10-Q 1 a10q43002.txt 10-Q APRIL 30, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 30, 2002 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission file number 0-21105 FIREBRAND FINANCIAL GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 13-3414302 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One State Street Plaza, New York, New York 10004 ------------------------------------------ ----- (Address of principal executive offices) (Zip Code) (212) 208-6500 (Registrant's telephone number, including area code) 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 _ No X Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at June 14, 2002 ----- ---------------------------- Common Stock, $.0001 par value 9,746,675 shares Firebrand Financial Group, Inc. Index Page Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Financial Condition as of April 30, 2002 (Unaudited) and January 31, 2002 3 Consolidated Statements of Operations for the three Months ended April 30, 2002 and 2001 (Unaudited) 4 Consolidated Statements of Cash Flows for the three months Ended April 30, 2002 and 2001 (Unaudited) 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Part II - Other Information Item 2. Sales of Unregistered Securities during the three months ended April 30, 2002 19 Item 6. Exhibits and Reports on Form 8-K 19 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIREBRAND FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition April 30, 2002 January 31, 2002 -------------- ---------------- (Unaudited) Assets Cash and cash equivalents $ 995,000 $ 1,955,000 Receivable from broker dealers 265,000 399,000 Investment in affiliates 2,894,000 2,894,000 Office furniture, equipment and leasehold improvements, net 440,000 526,000 Goodwill, net 25,000 26,000 Income taxes receivable 81,000 81,000 Other assets 358,000 579,000 --------- ----------- Total Assets $ 5,058,000 $ 6,460,000 ========= =========== Liabilities and Stockholders' Equity Commissions payable $ 61,000 $ 49,000 Income taxes payable 615,000 615,000 Accrued expenses and other liabilities 593,000 706,000 Liabilities to discontinued operations 230,000 320,000 --------- ----------- 1,499,000 1,690,000 Minority interests in net assets of subsidiary 780,000 1,007,000 --------- ----------- Total Liabilities 2,279,000 2,697,000 --------- ----------- Common stock ($.0001 par value; 35,000,000 shares authorized; 9,746,675 and 8,904,458 shares outstanding, respectively) 1,000 1,000 Additional paid-in capital 25,424,000 26,355,000 Accumulated deficit (22,611,000) (21,627,000) Accumulated other comprehensive income (loss) (35,000) (35,000) ---------- ----------- 2,779,000 4,694,000 Less treasury stock, at cost: 0 and 305,417 shares, respectively - (931,000) ---------- ----------- Total Stockholders' Equity 2,779,000 3,763,000 ---------- ----------- Total Liabilities and Stockholders' Equity $ 5,058,000 $ 6,460,000 ========== =========== See accompanying notes to consolidated financial statements. 3 FIREBRAND FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) Three months ended April 30, ---------------------------- 2002 2001 --------- --------- Revenues: Commissions $ 538,000 $ 222,000 Investment banking 185,000 877,000 Principal transactions - (29,000) Interest 9,000 65,000 Other 581,000 82,000 --------- --------- Total Revenues 1,313,000 1,217,000 --------- --------- Expenses: Compensation and benefits 714,000 1,422,000 Occupancy and equipment 768,000 1,495,000 Communication 88,000 486,000 Brokerage, clearing and exchange fees 189,000 70,000 Professional fees 167,000 383,000 Business development 53,000 104,000 Other 205,000 116,000 --------- --------- Total Expenses 2,184,000 4,076,000 --------- --------- Loss before income taxes (871,000) (2,859,000) Income tax expense 33,000 21,000 --------- --------- Loss from continuing operations (904,000) (2,880,000) Minority interest in operations of subsidiary (168,000) (210,000) --------- --------- Loss before discontinued operations (736,000) (2,670,000) --------- --------- Discontinued operations: Loss from operations of GKN Securities Corp. net of income tax expense (benefit) of $0 and $0, respectively (248,000) (304,000) Loss from operations of Shochet Holdings Corp. net of income tax expense (benefit) of $0 and $0, respectively - (73,000) --------- --------- Loss from discontinued operations (248,000) (377,000) --------- --------- Net loss $ (984,000) $(3,047,000) ========= ========= Basic and diluted (loss) per common share: Loss before discontinued operations $ (0.08) $ (0.31) Loss from discontinued operations (0.02) (0.04) --------- --------- Net loss $ (0.10) $ (0.35) ========= ========= Weighted average common shares outstanding - Basic and diluted 9,746,675 8,661,118 ========= ========= See accompanying notes to consolidated financial statements. 4 FIREBRAND FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Three months ended April 30, ---------------------------- 2002 2001 --------- --------- Operating activities: Net (loss) $ (984,000) $(3,047,000) Adjustments to reconcile net (loss) to net cash used in operating activities: Depreciation and amortization 144,000 198,000 Lease termination charge - 1,056,000 Loss from discontinued operations 248,000 377,000 Minority interest in the operations of subsidiary (168,000) (210,000) Translation adjustment - (8,000) Other 23,000 (198,000) --------- ---------- (737,000) (1,832,000) (Increase) decrease in operating assets: Receivable from brokers and dealers 134,000 (249,000) Securities owned, at market value - 2,121,000 Securities owned, not readily marketable, at fair value - 17,000 Loans receivable - 35,000 Other assets 221,000 261,000 Increase (decrease) in operating liabilities: Commissions payable 12,000 119,000 Income taxes payable - (1,000) Payable to affiliate - (2,000,000) Accrued expenses and other liabilities (113,000) (299,000) --------- ---------- Net cash used in operating activities (483,000) (1,828,000) --------- ---------- Investing activities: Lease termination (477,000) (1,718,000) --------- ---------- Net cash used in investing activities (477,000) (1,718,000) --------- ---------- Financing activities: Advances from discontinued affiliate - 1,655,000 Proceeds from sale of EarlyBirdCapital.com stock - 475,000 --------- ---------- Net cash provided by financing activities - 2,130,000 --------- ---------- Net decrease in cash and cash equivalents (960,000) (1,416,000) Cash and cash equivalents at beginning of year 1,955,000 5,038,000 --------- ---------- Cash and cash equivalents at end of period $ 995,000 $ 3,622,000 ========= ========== See accompanying notes to consolidated financial statements. 