U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
___ Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended
OR
X Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from August 25, 1999 to September 30, 1999
Commission File number
GBI CAPITAL MANAGEMENT CORP.
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(Exact Name of Registrant as Specified in its Charter)
Florida 65-0701248
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1055 Stewart Avenue, Bethpage, New York 11714
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, Including Area Code: (516) 470-1000
Former Fiscal Year was August 31
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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 November 12,
1999, Issuer had outstanding 18,806,612 shares of Common Stock, par value $.0001
per share.
Part I: Financial Information
Item I: Financial Statements
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, August 24,
1999 1999
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(Unaudited)
ASSETS:
Cash $485,370 $502,437
Receivable from broker-dealers 14,113,082 8,576,148
Securities owned, at market value 9,093,818 3,390,606
Furniture, fixtures and Leasehold Improvements, at cost, net of
accumulated depreciation and amortization of $2,099,693 and $2,051,418 for
September 30, 1999 and August 24, 1999, respectively. 2,490,423 2,468,361
Deferred tax benefit 852,000 834,000
Other Assets 1,107,721 1,361,393
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Total assets $28,142,414 $17,132,945
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, not yet purchased, at market value $7,253,808 $3,918,091
Note Payable 243,980 243,667
Income taxes payable 500,842 84,600
Accrued expenses and other liabilities 6,968,235 4,820,811
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Total liabilities 14,966,865 9,067,169
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Commitments and Contingencies
Stockholders' Equity:
Common Stock - $.0001 par value;
authorized 100,000,000, shares issued and
outstanding 18,806,612 and 15,9999,410 shares, respectively. 1,881 1,600
Additional paid-in capital 7,536,801 3,112,020
Retained earnings 5,636,867 4,952,156
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Total stockholders' equity 13,175,549 8,065,776
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Total liabilities and stockholders' equity $28,142,414 $17,132,945
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See Accompanying Notes to Consolidated Financial Statements
2
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Operations
Period from
August 25, to One-month Ended
September 30, September 30,
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1999 1998
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(Unaudited) (Unaudited)
Revenues:
Commissions and trading income $ 6,989,874 $ 1,824,631
Interest and dividends, net 84,557 70,615
Underwriting fees 18,356 1,186,772
Other 1,004 7,045
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7,093,791 3,089,063
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Expenses:
Compensation and benefits 4,019,052 1,529,105
Brokerage, clearance and exchange fees 246,824 158,948
Communications 219,902 206,632
Occupancy and equipment 577,467 485,877
Professional fees 315,293 186,703
Business development 204,977 109,280
Other 323,534 119,753
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5,907,049 2,796,298
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Income before provision for income taxes 1,186,742 292,765
Income tax provision 502,031 618,300
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Net income (loss) $ 684,711 $ (325,535)
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Basic earnings (loss) per common share $ .04 $ (.02)
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Diluted earnings (loss) per comon share $ .04 $ (.02)
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See Accompanying Notes to Consolidated Financial Statements
3
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the period from August 25, 1999 to September 30, 1999
(Unaudited)
Common
Stock Additional
------------------------- Paid-in Retained
Shares Par Value Capital Earnings Total
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Stockholders' equity,
August 24, 1999 15,999,410 $1,600 $ 3,112,020 $ 4,952,156 $ 8,066,776
Net income - - - 684,711 684,711
Stock Issued 2,807,202 281 4,424,781 - 4,425,062
Stockholders' equity,
September 30, 1999 18,806,612 $ 1,881 $ 7,536,801 $5,636,867 $ 13,175,549
See Accompanying Notes to Consolidated Financial Statements
4
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statement of Cash Flows
For period
August 25, to One-month Ended
September 30, September 30,
1999 1998
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(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income(loss) $ 684,711 $ (325,535)
Adjustments to reconcile net income(loss) to net cash provided
by/(used in)operating activities:
Depreciation and amortization 48,276 44,500
Deferred income taxes (18,000) 570,300
Decrease(increase) in operating assets:
Receivable from clearing broker dealer (5,536,934) 687,468
Securities owned , at market value (5,703,212) (4,689)
Other assets 253,672 (489,826)
(Decrease) increase in operating liabilities:
Securities sold, not yet purchased, at market value 3,335,717 (204,914)
Income taxes payable 416,242 48,000
Accrued expenses and other liabilities 2,147,424 (307,140)
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Net cash (used in)/provided by operating activities (4,372,104) 18,164
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Cash flows from investing activity - Purchase of fixed assets (70,338) (23,850)
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Net cash (used in) investing activities (70,338) (23,850)
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Cash flows from financing activities:
Sale of common stock 4,425,062
Subscriptions received - 77,800
Repayment of note 313 (83,333)
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Net cash provided by financing activities 4,425,375 (5,533)
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Net increase(decrease) in cash (17,067) (11,219)
Cash at beginning of period 502,437 513,131
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Cash at end of period $ 485,370 $ 501,912
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Supplemental disclosures of cash flow information:
Cash paid during the period from August 25, 1999 to September 30, 1999,
and the one month ended September 30, 1998:
Interest $ 279,676 $ 229,506
See Accompanying Notes to Consolidated Financial Statements
5
GBI CAPITAL MANAGEMENT CORP
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of the GBI
Capital Management Corp. and its wholly owned subsidiary Gaines, Berland
Inc. ("Gaines Berland"), and Gaines Berland's wholly owned subsidiary, GBI
Trading Corp. ("GBI Trading") (a development stage company) (collectively
the "Company"). GBI Trading was incorporated in February 1999.
