WIT CAPITAL GROUP INC, 10-Q, 1999-11-15

WIT CAPITAL GROUP INC
10-Q, 1999-11-15
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

Previous: PAC-WEST TELECOMM INC, 10-Q, 1999-11-15

Next: WORLD ACCESS INC /NEW/, 10-Q, 1999-11-15

<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999

COMMISSION FILE NUMBER 0-26225

WIT CAPITAL GROUP, INC.
(exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 13-3900397
(State or other jurisdiction (I.R.S. Employer jurisdiction
of incorporation or organization) Industrial Identification Number)
</TABLE>

826 BROADWAY, NEW YORK, NEW YORK 10003
(Address of principal executive offices) (Zip Code)
(212) 253-4400
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days: Yes (X) No ( )

As of November 5(th), 1999, there were 72,861,675 shares of the Registrant's
common stock outstanding.
<PAGE>

<TABLE>
<S> <C> <C>
PART I-- Financial Information

Item 1--Consolidated Financial Statements

Consolidated Statements of Financial Condition.............. 2

Consolidated Statements of Operations for the three and nine
months ended September 30, 1999 an 1998.............. 3

Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998.................... 4

Notes to Consolidated Financial Statements.................. 5

Item 2-- Management's Discussion and Analysis of Results of
Operations and Financial Condition................... 9

PART II-- Other Information

Item 1--Legal Proceedings................................... 14

Item 2--Changes in Securities and Use of Proceeds........... 15

Item 3--Default upon Senior Securities...................... 15

Item 4--Submission of Matters to a Vote of Security
Holders................................................... 16

Item 5--Other Information................................... 16

Item 6--Exhibits and Reports on Form 8-K.................... 16

Signatures.................................................. 17
</TABLE>
<PAGE>
PART I

ITEM 1--CONSOLIDATED FINANCIAL STATEMENTS

WIT CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................... $ 9,376,811 $ 18,110,146
RECEIVABLE FROM CLEARING BROKER............................. 1,799,209 119,312
SECURITIES OWNED, at market or fair value................... 122,337,858 758,293
INVESTMENT BANKING FEES RECEIVABLE.......................... 3,568,225 512,952
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of
accumulated depreciation and amortization of $723,363 and
$243,527 at September 30, 1999 and December 31, 1998,
respectively.............................................. 3,871,007 615,181
COMPUTER SOFTWARE, net of accumulated amortization of
$854,439 and $560,277 at September 30, 1999 and December
31, 1998, respectively.................................... 4,077,798 1,614,735
PREPAID EXPENSES............................................ 1,078,027 144,430
OTHER ASSETS................................................ 2,925,803 421,357
------------ ------------
Total assets.......................................... $149,034,738 $ 22,296,406
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses..................... $ 9,465,518 $ 1,032,463
Deferred advisory fees.................................... 420,988 595,486
Other liabilities......................................... 85,375 60,203
------------ ------------
Total liabilities..................................... 9,971,881 1,688,152
------------ ------------

STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $.01 par value, 9,000,000 shares
authorized, 8,997,952 shares issued and outstanding at
December 31, 1998....................................... -- 89,980
Series B Preferred Stock, $.01 par value, 3,000,000 shares
authorized, 2,304,982 shares issued and outstanding at
December 31, 1998....................................... -- 23,050
Series C Preferred Stock, $.01 par value, 7,445,000 shares
authorized, 5,902,750 shares issued and outstanding at
December 31, 1998....................................... -- 59,028
Series D Preferred Stock, $.01 par value, 10,000,000
shares authorized, 9,933,334 shares issued and
outstanding at December 31, 1998........................ -- 99,333
Common Stock, $.01 par value, 60,000,000 shares
authorized, 11,264,600 shares issued and outstanding at
December 31, 1998....................................... -- 112,647
Common Stock, $.01 par value, 500,000,000 shares
authorized, 8,740,000 shares issued and outstanding at
September 30, 1999...................................... 87,400 --
Common Stock, Class B, $.01 par value, 75,000,000 shares
authorized, 11,666,667 shares issued and outstanding at
September 30, 1999...................................... 116,667 --
Common Stock, Class C, $.01 par value, 159,000,000 shares
authorized, 51,915,902 shares issued and outstanding at
September 30, 1999...................................... 519,159 --
Additional paid-in capital................................ 183,562,216 39,534,657
Notes receivable from stockholders........................ (15,333,070) (5,750,000)
Deferred compensation..................................... (3,539,570) --
Accumulated deficit....................................... (26,349,945) (13,560,441)
------------ ------------
Total stockholders' equity............................ 139,062,857 20,608,254
------------ ------------
Total liabilities and stockholders' equity............ $149,034,738 $ 22,296,406
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

2
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Investment banking..................... $ 8,401,027 $ 879,340 $ 19,770,061 $ 1,093,538
Brokerage.............................. 2,144,121 49,983 4,145,912 149,364
Interest............................... 1,807,704 26,761 3,175,973 72,228
Other.................................. 43,130 -- 487,461 --
----------- ----------- ------------ -----------
Total revenues....................... 12,395,982 956,084 27,579,407 1,315,130
----------- ----------- ------------ -----------
EXPENSES:
Compensation and benefits.............. 9,862,396 1,481,838 25,008,981 2,720,923
Brokerage and clearance................ 1,342,804 36,921 2,717,939 92,240
Professional services.................. 1,650,102 270,180 3,416,913 534,822
Data processing and communications..... 1,153,096 199,009 2,336,750 469,784
Technology development................. 844,957 323,991 1,706,840 607,345
Marketing.............................. 193,297 131,311 666,039 669,300
Depreciation and amortization.......... 364,967 282,305 864,020 709,794
Occupancy.............................. 299,606 87,797 603,109 176,479
Other.................................. 1,751,880 475,198 3,023,972 904,660
----------- ----------- ------------ -----------
Total expenses....................... 17,463,105 3,288,550 40,344,563 6,885,347
----------- ----------- ------------ -----------
Net loss before equity in net loss of
subsidiaries....................... (5,067,123) (2,332,466) (12,765,156) (5,570,217)

Equity in net loss of subsidiaries... (24,348) -- (24,348) --
----------- ----------- ------------ -----------

Net loss............................. $(5,091,471) $(2,332,466) $(12,789,504) $(5,570,217)
=========== =========== ============ ===========

BASIC AND DILUTED NET LOSS PER SHARE:.... $ (.08) $ (.33) $ (.40) $ (.78)
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF BASIC AND DILUTED NET
LOSS PER SHARE:........................ 63,345,889 7,159,595 31,902,168 7,108,933
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

