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 98 registered representatives and 53 other full time employees at March 31, 2009. 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 $6 billion in client assets and 62 full time employees at March 31, 2009. 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. At March 31, 2009 it had approximately 400 independent contractor registered representatives located nationwide and 40 full time employees at March 31, 2009. Triad had approximately $8 billion in client assets at March 31, 2009. 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." From 2005 to 2007, this segment of the market was very active, although the number of new SPAC offerings, as well as the equity capital markets generally, have declined significantly during 2008 and 2009. Continued unfavorable market conditions during 2009 have resulted in a decrease in the number of SPAC public offerings in which Ladenburg acted as either a lead or co-manager, from four offerings in the first three months of 2008 to none in the first three months of 2009. 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 first three months of 2009, Ladenburg received deferred fees of $3,025 (included in investment banking revenues) and incurred commissions and related expenses of $1,256. As of March 31, 2009, Ladenburg had unrecorded potential deferred fees for our SPAC-related transactions of $26,966, which, net of expenses, amounted to approximately $16,197.
We have two operating segments which correspond to our Ladenburg subsidiary and our independent brokerage and advisory services business conducted by Investacorp and Triad.

Recent Developments
Difficult Market Conditions
The U.S. and global economies have continued to deteriorate and are now 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 securities markets and the economy, generally. 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. At the same time, however, we continue to seek to selectively upgrade our talent pool given the availability of experienced professionals.
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 at all or 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.
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, 2008, as amended. 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, Triad (since August 13, 2008) and our other subsidiaries.

                                                                       Three months ended March 31,
                                                                        2009                  2008
Total revenues                                                     $     33,290          $     28,791
Total expenses                                                           39,290                29,851
Pre-tax loss                                                             (6,000 )              (1,060 )
Net loss                                                                 (6,241 )              (1,033 )

Reconciliation of EBITDA, as adjusted, to net loss:

EBITDA as adjusted                                                 $     (2,052 )        $      2,228
Add:
Interest income                                                              35                    76
Income tax benefit                                                            -                    27
Less:
Interest expense                                                         (1,124 )              (1,155 )
Income tax expense                                                         (241 )                   -
Depreciation and amortization                                              (939 )                (640 )
Non-cash compensation                                                    (1,920 )              (1,569 )

Net loss                                                           $     (6,241 )        $     (1,033 )

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 business. 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 business 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 should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities.
First quarter 2009 EBITDA, as adjusted, was $(2,052), a decrease of $4,280 from first quarter 2008 EBITDA, as adjusted, of $2,228 primarily because of increased expenses in the 2009 period.
Segment Description
We have two operating segments:
• Ladenburg - includes the retail and institutional securities brokerage, investment banking services, asset management services and investment activities conducted by Ladenburg.

• Independent brokerage and advisory services - includes the broker-dealer and investment advisory services provided by Investacorp and Triad to their independent contractor registered representatives.

                                                    Three months ended March 31,
                                                       2009               2008
   Revenues:
   Ladenburg                                      $      9,182        $     13,104
   Independent brokerage and advisory services          24,094              15,459
   Corporate                                                14                 228

   Total revenues                                 $     33,290        $     28,791


   Pre-tax (loss) income:
   Ladenburg                                      $     (3,445 )      $        688
   Independent brokerage and advisory services             (83 )               563
   Corporate                                            (2,472 )            (2,311 )

   Total pre-tax loss                             $     (6,000 )      $     (1,060 )

