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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 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 incorporation (I.R.S. Employer
or organization) Identification No.)
Newport Tower, 525 Washington Blvd., Jersey City, New Jersey 07310
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 459-9500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)of the Exchange Act:
Common Stock, par value $0.01 per share
(Title of Class)
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 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. [X ]
At March 28, 2002 6,606,514 shares of Common Stock, $0.01 par value, of the
registrant (the "Common Stock") were outstanding. The aggregate market value of
the Common Stock held by non-affiliates of the registrant was $3,321,914 based
on the closing price of $0.75 per share on March 28, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Certain statements set forth in the Company's Annual Report on Form 10-K for the
year ended January 31, 2002 constitute forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and are
subject to the safe harbor created by such section. Certain factors that could
cause results to differ materially from those described in the forward looking
statements are described in Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operation - Viability of Operating Results
and elsewhere as appropriate. This Annual Report on Form 10-K, including the
Statements of Financial Condition and the notes thereto, should be read in its
entirety for a complete understanding.
PART I
Item 1. Business.
GENERAL
M.H. MEYERSON & CO., INC. (the "Company"), founded in 1960, is a leading market
maker in over 4,000 NASDAQ and OTC securities, a registered securities
broker-dealer and member of the NASD. We are a full service financial and
investment banking firm which we regard as organized, for functional purposes,
in 7 operational divisions:
1. Wholesale Trading and Market Making - Here we engage in buying and selling
securities on behalf of our own trading accounts. In market making transactions,
we stand ready to buy or sell a particular security at the national best bid or
offer. As of April 1, 2002, we were market makers in over 4,000 NASDAQ and OTC
securities. Our trading activities accounted for 91.8% of our revenues this
year.
We employ 30 securities traders and 20 assistant traders in this division. We
create incentive for our traders by structuring their compensation on a sliding
scale percentage of trading profits or losses from their trading accounts, after
deduction of general expenses. Our management and compliance personnel supervise
these trading activities and require trading position limits by these personnel
so as to attempt to mitigate trading losses. In so doing, we maintain rigorous
compliance with NASDAQ and other regulatory requirements as well as the
traditional standards of commercial honor in conducting the brokerage business.
2. Correspondent Services - We provide intermediate market liquidity and
execution services, primarily to other broker/dealers and institutional
customers, to those who wish to use our expertise to enable them to purchase or
sell securities on behalf of their retail customers. Among our clients are large
firms, online securities brokers, banks, other financial institutions and hedge
funds.
3. Retail Securities Services - We have approximately 27,900 retail customer
accounts, which we service through 21 licensed registered representatives, of
whom 12 also hold higher licenses as registered securities principals. Our
clients consist of individuals and institutions, many of whom are sophisticated
securities investors and who have maintained their accounts with us for a
lengthy period of time. Our retail customer accounts are carried on a "fully
disclosed " basis by Investec Ernst Securities Corp., members of the New York
and other principal stock exchanges, pursuant to a clearing agreement. This
agreement provides that customer securities positions and credit balances held
at Investec Ernst Securities Corp. are insured for up to $62.5 million; this
includes $500,000 coverage by Securities Investors Protection Corp, which
maintains $100,000 coverage of cash balances.
4. Institutional Services - Our institutional sales division maintains accounts
with mutual funds, foreign and domestic banks, investment trusts and other
institutional investment vehicles.
5. Investment Banking - We assist small growing private and public companies in
the structure and planning of their business activities and their
capital-raising plans. Our investment banking professionals bring vast
experience to the evaluation of developmental and growth companies who, in our
judgment, have the potential, through business, management, proprietary assets
and other factors, to become successful public enterprises. Among our activities
in this field, we assist early capital formation and the structuring of security
offerings. We bring value to these clients by assisting their business plans,
growth strategies, and expansion potential while also identifying and advising
them as to strategic alliances, mergers, acquisitions and divestitures.
6. Fixed Income - Since 1997, we have provided liquidity and brokerage services
to our network of clientele in the debt securities markets including U. S.
Treasury, Agencies, Zero Coupon, Municipal and Corporate debt. We have also
acted as manager or co-manager for various offerings of municipal bonds and as
participants in selling groups, increasing our ability to offer this type of
investment to our clients. Our
fixed income department also advises certain retail and institutional clients on
investments in municipal, government and corporate bonds.
