===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-QSB
-----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------
Commission file number 0-26202
EASTBROKERS INTERNATIONAL INCORPORATED
(Exact name of small business issuer as specified in its charter)
-----------------------
DELAWARE 52-1807562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15245 SHADY GROVE ROAD, SUITE 340, ROCKVILLE, MARYLAND 20850 (Address
of principal executive offices) (Zip Code)
(301) 527-1110
(Registrant's telephone number, including area code)
-----------------------
Check whether the issuer (1) 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 [ ]
Transitional Small Business Disclosure Format: Yes [ ] No [x]
The total number of shares of the registrant's Common Stock, $.05 par value,
outstanding on February 20, 1998, was 4,290,000.
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<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
<TABLE>
<CAPTION>
Page
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition ..................... 2
Consolidated Statements of Operations
Quarterly Period and Nine Months Ended December 31, 1997 ......... 3
Consolidated Statements of Cash Flows .............................. 4
Notes to Consolidated Financial Statements ......................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation ..... 12
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.......................................... 17
Item 4. Submission of Matters to a Vote of Security Holders............ 17
Item 6. Exhibits and Reports on Form 8-K .............................. 18
Signature ............................................................. 19
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,248,411 $ 2,626,579
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations 744,310 1,098,073
Securities purchased under agreements to resell 2,126,603 1,936,835
Securities borrowed 904,015
Receivables
Customers 6,492,493 100,054
Broker dealers and other 446,539 732,517
Affiliated companies 3,478,483 5,370,008
Other 3,250,809 9,439,123
Securities owned, at value
Equities and other 11,697,280 9,083,169
Buildings, furniture and equipment, at cost (net of
accumulated depreciation and amortization of
$682,224 and $1,238,397, respectively) 2,591,836 766,218
Deferred taxes 2,645,623 2,827,446
Investments held for resale 6,622,333 323,147
Investments in affiliated companies 587,145 1,315,840
Goodwill 2,128,641 2,299,802
Net assets of discontinued operations - -
Other assets and deferred amounts 745,226 1,601,907
---------------- ----------------
Total Assets $ 51,805,732 $ 40,424,733
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings
Lines of credit $ 4,922,396 $ 1,341,999
Affiliated companies 2,048,613 1,060,975
Payables
Customers 9,547,745 1,416,999
Broker dealers and other 745,940 6,195,616
Accounts payable and accrued expenses 1,197,795 548,524
Other liabilities and deferred amounts 2,273,837 929,745
---------------- ----------------
20,736,326 11,493,858
Long-term borrowings 3,492,628 3,339,218
---------------- ----------------
Total liabilities 24,228,954 14,833,076
---------------- ----------------
Minority interest in consolidated subsidiaries 9,569,273 9,396,018
---------------- ----------------
Stockholders' equity
Common stock; $.05 par value; 10,000,000 shares
authorized; 2,871,000 and 3,063,000 shares issued and
outstanding at December 31, 1996 and 1997, respectively 143,550 153,150
Paid-in capital 19,089,233 20,183,308
Retained earnings (accumulated deficit) (1,402,174) (1,716,136)
Note receivable - common stock - (300,000)
Unrealized gain/loss on available for sale investments 435,177 -
Cumulative translation adjustment (258,281) (2,124,683)
---------------- ----------------
Total stockholders' equity 18,007,505 16,195,639
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 51,805,732 $ 40,424,733
================ ================
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE QUARTERLY PERIOD FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------------------------ ------------------------------------
1996 1997 1996 1997
---------------- ---------------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 309,371 $ 631,131 $ 309,371 $ 1,615,510
Fees 258,523 45,685 258,523 380,951
Interest and dividends 240,139 166,479 360,176 394,675
Principal transactions, net
Trading 619,702 371,766 619,702 2,042,612
Investment 227,034 (259,555) 456,608 380,717
Other (64,140) 397,876 (64,140) 779,410
Equity in earnings of unconsolidated affiliates (187,969) 21,441 (187,969) (117,832)
---------------- ---------------- ---------------- ----------------
Total revenues 1,402,660 1,374,823 1,752,271 5,476,043
---------------- ---------------- ---------------- ----------------
Costs and expenses
Compensation and benefits 349,387 467,355 581,087 1,803,672
Interest 199,277 35,724 332,702 173,560
Brokerage, clearing, exchange fees and other 294,285 57,648 294,285 575,661
Occupancy 154,624 209,067 247,624 621,601
Office supplies and expenses 87,770 151,000 125,818 364,378
Communications 87,687 92,726 87,687 340,290
Advertising 80,661 37,084 80,661 131,815
Legal fees 83,472 46,323 83,472 122,441
Consulting fees 79,288 192,782 79,288 1,020,189
Travel 79,723 125,656 139,160 400,454
Education 17,624 3,839 17,624 26,138
Automotive 35,148 65,044 35,148 114,907
General and administrative 101,437 48,844 121,851 867,548
Depreciation and amortization 325,826 171,939 330,313 375,099
Loss on foreign currency transactions (49,850) - (11,406) 67,549
---------------- ---------------- ---------------- ----------------
Total costs and expenses 1,926,359 1,705,031 2,545,314 7,005,302
---------------- ---------------- ---------------- ----------------
Income (loss) from continuing operations
before provision for income taxes and
minority interest in earnings of subsidiaries (523,699) (330,208) (793,043) (1,529,259)
Provision for income taxes 101,920 120,533 101,920 93,614
Minority interest in earnings of subsidiaries 221,351 108,415 221,351 237,138
---------------- ---------------- ---------------- ----------------
Income (loss) from continuing operations (200,428) (101,260) (469,772) (1,198,507)
