x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934.
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934.
|
Delaware
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
11-2936371
(I.R.S.
Employer
Identification
No.)
|
600
California Street, 9th Floor
San
Francisco, CA
(Address
of Principal Executive Offices)
|
|
94108
(Zip
Code)
|
Large
accelerated filer o
|
|
Accelerated
filer x
|
|
Non-accelerated
filer o
|
|
|
Page
No.
|
|
|
PART
I FINANCIAL INFORMATION
|
|
|
|
|
ITEM
1. Financial Statements (unaudited)
|
|
|
|
|
Condensed
Consolidated Statements of Operations For the Three Months and Nine
Months
Ended September 30, 2006 and 2005
|
|
|
2
|
|
Condensed
Consolidated Statements of Financial Condition as of September 30,
2006
and December 31, 2005
|
|
|
3
|
|
Condensed
Consolidated Statements of Cash Flows For the Nine Months Ended September
30, 2006 and 2005
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
|
|
5
|
|
ITEM
2. Management's Discussion and Analysis of Financial Condition and
Results
of Operations
|
|
|
16
|
|
ITEM
3. Quantitative and Qualitative Disclosures About Market
Risk
|
|
|
28
|
|
ITEM
4. Controls and Procedures
|
|
|
28
|
|
PART
II OTHER INFORMATION
|
|
|
|
|
ITEM
1. Legal Proceedings
|
|
|
29
|
|
ITEM
1A. Risk Factors
|
|
|
29
|
|
ITEM
6. Exhibits
|
|
|
36
|
|
Signatures
|
|
|
|
|
Certifications
|
|
|
|
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30,
2006
|
September
30,
2005
|
September
30,
2006
|
September
30,
2005
|
||||||||||
Revenue:
|
|||||||||||||
Commissions
|
$
|
6,700,416
|
$
|
6,943,963
|
$
|
23,344,124
|
$
|
20,265,658
|
|||||
Principal
transactions
|
(1,148,313
|
)
|
838,504
|
(1,480,963
|
)
|
315,770
|
|||||||
Investment
banking
|
1,839,288
|
1,130,351
|
11,750,176
|
9,839,450
|
|||||||||
Other
|
242,010
|
200,382
|
873,424
|
456,595
|
|||||||||
|
|||||||||||||
Total
revenue
|
7,633,401
|
9,113,200
|
34,486,761
|
30,877,473
|
|||||||||
|
|||||||||||||
Operating
expenses:
|
|||||||||||||
Compensation
and benefits
|
8,716,833
|
6,761,813
|
30,542,987
|
23,130,359
|
|||||||||
Brokerage
and clearing fees
|
598,644
|
688,320
|
1,987,504
|
1,775,597
|
|||||||||
Professional
services
|
576,060
|
502,093
|
1,884,345
|
1,248,923
|
|||||||||
Occupancy
and equipment
|
436,769
|
426,109
|
1,268,917
|
1,159,307
|
|||||||||
Communications
and technology
|
802,777
|
496,285
|
2,137,892
|
1,362,638
|
|||||||||
Depreciation
and amortization
|
171,916
|
132,606
|
508,851
|
367,718
|
|||||||||
Travel
and entertainment
|
623,587
|
427,274
|
2,005,242
|
1,211,686
|
|||||||||
Other
|
1,069,601
|
1,184,191
|
1,632,265
|
2,320,431
|
|||||||||
|
|||||||||||||
Total
operating expenses
|
12,996,187
|
10,618,691
|
41,968,003
|
32,576,659
|
|||||||||
|
|||||||||||||
Operating
loss
|
(5,362,786
|
)
|
(1,505,491
|
)
|
(7,481,242
|
)
|
(1,699,186
|
)
|
|||||
Interest
income
|
118,840
|
115,316
|
370,684
|
305,407
|
|||||||||
Interest
expense
|
134,895
|
(15,755
|
)
|
(408,036
|
)
|
(49,468
|
)
|
||||||
|
|||||||||||||
Loss
before income taxes
|
(5,109,051
|
)
|
(1,405,930
|
)
|
(7,518,594
|
)
|
(1,443,247
|
)
