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 100 registered representatives and 60 other full time employees at September 30, 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 registered investment advisor, which had approximately 500 independent contractor registered representatives, approximately $7 billion in client assets and 62 full time employees at September 30, 2009. Investacorp's national network of independent registered representatives primarily serves retail clients.
Triad, headquartered in Norcross, Georgia, is an independent broker-dealer and registered investment advisor that offers a broad selection of products, services and total wealth management solutions. At September 30, 2009, Triad had approximately 450 independent contractor registered representatives located nationwide and 40 full time employees. Triad had approximately $9 billion in client assets at September 30, 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 and each is a member of the Securities Investor Protection Corporation. Ladenburg is also subject to regulation by the Commodities Futures Trading Commission ("CFTC) and the National Futures Association.
From 2005 to 2008, Ladenburg was a leader in underwriting offerings by blank check companies known as Specified Purpose Acquisition Companies (SPAC). These companies were formed for the purpose of raising funds in an initial public offering, a significant portion of which was placed in trust, and then acquiring a target business, thereby making the target business "public." Revenues from SPAC offerings were an important contributor to our investment banking revenue from 2005 until 2008. Ladenburg acted as either a lead or co-manager in five offerings in the first nine months of 2008 and none in the first nine months of 2009. Since the third quarter of 2008, there have been no new underwritings of SPAC initial public offerings. The absence of new SPAC offerings has negatively impacted our investment banking revenue. Compensation derived from these underwritings included normal discounts and commissions, as well as deferred fees payable to us only upon the SPAC's completion of a business combination. Such deferred 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 completed during such time period. SPACs are experiencing significant difficulty in obtaining shareholder approval of business combination transactions because, among other factors, many of their shareholders hold common stock that is trading at a discount to the cash amount per share held in trust. During the three and nine months ended September 30, 2009, Ladenburg received deferred fees of $550 and $3,575, respectively (included in investment banking revenues) and incurred commissions and related expenses of $216 and $1,472, respectively (included in compensation and benefits). As of September 30, 2009, Ladenburg had unrecorded potential deferred fees for our SPAC-related transactions of $10,137, which, net of expenses, amounted to approximately $6,014. Of this amount, in October 2009, Ladenburg received $1,500, which, net of expenses, amounted to approximately $911. If SPACs continue to experience difficulty in completing business combination transactions, we may not be able to record additional deferred fees and any deferred fees received may be reduced in connection with the completion of such transactions.

We have two operating segments. 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, since its acquisition on August 13, 2008, Triad through their independent registered representatives.
Recent Developments
Amendment of Clearing Arrangements and Forgivable Loan During the third quarter of 2009, we amended the terms of our clearing agreements with National Financial Services LLC ("NFS"), a Fidelity Investments company. NFS serves as the primary clearing broker for our three principal broker-dealer subsidiaries. The three firms amended their clearing agreements with NFS to, among other things, extend the term for a seven-year period. During this time, NFS will become the exclusive clearing broker for the three firms, with Investacorp completing the migration of all of its clearing operations to NFS over the coming year. We expect to realize significant cost savings as a result of these new clearing arrangements.
On August 25, 2009, NFS provided us with a seven-year, $10,000 forgivable loan. Interest on the loan agreement accrues at the prime rate plus 2%. If our broker-dealer subsidiaries meet certain annual clearing revenue targets set forth in the loan agreement, the principal balance of the loan will be forgiven in seven equal yearly installments of $1,429 commencing in August 2010 and continuing on an annual basis through August 2016. Interest payments due with respect to each such year will also be forgiven if the annual clearing revenue targets are met. Any principal amounts not forgiven will be due in August 2016, and any interest payments not forgiven are due annually. If during the loan term any principal amount is not forgiven, we may have such principal forgiven in future years if our broker-dealer subsidiaries exceed subsequent annual clearing revenue targets. We have expensed, and expect to continue to expense, interest under the loan agreement until such time as such interest is forgiven.
The loan agreement contains other covenants including limitations on the incurrence of additional indebtedness, maintaining minimum adjusted shareholders' equity levels and a prohibition on the termination of our revolving credit agreement. Upon the occurrence of an event of default, the outstanding principal and interest under the loan agreement may be accelerated and become due and payable. If the clearing agreements are terminated prior to the loan maturity date, all amounts then outstanding must be repaid on demand. The loan agreement is secured by our (but not our broker-dealer subsidiaries') deposits and accounts held at NFS or its affiliates, which amounted to $558 at September 30, 2009.
We used the forgivable loan proceeds to repay amounts outstanding under our revolving credit agreement. We intend to use the increased availability under that facility to support our strategy to become a leader in the independent broker-dealer space.
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
Besides 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, we have the following critical accounting policy:
Investment banking revenues include revenues Ladenburg earns from SPAC transactions. Ladenburg receives a significant portion (often approximately 50%) of the revenue when a SPAC completes its initial public offering ("initial fees") and receives the remaining portion of the revenue ("deferred fees") only if and when a SPAC completes a business combination transaction. We record the initial fees when the underwriting is completed. We record the remaining portion of the revenues, the deferred fees, only if and when the SPAC completes a business combination. Generally, these deferred 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 completed during such time period. If and when deferred revenue is recognized upon a SPAC's successful completion of a business combination, we recognize related compensation expense and finder's fees, which are payable only if we record the deferred revenue. 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 September 30,                 Nine months ended September 30,
                                                      2009                    2008                    2009                     2008
Total revenues                                   $        39,246         $        31,272        $        106,861         $         85,296
Total expenses                                            43,066                  36,273                 121,521                   96,501
Pre-tax loss                                              (3,820 )                (5,001 )               (14,660 )                (11,205 )
Net loss                                                  (3,728 )                (5,691 )               (15,127 )                (11,957 )

