UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2010

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

For the transition period from to

Commission file number: 000-15936

HUDSON HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

20-3766053

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

111 Town Square Place

Suite 1500A

Jersey City, New Jersey

07310

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (201) 216-0100

(Former name and former address, 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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	x

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

As of August 11, 2010, there were 70,054,953 shares of the issuer’s common stock outstanding.

HUDSON HOLDING CORPORATION

TABLE OF CONTENTS


PART I

	FINANCIAL INFORMATION

	ITEM 1.	Financial Statements.

		Condensed Consolidated Statements of Financial Condition as of June 30, 2010 (Unaudited) and March 31, 2010	3

		Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2010 and 2009 (Unaudited)	4

		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended June 30, 2010 (Unaudited)	5

		Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2010 and 2009 (Unaudited)	6

		Notes to Condensed Consolidated Financial Statements (Unaudited)	7

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15

	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	17

	ITEM 4T.	Controls and Procedures.	17

PART II

	OTHER INFORMATION

	ITEM 1.	Legal Proceedings.	19

	ITEM 1A.	Risk Factors	19

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19

	ITEM 3.	Defaults Upon Senior Securities.	19

	ITEM 4.	(Removed and Reserved)	19

	ITEM 5.	Other Information.	19

	ITEM 6.	Exhibits.	19

	Signatures.		20

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	As of June 30, 2010			As of March 31, 2010
	(unaudited)
ASSETS
Cash and cash equivalents	$	6,568,433		$	7,775,947
Cash - restricted		419,124			378,720
Receivable from clearing brokers		1,350,000			1,717,360
Securities owned, at fair value		2,617,659			4,282,777
Income taxes receivable		102,003			253,240
Property and equipment, net		263,161			245,415
Prepaid expenses and other assets		949,990			969,752
Intangible asset, net		264,997			289,088
Goodwill		1,111,179			1,111,179

	$	13,646,546		$	17,023,478

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	2,103,518		$	2,411,485
Commissions payable		793,510			885,012
Securities sold, but not yet purchased, at fair value		310,855			1,912,053

Total liabilities		3,207,883			5,208,550

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized; 70,054,953 shares issued and outstanding at June 30, 2010 and 69,929,953 shares issued and outstanding at March 31, 2010		70,055			69,930
Additional paid-in capital		24,221,287			23,956,958
Accumulated deficit		(13,852,679	)		(12,211,960	)

Total stockholders’ equity		10,438,663			11,814,928

	$	13,646,546		$	17,023,478

See notes to these condensed consolidated financial statements.

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	For the Three Months Ended June 30,
	2010			2009
Revenues:
Sales and trading	$	3,826,849		$	5,909,380
Commissions and fees		4,575,331			5,594,288
Net interest and other income		172,989			173,434

		8,575,169			11,677,102

Expenses:
Employee compensation and benefits		5,802,641			6,926,020
Execution and clearing charges		1,113,853			2,096,467
Technology		1,301,865			1,728,577
Occupancy		442,334			562,669
Professional fees		327,259			479,770
Business development		210,956			160,811
Other		1,016,981			774,487

		10,215,889			12,728,801

Loss before income tax expense		(1,640,720	)		(1,051,699	)
Income tax expense		—			47,460

Net loss	$	(1,640,720	)	$	(1,099,159	)

Loss per share - basic and diluted	$	(0.02	)	$	(0.02	)

Weighted average number of shares outstanding - basic and diluted		69,938,195			47,794,537

See notes to these condensed consolidated financial statements.

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


	Common Stock			Additional Paid-In			Accumulated			Total
	Shares	Amount		Capital			Deficit			Total
Balance - March 31, 2010	69,929,953	$	69,930	$	23,956,958		$	(12,211,959	)	$	11,814,929
Amortization of option grants - employees	—		—		124,727			—			124,727
Amortization of option grants - consultants	—		—		(1,068	)		—			(1,068	)
Amortization of restricted stock grants - employees	—		—		140,795			—			140,795
Issuance of restricted stock	125,000		125		(125	)		—			—
Net loss	—		—		—			(1,640,720	)		(1,640,720	)

Balance - June 30, 2010 (unaudited)	70,054,953	$	70,055	$	24,221,287		$	(13,852,679	)	$	10,438,663

See notes to these condensed consolidated financial statements.

