SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2001

Commission file number: 0-22247

STOCKWALK GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)


MINNESOTA (State or Other Jurisdiction of Incorporation or Organization)		41-1756256 (IRS Employer Identification No.)

5500 WAYZATA BOULEVARD, SUITE 800, MINNEAPOLIS, MN 55416
(Address of Principal Executive Offices)

(763) 542-6000
(Registrant’s Telephone Number)

___________________

(Former Name, Former Address and

Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:


Class: Common Stock, $.04 par value		Outstanding as of August 1, 2001: 32,715,724 shares

TABLE OF CONTENTS


Consolidated Condensed Statements of Financial Condition
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures about Market Risk.
EX-99.1 Cautionary Statements

STOCKWALK GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q


PART I — FINANCIAL INFORMATION		PAGE




Item 1. Consolidated Condensed Financial Statements (Unaudited).




	Consolidated Condensed Statements of Financial Condition		3




	June 30, 2001 and March 31, 2001




	Consolidated Condensed Statements of Operations:		4




	Three Months Ended June 30, 2001 and June 30, 2000




	Consolidated Condensed Statements of Cash Flows:		5




	Three Months Ended June 30, 2001 and June 30, 2000




	Notes to Consolidated Condensed Financial Statements:		6




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			9




Item 3. Quantitative and Qualitative Disclosures about Market Risk.			11




PART II — OTHER INFORMATION




Item 1. Legal Proceedings.




	At the present time, we are not a party to, nor is any property subject to, any pending legal proceedings, other than routine litigation and arbitration proceedings incidental to our business. We believe that we have good factual and legal defenses to pending proceedings, and we do not expect that losses related to any of these proceedings, in the aggregate, will be material.




Item 2. Changes in Securities and Use of Proceeds- None.




Item 3. Defaults Upon Senior Securities- None.




Item 4. Submission of Matters to a Vote of Security Holders- None.




Item 5. Other Information.




Item 6. Exhibits and Report on Form 8-K.




	a.) Exhibits Number Description:




	99.1 Cautionary Statements




	b.) Reports on Form 8-K.




	None

STOCKWALK GROUP, INC.
Consolidated Condensed Statements of Financial Condition
(Unaudited)


			June 30, 2001			March 31, 2001

Assets




Cash			$	25,208,000		$	32,398,800




Cash and cash equivalents segregated				92,423,100			65,928,300




Receivables from customers				407,163,000			403,288,100




Receivables from brokers and dealers				443,224,300			339,953,600




Deposits at clearing organizations				20,571,000			23,651,100




Trading securities owned, at market				19,139,600			9,176,500




Secured demand notes receivable				16,900,000			18,025,000




Goodwill, less accumulated amortization of $2,932,000				63,528,600			63,528,600




Intangible assets, less accumulated amortization of:




	June - $1,741,500 and March - $1,297,100			3,684,600			4,129,000




Other assets				22,884,900			24,320,900

Total assets			$	1,114,727,100		$	984,399,900

Liabilities




Short-term borrowings			$	52,882,000		$	25,541,000




Payables to customers				364,050,600			360,852,800




Payables to brokers and dealers				547,146,300			443,935,800




Trading securities sold but not yet purchased, at market				3,573,400			1,963,400




Notes payable				24,140,200			25,944,800




Liabilities subordinated to claims of general creditors				16,900,000			18,025,000




Other liabilities				26,780,600			27,216,400

Total liabilities			$	1,035,473,100		$	903,479,200




Shareholders’ equity




Common stock, $.04 par value;




		Authorized shares: 50,000,000




		Issued and outstanding June – 32,715,724; March - 32,775,071		1,308,600			1,311,000




Paid-in capital				89,251,300			89,338,800




Retained deficit				(11,305,900	)		(9,729,100	)

Total shareholders’ equity			$	79,254,000		$	80,920,700

Total liabilities & shareholders’ equity			$	1,114,727,100		$	984,399,900

STOCKWALK GROUP, INC.
Consolidated Condensed Statements of Operations
(Unaudited)