Income from discontinued operations - - 41,899 -
Loss on sale of discontinued operations - - (1,323,083) -
---------------- ---------------- ---------------- ----------------
Net income (loss) $ (200,428) $ (101,260) $ (1,750,956) $ (1,198,507)
================ ================ ================ ================
Weighted average number of shares outstanding
Basic 2,871,000 3,063,000 2,871,000 3,063,000
================ ================ ================ ================
Diluted 2,871,000 3,083,081 2,871,000 3,083,081
================ ================ ================ ================
Income (loss) from continuing operations per share
Basic $ (0.07) $ (0.03) $ (0.16) $ (0.39)
================ ================ ================ ================
Diluted $ (0.07) $ (0.03) $ (0.16) $ (0.39)
================ ================ ================ ================
Net income (loss) per share
Basic $ (0.07) $ (0.03) $ (0.61) $ (0.39)
================ ================ ================ ================
Diluted $ (0.07) $ (0.03) $ (0.61) $ (0.39)
================ ================ ================ ================
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED DECEMBER 31,
------------------------------------
1996 1997
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (1,750,956) $ (1,198,507)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Minority interest in earnings of subsidiaries 403,577 (237,138)
Depreciation and amortization 580,289 528,751
Deferred taxes 82,565 (49,423)
Loss on sale of discontinued operations 1,323,083 -
Equity in earnings (loss) of unconsolidated affiliates 117,832 117,832
Changes in operating assets and liabilities
Cash and securities segregated for regulatory purposes
or deposited with regulatory agencies (17,391) (29,425)
Securities purchased under agreements to resell 4,331,950 (1,527,970)
Receivables
Customers (2,118,931) 5,877,718
Brokers, dealers and others 379,459 (1,001,262)
Affiliated companies (3,425,052) (2,005,968)
Other 3,841,458 (4,073,651)
Securities owned, at value (2,455,571) 676,602
Other assets 430,126 (323,700)
Payables
Customers (968,895) 365,189
Brokers, dealers and others (475,589) 5,151,384
Accounts payable and accrued expenses (360,383) (2,957,979)
----------------- -----------------
Net cash provided by (used in) operating activities (82,429) (687,547)
----------------- -----------------
Cash flows from investing activities
Net proceeds from (payments for)
Acquisition of Eastbrokers Beteiligungs AG, net of cash acquired (1,105,667) -
Investments in affiliates (1,353,530) (896,688)
Investments held for resale (134,829) 2,054,907
Purchases of furniture and equipment (236,081) (280,855)
----------------- -----------------
Net cash provided by (used in) investing activities (2,830,107) 877,364
----------------- -----------------
Cash flows from financing activities
Net proceeds from (payments for)
Net proceeds from private placement - 725,000
Capital contributions by minority interests 1,224,000 -
Short-term financings (740,001) (1,795,888)
Short-term borrowings from affiliated companies 1,779,326 (823,113)
Other long-term debt (224,844) (1,573,853)
----------------- -----------------
Net cash provided by (used in) financing activities 2,038,481 (3,467,854)
----------------- -----------------
Foreign currency translation adjustment 1,059,172 (1,351,177)
----------------- -----------------
Increase (decrease) in cash and cash equivalents 185,117 (4,629,214)
Cash and cash equivalents, beginning of period 8,063,294 7,255,793
----------------- -----------------
Cash and cash equivalents, end of period $ 8,248,411 $ 2,626,579
================= =================
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED DECEMBER 31,
------------------------------------
1996 1997
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Supplemental disclosure of cash flow information
Cash paid for income taxes $ - $ -
----------------- -----------------
Cash paid for interest $ 332,702 $ 173,560
----------------- -----------------
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
1. INTERIM REPORTING
The financial statements of Eastbrokers International Incorporated (the
"Company") for the nine months ended December 31, 1997 have been prepared
by the Company, are unaudited, and are subject to year-end adjustments.
These unaudited financial statements reflect all known adjustments (which
included only normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented in
accordance with generally accepted accounting principles. The results
presented herein for the interim periods are not necessarily indicative of
the actual results to be expected for the fiscal year.
The notes accompanying the consolidated financial statements in the
Company's Annual Report on Form 10-KSB for the year ended March 31, 1997
and amendments thereto include accounting policies and additional
information pertinent to an understanding of these interim financial
statements.
For the nine months ended December 31, 1996, the accompanying consolidated
financial statements include the financial position, results of operations
and cash flows of the Company, the financial position of Eastbrokers
Beteiligungs Aktiengesellschaft ("Eastbrokers AG") as of August 1, 1996
(the date of acquisition), and the discontinued operations of its
subsidiary, Hotel Fortuna a.s., for the nine months ended September 30,
1996.
For the nine months ended December 31, 1997, the accompanying consolidated
financial statements include the financial position, results of operations
and cash flows of the Company for the nine months ended December 31, 1997.
The financial position of its subsidiary, Eastbrokers AG is as of September
30, 1997. The results of operations and cash flows of Eastbrokers AG are
for the nine months ended September 30, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include Eastbrokers International
Incorporated (formerly Czech Industries, Inc.) and its U.S. and
international subsidiaries (collectively, "Eastbrokers" or the "Company").
The shareholders of the Company approved the name change on December 10,
1996 at its Annual Meeting of Shareholders.
