ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The following discussion should be read in conjunction with the
financial statements of the Company and the notes thereto
appearing elsewhere herein.
OVERVIEW AND GENERAL INDUSTRY CONDITIONS
Our primary sources of revenue are commissions earned from
brokerage services. 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, brokerage commission revenue and investment banking
fees 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. Unless
otherwise indicated, in this section, references to years are to
fiscal years.
The Company is a licensed insurance broker and we receive
commission revenue as a result of our insurance operations. The
Company does not regard insurance commission revenue as material
at this time.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2007 and 2006
Total revenue for the year ended December 31, 2007 decreased by
$1,197,124 or 13% to $8,067,137 from $9,264,261 for the
comparable period in 2006.
Commission revenue decreased by $1,035,047 or 13% to $6,945,332
from $7,980,379 for the comparable period in 2006. The decrease
was due to a decrease in transactional business.
Interest income decreased by $101,364 or 23% to 339,167 for the
year ended December 31, 2007 from $440,531 compared to the same
period in 2006. This decrease is due to the decrease in interest
from margin accounts and customer accounts held by our clearing
agent, due primarily to a decrease in the Company's marginal rate
received on these accounts.
Fees from clearing transaction charges and other income decreased
by $60,713, or 7% to $782,638 for the year ended December 31,
2007 from $843,351 for the same period in 2006. This decrease is
due primarily to a decrease in fees from lower volume of
transactional business.
Total operating expenses for the year ended December 31, 2007
decreased by $551,057 to $8,429,963 from $8,981,020 for the same
period in 2006. Total expenses decreased due primarily to a
decrease in commissions paid to brokers, which corresponds to the
decrease in transactional business.
Commissions to brokers decreased by $1,055,035 to $5,938,175 for
the year ended December 31, 2007 from $6,993,210 in the prior
year. This decrease is driven by the decrease in commission
revenues.
Clearing costs decreased by $33,556 or 18% to $151,395 for the
year ended December 31, 2007 from $184,951 in the prior year. As
a percentage of commission income clearing costs were 2.2% in
2007 compared to 2.3% in 2006.
Selling, general and administrative expense increased $478,797 or
27% to $2,226,144 for the year ended December 31, 2007 compared
to $1,747,347 in the prior year. This increase was due primarily
to the expense of $338,550 related to the recognition of stock
compensation expense in July 2007. The remaining increase in
expense relates to condo association fees, mortgage interest and
depreciation associated with the purchase of the commercial real
estate, which closed during the second quarter of 2006. There is
also an increase in service and equipment contracts due to the
new commercial space. The Company has also increased its
staffing, resulting in increases in salary and benefit related
expenses.
The Company recorded no income tax expense or benefit for the
years ended December 31, 2007and 2006. We have a net operating
loss carryforward as of December 31, 2007, the utilization of
which is dependent upon future taxable income.
Net loss was $362,826 for the year ended December 31, 2007
compared to net earnings of $283,241 for the same period in 2006.
9
LIQUIDITY AND CAPITAL RESOURCES
Our assets are reasonably liquid with a substantial majority
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. 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 net assets at December
31, 2007 were $1,524,586 of which $1,118,542 is cash and cash
equivalents.
As a broker-dealer, we are subject to the Securities and Exchange
Commission Uniform Net Capital Rule (Rule15c3-1). The Rule
requires maintenance of minimum net capital and that we maintain
a ratio of aggregate indebtedness (as defined) to net capital (as
defined) not exceed 15 to 1. Our minimum net capital requirement
is $100,000. Under the Rule we are subject to certain
restrictions on the use of capital and its related liquidity. Our
net capital position at December 31, 2007 was $1,242,409 and our
ratio of aggregate indebtedness to net capital was .42 to 1.
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 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 increased by $69,590 to
$1,118,542 as of December 31, 2007, from $1,048,952 as of
December 31, 2006. This increase was due to cash provided by
operating activities of $146,451, cash used in investing
activities of $3,749, and cash used in financing activities of
$73,112. For more information on the cash flows of the Company,
please see the statement of cash flows included in the Company's
financial statements appearing elsewhere herein.
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.
10
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included herein:
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2007 and 2006
Statements of Earnings for the years ended
December 31, 2007 and 2006
Statements of Shareholders' Equity for the years ended
December 31, 2007 and 2006
Statements of Cash Flows for the years ended
December 31, 2007 and 2006
Notes to Financial Statements
Supplemental Schedule - Computation of Net Capital Under
Rule 15c3-1 of the Securities and Exchange Commission
11
PKM [LOGO]
Porter Keadle Moore, LLP
Report of Independent Registered Public Accounting Firm
To the Shareholders
Woodstock Financial Group, Inc.
