__________________________________________________________________________
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2001
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
DETWILER, MITCHELL & CO.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2627415
- --------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 FRANKLIN STREET
BOSTON, MA 02110
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-451-0100
FECHTOR, DETWILER, MITCHELL & CO.
------------------------------------------------------
(FORMER NAME, FORMER ADDRESS OR FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
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 April 9, 2001, the registrant had 2,602,313 shares of
common stock, $0.01 par value, issued and outstanding.
__________________________________________________________________________
__________________________________________________________________________
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, 2001 and December 31, 2000.......................3
Consolidated Statement of Operations for the three month
periods ended March 31, 2001 and 2000......................4
Consolidated Statement of Cash Flows for the three month
periods ended March 31, 2001 and 2000......................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.....11
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............12
Item 6. Exhibits and Reports on Form 8-K...............................13
Signatures.............................................................14
2 of 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
2001 2000
------------- --------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 1,539,710 $ 2,737,434
Deposits with clearing organizations 718,604 415,194
Receivables from brokers, dealers and clearing
organizations 224,179 535,836
Due from customers 2,568,963 3,598,699
Securities borrowed 929,700 3,279,900
Marketable investments, at fair value 410,498 15,681
Non-marketable investments, at fair value 560,000 510,000
Fixed assets, net 587,180 437,850
Intangible assets, net 1,626,385 123,385
Other 1,667,564 1,688,817
------------- --------------
Total Assets $ 10,832,783 $ 13,342,796
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due to customers $ 1,585,461 $ 4,035,739
Salaries and commissions payable 1,208,682 1,329,837
Accounts payable and accrued liabilities 985,362 1,300,947
Payable to brokers, dealers and clearing
organizations 30,985 117,811
Notes payable 300,000 -
------------- --------------
Total Liabilities 4,110,490 6,784,334
------------- --------------
Contingencies (Note 5)
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;
2,602,313 and 2,589,313 shares
outstanding at March 31, 2001 and
December 31, 2000, respectively 26,023 25,893
Paid-in-capital 4,679,487 4,655,273
Retained earnings 2,016,783 1,877,296
------------- --------------
Total Stockholders' Equity 6,722,293 6,558,462
------------- --------------
Total Liabilities and Stockholders' Equity $ 10,832,783 $ 13,342,796
============= ==============
See Accompanying Notes to Consolidated Financial Statements.
3 of 14
DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2001 2000
-------------- ---------------
(UNAUDITED)
REVENUES:
Commissions $ 3,899,189 $ 2,976,869
Principal transactions 2,295,886 2,008,782
Investment banking 71,384 525,419
Interest 112,218 276,866
Other 101,756 137,583
-------------- --------------
Total revenues 6,480,433 5,925,519
-------------- --------------
EXPENSES:
Compensation and benefits 3,835,910 3,602,586
Execution costs 1,418,746 443,472
General and administrative 638,809 742,586
Occupancy, communications and systems 320,449 270,272
Interest 19,317 90,489
Amortization of intangibles 19,500 1,500
Impairment of non-marketable investment - 500,000
-------------- --------------
Total expenses 6,252,731 5,650,905
-------------- --------------
Income before income taxes 227,702 274,614
Income tax expense (88,215) (109,845)
-------------- --------------
Net income $ 139,487 $ 164,769
============== ==============
Net income per share-basic and diluted $ 0.05 $ 0.05
============== ==============
Weighted average shares outstanding:
Basic 2,609,146 3,195,313
============== ==============
Diluted 2,646,910 3,268,695
============== ==============
See Accompanying Notes to Consolidated Financial Statements.