5 Firebrand Financial Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (1) Organization and Recent Events The consolidated financial statements include the activities of Firebrand Financial Group, Inc. and its subsidiaries (collectively, the "Company"). The Company is primarily engaged in investment banking and asset management services and to a lesser extent retail brokerage. The investment banking business structures and manages private offerings for early stage companies. The asset management business provides asset management services to investors though Dalewood Associates, Inc. and EarlyBirdCapital Management Limited, which both manage venture capital funds that invest primarily in early stage companies. The retail brokerage business charges commissions for individual and institutional clients for executing buy and sell orders of securities on national and regional exchanges and in the over the counter markets. In February 2001, the Company initiated a line of business through the StreetWide Asset Recovery Group, which provides debt recovery services to broker/dealers in the financial community. In December 2001, the Company added an institutional sales group at EarlyBirdCapital, Inc. ("EarlyBird"). The Company's main operating subsidiaries are EarlyBirdCapital, Inc., Dalewood Associates, Inc. ("Dalewood")and EarlyBirdCapital Management Limited ("EBCM"). The Company holds a 63.6% ownership interest in the parent company of these entities, EarlyBirdCapital.com Inc. As a result, a minority interest exists which appears in the Company's Consolidated Statement of Financial Condition. During fiscal 2001, the Company transferred the retail accounts of its wholly owned GKN Securities Corp. full service brokerage subsidiary to other broker/dealers, effectively terminating that activity. In fiscal 2001, EarlyBirdCapital.com wrote off its investment in Angeltips.com Inc., and recognized a loss of $1,363,000; said investment had been initiated earlier in the current fiscal year. The write off represented management's assessment of the impairment to value reflected by marked change in the environment for angel websites. In December 2000, the Company's Board approved a plan to dispose of its 53.5% interest in Shochet Holding Corp ("Shochet"), whose principal operation, Shochet Securities, Inc. (subsequently renamed SSI Securities Inc. ("SSI")) provided discount retail brokerage services in South Florida. On August 1, 2001 Shochet announced that SSI had signed a definitive agreement to transfer substantially all of its brokers, accounts and operating assets to another independent broker/dealer, BlueStone Capital Corp. ("BlueStone"). This transaction closed on August 31, 2001, leaving Shochet as a public shell. On November 7, 2001 BlueStone announced that it had in turn sold substantially all of its operating assets to another independent broker/dealer, Sands Brothers & Co., Ltd. ("Sands"). As of October 1, 2001, EarlyBirdCapital.com sold its ownership interest in EBCapital (Europe) AG. On March 12, 2002, the Company announced that it had signed a definitive agreement to sell all of its interest, except for 52,785 shares of common stock, in Shochet to Sutter Opportunity Fund 2, LLC. This transaction closed on March 28, 2002. In the first quarter of fiscal 2002 the Company established the StreetWide Asset Recovery Group ("StreetWide"). StreetWide is engaged by broker/dealers and other financial institutions to collect debt due to them from prior broker employees or from customers. The broker debts are generated through brokers reneging on employment contracts or brokers generating losses due to their respective firms. The customer debt is usually generated through unsecured margin loans on which the customers have refused to repay the firms. 6 (2) Summary of Significant Accounting Policies Basis of Presentation All significant intercompany accounts and transactions are eliminated in consolidation. Where appropriate, prior year amounts have been reclassified to conform to the current year presentation. The financial statements conform to generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and the liquidation of liabilities and commitments in the normal course of business. The Company's operations for fiscal 2002 have consumed substantial amounts of cash and have generated significant net losses, which have reduced stockholders' equity to $2,779,000 at April 30, 2002. As noted above, many of the product lines previously offered by the Company have been discontinued. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management believes that the Company's future success is dependent upon its ability to (i) streamline its operations to reduce costs, and (ii) generate new sources of revenue. The Company has begun reducing costs and has expanded into new lines of business. Notwithstanding the foregoing, the Company's cash resources remain constrained and are not sufficient to meet existing contractual obligations and liabilities. Fair Value of Financial Instruments Substantially all of the Company's financial assets and liabilities are carried at market or fair values or at amounts that approximate current fair value due to their short-term nature. Cash and Cash Equivalents Cash equivalents are highly liquid securities with maturities of three months or less when purchased. As collateral to an equipment lease, the Company has maintained a restricted cash escrow account which equaled $955,000 at January 31, 2002. This restriction was lifted in March 2002. Receivables from Brokers and Dealers Receivables from brokers and dealers consist primarily of amounts due from the Company's clearing organization, which provides clearing and depository services for brokerage transactions on a fully disclosed basis. Securities Securities owned and securities sold, not yet purchased, consist primarily of equities and are stated at quoted market values. Securities owned, not readily marketable, consist primarily of warrants and are stated at management's estimate of fair value based on a percentage of the underlying securities. Unrealized gains and losses are included in revenues from principal transactions. 7 Investments in affiliates Investments consist primarily of an investment in a limited partnership, which are accounted for using the equity method. Depreciation and Amortization Office furniture, equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization of $1,272,000 and $1,128,000 at April 30, 2002 and January 31, 2002, respectively. Office furniture and equipment are depreciated using either an accelerated method or a straight-line method, where applicable, over the estimated useful lives. Leasehold improvements are amortized over the lesser of the life of the lease or estimated useful life of the improvement. Goodwill Goodwill represents the excess of the purchase price over the net assets acquired upon the Company's acquisition of Dalewood Associates, Inc. ("Dalewood") in December 1996. Effective February 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. In connection with the adoption of Statement 142, the Company ceased the amortization of goodwill and intangible assets that were determined to have an indefinite useful life and that had been acquired in a purchase business combination. The Company is in the process of testing intangible assets having an indefinite useful life for impairment in accordance with the provisions of Statement 142. Investment Banking Fees Investment banking management and underwriting fee revenues are recognized when a transaction is complete and the income is reasonably determinable. Stock-Based Compensation The Company uses the intrinsic value method to account for stock-based employee compensation plans. Under this method, compensation cost is recognized for stock option awards only if the quoted market price (or estimated fair market value of the stock prior to the stock becoming publicly traded) is greater than the amount the employee must pay to acquire the stock. Income Taxes Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. 