Reconciliation of EBITDA, as adjusted, to
net loss:
EBITDA, as adjusted                                         (191 )                (1,802 )                (3,456 )                 (1,384 )
Add:
Interest income                                               11                      45                      65                      189
Income tax benefit                                            92                       -                       -                        -
Sale of exchange memberships                                   -                     310                       -                      310
Less:
Interest expense                                          (1,014 )                (1,118 )                (3,186 )                 (3,474 )
Income tax expense                                             -                    (690 )                  (467 )                   (752 )
Depreciation and amortization expense                       (940 )                  (898 )                (2,810 )                 (2,241 )
Non-cash compensation expense                             (1,686 )                (1,538 )                (5,273 )                 (4,605 )

Net loss                                         $        (3,728 )       $        (5,691 )      $        (15,127 )       $        (11,957 )

Earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted for gains or losses on sales of asset and non-cash compensation expense 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, 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 2009 EBITDA, as adjusted, was $(191), an increase of $1,611 from third quarter 2008 EBITDA, as adjusted, of $(1,802) primarily because of lower expenses due to cost-cutting measures at Ladenburg and Investacorp and increased net income from our acquisition of Triad on August 13, 2008. For the nine months ended September 30, 2009, EBITDA, as adjusted, was $(3,456), a decrease of $(2,072) from the nine months ended September 30, 2008 EBITDA, as adjusted, of $(1,884), primarily because of decreased investment banking transactions and commissions and fees revenue, partially offset by the addition of Triad.
Third quarter 2009 results include Triad for the full period, while the 2008 third quarter includes Triad only for the period from its acquisition on August 13, 2008 through September 30, 2008.

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 through their independent contractor registered representatives.

                                                          Three months                          Nine months
                                                       ended September 30,                  ended September 30,
                                                     2009               2008              2009               2008
Revenues:
Ladenburg                                         $  10,076          $ 11,496          $  26,358          $  34,099
Independent brokerage and advisory services          29,138            19,858             80,399             51,228
Corporate                                                32               (82 )              104                (31 )

Total revenues                                    $  39,246          $ 31,272          $ 106,861          $  85,296


Pre-tax (loss) income:
Ladenburg                                         $  (1,395 )        $ (2,133 )        $  (7,583 )        $  (3,645 )
Independent brokerage and advisory services             130              (159 )              569                553
Corporate                                            (2,555 )          (2,709 )           (7,646 )           (8,113 )

Total pre-tax loss                                $  (3,820 )        $ (5,001 )        $ (14,660 )        $ (11,205 )

