Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MERR > SEC Filings for MERR > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for MERRIMAN HOLDINGS, INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MERRIMAN HOLDINGS, INC


14-Nov-2012

Quarterly Report


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

This Quarterly Report on Form 10-Q, including this Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding future events and our future results that are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as "may," "should," "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," "predicts," "potential" or "continue," variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are referred to risks and uncertainties identified under "Risk Factors" beginning on page 45 and elsewhere herein. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Numbers expressed herein may be rounded to thousands of dollars.

Overview

Merriman Holdings, Inc. and subsidiaries (the Company), is a financial services holding company that provides investment banking, capital markets services, corporate services, and investment banking through its primary operating subsidiary, Merriman Capital, Inc. (hereafter MC). MC is registered with the Securities and Exchange Commission (SEC) as a broker-dealer and is a member of the Financial Industry Regulatory Authority (FINRA) and Securities Investor Protection Corporation.

MC is an investment bank and securities broker-dealer focused on fast-growing companies and institutional investors. Our mission is to be the leader in advising, financing, trading and investing in fast-growing companies under $1 billion in market capitalization. We originate differentiated equity research, brokerage and trading services primarily to institutional investors, as well as investment banking and advisory services to our fast-growing corporate clients.

We are headquartered in San Francisco, with an additional office in New York, NY. As of September 30, 2012, we had 29 employees.

Executive Summary

Our total revenues were approximately $2,460,000 for the three months ended September 30, 2012 representing a 40% decrease over the same period in 2011. The decrease was primarily due to the Company's reorganizing and repositioning of its business segments, including the discontinuance of certain non-profitable businesses and reduction in force. Our commission revenues for the same period decreased 55% year-over-year due to fewer sales producers in 2012. While investment banking revenue decreased 48% year over year due to fewer banking transactions being closed as a result of the Company having fewer bankers, we were able to exceed our budget with a smaller team of professionals. Principal transactions increased 68% from the same period in 2011 primarily due to market volatility. Due to the Company's repositioning its business model to focus on capital markets advisory and platform revenue model, we saw a 117% increase in revenue in those areas. For the three months ended September 30, 2012, net loss from operations was approximately $1,095,000 or $0.25 per share. Net loss from operations for the three months ended September 30, 2012 included stock based compensation expense of approximately $172,000. For the three months ended September 30, 2011, net loss from operations was approximately $1,843,000 or $0.69 per share.

Business Environment

Domestic equity markets during the 3rd quarter 2012 were shaped by a number of issues with the primary focus again being the ongoing European sovereign debt crisis. While this construct remains far from resolved, the markets nonetheless took considerable comfort from the European Central Bank offer of September 6th to buy the debt of troubled Eurozone nations. ECB President Draghi unveiled an open-ended plan to buy securities going out up to three years in maturity. This offer is conditioned upon the receipt of a formal application for such aid along with adoption of fiscal austerity measures.

On the domestic economic front, 2nd quarter 2012 GDP was most recently reported at +1.3% and was quite a bit lower than preliminary reports of +1.8% growth. This further represents substantial decline from 1st quarter growth reported at
+2.0%. The unemployment rate, which has been trending down in recent months, was reported at 7.8% by September 2012. Employment appears to be increasing at a slow grind, and should be aided by the Fed's aggressive actions on housing. The Fed initiated another round of quantitative easing ("QE3"), focusing on the housing sector. Unlike previous QE programs, QE3 is open-ended with no pre-determined total package size. Further, the Federal Reserve Bank is continuing its "Operation Twist" originally announced in September 2011; this program aimed squarely at the mortgage markets. While housing market activity remains at levels of roughly 1/3rd of peak activity observed in late 2005, there are good signs of a turn. Building permits were reported above 800 thousand units in July and August for the first time since August 2008. Home values, while still well below pre-crisis peaks, have been recovering a bit in most markets across the nation. Certainly this renewed activity may be attributed in some part to continued record low mortgage rates. At some point, even the banks will begin to lend to consumers again.

