CONFORMED
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended August 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
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Commission file number 1-9480
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National Discount Brokers Group, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 22-2394480
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Exchange Place Centre, Jersey City, New Jersey 07302
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(Address of principal executive offices) (Zip code)
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 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 stock, as of the latest practicable date.
21,005,037 shares of Common Stock, par value $.01 per share,
were outstanding on September 30, 2000.
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
Part I - Financial Information
Item 1. - Financial Statements
<S> <C>
Condensed Consolidated Statements of Financial Condition -
August 31, 2000 (Unaudited) and May 31, 2000..............................................3
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) -
Three Months Ended August 31, 2000 and 1999...............................................4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended August 31, 2000 and 1999..............................................6
Notes to Condensed Consolidated Financial Statements (Unaudited) -
August 31, 2000...........................................................................7
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................10
Item 3. - Quantitative and Qualitative Disclosures About Risk..................................15
Part II - Other Information
Item 1. - Legal Proceedings....................................................................16
Item 2. - Changes in Securities and Use of Proceeds............................................17
Item 6. - Exhibits and Reports on Form 8-K.................................................... 17
Signatures.....................................................................................18
Forward Looking Statements
Statements regarding the Company's expectations as to its future operations
and financial condition and certain other information contained in this Form
10-Q or in documents incorporated herein by reference constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include a general downturn in the economy, changes in
the level of activity of securities markets in which the Company participates,
changes in customer growth, unplanned expense increases, inability of the
Company to attract or retain key employees, changes in government policy or
regulation and unforeseen costs and other effects related to legal proceedings
or investigations of governmental and self-regulatory organizations.
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
August 31, May 31,
ASSETS 2000 2000
----------------- ----------------
<S> <C> <C>
Cash and cash equivalents $ 134,145,280 $ 17,250,832
U. S. Treasury obligations (including $940,513 and $928,797
held aS collateral at August 31, 2000 and May 31, 2000,
respectively) 31,819,356 87,098,695
Receivables:
Clearing brokers 225,129,367 175,660,353
Other 3,092,072 5,273,063
Securities owned, at market value 50,268,303 47,500,200
Securities not readily marketable, at fair value 15,887,361 15,315,150
Loans and notes receivable 1,637,033 1,674,533
Furniture, fixtures, equipment and leasehold improvements - at
cost, net of accumulated depreciation and amortization of
$25,534,828 at August 31, 2000 and $25,519,329 at
May 31, 2000 47,336,935 48,176,697
Computer software - at cost, net of accumulated amortization of
$7,602,426 at August 31, 2000 and $6,726,857 at May 31, 2000 10,569,656 10,464,153
Income taxes receivable 7,795,459 7,388,870
Deferred tax asset, net of valuation allowance of $861,877
at August 31, 2000 and $533,708 at May 31, 2000 3,117,636 2,199,072
Other assets 9,727,148 11,180,367
----------------- ----------------
Total assets $ 540,525,606 $ 429,181,984
----------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 23,576,445 $ 12,335,906
Accounts payable and accrued expenses 66,128,512 99,434,509
----------------- ----------------
Total liabilities 89,704,957 111,770,415
----------------- ----------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value;
authorized 1,000,000 shares; none issued - -
Common stock - $.01 par value; authorized
50,000,000 shares; issued 21,333,201 shares at
August 31, 2000 and 18,333,201 at May 31, 2000 213,332 183,332
Additional paid-in capital 322,179,799 187,583,451
Retained earnings 132,346,144 133,639,888
----------------- ----------------
454,739,275 321,406,671
Less: Treasury stock - at cost, 328,164 shares at
August 31, 2000 and 334,569 shares at May 31, 2000 (3,918,626) (3,995,102)
----------------- ----------------
Total stockholders' equity 450,820,649 317,411,569
----------------- ----------------
Total liabilites and stockholders' equity $ 540,525,606 $ 429,181,984
----------------- ----------------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------------
2000 1999
----------------- ----------------
Revenue:
<S> <C> <C>
Firm securities transactions, net $ 42,679,256 $ 34,475,151
Commission income 15,079,665 12,315,179
Interest and dividends 8,632,065 4,752,091
Fee income 1,598,229 1,333,885
Other 134,945 145,842
----------------- ----------------
Total revenue 68,124,160 53,022,148
----------------- ----------------
Expenses:
Compensation and benefits 28,330,674 18,349,009
Clearing and related brokerage charges 15,316,805 11,997,648
Communications 5,433,626 3,880,883
Selling and marketing:
Advertising and marketing costs 7,283,931 6,801,109
Sales-related travel and entertainment 1,316,652 773,581
Technology development and other related costs:
Depreciation and amortization 4,111,528 3,877,522
Equipment rental 1,138,184 532,650
Technology consulting 720,054 1,158,087
Repairs and maintenance 851,280 585,811
Other:
Professional fees 1,467,437 500,408
Occupancy costs 1,799,928 1,737,694
Other 2,506,366 2,026,708
----------------- ----------------
Total expenses 70,276,465 52,221,110
----------------- ----------------
(Loss) income from continuing operations
before income taxes (2,152,305) 801,038
Income taxes (benefit):
Federal, currently payable (185,439) 265,560
State and local, currently payable 245,441 210,342
----------------- ----------------
Total current income tax expense 60,002 475,902
----------------- ----------------
Federal, deferred (388,857) (23,967)
State and local, deferred (529,706) (85,840)
----------------- ----------------
Total deferred income tax benefit (918,563) (109,807)
----------------- ----------------
Total income taxes(benefit)from continuing operations (858,561) 366,095
----------------- ----------------
Net(loss)income from continuing operations (1,293,744) 434,943
----------------- ----------------
Discontinued operations:
Income from discontinued operations,
net of taxes - 82,994
Gain on sale of discontinued operations,
net of taxes - 20,054,787