Three months ended September 30, 2009 versus three months ended September 30, 2008
Our net loss for the three months ended September 30, 2009 was $3,728 compared to a net loss of $5,691 for the three months ended September 30, 2008. The decrease in net loss of $1,963 is primarily attributed to a decrease in expenses from cost-cutting measures at Ladenburg and Investacorp and an increase of revenues due to the acquisition of Triad on August 13, 2008.
Total revenues for the three months ended September 30, 2009 increased $7,974 (26%) from the 2008 period. The increase is primarily due to an increase in Triad revenues of $10,904 and a $1,318 increase in principal transactions. The addition of Triad resulted in a $10,180 increase in commissions and fees revenue, a $607 increase in other income and a $117 increase in interest and dividends. The increase in revenues from Triad was partially offset by a $2,522 decrease in Ladenburg and Investacorp's commissions and fees revenue, a $1,101 decrease in investment banking revenue, a $164 decrease in asset management fee revenue and a $612 decrease in interest and dividends due to lower client assets and interest rates.
Total expenses for the three months ended September 30, 2009 increased $6,793 (19%) from the 2008 period. The increase is primarily due to the increase in Triad expenses of $10,694 (primarily commissions and fees expense of $9,399). This was partially offset by a $1,426 decrease in commissions and fees expense at Investacorp and decreases in Ladenburg and Investacorp's compensation expense of $882, professional services of $585, rent and occupancy of $522, brokerage, communication and clearance fees of $215 and interest expense of $98. Although total expenses increased due to the Triad acquisition, Ladenburg and Investacorp have undertaken efforts to reduce operating expenses. Also, Investacorp and Triad have been seeking increased operating efficiencies, including benefits from sharing common technology platforms.
The $7,658 (31%) increase in commissions and fees revenue in the third quarter of 2009 is primarily due to the Triad acquisition, which had a $10,180 increase in commissions and fees revenue. Unfavorable market conditions negatively impacted commissions and fees revenue in both of our segments, including a decrease in commissions and fees revenue generated by Investacorp and Ladenburg of $2,522 as compared to the 2008 period. Commissions and fees revenue consists of commissions earned as agent in transactions involving equity and fixed income securities, mutual funds, insurance and other products. We also earn commissions and fees revenue in the form of 12b-1 fees and investment advisory fees on assets under management.

The $1,101 (26%) decrease in investment banking revenue for the three months ended September 30, 2009 was primarily due to a decrease in deferred fees from SPAC business combinations of $2,328, partially offset by increases in capital raising, which includes private placements of equity and debt instruments and underwritten public offerings, of $1,008 and a $226 increase in advisory, mergers & acquisitions and valuations revenue. We led or co-managed four public offerings and acted as placement agent in six private offerings in the three months ended September 30, 2009 as compared to one public offering and two private offerings in the comparable 2008 period. Our capital raising activities are focused increasingly on registered direct and PIPE (private placement in public equity) transactions. We expect continued improvement in investment banking revenue in the fourth quarter of 2009.
The $164 (25%) decrease in asset management fees for the three months ended September 30, 2009 is due to decreased assets under management resulting from market declines.
The $1,318 (216%) increase in principal transactions is primarily attributable to gains in securities received as underwriting consideration.
The $495 (50%) decrease in interest and dividends revenue for the three months ended September 30, 2009 is primarily attributable to lower interest rates in 2009 and decreased asset balances. We expect similar trends in the fourth quarter of 2009.
For 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. In the 2008 period, we recorded an unrealized loss of $111 for these shares. Unrealized gains and losses for these shares were recorded in principal transactions revenue. We sold our remaining NYSE Euronext shares in the second quarter of 2009.
Other income revenue for the three months ended September 30, 2009 increased $647 (63%), primarily due to the addition of Triad, which contributed $607 of the increase in other income in the third quarter of 2009.
The $7,973 (53%) increase in commissions and fees expense for the third quarter of 2009 compared to the comparable 2008 period is due to the addition of Triad, which can be attributed with an increase of $9,399 of such expense in 2009, partially offset by a decrease in such expense of $1,426 at Investacorp. The decrease at Investacorp is directly correlated to the reduction in commissions and fees revenue at Investacorp. Commissions and fees expense are compensation payments earned by the registered representatives who serve as independent contractors in our independent brokerage and advisory services segment. These payments to the independent contractor registered representatives are calculated based on a percentage of revenues and vary by product. Accordingly, when the independent contractor registered representatives increase their business, both our revenues and expenses increase since they earn additional compensation based on the revenue produced.
Compensation and benefits expense decreased $355 (3%) during the third quarter of 2009, primarily due to a $1,050 reduction in Ladenburg's producers' compensation, which is directly correlated with revenue production by such persons, a $174 reduction in Ladenburg and Investacorp's compensation and benefits. This amount was partially offset by the addition of Triad, which had a $527 increase in compensation and benefits expense for the third quarter of 2009, and a one-time severance charge at Ladenburg of $365.
Non-cash compensation expense increased $148 (10%) for the third quarter of 2009 as compared to the comparable 2008 period, primarily due to a reduction in the forfeiture rate for our stock options.
Brokerage, communication and clearance fees expense increased $25 (2%) in the third quarter of 2009 as compared to the comparable 2008 period, primarily due to increases in Triad expense of $240, partially offset by a decrease at Ladenburg of $241. We expect brokerage, communication and clearance fees expense to benefit from cost savings under our new clearing agreements beginning in the fourth quarter of 2009.
The $437 (48%) decrease in rent and occupancy, net of sublease revenue for the three months ended September 30, 2009 is primarily due to a $421 reversal of a charge recorded in the first quarter of 2009 for abandoning office space. Ladenburg re-opened a retail brokerage branch in the third quarter of 2009 at its Lexington Avenue office space in New York City.
The $530 (34%) decrease in professional services for the third quarter of 2009 is due to lower legal fees incurred by Ladenburg than in the comparable 2008 period.