Energy stocks led the way in the quarter, advancing some 11%. Energy was followed by technology stocks (+7.71%); consumer discretionary issues (+7.47%); and, financials (+6.95%). The worst performing sector during the 3rd quarter were utility stocks (-0.49%), followed by industrials (+3.25%); consumer staples (+3.87%); and, materials (+4.96%). The index most relevant to our business, the Russell 2000 Growth, was up 4.8% during the quarter.

One of the areas of greatest impact to our Company relates to the dramatic decrease in stock trading volume over the past four years and the particularly sharp declines over the past six months, with the average number of trades across all exchanges at nearly half that of the 2008 peak. Typically, a gradual economic recovery has eventually led to increased volumes, but the high degree of investor skepticism signaled by the fairly consistent equity mutual fund outflows seems to capping both retail activity and pension fund investors. These signs of negative sentiment appear to be providing a positive underpinning to the overall market, but it remains to be seen if solid market performance will eventually bring volumes back. More recently, concerns over the election and the much discussed "Fiscal Cliff" have further frozen both institutional and retail investors. Many of our competitors have exited the business entirely over the past year, but this rationalization of the competitive environment has not broken the massive slowdown in either the commission business or micro cap financings.

Liquidity and Capital Resources

MC is a broker-dealer subject to Rule 15c3-1 of the SEC which specifies uniform minimum net capital requirements, as defined, for their registrants. As of September 30, 2012, MC had regulatory net capital, as defined, of approximately $798,000 which exceeded the amount required by approximately $548,000.

As of September 30, 2012, liquid assets consisted primarily of cash and cash equivalents of approximately $1,703,000 and marketable securities of approximately $844,000, totaling approximately $2,547,000. For the nine months ended September 30, 2012, the Company had negative cash flows from operations of approximately $3,585,000. The Company incurred substantial loss during the first nine months of 2012, having net loss of approximately $5,521,000. As of September 30, 2012, the Company had an accumulated deficit of approximately $143,569,000. These facts raise substantial doubt as to our ability to continue as a going concern.

Accordingly, the accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from uncertainty about the Company's ability to continue as a going concern.

During the third quarter of 2011, the Company began the process of eliminating non-profitable revenue activities and certain discretionary spending. The Company significantly reduced its operating expenses by eliminating certain non-revenue generating personnel, administrative positions and technology related costs. As of September 30, 2012, the Company had 29 full time employees.

Additionally, in the fourth quarter of 2011, the Company shifted its strategic focus away from the traditional broker dealer model of research and institutional sales toward a capital markets advisory and platform revenue model. This represents a more scalable, predictable and profitable model in today's environment. Management believes this business model will result in reduced fixed operating costs and higher operating profit margin.

While the Company believes its current funds will be sufficient to enable it to meet its planned expenditures through at least March 31, 2013, if anticipated operating results are not achieved, management has the intent and believes it has the ability to delay or reduce expenditures. Failure to generate sufficient cash flows from operations, raise additional capital, or reduce certain discretionary spending would have a material adverse effect on the Company's ability to achieve its intended business objectives.

Management's plan to alleviate the going concern uncertainty include, but are not limited to, the issuance of equity and debt instruments for working capital. The Company's continued existence is also dependent upon its ability to increase revenues generated from operations which will enable the Company to achieve a profitable level of operations and/or contemplate the sale of its assets if necessary.

