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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2012


OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ________ to ________



COMMISSION FILE NUMBER: 000-32997


Woodstock Holdings, Inc.

(Exact name of registrant as specified in its charter)



Georgia

 

6211

 

58-2161804

(State of Jurisdiction of Incorporation or organization)

 

(Primary Standard Industrial Classification Code Number)

 

(I.R.S. Employer Identification No.)



117 Towne Lake Pkwy, Ste 200

Woodstock, Georgia

 


30188

(Address of principal executive offices)

 

(Zip Code)


770-516-6996

(Telephone Number)



Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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  ý   NO ¨


Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file).


Yes x   No o



Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or small reporting company in Rule 12b-2 of the Exchange Act.


Large accelerated filer

¨

 

Accelerated filer

¨

Non-accelerated filer

¨

 

Smaller reporting company

ý

(Do not check if smaller reporting company)

 

 

 

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).¨ Yes  ý No


State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 18,044,028 shares of common stock, $.01 par value per share, outstanding as of May 2, 2012.





WOODSTOCK HOLDINGS, INC.


INDEX


 

 

 

Page No.

PART I 

FINANCIAL STATEMENTS

 

 

 

 

 

 

Item 1.

Consolidated Financial Statements

 

 3

 

Consolidated Balance Sheets (unaudited) at March 31, 2012 and (audited) at
December 31, 2011

 

 3

 

Consolidated Statements of Operations (unaudited) for the Three Months Ended
March 31, 2012 and 2011

 

 4

 

Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended
March 31, 2012 and 2011

 

5

 

Notes to Consolidated Financial Statements (unaudited)

 

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and
Results of Operations

 

 13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

16

Item 4.

Controls and Procedures

 

16

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

17

Item 1.A.

Risk Factors

 

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

17

Item 3.

Defaults Upon Senior Securities

 

17

Item 4.

Mine Safety Disclosures

 

17

Item 5.

Other Information

 

17

Item 6.

Exhibits

 

17



Special Cautionary Notice Regarding Forward-Looking Statements

Various matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements for purposes of the Securities Act and the Securities Exchange Act. These forward-looking statements may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Woodstock Holdings, Inc. (the “Company”) (formerly Woodstock Financial Group, Inc.) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions are intended to identify such forward-looking statements. The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

·

The effects of future economic conditions;

·

Governmental monetary and fiscal policies, as well as legislative and regulatory changes;

·

The risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks; and

·

The effects of competition from other financial institutions and financial service providers operating in the Company’s market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering products and services by mail, telephone, and computer and the Internet.

All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements.





-2-



PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

WOODSTOCK HOLDINGS, INC.


Consolidated Balance Sheets

 

March 31, 2012 (unaudited)

 

December 31, 2011 (audited)

ASSETS

 

 

 

Cash and cash equivalents

$

686,000 

 

$

782,797 

Clearing deposit

181,184 

 

181,184 

Securities inventory, at fair value

587,714 

 

488,257 

Realized trading profit and interest receivables

15,265 

 

6,486 

Commissions receivable

1,170,598 

 

996,188 

Furniture, fixtures, and equipment, at cost, net of accumulated depreciation of
         $16,070 and $58,271, respectively

19,024 

 

20,513 

Building, at cost, net of accumulated depreciation of $189,780 and $206,874,
        respectively

1,062,386 

 

1,070,414 

Other assets

143,688 

 

147,518 

 

 

 

 

Total  assets

$

3,865,859 

 

$

3,693,357 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

Liabilities:

 

 

 

Accounts payable

$

72,933 

 

$

49,574 

Commissions payable

1,004,831 

 

875,762 

Preferred dividends payable

15,050 

 

30,099 

Liability for securities inventory

578,278 

 

483,643 

Mortgage note

918,773 

 

922,993 

Deferred revenue

337,500 

 

356,250 

Other liabilities

10,029 

 

5,316 

 

 

 

 

Total liabilities

2,937,394 

 

2,723,637 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

Series A preferred stock, $.01 par value; 5,000,000 shares authorized,
  86,500 shares issued and outstanding at March 31, 2012 and December 31, 2011,
   (redemption value of $865,000 at March 31, 2012 and December 31, 2011)

865 

 

865 

Common stock, $.01 par value; 50,000,000 shares authorized;
  18,366,772 shares issued; 18,044,028 shares outstanding at March 31, 2012
   and December 31, 2011

183,668 

 

183,668 

Additional paid-in capital

3,697,032 

 

3,697,032 

Accumulated deficit

(2,797,140)

 

(2,755,885)

Treasury stock, 323,244 shares at March 31, 2012 and December 31, 2011,
          carried at cost

(155,960)

 

(155,960)

 

 

 

 

Total shareholders' equity

928,465 

 

969,720 

 

 

 

 

Total liabilities and shareholders' equity

$

3,865,859 

 

$

3,693,357 



See accompanying notes to unaudited consolidated financial statements.


