10-Q 1 ffgi10q103102.txt FFGI FORM 10-Q (10-31-02) 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 October 31, 2002 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission file number 0-21105 FIREBRAND FINANCIAL GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 13-3414302 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One State Street Plaza, New York, New York 10004 ------------------------------------------ ----- (Address of principal executive offices) (Zip Code) (212) 208-6500 -------------- (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 X No ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at December 31, 2002 ----- -------------------------------- Common Stock, $.0001 par value 9,746,675 shares Firebrand Financial Group, Inc. Index Page ---- Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Financial Condition as of October 31, 2002 (Unaudited) and January 31, 2002 3 Consolidated Statements of Operations for the three and nine months ended October 31, 2002 and 2001 (Unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended October 31, 2002 and 2001 (Unaudited) 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 4. Controls and Procedures 23 Part II - Other Information Item 2. Sales of Unregistered Securities during the nine months ended October 31, 2002 24 Item 6. Exhibits and Reports on Form 8-K 24 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIREBRAND FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition October 31, 2002 January 31, 2002 ---------------- ---------------- (Unaudited) Assets Cash and cash equivalents $ 837,000 $ 1,955,000 Receivable from broker dealers 97,000 399,000 Investment in affiliates 2,598,000 2,894,000 Office furniture, equipment and leasehold improvements, net 268,000 526,000 Goodwill, net 26,000 26,000 Income taxes receivable --- 81,000 Other assets 168,000 579,000 ------- ------- Total Assets $ 3,994,000 $ 6,460,000 ----------- ------------ Liabilities and Stockholders' Equity Commissions payable $ 38,000 $ 49,000 Income taxes payable 21,000 615,000 Accrued expenses and other liabilities 557,000 706,000 Liabilities of discontinued operations 394,000 320,000 ----------- ------------ 1,010,000 1,690,000 Minority interests in net assets of subsidiary 756,000 1,007,000 ----------- ------------ Total Liabilities 1,766,000 2,697,000 ----------- ------------ Common stock ($.0001 par value; 35,000,000 shares authorized; 9,746,675 and 8,904,458 shares outstanding, respectively) 1,000 1,000 Additional paid-in capital 25,424,000 26,355,000 Accumulated deficit (23,162,000) (21,627,000) Accumulated other comprehensive income (loss) (35,000) (35,000) ----------- ------------ 2,228,000 4,694,000 Less treasury stock, at cost: 0 and 305,417 shares, respectively --- (931,000) ----------- ------------ Total Stockholders' Equity 2,228,000 3,763,000 ----------- ------------ Total Liabilities and Stockholders' Equity $ 3,994,000 $ 6,460,000 ----------- ------------ See accompanying notes to consolidated financial statements. 3 FIREBRAND FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)

See accompanying notes to consolidated financial statements. 4 FIREBRAND FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended October 31, ------------------------------- 2002 2001 ---- ---- Operating activities: Net loss $ (1,535,000) $ (8,803,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 441,000 571,000 Lease termination charge --- 1,056,000 Equity in loss of unconsolidated affiliates 296,000 --- Loss from discontinued operations 644,000 2,807,000 Loss from sale of business --- 222,000 Minority interest in the operations of subsidiary (251,000) (708,000) Translation adjustment --- 13,000 Other --- (68,000) ------------ ------------ (405,000) (4,910,000) (Increase) decrease in operating assets: Receivable from brokers and dealers 302,000 (196,000) Investment management fees receivable --- 126,000 Securities owned, at market value --- 2,121,000 Securities owned, not readily marketable, at fair value --- 34,000 Investment in affiliate --- 1,498,000 Loans receivable --- 355,000 Income taxes receivable 81,000 --- Other assets 410,000 406,000 Increase (decrease) in operating liabilities: Commissions payable (11,000) 12,000 Income taxes payable (594,000) 27,000 Payable to affiliate --- (2,000,000) Accrued expenses and other liabilities (149,000) (532,000) ------------ ------------ Net cash used in operating activities (366,000) (3,059,000) ------------ ------------ Investing activities: Sale of interest in Shochet Holdings Corp. 535,000 --- Lease termination (477,000) (1,718,000) ------------ ------------ Net cash provided by (used in) investing activities 58,000 (1,718,000) ------------ ------------ Financing activities: Loans from (to) discontinued affiliate (810,000) 1,510,000 Repayment of loan to discontinued affiliate --- 500,000 Sale of treasury stock --- 100,000 ------------ ------------ Net cash provided by (used in) financing activities (810,000) 2,110,000 ------------ ------------ Net decrease in cash and cash equivalents (1,118,000) (2,667,000) Cash and cash equivalents at beginning of year 1,955,000 5,038,000 ------------ ------------ Cash and cash equivalents at end of period $ 837,000 $ 2,371,000 ------------ ------------ See accompanying notes to consolidated financial statements. 5 Firebrand Financial Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (1) Organization and Recent Events The consolidated financial statements include the activities of Firebrand Financial Group, Inc. and its subsidiaries (collectively, the "Company"). The Company is primarily engaged in investment banking and asset management services and to a lesser extent retail brokerage. The investment banking business structures and manages private offerings for early stage companies. The asset management business provides asset management services to investors though Dalewood Associates, Inc. which manages a venture capital fund that invests primarily in early stage companies. The retail brokerage business charges commissions for individual and institutional clients for executing buy and sell orders of securities on national and regional exchanges and in the over the counter markets. In February 2001, the Company initiated a line of business through the StreetWide Asset Recovery Group, which provides debt recovery services to broker/dealers in the financial community. In December 2001, the Company added an institutional sales group at EarlyBirdCapital, Inc. ("EarlyBird"). The Company's main operating subsidiaries are EarlyBird, Dalewood Associates, Inc. ("Dalewood"), and StreetWide Asset Recovery Group ("StreetWide"). Firebrand holds a 63.6% ownership interest in EarlyBirdCapital.com Inc., which is the parent company of EarlyBird and Dalewood. In addition, Firebrand directly holds an 80% ownership interest in StreetWide. As a result, a minority interest exists which appears in the Company's Consolidated Statement of Financial Condition. During fiscal 2001, the Company transferred the retail accounts