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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2000
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-12926
FECHTOR, DETWILER, MITCHELL & CO.
(Exact name of registrant as specified in its charter)
Delaware 95-2627415
-------------------------------------- ------------------------------
(State or other 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which it is registered
---------------------------------------- --------------------------------------------------------
Common Stock Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, Par Value $.01 Per Share
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K_____
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the common stock on
February 19, 2001, as reported on the Nasdaq SmallCap Market, was approximately
$5,557,016. Shares of common stock held by each officer and director of the
Registrant and by each person who owns 5% or more of the Registrant's
outstanding common stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of February 19, 2001, the registrant had 10,447,251 shares of common
stock, $0.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders which is presently expected to be held on March 26, 2001, which
Proxy Statement is expected to be filed with the Securities and Exchange
Commission on or before March 5, 2001 and is referred to herein as the "Proxy
Statement," are incorporated herein by reference into Part III hereof as
provided in such Part.
FECHTOR, DETWILER, MITCHELL & CO.
INDEX TO FORM 10-K
Page
----
PART I.
Item 1. Business............................................................................. 3
Item 2. Properties........................................................................... 6
Item 3. Legal Proceedings.................................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders.................................. 6
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 7
Item 6. Selected Financial Data.............................................................. 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 7a. Quantitative and Qualitative Disclosures About Market Risk........................... 12
Item 8. Financial Statements and Supplementary Data.......................................... 13
Consolidated Statement of Financial Condition at
December 31, 2000 and December 31, 1999...................................... 13
Consolidated Statement of Income for the years ended
December 31, 2000, 1999 and 1998............................................. 14
Consolidated Statement of Changes in Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998............................................. 15
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998............................................. 16
Notes to Consolidated Financial Statements..................................... 17
Independent Accountant's Report (2000)......................................... 27
Independent Auditor's Report (1999)............................................ 28
Report of Independent Public Accountants (1998)................................ 29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................... 30
PART III.
Item 10. Directors and Executive Officers of the Registrant................................... 31
Item 11. Executive Compensation............................................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 31
Item 13. Certain Relationships and Related Transactions....................................... 31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 32
Signatures......................................................................................... 34
2
PART I
Item 1. Description of Business
General
On August 30, 1999, Fechtor, Detwiler & Co. combined with JMC Group, Inc.
to form Fechtor, Detwiler, Mitchell & Co. (the "Company"). The consolidated
financial statements of Fechtor, Detwiler, Mitchell & Co. include its two
principal operating subsidiaries: Fechtor, Detwiler & Co., Inc., an investment
banking and brokerage company headquartered 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 1999 represent that of Fechtor, Detwiler & Co., Inc.
On January 25, 2001, the Company announced its acquisition of K. & S.,
Inc., a specialist firm with operations at the Boston Stock Exchange effective
January 1, 2001. K. & S., Inc. is one of the largest independently owned
specialist operations on the Boston Stock Exchange and was formed 28 years ago.
Kenneth M. King, President of K. & S., Inc., will continue to serve as President
of the firm.
Additionally, 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. Principals of DMC UK have significant international
investment experience and specialize in providing focused research on a limited
number of industries.
Fechtor, Detwiler & Co., Inc.
Fechtor, Detwiler & Co., Inc. ("Fechtor Detwiler" or the "Firm") is a
New England regional securities brokerage and investment banking firm
headquartered in Boston, Massachusetts. The Firm was founded in 1962 as a sole
proprietorship and was incorporated in 1971. Fechtor Detwiler currently has one
office in Massachusetts and three offices in Connecticut. The Firm's business
activities include institutional and retail securities brokerage, trading in
equity securities as a market maker, focused equity research, participation in
the underwriting of corporate equity securities (including primary public
offerings and underwritten secondary offerings), private placements, merger and
acquisition activities and corporate advisory services. Fechtor Detwiler's
principal emphasis for research, market-making activities and investment banking
is on companies which are usually, but not always, traded in the NASDAQ market
system. Institutional sales are conducted from the Boston office and retail
sales are conducted through registered private client representatives in all
four offices. Investment banking and trading activities are conducted from the
Boston office.
Research Services
Fechtor Detwiler's research activities are focused on industry channels of
distribution and on individual companies. The Firm conducts research on
companies which may not be covered by research analysts at other firms. Fechtor
Detwiler believes these companies may have potential for significant growth.
Research services are very important to the revenue-generating activities of the
Firm, including institutional and retail brokerage, market making, and
investment banking activities.
Institutional Brokerage
Fechtor Detwiler executes securities transactions for institutional
investors such as investment partnerships, mutual funds, insurance companies,
and pension and profit sharing plans. Institutional investors normally purchase
and sell securities in large quantities which require special marketing and
trading expertise. Fechtor Detwiler believes that a significant portion of its
institutional brokerage commissions are received as a consequence of providing
such institutions with research it develops from industry channels as well as
research on specific equity issuers. The Firm provides its institutional
brokerage services to a nationwide client base.
3
Transactions for institutional investors are executed with the Firm acting
as agent or as principal with commissions negotiated with its institutional
customers.
Market-Making and Principal Transactions
Fechtor Detwiler actively engages in trading as principal in various phases
of the over-the-counter securities business. To facilitate trading by its
customers, the Firm buys, sells and maintains inventories of certain common
stocks in order to "make markets" in those securities. Revenues from principal
transactions, which include trading profits or losses and sales credits, depend
upon the general trend of prices, the level of activity in the securities
markets, the skill of employees engaged in market-making and the size of the
inventories. Trading as principal requires the commitment of capital and creates
an opportunity for profit and the risk of loss due to market fluctuations.
In executing customers' orders to buy or sell NASDAQ stocks in which the
Firm makes a market, a security may be sold to, or purchased from, its customers
at a competitive price, plus or minus a mark-up or mark-down. Alternatively,
Fechtor Detwiler may act as an agent and execute a customer's purchase or sell
order with another broker-dealer which acts as a market-maker, at the best
inter-dealer market price, in which case a commission is charged.
Investment Banking
Fechtor Detwiler participates in both public offerings and private
corporate placements as a manager or as a member of an underwriting syndicate or
selling group. Corporate offerings principally involve common stock or other
equity securities issued by corporations. Fechtor Detwiler markets private
offerings of corporate securities and provides valuation and financial advisory
services for mergers, acquisitions, stock option issuances and other corporate
purposes.
Underwriting activities, together with its selling group participation, are
an important source of securities for distribution to its clients because of the
availability of a large amount of securities for distribution and fees earned in
connection with such offerings.
Participation in an underwriting syndicate or selling group involves both
economic and regulatory risks. An underwriting participant may incur losses if
it is unable to resell the securities it is committed to purchase, or if it is
forced to liquidate its commitment at less than the agreed purchase price. In
addition, under federal securities laws, other statutes and court decisions, an
underwriting participant or selling group member may be subject to substantial
liability for material misstatements or omissions in prospectuses and other
communications with respect to such offerings.
Merchant Banking
The Company has recently engaged in merchant banking activities to include
equity investments in private placements as well as direct equity investments.
Investment opportunities considered attractive will include those perceived to
be strategic for the Firm or where a sound investment opportunity exists.