----------------- ----------------
- 20,137,781
----------------- ----------------
Net (loss) income $ (1,293,744) $ 20,572,724
----------------- ----------------
</TABLE>
(Continued)
4
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
Other comprehensive (loss) income, net of tax - -
----------------- ----------------
Comprehensive (loss) income $ (1,293,744) $ 20,572,724
----------------- ----------------
Net (loss) income per common and potential
common share
Basic:
Net (loss) income from continuing operations $ (0.06) $ 0.02
Net income from discontinued operations,
net of taxes 0.00 0.01
Gain on sale of discontinued operations,
net of taxes 0.00 1.24
----------------- ----------------
Net (loss) income $ (0.06) $ 1.27
----------------- ----------------
Weighted average common shares outstanding 20,543,594 16,205,035
----------------- ----------------
Diluted:
Net (loss) income from continuing operations $ (0.06) $ 0.02
Net income from discontinued operations,
net of taxes 0.00 0.01
Gain on sale of discontinued operations,
net of taxes 0.00 1.22
----------------- ----------------
Net (loss) income $ (0.06) $ 1.25
----------------- ----------------
Weighted average common shares outstanding 20,543,594 16,491,870
----------------- ----------------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income from continuing operations $ (1,293,744) $ 434,943
Net income from discontinued operations - 82,994
Gain on sale of discontinued operations, net of taxes - 20,054,787
Non-cash items included in net (loss) income:
Depreciation and amortization 4,111,528 3,877,522
Provision for deferred taxes (918,565) (109,807)
(Increase) decrease in operating assets:
Receivables:
Clearing brokers (49,469,014) (8,900,378)
Other 2,180,991 1,154,508
Securities owned, at market value (2,768,103) (1,019,367)
Income taxes receivable (362,130) -
Other assets (net of deposits made on furniture, fixtures, 1,592,706 1,603,812
equipment, leasehold improvements and computer software)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased, at market value 11,240,539 2,665,430
Accounts payable and accrued expenses (33,305,997) (3,808,565)
Income taxes payable - 14,180,804
(Increase) decrease in operating assets due to sale of Equitrade:
Investment in discontinued operations - 28,341,746
Exchange memberships - 351,496
---------------- ----------------
Net cash (used in) provided by operating activities (68,991,788) 58,909,925
---------------- ----------------
Cash flows from investing activities:
Net sales of U.S. Treasury obligations 55,279,339 2,202,470
Purchase of investment securities not readily marketable (572,211) (100,000)
Principal collected on notes receivable 37,500 900,000
Net purchases of furniture, fixtures,
equipment and leasehold improvements (1,970,268) (5,260,782)
Deposits made on furniture, fixtures, equipment,
leasehold improvements and computer software (139,487) (753,534)
Purchases of computer software (1,407,002) (2,345,570)
Principal collected on subordinated notes receivable - 27,000,000
Repayment of loan - (15,000,000)
----------------- ----------------
Net cash provided by investing activities 51,227,871 6,642,584
----------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of common stock 134,551,871 91,603,950
Proceeds from exercise of options 106,494 3,969
----------------- ----------------
Net cash provided by financing activities 134,658,365 91,607,919
----------------- ----------------
Net increase in cash and cash equivalents 116,894,448 157,160,428
Cash and cash equivalents at beginning of period 17,250,832 411,629
----------------- ----------------
Cash and cash equivalents at end of period $ 134,145,280 $ 157,572,057
----------------- ----------------
</TABLE>
Supplemental disclosure of non-cash operating, investing and financing
activities:
Between June 2000 and August 2000, various employees of the Company exercised
an aggregate of 6,405 options for the purchase of 6,405 shares of the Company's
common stock with exercise prices ranging from $13.50 per share to $22.50 per
share. In connection with these exercises, the Company has estimated an income
tax benefit of $44,459, which has been utilized to increase the Company's
current income tax receivable.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
August 31, 2000
Note 1 - Business and organization
National Discount Brokers Group, Inc. ("NDB Group") is a holding company
whose principal wholly owned subsidiaries are National Discount Brokers
Corporation, doing business as NDB.com ("NDB.com"), and NDB Capital Markets
Corporation ("NDBC"). NDB Group and its subsidiaries (collectively referred to
as the "Company") are primarily engaged in the securities business and in
providing related financial services.
In July 1999, NDB Group formed Millennium Clearing Company, L.L.C.
("Millennium") as a wholly owned subsidiary for the purpose of providing
clearing services initially for NDBC and NDB.com and, eventually, for other
correspondents. Management of the Company anticipates the commencement of
clearing for NDB.com and NDBC by Millennium during calendar year 2001.
Effective September 23, 2000, the operations and substantially all of the
net assets of NDBC were transferred to a newly created entity, NDB Capital
Markets, L.P. ("NDBCM LP"), of which NDBC is the general partner. NDBCM
California Corporation, a wholly owned subsidiary of NDBC, is the limited
partner of NDBCM LP.
Note 2 - Basis of presentation
The accompanying unaudited condensed consolidated financial statements do
not include all of the information and notes required by generally accepted
accounting principles for complete consolidated financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation of condensed consolidated financial condition and results of
operations for the periods presented have been included. All adjustments are of
a normal and recurring nature. It is suggested that these condensed consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the related notes included in the Company's 2000 Annual
Report on Form 10-K. Certain prior year amounts have been reclassified to
conform to the three months ended August 31, 2000 presentation.
Note 3 - Net income per common share
Net income per common share on a diluted basis is computed using the
weighted average number of shares of common stock and potential common stock
outstanding. Potential common stock is comprised of stock issuable under stock
options. The treasury stock method is used in computing the potential common
stock for the computation of diluted earnings per common share. Basic earnings
per share differs from diluted earnings per share in that dilution for potential
common stock is excluded.
Note 4 - Sale of Common Stock
On June 15, 2000, NDB Group sold 3,000,000 shares of its common stock in a
private offering to DB U.S. Financial Markets Holding Corporation, an indirect
subsidiary of Deutsche Bank AG ("DB") for $135,930,000 in gross proceeds
pursuant to a Securities Purchase Agreement dated as of May 15, 2000.
Commissions and other fees of approximately $1,400,000 were incurred on the
transaction.
