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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 JUNE 30, 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 02110
BOSTON, MA
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(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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 28, 2000, the registrant had 11,388,251 shares of
common stock, $.01 par value, issued and outstanding.
___________________________________________________________________
___________________________________________________________________
FECHTOR, DETWILER, MITCHELL & CO.
INDEX TO FORM 10-Q
PAGE
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Financial Condition
at June 30, 2000 and December 31, 1999.........3
Consolidated Statement of Operations for the
three and six month periods ended
June 30, 2000 and 1999.........................4
Consolidated Statement of Cash Flows for the
three and six month periods ended
June 30, 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
Item 3. Quantitative and Qualitative Disclosures About
Market Risk......................................10
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings..................................11
Item 4. Submission of Matters to Vote of Security
Holders..........................................11
Item 6. Exhibits and Reports on Form 8-K...................11
Signatures...................................................12
2 of 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 856,228 $ 1,272,826
Deposits with clearing organizations 428,047 352,831
Receivables from brokers, dealers and
clearing organizations 1,857 1,019,614
Due from customers 6,649,586 11,958,104
Securities borrowed 3,214,800 71,200
Non-marketable securities, at fair value 932,135 1,000,000
Fixed assets, net 491,597 461,467
Intangible assets 126,385 129,385
Other assets 1,134,075 1,576,928
------------ ------------
Total Assets $13,834,710 $17,842,355
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 700,000 $ 3,000,000
Due to customers 4,154,759 4,218,969
Accounts payable and accrued
liabilities 1,644,947 2,278,473
------------ ------------
Total Liabilities 6,499,706 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; 11,388,251 shares
and 12,916,451 shares issued and
outstanding 113,883 129,165
Paid-in-capital 5,592,427 7,103,286
Retained earnings 1,628,694 1,249,541
Treasury stock, at cost - (137,079)
------------ ------------
Total Stockholders' Equity 7,335,004 8,344,913
------------ ------------
Total Liabilities and Stockholders'
Equity $13,834,710 $17,842,355
============ ============
See Accompanying Notes to Consolidated Financial Statements.
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FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------- ------------- ------------ ------------
(unaudited)
REVENUES
Commissions $ 2,716,230 $ 1,998,533 $ 5,693,099 $ 3,783,016
Principal transactions 1,158,663 1,682,362 3,167,445 3,355,651
Investment banking 173,923 94,250 699,342 181,000
Gain on sale of investment
securities 83,050 - 83,050 -
Interest 239,846 239,570 516,712 389,279
Other 113,552 85,274 251,135 157,928
------------- ------------- ------------ ------------
Total revenues 4,485,264 4,099,989 10,410,783 7,866,874
------------- ------------- ------------ ------------
EXPENSES
Compensation and benefits 2,552,492 2,109,632 6,155,078 4,514,935
General and administrative 569,323 464,205 1,311,827 775,469
Floor brokerage, clearing
and commissions 548,687 444,797 992,159 868,432
Occupancy, communications
and systems 285,406 282,422 555,678 565,028
Interest 79,864 95,965 170,353 144,006
Amortization of intangibles 1,500 - 3,000 -
Write-down of non-marketable
securities - - 500,000 -
Settlement and merger costs - 393,815 - 393,815
------------- ------------- ------------ ------------
Total expenses 4,037,272 3,790,836 9,688,095 7,261,685
------------- ------------- ------------ ------------
Income before income taxes 447,992 309,153 722,688 605,189
Income tax expense (233,691) (131,783) (343,536) (264,999)
Net income $ 214,301 $ 177,370 $ 379,152 $ 340,190
============= ============= ============ ============
NET INCOME PER SHARE:
Basic $ 0.02 $ 0.03 $ 0.03 $ 0.05
============= ============= ============ ============
Diluted $ 0.02 $ 0.03 $ 0.03 $ 0.05
============= ============= ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 12,322,473 6,600,000 12,551,862 6,600,000
============= ============= ============ ============
Diluted 12,322,473 6,600,000 12,617,062 6,600,000
============= ============= ============ ============
See Accompanying Notes to Consolidated Financial Statements.