7. Online Trading - We formed eMeyerson.com Inc. ("eMeyerson") in 2000 to take
advantage of the acceptance and growth of online trading by retail and
institutional clients. In fiscal 2001 the markets clearly turned bearish and the
need for additional online brokerage services diminished. Subsequently we merged
eMeyerson.com with a sister company of an unaffiliated broker/dealer, ViewTrade
Securities, Inc. ("ViewTrade"). ViewTrade develops and markets retail and
institutional online market access to and between foreign and domestic
securities markets and financial institutions. Post-merger the Company owns
approximately 15.5% of the outstanding common stock of ViewTrade Holding
Corporation, the parent company of ViewTrade.
CORPORATE STRATEGY
As we enter our 43rd year, market making remains the core of our business.
Consistent with the past, our goal is to enhance our historic strengths while
expanding our product base and capabilities. We plan to do this by:
Combining sophisticated training with the latest electronic trading and
information technology. We have increased our trading platform and access to
markets and information to meet the new trading demands. We have, among other
things, linked a number of automated trading systems to our network.
Our investment banking activities are being expanded to cover:
1. Raising private placement or other funding for small but dynamically
expanding entities, while sometimes investing in these operations to secure a
minority position in the shareholdings for our firm.
2. Analyzing the needs of clients involved in these fields so that we may advise
them in acquiring other operations or expanding their activities to encompass
other related businesses which utilize the same basic technology and skills.
Strategic Alliances with Other Institutions - Since we view the securities
industry and financial industries in general as involved in a global
consolidation phase - both horizontally by taking on a variety of banking,
financial and securities products - and vertically by linking up European, Far
Eastern and American firms - we intend to explore these possibilities for
ourselves as well.
We will do this so that:
1. We are able to offer our retail and institutional clients a wider variety of
products;
2. We gain access to other products and overseas markets for our customers; and
3. We are able to make available to overseas parties the ability to gain access
to U.S. securities markets and financial products.
In this way, we seek to add value for our stockholders, provide greater services
for our clients, and participate in new product and the consolidation of
securities and financial firms globally. The movement to greater communications
resources and electronic commerce, through the Internet and otherwise, has
accelerated these trends. We intend to participate, but only after carefully
examining the risks and potential rewards involved so that we are not exposing
ourselves to significantly greater financial risk in the implementation of our
strategic plans. We also will move forward only if we are able to assure
ourselves and our clients of being able to continue to provide at least the same
personalized and professional servicing of their financial needs and accounts
that we have historically provided to them.
OPERATIONS
We do not hold client funds or securities and do not directly process back
office operations. We clear
2
transactions for certain institutional clients and transactions for our own
proprietary trading accounts with Spear, Leeds & Kellogg, Inc., members of the
New York Stock Exchange and other principal stock exchanges. We clear
proprietary fixed income transactions, all transactions for our retail customers
and transactions for additional institutional clients with Investec Ernst
Securities Corp. All clearing activities are carried on a fully disclosed basis
with our customers. These clearing services are furnished to us and our clients
for a fee and include billing, custody of securities, credit review (including
for margin accounts) and similar activities. However, if our customers do not
pay or deliver securities for a trade or if they do not properly maintain their
credit balances on "margin" accounts, and there is a loss for which we cannot
collect from our customer, we are generally liable for such losses. We maintain
our back office and compliance divisions to supervise our activities generally
and to ensure financial and regulatory compliance with applicable rules.
VENDORS
We use numerous third party vendors to obtain information services and software,
including stock quotations, stock trading charts, news and financial data. We
have alternate sources for these services and, accordingly, do not consider
ourselves dependent on any one or more of these suppliers. We review our
relationships with our vendors regularly and replace certain vendors as needed
to maintain the most cost effective and efficient network available for our
traders and representatives.
COMPETITION
The securities industry is very competitive and, with technical innovation, is
becoming even more so. Accordingly, we seek to compete based upon our
traditional strengths built up on an over forty year period of time. These
strengths are:
o quality of execution
o efficiency
o training
o reliability of our trading abilities
o our reputation in the markets and with other market professionals
o relationships with our institutional and retail clients
o our skilled and experienced management team
We also utilize what we consider the best and most reliable of technological
advances in order to compete and continually enhance the quality of services
provided. We are competing with large and small brokerage firms, which utilize
both traditional methods and electronic commerce to transact their business.