Note 5 - Commitments and contingencies
Certain significant legal proceedings and matters were previously disclosed
in Item 3, Legal Proceedings, of the Company's Annual Report on Form 10-K for
the year ended May 31, 2000, and the disclosures regarding such matters are
incorporated herein by reference. Many aspects of the business of the Company
involve substantial risks of potential liability. In recent years, there has
been an increasing incidence of litigation involving the securities industry,
including class action suits that generally seek substantial damages. Companies
engaged in the underwriting and distribution of securities are exposed to
substantial liability under federal and state securities laws. The Company is,
from time to time, involved in proceedings with, and investigations by,
governmental and self-regulatory agencies.
7
<PAGE>
The Company has been named as a defendant in a number of lawsuits and
arbitrations and is the subject of investigations that allege, among other
things, violations of Federal and state securities laws and other laws or
regulations promulgated by governmental or self-regulatory bodies. A substantial
settlement or judgement in any of these cases could have a material adverse
effect on the Company. Except as described in Item 3 to the Company's Form 10-K
for the year ended May 31, 2000 and this Form 10-Q, management of the Company
believes that none of these pending lawsuits, arbitrations and investigations is
likely to have a material adverse effect on its financial condition, results of
operations or liquidity, although the Company cannot be certain of this.
In connection with the NASD arbitration action against NDBC by Weiss, Peck
& Greer, L.L.C. ("WPG") reported in Item 3 to the Company's Form 10-K for the
fiscal year ended May 31, 2000, a three-person arbitration panel has been
appointed and the parties have exchanged discovery requests and responses. NDBC,
after consultation with counsel, believes it has valid defenses to the claims
made by WPG and intends to vigorously contest the claims.
Note 6 - Net capital requirements
As registered broker-dealers, NDB.com and NDBC are subject to the
Securities Exchange Act of 1934 Uniform Net Capital Rule 15c3-1 (the "Rule"). As
of August 31, 2000, the net capital of NDB.com and NDBC exceeded their required
net capital under the Rule by $12,059,000 and $167,497,000, respectively.
The Rule also provides that equity capital may not be withdrawn or cash
dividends be paid if the resulting net capital would be less than the amount
required under the Rule. Accordingly, at August 31, 2000, the payment of
dividends and advances to the Company by NDB.com and NDBC is limited to
$12,009,000 and $167,297,000, respectively, under the most restrictive of these
requirements.
Note 7 - Segments
Under the provisions of Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information", the
Company has two reportable segments: discount brokerage and market making.
NDB.com transacts all business that will be reported in the Company's discount
brokerage segment. Its revenues are principally in the form of retail commission
income, distribution assistance fees from mutual funds and interest earned on
its customers' balances held at its clearing broker. NDBC represents the
Company's market making segment, which derives its firm securities transaction
revenues either from the spread between the price paid when a security is bought
and the price received when a security is sold or from proprietary investments,
as well as limited interest and dividend income. "All Other" category revenues
consist principally of interest income earned by NDB Group. Expenses incurred by
NDB Group on behalf of Millennium are included in "All Other" category profit or
loss before income taxes.
Revenue from the transactions with other segments within the Company
(referred to as intersegment revenues) is recorded at market value, as if the
transactions were with third parties.
The Company evaluates the performance of its segments based on profit or
loss from operations before income taxes. No single customer accounted for more
than 10% of the Company's condensed consolidated revenues. Information on
segment assets is not disclosed because it is not used for evaluating segment
performance and deciding how to allocate resources to segments. However, capital
expenditures are used in evaluating segment performance and are, therefore,
disclosed. Capital expenditures are reported net of proceeds from the sale of
fixed assets, if any. Substantially all of the Company's revenues and assets are
attributable to or located in the U.S.
Financial information for the Company's reportable segments is presented in
the following table, which excludes the Company's discontinued operations,
Equitrade Partners L.L.C.
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended August 31, 2000
Discount Market
Brokerage Making All Other Total
<S> <C> <C> <C> <C>
Revenue from external sources $19,081,000 $46,382,000 $ 2,661,000 $ 68,124,000
Intersegment revenue 1,066,000 - 124,000 1,190,000
------------ ------------ ------------ -------------
Total revenue $20,147,000 $46,382,000 $ 2,785,000 $ 69,314,000
----------- ----------- ----------- ------------
Profit (loss) before income taxes $(8,725,000) $ 7,223,000 $ (650,000) $ (2,152,000)
Capital expenditures (1) $ 2,084,000 $ 1,946,000 $ (513,000) $ 3,517,000
Three Months Ended August 31, 1999
Discount Market
Brokerage Making All Other Total
Revenue from external sources $15,397,000 $35,889,000 $ 1,736,000 $ 53,022,000
Intersegment revenue 1,753,000 5,000 216,000 1,974,000
------------- ----------- -------------- -------------
Total revenue $17,150,000 $35,894,000 $ 1,952,000 $54,996,000
----------- ----------- ------------- -----------
Profit (loss) before income taxes $(7,278,000) $ 7,100,000 $ 979,000 801,000
Capital expenditures (1) $ 4,574,000 $ 3,284,000 $ 503,000 $ 8,361,000
<FN>
(1) - includes deposits made on assets not yet placed in service.
</FN>
</TABLE>
The following table is a reconciliation of reportable (loss) profit from
continuing operations before income taxes to the Company's consolidated totals.
<TABLE>
<CAPTION>
Three Months Ended
August 31, August 31,
2000 1999
---- ----
<S> <C> <C>
Total loss before income
taxes for reportable segments $ (1,502,000) $ (178,000)
Other (loss) profit (650,000) 979,000
--------------- --------------
Total consolidated (loss) profit
before income taxes $ (2,152,000) $ 801,000
------------- ------------
</TABLE>
Note 8 - Subsequent Event
On October 6, 2000, NDB Group received a proposal from an affiliate of DB
offering to acquire all of the outstanding capital stock of NDB Group for $49
per share in cash. DB, through its affiliates, currently owns approximately 16%
of the outstanding shares of NDB Group's common stock. On October 11, 2000, the
proposal was approved by the Board of Directors of NDB Group and the Supervisory
Board of DB. NDB Group, DB and Deutsche Acquisition Corp. executed an Agreement
and Plan of Merger providing for the tender offer for the capital stock of NDB
Group followed by a merger of NDB Group with Deutsche Acquisition Corp. The
tender offer is expected to close by the end of calendar year 2000 but there can
be no assurance that the transaction will close or of the timing of the
transaction.
