SOUNDVIEW TECHNOLOGY GROUP INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

COMMISSION FILE NUMBER 0-26225

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SOUNDVIEW TECHNOLOGY GROUP, INC.

(exact name of registrant as specified in its charter)

DELAWARE 13-3900397
(State or Other Jurisdiction of (I.R.S. Employer Industrial Identification
Incorporation or Organization) Number)
1700 E. PUTNAM AVENUE, OLD GREENWICH, CT 06870
(Address of Principal Executive Offices) (Zip Code)

(203) 321-7000
(Registrant's Telephone Number, including Area Code)

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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 twelve months, and (2) has been subject to such filing
requirements for the past ninety days: Yes /X/ No / /

As of August 5, 2002, there were 109,839,956 shares of the Registrant's
common stock outstanding.

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SOUNDVIEW TECHNOLOGY GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Financial Condition as
of June 30, 2002 and December 31, 2001.................... 3
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2002 and 2001......... 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2002 and 2001....................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 19

PART II--OTHER INFORMATION

Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities and Use of Proceeds................... 19
Item 3. Default upon Senior Securities.............................. 19
Item 4. Submission of Matters to a Vote of Security Holders......... 19
Item 5. Other Information........................................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 20
Signatures........................................................... 20

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PART I

ITEM 1--CONSOLIDATED FINANCIAL STATEMENTS

SOUNDVIEW TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2002 AND DECEMBER 31, 2001

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

3

SOUNDVIEW TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001

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

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SOUNDVIEW TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001

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

5

SOUNDVIEW TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002 AND 2001

1. ORGANIZATION AND BASIS OF PRESENTATION

SoundView Technology Group, Inc. (the "Company") was incorporated on
March 27, 1996 and commenced operations in September 1997. The accompanying
unaudited consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, SoundView Technology Corporation ("STC"), Wit
Capital Corporation, SoundView Ventures Corp. and SoundView Technology Group PLC
("STGE"). All material intercompany balances and transactions have been
eliminated in consolidation.

On January 31, 2000, Wit Capital Group, Inc. completed a merger with
SoundView Technology Group, Inc. ("STG"). From June 2000 to August 2001, the
combined company operated as Wit SoundView Group, Inc. and in August 2001, the
combined company changed its name to SoundView Technology Group, Inc. All
references to "STG" refer to operations of STG prior to its merger with Wit
Capital Group, Inc.

The Company is a technology-focused, research driven securities firm that
provides services to an institutional and issuer client base. The Company
produces comprehensive sell-side research on over 180 technology companies. The
Company's brokerage operations provide a variety of sales and trading services
to institutional investors. Through the Company's venture capital operations, it
has established and currently manages a number of venture capital funds that
provide investors with the opportunity to participate in technology and Internet
related investments.

These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") and, in the
opinion of management, reflect all adjustments necessary for a fair presentation
of the results for the periods presented in conformity with accounting
principles generally accepted in the United States. These financial statements
should be read in conjunction with the Company's audited financial statements
included in the Company's Annual Report on Form 10-K filed with the SEC on
April 1, 2002. Results of the interim periods are not necessarily indicative of
results to be obtained for a full fiscal year.

2. INTANGIBLE ASSETS

During the quarter ended June 30, 2001, in light of the current economic
environment and market conditions, the Company performed an evaluation of its
enterprise value to make a determination as to whether the recorded amounts of
goodwill and intangible assets acquired in its mergers with STG and E*OFFERING
were potentially impaired. As a result of this analysis, the Company's
management determined that an adjustment was required to reduce the carrying
value of the Company's goodwill and strategic alliance agreement related to its
merger with E*OFFERING to their estimated fair value. As a result, the Company
recorded an impairment charge of $249.7 million in the quarter ended June 30,
2001. The charge was comprised of a write-off of the carrying value of the
goodwill of $195.4 million, or $1.77 per share, and an adjustment to the
carrying value of the strategic alliance agreement of $54.3 million, or $0.49
per share, based upon a valuation of discounted future net cash flows, to adjust
both assets to their estimated fair values.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"), which the Company adopted on January 1, 2002. SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets acquired individually or with a group of other assets
(but

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SOUNDVIEW TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2002 AND 2001

2. INTANGIBLE ASSETS (CONTINUED)
not those acquired in a business combination) at acquisition. The statement
provides that assets which have indefinite useful lives will not be amortized,
but rather will be tested at least annually for impairment and establishes
specific guidelines for the testing of such assets. SFAS No. 142 allows for
intangible assets with finite useful lives to continue to be amortized over
their useful lives, but provides that those lives will no longer be limited to
40 years. In connection with the adoption of SFAS No. 142, the Company has
determined that no adjustment was necessary to the carrying value of its
goodwill. The Company will perform its annual impairment test during the fourth
quarter of each year commencing in the fourth quarter of 2002.

