerage operations. Operating revenues from international
brokerage operations represented 20.8% of the operating revenues during the nine
months ended September 30, 1999, as compared to 18.5% during the same period in
1998. Operating revenues from asset management for the nine months ended
September 30, 1999 increased 4.3% to $6.0 million, as compared to $5.7 million
for the same period in 1998.
Operating revenues from the Company's domestic brokerage operations for the nine
months ended September 30, 1999 increased 6.2% to $47.0 million, as compared to
$44.3 million in 1998 due to increased trading activity. Operating income of the
Company's domestic brokerage operations decreased 3.6% to $7.4 million in the
nine months ended September 30, 1999, as compared to $7.7 million in 1998,
primarily due to an increase in discretionary and performance based compensation
in the nine months ended September 30, 1999.
Operating revenues from international brokerage operations increased 22.3%
to $13.9 million during the nine months ended September 30, 1999, as compared to
$11.3 million during the same period in 1998 as a result of increased commission
revenues earned by the Company's Hong Kong brokerage operations. Operating
income from international brokerage operations increased to $0.2 million during
the nine months ended
12
<PAGE>
September 30, 1999, as compared to an operating loss of $0.8 million during the
same period in 1998.
Operating income of international brokerage operations for the nine months ended
September 30, 1999 includes non-recurring operating expenses of approximately
$0.3 million related to the previously announced restructuring of the Company's
brokerage operations in Tokyo, Japan, which was substantially completed as of
March 31, 1999. The Tokyo office focuses primarily on sales and marketing
activities, and the Company's Hong Kong operations are responsible for the
execution and settlement of transactions in Japanese equities.
Investment management fee revenues increased 4.3% to $6.0 million during the
nine months ended September 30, 1999, as compared to $5.7 million during the
same period in 1998. This increase in investment management fee revenues is due
to an increase in the percentage of assets managed in small capitalization
growth equities assets, which assets are managed at the Company's highest fee
rate. Assets managed in small capitalization growth equities increased 51.6% to
$782.2 million as of September 30, 1999 (20.2% of total assets under management
as of September 30, 1999) from $516.0 million (13.2% of total assets under
management as of September 30, 1998). Operating income of the Company's asset
management operations for the nine months ended September 30, 1999 decreased to
$1.9 million from $2.0 million during the same period in 1998, primarily due to
an increase in compensation expense for the nine months ended September 30,
1999.
Expenses related to independent research and other services provided to the
Company's brokerage clients, including commission refunds, during the nine
months ended September 30, 1999 increased 8.3% to $26.7 million from $24.6
million during the same period in 1998. These expenses were 43.8% of commission
revenues during the nine months ended September 30, 1999, as compared to 44.4%
during the same period in 1998. These expenses increased at a lower rate than
commission revenues in the nine months ended September 30, 1999, primarily due
to an increase in commissions resulting from execution-only brokerage during the
first six months of 1999, as well as the timing of research expenses incurred
relative to the receipt of commission revenues.
Clearing, floor brokerage and exchange charges increased 13.8% to $8.1 million
during the nine months ended September 30, 1999 from $7.1 million during the
same period in 1998. These expenses represented 13.3% of commissions earned
during the nine months ended September 30, 1999 and 12.8% of commissions earned
in the same period in 1998. The increase in these expenses as a percentage of
commissions is primarily due to an increase in the percentage of commissions
earned in certain Asian markets, where such expenses are charged at higher rates
than comparable U.S. equity trades.
Employee compensation increased 7.6% to $17.4 million for the nine months ended
September 30, 1999 from $16.1 million for the same period in 1998. This resulted
primarily from an increase in discretionary and performance-based bonus
compensation expense for the nine months ended September 30, 1999.
All other expenses increased 4.2% to $8.3 million in the nine months ended
September 30, 1999, as compared to $8.0 million during the same period in 1998.
This resulted primarily from an increase in market data, consulting and year
2000-related expenses.
Net investment income and other for the nine months ended September 30, 1999
increased to $1.6 million, as compared to $0.6 million during the same period in
1998. This increase in investment income and other reflects the absence of
realized and unrealized losses of $0.9 million which the Company incurred during
the third quarter of 1998.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash, U.S. Government obligations, net
accounts receivable and other net investments of $55.3 million. All receivables
from correspondent brokers and dealers are fully collectible, and no provision
for uncollectibles is required.
The Company believes that its current capital resources and liquidity, plus
additional funds generated by operations, will be sufficient to meet current and
future operating needs.
During the nine months ended September 30, 1999, the Company repurchased 131,750
shares of its common stock (all in the first quarter) under the 1998 stock
repurchase program at a total cost of $1.1 million. These repurchases have not
had a material effect on the Company's liquidity or capital resources. On
November 4, 1999, the Company announced a new one million share stock repurchase
program, which replaced the 1998 stock repurchase program.