9
<PAGE>
Item - 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Description of Business
National Discount Brokers Group, Inc. ("NDB Group") and its subsidiaries
(collectively, the "Company") are primarily engaged in the securities business
and in providing related financial services. National Discount Brokers
Corporation, doing business as NDB.com ("NDB.com"), is an on-line discount
brokerage firm specializing in trade execution for individual investors. NDB
Capital Markets Corporation ("NDBC") is primarily engaged in the securities
business as a wholesale market maker in NASDAQ National Market System and other
over-the-counter securities.
In July 1999, NDB Group formed Millennium Clearing Company, L.L.C.
("Millennium") as a wholly owned subsidiary for the purpose of providing
clearing services initially for NDBC and NDB.com and, eventually, for other
correspondents. Management of the Company anticipates the commencement of
clearing for NDB.com and NDBC by Millennium during calendar year 2001.
Effective on September 23, 2000, the operations and substantially all of the
net assets of NDBC were transferred to a newly-created entity, NDB Capital
Markets, L.P. ("NDBCM LP"), of which NDBC is the general partner. NDBCM
California Corporation, a wholly owned subsidiary of NDBC, is the limited
partner of NDBCM LP.
Results of Operations
The results of continuing operations of the Company for the three months
ended August 31, 2000 reflect primarily the activities of NDB.com and NDBC.
We have experienced and expect to continue to experience, fluctuations in
quarterly operating results due to a variety of factors, including, but not
limited to, the value of our market-making securities positions, the volume of
our market-making and online brokerage activities, volatility in the securities
markets, our ability to attract and retain personnel, overhead and other
expenses, start-up costs related to Millennium, the amount of revenue derived
from limit orders as a percentage of net trading revenues, the mix of services
sold by our brokerage operations, changes in payments for order flow, clearing
costs, the addition or loss of sales and trading professionals, regulatory
changes, the amount and timing of capital and advertising expenditures and
general economic conditions. If demand for our market-making and discount
brokerage services declines either due to changing market conditions or to
competitive pressures, and we are unable to adjust our cost structure on a
timely basis, our operating results could be materially and adversely affected.
We have experienced, and may experience in the future, some seasonality in our
business.
Due to all of the foregoing factors, period-to-period comparisons of our
revenues and operating results are not necessarily meaningful and such
comparisons cannot be relied upon as indicators of future performance. There
also can be no assurance that we will be able to sustain the rates of revenue
growth that we have experienced in the past, that we will be able to improve our
operating results or that we will be able to be profitable on a quarterly basis.
The Company's consolidated net loss from continuing operations for the
quarter ended August 31, 2000 was $1,294,000 compared to net income of $435,000
for the quarter ended August 31, 1999, a decrease of $1,729,000. For the three
months ended August 31, 2000, NDBC had net income of $4,302,000 compared to net
income of $3,778,000 for the three months ended August 31, 1999. NDB.com had a
net loss of $5,271,000 for the quarter ended August 31, 2000, compared to a net
loss of $4,250,000 for the quarter ended August 31, 1999.
Total revenue from continuing operations of the Company increased by
$15,102,000, or 28%, for the three months ended August 31, 2000, as compared
with the quarter ended August 31, 1999. Total revenue for NDBC was $46,382,000
(or $11.22 per trade) for the three months ended August 31, 2000 as compared to
$35,894,000 (or $16.10 per trade) for the three months ended August 31, 1999.
Total revenue for NDB.com (before elimination of the rebate received from NDBC
for order flow) was $20,147,000 (or $29.20 per trade) for the three months ended
August 31, 2000 as compared to $17,150,000 (or $32.26 per trade) for the three
months ended August 31, 1999. The reasons for the changes in total revenues are
set forth below.
10
<PAGE>
Revenue from firm securities transactions, primarily generated by NDBC,
increased by $8,204,000, or 24%, for the three months ended August 31, 2000 as
compared with the equivalent period in fiscal 2000. This increase is primarily
attributed to the increase in ticket volume of 85% together with the increase in
share volume of 33%. Although revenues increased when compared to the first
quarter of fiscal year 2000, NDBC did not capitalize on certain market
opportunities afforded to it during the month of July 2000 and technological
difficulties arose which interrupted trading activities for a few days in July.
Notwithstanding these difficulties, the increases in share volume and average
daily tickets were more than enough to make up for decreases in the trading
profit per ticket and the average number of shares traded per ticket, resulting
in higher revenue from firm securities transactions for the quarter ended August
31, 2000 versus the same quarter in the prior fiscal year.
<TABLE>
<CAPTION>
Three Months Ended
August 31, August 31, Percentage
2000 1999 Change
---- ---- ------
<S> <C> <C> <C>
Trading profit per ticket $10.31 $15.48 (33%)
Average daily batched trades 63,600 34,300 85%
Share volume (billions) 3.2 2.4 33%
Average number of shares per ticket 780 1,070 (27%)
</TABLE>
The Company's commission income, primarily generated by NDB.com, includes
commissions received from customers, as well as rebates received for order flow
from other broker-dealers. Commissions increased by $2,764,000, or 22%, for the
three months ended August 31, 2000 when compared with the same period in the
prior year. This increase occurred due to a rise in NDB.com's average daily
commissionable ticket count and an increase in the number of NDB.com's customer
accounts, from the comparative prior quarter. These increases were offset, in
part, by an increase in the percentage of trades done on-line, which generate
smaller commissions per trade and a drop in average trades per customer.
Unlike some of its competitors, NDB.com, through its Active Trader
Advantage program, generates for the most part only one commissionable trade
from a customer who trades the same stock, on the same side, numerous times
during a single session. NDB.com processed an average of 19,500 unbatched trades
per day during the quarter ended August 31, 2000.
