LADENBURG THALMANN FINANCIAL SERVICES INC. - Quarter Report: 2010 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-15799

Ladenburg Thalmann Financial Services Inc.

(Exact name of registrant as specified in its charter)

Florida	65-0701248
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

4400 Biscayne Boulevard, 12th Floor
Miami, Florida	33137
(Address of principal executive offices)	(Zip Code)

(212) 409-2000

(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 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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

As of August 9, 2010, there were 181,326,987 shares of the registrant's common stock outstanding.

LADENBURG THALMANN FINANCIAL SERVICES INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Statements of Financial Condition as of June 30, 2010 (Unaudited) and December 31, 2009	2

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 (Unaudited) and 2009 (Unaudited)	3

	Condensed Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June 30, 2010 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 (Unaudited) and 2009 (Unaudited)	5

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22

Item 4.	Controls and Procedures	22

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 6.	Exhibits	24

SIGNATURES		24

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share and per share amounts)

	June 30, 2010 (Unaudited)			December 31, 2009
ASSETS

Cash and cash equivalents	$	5,973		$	5,702
Securities owned at fair value		3,297			2,209
Receivables from clearing brokers		13,329			13,406
Receivables from other broker-dealers		1,102			329
Other receivables, net		5,443			6,203
Furniture, equipment and leasehold improvements, net		2,788			3,154
Restricted assets		200			350
Intangible assets, net		26,994			28,509
Goodwill		29,739			29,739
Unamortized debt issue cost		1,738			1,879
Other assets		2,733			3,157

Total assets	$	93,336		$	94,637

LIABILITIES AND SHAREHOLDERS’ EQUITY

Securities sold, but not yet purchased, at market value	$	9		$	9
Accrued compensation		4,216			4,299
Commissions and fees payable		5,589			5,957
Accounts payable and accrued liabilities		4,339			5,671
Deferred rent		3,170			3,378
Deferred income taxes		2,092			1,726
Accrued interest		634			365
Notes payable		25,511			35,438

Total liabilities	$	45,560		$	56,843

Commitments and contingencies (Note 6)
Shareholders’ equity:
Preferred stock, $.0001 par value; 2,000,000 shares authorized; none issued		—			—
Common stock, $.0001 par value; 400,000,000 shares authorized; shares issued and outstanding, 181,326,987 in 2010 and 167,907,038 in 2009		18			17
Additional paid-in capital		187,962			171,349
Accumulated deficit		(140,204	)		(133,572	)

Total shareholders’ equity		47,776			37,794

Total liabilities and shareholders’ equity	$	93,336		$	94,637

See accompanying notes.

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(Unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2010			2009			2010			2009

Revenues:

Commissions and fees	$	38,092		$	29,169		$	74,520		$	55,940
Investment banking		6,302			1,660			10,888			5,673
Asset management		750			452			1,361			907
Principal transactions		(161	)		469			130			173
Interest and dividends		137			820			263			1,856
Other income		2,464			1,755			4,393			3,066

Total revenues	$	47,584		$	34,325		$	91,555		$	67,615

Expenses:

Commissions and fees	$	28,624		$	20,625		$	55,550		$	39,056
Compensation and benefits		10,892			8,988			22,231			18,898
Non-cash compensation		1,605			1,665			3,365			3,585
Brokerage, communication and clearance fees		1,770			1,731			3,354			3,447
Rent and occupancy, net of sublease revenue		863			718			1,739			2,109
Professional services		1,035			1,278			2,147			3,337
Interest		936			1,050			1,892			2,178
Depreciation and amortization		915			931			1,829			1,870
Other		2,985			2,179			5,653			3,975

Total expenses	$	49,625		$	39,165		$	97,760		$	78,455

Loss before income taxes		(2,041	)		(4,840	)		(6,205	)		(10,840	)

Income tax expense		188			318			427			559

Net loss	$	(2,229	)	$	(5,158	)	$	(6,632	)	$	(11,399	)

Net loss per common share (basic and diluted)	$	(0.01	)	$	(0.03	)	$	(0.04	)	$	(0.07	)

Weighted average common shares used in computation of per share data:
Basic		170,744,411			167,318,663			169,326,908			169,510,804
Diluted		170,744,411			167,318,663			169,326,908			169,510,804

See accompanying notes.

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

	Common Stock					Additional Paid-In			Accumulated
	Shares			Amount		Capital			Deficit			Total

Balance, December 31, 2009		167,907,038		$	17	$	171,349		$	(133,572	)	$	37,794

Issuance of common stock in private equity offering, net of expenses of $116		13,325,000			1		13,208			—			13,209
Issuance of common stock under employee stock purchase plan		28,319			—		29			—			29

Exercise of stock options		132,000			—		75			—			75

Stock options granted to members of former Advisory Board and consultants		—			—		10			—			10

Stock-based compensation to employees		—			—		3,355			—			3,355

Repurchase and retirement of common stock		(65,370	)		—		(64	)		—			(64	)

Net loss		—			—		—			(6,632	)		(6,632	)

Balance, June 30, 2010		181,326,987		$	18	$	187,962		$	(140,204	)	$	47,776

See accompanying notes.

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six months ended June 30,
	2010			2009
Cash flows from operating activities:
Net loss	$	(6,632	)	$	(11,399	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		315			286
Adjustment to deferred rent		(4	)		—
Amortization of debt discount		200			409
Amortization of intangible assets		1,514			1,584
Amortization of debt issue cost		141			320
Deferred income taxes		366			361
Accrued interest		269			39
Non-cash compensation expense		3,365			3,585
Disposal of furniture, equipment and leasehold improvements		4			—

(Increase) decrease in operating assets:
Securities owned		(1,088	)		1,209
Receivables from clearing brokers		77			1,569
Receivables from other broker-dealers		(773	)		(116	)
Other receivables, net		760			(1,468	)
Other assets		391			596

Increase (decrease) in operating liabilities:
Securities sold, but not yet purchased		—			(39	)
Accrued compensation		(83	)		(329	)
Commissions and fees payable		(368	)		(474	)
Accounts payable and accrued liabilities		(1,332	)		409
Net cash used in operating activities		(2,878	)		(3,458	)

Cash flows from investing activities:
Purchases of furniture, equipment and leasehold improvements		(123	)		(58	)
Decrease in restricted assets		150			301
Net cash provided by investing activities		27			243

Cash flows from financing activities:
Issuance of common stock in private equity offering		13,209			—
Issuance of common stock under stock plans		104			186
Repurchases of common stock		(64	)		(2,717	)
Principal (payments) borrowings under revolving credit facility, net		(6,700	)		6,350
Principal payments on other notes payable		(3,427	)		(3,302	)
Net cash provided by financing activities		3,122			517

Net increase (decrease) in cash and cash equivalents		271			(2,698	)
Cash and cash equivalents, beginning of period		5,702			6,621
Cash and cash equivalents, end of period	$	5,973		$	3,923

Supplemental cash flow information
Interest paid	$	1,269		$	1,381
Taxes paid		16			34

See accompanying notes.

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

1.	Description of Business and Basis of Presentation

Description of Business

Ladenburg Thalmann Financial Services Inc. (“LTS” or the “Company”) is a holding company. Its wholly-owned principal operating subsidiaries are Ladenburg Thalmann & Co. Inc. (“Ladenburg”), Investacorp, Inc. (collectively with related companies, “Investacorp”), Triad Advisors, Inc. (“Triad”) and Ladenburg Thalmann Asset Management Inc. (“LTAM”).