8 (3) Discontinued Operations GKN Securities On November 28, 2000, the Company and its wholly owned subsidiary, GKN Securities Corp. ("GKN"), and Investec Ernst & Company ("Investec"), entered into an agreement ("Agreement"), under which certain brokers employed by GKN were terminated by GKN on or about December 18, 2000 ("Transfer Date"). In turn, on the Transfer Date, these brokers were offered employment by Investec, and GKN affected an electronic transfer of these brokers' client accounts to Investec. The transfer was part of the Company's strategy to focus its business on investment banking services. Under the Agreement, GKN will receive certain percentages of the gross commissions generated by these brokers at Investec during the three-year period beginning on the Transfer Date ("Override Fees"). These percentages are 6% in the first year and 8% in each of the second and third years. Investec has guaranteed that the Override Fees to be received by GKN shall be at least equal to $500,000 in the first year, $400,000 in the second year and $300,000 in the third year. Adjustments will be made on these guaranteed fees if commissions fall below specified levels. Actual payments received, to date, under the Agreement were $500,000 for the first year and $145,000 for the second year. During August 2001, GKN ceased operations of its Structured Finance Department. The financial impact of this action was insignificant to the Company. On September 10, 2001, GKN filed a Form BDW with the NASD and SEC. By filing the Form, GKN gave notice that it was withdrawing from the securities business and returning its license to the regulatory authorities. The final withdrawal received the approval of all necessary regulatory authorities. The operations of GKN have been accounted for as a discontinued operation. Shochet Holding In December 2000, the Company's Board approved a plan to dispose of its 53.5% interest in Shochet Holding Corp. ("Shochet"), whose principal operation, SSI Securities, Inc. ("SSI") (previously known as Shochet Securities, Inc.), provided discount retail brokerage services in South Florida. On August 1, 2001 Shochet announced that SSI had signed a definitive agreement to transfer substantially all of its brokers, accounts, and operating assets to another independent broker/dealer, BlueStone Capital Corp. ("BlueStone"). This transaction closed on August 31, 2001, leaving Shochet as a public shell. As part of the transaction the name "Shochet Securities" was sold to BlueStone. Shochet Securities changed its name to SSI Securities, Inc. On November 7, 2001 BlueStone announced that it had in turn sold substantially all of its operating assets to another independent broker/dealer, Sands Brothers & Co., Ltd. ("Sands"). This transaction included the sale of the assets acquired by BlueStone from SSI. As part of the transaction, Sands, BlueStone and SSI entered into an agreement of the same date whereby Sands and BlueStone were relieved of their commitment to pay SSI an override on commission revenue generated on the transferred accounts in exchange for a payment of $314,000. At January 31, 2001, the Company's remaining investment in Shochet was $73,000. During the first quarter of fiscal 2002, the Company recognized its portion of Shochet's net loss to the extent of its remaining investment. 9 On December 20, 2001, SSI filed a Form BDW with the NASD and SEC. By filing the Form, SSI gave notice that it was withdrawing from the securities business and returning its license to the regulatory authorities. The final withdrawal received approval of both the NASD and the SEC. On March 28, 2002 the Company sold its remaining interest, except for 52,785 shares, in Shochet to Sutter Opportunity Fund 2. The operations of Shochet and SSI have been accounted for as discontinued operations. Other Business Divestitures As of October 1, 2001, EarlyBirdCapital.com sold its ownership in EBCapital (Europe) AG to the managing director of the company. A loss of $221,000 was recognized on this transaction. (4) Segment and Geographic Area Information Subsequent to the discontinuance of operations as discussed above, the Company's remaining continuing product lines, investment banking and asset management services, are directed by a common management team. As such, no segment reporting by business line is presented. The Company's principal operations are located in New York City in the United States. (5) Commitments and Contingencies The Company's broker-dealer subsidiaries are involved in various other legal proceedings arising from its securities activities. GKN Securities held a $1.5 million reserve for such legal matters at April 31, 2002. While GKN has recognized this book reserve, it will not have sufficient cash balances to cover these potential liabilities. 10 (6) Earnings Per Common Share The following table sets forth the computation of basic and diluted EPS: Three months ended April 30, 2002 2001 ---- ---- Numerator for basic and diluted EPS: Loss before discontinued operations $ (736,000) $ (2,670,000) Loss from discontinued operations (248,000) (377,000) ---------- ----------- Net loss $ (984,000) $ (3,047,000) ========== ========= Denominator for basic and diluted EPS: Weighted-average common shares 9,746,675 8,661,118 ========== ========= Basic and diluted EPS: Loss before discontinued operations $ (0.08) $ (0.31) Loss from discontinued operations (0.02) (0.04) ---------- ---------- Net loss $ (0.10) $ (0.35) ========== ========== (7) Net Capital Requirements EarlyBirdCapital is a registered broker-dealer with the Securities and Exchange Commission (the "SEC") and member firms of the National Association of Securities Dealers ("NASD"). As such, EarlyBirdCapital is subject to the SEC's Uniform Net Capital Rule (SEC rule 15c3-1), which requires the maintenance of minimum net capital. EarlyBirdCapital computes net capital under the standard aggregate indebtedness method permitted by the net capital rule, which requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At April 30, 2002, EarlyBirdCapital had net capital of $319,000, which was $219,000 in excess of its required net capital of $100,000. EarlyBird's ratio of aggregate indebtedness to net capital was 0.69 to 1. (8) Supplemental Cash Flow Information Three Months ended April 30, ------------------- 2002 2001 ------- ------- Cash paid for: Income taxes $ 33,000 $ 26,000 ======= ======= 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis of the consolidated results of operations and