of its wholly owned GKN Securities Corp. full service brokerage subsidiary to other broker/dealers, effectively terminating that activity. In fiscal 2001, EarlyBirdCapital.com wrote off its investment in Angeltips.com Inc., and recognized a loss of $1,363,000, which investment had been initiated earlier in the current fiscal year. The write off represented management's assessment of the impairment to value reflected by marked change in the environment for angel websites. In December 2000, the Company's Board approved a plan to dispose of its 53.5% interest in Shochet Holding Corp ("Shochet"), whose principal operation, Shochet Securities, Inc. (subsequently renamed SSI Securities Inc. ("SSI")) provided discount retail brokerage services in South Florida. On August 1, 2001 Shochet announced that SSI had signed a definitive agreement to transfer substantially all of its brokers, accounts and operating assets to another independent broker/dealer, BlueStone Capital Corp. ("BlueStone"). This transaction closed on August 31, 2001, leaving Shochet as a public shell. On November 7, 2001 BlueStone announced that it had in turn sold substantially all of its operating assets to another independent broker/dealer, Sands Brothers & Co., Ltd. ("Sands"). As of October 1, 2001, EarlyBirdCapital.com sold its ownership interest in EBCapital (Europe) AG. On March 12, 2002, the Company announced that it had signed a definitive agreement to sell all of its interest, except for 2,640 shares of common stock (adjusted to reflect a 1-for-20 reverse stock split effected in June 2002), in Shochet to Sutter Opportunity Fund 2, LLC. This transaction closed on March 28, 2002. In the first quarter of fiscal 2002 the Company established StreetWide. StreetWide is engaged by broker/dealers and other financial institutions to collect debt due to them from prior broker employees or from customers. The broker debts are generated through brokers reneging on employment contracts or brokers generating losses due to their respective firms. The customer debt is usually generated through unsecured margin loans on which the customers have refused to repay the firms. 6 (2) Summary of Significant Accounting Policies Basis of Presentation All significant intercompany accounts and transactions are eliminated in consolidation. Where appropriate, prior year amounts have been reclassified to conform to the current year presentation. The financial statements conform to generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and the liquidation of liabilities and commitments in the normal course of business. The Company's operations for fiscal 2003 have consumed substantial amounts of cash and have generated significant net losses, which have reduced stockholders' equity to $2,431,000 at October 31, 2002. As noted above, many of the product lines previously offered by the Company have been discontinued. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management believes that the Company's future success is dependent upon its ability to (i) further streamline its operations to reduce costs, and (ii) generate new sources of revenue. The Company has been reducing costs and has expanded into a new line of business. Notwithstanding the foregoing, the Company's cash resources remain constrained and are not sufficient to meet existing contractual obligations and liabilities. Fair Value of Financial Instruments Substantially all of the Company's financial assets and liabilities are carried at market or fair values or at amounts that approximate current fair value due to their short-term nature. Cash and Cash Equivalents Cash equivalents are highly liquid securities with maturities of three months or less when purchased. As collateral to an equipment lease, the Company had maintained a restricted cash escrow account which equaled $955,000 at January 31, 2002. This restriction was lifted in March 2002. Receivables from Brokers and Dealers Receivables from brokers and dealers consist primarily of amounts due from the Company's clearing organization, which provides clearing and depository services for brokerage transactions on a fully disclosed basis. Securities Securities owned and securities sold, not yet purchased, consist primarily of equities and are stated at quoted market values. Securities owned, not readily marketable, consist primarily of warrants and are stated at management's estimate of fair value based on a percentage of the value of underlying securities. Unrealized gains and losses are included in revenues from principal transactions. 7 Investments in affiliates Investments consist of an investment in a limited partnership, which are accounted for using the equity method. Depreciation and Amortization Office furniture, equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization of $1,502,000 and $1,128,000 at October 31, 2002 and January 31, 2002, respectively. Office furniture and equipment are depreciated using either an accelerated method or a straight-line method, where applicable, over the estimated useful lives. Leasehold improvements are amortized over the lesser of the life of the lease or estimated useful life of the improvement. Goodwill Goodwill represents the excess of the purchase price over the net assets acquired upon the Company's acquisition of Dalewood Associates, Inc. ("Dalewood") in December 1996. Effective February 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. In connection with the adoption of Statement 142, the Company ceased the amortization of goodwill and intangible assets that were determined to have an indefinite useful life and that had been acquired in a purchase business combination. The Company tests intangible assets having an indefinite useful life for impairment in accordance with the provisions of Statement 142. Investment Banking Fees Investment banking management and underwriting fee revenues are recognized when a transaction is complete and the income is reasonably determinable. Stock-Based Compensation The Company uses the intrinsic value method to account for stock-based employee compensation plans. Under this method, compensation cost is recognized for stock option awards only if the quoted market price (or estimated fair market value of the stock prior to the stock becoming publicly traded) is greater than the amount the employee must pay to acquire the stock. Income Taxes Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. 