				Three Months Ended June 30,

		2001			2000

Revenues




	Trading profits	$	5,680,600		$	3,503,200




	Interest		13,319,500			8,057,600




	Commissions		13,410,200			4,625,200




	Investment banking		3,840,000			1,837,900




	Clearing fees		1,693,000			1,434,000




	Other income		2,452,000			1,355,300

Total revenues		$	40,395,300		$	20,813,200




Expenses




	Compensation	$	20,053,500		$	9,215,600




	Clearing fees		1,291,200			728,500




	Occupancy		3,061,000			1,417,400




	Communication		4,609,200			2,801,700




	Interest		10,238,300			6,520,600




	Amortization		444,400			249,000




	Other expense		2,274,500			1,116,400

Total expenses		$	41,972,100		$	22,049,200




Loss before income taxes			(1,576,800	)		(1,236,000	)




Income tax benefit			—			533,900

Loss from continuing operations		$	(1,576,800	)	$	(702,100	)




Discontinued operations, Online Brokerage Solutions:




Operating loss, net of income taxes		$	—		$	(459,200	)

Net loss		$	(1,576,800	)	$	(1,161,300	)

Net loss per common share:




	Basic and diluted	$	(0.05	)	$	(0.05	)

Weighted average shares outstanding:




	Basic		32,761,100			21,579,900




	Diluted		32,765,400			21,861,800

STOCKWALK GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)


				Three Months Ended June 30,
		2001			2000

Operating activities




	Net cash used for operating activities	$	(31,896,100	)	$	(17,218,400	)




Investing activities




	Purchase of furniture and equipment		(741,200	)		(1,129,100	)

	Net cash used for investing activities	$	(741,200	)	$	(1,129,100	)




Financing activities




	Increase in short-term borrowings		27,341,000			23,300,000




	Net payment on notes payable		(1,804,600	)		(1,274,100	)




	Issuance (purchase) of common stock		(89,900	)		28,200

	Net cash provided by financing activities	$	25,446,500		$	22,054,100




Net increase (decrease) in cash			(7,190,800	)		3,706,600




Cash at beginning of the period			32,398,800			5,533,500

Cash at the end of the period		$	25,208,000		$	9,240,100

STOCKWALK GROUP, INC.
Notes to Consolidated Condensed Financial Statements

Description of Business

Our history began in 1980 with the incorporation of Miller Securities, Inc., a specialized municipal bond firm. Miller Securities eventually broadened its business to include a variety of financial services, including securities clearing, and changed its name to Miller, Johnson & Kuehn, Incorporated (“MJK”). MJK Holdings, Inc. (“MJKH”) was formed in June 1997 as a holding company for MJK and MJK’s clearing division. On July 7, 1999, then privately owned MJKH and publicly held NM Holdings, Inc. completed a merger whereby MJKH became a wholly owned subsidiary of NM Holdings, Inc. The surviving entity is now known as Stockwalk Group, Inc. Stockwalk Group, Inc. acquired R.J. Steichen & Company in August 2000 and John G. Kinnard in September 2000. These two firms were merged along with the full service brokerage business of MJK into Miller Johnson Steichen Kinnard, Inc. (“MJSK”) in January 2001. Stockwalk Group, Inc. is the ultimate holding company of MJSK, MJK Clearing, Inc., Stockwalk.com, Inc., MJK Capital Corporation, and Stockwalk Investment Management, Inc. MJSK, MJK Clearing and Stockwalk.com are registered as broker-dealers with the SEC and are members of the NASD and SIPC. Our stock trades on the NASDAQ/NMS under the ticker symbol “STOK.”

We are a technologically driven regional securities firm headquartered in Minneapolis, Minnesota. Through our operating subsidiaries, we provide a broad range of investment services to individual, corporate and public clients. These services include both traditional and online securities brokerage, investment banking and research services and the processing of securities transactions for correspondent brokerage firms and financial institutions.

Accounting Changes

We have adopted the Statement of Financial Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets as issued by the Financial Accounting Standards Board in June 2001. Under these standards, goodwill is no longer amortized but is subject to periodic impairment tests. Other intangible assets with defined lives will continue to be amortized. During the quarter ended June 30, 2001 we recognized amortization expense of $444,400. Results for the quarter ended June 30, 2000 include $148,200 of amortization expense related to goodwill. If the Company adopted the new accounting guidelines for both periods the results would have been:


	Three Months Ended June 30,
	2001			2000

Net loss	$	(1,576,800	)	$	(1,060,900	)

Basic and diluted loss per common share	$	(0.05	)	$	(.05	)

Annual amortization expenses are expected to be the following:


Fiscal years ending March 31:




	2002	$	1,204,500




	2003		743,600




	2004		723,800




	2005		723,800




	2006		387,500




Thereafter			345,800

		$	4,129,000

STOCKWALK GROUP, INC.
Notes to Consolidated Condensed Financial Statements

In accordance with the requirements of FASB No. 142, the Company performed an initial impairment test by reporting unit, which indicated potential impairment of goodwill attributed to a component of the on-line segment. The measurement of the impairment loss has not yet been finalized. The Company expects to finalize this measurement in the second fiscal quarter.