-3-




WOODSTOCK HOLDINGS, INC.


Consolidated Statements of Operations

(unaudited)

For the Three Months Ended March 31, 2012 and 2011


 

2012

 

2011

OPERATING INCOME

 

 

 

Commission revenue

$

3,243,045 

 

$

2,806,046

Interest income

74,435 

 

98,777

Net realized gain on securities

134,731 

 

210,889

Unrealized gain on securities

4,822 

 

-

Other fees

290,206 

 

277,093

 

 

 

 

Total operating income

3,747,239 

 

3,392,805

 

 

 

 

OPERATING EXPENSES

 

 

 

Commissions to brokers

2,877,563 

 

2,524,766

Selling, general, and administrative expenses

717,564 

 

603,593

Compensation on trading profit

110,992 

 

148,476

Clearing costs

33,898 

 

34,411

Interest expense

33,427 

 

31,434

Unrealized loss on securities

 

8,461

 

 

 

 

Total operating expenses

3,773,444 

 

3,351,141

 

 

 

 

Net income (loss)

$

(26,205)

 

$

41,664

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per common share

$

(0.00)

 

$

0.00

 



See accompanying notes to unaudited consolidated financial statements.


-4-



WOODSTOCK HOLDINGS, INC.


Consolidated Statements of Cash Flows

(unaudited)

For the Three Months Ended March 31, 2012 and 2011


 

2012

 

2011

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

Net income (loss)

$

(26,205)

 

$

41,664 

Adjustments to reconcile net income (loss) to net cash

 

 

 

flows from operating activities

 

 

 

Depreciation

9,517 

 

10,517 

Unrealized loss (gain) on securities

(4,822)

 

8,461 

Changes in operating assets and liabilities

 

 

 

Clearing deposit

 

(20,002)

Realized trading profit and interest receivables

(8,779)

 

4,115 

Commissions receivable

(174,410)

 

416,737 

Other assets

3,830 

 

(17,840)

Accounts payable

23,359 

 

(50,807)

Commissions payable

129,069 

 

(326,461)

Deferred revenue

(18,750)

 

Other liabilities

4,713 

 

(104)

Net cash flows from operating activities

(62,478)

 

66,280 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

Purchases of furniture, fixtures and equipment

 

(2,926)

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

Principal payments on mortgage note

(4,220)

 

(4,118)

Common stock dividends

 

(19,008)

Preferred stock dividends

(30,099)

 

(30,274)

Net cash flows from financing activities

(34,319)

 

(53,400)

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

(96,797)

 

9,954 

CASH AND CASH EQUIVALENTS, beginning of year

782,797 

 

968,716 

CASH AND CASH EQUIVALENTS, end of year

$

686,000 

 

$

978,670 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS

 

 

 

Securities inventory obtained via financing through
   Southwest Securities, Inc.

$

12,870,758 

 

$

11,489,197 

Satisfaction of liability for securities inventory sold via
   Southwest Securities, Inc.

$

12,776,123 

 

$

11,601,605 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH PAID

 

 

 

FOR INTEREST

$

33,427 

 

$

31,434 



See accompanying notes to unaudited consolidated financial statements.


-5-




WOODSTOCK HOLDINGS, INC.

 (unaudited)

Notes to Consolidated Financial Statements




(1)

Description of Business and Summary of Significant Accounting Policies


Business

Woodstock Holdings, Inc. (the “Company” or "WHI") is a holding company and it has no business operations except for those conducted through Woodstock Financial Group, Inc. (“WFG”), its wholly-owned subsidiary. All references in this Form 10Q to the business of the Company refer to the operations of WFG, unless the context indicates otherwise. WFG has been a full service securities brokerage and investment banking business since 1995.   The Company’s website address is www.woodstockholdingsinc.com and WFG’s website is www.woodstockfg.com.


The Company has been registered since 2002 as a United States Securities and Exchange Commission (“SEC”) reporting company (File No. 0-32997). The Company reported its financial position and results of operations for 2009 and earlier periods on a pre-reorganization basis.  For reporting periods beginning February 2010, we report our position and results of operations on a consolidated basis.