8 (3) Discontinued Operations GKN Securities On November 28, 2000, the Company and its wholly owned subsidiary, GKN Securities Corp. ("GKN"), and Investec Ernst & Company ("Investec"), entered into an agreement ("Agreement"), under which certain brokers employed by GKN were terminated by GKN on or about December 18, 2000 ("Transfer Date"). In turn, on the Transfer Date, these brokers were offered employment by Investec, and GKN affected an electronic transfer of these brokers' client accounts to Investec. The transfer was part of the Company's strategy to focus its business on investment banking services. Under the Agreement, GKN will receive certain percentages of the gross commissions generated by these brokers at Investec during the three-year period beginning on the Transfer Date ("Override Fees"). These percentages are 6% in the first year and 8% in each of the second and third years. Investec has guaranteed that the Override Fees to be received by GKN shall be at least equal to $500,000 in the first year, $400,000 in the second year and $300,000 in the third year. Adjustments will be made on these guaranteed fees if commissions fall below specified levels. Actual payments received, to date, under the Agreement were $500,000 for the first year and $145,000 for the second year. During August 2001, GKN ceased operations of its Structured Finance Department. The financial impact of this action was insignificant to the Company. On September 10, 2001, GKN filed a Form BDW with the NASD and SEC. By filing the Form, GKN gave notice that it was withdrawing from the securities business and returning its license to the regulatory authorities. The final withdrawal received the approval of all necessary regulatory authorities. GKN is conducting no further business other than seeking to satisfy its remaining liabilities, which are substantially in excess of its remaining assets. The operations of GKN have been accounted for as a discontinued operation. Shochet Holding In December 2000, the Company's Board approved a plan to dispose of its 53.5% interest in Shochet Holding Corp. ("Shochet"), whose principal operation, SSI Securities, Inc. ("SSI") (previously known as Shochet Securities, Inc.), provided discount retail brokerage services in South Florida. On August 1, 2001 Shochet announced that SSI had signed a definitive agreement to transfer substantially all of its brokers, accounts, and operating assets to another independent broker/dealer, BlueStone Capital Corp. ("BlueStone"). This transaction closed on August 31, 2001, leaving Shochet as a public shell. As part of the transaction the name "Shochet Securities" was sold to BlueStone. Shochet Securities changed its name to SSI Securities, Inc. On November 7, 2001 BlueStone announced that it had in turn sold substantially all of its operating assets to another independent broker/dealer, Sands Brothers & Co., Ltd. ("Sands"). This transaction included the sale of the assets acquired by BlueStone from SSI. As part of the transaction, Sands, BlueStone and SSI entered into an agreement of the same date whereby Sands and BlueStone were relieved of their commitment to pay SSI an override on commission revenue generated on the transferred accounts in exchange for a payment of $314,000. At January 31, 2001, the Company's remaining investment in Shochet was $73,000. During the first quarter of fiscal 2002, the Company recognized its portion of Shochet's net loss to the extent of its remaining investment. 9 On December 20, 2001, SSI filed a Form BDW with the NASD and SEC. By filing the Form, SSI gave notice that it was withdrawing from the securities business and returning its license to the regulatory authorities. The final withdrawal received approval of both the NASD and the SEC. On March 28, 2002 the Company sold its remaining interest, except for 2,640 shares, in Shochet to Sutter Opportunity Fund 2 LLC. The operations of Shochet and SSI have been accounted for as discontinued operations. Other Business Divestitures As of October 1, 2001, EarlyBirdCapital.com sold its ownership in EBCapital (Europe) AG to the managing director of that company. A loss of $221,000 was recognized on this transaction. (4) Segment and Geographic Area Information Subsequent to the discontinuance of operations as discussed above, the Company's remaining continuing product lines, investment banking and asset management services, are directed by a common management team. As such, no segment reporting by business line is presented. The Company's principal operations are located in New York City in the United States. (5) Commitments and Contingencies The Company's broker-dealer subsidiaries are involved in various other legal proceedings arising from its securities activities. GKN Securities held a $645,000 book reserve for such legal matters at October 31, 2002. While GKN has recognized this book reserve, it will not have sufficient assets to cover these potential liabilities. (6) Earnings Per Common Share The following table sets forth the computation of basic and diluted EPS: Three months ended Nine months ended October 31, October 31, 2002 2001 2002 2001 ---- ---- ---- ---- Numerator for basic and diluted EPS: Income (loss) before discontinued operations $224,000 ($739,000) ($891,000) ($5,996,000) Loss from discontinued operations (276,000) (2,089,000) (644,000) (2,807,000) Net income (loss) (52,000) (2,828,000) (1,535,000) (8,803,000) Denominator for basic and diluted EPS: Weighted-average common shares 9,746,675 8,906,049 9,746,675 8,742,762 10 Basic and diluted EPS: Income (loss) before discontinued operations 0.02 (0.08) (0.09) (0.69) Loss from discontinued operations (0.03) (0.23) (0.07) (0.32) Net income (loss) $ (0.01) $ (0.31) $ (0.16) $ (1.01) (7) Net Capital Requirements EarlyBirdCapital is a registered broker-dealer with the Securities and Exchange Commission (the "SEC") and member firms of the National Association of Securities Dealers ("NASD"). As such, EarlyBirdCapital is subject to the SEC's Uniform Net Capital Rule (SEC rule 15c3-1), which requires the maintenance of minimum net capital. EarlyBirdCapital computes net capital under the standard aggregate indebtedness method permitted by the net capital rule, which requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At October 31, 2002, EarlyBirdCapital had net capital of $339,000, which was $239,000 in excess of its required net capital of $100,000. EarlyBird's ratio of aggregate indebtedness to net capital was 1.22 to 1. (8) Supplemental Cash Flow Information Nine Months Ended October 31, 2002 2001 ---- ---- Cash paid for: Income taxes $ 53,000 $ 78,000 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis of the consolidated results of operations and financial condition of Firebrand Financial Group, Inc. and subsidiaries should be read in conjunction with the Consolidated Financial Statements included in Item 1 of this document. Changes in Corporate Composition and Discontinued Operations GKN Securities During the fiscal year ended January 31, 2001, we made the strategic decision to de-emphasize retail securities brokerage activity. Accordingly, we arranged to transfer our full service retail brokerage accounts at GKN to a series of broker/dealers, who in turn hired the GKN brokers. These broker/dealer firms are compensating GKN under arrangements discussed in footnote 3 to our consolidated financial statements included in this Report. During August 2001, GKN ceased operations of its Structured Finance Department. The financial impact of this action was insignificant to the Company. On September 10, 2001, GKN filed a Form BDW with the NASD and SEC. By filing the