We encounter intense competition in all aspects of the securities business and
compete directly with other securities firms, a significant number of which have
substantially greater capital and other resources. Many of these competitors
offer a wider range of financial services. Our strategy to bridge this gap is to
focus on our core businesses of execution services and create alliances with
third party market product vendors thus broadening our product line without the
need for significant capital outlay. In addition to competition from firms
currently in the securities business there has recently been increasing
competition from other sources such as commercial banks and insurance companies
offering financial services. We believe that the principal competitive factors
in the securities industry are the quality and ability of professional personnel
and relative prices of services and products offered. We and our competitors
also directly solicit potential customers and furnish investment services to
investors in an effort to hold and attract existing and potential clients.
GOVERNMENT REGULATION
The securities industry in the United States is subject to extensive regulation
under both federal and state laws. We are registered as a broker/dealer with the
SEC. Much of the regulation of broker-dealers has been
3
delegated to self-regulated organizations, principally the NASD and national
securities exchanges such as NASDAQ. These self-regulatory organizations adopt
rules (subject to approval by the SEC) that govern the industry and conduct
periodic examinations of our operations. Securities firms are also subject to
regulation by state securities administrators in those states in which they
conduct business.
Regulatory bodies are charged with safeguarding the integrity of the securities
and other financial markets and with protecting the interests of investors
participating in those markets, but not with protecting the interests of our
stockholders. Broker-dealers are subject to regulations covering all aspects of
the securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of clients' funds and securities, capital
structure, record keeping and the conduct of directors, officers and employees.
NET CAPITAL REQUIREMENTS
The SEC, NASD and various other regulatory agencies have rigid rules requiring
the maintenance of specific levels of net capital by securities brokers,
including the SEC's uniform net capital rule which we must comply with. Net
capital is defined as assets minus liabilities plus other allowable credits and
qualifying subordinated borrowings less mandatory deductions that result from
excluding assets that are not readily convertible into cash and from valuing
other assets, such as a firm's positions in securities, on a stringent basis.
Among these deductions are adjustments in the market value of securities to
reflect the possibility of a market decline prior to disposition.
As of January 31, 2002, we were required to maintain minimum net capital, in
accordance with SEC rules, of $1,000,000 and had total net capital of
approximately $2,618,000 or approximately $1,618,000 in excess of our minimum
net capital requirements.
If we fail to maintain the required net capital we may be subject to suspension
or revocation of registration by the SEC and suspension or expulsion by the NASD
and other regulatory bodies. In addition, a change in the net capital rules, the
imposition of new rules, a specific operating loss, or any unusually large
charge against net capital could limit operations that require the intensive use
of capital and could limit our ability to expand our business. The net capital
rules also could restrict our ability to withdraw capital, which could limit our
ability to pay dividends, repay debt and repurchase shares of our outstanding
stock.
PERSONNEL
As of March 31, 2002, we employed a total of 100 full-time persons, whose
primary roles are: 50 trading, 21 retail representatives, 5 back office
personnel, 3 fixed income, 6 investment banking, 6 compliance, 3 accounting, 3
retail clerical, and 3 in executive management. Our relations with our employees
are generally good and we have no collective bargaining agreements with any
labor unions.
Our registered representatives are required to take and pass examinations and
fulfill additional required continuing education requirements administered by
the NASD and state authorities in order to be qualified to transact business.
Our success will depend on our ability to hire and retain additional qualified
trading, technical and financial personnel, who are generally in high demand.
Item 2. Properties.
FACILITIES
The Company currently leases approximately 30,000 square feet of space in an
office building known as the Newport Office Tower located at 525 Washington
Blvd., Jersey City, New Jersey. The lease is in effect through July 31, 2011.
Rent charges on this office for the years ended January 31, 2002 and January 31,
2001 were $928,601 and $1,044,700, respectively.
In addition, the Company also paid maintenance charges for space in Aventura,
Florida under an agreement with Martin H. Meyerson, who owns the property in
question. This space is primarily used for entertainment and investment banking
purposes. The total maintenance charges for each of the years ending
4
January 31, 2002 and 2001 were $10,020 per year. The Company also paid rent for
space in New York City, New York which was leased in the name of Martin H.
Meyerson. This property was also used primarily for entertainment and investment
banking purposes. The total rent paid on this space for the years ended January
31, 2002 and 2001 were $11,825 and $32,000, respectively. The Company has
recently amended its agreements with Mr. Meyerson and relinquished any right to
use the Aventura, Florida and New York City spaces for corporate purposes.