|
|||||
Income
tax (expense) benefit
|
—
|
(86,814
|
)
|
—
|
(127,408
|
)
|
|||||||
|
|||||||||||||
Net
loss
|
$
|
(5,109,051
|
)
|
(1,492,744
|
)
|
(7,518,594
|
)
|
(1,570,655
|
)
|
||||
|
|||||||||||||
Earnings
(loss) per share:
|
|||||||||||||
Basic
|
$
|
(0.07
|
)
|
$
|
(0.02
|
)
|
$
|
(0.11
|
)
|
$
|
(0.02
|
)
|
|
Diluted
|
$
|
(0.07
|
)
|
$
|
(0.02
|
)
|
$
|
(0.11
|
)
|
$
|
(0.02
|
)
|
|
|
|||||||||||||
Weighted
average common shares outstanding:
|
|||||||||||||
Basic
|
71,063,452
|
66,905,944
|
69,346,704
|
66,226,377
|
|||||||||
Diluted
|
71,063,452
|
66,905,944
|
69,346,704
|
66,226,377
|
|
September
30,
2006
|
December
31,
2005
|
|||||
ASSETS
|
|
|
|||||
Cash
and cash equivalents
|
$
|
10,129,541
|
$
|
11,138,923
|
|||
Cash
restricted for fund investment (Note 1)
|
6,300,944
|
—
|
|||||
Securities
owned:
|
|||||||
Marketable,
at fair value
|
10,209,824
|
8,627,543
|
|||||
Not
readily marketable, at estimated fair value
|
1,862,172
|
1,065,743
|
|||||
Restricted
cash
|
628,181
|
627,606
|
|||||
Due
from clearing broker
|
586,933
|
973,138
|
|||||
Accounts
receivable, net
|
727,410
|
2,073,195
|
|||||
Equipment
and fixtures, net
|
1,244,166
|
1,378,235
|
|||||
Intangible
assets
|
418,800
|
394,456
|
|||||
Prepaid
expenses and other assets
|
1,931,336
|
1,415,574
|
|||||
Total
assets
|
$
|
34,039,307
|
$
|
27,694,413
|
|||
LIABILITIES,
MINORITY INTEREST AND STOCKHOLDERS' EQUITY
|
|||||||
Accounts
payable
|
$
|
1,181,017
|
$
|
901,138
|
|||
Commissions
and bonus payable
|
3,020,997
|
4,735,892
|
|||||
Accrued
liabilities
|
2,078,518
|
2,201,499
|
|||||
Due
to clearing and other brokers
|
19,268
|
118,798
|
|||||
Securities
sold, not yet purchased
|
1,809,258
|
41,579
|
|||||
Capital
lease obligation
|
608,272
|
883,993
|
|||||
Convertible
notes payable and participation interest obligation, net
|
6,712,559
|
176,741
|
|||||
Notes
payable
|
162,221
|
231,772
|
|||||
Total
liabilities
|
15,592,110
|
9,291,412
|
|||||
Commitments
and contingencies
|
|||||||
Minority
interest
|
2,188,050
|
—
|
|||||
Stockholders'
equity:
|
|||||||
Preferred
stock, Series A—$0.0001 par value; 2,000,000 shares authorized; 0 shares
issued and outstanding as of September 30, 2006 and December 31,
2005,
respectively; aggregate liquidation preference of $0
|
—
|
—
|
|||||
Preferred
stock, Series B—$0.0001 par value; 12,500,000 shares authorized; 8,750,000
shares issued and 0 shares outstanding as of September 30, 2006 and
December 31, 2005; aggregate liquidation preference of $0
|
—
|
—
|
|||||
Preferred
stock, Series C—$0.0001 par value; 14,200,000 shares authorized;
11,800,000 shares issued and 0 shares outstanding as of September
30, 2006
and December 31, 2005; aggregate liquidation preference of
$0
|
—
|
—
|
|||||
Common
stock, $0.0001 par value; 300,000,000 shares authorized; 74,212,747
and
71,467,118 shares issued and outstanding as of September 30, 2006
and
December 31, 2005, respectively
|
7,421
|
7,147
|
|||||
Additional
paid-in capital
|
113,952,794
|
111,725,167
|
|||||
Deferred
compensation
|
—
|
(3,146,839
|
)
|
||||
Accumulated
deficit
|
(97,701,068
