FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2002
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 0-23410
M. H. MEYERSON & CO., INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-1924455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
NEWPORT TOWER, 525 WASHINGTON BOULEVARD, JERSEY CITY, NEW JERSEY 07310
(Address of principal executive offices) (Zip Code)
(201) 459-9500
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and 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 .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 6,606,964 at June 8, 2002.
M. H. MEYERSON & CO., INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Financial Condition, April 30, 2002 and January 31, 2002........................ 3
Statements of Operations, Three Months Ended
April 30, 2002 and 2001.............................................................. 4
Statement of Changes in Shareholders' Equity
Three Months Ended April 30, 2002.................................................... 5
Statements of Cash Flows, Three Months Ended
April 30, 2002 and 2001.............................................................. 6
Notes to Financial Statements................................................................. 7
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 6. Exhibits and Reports on Form 8-K.............................................................. 11
Signatures............................................................................................. 12
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
M. H. MEYERSON & CO., INC
Statements of Financial Condition
April 30, January 31,
2002 2002
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 769,263 $ 851,343
Due from clearing brokers - available for
immediate withdrawal 4,192,080 4,682,353
Securities - trading - long at market 2,612,074 4,208,644
Other current assets 5,021,316 5,753,055
----------- ------------
12,594,733 15,495,395
Investments 1,075,887 1,085,887
Fixed assets net of accumulated depreciation 672,481 726,737
----------- ------------
$14,343,101 $ 17,308,019
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Securities sold, not yet purchased $ 727,392 $ 1,257,489
Sales commission payable 514,229 738,105
Other liabilities and accrued items 5,143,655 5,861,877
----------- ------------
6,385,276 7,857,471
MINORITY INTEREST IN SUBSIDIARY 0 0
SUBORDINATED LOAN 2,000,000 2,000,000
SHAREHOLDERS' EQUITY
Common stock 65,815 65,815
Additional paid-in capital 11,735,641 11,735,641
Retained earnings (5,843,631) (4,350,908)
----------- ------------
5,957,825 7,450,548
----------- ------------
$14,343,101 $ 17,308,019
=========== ============
See notes to financial statements
3
M. H. MEYERSON & CO., INC.
Statements of Operations
Three Months Ended April 30,
(Unaudited)
2002 2001
----------- ------------
REVENUE
Trading profit $ 2,382,687 $ 3,138,323
Commission 185,655 265,785
Underwriting 0 50,000
Interest and other 18,429 85,474
----------- -----------
2,586,771 3,539,582
----------- -----------
EXPENSES
Clearing charges 1,047,784 2,320,512
Salesmen's draw and commissions 472,910 (251,812)
Other personnel costs 958,707 2,463,780
Rent and office expenses 753,101 2,104,359
Legal and professional fees 213,346 861,522
Interest expense 16,144 27,839
Other expenses 194,323 773,144
----------- -----------
3,656,315 8,299,344
----------- -----------
Income (loss) before income taxes (1,069,544) (4,759,762)
Minority interest 0 227,573
Income tax expense (benefit)(note 5) 423,179 (563,810)
----------- -----------
Net income (loss) $(1,492,723) $(3,968,379)
=========== ===========
Basic Earnings (loss) per common share $ (0.23) $(0.60)
=========== ===========
Diluted Earnings (loss) per common share $ (0.23) $(0.60)
=========== ===========
Weighted average number of shares 6,606,514 6,578,104
=========== ===========
Diluted weighted average number of shares 6,606,514 6,578,104
=========== ===========
See notes to financial statements
4
M. H. MEYERSON & CO., INC.
Statement of Changes in Shareholders' Equity
(Unaudited)
Three Months ended April 30, 2002
COMMON
STOCK ADDITIONAL
$.01 PAR PAID-IN RETAINED
VALUE CAPITAL EARNINGS
-------- ------------ -----------
SHAREHOLDERS' EQUITY
FEBRUARY 1, 2002 $ 65,815 $ 11,735,641 $ (4,350,908)
Net loss for quarterly period (1,492,723)
-------- ------------ -----------
SHAREHOLDERS' EQUITY
APRIL 30, 2002 $ 65,815 $ 11,735,641 $ (5,843,631)