Accordingly the Company is no longer obligated to pay any costs or expenses
associated with these properties. The maintenance charges paid on the Florida
property are the actual maintenance charges billed each month, and the rent paid
on the New York property is the actual rent specified in the lease between
Martin H. Meyerson and the building's landlord. The Company believes that it is
similar to what would be paid for a comparable property leased on an arm's
length basis by the Company. Neither of these properties is the permanent
residence of Martin H. Meyerson.
Item 3. Legal Proceedings.
Except as described herein, the Company is not a party to any litigation which
would have a material adverse impact on the Company or its operations. An action
styled as a class action has been initiated against Optomedic Medical
Technologies Ltd. ("Optomedic"), an executive officer of Optomedic and against
the Company in connection with an underwriting in June 1998 of Optomedic
securities by the Company. The action is in a preliminary stage, and the time
for the Company to respond to the plaintiffs' complaint has not yet occurred. No
class certification application as yet has been made. The Company believes that
plaintiffs have filed a deficient pleading, and has made a motion to dismiss the
plaintiffs' complaint. The Company intends to defend vigorously against
plaintiffs' claims.
On January 8, 2002, an arbitration panel under the auspices of The National
Association of Securities Dealers awarded $5,000,000 in compensatory damages
against the Company and Bear Stearns Securities Corp. While 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 on the
grounds that the arbitration panel disregarded the law, committed manifest legal
error, and violated procedural requirements. This matter has been remanded to
the Federal court in the State of New Jersey. Both the management of the Company
and its legal counsel reasonably anticipate a favorable outcome from the
complaint. However, the Company recorded the $5,000,000 adverse award as a
liability in its financial statements in the event it is unsuccessful in
overturning this 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 and the Company has recorded a $1,000,000 insurance
receivable in its financial statements.
While 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.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of fiscal 2002.
5
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters.
The Company's Common Stock is traded on the NASDAQ National Market ("NMS") under
the symbol "MHMY". The following sets forth for the fiscal quarters as indicated
the high and low bid closing quotations for the Company's Common Stock on the
NMS from February 1, 2000 through January 31, 2002. Such information reflects
interdealer quotations, without retail mark-up, mark-down or commissions, and
may not necessarily represent actual transactions.
Fiscal Year 2001 High Low
---------------- ------- -----
1st Quarter $ 6.69 $ 4.00
2nd Quarter $ 4.56 $ 3.56
3rd Quarter $ 6.69 $ 3.75
4th Quarter $ 4.19 $ 2.13
Fiscal Year 2002
----------------
1st Quarter $ 3.20 $ 2.00
2nd Quarter $ 1.50 $ 1.06
3rd Quarter $ 1.29 $ 0.55
4th Quarter $ 0.85 $ 0.33
The number of shareholders of record of the Company's Common Stock on March 31,
2002 was approximately 60, and the number of beneficial holders of the Company's
Common Stock held in street name by various security clearing houses is
estimated by management to be an additional 3,500 holders.
Item 6. Selected Financial Data.
The historical selected financial data set forth below for the five years ended
January 31, 2002 are derived from the Company's Financial Statements included
elsewhere in this Annual Report on Form 10-K and should be read in conjunction
with those financial statements and notes thereto. The financial statements for
each of the four years in the period ended January 31, 2001 have been audited by
Vincent R. Vasallo, certified public accountant. The financial statements for
the year ended January 31, 2002 have been audited by Sanville & Company,
certified public accountants, whose report with respect thereto appears
elsewhere in this report.