Woodstock Financial Group, Inc. (“WFG”) is a full service securities brokerage firm, which was incorporated in January 2010.  The Company is registered as a broker-dealer with the Financial Industry Regulatory Authority (“FINRA”) in 50 states, Puerto Rico, Washington D.C., U.S. Virgin Islands, and also as a municipal securities dealer with the Municipal Securities Regulation Board.  The Company is also a SEC Registered Investment Advisor and maintains advisory accounts through Fidelity Registered Investment Advisor Group, (“FRIAG”), an arm of Fidelity Investments and IMG (Investment Management Group, a division of Southwest Securities, Inc. (“Southwest”)).  The Company is subject to net capital and other regulations of the SEC.  The Company offers full service commission and fee-based money management services to individual and institutional investors.  


WFG trades equity securities on an agency only basis and it trades bonds and other instruments on a principal and/or agency basis on various exchanges. WFG maintains selling agreements with mutual fund families and insurance companies offering load and no load funds, annuities and insurance products.


Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) on the accrual basis of accounting and to general practices within the broker-dealer industry.


Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements. Accordingly, actual results could differ from these estimates.


Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, clearing deposit, securities inventory and commissions receivable.


Cash and cash equivalents and the clearing deposit are deposited in various financial institutions. At times, amounts on deposit may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. From December 31, 2010 to December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the accounts, at all FDIC insured institutions. At March 31, 2012, all cash deposits were covered under the FDIC insurance limits.


At March 31, 2012 and December 31, 2011, commissions receivable were approximately $1,171,000 and $996,000, and of that approximately $1,155,000 and $984,000 were due from Southwest, respectively.


Revenue Recognition and Commissions Receivable

WFG charges commissions and/or fees for customer transactions. These commissions and/or fees are charged within the guidelines of industry standards.  Commissions are recorded on a trade date basis, which does not differ materially from the settlement date basis.





-6-



WOODSTOCK HOLDINGS, INC.

 (unaudited)

Notes to Consolidated Financial Statements



Advertising

The Company recognizes advertising costs as incurred in selling, general and administrative expenses in the statement of operations.


Cash and Cash Equivalents

Cash and cash equivalents include short-term deposits and highly liquid investments that have original maturities of three months or less when purchased and are stated at cost.

 

Building and Furniture, Fixtures and Equipment

Building and furniture, fixtures and equipment are reported at cost, less accumulated depreciation. Depreciation of furniture, fixtures and equipment is computed using straight-line method over the estimated useful life of five years. Depreciation of the building is computed using the straight-line method over the estimated useful life of 39 years.


The cost of maintenance and repairs, which do not improve or extend the useful life of the respective asset, is charged to earnings as incurred, whereas significant renewals and improvements are capitalized.


Impairment of Long-Lived Assets

In accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 360, Long Lived Assets, assets such as the building, are reviewed for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If this review reveals an indicator of impairment, as determined based on estimated undiscounted cash flows, the carrying amounts of the related long-lived assets are adjusted to fair value. Management has determined there has been no impairment in the carrying value of its long-lived assets at March 31, 2012 and December 31, 2011.


Income Taxes

ASC 740, Income Taxes, provides guidance for how uncertain tax provisions should be recognized, measured, presented and disclosed in the financial statements. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Additionally, the recognition of future tax benefits, such as net operating loss carryforwards, is required to the extent that realization of such benefits is more-likely-than-not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.


In the event the future tax consequences of differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more-likely-than-not that some or all of the deferred tax asset will not be realized.


In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. Management is unaware of any material tax positions that do not meet the more-likely-than-not threshold as of March 31, 2012 and December 31, 2011.


The Company files income tax returns in the United States and Georgia, which are subject to examination by the tax authorities in these jurisdictions. Generally, the statute of limitations related to the Company’s federal and state income tax return is three years. The state impact of any federal changes for prior years remains subject to examination for a period up to five years after formal notification to the states.


Treasury Stock

Treasury stock is accounted for by the cost method.  Subsequent reissuances are accounted for at average cost.





-7-



WOODSTOCK HOLDINGS, INC.

 (unaudited)

Notes to Consolidated Financial Statements



Stock-Based Compensation

Until 2011, the Company had sponsored a stock-based incentive compensation plan for the benefit of certain employees.  The Company accounts for this plan under the recognition and measurement principles of ASC 718, Compensation-Stock Compensation.  As of March 31, 2012 the Company has outstanding under the Plan, options to purchase 200,000 shares of the Company’s common stock, exercisable at $.01 per share. This plan has expired and options are no longer granted under this plan.


Net Earnings Per Share

During the three months ended March 31, 2012 and 2011, the Company had potential common stock issuances of 86,500 shares relating to outstanding shares of preferred stock.  The effect of the convertible preferred stock issuances would be antidilutive because the exercise price is more than the fair value of the stock. The effect of these potential common stock issuances has been excluded from the computation of net earnings per share for each year.