These consolidated financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial position and the results of the operations of the
Company. All significant intercompany balances and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Management believes that the estimates
utilized in the preparation of the consolidated financial statements are
prudent and reasonable. Actual results could differ from these estimates.
The Company, through its subsidiaries, provides a wide range of financial
services primarily in the United States, Central Europe, and Eastern
Europe. Its businesses include securities underwriting, distribution and
trading; merger, acquisition, restructuring, and other corporate finance
advisory activities; asset management; merchant banking and other principal
investment activities; brokerage and research services; and securities
clearance services. These services are provided to a diversified group of
clients and customers, including corporations, governments, financial
institutions, and individuals. Substantially all of the Company's revenues
and expenses are generated through its European subsidiaries and
affiliates.
- 6 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHANGE IN FISCAL YEAR-END
On February 10, 1996, the Board of Directors unanimously approved a change
in the Company's fiscal year-end from December 31 to March 31. This change
became effective for the fiscal period ended March 31, 1996.
The fiscal year-end of the Company's domestic subsidiary was also changed
to March 31.
FISCAL YEAR-END OF THE COMPANY'S EUROPEAN SUBSIDIARIES
The fiscal year-end of the Company's European Subsidiaries is December 31.
These subsidiaries are included on the basis of closing dates that precede
the Company's closing date by three months.
FINANCIAL INSTRUMENTS
Substantially all of the Company's financial assets and liabilities and the
Company's trading positions, as well as financial instruments with
off-balance sheet risk, are carried at market or fair values or are carried
at amounts which approximate fair value because of their short-term nature.
Estimates of fair value are made at a specific point in time, based on
relevant market information and information about the financial instrument,
specifically, the value of the underlying financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. The Company has no investments in derivatives.
Equity securities purchased in connection with merchant banking and other
principal investment activities are initially carried as their original
costs. The carrying value of such equity securities is adjusted when
changes in the underlying fair values are readily ascertainable, generally
as evidenced by listed market prices or transactions which directly affect
the value of such equity securities. Downward adjustments relating to such
equity securities are made in the event that the Company determines that
the eventual realizable value is less than the carrying value.
Securities classified as available for sale are carried at fair value with
unrealized gains and losses reported as a separate component of
stockholders' equity. Realized gains and losses on these securities are
determined on a specific identification basis and are included in earnings.
COLLATERALIZED SECURITIES TRANSACTIONS
Accounts receivable from and payable to customers include amounts due on
cash transactions. Securities owned by customers are held as collateral for
these receivables. Such collateral is not reflected in the consolidated
financial statements.
Securities sold under agreements to resell are treated as financing
arrangements and are carried at contract amounts reflecting the amounts at
which the securities will be subsequently resold as specified in the
respective agreements. The Company takes possession of the underlying
securities purchased under agreements to resell and obtains additional
collateral when the market value falls below the contract value.
The maximum term of these agreements is generally less than ninety-one
days.
OTHER RECEIVABLES
From time to time, the Company provides operating advances to select
companies as a portion of its merchant banking activities.
- 7 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNDERWRITINGS
Underwritings include gains, losses, and fees, net of syndicate expenses
arising from securities offerings in which the Company acts as an
underwriter or agent. Underwriting fees are recorded at the time the
underwriting is completed and the income is reasonably determinable.
FEES
Fees are earned from providing merger and acquisition, financial
restructuring advisory, and general management advisory services. Fees are
recorded based on the type of engagement and terms of the contract entered
into by the Company.
SECURITIES TRANSACTIONS
Government and agency securities and certain other debt obligations
transactions are recorded on a trade date basis. All other securities
transactions are recorded on a settlement date basis and adjustments are
made to a trade date basis, if significant.
COMMISSIONS
Commissions and related clearing expenses are recorded on a trade-date
basis as securities transactions occur.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of operations having non-U.S. dollar functional
currencies are translated at year-end rates of exchange, and the income
statements are translated at weighted average rates of exchange for the
year. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 52, "Foreign Currency Translation," gains or losses resulting
from translating foreign currency financial statements, net of hedge gains
or losses and their related tax effects, are reflected in cumulative
translation adjustments, a separate component of stockholders' equity.
Gains or losses resulting from foreign currency transactions are included
in net income.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.128 (SFAS 128), "Earnings Per Share",
effective for periods ending after December 15, 1997. This Statement
establishes standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock or potential common
stock. This Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, "Earnings Per Share", and
makes them comparable to international EPS standards. The Company has
adopted the provisions of SFAS 128, as required, during the third quarter
of its fiscal year ending March 31, 1998. SFAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires a dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the diluted
EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Diluted
EPS is computed using the weighted-average number of common shares and
potential dilutive common shares outstanding during the period. All
earnings per share
- 8 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE (CONTINUED)
amounts for all periods have been presented, and where necessary, restated
to conform to SFAS 128 requirements.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated financial statements, the Company
considers all demand deposits held in banks and certain highly liquid
investments with maturities of 90 days or less other than those held for
sale in the ordinary course of business to be cash equivalents.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are amortized on a straight-line basis
over periods from five to 25 years and are periodically evaluated for
impairment.
RECLASSIFICATIONS
Certain amounts in prior periods have been reclassified to conform to the
current presentation.