We have audited the balance sheets of Woodstock Financial Group,
Inc., formerly known as Raike Financial Group, Inc., as of
December 31, 2007 and 2006 and the related statements of
operations, shareholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Woodstock Financial Group, Inc. as of December 31, 2007 and
2006, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Our audits were conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States) and
were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained
in the Supplemental Schedule is presented for purposes of
additional analysis and is not a required part of the basic
financial statements, but is supplementary information required
by Rule 17a-5 of the Securities Exchange Act of 1934. Such
information has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our
opinion, is fairly presented in all material respects in relation
to the basic financial statements taken as a whole.
/s/Porter Keadle Moore, LLP
---------------------------
Atlanta, Georgia
February 23, 2008
|
Certified Public Accountants
Suite 1800 * 235 Peachtree Street NE * Atlanta, Georgia 30303
Phone 404-588-4200 * Fax 404-588-4222 * www.pkm.com
12
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Balance Sheets
December 31, 2007 and 2006
2007 2006
------------ ------------
Assets
------
Cash and cash equivalents $ 1,118,542 1,048,952
Clearing deposit 128,968 125,000
Furniture, fixtures, and equipment, at cost,
net of accumulated depreciation of $139,980
and $115,417, respectively 38,909 60,497
Building, net of accumulated depreciation of
$67,813 and $28,481, respectively 1,209,479 1,248,807
Commissions receivable 522,658 585,203
Due from brokers 13 26,334
Other assets 12,591 1,543
------------ ------------
$ 3,031,160 3,096,336
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Accounts payable $ 40,958 32,516
Commissions payable 450,930 427,557
Preferred dividends payable 30,274 30,274
Other liabilities 3,564 3,167
Mortgage note 980,848 993,412
------------ ------------
Total liabilities $ 1,506,574 1,486,926
============ ============
Commitments
Shareholders' equity:
Series A preferred stock of $.01 par value;
5,000,000 shares authorized, 86,500 shares
issued and outstanding (liquidation value
of $865,000) 865 865
Common stock of $.01 par value; 50,000,000
shares authorized; 17,941,772 shares issued 179,418 179,418
Additional paid-in capital 3,689,778 3,351,228
Accumulated deficit (2,189,520) (1,766,146)
Treasury stock; 322,744 shares, carried at
cost, respectively (155,955) (155,955)
------------ ------------
Total shareholders' equity 1,524,586 1,609,410
------------ ------------
$ 3,031,160 3,096,336
============ ============
|
See accompanying notes to financial statements.
13
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Statements of Operations
For the Years Ended December 31, 2007 and 2006
2007 2006
------------ ------------
Operating income:
Commissions $ 6,945,332 7,980,379
Interest and dividends 339,167 440,531
Other fees and income 782,638 843,351
------------ ------------
Total operating income 8,067,137 9,264,261
------------ ------------
Operating expenses:
Commissions to brokers 5,938,175 6,993,210
Clearing costs 151,395 184,951
Selling, general and administrative expenses 2,226,144 1,747,347
Interest expense 85,211 50,337
Other expense 29,038 5,175
------------ ------------
Total operating expenses 8,429,963 8,981,020
------------ ------------
Net earnings (loss) $ (362,826) 283,241
============ ============
Net earnings (loss) per share, based on weighted
average shares outstanding of 17,941,772 and
17,629,044 in 2007 and 2006, respectively $ (0.02) 0.01
============ ============
|
See accompanying notes to financial statements.
14
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Statements of Shareholders' Equity
For the Years Ended December 31, 2007 and 2006
Additional Total
Preferred Common Paid-in Accumulated Treasury Shareholders'
Stock Stock Capital Deficit Stock Equity
----- ----- ------- ------- ----- ------
Balance at December 31, 2005 $ 865 179,418 3,351,228 (1,988,839) (151,406) 1,391,266
Preferred dividends - - - (60,548) - (60,548)
Purchase of treasury stock shares
(22,744) - - - - (4,549) (4,549)
Net earnings - - - 283,241 - 283,241
----- ------- --------- --------- ------- ---------
Balance at December 31, 2006 $ 865 179,418 3,351,228 (1,766,146) (155,955) 1,609,410
Preferred dividends - - - (60,548) - (60,548)
Stock based compensation - - 338,550 - - 338,550
Net loss - - - (362,826) - (362,826)
----- ------- --------- --------- ------- ---------
Balance at December 31, 2007 $ 865 179,418 3,689,778 (2,189,520) (155,955) 1,524,586
===== ======= ========= ========= ======= =========
|
See accompanying notes to financial statements.