Ladenburg is a full service registered broker-dealer that has been a member of the New York Stock Exchange (“NYSE”) since 1879. Broker-dealer activities include sales and trading and investment banking. Ladenburg provides its services principally for middle market and emerging growth companies and high net worth individuals through a coordinated effort among corporate finance, capital markets, brokerage and trading professionals.

Investacorp and Triad, which were acquired on October 19, 2007 and August 13, 2008, respectively, are registered broker-dealers and investment advisors that have been serving the independent financial advisor community since 1978 and 1998, respectively. Investacorp’s and Triad’s independent financial advisors primarily serve retail clients. Investacorp and Triad derive revenue from advisory fees and commissions, primarily from the sale of mutual funds, variable annuity products and other financial products and services.

LTAM is a registered investment advisor. It offers various asset management products utilized by Ladenburg clients, as well as clients of Investacorp’s and Triad’s financial advisors.

Ladenburg, Investacorp and Triad customer transactions are cleared through a single clearing broker on a fully-disclosed basis. Each of Ladenburg, Investacorp and Triad is subject to regulation by, among others, the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority and the Municipal Securities Rulemaking Board. Triad is also subject to regulation by the Commodities Futures Trading Commission and the National Futures Association.

Basis of Presentation

The condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Because of the nature of the Company’s business, interim period results may not be indicative of full year or future results.

The unaudited condensed consolidated financial statements do not include all information and notes required in annual audited financial statements in conformity with GAAP. The statement of financial condition at December 31, 2009 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statement presentation. Please refer to the notes to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2009, filed with the SEC, for additional disclosures and a description of accounting policies.

Certain prior year items have been reclassified to conform to the current period’s presentation. All significant intercompany balances and transactions have been eliminated.

The Company has evaluated subsequent events through the date the financial statements contained in this report were issued.

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in thousands, except share and per share amounts)

(Unaudited)

2.	Securities Owned and Securities Sold, But Not Yet Purchased

The components of securities owned and securities sold, but not yet purchased, at fair value at June 30, 2010 and December 31, 2009 were as follows:

	Securities owned		Securities sold, but not yet purchased
June 30, 2010
Common stock and warrants	$	975	$	—
Restricted common stock and warrants		2,322		9
Total	$	3,297	$	9

December 31, 2009
Certificates of deposit	$	100	$	—
Common stock and warrants		517		—
Restricted common stock and warrants		1,592		9
Total	$	2,209	$	9

As of June 30, 2010 and December 31, 2009, approximately $1,084 and $687, respectively, of securities owned were deposited with the Company’s subsidiaries’ clearing brokers. Under the clearing agreements with such clearing brokers, the securities may be sold or hypothecated by such clearing brokers. At June 30, 2010, the Company's subsidiaries had a single clearing broker.

Securities sold, but not yet purchased, at fair value represent obligations of the Company’s subsidiaries to purchase the specified financial instrument at the then current market price. Accordingly, these transactions result in off-balance-sheet risk as the Company's subsidiaries’ ultimate obligation to repurchase such securities may exceed the amount recognized in the condensed consolidated statements of financial condition.

The fair value hierarchy, established under authoritative accounting guidance, ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

•

Level 1 —quoted prices in active markets for identical assets or liabilities.

•

Level 2 —inputs, other than quoted prices in active markets, that are directly or indirectly observable for the asset or liability.

•

Level 3 — unobservable inputs for the asset where there is little or no market data, which requires the reporting entity to develop its own assumptions.

Securities are carried at fair value and classified as follows:

As of June 30, 2010:

Securities owned, at fair value	Level 1		Level 2		Level 3		Total

Common stock and warrants	$	975	$	2,322	$	—	$	3,297

Total	$	975	$	2,322	$	—	$	3,297

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Securities sold, but not yet purchased, at fair value	Level 1		Level 2		Level 3		Total

Common stock and warrants	$	—	$	9	$	—	$	9

Total	$	—	$	9	$	—	$	9

As of December 31, 2009:

Securities owned, at fair value	Level 1		Level 2		Level 3		Total

Certificates of deposit	$	—	$	100	$	—	$	100

Common stock and warrants		517		1,592		—		2,109

Total	$	517	$	1,692	$	—	$	2,209

Securities sold, but not yet purchased, at fair value	Level 1		Level 2		Level 3		Total

Common stock and warrants	$	—	$	9	$	—	$	9

Total	$	—	$	9	$	—	$	9

Warrants are valued by using the Black-Scholes option pricing model which takes into account the underlying securities current market value, the market volatility of the underlying securities, the term of the warrants, exercise price, and risk-free rate of return. As of June 30, 2010 and December 31, 2009, the fair value of the warrants was $2,081 and $1,351, respectively, and is included in common stock and warrants (level 2) above.

3.	Net Capital Requirements

As a registered broker-dealer, Ladenburg is subject to the SEC’s Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital. Ladenburg has elected to compute its net capital under the alternative method allowed by these rules. At June 30, 2010, Ladenburg had net capital, as defined in the SEC’s Net Capital Rule, of $3,919, which exceeded its minimum capital requirement of $250, by $3,669.

Investacorp and Triad are also subject to the SEC’s Net Capital Rule, which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined in the SEC’s Net Capital Rule, not exceed 15 to 1. At June 30, 2010, Investacorp had net capital of $1,196 which was $927 in excess of its required net capital of $269. Investacorp’s net capital ratio was 3.4 to 1. At June 30, 2010, Triad had net capital of $2,338, which was $2,088 in excess of its required net capital of $250. Triad’s net capital ratio was 1.5 to 1.

Ladenburg, Investacorp and Triad claim exemption from the provisions of the SEC’s Rule 15c3-3 pursuant to paragraph (k) (2) (ii) of such Rule as they clear their customer transactions through a correspondent broker on a fully-disclosed basis.

Effective April 5, 2010, Ladenburg withdrew its membership from the National Futures Association.

4.	Income Taxes

Income tax expense for the three months and six months ended June 30, 2010 primarily represents deferred income taxes relating to amortization of goodwill for tax purposes.

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in thousands, except share and per share amounts)

(Unaudited)

5.	Notes Payable

Notes payable consisted of the following:	June 30,		December 31,
	2010		2009
Note payable to former Investacorp shareholder, net of $21and $124 of unamortized discount at June 30, 2010 and December 31, 2009, respectively	$	1,738	$	4,230
Note payable to affiliate of principal shareholder of LTS		11,750		18,450
Note payable to former Triad shareholders, net of $106 and $204 of unamortized discount at June 30, 2010 and December 31, 2009, respectively		2,023		2,758
Note payable to clearing firm under forgivable loan		10,000		10,000
Total	$	25,511	$	35,438

The Company estimates that the fair value of notes payable was $21,985 at June 30, 2010 and $30,076 at December 31, 2009 based on interest rates at which similar amounts of debt could then be borrowed.