|
)
|
(90,182,474
|
)
|
|||
Total
stockholders' equity
|
16,259,147
|
18,403,001
|
|||||
Total
liabilities, minority interest and stockholders' equity
|
$
|
34,039,307
|
$
|
27,694,413
|
|
Nine
Months Ended September 30,
|
||||||
|
2006
|
2005
|
|||||
Cash
flows from operating activities:
|
|
|
|||||
Net
loss
|
$
|
(7,518,594
|
)
|
$
|
(1,570,655
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
and amortization
|
508,851
|
367,718
|
|||||
Share-based
compensation
|
3,179,305
|
1,468,064
|
|||||
Tax
benefits from employee stock options
|
—
|
(10,424
|
)
|
||||
Amortization
of discounts on convertible notes payable
|
326,383
|
7,752
|
|||||
Amortization
of debt issuance costs
|
26,783
|
—
|
|||||
Unrealized
(gain) loss on securities owned
|
2,810,298
|
(363,187
|
)
|
||||
Other
|
13,055
|
(17,132
|
)
|
||||
Changes
in operating assets and liabilities:
|
|||||||
Securities
owned
|
(3,421,329
|
)
|
(1,902,458
|
)
|
|||
Restricted
cash
|
(575
|
)
|
(2,866
|
)
|
|||
Due
from clearing broker
|
386,205
|
(446,910
|
)
|
||||
Accounts
receivable
|
1,345,785
|
346,256
|
|||||
Prepaid
expenses and other assets
|
(542,545
|
)
|
196,781
|
||||
Accounts
payable
|
279,879
|
806,804
|
|||||
Commissions
and bonus payable
|
(1,714,895
|
)
|
(1,136,806
|
)
|
|||
Accrued
liabilities
|
(122,981
|
)
|
113,527
|
||||
Due
to clearing and other brokers
|
(99,530
|
)
|
28,848
|
||||
|
|||||||
Net
cash used in operating activities
|
(4,543,905
|
)
|
(2,114,688
|
)
|
|||
Cash
flows from investing activities:
|
|||||||
Cash
restricted for fund investment
|
(6,300,944
|
)
|
—
|
||||
Purchase
of equipment and fixtures
|
(353,623
|
)
|
(557,617
|
)
|
|||
Investment
in Catalyst
|
(58,558
|
)
|
(353,882
|
)
|
|||
|
|||||||
Net
cash used in investing activities
|
(6,713,125
|
)
|
(911,499
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from the exercise of stock options and warrants
|
301,799
|
116,682
|
|||||
Proceeds
from the issuance of common stock
|
603,070
|
591,651
|
|||||
Proceeds
from the issuance of note payable ($6,112,171) and stock warrant
($1,387,829)
|
7,500,000
|
—
|
|||||
Minority
interest in fund
|
2,188,050
|
—
|
|||||
Debt
service principal payments
|
(345,271
|
)
|
(201,631
|
)
|
|||
|
|||||||
Net
cash provided by financing activities
|
10,247,648
|
506,702
|
|||||
|
|||||||
Decrease
in cash and cash equivalents
|
(1,009,382
|
)
|
(2,519,485
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
11,138,923
|
17,459,113
|
|||||
|
|||||||
Cash
and cash equivalents at end of period
|
$
|
10,129,541
|
$
|
14,939,628
|
|||
|
|||||||
Supplementary
disclosure of cash flow information:
|
|||||||
Cash
paid during the period:
|
|||||||
Interest
|
$
|
55,624
|
$
|
66,410
|
|||
Income
taxes
|
$
|
18,800
|
$
|
68,161
|
|||
Non-cash
investing and financing activities:
|
|||||||
Reclassification
of deferred compensation
|
$
|
3,146,839
|
$
|
—
|
|||
Issuance
of non-vested stock
|
$
|
—
|
$
|
1,945,973
|
|||
Issuance
of stock options accounted for at intrinsic value
|
$
|
—
|
$
|
12,000
|
|||
Acquisition
of Catalyst
|
$
|
—
|
$
|
74,940
|
|||
Issuance