15
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Statements of Cash Flows
For the Years Ended December 31, 2007 and 2006
2007 2006
------------ ------------
Cash flows from operating activities:
Net earnings (loss) $ (362,826) 283,241
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation 64,665 63,025
Compensation expense related to stock
options 338,550 -
Change in clearing deposit (3,968) -
Change in commissions receivable 62,545 136,779
Change in due from brokers 26,321 10,944
Change in other assets (11,048) (14,630)
Change in accounts payable 8,442 (4,095)
Change in commissions payable 23,373 (131,664)
Change in other liabilities 397 1,604
------------ ------------
Net cash provided by operating activities 146,451 345,204
------------ ------------
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment (3,749) (39,223)
Purchase of building - (1,126,789)
------------ ------------
Net cash used by investing activities (3,749) (1,166,012)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings - 1,000,000
Principal payments on mortgage note (12,564) (6,588)
Cash dividends paid on preferred stock (60,548) (60,548)
Purchase of treasury stock - (4,549)
------------ ------------
Net cash provided (used) by financing activities (73,112) 928,315
------------ ------------
Net change in cash 69,590 107,507
Cash at beginning of year 1,048,952 941,445
------------ ------------
Cash at end of year $ 1,118,542 1,048,952
============ ============
Supplemental disclosure of cash paid for interest $ 85,211 50,337
============ ============
|
See accompanying notes to financial statements.
16
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Notes to Financial Statements
(1) Description of Business and Summary of Significant Accounting
Policies
Business
Woodstock Financial Group, Inc. (the "Company") is a full
service securities brokerage firm, which has been in
business since 1995. During 2006, the Company changed its
name from Raike Financial Group, Inc. to Woodstock Financial
Group, Inc. The Company is registered as a broker-dealer
with the National Association of Securities Dealers ("NASD")
in 49 states, Puerto Rico, Washington D.C. and also as a
municipal securities dealer with the Municipal Securities
Regulation Board ("MSRB"). The Company is subject to net
capital and other regulations of the U.S. Securities and
Exchange Commission ("SEC"). The Company offers full service
commission and fee-based money management services to
individual and institutional investors. The Company
maintains a custody-clearing relationship with Southwest
Securities, Inc. In 2005, the Company, as a registered
investment advisor, created a managed account program named
"RFG Stars". Through the RFG Stars Program, the Company
provides investment advisory services to clients. All RFG
Stars Program client accounts are maintained with Fidelity
Registered Investment Advisor Group ("FRIAG"), an arm of
Fidelity Investments. FRIAG provides brokerage, custody,
and clearing services to RFG Stars Program clients.
Basis of Presentation
The accounting and reporting policies of the Company conform
to accounting principles generally accepted in the United
States of America ("GAAP") and to general practices within
the broker-dealer industry. 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. Actual results
could differ from these estimates.
Revenue Recognition and Commissions Receivable
Commissions represent transactions processed and net fees
charged to customers per transaction for buy and sell
transactions processed. Commissions are recorded on a
settlement date basis, which does not differ materially from
trade date basis.
Cash and Cash Equivalents
For purposes of the statements of cash flow, the Company
considers all investments with an original maturity of three
months or less to be a cash equivalent. As of December 31,
2007 and 2006, the Company maintained cash balances with
financial institutions and brokerage companies totaling
$949,952 and $882,827, respectively, that exceeded the
Federal deposit insurance limits.
Building and Furniture, Fixtures and Equipment
Building, furniture, fixtures and equipment are reported at
cost less accumulated depreciation. Depreciation is computed
primarily by the straight-line method over the estimated
useful lives of the assets as shown below:
Furniture 5 - 7 years
Equipment 3 years
Building 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.
The Company closed on the purchase of its office building on
May 25, 2006 for a total cost of $1,273,455, financing it
with a $1,000,000 loan with a 5-year balloon amortized on a
25-year basis, at a fixed rate interest rate of 8.610%.
Subsequent to the closing of this commercial property
purchase the Company pays a monthly fee of $4,200 in condo
association fees in addition to the mortgage payment.
17
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Notes to Financial Statements, continued
(1) Description of Business and Summary of Significant Accounting
Policies, continued
Income Taxes
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 bases.