Retail Brokerage
Revenues from retail brokerage activities are generated primarily through
customer purchases and sales of equity securities. The Firm also executes orders
for bonds, and the purchase and sale of mutual funds and other securities.
Commissions are charged on both listed and over-the-counter agency transactions.
When Fechtor Detwiler executes over-the-counter transactions as a dealer, it
charges a markup or markdown in lieu of commissions.
Retail commissions are charged in accordance with a commission schedule
comparable to full-service retail brokerage firms. Commission discounts may be
granted on certain transactions. The Firm does not attempt to compete with the
commission rates charged by brokerage firms generally referred to as "discount
brokers." The
4
largest portion of Fechtor Detwiler's retail clients are individuals who reside
in the northeastern United States. The Firm is not dependent on any single
client for its revenues.
Fechtor Detwiler provides margin accounts which allow the customer to pay
less than the full cost of securities purchased, with the balance provided by
the Firm as a loan secured by the securities purchased. Margin loans are
subject to the requirements of the Board of Governors of the Federal Reserve
System and Fechtor Detwiler's internal policies. In permitting customers to
purchase securities on margin, Fechtor Detwiler bears the risk of a market
decline which could reduce the value of its collateral below customers'
indebtedness.
In addition to securities brokerage and margin lending services, the Firm
also provides its retail clients specialized financial services including equity
research, individual retirement accounts and money market products.
Operations
Fechtor Detwiler clears its own securities transactions utilizing a
brokerage accounting system provided by a third-party service bureau. Customer
transactions are recorded daily on a settlement date basis; generally three
business days after the trade date for equity and debt transactions and one
business day after the trade date for option transactions. The Firm's compliance
department monitors customer transactions to ensure they are conducted in
accordance with applicable laws, rules, regulations and internal policies.
Periodic reviews of internal controls are conducted and administrative and
operations personnel meet frequently to review operational conditions.
James Mitchell & Co.
James Mitchell & Co. and its subsidiaries, JMC Financial Corporation and
JMC Insurance Services Corporation (collectively, "JMC") were founded in 1983
and are located in San Diego, California. Historically, JMC provides annuity,
insurance and mutual fund sales and support services for financial institutions
and the related servicing of tax-advantaged annuities, insurance products and
mutual funds.
JMC earns fees based on the accumulated asset value of the accounts being
serviced. JMC also solicits existing customers to replace older products having
lower rates of return with sales of new products having more competitive
returns.
Competition
The Company is engaged in the highly competitive securities brokerage and
financial services businesses competing with regional securities brokerage
firms, large national and international securities firms, and discount brokerage
firms. To an increasing degree, the Company also competes for various segments
of the financial service business or with other institutions such as commercial
banks, mutual fund companies and investment advisory and financial planning
firms. Legal and regulatory changes may allow commercial banks and their holding
companies to compete more directly in the brokerage and investment banking
businesses which will increase competition for all brokerage firms. In addition
to the competition for retail investment business, there is substantial
competition among firms in the securities industry to attract and retain
experienced and productive client representatives.
Large competitors are able to advertise their products and services on a
national or regional basis and have a far greater number and variety of
distribution outlets for their products. Discount brokerage firms market their
services through aggressive pricing and promotional efforts. Most competitors
have much more extensive investment banking activities and, therefore, possess a
securities distribution advantage.
Recent rapid advancements in computing and communications technology are
substantially changing the means by which financial services are delivered.
These changes are providing consumers with more direct access to a wide variety
of financial and investment services, including market information and on-line
trading and account information. Advancements in technology also create demand
for more sophisticated levels of client services which may entail considerable
cost without an offsetting source of revenue. Although the Company is committed
to utilizing technological advancements to provide a high level of client
service, many of its competitors have far greater technological resources at
their disposal.
5
Regulation
The securities industry in the United States is subject to extensive
regulation under Federal and state laws. The Securities and Exchange Commission
("SEC") is the Federal agency charged with administration of the Federal
securities laws. Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations, principally the NASD, national and
regional securities exchanges. These self-regulatory organizations adopt rules
(which are subject to approval by the SEC) which govern the industry.
Additional legislation, changes in rules promulgated by the SEC and by
self-regulatory organizations, or changes in interpretations or enforcement of
existing laws and rules, often affect directly the method of operation and
profitability of broker-dealers. The SEC and the self-regulatory organizations
may conduct administrative proceedings which can result in censure, fines,
suspension or expulsion of a broker-dealer, its officers and employees. The
principal purpose of regulation and discipline of broker-dealers is the
protection of clients and the securities markets rather than the protection of
creditors or stockholders of broker-dealers.
One of the most important regulations with which the broker-dealer
subsidiaries of the Company must continually comply is SEC Rule 15c3-1, which
requires all broker-dealers to maintain a minimum amount of net capital. These
rules, under the alternative method, prohibit a broker or dealer from engaging
in any securities transactions at a time when its net capital is less than 2% of
aggregate debit items arising from customer transactions. In addition,
restrictions may be imposed on the operations of a broker or dealer if its net
capital is less than 5% of aggregate debit items. At December 31, 2000, the net
capital of Fechtor Detwiler, JMC Financial Corporation and JMC Investment
Services exceeded their respective minimum reserve requirements of $250,000,
$50,000 and $5,000 by $3.8 million, $35,000 and $109,000, respectively.
The laws, rules and regulations of the various federal, state and other
regulatory bodies to which the businesses of the Company are subject to are
constantly changing. While the management believes that it is currently in
compliance in all material respects with the laws, rules and regulations
applicable to its businesses, it cannot predict what effect any changes of such
laws or regulations might have.
Employees
At December 31, 2000, the Company had 68 employees; none of whom are
covered by, or parties to, a collective bargaining agreement. The success of
Fechtor, Detwiler, Mitchell & Co. is highly dependent upon its continuing
ability to hire, train and retain qualified staff. Management considers
relations with its employees to be good.
Item 2. Properties
Both the Company and Fechtor Detwiler use office space at 225 Franklin
Street, Boston, Massachusetts. The lease for this space, which contains
approximately 15,000 square feet, expires in 2007. The three branch operations
for Fechtor Detwiler located in Connecticut are also leased. James Mitchell &
Co. uses office space at 9710 Scranton Road, Suite 100, San Diego, California.
The lease for this space, which contains approximately 2,500 square feet,
expires in 2002.
Management believes its existing facilities are adequate for near-term
needs.
Item 3. Legal Proceedings
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2000.
6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The common stock of Fechtor, Detwiler, Mitchell & Co. (the "Company") is
principally traded in the NASDAQ SmallCap Market ("SCM") under the symbol
FEDM. At January 8, 2001, there were approximately 264 shareholders of record
with approximately 575 beneficial owners. Nine broker-dealers are presently
market makers in the Company's common stock on the NASDAQ SCM. The Company is
also listed on the Pacific Exchange ("PCX") under the symbol FDM, but the
trading volume in the Company's common stock on the PCX is not material.
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
Company had a hearing with NASDAQ on December 19, 2000 and was granted an
extension of time in which to comply with the minimum bid price requirement. On
or before March 28, 2001, the Company must demonstrate a closing bid price of at
least $1.00 per share; thereafter, the Company's closing bid price must meet or
exceed $1.00 per share for a minimum of ten consecutive trading days.