Three months ended March 31, 2009 versus three months ended March 31, 2008 Net loss for the quarter ended March 31, 2009 was $6,241 compared to net a loss of $1,033 for the quarter ended March 31, 2008. Difficult market conditions led to a reduction in the number and size of investment banking transactions and assets under management. Therefore, investment banking revenue decreased $3,407 and asset management fees decreased $341 from the 2008 first quarter. Also, net loss was impacted negatively by a one-time $562 increase in rent and occupancy expense, net of sublease revenue and an $855 increase in professional services expense.
Total revenues for the three months ended March 31, 2009 increased $4,499 (16%) from the 2008 period, due to Triad revenues of $12,308, which were not included in the corresponding 2008 period. The addition of Triad in the 2009 period resulted in a $7,859 increase in commissions and fees income and a $733 increase in other income as compared to 2008. This increase was partially offset by decreased investment banking revenue and asset management fees described above, a $217 decrease in unrealized gain on NYSE Euronext restricted common stock we hold and a $178 decrease in interest and dividends due to lower interest rates and client assets.
Total expenses increased $9,439 (32%) from the 2008 period, primarily as a result of Triad operating expenses of $12,338 (primarily commissions and fees expense of $9,683), which were not included in 2008. Also, Ladenburg's rent expense increased by $996, professional fees increased $855, non-cash compensation increased $351, and other expenses increased $258, excluding Triad other expenses. This was partially offset by a $3,160 decrease in Investacorp's commissions and fees expense and a $2,057 decrease in Ladenburg's compensation expense due to lower levels of activity. Although total expenses increased due to the Triad acquisition, Ladenburg has undertaken efforts to reduce operating expenses. Also, Investacorp and Triad have been working together increasingly to achieve increased operating efficiencies and to benefit from common technology platforms.

The $3,407 (46%) decrease in investment banking revenue in the first quarter of 2009 primarily resulted from the absence of any SPACs or other public offerings led or co-managed by Ladenburg in 2009, resulting in a decrease of $3,706 in fees related to public offerings. This was partially offset by a $614 increase in deferred SPAC fees recognized. Revenues from advisory, valuations, mergers and acquisitions investment banking services decreased $315 from the prior year period.
The $7,859 (41%) increase in commissions and fees revenue in the first quarter of 2009 is due to the addition of Triad, which had $11,523 in commissions and fees revenue. Unfavorable market conditions caused commissions and fees revenue generated by Investacorp to decrease $3,767 from the 2008 period.
The $178 (17%) decrease in interest and dividends revenue is primarily attributable to a decrease in client assets at Investacorp and Ladenburg and lower interest rates in 2009.
In the 2009 period, we did not record an amount for unrealized gain on the NYSE Euronext restricted common stock we held because these shares are no longer restricted. Unrealized gains and losses for these shares are recorded in principal transactions revenue.
Other income revenue increased $733 (131%) primarily due to the addition of Triad, which had $758 of other income in the first quarter of 2009.
Compensation and benefits expense decreased $981 (9%) primarily due to a $2,108 reduction in Ladenburg's producer's compensation, which is directly correlated to revenue production, partially offset by the addition of Triad, which had $1,037 in compensation and benefits expense in the first quarter of 2009.
Non-cash compensation expense increased $351 (22%) primarily due to a reduction of the forfeiture rate and an increase in the number of option grants to employees and directors, which was offset by a $142 decrease due to the elimination of amortization expense relating to warrants to purchase our common stock and common stock held in escrow for Capitalink's former principal shareholders. In 2008, we were amortizing unearned compensation these warrants and common stock. These warrants and common stock are no longer held in escrow and are no longer being amortized.
Brokerage, communication and clearance fees expense increased $608 (56%) due to Triad expense of $505 and an increase in the size of Ladenburg's institutional trading department.
The $1,073 (337%) increase in rent and occupancy, net of sublease revenue, expense is primarily attributable to a $562 one-time charge related to office space Ladenburg is no longer using and intends to sublet, $165 in increased costs for Ladenburg's new New York headquarters and $75 for Triad rent and occupancy expense.
The $855 (71%) increase in professional services expense during the 2009 period is primarily due to an increase in Ladenburg's legal fees of $598 and the addition of Triad expense of $241.
The $299 (47%) increase in depreciation and amortization expense is primarily due to Triad expense of $307, of which $288 is attributed to the amortization of intangible assets related to the Triad acquisition.
The $742 (79%) increase in other expense is primarily attributable to Triad expense of $484. Also, other expense in the 2008 period was positively impacted by the collection of $320 from certain Investacorp financial advisors related to settled claims.
We had income tax expense of $241 for 2009 as compared to income tax benefit of $27 for 2008. After consideration of all the evidence, both positive and negative, management determined that a valuation allowance at March 31, 2009 was necessary to fully offset the deferred tax assets based on the likelihood of future realization. Our current deferred income tax liabilities increased by approximately $183 during the three months ended March 31, 2009 as a result of goodwill amortization for tax purposes. The income tax rates for the 2009 and 2008 periods do not bear a customary relationship to effective tax rates primarily as a result of the increase in the valuation allowance in the 2009 and 2008 periods.