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 bases and the tax bases of
the Company's assets and liabilities results in deferred tax
assets, an evaluation of the probability of being able to
realize the future benefit s 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 portion 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.
Treasury Stock
Treasury stock is accounted for by the cost method.
Subsequent reissuances are accounted for at average cost.
Net Earnings Per Share
During the years ended December 31, 2007 and 2006, the
Company had potential common stock issuances outstanding
totaling 865,000 shares related to preferred stock and
warrants. As of December 31, 2007, all warrants have
expired. The effect of the remaining 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. Additionally, as of December 31, 2007, the Company
had options outstanding. The effect of these options was
not considered due to their antidilutive effect. Presented
below is a summary of earnings per share for the years ended
December 31, 2007 and 2006:
2007 2006
---- ----
Weighted average common shares outstanding 17,629,044 17,629,044
=========== ===========
Net earnings (loss) $ (362,826) 283,241
Preferred stock dividend (60,548) (60,548)
----------- -----------
Net earnings (loss) attributable to common
shareholders $ (423,374) 222,693
=========== ===========
Net earnings (loss) per common share $ (.02) .01
=========== ===========
|
Stock-Based Compensation
The Company sponsors a stock-based incentive compensation
plan for the benefit of certain employees. Previously, the
Company had accounted for this plan under the recognition
and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
Interpretations, whereby stock-based employee compensation
costs had been reflected in net earnings, but only to the
extent that the option price was less than the market value
of the Company's common stock at the option grant date. The
Company adopted Statement of Financial Accounting Standard
No. 123 (revised 2004) "Share-Based Payment" (SFAS No.
123(R)) on the required effective date, January 1, 2006.
The adoption of SFAS No.123(R) had no effect on prior period
net earnings or earnings per share.
18
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Notes to Financial Statements, continued
(1) Description of Business and Summary of Significant Accounting
Policies, continued
Recent Accounting Pronouncements
The following accounting standards that have been issued or
proposed by the Financial Accounting Standards Board and
other standard setting entities that do not require adoption
until a future date are not expected to have a material
impact on the Company's financial statements upon adoption.
SFAS No. 157, Fair Value Measurements
This Statement does not require any new fair value
measurements, but rather, it provides enhanced guidance to
other pronouncements that require or permit assets or
liabilities to be measured at fair value. However, the
application of this Statement may change how fair value is
determined. The Statement is effective for financial
statements issued for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years.
SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities - Including an amendment of FASB
Statement No. 115
This Statement provides all entities with an option to
report selected financial assets and liabilities at fair
value. The Statement is effective as of the beginning of an
entity's first fiscal year beginning after November 15,
2007, with early adoption available in certain
circumstances.
(2) Related Party Transactions
The majority shareholder receives consulting fees in the
amount of $130,000 annually. In addition, the
Company pays a bonus equal to 2.5% of revenues to the
majority shareholder. The majority shareholder's spouse
also receives consulting fees of $120,000 annually. During
the year ended December 31, 2007 and 2006, the majority
shareholder earned a bonus of $202,914 and $231,606,
respectively. Of the $231,606 bonus earned in 2006, $37,173
was forgiven.
In 2004, the Company entered into an agreement with Pea Pod
Consulting, Inc., which is owned by a former member of the
Company's Board of Directors. This agreement called for
annual consulting fees for services related to regulatory
compliance and other operational issues totaling $84,000, of
which a total of $35,538 was paid during 2007 and $84,000
was paid during 2006. The agreement with Pea Pod
Consulting, Inc. was terminated voluntarily effective April
20, 2007.
(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 December 31, 2007, the Company had net
capital of $1,241,639, which was $1,141,639 in excess of its
required net capital of $100,000. The Company's net capital
ratio was 0.42 to 1.
(4) Income Taxes
The components of income tax expense for the years ended
December 31, 2007 and 2006 are as follows:
2007 2006
--------- ---------
Current $ - -
Deferred (134,027) 108,505
Change in valuation allowance 134,027 (108,505)
--------- ---------
$ - -
========= =========
|
19
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Notes to Financial Statements, continued
(4) Income Taxes, continued
The difference between income tax expense computed by
applying the statutory federal income tax rate to earnings
before taxes for the years ended December 31, 2007 and 2006
is as follows:
2007 2006
---------- ---------
Pretax income at statutory rate $ (123,361) 96,569
State income tax, net of federal benefit (14,512) 11,330
Other 3,846 606
Change in valuation allowance 134,027 (108,505)
---------- ---------
$ - -
========== =========
|
The following summarizes the components of deferred taxes at
December 31, 2007 and 2006.