3. ACQUISITION OF EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
Eastbrokers Beteiligungs Aktiengesellschaft ("Eastbrokers AG") is an
Austrian based holding company that has established a presence in 12
Central and Eastern European countries through its network of subsidiaries
and affiliate offices. On August, 1, 1996, the Company acquired 80 percent
of the outstanding stock of Eastbrokers AG through the issuance of
1,080,000 shares of the Company's common stock valued at $5,400,000. At the
time of the acquisition, the Company's stock was trading at approximately
$7.50 per share. A discount to the per share price was recognized in
consideration of the size of the block of shares with respect to the number
of outstanding shares and because the stock issued was restricted stock. As
a participant in Eastbrokers Vienna's capital increase, the Company later
acquired an additional 245,320 of an available 270,000 shares for cash
increasing its ownership percentage to 83.62 percent. In two separate
transactions in November and December 1996, the Company purchased 67,756
additional shares, increasing its ownership percentage to approximately 92
percent.
The fair value of the net assets acquired under these transactions
approximated $8,300,000. The acquisition has been accounted for under the
purchase method of accounting. The excess of the purchase price over the
fair value of the net assets acquired resulted in the Company recording
approximately $1,900,000 in goodwill, which is being amortized over 25
years on a straight-line basis. The significant equity investment of the
Company, WMP, was written up to book value, which approximated estimated
market value at the date of acquisition. The amount of this net write-up
was approximately $607,000 USD. The purchase agreement contains certain
provisions whereby the selling shareholders may be eligible to receive an
additional 120,000 shares of the Company's common stock in the event
certain earnings targets are achieved.
4. INVESTMENTS IN AFFILIATED COMPANIES
INVESTMENT IN WMP BORSENMAKLER AKTIENGESELLSCHAFT
Through its subsidiary, Eastbrokers Vienna, acquired an additional 2
percent of the outstanding shares during its most recent quarter and now
owns a 51 percent interest in the outstanding capital stock of WMP
- 9 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
4. INVESTMENTS IN AFFILIATED COMPANIES
INVESTMENT IN WMP BORSENMAKLER AKTIENGESELLSCHAFT (CONTINUED)
Borsenmakler Aktiengesellschaft ("WMP"). The financial statements have been
restated to reflect the consolidation of WMP. WMP is a stock broker-dealer
and market maker in Vienna, Austria and is licensed as a Class B bank under
Austrian law. A Class B bank may, at its discretion, conduct any of the
normal activities associated with a bank with one major exception: it
cannot accept customer deposits.
INVESTMENTS IN OTHER UNCONSOLIDATED AFFILIATES
The Company also has other investments in unconsolidated affiliates through
Eastbrokers Vienna. These affiliates are accounted for using the equity
method of accounting. These investments are predominantly start-up
operations. As of September 30, 1997, these unconsolidated affiliate
investments included the following offices: Zagreb, Croatia; Ljubljana,
Slovenia; Almaty, Kazakstan; Moscow, Russia; Sofia, Bulgaria; Slovakia
Industries; and NIF TRUD Investment Fund. For the period ended September
30, 1997, the Company's proportionate share of the losses related to these
operations totaled approximately $118,000 USD.
RECEIVABLES FROM AFFILIATED COMPANIES
Periodically, the Company provides operating advances to its unconsolidated
affiliates. These advances are generally due on demand and are not subject
to interest charges.
5. FINANCIAL INSTRUMENTS
Financial instruments owned consist of the Company's proprietary trading
and investment accounts, securities purchased under agreements to resell,
and investments held for resale. The Company's financial instruments, at
fair value, are as follows:
September 30,
1997
---------------
Securities purchased under agreements to resell
Sovereign government debt - Hungary $ 769,505
Corporate equities - Hungary 1,167,330
-------------
$ 1,936,835
=============
Securities owned at value
Corporate equities - Austria $ 7,536,895
Corporate equities - Czech Republic 428,113
Corporate equities - Slovak Republic 676,376
Corporate equities - Poland 441,785
-------------
$ 9,083,125
=============
Available for sale securities
Corporate equities - Austria $ 192,542
Corporate equities - Czech Republic 130,605
-------------
$ 323,147
=============
- 10 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
6. SHORT-TERM BORROWINGS
The Company meets its short-term financing needs through lines of credit
with financial institutions, advances from affiliates, and by entering into
repurchase agreements whereby securities are sold with a commitment to
repurchase at a future date.
LINES OF CREDIT
These lines of credit carry interest rates between 7.00 percent and 12.00
percent as computed on an annual basis.
ADVANCES FROM AFFILIATED COMPANIES
Periodically, the Company's subsidiaries and affiliates will provide
operating advances to other members in the affiliated group. These advances
are generally due on demand and are not subject to interest charges.
7. DISCONTINUED OPERATIONS
In October 1996, the Company agreed to sell its interest in the Hotel
Fortuna, a.s. ("Fortuna") for 100,000 shares of Ceske energeticke zavody
a.s. ("CEZ") and 86,570 shares of Vodni stavby Praha a.s. based on the then
current market prices for each stock. In November 1996, the sales
transaction was completed. As of the sale date, the Company revised its
estimate of the net realizable value of the shares received based on the
then current market prices for each stock. As a result, the Company
recognized a loss on the sale of discontinued operations of ($1,323,083).
Income from discontinued operations was $41,899 through the sale date. The
minority interest in consolidated subsidiaries has been significantly
reduced due to the elimination of the minority interest attributable to the
Company's investment in the Hotel Fortuna a.s.
- 11 -
<PAGE>
PART I -- FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in this Item contains forward looking statements.