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FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
2000 1999
--------------- ---------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 379,152 $ 340,190
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 112,376 43,218
Amortization of intangibles 3,000 -
Write-down of non-marketable securities 500,000 -
Changes in:
Deposits with clearing organizations (75,216) -
Receivables from brokers, dealers
and clearing organizations 1,017,757 (798,512)
Due from customers 5,308,518 (5,905,982)
Securities borrowed (3,143,600) 476,750
Other assets 442,853 298,567
Due to customers (64,210) (478,936)
Accounts payable and accrued liabilities (633,526) (56,637)
--------------- ---------------
Net cash provided by (used in) operating
activities 3,847,104 (6,081,342)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities - (276,873)
Increase in non-marketable securities (432,135) -
Capital expenditures (142,505) (36,936)
--------------- ---------------
Net cash used in investing activities (574,640) (313,809)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable (2,300,000) 5,867,995
Proceeds from exercise of common stock
options 15,000 -
Purchase and retirement of treasury stock (1,404,062) -
--------------- ---------------
Net cash provided by (used in)
financing activities (3,689,062) 5,867,995
--------------- ---------------
Net decrease in cash (416,598) (527,156)
Cash at beginning of period 1,272,826 573,633
--------------- ---------------
Cash at end of period $ 856,228 $ 46,477
=============== ===============
CASH PAYMENTS:
Interest $ 170,353 $ 144,006
=============== ===============
Income taxes $ 2,500 $ 20,817
=============== ===============
See Accompanying Notes to Consolidated Financial Statements.
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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 common 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 were restated to reflect 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 June 30, 2000 and for the three and six month periods
ended June 30, 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- Three subsidiaries of the Company
are subject to net capital requirements for broker-dealers. At
June 30, 2000, each 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.
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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:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
Net income $ 214,301 $ 177,370 $ 379,152 $ 340,190
============ ============ ============ ===========
Net income per share:
Basic $ 0.02 $ 0.03 $ 0.03 $ 0.05
============ ============ ============ ===========
Diluted $ 0.02 $ 0.03 $ 0.03 $ 0.05
============ ============ ============ ===========
Weighted average shares
outstanding:
Basic 12,322,473 6,600,000 12,551,862 6,600,000
Incremental shares
assumed outstanding
from exercise of
stock options - - 65,200 -
------------ ------------ ------------ -----------
Diluted 12,322,473 6,600,000 12,617,062 6,600,000
============ ============ ============ ===========
NOTE 4. 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 12
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 common 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 were restated to reflect 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 JUNE 30, 2000
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999
Net income of $214,000, $0.02 per share - basic and diluted
on 12.3 million shares outstanding, for the three months ended
June 30, 2000 compared to net income of $177,000, $0.03 per share
- - basic and diluted on 6.6 million shares outstanding, for the
three months ended June 30, 1999. Results for 1999 represent
solely Fechtor, Detwiler & Co., Inc., the investment banking and
brokerage company.
Revenues for the second quarter of 2000 were $4,485,000, an
increase of $385,000 or 9%, compared to $4,100,000 for the second
quarter of 1999. The increase primarily results from revenues of
James Mitchell & Co.
Compensation and benefits expense of $2,552,000 for the
three months ended June 30, 2000 increased $443,000 compared to
the same quarter last year due to higher commission payments at
Fechtor, Detwiler & Co., Inc. and expenses of James Mitchell &
Co.
General and administrative expense of $569,000 for the three
months ended June 30, 2000 increased $105,000 compared to the
same quarter last year due to the establishment of certain
operating reserves and expenses of James Mitchell & Co.
Interest expense of $80,000 for the three months ended June
30, 2000 decreased $16,000 compared to the same quarter last year
due to lower average notes payable balances partially offset by
higher interest rates.
8 of 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Net income of $379,000, $0.03 per share - basic and diluted
on 12.6 million shares outstanding, for the six months ended June
30, 2000 compared to net income of $340,000, $0.05 per share -
basic and diluted on 6.6 million shares outstanding, for the six
months ended June 30, 1999. Results for 1999 represent solely
Fechtor, Detwiler & Co., Inc., the investment banking and
brokerage company.
Income before income taxes, before the write-down of non-
marketable securities and settlement and merger costs, was $1,223,000
for the six months ended June 30, 2000 compared to $999,000 for the same
period last year.