Form, GKN gave notice that it was withdrawing from the securities business and returning its license to the regulatory authorities. The final withdrawal received approval of all necessary regulatory authorities. GKN is conducting no further business other than seeking to satisfy its remaining liabilities, which are substantially in excess of its remaining assets. Shochet Holding Corp. In December 2000, the Company's Board approved a plan to dispose of its 53.5% interest in Shochet, whose principal operation, SSI Securities, Inc. ("SSI") (previously known as Shochet Securities, Inc.), provided discount retail brokerage services in South Florida. On August 1, 2001 Shochet announced that SSI had signed a definitive agreement to transfer substantially all of its brokers, accounts and operating assets to another broker/dealer, BlueStone Capital Corp. ("BlueStone"). This transaction closed on August 31, 2001. As part of the transaction the name "Shochet Securities" was sold to BlueStone and Shochet Securities changed its name to SSI Securities, Inc. On November 7, 2001 BlueStone announced that it had sold substantially all of its operating assets to another independent broker/dealer, Sands Brothers & Co., Ltd. ("Sands"). See footnote 3. On December 20, 2001, SSI filed a Form BDW with the NASD and SEC. By filing the Form, SSI gave notice that it was withdrawing from the securities business and returning its license to the regulatory authorities. The final withdrawal received approval of all necessary regulatory authorities. On March 28, 2002, the Company sold its remaining interest, except for 2,640 shares, in Shochet to Sutter Opportunity Fund 2, LLC. EarlyBirdCapital In July 2000, EarlyBirdCapital acquired the assets of Angeltips.com, a company involved in attracting angel investors to early-stage companies. EarlyBird issued 1,129,623 shares of its common stock and $1,018,000 in cash for the assets. This transaction was subsequently renegotiated and 782,940 of the shares 12 issued were recaptured. Angeltips.com was subsequently closed down. As part of the renegotiation of the transaction and the close down, EarlyBirdCapital recognized a loss of $1,363,000 in fiscal 2001. In October 2001, EarlyBirdCapital.com sold its ownership interest in EBCapital (Europe) AG to its managing director. This transaction is discussed in footnote 3 to the consolidated financial statements included in this Report. In August 2002, EarlyBirdCapital.com sold its ownership in EarlyBirdCapital Management Ltd. to the managing director of that company. No gain or loss was recognized on this transaction. In addition, EarlyBirdCapital.com will receive a portion of the performance fee that is paid to EarlyBirdCapital Management for serving as investment manager for Dalewood 2 Private Technology Limited, an offshore investment fund, until the arrangement is terminated by either party with at least six months' prior notice, with no termination to be effective prior to December 31, 2006. On August 15, 2002, EarlyBird closed its institutional sales department. For the six months ended July 31, this department generated revenues of $469,000 and incurred a net loss of ($101,000). Other Business In the first quarter of fiscal 2002, we established the StreetWide Asset Recovery Group ("StreetWide"). StreetWide is engaged by broker/dealers and other financial institutions to collect debt due to them from prior broker employees or from customers. The broker debts are generated through brokers reneging on employment contracts or brokers generating other losses due to their respective firms. The customer debt is usually generated through unsecured margin loans on which the customers have refused to repay the firms. StreetWide pursues the collection of these debts through the NASD Arbitration process, or through direct negotiation with the obligor. StreetWide currently employs two individuals. As of October 31, 2002, StreetWide had 22 customers under contract. For the year ended January 31, 2002, StreetWide generated $116,000 of operating revenue. For the quarter and nine month period ended October 31, 2002, StreetWide generated $67,000 and $218,000, respectively, of operating revenue. StreetWide anticipates future growth through the solicitation of additional broker/dealers and clearing firms as customers. Our operations have consumed substantial amounts of cash and have generated significant net losses. We have curtailed or discontinued many of the product lines we previously offered. These matters raise doubt about our ability to continue as a going concern, as cited in Footnote 1 to the consolidated financial statements. We believe that our future success is dependent upon our ability to (i) continue to streamline our operation to reduce costs, and (ii) generate new sources of revenue. We have been reducing costs and have expanded into a new line of business. Business Environment Following the above changes, our primary business activities are investment banking and asset management, with an emphasis on emerging-growth companies. These businesses are subject to general economic and market conditions and volatility of trading markets, particularly the emerging-growth sector. 13 Our new business, asset recovery, is also subject to general economic and market conditions. It operates in a highly competitive marketplace. Results of any individual period should not be considered representative of future profitability. A significant portion of our expenses are fixed and do not vary with market activity. Substantial fluctuations could occur in our revenues and net income from period to period. Results of Operations Three Months Ended October 31, 2002 vs. Three Months Ended October 31, 2001 ---------------------------------------------------------------------------- Income before discontinued operations for the three months ended October 31, 2002 was $224,000 as compared with a loss before discontinued operations of ($739,000) for the three months ended October 31, 2001. The change was caused by a decrease of $570,000 in total expenses, a decrease of $221,000 in loss from sale of businesses, and a $600,000 change in income tax (benefit) provision, offset by an $84,000 decrease in revenues and a decrease of $344,000 in the recognition of the minority interest's portion of the loss before discontinued operations. Revenues decreased primarily due to a decrease in investment banking and interest, partially offset by an increase in commissions and other revenue. Expenses decreased primarily due to a decrease in compensation and benefits, communication, brokerage, clearing and exchange fees, professional fees, business development, and other expenses, offset by an increase in occupancy and equipment. Loss from discontinued operations for the period was ($276,000), compared to a loss of ($2,089,000) for the comparable quarter in the prior year. Loss from discontinued operations is discussed below in "Discontinued Operations". Net loss for the three months ended October 31, 2002 was ($52,000) as compared to a