Readers are cautioned not to place undue reliance on this information which
speaks only as of the date hereof. The matters referred to in such statements
could be effected by the risks and uncertainties involved in the Company's
business, including (without limitation) the effect of political, economic and
market conditions both domestically and in Eastern and Central Europe and the
matters discussed in Item 1 of the Company's Report on Form 10-KSB for the year
ended March 31, 1997 entitled "Description of Business - Risk Factors". Further,
the Company undertakes no obligation to release publicly any revisions to these
forward looking statements to reflect events occurring after the date hereof or
to reflect unanticipated events or developments.
This Form 10-QSB for the quarterly period ended December 31, 1997, makes
reference to the Company's Annual Report and amendments thereto on Form 10-KSB
dated June 30, 1997 ("Report"). The Report includes information necessary or
useful to an understanding of the Company's businesses and financial statement
presentations. The Company will furnish a copy of this Report upon request made
directly to the Company's headquarters at 15245 Shady Grove Road, Suite 340,
Rockville, Maryland 20850, telephone number (301) 527-1110 and facsimile number
(301) 527-1112.
The Company's principal activities changed dramatically during the 1997
fiscal year. During the fiscal year ending March 31, 1997, the Company
completely disposed of its interest in the Hotel Fortuna, a.s. and acquired
Eastbrokers Beteiligungs Aktiengesellschaft ("Eastbrokers AG"), an Austrian
based securities broker-dealer providing financial services in Central and
Eastern Europe through its network of subsidiaries and affiliate offices.
The earnings of the Company are subject to wide fluctuations since many
factors over which the Company has little or no control, particularly the
overall volume of trading and the volatility and general level of market prices,
may significantly affect its operations.
Plan of Operation
On August 1, 1996, the Company consummated its acquisition of Eastbrokers
AG reflecting its previously stated objective of seeking to invest into, merge
with or acquire one or more companies in growth oriented industries. Although
the Company's focus had been primarily in the Czech Republic, its original
mission was to pursue such investment opportunities throughout Eastern and
Central Europe. Eastbrokers AG is a holding company providing financial services
in Eastern and Central Europe through its network of subsidiaries. The
acquisition of Eastbrokers AG is intended to not only provide an earnings stream
from its core brokerage business, but also positions the Company to provide
investment banking and corporate finance services in an emerging market
infrastructure and growth industries.
The Company's business strategy is to (1) utilize its marketing and Central
and Eastern Europe emerging market expertise to take advantage of opportunities
for growth in this sector of the global securities market; (2) develop the base
of its asset management business through concentrating on Central and Eastern
European debt and equity securities; (3) enhance and develop the Company's
merchant banking activities; (4) identify potential corporate finance candidates
for investment banking opportunities; (5) utilize its expertise in the
privatization activities still available in Central and Eastern Europe; and (6)
through its U.S. subsidiary, Eastbrokers North America, build a distribution
network for financial products developed by the Central and Eastern European
operations. Management also believes there are significant opportunities
available in this region for specialized account and institutional sales.
The Company believes that investment in the emerging markets of Central and
Eastern Europe will continue to grow rapidly in the coming years. Currently,
Hungary, Kazakhstan, Poland, and Romania are enjoying enhanced interest on the
part of foreign investors. The Company has successfully marketed its NIF Trud
Privatization Fund of Bulgaria. NIF Trud has approximately 100,000 shareholders
and owns interests in 73 Bulgarian companies. The Company currently is the
exclusive management company for NIF Trud. The Company intends to provide
ongoing management services to NIF Trud and investment banking services to
certain of the companies in its portfolio.
- 12 -
<PAGE>
While investing in the emerging markets of Central and Eastern Europe
involves risk considerations not typically associated with investing in
securities of U.S. issuers, the Company believes that such considerations are
outweighed by the benefits of diversification and potentially superior returns.
Among the considerations involved in investing in emerging markets such as
Central and Eastern Europe is that less information may be available about
foreign companies than about domestic companies. Foreign companies are also not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. In addition, unlike investing in U.S.
companies, securities of non-U.S. companies are generally denominated in foreign
currencies, thereby subjecting each security to changes in value when the
underlying foreign currency strengthens or weakens against the U.S. dollar.
Currency exchange rates can also be affected unpredictably by intervention of
U.S. or foreign governments or central banks or by currency controls or
political developments in the U.S. and abroad.
The value of international fixed income products also responds to interest
rate changes in the U.S. and abroad. In general, the value of such products will
rise when interest rates fall, and fall when interest rates rise. However,
interest rates in each foreign country and the U.S. may change independently of
each other.
Debt and equity securities in emerging markets such as Central and Eastern
Europe may also not be as liquid as U.S. securities and their markets.
Securities of some foreign companies may involve greater risk than securities of
U.S companies. Investing in Central and Eastern European securities may further
result in higher expenses than investing in domestic securities because of costs
associated with converting foreign currencies to U.S. dollars and expenses
related to foreign custody procedures. Investment in Central and Eastern
European securities may also be subject to local economic or political risks,
including instability of some foreign governments, inadequate market controls,
the possibility of currency blockage or the imposition of withholding taxes on
dividend or interest payments and the potential for expropriation,
re-nationalization or confiscatory taxation and limitations on the use or
repatriation of funds or other assets.
The Company is also in the process of building its research department to
include reviewing the general market conditions, specific industries, and
individual companies and providing timely, cost effective information with
respect thereto in monthly newsletters, which will discuss Central and Eastern
European economic and currency trends and give readers specific investment
recommendations and ideas. The potential fee for this service, if any, has not
yet been determined.