Results of Operations



The following table sets forth the results of operations for the three and nine
months ended September 30, 2012 and 2011:



                                                Three Months Ended                       Nine Months Ended
                                         September 30,       September 30,       September 30,       September 30,
                                             2012                2011                2012                2011

Revenues
Commissions                             $     1,716,268     $     3,834,121     $     4,615,763     $    10,821,486
Principal transactions                         (294,326 )          (910,382 )          (277,428 )          (417,399 )
Investment banking                              468,010             900,879           4,690,879           8,051,512
Advisory and other                              569,555             261,920           1,415,138             557,759

Total revenues                                2,459,507           4,086,538          10,444,352          19,013,358

Operating expenses
Compensation and benefits                     2,108,096           3,169,959           7,612,279          14,554,357
Stock-based compensation                        171,604              59,646           2,048,313             598,151
Brokerage and clearing fees                     158,199             326,236             438,782           1,087,182
Professional services                            80,726             363,816             535,112           1,127,193
Occupancy and equipment                         420,746             483,834           1,307,823           1,407,554
Communications and technology                   240,808             491,197             815,202           1,499,666
Depreciation and amortization                     5,590              20,755              16,530             117,160
Travel and entertainment                        104,304             200,411             306,556             747,028
Legal services and litigation
settlement expense                              159,544             104,322             495,329             549,681
Cost of underwriting capital                          -                   -             152,600              97,625
Other                                             9,971             549,988             901,475           1,346,051

Total operating expenses                      3,459,588           5,770,164          14,630,001          23,131,648

Operating loss                               (1,000,081 )        (1,683,626 )        (4,185,649 )        (4,118,290 )

Other income                                          -              15,000              15,000              26,601
Interest income                                       -                   -               1,763               3,938
Interest expense                                (64,513 )          (121,574 )          (179,116 )          (286,364 )
Amortization of debt discount                   (30,290 )           (49,563 )           (87,027 )           (45,122 )
Loss on equity exchange                               -                   -          (1,086,329 )                 -

Net loss before income taxes                 (1,094,884 )        (1,839,763 )        (5,521,358 )        (4,419,237 )
Income tax benefit (expense)                          -              (2,763 )                 -              (6,107 )

Net loss                                     (1,094,884 )        (1,842,526 )        (5,521,358 )        (4,425,344 )
Preferred stock cash dividend                         -            (129,433 )                 -            (407,212 )

Net loss attributable to common
shareholders                            $    (1,094,884 )   $    (1,971,959 )   $    (5,521,358 )   $    (4,832,556 )

Total revenues during the third quarter of 2012 decreased by approximately $1,627,000, or 40% compared to the same period in 2011. The decrease consisted of approximately $2,118,000 in lower commissions and $433,000 in lower investment banking revenues, partially offset by $616,000 and $308,000 increases in principal transactions and other revenues, respectively.

The 117% increase in other revenues was primarily due to the expansion of our CMAG services as we sponsored more companies in the OTCQX Markets.

Investment Banking Revenue



The following table sets forth our revenue and transaction volumes from our
investment banking activities for the three and nine months ended September 30,
2012 and 2011:



                                           Three Months Ended September 30,          Nine Months Ended September 30,
                                               2012                  2011                2012                 2011
Revenue
Capital raising                          $        336,843       $      700,879     $       3,440,112      $   6,212,891
Financial advisory                                131,167              200,000             1,250,767          1,838,621

Total investment banking revenue         $        468,010       $      900,879     $       4,690,879      $   8,051,512

Transaction Volumes
Public offerings
Capital underwritten participations      $      8,550,000       $   41,400,000     $      54,350,005      $ 346,963,946
Number of transactions                                  1                    1                     5                  8
Private placements
Capital raised                           $     89,000,000       $    6,942,000     $     272,210,500      $ 650,611,923
Number of transactions                                  1                    1                     7                 11
Financial advisory
Transaction amounts                      $              -       $  101,000,000     $     125,000,000      $ 160,000,000
Number of transactions                                  1                    1                     7                  3

Investment banking revenue was approximately $468,000 or 19% of total revenues during the third quarter of 2012, representing a 48% decrease from the same quarter in 2011 primarily due to fewer banking transactions being closed as a result of the Company having fewer bankers in 2012. Of the $468,000 investment banking revenue, approximately$234,000 was generated by FES during the third quarter of 2012.

During the three months ended September 30, 2012 and 2011, there was one investment banking client that accounted for more than 10% of our total revenue.