4 of 14
DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2001 2000
--------------- ---------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 139,487 $ 164,769
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 38,765 43,377
Impairment of non-marketable investment - 500,000
Amortization of intangibles 19,500 1,500
Changes in:
Deposits with clearing organizations (303,410) (59,351)
Receivables from brokers, dealers and
clearing organizations 311,657 (7,644)
Due from customers 1,029,736 (1,811,860)
Securities borrowed 2,350,200 (1,367,400)
Other assets 61,253 52,236
Payables to brokers, dealers and clearing
organizations (86,826) -
Due to customers (2,450,278) 2,865,498
Salaries and commissions payable (121,155) -
Accounts payable and accrued liabilities (315,585) 342,131
---------------- ---------------
Net cash provided by operating activities 673,344 723,256
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of K&S, net of cash acquired (1,200,000) -
Purchase of marketable investments (394,817) -
Purchase of non-marketable investments (50,000) (315,135)
Capital expenditures (188,095) (99,488)
---------------- ---------------
Net cash used in investing activities (1,832,912) (414,623)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable - (1,000,000)
Purchase and retirement of common stock (38,156) -
---------------- ---------------
Net cash used in financing activities (38,156) (1,000,000)
---------------- ---------------
Net decrease in cash (1,197,724) (691,367)
Cash and cash equivalents at beginning of period 2,737,434 1,272,826
---------------- ---------------
Cash and cash equivalents at end of period $ 1,539,710 $ 581,459
================ ===============
CASH PAYMENTS:
Interest expense $ 1,002 $ 90,489
================ ===============
Income taxes $ 424,398 $ 2,500
================ ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Increase in intangible assets $ 22,500 $ -
================ ===============
Increase in notes payable $ 300,000 $ -
================ ===============
Increase in common stock $ 250 $ -
================ ===============
Increase in paid-in-capital $ 62,250 $ -
================ ===============
See Accompanying Notes to Consolidated Financial Statements
5 of 14
DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Detwiler, Mitchell & Co. (formerly Fechtor, Detwiler,
Mitchell & Co.) is the holding company for its principal
operating subsidiaries, Fechtor, Detwiler & Co., Inc., an
investment banking, merchant banking and brokerage company
headquartered in Boston, MA; K. & S., Inc. ("K&S"), a specialist
firm with operations on the Boston Stock Exchange and James
Mitchell & Co., a financial services company located in San
Diego, CA.
The Company acquired K&S effective January 1, 2001. K&S is
one of the largest independently owned specialist operations on
the Boston Stock Exchange and was formed 23 years ago.
In December 2000, the Company formed Detwiler, Mitchell &
Co. (UK) Limited ("DMC UK") headquartered in London, England.
DMC UK has not started operations as of yet, however, once
regulatory approvals are received, it will conduct institutional
sales and investment banking throughout the UK, Europe and
Canada. Employees of DMC UK have significant international
investment experience and specialize in providing research on
fuel cell technology companies.
On March 26, 2001, the Company's stockholders approved the
change of the name of the Company from Fechtor, Detwiler,
Mitchell & Co. to Detwiler, Mitchell & Co.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements
of Detwiler, Mitchell & Co. have been prepared in accordance with
the rules and regulations of the Securities and Exchange
Commission and generally accepted accounting principles. 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.
Principles of Consolidation - The consolidated financial
statements of Detwiler, Mitchell & Co. include the accounts of
its wholly owned subsidiaries. All material intercompany
transactions have been eliminated in consolidation.
Marketable and 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.
Marketable and non-marketable investments are recorded at fair
value and result in the recognition of future unrealized gains or
losses due to changes in their fair value. Realized gains and
losses are recognized when the investment is sold.
Fair Value of Other Financial Instruments - The carrying
amount of receivables, payables, and securities owned and
securities sold, not yet purchased are reported in the statement
of financial condition at fair value.
Securities Transactions - Proprietary securities transactions
in regular way trades are recorded on the settlement date
(normally the third business day following the trade date) which
is not materially different from the trade date. Securities
transactions for customers are reported on the settlement date.
Commission revenues and expenses are recorded on the trade date.
Principal Transactions - Principal transactions revenues
primarily represent amounts earned from executing transactions on
behalf of customers in securities for which the Company acts as a
market maker.
6 of 14
DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes - Income tax liabilities or assets are recorded
through charges or credits to the current tax provision for the
estimated taxes payable or refundable for the current year.
Deferred tax assets and liabilities are recorded for future tax
consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates. A deferred tax valuation
allowance is established if it is more likely than not that all
or a portion of the deferred tax assets will not be realized.
Cash Equivalents - Cash equivalents include instruments with
an original maturity of three months or less.
Net Capital Requirements - Certain subsidiaries of the Company
are subject to broker-dealer net capital requirements. At March
31, 2001, 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 accounting principles generally
accepted in the United States of America 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 per share and weighted average
shares outstanding follow:
For the Three Months
Ended March 31,
-----------------------
2001 2000
----------- -----------
Net income $ 139,487 $ 164,769
=========== ===========
Net income per share:
Basic $ 0.05 $ 0.05
=========== ===========
Diluted $ 0.05 $ 0.05
=========== ===========
Weighted average shares
outstanding:
Basic 2,609,146 3,195,313
Incremental shares assumed
outstanding from exercise
of stock options 37,764 -
----------- -----------
Diluted 2,646,910 3,268,695
=========== ===========
7 of 14
DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. NON-MARKETABLE INVESTMENTS
The Company wrote-down its investment in OptiMark by
$500,000, $250,000 and $250,000 in the first, third and fourth
quarters of 2000, respectively, resulting from information
received indicating impairment in the value of the OptiMark
investment.