3
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(12,789,504) $(5,570,217)
Adjustments to reconcile net loss to net cash used
in operating activities-
Noncash expenses...................................... 106,772 838,833
Depreciation and amortization......................... 864,020 709,794
(Increase) decrease in operating assets-
Receivable from clearing broker....................... (1,679,897) (266,004)
Securities owned...................................... (537,155) (211,996)
Investment banking fees receivable.................... (3,055,273) (420,918)
Other assets.......................................... (2,504,446) (291,081)
Prepaid expenses...................................... (933,597) 196,527
Increase (decrease) in operating liabilities-
Accounts payable and accrued expenses................. 8,433,055 (106,189)
Deferred advisory fees................................ (174,498) 585,556
Other liabilities..................................... 25,172 (20,941)
------------ -----------
Net cash used in operating activities............. (12,245,351) (4,556,636)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments, net.................. (121,042,410) --
Computer software purchased............................... (2,847,225) (63,542)
Payments for purchases of furniture, equipment and
leasehold improvements.................................. (3,735,662) (208,233)
------------ -----------
Cash used in investing activities................. (127,625,297) (271,775)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes receivable from stockholders........................ (615,833) --
Net proceeds from initial public offering of common
stock................................................... 72,782,731 --
Proceeds from issuance of common stock.................... 2,535,673 10,300
Net proceeds from issuance of preferred stock............. 56,434,742 9,145,165
------------ -----------
Net cash provided by financing activities......... 131,137,313 9,155,465
------------ -----------
Net decrease in cash and cash equivalents......... (8,733,335) (4,327,054)
CASH AND CASH EQUIVALENTS, beginning of period.............. 18,110,146 1,110,787
------------ -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 9,376,811 $ 5,437,841
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest.............................................. $ 3,228 $ 5,743
Taxes................................................. 18,000 23,581
NON-CASH TRANSACTIONS:
Issuance of common stock for web site development......... $ -- $ 99,650
Issuance of common stock to stockholders for notes
receivable.............................................. 8,784,488 4,025,000
Issuance of common stock for consulting services.......... 40,613 --
Issuance of restricted stock to employees................. 105,310 --
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

4
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Wit Capital Group, Inc. ("WCG" or the "Company") was incorporated on
March 27, 1996 and commenced operations in September 1997. The accompanying
unaudited consolidated financial statements include the accounts of WCG and its
wholly owned subsidiaries, Wit Capital Corporation ("WCC"), BidPlus Corporation
("BidPlus") and Wit Capital Private Equity Advisors LLC ("WCPEA"). All
significant intercompany balances and transactions have been eliminated in
consolidation.

In June 1999, the Company completed an initial public offering and issued
8,740,000 shares of its common stock at a price of $9.00 per share. The Company
received approximately $72.8 million in proceeds, net of underwriting discounts
and other offering costs. Simultaneously with the closing of the initial public
offering, each outstanding share of series A, B, C and D preferred stock was
converted into class C common stock. All outstanding shares of series E
preferred stock were converted into an equivalent number of shares of class B
common stock.

In July 1999, the Company entered into a joint venture agreement with Trans
Cosmos, Inc. and an investment agreement with Mitsubishi Corporation to
establish a Japanese Internet investment banking firm now known as Wit Capital
Japan Inc. ("Wit Capital Japan"). Wit Capital Japan was incorporated in
August 1999 and is based in Tokyo. Start of operations is anticipated to be
early 2000. As anticipated, in October 1999, Wit Capital Japan signed a second
round of financing which will reduce the Company's ownership in the joint
venture from 60 percent to approximately 30 percent, although the Company has an
option to purchase an additional 10 percent within six months of investors
funding the second round of financing. The Company accounts for its investment
in Wit Capital Japan under the equity method.

In August 1999, the Company created an alliance with Dawntreader LLC
("Dawntreader"), the investment advisor to an early stage internet fund
established in 1998 by the Company's Chairman and Co-Chief Executive Officer.
WCPEA holds a 50 percent interest in a newly created, jointly controlled entity,
Wit/Dawntreader Advisors LLC which serves as the investment advisor of Arista
Capital Partners, LP, a newly formed private equity fund. In October 1999, the
Company entered into agreements with the management team of Dawntreader for
these individuals to become employees of the Company.

These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") and, in the
opinion of management, reflect all adjustments necessary for a fair presentation
of the results for the periods presented in conformity with generally accepted
accounting principles. These financial statements should be read in conjunction
with the Company's audited financial statements included in the Company's
prospectus filed with the SEC on June 4, 1999. Results of the interim periods
are not necessarily indicative of results to be obtained for a full fiscal year.

5
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. NET LOSS PER SHARE

The following table sets forth the calculation of shares used in the
computation of basic and diluted net loss per share.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Shares used in computations:
Weighted average common shares used in
computation of basic net loss per share..... 63,345,889 7,159,595 31,902,168 7,108,933
Dilutive effect of common stock equivalents... -- -- -- --
---------- --------- ---------- ---------
Weighted average shares used in
computation of diluted net loss per
share................................... 63,345,889 7,159,595 31,902,168 7,108,933
========== ========= ========== =========
</TABLE>

Because the Company reported a net loss in each of the periods above, the
calculation of diluted earnings per share does not include convertible preferred
stock, options, warrants and common stock collateralizing the notes receivable
from stockholders, as they are anti-dilutive and would result in a reduction of
net loss per share. If the Company had reported net income, there would have
been an additional 21,911,174 and 7,718,642 shares for the quarters ended
September 30, 1999 and 1998, respectively, and an additional 14,739,989 and
6,681,244 shares for the nine months ended September 30, 1999 and 1998,
respectively included in the calculation of diluted earnings per share.

3. STOCK OPTION PLAN

WCG has adopted a stock incentive plan (the "Plan") that permits the
granting of stock options, restricted stock and other awards to employees,
directors and certain consultants of WCG. The exercise price of any share
covered by an option granted to a person owning more than 10% of the voting
power of all classes of stock of WCG cannot be less than 110% of the fair market
value on the day of the grant. The exercise price of any share covered by an
option granted to any person cannot be less than 85% of the fair value on the
day of the grant. Options expire five or ten years from the date of grant, with
the majority of the options expiring in the year 2008.

As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") WCG has accounted
for options granted to employees using the intrinsic value method prescribed by
Accounting Practice Bulletin ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." WCG has granted options with exercise prices that are
equal to or greater than management's estimate of the fair value of such common
stock at the date of grant, and accordingly, the Company has recorded no related
compensation expense. For restricted stock issued with future service
requirements, compensation expense is recognized over the relevant vesting
period.

During the period from January 1, 1999 to September 30, 1999, the Company
granted options to purchase 7,184,151 shares to employees at exercise prices
between $1.43 and $34.88 per share.

4. WARRANTS

The Company has 6,527,226 outstanding warrants as of September 30, 1999 with
a range of exercise prices between $1.43 and $5.57. These warrants are
exercisable for 889,931 shares of class C

6
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. WARRANTS (CONTINUED)

common stock (prior to December 7, 1999, and common stock thereafter) and
5,637,295 shares of class B common stock.

5. CONTINGENCIES

The Company is currently subject to claims and legal proceedings arising in
the normal course of its business. In the opinion of management, the resolution
of such legal proceedings should not have a material adverse effect on the
financial position, results of operations or liquidity of the Company.