6.	Commitments and Contingencies

Litigation and Regulatory Matters

In May 2003, a suit was filed in the U.S. District Court for the Southern District of New York by Sedona Corporation against Ladenburg, former employees of Ladenburg and a number of other firms and individuals. The plaintiff alleged, among other things, that certain defendants (not Ladenburg) purchased convertible securities from plaintiff and then allegedly manipulated the market to obtain an increased number of shares from the conversion of those securities. Ladenburg acted as placement agent and not as principal in those transactions. Plaintiff’s original complaint alleged that Ladenburg and the other defendants violated federal securities laws and various state laws. In August 2005, Ladenburg’s motion to dismiss was granted in part and denied in part. On May 27, 2009, the Court granted in part and denied in part motions to dismiss the Second Amended Complaint, and granted plaintiff leave to replead. On July 9, 2009, plaintiff filed its Third Amended Complaint, which contains no claims under the federal securities laws, leaving only common law claims; the plaintiff seeks compensatory damages from the defendants of at least $660,000 and punitive damages of $400,000. Ladenburg’s motion to dismiss the Third Amended Complaint is currently pending. The Company believes the plaintiff’s claims are without merit and intends to vigorously defend against them.

In July 2004, a suit was filed in the U.S. District Court for the Eastern District of Arkansas by Pet Quarters, Inc. against Ladenburg, a former employee of Ladenburg and a number of other firms and individuals. The plaintiff alleged, among other things, that certain defendants (not Ladenburg) purchased convertible securities from the plaintiff and then allegedly manipulated the market to obtain an increased number of shares from the conversion of those securities. Ladenburg acted as placement agent and not as principal in those transactions. Plaintiff has alleged that Ladenburg and the other defendants violated federal securities laws and various state laws. The plaintiff seeks compensatory damages from the defendants of at least $400,000. In April 2006, Ladenburg’s motion to dismiss was granted in part and denied in part. On July 23, 2010, the plaintiff dismissed its claims against all defendants other than Ladenburg and the former Ladenburg employee. The Company believes that the plaintiff’s claims are without merit and intends to vigorously defend against them.

In July 2008, a suit was filed in the Circuit Court for the 17th Judicial Circuit, Broward County, Florida, by BankAtlantic and BankAtlantic Bancorp, Inc. against Ladenburg and a former Ladenburg research analyst. The plaintiffs alleged, among other things, that research reports issued by defendants were false and defamatory, and that defendants were liable for defamation per se and negligence; the amount of the alleged damages was unspecified. In February 2010, the plaintiffs entered into a settlement agreement resolving all claims against Ladenburg; the settlement expense is reflected in accrued liabilities in the Company’s 2009 financial statements. On July 1, 2010, the plaintiffs and the former research analyst voluntarily dismissed the remaining claims with prejudice. The former research analyst has indicated that he may initiate a proceeding against Ladenburg and the Company for indemnification and breach of contract seeking reimbursement of expenses he incurred in defending the suit; the Company believes such claims are without merit and intends to vigorously defend against them.

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in thousands, except share and per share amounts)

(Unaudited)

In February 2010, an arbitration case was commenced by a former employee against Ladenburg and the Company. The claim asserted breach of an employment agreement and sought compensatory damages of $750. In April 2010, Ladenburg and the Company entered into an agreement with the former employee resolving all claims, which had no material effect on the Company’s 2010 financial statements.

One of the Company's broker-dealer subsidiaries had a short-term net-capital deficiency, discovered during a routine regulatory review, that was not disclosed properly on a monthly FOCUS report. The broker-dealer subsidiary has taken, and continues to take, corrective actions, including reporting the deficiency to governmental and self-regulatory organizations, reviewing net capital compliance for historical periods, implementing new procedures to monitor net capital compliance, and terminating the employee who had primary responsibility for monitoring and reporting its net capital. The Company is unable to determine whether and to what extent any governmental and/or self-regulatory organizations may seek to discipline such broker-dealer subsidiary concerning this matter. Such disciplinary actions could include fines, a suspension of such subsidiary’s operations and/or rescission of such subsidiary’s revenues relating to the period of non-compliance, any of which could have a material adverse effect on the Company's results of operations and financial condition.

In the ordinary course of business, the Company’s subsidiaries are defendants in litigation and arbitration proceedings and may be subject to unasserted claims or arbitrations primarily in connection with their activities as securities broker-dealers or as a result of services provided in connection with securities offerings. Such litigation and claims may involve substantial or indeterminate amounts and are in varying stages of legal proceedings. When the Company believes that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated, the Company includes an estimation of such amount in accounts payable and accrued liabilities.

Upon final resolution, amounts payable may differ materially from amounts accrued. The Company had accrued liabilities in the amount of approximately $328 at June 30, 2010 and $453 at December 31, 2009 for these matters. For other pending matters, the Company is unable to estimate a range of possible loss; however, in the opinion of management, after consultation with counsel, the ultimate resolution of these matters should not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

7.	Off-Balance-Sheet Risk and Concentration of Credit Risk

Ladenburg, Investacorp and Triad do not carry accounts for customers or perform custodial functions related to customers’ securities. They introduce all of their customer transactions, which are not reflected in these financial statements, to their clearing broker, which maintains cash and the customers’ accounts and clears such transactions. Also, the clearing broker provides the clearing and depository operations for proprietary securities transactions. These activities may expose the Company to off-balance-sheet risk in the event that customers do not fulfill their obligations to the clearing broker, as each of Ladenburg, Investacorp and Triad has agreed to indemnify the clearing broker for any resulting losses. Each of Ladenburg, Investacorp and Triad continually assesses risk associated with each customer who is on margin credit and records an estimated loss when management believes collection from the customer is unlikely.

The clearing operations for the Ladenburg, Investacorp and Triad securities transactions are provided by one clearing broker, a large financial institution. At June 30, 2010, a significant percentage of securities owned and amounts due from clearing brokers reflected in the consolidated statements of financial condition are positions held at, and amounts due from, this one clearing broker. The Company is subject to credit risk should this clearing broker be unable to fulfill its obligations.

In the normal course of its business, Ladenburg, Investacorp and Triad may enter into transactions in financial instruments with off-balance sheet risk. These financial instruments consist of financial futures contracts, written equity index option contracts and securities sold, but not yet purchased. As of June 30, 2010, Ladenburg, Investacorp and Triad were not contractually obligated for any equity index or financial futures contracts; however, Ladenburg and Triad sold securities that they do not own and will therefore be obligated to purchase such securities at a future date. These obligations have been recorded in the statements of financial condition at market values of the related securities, and Ladenburg and Triad will incur a loss if the market value of the securities increases subsequent to June 30, 2010.

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in thousands, except share and per share amounts)

(Unaudited)

The Company and its subsidiaries maintain cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

8.	Shareholders’ Equity

Private Equity Offering

On May 28, 2010, the Company entered into stock purchase agreements with various investors, under which the investors agreed to purchase an aggregate of 14,050,000 shares of the Company’s common stock, par value $0.0001 per share (the “Shares”), at a price of $1.00 per share. On June 15, 2010, the Company completed the sale of an aggregate of 13,325,000 of the Shares and received gross proceeds of $13,325 from investors who are not affiliated with the Company. In accordance with NYSE Amex rules, the closing of the sale of an aggregate of 725,000 of the Shares to investors who are directors and executive officers of the Company, or affiliates thereof, will be subject to shareholder approval at the Company’s 2010 Annual Meeting to be held on September 24, 2010. The funds received from the private equity offering were used for general corporate purposes, including payment of debt.

Repurchase Program

In March 2007, the Company’s board of directors authorized the repurchase of up to 2,500,000 shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, depending on market conditions. The repurchase program is funded using approximately 15% of the Company’s EBITDA, as adjusted. As of June 30, 2010, 1,013,194 shares had been repurchased for $1,753 under the program.

In April 2009, the Company repurchased 4,500,000 shares of common stock at a price of $0.60 per share (an aggregate of $2,700) in a privately-negotiated transaction. This purchase was not made under the Company’s share repurchase program, which remains in effect.

