_________________________________________________________________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
( ) TRANSITION REPORT UNDER 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
------------------- -------------------
(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 October 23, 2000, the registrant had 10,388,251 shares
of common stock, $0.01 par value, issued and 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
September 30, 2000 and December 31, 1999................3
Consolidated Statement of Operations for the three and
nine month periods ended September 30, 2000 and 1999.......4
Consolidated Statement of Cash Flows for the three and
nine month periods ended September 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..............9
Item 3. Quantitative and Qualitative Disclosures About Market Risk..12
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................13
SIGNATURES..........................................................14
2 of 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(unaudited)
ASSETS
Cash and cash equivalents $ 2,542,113 $ 1,272,826
Deposits with clearing organizations 412,297 352,831
Receivables from brokers, dealers and
clearing organizations 24,854 1,019,614
Due from customers 6,784,339 11,958,104
Securities borrowed 4,837,800 71,200
Non-marketable investments, at fair value 607,135 1,000,000
Fixed assets, net 448,818 461,467
Intangible assets 124,885 129,385
Other assets 991,024 1,576,928
------------- -------------
Total Assets $ 16,773,265 $ 17,842,355
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ - $ 3,000,000
Payables to brokers, dealers and clearing
organizations 682,585 10,695
Due to customers 7,813,123 4,208,274
Accounts payable and accrued liabilities 1,795,731 2,278,473
------------- -------------
Total Liabilities 10,291,439 9,497,442
------------- -------------
Contingencies
Stockholders' Equity:
Preferred stock, no par value; 5,000,000
shares authorized; none issued - -
Common stock, $0.01 par value; 20,000,000
shares authorized; 10,388,251
shares outstanding at September 30, 2000
and 12,916,451 shares issued and
12,781,251 shares outstanding at
December 31,1999 103,883 129,165
Paid-in-capital 4,597,927 7,103,286
Retained earnings 1,780,016 1,249,541
Treasury stock, at cost - (137,079)
------------- -------------
Total Stockholders' Equity 6,481,826 8,344,913
------------- -------------
Total Liabilities and Stockholders'
Equity $ 16,773,265 $ 17,842,355
============= =============
See Accompanying Notes to Consolidated Financial Statements.
3 of 14
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(unaudited)
REVENUES
Commissions $ 2,740,942 $ 1,780,201 $ 8,434,041 $ 5,563,217
Principal transactions 1,389,224 834,917 4,556,669 4,190,568
Investment banking 44,420 61,747 743,762 242,747
Gain on sale of investments 30,615 - 113,665 -
Interest 205,918 252,641 722,630 641,921
Other 111,386 84,890 362,521 242,817
------------- ------------- ------------- -------------
Total revenues 4,522,505 3,014,396 14,933,288 10,881,270
------------- ------------- ------------- -------------
EXPENSES
Compensation and benefits 2,723,358 2,514,149 8,878,436 7,029,084
General and administrative 381,069 376,228 1,692,996 1,151,697
Floor brokerage, clearing and commissions 586,577 289,049 1,578,736 1,157,481
Occupancy, communications and systems 290,438 284,463 846,116 849,491
Interest 37,191 151,021 207,544 295,027
Amortization of intangibles 1,500 1,765 4,500 1,765
Write-down of non-marketable investments 250,000 - 750,000 -
Settlement and merger costs - 1,495,199 - 1,889,014
------------- ------------- ------------- -------------
Total expenses 4,270,133 5,111,874 13,958,328 12,373,559
------------- ------------- ------------- -------------
Income (loss) before income taxes 252,372 (2,097,478) 974,960 (1,492,289)
Income tax (expense) benefit (100,949) 708,126 (444,485) 443,127
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 151,423 $ (1,389,352) $ 530,475 $ (1,049,162)
============= ============= ============= =============
NET INCOME (LOSS) PER SHARE:
Basic $ 0.01 $ (0.16) $ 0.04 $ (0.14)
============== ============= ============= =============
Diluted $ 0.01 $ (0.16) $ 0.04 $ (0.14)
============== ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 10,893,498 8,705,484 11,999,074 7,301,828
============== ============= ============= =============
Diluted 10,902,826 8,705,484 12,138,024 7,301,828
============== ============= ============= =============
See Accompanying Notes to Consolidated Financial Statements.