6
January 31,
--------- --------------------- ------------ ------------- ------------
2002 2001 2000 1999 1998
BALANCE SHEET DATA:
Assets $17,308,019 $35,878,287 $36,361,522 $21,577,799 $24,526,907
Liabilities 7,857,471 9,913,990 12,948,157 7,021,214 10,249,271
Subordinated liability 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
Minority interest in subsidiary 0 1,923,462 680,852 0 0
Shareholders' equity 7,450,548 22,040,835 20,732,513 12,556,585 12,277,636
STATEMENT OF OPERATIONS
DATA:
Year Ended
January 31,
--------- --------------------- ------------ ------------- ------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
REVENUES
Net gain on securities $ 15,173,605 $ 66,937,422 $ 57,690,503 $ 28,784,099 $20,637,323
transactions
Underwriting 77,657 2,274,166 1,621,399 2,966,120 3,254,395
Commissions 1,145,960 1,951,047 1,992,818 1,728,938 2,025,672
Interest and other revenue 139,763 1,227,089 816,820 400,665 1,540,174
-------------------- ------------------ --------------- ------------- ------------
Total revenues 16,536,985 72,389,724 62,121,540 33,879,822 27,457,564
-------------------- ------------------ --------------- ------------- ------------
EXPENSES
Compensation and benefits 8,928,583 29,995,573 27,181,296 16,451,594 14,383,715
Clearance charges 6,996,105 28,930,685 18,620,819 7,328,909 6,233,720
Communications 4,605,124 4,875,907 4,616,220 3,544,838 3,411,166
Professional fees 4,439,751 2,637,445 1,276,145 916,005 973,902
Occupancy and equipment 1,010,983 1,044,700 1,034,680 996,603 954,071
costs
Other operating expenses 5,887,996 6,429,984 4,446,301 4,185,103 4,180,770
-------------------- ------------------ --------------- ------------- ------------
Total expenses 31,868,542 73,914,294 57,175,461 33,423,052 30,137,344
-------------------- ------------------ --------------- ------------- ------------
INCOME (LOSS) BEFORE TAXES (15,331,557) (1,524,570) 4,946,079 456,770 (2,679,780)
MINORITY INTEREST 0 800,099 100,920 0 0
PROVISION FOR INCOME TAXES (3,104,086) (216,199) 2,003,377 220,321 (960,316)
-------------------- ------------------ --------------- ------------- ------------
NET INCOME $ (12,227,471) $ (508,272) $ 3,043,622 $ 236,449 $(1,719,464)
==================== ================== =============== ============= ============
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
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 Annual Report on Form 10-K.
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:
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PERCENT OF TOTAL REVENUES
YEAR ENDED JANUARY 31,
----------------------
2002 2001 2000
---- ---- ----
Net gain on securities transactions............ 91.8 92 93
Underwriting................................... .5 3 3
Commissions.................................... 6.9 3 3
Interest and other............................. .8 2 1
--------- ------- -------
100 100 100
--------- ------- -------
Compensation and benefits...................... 54 41 44
Clearance charges ............................. 42 40 30
Communications ................................ 28 7 7
Professional fees ............................. 27 4 2
Occupancy and equipment costs.................. 6 1 2
Other operating expenses....................... 36 9 7
--------- ------- -------
Total expenses...................... 193 102 92
--------- ------- -------
Income before income taxes.......... (93) (2) 8
Minority interest 0 1 *
Provision for income taxes.......... (20) * 3
--------- ------- -------
Net income.......................... (73) (1) 5
========= ======= =======
* represents amount less than 1%
CALCULATION OF EARNINGS PER SHARE
The calculation of earnings per share on the financial statements included in
this report are based on the weighted average number of shares outstanding, as
calculated.
FISCAL YEAR 2002 COMPARED WITH FISCAL YEAR 2001
Total revenues in fiscal year 2002 decreased to $16,536,985 from $72,389,724 or
77.2%. This is attributable mainly to the 77% decrease in trading revenue,
underwriting and interest and other revenue and a decrease in commission revenue
of 41%. The decrease in trading revenue is due to the overall market conditions
and reflects a decline in the level of transactions initiated by our
correspondents and the decrease in margins brought about by intensified
competition. Trading margins were further decreased by the decimalization of the
U. S. securities markets.
Compensation and benefits decreased to $8,928,583 from $29,995,573, a change of
70.2%. This is reflective of a decrease in revenue for the year as producing
personnel derive the major portion of their compensation as a percentage of
production. Further, reductions in staff as part of an overall effort to reduce
operating expenses resulted in cost benefits.
Clearing charges decreased from $28,930,685 to $6,996,105. This was due
primarily to the decrease in volume over last year and the Company's ability to
negotiate more favorable rate schedules with our respective clearing brokers.
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Communications expense decreased by 5.5%, from $4,875,907 to $4,605,124. This
reduction was accomplished by reducing equipment and services that, with the
reduction in trading volume, became unnecessary.
Other operating expenses, comprising professional fees, research fees,
occupancy, and various other operating costs decreased from $6,429,984 to
$5,887,996.
During the second quarter of fiscal 2002, the Company disposed of its interest
in eMeyerson.com through a merger with an affiliate of ViewTrade, Inc.
Originally, the Company had invested $340,000 and owned an approximately 54%
interest in eMeyerson.com. The financial statements for fiscal 2001 and 2000
had included the Company's share of the consolidated results of eMeyerson.com.