In accordance with the provisions of SFAS No. 142, as of January 1, 2002,
the Company ceased amortizing the remaining carrying value of the goodwill and
tradename intangible assets related to the Company's merger with STG in
January 2000, both of which have indefinite useful lives. As of June 30, 2002,
the carrying value of the goodwill and tradename intangible asset were
$180,701,610 and $2,170,000, respectively. Through December 31, 2001, these
assets were being amortized over a period of 20 years on a straight-line basis.
Also included in amortization expense for the three and six month periods ended
June 30, 2001 were $7,765,392 and $15,530,784, respectively, in goodwill
amortization related to the Company's merger with E*OFFERING, the balance of
which was written off in the second quarter of 2001. The following table sets
forth reported net loss and earnings per share information as adjusted to
exclude amortization of the intangible assets not subject to amortization under
the provisions of SFAS No. 142:

Intangible assets subject to amortization under the provisions of SFAS
No. 142 consist primarily of customer relationships and are being amortized over
a weighted average life of approximately 15 years.

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SOUNDVIEW TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2002 AND 2001

2. INTANGIBLE ASSETS (CONTINUED)
The following table sets forth the gross carrying amount, accumulated
amortization and net carrying amount of these intangible assets:

The Company recorded $1,281,249 and $5,919,585 of amortization expense for
the three months ended June 30, 2002 and 2001, respectively and $2,768,056 and
$11,839,170 of amortization expense for the six months ended June 30, 2002 and
2001, respectively, related to intangible assets currently subject to
amortization. For the three and six months ended June 30, 2001, amortization
expense included $4,638,336 and $9,276,672, respectively, related to intangible
assets subject to amortization that were written-off prior to or during the six
months ended June 30, 2002. Estimated amortization expense for intangible assets
subject to amortization is approximately $5.1 million for each of the fiscal
years ending December 31, 2002 through 2006.

3. NET LOSS PER SHARE

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

Because the Company reported a net loss for the those periods, the
calculations of diluted earnings per share in those periods do not include
options, warrants and common stock collateralizing the notes receivable from
stockholders, as they are anti-dilutive and would result in a reduction of net
loss per share. If the Company had reported net income, there would have been an
additional 4,065,049 shares for the quarter ended June 30, 2002 and an
additional 5,542,452 shares for the six months ended June 30, 2002 included in
the calculation of diluted earnings per share.

4. STOCK OPTION PLAN

The Company has adopted a stock incentive plan (the "Plan") that permits the
granting of stock options, restricted stock and other awards to employees,
directors and certain consultants of the Company. The exercise price of any
share covered by an option granted to a person owning more than

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SOUNDVIEW TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2002 AND 2001

4. STOCK OPTION PLAN (CONTINUED)
10% of the voting power of all classes of stock of the Company cannot be less
than 110% of the fair market value on the day of the grant. The exercise price
of options intended to qualify as incentive stock options under Section 422 of
the IRS Code may not be less than the fair market value on the date of grant.
Options granted expire five or ten years from the date of grant, with the
majority of the options expiring in the year 2010.

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

As of June 30, 2002 the Company has 18,387,912 outstanding options with a
range of exercise prices between $0 and $19.50 per share and a weighted average
exercise price of $2.61.

5. WARRANTS

As of June 30, 2002, the Company has 5,744,255 outstanding warrants with a
range of exercise prices between $1.43 and $5.57. These warrants are exercisable
for 106,960 shares of common stock and 5,637,295 shares of Class B common stock.

6. DISCONTINUANCE OF EUROPEAN OPERATIONS

The discontinuance of the Company's European operations in the first quarter
of 2002 resulted in a $6.3 million charge for severance and other costs
associated with closing STGE's operations, including a $2.8 million loss on
foreign exchange translation which had been reported as a separate component of
stockholders' equity and an $8.1 million reduction of minority interest in STGE.
The $8.1 million reduction of minority interest was reclassified in June 2002 to
minority interest in the statement of operations. This amount had previously
been classified as an offset in expenses related to the discontinuance of the
Company's European operations.

7. CONTINGENCIES

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

8. INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting For Income Taxes," which requires the recognition of deferred tax
assets and liabilities at tax rates expected to be in effect when these balances
reverse. Future tax benefits are recognized to the extent that

9

SOUNDVIEW TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2002 AND 2001

8. INCOME TAXES (CONTINUED)
realization of such benefits is more likely than not. The Company files
consolidated Federal and combined state and local income tax returns with
certain of its wholly-owned subsidiaries.

The components of the Company's provision for income taxes for the three and
six-month periods ended June 30, 2002 and 2001 are as follows:

The Company's effective tax rate differs from the Federal statutory rate
primarily due to the amortization of intangible assets and goodwill and state
and local income taxes and for the three and six month periods ended June 30,
2002 as a result of the establishment of a valuation allowance against its
entire net deferred tax assets.

