U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended March 31, 2001
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934
For the transition period from ________________ to ___________________
Commission File number 1-15799
GBI CAPITAL MANAGEMENT CORP.
----------------------------
(Exact Name of Registrant as Specified in its Charter)
Florida 65-0701248
- -------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1055 Stewart Avenue, Bethpage, New York 11714
- ------------------------------------------- ----------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, Including Area Code: (516) 470-1000
------------------
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- ------
Indicate the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date: At May 2, 2001,
Issuer had outstanding 18,806,612 shares of Common Stock, par value $.0001 per
share.
PART I . FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31, September 30,
2001 2000
------------- ------------------
(Unaudited) )
Assets
Cash and cash equivalents $ 5,152,039 $ 5,255,669
Receivable from brokers and dealers 7,353,170 21,507,788
Securities owned, at market value 1,899,238 3,513,865
Furniture, fixtures and leasehold improvements, at cost
net of accumulated depreciation and amortization of
$3,336,956 and $2,831,499 for March 31, 2001 and
September 30, 2000 respectively. 3,954,417 4,166,744
Deferred tax asset 1,655,000 1,156,000
Investment in and receivable from affiliates 106,578 1,489,134
Other assets 5,062,279 2,330,803
------------- ---------------
Total assets $ 25,182,721 $ 39,420,003
============= ===============
Liabilities and Stockholders' Equity
Liabilities:
Securities sold, not yet purchased, at market value $ 1,212,832 $ 2,203,708
Income taxes payable 14,500 182,788
Accrued expenses and other liabilities 5,682,373 15,770,427
------------- ---------------
Total liabilities 6,909,705 18,156,923
------------- ---------------
Stockholders' equity:
Common stock - $.0001 par value;
Authorized 100,000,000 shares, issued and outstanding
18,806,612 shares. 1,881 1,881
Additional paid-in capital 7,531,763 7,531,763
Retained earnings 10,739,372 13,729,436
------------- ---------------
Total stockholders' equity 18,273,016 21,263,080
------------- ---------------
Total liabilities and stockholders' equity $ 25,182,721 $ 39,420,003
============= ===============
See accompanying notes to financial statements.
2
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended For the Six Months Ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
-------------- ------------ -------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Commissions and trading income $ 9,974,079 $ 49,777,911 $ 19,916,241 $ 73,421,872
Interest and dividends, net 375,868 558,917 1,045,734 926,942
Underwriting fees 13,514 2,166,225 25,510 2,509,352
Other 7,146 30,982 118,305 74,074
-------------- ------------ -------------- -------------
Total Revenues 10,370,607 52,534,035 21,105,790 76,932,240
-------------- ------------ -------------- -------------
Expenses:
Compensation and benefits 6,769,672 34,841,808 13,534,495 51,103,359
Brokerage, clearance and exchange fees 1,122,672 2,167,458 2,393,578 4,004,784
Communications 1,077,711 994,410 2,131,748 1,696,883
Occupancy and equipment 1,497,834 1,687,130 3,026,050 3,026,490
Professional fees 1,122,740 846,534 1,784,014 1,169,978
Business development 823,744 779,544 1,510,539 966,805
Other 765,121 3,435,371 2,150,683 4,686,250
-------------- ------------ -------------- -------------
Total Expenses 13,179,494 44,752,255 26,531,107 66,654,549
-------------- ------------ -------------- -------------
Income (loss) before (benefit)
provision for income taxes (2,808,887) 7,781,780 (5,425,317) 10,277,691
Income tax (benefit) provision (1,326,368) 3,232,567 (2,435,253) 4,241,859
-------------- ------------ -------------- -------------
Net (loss) income $ (1,482,519) $ 4,549,213 $ (2,990,064) $ 6,035,832
============== ============= ============ ============
Basic earnings per common share $ (0.08) $ 0.24 $ (0.16) $ 0.32
============== ============= ============ ==============
Diluted earnings per common share $ (0.08) $ 0.24 $ (0.16) $ 0.32
============== ============= ============= ==============
See accompanying notes to financial statements.