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	For the Three Months Ended June 30,
	2010			2009
Cash flows from operating activities:
Net loss	$	(1,640,720	)	$	(1,099,158	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		46,698			157,101
Stock-based compensation		264,454			193,593
Prepaid compensation amortization		—			469,000
Deferred rent		(16,356	)		19,780
Amortization of intangible asset		24,091
Changes in:
Receivable from clearing brokers		367,360			(205,311	)
Securities owned		1,665,118			(721,464	)
Income taxes receivable		151,237			—
Prepaid expenses and other assets		19,764			(314,612	)
Securities sold, but not yet purchased		(1,601,198	)		(63,329	)
Payable to clearing brokers		—			(48,833	)
Commissions payable		(91,502	)		642,093
Income taxes payable		—			42,960
Accounts payable, accrued expenses and other liabilities		(291,612	)		616,977

Net cash used in operating activities		(1,102,666	)		(311,203	)

Cash flows from investing activities:
Purchases of property and equipment		(64,444	)		(194,805	)
Cash subject to restrictions		(40,404	)		(129,320	)

Net cash used in investing activities		(104,848	)		(324,125	)

Net decrease in cash and cash equivalents		(1,207,514	)		(635,328	)
Cash and cash equivalents - beginning of year		7,775,947			6,694,914

Cash and cash equivalents - end of year	$	6,568,433		$	6,059,586

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes	$	1,969		$	4,500

See notes to these condensed consolidated financial statements.

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE A - ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial position of Hudson Holding Corporation (“Holding”) as of June 30, 2010 and the condensed consolidated results of its operations and cash flows for the three months ended June 30, 2010 and 2009. The results of operations for the three months ended June 30, 2010 are not necessarily indicative of the operating results for the full year. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and related disclosures for the year ended March 31, 2010 included in Holding’s Annual Report on Form 10-K.

The condensed consolidated financial statements include the accounts of Holding and its wholly-owned subsidiaries, Hudson Securities, Inc. (“Hudson”), Hudson Technologies, Inc. (“Technologies”) and Spark Capital Management, LLC (“Spark”) (collectively the “Company”). Holding was formed in 1987, is currently incorporated in the State of Delaware, and is a holding company. Hudson was formed in 1984, is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). The Company’s operations include institutional sales and market making of equity securities, plus investment banking and research. Hudson is an introducing broker and clears all transactions through clearing organizations on a fully disclosed basis. Accordingly, Hudson is exempt from rule 15c3-3 of the Securities Exchange Act of 1934. On May 22, 2006, Technologies was formed as a Delaware Corporation for the purpose of providing software development and technology services for the Company. On March 8, 2007, Spark was formed as a Delaware limited liability company and is the investment manager of the Spark Fund, a hedge fund.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1] Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of income and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include the deferred tax asset valuation allowance, the Black-Scholes option valuation model assumptions and the recoverability and useful lives of long lived assets.

[2] Securities transactions and revenue recognition:

Hudson records transactions in securities and the related revenue and expenses on a trade-date basis. Sales and trading revenues are primarily derived from facilitating customer transactions. Commissions and fees include agency commissions and fees earned from customers on riskless principal trades and investment banking fees related to private placements of securities. Riskless principal trades are transacted through the firm’s proprietary account with a customer order in hand, resulting in no market risk to the firm. Securities owned and securities sold, but not yet purchased, are stated at fair value with the resulting unrealized gains and losses reflected in sales and trading revenues. Securities which do not have a readily ascertainable market value are valued at their estimated fair value as determined by management. Because of the inherent uncertainty of valuation estimates, the management determined values may differ from values that would have been used had a ready market for these securities existed.

[3] Stock based compensation:

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the award is measured on the grant date and for non-employees, the award is generally remeasured on interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period.

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

[4] Concentrations of credit risk:

Hudson is engaged in trading on a principal and/or agency basis with and for primarily other securities broker-dealers and institutional investors such as mutual funds, hedge funds, banks and similar businesses. Counterparties to Hudson’s business activities include broker-dealers and clearing organizations, and can include banks and other financial institutions. Hudson uses two clearing brokers to process transactions and maintain customer accounts. The clearing brokers may extend credit to Hudson’s clientele which would be secured by cash and securities in the clients’ accounts. Hudson’s exposure to credit risk associated with the non-performance by its customers and counterparties in fulfilling their contractual obligations can be directly impacted by volatile or illiquid trading markets, which may impair the ability of customers and counterparties to satisfy their obligations to Hudson. Additionally, Hudson has agreed to indemnify the clearing brokers for losses they may incur while extending credit to Hudson’s clients. Amounts due from customers that are considered uncollectible are charged back to Hudson by the clearing broker when such amounts become determinable.