Presented below is a summary of earnings (loss) per common share for the three months ended March 31, 2012 and 2011:

 

2012

 

2011

 

 

 

 

Weighted average common shares outstanding

18,044,028 

 

17,744,028 

 

 

 

 

Net earnings (loss)

$

(26,205)

 

$

41,664 

Preferred stock dividends

(15,050)

 

(15,137)

 

 

 

 

Net earnings (loss) attributable to common shareholders

$

(41,255)

 

$

26,527 

 

 

 

 

Net earnings (loss) per common share

$

(0.00)

 

$

0.00 


Fair Value of Financial Instruments  

ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below.

 

Level 1

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.


Level 2

Inputs to the valuation methodology including quoted prices for similar or identical assets or liabilities in active or inactive markets. Inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data. If the asset or liability has a specified term, the Level 2 input must be observable for substantially the full term of the asset or liability.


Level 3

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.





-8-



WOODSTOCK HOLDINGS, INC.

 (unaudited)

Notes to Consolidated Financial Statements



Recent Accounting Pronouncements


ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” In May 2011, the FASB issued ASU 2011-04 to allow for common fair value measurement and disclosure requirements in GAAP and IFRS. Consequently, the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements has changed. FASB does not intend for the changes to result in a change in the application of the requirements in the fair value standard. ASU 2011-04 clarifies the FASB’s intent about the application of existing fair value measurement requirements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, the Company’s third quarter of fiscal 2012. The Company adopted ASU 2011-04 on January 1, 2012 and it did not have a material impact on the Company’s financial statements or the processes.

           

Reclassifications

Certain reclassifications have been made to the prior period balances in order to conform to the current period presentation.


(2)

Related Party Transactions

During the quarters ended March 31, 2012 and 2011, the Chief Executive Officer (“CEO”) received compensation from WFG in the amount of approximately $41,500 each quarter.  In addition, WFG pays an override equal to 2.5% of revenues to the CEO.  During the quarters ended March 31, 2012 and 2011, the earned override bonus was approximately $92,800 and $83,700, respectively.  Of the override bonus earned during the quarters ended March 31, 2012 and 2011, approximately $84,200 and $99,100 was paid, respectively.  Included in the paid override bonus is approximately $22,000 and $37,000 from payments that were earned in 2011 and 2010, respectively.  The unpaid portion of the 2012 override bonus of approximately $31,000 is included in accounts payable at March 31, 2012.


A company owned by the CEO’s spouse also receives consulting fees of $120,000 annually.  


Registered representatives licensed with WFG sold interests in Raike Real Estate Income Fund (“RRIF”) and received approximately $2,500 in commissions during the three months ended March 31, 2011.  There were no interests sold in Raike Real Estate Income Fund (“RRIF”) during the three months ended March 31, 2012.  RRIF is managed by a company owned by the CEO of WHI.


Pursuant to Exchange Act Rules 17a-3(a) and (a)(2), WFG and WHI have an expense sharing agreement in place.


(3)

Net Capital Requirements

The Company is subject to the SEC Uniform Net Capital Rule (SEC Rule 15c3-1), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 (and the rule of the “applicable” exchange also provides that equity capital may not be withdrawn or cash dividends paid if the resulting net capital ratio would exceed 10 to 1).  At March 31, 2012, the Company had net capital of $514,229, which was $414,229 in excess of its required net capital of $100,000.  The Company’s net capital ratio was 2.77 to 1.


(4)

Off-Balance Sheet Risk

Customer transactions are introduced and cleared through the Company’s clearing agent on a fully disclosed basis. Under the terms of its clearing agreement, the Company is obligated to make sure that its customers pay for all transactions and meet all maintenance requirements, if applicable, in a timely manner under Regulation-T of the Federal Reserve Board.


The Company engages in inter-dealer activity with various broker-dealers and qualified institutional buyers.  These transactions are affirmed/compared in a timely fashion to make sure all such counterparties fulfill their settlement obligations.  


(5)

Income Taxes

The Company has recorded $0 income tax expense in the three months ended March 31, 2012 and 2011 due to the Company recording a 100% valuation allowance on the net deferred tax asset as the realization of the deferred tax asset is dependent on future taxable income.




-9-



WOODSTOCK HOLDINGS, INC.

 (unaudited)

Notes to Consolidated Financial Statements




The major components of the deferred tax asset at March 31, 2012 and December 31, 2011 are operating loss carryforwards, deferred revenue and stock based compensation expense.


At December 31, 2011, the Company had net operating loss carryforwards for tax purposes of approximately $1.3 million which will expire beginning in 2022, if not previously utilized.