On August 24, 1999 GBI Capital Management Corp., formerly known as Frost
Hanna Capital Group, Inc ("Frost Hanna"),acquired all of the outstanding
common stock of Gaines Berland. For accounting purposes, the acquisition
has been treated as a recapitalization of Gaines Berland with Gaines
Berland as the acquirer (reverse acquisition). The historical financial
statements prior to August 24, 1999 are those of Gaines Berland.
Gaines Berland is a broker-dealer registered with the Securities and
Exchange commission and is a member of the National Association of
Securities Dealers, Inc. Gaines Berland acts as an introducing broker,
market maker, underwriter and trader for its own account.
The financial statements have been prepared in conformity with generally
accepted accounting principles 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. 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 period August 25, 1999 to September 30,
1999 are not necessarily indicative of the results that may be expected for
the full year ending September 30, 2000.
2. Income taxes
The Company files consolidated federal income tax returns, but each
constituent entity files separate state income tax returns. The provision
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.
6
3. Earnings Per Share
Net income per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding. The
following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
Period August 25, 1999 to September 30, 1999:
Basic and dilutive:
Income available to common stockholders (numerator) $ 684,711
Shares (denominator) 18,806,212
Per-Share amount $ (.04)
One month ended September 30, 1998:
Basic and Dilutive:
Loss to common Stockholders (numerator) (325,535)
Shares (denominator) 15,999,410
Per-Share amount (.02)
4. Stockholders' Equity
For accounting purposes, the Company is considered to have issued on August
25, 1999, 2,807,202 shares of Common Stock to the stockholders of Frost
Hanna and to Harten Financial in connection with the above-described
merger. Following this action, the Company had 18,806,612 shares of Common
Stock outstanding.
On August 24, the Company authorized 2,000,000 shares of preferred stock,
par value $.0001 per share, no shares have been issued as of September 30,
1999.
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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 w ith 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
Principal transactions for the period from August 25, 1999 to September 30,
1999 increased 166.7% to $3,281,450, from the one-month period ended
September 30, 1998. The increase is primarily attributable to the increase
in equity business generated by additional registered representatives and
the addition of a wholesale trading division.
Commissions for the period ended September 30, 1999 increased 515%, to
$3,708424 from the comparable period in 1998. The increase is primarily
attributable to the Company's increased business in equity securities,
which, except for equity securities for which the company maintains an
inventory, are bought and sold on an agency basis for which the Company
receives a commission. This increase is a direct result of the addition of
registered representatives and an active market in equity securities.
Interest income and dividends, net for the one month ended September 30,
1999 increased 19.7%, to $84,557 from the comparable period in 1998. The
increase is primarily due to higher average cash balances with the
companies clearing broker as well as rising interest rates.
Underwriting fees for the period ended September 30, 1999 decreased by
98.5%, to $18,356, from the comparable period in 1998. The decrease is the
result of the Company not participating in any underwritten public
offerings where it acted as a manager or co-manager during the 1999 period.
Employee compensation and benefits for the one-month ended September 30,
1999 increased 162.8%, to $4,019,052 from the comparable period in 1998.
The increase is primarily attributable to the increase in the Company's
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 period ended September 30,
1999 increased 55.3%, to $246,824, from the comparable period in 1998 as a
result of higher ticket volume.
Communications expense for the period ended September 30, 1999 increased
6.4%, to $219,902, from the comparable period in 1998. This increase is a
result of the establishment and operations of an additional branch office.