net loss of ($2,828,000) in the same three months of the prior year. Basic and diluted net loss per share of common stock was ($0.01) for the third quarter of fiscal 2003 as compared to a net loss of ($0.31) for the fiscal 2002 quarter. Basic and diluted income from continuing operations per share of common stock was $0.02 for the third quarter of fiscal 2003 as compared to a loss per share of ($0.08) in the comparable quarter in fiscal 2002. Revenues Total revenues from continuing operations decreased by 18% to $396,000 for the third quarter of fiscal 2003, versus the year-earlier period, mainly as a result of a decrease in investment banking and interest. Commission revenues increased from $89,000 in the third quarter of fiscal 2002 to $195,000 in the third quarter of fiscal 2003. This increase occurred as a result of an increase in commissions generated by EarlyBird's private client services group. Investment banking revenues decreased to $83,000 in the third quarter of fiscal 2003 from $230,000 in the comparable period. During the third quarter of fiscal 2003, EarlyBird generated $63,000 and $20,000 from two transactions. In the same quarter of the prior year, it generated $60,000 and $170,000 as a result of two transactions. Gains (losses) from principal transactions were $0 in the third quarter of fiscal 2003, versus a loss of $12,000 in fiscal 2002. Asset management fees were $0 in the fiscal 2003 third quarter, as compared to $15,000 in the comparable period. Interest income decreased to $1,000 in the third quarter of fiscal 2003 as a result of decreased cash balances and decreased interest rates. 14 Other revenues were $117,000 in the fiscal 2003 quarter, versus $62,000 in the comparable quarter. The increase is primarily due to an increase in StreetWide's collections revenue. Expenses Total expenses from continuing operations for the third quarter of fiscal 2003 were $819,000, a 41% decrease from the same quarter in fiscal 2002. The decrease is attributable to a decrease in compensation and benefits, communication, brokerage, clearing and exchange fees, professional fees, business development, and other expenses, offset by an increase in occupancy and equipment. Compensation and benefits expense decreased 43% to $442,000. This decrease was attributable to reduced staffing levels at EarlyBird. Occupancy and equipment expense in the fiscal 2003 quarter was $153,000, as compared to ($42,000) in the prior year third quarter. The increase reflects the recognition in the prior year third quarter of certain occupancy costs by discontinued operations which were previously borne by the parent company. Brokerage, clearing and exchange fees for the fiscal 2003 quarter were ($36,000), as compared to $47,000 in fiscal 2002. The decrease is primarily the result of EarlyBird's recovery of certain prior period clearing costs from its clearing firm. Also, certain clearing costs incurred in the fiscal 2002 quarter (predominantly Instinet costs) were not incurred in the fiscal 2003 quarter. Communications expenses were $40,000 for the fiscal 2003 quarter, compared to $74,000 in fiscal 2002. This decrease reflects the reduced staffing levels at EarlyBird in the current year. Business development expenses decreased to $22,000 in the third quarter of fiscal 2003, as compared to $91,000 in the year earlier period. The decrease is the result of reduced travel and entertainment expenses. Professional fees decreased by 53% to $101,000, mainly as a result of a declining need for legal services in the current period. Other expenses for the fiscal 2003 quarter were $97,000, as compared to $221,000 in fiscal 2002. This decrease is the result of the incurrence of certain expenses in the prior year third quarter but not the current year third quarter, namely the establishment of StreetWide, and the recognition of representation fees paid to EBCapital (Europe) AG, which was sold in October 2001. Income taxes For the quarter ended October 31, 2002, we recognized an income tax benefit of $574,000. This benefit is the result of the filing of certain income tax returns that resulted in a decrease of income taxes payable that had been carried on the Company's Balance Sheet. We recognize a full valuation reserve on deferred tax assets primarily resulting from net operating loss carryforwards. During the comparable quarter of the prior year we recognized an income tax provision of $26,000. 15 Discontinued Operations During the fiscal year ended January 31, 2001, we made the strategic decision to de-emphasize retail securities brokerage activity. Accordingly, we arranged to transfer our full service retail brokerage accounts at GKN Securities to a series of broker/dealers, who in turn hired the GKN brokers. Furthermore, in December 2000, our Board approved a plan to sell its 53.5% majority stake in Shochet Holding Corp., whose primary activity was discount retail brokerage in South Florida through Shochet Securities, Inc. See footnotes 1 and 3 for a discussion of the GKN Securities and Shochet transactions. GKN is considered a discontinued operation for the financial statements of the quarter ended October 31, 2002. Certain revenue and expense amounts in prior years have been reclassified to reflect the impact of the discontinued operation, as well as certain balance sheet items. For the quarter ended October 31, 2002, GKN had a net loss of ($276,000), compared to a net loss of ($2,089,000) in the comparable quarter of the prior year. The loss for the fiscal 2003 quarter is the result of arbitration settlements and additional legal costs related to existing litigation and customer arbitrations, as well as a complete write-off of a securities position owned by GKN. The prior year loss reflects additional rent, equipment rentals and equipment write-offs, as well as additional legal costs related to existing litigation and customer arbitrations. GKN is conducting no further business other than seeking to satisfy its remaining liabilities, which are substantially in excess of its remaining assets. Weighted average common shares outstanding The weighted average number of common shares outstanding used in the computation of basic and diluted loss per common share was 9,746,675 for the third quarter of fiscal 2003, compared with 8,906,049 in the prior year period. Nine Months Ended October 31, 2002 vs. Nine Months Ended October 31, 2001 -------------------------------------------------------------------------- Loss before discontinued operations for the nine months ended October 31, 2002 was ($891,000) as compared with a loss before discontinued operations of ($5,996,000) for the nine months ended October 31, 2001. The decrease was caused by a $1,280,000 increase in revenues, a $2,240,000 decrease in expenses, a decrease of $221,000 in loss from sale of businesses, a $1,202,000 decrease in equity in loss of unconsolidated affiliates, and a $619,000 change in income tax (benefit) provision, offset by a $457,000 decrease in the recognition of the minority interest's portion of the loss