Management also continued its preparations to offer certain services and
products to firms and individuals associated with the U.S. capital markets.
The Company intends to have its North American offices fully operational
prior to the end of its fiscal year ending March 31, 1998. After an extended
regulatory review of seven months by the NASD, Eastbrokers North America, Inc.
("Eastbrokers NA") finally obtained regulatory approval on November 4, 1997.
Accordingly, Eastbrokers NA may now commence operations and begin accepting
customer accounts. It may also actively pursue and solicit qualified
institutional clients. This subsidiary will act as an introducing broker in that
it does not clear its own securities transactions, but instead, it intends to
contract to have such transactions cleared through clearing broker on a fully
disclosed basis. In a fully disclosed clearing transaction, the identity of the
Company's client is known to the clearing broker. Generally, a clearing broker
physically maintains the client's account and performs a variety of services as
agent for the Company, including clearing all securities transactions (delivery
of securities sold, receipt of securities purchased and transfer of related
funds). The Company intends to utilize the services of the Bear Stearns
Companies, Inc. ("Bear Stearns") and Herzog Heine Geduld, Inc. ("Herzog") as its
fully disclosed clearing brokers. Bear Stearns and Herzog are recognized as
leading firms in clearing transactions.
Eastbrokers NA intends to develop a U.S. client base whereby various
emerging market corporate securities and other proprietary corporate finance
products originating from the Company's offices in Central and Eastern Europe
will be distributed in the U.S. Eastbrokers NA also intends to offer a U.S.
Treasury Trading Program. This program is designed to be an "intraday" trading
vehicle (i.e., no overnight positions will be held in this program) providing
customers with next day access to their funds.
- 13 -
<PAGE>
The Company is currently in the process of developing a Level One ADR
program ("ADR program") for several of its Central and Eastern European
corporate clients. Under the ADR program, the shares of these corporate clients
would be utilized to create an ADR which would be listed on the U.S.
over-the-counter market.
In preparation for the opening of the Bulgarian stock exchange in late
1997/early 1998, the Company has concentrated a significant portion of its
assets in companies related to its Bulgarian operations. However, there is no
guarantee that these operations will be successful.
Due to the continued expansion of its operations in Central and Eastern
Europe, the Company has determined that it will make a change in its auditors to
a firm with more expertise and experience in the international marketplace. The
Board of Directors has appointed Deloitte & Touche as independent public
accountants of the Company for the fiscal year ending March 31, 1998. This
appointment was submitted to a vote of the stockholders of the Company and
ratified at the Company's Annual Meeting on December 17, 1997.
On October 31, 1997, the Company announced its intent to open a full
service brokerage operation in the Ukraine, subject to obtaining the required
regulatory approvals. International money managers anticipate that the Ukraine
should continue to be one of the most important economies of the former Soviet
Union, second only to Russia. As such, they have already committed several
billion dollars for investment into the Ukraine.
RESULTS OF OPERATIONS. SEE Note 1 of the Notes to Consolidated Financial
Statements for the Nine Months Ended December 31, 1997, for an explanation of
the basis of presentation of the financial statements. For the quarterly period
ended December 31, 1997, the Company generated consolidated revenues in the
amount of $1,374,823, compared to $1,402,660 for the quarterly period ended
December 31, 1996. For the quarterly period ended September 30, 1997, separate
quarterly information for Eastbrokers AG is not available. Quarterly information
is not available for Eastbrokers AG for quarterly period ended September 30,
1996. Total revenues are significantly below management's original expectations
due to the unexpected and continuing downturn of the market in the Czech
Republic. The significant change from the prior year's total revenues for the
Company is a combination of the effects of the disposition of the Hotel Fortuna
a.s. and the acquisition of Eastbrokers AG on August 1, 1996. Quarterly
information is generally not available for Eastbrokers AG for periods prior to
the acquisition as there is no statutory reporting requirements other than
year-end.
The Company incurred total consolidated costs and expenses of $1,705,031
for the quarterly period ended December 31, 1997, compared to $1,926,359 for the
quarterly period ended December 31, 1996. For the quarterly period ended
September 30, 1997, separate quarterly information for Eastbrokers AG is not
available. Quarterly information is not available for Eastbrokers AG for
quarterly period ended September 30, 1996. The change from the prior year to the
current year is related to expenses incurred in the development of the Company's
New York and Bulgarian operations and continuing consulting expenses related to
potential corporate finance opportunities. Also contributing to the increase is
the change from the hospitality industry to the securities industry.