4 of 14
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2000 1999
------------------ -----------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 530,475 $ (1,049,160)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 167,493 68,998
Amortization of intangibles 4,500 1,765
Write-down of non-marketable investments 750,000 -
Non-cash compensation expense - 850,000
Changes in:
Deposits with clearing organizations (59,466) -
Receivables from brokers, dealers and clearing
organizations 994,760 (134,216)
Due from customers 5,173,765 (3,304,230)
Securities borrowed (4,766,600) (247,850)
Other assets 585,904 (262,687)
Payables to brokers, dealers and clearing organizations 671,890 -
Due to customers 3,604,849 1,897,744
Accounts payable and accrued liabilities (482,742) 1,023,920
------------------ -----------------
Net cash provided by (used in) operating activities 7,174,828 (1,155,716)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from merger - 4,238,809
Investment securities - (271,869)
Increase in non-marketable investments (357,135) -
Capital expenditures (154,844) (66,156)
------------------ -----------------
Net cash provided by (used in)investing
activities (511,979) 3,900,784
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable (3,000,000) 920,108
Proceeds from exercise of common stock options 22,500 -
Purchase and retirement of treasury stock (2,416,062) -
------------------ -----------------
Net cash provided by (used in) financing activities (5,393,562) 920,108
------------------ -----------------
Net increase in cash 1,269,287 573,633
Cash at beginning of period 1,272,826 3,665,176
------------------ -----------------
Cash at end of period $ 2,542,113 $ 4,238,809
================== =================
CASH PAYMENTS:
Interest $ 126,778 $ 295,027
================== =================
Income taxes $ 14,333 $ 103,127
================== =================
See Accompanying Notes to Consolidated Financial Statements.
5 of 14
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 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 was 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 September 30, 2000 and for the three and nine month
periods ended September 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.
Non-Marketable Investments - The Company may receive, as
additional consideration for the performance of investment banking
services, warrants to acquire an equity interest in firms or may
lend to or make direct equity investments in Companies through
its merchant banking activities. Non-marketable investments
are recorded at fair value and may result in the recognition
of future realized or unrealized gains or losses due to changes in their
fair value.
Net Capital Requirements - Three subsidiaries of the Company
are subject to net capital requirements for broker-dealers. At
September 30, 2000, each subsidiary was in compliance with its
net capital requirement.
6 of 14
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NOTE 3. EARNINGS PER SHARE
Basic and diluted net income (loss) per share and weighted
average shares outstanding follow:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- ---------------
Net income (loss) $ 151,423 $ (1,389,352) $ 530,475 $ (1,049,162)
============== ============== ============= ===============
Net income (loss) per share:
Basic $ 0.01 $ (0.16) $ 0.04 $ (0.14)
============== ============== ============= ===============
Diluted $ 0.01 $ (0.16) $ 0.04 $ (0.14)
============== ============== ============= ===============
Weighted average shares outstanding:
Basic 10,893,498 8,705,484 11,999,074 7,301,828
Incremental shares assumed outstanding
from exercise of stock options 9,238 - 138,950 -
-------------- -------------- ------------- ---------------
Diluted 10,902,826 8,705,484 12,138,024 7,301,828
============== ============== ============= ===============
NOTE 4. NON-MARKETABLE INVESTMENTS
On May 9, 2000, the Company obtained the annual audited financial
statements 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. Additionally,
during the third quarter of 2000, the Company further wrote-down
the carrying value of its investment in OptiMark by $250,000, or
50%, representing a net adjustment of $150,000 after income tax
benefit, resulting from information received in the third quarter of
2000 indicating further impairment.
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 14
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCKHOLDERS' EQUITY
On May 29, 2000 and August 17, 2000, the Company purchased
1,400,000 and 1,012,000 common shares, respectively, from Richard
Fechtor, former Chief Executive Officer of the Company at a total cost
of $2,412,000. The purchase and retirement of such common shares
represented the entire equity interest of Mr. Fechtor. Additionally,
on July 3, 2000, the Company purchased and retired 5,000 shares of its
common stock from stockholders at a total cost of $4,063.
