Overview
We are engaged in investment banking, equity research, institutional sales and trading, independent brokerage and advisory services and asset management services through our principal subsidiaries, Ladenburg Thalmann & Co. Inc. ("Ladenburg"), Investacorp, Inc. (collectively with related companies, "Investacorp") and Triad Advisors, Inc. and subsidiaries (collectively, "Triad"). We are committed to establishing a significant presence in the financial services industry by meeting the varying investment needs of our corporate, institutional and retail clients.
Ladenburg is a full service broker-dealer that has been a member of the New York Stock Exchange ("NYSE") since 1879. It provides its services principally for middle market and emerging growth companies and high net worth individuals through a coordinated effort among corporate finance, capital markets, asset management, brokerage and trading professionals. Ladenburg had approximately 125 registered representatives and 78 other full time employees at September 30, 2008. Ladenburg's private client services and institutional sales departments serve approximately 14,000 accounts nationwide and its asset management department provides investment management and financial planning services to numerous individuals and institutions.
Investacorp, headquartered in Miami Lakes, Florida, is an independent broker-dealer and investment advisor, which had approximately 500 independent contractor registered representatives, approximately $7 billion in client assets and 66 full time employees at September 30, 2008. Investacorp's national network of independent registered representatives primarily serves retail clients.
Triad, headquartered in Norcross, Georgia, is an independent broker-dealer and investment advisor that offers a broad menu of products, services and total wealth management solutions to approximately 385 independent contractor registered representatives located nationwide. Triad had 41 full time employees and approximately $8 billion in client assets at September 30, 2008. Triad's independent registered representatives primarily serve retail clients.
Each of Ladenburg, Investacorp and Triad is subject to regulation by, among others, the Securities and Exchange Commission ("SEC"), the Financial Industry Regulatory Authority ("FINRA"), and the Municipal Securities Rulemaking Board ("MSRB") and is a member of the Securities Investor Protection Corporation ("SIPC"). Ladenburg is also subject to regulation by the Commodities Futures Trading Commission ("CFTC) and National Futures Association ("NFA").
Ladenburg is a leader in underwriting offerings by blank check companies known as Specified Purpose Acquisition Companies (SPACs). The revenues associated with these offerings have been an important contributor to our investment banking business since 2005. These companies are formed for the purpose of raising funds in an initial public offering, a significant portion of which is placed in trust, and then acquiring a target business, thereby making the target business "public." In recent years, there has been a surge of activity in this segment of the market, although the number of new SPAC offerings, as well as the equity capital markets generally, have declined significantly during the first nine months of 2008. Unfavorable market conditions during 2008 have resulted in a decrease in the number of SPAC public offerings in which Ladenburg acted as either a lead or co-manager, from 16 offerings in the first nine months of 2007 to five offerings in the first nine months of 2008. Since 2005, Ladenburg has led or co-managed 40 SPAC offerings, raising approximately $8 billion, and we believe our professionals provide unique deal structures and a proprietary retail distribution network that adds value and validity to SPAC offerings. Compensation derived from these underwritings includes normal discounts and commissions, as well as deferred fees that will be payable to us only upon the SPAC's completion of a business combination. Such fees are not reflected in our results of operations until the underlying business combinations have been completed and the fees have been irrevocably earned. Generally, these fees may be received within 24 months from the respective date of the offering, or not received at all if no business combination transactions are consummated during such time period. During the third quarter of 2008, Ladenburg received a deferred fee of $2,878 (included in investment banking revenues) and incurred commissions and related expenses of $1,295. During the first nine months of 2008, Ladenburg received deferred fees of $5,289 (included in investment banking revenues) and incurred commissions and related expenses of $2,145. As of September 30, 2008, Ladenburg had unrecorded potential deferred fees for our SPAC-related transactions of $38,800, which, net of expenses, amounted to approximately $22,955.
We have two operating segments which correspond to our Ladenburg subsidiary and our independent brokerage and advisory services business conducted by our Investacorp and Triad subsidiaries.