In the normal course of business, Hudson may enter into transactions in various derivative instruments for trading purposes. These transactions may include securities sold short, but not yet purchased, and option and warrant contracts.

Securities sold short, but not yet purchased, represent obligations of Hudson to deliver the underlying securities sold; and option and warrant contracts written represent obligations of Hudson to purchase or deliver the specified security at the contracted price. Hudson’s ultimate obligation on such instruments may exceed the amount recognized in the statement of financial condition. Hudson monitors its positions continuously to reduce the risk of the potential loss due to changes in market value or failure of counterparties to perform.

Substantially all of Hudson’s cash and security positions may be deposited with its clearing broker for safekeeping purposes. The clearing brokers are members of major security exchanges.

The Company also maintains cash in bank accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and it is not exposed to any significant credit risk on cash.

[5] Loss per share:

Basic loss per share (“EPS”) has been calculated by dividing net loss by the weighted average shares of common stock outstanding during the year. Diluted EPS reflects the change in EPS, using the treasury stock method to reflect the impact of common share equivalents as if dilutive securities, such as unvested restricted stock, stock options or warrants were exercised or converted into common stock.

At June 30, 2010 and 2009, 4,852,503 and 5,461,253 shares of unvested restricted stock, outstanding stock options to purchase 9,735,000 and 6,309,999 shares of common stock and warrants to purchase 9,362,184 and 11,122,774 shares of common stock, respectively, were excluded from the calculation of diluted earnings per share because their impact would have been anti-dilutive.

[6] Reclassifications:

Certain fiscal 2010 amounts have been reclassified to conform to the fiscal 2011 presentation.

[7] Subsequent events:

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

[8] Recently issued and adopted accounting standards:

In June 2009, the FASB issued new accounting guidance, which was subsequently added to ASC Topic 810 on Consolidation, which changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. An ongoing reassessment is required of whether a company is the primary beneficiary of a variable interest entity. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. This guidance is effective for fiscal years beginning after November 15, 2009 and interim periods within those fiscal years. The adoption of the guidance did not have a material impact on the Company’s condensed consolidated financial statements.

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

[8] Recently issued and adopted accounting standards, continued:

In February 2010, the FASB issued new accounting guidance, under ASC Topic 810 on Consolidation. The amendments to the consolidation requirements are deferred for a reporting entity’s interest in an entity (1) that has all the attributes of an investment company or (2) for which it is industry practice to apply measurement principles for financial reporting purposes that are consistent with those followed by investment companies. An entity that qualifies for the deferral will continue to be assessed under the overall guidance on the consolidation of variable interest entities or other applicable consolidation guidance, such as the guidance for the consolidation of partnerships. The deferral is effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009, and for interim periods within that first annual reporting period. Early application is not permitted. The adoption of the guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In July 2010, the FASB issued new accounting guidance, under ASC Topic 310 on Receivables, which requires an entity to enhance the disclosures about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Management is currently evaluating the requirements of this guidance and has not yet determined the impact on the Company’s condensed consolidated financial statements.

The FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards updates and regulations as of June 30, 2010 that will become effective in subsequent periods; however, management of the Company does not believe that any of those updates would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during 2010 or 2009, and it does not believe that any of those pronouncements will have a significant impact on the Company’s consolidated financial statements at the time they become effective

NOTE C - SECURITIES OWNED AND SECURITIES SOLD, BUT NOT YET PURCHASED

Securities owned and securities sold, but not yet purchased, at June 30, 2010 and March 31, 2010 consisted entirely of level 1 marketable securities.

Fair Value Measurements

The Company records securities owned and securities sold, but not yet purchased, at fair value, which is deemed to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or developed by the Company. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1 — Valued based on quoted prices at the measurement date for identical assets or liabilities trading in active markets. Financial instruments in this category generally include actively traded equity securities.