2007 2006
---------- ----------
Deferred income tax assets:
Operating loss carryforwards $ 327,928 322,550
Stock based compensation expense 128,649 -
---------- ----------
Total gross deferred income tax assets 456,577 322,550
Less valuation allowance (456,577) (322,550)
---------- ----------
Net deferred tax asset $ - -
========== ==========
|
During 2007 and 2006, a valuation allowance was established
for the entire amount of the net deferred tax asset, as the
realization of the deferred tax asset is dependent on future
taxable income.
At December 31, 2007, the Company had net operating loss
carryforwards for tax purposes of approximately $1.2 million
which will expire beginning in 2016 if not previously
utilized.
(5) Selling, General and Administrative Expenses
Components of selling, general and administrative expenses,
which are greater than 1% of total revenues for the years
ended December 31, 2007 and 2006, are as follows:
2007 2006
---------- ----------
Consultant fees $ 604,406 632,423
Compensation 411,212 336,695
Compensation expense related to
stock options 338,550 -
Errors & omissions insurance 116,257 113,068
Legal and professional fees 133,386 86,362
(6) Shareholders' Equity
--------------------
Stock Option Plan
|
The Company sponsors an incentive stock option plan for the
benefit of certain employees in order that they might
purchase Company stock at a certain price. Initially, a
total of 800,000 shares of the Company's common stock were
reserved for possible issuance under this plan. In May
2007, the Board of Directors approved increasing the total
shares available for potential future option grants to
approximately 6.9 million shares, from which 2,257,000
options were granted in 2007. There were no stock options
granted during 2006 and there were no stock options
outstanding at December 31, 2006.
20
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Notes to Financial Statements, continued
(6) Shareholders' Equity, continued
Stock Option Plan, continued
During July 2007, the Company granted a total of 2,257,000
options to certain brokers with a strike price of $.01 where
the market value of the Company's stock was $.15 per share
at the time of grant. These options vested immediately, and
the Company recognized expense related to these options of
$338,550. The fair value of these options, using the Black-
Scholes pricing model was $.15 per share.
A summary of activity in the stock option plan is presented
below:
2007
-------------------
Weighted
Average
Price
Shares Per Share
------ ---------
Outstanding, beginning of year - $ -
------
Granted during the year 2,257,000 .01
Cancelled during the year - -
Exercised during the year - -
--------- ------
Outstanding and exercisable,
end of year 2,257,000 $ .01
========= ======
|
The total intrinsic value of options outstanding and
exercisable as of December 31, 2007 was $315,980.
The Company used the following assumptions in estimating the
fair value of the option awards:
Expected volatility .5%
Risk-free interest rate 4.99%
Expected life 10 years
Dividend yield 0%
|
Perpetual 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-day's 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 December
31, 2007 and 2006, there were no preferred dividends in
arrears.
Warrants
In connection with the issuance of the Company's Preferred
Stock, the Company issued 216,250 Class A warrants and
216,250 Class B warrants. The Class A warrants allow each
holder to purchase one share of common stock for $1.50 and
expired on January 31, 2006 and the Class B warrants allow
each holder to purchase one share of common stock for $2.50
and expired on January 31, 2007.
(7) 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. During 2007
and 2006, the Company contributed approximately $9,900 and
$8,000, respectively, to the plan.
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SUPPLEMENTAL
SCHEDULE
22
WOODSTOCK FINANCIAL GROUP, INC.
(formerly Raike Financial Group, Inc.)
Supplemental Schedule
Computation of Net Capital Under Rule 15c3-1 of
the Securities and Exchange Commission
December 31, 2007
Computation of Net Capital:
--------------------------
Total shareholders' equity $ 1,524,586
Non-allowable assets (280,913)
-----------
Tentative net capital 1,243,673
Unsecured debits (2,034)
-----------
Net capital 1,241,639
Minimum net capital 100,000
-----------
Excess net capital $ 1,141,639
===========
Aggregate Indebtedness to Net Capital Ratio:
-------------------------------------------
Aggregate indebtedness $ 525,726
===========
Net capital $ 1,241,639
===========
Ratio 0.42 to 1
===========
Reconciliation with Company's computation
-----------------------------------------
(included in Part II of Form X-17A-5 as of
------------------------------------------
December 31, 2007):
-------------------
Net capital as reported in unaudited FOCUS
report, as filed $ 1,242,408
Difference in nonallowable assets (769)
-----------
Net capital per above $ 1,241,639
===========
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