UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
COMMISSION FILE NUMBER 1-31292
EMPIRE FINANCIAL HOLDING COMPANY
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 56-3627212
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2170 WEST STATE ROAD 434, Suite 100 LONGWOOD, FL 32779
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(Address of Principal Executive Offices) (Zip Code)
407-774-1300
-----------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant has (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 [ ]
Indicate by check mark, whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 12, 2004, there were 3,194,450 shares of common stock, par value $.01
per share, outstanding.
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2004
INDEX
PART I
FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements .................................................3
Consolidated Statement of Financial Condition,
March 31, 2004 (unaudited) and Consolidated Statement
of Financial Condition, March 31, 2004 .............................3
Consolidated Statements of Income,
Three Months Ended March 31, 2004 (unaudited) and 2003 .............4
Consolidated Statements of Cash Flows,
Three Months Ended March 31, 2004 (unaudited) and 2003 .............5
Selected Notes to Consolidated Financial Statements ..................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .........................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings ...................................................14
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities.................................................14
Item 3. Defaults Upon Senior Securities .....................................14
Item 4. Submission of Matters to a Vote of Security Holders .................14
Item 5. Other Information ...................................................14
Item 6. Exhibits and Reports on Form 8-K ....................................14
Signatures ...................................................................15
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31,
2004 December 31,
(unaudited) 2003
----------- -----------
ASSETS
Cash and cash equivalents ........................... $ 139,467 $ 393,283
Receivables from brokers and dealers and
clearing organizations ............................ 898,438 637,279
Deposits at clearing organizations .................. 303,541 304,468
Property and equipment, net of accumulated
depreciation of $122,243 and $116,297, respectively 67,418 15,678
Customer lists, net ................................. 98,894 145,393
Prepaid expenses and other assets ................... 327,305 269,620
----------- -----------
Total assets ................................ $ 1,835,063 $ 1,765,721
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Liabilities:
Notes payable ..................................... $ 851,719 $ 790,741
Note payable - related party ...................... 446,759 488,426
Accounts payable, accrued expenses
and other liabilities ........................... 1,059,921 1,208,893
Payable to brokers and dealers
and clearing organizations ...................... 119,774 78,844
----------- -----------
Total liabilities ............................. 2,478,173 2,566,904
----------- -----------
Stockholders' (deficit):
Series A Preferred stock, $.01 par value,
1,000,000 shares authorized; 10,000 issued
and outstanding ................................. 100 100
Common stock, $.01 par value,
100,000,000 shares authorized; 3,194,450 issued
and outstanding ................................. 31,945 31,945
Additional paid-in capital ........................ 5,864,874 5,763,374
Accumulated (deficit) ............................. (6,430,357) (6,462,774)
Deferred compensation ............................. (109,672) (133,828)
----------- -----------
Total stockholders' (deficit) ................. (643,110) (801,183)
----------- -----------
Total liabilities and stockholders' (deficit) $ 1,835,063 $ 1,765,721
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
-------------------------
2004 2003
----------- -----------
Revenues:
Commissions and fees .......................... $ 4,415,068 $ 3,086,058
Trading revenues, net ......................... 929,141 -
Interest ...................................... 39,203 28,316
Other ......................................... 41,264 6,925
----------- -----------
Total Revenues: .................................... 5,424,676 3,121,299
----------- -----------
Expenses:
Commissions and clearing costs ................ 3,774,832 1,764,477
Employee compensation and benefits ............ 808,849 818,839
General and administrative .................... 643,810 473,443
Communications and data processing ............ 32,847 42,103
Order flow payments ........................... 96,374 -
Advertising ................................... 948 38,897
Interest ...................................... 27,849 317
----------- -----------
Total Expenses: ................................... 5,385,509 3,138,076
----------- -----------
Net income (loss) from continuing operations ...... 39,167 (16,777)
Loss from discontinued operations ................. - (382,501)
----------- -----------
Net income (loss) ................................. 39,167 (399,278)
Preferred stock dividend .......................... (6,750) -
----------- -----------
Net income (loss) applicable to common stockholders $ 32,417 $ (399,278)
=========== ===========
Basic and diluted earnings (loss) per share
applicable to common stockholders:
Continuing operations ......................... $ 0.01 $ (0.00)
=========== ===========
Discontinued operations ....................... $ - $ (0.08)
=========== ===========
Net income (loss) applicable to common
stockholders ................................ $ 0.01 $ (0.08)
=========== ===========
Weighted average shares outstanding:
Basic ......................................... 3,194,450 4,787,800
=========== ===========
Diluted ....................................... 3,260,771 4,787,800
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
---------------------
2004 2003
--------- ---------
Operating activities:
Net income (loss) .................................... $ 39,167 $(399,278)
Less: Loss from discontinued operations ............ - 382,501
--------- ---------
Income (loss) from continuing operations: .............. 39,167 (16,777)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation ....................................... 5,946 7,521
Amortization ....................................... 46,499 47,250
Non-cash charge for options issued for services ... 125,656 -
Change in assets and liabilities:
Receivable from brokers and dealers and
clearing organizations ......................... (261,159) (350,525)
Deposits at clearing organizations ............... 927 10,750
Prepaid expenses and other assets ................ (57,685) 111,925
Accounts payable, accrued expenses ............... (155,722) (778,252)
Payable to brokers and dealers
and clearing organizations ..................... 40,930 12,012
Payable to related party ......................... - 56,647
--------- ---------
Net cash used in operating activities ............ (215,441) (899,449)
--------- ---------
Investing activities:
Purchases of furniture and equipment ................. (57,686) -
--------- ---------
Net cash used in investing activities ............ (57,686) -
--------- ---------
Financing activities:
Proceeds from notes payable .......................... 72,089 -
Payments on notes payable ............................ (52,778) -
--------- ---------
Net cash provided by financing activities ........ $ 19,311 $ -
--------- ---------
(continued)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(continued)
Three Months Ended
March 31,
---------------------
2004 2003
--------- ---------
Discontinued operations:
Net cash used in discontinued operations ............. $ - $ (24,627)
--------- ---------
Net decrease in cash and cash equivalents .............. (253,816) (924,076)
Cash and cash equivalents at beginning of period ....... 393,283 1,144,778
--------- ---------
Cash and cash equivalents at end of period ............. $ 139,467 $ 220,702
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ........................................... $ 4,396 $ 35,997
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
6
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying interim consolidated financial statements of Empire
Financial Holding Company and its subsidiaries (collectively, the "Company") are
unaudited; however, in the opinion of management, the interim consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. All intercompany balances and transactions have been eliminated
in consolidation. Certain footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to the
applicable rules and regulations of the Securities and Exchange Commission. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amount of revenue and expense
during the reporting period. Actual results could differ from these estimates.
The results of operations for the three months ended March 31, 2004, are not
necessarily indicative of the results to be expected for the year ending
December 31, 2004. In November 2003, we sold all of the outstanding capital
stock of Advantage Trading Group, Inc. and we therefore no longer own Advantage.
Accordingly, the following discussion and analysis of our financial condition
and results of operations does not include Advantage. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes for the year ended December 31, 2003 appearing in
the Company's Annual Report on Form 10-K/A for the year ended December 31, 2003,
as filed with the Securities and Exchange Commission.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share considers the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that shared in the earnings of the entity. The effect on stock options for
the three months ended March 31, 2003 were anti-dilutive due to losses in the
period.
The following data show the amounts used in computing earnings per
share and the weighted average number of shares of diluted potential common
stock:
Three months ended
March 31, 2004
--------------------
Weighted average number of shares used in basic EPS ........ 3,194,450
Stock options .............................................. 66,321
--------------------
Weighted average number of shares used in diluted EPS ...... 3,260,771
====================
Certain financial instruments were not included in the computation of
diluted earnings per share because the exercise prices of these financial
instruments were greater than the average market price of the common shares and
the financial instruments were therefore anti-dilutive.
7
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(CONTINUED)
3. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
Accounts payable, accrued expenses and other liabilities consisted of
the following:
March 31, December 31,
2004 2003
---------- ------------
Accounts payable ................... $ 367,777 $ 376,750
Accrued commissions ................ 309,695 340,390
Accrued payroll .................... 251,124 206,160
Accrued rent ....................... 10,689 26,230
Other .............................. 120,636 259,363
---------- ----------
$1,059,921 $1,208,893
========== ==========
4. EQUITY AND STOCK OPTION TRANSACTIONS
The Company has a stock option plan under which employees, directors
and consultants may be granted options to purchase shares of the Company's
common stock at the fair market value at the date of grant. Options vest
annually over a five-year term for all directors, certain officers, and
consultants, and these options expire in ten years from date of grant.