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.
NOTE 6. STOCKHOLDERS' EQUITY
On March 26, 2001, the Company's stockholders approved a one-
for-four reverse split of its outstanding common shares reducing
the number of shares outstanding to approximately 2,602,313
shares. Accordingly, common shares outstanding and per share
data have been retroactively adjusted to reflect the reverse
split.
NOTE 7. ACQUISITION OF K. & S., INC.
The Company acquired K&S effective January 1, 2001. K&S is
one of the largest independently owned specialist operations on
the Boston Stock Exchange and was formed 23 years ago. Revenues
for the three months ended March 31, 2001 include $1.0 million of
principal transactions from the operations of K&S. If the
acquisition had been in effect at January 1, 2000, pro forma
revenues for the quarter ended March 31, 2000 would have
increased by $1.1 million.
8 of 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Detwiler, Mitchell & Co. (formerly Fechtor, Detwiler,
Mitchell & Co.) is the holding company for its principal
operating subsidiaries, Fechtor, Detwiler & Co., Inc., ("Fechtor,
Detwiler") an investment banking, merchant banking and brokerage
company headquartered in Boston, MA; K. & S., Inc. ("K&S"), a
specialist firm with operations on the Boston Stock Exchange and
James Mitchell & Co., a financial services company located in San
Diego, CA.
The Company acquired K&S effective January 1, 2001. K&S is
one of the largest independently owned specialist operations on
the Boston Stock Exchange and was formed 23 years ago.
In December 2000, the Company formed Detwiler, Mitchell &
Co. (UK) Limited ("DMC UK") headquartered in London, England.
DMC UK has not started operations as of yet, however, once
regulatory approvals are received, it will conduct institutional
sales and investment banking throughout the UK, Europe and
Canada. Employees of DMC UK have significant international
investment experience and specialize in providing research on
fuel cell technology companies.
On March 26, 2001, the Company's stockholders approved the
change of the Company's name from Fechtor, Detwiler, Mitchell &
Co. to Detwiler, Mitchell & Co. and a one-for-four reverse split
of the Company's common stock reducing the outstanding shares to
approximately 2,602,313 shares from 10,409,251 shares. The
outstanding shares and earning per share data previously reported
for the first quarter of 2000 have been retroactively adjusted.
STATEMENT OF INCOME FOR THE THREE MONTH PERIOD ENDED MARCH 31,
2001 COMPARED TO THE THREE MONTH PERIOD ENDED MARCH 31, 2000
Net income of $140,000 or $0.05 per share - basic and
diluted, on 2.6 million diluted weighted average shares
outstanding, for the three months ended March 31, 2001 compared
to net income of $165,000 or $0.05 per share - basic and diluted,
on 3.3 million diluted weighted average shares outstanding, for
the quarter ended March 31, 2000.
Total revenues for the quarter ended March 31, 2001 were
$6,480,000, an increase of $555,000 or 9%, compared to $5,926,000
for the same period in 2000. The increase primarily results from
increased commissions on higher institutional sales at Fechtor
Detwiler and principal transaction revenues from the acquisition
of K&S.
Commissions for the quarter ended March 31, 2001 were
$3,899,000, an increase of $922,000 compared to the same period
last year primarily due to higher institutional sales commissions
partly offset by lower retail sales commissions due to market
conditions.
Principal transactions for the quarter ended March 31, 2001
were $2,296,000, an increase of $287,000 compared to the same
period last year. The increase results from $1,008,000 of
trading profits at K&S reduced by lower principal transaction
revenues at Fechtor Detwiler due to market conditions.
Investment banking revenues for the quarter ended March 31,
2001 decreased $454,000 compared to the same period last year due
to reduced investment banking transaction volume resulting from
market conditions.
Interest income of $112,000 decreased $165,000 compared to
the same period last year due to significantly reduced customer
margin account balances.
Compensation and benefits expense of $3,836,000 for the
quarter ended March 31, 2001 increased $233,000 compared to the
same period last year due to the increase in transaction based
revenues discussed above as well as $200,000 in staffing costs
for DMC UK while regulatory approval is pending.
9 of 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Execution costs of $1,419,000 for the quarter ended March
31, 2001 increased $975,000 compared to the same period last year
due primarily to costs paid to other broker-dealers to complete
increased transaction-based commission revenues as well as
execution costs at K&S.
General and administrative expense of $639,000 for the
quarter ended March 31, 2001 decreased $104,000 compared to the
same period last year due primarily to lower professional fees.
Interest expense of $19,000 for the quarter ended March 31,
2001 decreased $71,000 compared to the same period last year due
to lower average notes payable balances from significantly
reduced customer margin accounts.