before discontinued operations. Revenues increased primarily due to an increase in commissions, investment banking, and other revenues, as partially offset by a decrease in asset management fees and interest income. Expenses decreased due to reductions in compensation and benefits, occupancy and equipment, communication, brokerage, clearing and exchange fees, professional fees, and business development, offset by an increase in other expenses. Loss from discontinued operations for the period was ($644,000), compared to a loss of ($2,807,000) for the comparable nine months in the prior year. Loss from discontinued operations is discussed below in "Discontinued Operations". Net loss for the nine months ended October 31, 2002 was ($1,535,000) as compared to a net loss of ($8,803,000) in the same nine months of the prior year. Basic and diluted loss per share of common stock was ($0.16) for the first nine months of fiscal 2003 as compared to a loss of ($1.01) for the fiscal 2002 period. Basic and diluted loss from continuing operations per share of common stock was ($0.09) for the first nine months of fiscal 2003 as compared to a loss of ($0.69) per share in the comparable period in fiscal 2002. 16 Revenues Total revenues from continuing operations increased by 46% to $4,082,000 for the first nine months of fiscal 2003, versus the year-earlier period, primarily as a result of an increase in commissions, investment banking, and other revenue. Commission revenues increased from $462,000 in the first nine months of fiscal 2002 to $1,224,000 in the first nine months of fiscal 2003. This increase is the result of the addition of an institutional sales group at EarlyBird in December 2001. On August 15, 2002, the Company closed its institutional sales group. As a result, commission revenues are expected to decline in future periods. Investment banking revenues increased to $1,878,000 from $1,434,000 in the prior year comparable period. In the first nine months of fiscal 2003, EarlyBird received $1,595,000 in investment banking revenues from one transaction. The work performed by EarlyBird relating to this transaction took place over several quarterly periods. The receipt by EarlyBird of a fee of this magnitude is atypical and, management does not expect that it will record comparable investment banking fees in comparable future periods. In the first nine months of fiscal 2002, EarlyBird closed several smaller deals. Losses from principal transactions were $0 in the first nine months of fiscal 2003. During the comparable period in the prior year a loss on principal transactions of ($56,000) was recognized. Asset management fees decreased by 72% to $82,000, as a result of a decrease in the value of assets under management. The value of assets under management and, accordingly, the amount of revenues generated may vary significantly from period to period depending upon the market value of the underlying securities under management, which, in turn, is dependent upon economic and market conditions. Interest income decreased from $203,000 in the first nine months of fiscal 2002 to $14,000 in the first nine months of fiscal 2003 as a result of decreased cash balances and decreased interest rates. Other revenue was $884,000 in the first nine months of fiscal 2003, versus $464,000 in the comparable period. The increase is due to the sale of Shochet shares in March 2002, generating revenue of $535,000. Expenses Total expenses from continuing operations for the first nine months of fiscal 2003 were $5,469,000, a 29% decrease from the same period in fiscal 2002. The decrease is attributable to decreases in compensation and benefits, occupancy and equipment, communication expenses, brokerage, clearing and exchange fees, professional fees, and business development. These decreases were offset by an increase in other expenses. Compensation and benefits expense decreased 19% to $2,699,000. This decrease is attributable to a staff reduction at EarlyBirdCapital. The decrease was partially offset by a bonus payout resulting from the investment banking transaction that was completed in May 2002, and compensation paid to the institutional sales group. On August 15, 2002, the Company closed its institutional sales group. As a result, compensation and benefits expense may decline in future periods. Occupancy and equipment expense in the fiscal 2003 first half was $1,197,000, compared to $1,755,000 in the prior year. The decrease reflects the prior year one-time charge of $619,000 associated with the buyout of certain operating leases. 17 Brokerage, clearing and exchange fees for the first nine months of fiscal 2003 were $235,000, as compared with $239,000 in fiscal 2002. This decrease is the result of EarlyBird's recovery of certain prior period clearing costs from its clearing firm, and the result of the reduction of certain clearing costs which were incurred in fiscal 2002 (predominantly Instinet costs) that were not incurred in fiscal 2003, as offset by clearing fees incurred by the institutional sales group, which was established at EarlyBird in December 2001. Communications expenses were $195,000 for the first nine months of fiscal 2003, compared to $689,000 in fiscal 2002. This decrease reflects the prior year one-time charge of $437,000 associated with the buyout of certain operating leases, and the reduced staffing levels at EarlyBird in the current year. Business development expenses decreased 45% to $149,000 in the first nine months of fiscal 2003, as a result of reduced travel and entertainment expenses. Professional fees decreased by 50% to $455,000, primarily as a result of a declining need for legal services in the current period. Other expenses for the first nine months of fiscal 2003 were $539,000, as compared to $518,000 in fiscal 2002. This increase is primarily the result of an arbitration settlement at EarlyBird during the first nine months of fiscal 2003. Equity in loss of unconsolidated affiliates Firebrand Financial and Dalewood Associates, Inc., a subsidiary of EarlyBirdCapital.com Inc., have investments in Dalewood Associates, LP. In the aggregate they own 16.7% of the limited partnership. We treat Dalewood Associates, LP as an unconsolidated affiliate for accounting purposes. During the second quarter of fiscal 2003 management wrote down the asset values of Dalewood Associates, LP by 10%. This writedown was the result of decreased valuations of the companies in which Dalewood Associates, LP held investments, and reflects valuations in general compared to the venture investment market. As a result of this writedown the Company recognized a loss of $296,000. In the comparable period of 2002, the Company recognized a loss of $1,498,000 on the same investment. Income taxes For the nine months ended October 31, 2002, we recognized an income tax benefit of 541,000. This benefit is the result of the filing of certain income tax returns that resulted in a decrease of income taxes payable that had been carried on the Company's Balance Sheet. We recognize a full valuation reserve on deferred tax assets primarily resulting from net operating loss carryforwards. During the comparable period of the prior year we recognized an income tax provision of $78,000. Discontinued Operations During the fiscal year ended January 31, 2001, we made the strategic decision to de-emphasize retail securities brokerage activity. Accordingly, we arranged to transfer our full service retail brokerage accounts at GKN Securities to a series of broker/dealers, who in turn hired the GKN brokers. Furthermore, in December 2000, our Board approved a plan to sell its 53.5% majority stake in Shochet Holding, whose primary activity is discount retail brokerage in South Florida through Shochet Securities, Inc. See footnote 1 and 3 for a discussion of the GKN Securities and Shochet transactions. 