For the three and six month periods ended June 30, 2002, the Company
recorded a charge of approximately $24.5 million to establish a valuation
allowance against the balance of its net deferred tax assets, which consist
primarily of net operating loss carryforwards. The valuation allowance was
calculated in accordance with the provisions of SFAS No. 109 "Accounting for
Income Taxes" which places primary importance on the Company's historical
results of operations. Although the Company's results in prior years were
significantly affected by restructuring and other charges, the Company's
historical losses and losses incurred in the current fiscal year represented
negative evidence sufficient to require a full valuation allowance under the
provisions of SFAS 109. If the Company is able to realize part or all of the
deferred tax assets in future periods, it will reduce its provision for income
taxes with a release of the valuation allowance in an amount that corresponds
with the income tax liability generated.

9. NET CAPITAL REQUIREMENTS

STC is subject to the SEC's Uniform Net Capital Rule 15c3-1. STC's net
capital, as defined, is required to be the greater of $250,000 or an amount
determinable based on the market prices and number of securities in which STC
acts as a market maker. As of June 30, 2002 and December 31, 2001, STC's net
capital was $108,289,821 and $105,199,341, which was $107,569,821 and
$104,646,841 in excess of the minimum net capital requirements, respectively.

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SOUNDVIEW TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2002 AND 2001

10. OTHER COMPREHENSIVE INCOME

Upon the acquisition of a controlling interest in STGE in the first quarter
of 2001, the Company implemented the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which requires the Company to report the changes in
stockholders' equity from all sources during the period other than those
resulting from investments by shareholders. Revenues and expenses from the
Company's subsidiary, STGE, were translated into U.S. dollars at average monthly
exchange rates prevailing during each quarter and the resulting translation
adjustment was reported as a separate component of stockholders' equity. Upon
the closing of the operations of STGE in March 2002, the Company included the
cumulative translation adjustment in its results of operations for the three
months ended March 31, 2002 in the loss on discontinuance of European
operations. Accordingly, the Company is no longer required to report these
changes as a separate component of stockholders' equity. Net comprehensive loss
for the quarters ended June 30, 2002 and 2001 is as follows:

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read with the consolidated financial
statements of SoundView Technology Group, Inc. and subsidiaries and related
notes thereto.

CRITICAL ACCOUNTING POLICIES

For a description of critical accounting policies, including those which
involve varying degrees of judgement, see Management's Discussion and Analysis
of Financial Condition and Results of Operations in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.

OVERVIEW AND BUSINESS

SoundView is a technology-focused, research driven, securities firm.
SoundView produces comprehensive sell-side research on over 180 technology
companies. Our brokerage operations provide a variety of sales and trading
services to institutional investors. We leverage our technology expertise
through a sales force which has a comprehensive understanding of the complex and
diverse technologies involved in technology-focused investing. Our investment
banking services include public offerings, M&A advisory and private equity
placements. Our venture capital operation has established and currently manages
a number of venture capital funds that provide investors with the opportunity to
participate in technology and Internet related investments.

On January 31, 2000, Wit Capital Group, Inc. completed a merger with
SoundView Technology Group, Inc. ("STG"). From June 2000 to August 2001, the
combined company operated as Wit SoundView Group, Inc. and in August 2001, the
combined company changed its name to SoundView Technology Group, Inc. All
references to "SoundView", the "Company", "us", "our", and "we" refer to the
combined company and its subsidiaries subsequent to January 31, 2000. All
references to "STG" refer to operations of STG prior to its merger with Wit
Capital Group, Inc.

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, SoundView Technology Corporation ("STC"), Wit
Capital Corporation, SoundView Ventures Corp. and SoundView Technology Group PLC
("STGE").

CURRENT MARKET ENVIRONMENT

As a technology-focused securities firm, our business and operations are
affected by the U.S. and global economic environment and financial market
conditions. The performance of the equity capital markets, and in particular the
market for technology companies, significantly influences the strength of our
business operations. We continue to operate under unfavorable market conditions
that commenced in 2000 and worsened throughout 2001 and the first half of 2002
as a result of continuing uncertainty regarding the extent of the global
economic slowdown and weakness in the technology sector. Additionally, during
2002, confidence in the markets has been affected by concerns surrounding the
financial reporting and accounting practices of certain public companies. As a
result of continuing market uncertainty, it is not clear when the primary equity
markets will re-open on terms acceptable to prospective technology issuers and
when or whether we will experience a related increase in revenue from investment
banking activity. We continue to advise on private equity financings as well as
merger and acquisition activity, but are still experiencing a slowdown in these
areas. Additionally, our institutional brokerage operations may be negatively
affected by overall market volatility and more specifically, by periods of
declining prices or trading volumes in technology stocks. Finally, the third
quarter has traditionally been a slower quarter for institutional brokerage
activity and that slowness may contribute to a sequential quarter-to-quarter
decline in our institutional brokerage revenue.