CAPITAL RESOURCES AND LIQUIDITY
The Company finances its activities primarily from cash
generated by operations, amounts borrowed from customers and to a
lesser degree, borrowings from its lines of credit.
Cash and cash equivalents at March 31, 2001 of $1,540,000
decreased $1,197,000 from December 31, 2000 primarily the result
of payment of $1.2 million for the K&S acquisition. The
acquisition of K&S was also funded with 25,000 shares of common
stock (after the reverse stock split) valued at $62,500 and a
note payable of $300,000.
Fechtor Detwiler has two revolving line of credit
facilities. Maximum borrowings under the combined credit
facilities is $15,000,000 and each facility is due on demand.
There were no line of credit borrowings outstanding at March 31,
2001.
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. Fechtor Detwiler will begin to offer a
broader selection of investment products and financial planning
services to independent brokers in 2001.
The Company is currently funding start-up costs for DMC UK.
Operations for the UK firm will begin upon receipt of regulatory
approval.
The Company was informed by Nasdaq on April 12, 2001 that it was
in compliance with the listing requirements of and would continue to
be listed on the Nasdaq SmallCap Market.
10 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 the Company 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.
Certain factors that affect the Company and include conditions
affecting revenues, reliance on key personnel, competition, and
regulatory and legal matters.
Conditions Affecting Revenues. Revenues, cash flows and
earnings of the Company may be adversely affected by volatility
in the financial markets and fluctuating economic and political
conditions which could produce lower commissions, and lower
trading or investment banking revenues, or by a decline in client
account balances resulting from changing industry or economic
conditions or the performance of the capital markets.
Reliance on Key Personnel. The departure of key personnel,
such as skilled institutional and retail brokers, traders,
research analysts or employees responsible for significant client
relationships, could have a material adverse effect on the
results of operations of the Company.
Competition. The Company may experience losses in client
account balances due to the highly competitive nature of its
business, the performance of client accounts compared to the
performance of the market generally, the abilities and
reputations of the Company and its ability to attract new client
accounts and retain existing client relationships and changes in
the brokerage business such as the growth of internet security
trading and information availability.
Regulatory and Legal Factors. The Company's business may be
affected by developments or changes in the regulation, legal
proceedings and claims arising from the conduct of its
businesses.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
a.) The Annual Meeting of Stockholders of Detwiler,
Mitchell & Co. ("the Company") was held on March 26,
2001.
b.) The following matters were submitted to a vote of the
Stockholders of the Company.
1. To approve the amendment of the Certificate of
Incorporation to effect a one-for-four reverse
split of the common stock of the Company.
Votes For: 9,304,413
Votes Against: 556,318
Abstain: 30,000
Non-votes: 556,520
2. To change the name of the Company to Detwiler,
Mitchell & Co.
Votes For: 9,349,593
Votes Against: 512,100
Abstain: 29,040
Non-votes: 556,518
3. To elect three Directors of the Company, each to serve for
three years or until their successor shall be duly appointed
or elected.
For Withheld
--------- ---------
Frank Jenkins 9,745,123 145,610
James Mitchell 9,743,623 147,110
Robert Sharp 9,743,623 147,110
4. Ratification of the selection of PricewaterhouseCoopers LLP
as independent auditors for the Company for 2001.
Votes For: 9,749,333
Votes Against: 139,000
Abstain: 556,518
12 of 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a.) Exhibits.
The following Exhibits are filed herewith:
27 Financial Data Schedule.
99 On April 12, 2001, the Company issued a press
release containing its earnings for the first
quarter ending March 31, 2001.
b.) Reports on Form 8-K.
(1) On January 19, 2001, the Company filed a report on
Form 8-K regarding the notice from Nasdaq that the
Company's common stock will continue to be listed
on The Nasdaq SmallCap Market ("SCM") pursuant to
an exception to the bid price requirement
effective January 19, 2001.
(2) On March 30, 2001, the Company filed a report on
Form 8-K regarding its name change from Fechtor,
Detwiler, Mitchell & Co. to Detwiler, Mitchell &
Co. and a one-for-four reverse split of the common
stock effective in the market on March 27, 2001.
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/ Detwiler, Mitchell & Co.
----------------------------
Registrant
April 17, 2001 /s/ JAMES K. MITCHELL
- -------------- ------------------------------------
Date James K. Mitchell
Chairman and Chief Executive Officer
April 17, 2001 /s/ STEPHEN D. MARTINO
- -------------- ------------------------------------
Date Stephen D. Martino
Chief Financial Officer and
Principal Accounting Officer
14 of 14