financial condition of Firebrand Financial Group, Inc. and subsidiaries should be read in conjunction with the Consolidated Financial Statements included in Item 1 of this document. Changes in Corporate Composition and Discontinued Operations GKN Securities During the fiscal year ended January 31, 2001, we made the strategic decision to de-emphasize retail securities brokerage activity. Accordingly, we arranged to transfer our full service retail brokerage accounts at GKN to a series of broker/dealers, who in turn hired the GKN brokers. These broker/dealer firms are compensating GKN under arrangements discussed in footnote 3 to our consolidated financial statements in our Form 10-K for the fiscal year ended January 31, 2002. During August 2001, GKN ceased operations of its Structured Finance Department. The financial impact of this action was insignificant to the Company. On September 10, 2001, GKN filed a Form BDW with the NASD and SEC. By filing the Form, GKN gave notice that it was withdrawing from the securities business and returning its license to the regulatory authorities. The final withdrawal received approval of all necessary regulatory authorities. Shochet Holding Corp. In December 2000, the Company's Board approved a plan to dispose of its 53.5% interest in Shochet, whose principal operation, SSI Securities, Inc. ("SSI") (previously known as Shochet Securities, Inc.), provided discount retail brokerage services in South Florida. On August 1, 2001 Shochet announced that SSI had signed a definitive agreement to transfer substantially all of its brokers, accounts and operating assets to another broker/dealer, BlueStone Capital Corp. ("BlueStone"). This transaction closed on August 31, 2001. As part of the transaction the name "Shochet Securities" was sold to BlueStone and Shochet Securities changed its name to SSI Securities, Inc. On November 7, 2001 BlueStone announced that it had sold substantially all of its operating assets to another independent broker/dealer, Sands Brothers & Co., Ltd. ("Sands"). See footnote 3. On December 20, 2001, SSI filed a Form BDW with the NASD and SEC. By filing the Form, SSI gave notice that it was withdrawing from the securities business and returning its license to the regulatory authorities. The final withdrawal received approval of both the NASD and the SEC. On March 12, 2002 we announced that we had entered into an agreement to sell most of our interest in Shochet to Sutter Opportunity Fund 2 LLC. This transaction closed on March 28, 2002. EarlyBirdCapital In July 2000, EarlyBirdCapital acquired the assets of Angeltips.com, a company involved in attracting angel investors to early-stage companies. EarlyBird issued 1,129,623 shares of its common stock and $1,018,000 in cash for the assets. This transaction was subsequently renegotiated and 782,940 of the shares issued were recaptured. Angeltips.com was subsequently closed down. As part of the renegotiation of the transaction and the close down, EarlyBirdCapital recognized a loss of $1,363,000 in fiscal 2001. 12 In October 2001, EarlyBirdCapital.com sold its ownership interest in EBCapital (Europe) AG to its managing director. This transaction is discussed in footnote 3 to the consolidated financial statements of this document. Other Business In the first quarter of fiscal 2002, we established the StreetWide Asset Recovery Group ("StreetWide"). StreetWide is engaged by broker/dealers and other financial institutions to collect debt due to them from prior broker employees or from customers. The broker debts are generated through brokers reneging on employment contracts or brokers generating other losses due to their respective firms. The customer debt is usually generated through unsecured margin loans on which the customers have refused to repay the firms. StreetWide pursues the collection of these debts through the NASD Arbitration process, or through direct negotiation with the obligor. StreetWide currently employs two individuals. StreetWide anticipates future growth through the solicitation of additional broker/dealers and clearing firms as customers. Our operations have consumed substantial amounts of cash and have generated significant net losses. We have curtailed or discontinued many of the product lines we previously offered. These matters raise doubt about our ability to continue as a going concern, as cited in Footnote 1 to the consolidated financial statements. We believe that our future success is dependent upon our ability to (i) streamline our operation to reduce costs, and (ii) generate new sources of revenue. We have begun reducing costs and have expanded into new lines of business. Business Environment Following the above changes, our primary business activities are investment banking and asset management, with an emphasis on emerging-growth companies. These businesses are subject to general economic and market conditions and volatility of trading markets, particularly the emerging-growth sector. Our new business, asset recovery, is also subject to general economic and market conditions. It operates in a highly competitive marketplace. Results of any individual period should not be considered representative of future profitability. A significant portion of our expenses are fixed and do not vary with market activity. Substantial fluctuations could occur in our revenues and net income from period to period. 13 Results of Operations Three Months Ended April 30, 2002 vs. Three Months Ended April 30, 2001 Loss before discontinued operations for the three months ended April 30, 2002 was $736,000 as compared with a loss before discontinued operations of $2,670,000 for the three months ended April 30, 2001. The decrease was caused by a $96,000 increase in revenues and a $1,892,000 decrease in expenses. These were partially offset by a $12,000 increase in income tax expense and a $42,000 decrease in the recognition of the minority interest's portion of the loss before discontinued operations. Revenues increased primarily due to an increase in commissions and other revenue, partially offset by a decrease in investment banking revenue and interest revenue. Expenses decreased due to reductions in compensation and benefits expense, occupancy and equipment expense, communication expense, professional fees expense, and business development expense, partially offset by an increase in brokerage, clearing and exchange fees expense and other expense. Loss from discontinued operations for the period was $248,000, compared to a loss of $377,000 for the comparable quarter in the prior year. Loss from discontinued operations is discussed below in "Discontinued Operations." Net loss for the period was $984,000, compared to a loss of $3,047,000 in the first quarter of the prior fiscal year. Basic and diluted loss per share of common stock was $0.10 for the first quarter of fiscal 2003 as compared to a loss of $0.35 for the fiscal 2002 quarter. Basic and diluted loss before discontinued operations per share of common stock was $0.08 for the first quarter of fiscal 2003 as compared to a loss of $0.31 in the