Management’s Interim Financial Statement Representation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation have been included. Although we believe that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed financial statements be read in conjunction with the audited financial statements and the notes thereto included in our latest annual financial statements included in our Annual Report on Form 10-K.

Financing Arrangements

At June 30, 2001, we had discretionary lines of credit totaling $95 million, which were and are secured by firm-owned securities, customer securities collateralizing liabilities subordinated to claims of general creditors and unpaid customer securities. These lines are payable on demand. Borrowings on the lines bear interest at various rates over the banks’ cost of funds; such rates generally vary daily. We had outstanding balances of $34.2 million at June 30, 2001, with an average annual interest rate of 5.20%, and outstanding balances of $12.9 million at March 31, 2001, with and average annual interest rate of 6.42%.

At June 30, 2001 we had $18.7 million of short-term commercial paper outstanding with yields of approximately 8% maturing between 30 and 270 days from the date of issuance.

In August 2000, we completed an offering for $21.5 million of 10% convertible subordinated bonds due in 2005, of which $18.3 million were outstanding at March 31, 2001. During the quarter ended June 30, 2001, $1.3 million of the subordinated bonds were retired at less than par value.

Shareholder’s Equity

Statement Regarding: Computation of Weighted Average Number of Shares Outstanding

We calculate earnings per share in accordance with FASB Statement No. 128 by dividing net income by the weighted average number of shares of common stock outstanding to arrive at the basic earnings per common share. We calculate diluted earnings per share by dividing net income by the weighted average number of shares of common stock and dilutive stock equivalents from the exercise of stock options and warrants using the treasury stock method. Dilutive stock equivalents are options and warrants that have an exercise price less than the average market price of our common stock, for the respective periods.


	Three Months Ended
	June 30,
	2001		2000

Weighted average shares outstanding-basic		32,761,100		21,579,900




Dilutive effect of stock options and warrants after application of the treasury stock method		4,300		281,900

Weighted average shares outstanding-diluted		32,765,400		21,861,800

STOCKWALK GROUP, INC.
Notes to Consolidated Condensed Financial Statements

Business Combinations

The acquisitions of Steichen and Kinnard were accounted for under the purchase method of accounting in August and September of 1999, respectively, and accordingly, the respective purchase prices were allocated to assets acquired and liabilities assumed based on their fair market values at the dates of acquisition. The results of operations of the two entities have been included in the Consolidated Condensed Statements of Operations since the dates of acquisition. The following pro forma operating results assume that the acquisitions had occurred at the beginning of each period presented. In addition to combining the historical results of operations, the pro forma results include adjustments for the estimated effect of purchase accounting.


	Three Months Ended June 30,
	2001			2000

Total revenues	$	40,395,300		$	46,512,500




Net income (loss)		(1,576,800	)		206,400




Diluted income (loss) per common share	$	(.05	)	$	0.01

Net Capital Requirements and Dividend Restrictions

Our three broker dealers are subject to the Securities and Exchange Commission’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. MJSK and MJK Clearing have elected to use the alternative method permitted by Rule 15c3-1 which requires that they maintain minimum net capital equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions, as defined. At June 30, 2001, MJSK and MJK Clearing’s net capital were $6.5 million and $21.9 million representing 8.0% and 7.0% of aggregate debit balances and $2.5 million and $6.1 million in excess of required net capital, respectively. The net capital rule also provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5% of aggregate debits. Stockwalk.com, Inc. is required to maintain a minimum net capital of $50,000. At June 30, 2001, Stockwalk.com, Inc. had net capital of $327,000.

Income Taxes

Given the uncertainty surrounding the economy, capital markets and our operational profitability, the tax benefits attributed to the first quarter net operating losses may not be recoverable. Accordingly, we established a valuation reserve with respect to the tax benefit in the quarter ended June 30, 2001.

STOCKWALK GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We are a customer service driven regional securities firm headquartered in Minneapolis, Minnesota. Through our operating subsidiaries, we provide a broad range of investment services to individual, corporate and public clients. These services include both traditional and online securities brokerage, investment banking and research services and the processing of securities transactions for correspondent brokerage firms and financial institutions. Our niche market includes small capitalization, emerging and start-up businesses and public finance clients located principally in the upper Midwest. Our Stockwalk.com, Inc. subsidiary offers a secure online brokerage service that provides order placement, portfolio tracking and related market information, news and other information to investors 24 hours a day, seven days a week, by means of the Internet and telephone.