Stock Compensation Plans

On January 14, 2010, the Company granted options to purchase an aggregate of 3,645,000 shares of the Company’s common stock at an exercise price of $0.90 per share to employees and directors. The options, which expire on January 14, 2020, vest 25% on each of the first four anniversaries of the date of grant. The Company has valued the options at $1,964 using the Black-Scholes option pricing model.

As of June 30, 2010, there was $5,729 of unrecognized compensation cost for stock-based compensation, of which $1,644 related to the 2010 grants. This cost is expected to be recognized over the vesting periods of the options, which on a weighted-average basis are approximately 1.2 years for all grants and approximately 3.5 years for the 2010 grant.

The total intrinsic value of options exercised during the three and six months ended June 30, 2010 was $62 and $74, respectively.

9.	Per Share Data

Basic net loss per common share is computed using the weighted-average number of common shares outstanding. The dilutive effect of common shares potentially issuable under outstanding options and warrants is included in diluted earnings per share. The computations of basic and diluted per share data were as follows:

	Three months ended						Six months ended
	June 30,						June 30,
	2010			2009			2010			2009
Net loss	$	(2,229	)	$	(5,158	)	$	(6,632	)	$	(11,399	)

Weighted-average common shares outstanding basic and diluted		170,744,411			167,318,663			169,326,908			169,510,804
Net loss per common share:
Basic and diluted	$	(0.01	)	$	(0.03	)	$	(0.04	)	$	(0.07	)

At June 30, 2010 and 2009, options and warrants to purchase 30,574,290 and 28,571,415 common shares, respectively, were not included in the computation of diluted loss per share as the effect would have been anti-dilutive.

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in thousands, except share and per share amounts)

(Unaudited)

10.	Segment Information

The Company has two operating segments. The Ladenburg segment includes the broker-dealer and asset management activities, conducted by Ladenburg and LTAM. The Independent Brokerage and Advisory Services segment includes the broker-dealer and investment advisory services provided by Investacorp and Triad.

Segment information for the three months ended June 30, 2010 was as follows:

	Ladenburg			Independent Brokerage and Advisory Services		Corporate			Total
Revenues	$	11,575		$	35,914	$	95		$	47,584
Pre-tax (loss) income		(657	)		604		(1,988	)(1)		(2,041	)
Identifiable assets		21,277			71,256		803			93,336
Depreciation and amortization		343			555		17			915
Interest		4			4		928			936
Capital expenditures		6			12		—			18

Segment information for the three months ended June 30, 2009 was as follows:

	Ladenburg			Independent Brokerage and Advisory Services		Corporate			Total
Revenues	$	7,100		$	27,166	$	59		$	34,325
Pre-tax (loss) income		(2,743	)		522		(2,619	)(1)		(4,840	)
Identifiable assets		19,524			72,641		2,378			94,543
Depreciation and amortization		324			590		17			931
Interest		6			4		1,040			1,050
Capital expenditures		6			—		—			6

Segment information for the six months ended June 30, 2010 was as follows:

	Ladenburg			Independent Brokerage and Advisory Services		Corporate			Total
Revenues	$	22,197		$	69,303	$	55		$	91,555
Pre-tax (loss) income		(2,440	)		448		(4,213	)(1)		(6,205	)
Identifiable assets		21,277			71,256		803			93,336
Depreciation and amortization		684			1,111		34			1,829
Interest		9			14		1,869			1,892
Capital expenditures		88			35		—			123

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Segment information for the six months ended June 30, 2009 was as follows:

	Ladenburg			Independent Brokerage and Advisory Services		Corporate			Total
Revenues	$	16,282		$	51,261	$	72		$	67,615
Pre-tax (loss) income		(6,188	)		440		(5,092	)(1)		(10,840	)
Identifiable assets		19,524			72,641		2,378			94,543
Depreciation and amortization		651			1,185		34			1,870
Interest		97			17		2,064			2,178
Capital expenditures		9			49		—			58

(1)

Includes interest, compensation, professional fees and other general and administrative expenses.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(in thousands, except share and per share data)

Overview

We are engaged in investment banking, equity research, institutional sales and trading, independent brokerage and advisory services and asset management services through our principal subsidiaries, Ladenburg Thalmann & Co. Inc. (“Ladenburg”), Investacorp Inc. (collectively with related companies, “Investacorp”), Triad Advisors, Inc. (“Triad”) and Ladenburg Thalmann Asset Management Inc. (“LTAM”). We are committed to establishing a significant presence in the financial services industry by meeting the varying investment needs of our corporate, institutional and retail clients.

Ladenburg is a full service broker-dealer that has been a member of the New York Stock Exchange (“NYSE”) since 1879. It provides its services principally for middle market and emerging growth companies and high net worth individuals through a coordinated effort among corporate finance, capital markets, asset management, brokerage and trading professionals.

Investacorp, headquartered in Miami Lakes, Florida, is an independent broker-dealer and registered investment advisor that has been serving the independent financial advisor community since 1978. Investacorp’s national network of independent financial advisors primarily serves retail clients. We acquired Investacorp in October 2007.

Triad, headquartered in Norcross, Georgia, is an independent broker-dealer and registered investment advisor that offers a broad range of products, services and total wealth management solutions to independent financial advisors located nationwide. Triad’s independent financial advisors primarily serve retail clients. Triad was founded in 1998, and we acquired Triad in August 2008.

LTAM, headquartered in New York, NY, is a registered investment advisor. LTAM offers various asset management products utilized by Ladenburg clients as well as clients of Investacorp’s and Triad’s financial advisors.

Through our acquisitions of Investacorp and Triad, we have become a significant presence in the independent broker-dealer industry. During the past decade, this has been one of the fastest growing segments of the financial services industry. We have become one of the approximately 30 largest independent broker-dealer firms as a result of Investacorp and Triad’s combined revenues of approximately $69 million for the six months ended June 30, 2010 and approximately 1,000 financial advisors. We believe that we have the opportunity through acquisitions and recruiting to significantly expand our market share in this segment over the next several years. Our goal remains, as a public financial services company, to marry the more recurring and predictable revenue and cash flows of the independent broker-dealer business with Ladenburg’s traditional investment banking, capital markets, institutional equity and related businesses. Ladenburg’s businesses are generally more volatile and subject to the cycles of the capital markets than our independent broker-dealer subsidiaries, but historically have enjoyed strong operating margins in favorable market conditions.

Each of Ladenburg, Investacorp and Triad is subject to regulation by, among others, the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”), and the Municipal Securities Rulemaking Board and is a member of the Securities Investor Protection Corporation (“SIPC”). Triad is also subject to regulation by the Commodities Futures Trading Commission (“CFTC”) and the National Futures Association.

Ladenburg’s private client services and institutional sales departments serve approximately 12,000 customer accounts nationwide and LTAM provides investment management services to numerous individuals and institutions. At June 30, 2010, Investacorp’s 444 financial advisors served approximately 160,000 customer accounts nationwide and Investacorp had approximately $7.0 billion in client assets. Triad’s 571 financial advisors served approximately 133,000 customer accounts nationwide and had approximately $10.1 billion in client assets at June 30, 2010. On a consolidated basis, total client assets exceeded $18 billion at June 30, 2010.