Occupancy and equipment costs for the period ended September 30, 1999
increased 18.9%, to $577,467, from the comparable period in 1998. This
increase is a result of the establishment of an additional branch office in
Florida and the relocation to a larger facility in New York City.
8
Professional fees for the period ended September 30, 1999 increased 68.9%,
to $315,293, from the comparable period in 1998. This increase is primarily
a result of an increase in customer arbitrations in 1999.
Business development costs for the period ended September 30, 1999
increased 87.6%, to $204,977, from the comparable period in 1998. This
increase is primarily the result of additional registered representatives
and broker trainees, and the purchase of additional prospective customer
lists used to generate new business.
Other expenses for the period ended September 30, 1999 increased 170.2%, to
$323,534, from the comparable period in 1998. This increase is the result
of an increase in the settlement of customer complaints and arbitration.
Income tax provision for the one-month ended September 30, 1999 was
$502,031.
Net income of $684,711 for the period ended September 30, 1999 compares to
net loss of $325,535 for the one-month ended September 30, 1998. This
resulted primarily from the increase in revenues offset by increases in
expenses as discussed above.
Liquidity and Capital Resources
Approximately 84% of the Company's assets at September 30, 1999 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, Gaines, Berland 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. Gaines
Berland's net capital position as of September 30, 1999, $2,565,337, which
was $2,051,133, in excess of its net capital requirements.
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.
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.
9
Year 2000
The Company has instituted a firm wide program to address the year 2000
issue in order to prepare its computer systems and applications for
properly processing dates after December 31, 1999.
Third party vendors and service providers provide all of the Company's
computer programs. Most of the programs were purchased after the Year 2000
issue became widely recognized. The Company has sought, and has received
confirmation from its third-party program and service providers that the
Year 2000 issue has been appropriately managed. Bear Stearns, Gaines
Berland's clearing firm, is the Company's largest and most important
computer service related vendor. Bear Stearns has installed a new system to
appropriately manage the Year 2000 issue for Gaines Berland. In addition,
Bear Stearns has provided confirmation to Gaines Berland of its compliance
with the Year 2000 issue.
The Company has also assessed its state of readiness regarding
non-information technology systems for compliance with the Year 2000 issue.
None of such systems are critical to the operation of the Company's
business. Two such systems were identified as requiring remediation, which
has been completed. Based on information currently available, the Company
does not expect its Year 2000 expenditures for computer systems and
non-information technology systems, in the aggregate, for fiscal 2000 to
exceed $50,000. The expected costs of the Year 2000 program are based on
management's current estimates, however, actual results could differ
materially from those plans.
The Year 2000 issue creates risk for the Company from unforeseen problems
in its own computer systems, third party vendors, and service provides, and
from third parties with whom the Company deals worldwide. The Company is
continuing to communicate with its vendors and service providers to
determine the likely extent to which they may be affected by third parties'
Year 2000 plans and target dates. In this regard, while the Company does
not now expect material financial exposure as a result of the year 2000
problem, there can be no assurance that the systems of other entities on
which the Company relies will be remedied on a timely basis, or that a
failure to remedy by another party, would not have a material adverse
effect on the Company. Such failures could have a material impact on the
Company's ability to conduct business. In particular, the Company does not
have a contingency plan in place in the event Bear Stearns is unable to
provide clearing services to the subsidiary, Gaines Berland, or if general
utility or telecommunications services fail as a result of the Year 2000
issue. In either of such events, the Company would be unable to conduct its
business until the problem was remedied. Any such suspension of its
business, if for more than a very brief period of time, would materially
adversely affect the Company.
10
PART II - OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (9/30/99)
(b) Reports on Form 8-K
Current Report on Form 8-K, dated August 24, 1999, and filed with the
SEC on September 8, 1999, reporting under Item 1 the change in control of the
Registrant, under Item 2 the consummation of the merger between a subsidiary of
Registrant and Gaines, Berland Inc., under Item 4 a change in the certifying
accountant, under Item 7 it provided the financial statements and pro forma
financial information, and under Item 8 a change in fiscal year.
11
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.
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(Registrant)
Dated: November 15, 1999 By: /s/ Joseph Berland
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Joseph Berland
Chairman of the Board,
Chief Executive Officer
By: /s/ Diane Chillemi
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Diane Chillemi
Chief Financial Officer
12
EXHIBIT INDEX
Exhibit
Number Description
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27 Financial Data Schedule (9/30/99)