======== ============ ===========
See notes to financial statements
5
M. H. MEYERSON & CO., INC.
Statements of Cash Flows
(Unaudited)
Three Months ended April 30,
2002 2001
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (1,492,723) $ (3,968,379)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 54,076 62,138
Change in assets and liabilities
(Increase) decrease in:
Receivable from clearing brokers 490,273 (2,542,393)
Securities owned 1,596,570 4,060,318
Other current assets 731,919 (737,518)
Increase (decrease) in:
Securities sold, but not yet purchased (530,097) (1,016,137)
Sales commission payable (223,876) (1,748,827)
Other liabilities and accrued items (718,222) (351,018)
------------ ------------
Net cash provided by
(used in) operating activities (92,080) (6,241,816)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments 10,000 556,073
Fixed assets 0 (25,681)
------------ ------------
Net cash provided by (used in) investing
activities 10,000 530,392
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in minority interest in subsidiary 0 (227,573)
Change in equity in subsidiary 0 (442,807)
Options exercised 0 24,498
------------ ------------
Net cash provided by
financing activities 0 (645,882)
------------ ------------
NET INCREASE (DECREASE) IN CASH (82,080) (6,357,306)
CASH, BEGINNING OF PERIOD 851,343 10,451,946
------------ ------------
CASH, END OF PERIOD $ 769,263 $ 4,094,640
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 0 $ 0
============ ============
Interest paid $ 16,144 $ 27,839
============ ============
See notes to financial statements
6
M. H. MEYERSON & CO., INC.
Notes to Financial Statements
(Unaudited)
NOTE 1. PRESENTATION OF FINANCIAL STATEMENTS
The consolidated statement of financial condition as of April 30, 2002, the
consolidated statements of operations for the three months ended April 30, 2002
and 2001, the consolidated statement of changes in shareholders' equity for the
quarterly period ended April 30, 2002, and the consolidated statements of cash
flows for the three months ended April 30, 2002 and April 30, 2001 have been
prepared by M.H.MEYERSON & CO., INC. (the "Company") without audit. The
consolidated statement of financial condition as of January 31, 2002 has been
audited. In the opinion of management, all adjustments and accruals (which
include only normal recurring items) necessary to present fairly the financial
position at April 30, 2002 and January 31, 2002, and the results of operations
and cash flows at April 30, 2002 and April 30, 2001 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes to financial
statements included in the Company's Annual Report to Shareholders for the year
ended January 31, 2002. The results of the periods ended April 30, 2002 and 2001
are not necessarily indicative of the operating results for the full year.
During the quarter ended July 31, 2001, the Company disposed of its interest in
eMeyerson.com Inc ("EMEY") through a merger with a sister company of an
unaffiliated broker-dealer, ViewTrade Securities Inc. ("ViewTrade"). Originally,
the Company owned an approximately 54% interest in EMEY and financial statements
through the quarter ended April 30, 2001 had been reported on a consolidated
basis. The Company's interest in ViewTrade Holding Corporation, the parent
company of ViewTrade, after the merger is approximately 15.5% and we are now
accounting for the investment using the equity method. The current financial
statements are presented on this basis.
NOTE 2. EARNINGS PER COMMON SHARE
Earnings per common share is calculated using the weighted average number of
common shares outstanding during the period. Shares issuable upon the exercise
of stock options and warrants that are dilutive have been included in the
computation of earnings per share based on the modified treasury stock method.
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business the Company enters into underwriting
commitments. There were no transactions open at April 30, 2002 relating to such
underwriting commitments.
On January 8, 2002, a National Association of Securities Dealers' arbitration
panel awarded $5,000,000 in compensatory damages against the Company and Bear
Stearns Securities Corp. The award was joint and several against both firms. The
Company has filed a complaint in the Superior Court of New Jersey to vacate the
decision in its entirety alleging violation of several legal issues. While both
the management of the Company and its legal counsel reasonably anticipate a
favorable outcome from the complaint, the Company has recorded the $5,000,000
adverse award as a liability in the financial statements due to the very limited
grounds that exist for successfully overturning an arbitration award on appeal.
The Company has a Securities Broker/Dealer's Professional Liability Insurance
policy with coverage of $1,000,000 for each loss. The insurance company has
acknowledged that the adverse arbitration award is covered under the policy. The
Company has recorded a $1,000,000 insurance receivable in the financial
statements.
The Company, incidental to its securities business, is a defendant in several
pending lawsuits and arbitration cases. Management of the Company, after
consultation with outside legal counsel, believes that the resolution of these
various lawsuits and arbitrations will not result in any material adverse effect
on the Company's financial position.