The Company plans to seek approval at its March 26, 2001 Annual Meeting of
Stockholders to perform a one-for-four reverse-stock split. The Company
believes such action will increase the minimum bid price in order to comply with
the NASDAQ requirements. There is, however, no guarantee that this action will
ensure the continued listing of the Company. If delisted, it is expected the
Company's common stock will be traded on the Over-the-Counter Bulletin Board.
On December 29, 2000, the Company's common stock closed at $0.625 per share.
The following table reflects the high and low sales prices of the Company's
common stock in the NASDAQ market:
Sales Price
-----------------------
High Low
-----------------------
2000
---------------
First Quarter $1.875 $1.000
Second Quarter $1.594 $0.688
Third Quarter $1.313 $0.719
Fourth Quarter $1.156 $0.563
1999
---------------
First Quarter $1.375 $0.750
Second Quarter $2.063 $0.844
Third Quarter $2.000 $0.813
Fourth Quarter $1.625 $0.438
No dividends were paid by the Company during 2000. Dividends, if any, will
be determined by the Board of Directors based upon profitability, cash
availability and other considerations as deemed appropriate.
7
Item 6. Selected Financial Data
Years Ended December 31: 2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ---------------- --------------
Total revenues $20,405,980 $15,154,363 $12,079,027 $12,118,371 $ 9,820,236
Total expenses before
settlement and merger costs 19,268,890 14,254,240 12,045,254 12,092,641 9,782,427
Settlement and merger costs - 2,136,931 - - -
----------------- ----------------- ----------------- ---------------- --------------
Income (loss) before
income taxes 1,137,090 (1,236,808) 33,773 25,730 37,809
Income tax (expense) benefit (509,335) 387,582 (25,792) (21,183) (17,150)
----------------- ----------------- ----------------- ---------------- --------------
Net income (loss) $ 627,755 $ (849,226) $ 7,981 $ 4,547 $ 20,659
================= ================= ================= ================ ==============
Net income (loss) per share:
Basic $ 0.05 $ (0.10) $ - $ - $ -
================= ================= ================= ================ ==============
Diluted $ 0.05 $ (0.10) $ - $ - $ -
================= ================= ================= ================ ==============
Weighted average shares
outstanding:
Basic 11,594,893 8,696,355 6,600,000 6,600,000 6,600,000
================= ================= ================= ================ ==============
Diluted 11,694,318 8,696,355 6,600,000 6,600,000 6,600,000
================= ================= ================= ================ ==============
At December 31: 2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ---------------- --------------
Total assets $13,342,796 $17,842,355 $10,546,820 $11,371,688 $15,151,057
Total liabilities 6,784,334 9,497,442 8,382,053 9,214,902 12,998,820
Total stockholders' equity 6,558,462 8,344,913 2,164,767 2,156,786 2,152,237
8
Item 7. 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.
Fechtor, Detwiler, Mitchell & Co. is the holding company for its two
primary 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.
On January 25, 2001, the Company announced its acquisition of K. & S.,
Inc., a specialist firm with operations at the Boston Stock Exchange effective
January 1, 2001. K. & S., Inc. is one of the largest independently owned
specialist operations on the Boston Stock Exchange and was formed 28 years ago.
Kenneth M. King, President of K. & S., Inc., will continue to serve as President
of the firm.
Additionally, 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.
Statement of Operations for 2000 Compared to 1999
Net income of $628,000 or $0.05 per share - basic and diluted, on 11.7
million diluted weighted average shares outstanding, for the year ended December
31, 2000 compared to net loss of $849,000 or $0.10 per share - basic and
diluted, on 8.7 million diluted weighted average shares outstanding, for the
year ended December 31, 1999. Net income includes a write-down of $1,000,000
from the impairment of a non-marketable investment for the year ended December
31, 2000. The net loss for 1999 includes settlement and merger costs of
$2,137,000 and non-cash compensation expense of $850,000.
Income before income taxes, before the write-down of the non-marketable
investment and settlement and merger costs and non-cash compensation expense for
the year ended December 31, 2000 was $2,137,000, an increase of $387,000 or 22%,
compared to $1,750,000 for 1999.
Revenues for the year ended December 31, 2000 were $20,406,000 an increase
of $5,252,000 or 35%, compared to $15,154,000 for 1999. The increase primarily
results from increased commissions and principal transaction revenues from
broker-dealer operations for 2000 compared to 1999. Additionally, twelve months
of revenues of James Mitchell & Co. are included in 2000 compared to four months
of revenues reported for 1999 reflecting the September 1, 1999 Merger date.
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Compensation and benefits expense of $12,239,000 for the year ended
December 31, 2000 increased $2,696,000 compared to last year due to variable
commissions paid on higher transaction volume at Fechtor Detwiler and a full
year of compensation and benefit expenses of James Mitchell & Co. Compensation
and benefits expense for 1999 includes a non-recurring, non-cash compensation
expense of $850,000 related to the Merger.
General and administrative expense of $2,388,000 for the year ended
December 31, 2000 increased $747,000 compared to last year due to a full year of
expenses of James Mitchell & Co. recorded in 2000.
Floor brokerage, clearing and commissions of $2,282,000 for the year ended
December 31, 2000 increased $766,000 compared to last year due primarily to
increased transaction-based commission revenues required to be paid to other
broker-dealers.
Interest expense of $225,000 for the year ended December 31, 2000 decreased
$165,000 compared to the last year due to lower average notes payable balances
from reduced customer margin accounts.
Income tax expense of $509,000 for 2000 results from tax expense associated
with income before income taxes. Income tax benefit of $388,000 is for 1999
results form tax benefits associated with the loss before income taxes after
consideration on non-deductible and Merger related costs.
Statement of Operations for 1999 Compared to 1998
For the year ended December 31, 1999, Fechtor, Detwiler, Mitchell & Co.
reported a net loss of $849,000, or $0.10 per share--basic and diluted, compared
to net income of $8,000 for the year ended December 31, 1998. Results for 1999
include settlement and merger costs of $2,137,000 and Merger related non-cash
compensation expense of $850,000.
Pro forma net income, excluding settlement and merger costs and non-cash
compensation expense, was $1,015,000, or $0.08 per share--diluted, for 1999
compared to $588,000, or $0.05 per share--diluted, for 1998, assuming JMCG was
acquired effective January 1, 1998. Revenues on the same pro forma basis for
1999 were $15,892,000 compared to $14,102,000 for 1998.
Revenues of $15,154,000 for 1999 increased $3,075,000 from revenues of
$12,079,000 for 1998 primarily reflecting increased commission and principal
transaction revenues and revenues from JMCG partially offset by lower investment
banking revenues.
Compensation and benefits of $9,543,000 for 1999 increased $2,044,000
compared to 1998 due to higher variable compensation from the increase in
revenues for 1999, $850,000 of merger related non-cash compensation expense and
to a lesser degree compensation and benefits expense of JMCG for the four-month
period ended December 1999.
General and administrative expenses of $1,641,000 for 1999 increased
$209,000 compared to 1998 from higher professional fees and expenses of JMCG for
the four month period ended December 31, 1999. Occupancy, communications and
systems expense of $1,154,000 for 1999 decreased $195,000 from 1998 due to
reduced rent expense for branch offices.