Liquidity and Capital Resources
Approximately 24% and 26% of our total assets at March 31, 2009 and December 31, 2008, respectively, consisted of cash and cash equivalents, securities owned and receivables from clearing brokers and other broker-dealers, all of which fluctuate, depending upon the levels of customer business and trading and investment banking activity. As securities dealers, our broker-dealer subsidiaries may carry significant levels of securities inventories to meet customer needs. A relatively small percentage of our total assets are fixed. The total assets or the individual components of total assets may vary significantly from period to period because of changes relating to economic and market conditions, and proprietary trading strategies.
Each of Ladenburg, Investacorp and Triad is subject to the SEC's net capital rules. Ladenburg is also subject to the net capital rules of the CFTC. Therefore, Ladenburg, Investacorp and Triad are subject to certain restrictions on their use of capital and their related liquidity. At March 31, 2009, Ladenburg's regulatory net capital of $2,148 exceeded minimum capital requirements of $500 by $1,648. At March 31, 2009, Investacorp's regulatory net capital of $831 exceeded minimum capital requirements of $328 by $503 At March 31, 2009, Triad's regulatory net capital of $939 exceeded minimum capital requirements of $250 by $689. Failure to maintain the required net capital may subject Ladenburg, Investacorp and Triad to suspension or expulsion by FINRA, the SEC and other regulatory bodies, and ultimately may require their liquidation. The net capital rule also prohibits the payment of dividends, redemption of stock and prepayment or payment of principal of subordinated indebtedness if net capital, after giving effect to the payment, redemption or prepayment, would be less than specified percentages of the minimum net capital requirement. Compliance with the net capital rule could limit the operations of Ladenburg, Investacorp and Triad that require the intensive use of capital, such as underwriting and trading activities, and also could restrict our ability to withdraw capital from our subsidiaries, which in turn, could limit our ability to pay dividends and repay and service our debt.
Investacorp also is contractually restricted from declaring a dividend to us which would result in its retained earnings and paid-in capital falling below the lesser of the then outstanding principal balance of the note issued to Investacorp's former principal shareholder and $5,000. At March 31, 2009, the outstanding principal balance of this note was $8,146.
Each of Ladenburg, Investacorp and Triad, as guarantor of its customer accounts to its clearing brokers, is exposed to off-balance-sheet risks in the event that its customers do not fulfill their obligations to the clearing brokers. Also, to the extent Ladenburg, Investacorp or Triad maintain a short position in any securities, they are exposed to future off-balance-sheet market risk, since their ultimate obligation may exceed the amount recognized in the financial statements.
Our primary sources of liquidity include our cash flow from operations and borrowings under our $30,000 revolving credit facility. As of March 31, 2009, we had repaid $11,000 of the $30,000 of outstanding borrowings under the revolving credit facility. At March 31, 2009, $19,000 was outstanding under the revolving credit agreement. We may repay or re-borrow outstanding amounts under this facility at any time prior to the maturity date of October 19, 2012, without penalty. We believe our existing assets, funds generated from operations and funds available under our $30,000 revolving credit facility provide adequate funds for continuing operations at current activity levels.
Cash used in operating activities for the three months ended March 31, 2009 was $1,990 primarily due to our net loss and an increase in receivables from other broker dealers, partially offset by securities owned and receivables from clearing brokers.
Investing activities generated $249 for the three months ended March 31, 2009 primarily due to a decrease in restricted assets related to the termination of a letter of credit securing obligations under one of Ladenburg's office leases.
Financing activities used $625 in the first quarter of 2009 primarily due to repayments of notes payable partially offset by additional borrowings under our $30,000 revolving credit facility.
In March 2007, our board of directors authorized the repurchase of up to 2,500,000 shares of our common stock from time to time on the open market or in privately negotiated transactions, depending on market conditions. The repurchase program is funded using approximately 15% of our EBITDA, as adjusted. From inception through March 31, 2009, 947,824 shares have been repurchased under the program.
In April 2009, we repurchased 4,500,000 shares of our common stock at a price of $0.60 per share (an aggregate of $2,700) in a privately-negotiated transaction. This purchase was not made under our current share repurchase program, which remains in effect. We funded the repurchase by borrowing $2,700 under our $30,000 revolving credit facility.