The Company incurred a consolidated net loss from continuing operations of
$101,260 for the quarterly period ended December 31, 1997, compared to a
consolidated net loss from continuing operations of $200,428 for the quarterly
period ended December 31, 1996. For the quarterly period ended September 30,
1997, Eastbrokers AG incurred a consolidated net loss from continuing operations
of $158,271. Separate quarterly information is not available for Eastbrokers AG
for quarterly period ended September 30, 1996. The Company notes that this
change is primarily attributable to the significant downturn of the market in
the Czech Republic, expenses related to the development of the New York and
Bulgarian operations, continuing consulting expenses related to corporate
finance opportunities, and operating losses generated from WMP. The Czech
Republic operations contributed approximately $100,000 to the net loss for the
quarter and the start up expenses related to the New York operations contributed
approximately $175,000 to the net loss for the quarter. The development of the
Company's New York and Bulgarian operations has consumed a substantial amount of
the Company's resources in that key members of management have devoted
significant amounts of time and energy to these projects. Management has
evaluated the costs incurred to date and has determined that these projects
represent valuable worthwhile activities in the best interest of the Company. In
response to the unexpected downturn in the Czech Republic, the Company has
downsized its Prague based operations. The Company is also reviewing its Central
and Eastern European operations to identify potential cost savings or additional
revenue producing opportunities. Based on the results of this evaluation,
management may determine to restructure or downsize other offices as
appropriate. Based on the reviews of the operations to date, the Company has
undertaken the
- 14 -
<PAGE>
necessary steps to reduce certain costs by streamlining its Rockville, Maryland
and Vienna, Austria operations. These cost cutting measures and the reduction of
the Prague, Czech Republic office should result in expense reductions of
approximately one million dollars per year. WMP total revenues are approximately
60 percent below the total revenues for the corresponding period of the prior
year. This decrease is attributable to the introduction of the electronic
trading system to the continuous trading section of the Vienna Stock Exchange
which significantly reduced the volume of institutional trades handled by WMP.
In response to this change, WMP has significantly reduced its operating costs to
minimize its operating losses and is in the process of applying for an expanded
banking license.
Other changes affecting the net loss for the quarter include the effects of
income taxes and minority interest in the earnings of subsidiaries. The Company
is subject to income taxation in multiple jurisdictions (countries). As such,
losses in one jurisdiction can generally not be utilized to offset taxable
income in another jurisdiction. Also, to utilize the tax losses incurred, the
Company may be subject to jurisdictional audit requirements which require an
audit by a governmental agency prior to their allowance as an offset to taxable
income. Accordingly, certain jurisdictions may generate taxable income while
others generate losses that will be suspended until such time the local
jurisdictional authorities approve the utilization of the losses. The combined
effective tax rate is the result of multiple jurisdictions and uncertainties
related to the utilization of loss carryforwards in certain jurisdictions. These
factors may vary from quarter to quarter. With regard to U.S. operations, the
Company's policy is to suspend the losses incurred until such time as the loss
carryforwards have a reasonable expectation of being utilized. Since the New
York office has received regulatory approval to commence operations, the Company
has recognized an estimated tax benefit of approximately $127,000 related to
this office. No other income tax benefit has been recorded for the current
quarter related to U.S. operations. At the time the 10-KSB for the year ended
March 31, 1997 was filed, the Company did not anticipate any significant changes
in the effective tax rates being utilized. However, due to the effects created
by multiple jurisdictions and the share of the net income or loss attributable
to each jurisdiction, the effective tax rate is subject to change. During the
prior year, the Company acquired the outstanding minority interest of two of its
subsidiaries which significantly reduced the effect of minority interest to
earnings. The minority interest in earnings for the current quarter is primarily
attributable to the Company's Hungarian operations and WMP AG. The significant
change in the minority interest is attributable to the consolidation of WMP AG.
On December 31, 1997, the Company had total current assets of $31,290,373
and total current liabilities of $11,493,858, compared to $36,484,928 and
$20,736,326, respectively, on September 30, 1996. As of the date of this filing,
the Company believes that it has adequate liquidity to meet its current
obligations. However, no assurances can be made as to the Company's ability to
meet its cash requirements in connection with any expansion of the Company's
operations or any possible business combinations.
As a broker/dealer in securities, the Company will periodically acquire
positions in securities on behalf of its clients. As disclosed in "Note 3
Financial Instruments", the Company has title to various financial instruments
in the countries in which it operates. Certain of these investments may be
characterized as relatively illiquid and potentially subject to rapid
fluctuations in liquidity. Those securities are classified as "available for
sale securities".
The costs associated with the Company's involvement in privatization
activities, its pursuit of corporate finance opportunities, the unexpected
downturn of the economy of the Czech Republic and the effect this downturn has
had on the Company's operations and the costs associated with the start up of
the New York operations are the primary factors contributing to the negative
operating cash flows experienced in the quarterly period ended December 31,
1997. Management anticipates that the Company will continue to generate negative
cash flows through the next quarter. Management also anticipates that
preliminary work performed related to corporate finance activities will begin
generating operating cash flows in the fourth quarter of the fiscal year ending
March 31, 1998 and its efforts in the various privatization activities will
begin generating operating cash flows near the beginning of the Company's fiscal
year beginning April 1, 1998. However, there is no guarantee that such operating
cash flows will materialize by the anticipated dates or whether they will be
sufficient to offset other operational expenses.
The cash flows for nine month period ended December 31, 1997 reflect the
volatile nature of the securities industry and the reallocation of the Company's
assets indicative of a growing organization. The change in the foreign currency
translation adjustment is primarily related to the fluctuations in the Company's
- 15 -
<PAGE>
functional currencies to the U.S. dollar. The U.S. dollar and its unexpected
strength coupled with the unexpected weakness of the European currencies
(including the German Deutchmarke) have negatively impacted the Company's
overall earnings as well as the cumulative translation adjustment. The primary
functional currencies affecting the Company are as follows: U.S. Dollar,
Austrian Schilling, Czech Koruna, Hungarian Forint, Slovak Koruna and the Polish
Zloty. For the nine month period ended December 31, 1997, the Company reported a
cumulative foreign currency translation adjustment in its statement of cash
flows of approximately $1,351,000. The effect of the exchange rate changes on a
country by country basis are approximately as follows: Austria -- $930,000,
Czech Republic -- $170,000, Hungary -- $153,000, Poland -- $98,000.