Level 2 — Valued based on (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active; (c) inputs other than quoted prices that are observable for the asset or liability; or (d) from market corroborated inputs. Financial instruments in this category include certain corporate equities that are not actively traded or are otherwise restricted.

Level 3 — Valued based on valuation techniques in which one or more significant inputs is not readily observable. Included in this category are certain corporate debt instruments, certain private equity investments, and certain commitments and guarantees.

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

As of June 30, 2010:


Securities owned, at fair value	Level 1		Level 2		Level 3		Total
Equities	$	2,617,659	$	—	$	—	$	2,617,659

Total	$	2,617,659	$	—	$	—	$	2,617,659


Securities sold, but not yet purchased, at fair value	Level 1		Level 2		Level 3		Total
Equities	$	310,855	$	—	$	—	$	310,855

Total	$	310,855	$	—	$	—	$	310,855

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

NOTE D - STOCKHOLDERS’ EQUITY

[1] Stock option grants:

During the three months ended June 30, 2010, the Company granted options to purchase an aggregate of 1,280,000 shares of common stock at exercise prices of $0.50 to new employees, pursuant to the 2007 Plan. The options expire after three and a half years. The $147,400 grant date fair value will be amortized over the three year vesting period.

The Company recognized approximately $125,000 and $48,000 of compensation expense during the three months ended June 30, 2010 and 2009, respectively, related to employee stock option grants, which is reflected as employee compensation and benefits in the condensed consolidated statements of operations. As of June 30, 2010, there was approximately $1,045,000 of unrecognized employee stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 2.4 years.

The Company has computed the fair value of options granted using the Black-Scholes option pricing model. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate, when it is material. The expected term of options granted represents the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” option grants. The company estimates expected volatility based on the historical volatility of its common stock. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the options.

In applying the Black-Scholes option pricing model, the Company used the following weighted average assumptions:


	For the Three Months Ended June 30,
	2010		2009
Risk free interest rate	1.19	%	1.77	%
Expected term (years)	2.75		3.65
Expected volatility	158	%	140	%
Expected dividends	—		—

The weighted average estimated fair value of the stock options granted during the three months ended June 30, 2010 and 2009 was $0.12 and $0.29 per share, respectively.

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

NOTE D - STOCKHOLDERS’ EQUITY, continued

[1] Stock option grants, continued:

A summary of the status of the options issued under the Plans during the three months ended June 30, 2010, is presented below:


	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Life In Years	Intrinsic Value
Balance, March 31, 2010	9,345,000		$	0.62
Granted	1,280,000			0.50
Exercised	—			—
Expired	(650,000	)		1.00
Forfeited	(240,000	)		0.54

Balance, June 30, 2010	9,735,000		$	0.58	2.4	$	—

Exercisable, June 30, 2010	3,416,660		$	0.72	1.4	$	—

The following table presents information related to stock options at June 30, 2010:


Options Outstanding		Options Exercisable
Exercise Price	Number of Options	Weighted Average Remaining Life In Years	Exercisable Number of Options
$ 0.35	80,000	0.7	56,666
0.40	75,000	2.1	75,000
0.49	280,000	0.7	186,666
0.50	7,280,000	2.5	1,208,331
0.60	100,000	1.4	66,666
0.75	290,000	1.4	193,331
0.80	250,000	0.3	250,000
0.90	315,000	0.1	315,000
1.00	1,035,000	0.9	1,035,000
1.15	30,000	1.1	30,000

	9,735,000	1.4	3,416,660

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

NOTE D - STOCKHOLDERS’ EQUITY, continued

[2] Stock grants:

On May 10, 2010, the Company granted 500,000 shares of restricted stock to a new employee, pursuant to the 2007 Plan, at a market value of $0.18 per share. Accordingly, the $90,000 grant date fair value is being amortized over the three year vesting period.

The Company recognized approximately $141,000 and $150,000 of compensation expense during the three months ended June 30, 2010 and 2009, respectively, related to employee stock grants, which is reflected as a component of employee compensation and benefits in the condensed consolidated statements of operations. As of June 30, 2010, there was approximately $1,131,000 of unrecognized employee stock-based compensation expense related to stock grants that will be amortized over a weighted average period of 1.9 years.