of common stock to Ascend
|
$
|
—
|
$
|
500,000
|
|
Options
Outstanding
|
Weighted
Average
Exercise Price
|
|||||
Balance
as of December 31, 2005
|
23,270,046
|
$
|
0.89
|
||||
Granted
|
2,467,000
|
0.93
|
|||||
Exercised
|
(368,690
|
)
|
(0.30
|
)
|
|||
Canceled
|
(471,507
|
)
|
(1.67
|
)
|
|||
Balance
as of September 30, 2006
|
24,896,849
|
$
|
0.89
|
||||
Exercisable
as of September 30, 2006
|
20,067,063
|
$
|
0.86
|
|
|
Options
Outstanding at September 30, 2006
|
|
Vested
Options at September 30, 2006
|
|
||||||||||||||||||
Range
of Exercise Price
|
|
Number
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
||||||||
$0.05
— $0.50
|
|
|
14,564,208
|
|
|
6.36
|
|
$
|
0.42
|
|
|
4,354,698
|
|
|
14,232,846
|
|
$
|
0.42
|
|
|
4,222,885
|
|
|
$0.51
— $1.00
|
|
|
3,342,020
|
|
|
7.46
|
|
$
|
0.65
|
|
|
232,939
|
|
|
1,890,539
|
|
|
0.56
|
|
|
299,083
|
|
|
$1.01
— $2.00
|
|
|
4,920,968
|
|
|
8.44
|
|
$
|
1.27
|
|
|
—
|
|
|
1,874,025
|
|
|
1.38
|
|
|
—
|
|
|
$2.01
— $4.00
|
|
|
1,794,653
|
|
|
4.10
|
|
$
|
3.15
|
|
|
—
|
|
|
1,794,653
|
|
|
3.15
|
|
|
—
|
|
|
$4.01
— $7.00
|
|
275,000
|
|
|
3.41
|
|
$
|
7.00
|
|
|
—
|
|
|
275,000
|
|
|
7.00
|
|
|
—
|
|
||
|
|
|
24,896,849
|
|
|
6.72
|
|
$
|
0.89
|
|
|
4,587,637
|
|
|
20,067,063
|
|
$
|
0.86
|
|
|
4,521,968
|
|
|
Non-Vested
Stock
Outstanding
|
Weighted
Average
Grant
Date
Fair
Value
|
Intrinsic
Value
at
September
30, 2006
|
|||||||
Balance
as of December 31, 2005
|
4,069,878
|
$
|
1.12
|
|||||||
Granted
|
560,000
|
1.12
|
||||||||
Vested
|
(2,132,074
|
)
|
(0.74
|
)
|
||||||
Canceled
|
(187,711
|
)
|
(1.47
|
)
|
||||||
Balance
as of September 30, 2006
|
2,310,093
|
$
|
1.44
|
$
|
3,326,534
|
|
Three
Months
Ended
September 30,
2005
|
Nine
Months
Ended
September 30,
2005
|
|||||
Net
loss, as reported
|
$
|
(1,492,744
|
)
|
$
|
(1,570,655
|
)
|
|
Add:
Stock-based employee compensation expense included in the reported
net
loss
|
18,203
|
56,609
|
|||||
Less:
Stock-based employee compensation expense determined under fair value
method for all awards
|
(523,094
|
)
|
(1,336,476
|
)
|
|||
|
|||||||
Pro
forma net loss
|
$
|
(1,997,635
|
)
|
$
|
(2,850,522
|
)
|
|
|
|||||||
Net
loss per share, as reported:
|
|||||||
Basic
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
|
|
|||||||
Diluted
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
|
|
|||||||
Net
loss per share, pro forma:
|
|||||||
Basic
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
|
|
|||||||
Diluted
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
|
Nine
months Ended September 30,
|
||||||
|
2006
|
2005
|
|||||
Expected
volatility
|
82.71
|
%
|
94.76
|
%
|
|||
Expected
life (years)
|
4.50
|
3.62
|
|||||
Risk-free
interest rate
|
4.79
|
%
|
3.71
|
%
|
|||
Expected
dividend yield
|
0
|
%
|
0
|
%
|
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Net
loss available to common stockholders - basic
|
$
|
(5,109,051
|
)
|
$
|
(1,492,744
|
)
|
$
|
(7,518,594
|
)
|
$
|
(1,570,655
|
)
|
|
Net
loss available to common stockholders - diluted
|
$
|
(5,109,051
|
)
|
$
|
(1,492,744
|
)
|
$
|
(7,518,594
|
)
|
$
|
(1,570,655
|
)
|
|