Factors that may affect future results

The matters set forth in this public dissemination, including management’s expectations regarding future growth and profitability, are forward-looking statements within the context of the Private Securities Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that could cause actual results to differ materially from such statements. See additional cautionary statements in exhibit 99.1

Segments

Our reportable segments are as follows: full-service brokerage, clearing brokerage, online brokerage and other. Underwriting results are combined with other full-service brokerage operations for managements’ review of internal financial statements. Results of underwriting operations are included in the full-service brokerage segment for each of the years presented.

Full-Service Brokerage

Through our traditional full-service broker dealer, MJSK, we act as agent, principal and underwriter for customers seeking to complete securities transactions. We charge a brokerage commission when acting as an agent for our customers. We recognize income or loss on inventory sold to customers from inventory maintained for those securities in which we make a market. We also provide investment banking services to our clients by managing or co-managing public offerings of securities or by arranging private placements of securities with institutional or individual investors. Our corporate and public capital finance departments accept invitations to participate in competitive or negotiated underwritings managed by other investment banking firms and allocate our underwriting positions to our brokers, institutional clients and other broker dealers.

Clearing Brokerage

MJK Clearing, Inc. serves as a clearing agent by providing transaction execution and settlement, account maintenance, including extension of credit, and record keeping services for our customers as well as customers of our correspondents and affiliates. We collect a clearing fee and charge interest on customer’s margin accounts and pay interest on cash in customer’s accounts. Additionally we borrow securities from, and lend securities to, other broker dealers and pay interest on and earn interest from, related cash collateral deposits.

Online Brokerage

Through our Stockwalk.com, Inc. broker-dealer and our web-site www.stockwalk.com, we provide automated order placement, portfolio tracking and related market information, news and other information services 24 hours a day, seven days a week. This is done by means of the Internet and telephone, which allows our customers the ability to place orders for stock trades and other investment transactions, directly, and at a lower, more predictable transaction cost than traditional full-commission brokerage firms. Operating results from our discontinued private label online brokerage business have been excluded from each period.

Other/Eliminations

Other revenues and expenses consist of clearing and interest charges assessed to affiliates that are eliminated in consolidation.

Intersegment transactions are measured on the same basis as if the transactions occurred with external customers. In reviewing the segment operating results, our operating decision-makers do not distinguish between intersegment transactions and external customer transactions. Intersegment revenue is eliminated to reconcile total segment revenue to consolidated revenue.

Information concerning operations in our segments of business is as follows:


		Three Months Ended June 30,
		2001			2000

Revenue




	Full service brokerage	$	24,052,300		$	9,753,400




	Clearing brokerage		15,616,800			10,208,700




	Online brokerage		748,600			1,318,700




	Other / Eliminations		(22,400	)		(467,600	)

Consolidated revenue		$	40,395,300		$	20,813,200

Pretax income (loss)




	Full service brokerage	$	(2,411,300	)	$	(1,116,900	)




	Clearing		1,530,100			790,400




	Online		(695,600	)		(1,017,200	)




	Other / Eliminations		—			107,700

Income (loss) from continuing operations-pretax		$	(1,576,800)		$	(1,236,000	)

Three Months Ended June 30, 2001 and June 30, 2000

During the quarter ended June 30, 2001, full service revenues were $24.1 million, an increase of $14.3 million or 146.6% from $9.8 million in the quarter ended June 30, 2000. The increase was primarily due to commissions and principal transactions revenues generated by brokers from R.J. Steichen and John G. Kinnard. MJSK also recognized an increase in municipal bond underwriting revenues, which increased from $1.2 million in the quarter ended June 30, 2000 to $2.5 million in the quarter ended June 30, 2001. We also had an increase in equity private placements closing 9 deals in the recent quarter, compared to 4 for the same period of the prior year. The full service segment incurred a pretax loss of $2.4 million in the quarter ended June 30, 2001 compared to a pretax loss of $1.1 million in the comparable period in 2000. The $15.6 million increase in expenditures is primarily due to the acquisition of R.J. Steichen and John G. Kinnard in the second quarter of 2000. Full service expenses have decreased by $4.0 million from the third quarter 2000. MJSK expects to further reduce future expenditures through streamlining the operations of the combined firms.