The fiscal 2002 financials reflect the unconsolidation of eMeyerson.com
through a reduction in stockholders' equity of $2,387,314. The reduction
resulted from the effects of unconsolidating the previously consolidated
accounts of eMeyerson.com. The Company's interest in ViewTrade Holding
Corporation after the merger is approximately 15.5% and is valued at its
original cost of $340,000.
FISCAL YEAR 2001 COMPARED WITH FISCAL YEAR 2000
Total revenues in fiscal year 2001 increased to $72,389,724 from $62,121,540 or
16.5%. This was attributable mainly to the 16% increase in trading revenue, with
increases also in underwriting and interest and other revenue, offset by a small
decrease in commissions. The increase in trading revenue is mainly due to the
very high trading volume during the first few months of the fiscal year.
Compensation and benefits increased from $27,181,296 to $29,995,573, a change of
10.4%. This was caused by the increase in revenue.
Clearing charges increased from $18,620,819 to $28,930,685, a change of 55.4%
caused by the increase in volume over the previous year.
Communications expense increased by 5.6%, from $4,616,220 to $4,875,907.
Other operating expenses, comprising professional fees, research fees, occupancy
and various other operating costs increased from $6,097,711 to $10,112,129.
VIABILITY OF OPERATING RESULTS
The Company, like other securities firms, is directly affected by general
economic conditions and market conditions, including fluctuations in volume and
price levels of securities, changes in levels of interest rates and demand for
the Company's investment banking services. In addition, trading charges have
been reduced and decimalization of stock quotations has had an adverse effect on
revenues. All of these factors have an impact on the Company's net gain from
securities transactions, underwriting, and commission revenues. In periods of
reduced market activity, profitability can be adversely affected because certain
expenses, consisting primarily of non-officer compensation and benefits,
communications and occupancy and equipment remain relatively fixed.
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 68% and 76% of
total assets at January 31, 2002 and January 31, 2001, respectively.
The Company finances its operations primarily with existing capital and funds
generated from operations.
The Company's Consolidated Statement of Financial Condition comparing fiscal
2002 and 2001 reflects an increase in Accounts payable and accrued expenses to
$5,695,013 from $2,787,714. Included in fiscal 2002 is the amount of $5,000,000,
the amount awarded by an NASD arbitration panel against the Company and Bear
Stearns Securities Corp. and described in Item 3. Legal Proceedings. All other
items totaled $695,013, compared with $2,787,714 in the prior year. This
reduction is representative of the decrease in overall business volume for the
year and various cost cutting efforts.
The Company believes that existing capital and cash flow from operations will be
sufficient to meet its cash requirements. If the Company was compelled to settle
any material issue incidental to the regular course of business, then and only
then would the Company seek additional funds. Management, however, believes all
material items have been included in this Report on Form 10-K and should result
in no material adverse effect.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our market making activities expose us to significant risks, including but not
limited to changes in price and/or liquidity of our trading positions. We use an
automated trading system to provide management with
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a real-time overview of our traders' activity, positions, and profitability.
Each trader's total positions are regularly reviewed and limited by management.
This automated trading system also alerts management to any trades which exceed
certain parameters as to position or trade size during the day.
In the course of our business, we maintain inventory, consisting mainly of
NASDAQ and OTC securities and municipal bonds. The market value of our inventory
at January 31, 2002 was $4.2 million in long positions and $1.26 million in
short positions. The loss to the Company, assuming a 10% decline in prices,
would be $0.29 million due to the losses on the long positions being partially
offset by gains on the short positions.
We invest, from time to time, in certificates of deposit and/or maintain
interest bearing balances in our accounts with our clearing brokers, for working
capital purposes, which are classified as cash equivalents and receivables from
clearing brokers, respectively, in the Statement of Financial Condition. These
balances are all available for immediate withdrawal, or are for periods of 31
days or less, and do not present a material market risk. The Company does not
normally trade or carry positions in derivative securities.