Recent Developments
Difficult Market Conditions
During the quarter ended September 30, 2008, the U.S. and global economies continued to deteriorate and may now be in a recession, which could be long-term. We, like other companies in the financial services sector, are exposed to volatility and trends in the general securities markets and the economy. The market downturn and poor economic conditions have reduced overall investment banking and client activity levels. It is difficult to predict when conditions will change. Given difficult market and economic conditions, we have focused on reducing redundancies and unnecessary expense, including implementing headcount reductions. At the same time, however, we continue to seek to selectively upgrade our talent pool given the availability of experienced professionals.
Sale of American Stock Exchange and Boston Stock Exchange Membership Interests
At September 30, 2008, Ladenburg owned an AMEX membership. We valued this membership at a cost of $115, in accordance with industry practice. On October 1, 2008, NYSE Euronext acquired the American Stock Exchange. As a result of the transaction Ladenburg received 8,138 shares of NYSE Euronext stock valued at $328, resulting in a gain of $213, which will be recognized in the fourth quarter of 2008. Ladenburg may receive additional amounts from the sale of its AMEX membership if AMEX sells its headquarters building.
Ladenburg also owned a Boston Stock Exchange membership. We valued this membership at a cost of $5, in accordance with industry practice. On August 29, 2008, the Nasdaq OMX Group, Inc. acquired the Boston Stock Exchange. As a result of the transaction, Ladenburg received a cash payment of $310, resulting in a gain of $305 for the third quarter of 2008.
Triad Advisors Acquisition
On August 13, 2008, we completed the Triad acquisition by way of merger. We believe that the Triad acquisition significantly expands our presence in the independent broker dealer area, one of the fastest growing segments of the financial services industry.
All outstanding shares of Triad's common stock were converted into an aggregate of $6,826 in cash (net of a post-closing adjustment of $674), 7,993,387 shares of our common stock subject to certain transfer restrictions valued at $10,427 and a $5,000 promissory note valued at $4,384 (the "Triad Note"). If Triad meets certain profit targets during the three-year period following completion of the merger, we will also pay to Triad's former shareholders up to $7,500 in cash and up to 4,134,511 shares of common stock ("Additional Contingent Consideration"). The fair value of the 7,993,387 shares issued at closing was approximately $10,427 using a stock price of $1.30 per share (based on market prices at time of announcement adjusted for transfer restrictions). We also pledged the stock of Triad to Triad's shareholders under a pledge agreement as security for the payment of the Triad Note. The Triad Note contains customary events of default, which if uncured, entitle the Triad Note holders to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Triad Note. We are entitled to setoff for indemnification claims against the Triad Note and any Additional Contingent Consideration.
Punk, Ziegel Acquisition
On May 2, 2008, Punk, Ziegel & Company, L.P., a specialty investment bank based in New York City, was merged into Ladenburg. As a result, Ladenburg offers Punk Ziegel's full range of research, equity market making, corporate finance, retail brokerage and asset management services focused on high growth sectors within the healthcare technology, biotechnology, life sciences and financial services industries.

Acquisition Strategy
We continue to explore opportunities to grow our businesses, including through potential acquisitions of other securities, investment banking and investment advisory firms, both domestically and internationally. These acquisitions may involve payments of material amounts of cash, the incurrence of a significant amount of debt or the issuance of significant amounts of our equity securities, which may be dilutive to our existing shareholders and/or may increase our leverage. We cannot assure you that we will be able to consummate any such potential acquisitions on terms acceptable to us or, if we do, that any acquired business will be profitable. There is also a risk that we will not be able to successfully integrate acquired businesses into our existing business and operations.
Option Grants
On October 31, 2008, we granted ten-year stock options to purchase 600,000, 600,000, 600,000 and 300,000 shares of our common stock at an exercise price of $1.58 per share to Dr. Phillip Frost, Richard Lampen, Mark Zeitchick and Howard Lorber, respectively. Dr. Frost and Mr. Lorber serve as directors of our company and Messrs. Lampen and Zeitchick serve as executive officers and directors of our company. The exercise price was 25% in excess of the fair value ($1.26) of our common stock on the grant date, subject to earlier vesting upon the recipient's death or disability or if we undergo a change of control. 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 December 31, 2007 and our quarterly report on Form 10-Q for the three months ended March 31, 2008. Please refer to those sections for disclosures regarding the critical accounting policies related to our business. Results of Operations
The following discussion provides an assessment of our results of operations, capital resources and liquidity and should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The unaudited condensed consolidated financial statements include our accounts and the accounts of Ladenburg, Investacorp (since October 19, 2007), Triad (since August 13, 2008) and our other wholly-owned subsidiaries.