Commission and Principal Transaction Revenue

Our broker-dealer activity includes the following:

Commissions - Commissions include revenue resulting from executing trades in 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 securities trading inventory.

The following table sets forth our revenue and several operating metrics, which we utilize in measuring and evaluating performance of our trading activity:

                                          Three Months Ended September 30,          Nine Months Ended September 30,
                                              2012                  2011                2012                 2011

Commissions
Institutional equities                  $      1,716,268       $    3,834,121     $       4,615,763      $  10,821,486

Total commission revenue                $      1,716,268       $    3,834,121     $       4,615,763      $  10,821,486

Principal transactions
Customer principal transactions,
proprietary trading and market making   $         10,179       $       23,706     $        (129,993 )    $     288,142
Investment portfolio                            (304,505 )           (934,088 )            (147,435 )         (705,541 )

Total principal transaction revenue     $       (294,326 )     $     (910,382 )   $        (277,428 )    $    (417,399 )

Transaction Volumes
Number of shares traded                       93,801,235          147,998,878           294,786,836        430,726,103

Commission revenue was approximately $1,716,000 or 70% of total revenue during the third quarter of 2012, representing a $2,118,000 or 55% decrease from the same period in 2011. The decrease was primarily due to lower trading volume as a result of the Company having fewer sales producers in 2012, as well as the dramatic overall decline in equity trading volumes in the U.S.

Principal transaction revenue consists of four different activities - customer principal trades, market making, and realized and unrealized gains and losses in our investment portfolio. As a broker-dealer, we account for all of our marketable security positions on a trading basis and as a result, all security positions are marked to fair market values. Returns from market making activities tend to be more volatile than acting as agent or principal for customers. For the three months ended September 30, 2012, principal transaction losses were approximately $294,000, primarily consisting of a $304,000 unrealized loss on our investment portfolios partially offset by a $10,000 gain from customer principal transactions and proprietary trading and market making. For the same period in 2011, principal transaction losses were approximately $910,000, primarily consisting of a $934,000 unrealized loss on our investment portfolios partially offset by a $24,000 gain from customer principal transactions and proprietary trading and market making.

During the third quarter of 2012, there was one brokerage customer that accounted for more than 10% of our total revenue and there were two in the third quarter of 2011.

Compensation and Benefit Expenses

Compensation and benefit expenses represent the largest component of our operating expenses and includes incentive compensation paid to sales, trading, research and investment banking professionals, as well as discretionary bonuses, salaries and wages, and stock-based compensation. Incentive compensation varies primarily based on revenue production. Discretionary bonuses paid to investment bankers and research analysts vary with revenue production, but also include other qualitative factors and are determined by management. Salaries, payroll taxes and employee benefits vary based primarily on overall headcount.

The following table sets forth the major components of our compensation and benefits for the three and nine months ended September 30, 2012 and 2011:

                                               Three Months Ended September 30,            Nine Months Ended September 30,
                                                 2012                    2011                  2012                 2011

Incentive compensation and discretionary
bonuses                                    $       1,193,571       $       1,185,304     $      4,765,579       $   8,332,437
Salaries and wages                                   710,649               1,612,601            2,152,912           4,999,836
Payroll taxes, benefits and other                    203,876                 372,054              693,788           1,222,084

Total compensation and benefits            $       2,108,096       $       3,169,959     $      7,612,279       $  14,554,357

Cash compensation and benefits as a
percentage of core business revenue                       77 %                    63 %                 71 %                75 %

Total compensation and benefits were approximately $2,108,000 and $3,170,000 for the three months ended September 30, 2012 and 2011, respectively, or a decrease of approximately $1,062,000 or 33%. The decrease was primarily due to lower headcount decreasing from 77 at the beginning of 2011 to 29 as of September 30, 2012. During the third quarter of 2011, the Company began the process of eliminating non-profitable revenue activities and certain discretionary spending. The Company significantly reduced its operating expenses by eliminating certain non-revenue generating personnel, administrative positions and technology related costs.