3
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Six months ended March 31, 2001
Common Stock Additional
--------------------- Paid-in Retained
Shares Par Value Capital Earnings Total
------- ----------- ------------ -------- ---------
Balance at September 30, 2000 18,806,612 $ 1,881 $ 7,531,763 $ 13,729,436 $ 21,263,080
Net loss - - - (2,990,064) (2,990,064)
--------- ----------- ----------- ------------- ------------
Balance at March 31, 2001 18,806,612 $ 1,881 $ 7,531,763 $ 10,739,372 $ 18,273,016
========== =========== =========== ============ ============
See accompanying notes to financial statements.
4
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statement of Cash Flows
Six months ended March 31,
---------------------------------
2001 2000
-------------- -------------
(Unaudited) (Unaudited)
Operating activities:
Net (loss) income $ (2,990,064) $ 6,035,832
Adjustments to reconcile net income (loss) to net
Cash (used in) provided by operating activities:
Depreciation and amortization 531,955 326,846
Deferred taxes (499,000) (462,000)
Decrease (increase) in operating assets:
Receivable from brokers and dealers 14,154,618 (30,929,811)
Securities owned, at market value 1,614,627 (5,209,589)
Other assets (2,731,477) (292,474)
(Decrease) increase in operating liabilities:
Securities sold, not yet purchased (990,876) 15,205,509
Income taxes payable (168,288) 3,990,165
Accrued expenses and other liabilities (10,088,053) 17,566,389
--------------- -------------
Net cash (used in) provided by operating activities (1,166,558) 6,230,867
--------------- -------------
Investing activities:
Purchase of office furniture, equipment
and leasehold improvements (319,628) (1,740,162)
Decrease in Investment in affiliate 1,382,556 -
Syndication costs - (5,038)
-------------- --------------
Net cash provided by (used in) investing activities 1,062,928 (1,745,200)
-------------- --------------
Net (decrease) increase in cash (103.630) 4,485,667
Cash and cash equivalents at beginning of period 5,255,669 485,370
-------------- -------------
Cash and cash equivalents at end of period $ 5,152,039 $ 4,971,037
============== =============
Supplemental disclosure or cash flow information
Cash paid during the period for:
Interest $ 1,547,741 $ 2,030,944
Income Taxes $ 578,031 $ 712,334
See accompanying notes to financial statements.
5
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of GBI
Capital Management Corp, and its wholly owned subsidiaries, GBI
Capital Partners Inc., formerly Gaines, Berland Inc.("GBI Capital")
and GBI Fund Management Corp. (the general partner of the GBI 1500
Focus Fund L.P., a private investment partnership formed in August
1999), and GBI Capital's wholly owned subsidiary, GBI Trading
Corp.("GBI Trading") (a development stage company), (collectively
the "Company"). GBI Trading was incorporated in February 1999 and
GBI Fund Management Corp. was incorporated in August 1999.
On August 24, 1999 GBI Capital Management Corp., formerly known as
Frost Hanna Capital Group, Inc., acquired all of the outstanding
common stock of GBI Capital. For accounting purposes, the
acquisition has been treated as a recapitalization of GBI Capital
with GBI Capital as the acquirer (reverse acquisition). The
historical financial statements prior to August 24, 1999 are those
of GBI Capital. The Company has changed its fiscal year end to
September 30th. The Company's Statement of Operations, Statements of
Changes in Stockholders Equity, and Statement of Cash Flows are for
the period October 1, 2000 to March 31, 2001.
GBI Capital is a broker-dealer registered with the Securities and
Exchange Commission and is a member of the National Association of
Securities Dealers, Inc. GBI Capital acts as an introducing broker,
market maker, underwriter and trader for its own account.
GBI Capital does not carry accounts for customers or perform
custodial functions related to customers' securities. GBI Capital
introduces all of its customer transactions, which are not reflected
in these financial statements, to its clearing broker, which
maintains the customers' accounts and clears such transactions.
Additionally, this clearing broker provides the clearing and
depository operations for GBI Capital's proprietary securities
transactions. These activities may expose the company to
off-balance-sheet risk in the event that customers do not fulfill
their obligations with the clearing broker, as GBI Capital has
agreed to indemnify the clearing broker for any resulting losses.