A person formerly associated with the Company has asserted a right to
purchase 560,000 shares of common stock at $1.43 per share. In the opinion of
management, such assertion is without merit, and the Company intends to contest
any lawsuit filed against it. These 560,000 shares of common stock have been
reported as forfeited stock options in 1998.

6. CAPITAL REQUIREMENT

WCC is subject to the SEC's Uniform Net Capital Rule 15c3-1. WCC's net
capital, as defined, is required to be the greater of $100,000 or the minimum
net capital required based on aggregate indebtedness. As of September 30, 1999
and December 31, 1998, WCC's ratio of aggregate indebtedness to net capital was
.17 to 1 and .09 to 1 and its net capital was $36,997,059 and $8,446,190, which
was $36,586,380 and $8,346,190 in excess of the minimum net capital
requirements, respectively.

7. SUBSEQUENT EVENTS

On October 26, 1999, the Company and enba plc ("enba") announced their
intention to combine their efforts to establish a Pan-European investment
banking firm, to be known as Wit Capital Europe. Start of operations is
anticipated to occur in early 2000. The Company and enba will jointly control
Wit Capital Europe and will initially own 55 percent and 45 percent,
respectively of the equity of Wit Capital Europe. In proportion to their equity
stakes, the Company and enba will contribute an aggregate of $10 million to the
joint venture. The Company also entered into a subscription agreement to acquire
189,748 shares of enba in exchange for 1,878,596 shares of the Company's common
stock.

On October 29, 1999 the Company entered into an agreement with SoundView
Technology Group, Inc. ("SoundView") to acquire by merger 100 percent of the
outstanding shares of SoundView, a Connecticut-based broker-dealer and private
investment banking firm focused exclusively on technology. Under the terms of
the agreement, the Company will acquire the outstanding shares of SoundView in
exchange for approximately $320 million consisting of newly issued common stock,
options replacing SoundView options and up to $30 million in cash. The exchange
ratio in the merger is subject to adjustment for changes in the market price of
the Company's stock from $17.56 up to $18.56 or down to $15.56 and is not
adjustable for changes beyond these levels. Accordingly, the final value of the
transaction could be either greater or less than $320 million. A limited cash
election feature allows each shareholder to receive a cash payment in lieu of
common stock subject to an overall limitation, including any shareholders
exercising dissenter's rights, of $30 million. The Board of Directors of each
company and the shareholders of SoundView have approved the transaction, which
is expected to close in January or February 2000. Completion is contingent on
Wit Capital stockholder approval, regulatory approval and other customary
closing conditions.

7
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SUBSEQUENT EVENTS (CONTINUED)

Although the Company has continued to spend and prepare for the roll out of
its Digital Trading Facility ("DTF"), it is currently evaluating whether the
changes, which have occurred recently regarding after-hours-trading, have
materially changed the environment in which the Company planned to operate this
facility. The Company's planning for the DTF has also been affected by the need
to focus on completing its recently announced SoundView merger and the
continuing need to manage and enhance the Company's online brokerage
infrastructure for the Company's rapid growth. In light of these developments,
the Company has decided to defer its roll out plan until early 2000, while it
continues to evaluate how best to maximize the value of its DTF assets. Through
September 30, 1999, the Company has capitalized and deferred approximately
$3.6 million in costs related to the DTF.

8
<PAGE>
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Wit Capital Group, Inc.'s wholly owned subsidiary, Wit Capital Corporation,
was founded in 1996 as the first online investment banking firm. With offices in
New York and San Francisco, Wit Capital Corporation is an issuer-driven Internet
investment banking firm that offers an array of investment banking services,
including underwriting for public offerings, private equity services, strategic
advisory, and institutional quality research. Wit Capital Corporation also
offers individual investors online brokerage services that include access to
IPOs and other securities offerings that in the past have only been available to
institutions and wealthy individuals. Wit Capital Group, Inc. completed its
initial public offering in June 1999.

During the first nine months of 1998, Wit Capital Corporation was in an
early stage of its operations and generated only minimal revenues from its
investment banking and brokerage activities. Accordingly, the Company does not
believe that the period to period comparisons of its operating results below are
necessarily meaningful and should not be relied upon as indicators of future
performance.

PLANNED ACQUISITION

On October 29, 1999 the Company entered into an agreement with SoundView
Technology Group, Inc. ("SoundView") to acquire by merger 100 percent of the
outstanding shares of SoundView, a Connecticut-based broker-dealer and private
investment banking firm focused exclusively on technology. Under the terms of
the agreement, the Company will acquire the outstanding shares of SoundView in
exchange for approximately $320 million consisting of newly issued common stock,
options replacing SoundView options and up to $30 million in cash. The exchange
ratio in the merger is subject to adjustment for changes in the market price of
the Company's stock from $17.56 up to $18.56 or down to $15.56 and is not
adjustable for changes beyond these levels. Accordingly, the final value of the
transaction could be either greater or less than $320 million. A limited cash
election feature allows each shareholder to receive a cash payment in lieu of
common stock subject to an overall limitation, including any shareholders
exercising dissenter's rights, of $30 million. The acquisition will be accounted
for using the purchase method. The Board of Directors of each company and the
shareholders of SoundView have approved the transaction, which is expected to
close in January or February 2000. Completion is contingent on Wit Capital
stockholder approval, regulatory approval and other customary closing
conditions.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AS
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998

REVENUES

The Company's total revenues for the three months ended September 30, 1999
were $12.4 million compared to $1 million for the three months ended
September 30, 1998. The Company's total revenues for the nine months ended
September 30, 1999 were $27.6 million compared to $1.3 million for the nine
months ended September 30, 1998.

Investment banking revenue for the three months ended September 30, 1999
increased to $8.4 million from $879,340 for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, revenue from
investment banking increased to $19.8 million from $1.1 million for the nine
months ended September 30, 1998. During 1998, the revenue the Company generated
from underwriting activities was limited since the Company received none or
negligible portions of management fees paid to co-managing underwriters and
underwriting sales credits reflected the Company's limited allocations of the
shares being underwritten. During 1999, the Company has begun to receive

9
<PAGE>
larger management fees and allocations of the shares in the offerings in which
the Company is participating and has experienced a general increase in the
number of offerings in which it participates. Wit Capital's revenues related to
financial advisory services have also increased as a result of an increase in
strategic advisory relationships and frequency of transactions.

The Company participated in a total of 33 securities offerings in the third
quarter of 1999, 16 as co-manager and 17 as syndicate member, compared to the
third quarter of 1998 during which the Company participated in 10 offerings as
syndicate member. During the third quarter of 1999 Wit Capital retained
6.8 million shares (including designated shares) compared to 74,500 shares in
the third quarter of 1998.