In April 1997, the Company issued 125,002 shares of common stock, par value
$.05, of the Company ("Common Stock"). The securities were sold to three
individuals: Calvin S. Caldwell, Frank Huang and Jay Raubvogel for a total
offering price of $750,012 or $6.00 per share. The net proceeds to the Company
were $725,012. There were no underwriting discounts or commissions. The Offering
was made pursuant to an exemption from registration under Rule 506 of the
Securities Act of 1933, as amended (the "Securities Act"). The Offering was made
only to selected "accredited investors" as that term is defined in Rule 501(a)
of the Securities Act.
On February 20, 1998, the Company sold 1,227,000 newly issued units
consisting of one share of Common Stock and one Class C warrants in a private
placement for $6,135,000 in cash, or a price of $5.00 per unit (approximately 40
percent below the then current market price as of February 19, 1998.) The Class
C warrants are convertible into one share of Common Stock at a price of $7.00
per share. These units were offered and sold to various accredited investors.
In the above described sale, the Company relied upon the exemption from
registration under the Securities Act of 1933, as amended (the "Act") provided
by Regulation D as promulgated under the Act.
- 16 -
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 20, 1998, the Company sold 1,227,000 newly issued units
consisting of one share of Common Stock and one Class C warrants in a private
placement for $6,135,000 in cash, or a price of $5.00 per unit (approximately 40
percent below the then current market price as of February 19, 1998.) The Class
C warrants are convertible into one share of Common Stock at a price of $7.00
per share. These units were offered and sold to various accredited investors.
In the above described sale, the Company relied upon the exemption from
registration under the Securities Act of 1933, as amended (the "Act") provided
by Regulation D as promulgated under the Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 17, 1997, the Company held the 1997 Annual Meeting of
Stockholders of Eastbrokers International Incorporated ("Annual Meeting"). At
this meeting, the Company's Board of Directors submitted one proposed amendment
to the Company's Certificate of Incorporation to the stockholders and one
proposed amendment to the Company's 1996 Stock Option Plan. The Board of
Directors also submitted proposals to the stockholders to elect one new director
and ratify the appointment of the Company's independent auditors for the current
fiscal year. The holders of 2,634,292 shares of stock entitled to vote, which
constituted a quorum, were present at the annual meeting in person or by proxy.
As of the record date, there were 3,063,000 shares issued and outstanding.
Proposal No. 1 - Election of Director. One nominee, Peter Schmid, was
submitted to the stockholders. The nomination of Messr. Schmid to serve as
directors for a three year term was approved by the stockholders., 2,591,598
voted for the proposal and 42,694 votes withheld with no votes against or
abstained from voting.
Proposal No. 2 - Amendment to the Certificate of Incorporation to Increase
the Number of Authorized Shares of Capital Stock. 2,497,329 voted in favor of
the proposal, 36,003 voted against the proposal, 1,160 abstained from voting and
99,800 did not vote.
Proposal No. 3 - Amendment to the Company's 1996 Stock Option Plan.
Amendment was not approved by the stockholders. The required affirmative vote of
sixty-six and two thirds percent of the outstanding shares was not met.
1,522,542 voted in favor of the proposal, 37,723 voted against the proposal, 790
abstained from voting and 1,073,237 did not vote.
Proposal No. 4 - Ratification of the Appointment of Auditors. The
appointment of the accounting firm of Deloitte & Touche, LLP was approved by the
stockholders. 2,630,032 voted in favor of the proposal, 2,500 voted against the
proposal, 1,760 abstained from voting.
- 17 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits required by Item 601 of Regulation S-B
Exhibit No. Description
----------- -----------------------
(16) Letter on Change in Certifying Accountant
Item 7 of Current Report on Form 8-K dated
November 4, 1997 (1)
(16) Letter on Change in Certifying Accountant
Item 7 of Current Report on Form 8-K dated
January 22, 1998 (2)
(27) Financial Data Schedule (Electronic Filing Only).
b. One report on Form 8-K was filed during the quarterly period ended
December 31, 1997.
(1) Incorporated by reference from the Current Report on Form 8-K dated
November 4, 1997 (File No. 0-26202).
(2) Incorporated by reference from the Current Report on Form 8-K dated
January 22, 1998 (File No. 0-26202).
- 18 -
<PAGE>
SIGNATURES
In accordance with 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.
EASTBROKERS INTERNATIONAL INCORPORATED
(Registrant)
By /s/ Kevin D. McNeil
----------------------------------------------
Kevin D. McNeil
Vice President, Treasurer, and Chief Financial Officer
Dated: February 23, 1998
- 18 -
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------------------
(27) Financial Data Schedule (Electronic Filing Only).
- 19 -
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,626,579
<SECURITIES> 11,924,019
<RECEIVABLES> 15,641,702
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,290,373
<PP&E> 2,004,615
<DEPRECIATION> 1,238,397
<TOTAL-ASSETS> 40,424,733
<CURRENT-LIABILITIES> 11,493,858
<BONDS> 3,339,218
0
0
<COMMON> 153,150
<OTHER-SE> 16,042,489
<TOTAL-LIABILITY-AND-EQUITY> 40,424,733
<SALES> 0
<TOTAL-REVENUES> 5,476,043
<CGS> 0
<TOTAL-COSTS> 7,005,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,560
<INCOME-PRETAX> (1,529,259)
<INCOME-TAX> (93,614)
<INCOME-CONTINUING> (1,198,507)
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