We were incorporated under the laws of the State of Florida in February 1996. Our principal executive offices are located at 4400 Biscayne Boulevard, 12th Floor, Miami, Florida 33137. Our telephone number is (212) 409-2000. Ladenburg and LTAM’s principal executive offices are located at 520 Madison Avenue, New York, New York 10022. Ladenburg has branch offices located in Melville, New York, Miami and Boca Raton, Florida, Lincolnshire, Illinois, Los Angeles, California and Princeton, New Jersey. Investacorp’s principal executive offices are located at 15450 New Barn Road, Miami Lakes, Florida 33014. Investacorp’s independent financial advisors are located in approximately 304 offices in 42 states. Triad’s principal executive offices are located at 5185 Peachtree Parkway, Suite 280, Norcross, GA 30092. Triad’s independent financial advisors are located in approximately 254 offices in 38 states.

Recent Developments

Private Equity Offering

On May 28, 2010, we entered into stock purchase agreements with various investors, under which the investors agreed to purchase an aggregate of 14,050,000 shares of our common stock, (the “Shares”) at a price of $1.00 per share. On June 15, 2010, we completed the sale of an aggregate of 13,325,000 of the Shares and received gross proceeds of $13,325 from investors who are not affiliated with us. Under NYSE Amex rules, the closing of the sale of an aggregate of 725,000 of the Shares to investors who are our directors and executive officers, or affiliates thereof, will be subject to shareholder approval at our 2010 Annual Meeting to be held on September 24, 2010. The funds received, and anticipated to be received, from the private equity offering will be used for general corporate purposes.

Premier Trust Acquisition

On April 26, 2010, we announced that we had entered into a definitive agreement to acquire Premier Trust, Inc., a provider of wealth management services, including trust administration, estate and financial planning, custody and investment services. Founded in 2001, Premier is a Nevada-chartered trust company headquartered in Las Vegas, Nevada, with assets under administration in excess of $560 million. The transaction, expected to close in the third quarter of 2010, is subject to customary closing conditions, including regulatory approval.

Acquisition Strategy

We continue to explore opportunities to grow our businesses, including through potential acquisitions of other securities and investment banking firms, both domestically and internationally. These acquisitions may involve payments of material amounts of cash, the incurrence of material amounts of debt, which may increase our leverage, or the issuance of significant amounts of our equity securities, which may be dilutive to our existing shareholders. We cannot assure you that we will be able to complete any such potential acquisitions on acceptable terms or at all or, if we do, that any acquired business will be profitable. Also we may not be able to integrate successfully acquired businesses into our existing business and operations.

Critical Accounting Policies

There have been no material changes to the critical accounting policies set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our annual report on Form 10-K for the year ended December 31, 2009. Please refer to those sections for disclosures regarding the critical accounting policies related to our business.

Results of Operations

The following discussion provides an assessment of our results of operations, capital resources and liquidity and should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The unaudited condensed consolidated financial statements include our accounts and the accounts of Ladenburg, Investacorp, Triad and our other subsidiaries.

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Total revenues	$	47,584		$	34,325		$	91,555		$	67,615
Total expenses		49,625			39,165			97,760			78,455
Pre-tax loss		(2,041	)		(4,840	)		(6,205	)		(10,840	)
Net loss		(2,229	)		(5,158	)		(6,632	)		(11,399	)

Reconciliation of EBITDA, as adjusted, to net loss:
EBITDA, as adjusted	$	1,409		$	(1,212	)	$	1,205		$	(3,260	)
Add:
Interest income		13			18			(18	)		53
Less:
Interest expense		(936	)		(1,050	)		(1,892	)		(2,178	)
Income tax expense		(188	)		(318	)		(427	)		(559	)
Depreciation and amortization		(915	)		(931	)		(1,829	)		(1,870	)
Non-cash compensation		(1,605	)		(1,665	)		(3,365	)		(3,585	)
Clearing firm conversion expense		(7	)		—			(306	)		—
Net loss	$	(2,229	)	$	(5,158	)	$	(6,632	)	$	(11,399	)

Earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted for gains or losses on sales of assets, non-cash compensation expense and clearing firm conversion expense is a key metric we use in evaluating our financial performance. EBITDA is considered a non-GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities Act of 1933, as amended. We consider EBITDA, as adjusted, important in evaluating our financial performance on a consistent basis across various periods due to the significance of non-cash and non-recurring items. We use EBITDA, as adjusted, as a primary measure, among others, to analyze and evaluate financial and strategic planning decisions regarding future operating investments and potential acquisitions. We believe that EBITDA, as adjusted, eliminates items that are not indicative of our core operating performance, such as expenses related to Investacorp’s conversion to a single clearing firm as part of a new seven-year clearing agreement, or do not involve a cash outlay, such as stock-related compensation. EBITDA, as adjusted, should be considered in addition to, rather than as a substitute for, pre-tax (loss) income, net (loss) income and cash flows from operating activities.

Second quarter 2010 EBITDA, as adjusted, was $1,409, an increase of $2,621 from second quarter 2009 EBITDA, as adjusted, of ($1,212), primarily because of increased revenues in the 2010 period.

Segment Description

We have two operating segments:

Ladenburg — includes the retail and institutional securities brokerage, investment banking services, asset management services and investment activities conducted by Ladenburg and LTAM.

Independent brokerage and advisory services — includes the broker-dealer and investment advisory services provided by Investacorp and Triad to their independent contractor registered representatives.

	Three months						Six months
	ended June 30,						ended June 30,
	2010			2009			2010			2009
Revenues:
Ladenburg	$	11,575		$	7,100		$	22,197		$	16,282
Independent brokerage and advisory services		35,914			27,166			69,303			51,261
Corporate		95			59			55			72
Total revenues	$	47,584		$	34,325		$	91,555		$	67,615


Pre-tax (loss) income:
Ladenburg	$	(657	)	$	(2,743	)	$	(2,440	)	$	(6,188	)
Independent brokerage and advisory services		604			522			448			440
Corporate		(1,988	)		(2,619	)		(4,213	)		(5,092	)
Total pre-tax loss	$	(2,041	)	$	(4,840	)	$	(6,205	)	$	(10,840	)

Three months ended June 30, 2010 versus three months ended June 30, 2009

For the quarter ended June 30, 2010, we had a net loss of $2,229 compared to a net loss of $5,158 for the quarter ended June 30, 2009.The decrease in net loss of $2,929 is attributable to an increase in investment banking transactions and an increase in the independent brokerage and advisory segment’s commissions and fees.

Our total revenues for the three months ended June 30, 2010 increased $13,529 (39%) from the 2009 period, primarily as a result of increased commissions and fees revenue of $8,923, increased investment banking revenue of $4,642, increased other income of $709 and increased asset management revenue of $298, partially offset by decreased interest and dividends revenue of $683 and decreased principal transactions revenue of $630.

Our total expenses for the three months ended June 30, 2010 increased by $10,460 (27%) from the 2009 period, primarily as a result of an increase in commissions and fees expense of $7,999, an increase in compensation and benefits expense of $1,904, an increase in other expense of $806 and an increase in rent and occupancy, net of sublease revenue of $145, partially offset by a decrease in professional services of $243 and a decrease in interest expense of $114.

The $8,923 (31%) increase in commissions and fees revenue for the three months ended June 30, 2010 as compared to the 2009 period is primarily attributable to improved market conditions and recruitment of higher-producing financial advisors in our independent brokerage and advisory services segment. Also, average assets under management increased due to improved market conditions and the addition of new accounts during the three months ended June 30, 2010 versus the 2009 period.