YEAR 2000 READINESS DISCLOSURE
The year 2000 issue ("Y2K Issue") is the result of computer systems and
applications that currently use two digits rather than four to recognize a
particular year. The Y2K Issue affects the Company's information technology
("IT") systems (i.e., computer systems, network elements and software
applications), as well as other business systems that have time-sensitive
programs or microprocessors ("non-IT systems") that may not properly reflect or
recognize the year 2000. The failure to reflect or recognize dates after 1999
could cause the Company's IT and non-IT systems to fail or cause errors which
could lead to disruptions in operations or increased costs. Such failures could,
for example, limit the Company's ability to execute trades, cause settlement of
trades to fail, lead to incomplete or inaccurate accounting, recording or
processing of securities trades, result in the generation of erroneous results
or give rise to uncertainty about the Company's exposure to certain risks. If
not remedied, potential risks include business interruption or shutdown,
financial loss, regulatory actions, reputational harm and legal liability.
The Company's operating subsidiaries are regulated by the Securities and
Exchange Commission ("SEC") and comparable foreign regulators, as well as by
NASD Regulation, Inc. and securities exchanges of which its subsidiaries are
members. The Company's principal operating subsidiary, Hoenig & Co., Inc., is a
U.S. registered broker-dealer and New York Stock Exchange member. As such,
Hoenig & Co. has submitted a written certification to the NYSE confirming the
achievement of certain milestones by June 30, 1999. As a member of The Stock
Exchange of Hong Kong, Hoenig (Far East) Limited was required to meet similar
milestones by March 31, 1999 and has filed periodic status reports regarding its
Y2K preparedness.
Hoenig & Co. also has filed with the SEC a Form BD-Y2K, which details its
progress with respect to the Y2K Issue, and a copy of its accounting firm's
report with respect to AICPA Statement of Position 98-8 regarding Y2K readiness.
The Company's U.S. registered investment adviser, Axe-Houghton Associates, has
filed a Form ADV-Y2K with the SEC, detailing its Y2K efforts and state of
preparedness.
The Company developed a five-phase program for addressing the Y2K Issue, which
consists of the following:
o Phase I is defining the Y2K Issue and what constitutes Y2K
compliance and educating Company personnel about the Y2K
Issue.
o Phase II is identifying those systems which may be affected by
the Y2K Issue.
o Phase III is developing action plans to address the Y2K Issue
for identified systems.
14
<PAGE>
o Phase IV is the testing of the action plans intended to
resolve the Y2K Issue.
o Phase V is the implementation of the action plans.
As of July 31, 1999, the Company completed Phases I through V of its Plan with
respect to existing internal IT and non-IT systems in its U.S. operations. It
has completed Phases I through IV and has completed 95% of Phase V with respect
to existing internal IT and non-IT systems in its international operations.
Based on current information, the Company expects to complete Phase V of its
Plan with respect to internal systems in its international operations by
November 30, 1999.
The Company has successfully tested for Y2K compliance its mission critical
systems in the United States and its international operations (Phase IV). Such
testing includes internal testing, industry-wide testing, point-to-point testing
with third parties and integration testing. Hoenig (Far East) Limited was the
Company's only brokerage subsidiary that was required to participate in
industry-wide testing. Hoenig (Far East) Limited achieved successful results in
the industry-wide tests conducted by The Stock Exchange of Hong Kong in March
1999.
The Company has developed and continues to refine contingency plans for its
mission critical IT and non-IT systems to timely address any potential Y2K
problems. These plans define alternate services or products to be used (e.g.,
market data systems) or alternate processes to be followed in the event that a
mission critical system fails. The failure to develop and implement adequate
contingency plans could have a material adverse effect on the Company's
financial condition, results of operations and cash flows.
Notwithstanding the Company's efforts to make contingency plans, there may not
be readily available alternatives for the services provided by the Company's
clearing brokers, securities exchanges and utilities. Even if the Company
succeeds in addressing the Y2K Issue with respect to its internal systems, it
can be materially adversely affected by the failures of third parties to
remediate their own Y2K problems. These third parties include trading
counter-parties, financial intermediaries, securities exchanges, depositories,
clearing brokers and agencies, clearing houses, commercial banks and various
vendors, including providers of market data and pricing services,
telecommunication services and other utilities. In particular, in some
international markets where the Company conducts business, the level of
awareness and remediation efforts relating to the Y2K Issue are believed to be
less advanced than in the United States, and it is more difficult to obtain
information from third parties about their Y2K readiness. As is true for other
companies, the Company is vulnerable to Y2K failures beyond its control,
particularly with respect to utility and transportation service providers.