Of the total compensation and benefits for the three months ended September 30, 2012, $210,000 was for FES personnel.

Stock-based compensation expense for the three months ended September 30, 2012 increased $112,000 or 188% from the same period in 2011. The increase was primarily due to options granted toward the end of the second quarter of 2012.

There were four sales professionals who accounted for more than 10% of total revenues during the three months ended September 30, 2012 and two in the same period of 2011.

Other Operating Expenses

Brokerage and clearing fees include trade processing expenses paid to our clearing broker, and execution fees paid to floor brokers and electronic communication networks. MC is a fully-disclosed broker-dealer which engages a third party clearing broker to perform all of the clearance functions. The clearing broker-dealer processes and settles all of MC's customer transactions and maintains the detailed customer records. These expenses are almost entirely variable, and are based on commission revenue and trade volume. Brokerage and clearing fees decreased approximately $168,000 or 52% compared to the same period in 2011 due to decrease in trading volume.

Professional services expense includes audit and accounting fees, expenses related to investment banking transactions, and various consulting fees.

Communications and technology expense includes market data and quote services, voice, data and internet service fees, and data processing costs.

Depreciation and amortization expense relate to the depreciation of our furniture, fixtures, computer equipment and leasehold improvements. Depreciation and amortization are mostly fixed in nature. The decrease of approximately $15,000, or 73% in the third quarter of 2012 over the same period in 2011 resulted from minimal fixed asset additions and the full depreciation of certain assets, reducing the depreciable base of assets.

Travel and business development expenses are incurred by each of our lines of business and include business development costs by investment bankers, travel costs for research analysts to visit the companies that they cover and non-deal road show expenses. Non-deal road shows represent meetings in which management teams of our corporate clients present directly to our institutional investors. The decrease of approximately $96,000, or 48% on a year over year basis is due to lower headcount, fewer deals closed as well as continued cost reduction measures.

Legal service expenses were incurred during the normal course of our business and relate to ongoing litigations. The increase of approximately $55,000 or 53% was due to a pending arbitration being scheduled in October 2012.

Cost of underwriting capital represents borrowing cost of capital to supplement MC's net capital in order to enable it to underwrite banking deals. No costs of underwriting capital were incurred during the three months ended September 30, 2012 and 2011.

Other operating expenses include other taxes, provision for uncollectible accounts receivable, professional liability and property insurance, recruiting fees, regulatory fees and assessment, and other miscellaneous expenses. The decrease of approximately $540,000 or 98% on a year over year basis was primarily due to approximately a $376,000 decrease in other taxes, a $76,000 decrease in professional liability and property insurance premiums due to lower coverage, a $34,000 decrease in provision for uncollectible accounts receivable, and a $54,000 decrease in other miscellaneous expenses.

Off-Balance Sheet Arrangements

We were not a party to any off-balance sheet arrangements during the three months ended September 30, 2012 and 2011. In particular, we do not have any interest in so-called limited purpose entities, which include special purpose entities and structured finance entities.

Commitments

Other Commitments

The following table summarizes our significant commitments as of September 30, 2012, consisting of future minimum lease payments under all non-cancelable operating leases and other non-cancelable commitments with initial or remaining terms in excess of one year.

                       Notes Payable           Office         Operating
                     & Related Interest        Leases          Leases           Total

2012                $             38,208     $   425,541     $   163,049     $    626,798
2013                           1,376,712       1,416,113         545,014        3,337,839
2014                             944,718         960,000         305,012        2,209,729
2015                                   -         960,000          30,300          990,300
Thereafter                             -       4,624,000               -        4,624,000

Total Commitments   $          2,359,638     $ 8,385,654     $ 1,043,375     $ 11,788,666
Interest                        (439,638 )             -               -         (439,638 )
Net Commitments     $          1,920,000     $ 8,385,654     $ 1,043,375     $ 11,349,029

Critical Accounting Policies and Estimates

The condensed consolidated financial statements are prepared in accordance with . . .

  Add MERR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MERR - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.