Interest expense of $390,000 for 1999 increased $104,000 from 1998 due to
higher average notes payable balances and interest rates associated with
customer margin accounts.
Settlement and merger costs of $2,137,000 for 1999 include costs associated
with the resolution of several pending claims, professional fees and other costs
incurred to complete the Merger.
Income tax benefit of $388,000 for 1999 results from tax benefits
associated with the loss before income taxes after consideration of non-
deductible Merger related costs.
10
Item 7. 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 December 31, 2000, the
Company had assets of $13.3 million which primarily consisted of cash or assets
readily convertible into cash, principally receivables due from customers,
securities borrowed, receivables from brokers, dealers and clearing
organizations and deposits with clearing organizations. Cash and cash
equivalents at December 31, 2000 of $2,737,000 increased $1,465,000 from
December 31, 1999 primarily the result of operating cash flow.
Fechtor Detwiler has a revolving line of credit facilities with two banks.
The maximum borrowings of the combined facilities is $15,000,000 and each
facility is due upon demand. There were no borrowings outstanding at December
31, 2000.
During 2000, the Company purchased 2,412,000 common shares at market value
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 at that time.
Additionally, during 2000, the Company purchased and retired 36,000 shares of
its common stock from stockholders at a total cost of $24,700.
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.
Additionally, in December 2000, the Company formed Detwiler, Mitchell & Co.
(UK) Limited ("DMC UK") headquartered in London, England. Once regulatory
approvals are obtained, DMC UK 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 January 25, 2001, the Company announced its acquisition of K. & S.,
Inc., a specialist firm with operations at the Boston Stock Exchange effective
January 1, 2001. K. & S., Inc. is one of the largest independently owned
specialist operations on the Boston Stock Exchange and was formed 28 years ago.
The Company financed the acquisition with $1.2 million in cash (net of cash
acquired), 100,000 in shares of common stock valued at $62,500 and a note
payable of $300,000. The note payable earns interest at the prime rate and is
due in two equal installments on each of January 1, 2002 and 2003.
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. Certain
factors that affect Fechtor, Detwiler, Mitchell & Co. and include conditions
affecting revenues, reliance on key personnel, competition, and regulatory and
legal matters.
11
Item 7. 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 (Continued)
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 7a. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
12
Item 8. Financial Statements and Supplementary Data
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
At December 31
2000 1999
------------------- ------------------
ASSETS
Cash and cash equivalents $ 2,737,434 $ 1,272,826
Deposits with clearing organizations 415,194 349,459
Receivables from brokers, dealers and clearing organizations 535,836 1,019,614
Due from customers 3,598,699 11,958,104
Securities borrowed 3,279,900 71,200
Marketable investments, at fair value 15,681 3,372
Non-marketable investments, at fair value 510,000 1,000,000
Fixed assets, net 437,850 461,467
Intangible assets, net 123,385 129,385
Other 1,688,817 1,576,928
------------------- ------------------
Total Assets $13,342,796 $17,842,355
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ - $ 3,000,000
Payable to brokers, dealers and clearing organizations 117,811 10,695
Due to customers 4,035,739 4,208,274
Salary and commissions payable 1,329,837 853,655
Accounts payable and accrued liabilities 1,300,947 1,424,818
------------------- ------------------
Total Liabilities 6,784,334 9,497,442
------------------- ------------------
Contingencies (note 9)
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;
10,357,251 and 12,781,251 shares outstanding
at December 31, 2000 and 1999, respectively 103,573 129,165
Paid-in-capital 4,577,593 7,103,286
Retained earnings 1,877,296 1,249,541
Treasury stock, at cost - (137,079)
------------------- ------------------
Total Stockholders' Equity 6,558,462 8,344,913
------------------- ------------------
Total Liabilities and Stockholders' Equity $13,342,796 $17,842,355
=================== ==================
See Accompanying Notes to Consolidated Financial Statements.
13
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31
2000 1999 1998
-------------------- ------------------- -------------------
Revenues:
Commissions $11,995,968 $ 8,078,222 $ 5,689,697
Principal transactions 5,835,285 5,501,075 4,531,095
Investment banking 880,977 246,497 918,999
Realized and unrealized gains on investments 316,529 - -
Interest 910,652 930,701 579,343
Other 466,569 397,868 359,893
-------------------- ------------------- -------------------
Total revenues 20,405,980 15,154,363 12,079,027
-------------------- ------------------- -------------------
Expenses:
Compensation and benefits 12,238,521 9,542,983 7,499,403
General and administrative 2,388,433 1,641,036 1,431,920
Execution costs 2,282,339 1,516,604 1,479,173
Occupancy, communications and systems 1,128,162 1,153,904 1,348,541
Interest 225,435 390,088 286,217
Amortization of intangibles 6,000 9,625 -
Impairment of non-marketable investment 1,000,000 - -
Settlement and merger - 2,136,931 -
-------------------- ------------------- -------------------
Total expenses 19,268,890 16,391,171 12,045,254
-------------------- ------------------- -------------------
Income (loss) before income taxes 1,137,090 (1,236,808) 33,773
Income tax (expense) benefit (509,335) 387,582 (25,792)
-------------------- ------------------- -------------------
Net income (loss) $ 627,755 $ (849,226) $ 7,981
==================== =================== ===================
Net income (loss) per share--basic and diluted $ 0.05 $ (0.10) $ -
==================== =================== ===================
Weighted average shares outstanding:
Basic 11,594,893 8,696,355 6,600,000
==================== =================== ===================
Diluted 11,694,318 8,696,355 6,600,000
==================== =================== ===================
See Accompanying Notes to Consolidated Financial Statements.
14
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Years Ended December 31
Common Stock Paid-in Retained Treasury
---------------------------------
Shares Amount Capital Earnings Stock Total
---------------- -------------- --------------- --------------- -------------- ---------------
December 31, 1997 6,600,000 $ 66,000 $ - $2,090,786 $ - $ 2,156,786
Net income - - - 7,981 - 7,981
---------------- -------------- --------------- --------------- -------------- ---------------
December 31, 1998 6,600,000 66,000 - 2,098,767 - 2,164,767
Common stock
from acquisition 6,166,451 61,665 6,104,786 - - 6,166,451
Issuance of common stock -
other 150,000 1,500 148,500 - - 150,000
Capital contribution - - 850,000 - - 850,000
Purchase of treasury stock (135,200) - - - (137,079) (137,079)
Net loss - - - (849,226) - (849,226)
---------------- -------------- --------------- --------------- -------------- ---------------
December 31, 1999 12,781,251 129,165 7,103,286 1,249,541 (137,079) 8,344,913
Issuance of common stock -
stock option exercise 24,000 240 22,260 - - 22,500
Retirement of treasury - (1,352) (135,727) - 137,079 -
stock
Purchase and retirement
of treasury stock (2,448,000) (24,480) (2,412,226) - - (2,436,706)
Net income - - - 627,755 - 627,755
---------------- -------------- --------------- --------------- -------------- ---------------
December 31, 2000 10,357,251 $103,573 $ 4,577,593 $1,877,296 $ - $ 6,558,462
================ ============== =============== =============== ============== ===============
See Accompanying Notes to Consolidated Financial Statements.