The Company has been advised by NASDAQ that its common stock
may no longer meet the requirements for continued listing on the
NASDAQ SmallCap Market and that its common stock may be removed
from trading in the SmallCap Market. The common stock of the
Company must have a minimum closing bid price of $1.00 per share
for ten consecutive trading days before November 27, 2000 to
maintain its current listing. If compliance is not met, the
Company may request a hearing to review its listing rule
compliance or its common shares will be delisted on November 29,
2000. If delisted, it is expected the Company's common stock
will be traded on the Over-the-Counter Bulletin Board. On October
26, 2000, the Company's common stock closed at $0.6875 per share.
8 of 14
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 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 SEPTEMBER 30,
2000 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
Net income of $151,000 or $0.01 per share - basic and
diluted, on 10.9 million weighted average shares outstanding, for
the three months ended September 30, 2000 compared to net loss of
$1,389,000, $0.16 per share - basic and diluted, on 8.7 million
weighted average shares outstanding, for the three months ended
September 30, 1999. Net income includes a write-down of
$250,000 of non-marketable investments for the quarter ended
September 30, 2000 and settlement and merger costs of $1,495,000
and non-cash compensation expense of $850,000 for the same period
last year.
Income before income taxes, write-down of non-marketable
investments and settlement and merger costs for the three months
ended September 30, 2000 was $502,000 compared to $248,000 for
the same period last year.
Revenues for the third quarter of 2000 were $4,523,000, an
increase of $1,509,000 or 50%, compared to $3,014,000 for the
third quarter of 1999. The increase primarily results from
increased commissions and principal transaction revenues from
broker-dealer operations for the third quarter of 2000 compared
to the third quarter of 1999. Additionally, three months of
revenues of James Mitchell & Co. were recorded in the third
quarter of 2000 compared to one month of revenues for the third
quarter of 1999 reflecting the September 1, 1999 Merger date.
Compensation and benefits expense of $2,723,000 for the
three months ended September 30, 2000 increased $209,000 compared
to the same quarter last year due to higher commissions at
Fechtor, Detwiler & Co., Inc. for the third quarter 2000 as a
result of higher transaction volume and compensation and benefit
expenses of James Mitchell & Co. Such increases were partly
offset by $850,000 of non-cash compensation expense related to
the Merger recorded in the comparable quarter of 1999.
9 of 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
General and administrative expense of $381,000 for the three
months ended September 30, 2000 increased $5,000 compared to the
same quarter last year due to the establishment of certain
operating reserves and expenses of James Mitchell & Co.
Floor brokerage, clearing and commissions of $587,000 for the
three months ended September 30, 2000 increased $297,000 compared to
the same quarter last year due to increased transaction-based revenues.
Interest expense of $37,000 for the three months ended
September 30, 2000 decreased $114,000 compared to the same
quarter last year due to lower average notes payable.
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Net income of $530,000 or $0.04 per share - basic and
diluted, on 12.1 million diluted weighted average shares outstanding, for
the nine months ended September 30, 2000 compared to a net loss
of $1,049,000 or $0.14 per share - basic and diluted, on 7.3
million weighted average shares outstanding, for the nine months
ended September 30, 1999. Net income includes write-downs
of $750,000 of non-marketable investments for the nine month
period ended September 30, 2000 and settlement and merger costs
of $1,889,000 and non-cash compensation expense of $850,000 for
the nine month period ended September 30, 1999.
Income before income taxes, before the write-down of non-
marketable investments and settlement and merger costs, was
$1,725,000 for the nine months ended September 30, 2000 compared
to income before income taxes of $1,247,000 for the same period
last year.
Revenues for the nine months ended September 30, 2000 were
$14,933,000, an increase of $4,052,000 or 37%, compared to
$10,881,000 for the same period last year. The increase
primarily results from greater commission and principal
transaction revenues from broker-dealer operations and increased
investment banking revenues for the nine months ended September
30, 2000 compared to the same period last year. Additionally,
nine months of revenues of James Mitchell & Co. were recorded in
2000 compared to one month of revenues for the comparable period
of 1999 reflecting the September 1, 1999 Merger date.
Compensation and benefits expense of $8,878,000 for the nine
months ended September 30, 2000 increased $1,849,000 compared to
the same period last year due to higher commission payments at
Fechtor, Detwiler & Co., Inc. and compensation expense of James
Mitchell & Co. partially offset by $850,000 of non-cash
compensation expense related to the Merger recorded in 1999.