<TABLE>
<CAPTION>
Three Months Ended
August 31, August 31, Percentage
2000 1999 Change
---- ---- ------
<S> <C> <C> <C>
Average daily commissionable trades 10,600 8,200 29%
Average number of customers 257,300 150,200 71%
Average trades per customer 2.7 3.5 (23%)
Percentage of trades on-line 85% 71% 20%
</TABLE>
Interest and dividend income increased by $3,880,000, or 82%, for the three
months ended August 31, 2000 as compared to the same period in the prior year.
This increase is due principally to three factors. Firstly, NDBC's interest
income increased sharply due to an increase in the quarterly average of firm
short positions, on which NDBC receives a rebate. Secondly, there were larger
average amounts of cash available to earn interest due to the Company taking in
approximately $134,500,000 in net cash in connection with the sale of 3,000,000
shares of its common stock in a private placement to Deutsche Bank AG ("DB"),
which occurred in June 2000, less cash outflows primarily for capital additions.
Lastly, the average customer debit and credit balances that are held with
NDB.com's clearing broker, on which NDB.com receives interest, were higher in
the current year's first quarter than in the first quarter of fiscal year 2000.
Fee income generated by NDB.com increased by $264,000, or 20%, for the
three months ended August 31, 2000 as compared to the same period in the prior
year. The increase is principally due to NDB.com receiving higher distribution
assistance fees from money market funds, as customers' balances in those funds
have increased since the prior year.
11
<PAGE>
Total expenses for the three months ended August 31, 2000 increased
approximately $18,055,000, or 35%, from $52,221,000 in the quarter ended August
31, 1999 to $70,276,000 during the quarter ended August 31, 2000. The reasons
for the increase in expenses are set forth below.
Compensation and benefits increased by $9,982,000, or 54%, for the three
months ended August 31, 2000 as compared to the equivalent period in the prior
year. As a percentage of revenue, employee compensation and benefits was 42% for
the three months ended August 31, 2000 versus 35% for the comparable period in
the prior fiscal year. The increase was principally attributable to fixed
expenses related primarily to additional hires as the total number of employees
increased to 950 for the Company as of August 31, 2000, from 702 as of August
31, 1999. The increase in employees, much of which was in the areas of trade
support, customer service and technology, was necessitated by the significant
increase in trading activity that the Company has experienced during the course
of the last year. Such growth in staff was planned in order to continue to build
the Company's infrastructure toward the goal of creating a business that fully
integrates trade order, execution and clearance. Also contributing to the
increase was NDBC' traders being compensated on a tiered commission rate
schedule, wherein they earn higher rates of commissions as the profits they
generate increase. Thus, the increase in trading profits in the current period
versus in the prior year period led, in part, to the increase in compensation
and benefits as a percentage of revenue as did the increase in salaries for
non-revenue producing employees.
Clearing and related brokerage charges increased by $3,319,000, or 28%, for
the three months ended August 31, 2000 as compared to same period in the prior
year. This increase was mainly due to increases in NDB.com's and NDBC's ticket
counts of 29% and 85%, respectively, for the quarter ended August 31, 2000 over
the amounts in the comparable period during the prior year. As a percentage of
revenue, however, clearing and related brokerage charges decreased to 22% for
the three months ended August 31, 2000 from 23% for the comparable period in
fiscal 2000. Leading to the decrease in the current period in clearing and
related brokerage charges as a percentage of revenue, was a decrease in the per
ticket rate negotiated with NDB.com's clearing broker as of September 1999.
Communications expenses increased by $1,553,000, or 40%, for the three
months ended August 31, 2000 as compared to the same period in the prior year.
The increase is partly due to a rise in telecommunications expenses resulting
from the new 90 Hudson Street location for NDB.com, which created the need for
an additional phone carrier. In addition, there was a rise in the aggregate
expense associated with obtaining market data and quotation services. Usage of
such services during the fiscal quarter ended August 31, 2000 has increased as
the number of users has risen as compared to the same period in the prior fiscal
year.
Advertising and marketing costs increased by $483,000, or 7%, for the three
months ended August 31, 2000 as compared to the comparable period in the prior
year. The Company advertises in order to attract retail accounts to NDB.com as
well as institutional and broker-dealer order flow directly to NDBC. The
increase is due to this quarter's portion of the fee for the Company's online
advertising via the Go2Net Network and Yahoo! Finance. These deals were signed
during early calendar year 2000 and, thus, there was no comparable charge during
the quarter ended August 31, 1999. Partially offsetting this increase are lesser
fees due to fewer media buys during the three months ended August 31, 2000.
During the quarter ended August 31, 1999, NDB.com had rolled out a new
multi-media campaign designed to strengthen NDB.com brand awareness and to put a
focus on its products and services using a combination of network and cable
television, local radio and print media to attract new customers. No such new
campaign debuted in the current quarter.
NDB.com also attains new customers through its affinity and
business-to-business relationship programs. Acquisition costs per customer
account for NDB.com averaged $313 for the three months ended August 31, 2000 as
compared to $378 for the three months ended August 31, 1999 based on total
advertising expenses for the Company. The number of average customer accounts
rose 71% while there was only a 7% increase in total advertising costs, as
compared to the quarter ended August 31, 1999. NDB.com continues to focus on
attracting further affinity and business-to-business partnerships to help abate
its acquisition costs.
Sales-related travel and entertainment increased by $543,000, or 70% for
the three months ended August 31, 2000 as compared to the same period in the
prior year. The increase is due mainly to an increase in the number of NDBC'
institutional and broker-dealer sales personnel and additional efforts by this
sales force and NDB.com's sales force to attract new customers and maintain
existing relationships.
12
<PAGE>
Depreciation and amortization increased by $234,000, or 6%, for the three
months ended August 31, 2000 as compared to the equivalent period in the prior
year. This increase is primarily attributable to the additional depreciation and
amortization on the fixed assets and leasehold improvements which were placed
into service during the fourth quarter of fiscal year 2000 when the Company's
new facility at 90 Hudson Street in Jersey City was completed. Partly offsetting
this increase was the absence of depreciation and amortization on certain assets
abandoned by NDB.com upon its move from New York City to Jersey City.