The Company participated in a total of 94 securities offerings during the
first nine months of 1999, 45 as co-manager and 49 as syndicate member compared
to the first nine months of 1998 during which the Company participated in 28
offerings as syndicate member. For the first nine months of 1999, total shares
underwritten by Wit Capital were 14.8 million, compared to 1.3 million shares
underwritten during the first nine months of 1998. Of the shares underwritten
above, during the first nine months of 1999 Wit Capital retained 15.5 million
shares (including designated shares) compared to 338,000 shares in the first
nine months of 1998. These figures do not include 2.28 million shares of its own
stock distributed to customers during the Company's initial public offering in
June 1999.

Brokerage revenue for the three months ended September 30, 1999 increased to
$2.1 million from $50,000 for the three months ended September 30, 1998. For the
nine months ended September 30, 1999, revenue from brokerage activities
increased to $4.1 million from $149,000 for the nine months ended September 30,
1998. Wit Capital charges its customers a brokerage commission of $14.95 for
market orders and $19.95 for limit orders. The increase in this revenue resulted
primarily from an increase in the number of customer accounts opened and an
increase in the number of trades executed for Wit Capital's customers. The
average daily number of trades executed for the three and nine month periods
ended September 30, 1999 was 1,833 and 1,217; compared to 45 and 27 for the
three and nine month periods ended September 30, 1998. As of September 30, 1999
total accounts numbered 85,100 compared to 7,820 total accounts as of
September 30, 1998. As of September 30, 1999, total active accounts numbered
52,885.

Interest income for the three months ended September 30, 1999 increased to
$1.8 million from $27,000 for the three months ended September 30, 1998. For the
nine months ended September 30, 1999, interest income increased to $3.2 million
from $72,000 for the nine months ended September 30, 1998. The Company earns
interest income from the investment of cash balances raised through financing
activities until the funds are used in its business. During the first nine
months of 1999, the Company's average monthly cash balance was $78.3 million as
compared to a monthly average of $1.5 million for the first nine months of 1998.

Other revenue for the three months ended September 30, 1999 increased to
$43,000 from $0 for the three months ended September 30, 1998. For the nine
months ended September 30, 1999, other revenue increased to $487,000 from $0 for
the nine months ended September 30, 1998. For the three and nine month periods
ended September 30, 1999, other revenue primarily consisted of gains on the mark
to market and sale of equity securities that the Company received as
consideration for financial advisory services.

EXPENSES

Compensation and benefits expense for the three months ended September 30,
1999 increased to $9.9 million from $1.5 million for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, compensation
and benefits expense increased to $25 million from $2.7 million for the nine
months ended September 30, 1998. Compensation and benefits expense consists of
salaries, bonuses and other benefits paid or provided to Wit Capital's
employees. The increase in

10
<PAGE>
compensation expense primarily relates to an increase in the number of employees
from 58 as of September 30, 1998 to 216 as of September 30, 1999. Additionally,
in February 1999, the Company entered into employment contracts with several
professionals which entitled them to a total of $5.5 million in upfront
payments. The Company recognized compensation expense of $2.6 million related to
those portions of the amounts paid for which no future service by the employees
was required. As Wit Capital continues to hire more investment banking and
research professionals and participate in more transactions, it expects its
compensation expense to grow.

Professional services expense for the three months ended September 30, 1999
increased to $1.7 million from $270,000 for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, professional
services expense increased to $3.4 million from $535,000 for the nine months
ended September 30, 1998. Professional services expense includes legal,
consulting, accounting, and recruiting fees which have increased as the Company
continues to make improvements to its customer service and infrastructure, hire
additional personnel, develop the digital trading facility, and increase its
brokerage and investment banking operations.

Brokerage and clearance expense for the three months ended September 30,
1999 increased to $1.3 million from $37,000 for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, brokerage and
clearance expense increased to $2.7 million from $92,000 for the nine months
ended September 30, 1998. This expense primarily consists of amounts paid to the
Company's clearing agent for processing and clearing customers' trades. The
increase in brokerage and clearance expense reflects the increased volume and
growth of the Company's brokerage operations.

Data processing and communications expense for the three months ended
September 30, 1999 increased to $1.2 million from $199,000 for the three months
ended September 30, 1998. For the nine months ended September 30, 1999, data
processing and communications expense increased to $2.3 million from $470,000
for the nine months ended September 30, 1998. Data processing and communications
expense includes costs related to market data services, transaction processing
and telephone and other communication charges. These expenses have increased as
a result of an increased number of active customer accounts and an increased
volume of transactions processed. The Company expects these costs will continue
to grow as transaction volume increases.

Technology development expense for the three months ended September 30, 1999
increased to $845,000 from $324,000 for the three months ended September 30,
1998. For the nine months ended September 30, 1999, technology development
expense increased to $1.7 million from $607,000 for the nine months ended
September 30, 1998. This increase resulted from continued enhancements to Wit
Capital's technology infrastructure, the development of the new Wit Capital web
site as well as costs associated with the digital trading facility. The Company
expects technology development expense to increase as operations continue to
grow and as the Company continues to invest in its infrastructure.

Depreciation and amortization for the three months ended September 30, 1999
increased to $365,000 from $282,000 for the three months ended September 30,
1998. For the nine months ended September 30, 1999, depreciation and
amortization increased to $864,000 from $710,000 for the nine months ended
September 30, 1998. Depreciation and amortization consists primarily of
depreciation and amortization of property, equipment and leasehold improvements
and amortization of computer software. The increases in depreciation and
amortization reflect the increased investments the Company has made in its
technology, equipment and facilities. The Company expects these expenses to
continue to grow as it continues to invest in technology and infrastructure.

Occupancy expense for the three months ended September 30, 1999 increased to
$300,000 from $88,000 for the three months ended September 30, 1998. For the
nine months ended September 30, 1999, occupancy expense increased to $603,000
from $176,000 for the nine months ended September 30, 1998. Occupancy expense
includes costs related to leasing office space in New York and San Francisco and
the increase reflects the Company's growth and need for expanded office
facilities. Wit

11
<PAGE>
Capital opened its San Francisco office in 1998, and leased additional space in
New York in the third quarter of 1999. As Wit Capital continues to grow and
expand its business, it expects occupancy expense to increase.

Marketing expense for the three months ended September 30, 1999 increased to
$193,000 from $131,000 for the three months ended September 30, 1998. For the
nine months ended September 30, 1999, marketing expense remained constant at
$666,000 as compared to $669,000 for the nine months ended September 30, 1998.
During 1998 marketing expense related to developing Wit Capital's brand name
recognition. During 1999, the Company focused on acquiring customers simply by
offering access to initial public offerings. Marketing expense in 1999 primarily
relates to the development of the digital trading facility, and the Company
expects these expenses to increase in connection with the continued development
of that business.