General and administrative expense of $1,693,000 for the
nine months ended September 30, 2000 increased $541,000 compared
to the same period last year due primarily to the establishment
of certain operating reserves and expenses of James Mitchell &
Co.
Floor brokerage, clearing and commissions of $1,579,000 for the
nine months ended September 30, 2000 increased $421,000 compared to
the same period last year due to increased transaction-based revenues.
Interest expense of $208,000 for the nine months ended
September 30, 2000 decreased $87,000 from the same period last
year due to lower average notes payable balances partially offset
by higher interest rates.
10 of 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
The Company finances its activities primarily from cash
generated by operations and borrowings from its lines of credit.
At September 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 September 30, 2000 of
$2,542,000 increased $1,269,000 from December 31, 1999. The
increase in cash primarily results from higher borrowings from
customers at September 30, 2000.
Fechtor Detwiler has two available lines of credit totaling
$15,000,000 with no borrowings outstanding at September 30, 2000.
During 2000, notes payable were fully repaid by $3,000,000 using
proceeds from reductions in customer margin accounts.
On May 29, 2000 and August 17, 2000, the Company purchased
1,400,000 and 1,012,000 common shares, respectively, from Richard
Fechtor, former Chief Executive Officer of the Company at a total cost
of $2,412,000. The purchase and retirement of such common shares
represented the entire equity interest of Mr. Fechtor. Additionally,
on July 3, 2000, the Company purchased and retired 5,000 shares of its
common stock from stockholders at a total cost of $4,063.
The Company is pursuing the expansion of its business
activities including merchant banking, investment banking and
research related activities. The Company is also investigating
opportunities to participate in other capital market businesses.
During October 2000, the Company enhanced its clearing
services and product offerings by contracting with National
Financial Services Corporation, an affiliate of Fidelity
Brokerage Services, Inc. and will begin to offer a broader
selection of investment products and financial planning services
to independent brokers upon receipt of regulatory approval.
Additionally, the Company is exploring opportunities in
Europe to expand and further enhance investment banking,
brokerage and other financial services revenues. However, there
can be no assurances that the Company will be successful in
achieving such opportunities. The Company expects its financial
resources and liquidity needs will be adequate to finance any
such business expansion opportunities as they may arise.
TRENDS AND UNCERTAINTIES
The Company has been advised by NASDAQ that its common stock
may no longer meet the requirements for continued listing on the
NASDAQ SmallCap Market and that its common stock may be removed
from trading in the SmallCap Market. NASDAQ has notified the
Company that its common stock must demonstrate a minimum closing
bid price of $1.00 per share for ten consecutive trading days
before November 27, 2000. If compliance is not met, the Company
may request a hearing to review its listing rule compliance or be
delisted by November 29, 2000. If delisted, it is expected the
Company's common stock will be traded on the Over-the-Counter
Bulletin Board. On October 26, 2000, the Company's common stock
closed at $0.6875 per share.
11 of 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
nine month period ended September 30, 2000. The only significant
financial instruments of the Company (as defined by Financial
Accounting Standards Board Statement No. 107) are non-marketable
investments and its line of credit borrowings which are discussed
in Note 6 of the December 31, 1999 consolidated financial statements
of the Company.
12 of 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a.) Exhibits.
The following Exhibits are filed herewith:
27 Financial Data Schedule.
99 On October 23, 2000, the Company issued a press
release containing its earnings for the third
quarter ending September 30, 2000.
b.) Reports on Form 8-K.
(1) On August 25, 2000, the Company filed a report on
Form 8-K regarding its August 17, 2000
announcement that the Company purchased and
retired 1,012,000 common shares from Richard
Fechtor, the former Chief Executive Officer and
Director of the Company, at a price of $1.00 per
share. This transaction completed the retirement
of Mr. Fechtor's remaining equity interest in the
Company.
(2) On October 13, 2000, the Company filed a report on
Form 8-K which reported the engagement of
PricewaterhouseCoopers on October 12, 2000 as its
independent auditors for fiscal 2000.