Equipment rental costs increased by $606,000, or 114%, for the three months
ended August 31, 2000 as compared to the same period in the prior year. NDB.com
commenced lease payments this quarter for equipment at its new 90 Hudson Street
facility, which replaced equipment previously owned.
Technology consulting expense decreased by $438,000, or 38%, for the three
months ended August 31, 2000 versus the comparable period in the prior year.
This decrease is a result of the capitalization of certain NDBC technology
consultant costs, in the first quarter of fiscal 2001, directly associated with
firm software development.
Repairs and maintenance costs increased by $265,000, or 45%, for the three
months ended August 31, 2000 as compared to the same period in the prior year.
This increase, primarily for NDB.com, is mainly due to maintenance service
contract fees paid for new equipment and in association with maintaining
existing infrastructures as the original warranties on the various systems
continue to expire.
Professional fees increased by $967,000, or 193%, for the three months
ended August 31, 2000 as compared to the equivalent period in the prior year,
due to a number of factors. In connection with the start up of Millennium, the
Company has incurred project management costs and fees associated with
converting NDB.com and NDBC from their current clearing brokers to Millennium.
In addition, legal and accounting fees related to NDBC's reorganization, as
described in "Description of Business", were incurred during the quarter ended
August 31, 2000.
Occupancy costs increased by $62,000, or 4%, for the three months ended
August 31, 2000 as compared to the same period in the prior year.
Other expenses increased by $480,000, or 24%, for the three months ended
August 31, 2000 as compared to the equivalent period in the prior year. The
increase in other expenses is primarily due to the overall growth in the volume
of business and the increase in staff size.
The Company's effective tax rate was approximately 40% for the three-month
period ended August 31, 2000 as compared to 46% for the three months ended
August 31, 1999. The decrease in rates is primarily due to a shift in the states
in which the Company does business, mainly to states with lower tax rates. In
the prior year, a larger portion of the Company's revenues, property and payroll
were allocated to high tax rate states, such as New York. In the current year,
these operations have been shifted to a lower tax rate state, New Jersey. This
decrease was partly offset by the fact that some of the tax benefit that the
Company would otherwise receive due to its pretax loss was written off since the
portion of benefit pertaining to New Jersey will never come to fruition.
For the three months ended August 31, 2000, included in income tax expense
are deferred tax benefits of approximately $919,000. These deferred tax benefits
relate substantially to the future taxability of certain temporary book to tax
basis differences and to the carryforward of NDB.com's taxable loss to future
periods for certain tax jurisdictions. In conjunction with the deferred tax
asset shown on the condensed statement of financial condition, the Company has
recorded a valuation allowance of approximately $862,000 because, in
management's judgment, it was concluded that it was more likely than not that a
portion of the benefit would not be realized.
Liquidity
The Company's assets are highly liquid, but subject to market price
fluctuation, with more than 81% consisting of cash or assets readily convertible
into cash (principally cash and cash equivalents, firm securities positions,
U.S. Treasury obligations and receivables from brokers). The Company's
operations have generally been financed by internally generated funds and the
proceeds from the sales of its common stock in both seasoned public and private
offerings.
13
<PAGE>
From time to time, the Company has borrowed funds on a secured basis in
connection with its trading activities. The Company currently has no committed
lines of credit and such borrowings were done on an "as needed" basis.
Management is reviewing alternatives to meeting these funding requirements.
NDB Group's broker-dealer subsidiaries, NDB.com and NDBC, are subject to the
SEC's minimum net capital requirement, which is designed to measure the general
financial soundness and liquidity of broker-dealers. As of August 31, 2000,
NDB.com and NDBC had approximately $12,059,000 and $167,497,000, respectively,
in excess of the SEC required minimum net capital. The net capital rule imposes
financial restrictions upon NDB.com's and NDBC's businesses, which are more
severe than those imposed on most other businesses.
Cash flows from operations will vary on a daily basis as the Company's
portfolio of marketable securities changes. The Company's ability to convert
marketable securities owned into cash is determined by the depth of the market
and the size of the Company's securities positions in relation to the market as
a whole. The portfolio mix also affects the regulatory capital requirements
imposed on NDBC and NDB.com, which directly affects the amount of funds
available for operating, investing and financing activities.
On June 15, 2000, NDB Group sold 3,000,000 shares of its common stock in a
private offering to DB U.S. Financial Markets Holding Corporation, an indirect
subsidiary of Deutsche Bank AG ("DB") for $135,930,000 in gross proceeds
pursuant to a Securities Purchase Agreement dated as of May 15, 2000.
Commissions and other fees of approximately $1,400,000 were incurred on the
transaction.
The Company's capital expenditures were $3.5 million and $8.4 million
during the three months ended August 31, 2000 and August 31, 1999, respectively,
including deposits made on assets not yet placed in service. Capital
expenditures during the first three months of fiscal 2001 were primarily related
to the expansion of new offices that will house additional NDB.com customer
service personnel and NDBC' traders and salesmen. During the three months ended
August 31, 2000, lease agreements for two new office spaces located in Long
Island, New York and Tinton Falls, New Jersey were executed. In addition, funds
were spent on the continual upgrading of the Company's information technology
systems and telecommunications equipment.
The Company expects to spend between $7million and $10 million on
advertising expense during the second quarter of fiscal year 2001, inclusive of
the period's commitments related to its Go2Net and Yahoo! marketing
arrangements, but absent any new business-to-business marketing associations.
Cash flows from the Company's investment activities are directly related to
market conditions.
Effects of Inflation
The Company's assets are not significantly affected by inflation because
they are primarily monetary in nature. Management believes that replacement
costs of furniture, equipment and leasehold improvements will not materially
affect operations. However, the rate of inflation affects the Company's
principal expenses such as employee compensation, rent and communications, which
may not be readily recoverable from increased revenues. Because of market forces
and competitive conditions in the securities industry, a broker-dealer may be
unable to restructure its profit margins in order to recover increased costs
related to inflation. Consequently, the Company must rely on increased volume
for this purpose. However, the Company has significant cash balances on deposit
with financial institutions, including money market accounts, as well as with
its principal clearing brokers on which interest is paid which, in the event
there are higher interest rates which normally result from inflation, would
offset some of the costs.