(6)

Mortgage Note

In September 2009, the Company refinanced the mortgage note on the current office space in Woodstock, Georgia.  The new note has a 5-year balloon payment and matures September 2014.  It is amortized on a 25-year basis at a fixed rate of interest at 7.00%, and is collateralized by the building.


The Company paid a monthly condo association fee of approximately $14,000 for the three months ended March 31, 2012 and 2011, respectively.  


Scheduled principal payments due on the mortgage note as of March 31, 2012 are as follows:


For the remainder of 2012

$

12,773

2013

18,407

2014

887,593

 

$

918,773


(7)

Selling, General and Administrative Expenses

Components of selling, general and administrative expenses which are greater than 1% of total revenues for the three months ended March 31, 2012 and 2011 are as follows:


 

2012

 

2011

 

 

 

 

Gross Pay/Salaries/Admin

$

327,859

 

$

155,260

Consultant Fees

44,659

 

189,016

Payroll Services

44,167

 

 *

Legal / Professional Fees

 *

 

59,106


*Expense did not represent 1% or more of total revenues.


(8)

Securities Inventory and Liability for Securities Inventory

The Company maintains an investment grade municipal bond inventory account for the purpose of inter-dealer trading. This inventory account is monitored on a daily basis for credit risk, market risk and collateralization purposes. This inventory is held in a segregated margin account at Southwest, the Company’s clearing firm.  This segregated margin account is cross collateralized by the Company’s clearing deposit account at Southwest.  From time to time the Company may deposit cash into or withdraw cash from this account when needed.  The current interest rate environment has produced a fluctuating negative/positive carry on this trading account.

 

(9)

Shareholders’ Equity


Stock Option Plan  

Until 2011 the Company had a stock option plan for the benefit of certain employees.  The Board of Directors approved a total of 7.6 million shares to be available for potential future option grants.


No stock options were granted in 2012. As of the filing date of this Form 10-Q, the Company has outstanding under the plan, options to purchase 200,000 shares of the Company’s common stock, exercisable at $.01 per shares. This plan has expired and options are no longer granted under this plan.





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WOODSTOCK HOLDINGS, INC.

 (unaudited)

Notes to Consolidated Financial Statements



The Company used the following assumptions in estimating the fair value of the option awards:


Assumptions in estimating the fair value of options awarded:

Expected volatility

.5%

Risk-free interest rate

4.99%

Expected life

10 years

Dividend yield

0%


A summary of activity in the stock option plan is presented below:


 

Year Ended

 

Year Ended

 

March 31, 2012

 

December 31, 2011

 

 

 

Weighted

 

 

 

Weighted

 

 

 

Average

 

 

 

Average

 

 

 

Price

 

 

 

Price

 

Shares

 

Per Share

 

Shares

 

Per Share

 

 

 

 

 

 

 

 

Outstanding and exercisable,
Beginning of year

-

 

$

0.01

 

2,457,000 

 

$

0.01

Vested during the year

-

 

$

0.01

 

100,000 

 

$

0.01

Exercised

-

 

$

0.01

 

(300,000)

 

$

0.01

Expired during the period

-

 

 

 

(2,257,000)

 

 

Outstanding and exercisable, end of year

-

 

$

0.01

 

 

$

0.01


The total intrinsic value of options outstanding and exercisable as of March 31, 2012 and December 31, 2011 was not considered material to the financial statements.


2001 Series A Preferred Stock

The Preferred Stock pays a cumulative annual dividend of $.70 per share. Each share of Preferred Stock is convertible into five shares of common stock at the option of the holder. Each share of Preferred Stock is mandatorily convertible into five shares of common stock upon the filing of a public offering registration statement or a change in control (as defined). The Company may redeem the Preferred Stock by giving 30-days notice to the preferred stockholders for a redemption price of $10.00 per share, plus unpaid dividends through the redemption date.  Upon voluntary or involuntary dissolution of the Company, the preferred stockholders will receive $10.00 per share prior to the distribution of any amounts to common shareholders. The Preferred Stock has no voting rights.  As of March 31, 2012 and December 31, 2011, there were no preferred dividends in arrears.  For the year ended December 31, 2011, the Company did not purchase any of their equity securities, except on May 27, 2011 the Company repurchased 500 shares of Series A Preferred Stock at the cost of $1,500.


(10)

Employee Retirement Plan

The Company has established a Savings Incentive Match Plan for Employees of Small Employers (SIMPLE IRA). Employees who receive at least $5,000 of compensation for the calendar year are eligible to participate. The Company matches employee contributions dollar for dollar up to three percent of the employee’s compensation.  Total contributions for any employee are limited by certain regulations.  





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WOODSTOCK HOLDINGS, INC.