15
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31
2000 1999 1998
----------------- ----------------- ------------------
Cash Flows from Operating Activities:
Net income (loss) $ 627,755 $ (849,226) $ 7,981
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 229,520 116,676 124,491
Realized and unrealized gain on investments (316,529) - -
Impairment of non-marketable investment 1,000,000 - -
Amortization of intangibles 6,000 9,625 -
Non-cash compensation expense - 850,000 -
Changes in:
Deposits with clearing organizations (65,735) (48,372) (6,637)
Receivables from brokers, dealers and clearing organizations 483,778 (936,375) 8,826
Due from customers 8,359,405 (3,878,293) 921,486
Securities borrowed (3,208,700) 744,450 (234,820)
Other assets (111,889) (370,962) 127,595
Due to customers (172,535) 906,112 1,950,414
Accounts payable and accrued liabilities and other 459,427 780,654 394,775
----------------- ----------------- ------------------
Net cash provided by (used in) operating activities 7,290,497 (2,675,711) 3,294,111
----------------- ----------------- ------------------
Cash Flows from Investing Activities:
Purchase of investment securities (427,765) - -
Capital expenditures (205,903) (301,164) (94,941)
Proceeds from sale of investment securities 221,985 - -
Cash acquired from merger - 4,613,147 -
----------------- ----------------- ------------------
Net cash provided by (used in) investing activities (411,683) 4,311,983 (94,941)
----------------- ----------------- ------------------
Cash Flows from Financing Activities:
Decrease in notes payable (3,000,000) (800,000) (3,200,000)
Proceeds from exercise of common stock options 22,500 - -
Purchase and retirement of treasury stock (2,436,706) (137,079) -
----------------- ----------------- ------------------
Net cash used in financing activities (5,414,206) (937,079) (3,200,000)
----------------- ----------------- ------------------
Net increase (decrease) in cash 1,464,608 699,193 (830)
Cash and cash equivalents at beginning of year 1,272,826 573,633 574,463
----------------- ----------------- ------------------
Cash and cash equivalents at end of year $ 2,737,434 $ 1,272,826 $ 573,633
================= ================= ==================
Cash Payments:
Interest expense $ 216,231 $ 384,522 $ 286,215
================= ================= ==================
Income taxes $ 314,000 $ 21,019 $ 35,620
================= ================= ==================
Supplemental Disclosure of Non-Cash Transactions:
Increase in intangible assets $ - $ 139,010 $ -
================= ================= ==================
Increase in common stock $ - $ 63,165 $ -
================= ================= ==================
Increase in paid-in-capital $ - $ 7,103,286 $ -
================= ================= ==================
See Accompanying Notes to Consolidated Financial Statements.
16
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. In exchange for their
ownership interest in Fechtor Detwiler, 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 legal acquiror (JMCG) is not the
accounting 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.
Fechtor, Detwiler, Mitchell & Co. is the holding company for its two
primary 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.
In December 2000, the Company formed Detwiler, Mitchell & Co. (UK) Limited
("DMC UK") headquartered in London, England. 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.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation--The consolidated 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. 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
Fechtor, 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 trade date.
Securities transactions for customers are reported on the settlement date.
Commission revenues and expenses are recorded on the trade date.
17
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2. Summary of Significant Accounting Policies (continued)
Fixed Assets--Fixed assets are stated at cost with depreciation and
amortization expense recorded using the straight line method over three to seven
years.
Investment Banking -- Investment banking revenues primarily include fees
arising from securities offerings in which the Company acts as an underwriter or
agent.
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.
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.
Interest--Interest revenue primarily represents earnings on client
margin accounts.
Net Capital Requirements--Certain subsidiaries of the Company are
subject to broker-dealer net capital requirements. At December 31, 2000, each
broker-dealer subsidiary was in compliance with its net capital requirement.
Segment Information -- The Company uses the "management approach" in
disclosing segment information. The Company conducts its business predominantly
within one industry segment, retail and institutional brokerage, which includes
the Company's retail and institutional brokerage activities and investment
banking services, for all periods presented. Management assesses performance and
measures the results on a single segment basis. The single segment generated
revenue predominantly from the United States for all periods presented.
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. Net Capital Requirement
The Company's primary broker dealer subsidiary, Fechtor Detwiler, is
subject to the Uniform Net Capital Rule 15c3-1 of the Securities and Exchange
Commission. Fechtor Detwiler computes its net capital under the alternative
method permitted by the Rule which requires that minimum net capital be the
greater of $250,000 or 2% of the aggregate debit items arising from customer
transactions.
At December 31, 2000, Fechtor Detwiler's net capital of $4,034,755 was
$3,784,755 in excess of the minimum net capital requirement of $250,000. At
December 31, 2000, Fechtor Detwiler's ratio of aggregate indebtedness to net
capital was 1.6 to 1.
18
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4. Earnings Per Share
Basic and diluted net income (loss) per share and weighted average
shares outstanding at December 31 follows:
2000 1999 1998
----------- ----------- -------------
Net income (loss) $ 627,755 $ (849,226) $ 7,981
=========== =========== =============
Net income (loss) per share:
Basic $ 0.05 $ (0.10) $ --
=========== =========== =============
Diluted $ 0.05 $ (0.10) $ --
=========== =========== =============
Weighted average shares outstanding:
Basic 11,594,893 8,696,355 6,600,000
Incremental shares assumed outstanding
from exercise of stock options 99,425 -- --
----------- ----------- -------------
Diluted 11,694,318 8,696,355 6,600,000
=========== =========== =============
Note 5. Marketable and Non-Marketable Investments
Realized and unrealized gains of $317,000 recorded for the year ended
December 31, 2000 were comprised of a realized gain of $114,000 and an
unrealized gain of $203,000. Unrealized gains are based on the underlying
estimated fair value of the respective investments. No unrealized gains or
losses were recorded on investment securities in 1999 or 1998.
The $1,000,000 investment in OptiMark Technologies, Inc. was written off
throughout 2000 representing a net charge to operations of $600,000 after income
tax benefit. The impairment loss was based upon information received throughout
2000 indicating impairment of such investment.
Note 6. Fixed Assets
Fixed assets consisted of the following at December 31:
2000 1999
------------------- ------------------
Furniture and equipment $ 642,203 $ 1,712,080
Leasehold improvements 29,507 29,247
------------ -----------
671,710 1,741,327
Less accumulated depreciation and amortization (233,860) (1,279,860)
------------ -----------
$ 437,850 $ 461,467
============ ===========
19
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6. Fixed Assets (continued)
Office space is leased under noncancelable leases expiring through 2007.
Future minimum annual lease payments at December 31, 2000 follow:
2001 $ 553,000
2002 532,500
2003 555,000
2004 555,000
2005 555,000
Thereafter 1,398,500
----------
$4,149,000
==========
Rent expense was $630,000, $660,000 and $801,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
Note 7. Notes Payable
Fechtor Detwiler has two revolving line-of-credit facilities totaling
$15,000,000, which are due on demand. Interest on the first facility is based
on the federal funds rate plus 1.10% and interest on the second facility is
based on the federal funds rate plus 1.25%. Advances under these facilities
were $0 and $3,000,000 at December 31, 2000 and 1999, respectively. Advances
are collateralized by certain securities held in customer margin accounts.