13 of 14
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
October 27, 2000 /s/ JAMES K. MITCHELL
- ---------------- --------------------------------------
Date James K. Mitchell
Chairman and Chief Executive Officer
October 27, 2000 /s/ STEPHEN D. MARTINO
- ---------------- --------------------------------------
Date Stephen D. Martino
Chief Financial Officer and
Principal Accounting Officer
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Exhibit 99
_________________________________________________________________________
NEWS RELEASE FEDM
_________________________________________________________________________
Contacts: James K. Mitchell Stephen D. Martino
Chairman and Chief Executive Officer Chief Financial Officer
(858) 450-0055 (617) 747-0154
Fechtor, Detwiler, Mitchell & Co. Reports Third Quarter 2000 Results
BOSTON, MA (October 23, 2000) - Fechtor, Detwiler, Mitchell & Co.
(NASDAQ: FEDM) today reported net income of $151,000 for the third
quarter ended September 30, 2000 or $0.01 per share - basic and
diluted on 10.9 million weighted average shares outstanding. Net loss
for the third quarter of 1999 was $1,389,000 or $0.16 per share -
basic and diluted on 8.7 million weighted average shares outstanding.
Income from operations for the third quarter of 2000 was
$502,000, an increase of $254,000 or 102%, compared to $248,000 for
the same period last year. Operating results exclude non-cash write-
downs of non-marketable investments in 2000 and settlement and merger
costs and non-cash compensation expense in 1999.
Net income was $530,000 for the nine months ended September 30,
2000 or $0.04 per share - basic and diluted on 12.1 million weighted
average shares outstanding. Net loss was $1,049,000 for the same
period last year or $0.14 per share - basic and diluted on 7.3 million
weighted average shares outstanding. Operations for the first eight
months of 1999 represent solely Fechtor, Detwiler & Co., Inc., the
investment banking and brokerage company. Operations include JMC
Group, Inc. beginning September 1, 1999, the date of the merger
between Fechtor, Detwiler & Co., Inc. and JMC Group, Inc. Lower
weighted average shares outstanding in 1999 versus 2000 reflect the
weighted average effect of shares issued on September 1, 1999 to
effect the merger.
Income from operations for the nine months ended September 30,
2000 was $1,725,000, an increase of $478,000, or 38%, compared to
$1,247,000 for the same period last year. Operating results exclude
non-cash write-downs of non-marketable investments in 2000 and
settlement and merger costs and non-cash compensation expense in 1999.
Revenues were $4,523,000 for the third quarter of 2000, an
increase of $1,509,000, or 50%, compared to $3,014,000 for the same
period last year. Revenues for the nine months ended September 30,
2000 were $14,933,000, an increase of $4,052,000, or 37%, compared to
$10,881,000 for the same period of 1999.
"We are pleased that the combined companies have achieved growth
in revenues and operating income in line with our expectations
compared to prior periods," said James Mitchell, Chairman. He
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[FEDM Logo]
225 Franklin Street, 20th Floor
Boston, MA 02110
(617) 451-0100
Fechtor, Detwiler, Mitchell & Co. Reports Third Quarter 2000 Results
(continued)
October 23, 2000
continued, "While we further reduced our exposure in Optimark, other
merchant banking investments and certain assets may result in
potential gains in the future. Of course, such gains, if any, depend
upon market conditions and the continued development of the business
models of firms for which our investment banking group has raised
capital or in which the company has made direct investments through
its merchant banking activities. Also, from a stockholder's
perspective, the Company has significantly increased proportionate
stockholder ownership through its repurchase of over 2.5 million
common shares, or 20%, since the merger date."
Andrew Detwiler, President said, "Our business model is now
evolving into a vertical one where we can participate in other capital
market businesses including a more focused merchant banking,
investment banking and research driven firm. We have enhanced our
clearing services and product line by contracting with National
Financial, an affiliate of Fidelity Brokerage Services, pending
regulatory approval. This new relationship will allow us to access
the independent retail broker markets to serve as an introducing
broker and dealer." He added, "We are also continuing to pursue
several other opportunities to enhance revenues and profits."
* * * * *
On August 30, 1999, Fechtor, Detwiler & Co., Inc. combined with
JMC Group, Inc. to form Fechtor, Detwiler, Mitchell & Co. The
consolidated financial statements of Fechtor, Detwiler, Mitchell & Co.
include its two operating subsidiaries: Fechtor, Detwiler & Co., Inc.,
an investment banking and brokerage company headquarted in Boston, MA
and James Mitchell & Co., a financial services company located in San
Diego, CA. For accounting purposes, JMC Group, Inc. is the acquired
firm and is included in the 1999 financial statements beginning
September 1, 1999. Financial data for periods prior to September 1999
represent that of Fechtor, Detwiler & Co., Inc.