Other expenses for the three months ended September 30, 1999 increased to
$1.8 million from $475,000 for the three months ended September 30, 1998. For
the nine months ended September 30, 1999, other expenses increased to
$3 million from $905,000 for the nine months ended September 30, 1998. Other
expenses include travel and entertainment, office supplies, registrations and
other administrative expenses which have all increased as the Company continues
to expand its business and operations. Other expenses in 1998 includes
write-downs of $287,000 related to media credits the Company had previously
acquired but which in view of a revised marketing strategy in 1998, decided not
to use. In the third quarter of 1999, other expenses includes $750,000 in
primarily non-recurring costs associated with our brokerage operations and past
vendor and other relationships.

LIQUIDITY AND CAPITAL RESOURCES

Historically, Wit Capital has satisfied its cash requirements primarily
through private placements of common stock and convertible preferred stock.
During June 1999, the Company completed an initial public offering in which it
issued 8,740,000 shares of its common stock at $9.00 per share. The Company
received approximately $72.8 million in cash proceeds, net of underwriting
discounts and offering costs. The Company believes that its existing cash
balances will be sufficient to meet anticipated cash requirements for at least
the next twelve months. Wit Capital may, nonetheless, seek additional financing
to support its activities during the next twelve months or thereafter. There can
be no assurance, however, that additional capital will be available on
reasonable terms, if at all, when needed or desired.

Net cash used in operating activities was $12.2 million for the nine months
ended September 30, 1999, compared to $4.6 million during the same period in the
preceding year. Cash used in operating activities for the nine months ended
September 30, 1999 was primarily from a net loss of $12.8 million, an increase
in operating assets of $8.7 million offset by a net increase in operating
liabilities of $8.3 million. Cash used in operating activities for the nine
months ended September 30, 1998 was primarily from a net loss of $5.6 million, a
net increase in operating assets of $993,000, and an increase in operating
liabilities of $458,000.

Cash used in investing activities was $127.6 million for the nine months
ended September 30, 1999, compared to $272,000 for the nine months ended
September 30, 1998. Cash used in investing activities for the nine months ended
September 30, 1999 was primarily for purchases of short-term investment
securities of $121 million, fixed asset purchases of $3.7 million and purchases
of computer software of $2.8 million. Cash used in investing activities for the
nine months ended September 30, 1998 resulted from purchases of fixed assets of
$208,000 and from purchases of computer software of $64,000.

Cash provided by financing activities was $131.1 million for the nine months
ended September 30, 1999, compared to $9.2 million for the nine months ended
September 30, 1998. Cash provided by financing activities resulted primarily
from net proceeds of $72.8 million received from the initial public offering of
Wit Capital's common stock and from $24.9 million in net proceeds received from
the issuance of Series E Preferred Stock, now Class B Common Stock, and the
grant of warrants to The

12
<PAGE>
Goldman Sachs Group, Inc. and from $31.5 million received from issuances of the
Company's Series D Preferred Stock, now Class C Common Stock, to accredited
investors. Cash provided by financing activities for the nine months ended
September 30, 1998, was primarily from issuances of our Series A and B Preferred
Stock, now Class C Common Stock, to accredited investors.

The Company continued to make significant improvements to its customer care
services during the third quarter increasing the number of call center
representatives, improving response time to customer inquiries, and upgrading
its processing software and telecommunications equipment. The Company is
currently upgrading and expanding the capabilities of its systems infrastructure
which at times has been strained by rapid growth. Wit Capital expects
infrastructure expenditures to continue as it improves and enhances its online
brokerage systems, expands its affinity programs, and continues development of
its digital trading facility.

UPDATE ON DIGITAL TRADING FACILITY

- the proliferation of companies offering after-hours-trading services, many
of whom have far greater resources than the Company;

- the fragmentation in after-hours-trading and the attendant problems of
assuring best execution for orders;

- the changes in regulatory environment, including the expanding role of
multiple ECNs;

- the expansion into after-hours-trading by NASDAQ and the major stock
exchanges;

- the uncertainty associated with the Company's processing of trades after
8:00 PM because of its reliance on a major service bureau's ability to
change its systems prior to the Y2K moratoriums that are expected to be
put in place on December 1, 1999.

The Company's planning for the DTF has also been affected by the need to
focus on completing its recently announced SoundView merger and the continuing
need to manage and enhance the Company's online brokerage infrastructure for the
Company's rapid growth. In light of these developments, the Company has decided
to defer its roll out plan until early 2000, while it continues to evaluate how
best to maximize the value of its DTF assets. Through September 30, 1999, the
Company has capitalized and deferred approximately $3.6 million in costs related
to the DTF.

YEAR 2000

The Year 2000 issue involves the potential for system processing and
failures of date-related data resulting from computer-controlled systems using
two digits rather than four to define the applicable year. For example, computer
programs that contain time-sensitive software may recognize a date using two
digits of "00" as the year 1900 rather than the year 2000. This could result in
system failure or

13
<PAGE>
miscalculations causing disruptions of our operations, including among other
things, a temporary inability to process transactions in connection with our
investment banking and brokerage activities.

Because the Company is dependent to a very substantial degree upon the
proper functioning of computer systems, the failure of any computer system to be
Year 2000 compliant could have a materially adverse affect on the Company.
Failure of this kind could, for example, cause settlement of trades to fail,
lead to incomplete or inaccurate accounting, recording or processing of trades
in securities, result in generation of erroneous results or give rise to
uncertainty about exposure to trading risks and the Company's need for
liquidity. If not remedied, potential risks include business interruption or
shutdown, financial loss, regulatory actions, reputational harm and legal
liability.

The Company has formed a committee, the Y2K steering committee, to
investigate and resolve Year 2000 compliance issues. This committee's mandate is
to guide and coordinate the efforts of the various core business units which are
working on Year 2000 compliance and to manage the assessment, planning, testing
and implementation of Year 2000 compliant systems for the entire company. The
Y2K steering committee created a process for developing an inventory of all
information systems that the Company uses. The inventory included all internal
and external systems that were mission critical. To determine whether a mission
critical system posed a potential problem, the Company:

- interviewed vendors;

- analyzed the system with testing software;

- interviewed programmers and developers; and

- reviewed program code.

During the planning stage of the project, the Company received additional
investments from stockholders which, among other things, permitted the Company
to accelerate its replacement strategy. Information systems originally in need
of remediation for Year 2000 compliance have been replaced as well as tested for
Year 2000 compliance. These systems include:

- telephone switch and all related instruments;

- internal LAN and router environment;

- internal hosted Web site; and

- the Company's servers.

The Company has completed its internal information technology and
non-information technology assessment, remediation and testing efforts and
believes that its internal software and hardware systems should function
properly with respect to dates in the year 2000 and thereafter. Costs to date
related to Year 2000 assessment and remediation plans are $175,000.