Note 8. Income Taxes
Actual income tax expense (benefit) differs from the amount "expected"
computed using the statutory Federal tax rate as follows:
2000 1999
--------------- ---------------
Expected income tax expense (benefit) using
statutory rate of 34% $ 386,610 $(420,515)
Effects of:
State income taxes, net of Federal tax benefit 71,296 (74,000)
Merger related expenses - 95,000
Other 51,429 11,933
--------- ---------
$ 509,335 $(387,582)
========= =========
Income tax expense (benefit) for the years ended December 31 follows:
2000 1999 1998
------------ ------------- -------------
Current:
Federal $ 520,231 $ - $ 14,780
State 148,864 - 11,012
Deferred (159,760) (387,582) -
--------- --------- ---------
$ 509,335 $(387,582) $ 25,792
========= ========= =========
20
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8. Income Taxes (continued)
The difference between the provision for taxes on income and expected
taxes on income at statutory rates results primarily from nondeductible
expenses.
Components of the deferred tax asset at December 31 are as follows:
2000 1999
--------------- ------------------
Impairment on investment $ 400,000 $ -
Compensation 340,000 404,000
Net operating loss 1,155 73,000
Fixed assets 14,950 38,000
Accrued liabilities 14,400 14,000
Unrealized gain on investments (81,145) -
--------------- ------------------
$ $689,360 $ 529,000
=============== ==================
Note 9. 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.
Included in other assets at December 31, 2000 is a $283,000 treasury
security pledged as collateral for a letter of credit. The secured party does
not have the right to sell or repledge the security.
Note 10. Stockholders' Equity
Stock Repurchases
On November 16, 1999, the Board of Directors approved a plan to
repurchase up to one million shares of common stock of the Company in either
open market or privately negotiated transactions. The timing and number of the
share purchases are determined at management's discretion. At December 31, 2000,
171,200 shares had been repurchased since November 1999, at a cost of $161,785
and such shares were retired.
On May 29, 2000 and August 17, 2000, the Company purchased, at market
value, 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 at that time. Purchases of Mr. Fechtor's
common shares were approved by the Board of Directors and were outside of the
common stock repurchase plan discussed above.
21
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10. Stockholders' Equity (continued)
Stock Options
In 2000, the Company adopted the 2000 Omnibus Equity Incentive Plan
(the "2000 Plan") pursuant to which options to purchase an aggregate of
1,500,000 shares of common stock may be granted. The Company may grant options
on its common stock, stock appreciation rights, "phantom" stock and restricted
stock in an aggregate total initial amount of 1,500,000 shares. The total
aggregate grant amount automatically increases on January 1 of each year by the
lesser of 150,000 shares, 10% of outstanding common stock, or an amount
determined by the Board of Directors. The Company had no grants of stock
appreciation rights, "phantom" stock or restricted stock during 2000. In 1993,
the Company adopted the 1993 Executive Stock Option Plan (the "Executive Plan")
pursuant to which options to purchase an aggregate of 750,000 shares of common
stock may be granted and the 1993 Employee Stock Option Plan (the "Employee
Plan") pursuant to which options to purchase an aggregate of 750,000 shares of
common stock may be granted (collectively, the "1993 Plans"). The 1993 Plans
were canceled on May 22, 2000.
A summary of stock options outstanding at December 31 follows:
Weighted Average
Shares Exercise Price
------------------ -----------------------
Options assumed in business combination at
September 1, 1999 367,400 $1.26
Granted 712,000 $1.00
Forfeited (27,000) $2.16
------------------
Outstanding at December 31, 1999 1,052,400 $1.06
Granted 1,482,000 $0.79
Forfeited (22,000) $1.36
Exercised (24,000) $0.94
------------------
Outstanding at December 31, 2000 2,488,400 $0.90
================== =======================
Options exercisable at December 31, 2000 540,571 $1.09
================== =======================
Weighted average fair value of options granted
per share during 2000 $0.48
=======================
Of the 1,482,000 options granted in 2000, options granted under the
Employee Plan were 232,000 and 250,000 options were granted under the 2000 Plan.
Additional options to purchase up to 1,000,000 shares of common stock, of which
none were granted under any plan, were granted to individuals at DMC UK. These
options vest over a period of five years and vesting may be accelerated if
certain revenue targets are achieved. Options outstanding at December 31, 2000
are exercisable as follows: 540,571 currently exercisable, 439,173 in 2001,
452,163 in 2002, 206,493 in 2003, none in 2004 and 850,000 in 2005. At December
31, 2000, 1,250,000 options are available for future grants under the 2000 Plan
(subject to the automatic increase noted above).
22
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10. Stockholders' Equity (continued)
Stock Options (continued)
A summary of stock options outstanding and exercisable at December 31, 2000
follows:
Options Outstanding Options Exercisable
-----------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Life In Exercise Exercise
Exercise Price Shares Years Price Shares Price
- ------------------- ---------- ------------- ------------ ---------- ------------
$0.50-$0.74 1,215,600 5.84 $0.69 11,600 $0.69
$0.75-$0.99 524,800 6.79 $0.95 204,136 $0.93
$1.00-$1.24 362,000 8.62 $1.05 182,835 $1.08
$1.25-$1.49 340,000 10.00 $1.30 130,000 $1.38
$1.50-$1.74 34,000 8.24 $1.54 4,000 $1.63
$1.75-$2.00 12,000 5.00 $1.88 8,000 $1.88
---------- ----------
2,488,400 540,571
========== ==========
The Company has adopted the disclosure-only provisions for the accounting
for stock-based compensation. Accordingly, no compensation cost has been
recognized for its stock option plans in 2000. Had compensation for the
Company's stock option plans been determined based on the fair market value at
the grant date for awards in 2000 and 1999, net income (loss) and net income
(loss) per share would be as follows:
2000 1999
-------------- ----------------
Net income (loss):
As reported $ 627,755 $ (849,000)
Pro forma $ 199,827 $ (1,198,000)
Net income (loss) per share:
As reported $ 0.05 $ (0.10)
Pro forma $ 0.02 $ (0.14)
The fair value of options granted during 2000 and 1999 are estimated to be
approximately $427,928 and $582,000, respectively, on the date of grant using
the Black-Scholes option-pricing model. Fair value was determined using the
following weighted average assumptions:
2000 1999
------------------ ----------------
Dividend yield rate 0% 0%
Volatility rate 117% 71%
Risk free interest rate 5.69% 5.69%
Expected lives 4 years 3 years
23
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10. Stockholders' Equity (continued)
Stock Options (continued)
The Company adopted a stock option plan of Fechtor Detwiler in
connection with the Merger. The plan provided for the issuance of 600,000
options, granted to certain employees by the founding partners of Fechtor
Detwiler, to acquire common shares of Fechtor Detwiler prior to the Merger. In
September 1999, the Company recorded compensation expense of $850,000, and a
$340,000 tax benefit, reflecting the recognition of the value of the options
granted between the exercise price of $0.10 per share and the value of the
common stock of the Company at the Merger date. At December 31, 1999, 600,000
common shares of the Company have been placed in a trust, by the former
shareholders of Fechtor Detwiler. The founding partners of Fechtor Detwiler will
reimburse the Company with an equivalent number of shares from the trust, based
on the number of options exercised.