Weighted-average
number of common shares - basic
|
71,063,452
|
66,905,944
|
69,346,704
|
66,226,377
|
|||||||||
Weighted-average
number of common shares - diluted
|
71,063,452
|
66,905,944
|
69,346,704
|
66,226,377
|
|||||||||
Basic
net loss per common share
|
$
|
(0.07
|
)
|
$
|
(0.02
|
)
|
$
|
(0.11
|
)
|
$
|
(0.02
|
)
|
|
Diluted
net loss per common share
|
$
|
(0.07
|
)
|
$
|
(0.02
|
)
|
$
|
(0.11
|
)
|
$
|
(0.02
|
)
|
|
Three Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Stock
options and warrants excluded due to the exercise price exceeding
the
average fair value of the Company's common stock during the
period
|
10,633,748
|
9,983,740
|
9,347,292
|
8,123,311
|
|||||||||
Weighted
average non-vested stock, stock options and stock warrants, calculated
using the treasury stock method, that were excluded due to the Company
reporting a net loss during the period
|
10,980,771
|
16,142,510
|
14,126,041
|
17,655,135
|
|||||||||
Weighted
average shares issuable upon conversion of the convertible notes
payable
|
6,319,149
|
1,000,000
|
5,052,685
|
1,000,000
|
|||||||||
Weighted
average shares contingently issuable
|
370,130
|
1,470,974
|
562,238
|
846,876
|
|||||||||
|
|||||||||||||
Total
common stock equivalents excluded from diluted net loss per
share
|
28,303,798
|
28,597,224
|
29,088,256
|
27,625,322
|
|
Capital
Markets
|
Asset
Management
|
Wealth
Management
|
Corporate
Support
|
Consolidated
Totals
|
|||||||||||
2006
|
Total
revenue
|
$
|
7,428,739
|
$
|
(2,249
|
)
|
$
|
206,911
|
$
|
—
|
$
|
7,633,401
|
|||||
Compensation
and benefits
|
6,306,576
|
155,133
|
182,615
|
2,072,509
|
8,716,833
|
|||||||||||
Non-compensation
related expenses
|
2,568,769
|
78,904
|
95,858
|
1,535,823
|
4,279,354
|
|||||||||||
Operating
income (loss)
|
$
|
(1,446,606
|
)
|
$
|
(236,286
|
)
|
$
|
(71,562
|
)
|
$
|
(3,608,332
|
)
|
$
|
(5,362,786
|
)
|
|
2005
|
||||||||||||||||
Total
revenue
|
$
|
8,913,875
|
$
|
—
|
$
|
196,328
|
$
|
2,997
|
$
|
9,113,200
|
||||||
Compensation
and benefits
|
5,652,172
|
31,352
|
121,734
|
956,555
|
6,761,813
|
|||||||||||
Total
expense
|
2,418,479
|
3,688
|
64,634
|
1,370,077
|
3,856,878
|
|||||||||||
Pre-tax
income (loss)
|
$
|
843,224
|
$
|
(35,040
|
)
|
$
|
9,960
|
$
|
(2,323,635
|
)
|
$
|
(1,505,491
|
)
|
|
Capital
Markets
|
Asset
Management
|
Wealth
Management
|
Corporate
Support
|
Consolidated
Totals
|
|||||||||||
2006
|
Total
revenue
|
$
|
33,673,654
|
$
|
178,004
|
$
|
635,103
|
$
|
—
|
$
|
34,486,761
|
||||||
Compensation
and benefits
|
23,624,002
|
373,532
|
555,677
|
5,989,776
|
30,542,987
|
|||||||||||
Non-compensation
related expenses
|
7,142,673
|
194,690
|
261,234
|
3,826,419
|
11,425,016
|
|||||||||||
Operating
income (loss)
|
$
|
2,906,979
|
$
|
(390,218
|
)
|
$
|
(181,808
|
)
|
$
|
(9,816,195
|
)
|
$
|
(7,481,242
|
)
|
||
2005
|
||||||||||||||||
Total
revenue
|
$
|
30,425,226
|
$
|
—
|
$
|
449,250
|
$
|
2,997
|
$
|
30,877,473
|
||||||
Compensation
and benefits
|
18,887,514
|
33,048
|
296,222
|
3,913,575
|
23,130,359
|
|||||||||||
Total
expense
|
5,584,268
|
4,527
|
140,851
|
3,716,654
|
9,446,300
|
|||||||||||