 (unaudited)

Notes to Consolidated Financial Statements



(11)

Fair Value

The following table presents the Company’s fair value hierarchy for those assets measured at fair value on a recurring basis as of March 31, 2012:


 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

Securities inventory

$

-

 

$

587,714

 

$

-

 

$

587,714


The following table presents the Company’s fair value hierarchy for those assets measured at fair value on a recurring basis as of December 31, 2011:


 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

Securities inventory

$

-

 

$

488,257

 

$

-

 

$

488,257


There were no transfers between levels from December 31, 2011 to March 31, 2012.


The method described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation method was appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.


(12)

Commitments and Contingencies

Through the ordinary course of business, the Company has entered into contractual agreements, generally cancelable upon 60 to 180 day’s written notice, with outside vendors and service providers for various administrative related products and services. As discussed in Note 2, Related Party Transactions, the Company has an expense sharing agreement with WFG.


From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters that may arise from time to time that may harm the Company’s business.


As of the date of this report, other than routine litigation arising from the ordinary course of business, which the Company does not expect to have a material adverse effect on the Company, there is no pending legal proceedings.


(13)

Subsequent Events

Since August 2010, the Company has a branch office that has accounted for a material portion of the Company’s revenues. For 2011, this branch office accounted for approximately $5.1 million of the Company’s revenues. The Company and the principal members of this branch office have agreed that the branch office will no longer be associated with the Company on or about the filing date of this Form 10-Q. Management believes that while the loss of revenues will be material and that the Company will seek to replace all or part of the loss of revenue with the addition of one or more new branch offices, the loss of the branch office will not materially change the prospects of the Company’s profitability or the ability of the Company to pay dividends to its Preferred Stockholders.


In accordance with applicable accounting standards, the Company evaluated subsequent events through May 2, 2012, the date the financial statements were available for issue.  






-12-





Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations


WOODSTOCK HOLDINGS, INC.


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


For the Three Months Ended March 31, 2012 and 2011


OVERVIEW


The following discussion should be read in conjunction with the Financial Statements of the Company and the Notes thereto appearing elsewhere herein.


FORWARD-LOOKING STATEMENTS


The following is our discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements.  This commentary should be read in conjunction with the financial statements and the related notes and the other statistical information included in this report.


This report contains “forward-looking statements” relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of management, as well as assumptions made by and information currently available to management.  The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are intended to identify forward-looking statements.  Our actual results may differ materially from the results discussed in the forward-looking statements, and our operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in our filings with the SEC, including, without limitation:


·

significant increases in competitive pressure in the financial services industries;


·

changes in political conditions or the legislative or regulatory environment;


·

general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected;


·

changes occurring in business conditions and inflation;


·

changes in technology;


·

changes in monetary and tax policies;


·

changes in the securities markets; and


·

other risks and uncertainties detailed from time to time in our filings with the SEC.


OVERVIEW AND GENERAL INDUSTRY CONDITIONS


Business operations in this Form 10-Q refer primarily to the operations of our wholly-owned brokerage subsidiary WFG as we, its parent company, are a holding corporation. Our primary sources of revenue are commissions earned from brokerage transactions and related financial services of WFG. WFG is also a licensed insurance agency and can receive insurance commission revenue. Currently and in the past, there has been no significant impact from revenues derived from our insurance business.  Our investment advisory services are currently a fast growing segment of our WFG business. Our principal business activities are, by their nature, affected by many factors, including general economic and financial conditions, movement of interest rates, security valuations in the marketplace, regulatory changes, competitive conditions, transaction volume and market liquidity. Consequently, our revenues can be volatile. While we seek to maintain cost controls, a significant portion of our expenses is fixed and does not vary with market activity. As a result, substantial fluctuations can occur in our revenue and net income from period to period.




-13-





Our assets are basically liquid with a substantial portion consisting of cash and cash equivalents, and receivables from other broker-dealers and Southwest.  All these items fluctuate depending upon the levels of customer business and trading activity. Receivables from broker-dealers and Southwest turn over rapidly.  Both our total assets, as well as the individual components as a percentage of total assets, may vary significantly from period to period because of changes relating to customer demand, economic, market conditions and proprietary trading strategies. Our total assets at March 31, 2012 were $3,865,859, of which $686,000 were cash and cash equivalents.  Historically, we have financed our operations through cash flow from operations and the private placement of equity securities. We have not employed any significant leverage or debt.


We believe that our capital structure is adequate for our current operations. We continually review our overall capital and funding needs to ensure that our capital base can support the estimated needs of the business. These reviews take into account business needs, as well as the Company's regulatory capital requirements. Based upon these reviews, to take advantage of strengthening market conditions and to implement our expansion as fully as possible, we will continue to pursue avenues to decrease costs and increase our capital position.