The Company adopted the former JMCG 401(k) retirement savings plan in
the fourth quarter of 1999 covering substantially all employees. Matching
Company contributions of up to 3%, subject to the maximum allowed annual
employee contribution, are made in the form of Company stock purchased on the
open market. Company contributions for 1999 were not material.
Shareholder Rights Plan
The Company has a Shareholder Rights Plan (the "Plan") which provides
for a dividend of one common stock purchase right (one "Right") for each
outstanding share of common stock of the Company. Each Right entitles the
stockholder to purchase one share of common stock at $30.00 per share, subject
to adjustment. The Plan expires on February 21, 2010.
Generally, Rights may be exercised ten days after any person or group
("Acquirer") obtains beneficial ownership of 20% of the outstanding common
shares, or ten days after an Acquirer announces a tender offer or other business
combination, unless such tender offer or acquisition is made with the approval
of the Board of Directors. The Board of Directors may effect the redemption of
the Rights at any time before the Rights become exercisable at a nominal price
payable in cash and/or shares of common stock.
Under certain circumstances, including the acquisition of 25% of the
Company's common stock and the occurrence of certain "self-dealing
transactions" by an Acquirer or certain other 20% holders, all Rights holders
except the Acquirer may purchase the Company's common stock at approximately 50%
of the prevailing market price. Similarly, if the Company is acquired in a
merger after the acquisition of specified percentages of the voting power of the
Company, and the Acquirer is the resultant corporation, the Rights holders with
the exception of the Acquirer, may purchase the Acquirer's shares at a similar
discount.
Note 11. Proposed Reverse Common Stock Split (Unaudited)
The Board of Directors has proposed a submission to the stockholders to
amend the Certificate of Incorporation of the Company. The approval of the
proposed amendment requires the affirmative vote of the holders of a majority of
the outstanding shares of common stock. If adopted, the proposed amendment (the
"Reverse Split") will convert each outstanding share of common stock into one
fourth of a reconstituted common share (a "New Share"). Thus, if the amendment
is adopted, there will be approximately 2,611,813 New Shares outstanding and the
Company will have no other outstanding shares. The amendment will not change
the number of authorized shares of common stock. The total number of shares of
common stock issuable upon exercise of outstanding options to acquire such
shares, and the exercise price of such options, will be adjusted proportionally
to reflect the Reverse Split.
24
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 12. Concentrations of Credit Risk and Off-Balance Sheet Credit Risk
The Company borrows securities from other brokers and provides cash to
the other brokers representing approximately 105% of the market value of
securities borrowed. Deposits for securities borrowed are held in escrow at a
national brokerage firm at December 31, 2000.
The Company's customer securities activities are transacted on either a
cash or margin basis. In margin transactions, the Company extends credit to its
customers, subject to various regulatory and internal margin requirements,
collateralized by cash and securities in the customers' accounts. In connection
with these activities, the Company executes and clears customer transactions
involving the sale of securities not yet purchased, substantially all of which
are transacted on a margin basis subject to individual exchange regulations.
Such transaction may expose the Company to significant off-balance sheet risk in
the event margin requirements are not sufficient to fully cover losses that
customers may incur. In the event the customer fails to satisfy its obligations,
the Company may be required to purchase or sell financial instruments at
prevailing market prices to fulfill the customer's obligations. The Company
seeks to control the risks associated with its customer activities by requiring
customers to maintain margin collateral in compliance with various regulatory
and internal guidelines. The Company monitors required margin levels and,
pursuant to such guidelines, requires the customer to deposit additional
collateral to reduce positions when necessary.
Certain customer transactions involve the sale of securities not yet
purchased. Such transactions may expose the Company to off-balance sheet risk in
the event that collateral provided is not sufficient to cover losses that
customers may incur upon market fluctuations. In the event that the customer
fails to satisfy its obligations, the Company may be required to purchase or
sell such securities at prevailing market prices in order to fulfill the
customer's obligations.
Unpaid customer securities are pledged as collateral for bank
borrowings and to satisfy margin deposits of clearing organizations under
contracts with these organizations. In the event that such party is unable to
return customer securities pledged as collateral, the Company may be exposed to
the risk of acquiring the securities at prevailing market prices.
Customer transactions are recorded on a settlement-date basis, which is
generally three business days after the trade date. The Company is therefore
exposed to risk of loss on these transactions in the event of the customer's or
broker's inability to meet the terms of their contracts, in which case the
Company may have to purchase or sell securities at prevailing market prices.
Settlement of these transactions in the unlikely event the customer or other
brokers are unable to meet the terms of their contracts is not expected to have
a significant effect on the financial condition of the Company.
Securities not received or delivered at the settlement date result in
failed trades. Should the other party to these transactions be unable to fulfill
its obligations, the Company may be required to purchase or sell these
securities at prevailing market prices. Securities sold, not yet purchased are
subject to the risk that the market value of such securities will increase, and
may not be able to cover the position.
Note 13. Subsequent Event - Acquisition of K. & S., Inc.
On January 24, 2001 the Company acquired K. & S., Inc., a specialist
firm with operations at the Boston Stock Exchange effective January 1, 2001. K.
& S., Inc. is one of the largest independently owned specialist operations on
the Boston Stock Exchange and was formed 28 years ago. The Company has accounted
for this transaction under the purchase method of accounting. The purchase price
was $1,562,500 (net of cash acquired) and was comprised of $1.2 million cash, a
$300,000 note payable and 100,000 shares of the Company's common stock with a
value of $62,500. The excess of purchase price over tangible assets acquired was
approximately $1,500,000 and has been recorded by the Company as intangible
assets.
25
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14. Selected Quarterly Financial Data (unaudited)
2000
------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------------- ------------------ ------------------ ------------------
Revenues $ 5,925,519 $ 4,485,264 $ 4,522,505 $ 5,472,692
-------------------- ------------------ ------------------ ------------------
Expenses:
Compensation and benefits 3,602,586 2,552,492 2,723,358 3,360,085
Other expenses 2,048,319 1,484,780 1,546,775 1,950,495
Settlement and merger costs - - - -
-------------------- ------------------ ------------------ ------------------
5,650,905 4,037,272 4,070,133 5,310,580
-------------------- ------------------ ------------------ ------------------
Income (loss) before income taxes 274,614 447,992 252,372 162,112
Income tax (expense) benefit (109,845) (233,691) (100,949) (64,850)
-------------------- ------------------ ------------------ ------------------
Net income $ 164,769 $ 214,301 $ 151,423 $ 97,262
==================== ================== ================== ==================
Net income per share--
basic and diluted $ 0.01 $ 0.02 $ 0.01 $ 0.01
==================== ================== ================== ==================
Weighted average shares
Outstanding:
Basic 12,781,251 12,322,473 10,893,498 10,382,349
==================== ================== ================== ==================
Diluted 13,074,778 12,322,473 10,902,826 10,408,986
==================== ================== ================== ==================
1999
-------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------------- ------------------ ------------------- -------------------
Revenues $ 3,766,885 $ 4,099,989 $ 3,014,396 $ 4,273,093
-------------------- ------------------ ------------------- ------------------
Expenses:
Compensation and benefits 2,405,303 2,109,632 2,514,149 2,513,899
Other expenses 1,065,546 1,287,389 1,102,526 1,255,796
Settlement and merger costs - 393,815 1,495,199 247,917
-------------------- ------------------ ------------------- ------------------
3,470,849 3,790,836 5,111,874 4,017,612
-------------------- ------------------ ------------------- ------------------
Income (loss) before income taxes 296,036 309,153 (2,097,478) 255,481
Income tax (expense) benefit (133,216) (131,783) 708,126 (55,545)
-------------------- ------------------ ------------------- ------------------
Net income (loss) $ 162,820 $ 177,370 $ (1,389,352) $ 199,936
==================== ================== =================== ==================
Net income (loss) per share--
basic and diluted $ 0.02 $ 0.02 $ (0.16) $ 0.02
==================== ================== =================== ==================
Weighted average shares
outstanding-- basic and diluted 6,600,000 6,600,000 8,705,484 12,879,938
==================== ================== =================== ==================
26
[PwC Office Letterhead]
Report of Independent Accountants
To the Board of Directors and Shareholders of
Fechtor, Detwiler, Mitchell & Co.