A summary of restricted stock activity for the three months ended June 30, 2010, is presented in the table below:


	Number of Shares	Weighted Average Grant Date Fair Value		Total Grant Date Fair Value
Non-vested, March 31, 2010	4,352,503	$	0.31	$	1,340,327
Granted	500,000		0.18		90,000
Vested	—		—		—
Forfeited	—		—		—

Non-vested, June 30, 2010	4,852,503	$	0.29	$	1,430,327

[3] Stock repurchase program:

On November 19, 2008, the Company’s Board authorized the repurchase of up to $1,000,000 of the Company’s common stock, at the discretion of the Company’s management. During the three months ended June 30, 2010 and 2009, the Company did not repurchase any of its equity securities.

NOTE E - REVENUE CONCENTRATIONS

The Company considers significant revenue concentrations to be customers or employees who account for 10% or more of the total revenues generated by the Company during the period. The Company had one such employee who accounted for 30% of total revenues, which included revenues from a single customer that accounted for 16% of total revenues, during the three months ended June 30, 2009.

NOTE F - NET CAPITAL REQUIREMENT

The Company is subject to various regulatory requirements, including the Securities and Exchange Commission’s Uniform Net Capital Rule (SEC rule 15c3-1), which is intended to ensure the general financial soundness and liquidity of broker-dealers by requiring the maintenance of minimum levels of net capital. These regulations place limitations on certain transactions, such as repaying subordinated borrowings, paying cash dividends, and making loans to its parent, affiliates or employees. Broker-dealers are prohibited from such transactions which would result in a reduction of its total net capital to less than 120% of its required minimum net capital. Moreover, broker-dealers are required to notify the Securities and Exchange Commission before entering into such transactions which, if executed, would result in a reduction of 30% or more of its excess net capital (net capital less the minimum requirement). The Securities and Exchange Commission has the ability to prohibit or restrict such transactions if the result is detrimental to the financial integrity of the broker-dealer.

At June 30, 2010, the Company under the alternative standard method had net capital of approximately $6,898,000, which was approximately $5,898,000 in excess of its required net capital of $1,000,000.

HUDSON HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

NOTE G - COMMITMENTS AND CONTINGENCIES

[1] Leases:

As of June 30, 2010, the Company had a deferred lease liability of approximately $235,000 which represents the excess of rent expense recognized on a straight-line basis over the term of the leases as compared to cash rental payments and is included in accounts payable, accrued expenses and other liabilities on the statement of financial condition.

Rent expense, net of sublease income, was approximately $400,000 and $422,000 for the three months ended June 30, 2010 and 2009, respectively.

[2] Litigation:

NOTE H - SUBSEQUENT EVENTS

[1] Stock option grants:

On July 6, 2010, the Company granted options to purchase 100,000 shares of common stock at an exercise price of $0.50 to a new employee, pursuant to the 2007 Plan. The options expire after three and a half years. The $9,400 grant date fair value will be amortized over the three year vesting period.

[2] Stock grants:

On July 7, 2010, the Company granted an aggregate of 482,759 shares of immediately vested common stock to six non-employee directors as compensation for services during the fiscal year ended March 31, 2010, at a value equal to $.29 which was the weighted average estimated value of the shares for the 2010 fiscal year, when the market value of the stock was $0.14 per share. The shares were issued pursuant to the 2007 Plan and represent compensation for services performed during the fiscal year ended March 31, 2010. The approximately $67,600 grant date fair value of the grants had been accrued for during the fiscal year ended March 31, 2010.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis of Hudson Holding Corporation and Subsidiaries’ (the “Company”) condensed consolidated financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere herein.

This report contains various forward-looking statements made pursuant to the safe harbor provisions under the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) and information that is based on management’s beliefs as well as assumptions made by and information currently available to management. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the Company can give no assurance that such expectations will prove to be correct. When used in this report, the words “anticipate”, “believe”, “estimate”, “expect”, “predict”, “project”, and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date hereof, and should be aware that the Company’s actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including business conditions, growth in the overall market for the Company’s services, general economic conditions, lower than expected customer transactions, competitive factors including increased competition, changes in the mix of business, and resource constraints and other statements under “Risk Factors” set forth in our Form 10-K for the year ended March 31, 2010 and other filings with the Securities and Exchange Commission (the “SEC”). Any forward-looking statements regarding industry trends, product development and liquidity and future business activities should be considered in light of these factors. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Business Environment

We, like other securities firms, are directly affected by economic and political conditions, broad trends in business and finance, changes in volume and price levels of securities transactions, and changes in interest rates, all of which can affect our profitability. Severe market fluctuation or weak economic conditions could ultimately reduce our trading volume and net revenues and adversely affect our profitability. In periods of reduced market activity, our profitability may also be affected because certain expenses, such as salaries, certain communications costs, and occupancy remain relatively fixed.