At March 31, 2001, all of the securities owned and securities sold,
not yet purchased, and the amount receivable from clearing broker
reflected on the consolidated statement of financial condition are
security positions with and amounts due from this clearing broker.
The Company maintains cash in bank deposit accounts, which at times,
may exceed federally insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any
significant credit risk on cash.
Securities transactions, commission revenue and commission expenses
are recorded on a trade-date basis. Unrealized gains and losses on
securities transactions are included in commissions and trading
income in the consolidated statement of operations.
The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America for interim financial information and with the instructions
to Form 10-Q. Accordingly they do not include all of the information
and footnotes as required by generally accepted accounting
principles for annual financial statements. These consolidated
financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto for
the year ended September 30, 2000, contained in its Annual Report on
Form 10-K. In the opinion of management of the Company, all
adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. The
operations for the three months ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the
full year ending September 30, 2001.
6
Furniture and fixtures are depreciated on a straight-line basis over
the economic useful lives of the assets, not exceeding seven years.
Leasehold improvements are amortized over the lesser of their
economic useful lives or the expected term of the related lease.
Management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, would have a
material effect on the accompanying consolidated financial
statements.
2. INCOME TAXES:
The Company files consolidated federal income tax returns, but each
constituent entity files separate state income tax returns. The
provision (benefit) for income taxes differs from the amount of
income taxes determined by applying the federal statutory rates
principally because of the effect of state taxes and permanent
differences.
3. NET CAPITAL REQUIREMENT
As a registered broker-dealer, GBI Capital is subject to the SEC's
Uniform Net Capital Rule 15c3-1 ("Net Capital Rule"), which requires
the maintenance of minimum net capital. GBI Capital computes its net
capital under the aggregate indebtedness method permitted by rule
15c3-1, which requires that GBI Capital maintain minimum net
capital, as defined, of the greater of 6-2/3% of aggregate
indebtedness, as defined, or $100,000, or an amount determined based
on the market price and number of securities in which GBI Capital is
a market-maker, not to exceed $1,000,000.
At March 31, 2001, GBI Capital had net capital, as defined, of
$1,876,854, which exceeded minimum net capital requirements of
$1,000,000 by $876,854.
4. COMMITMENTS AND CONTINGENCIES
GBI Capital has been named as defendant in certain legal actions in
the ordinary course of business. At March 31, 2001 and September
30,2000, GBI Capital had accrued $1,942,651 and $2,348,000,
respectively, for settlement of all such legal proceedings.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share ("EPS"):
Three months ended
March 31,
----------------------------
2001 2000 2001 2000
Numerator for basic and diluted EPS:
Net income (loss) $(1,482,509) 4,549,213 (2,990,064) 6,035,832
============ ========== ========== ==========
Denominator for basic EPS 18,806,612 18,806,612 18,806,612 18,806,612
Denominator for diluted EPS 18,806,612 18,806,612 18,806,612 18,806,612
============ ========== ========== ==========
Basic EPS (0.08) 0.24 (0.16) .32
============ ========== ========== ==========
Diluted EPS (0.08) 0.24 (0.16) .32
============ ========== ========== ==========
7
6. ACCRUED EXPENSES
At March 31, 2001 GBI Capital had accrued expenses of $5,616,065, of
which $1,471,264 was for commissions and salaries payable, $1,942,651 was
for settlements and $1,011,664 was for deferred rent payable.
7. SUBSEQUENT EVENTS
On April 26, 2001, the Company amended the Stock Purchase Agreement with
New Valley Corporation ("New Valley"), Ladenburg Thalmann Group Inc.
("LTGI"), a wholly-owned subsidiary of New Valley, Berliner
Effektengesellshaft AG ("Berliner") and Ladenburg Thalmann & Co. Inc.