10
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report................................................ 12
Statements of Financial Condition
at January 31, 2002 and 2001 .......................................13
Statements of Operations for the years
ended January 31, 2002, 2001 and 2000...............................14
Statements of Stockholders' Equity for the years
ended January 31, 2002, 2001 and 2000 ..............................15
Statements of Cash Flows for the years
ended January 31, 2002, 2001 and 2000 ..............................16
Notes to Financial Statements................................................17
11
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and
Board of Directors
M. H. MEYERSON & CO., INC.
We have audited the accompanying consolidated statement of financial
condition of M. H. MEYERSON & CO., INC. and Subsidiary (the Company) as of
January 31, 2002, 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. The consolidated financial statements of the Company as of January
31, 2001 and January 31, 2000, were audited by other auditors whose report dated
April 21, 2001, expressed an unqualified opinion on these statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 M. H. MEYERSON &
CO., INC. and Subsidiary, as of January 31, 2002, and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
Abington, Pennsylvania Sanville & Company
March 21, 2002 Certified Public Accountants
The accompanying notes are an integral part of this statement.
12
M. H. MEYERSON & CO., INC.
Consolidated Statements of Financial Condition
January 31, 2002 and 2001
2002 2001
------------ -------------
ASSETS
Cash and cash equivalents $ 851,343 $ 10,451,946
Receivables:
Clearing broker (Note 5) 4,682,353 3,277,214
Income taxes 2,847,494 3,285,433
Other 2,022,249 306,317
Securities owned: (Notes 2 and 3)
Marketable 4,208,644 13,640,805
Investments, not readily marketable 1,085,887 1,749,798
Furniture and equipment, net (Note 4) 726,737 1,027,087
Other assets 883,312 2,139,687
------------ -------------
Total assets $ 17,308,019 $ 35,878,287
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to clearing broker $ 166,864 $ -
Payable to trading representatives 738,105 4,273,059
Securities sold, not yet purchased (Notes 2 and 3) 1,257,489 2,853,217
Accounts payable and accrued expenses 5,695,013 2,787,714
----------- -------------
Total liabilities 7,857,471 9,913,990
----------- -------------
Commitments and contingent liabilities (Note 14)
Minority Interests in Subsidiary - 1,923,462
----------- -------------
Subordinated Loan (Note 9) 2,000,000 2,000,000
----------- -------------
Stockholders' Equity:
Common stock 65,815 65,717
Additional paid-in capital 11,735,641 14,783,913
Retained earnings (deficit) (4,350,908) 7,191,205
----------- -------------
Total stockholders' equity 7,450,548 22,040,835
----------- -------------
Total liabilities and stockholders' equity $ 17,308,019 $ 35,878,287
============ =============
The accompanying notes are an integral part of these financial statements.
13
M. H. MEYERSON & CO., INC.
Consolidated Statements of Operation
For the Years Ended January 31, 2002, 2001 and 2000
2002 2001 2000
---------------- ---------------- ----------------
REVENUES
Net gain on securities transactions $ 15,173,605 $ 66,937,422 $ 57,690,503
Underwriting fees 77,657 2,274,166 1,621,399
Commissions 1,145,960 1,951,047 1,992,818
Interest and other 139,763 1,227,089 816,820
---------------- ---------------- ----------------
Total revenues 16,536,985 72,389,724 62,121,540
---------------- ---------------- ----------------
EXPENSES
Compensation and benefits 8,928,583 29,995,573 27,181,296
Clearance charges 6,996,105 28,930,685 18,620,819
Communications 4,605,124 4,875,907 4,616,220
Professional fees 4,439,751 2,637,445 1,276,145
Occupancy and equipment costs 1,010,983 1,044,700 1,034,680
Other operating expenses 5,887,996 6,429,984 4,446,301
---------------- ---------------- ----------------
Total expenses 31,868,542 73,914,294 57,175,461
---------------- ---------------- ----------------
Income (loss) before income taxes
and tax benefits (15,331,557) (1,524,570) 4,946,079
Provision for income taxes (Note 11) (3,104,086) (216,199) 2,003,377
Minority interest - 800,099 100,920
---------------- ---------------- ----------------
Net income (loss) $ (12,227,471) $ (508,272) $ 3,043,622
================ ================ ================
Basic earnings (loss) per share of common
stock (Note 2) $ (1.86) $ (0.08) $ 0.50
================ ================ ================
Diluted earnings (loss) per share of common
stock (Note 2) $ (1.86) $ (0.08) $ 0.46
================ ================ ================
Weighted average number of shares outstanding 6,580,683 6,566,022 6,148,605
================ ================ ================
Diluted weighted average number
of shares outstanding 6,580,683 6,566,022 6,650,562
================ ================ ================
The accompanying notes are an integral part of these financial statements.