comparable quarter in fiscal 2002. Revenues Total revenues from continuing operations increased by 8% to $1,313,000 for the first quarter of fiscal 2003, versus the year-earlier period, mainly as a result of an increase in commission revenues and other revenues. Commission revenues contributed $538,000 to revenues in the first quarter of fiscal 2003, versus $222,000 in the comparable quarter in fiscal 2002. The increased commission revenues reflect the addition of an institutional sales group at EarlyBird in December 2001. Investment banking revenues decreased to $185,000 from $877,000, a 79% decrease. All of these revenues were generated at EarlyBird. During the first quarter of fiscal 2003 EarlyBird received a finder's fee of $130,000 and other investment banking fees of $55,000. Losses from principal transactions were $0 in the first quarter of fiscal 2003, versus a loss of ($29,000) in the comparable quarter in fiscal 2002. Interest income was $9,000 in the first quarter of fiscal 2003, versus $65,000 for the comparable period. The decrease was the result of lower investable cash balances and lower interest rates. Other revenues increased to $581,000 in the fiscal 2003 quarter, versus $82,000, primarily as a result of the proceeds resulting from Firebrand Financial's sale of its interest in Shochet. 14 Expenses Total expenses from continuing operations for the first quarter of fiscal 2003 were $2,184,000, a 46% decrease from the same quarter in fiscal 2002. The decrease is attributable to decreases in compensation, occupancy and equipment, communication, and professional fees expenses. These decreases were partially offset by an increase in brokerage, clearing and exchange fees. Compensation and benefit expense decreased to $714,000, from $1,422,000. The decrease was attributable to decreased headcounts at EarlyBird and Firebrand Financial. Occupancy & equipment expense decreased to $768,000 from $1,495,000. The decrease reflects the one-time charge in the prior fiscal quarter of $619,000 associated with the buyout of certain operating leases. Communication expenses decreased to $88,000 from $486,000. Again, this decrease reflects the one-time charge in the prior fiscal quarter of $437,000 associated with the buyout of certain operating leases. Brokerage, clearing and exchange fees for the fiscal 2003 quarter were $189,000 compared to $70,000 in the fiscal 2002 quarter. This increase was directly attributable to the introduction of the institutional sales group in December 2001. Professional fees decreased to $167,000 from $383,000. The decrease was the result of lower legal costs. Business development expense decreased 49% to $53,000 in the first quarter of fiscal 2003, as a result of a decrease in this activity at EarlyBird. Other expenses increased to $205,000 from $116,000, primarily the result of a $90,000 payment to a party affiliated with EarlyBirdCapital Management. Income taxes For the quarter ended April 30, 2002, we recognized $33,000 of income taxes, as compared to $21,000 in the comparable quarter of the prior year.. Discontinued operations During the fiscal year ended January 31, 2001, we made the strategic decision to de-emphasize retail securities brokerage activity. Accordingly, we arranged to transfer our full service retail brokerage accounts at GKN Securities to a series of broker/dealers, who in turn hired the GKN brokers. Further, in December 2000, our Board approved a plan to sell its 53.5% majority stake in Shochet Holding, whose primary activity was discount retail brokerage in South Florida through SSI. In October 2001, EarlyBirdCapital.com sold its ownership interest in EBCapital (Europe) AG. Finally, in March 2002 we sold most of our remaining interest in Shochet Holding to Sutter Opportunity Fund 2. GKN is considered a discontinued operation for the financial statements of the quarter ended April 30, 2002. Certain revenue and expense amounts in prior years have been reclassified to reflect the impact of the discontinued operation, as well as certain balance sheet items. For the quarter ended April 30, 2002, GKN incurred losses of $248,000, compared to losses of $304,000 in the comparable quarter of the prior year. The current year loss reflects additional legal costs related to existing litigation and customer arbitrations. In the prior year quarter, Shochet incurred losses of $73,000. 15 Weighted average common shares outstanding The average numbers of common shares and common stock equivalents used in the computation of basic and diluted earnings per share were 9,746,675 for the first quarter of fiscal 2003, compared with 8,661,118 in the prior year's period. Liquidity and Capital Resources Approximately 25% of assets at April 30, 2002 were highly liquid, consisting primarily of cash and cash equivalents and receivables from other broker-dealers. Additionally, approximately 57% of our assets are an investment in Dalewood Associates LP, which we believe we could liquidate at a discount, if necessary. At April 30, 2002, we held $230,000 of net liabilities for discontinued operations, for which we have continued financial exposure. Our brokerage subsidiary, EarlyBirdCapital, Inc., is subject to the net capital rules of the NASD and SEC. As such, we are subject to certain restrictions on the use of capital. EarlyBird's net capital position as of April 30, 2002 was $319,000, which was $219,000 in excess of its net capital requirement. Our overall capital and funding needs are continually reviewed to ensure that our capital base can support the estimated needs of its business units. These reviews take into account business needs as well as regulatory capital requirements of the subsidiaries. Our present level of revenues are not covering expenses. ^ At present, there is doubt about the Company's ability to continue as a going concern. Management believes that the Company's future success is dependent upon its ability to (i) streamline its operations to reduce costs and (ii) generate new sources of revenue. The Company has begun reducing costs and has expanded into new lines of business. Notwithstanding the foregoing, the Company's cash resources remain constrained and are not sufficient to meet existing contractual obligations and liabilities. We have recognized book reserves to cover exposures related to arbitrations and legal matters concerning our subsidiary GKN. GKN also has continued liability on its real property lease to its landlord at One State Street Plaza in New York City. GKN can not satisfy these liabilities with operating income and does not have sufficient cash balances to cover them. There is no assurance of any future financing. 16 Consolidated Contractual Obligations and Lease Commitments The table below summarizes information about our consolidated contractual obligations as of April 30, 2002 and the effects these obligations are expected to have on our consolidated liquidity and cash flow in future years. This table does not include any projected payment amounts related to GKN's potential exposure to arbitrations and other legal matters.