Looking Ahead
The Company expects that it will spend up to approximately $20 million
during the remainder of fiscal year 2001 in capital expenditures related to its
forthcoming new offices and on ongoing technological improvements and product
enhancements.
The Company expects to spend between $7 million and $10 million on
advertising during the second quarter of fiscal year 2001, inclusive of the
period's commitments related to the Go2Net and Yahoo! marketing associations,
but absent any new business-to-business marketing associations. As of August 31,
14
<PAGE>
2000, NDB.com had generated approximately 79,200 accounts and currently
continues to generate accounts through its affiliation with AST Stock Plan
("AST"). NDB.com's current contract with AST expires on December 31, 2000.
Another broker-dealer has acquired AST and, as a result, the AST agreement may
not be extended. Termination of the agreement may result in a loss of some of
the accounts generated by NDB.com through its affiliation with AST and may
further result in higher future costs of acquiring customers. The Company
continues to look for alternative methods of account acquisition through
additional business-to-business alliances.
The Company expects that as a result of the NASDAQ's change to
decimalization, which is currently being phased in, the spread between "bid" and
"ask" prices on the stocks in which NDBC makes markets will further narrow and
may adversely affect profitability per ticket. Management, however, believes
that this change may result in greater market volatility, which will create
potential opportunities for trading profits for NDBC.
The Company estimates that it will begin self-clearing NDB.com and NDBC
transactions through Millennium during calendar year 2001. As a broker-dealer,
Millennium will be subject to the SEC's minimum net capital requirements. The
Company intends to fund this required capital through internally generated
funds. Over the long term, this self-clearing operation is expected to reduce
clearing charges per ticket incurred by both NDB.com and NDBC and increase the
interest spreads the Company earns on certain customer balances.
On October 6, 2000, NDB Group received a proposal from an affiliate of DB
offering to acquire all of the outstanding capital stock of NDB Group for $49
per share in cash. DB, through its affiliates, currently owns approximately 16%
of the outstanding shares of NDB Group's common stock. On October 11, 2000, the
proposal was approved by the Board of Directors of NDB Group and the Supervisory
Board of DB. NDB Group, DB and Deutsche Acquisition Corp. executed an Agreement
and Plan of Merger providing for the tender offer for the capital stock of NDB
Group followed by a merger of NDB Group with Deutsche Acquisition Corp. The
tender offer is expected to close by the end of calendar year 2000 but there can
be no assurance that the transaction will close or of the timing of the
transaction.
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK
The Company's principal business activities are, by their nature, risky
and volatile and are directly affected by many national and international
factors. Any one of these factors may cause a substantial decline in the
securities markets, which could materially adversely affect the Company's
business. Managing risk is critical to the Company's profitability and to
reducing the likelihood of earnings volatility. The Company's risk management
policies and procedures have been established to continually identify, monitor
and manage risk. The major types of risk that the Company faces include, but are
not limited to, credit risk, legal risk, operating risk and market risk.
Credit risk is the potential for loss due to a customer or counterparty
failing to perform its contractual obligations. The Company clears its
securities transactions through unaffiliated clearing agents. Under the terms of
its clearing agent agreements, the Company's clearing agents have the right to
charge it for losses that result from its customers' failure to fulfill their
contractual obligations. In order to mitigate risk, the Company's policy is to
monitor the credit standing of its customers and maintain collateral to support
margin loans and short sales. Further, a significant portion of the Company's
and its customer assets are held at one or more clearing agents. Therefore, it
would incur substantial losses if one of the Company's clearing agents were to
become insolvent or otherwise unable to meet its financial obligations.
Operating risk is the potential for loss due to deficiencies in control
processes or computer and technological systems. The Company relies heavily on
various computer and communications systems to operate its business, including
NDB.com's web site. The Company relies particularly on third parties such as
Nasdaq, telephone companies, online service providers, clearing agents, data
processors and software and hardware vendors. The Company's business could be
negatively impacted by unanticipated disruptions in service to customers, slower
response times, delays in trading, failed settlement of trades, decreased
customer service and satisfaction, incomplete or inaccurate accounting or
processing of trades, and delays in the Company's introduction of new products
and services. The Company attempts to mitigate operating risk by employing
experienced personnel, maintaining an internal control system, and maintaining
backup and recovery functions.
15
<PAGE>
Legal risk is the risk associated with non-compliance with legal and
regulatory requirements, and counterparty non-performance based upon non-credit
related conditions, such as legal authority or capacity. The SEC, NASD, and
other agencies extensively regulate the U.S. securities industry. The Company is
required to comply strictly with the rules and regulations of these agencies.
Further, there are frequent changes in the laws and regulations affecting the
securities industry and the securities markets. If the Company fails to comply
with any of these laws, rules, or regulations, it is subject to censure, fines,
cease-and-desist orders or suspensions of its business. Additionally, the SEC
and NASD have strict rules that require it to maintain sufficient net capital.
If its broker-dealer subsidiaries fail to maintain the required net capital, the
SEC or the NASD may suspend or revoke the subsidiaries' broker-dealer licenses.
In addition, the Company may be subject to lawsuits or arbitration claims by
customers, employees or other third parties in the different jurisdictions in
which it conducts business (see Part II, Item 1, below). The Company has
established procedures in accordance with legal and regulatory requirements that
are designed to reasonably ensure compliance in these matters.
Market risk is the risk of loss that may result from changes in interest
and foreign exchange rates, equity and commodity prices and the correlations
among them. The Company's current operations and trading activity limit its
exposure to the interest rate and equity price exposure components of market
risk.
Interest rate risk is the possibility of a loss in the value of financial
instruments from changes in interest rates. The Company's primary exposure to
interest rate risk arises from its interest earning assets (mainly deposits at
clearing brokers, loans and notes receivable and U.S. Treasury obligations) and
funding sources (loans payable). The Company attempts to mitigate this risk by
only holding U.S. Treasury obligations with maturities of one year or less. For
the other interest earning assets and funding sources, the interest rate risk is
not material, as the underlying value will not vary with changes in interest
rates.