18 Both GKN and Shochet are considered discontinued operations for the financial statements of the nine months ended October 31, 2002. Certain revenue and expense amounts in prior years have been reclassified to reflect the impact of the discontinued operations, as well as certain balance sheet items. For the nine months ended October 31, 2002, GKN incurred losses of $644,000, compared to losses of $2,734,000 in the comparable period of the prior year. The current year loss reflects arbitration settlements and additional legal costs related to existing litigation and customer arbitrations, as well as a complete write-off of a securities position owned by GKN. GKN is conducting no further business other than seeking to satisfy its remaining liabilities, which are substantially in excess of its remaining assets. See footnotes 1 and 3 for a discussion of Shochet Holding Corp. At January 31, 2001, the Company's remaining investment in Shochet was $73,000. During the first nine months of fiscal 2002, the Company recognized its portion of Shochet's net loss to the extent of its remaining investment. 19 Weighted average common shares outstanding The weighted average number of common shares outstanding used in the computation of basic and diluted loss per common share was 9,746,675 for the first nine months of fiscal 2003, compared with 8,742,762 in the prior year period. Liquidity and Capital Resources Approximately 23% of assets at October 31, 2002 were highly liquid, consisting primarily of cash and cash equivalents and receivables from other broker-dealers. Additionally, approximately 65% of our assets are an investment in Dalewood Associates LP, which we believe we could liquidate at a discount, if necessary. At October 31, 2002, we held $191,000 of net liabilities for discontinued operations, for which we have continued financial exposure. Our brokerage subsidiary, EarlyBirdCapital, Inc., is subject to the net capital rules of the NASD and SEC. As such, we are subject to certain restrictions on the use of capital. EarlyBird's net capital position as of October 31, 2002 was $339,000, which was $239,000 in excess of its net capital requirement. Our overall capital and funding needs are continually reviewed to ensure that our capital base can support the estimated needs of our business units. These reviews take into account business needs as well as regulatory capital requirements of the subsidiaries. Our present level of revenues are not covering expenses. At present, there is doubt about the Company's ability to continue as a going concern. Management believes that the Company's future success is dependent upon its ability to (i) continue to streamline its operations to reduce costs and (ii) generate new sources of revenue. The Company has been reducing costs and has expanded into a new line of business. Notwithstanding the foregoing, the Company's cash resources remain constrained and are not sufficient to meet existing contractual obligations and liabilities. David Nussbaum, the Chairman of both Firebrand and EarlyBirdCapital.com, draws a salary of $10,000 per month from each of those entities. With Mr. Nussbaum's permission, Firebrand and EarlyBirdCapital.com have been accruing, but not paying such salaries, since February 1, 2002 and May 15, 2002, respectively. The Company is considering alternative means of paying such accrued salary, including the issuance of common stock in lieu of cash. We have recognized book reserves to cover exposures related to arbitrations and legal matters concerning our subsidiary GKN. GKN also has continued liability on its real property lease to its landlord at One State Street Plaza in New York City. GKN can not satisfy these liabilities with operating income and does not have sufficient cash balances to cover them. GKN has been involved in discussions with the landlord to seek a resolution of its continuing liability under such lease and is seeking to terminate such lease. Accordingly, the Company may relocate its offices in the near future. Management of the Company is exploring ways to maximize stockholder value. Certain of those ways involve a potential change in the ownership or operating methods of EarlyBirdCapital, Inc. Consolidated Contractual Obligations and Lease Commitments The table below summarizes information about our consolidated contractual obligations as of October 31, 2002 and the effects these obligations are expected to have on our consolidated liquidity and cash flow in future years. This table does not include any projected payment amounts related to GKN's potential exposure to arbitrations and other legal matters. 20

Critical Accounting Policies An understanding of our accounting policies is necessary for a complete analysis of our results, financial position, liquidity and trends. We focus your attention on the following: Asset Management Fees: We recognized both management fees and performance fees related to our management of Dalewood Associates, LP. These fees are directly related to the amount of assets under management and the performance of the investments in which the assets are invested. We recognize the management fees semi-annually as earned. We recognize an estimate of performance fees at mid-year and actual performance fees earned at year-end. The amount of performance fees and their estimates can vary greatly from period to period. Income Taxes: Our effective tax rate and the tax bases of our assets and liabilities reflect our best estimate of the ultimate outcome of tax audits. Valuation allowances are established where expected future taxable income does not support the realization of the deferred tax assets. We currently recognize a valuation reserve to the full extent of any deferred tax asset. Discontinued Operations: Upon the decision to dispose of or terminate a material business operation we account for the results of that operation as a discontinued operation. Any expected future operating loss of the operation and any expected loss on the disposition or termination of the business are recognized at the time the decision is made. Management's best estimate of the future losses are utilized in recognizing expected losses. Actual results may differ materially from