The Company has hired consultants on an as-needed basis to assist Company
personnel in effecting the Company's Y2K program. In order to focus attention on
the Y2K Issue, management has deferred certain other technology projects, but
this deferral is not expected to have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
Based on current information, the Company believes that it will spend a total of
approximately $800,000 TO $950,000 to complete the five-phase Y2K program and
address the Y2K Issue, which includes the costs of software replacements and
corrections, additional hardware and hardware upgrades, internal allocations for
employee time, consulting fees and additional personnel needed to implement
contingency plans. The increase in anticipated Y2K costs reflects increased
consulting expenses incurred by the company during the third quarter 1999. The
Company does not expect these costs to be material to its financial condition,
results of operations or cash flows in a given period. The Company has funded,
and will continue to fund, Y2K costs through operating cash flows. Y2K costs are
expensed as they are incurred. The total amount of Y2K expenses incurred through
October 31, 1999 was $732,990.
15
<PAGE>
The costs of addressing the Y2K Issue and anticipated dates for completing the
Company's Y2K program are based on management's best estimates, which were
derived using numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, the ability of third
parties to address the Y2K Issue, the availability of cost-effective
alternatives or replacements for third-party products and services which are not
Y2K compliant and similar uncertainties.
IMPACT OF INFLATION
The Company's business is not capital intensive, and management believes that
the financial results as reported would not have been significantly affected had
such results been adjusted to reflect the effects of inflation and price
changes. However, inflation affects the cost of operations, particularly
salaries and related benefits.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All of the Company's investments are subject to certain market risks. Market
risk represents the risk of loss that may result from a potential change in the
market value, cash flows and earnings of an investment and related derivatives
as a result of fluctuations in interest rates, foreign exchange rates and equity
prices. Market risk is inherent in investments that contain derivative and
non-derivative financial instruments. The Company has established procedures to
manage its exposure to market fluctuations and changes in the market value of
its investments.
The Company is exposed to foreign currency risk arising from exchange rate
fluctuations on its foreign denominated bank accounts, which are used in its
international brokerage operations. The Company's primary exposure is in
Japanese Yen, U.K. Pounds Sterling and Hong Kong dollars. The Company mitigates
its foreign exchange exposure by maintaining foreign currency balances only to
the extent necessary to meet the operational needs of its international
subsidiaries.
For information regarding the Company's exposure to certain market risks, see
Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Significant changes which have occurred since December 31, 1998 are as follows:
During the first six months of 1999, the Company reduced its investments in
unaffiliated limited partnerships (valued at $4.6 million at December 31, 1998)
by approximately $3.6 million by withdrawing its $1.7 million investment from
one of the partnerships and reducing its investment in the other to
approximately $1.1 million. Further information regarding these investments is
hereby incorporated by reference to Note 3 of the Notes to Unaudited
Consolidated Financial Statements contained in this report. The Company's
investment in a bank-sponsored deposit account matured in March 1999 (valued at
$1.0 million at December 31, 1998), and the Company did not renew the
investment. During the third quarter of 1999, the Company reduced its investment
in the diversified
16
<PAGE>
portfolio of preferred stock and U.S. Treasury futures by $4.0 million to
approximately $4.5 million. The funds previously invested in the limited
partnerships, deposit account and diversified portfolio of preferred stock and
U.S. Treasury futures have been invested in U.S. Treasury securities and money
market funds.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in the arbitration instituted by
Lawrence W. Gallo, a former employee of Hoenig & Co., Inc., before the NASD
Regulation Inc. against Hoenig & Co. and Fredric P. Sapirstein, Hoenig & Co.'s
Chairman and Chief Executive Officer. Additional information regarding this
arbitration is hereby incorporated by reference to Note 7 of the Notes to
Unaudited Consolidated Financial Statements contained in this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during the
quarter ended September 30, 1999.
18
<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: November 10, 1999 By: /s/ Fredric P. Sapirstein
--------------------------------
Fredric P. Sapirstein,
Chairman and
Chief Executive Officer
Date: November 10, 1999 By: /s/ Alan B. Herzog
--------------------------------
Alan B. Herzog,
Chief Operating Officer and
Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HOENIG
GROUP INC. SEPTEMBER 30, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,400,980
<RECEIVABLES> 24,846,152
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 23,018,589
<PP&E> 1,740,560
<TOTAL-ASSETS> 79,210,423
<SHORT-TERM> 17,958
<PAYABLES> 15,943,777
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 108,840
<OTHER-SE> 44,165,155
<TOTAL-LIABILITY-AND-EQUITY> 79,210,423
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 1,485,235
<COMMISSIONS> 60,880,396
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 5,975,677
<INTEREST-EXPENSE> 0
<COMPENSATION> 17,355,000
<INCOME-PRETAX> 8,040,987
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,622,302
<EPS-BASIC> .54
<EPS-DILUTED> .49
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