Pre-tax
income (loss)
|
$
|
5,953,444
|
$
|
(37,575
|
)
|
$
|
12,177
|
$
|
(7,627,232
|
)
|
$
|
(1,699,186
|
)
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30,
2006
|
September
30,
2005
|
September
30,
2006
|
September
30,
2005
|
||||||||||
Revenue:
|
|||||||||||||
Commissions
|
$
|
6,700,416
|
$
|
6,943,963
|
$
|
23,344,124
|
$
|
20,265,658
|
|||||
Principal
transactions
|
(1,148,313
|
)
|
838,504
|
(1,480,963
|
)
|
315,770
|
|||||||
Investment
banking
|
1,839,288
|
1,130,351
|
11,750,176
|
9,839,450
|
|||||||||
Other
|
242,010
|
200,382
|
873,424
|
456,595
|
|||||||||
|
|||||||||||||
Total
revenue
|
7,633,401
|
9,113,200
|
34,486,761
|
30,877,473
|
|||||||||
|
|||||||||||||
Operating
expenses:
|
|||||||||||||
Compensation
and benefits
|
8,716,833
|
6,761,813
|
30,542,987
|
23,130,359
|
|||||||||
Brokerage
and clearing fees
|
598,644
|
688,320
|
1,987,504
|
1,775,597
|
|||||||||
Professional
services
|
576,060
|
502,093
|
1,884,345
|
1,248,923
|
|||||||||
Occupancy
and equipment
|
436,769
|
426,109
|
1,268,917
|
1,159,307
|
|||||||||
Communications
and technology
|
802,777
|
496,285
|
2,137,892
|
1,362,638
|
|||||||||
Depreciation
and amortization
|
171,916
|
132,606
|
508,851
|
367,718
|
|||||||||
Travel
and entertainment
|
623,587
|
427,274
|
2,005,242
|
1,211,686
|
|||||||||
Other
|
1,069,601
|
1,184,191
|
1,632,265
|
2,320,431
|
|||||||||
|
|||||||||||||
Total
operating expenses
|
12,996,187
|
10,618,691
|
41,968,003
|
32,576,659
|
|||||||||
|
|||||||||||||
Operating
loss
|
(5,362,786
|
)
|
(1,505,491
|
)
|
(7,481,242
|
)
|
(1,699,186
|
)
|
|||||
Interest
income
|
118,840
|
115,316
|
370,684
|
305,407
|
|||||||||
Interest
expense
|
134,895
|
(15,755
|
)
|
(408,036
|
)
|
(49,468
|
)
|
||||||
|
|||||||||||||
Loss
before income taxes
|
(5,109,051
|
)
|
(1,405,930
|
)
|
(7,518,594
|
)
|
(1,443,247
|
)
|
|||||
Income
tax (expense) benefit
|
—
|
(86,814
|
)
|
—
|
(127,408
|
)
|
|||||||
|
|||||||||||||
Net
loss
|
$
|
(5,109,051
|
)
|
(1,492,744
|
)
|
(7,518,594
|
)
|
(1,570,655
|
)
|
||||
|
|||||||||||||
Supplemental
non-GAAP financial measure:
|
|||||||||||||
Operating
loss
|
(5,362,786
|
)
|
(1,505,491
|
)
|
(7,481,242
|
)
|
(1,699,186
|
)
|
|||||
Adjustments:
|
|||||||||||||
Depreciation
and amortization
|
171,916
|
132,606
|
508,851
|
367,718
|
|||||||||
Share-based
payments
|
1,197,256
|
316,536
|
3,179,305
|
1,468,065
|
|||||||||
Adjusted
operating income (loss)
|
(3,993,614
|
)
|
(1,056,349
|
)
|
(3,793,086
|
)
|
136,597
|
·
|
Commissions
— Commissions include revenue resulting from executing stock trades
for
exchange-listed securities, over-the-counter securities and other
transactions as agent.
|
·
|
Principal
Transactions — Principal transactions consist of a portion of dealer
spreads attributed to our securities trading activities as principal
in
NASDAQ-listed and other securities, and include transactions derived
from
our activities as a market-maker. Additionally, principal transactions
include gains and losses resulting from market price fluctuations
that
occur while holding positions in our trading security
inventory.