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RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AS
COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2001

REVENUES

Total revenues for the three months ended June 30, 2002 decreased 17% to
$32.0 million from $38.8 million for the three months ended June 30, 2001. The
Company's total revenues for the six months ended June 30, 2002 decreased 35% to
$61.1 million from $94.6 million for the six months ended June 30, 2001. The
decrease is primarily attributable to decreases in brokerage revenue and
investment banking revenue, and to a lesser extent, to a decrease in interest
and investment income and asset management fees.

Investment banking revenue for the three months ended June 30, 2002 was
$2.6 million, compared to $5.8 million for the three months ended June 30, 2001,
representing a decrease of 55%. For the six months ended June 30, 2002,
investment banking revenue was $6.6 million compared to $18.8 million for the
six months ended June 30, 2001, representing a decrease of 65%. Investment
banking revenue is primarily derived from the public offering of equity
securities and also from mergers and acquisitions and strategic advisory
services and private equity offerings. The decrease in investment banking
revenue in 2002 as compared to 2001 is attributable to unfavorable issuing
conditions for technology companies, which have worsened in 2002 and includes
lower market valuations and general market and economic uncertainty and to
decreased contributions from our mergers and acquisitions advisory services. So
long as the stability of the public equity markets remains uncertain and mergers
and acquisitions activity remains slow, we do not expect that our investment
banking revenue will increase significantly from the level achieved in the
second quarter of 2002 and could decrease if the environment for capital markets
and merger and acquisitions does not improve.

Brokerage revenue for the three months ended June 30, 2002 was
$27.3 million, compared to $29.8 million for the three months ended June 30,
2001, representing a decrease of 8%. For the six months ended June 30, 2002,
brokerage revenue was $52.5 million compared to $69.4 million for the six months
ended June 30, 2001, representing a decrease of 24%. The decrease in brokerage
revenue is primarily as a result of lower trading revenue derived from our
market making operations and our listed trading operations. As a result of the
move to decimal trading in the Nasdaq Stock Market, which began in April 2001,
narrowing bid-ask spreads and smaller price increments are being experienced and
are resulting in a decrease in trading revenue earned from our market making
operations. To compensate for the narrowing of bid ask spreads, in April 2001,
we began charging commissions on certain Nasdaq trades. The increased
willingness of our clients to pay commissions for Nasdaq trades has helped
stabilize our brokerage revenue. However, the level of commissions is a matter
of negotiation and is subject to downward pressure, particularly in difficult
market environments. The decreased spreads and lower commission rates, combined
with a general decline in trading volumes in technology stocks, has resulted in
lower revenues from our brokerage operations

Interest and investment income for the three months ended June 30, 2002 was
$1.5 million, compared to $2.9 million for the three months ended June 30, 2001,
representing a decrease of 47%. For the six months ended June 30, 2002, interest
and investment income was $2.5 million, compared to $6.3 million for the six
months ended June 30, 2001, representing a decrease of 61%. We earn interest
income from the investment of cash balances raised through financing activities
until the funds are used in our business. During the first six months of 2002
and 2001, our average monthly cash balance was $155.5 million and $190 million,
respectively. Our interest and investment income decreased in the first six
months of 2002 compared to the first quarter of 2001 as a result of decreased
interest bearing cash balances and earning a lower interest rate on our invested
cash.

Asset management fees for the three months ended June 30, 2002 were
$1.6 million compared to $2.3 million for the three months ended June 30, 2001,
representing a decrease of 32%. For the six months ended June 30, 2002, asset
management fees were $3.0 million compared to $4.2 million for the

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six months ended June 30, 2001, representing a decrease of 30%. This revenue is
derived primarily from management fees from our series of venture capital funds
and in 2001, included incentive royalties from hedge funds that were formerly
managed by STG. Comparing asset management fees earned in 2002 to 2001, the
decrease in 2002 is attributable primarily to a reduction in the incentive
royalties which the Company no longer earns as the hedge funds ceased operations
in the first quarter of 2002.

Loss on investments for the three months ended June 30, 2002 was
$1.0 million, compared to a loss of $2.0 million for the three months ended
June 30, 2001, representing a decrease of 52%. For the six months ended
June 30, 2002, loss on investments was $3.5 million, compared to a loss of
$4.1 million for the six months ended June 30, 2001 representing a decrease of
16%. These losses primarily consist of losses from investment partnerships
focused on the technology sector and a decline in the value of the Company's
contributions to leveraged employee investment funds. As of June 30, 2002, we
hold approximately $21.5 million in private equity investments and in investment
funds in which the underlying investments are in privately held companies. We
carry our investments at fair value, which requires management to make estimates
based on available information, which do not necessarily represent the amounts
that might ultimately be realized, since such amounts depend on future
circumstances and cannot be determined until the investments are actually
liquidated. Actual results could differ from those estimates and the differences
could be material. We may recognize additional future losses related to our
investment portfolio based on specific circumstances surrounding an individual
investment or if market conditions decline further in certain sectors.