~~FIREBRAND~~Payments ~~FINANCIAL~~due ~~GROUP,~~by ~~INC.~~Period ~~AND~~Total ~~SUBSIDIARIES~~Less ~~Consolidated~~than ~~Statements~~1 of1 ~~Financial Condition (Unaudited) October 31, 2001 January 31,2001~~ -~~---------------~~ ~~---------------~~2 ~~Assets Cash and cash equivalents $~~ 2~~,371,000~~ ~~$ 5,038,000 Receivable from broker dealers 336,000 140,000 Securities owned at market value~~ - ~~2,121,000~~3 ~~Securities owned, not readily marketable, at fair value 23,000 57,000 Investment in unconsolidated affiliates~~ 3~~,151,000~~ ~~4,649,000 Investment in discontinued operations~~ - 4~~,358,000~~ ~~Investment~~After ~~fees~~4 ~~receivable~~Operating ~~102,000~~lease ~~228,000~~year ~~Loans~~years ~~receivable~~years -years ~~355,000~~years ~~Office furniture, equipment and leasehold improvements, net 1,267,000 880,000 Goodwill, net 27,000 28,000 Income taxes receivable 79,000 79,000 Other assets 924,000 1,805,000~~ ------------- ------------- ~~Total Assets $ 8,280,000 $ 19,738,000 ============= ============= Liabilities and Stockholders' Equity Commissions payable 12,000~~ - ~~Income taxes payable 654,000 627,000 Payable to related parties~~ - ~~2,000,000 Accrued expenses and other liabilities 528,000 1,060,000 Liabilities to discontinued operations 459,000~~ - ------------- ------------- ~~1,653,000 3,687,000 Minority interests in net assets of subsidiary 1,365,000 2,073,000~~ ---~~----------~~ ~~-------------~~obligations ~~Total Liabilities 3~~$13,~~018~~066,000 5$1,~~760~~017,000 ~~------------- ------------- Common stock (~~$~~.0001 par value; 35~~1,~~000~~048,000 ~~shares authorized; 9,209,875 shares issued; 8,906,049 and 8,661,118 shares outstanding, respectively)~~ $1,~~000 1~~097,000 Additional paid-in capital 26,355,000 26,355,000 Retained earnings (20,064,000) (11,261,000) Accumulated other comprehensive income (loss) (35,000) (22,000) ------------- ------------ 6,257,000 15,073,000 Less treasury stock, at cost: 303,826 and 548,757 shares respectively (995,000) ($1,~~095~~167,000) ~~------------- ------------ Total Stockholders' Equity 5,262,000 13,978,000 ------------- ------------- Total Liabilities and Stockholders' Equity~~ $8,~~280~~737,000 ~~19,738,000 ============= ============~~

Critical Accounting Policies An understanding of our accounting policies is necessary for a complete analysis of our results, financial position, liquidity and trends. We focus your attention on the following: Asset Management Fees: We recognized both management fees and performance fees related to our management of both Dalewood Associates, LP and Dalewood 2. These fees are directly related to the amount of assets under management and the performance of the investments in which the assets are invested. We recognize the management fees semi-annually as earned. We recognize an estimate of performance fees at mid-year and actual performance fees earned at year-end. The amount of performance fees and their estimates can vary greatly from period to period. Income Taxes: Our effective tax rate and the tax bases of our assets and liabilities reflect our best estimate of the ultimate outcome of tax audits. Valuation allowances are established where expected future taxable income does not support the realization of the deferred tax assets. We currently recognize a valuation reserve to the full extent of any deferred tax asset. Discontinued Operations: Upon the decision to dispose of or terminate a material business operation we account for the results of that operation as a discontinued operation. Any expected future operating loss of the operation and any expected loss on the disposition or termination of the business are recognized at the time the decision is made. Management's best estimate of the future losses are utilized in recognizing expected losses. Actual results may differ materially from management's estimates. Where a discontinued operations' expected losses exceed our investment in the separate subsidiary we recognize the expected losses only to the extent of our investment, or if we have outstanding guarantees of that subsidiary's liabilities, to the extent of such guarantees. Minority Interest: We have raised capital from outside investors for certain of our operating subsidiaries. As a result, we do not own 100% of these subsidiaries, thereby creating a minority interest in the operation. The minority interest recognizes its proportion of any income or loss of the subsidiary. This acts to decrease our income or decrease our loss, depending upon the operating results. 17 Other Matters New Accounting Pronouncements In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes standards for accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities, which was subsequently amended in June 1999 and 2000. SFAS 133 is effective for fiscal quarters beginning after January 1, 2001. The effect of SFAS 133 was not material to our financial statement disclosures. In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets other than goodwill be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001, and the provisions of SFAS No. 142 are effective for all fiscal years beginning after December 15, 2001. These statements did not have a significant impact on our financial position or results of operations. Safe Harbor Cautionary Statement We occasionally make forward-looking statements such as forecasts and projections of expected future performance or statements of our plans and objectives. When used in this annual report and in future filings with the SEC, in our press releases and in oral statements made with the approval an authorized executive officer, the words or phrases "will likely result," "the Company expects," "we intend or expect," "will continue," "is anticipated," "estimated," "project," or "outlook" or similar expressions, including confirmations by one of our authorized executive officers of any such expressions made by a third party regarding us with respect to the company are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We want to caution you not to place undue reliance on these forward-looking statements, each of which speaks only as of the date made. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Factors that could affect our results of operations and cause its results to differ from these statements include: o the volatility and price level of the securities markets o the volume, size and timing of securities transactions o the demand for investment banking services o the level and volatility of interest rates o the availability of credit o legislation affecting the business and financial communities, and o the economy in general. For a more complete discussion of these and other factors, see Exhibit 99 to our Annual Report on Form 10-K for the fiscal year ended January 31, 2002. We have no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of these statements. 