NOTE 4. NET CAPITAL REQUIREMENTS
As a registered broker-dealer, the Company is subject to the requirements of
Rule 15c3-1 (the "Net Capital Rule") under the Securities Exchange Act of 1934,
as amended. The object of the rule is to require the broker-dealer to have at
all times sufficient liquid assets to cover its current indebtedness.
Specifically, the Net Capital Rule prohibits a broker-dealer from permitting its
"aggregate indebtedness" from exceeding fifteen times its net capital as those
terms are defined.
On April 30, 2002, the Company's aggregate indebtedness and net capital were
$5,657,884 and $1,360,073, respectively, a ratio of 4.16 to 1.00.
7
NOTE 5. INCOME TAXES
Income tax expense for the quarter ended April 30, 2002 is attributable to an
adjustment in the estimate in the receivable for refundable Federal taxes, under
the Job Creation and Worker Assistance Act of 2002 which enabled the Company to
carryback its 2002 net operating loss five years. The Company has a net
operating loss carryforward in the amount of $10,024,473 available to offset
future income. The Company has provided a full valuation allowance for the tax
asset because it is impossible to determine whether the Company will be able to
use this asset in the future.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
Certain statements set forth in the Company's Quarterly Report on Form 10-Q for
the quarter ended April 30, 2002 are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that forward-looking statements involve risks and uncertainties, including
general economic conditions, delays and risks associated with the performance of
contracts, the process of regulatory approval and supervision, potential
acquisitions, consumer and industry acceptance, litigation and the volatility of
domestic securities markets.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of total
revenue represented by certain line items in the Company's Statement of
Operations:
Percent of Total Revenues
-------------------------
Quarter Ended April 30,
-------------------------
2002 2001
-------- --------
Net gain on securities transactions..... 92.1 88.7
Commissions............................. 7.3 7.5
Underwriting............................ 0 1.4
Interest and other...................... 0.6 2.4
----- -----
100.0 100.0
----- -----
Clearing charges........................ 40.5 65.6
Compensation and benefits............... 62.4 62.5
Rent and office......................... 22.2 59.5
Professional fees....................... 8.2 24.3
Interest and other operating expenses... 8.0 22.6
----- -----
Total expenses..................... 141.3 234.5
----- -----
Income (loss) before income taxes.. (41.3) (134.5)
Minority interest.................. 0 6.5
Provision for income tax expense
(benefit).......................... 16.4 (15.9)
----- -----
Net income (loss).................. (57.7) (112.1)
===== =====
8
CALCULATION OF EARNINGS PER SHARE
The calculation of earnings per share in the financial statements included in
this report are based on the weighted average number of shares outstanding.
Quarter Ended April 30, 2002 compared with Quarter Ended April 30, 2001
Total revenues for the quarter ended April 30, 2002 were $2,586,771, a 27%
decrease from the $3,539,582 reported for the quarter ended April 30, 2001. This
decrease is attributable mainly to a decrease in trading volume and in general a
decline in the transactional activity experienced by all securities markets
which also caused major decreases in retail revenue, and investment banking and
underwriting revenue.
Clearing and execution charges decreased from $2,320,512 to $1,047,784, a change
of 55%, due to the decreased trading volume during the quarter and successful
efforts by management to reduce costs and increase efficiency.
Compensation and benefits decreased from $2,211,968 to $1,431,617, representing
a decrease of 35%. This corresponds to the decrease in revenue, as a large
portion of compensation expense is tied to percentages of profits in trading
accounts.
Income taxes for the quarter ended April 30, 2002 reflect an adjustment to the
estimate in the refundable federal income tax receivable previously recorded.
Under the Job Creation and Worker Assistance Act of 2002, the Company was able
to carryback its 2002 net operating loss five years instead of two years. After
reviewing the Company's federal income tax refund request, the Internal Revenue
Service determined that the request was for too great an amount. As a result,
the Company has refiled its federal income tax refund request and such refiled
request is now being reviewed. The refundable federal income tax receivable has,
accordingly, been reduced to $2,424,315 at April 30, 2002 from $2,847,494 at
January 31, 2002.
The operating (pre tax) loss for the quarter ended April 30, 2002,was $1,069,544
compared with April 30, 2001 of $4,759,762, a reduction of 78%. Further,
included in the 2002 loss are non-recurring expenses of $340,000, including the
result of certain cost cutting efforts. The loss, net of these non-recurring
expenses, was $729,544. The positive effect of these efforts should be felt
during the quarter ended July 31, 2002 and for the remainder of the year.