EXPENSES

Compensation and benefits expense for the three months ended June 30, 2002
was $21.2 million, compared to $27.3 million for the three months ended
June 30, 2001, representing a decrease of 22%. For the six months ended
June 30, 2002, compensation and benefits expense was $48.4 million compared to
$64.9 million for the six months ended June 30, 2001, representing a decrease of
25%. Compensation and benefits expense consists of salaries, bonuses,
amortization of restricted stock awards and other benefits paid for or provided
to the Company's employees. The decrease in compensation and benefits expense
from the first six months of 2001 to 2002 primarily relates to lower incentive
compensation accrued on lower revenues and a decrease in personnel from 362 as
of June 30, 2001 to 240 as of June 30, 2002.

Amortization of intangible assets and goodwill decreased to $1.3 million for
the three months ended June 30, 2002 from $16.2 million for the three months
ended June 30, 2001, representing a decrease of 92%. For the six months ended
June 30, 2002, amortization of intangible assets was $2.8 million compared to
$32.4 million for the six months ended June 30, 2001, representing a decrease of
91%. For the three and six month periods ended June 30, 2002, amortization of
intangible assets consisted of amortization of intangible assets related to the
merger with STG. The merger with STG, completed on January 31, 2000, resulted in
approximately $275 million in intangible assets and goodwill, which were being
amortized over periods ranging from 3 to 20 years. On January 1, 2002, we ceased
amortization of the STG goodwill and tradename intangible assets upon adoption
of SFAS No. 142, "Goodwill and Other Intangible Assets" (see "New Accounting
Pronouncements"). Consequently, the three and six month periods ended June 30,
2001 include $2.5 and $5.1 million, respectively, of amortization expense for
these intangible assets which is not included for the six month period ended
June 30, 2002. At June 30, 2002, the balance of amortizable intangible assets
approximates $57.0 million.

For the first six months of 2001, amortization of intangible assets and
goodwill consisted of amortization of intangible assets related to the merger
with STG, as discussed above, and E*OFFERING. The merger with E*OFFERING, which
was completed on October 16, 2000, resulted in approximately $304 million in
intangible assets and goodwill, which, in the six months ended June 30,

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2001, were amortized on a straight-line basis over 5 and 7 years, respectively.
In the second and third quarters of 2001, the carrying values of goodwill and
intangible assets related to the merger with E*OFFERING were reduced to zero as
a result of an impairment charge and the restructuring of the strategic alliance
with E*TRADE Group, Inc., which resulted in a return of stock previously issued
to E*TRADE. The three and six month periods ended June 30, 2002, as a result, do
not include approximately $12.1 and $24.2 million, respectively, of amortization
expense related to the E*OFFERING merger, which is included as amortization
expense in the three and six month periods ended June, 30 2001.

For the six month period ended June 30, 2002, we recorded an impairment of
intangible asset charge of $1.1 million compared to an impairment of goodwill
and intangible asset charge of $249.7 million for the six months ended June 30,
2001. Management reviews intangible and other assets whenever circumstances
indicate the carrying amount of an asset may not be recoverable. The charge
recorded in the six month period ended June 30, 2002 resulted from the write-off
of the carrying value of the investment advisory intangible asset acquired in
the merger with STG, as the fund we formerly managed and from which we earned
incentive royalties under an agreement with the manager, ceased operations in
the first quarter of 2002. During the quarter ended June 30, 2001, in light of
the current economic environment and market conditions, our Company performed an
evaluation of its enterprise value to make a determination as to whether the
recorded amounts of goodwill and intangible assets acquired in its mergers with
STG and E*OFFERING were potentially impaired. As a result of this analysis, the
Company's management determined that an adjustment was required to reduce the
carrying value of its Company's goodwill and strategic alliance agreement
related to the merger with E*OFFERING to their estimated fair value. As a
result, the Company recorded an impairment charge of $249.7 million in the
quarter ended June 30, 2001. The charge was comprised of a write-off of the
carrying value of the goodwill of $195.4 million, or $1.77 per share, and an
adjustment to the carrying value of the strategic alliance agreement of
$54.3 million, or $0.49 per share, based upon a valuation of discounted future
net cash flows, to adjust both assets to their estimated fair values.

Brokerage and clearance expense for the three months ended June 30, 2002 was
$4.2 million, compared to $5.2 million for the three months ended June 30, 2001,
representing a decrease of 19%. For the six months ended June 30, 2002,
brokerage and clearance expense was $8.6 million compared to $11.1 million for
the six months ended June 30, 2001 representing a decrease of 23%. This expense
primarily consists of fees paid to independent floor brokers on the New York
Stock Exchange for the execution of institutional customer agency trades, as
well as amounts paid to our clearing broker for processing and clearing
customers' trades. The decrease in brokerage and clearance expense for the six
months ended June 30, 2002 compared to June 30, 2001 resulted from decreased
brokerage revenue and lower clearing fees achieved through negotiations with our
clearing broker. We expect our brokerage and clearance expense to fluctuate to
the extent we experience an increase or decrease in related commission revenue.