("Ladenburg"), a registered broker-dealer whose common stock is owned by
New Valley and Berliner. Pursuant to the original Stock Purchase
Agreement, the Company will purchase all of the outstanding stock of
Ladenburg from New Valley and Berliner in exchange for (i) 18,181,819
shares of the Company's newly-issued Common Stock, (ii) $10 ,000,000
principal amount of the Company's convertible promissory notes and (iii)
$10,000,000 in cash. Under the new provision, New Valley and Berliner
will receive an additional number of shares of GBI common stock based on
a change in the stockholder equities of GBI Capital and Ladenburg through
the end of the month prior to closing. The conversion value of the notes
will also be adjusted based on the same criteria. In connection with this
transaction, certain of the Company's current principal stockholders also
will sell a portion of the Company's common stock owned by them to LTGI
for cash. As a result of these transactions, Ladenburg will become a
wholly-owned subsidiary of the Company and New Valley will acquire an
estimated beneficial ownership of approximately 56.3% of the Company's
outstanding common stock. For accounting purposes this acquisition will
be treated as a recapitalization of LTGI, with LTGI as the acquirer
(reverse acquisition). The transactions are more fully described in a
Current Report on Form 8-K as amended and Proxy Statement as
supplemented. The convertible promissory notes to be issued by the
Company to the sellers mature on December 31, 2005. The Company will
finance the cash portion of the purchase price by issuing $10,000,000
principal amount of similar, but not identical, convertible promissory
notes to a third party.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
When used in this form 10-Q and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result," "management expects," or "the Company expects," "will continue," "is
anticipated," "estimated" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance
on any such forward-looking statements, each of which speak only as of the date
made. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. These risks and uncertainties include those
set forth in the Company's definitive Proxy Statement relating to a special
meeting of Stockholders held on August 23, 1999. The Company has no obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
Results of Operations
Three Months Ended March 31, 2001 vs. Three Months Ended March 31, 2000
Revenues
Commissions and trading income for the three months ended March 31, 2001
decreased 80.0% to $9,974,079 from the three months ended March 31, 2000. This
decrease is primarily due to a decrease in volume of business, which reflected
deteriorating market conditions.
Interest and dividend income, net for the three months ended March 31,
2001 decreased 32.8%, to $375,868 from the comparable period in 2000. The
decrease is primarily due to lower average cash balances with our clearing
broker.
Underwriting fees for the three months ended March 31, 2001 decreased to
$13,514 from $2,166,225 during the comparable period in 2000. The decrease is
the result of our not participating in any public offerings during the 2001
period, as opposed to participating in two underwritten public offerings as a
co-manager, during the 2001 period.
Expenses
Employee compensation and benefits for the three months ended March 31,
2001 decreased 80.6%, to $6,769,672 from the comparable period in 2000. The
decrease is primarily attributable to the decrease in revenues since employee
compensation to the Company's traders and registered representatives is directly
related to certain components of revenue.
Brokerage, clearance and exchange fees for the three months ended March
31, 2001 decreased 48.2%, to $1,122,672, from the comparable period in 2000 as a
result of lower ticket volume and reduced ticket charges.
Communications expense for the three months ended March 31, 2001
increased 8.4%, to $1,077,711, from the comparable period in 2000. This increase
is a result of the increase in registered representatives.
Occupancy and equipment costs for the three months ended March 31, 2001
decreased 11.2%, to $1,497,834, from the comparable period in 2000. This
decrease is a result of a claim against the landlord for the Bethpage office.
The landlord has agreed with our claim of overcharges for utilities and we are
expected to be reimbursed an estimated $151,000.
Professional fees for the three months ended March 31, 2001 increased
32.6%, to $1,122,740, from the comparable period in 2000. This increase is
primarily a result of activities pertaining to the Ladenburg Thalman
acquisition.
9
Business development costs for the three months ended March 31, 2001
increased 5.7%, to $823,744, from the comparable period in 2000. This increase
is due to increased recruiting efforts.
Other expenses for the three months ended March 31, 2001 decreased 77.3%
to $765,121, from the corresponding period in 2000. This decrease is primarily a
result of a decrease in underwriting activities and the expenses related to them
and a decrease in arbitrations and customer claims.
Income tax benefit for the three months ended March 31, 2001 was
$1,326,368 as compared to the income tax provision of $3,232,567 for the three
months ended March 31, 2000, which was consistent with the decrease in income
before this income tax benefit.
Net loss of $1,482,519 for the three months ended March 31, 2000,
compares to net income of $4,549,213 for the three months ended March 31, 2000.
This resulted primarily from the decrease in revenues offset by the decrease in
expenses as discussed above.