Critical Accounting Policies


The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in its 2011 Form 10-K and in Note 1 to the Consolidated Financial Statements included in Item 1 of this report. The preparation of Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) and to general practices of the brokerage industry requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.


Management has identified accounting for (i) fair value measurements for valuation of financial instruments, (ii) revenue recognition and (iii) concentrations of credit risk as the Company’s most critical accounting policies and estimates in that they are important to the portrayal of the Company’s financial condition and results, and they require Management’s subjective judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. These accounting policies, including the nature of the estimates and types of assumptions used, are described throughout this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its 2011 Form 10-K.


RESULTS OF OPERATIONS – QUARTERS ENDED March 31, 2012 AND 2011


Total operating income for the quarter ended March 31, 2012 increased by $354,434, or approximately 10%, to $3,747,239, from $3,392,805 for the comparable period in 2011.  


Commission revenue for the quarter ended March 31, 2012 increased by $436,999, or approximately 16%, to $3,243,045 from $2,806,046 for the comparable period in 2011. This increase was principally derived from an addition of an OSJ branch office from late in the third quarter in 2010, along with a slight increase in transactional business for the quarter compared to the previous years.  


Interest income for the quarter ended March 31, 2012 decreased by $24,342, or approximately 25%, to $74,435 from $98,777 for the comparable period in 2011.  This decrease is primarily due to the decrease in interest charged on margin accounts and customer accounts held by our clearing agent, in addition interest earned from the investment grade municipal bond inventory trading account (“trading account”).


Realized trading profit for the quarter ended March 31, 2012 was $134,731 in realized trading profits and $4,822 in unrealized trading profits.  Of the $134,731 realized trading profit, $110,992 was paid out in the trading account.  


Other fees, from clearing transaction charges and other income, for the quarter ended March 31, 2012 increased by $13,113 or approximately 5%, to $290,206 from $277,093 compared to the comparable period in 2011.  This increase was principally due to an increase of transactional fees for the quarter.


Total operating expenses for the quarter ended March 31, 2012 increased by $422,303, or approximately 13%, to $3,773,444 from $3,351,141 for the same period in 2011.  The increased expense was due primarily to the increased commissions paid to brokers (which correlates with the increase in commission revenue during the quarter) and the increase in selling, general and administrative expenses.





-14-





Commissions to brokers for the quarter ended March 31, 2012 increased by $352,797, or approximately 14%, to $2,877,563 from $2,524,766 for the comparable period in 2011.  This increase correlates with the increase in commission revenue during the quarter.  


Compensation on trading profit for the quarter ended March 31, 2012 was $110,992.  There was $134,731 in realized trading profits and $4,822 in unrealized trading profits.  Of the $134,731 realized trading profit, $110,992 was paid out in the account.  


Clearing costs for the quarter ended March 31, 2012, decreased by $513, or approximately 1%, to $33,898 from $34,411 for the comparable period in 2011. As a percentage of commission revenue, clearing costs were approximately 1% for the quarter ended March 31, 2012, compared to approximately 1% in 2011.


Selling, general and administrative expense for the quarter ended March 31, 2012 increased by $113,971 or approximately 19%, to $717,564 from $603,593 for the comparable period in 2011. This increase is due to increases in compensation primarily related to the override bonus paid to the CEO (which is based upon revenues of the Company and therefore correlates with revenues) and the  addition of a newly hired employee along with various pay increases given to current employees.


Net loss was $26,205 for the quarter ended March 31, 2012, compared to a net profit of $41,664 for the comparable period in 2011. The increase in selling, general and administrative expenses was the primary reason for the loss for the quarter.


Loss of Branch Office


Since August 2010, the Company has a branch office that has accounted for a material portion of the Company’s revenues. For 2011, this branch office accounted for approximately $5.1 million of the Company’s revenues. The Company and the principal members of this branch office have agreed that the branch office will no longer be associated with the Company on or about the filing date of this Form 10-Q. Management believes that while the loss of revenues will be material and that the Company will seek to replace all or part of the loss of revenue with the addition of one or more new branch offices, the loss of the branch office will not materially change the prospects of the Company’s profitability or the ability of the Company to pay dividends to its Preferred Stockholders.


LIQUIDITY AND CAPITAL RESOURCES


Our assets are reasonably liquid with a substantial portion consisting of cash and cash equivalents, and receivables from other broker-dealers and our clearing agent, all of which fluctuate depending upon the levels of customer business and trading activity. Receivables from broker-dealers and our clearing agent turn over rapidly.  Our total assets, as well as the individual components as a percentage of total assets, may vary significantly from period to period because of changes relating to customer demand, economic, market conditions and proprietary trading strategies.  Our total assets at March 31, 2012 were $3,865,859, of which $686,000 are cash and cash equivalents.