Communications and technology expense for the three months ended June 30,
2002 was $2.6 million, compared to $3.4 million for the three months ended
June 30, 2001, representing a decrease of 24%. For the six months ended
June 30, 2002, communications and technology expense was $6.8 million compared
to $7.0 million for the six months ended June 30, 2001, representing a decrease
of 2%. Communications and technology expense includes costs related to market
data services, transaction processing and telephone and other communication
charges. Comparing the three month period ended June 30, 2002 to 2001, and
excluding a $1.2 million payment made to a vendor in January 2002 to terminate a
contract from the six month period ended June 30, 2002, the decrease in these
expenses from 2001 to 2002 resulted from a cost reduction effort and the
decrease in usage resulting from the decrease in headcount.

Marketing and business development expense for the three months ended
June 30, 2002 was $2.2 million, compared to $3.1 million for the three months
ended June 30, 2001, representing a

15

decrease of 28%. For the six months ended June 30, 2002, marketing and business
development expense was $4.0 million compared to $6.3 million for the six months
ended June 30, 2001, representing a decrease of 36%. Marketing and business
development expense consists primarily of travel, entertainment and costs
associated with hosting our technology-focused conferences. The decrease from
the first six months of 2001 to 2002 is attributable to a decrease in
advertising costs incurred as well as a decrease in travel expenses resulting
from the market slowdown and to a lesser extent, the related reduction in
headcount. In the future, we would expect these expenses to fluctuate to the
extent we modify our marketing efforts in response to the changing business
environment and market conditions.

Occupancy expense for the three months ended June 30, 2002 was
$1.8 million, compared to $4.4 million for the three months ended June 30, 2001,
representing a decrease of 59%. For the six months ended June 30, 2002,
occupancy expense was $4.0 million compared to $7.6 million for the six months
ended June 30, 2001, representing a decrease of 48%. Occupancy expense includes
costs related to leasing office space in Old Greenwich, San Francisco and
Boston. The decrease from 2001 to 2002 was attributable to reduced headcount and
related steps we took to consolidate our east coast operations into one location
in Old Greenwich, Connecticut as well as consolidate our office space in San
Francisco.

Depreciation and amortization expense for the three months ended June 30,
2002 was $1.3 million, compared to $3.0 million for the three months ended
June 30, 2001, representing a decrease of 58%. For the six months ended
June 30, 2002, depreciation and amortization expense was $3.3 million compared
to $5.8 million for the six months ended June 30, 2001, representing a decrease
of 43%. Depreciation and amortization consists primarily of depreciation and
amortization of furniture, equipment and leasehold improvements and amortization
of computer software. The decrease in depreciation and amortization expense is
primarily the result of the write-off of leasehold improvements related to the
consolidation of office space in the latter quarters of 2001 and the first
quarter of 2002 and the completion of depreciation of assets acquired in the
merger with E*OFFERING in the first quarter of 2002.

Professional services expense for the three months ended June 30, 2002 was
$1.9 million, compared to $1.9 million for the three months ended June 30, 2001.
For the six months ended June 30, 2002, professional services expense was
$3.5 million compared to $4.4 million for the six months ended June 30, 2001,
representing a decrease of 20%. Professional services expense includes legal,
consulting, accounting, and recruiting fees and the costs related to our
strategic relationships with the Gartner Inc. and the Giga Information Group,
which allow us access to their products and services. The decrease from the
first six months of 2001 to 2002 is primarily attributable to reduced legal
fees. However, legal fees fluctuate and there can be no assurance that they will
not increase in the future.

The discontinuance of our European operations in the first quarter of 2002
resulted in a $6.3 million charge for severance and other costs associated with
closing STGE's operations, including a $2.8 million loss on foreign exchange
translation which had been reported as a separate component of stockholders'
equity, and an $8.1 million reduction of minority interest in STGE. The
$8.1 million reduction of minority interest was reclassified in June 2002 to
minority interest in the statement of operations. This amount had previously
been classified as an offset in expenses related to the discontinuance of our
European operations.

Loss from consolidation of office space was $8.5 million for the six months
ended June 30, 2002 compared to $9.8 million for the six months ended June 30,
2001. In 2002, this loss consists primarily of an adjustment to a reserve
established in the second and third quarters of 2001 related to our lease
commitment for an unused portion of our office space in San Francisco,
California. In March 2002, we decided to further consolidate our office space in
San Francisco as a result of the reduction in headcount, which we believe will
increase the likelihood of sublease for the unoccupied portion.

16

Accordingly, we recorded an additional loss reserve of $7.8 million consisting
of our lease commitment for the estimated time frame for sublease and the market
loss on the additional unused office space over the life of the lease. The space
in San Francisco has not been subleased and the prospects for subleasing in the
near term are unclear. In addition, we have been unsuccessful at subleasing our
unoccupied office space in Stamford, Connecticut and have established a reserve
of $0.7 million related to this sublease. As we assess market conditions and
other factors existing in 2002 regarding the demand for office space, we will
determine if additional adjustments to the loss reserve are necessary in
relation to the planned subleases of our office space in various locations.

