_______________________________________________________________________
_______________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 0-12926
FECHTOR, DETWILER, MITCHELL & CO.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2627415
------------------- -------------------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
225 FRANKLIN STREET
BOSTON, MA 02110
------------------- -------------------
(Address of (Zip Code)
principal executive
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-451-0100
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
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 11, 2000, the registrant had 12,928,451 shares of
common stock, $.01 par value, issued and 12,793,251 shares
outstanding.
_______________________________________________________________________
_______________________________________________________________________
FECHTOR, DETWILER, MITCHELL & CO.
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Financial Condition at
March 31, 2000 and December 31, 1999...........................3
Consolidated Statement of Operations for the three months ended
March 31, 2000 and 1999........................................4
Consolidated Statement of Cash Flows for the three months ended
March 31, 2000 and 1999........................................5
Notes to Consolidated Financial Statements.........................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................8
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................10
SIGNATURES.................................................................11
2 of 11
PART I. FINANCIAL INFORMATION
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 581,459 $ 1,272,826
Deposits with clearing organizations 412,182 352,831
Receivables from brokers, dealers and clearing
organizations 1,027,258 1,019,614
Due from customers 13,769,964 11,958,104
Securities borrowed 1,438,600 71,200
Non-marketable securities, at fair value 815,135 1,000,000
Fixed assets, net 517,578 461,467
Intangible assets 127,885 129,385
Other assets 1,524,692 1,576,928
------------ ------------
Total Assets $20,214,753 $17,842,355
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 2,000,000 $ 3,000,000
Due to customers 7,084,467 4,218,969
Accounts payable and accrued liabilities 2,620,604 2,278,473
------------ ------------
Total Liabilities 11,705,071 9,497,442
------------ ------------
Contingencies
Stockholders' Equity:
Preferred stock, no par value; 5,000,000
shares authorized; none issued - -
Common stock, $.01 par value; 20,000,000
shares authorized; 12,916,451 shares
outstanding and 12,781,251 shares issued 129,165 129,165
Paid-in-capital 7,103,286 7,103,286
Retained earnings 1,414,310 1,249,541
Treasury stock, at cost; 135,200 shares (137,079) (137,079)
------------ ------------
Total Stockholders' Equity 8,509,682 8,344,913
------------ ------------
Total Liabilities and Stockholders'
Equity $20,214,753 $17,842,355
============ ============
See accompanying Notes to Consolidated Financial Statements.
3 of 11
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
(unaudited)
REVENUES
Commissions $ 2,976,869 $ 1,784,484
Principal transactions 2,008,782 1,673,289
Investment banking 525,419 86,750
Interest 276,866 149,710
Other 137,583 72,652
------------ ------------
Total revenues 5,925,519 3,766,885
------------ ------------
EXPENSES
Compensation and benefits 3,602,586 2,405,303
General and administrative 742,586 311,265
Floor brokerage, clearing and commissions 443,472 423,635
Occupancy, communications and systems 270,272 282,606
Interest 90,489 48,040
Amortization of intangibles 1,500 -
Write-down of non-marketable securities 500,000 -
Settlement and merger costs - -
------------ ------------
Total expenses 5,650,905 3,470,849
------------ ------------
Income before income taxes 274,614 296,036
Income tax expense (109,845) (133,216)
------------ ------------
Net income $ 164,769 $ 162,820
============ ============
Net Income Per Share:
Basic $ 0.01 $ 0.02
============ ============
Diluted $ 0.01 $ 0.02
============ ============
Weighted Average Shares Outstanding:
Basic 12,781,251 6,600,000
============ ============
Diluted 13,074,778 6,600,000
============ ============
See accompanying Notes to Consolidated Financial Statements.
4 of 11
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------- ------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 164,769 $ 162,820
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 43,377 19,734
Amortization of intangibles 1,500 -
Write-down of non-marketable securities 500,000 -
Changes in:
Deposits with clearing organizations (59,351) -
Receivables from brokers, dealers and
clearing organizations (7,644) (79,367)
Due from customers (1,811,860) (238,741)
Securities borrowed (1,367,400) 629,350
Other assets 52,236 20,614
Due to customers 2,865,498 (325,842)
Accounts payable and accrued liabilities 342,131 99,157
------------- ------------
Net cash provided by operating activities 723,256 287,725
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in non-marketable securities (315,135) -
Capital expenditures (99,488) (19,788)
------------- ------------
Net cash used in investing activities (414,623) (19,788)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable (1,000,000) 200,000
------------- ------------
Net cash provided by (used in)
financing activities (1,000,000) 200,000
------------- ------------
Net increase (decrease) in cash (691,367) 467,937
Cash at beginning of period 1,272,826 1,041,570
------------- ------------
Cash at end of period $ 581,459 $ 573,633
============= ============
CASH PAYMENTS:
Interest $ 90,489 $ 48,040
Income taxes $ 2,500 $ 8,666
See accompanying Notes to Consolidated Financial Statements.