Equity price risk generally means the risk of loss that may result from the
potential change in the value of a financial instrument as a result of absolute
and relative price movements, price volatility or changes in liquidity, over
which the Company has no control. The Company's market making activities expose
its capital to significant equity price risk. To mitigate this risk, senior
management monitors profits and losses on a real-time basis throughout the
trading day. Further, from the Company's system-generated reports, senior
management reviews positions, mark-to-market valuations, and daily profits and
losses on individual security positions. Additionally, traders are required to
maintain positions meeting a specified potential profit/loss ratio, which is
monitored by management.
The Company maintains inventories for trading purposes in exchange-listed,
Nasdaq and other over-the-counter securities on both a long and short basis. The
fair value of these securities at August 31, 2000 was $50.3 million in long
positions and $23.6 million in short positions. The potential loss in fair
value, using a hypothetical 10% decline in prices, is estimated to be $2.7
million as of August 31, 2000. A 10% hypothetical decline was used to represent
a significant yet plausible market change.
Other financial instruments exposed to equity rate risk are held for
purposes other than trading. This includes investments by the Company in several
privately held corporations. These investments were valued at their fair value,
$15.9 million at August 31, 2000, in the Company's condensed consolidated
financial statements under the heading "Securities not readily marketable". The
potential loss in fair value, using a hypothetical 10% decline in prices, is
estimated to be $1.6 million as of August 31, 2000.
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
Certain significant legal proceedings and matters were previously disclosed
in Item 3, Legal Proceedings, of the Company's Annual Report on Form 10-K for
the year ended May 31, 2000, and the disclosures regarding such matters are
incorporated herein by reference. Many aspects of the business of the Company
involve substantial risks of potential liability. In recent years, there has
been an increasing incidence of litigation involving the securities industry,
including class action suits that generally seek substantial damages. Companies
engaged in the underwriting and distribution of securities are exposed to
substantial liability under federal and state securities laws. The Company is,
from time to time, involved in proceedings with, and investigations by,
governmental and self-regulatory agencies.
16
<PAGE>
The Company has been named as a defendant in a number of lawsuits and
arbitrations and is the subject of investigations that allege, among other
things, violations of Federal and state securities laws and other laws or
regulations promulgated by governmental or self-regulatory bodies. A substantial
settlement or judgment in any of these cases could have a material adverse
effect on the Company. Except as described disclosed in Item 3 to the Company's
Form 10-K for the year ended May 31, 2000 and this Form 10-Q, management of the
Company believes that none of these pending lawsuits, arbitrations and
investigations is likely to have a material adverse effect on its financial
condition, results of operations or liquidity, although the Company cannot be
certain of this.
Item 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 28, 2000, NDB Group announced that it had entered into a
non-binding letter of intent with Deutsche Bank Americas Holding Corporation
("DBA"), an affiliate of DB, pursuant to which NDB Group would sell 3,000,000
shares of its common stock to DBA or one of its designated affiliates for $45.31
per share or $135,930,000 in gross proceeds (the "Investment"). On May 15, 2000,
NDB Group and DB U.S. Financial Markets Holding Corporation ("DBUS"), an
affiliate of DB, entered into a definitive agreement (the "Securities Purchase
Agreement") respecting the Investment. On June 15, 2000, the transaction was
consummated. The transaction was exempt from registration pursuant to Section
2(2) of the Securities Act of 1933, as amended, and Rule 50b of Regulation D
thereunder.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Computation of Net Income Per Common Share
Exhibit 27 - Financial Data Schedule
(b) The Company filed one report on Form 8-K during the quarter ended
August 31, 2000. The report, dated June 15, 2000, was filed in
regard to the Securities Purchase Agreement the Company entered into
with DBUS.
17
<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.
National Discount Brokers Group, Inc.
-------------------------------------
Date: October 12, 2000 By: Arthur Kontos
---------------------------- -------------------------------------
Arthur Kontos
Chief Executive Officer
Date: October 12, 2000 By: Daniel Fishbane
----------------------------- -------------------------------------
Daniel Fishbane
Chief Financial Officer and
Principal Accounting Officer
18
<PAGE>
EXHIBIT 11
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31, Three Months Ended August 31,
----------------------------- -----------------------------
Basic Diluted
----------------------------------- -------------------------------
2000 1999 2000 1999
----------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Common stock and potential common stock:
Weighted average common stock outstanding 20,543,594 16,205,035 20,543,594 16,205,035
Weighted average potential common stock
issuable under stock options - - - 286,835
----------------- ---------------- --------------- ---------------
Total weighted average common stock and potential common
stock used for earnings per share computation (a) 20,543,594 16,205,035 20,543,594 16,491,870
----------------- ---------------- --------------- ---------------
Income:
Net (loss) income from continuing operations $ (1,293,744) $ 434,943 $ (1,293,744) $ 434,943
Net income from discontinued operations,
net of taxes - 82,994 - 82,994
Gain on sale of discontinued operations,
net of taxes - 20,054,787 - 20,054,787
----------------- ---------------- --------------- ---------------
Net (loss) income $ (1,293,744) $ 20,572,724 $ (1,293,744) $ 20,572,724
----------------- ---------------- --------------- ---------------
Net (loss) income per common and potential common share:
Net (loss) income from continuing operations $ (0.06) $ 0.02 $ (0.06) $ 0.02
Net income from discontinued operations,
net of taxes 0.00 0.01 0.00 0.01
Gain on sale of discontinued operations,
net of taxes 0.00 1.24 0.00 1.22
----------------- ---------------- --------------- ---------------
Net (loss) income $ (0.06) $ 1.27 $ (0.06) $ 1.25
----------------- ---------------- --------------- ---------------
<FN>
(a) Due to their antidilutive nature upon the net loss per common and potential
share, potential common stock has been excluded from the calculation of
total weighted average common and potential common stock for the three
months ended August 31, 2000.
</FN>
</TABLE>