Other expenses for the three months ended June 30, 2002 were $1.0 million,
compared to $1.5 million for the three months ended June 30, 2001, representing
a decrease of 38%. For the six months ended June 30, 2002, other expenses was
$2.3 million, compared to $3.4 million for the six months ended June 30, 2001,
representing a decrease of 32%. Other expenses includes costs for office
supplies, insurance, subscriptions, registrations and other general
administrative expenses. Comparing 2002 to 2001, the decrease in other expenses
relates to a decrease in general and administrative costs through an ongoing
expense reduction effort and the elimination of a joint venture for which costs
were incurred in the six month period ended June 30, 2001.

OTHER

For the six month period ended June 30, 2002, we recorded a gain on
strategic investment of $1.2 million related to an escrow distribution from our
investment in enba plc. We are due to receive an additional payment related to
this investment in the fourth quarter; however, there can be no assurance that
this payment will be received.

Equity in net loss of affiliates and minority interest totaled $0 for the
three and six month periods ended June 30, 2002 compared to $2.8 million for the
three month period ended June 30, 2001 and $8.1 million for the six month period
ended June 30, 2001. In 2001, equity in net loss of affiliates represented our
proportional share of the losses incurred by Wit Capital Japan through the sale
of our investment in November 2001 and our proportional share of losses incurred
by STGE until February 2001 when we acquired an 82% interest in STGE and began
to consolidate its results of operations with ours. Minority interest in the
earnings of STGE in the first quarter of 2001 represents recognition of the 18%
interest in that entity held by Cazenove & Co. ("Cazenove"). Further, on
March 15, 2002, we acquired Cazenove's interest in STGE, for a nominal amount,
increasing our ownership interest in STGE to 99.9% and made the decision to
discontinue the operations of the subsidiary. Accordingly, 99.9% of the results
of operations of STGE have been consolidated with ours since March 15, 2002 and
all charges related to the discontinuance of the European operations are
discussed above.

For the three months ended June 30, 2002, we recorded a provision for income
taxes of $25.9 million compared to a $27.3 million income tax benefit for the
three months ended June 30, 2001. For the six months ended June 30, 2002, we
recorded a provision for income taxes of $20.2 million compared to an income tax
benefit of $31.0 million recorded for the six months ended June 30, 2001. We
record a provision or benefit for income taxes based on our estimated taxable
income and periodically assess the need for valuation allowances based on our
estimation of future taxable earnings. Our effective tax rate differs from the
Federal statutory rate as a result of certain non-deductible expenses, primarily
goodwill, and state and local income taxes. For the three and six month periods
ended June 30, 2002, we recorded a charge of approximately $24.5 million to
establish a valuation allowance against the net balance of our deferred tax
assets, which resulted primarily from net operating loss carryforwards. The
valuation allowance was calculated in accordance with the provisions of SFAS
No. 109 "Accounting for Income Taxes" which places primary importance on the
Company's historical results of operations. Although management believes the
Company's results in prior years were significantly affected by restructuring
and other charges, the Company's historical

17

losses and losses incurred in the current fiscal year represented negative
evidence sufficient to require a full valuation allowance under the provisions
of SFAS 109. We believe that our future results of operations will generate
taxable income sufficient to realize the net deferred tax assets, but our belief
does not satisfy the requirement for objective evidence under SFAS No. 109 to
support the carrying value of the asset. If the Company is able to realize part
or all the deferred tax assets in future periods, it will reduce its provision
for income taxes with a release of the valuation allowance in an amount that
corresponds with the income tax liability generated.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2002, we have $158.3 million in cash and cash equivalents and
unrestricted cash held at our clearing broker. In July 2002, our Board of
Directors authorized the repurchase of up to an additional 8.5 million shares of
our common stock. Stock repurchases may be made from time to time depending on
the market for our common stock and other factors.

Net cash used in operating activities was $26.9 million for the six months
ended June 30, 2002, compared to $14.2 million during the same period in the
preceding year. Cash used in operating activities for the six months ended
June 30, 2002 was primarily from a net loss of $49.3 million, offset by non-cash
adjustments of $29.2 million, a net increase in operating assets of
$3.2 million, offset by a decrease in operating liabilities of $9.9 million.
Cash used in operating activities for the six months ended June 30, 2001 was
primarily from a net loss of $290.4 million, non-cash adjustments of
$273.6 million, a cumulative translation loss adjustment of $2.8 million, a net
decrease in operating assets of $91.6 million, offset by a net decrease in
operating liabilities of $86.2 million.