In addition, the Company depends upon the proper functioning of third-party
computer and non-information technology systems. These parties include
depositories, clearing agencies, clearing houses, commercial banks and other
vendors. The Company has contacted every material vendor with which the Company
has important financial or operational relationships to determine the extent to
which they are vulnerable to the Year 2000 issue. The Company has assessed the
responses to the Year 2000 questions asked to these vendors. Each vendor has
participated in and passed the Year 2000 compliance tests formulated by the
Securities Industry Association. These vendors have also provided the Company
with written documentation that they are Year 2000 compliant and confirmed that
they have passed the SIA sponsored industry test. Since the Company does not
require unique services from any of these vendors, the Company believes the SIA
testing indicates general Year 2000 compliance. In the event any of these
vendors prove not to be Year 2000 compliant, the Company believes that it could
find a replacement vendor which is Year 2000 compliant, although not without
significant expense

14
<PAGE>
or delay. However, based on management's current information, the Company
expects to incur no significant costs in the future for Year 2000 problems.

The Company's contingency planning efforts focus on creating operating plans
in the case of internal system errors or failures or those of third party
vendors which provide critical services. In general, the contingency plan
provides for the employment of alternate service providers, communication means
and manual processes. Management's worst case scenario in connection with Year
2000 issues is that there will be a failure on the part of one or more important
vendors and that the Company will experience difficulties in finding replacement
vendors. If these vendors are not Year 2000 compliant despite the results of
their internal and external testing, the Company, as well as many of their other
clients, will face system and processing failures until these issues can be
resolved.

Disruption or suspension of activity in the world's financial markets is
also possible. In addition, uncertainty about the success of remediation efforts
generally may cause many market participants to reduce the level of their market
activities temporarily as they assess the effectiveness of these efforts during
a "phase-in" period beginning in late 1999 and early 2000. This turn could
result in a general reduction in trading and other market activities (and
reduced revenues) as well as reduced funding availability in late 1999 and early
2000. The Company cannot predict the impact that such reduction would have on
its business.

ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company's primary objectives of its investment activities are to
preserve principal while maximizing yield without significantly increasing risk.
The Company invests its excess cash in money market funds, short-term
obligations issued by the U.S. Government and its agencies and in high-quality
corporate issuers. The Company's investment portfolio is subject to market risk
for changes in interest rates. The Company has established investment guidelines
that specify credit quality requirements as well as diversification requirements
by issuer and type of security. The Company does not hold derivative financial
instruments in its investment portfolio.

PART II

ITEM 1--LEGAL PROCEEDINGS

The Company is currently subject to claims and legal proceedings arising in
the normal course of its business. In the opinion of management, based on
discussions with legal counsel, the resolution of such legal proceedings should
not have a material adverse effect on the financial position, results of
operations or liquidity of the Company.

ITEM 2--CHANGES IN SECURITIES AND USE OF PROCEEDS

The Company continues to use the net proceeds from its IPO for working
capital purposes. The Company expects to continue to use the proceeds for
working capital purposes and for strategic acquisitions or investments.

ITEM 3--DEFAULT UPON SENIOR SECURITIES

None

15
<PAGE>
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5--OTHER INFORMATION

FORWARD-LOOKING STATEMENTS

The Company has included in this Form 10-Q filing, and from time to time its
management may make, statements which may constitute forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are not
historical facts but instead represent only the Company's beliefs regarding
future events, many of which, by their nature, are inherently uncertain and
outside of the Company's or its management's control. It is possible that its
actual results may differ, possibly materially, from the anticipated results
indicated in these forward-looking statements. Important factors that could
cause actual results to differ from those in the Company's specific
forward-looking statements include:

- a decline in general economic conditions or the United States securities
markets;

- the failure of the Company's e-Dealer network to function as anticipated;

- the inability to secure share allotments in underwritten offerings in
which the Company participates sufficient to satisfy its customers' demand
and generate revenue;

- the inability to ensure sufficient revenue to cover its costs and create
profits;

- problems brought about by the Year 2000 issue;

- increasing competitive pressures; and

- the factors discussed on page 13 under the heading "Update on Digital
Trading Facility".

Additional information regarding these and other important factors that
could cause actual results to differ from those in the Company's forward-looking
statements is contained under the section entitled "Risk Factors" in the
Company's Registration Statement on Form S-1 (File No. 333-74619), as filed with
the SEC in connection with the Company's initial public offering of common
stock. The Company hereby incorporates by reference those risk factors (other
than those contained under the headings "Our common stock has never been
publicly traded so we cannot predict the extent to which a market will develop
for our common stock or how volatile that market will be" and "This offering
will cause immediate dilution") into this Form 10-Q.

SALES OF UNREGISTERED SECURITIES

From July 1, 1999 to September 30, 1999, the Company issued a total of
200,000 shares of restricted Class C Common Stock to six of its employees.

From July 1,1999 to September 30, 1999, the Company issued a total of
109,369 shares of Class C Common Stock to a consultant upon exercise of its
warrants to purchase common stock for $1.43 per share.

From July 1, 1999 to September 30, 1999 the Company issued a total of 61,560
shares of Class C Common stock to 21 of its employees upon exercise of their
stock options for $1.43--$2.14 per share.

ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

10.1--Stock Incentive Plan of Wit Capital Group, Inc., as amended October 14,
1999

27.1--Financial Data Schedule

(b) Reports on Form 8-K:

The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1999.

16
<PAGE>
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.

<TABLE>
<S> <C> <C>
Dated: November 15, 1999 Wit Capital Group, Inc.

By: /s/ RONALD READMOND
-----------------------------------------
Ronald Readmond
PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER

By: /s/ M. BERNARD SIEGEL
-----------------------------------------
M. Bernard Siegel
CHIEF FINANCIAL OFFICER
</TABLE>

<PAGE>

WIT CAPITAL GROUP, INC.
STOCK INCENTIVE PLAN(1)
(INCLUDING AMENDMENTS MADE THROUGH OCTOBER 14, 1999)

1. RESTATEMENT, PURPOSE AND TYPES OF AWARDS

Wit Capital Group, Inc., a Delaware corporation (the "Corporation"),
maintained the Wit Capital Group, Inc. and Its Subsidiaries Stock Option and
Restricted Stock Purchase Plan (the "Prior Plan"). The Prior Plan is hereby
amended and restated, as set forth herein (the "Plan"), effective March 1, 1999,
subject to the approval of the shareholders of the Corporation within twelve
months of such effective date. Notwithstanding anything herein to the contrary,
nothing in this Plan shall adversely affect the rights or obligations, under any
Award granted under the Prior Plan, of any grantee or holder of the Award
without such person's approval.

The purpose of the Plan is to promote the long-term growth and
profitability of the Corporation by: (i) providing key people with incentives to
improve stockholder value and to contribute to the growth and financial success
of the Corporation; and (ii) enabling the Corporation to attract, retain and
reward the best-available persons.

The Plan permits the granting of stock options (including incentive
stock options qualifying under Code section 422 and nonqualified stock options),
stock appreciation rights, restricted or unrestricted stock awards, phantom
stock, performance and other awards, or any combination of the foregoing.

2. DEFINITIONS

Under this Plan, except where the context otherwise indicates, the
following definitions apply:

(a) "AFFILIATE" shall mean any entity, whether now or hereafter
existing, which controls, is controlled by, or is under common control with, the
Corporation (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean ownership
of 50% or more of the total combined voting power or value of all classes of
stock or interests of the entity.