The Company accounts for its employee stock option plans under the
intrinsic value method, in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Compensation expense related to the
granting of employee stock options is recorded over the vesting period only if,
on the date of grant, the fair value of the underlying stock exceeds the
option's exercise price. The Company has adopted the disclosure-only
requirements of SFAS No. 123, "Accounting For Stock-Based Compensation," which
allows entities to continue to apply the provisions of APB No. 25 for
transactions with employees and provide pro forma net income (loss) and pro
forma earnings (loss) per share disclosures for employee stock grants made as if
the fair value based method of accounting in SFAS No. 123 had been applied to
these transactions.
In December 2002, the Financial Accounting Standards Board the "FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 148 "Accounting
for Stock-Based Compensation-Transition and Disclosure" which amends SFAS No.
123 "Accounting for Stock-Based Compensation."
8
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(CONTINUED)
Had the Company determined compensation expense of employee stock
options based on the estimated fair value of the stock options at the grant
date, consistent with the guidelines of SFAS 123, its net income (loss) would
have been increased to the pro forma amount indicated below:
March 31, March 31,
2004 2003
--------- -----------
Net income (loss)applicable to common stockholder:
As reported .......................................... $ 32,417 $ (399,278)
--------- -----------
Add stock--based employee compensation expense related
to stock options determine under fair Value method . (119,633) -
Deduct amounts charged to expense .................... 101,500 -
--------- -----------
Pro forma according to SFAS 123 ...................... $ 14,284 $ (399,278)
========= ===========
Net income applicable to common stockholder per share:
As reported .......................................... $ 0.01 $ (0.08)
========= ===========
Pro forma according to SFAS 123 ...................... $ - $ (0.08)
========= ===========
5. NET CAPITAL AND RESERVE REQUIREMENTS
Empire Financial Group, Inc., the broker dealer subsidiary of the
Company, is subject to the Securities and Exchange Commission Uniform Net
Capital Rule 15c3-1 and the requirements of the securities exchanges of which
they are members.
Net capital positions of the Company's broker dealer subsidiary were as
follows at March 31, 2004.
EMPIRE FINANCIAL GROUP, INC.:
Ratio of aggregate indebtedness to net capital .. 2.12 to 1
Net capital ..................................... $ 403,706
Required net capital ............................ $ 250,000
6. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company operates within one reportable segment, which includes
financial brokerage services and market making and order execution services.
Financial brokerage services (including the sale of equities, mutual funds,
fixed income products and investment advisory services) are provided directly to
retail and institutional customers via the Internet and by telephone trading.
Our Market Making and Order execution services involve acting as principal in
securities transactions for unaffiliated broker dealers. Market making and order
execution services also includes executing securities transactions for the
Company's account, customers and unaffiliated broker dealers.
9
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(CONTINUED)
7. GOING CONCERN AND MANAGEMENT PLANS
The Company's continued existence is dependent upon its ability to return to
profitability and to generate cash either from operations or from new
financings. The Company has losses from continuing operations during 2003 and
2002 and had a stockholders' deficit of $643,110 as of March 31, 2004. Also,
the Company is subject to pending federal and state investigations relating to
the Company's involvement in trading in mutual fund shares by its customers, the
outcome of which is uncertain. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
Management has implemented a plan, which it believes will return the Company to
profitability. As part of the plan, the Company has reduced general and
administrative overhead and operating expenses primarily by relocating and
consolidating its offices and personnel, by entering into a new clearing
arrangement with a third party at lower rates and by settling substantially all
of its controversies with its former co-CEO. The Company has also hired
additional personnel to enhance its market making and order execution
capabilities. As a result of the foregoing and the sale of Advantage, the
Company has focused its efforts on its core business.
Additionally, the Company plans to raise additional capital through debt and
equity financings and intends to rely on vendors, service providers, and
management for periodic payment deferrals and cost reductions to improve
liquidity and sustain operations.
There is no assurance that the Company will achieve profitability or be able to
generate cash from either operations or from debt or equity financings. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Selected
Consolidated Financial Data and the Consolidated Financial Statements and Notes
thereto included in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 2003, as previously filed with the Securities and Exchange
Commission.