Net cash used in investing activities was $11,000 for the six months ended
June 30, 2002, compared to $15.4 million for the six months ended June 30, 2001.
Cash used in investing activities for the six months ended June 30, 2002
consisted primarily of reimbursement for purchases of furniture, equipment and
leasehold improvements offset by expenditures for computer software and for the
repurchase of the minority interest in STGE. Cash used in investing activities
for the six months ended June 30, 2001 was primarily the result of an additional
investment in STGE of $8.2 million, purchases of furniture, equipment and
leasehold improvements of $5.8 million and purchases of software of $827,000.

Net cash provided by financing activities was $2.3 million for the six
months ended June 30, 2002, compared to cash used in financing activities of
$2.4 million during the six months ended June 30, 2001. Cash provided by
financing activities for the six months ended June 30, 2002 resulted from
proceeds received from the issuance of common stock for the exercise of options.
Cash used in financing activities for the six months ended June 30, 2001
resulted primarily from repurchases of common stock of $7.0 million offset by
$3.9 million in proceeds received from the issuance of common stock for exercise
of options and warrants.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets
acquired individually or with a group of other assets (but not those acquired in
a business combination) at acquisition. The statement provides that assets which
have indefinite useful lives will not be amortized, but rather will be tested at
least annually for impairment and establishes specific guidelines for the
testing of such assets. SFAS No. 142 allows for intangible assets with finite
useful lives to continue to be amortized over their useful lives, but provides
that those lives will no longer be limited to 40 years. The provisions of SFAS
No. 142 are effective for fiscal years beginning after December 15, 2001.
Accordingly, beginning in January 2002, the Company ceased amortizing the
remaining carrying value of the goodwill and tradename intangible assets related
to the Company's merger with STG in January 2000, both of which have indefinite
useful lives. In connection with the adoption of SFAS No. 142, the Company has
determined that no adjustment was necessary to the carrying value of its
goodwill. The Company will perform its annual impairment test during the fourth
quarter of each year commencing in the fourth quarter of 2002.

18

ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There has been no material change from the Item 305 information included in
the Registrant's Annual Report on Form 10-K for the year ended December 31,
2001.

PART II

ITEM 1--LEGAL PROCEEDINGS

Certain claims and legal proceedings are described in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2001. We are
currently subject to claims and legal proceedings arising in the normal course
of our business. We do not believe that the resolution of such legal proceedings
should have a material adverse effect on us.

ITEM 2--CHANGES IN SECURITIES AND USE OF PROCEEDS

In July 2002, our Board of Directors authorized the repurchase of up to an
additional 8.5 million shares of our common stock. This augments the 5 million
share repurchase approved on April 19, 2001 of which we have repurchased
3.4 million shares as of June 30, 2002 at an average price of $1.85 per share.

ITEM 3--DEFAULT UPON SENIOR SECURITIES

None

ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual Meeting of Stockholders on May 29, 2002.
Following is a description of the matter voted on and the results of such
meeting:

The election of two directors to serve until 2005.

ITEM 5--OTHER INFORMATION

FORWARD-LOOKING STATEMENTS

The Company has included in this Form 10-Q filing, and from time to time its
management may make, statements which may constitute forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are not
historical facts but instead represent only the Company's beliefs regarding
future events, many of which, by their nature, are inherently uncertain and
outside of the Company's or its management's control. Statements preceded by,
followed by, or that include the words "expect," "will," "may," "could,"
"intend," "anticipate," "believe," and "should", involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements, or those of the industry in which we operate, to be
materially different from any expected future results, performance or
achievements expressed or implied in these forward-looking statements. It is
possible that its actual results may differ, possibly materially, from the
anticipated results indicated in these forward-looking statements. Important
factors that could cause actual results to differ from those in the Company's
specific forward-looking statements include:

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

19

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

- increasing competitive pressures; and

- increased volatility in the capital markets.

Additional information regarding these and other important factors that
could cause actual results to differ from those in the Company's forward-looking
statements is contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001. The Company hereby incorporates by
reference those risk factors into this Form 10-Q. Other additional information
regarding important factors that cause results to differ from those in the
Company's forward looking statements are contained in the Company's periodic
filings with the Securities & Exchange Commission.

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

(a) Exhibits:

10.2 Employment Agreement between SoundView Technology
Group, Inc. and Robert Meier dated May 9, 2002.
10.3 Employment Agreement between SoundView Technology
Group, Inc. and John Hervey dated July 10, 2002.
10.4 Amendment to Employment Agreement between SoundView
Technology Group, Inc. and Robert H. Lessin dated June 3,
2002.
99.1 Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

On May 8, 2002, the Company filed a current report on Form 8-K describing a
change in its independent auditors.

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: August 14, 2002 SOUNDVIEW TECHNOLOGY GROUP, INC.

By: /s/ MARK F. LOEHR
-----------------------------------------
Mark F. Loehr
CHIEF EXECUTIVE OFFICER

By: /s/ JENNIFER M. FLEISSNER
-----------------------------------------
Jennifer M. Fleissner
CHIEF FINANCIAL OFFICER