The $4,642 (280%) increase in investment banking revenue for the three months ended June 30, 2010 as compared to the 2009 period is primarily due to an increase in capital raising activities of $4,437 and deferred fees from a special purpose acquisition company (SPAC) transaction of $347, partially offset by a decrease in advisory services fees of $142. We derive investment banking revenue from Ladenburg’s capital raising activities, including underwritten public offerings, registered direct offerings, PIPES (private investment in public equity) offerings and advisory services. Revenue from underwritten public offerings was $3,580, including $46 in warrants, for the 2010 period as compared to $697 for the 2009 period. PIPES and registered direct offering revenue was $1,554, including $356 in warrants, for the second quarter of 2010. We currently expect investment banking revenue during 2010 to exceed prior-year levels due to expected improved capital markets activity.

The $298 (66%) increase in asset management revenue for the three months ended June 30, 2010 as compared to the 2009 period was due to increased average assets under management at LTAM due to market appreciation and the addition of new accounts. Revenues associated with client assets in our independent brokerage and advisory services segment are included in commissions and fees revenue, rather than asset management revenue, which relates to the Ladenburg segment. We currently expect asset management revenue to continue to increase in 2010 due to improved market conditions and newly-added advisory assets.

The $630 (134%) decrease in principal transactions for the three months ended June 30, 2010 as compared to the 2009 period is primarily attributable to losses in the fair value of securities received as underwriting consideration.

The $683 (83%) decrease in interest and dividends for the three months ended June 30, 2010 as compared to the 2009 period is primarily attributable to lower interest rates and a decrease in margin account balances. We currently expect continued lower interest and dividends revenue in 2010 due to expected low interest rates and reduced interest sharing from our clearing broker.

The $709 (40%) increase in other income for the three months ended June 30, 2010 as compared to 2009 is primarily attributable to increases in direct investment marketing allowances received from product sponsor programs of $202, transaction-related fees of $160, and miscellaneous trading services of $188 in our independent brokerage and advisory services segment.

The $7,999 (39%) increase in commissions and fees expense for the three months ended June 30, 2010 as compared to the 2009 period is primarily due to an increase in commissions and fees revenue. Commissions and fees expense comprises compensation payments earned by the independent contractor registered representatives in our independent brokerage and advisory services segment. These payments are calculated based on a percentage of revenues generated and vary by product. Accordingly, when the independent contractor registered representatives increase their business, both our revenues and expenses increase since they earn additional compensation based on the revenue produced.

The $1,904 (21%) increase in compensation and benefits expense for the three months ended June 30, 2010 as compared to the 2009 period was primarily due to increases in the Ladenburg segment of $1,669 in producers’ compensation and bonus, which is directly correlated to revenue production, and a $212 increase in salaries and benefits attributed to additional salaried employees in 2010.

The $145 (20%) increase in rent and occupancy, net of sublease revenue, for the three months ended June 30, 2010 as compared to the 2009 period relates to office space which Ladenburg currently occupies, but did not occupy in the 2009 period. In the first quarter of 2009, we recorded a charge upon Ladenburg's abandonment of such office space.

The $243 (19%) decrease in professional services expense for the three months ended June 30, 2010 as compared to the 2009 period is primarily due to a decrease of $264 in Ladenburg’s legal fees. We currently expect professional services expense in the second half of 2010 will be lower than prior-year levels due to expected lower legal fees.

The $114 (11%) decrease in interest expense for the three months ended June 30, 2010 as compared to the 2009 period is primarily attributable to lower average interest rates on average debt outstanding, partially offset by a higher average loan balance in 2010. In August 2009, we entered into a seven-year $10,000 forgivable loan with National Financial Services LLC, which we refer to as NFS. We used the forgivable loan proceeds, which bear interest at a lower rate than our revolving credit agreement, to repay amounts outstanding under our revolving credit facility.

The $806 (37%) increase in other expense for the three months ended June 30, 2010 as compared to the 2009 period is primarily attributable to increases in our Ladenburg segment of $357 for expenses related to investment banking activities, increases in our independent brokerage and advisory services segment of $116 for fees related to transitioning new independent registered representatives, $182 for marketing and advertising costs and $196 in miscellaneous trading costs.

We incurred income tax expense of $188 for the three months ended June 30, 2010 as compared to $318 for the 2009 period. After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance at June 30, 2010 was necessary to fully offset the deferred tax assets based on the likelihood of future realization. Our current deferred income tax liabilities increased by approximately $196 during the 2010 period due to goodwill amortization for tax purposes. The income tax rates for the 2010 and 2009 periods do not bear a customary relationship to effective tax rates, primarily as a result of the increase in the valuation allowance for the 2010 and 2009 periods.

Six months ended June 30, 2010 versus six months ended June 30, 2009

Our net loss for the six months ended June 30, 2010 was $6,632 compared to net loss of $11,399 for the six months ended June 30, 2009. The decrease in net loss of $4,767 is attributable to the increase in investment banking transactions and an increase in the independent brokerage and advisory segment’s commissions and fees and lower professional services expense.

Our total revenues for the six months ended June 30, 2010 increased $23,940 (35%) from the 2009 period, primarily as a result of increased commissions and fees revenue of $18,580, increased investment banking revenue of $5,215, increased other income of $1,327 and increased asset management revenue of $454, partially offset by decreased interest and dividends revenue of $1,593.

Our total expenses for the six months ended June 30, 2010 increased by $19,305 (25%) from the 2009 period, primarily as a result of an increase in commissions and fees expense of $16,494, an increase in compensation and benefits expense of $3,333 and an increase in other expense of $1,678, partially offset by a decrease in professional services of $1,190 and a decrease in rent and occupancy, net of sublease revenue of $370.

The $18,580 (33%) increase in commissions and fees revenue for the six months ended June 30, 2010 as compared to the 2009 period is primarily attributable to improved market conditions and recruitment of higher-producing financial advisors in our independent brokerage and advisory services segment. Also, average assets under management were higher due to improved market conditions and the addition of new accounts during the six months ended June 30, 2010 as compared to the 2009 period.

The $5,215 (92%) increase in investment banking revenue for the six months ended June 30, 2010 as compared to the 2009 period is primarily due to an increase in capital raising activities of $7,772 and an increase in advisory fees of $63, partially offset by a decrease in deferred fees from special purpose acquisition company (SPAC) transactions of $2,620. Revenue from underwritten public offerings was $6,234, including $184 in warrants for the 2010 period as compared to $786 for the 2009 period. PIPES and registered direct offering revenue was $2,384, including $522 in warrants, for the 2010 period, as compared to $59 for the 2009 period. For the six months ended June 30, 2010 and 2009, investment banking revenue included $405 and $3,025, respectively, of deferred fees from SPAC transactions. We currently expect investment banking revenue during 2010 to exceed prior-year levels due to expected improved capital market activity.

The $454 (50%) increase in asset management revenue for the six months ended June 30, 2010 as compared to the 2009 period was due to increased average assets under management at LTAM from market appreciation and the addition of new accounts. Revenues associated with client assets in our independent brokerage and advisory services segment are included in commissions and fees revenue, rather than asset management revenue, which relates to the Ladenburg segment. We currently expect asset management revenue to continue to increase in 2010 due to improved market conditions and newly-added advisory assets.

The $43 (25%) decrease in principal transactions for the six months ended June 30, 2010 as compared to the 2009 period is primarily attributable to losses in the fair value of securities received as underwriting consideration.