This Form 10-Q contains statements about future events and expectations
which are, "forward looking statements". Any statement in this Form 10-Q that is
not a statement of historical fact may be deemed to be a forward looking
statement. Forward-looking statements represent our judgment about the future
and are not based on historical facts. These statements include: forecasts for
growth in the number of customers using our service, statements regarding our
anticipated revenues, expense levels, liquidity and capital resources and other
statements including statements containing such words as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "estimate," "continue" or
"plan" and similar expressions or variations. These statements reflect the
current risks, uncertainties and assumptions related to various factors
including, without limitation, our ability to continue as a going concern,
fluctuations in market prices, competition, changes in securities regulations or
other applicable governmental regulations, technological changes, management
disagreements and other factors described under the heading "Factors affecting
our operating results, business prospects, and market price of stock" contained
in our Annual Report on Form 10-K/A for the year ended December 31, 2003, as
previously filed with the SEC. Based upon changing conditions, should any one or
more of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described in this report as anticipated, believed, estimated or intended. We
undertake no obligation to update, and we do not have a policy of updating or
revising, these forward-looking statements. Except where the context otherwise
requires, the terms "we," "us," or "our" refer to the business of Empire
Financial Holding Company and its wholly-owned subsidiaries.
Our significant accounting policies are disclosed in the Notes to
Consolidated Financial Statements for the year ended December 31, 2003, found in
our Annual Report on Form 10-K/A for the year ended December 31, 2003.
RESULTS OF OPERATIONS:
Three months ended March 31, 2004 compared to three months ended March
31, 2003:
Total revenues for the three months ended March 31, 2004 were
$5,424,676, an increase of $2,305,377, or 74%, over the same period in 2003.
This increase is primarily due to reasons described below:
Commissions and fee revenues for the three months ended March 31, 2004
increased $1,329,010, or 43%, to $4,415,068 from $3,086,058 for the comparable
period in 2003, primarily due to an increase in retail trading volume and a
change in revenue mix, which resulted from increased processing of securities
transactions by independent registered representatives already affiliated with
us, and the processing of securities transactions from independent registered
representatives who had not previously used our services. As of March 31,
2004, 169 independent registered representatives were processing securities
transactions with us, compared to 98 independent registered representatives at
March 31, 2003. Commission and fee revenues account for approximately 81% and
99% of total revenues reported for the three month periods ended March 31, 2003
and 2002, respectively.
11
Equities market-making and trading revenue accounted for $929,141, or
17%, or our total revenues for the three-month period ended March 31, 2004.
During the third quarter of 2003, we established our market-making and trading
operations.
Total operating expenses for the three months ended March 31, 2004 and
2003 were $5,385,509 and $3,138,076, respectively, an increase of $2,247,433, or
72%, over the same period in 2003, primarily as a result of the reasons
described below:
Commissions and clearing costs increased $1,980,355, or 112%, to
$3,774,832 from $1,764,477 for the comparable period in 2003, primarily due to
an increase in trading volume and a change in revenue mix, which resulted from
increased processing of securities transactions by independent registered
representatives already affiliated with us and the processing of securities
transactions from independent registered representatives who had not previously
used our services. Independent registered representatives increased to 169 at
March 31, 2004 from 98 at March 31, 2003, an increase of 71, or 72%. As a
percentage, commissions and clearing costs account for 72% and 56% of total
expenses for the three month periods ended March 31, 2003 and 2002,
respectively.
Employee compensation and benefit costs for the three months ended
March 31, 2004 decreased $9,990, or 1%, to $808,849 from $818,839 for the
comparable period in 2003, primarily due to a reduction in executive and
employee compensation and our increased relationship with independent registered
representatives, offset in part by an increase in the number of full-time
employees. At March 31, 2004, we employed 48 people compared to 27 people at
March 31, 2003, an increase of 78%. The increase in employees is primarily
attributable to hiring traders and other employees to staff the market-making
and trading operations we established during the third quarter of 2003.
General and administrative expenses for the three-month period ended
March 31, 2004 increased $170,367, or 36% to $643,810 from $473,443 for the
comparable period in 2003. The increase is primarily attributable to $125,656
non-cash charge incurred with respect to options and restricted stock granted to
employees for services, an increase of $30,000 in insurance costs, a $30,000
one-time charge for moving expenses incurred in connection with the relocation
of our corporate operations to its current location, partially offset by a
$59,000 reduction in legal fees. As a percentage of total expenses, general and
administrative expenses were 12% and 15% for the three month periods ended March
31, 2003 and 2002, respectively.