5 of 11
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
On August 30, 1999, effective September 1, 1999 for
accounting purposes, Fechtor, Detwiler & Co., Inc. ("Fechtor
Detwiler") sold its operations to JMC Group, Inc. ("JMCG") and
JMCG became the surviving corporation (the "Merger").
Subsequently, JMCG was renamed Fechtor, Detwiler, Mitchell & Co.
(the "Company") and its NASDAQ trading symbol was changed to
FEDM. The former shareholders of Fechtor Detwiler received
6,600,000 common shares of JMCG representing 52% of the then
outstanding common shares at the Merger date. The shareholder's
of JMCG converted 6,166,451 shares to an equal number of shares
of the Company.
The Merger was accounted as a purchase of JMCG by Fechtor
Detwiler in a reverse acquisition. The assets and liabilities of
JMCG at the Merger date were adjusted to their estimated fair
values based upon purchase price allocations. The assets and
liabilities of Fechtor Detwiler are reported at their historical
cost basis. In a reverse acquisition, the accounting treatment
differs from the legal form of the transaction, as the continuing
legal parent company (JMCG) is not the acquiror and the
historical financial statements of JMCG become those of Fechtor
Detwiler; the accounting acquiror.
Consequently, the presentation of the Company's consolidated
financial statements prior to September 1, 1999 reflects the
financial statements of Fechtor Detwiler. In addition, for
periods prior to September 1, 1999, stockholders' equity of
Fechtor Detwiler has been restated retroactively to reflect the
par value of the 6,600,000 common shares received by Fechtor
Detwiler.
Fechtor, Detwiler, Mitchell & Co. is the holding company for
its two operating subsidiaries; Fechtor, Detwiler & Co., Inc., an
investment banking and brokerage firm headquartered in Boston,
Massachusetts and James Mitchell & Co., a financial
services company located in San Diego, California.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation-The unaudited financial statements of
Fechtor, Detwiler, Mitchell & Co. have been prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission and Generally Accepted Accounting Principles.
These financial statements should be read in conjunction with the
annual report of the Company filed on Form 10-K for the year
ended December 31, 1999. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, have been made to present
fairly the financial statements of the Company at March 31, 2000 and
for the three month periods ended March 31, 2000 and 1999, respectively.
Principles of Consolidation-The consolidated financial
statements of Fechtor, Detwiler, Mitchell & Co. include the
accounts of its wholly-owned subsidiaries. All material
intercompany transactions have been eliminated in consolidation.
Net Capital Requirements-Certain subsidiaries of the Company
are subject to broker-dealer net capital requirements. At
March 31, 2000, each broker-dealer subsidiary was in compliance with
its net capital requirement.
Use of Estimates-The preparation of the Company's financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect amounts reported in the accompanying financial
statements. Actual results could vary from the estimates that
were used.
6 of 11
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. EARNINGS PER SHARE
Basic and diluted net income per share and weighted average
shares outstanding follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------- -------------
Net income $ 164,769 $ 162,820
============= =============
Net income per share:
Basic $ 0.01 $ 0.02
============= =============
Diluted $ 0.01 $ 0.02
============= =============
Weighted average shares
outstanding:
Basic 12,781,251 6,600,000
Incremental shares assumed
outstanding from exercise of
stock options 293,527 -
------------- -------------
Diluted 13,074,778 6,600,000
============= =============
NOTE 4. SUBSEQUENT EVENT
On May 9, 2000, the Company obtained a May 1, 2000 Securities
and Exchange Commission filing of OptiMark Technologies, Inc. ("OptiMark")
which disclosed information questioning OptiMark's ability to continue as
a going concern. The Company obtained this information subsequent to its
earnings release of May 8, 2000 but prior to completion of this quarterly
report. Accordingly, the Company wrote down its investment in OptiMark by
$500,000, or 50%, representing a net adjustment of $300,000 after income
tax benefit.
NOTE 5. CONTINGENCIES
The Company from time to time is subject to legal
proceedings and claims which arise in the ordinary course of its
business. Management believes that resolution of these matters
will not have a material adverse effect on the Company's results
of operations or financial condition.
7 of 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
On August 30, 1999, effective September 1, 1999 for
accounting purposes, Fechtor, Detwiler & Co., Inc. ("Fechtor
Detwiler") sold its operations to JMC Group, Inc. ("JMCG") and
JMCG became the surviving corporation (the "Merger").
Subsequently, JMCG was renamed Fechtor, Detwiler, Mitchell & Co.
(the "Company") and its NASDAQ trading symbol was changed to
FEDM. The former shareholders of Fechtor Detwiler received
6,600,000 common shares of JMCG representing 52% of the then
outstanding common shares at the Merger date. The shareholder's
of JMCG converted 6,166,451 shares to an equal number of shares
of the Company.