During the quarter ended June 30, 2001, our clearing fee revenue was $15.6 million, an increase of $5.4 million or 53.0% from $10.2 million in the quarter ended June 30, 2000. This increase in MJK Clearing’s revenues is the result of interest earned on larger customer margin accounts and cash collateral related to stock borrowing activities. The number of firms utilizing our clearing services increased to 68 for the quarter ended June 30, 2001 from 55 for the quarter ended June 30, 2000. Clearing fee expenses for the quarter ended June 30, 2001 totaled $14.1 million, an increase of $4.7 million or 49.6% from the comparable period in 2000. The increase in clearing expenses is directly related to its growth. During the quarter ended June 30, 2001, we processed 670,300 tickets compared to 314,900 tickets in the same period last year. We anticipate future growth in our clearing operations to occur as we attract new correspondents.

Our online brokerage business generated trading fee revenues of $748,600 in the quarter ended June 30, 2001, a decrease of $570,100 or 43.2% from $1.3 million in the quarter ended June 30, 2001. The decline in online revenues is a result of the decline in the equity markets. As overall investor confidence dropped so have our online trading volumes. The online segment incurred a $695,600 pretax loss in the quarter ended June 30, 2001 compared to $1.0 million pretax loss in the same period of the prior year. Online expenditures declined $1.4 million or 61.8% as a result of reductions in promotional, personnel and amortization costs.

Liquidity and Capital Resources

Our assets consist primarily of cash and assets readily convertible into cash. Security inventories are stated at market value and are generally readily marketable. Customer margin loans are collateralized by securities and have floating interest rates. Other receivables and payables with customers and other brokers and dealers usually settle transactions within three days following the date of transaction. Operations are financed by equity capital, bank lines of credit, proceeds from sales of securities, and other non-interest bearing liabilities.

The $31.9 million use of cash from operating activities is primarily related to a $26.5 million increase in cash held in reserve for NASD requirements and an $8.4 million increase in trading securities.

Our financing activities provided cash of $25.4 million in the three months ended June 30, 2001 primarily resulting from the increase in short term borrowings used to fund the increase in inventory and reserve accounts.

Our three broker dealers are subject to the Securities and Exchange Commission’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. MJK Clearing, Inc. has elected to use the alternative method permitted by Rule 15c3-1 which requires that MJK Clearing, Inc. maintain minimum net capital equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions, as defined. At June 30, 2001, MJSK and MJK Clearing’s net capital were $6.5 million and $21.9 million representing 8.0% and 7.0% of aggregate debit balances and $2.5 million and $6.1 million in excess of required net capital, respectively. The net capital rule also provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5% of aggregate debits. Stockwalk.com Inc. required a minimum of $50,000 net capital. At June 30, 2001, Stockwalk.com, Inc. had net capital of $327,000

At June 30, 2001, we had approximately $95.0 million in committed credit agreements, of which $34.2 million was utilized. In addition, we had $18.7 million of short-term commercial paper outstanding with yield of approximately 8% maturing between 30 and 270 days of issuance.

We believe that our current cash position, cash generated from future operations, availability of line of credit borrowings, additional capacity for subordinated debt, and sale of securities will be adequate to meet our current obligations and operating needs.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure is the impact that equity market pricing and interest rate fluctuations may have on the value of financial securities we hold and securities our customers hold in margin accounts. We manage this risk exposure through a process of internal controls and management review. Position limits for trading and investments are established and monitored on an on-going basis. The trading inventory is turned over frequently throughout the year. Our customers’ credit standing is reviewed by management and we maintain collateral to support customer margin loans.

Our equity price risk results from the risk of loss from price movements, volatility or liquidity over which we have no control. Our corporate equity holdings on long positions were $5.4 million at June 30, 2001. The potential loss in fair value, using a hypothetical 25% decline in equity prices on June 30, 2001 holdings, is estimated to be $1.4 million. A 25% hypothetical decline was used to represent a significant yet plausible market change.

Our primary exposure to interest rate risk arises from our interest earning assets held primarily for deposits at clearing organizations and NASD reserve requirements. We mitigate this risk by holding high-grade government obligations with short-term maturities.

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.


Dated: August 15, 2001	STOCKWALK GROUP, INC.


	By: Its:	/s/ Jeffrey L. Houdek V. P. of Finance and Chief Financial Officer

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STOCKWALK GROUP INC /MN/ 10-Q