Interest expense is due to a subordinated loan, which was effective on August 1,
1997 and renewed on August 1, 2001.
VIABILITY OF OPERATING RESULTS
The Company, like many securities firms, has been affected by the overall
condition of the US securities markets including changes in market regulations
such as decimalization where spreads have been reduced significantly. In
addition, global situations and recessionery economic conditions affected market
performance. Fluctuations in volume and price levels of securities, changes in
levels of interest rates and the reduction of the demand for investment banking
services throughout the industry have all had an effect on the performance of
the Company. These factors have an impact on the Company's net gain from
securities transactions, underwriting, and commission revenues. In these periods
of reduced market activity, profitability is adversely affected because certain
expenses, consisting primarily of non-commission compensation and benefits,
communications and occupancy and equipment, remain relatively fixed.
The Company has implemented a vigorous expense reduction plan. While the Company
cannot offer any assurances, through the reduction of staff and the elimination
of various services deemed to be excessive, management is seeking to place the
Company in position to operate profitably by the latter part of the fiscal year.
Further, it is the objective of the Company to maintain its high level of
service to the industry and the investing public as it has over the more than
forty-two years of its existence.
LIQUIDITY AND CAPITAL RESOURCES
The Company's statements of financial position reflect a liquid financial
position as cash and assets readily convertible to cash represent 64% and 65% of
total assets at April 30, 2002 and January 31, 2002, respectively.
The Company finances its operations primarily with existing capital and funds
generated from operations. The Company believes that existing capital and cash
flow will be sufficient to meet its cash requirements.
ACCOUNTING FOR TAXES
At April 30, 2002 the Company has a net operating loss carryforward of
$10,024,473,which is available to offset future income, expiring in 2022. The
Company has provided a full valuation allowance for the tax asset because it is
impossible to determine whether the Company will be able to use this asset in
the future.
9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
MARKET RISK DISCLOSURES
The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and equity price fluctuations. The
Company does not presently use derivative financial instruments for speculative
or trading purposes.
INTEREST RATE SENSITIVITY
Much of the Company's liquidity derives from sums due from its two clearing
brokers, which are kept in the Company's accounts with such brokers and generate
interest to the Company at floating rates based on federal funds and broker loan
rates. These rates rise and fall with interest rates in general, hence the
Company does not believe that it is subject to interest rate risk with respect
to these investments.
EQUITY PRICE RISK
The Company holds a small portfolio of marketable and non-marketable securities
for investment purposes that are subject to market price volatility. Price
fluctuations of plus or minus 15 percent would not have a material impact on the
Company.
The Company, in the course of the trading activities which constitute the bulk
of its revenues, maintains large portfolios of securities and/or short positions
in securities. Equity price fluctuations affecting the prices of these
securities could have a material impact on the Company, which the Company
mitigates by adjusting and hedging these positions in accordance with trading
requirements and market conditions.
FINANCIAL INSTRUMENTS
The portion of the Company's working capital that is not held at the Company's
clearing brokers is kept in bank accounts and certificates of deposit. The
certificates of deposit are short term and do not present a material market
risk.
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In a press release dated May 1, 2002, story # 5890, NASD Regulation Inc.
announced that from July 30, 1998 to August 12, 1998, the Company and three of
its officers, including CEO Martin H. Meyerson, failed to adequately supervise
certain trading activities and maintain adequate supervisory procedures. All
parties consented to the findings without admitting or denying the allegations
and were fined a total of $240,000. The Company was censured and fined $75,000.
Mr. Meyerson was fined $50,000 and accepted a suspension from associating with
an NASD member for 20 business days and serving as a supervisor for an
additional 10 business days. The other officers accepted their respective fines
and two served suspensions in accordance with the settlement of this matter.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number Description of Exhibit
-------------- ----------------------
11 Calculation of Earnings per Share of
the Company
(b) A report on Form 8-K, reporting "Changes in Registrant's Certifying
Accountant", was filed on March 6, 2002 and amended on March 18, 2002.
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.
M. H. MEYERSON & CO., INC.
(Registrant)
Date: June 12, 2002 By: /s/ Martin H. Meyerson
------------- -------------------------------------
Martin H. Meyerson
Chairman and Chief Executive Officer
Date: June 12, 2002 By: /s/ Mark D. Goldsmith
------------- -------------------------------------
Mark D. Goldsmith
Treasurer and Chief Financial Officer
\
12