Off-Balance-Sheet Risk and Concentration of Credit Risk Our three principal broker-dealer subsidiaries, Ladenburg, Investacorp and Triad, do not carry accounts for customers or perform custodial functions related to customers' securities. They introduce all of their customer transactions, which are not reflected in these financial statements, to their clearing brokers, which maintain the customers' accounts and clear such transactions. Additionally, the clearing brokers provide the clearing and depository operations for proprietary securities transactions. These activities may expose us to off-balance-sheet risk in the event that customers do not fulfill their obligations with the clearing brokers, as each of Ladenburg, Investacorp and Triad has agreed to indemnify their clearing brokers for any resulting losses. Each of Ladenburg, Investacorp and Triad continually assesses risk associated with each customer who is on margin credit and records an estimated loss when management believes collection from the customer is unlikely.
The clearing operations for Ladenburg, Investacorp and Triad's securities transactions are provided primarily by one clearing broker, a large financial institution. At March 31, 2009 and December 31, 2008, substantially all of the securities owned and the amounts due from clearing brokers reflected in our condensed consolidated statements of financial condition are positions held at, and amounts due from, this one clearing broker. We are subject to credit risk should this clearing broker become unable to fulfill its obligations.
In the normal course of business, Ladenburg, Investacorp and Triad may enter into transactions in financial instruments with off-balance sheet risk. These financial instruments include financial futures contracts, written equity index option contracts and securities sold, but not yet purchased. As of March 31, 2009 and December 31, 2008, Ladenburg, Investacorp and Triad were not contractually obligated for any equity index or financial futures contracts; however, each of Ladenburg and Triad sold securities that it did not own and will therefore be obligated to purchase such securities at a future date. These obligations have been recorded in our statements of financial condition at market values of the related securities, and Ladenburg and Triad will incur a loss if the market value of the securities increases after March 31, 2009. See Note 4 to our unaudited condensed consolidated financial statements for further information.
We and our subsidiaries maintain cash in bank deposit accounts, which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk on cash.
Market Risk
Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument as a result of fluctuations in interest and currency exchange rates, equity and commodity prices, changes in the implied volatility of interest rates, foreign exchange rates, equity and commodity prices and also changes in the credit ratings of either the issuer or its related country of origin. Market risk is inherent to both derivative and non-derivative financial instruments and, accordingly, the scope of our market risk management procedures extends beyond derivatives to include all market-risk sensitive financial instruments.
Current and proposed underwriting, corporate finance, merchant banking and other commitments are subject to due diligence reviews by our senior management, as well as professionals in the appropriate business and support units involved. Credit risk related to various financing activities is reduced by the industry practice of obtaining and maintaining collateral. We monitor our exposure to counterparty risk through the use of credit exposure information, the monitoring of collateral values and the establishment of credit limits.
We maintain inventories of trading securities. At March 31, 2009, the fair market value of our inventories was $3,387 in long positions and $21 in short positions. We performed an entity-wide analysis of our financial instruments and assessed the related market risk. Based on this analysis, we do not expect that the market risk associated with our financial instruments at March 31, 2009 will have a material adverse effect on our consolidated financial position or results of operations.
Recently Issued Accounting Principles . . .