The $104 (9%) decrease in interest expense for the third quarter of 2009 is primarily attributable to the use of the proceeds from the NFS forgivable loan to repay amounts outstanding under our revolving credit facility.
We had income tax benefit of $92 for the third quarter of 2009 as compared to income tax expense of $690 for the comparable 2008 period. After consideration of all the evidence, both positive and negative, management determined that a valuation allowance at September 30, 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 $184 for the three months ended September 30, 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 for the comparable 2009 and 2008 periods. Nine months ended September 30, 2009 versus nine months ended September 30, 2008 Our net loss for the nine months ended September 30, 2009 was $15,127 compared to a net loss of $11,957 for the nine months ended September 30, 2008. The $3,170 increase in net loss is attributable to the decrease in investment banking transactions, primarily SPAC offerings, a decrease in Investacorp commissions and fees and a decrease in asset management fees, partially offset by an increase in Triad net income of $186, decreases in commissions and fees expense at Investacorp and compensation and benefits expense.
Total revenues for the nine months ended September 30, 2009 increased $21,565 (25%) from the 2008 period. The increase is primarily due to the inclusion of Triad revenues for nine months in 2009 compared to 48 days in 2008, an increase of $37,523. Similarly, in 2009 Triad contributed an additional $34,615 in commissions and fees revenue, a $2,370 increase in other income and a $538 increase in interest and dividends as compared to the comparable 2008 period. Also, principal transaction revenues increased $1,334, partially offset by a $10,832 decrease in Ladenburg and Investacorp commissions and fees revenue, a $4,635 decrease in investment banking revenue, a $742 decrease in asset management fee revenue and a $1,197 decrease in interest and dividends for the first nine months of 2009 as compared to the comparable 2008 period.
Total expenses for the nine months ended September 30, 2009 increased $25,020 (26%) from the 2008 period. The increase is primarily due to the inclusion of Triad expenses for nine months in 2009 compared to 48 days in 2008, an increase of $37,163 (primarily commissions and fees expense of $30,653), an increase in Ladenburg and Investacorp non-cash compensation expense of $668 and an increase in rent and occupancy expense of $377. This was partially offset by a $7,451 decrease in Investacorp's commissions and fees expense and decreases in Ladenburg's and Investacorp's compensation expense of $4,496, brokerage, communication and clearance fees of $140, interest expense of $289, depreciation and amortization of $179 and other expenses of $541. Although total expenses increased due to the Triad acquisition, Ladenburg and Investacorp have undertaken efforts to reduce operating expenses. Also, Investacorp and Triad continue to seek increased operating efficiencies, including benefits from sharing common technology platforms.
The $23,783 (37%) increase in commissions and fees revenue in the 2009 period . . .