                                       Three months ended          Nine months ended
                                          September 30,              September 30,
                                        2008          2007         2008          2007
    Total revenue                    $   31,272     $ 10,452     $  85,296     $ 44,899
    Total expenses                       36,273       12,665        96,501       46,060 (1)
    Pre-tax loss                         (5,001 )     (2,213 )     (11,205 )     (1,161 )
    Net loss                             (5,691 )     (2,098 )     (11,957 )     (1,207 )(1)

    EBITDA as adjusted                   (1,802 )       (194 )      (1,384 )      6,188
    Add:
    Interest income                          45           45           189          128
    Income tax benefit                        -          115             -            -
    Sale of exchange memberships            310            -           310            -
    Less:
    Interest expense                     (1,118 )        (16 )      (3,474 )       (287 )
    Income tax expense                     (690 )          -          (752 )        (46 )
    Depreciation and amortization          (898 )       (333 )      (2,241 )       (918 )
    Non-cash compensation                (1,538 )     (1,715 )      (4,605 )     (4,439 )
    Loss on extinguishment of debt            -            -             -       (1,833 )
    Net loss                             (5,691 )     (2,098 )     (11,957 )     (1,207 )

(1) Includes $1,833 loss on extinguishment of debt.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted for gains or losses on sales of assets, non-cash compensation expense and loss on extinguishment of debt, is a key metric we use in evaluating our financial performance. EBITDA is considered a non-GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities Act of 1933, as amended. We consider EBITDA, as adjusted, important in evaluating our financial performance on a consistent basis across various periods. Due to the significance of non-recurring items, EBITDA, as adjusted, enables our Board of Directors and management to monitor and evaluate our business on a consistent basis. We use EBITDA, as adjusted, as a primary measure, among others, to analyze and evaluate financial and strategic planning decisions regarding future operating investments and potential acquisitions. We believe that EBITDA, as adjusted, eliminates items that are not part of our core operations, such as interest expense and debt extinguishment expense, or do not involve a cash outlay, such as stock-related compensation. EBITDA, as adjusted, should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities.

Third quarter 2008 EBITDA, as adjusted, was $(1,802), a decrease of $(1,608) over third quarter 2007 EBITDA, as adjusted, of $(194). EBITDA, as adjusted, for the nine months ended September 30, 2008, was $(1,384), a decrease of $(7,572) over EBITDA, as adjusted, of $6,188 for the 2007 comparable period. Decreases in EBITDA were primarily due to increased net loss, interest expense and depreciation and amortization expense.
As a result of the Investacorp acquisition on October 19, 2007, we have two operating segments. For periods prior to October 19, 2007, we had only one segment. The Ladenburg segment includes the retail and institutional securities brokerage, investment banking services, asset management services and investment activities conducted by Ladenburg. The independent brokerage and advisory services segment includes the broker-dealer and investment advisory services provided by Investacorp and Triad to its independent contractor registered representatives.

                                                  Three months       Nine months
                                                     ended              ended
                                                 September 30,      September 30,
                                                      2008               2008
   Revenues:
   Ladenburg                                     $       11,496     $       34,099
   Independent brokerage and advisory services           19,858             51,228
   Corporate                                                (82 )              (31 )

   Total revenues                                $       31,272     $       85,296


   Pre-tax income (loss):
   Ladenburg                                     $       (2,133 )   $       (3,645 )
   Independent brokerage and advisory services             (159 )              553
   Corporate                                             (2,709 )           (8,113 )

   Total pre-tax loss                            $       (5,001 )   $      (11,205 )