18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our investing and underwriting activities often involve the purchase, sale or short sale of securities as principal. Such activities subject our capital to significant risks from markets that may be characterized by relative illiquidity or may be particularly susceptible to rapid fluctuations in liquidity. Such market conditions could limit our ability to resell securities purchased or to purchase securities sold short. These activities subject our capital to significant risks, including market, credit counterparty and liquidity risks. Market risk relates to the risk of fluctuating values based on market prices without action on our part. Our primary credit risk is settlement or counterparty risk, which relates to whether a counterparty will fulfill its contractual obligations, such as delivery of securities or payment of funds. Liquidity risk relates to our inability to liquidate assets or redirect the deployment of assets contained in illiquid investments. In addition, our market and liquidity risks associated with asset revaluation are increased because these risks for us are concentrated and thus subject us to increased risks if market conditions deteriorate. PART II - OTHER INFORMATION Item 2. Changes in securities: Sales of Unregistered Securities during the three months ended April 30, 2002 None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K: None 19 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: June 19, 2002 Firebrand Financial Group, Inc. /s/Eric Citrin ------------------------------- Controller (Principal Financial and Accounting Officer) /s/David M. Nussbaum ------------------------------- Chairman of the Board, President, Chief Executive Officer (Principal Executive Officer) 20

FIREBRAND FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Operations (Unaudited) Three Months Nine Months Ended October 31, Ended October 31, ------------------------------ ------------------------------ 2001 2000 2001 2000 ------------- ------------- ------------- ------------- Revenues: Commissions $ 89,000 $ - $ 462,000 $ 2,000 Investment banking 230,000 281,000 1,434,000 1,468,000 Principal transactions (12,000) (595,000) (56,000) 23,000 Asset management fees 15,000 (282,000) 295,000 493,000 Interest 96,000 96,000 203,000 311,000 Other 62,000 442,000 464,000 582,000 ------------- ------------- ------------- ------------- Total revenues 480,000 (58,000) 2,802,000 2,879,000 ------------- ------------- ------------- ------------- Expenses: Compensation and benefits 781,000 2,095,000 3,322,000 3,400,000 Occupancy and equipment (42,000) 658,000 1,755,000 785,000 Brokerage, clearing and exchange fees 47,000 59,000 239,000 59,000 Communications 74,000 53,000 689,000 84,000 Business development 91,000 417,000 270,000 2,052,000 Professional fees 217,000 143,000 916,000 709,000 Other 221,000 (2,000) 518,000 721,000 ------------- -------------- ------------- ------------- Total expenses 1,389,000 3,423,000 7,709,000 7,810,000 ------------- ------------- ------------- ------------- Income (loss) from continuing operations (909,000) (3,481,000) (4,907,000) (4,931,000) Equity in earnings(loss) of unconsolidated affiliates - (1,025,000) (1,498,000) 875,000 (Loss) from sale of business (221,000) - (221,000) - Minority interest in operations of subsidiaries (417,000) (754,000) (708,000) (1,468,000) ------------- ------------- ------------- ------------- Income (loss) before taxes (713,000) (3,752,000) (5,918,000) (2,588,000) Income tax (benefit) provision 26,000 - 78,000 (813,000) ------------- ------------- ------------- ------------- Income (loss) before discontinued operations (739,000) (3,752,000) (5,996,000) (1,775,000) ------------- ------------- ------------- ------------- Discontinued operations: Loss from operations of GKN Securities Corp. net of income tax expense (benefit) (2,089,000) (1,819,000) (2,734,000) (6,924,000) Loss from operations of Shochet Holdings Corp. net of income tax expense (benefit) - (391,000) (73,000) (1,019,000) ------------- ------------- ------------- ------------- Income (loss) from discontinued operations (2,089,000) (2,210,000) (2,807,000) (7,943,000) ------------- ------------- ------------- ------------- Net loss $ (2,828,000) $ (5,962,000) $ (8,803,000) $ (9,718,000) ============= ============= ============= ============= Weighted average common shares outstanding - basic 8,906,049 9,019,387 8,742,762 8,895,603 ============= ============= ============= ============= Weighted average common shares outstanding - diluted 8,906,049 9,019,387 8,742,762 8,895,603 ============= ============= ============= ============= Basic (loss) earnings per common share: (Loss) earnings from continuing operations $ (0.08) $ (0.42) $ (0.69) $ (0.20) (Loss) from discontinued operations (0.23) (0.25) (0.32) (0.89) ------------- ------------- ------------- ------------- Net loss $ (0.31) $ (0.67) $ (1.01) $ (1.09) ============ ============= ============= ============= Diluted (loss) earnings per common share: (Loss) earnings from continuing operations $ (0.08) $ (0.42) $ (0.69) $ (0.20) Loss from discontinued operations (0.23) (0.25) (0.32) (0.89) ------------- ------------- ------------- ------------- Net loss $ (0.31) $ (0.67) $ (1.01) $ (1.09) ============ ============= ============= =============