As a broker-dealer, WFG is subject to the Securities and Exchange Commission Uniform Net Capital Rule (Rule15c3-1).  The Rule requires maintenance of minimum net capital and that WFG maintains a ratio of aggregate indebtedness (as defined) to net capital (as defined) not to exceed 15 to 1.  WFG’s minimum net capital requirement is $100,000.  Under the Rule, WFG is subject to certain restrictions on the use of capital and its related liquidity.  WFG’s net capital position at March 31, 2012 was $514,229 and its ratio of aggregate indebtedness to net capital was 2.77 to 1. The calculation of the ratio only includes the balances obtained from the Broker Dealer.


Historically, we have financed our operations through cash flow from operations and the private placement of equity securities. We have not employed any significant leverage or debt to fund operating needs.


We believe that our capital structure is adequate for our current operations.  We continually review our overall capital and funding needs to ensure that our capital base can support the estimated needs of the business.  These reviews take into account business needs as well as the Company's regulatory capital requirements.  Based upon these reviews, to take advantage of strong market conditions and to fully implement our expansion strategy, we will continue to pursue avenues to decrease costs and increase our capital position.


The Company's cash and cash equivalents decreased by $97,797 to $686,000 as of March 31, 2012, from $782,797 as of December 31, 2011.  This overall decrease was due to net cash used in operating activities of $62,478, and cash used in financing activities of $34,319.





-15-





The Company holds a mortgage note on the current office space at 117 Towne Lake Parkway, Woodstock, GA  30188.  The mortgage note has a 5-year balloon payment and matures in September 2014, amortized on a 25-year basis at a fixed rate of interest 7.00%, and is collateralized by the building.  Mortgage payments and condo association fees of $6,770 and $4,700, respectively, are payable monthly.


SECURITIES INVENTORY AND LIABLILITY FOR SECURITIES INVENTORY


The Company maintains an investment grade municipal bond inventory account for the purpose of inter-dealer trading. This inventory account is monitored on a daily basis for credit risk, market risk and collateralization purposes. This inventory is held in a segregated margin account at Southwest, the Company’s clearing firm.  This segregated margin account is cross collateralized by the Company’s clearing deposit account at Southwest.  From time to time the Company may deposit cash into or withdraw cash from this account when needed.  The current interest rate environment has produced a fluctuating negative/positive carry on this trading account.


EFFECTS OF INFLATION AND OTHER ECONOMIC FACTORS


Market prices of securities are generally influenced by changes in rates of inflation, changes in interest rates and economic activity generally.  Our revenues and net income are, in turn, principally affected by changes in market prices and levels of market activity.  Moreover, the rate of inflation affects our expenses, such as employee compensation, occupancy expenses and communications costs, which may not be readily recoverable in the prices of services, offered to our customers.  To the extent inflation, interest rates or levels of economic activity adversely affect market prices of securities, our financial condition and results of operations will also be adversely affected.


Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

The Company maintains an investment grade municipal bond inventory account for the purpose of inter-dealer trading. This inventory account is monitored on a daily basis for credit risk, mark risk and collateralization purposes.



Item 4.

Controls and Procedures


As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to the Company that is required to be included in the Company’s periodic filings with the SEC.  There have been no significant changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.




-16-





PART II.  OTHER INFORMATION


Item 1.

Legal Proceedings


In the normal course of business, the Company, as a regulated broker-dealer, is subject to examinations, inquiries and requests from Customers, the SEC, FINRA and state regulators and customer complaints.  We are not aware of any matter at this time that would have material impact on the Company’s financial position, which are not covered by insurance.


Item 1.A.

Risk Factors


As a smaller reporting company, the Registrant is not required to include risk factors in this Form 10-Q.

 


Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


Not applicable.



Item 3.

Defaults Upon Senior Securities


Not applicable.



Item 4.

Mine Safety Disclosures


Not applicable.  



Item 5.

Other Information


None.



Item 6.

Exhibits


31.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


31.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


32

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





-17-





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.


 

WOODSTOCK HOLDINGS, INC.

 

 

 

 

 

 

 

 

 

 

 

 

Date:  May ___, 2012

By:  

/S/ WILLIAM J. RAIKE, III

 

 

William J. Raike, III

 

 

President, Chief Executive Officer and Director

 

 

 

 

 

 

 

 

 

 

 

 

Date:  May __, 2012

By:

/S/ MELISSA L. WHITLEY

 

 

Melissa L. Whitley

 

 

Chief Financial and Accounting Officer






-18-