For the three months ended March 31, 2004, the Company reported net
income applicable to common stockholders of $32,417, or $.01 per basic and
diluted share, as compared to a net loss applicable to common stockholders of
$399,278, or $.08 per basic and diluted share for the same period in 2003. The
2003 net loss applicable to common stockholders included a loss from
discontinued operations of $382,501, or $.08 per basic and diluted share.
LIQUIDITY AND CAPITAL RESOURCES
We maintain a highly liquid balance sheet, with the majority of our
assets consisting of cash and cash equivalents and receivables from brokers,
dealers, and clearing brokers arising from customer-related securities
transactions.
12
At March 31, 2004, we had $1,835,063 in assets, 57% of which consisted
of cash or assets readily convertible into cash, principally receivables from
clearing brokers, which include interest bearing cash balances held with
clearing brokers. Historically, we have financed our business primarily through
cash generated by operations, as well as proceeds from our initial public
offering and follow-on private placements of stock and debt offerings.
Total stockholders' deficit decreased $158,073, to a deficit of
$643,110 at March 31, 2004, compared to a deficit of $801,183 at December 31,
2003, primarily due earnings and variable stock options credit.
Net cash used in continuing operations for the three months ended March
31, 2004 was $215,441, and net cash used for continuing operations for the same
period in 2003 was $899,449.
Net cash used in investing activities, for the purchase of furniture
and equipment, was $57,686 for the three months ended March 31, 2004. The
furniture and equipment was acquired in connection with the relocation of the
corporate offices to its current location.
Net cash provided in financing activities was $19,311 for the three
months ended March 31, 2004. Financing activities include $72,089 of proceeds
from the issuance of convertible notes (10%) due in December 2006; also, in
2004, $52,778 was used to pay down the principal balance of two long-term notes
issued in connection the sale of a discontinued subsidiary.
Based on currently proposed plans and assumptions relating to the
implementation of our business plan, we believe that our cash flow from
operations and cash on hand will enable us to fund our planned operations for at
least 12 months and thereafter. If not, or if our plans change, or our
assumptions change or prove to be inaccurate, or if our available cash otherwise
proves to be insufficient to implement our business plans, we may require
additional financing and may seek to raise funds through subsequent equity or
debt financings. We cannot assure you that additional funds will be available in
adequate amounts or on acceptable terms. If funds are needed but not available,
our business would be harmed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk of loss that may result from
the potential change in the value of a financial instrument as a result of
fluctuations in interest rates and market prices. We have established policies,
procedures and internal processes governing our management of market risks in
the normal course of our business operations.
We seek to control the risks associated with our client activities by
requiring clients to maintain margin collateral in compliance with various
regulatory and internal guidelines.
As a fundamental part of our brokerage business we hold short-term
interest earning assets primarily in short-term fixed-rate U.S. Treasury Bills.
Our revenues and financial instruments are denominated in U.S. dollars
and we have not, to date, invested in derivative financial instruments or
derivative commodity instruments. As of March 31, 2004, the Company's broker
dealer subsidiary had no financial instruments in an inventory short position.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to our Annual Report on Form 10-K filed for the
year ended December 31, 2003.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has outstanding an unsecured note payable to the former
co-CEO of the Company in the original principal amount of $400,000, which
requires monthly installments of $11,111, plus interest. Since March 1, 2004,
the Company has paid the installments on this unsecured note by offsetting the
installments against amounts owed to the Company by the former co-CEO. The
former co-CEO has filed a complaint against the Company alleging breach of the
terms and conditions of the note and declaring that the Company is in default
and that the full amount of the note is due and owing to the former co-CEO, plus
interest. The Company has filed an answer to the compliant that denies that the
Company is in default under the terms and conditions of the note. As of May 17,
2004, there has been no determination as to the outcome of this lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1 Certification of Chief Executive Officer Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Principal Executive Officer Certification pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Principal Financial Officer Certification pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
None
14
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.
Date: May 17, 2004 EMPIRE FINANCIAL HOLDING COMPANY
/s/ Kevin M. Gagne
------------------
Kevin M. Gagne
Chief Executive Officer
(Principal Executive Officer)
/s/ Patrick E. Rodgers
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Patrick E. Rodgers
Chief Financial Officer
(Principal Accounting Officer)
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