Six Months Ended March 31, 2001 vs. Six Months Ended March 31, 2000
Revenues
Commissions and trading income for the six months ended March 31, 2001
decreased 72.9% to $19,916,241 from the six months ended March 31, 2000. This
decrease is primarily due to a decrease in volume of business, which reflected
deteriorating market conditions.
Interest and dividend income, net for the six months ended March 31, 2001
increased 12.8%, to $1,045,734 from the comparable period in 1999. The increase
is primarily due to rising interest rates in the first quarter of 2001, an
increase in the percentage of margin interest our clearing broker shares with us
offset by lower average cash balances.
Underwriting fees for the six months ended March 31, 2001 decreased to
$25,510 from $2,509,352 during the comparable period in 2000. The decrease is
the result of our not participating in any public offerings during the 2001
period as a co-manager, as opposed to our participation in five underwritten
public offerings for the comparable period in 2000.
Other revenues for the six months ended March 31, 2001 increased 59.7%,
to $118,305 from the six months ended March 31, 2000. This increase is primarily
due to an insurance claim for business interruption and management fees from the
1500 Focus Fund.
Expenses
Employee compensation and benefits for the six months ended March 31,
2001 decreased 73.5%, to $13,534,495 from the comparable period in 2000. The
decrease is primarily attributable to the decrease in revenues since employee
compensation to the Company's traders and registered representatives is directly
related to certain components of revenue.
Brokerage, clearance and exchange fees for the six months ended March 31,
2001 decreased 40.2%, to $2,393,578, from the comparable period in 2000 as a
result of lower ticket volume.
Communications expense for the six months ended March 31, 2001 increased
25.6%, to $2,131,748, from the comparable period in 2000. This increase is a
result of the increase in the number of registered representatives and the
rollout of computers and applicable news services to every registered
representative.
Occupancy and equipment costs for the six months ended March 31, 2001
were comparable to the same period in 2000.
Professional fees for the six months ended March 31, 2001 increased
52.5%, to $1,784,014, from the comparable period in 2000. This increase is
primarily a result of merger activities.
10
Business development costs for the six months ended March 31, 2001
increased 56.2%, to $1,510,539, from the comparable period in 2000. This
increase is primarily the result of increased recruiting expense.
Other expenses for the six months ended March 31, 2001 decreased 54.1% to
$2,150,683, from the corresponding period in 2000. This decrease is primarily a
result of a decrease in underwriting activities and the expenses related to them
and a decrease in arbitrations and customer claims.
Income tax benefit for the six months ended March 31, 2001 was $2,435,253
as compared to the income tax provision of $4,241,859 the six months ended March
31, 2000, which was consistent with the decrease in income before this income
tax benefit.
Net loss of $2,990,064 for the six months ended March 31, 2001, compares
to net income of $6,035,832 for the six months ended March 31, 2000. This
resulted primarily from the decrease in revenues offset by decreases in expenses
as discussed above.
Liquidity and Capital Resources
Approximately 57.2% of the Company's assets at March 31, 2001 are highly
liquid, consisting primarily of cash and cash equivalents, securities
inventories, and receivables from other broker-dealers, all of which fluctuate,
depending upon the levels of customer business and trading activity. Receivables
from broker-dealers, which are primarily from the Company's clearing broker,
turn over rapidly. As a securities dealer, we may carry significant levels of
securities inventories to meet customer needs. Our inventory of market-making
securities is readily marketable; however, holding large blocks of the same
security may limit liquidity and prevent realization of full market value for
the securities. 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 customer demand, economic
and market conditions, and proprietary trading strategies.
The Company's brokerage subsidiary, GBI Capital Partners Inc., is subject
to net capital rules of the NASD and the SEC. Therefore, it is subject to
certain restrictions on the use of capital and its related liquidity. GBI
Capital's net capital position as of March 31, 2001, was $1,876,854, which was
$876,854, in excess of its net capital requirement.
The Company's overall capital and funding needs are continually reviewed
to ensure that its capital base can support the estimated needs of its business
units. These reviews take into account business needs as well as regulatory
capital requirements of the subsidiary. Based upon these reviews, management
believes that the Company's capital structure is adequate for current operations
and reasonably foreseeable future needs.