|
|
Three Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Revenue:
|
|
|
|
|
|||||||||
Commissions
|
$
|
6,700,416
|
$
|
6,943,963
|
$
|
23,344,124
|
$
|
20,265,658
|
Principal
transactions:
|
|||||||||||||
Customer
principal transactions, proprietary trading and market
making
|
(1,224,828
|
)
|
1,037,478
|
(1,352,561
|
)
|
271,230
|
Investment
portfolio
|
76,515
|
(198,974
|
)
|
(128,402
|
)
|
44,540
|
|||||||
Total
principal transactions revenue
|
$
|
(1,148,313
|
)
|
$
|
838,504
|
$
|
(1,480,963
|
)
|
$
|
315,770
|
Transaction
Volumes:
|
|||||||||||||
|
|||||||||||||
Number
of shares traded
|
193,667,000
|
293,312,000
|
701,399,000
|
757,226,000
|
|||||||||
Number
of active clients
|
362
|
426
|
510
|
559
|
·
|
Capital
Raising — Capital raising includes private placements of equity and debt
instruments and underwritten public
offerings.
|
·
|
Financial
Advisory — Financial advisory includes advisory assignments with respect
to mergers and acquisitions, divestures, restructurings and
spin-offs.
|
Three Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Revenue:
|
|||||||||||||
Capital
raising
|
$
|
1,194,288
|
$
|
784,911
|
$
|
10,429,291
|
$
|
9,288,885
|
|||||
Financial
advisory
|
645,000
|
345,440
|
1,320,885
|
550,565
|
|||||||||
Total
investment banking revenue
|
$
|
1,839,288
|
$
|
1,130,351
|
$
|
11,750,176
|
$
|
9,839,450
|
|||||
|
|||||||||||||
Transaction
Volumes:
|
|||||||||||||
Public
offerings:
|
|||||||||||||
Capital
underwriting participation
|
$
|
—
|
$
|
42,100,000
|
$
|
104,151,000
|
$
|
183,325,000
|
|||||
Number
of transactions
|
—
|
2
|
10
|
5
|
|||||||||
Private
placements:
|
|||||||||||||
Capital
raised
|
$
|
19,385,000
|
$
|
3,000,000
|
$
|
108,385,000
|
$
|
220,419,000
|
|||||
Number
of transactions
|
4
|
1
|
8
|
10
|
|
Three Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Incentive
compensation and discretionary bonuses
|
$
|
4,171,208
|
$
|
3,308,472
|
$
|
17,431,415
|
$
|
12,702,930
|
|||||
Salaries
and wages
|
2,560,090
|
2,522,864
|
7,220,425
|
6,810,614
|
|||||||||
Stock-based
compensation
|
1,197,256
|
316,536
|
3,179,305
|
1,468,065
|
|||||||||
Payroll
taxes, benefits and other
|
788,279
|
613,941
|
2,711,842
|
2,148,750
|
|||||||||
Total
compensation and benefits
|
$
|
8,716,833
|
$
|
6,761,813
|
$
|
30,542,987
|
$
|
23,130,359
|
|||||
Total
compensation and benefits as a percentage of revenue
|
114
|
%
|
74
|
%
|
89
|
%
|
75
|
%
|
|||||
Cash
compensation and benefits as a percentage of revenue
|
99
|
%
|
71
|
%
|
79
|
%
|
70
|
%
|
|
|
Notes
Payable
|
|
Operating
Leases
|
|
Capital
Leases
|
|
|||
2006
|
|
$
|
26,694
|
|
$
|
518,779
|
|
$
|
106,784
|
|
2007
|
|
|
106,775
|
|
|
1,838,616
|
|
|
349,129
|
|
2008
|
|
|
243,990
|
|
|
1,206,478
|
|
|
197,044
|
|
2009
|
|
|
—
|
|
|
832,568
|
|
|
—
|
|
2010
|
|
|
7,500,000
|
|
|
869,731
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
|
709,898
|
|
|
—
|
|
Total
commitments
|
|
$
|
7,877,459
|
|
$
|
5,976,070
|
|
$
|
652,957
|
|
·
|
the
level of institutional brokerage transactions and the level of commissions
we receive from those transactions;
|
·
|
the
valuations of our principal
investments;
|
·
|
the
number of capital markets transactions completed by our clients,
and the
level of fees we receive from those transactions; and
|
·
|
variations
in expenditures for personnel, consulting and legal expenses, and
expenses
of establishing new business units, including marketing and technology
expenses.
|