Results of Operations

Three months ended June 30, 2010 compared to three months ended June 30, 2009

We had overall revenues consisting of sales and trading revenues, commission and fee revenues, both primarily from activity on behalf of customers, plus net interest and other income of approximately $8,575,169 for the three months ended June 30, 2010 as compared to $11,677,102 for the three months ended June 30, 2009 a decrease of $3,101,934 or 26%. The decrease was primarily due to a decrease in sales and trading revenues along with commission and fee revenues. Sales and trading revenues were $3,826,849 compared to $5,909,380 during the same period in the prior year, a decrease of $2,082,531 or 35%, primarily due to an overall decrease in trading activity. Commission and fee revenues were $4,575,331 compared to $5,594,288 during the same period last year, a decrease of $1,018,957 or 18%, principally due to decreased volume. Interest and other income were $172,989 compared to $173,434 during the comparable period last year, a decrease of $445, or .3%.

Our cost structure consists of employee compensation and benefits (including salaries, commissions, bonuses, stock-based compensation, payroll taxes, and medical insurance), execution and clearing charges, communications (quote, trading, order management and telecommunication services), occupancy (rent, electricity, maintenance and real estate taxes) professional fees (attorneys and auditors), business development (travel, entertainment and advertising) and other operating costs. From a compensation perspective, approximately 51% of our employees are salaried, while most of our traders and salespersons receive revenue-based commission payments.

Execution and clearance charges were $1,113,853 (13% of revenues) in the three months ended June 30, 2010 as compared to $2,096,467 (18% of revenues) in the three months ended June 30, 2009, a decrease of $982,614 or 47%, primarily due to a decrease in algorithmic trading business which has higher execution fees, plus an decrease in clearing costs. Technology costs were $1,301,865 in the quarter ending June 30, 2010 compared to $1,728,578 in the same quarter last year, a decrease of $426,713 or 24%, primarily due to a reduction in market data costs. Occupancy costs were $447,334 in the quarter ending June 30, 2010 compared to $562,669 in the same quarter last year, a decrease of $115,335 or 32%, primarily due to the elimination of one office location.

Employee compensation and benefits were $5,802,641 compared to $6,926,020 in the comparable quarter in the prior year, a decrease of $1,123,379 or 16%, primarily due to a decrease in commissions paid as a result of lower revenues, offset by an increase in salaries as a result of new hires. Professional fees were $327,259 compared to $479,770 in the comparable quarter in the prior year, a decrease of $152,511 or 31%, primarily due to a decrease in outside accounting services. Business development expenses were $210,956 in the quarter ending June 30, 2010 compared to $160,811 in the prior period quarter, an increase of $50,146 or 31% as a result of an effort of attracting new customers. Other expenses were $1,016,981 in the quarter ending June 30, 2010 compared to $774,487 in the prior period quarter, an increase of $242,494 or 30%, primarily due to increased client service cost offset by a decrease in software amortization and maintenance expense.

The pre-tax loss was $1,640,720 for the three months ended June 30, 2010 compared to a pre-tax loss of $1,051,699 for the three months ended June 30, 2009, an increase of $589,021. The pre-tax loss increase was primarily due to a decrease in revenues and an increase in employee compensation as a result of new hires and expansion.

Liquidity and Capital Resources


Consolidated Balance Sheet Data:	As of June 30, 2010		As of March 31, 2010
	(unaudited)
Working capital	$	8,551,673	$	9,842,081

Total assets	$	13,646,546	$	17,023,478

Total liabilities	$	3,207,883	$	5,208,550

Stockholders’ equity	$	10,438,663	$	11,814,928

Working Capital

Our working capital (current assets less current liabilities) decreased to $8.5 million at June 30, 2010 from $9.8 million at March 31, 2010, primarily as a result of operating losses. Current assets include cash, receivable from clearing brokers (cash on deposit with our clearing brokers), marketable securities, income taxes receivable and other assets (except for long-term security deposits). All liabilities, except approximately $0.2 million of long-term deferred rent, are current liabilities.