management's estimates. Where a discontinued operations' expected losses exceed our investment in the separate subsidiary we recognize the expected losses only to the extent of our investment, or if we have outstanding guarantees of that subsidiary's liabilities, to the extent of such guarantees. Minority Interest: We have raised capital from outside investors for certain of our operating subsidiaries. As a result, we do not own 100% of these subsidiaries, thereby creating a minority interest in the operation. The minority interest recognizes its proportion of any income or loss of the subsidiary. This acts to decrease our income or decrease our loss, depending upon the operating results. Safe Harbor Cautionary Statement We occasionally make forward-looking statements such as forecasts and projections of expected future performance or statements of our plans and objectives. When used in this report and in future filings with the SEC, in our press releases and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "the Company expects," "we intend or expect," "will continue," "is anticipated," "estimated," "project," or "outlook" or similar expressions, including confirmations by one of our authorized executive officers of any such expressions made by a third party regarding us with respect to the company are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We want to caution you not to place undue reliance on these forward-looking statements, each of which speaks only as of the date made. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Factors that could affect our results of operations and cause its results to differ from these statements include: 21 (a) the volatility and price level of the securities markets (b) the volume, size and timing of securities transactions (c) the demand for investment banking services (d) the level and volatility of interest rates (e) the availability of credit (f) legislation affecting the business and financial communities, and (g) the economy in general. For a more complete discussion of these and other factors, see Exhibit 99 to our Annual Report on Form 10-K for the fiscal year ended January 31, 2002. We have no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of these statements. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our investing and underwriting activities often involve the purchase, sale or short sale of securities as principal. Such activities subject our capital to significant risks from markets that may be characterized by relative illiquidity or may be particularly susceptible to rapid fluctuations in liquidity. Such market conditions could limit our ability to resell securities purchased or to purchase securities sold short. These activities subject our capital to significant risks, including market, credit counterparty and liquidity risks. Market risk relates to the risk of fluctuating values based on market prices without action on our part. Our primary credit risk is settlement or counterparty risk, which relates to whether a counterparty will fulfill its contractual obligations, such as delivery of securities or payment of funds. Liquidity risk relates to our inability to liquidate assets or redirect the deployment of assets contained in illiquid investments. In addition, our market and liquidity risks associated with asset revaluation are increased because these risks for us are concentrated and thus subject us to increased risks if market conditions deteriorate. ITEM 4. CONTROLS AND PROCEDURES. Within the 90-day period prior to the filing of this report, an evaluation of the effectiveness of the Company's disclosure controls and procedures was made under the supervision and with the participation of the Company's management, including the chief executive officer and chief financial officer. Based on that evaluation, except as set forth below, the CEO and CFO concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In November 2002, the full-time employment of the Company's CFO ended. Soon thereafter, a medical emergency incapacitated the person who was to assume responsibility for preparing this report. Accordingly, the Company's CFO, acting in a consulting capacity, commenced the preparation of this report. These circumstances caused the Company to be unable to file this report in a timely manner. The Company's board of directors has not yet determined who shall be assigned responsibility for the financial aspects of future reports. Subsequent to the date of their evaluation, there were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 23 PART II - OTHER INFORMATION Item 2. Changes in securities: Sales of Unregistered Securities during the nine months ended October 31, 2002 None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None 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. Date: January 6, 2003 Firebrand Financial Group, Inc. /s/ David M. Nussbaum -------------------------------------------- David M. Nussbaum Chairman of the Board, President, Chief Executive Officer (Principal Executive Officer) /s/ Eric Citrin -------------------------------------------- Eric Citrin (Principal Financial and Accounting Officer) 24 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Firebrand Financial Group, Inc. (the "Company") on Form 10-Q for the period ended October 31, 2002 as filed with the Securities and Exchange Commission (the "Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: January 6, 2003 /s/ David M. Nussbaum -------------------------------------------- David M. Nussbaum Chief Executive Officer Dated: January 6, 2003 /s/ Eric Citrin -------------------------------------------- Eric Citrin (Principal Financial and Accounting Officer) 25 SECTION 302 CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14 UNDER THE SECURITIES ACT OF 1934, AS AMENDED I, David Nussbaum, certify that: 1. I have reviewed this Quarterly report on Form 10-Q of Firebrand Financial Group, Inc.; 2. based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. the registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and to the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. the registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: January 6, 2003 /s/ David M. Nussbaum -------------------------------------------- David M. Nussbaum Chief Executive Officer 26 SECTION 302 CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14 UNDER THE SECURITIES ACT OF 1934, AS AMENDED I, Eric Citrin, certify that: 1. I have reviewed this Quarterly report on Form 10-Q of Firebrand Financial Group, Inc.; 2. based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. the registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. the registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and to the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. the registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: January 6, 2003 /s/ Eric Citrin -------------------------------------------- Eric Citrin (Principal Financial and Accounting Officer) 27

FIREBRAND FINANCIAL GROUP INC 10-Q