Three months ended September 30, 2008 versus three months ended September 30, 2007
Our net loss for the quarter ended September 30, 2008 was $5,691 compared to net loss of $2,098 for the quarter ended September 30, 2007. The increase in net loss of $3,593 is due to decreases in principal transactions, and unrealized losses on NYSE Euronext shares, of $691 and $131, respectively, interest expense of $1,102 attributable to the Investacorp and Triad acquisitions, a net loss by Investacorp of $966 and a $893 increase in professional services, which were partially offset by net income from Triad of $92.
Our total revenues for the three months ended September 30, 2008 increased $20,820, or 199%, from the 2007 period, primarily as a result of a $20,102 increase in commissions and fees, a $631 increase in investment banking, a $355 increase in interest and dividends and a $574 increase in other income, partially offset by a decrease in principal transactions of $691, and a $131 decrease in unrealized gain on our NYSE Euronext common stock holdings. Revenues for the 2008 period included $14,520 and $5,339 from Investacorp and Triad, respectively, which were not included in the corresponding 2007 period.
Our total expenses increased $23,608, or 186%, from the 2007 period, primarily as a result of Investacorp and Triad operating expenses of $14,821 and $5,196, respectively (primarily commissions and fees expense of $11,400 and $3,725, respectively), which were not included in 2007. In addition, interest expense increased by $1,102 due to the increased debt outstanding in the 2008 period and compensation and benefits expense increased by $1,639 for the Ladenburg and Corporate segments.
The $631 (18%) increase in investment banking revenue in the third quarter of 2008 primarily resulted from a deferred SPAC fee of $2,878, an increase in advisory, valuation and mergers and acquisitions fees of $650, offset by a decrease in the number of SPAC offerings in which Ladenburg acted as either a lead or co-manager, from one offering in the 2008 third quarter compared to two offerings in the 2007 comparable quarter, resulting in a decrease of $2,825 in fees related to public offerings.

The $20,102 (400%) increase in commissions and fees revenue in the third quarter of 2008 is primarily attributable to the addition of Investacorp and Triad, which had $13,811 and $4,810 in commissions and fees, respectively, and the Punk Ziegel acquisition, which increased the number of employees in Ladenburg's institutional sales and research departments.
The $691 (843%) decrease in principal transactions revenue was primarily due to unrealized losses in securities received as fees in investment banking transactions.
The $355 (57%) increase in interest and dividends is primarily attributable to the addition of Investacorp, which had $380 in interest and dividends.
The $131 (655%) decrease in unrealized loss on NYSE Euronext common stock is attributable to the declining market price.
The $574 (124%) increase in other income is attributed to the addition of Investacorp and Triad, which had $330 and $510 in 2008, respectively, in other income, partially offset by a decrease in transaction fee rebates of $72 and FINRA rebates of $70 in 2007.
The $3,960 (55%) increase in compensation and benefits expense was primarily due to an increase in salaries, bonuses and employee benefits of $4,048, offset by an $88 decrease in producers' compensation, which is directly correlated to revenue production. The increase in salaries, bonuses and benefits is due to an increase in the average headcount for salaried Ladenburg employees and an increase of $2,322 for Investacorp's and Triad's employees in the 2008 period.
The $177 (10%) decrease in non-cash compensation expense is primarily due to increased employee compensation expense of $677 in the third quarter of 2008 attributable to option grants to employees and directors (including $539 to Investacorp employees), partially offset by a decrease of $854 for the amortization of unearned compensation for our warrants and common stock held in escrow for the principal shareholders of Capitalink which was amortized over 15 months beginning on October 18, 2006, the date of acquisition.
The $708 (76%) increase in brokerage, communication and clearance fees expense is primarily attributable to increased institutional trading and Investacorp and Triad expense of $159 and $318, respectively.
The $484 (112%) increase in rent and occupancy, net of sublease revenue, expense is primarily attributable to the relocation of two of Ladenburg's Manhattan offices and a one-time additional expense in the third quarter 2008 of $154. In addition, Investacorp and Triad rent and occupancy expense of $99 and $56, respectively, was included in the third quarter of 2008. The increase was partially offset by a decrease in expense for Ladenburg's former Manhattan offices of $71.
The $893 (133%) increase in professional services expense during the 2008 period is primarily due to the increased acquisition and related expenses at corporate, the addition of Investacorp and Triad expense of $210 and $39, respectively, and other legal, audit and consulting fees for the 2008 period.
The $1,102 (6,888%) increase in interest expense is a result of debt incurred in connection with the Investacorp and Triad acquisitions. An approximate $32,000 average balance was outstanding in the third quarter of 2008, as compared to no debt outstanding in the 2007 period.
The $565 (170%) increase in depreciation and amortization expense is primarily due to Investacorp expense of $353, of which $343 is attributed to the amortization of intangible assets related to the Investacorp acquisition and Triad expense of $153, of which $143 is attributed the amortization of intangible assets related to the Triad acquisition.
The $947 (71%) increase in other expense is primarily attributable to Investacorp and Triad expense of $204 and $431, respectively. The remaining increase of $306 is primarily attributable to the addition of Punk Ziegel employees and expenses related to the relocation of Ladenburg's New York City offices.