Revenues for the six months ended June 30, 2000 were
$10,411,000, an increase of $2,544,000 or 32%, compared to
$7,867,000 for the same period last year. The increase results
from higher transaction volumes in the first quarter of 2000 and
revenues of James Mitchell & Co.
Compensation and benefits expense of $6,155,000 for the six
months ended June 30, 2000 increased $1,640,000 compared to the
same period last year due to commissions paid on higher
transaction volumes and expenses of James Mitchell & Co.
General and administrative expense of $1,312,000 for the six
months ended June 30, 2000 increased $537,000 compared to the
same period last year due primarily to the establishment of
certain operating reserves and expenses of James Mitchell & Co.
Interest expense of $170,000 for the six months ended June
30, 2000 increased $26,000 from the same period last year due to
higher average notes payable balances and interest rates.
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.
Accordingly, the Company wrote down its investment in OptiMark in
the first quarter of 2000 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 June 30, 2000, the Company's assets primarily consisted of
cash or assets readily convertible into cash, principally margin
loans due from customers and securities borrowed.
Cash and cash equivalents at June 30, 2000 of $856,000
decreased $417,000 from December 31, 1999. The decrease in cash
primarily results from the increase in non-marketable securities.
Fechtor Detwiler has two available lines of credit totaling
$15,000,000 with $700,000 outstanding at June 30, 2000. During
2000, notes payable were reduced by $2,300,000 using proceeds
from reductions in customer margin accounts.
On May 29, 2000, 1,400,000 common shares were repurchased
from the former Chief Executive Officer of the Company. In June
2000, the Company retired all shares held in treasury.
9 of 12
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not been a party to derivative financial
instruments or derivative commodity instruments at or during the
six month period ended June 30, 2000. The Companies only
significant financial instruments (as defined by Financial
Accounting Standards Board Statement No. 107) are its line of
credit borrowings which are discussed in Note 6 of the December
31, 1999 consolidated financial statements of the Company.
10 of 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company's subsidiary, JMC Investment Services, Inc.
("JMCI") was a defendant in an NASD arbitration regarding sales
of certain investments in 1992 by Spear Rees & Co. (predecessor
to JMCI). All claims against JMCI were denied in full by the
NASD arbitration panel on May 25, 2000.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
a.) The Annual Meeting of Stockholders of Fechtor,
Detwiler, Mitchell & Co. ("the Company") was held on
May 22, 2000.
b.) The following matters were submitted to a vote of the
Stockholders of the Company.
1. Approval of the Fechtor, Detwiler, Mitchell & Co.
2000 Omnibus Equity Incentive Plan:
Votes For: 8,634,892
Votes Against: 312,116
Abstain: 5,206
Non-votes: 3,096,793
2. Electing two directors, Edward Baran and Edward
Hughes to serve for three years or until a successor
shall be elected:
Votes For: 11,712,494
Withheld: 336,513
3. Ratification of the selection of Deloitte & Touche
LLP as independent auditors for 1999:
Votes For: 12,011,801
Votes Against: 36,200
Abstain: 1,006
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 June 13, 2000, the Company filed a report on
Form 8-K regarding its May 22, 2000 announcement that
Richard Fechtor retired as Chief Executive Officer and
as a member of the Board of Directors of the Company.
The announcement also reported that James Mitchell was
named as Chief Executive Officer and Andrew Detwiler
was named President of the Company. Robert Detwiler
was also appointed by the Board of Directors to fill
the vacancy on the Board resulting from Richard
Fechtor's retirement. The Company also announced the
repurchase of 1,400,000 common shares from Mr. Fechtor
at a price of $1.00 per share, which was completed on
May 29, 2000.
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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.
/s/ Fechtor, Detwiler, Mitchell & Co.
-------------------------------------
Registrant
Date: July 28, 2000
SIGNATURE
---------
/s/ JAMES K. MITCHELL
- ---------------------------
JAMES K. MITCHELL
Chairman and President
/s/ STEPHEN D. MARTINO
- ---------------------------
STEPHEN D. MARTINO
Chief Financial Officer and
Principal Accounting Officer
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