On April 26, 2001, the Company amended the Stock Purchase Agreement with
New Valley Corporation ("New Valley"), Ladenburg Thalmann Group Inc. ("LTGI"), a
wholly-owned subsidiary of New Valley, Berliner Effektengesellshaft AG
("Berliner") and Ladenburg Thalmann & Co. Inc. ("Ladenburg"), a registered
broker-dealer whose common stock is owned by New Valley and Berliner. Pursuant
to the original Stock Purchase Agreement, the Company will purchase all of the
outstanding stock of Ladenburg from New Valley and Berliner in exchange for (i)
18,181,819 shares of the Company's newly-issued Common Stock, (ii) $10 ,000,000
principal amount of the Company's convertible promissory notes and (iii)
$10,000,000 in cash. Under the new provision, New Valley and Berliner will
receive an additional number of shares of GBI common stock based on a change in
11
the stockholder equities of GBI Capital and Ladenburg through the end of the
month prior to closing. The conversion value of the notes will also be adjusted
based on the same criteria. In connection with this transaction, certain of the
Company's current principal stockholders also will sell a portion of the
Company's common stock owned by them to LTGI for cash. As a result of these
transactions, Ladenburg will become a wholly-owned subsidiary of the Company and
New Valley will acquire an estimated beneficial ownership of approximately 56.3%
of the Company's outstanding common stock. The transactions are more fully
described in a Current Report on Form 8-K as amended and Proxy Statement as
supplemented. The convertible promissory notes to be issued by the Company to
the sellers mature on December 31, 2005. The Company will finance the cash
portion of the purchase price by issuing $10,000,000 principal amount of
similar, but not identical, convertible promissory notes to a third party.
This transaction is expected to close on May 7, 2001.
The Company's brokerage subsidiary, as guarantor of its customer accounts
to its clearing broker, is exposed to off-balance-sheet risks in the event that
its customers do not fulfill their obligations with the clearing broker. In
addition, to the extent the Company maintains a short position in certain
securities, it is exposed to a further off-balance-sheet market risk, since the
Company's ultimate obligation may exceed the amount recognized in the financial
statements.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GBI Capital has been, and continues to be the subject of numerous civil
actions and arbitrations arising out of customer complaints relating to its
activities as a broker-dealer in securities, as an employer and as a result of
other business activities. In general, the cases involve various allegations
that employees of GBI Capital had mishandled customer accounts. At March 31,
2001, we estimate that the total amount sought from GBI Capital in pending and
threatened claims is approximately $6,544,334. It is our opinion, based upon our
historical experience and the reserves already established by us, that the
resolution of all claims presently pending will not have a material adverse
effect on the consolidated financial condition of our company.
ITEM 2. SALES OF UNREGISTERED SECURITIES
Consideration
Received and
Description of If Option, Warrant
Underwriting or Other or Convertible
Discounts to Market Security, Terms of
Price Afforded to Exemption from Exercise or
Date of Sale Title of Security Number Sold Purchasers Registration Claimed Conversions
- ------------ ----------------- ----------- ---------- -------------------- -----------
1/10/01 Options to 109,116 Options granted under 4(2) 1/3 exercisable
purchase Common 1999 Performance 1/10/02, 1/10/03,
Stock Equity Plan; no cash 1/10/04 at an
consideration exercise price of
received by Company $2.125 per share
until exercise and which all
expire 1/9/11
2/7/01 Options to 110,000 Options granted under 4(2) 100% exercisable
purchase Common 1999 Performance immediately at an
Stock Equity Plan; no cash exercise price of
consideration $2.52 per share
received by Company and which all
until exercise expire 2/6/11
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Current Report on Form 8-K, dated February 21, 2001, reporting
under Items 1 and 2.
Amendment No. 1 to Current Report on Form 8-K, dated
April 30, 2001, reporting under Items 1 and 2.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GBI Capital Management Corp.
----------------------------
(Registrant)
Dated: May 6, 2001 By: /s/ Joseph Berland
----------------------------
Joseph Berland
Chairman of the Board and
Chief Executive Officer
By: /s/ Diane Chillemi
----------------------------
Diane Chillemi
Chief Financial Officer
15