In our opinion, the accompanying consolidated statement of financial condition
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows present fairly, in all material respects, the financial
position of Fechtor, Detwiler, Mitchell & Co. and its subsidiaries at December
31, 2000 and the results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
February 27, 2001
27
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated statement of financial
condition of Fechtor, Detwiler, Mitchell & Co. and subsidiaries as of December
31, 1999, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fechtor, Detwiler, Mitchell
& Co. and subsidiaries at December 31, 1999, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 9, 2000
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the statements of financial condition of Fechtor, Detwiler
& Co., Inc. as of December 31, 1998, and the related statements of operations,
changes in stockholders' equity, and cash flows for the year then ended. These
financial statements, not separately presented herein, are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fechtor, Detwiler & Co., Inc.
at December 31, 1998, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 10, 1999
29
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On October 13, 2000, the Company filed a report on Form 8-K which reported
the engagement of PricewaterhouseCoopers LLP on October 12, 2000 as its
independent auditors for fiscal 2000.
30
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to Directors and Executive Officers of the
Company can be found under the heading captioned "Board of Directors and
Officers of Fechtor, Detwiler, Mitchell & Co." and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" appearing in the Company's 2001
proxy statement and is incorporated herein by reference.
Item 11. Executive Compensation
Information with respect to Executive Compensation can be found under
the heading captioned "Executive Compensation" appearing in the Company's 2001
proxy statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to security ownership may be found under the
heading captioned "Security Ownership of Certain Beneficial Owners and
Management" appearing in the Company's 2001 proxy statement and is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to this item may be found under the heading
"Compensation Committee and Insider Participation and Certain Relationships and
Related Transactions" appearing in the Company's 2001 proxy statement and is
incorporated herein by reference.
31
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a)(3) The following exhibits are filed herewith:
3.1 Certificate of Incorporation of the Registrant.(1)
3.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant.(1)
3.3 By-laws of the Registrant.(1)
4.1 Shareholder Rights Agreement, dated as of February 21, 1990, between Spear
Financial Services, Inc. and First Interstate Bank, Ltd., as Rights Agent, as
amended effective, July 16, 1992.(1)
4.11 Amendment No. 2 to Shareholder Rights Agreement, dated February 20, 2000,
extending the expiration date of the Shareholder Rights Agreement to February
21, 2010.(5)
10.1 JMC Group, Inc. 1993 Employee Stock Option Plan.(2)(7)
10.2 JMC Group, Inc. 1993 Employee Stock Option Plan.(3)(7)
10.3 Employment Agreement with James K. Mitchell dated as of January 1,
1998.(4)(7)
10.4 Agreement and Plan of Merger dated June 30, 1999 among Fechtor, Detwiler &
Co., Inc., JMC Merger, Inc. and JMC Group, Inc.(6)
10.5 1999 Special Stock Option Plan for Fechtor, Detwiler & Co., Inc. dated
August 30, 1999 which was assumed by Fechtor, Detwiler, Mitchell & Co. after the
Merger.(7)(8)
10.6 2000 Omnibus Equity Incentive Plan adopted by the Board of Directors on
February 28, 2000 to be voted on at the Annual Meeting of Stockholders on or
about May 22, 2000. (7)(8)
10.7 Employment Agreement with James K. Mitchell dated as of January 1, 2001.
(9)
10.8 Employment Agreement with Kenneth M. King effective January 1, 2001. (9)
10.9 Purchase Agreement by and between Fechtor, Detwiler, Mitchell & Co. and K.
& S., Inc. (9)
10.10 Stock Option Agreements by and between Fechtor, Detwiler, Mitchell & Co.
and George Simpkins, Philip Routledge and Dena Morrison. (9)
22 Subsidiaries of the Registrant.(9)
23.1 Consent of PricewaterhouseCoopers LLP.(9)
23.2 Consent of Deloitte & Touche LLP.(9)
23.3 Consent of Arthur Andersen LLP.(9)
(b) Reports on Form 8-K.
(1) On October 13, 2000, the Company filed a report on Form 8-K which
reported the engagement of PricewaterhouseCoopers LLP on October 12,
2000 as its independent auditors for fiscal 2000.
32
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(continued)
Notes:
- ------
(1) Filed as an Exhibit to the Registrant's Form 10-K for the fiscal year
ended December 31, 1993.
(2) Filed as an Exhibit to the Registrant's Form S-8 Registration Statement
No. 33-74842 filed with the SEC on February 7, 1994.
(3) Filed as an Exhibit to the Registrant's Form S-8 Registration Statement
No. 33-74840 filed with the
SEC on February 7, 1994.
(4) Filed as an Exhibit to the Registrant's Form 10-K for the fiscal year
ended December 31, 1997.
(5) Filed as an Exhibit to the Registrant's Form 8-K dated March 24, 2000.
(6) Filed as an Exhibit to Registrant's Definitive Proxy Statement dated
August 5, 1999.
(7) Management contract or compensatory plan or arrangement.
(8) Filed as an Exhibit to the Registrant's Form 10-K for the fiscal year
ended December 31, 1999.
(9) Filed herewith.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Signature Title Date
--------- ----- ----
/s/ James Mitchell Chairman, Chief Executive Officer March 2, 2001
------------------
James Mitchell and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the date shown.
Signature Title Date
--------- ----- ----
/s/ James Mitchell Chairman, Chief Executive Officer March 2, 2001
-------------------- and Director
James Mitchell
/s/ Stephen Martino Chief Financial Officer and March 2, 2001
-------------------- Principal Accounting Officer
Stephen Martino
/s/ Edward Baran Director March 2, 2001
--------------------
Edward Baran
/s/ Barton Beek Director March 2, 2001
--------------------
Barton Beek
/s/ Andrew Detwiler President and Director March 2, 2001
--------------------
Andrew Detwiler
/s/ Robert Detwiler Director March 2, 2001
--------------------
Robert Detwiler
/s/ Edward Hughes Chief Operating Officer March 2, 2001
-------------------- and Director
Edward Hughes
/s/ Frank Jenkins Director March 2, 2001
--------------------
Frank Jenkins
/s/ Robert Sharp Director March 2, 2001
--------------------
Robert Sharp
34