The $1,593 (86%) decrease in interest and dividends for the six months ended June 30, 2010 as compared to the 2009 period is primarily attributable to lower interest rates and a decrease in margin account balances. We currently expect continued lower interest and dividends revenue in 2010 due to expected low interest rates and reduced interest sharing from our clearing broker.

The $1,327 (43%) increase in other income for the six months ended June 30, 2010 as compared to 2009 is primarily attributable to increases in direct investment marketing allowances received from product sponsor programs of $336, conference revenue of $135, transaction-related fees of $230 and miscellaneous trading services of $339 in our independent brokerage and advisory services segment. Ladenburg had increased brokerage transaction and service fee revenue of $165 primarily due to increased trading volume.

The $16,494 (42%) increase in commissions and fees expense for the six months ended June 30, 2010 as compared to the 2009 period is primarily due to an increase in commissions and fees revenue. Commissions and fees expense comprises compensation payments earned by the independent contractor registered representatives in our independent brokerage and advisory services segment. These payments are calculated based on a percentage of revenues generated and vary by product. Accordingly, when the independent contractor registered representatives increase their business, both our revenues and expenses increase since they earn additional compensation based on the revenue produced.

The $3,333 (18%) increase in compensation and benefits expense for the six months ended June 30, 2010 as compared to the 2009 period was primarily due to increases in the Ladenburg segment of $3,122 in producers’ compensation and bonus which is directly correlated to revenue production and a $183 increase in bonus in our independent brokerage and advisory services segment.

The $370 (18%) decrease in rent and occupancy, net of sublease revenue for the six months ended June 30, 2010 as compared to the 2009 period, is primarily attributable to a $562 one-time charge in 2009 related to office space Ladenburg intended to sublet in 2009 but now occupies.

The $1,190 (36%) decrease in professional services expense for the six months ended June 30, 2010 as compared to the 2009 period is primarily due to a decrease of $895 in Ladenburg’s legal fees and a decrease of $303 in audit, tax and consulting expense for both operating segments. We currently expect professional services expense in the second half of 2010 will be lower than prior-year levels due to expected lower legal fees.

The $286 (13%) decrease in interest expense for the six months ended June 30, 2010 as compared to the 2009 period is primarily attributable to lower average interest rates on average debt outstanding, partially offset by a higher average loan balance in 2010. In August 2009, we entered into a seven-year $10,000 forgivable loan with NFS. We used the forgivable loan proceeds, which bear interest at a lower rate than our revolving credit agreement, to repay amounts outstanding under our revolving credit facility.

The $1,678 (42%) increase in other expense for the six months ended June 30, 2010 as compared to the 2009 period is primarily attributable to the increases in our Ladenburg segment of $325 for expenses related to investment banking activities, increases in our independent brokerage and advisory services segment of $275 for fees related to transitioning new independent registered representatives, $282 for marketing and advertising costs, $469 in miscellaneous trading costs and $307 for expenses related to the conversion of client accounts to one clearing firm.

We incurred income tax expense of $427 for the six months ended June 30, 2010 as compared to $559 for the 2009 period. After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance at June 30, 2010 was necessary to fully offset the deferred tax assets based on the likelihood of future realization. Our current deferred income tax liabilities increased by approximately $366 during the 2010 period due to goodwill amortization for tax purposes. The income tax rates for the 2010 and 2009 periods do not bear a customary relationship to effective tax rates primarily as a result of the increase in the valuation allowance for the 2010 and 2009 periods.

Liquidity and Capital Resources

Approximately 25% and 23% of our total assets at June 30, 2010 and December 31, 2009, respectively, consisted of cash and cash equivalents, securities owned and receivables from clearing brokers and other broker-dealers, all of which fluctuate, depending upon the levels of customer business and trading and investment banking activity. As securities dealers, our broker-dealer subsidiaries may carry significant levels of securities inventories to meet customer needs. A relatively small percentage of our total assets are fixed. The total assets or the individual components of total assets may vary significantly from period to period because of changes relating to economic and market conditions, and proprietary trading strategies.

Each of Ladenburg, Investacorp and Triad is subject to the SEC’s net capital rules. Ladenburg was also subject to the net capital rules of the CFTC but, effective as of April 5, 2010, is no longer subject to the CFTC rules. Therefore, Ladenburg, Investacorp and Triad are subject to certain restrictions on their use of capital and their related liquidity. At June 30, 2010, Ladenburg’s regulatory net capital of $3,919 exceeded minimum capital requirements of $250 by $3,699. At June 30, 2010, Investacorp’s regulatory net capital of $1,196 exceeded minimum capital requirements of $269 by $927. At June 30, 2010, Triad’s regulatory net capital of $2,338 exceeded minimum capital requirements of $250 by $2,088. Failure to maintain the required net capital may subject Ladenburg, Investacorp and Triad to suspension or expulsion by FINRA, the SEC and other regulatory bodies, and ultimately may require their liquidation. The net capital rule also prohibits the payment of dividends, redemption of stock and prepayment or payment of principal of subordinated indebtedness if net capital, after giving effect to the payment, redemption or prepayment, would be less than specified percentages of the minimum net capital requirement. Compliance with the net capital rule could limit the operations of Ladenburg, Investacorp and Triad that require the intensive use of capital, such as underwriting and trading activities, and also could restrict our ability to withdraw capital from our subsidiaries, which in turn, could limit our ability to pay dividends and repay and service our debt.

Besides regulatory net capital restrictions, Investacorp also is contractually restricted from declaring a dividend to us that would result in its retained earnings and paid-in capital falling below the then-outstanding principal balance of the promissory note issued to Investacorp’s former principal shareholder, which was $1,759 at June 30, 2010. This promissory note was issued in the original principal amount of $15,000, bears interest at 4.11% per annum and is payable in 36 monthly installments through October 2010.

Our primary sources of liquidity include cash flows from operations and borrowings under our $30,000 revolving credit agreement with an affiliate of Phillip Frost, M.D., our chairman and principal shareholder. Borrowings under the $30,000 revolving credit agreement bear interest at a rate of 11% per annum, payable quarterly. At June 30, 2010, $11,750 was outstanding under the revolving credit agreement. During the first half of 2010, we repaid a net amount of $6,700 under the $30,000 credit agreement primarily using proceeds from the June 2010 private placement. We may repay amounts outstanding or re-borrow amounts under our revolving credit facility at any time prior to its amended maturity date of August 25, 2016, without penalty. We believe our existing assets and borrowings available under our $30,000 revolving credit facility provide adequate funds for continuing operations at current activity levels. We are currently in compliance with all debt covenants in our debt agreements.

Cash used in operating activities for the six months ended June 30, 2010 was $2,878, primarily due to our net loss, an increase in securities owned at fair value, receivables from other broker-dealers, a decrease in accrued compensation, commissions and fees payable, and accounts payable and accrued liabilities, partially offset by a decrease in other receivables, net, and other assets.

Investing activities provided $27 for the six months ended June 30, 2010, primarily due to a decrease in restricted assets due to Investacorp’s receipt of an escrowed deposit upon the termination of a clearing agreement with one of its clearing firms, partially offset by the purchase of furniture, equipment and leasehold improvements.

Financing activities provided $3,122 for the six months ended June 30, 2010, due to the private equity offering, stock option exercises and purchases under our employee stock purchase plan, offset by repayments of notes payable and common stock repurchases.

At June 30, 2010, we were obligated under several non-cancelable lease agreements for office space, which provide for future minimum lease payments aggregating approximately $29,500 through 2015, exclusive of escalation charges. We have subleased vacant space under subleases which entitle us to receive rents aggregating approximately $23,517 through such date.