(b) "AWARD" shall mean any stock option, stock appreciation right,
stock award, phantom stock award, or performance award.

(D) "CHANGE IN CONTROL" shall be deemed to have occurred if:

(i) the date of the acquisition by any "person" (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act),
excluding the Corporation or any of its subsidiaries or
affiliates or any employee benefit plan sponsored by any of
the foregoing, of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of 25% or more of either
(x) the then outstanding shares of common stock of the
Corporation or (y) the then outstanding voting securities
entitled to vote generally in the election of directors; or

- ----------
(1) Adjusted to reflect increase in authorized shares from 20,000,000 to
25, 000,000 approved by shareholders on May 28, 1999 and 7 for 10
reverse split on June 2, 1999.
<PAGE>

(ii) the date the individuals who constitute the Board as of the
date of the Corporation's initial public offering (the
"Incumbent Board") cease for any reason to constitute at least
a majority of the members of the Board, provided that any
individual becoming a director subsequent to the effective
date of the initial public offering whose election, or
nomination for election by the Corporation's stockholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than any individual
whose nomination for election to Board membership was not
endorsed by the Corporation=s management prior to, or at the
time of, such individual=s initial nomination for election)
shall be, for purposes of the Plan, considered as though such
person were a member of the Incumbent Board; or

(iii) the consummation of a merger, consolidation, recapitalization,
reorganization, sale or disposition of all or a substantial
portion of the Corporation's assets, a reverse stock split of
outstanding voting securities, the issuance of shares of stock
of the Corporation in connection with the acquisition of the
stock or assets of another entity, provided, however, that a
Change in Control shall not occur under this clause (iii) if
consummation of the transaction would result in at least 51%
of the total voting power represented by the voting securities
of the Corporation (or, if not the Corporation, the entity
that succeeds to all or substantially all of the Corporation's
business) outstanding immediately after such transaction being
beneficially owned (within the meaning of Rule 13d-3
promulgated pursuant to the Exchange Act) by at least 75% of
the holders of outstanding voting securities of the
Corporation immediately prior to the transaction, with the
voting power of each such continuing holder relative to other
such continuing holders not substantially altered in the
transaction.

(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.

(f) "COMMON STOCK" shall mean shares of common stock of the
Corporation, $.01 par value.

(g) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.

(h) "FAIR MARKET VALUE" of a share of the Corporation's Common Stock
for any purpose at particular date shall be determined by the Administrator
using such methods and procedures as it shall from time to time determine in
good faith; provided, however, that (i) if the shares of the Common Stock are
traded on a registered national securities exchange or through a market operated
by the Nasdaq Stock Market, Inc., (including the OTC Bulletin Board), the last
regular way sales price for the primary trading session reported through any
applicable consolidated or other transaction reporting plan approved by the SEC
pursuant to the Exchange Act or (ii) if there was no such sale on a given day,
the average of the closing bid and asked prices reported through any applicable
quotation reporting plan approved by the SEC.

(i) "GRANT AGREEMENT" shall mean a written document memorializing the
terms and conditions of an Award granted pursuant to the Plan and shall
incorporate the terms of the Plan.

(j) "PARENT" shall mean a corporation, whether now or hereafter
existing, within the meaning of the definition of "parent corporation" provided
in Code section 424(e), or any successor thereto.

-2-
<PAGE>

(k) "SUBSIDIARY" AND "SUBSIDIARIES" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto.

3. ADMINISTRATION

(a) ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board from
time to time (the Board, committee or committees hereinafter referred to as the
"Administrator").

(b) POWERS OF THE ADMINISTRATOR. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.

The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Corporation; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.

The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.

(c) NON-UNIFORM DETERMINATIONS. The Administrator's determinations
under the Plan (including without limitation, determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the Grant Agreements evidencing such Awards) need
not be uniform and may be made by the Administrator selectively among persons
who receive, or are eligible to receive, Awards under the Plan, whether or not
such persons are similarly situated.

(d) LIMITED LIABILITY. To the maximum extent permitted by law, no
member of the Administrator shall be liable for any action taken or decision
made in good faith relating to the Plan or any Award thereunder.

(e) INDEMNIFICATION. To the maximum extent permitted by law and by the
Corporation's charter and by-laws, the members of the Administrator shall be
indemnified by the Corporation in respect of all their activities under the
Plan.

-3-
<PAGE>

(f) EFFECT OF ADMINISTRATOR'S DECISION. All actions taken and decisions
and determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Corporation, its stockholders, any participants in the
Plan and any other employee, consultant, or director of the Corporation, and
their respective successors in interest.

4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS

Subject to adjustments as provided in Section 7(d), the shares of
Common Stock that may be issued with respect to Awards granted under the Plan
(including, for purposes of this Section 4, the Prior Plan) shall not exceed an
aggregate of 17,500,000 shares of Common Stock. The Corporation shall reserve
such number of shares for Awards under the Plan, subject to adjustments as
provided in Section 7(d). If any Award, or portion of an Award, under the Plan
expires or terminates unexercised, becomes unexercisable or is forfeited or
otherwise terminated, surrendered or canceled as to any shares, or if any shares
of Common Stock are surrendered to the Corporation in connection with any Award
(whether or not such surrendered shares were acquired pursuant to any Award),
the shares subject to such Award and the surrendered shares shall thereafter be
available for further Awards under the Plan; provided, however, that any such
shares that are surrendered to the Corporation in connection with any Award or
that are forfeited after issuance shall not be available for purchase pursuant
to incentive stock options intended to qualify under Code section 422.

5. PARTICIPATION

Participation in the Plan shall be open to all employees, officers,
directors, and consultants of the Corporation, or of any Affiliate of the
Corporation, as may be selected by the Administrator from time to time.

6. AWARDS

The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.

(a) STOCK OPTIONS. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the
Corporation or of any Parent or Subsidiary of the Corporation. Options intended
to qualify as incentive stock options under Code section 422 must have an
exercise price at least equal to Fair Market Value on the date of grant, but
nonqualified stock options may be granted with an exercise price less than Fair
Market Value. No stock option shall be an incentive stock option unless so
designated by the Administrator at the time of grant or in the Grant Agreement
evidencing such stock option.

(b) STOCK APPRECIATION RIGHTS. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to the provisions of the Plan and
the Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Corporation of the amount receivable upon any
exercise of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and

-4-
<PAGE>

cash, as determined in the sole discretion of the Administrator. If upon
settlement of the exercise of an SAR a grantee is to receive a portion of such
payment in shares of Common Stock, the number of shares shall be determined by
dividing such portion by the Fair Market Value of a share of Common Stock on the
exercise date. No fractional shares shall be used for such payment and the
Administrator shall determine whether cash shall be given in lieu of such
fractional shares or whether such fractional shares shall be eliminated.