FIREBRAND FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity For the Year Ended January 31, 2001 and the Nine Months Ended October 31, 2001 (Unaudited) Preferred Stock Common Stock Additional ----------------------- --------------------- Paid-in Shares Amt. Shares Amt. Capital ----------- ---------- ----------- ------- -------------- Balance at January 31, 2000 - $ - 9,209,875 $ 1,000 $20,342,000 Net income (loss) - - - - - Net proceeds from sale of EarlyBirdCapital.com stock - - - - 10,452,000 Minority interest - EarlyBirdCapital.com - - - - (4,141,000) Stock options exercised - - - - (22,000) Forfeiture of stock issued - compensation plan - - - - 17,000 Stock issued - 401(k) plan - - - - (588,000) Amortization of unearned compensation - - - - 1,445,000 Repurchase of stock for treasury - - - - - Stock issued - compensation plan - - - - (1,150,000) Translation adjustment - - - - - ------- -------- --------- -------- ---------- Balance at January 31, 2001 - $ - 9,209,875 $ 1,000 26,355,000 ======= ======== ========= ======== ========== Net loss - - - - - Stock issued - deferred compensation plan - - - - - Translation adjustment - - - - - ------- -------- --------- -------- ---------- Balance at October 31, 2001 - $ - 9,209,875 $ 1,000 26,355,000 ======= ======== ========= ======== ========== (CONTINUED BELOW) Accumulated Other Treasury Stock Retained Comprehensive ------------------------ Earnings Income (Loss) Shares Amount Total ---------- -------------- ----------- --------- ------------ Balance at January 31, 2000 $ 9,206,000 $(51,000) (580,662) $(2,547,000) $ 26,951,000 Net income (loss) (19,981,000) - - - (19,981,000) Net proceeds from sale of EarlyBirdCapital.com stock - - - - 10,452,000 Minority interest - EarlyBirdCapital.com - - - - (4,141,000) Stock options exercised - - 27,053 120,000 98,000 Forfeiture of stock issued - compensation plan - - (3,916) (17,000) - Stock issued - 401(k) plan - - 345,917 678,000 90,000 Amortization of unearned compensation - - - - 1,445,000 Repurchase of stock for treasury - - (710,052) (965,000) (965,000) Stock issued - compensation plan (486,000) - 372,903 1,636,000 - Translation adjustment - 29,000 - - 29,000 ------------ ---------- ---------- ----------- ------------ Balance at January 31, 2001 $(11,261,000) $ (22,000) (548,757) $(1,095,000) 13,978,000 ============ ========== ========== ========== ============ Net loss (8,803,000) - - - (8,803,000) Stock issued - deferred compensation plan - - 244,931 100,000 100,000 Translation adjustment - (13,000) - - (13,000) ------------ ---------- ---------- ----------- ------------ Balance at October 31, 2001 $(20,064,000) $ (35,000) (303,826) $ (995,000) $ 5,262,000 ============ ========== ========== ========== ============

FIREBRAND FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended October 31, 2001 2000 ---------------- -------------- Operating activities: Net (loss) $ (8,803,000) $ (9,716,000) Adjustments to reconcile net (loss) to net cash provided by (used) in operating activities: Depreciation and amortization 571,000 202,000 Lease termination charge 1,056,000 - Loss from discontinued operations 2,807,000 7,943,000 Loss from sale of business 222,000 - Minority interest in operations of subsidiary (708,000) (1,468,000) Translation adjustment 13,000 (67,000) Other (68,000) 80,000 ----------------- -------------- (4,910,000) (3,026,000) (Increase) decrease in operating assets: Receivable from brokers and dealers (196,000) (132,000) Securities owned, at market value 2,121,000 322,000 Securities owned, not readily marketable, at fair value 34,000 - Investment in affiliates 1,498,000 (6,346,000) Investment fees receivable 126,000 2,953,000 Loans receivable 355,000 (361,000) Income taxes receivable - 3,000 Other assets 406,000 104,000 Increase (decrease) in operating liabilities: Commissions payable 12,000 - Income taxes payable 27,000 (433,000) Deferred tax liability - (1,057,000) Payable to affiliate (2,000,000) 1,374,000 Accrued expenses and other liabilities (532,000) (406,000) ----------------- -------------- Net cash (used in)provided by operating activities (3,059,000) (7,005,000) ----------------- -------------- Investing activities: Purchase of furniture, equipment and leasehold improvements - (573,000) Lease termination (1,718,000) - ----------------- -------------- Net cash (used in) provided by investing activities (1,718,000) (573,000) ----------------- -------------- Financing activities: Advances from (to) discontinued affiliate 1,510,000 12,000 Repayment of loan to discontinued affiliate 500,000 - Sale (purchase) of treasury stock 100,000 (751,000) Proceeds from sale of EarlyBirdCapital.com stock - 10,440,000 ----------------- -------------- Net cash provided by (used in) financing activities 2,110,000 9,701,000 ----------------- -------------- Net increase (decrease) in cash and cash equivalents (2,667,000) 2,123,000 Cash and cash equivalents at beginning of year 5,038,000 4,140,000 ----------------- -------------- Cash and cash equivalents at end of period $ 2,371,000 $ 6,263,000 ================ ==============

Three months ended Nine months ended October 31, October 31, ------------------------------ ------------------------------ 2001 2000 2001 2000 ------------- ------------- ------------- -------------- Numerator for basic and diluted EPS: (Loss)/income from continuing operations $ (739,000) $ (3,752,000) $ (5,996,000) $ (1,775,000) (Loss) from discontinued operations (2,089,000) (2,210,000) (2,807,000) (7,943,000) -------------- ------------- -------------- -------------- Net (loss) $ (2,828,000) $ (5,962,000) $ (8,803,000) $ (9,718,000) ============== ============= ============== ============== Denominator for basic EPS 8,906,049 9,019,387 8,742,762 8,895,603 ============= ============= ============= ============== Denominator for diluted EPS 8,906,049 9,019,387 8,742,762 8,895,603 ============= ============= ============= ============== Basic EPS from: (Loss)/income from continuing operations $ (0.08) $ (0.42) $ (0.69) $ (0.20) (Loss) from discontinued operations (0.23) (0.25) (0.32) (0.89) -------------- ------------ ------------------------------- Net (loss) $ (0.31) $ (0.67) $ (1.01) $ (1.09) ============== ============ ============== ============= Diluted EPS from: (Loss)/income from continuing operations $ (0.08) $ (0.42) $ (0.69) $ (0.20) (Loss) from discontinued operations (0.23) (0.25) (0.32) (0.89) -------------- ------------ ------------------------------- Net (loss) $ (0.31) $ (0.67) $ (1.01) $ (1.09) ============== ============ ============== ==============

Nine months ended October 31, 2001 2000 ------------- ------------- Cash paid for: Income taxes $ 26,000 $ 371,000 Non-cash financing transactions: Treasury stock issued - for compensation plan $ 0 $ 138,000 - to 401(k) plan $ 0 $ 30,000 - to deferred compensation plan $ 100,000 $ 90,000

Three months ended Nine months ended October 31, October 31, ------------------------------- ------------------------------- 2001 2000 2001 2000 -------------- --------------- -------------- --------------- Net loss $ (2,828,000) $ (5,962,000) $ (8,803,000) $ (9,718,000) Other comprehensive loss: Foreign currency translation adjustments - 3,000 (13,000) 67,000 -------------- --------------- -------------- --------------- Total comprehensive loss $ (2,828,000) $ (5,959,000) $ (8,816,000) $ (9,651,000) =============== =============== =============== ===============

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