We had income tax expense of $690 for the three months ended September 30, 2008 as compared to income tax benefit of $115 for the three months ended September 30, 2007. After consideration of all the evidence, both positive and negative, management determined that a valuation allowance at September 30, 2008 was necessary to fully offset the deferred tax assets based on the likelihood of future realization. The Company's current deferred income tax liabilities increased by approximately $633 during the three months ended September 30, 2008 as a result of goodwill amortization for tax purposes.
Nine months ended September 30, 2008 versus nine months ended September 30, 2007 Our net loss for the nine months ended September 30, 2008 was $11,957 compared to net loss of $1,207 for the nine months ended September 30, 2007. The increase in net loss of $10,750 is attributed to the decrease in investment banking transactions of $11,627, primarily SPAC offerings, a $1,391 increase in professional services expense, an increase in interest expense of $3,187 from debt attributable to the Investacorp acquisition and a net loss by Investacorp of $342, which was partially offset by net income from Triad of $92. The net income for the 2007 period includes a $1,833 loss on extinguishment of debt.
Our total revenues for the nine months ended September 30, 2008 increased $40,397, or 90%, from the 2007 period, primarily as a result of increased commissions and fees of $49,928, an increase in interest and dividends of $1,060, a $1,762 increase in other income, partially offset by a decrease in investment banking of $11,627 and a decrease in principal transactions of $640. The 2008 revenues included $45,890 of revenue from Investacorp and $5,339 from Triad, which were not included in 2007.
Excluding a loss on extinguishment of debt of $1,833 in 2007, our total expenses increased $52,274, or 118%, from the 2007 period, primarily as a result of expenses attributable to Investacorp and Triad operations of $45,479 and $5,196, respectively (primarily commissions and fees expense of $35,511 and $3,725, respectively), which were not included in 2007. Interest expense also increased by $3,187 due to increased debt outstanding in the 2008 period.
The $11,627 (46%) decrease in investment banking revenue was primarily due to unfavorable market conditions and a decrease in the number of SPAC offerings in which Ladenburg acted as either a lead or co-manager. Ladenburg lead or co-managed five offerings in the 2008 period compared to 16 offerings in the 2007 period. The decrease related to new SPAC offerings was $16,877 and was partially offset by deferred revenues realized from successful SPAC business combinations of $5,289.
The $49,928 (340%) increase in commissions and fees revenue in the 2008 period is primarily attributable to the addition of Investacorp and Triad, which earned $43,175 and $4,810, respectively, in commissions and fees.
The $640 (340%) decrease in principal transactions revenue was primarily due to unrealized gains, partially offset by realized losses, in securities received as underwriting consideration.
The $1,060 (55%) increase in interest and dividends is primarily attributable to the addition of Investacorp, which had $1,157 in interest and dividends.
The $164 (309%) decrease in unrealized loss on NYSE Euronext common stock is attributable to declining market prices.
The $1,762 (187%) increase in other income is primarily due to the addition of Investacorp and Triad, which had $1,558 and $510, respectively, in other income, partially offset by a decrease in transaction fee rebates of $205.
The $3,521 (13%) increase in compensation and benefits expense was the result of an increase in salaries, bonuses and employee benefits of $8,686 offset by a $5,165 decrease in producers' compensation, which is directly correlated to revenue production. The increase in salaries, bonuses and benefits is due to an increase in the average headcount for salaried Ladenburg employees and an increase of $5,553 for Investacorp's and Triad's employees in the 2008 period.
The $166 (4%) increase in non-cash compensation expense is primarily due to increased compensation expense of $2,564 attributable to option grants to employees, directors and consultants (including $3,022 to Investacorp employees), partially offset by a decrease of $2,309 for the amortization of unearned compensation for our warrants and common stock held in escrow for the principal shareholders of Capitalink which was amortized over 15 months beginning on October 18, 2006, the date of acquisition, and a decrease of $90 for the amortization of unearned compensation from stock issued to employees in 2005 at below market prices.

The $1,081 (39%) increase in brokerage, communication and clearance fees expense is primarily attributable to increased institutional trading and the addition of Investacorp and Triad expense of $468 and $318, respectively.
The $1,391 (52%) increase in professional services expense during the 2008 . . .