Cautionary Statement regarding forward-looking statements:
Certain statements in this news release may contain forward-looking
statements within the meaning of the Federal securities laws. Such
statements should be considered in light of the risks and
uncertainties associated with Fechtor, Detwiler, Mitchell & Co. and
its operating subsidiaries, including those economic and market risks
contained in the Fechtor, Detwiler, Mitchell & Co. Annual Report on
Form 10-K, and other risks prevailing from time to time; all of which
are subject to material changes and may cause actual results to vary
materially from what had been anticipated.
(Tables)
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[FEDM Logo]
225 Franklin Street, 20th Floor
Boston, MA 02110
(617) 451-0100
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
2000 1999
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(unaudited)
ASSETS
Cash and cash equivalents $ 2,542,113 $ 1,272,826
Deposits with clearing organizations 412,297 352,831
Receivables from brokers, dealers and
clearing organizations 24,854 1,019,614
Due from customers 6,784,339 11,958,104
Securities borrowed 4,837,800 71,200
Non-marketable investments, at fair value 607,135 1,000,000
Fixed assets, net 448,818 461,467
Intangible assets 124,885 129,385
Other assets 991,024 1,576,928
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Total Assets $ 16,773,265 $17,842,355
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ - $ 3,000,000
Payables to brokers, dealers and clearing
organizations 682,585 10,695
Due to customers 7,813,123 4,208,274
Accounts payable and accrued liabilities 1,795,731 2,278,473
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Total Liabilities 10,291,439 9,497,442
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Contingencies
Stockholders' Equity:
Preferred stock, no par value; 5,000,000
shares authorized; none issued - -
Common stock, $0.01 par value; 20,000,000
shares authorized; 10,388,251
shares outstanding in 2000 and
12,781,251 shares outstanding in 1999 103,883 129,165
Paid-in-capital 4,597,927 7,103,286
Retained earnings 1,780,016 1,249,541
Treasury stock, at cost - (137,079)
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Total Stockholders' Equity 6,481,826 8,344,913
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Total Liabilities and Stockholders'
Equity $ 16,773,265 $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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(unaudited)
REVENUES
Commissions $ 2,740,942 $ 1,780,201 $ 8,434,041 $ 5,563,217
Principal transactions 1,389,224 834,917 4,556,669 4,190,568
Investment banking 44,420 61,747 743,762 242,747
Gain on sale of investments 30,615 - 113,665 -
Interest 205,918 252,641 722,630 641,921
Other 111,386 84,890 362,521 242,817
------------- ------------- ------------- -------------
Total revenues 4,522,505 3,014,396 14,933,288 10,881,270
------------- ------------- ------------- -------------
EXPENSES
Compensation and benefits 2,723,358 2,514,149 8,878,436 7,029,084
General and administrative 381,069 376,228 1,692,996 1,151,697
Floor brokerage, clearing and commissions 586,577 289,049 1,578,736 1,157,481
Occupancy, communications and systems 290,438 284,463 846,116 849,491
Interest 37,191 151,021 207,544 295,027
Amortization of intangibles 1,500 1,765 4,500 1,765
Write-down of non-marketable investments 250,000 - 750,000 -
Settlement and merger costs - 1,495,199 - 1,889,014
------------- ------------- ------------- -------------
Total expenses 4,270,133 5,111,874 13,958,328 12,373,559
Income (loss) before income taxes 252,372 (2,097,478) 974,960 (1,492,289)
Income tax (expense) benefit (100,949) 708,126 (444,485) 443,127
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 151,423 $ (1,389,352) $ 530,475 $ (1,049,162)
============= ============= ============= =============
NET INCOME (LOSS) PER SHARE:
Basic $ 0.01 $ (0.16) $ 0.04 $ (0.14)
============= ============= ============= =============
Diluted $ 0.01 $ (0.16) $ 0.04 $ (0.14)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 10,893,498 8,705,484 11,999,074 7,301,828
============= ============= ============= =============
Diluted 10,902,826 8,705,484 12,138,024 7,301,828
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See Accompanying Notes to Consolidated Financial Statements.
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