In connection with our clearing agreements, NFS provided us with a seven-year, $10,000 forgivable loan. Interest on the loan accrues at the prime rate plus 2%. If our broker-dealer subsidiaries meet certain aggregate annual clearing revenue targets set forth in the loan agreement, the principal balance of the loan will be forgiven in seven equal yearly installments of $1,429, commencing in August 2010 and continuing on an annual basis through August 2016. Interest payments due for each such year also will be forgiven if we meet the annual clearing revenue targets. Any principal amounts not forgiven will be due in August 2016, and any interest payments not forgiven are due annually. If any principal amount is not forgiven, we may have such principal forgiven in future years if our broker-dealer subsidiaries exceed subsequent annual clearing revenue targets. We have expensed, and expect to continue to expense, interest under the loan agreement until such interest is forgiven. We met the first annual clearing revenue targets in August 2010. Accordingly, in the third quarter of 2010, we will recognize income of $1,429 and $532 from the forgiveness of principal and interest, respectively, and the outstanding balance under the loan will be reduced to $8,571.

In connection with the Triad acquisition, we issued a $5,000 promissory note to Triad’s former shareholders. The note bears interest at a rate of 2.51% per annum, is payable quarterly and matures in August 2011. The outstanding balance of this note at June 30, 2010 was $2,129.

In March 2007, our board of directors authorized the repurchase of up to 2,500,000 shares of our common stock from time to time on the open market or in privately negotiated transactions, depending on market conditions. The repurchase program is funded using approximately 15% of our EBITDA, as adjusted. From inception through June 30, 2010, 1,013,194 shares have been repurchased for $1,753 under the program.

Off-Balance-Sheet Risk and Concentration of Credit Risk

Each of Ladenburg, Investacorp and Triad, as guarantor of its customer accounts to its clearing broker, is exposed to off-balance-sheet risk in the event that its customers do not fulfill their obligations to the clearing broker. Also, to the extent Ladenburg, Investacorp or Triad maintain a short position in any securities, they are exposed to off-balance-sheet market risk, since their ultimate obligation to repurchase securities to close their short positions may exceed the amount recognized in the financial statements.

Please see Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Market Risk

Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument as a result of fluctuations in interest and currency exchange rates, equity and commodity prices, changes in the implied volatility of interest rates, foreign exchange rates, equity and commodity prices and also changes in the credit ratings of either the issuer or its related country of origin. Market risk is inherent to both derivative and non-derivative financial instruments and, accordingly, the scope of our market risk management procedures extends beyond derivatives to include all market-risk sensitive financial instruments.

Current and proposed underwriting, corporate finance, merchant banking and other commitments are subject to due diligence reviews by our senior management, as well as professionals in the appropriate business and support units involved. Credit risk related to various financing activities is reduced by the industry practice of obtaining and maintaining collateral. We monitor our exposure to counterparty risk through the use of credit exposure information, the monitoring of collateral values and the establishment of credit limits.

We maintain inventories of trading securities which are generally received as compensation in banking transactions. At June 30, 2010, the fair market value of our inventories was $3,297 in long positions and $9 in short positions. We performed an entity-wide analysis of our financial instruments and assessed the related market risk. Based on this analysis, we do not expect that the market risk associated with our financial instruments at June 30, 2010 will have a material adverse effect on our consolidated financial position or results of operations.

Special Note Regarding Forward-Looking Statements

We and our representatives may from time to time make oral or written “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including any statements that may be contained in the foregoing discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and in other filings with the SEC and in our reports to shareholders, which reflect our expectations or beliefs with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties and, in connection with the “safe-harbor” provisions of the Private Securities Litigation Reform Act, we have identified under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2009, important factors that could cause actual results to differ materially from those contained in any forward-looking statement made by or on behalf of us.

Results actually achieved may differ materially from expected results included in these forward-looking statements as a result of these or other factors. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date on which such statements are made. We do not undertake to update any forward-looking statement that may be made from time to time by or on behalf of us. Further, readers should keep in mind that our quarterly revenues and profits can fluctuate materially depending on many factors, including the number, size and timing of completed offerings and other transactions. Accordingly, our revenues and profits in any particular quarter may not be indicative of future results.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk” is incorporated herein by reference.

Item 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on that evaluation, our principal executive officer and principal financial officer have concluded that these controls and procedures are effective, except that due to a short-term net-capital deficiency at one of our broker-dealer subsidiaries, which was discovered during a routine regulatory review, we are implementing new procedures to monitor net capital compliance at such broker-dealer subsidiary, are reviewing its net capital compliance for historical periods and have terminated the employee who had primary responsibility for monitoring and reporting its net capital.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Please see Note 6 to our unaudited condensed consolidated financial statements contained elsewhere in this quarterly report on Form 10-Q.

Item 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors set forth in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. Other than updating the first risk factor listed below and including the second risk factor set forth below, there have been no material changes to the risk factors as disclosed in our annual report on Form 10-K for the year ended December 31, 2009.

Our business depends on commissions and fees generated from the distribution of financial products, and adverse changes in the structure or amount of fees paid by the sponsors of these products could materially adversely affect our cash flows, revenues, liquidity and results of operations.

An important portion of our revenues is generated from commissions and fees related to the distribution of financial products such as mutual funds and variable annuities by the Investacorp and Triad financial advisors, and, to a lesser extent, Ladenburg’s financial advisors. Changes in the structure or amount of the fees paid by the sponsors of these products could materially adversely affect our cash flows, revenues and results of operation.

The SEC recently proposed new rules regarding Rule 12b-1 distribution fees in the mutual fund industry, which may reduce or eliminate these fees. Any reduction or restructuring of Rule 12b-1 distribution fees could have a material adverse effect on our cash flows, revenues, liquidity and results of operations.

The impact of financial reform legislation on us is uncertain and may negatively impact our business.

The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act institutes a wide range of reforms that will impact the financial services industry. Among other things, the Dodd-Frank Act may impose fiduciary duties on financial advisors who give investment advice to retail customers, may expand FINRA's oversight over financial advisors, will impose new rules on short selling, may limit mandatory customer arbitration provisions in client agreements and may create new regulations on having investment banking and securities analyst functions in the same firm. The Dodd-Frank Act also creates a Bureau of Consumer Financial Protection with broad authority to regulate consumer financial products and services. Also, there are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in areas such as “say on pay” and proxy access. Many of the provisions of the Dodd-Frank Act are subject to further rule making procedures and studies and will take effect over several years. Accordingly, we cannot assess the impact the Dodd-Frank Act will have on us or our industry at the present time. However, the implementation of regulations arising from the Dodd-Frank Act may impact the profitability of our business activities, change certain of our business practices and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make necessary changes to our business, and could therefore materially adversely affect our business, financial condition and results of operations.

Item 6. EXHIBITS

Exhibit No.		Description

10.1		Form of Stock Purchase Agreement, dated as of May 28, 2010, between Ladenburg Thalmann Financial Services Inc., and the unaffiliated investors party thereto.*
10.2		Form of Stock Purchase Agreement, dated as of May 28, 2010, between Ladenburg Thalmann Financial Services Inc., and the affiliated investors party thereto.*
31.1		Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .*
31.2		Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith.

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.

	LADENBURG THALMANN FINANCIAL
	SERVICES INC.

	(Registrant)

Date: August 11, 2010	By:	/s/ Brett H. Kaufman
		Brett H. Kaufman
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)