We currently do not have any outstanding bank borrowings or long-term debt.

Our requirement for funding is, and will be, driven by both working capital and regulatory net capital requirements associated with current operations, recruiting incentives, the enhancement of our technology, software development, and by potential future expansion into related activities and possible acquisition opportunities. As of June 30, 2010, the Company had total net capital of approximately $6,898,000, which is approximately $5,898,000 in excess of the Company’s minimum net capital requirement of $1,000,000. See Note F to the consolidated financial statements for additional details related to regulatory net capital requirements. We expect that any significant expansion or acquisition opportunities will require additional subordinated debt or common stock issuances in order to maintain the required levels of working capital or net capital. There can be no assurance that we will be successful in attracting such funding.

Our cash position decreased by $1,207,514 to $6,568,433 during the three months ended June 30, 2010, after decreasing by $635,328 to $6,694,914 during the three months ended June 30, 2009.

Operating Activities

Net cash used in operating activities was $1,102,666 during the three months ended June 30, 2010, primarily as a result of a $1,640,720 net loss offset by a $367,360 decrease in receivable from clearing brokers. Net cash used in operating activities was $311,203 during the three months ended June 30, 2009, primarily as a result of a $685,053 increase in payables, a $616,976 increase in accrued expenses., partially offset by a $784,793 decrease in securities positions.

Investing Activities

Net cash used in investing activities was $104,848 during the three months ended June 30, 2010, primarily due to the purchase of additional equipment, and the depositing of additional funds with a financial institution in order to collateralize a letter of credit, and $324,125 during the three months ended June 30, 2009, primarily due to the ongoing development of capitalized software

Off Balance Sheet Arrangements

On April 29, 2009, a financial institution issued a one-year, automatically renewable, irrevocable $127,650 standby letter of credit, on our behalf, to the landlord associated with our new New York City office lease as a security deposit. The Company is obligated to maintain the letter of credit until thirty days after the July 28, 2012 expiration of the lease. The Company deposited $127,650 with the financial institution in the form of an automatically renewable twelve month time deposit, in order to collateralize the letter of credit.

As of June 30, 2010, we had no other off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies

There are no material changes from the critical accounting policies set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended March 31, 2010. Please refer to that document for disclosures regarding the critical accounting policies related to our business.

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T:

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this quarterly report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation of our condensed consolidated financial statements in conformity with United States generally accepted accounting principles.

As of the end of the period covered by this quarterly report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer (“CEO”) and Principal Accounting Officer concluded that, as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were effective.

Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time, Hudson is named as a defendant in various routine actions that are incidental to its activities as a broker-dealer, including civil actions, arbitrations, plus proceedings and investigation by self-regulatory organizations. Although there can be no assurances that such matters will not have a material adverse effect on the results of operations or financial condition of the Company in any future period, depending in part on the results for such period, in the opinion of the Company’s management, the ultimate resolution of such actions against the Company will have no material adverse effect on the Company’s financial condition.

Item 1A.

Risk Factors

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

(Removed and Reserved)

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits.


10.28		Clearing Agreement, dated as of April 14, 2010, between Hudson Securities, Inc. and Broadcort Division of Merrill, Lynch, Pierce, Fenner & Smith (1)

31.1		Rule 13a-14(a) Certification by the Chief Executive Officer

31.2		Rule 13a-14(a) Certification by the Principal Accounting Officer

32.1		Certification by the Chief Executive Officer Relating to a Periodic Report Containing Financial Statements*

32.2		Certification by the Principal Accounting Officer Relating to a Periodic Report Containing Financial Statements*

The Exhibit attached to this Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

(1)	Incorporated by reference to the exhibits included with our Annual Report on Form 10-K filed with the SEC on June 29, 2010.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	HUDSON HOLDING CORPORATION

Dated: August 16, 2010	By:	/S/ ANTHONY M. SANFILIPPO
	Name:	Anthony M. Sanfilippo
	Title:	Chief Executive Officer

Dated: August 16, 2010	By:	/S/ KEITH R. KNOX
	Name:	Keith R. Knox
	Title:	President and Principal Accounting Officer

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HUDSON HOLDING CORP 10-Q