The Merger was accounted as a purchase of JMCG by Fechtor
Detwiler in a reverse acquisition. The assets and liabilities of
JMCG at the Merger date were adjusted to their estimated fair
values based upon purchase price allocations. The assets and
liabilities of Fechtor Detwiler are reported at their historical
cost basis. In a reverse acquisition, the accounting treatment
differs from the legal form of the transaction, as the continuing
legal parent company (JMCG) is not the acquiror and the
historical financial statements of JMCG become those of Fechtor
Detwiler, the accounting acquiror.
Consequently, the presentation of the Company's consolidated
financial statements prior to September 1, 1999 reflects the
financial statements of Fechtor Detwiler. In addition, for
periods prior to September 1, 1999, stockholders' equity of
Fechtor Detwiler has been restated retroactively to reflect the
par value of the 6,600,000 common shares received by Fechtor
Detwiler.
Fechtor, Detwiler, Mitchell & Co. is the holding company for
its two operating subsidiaries; Fechtor, Detwiler & Co., Inc., an
investment banking and brokerage firm headquartered in Boston,
Massachusetts and James Mitchell & Co., a financial
services company located in San Diego, California.
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1999
Net income of $165,000, $0.01 per share - basic and diluted,
for the three months ended March 31, 2000 compared to net income
of $163,000, $0.02 per share - basic and diluted, for the three
months ended March 31, 1999. Results for 1999 represent solely
Fechtor, Detwiler & Co., Inc., the investment banking and
brokerage company.
Income before taxes, before the write-down of the non-
marketable securities, was $774,000 for the first quarter of 2000
compared to $296,000 for the first quarter of 1999.
Revenues for the first quarter of 2000 were $5,926,000, an
increase of $2,159,000 or 57%, compared to $3,767,000 for the
comparable quarter of 1999. The increase in revenues primarily
results from higher transaction volumes in the first quarter of
2000. Additionally, Fechtor, Detwiler & Co., Inc., the broker-
dealer subsidiary of the Firm, completed a $7,000,000 private
placement for an Internet marketing company and participated in
three smaller secondary financings for technology firms.
Compensation and benefits expense of $3,603,000 for the
three months ended March 31, 2000 increased $1,197,000 compared
to the same quarter last year due to higher commissions paid
associated with higher transaction revenues and expenses of James
Mitchell & Co.
General and administrative expense of $743,000 for the three
months ended March 31, 2000 increased $431,000 compared to the
same quarter last year due primarily to the establishment of
certain operating reserves and expenses of James Mitchell & Co.
Interest expense of $90,000 for the three months ended March 31, 2000
increased $42,000 from the same quarter last year due to higher average
notes payable balances and interest rates.
8 of 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On May 9, 2000, the Company obtained a May 1, 2000 Securities
and Exchange Commission filing of OptiMark Technologies, Inc. ("OptiMark")
which disclosed information questioning OptiMark's ability to continue as
a going concern. The Company obtained this information subsequent to its
earnings release of May 8, 2000 but prior to completion of this quarterly
report. Accordingly, the Company wrote down its investment in OptiMark by
$500,000, or 50%, representing a net adjustment of $300,000 after income tax
benefit.
CAPITAL RESOURCES AND LIQUIDITY
The Company finances its activities primarily from cash
generated by operations and borrowings from its lines of credit.
At March 31, 2000, the Company's assets of $20 million primarily
consisted of cash or assets readily convertible into cash,
principally margin loans due from customers.
Cash and cash equivalents at March 31, 2000 of $581,000
decreased $691,000 from December 31, 1999. The decrease in cash
reflects the repayment of $1,000,000 of notes payable at March
31, 2000.
Fechtor Detwiler has two available lines of credit totaling
$20,000,000 with $2,000,000 outstanding at March 31, 2000.
During April 2000, the lines of credit were paid-off as a result
of lower customer margin account balances outstanding subsequent
to March 31, 2000.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
Any statements in this report that are not historical facts
are intended to fall within the safe harbor for forward-looking
statements provided by the Private Securities Litigation Reform
Act of 1995. These statements may be identified by such forward-
looking terminology as "expect", "look", "believe", "anticipate",
"may", "will" or similar statements or variations of such terms.
Any forward-looking statements should be considered in light of the
risks and uncertainties associated with Fechtor, Detwiler, Mitchell
& Co. and its businesses, economic and market conditions prevailing
from time to time, and the application and interpretation of Federal
and state tax laws and regulations, all of which are subject to
material changes and which may cause actual results to vary
materially from what had been anticipated.
9 of 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits.
The following exhibit is filed herewith:
27 Financial Data Schedule.
b.) Reports on Form 8-K.
On March 4, 2000, the Company filed a report on
Form 8-K regarding the amendment of its
Shareholder's Rights Plan on February 20, 2000
extending the expiration date of the plan to
February 21, 2010.
10 of 11
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JAMES K. MITCHELL Chairman and President May 12, 2000
- ----------------------
JAMES K. MITCHELL
/s/ STEPHEN D. MARTINO Chief Financial Officer May 12, 2000
- ---------------------- and Principal Accounting Officer
STEPHEN D. MARTINO
11 of 11