(c) STOCK AWARDS. The Administrator may from time to time grant
restricted or unrestricted stock Awards to eligible participants in such
amounts, on such terms and conditions, and for such consideration, including no
consideration or such minimum consideration as may be required by law, as it
shall determine. A stock Award may be paid in Common Stock, in cash, or in a
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator.

(d) PHANTOM STOCK. The Administrator may from time to time grant Awards
to eligible participants denominated in stock-equivalent units ("phantom stock")
in such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Corporation's assets. An Award of phantom stock may be settled in
Common Stock, in cash, or in a combination of Common Stock and cash, as
determined in the sole discretion of the Administrator. Except as otherwise
provided in the applicable Grant Agreement, the grantee shall not have the
rights of a stockholder with respect to any shares of Common Stock represented
by a phantom stock unit solely as a result of the grant of a phantom stock unit
to the grantee.

(e) PERFORMANCE AWARDS. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator. Performance
goals established by the Administrator may be based on the Corporation's or an
Affiliate's operating income or one or more other business criteria selected by
the Administrator that apply to an individual or group of individuals, a
business unit, or the Corporation or an Affiliate as a whole, over such
performance period as the Administrator may designate.

(f) OTHER AWARDS. The Administrator may, in its discretion, grant other
awards in such number, and upon such terms, and at any time and from time to
time, as shall be determined by the Administrator. Such awards may be
denominated in cash, in shares of Common Stock, in share-equivalent units, in
share appreciation units, in securities or debentures convertible into Common
Stock or in a combination of the foregoing and may be paid in cash or in shares
of Common Stock, all as determined by the Administrator. Such awards may be
issued alone or in tandem with other awards as described above, may be granted
based on or subject to performance measures, and may relate to annual bonus or
long-term performance awards.

7. MISCELLANEOUS

(a) WITHHOLDING OF TAXES. Grantees and holders of Awards shall pay to
the Corporation or its Affiliate, or make provision satisfactory to the
Administrator for payment of, any taxes required to be withheld in respect of
Awards under the Plan no later than the date of the event creating the tax
liability. The Corporation or its Affiliate may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to
the grantee or holder of an Award. In the event that payment to the

-5-
<PAGE>

Corporation or its Affiliate of such tax obligations is made in shares of Common
Stock, such shares shall be valued at Fair Market Value on the applicable date
for such purposes.

(b) LOANS. The Corporation or its Affiliate may make or guarantee loans
to grantees to assist grantees in exercising Awards and satisfying any
withholding tax obligations.

(c) TRANSFERABILITY. Except as otherwise determined by the
Administrator, and in any event in the case of an incentive stock option or a
stock appreciation right granted with respect to an incentive stock option, no
Award granted under the Plan shall be transferable by a grantee otherwise than
by will or the laws of descent and distribution. Unless otherwise determined by
the Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.

(d) ADJUSTMENTS; BUSINESS COMBINATIONS. In the event of changes in the
Common Stock of the Corporation by reason of any stock dividend, spin-off,
split-up, recapitalization, merger, consolidation, business combination or
exchange of shares and the like, the Administrator shall, in its discretion,
make appropriate adjustments to the maximum number and kind of shares reserved
for issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 of the Plan and to the number, kind and price of shares
covered by outstanding Awards, and shall, in its discretion and without the
consent of holders of Awards, make any other adjustments in outstanding Awards,
including but not limited to reducing the number of shares subject to Awards or
providing or mandating alternative settlement methods such as settlement of the
Awards in cash or in shares of Common Stock or other securities of the
Corporation or of any other entity, or in any other matters which relate to
Awards as the Administrator shall, in its sole discretion, determine to be
necessary or appropriate.

Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.

The Administrator is authorized to make, in its discretion and without
the consent of holders of Awards, adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Corporation, or the financial statements of the Corporation
or any Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.

(e) SUBSTITUTION OF AWARDS IN MERGERS AND ACQUISITIONS. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees or directors of entities who become or are about to become employees
or directors of the Corporation or an Affiliate as the result of a merger or
consolidation of the employing entity with the Corporation or an Affiliate, or
the acquisition by the Corporation or an Affiliate of the assets or stock of the
employing entity. The terms and conditions of any substitute Awards so granted
may vary from the terms and conditions set forth herein to the extent that the
Administrator deems appropriate at the time of grant to conform the substitute
Awards to the provisions of the awards for which they are substituted.

-6-
<PAGE>

(f) ACCELERATION OF VESTING UPON A CHANGE IN CONTROL. Notwithstanding
anything contained herein to the contrary, all conditions and/or restrictions
relating to the continued performance of services and/or the achievement of
performance objectives with respect to the exercisability or full enjoyment of
an Award shall lapse immediately prior to a Change in Control; PROVIDED,
HOWEVER, that such lapse shall not occur if it is intended that the transaction
constituting such Change in Control be accounted for as a pooling of interests
under Accounting Principles Board Opinion No. 16 (or any successor thereto), and
operation of this Section 7(f) would otherwise violate Paragraph 47(c)
thereof.(2)

(g) TERMINATION, AMENDMENT AND MODIFICATION OF THE PLAN. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.

(h) NON-GUARANTEE OF EMPLOYMENT OR SERVICE. Nothing in the Plan or in
any Grant Agreement thereunder shall confer any right on an individual to
continue in the service of the Corporation or shall interfere in any way with
the right of the Corporation to terminate such service at any time with or
without cause or notice.

(i) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Corporation and a grantee or any other
person. To the extent that any grantee or other person acquires a right to
receive payments from the Corporation pursuant to an Award, such right shall be
no greater than the right of any unsecured general creditor of the Corporation.

(j) GOVERNING LAW. The validity, construction and effect of the Plan,
of Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the State
of New York without regard to its conflict of laws principles.

(k) EFFECTIVE DATE; TERMINATION DATE. The Plan is effective as of March
1, 1999, the date on which the Plan, as an amendment and restatement of the
Prior Plan, was approved by the Board, subject to the approval of the
stockholders of the Corporation within twelve months of such effective date. No
Award shall be granted under the Plan after the close of business March 1 2009.
Subject to other applicable provisions of the Plan, all Awards made under the
Plan prior to such termination of the Plan shall remain in effect until such
Awards have been satisfied or terminated in accordance with the Plan and the
terms of such Awards.

Date Approved by the Stockholders: April 6, 1999

- ----------
(2) Sections 7(f) and 2(d) were added by amendment on October ___, 1999.

-7-

<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,377
<RECEIVABLES> 5,367
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 122,338
<PP&E> 3,871
<TOTAL-ASSETS> 149,035
<SHORT-TERM> 0
<PAYABLES> 9,466
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 723
<OTHER-SE> 138,340
<TOTAL-LIABILITY-AND-EQUITY> 149,035
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 3,176
<COMMISSIONS> 4,146
<INVESTMENT-BANKING-REVENUES> 19,770
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 25,009
<INCOME-PRETAX> (12,790)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,790)
<EPS-BASIC> (.40)
<EPS-DILUTED> (.40)

</TABLE>