14
M. H. MEYERSON & CO., INC.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended January 31, 2002, 2001 and 2000
Common Stock Additional Retained Total
---------------------------- Paid-In Earnings/ Stockholders'
Shares (1) Amount Capital (Deficit) Equity
------------ ---------- -------------- -------------- -------------
Balances February 1, 1999 5,090,315 $ 50,903 $ 7,849,827 $ 4,655,855 $ 12,556,585
Net income - - - 3,043,622 3,043,622
Private placement 500,000 5,000 2,495,000 - 2,500,000
Options exercised 917,500 9,175 1,244,793 - 1,253,968
Equity in subsidiary - 1,378,338 - 1,378,338
------------ ---------- -------------- -------------- -------------
Balances at January 31, 2000 6,507,815 65,078 12,967,958 7,699,477 20,732,513
Net loss - - - (508,272) (508,272)
Options exercised 137,500 1,375 399,406 - 400,781
Treasury stock retired (73,600) (736) (277,785) - (278,521)
Equity in subsidiary - - 1,694,334 - 1,694,334
------------ ---------- -------------- -------------- -------------
Balances at January 31, 2001 6,571,715 65,717 14,783,913 7,191,205 22,040,835
Net loss - - - (12,227,471) (12,227,471)
Disposal of subsidiary - - (3,072,672) 685,358 (2,387,314)
Options exercised 9,799 98 24,400 - 24,498
------------ ---------- -------------- -------------- -------------
Balances at January 31, 2002 6,581,514 $ 65,815 $ 11,735,641 $ (4,350,908) $ 7,450,548
============ ========== ============== ============== =============
(1) Common Stock - $0.01 par value, 25,000,000 shares authorized
The accompanying notes are an integral part of these financial statements.
15
M. H. MEYERSON & CO., INC.
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2002, 2001 and 2000
2002 2001 2000
---------------- ----------------- -----------------
Cash flows from operating activities:
Net income (loss) $ (12,227,471) $ (508,272) $ 3,043,622
Adjustments to reconcile net income (loss) to net
cash provided (expended) in operating activities:
Depreciation 207,363 443,030 393,440
Changes in assets and liabilities:
(Increase) decrease in assets:
Receivables:
Clearing broker (1,405,139) 6,022,012 (3,693,279)
Other (1,715,932) - -
Income taxes 437,939 (3,285,433) -
Securities owned 8,933,634 673,325 (3,672,634)
Other assets 1,256,375 504,318 (1,764,755)
Increase (decrease) in liabilities:
Payable to clearing broker 166,864 - -
Securities sold, not yet purchased (1,595,728) (357,647) 1,358,627
Payable to trading representatives (3,534,954) (2,627,491) 2,933,213
Accounts payable and accrued expenses 2,907,299 (49,029) 1,635,103
---------------- ----------------- -----------------
Net cash provided (expended) in operating activities (6,569,750) 814,813 233,337
---------------- ----------------- -----------------
Cash flows from financing activities:
Treasury stock purchased and retired - (278,521) -
Private placement - - 2,500,000
Options exercised 24,498 400,782 1,253,968
---------------- ----------------- -----------------
Net cash provided in financing activities 24,498 122,261 3,753,968
---------------- ----------------- -----------------
Cash flows from investing activities:
Investments 1,162,438 257,523 (1,795,677)
Investment in subsidiary (2,387,314) 1,694,334 1,378,338
Purchase of fixed assets, net of disposals 92,987 (353,690) (30,823)
Minority interest in subsidiary (1,923,462) 1,242,610 680,852
---------------- ----------------- -----------------
Net cash provided (expended) in investing activities (3,055,351) 2,840,777 232,690
---------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents (9,600,603) 3,777,851 4,219,995
Cash and cash equivalents at beginning of year 10,451,946 6,674,095 2,454,100
---------------- ----------------- -----------------
Cash and cash equivalents at end of year $ 851,343 $ 10,451,946 $ 6,674,095
================ ================= =================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 78,464 $ 141,140 $ 145,928
Income taxes $ 274,018 $ 4,167,696 $ 1,411,000
The accompanying notes are an integral part of these financial statements.
16
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements
January 31, 2002, 2001 and 2000
1. ORGANIZATION
M.H. MEYERSON & CO., INC. (the "Company") is a registered broker dealer
with the Securities and Exchange Commission ("SEC") and the National
Association of Securities Dealers ("NASD"). The Company provides
securities trading, underwriting, investment banking and brokerage
services for individuals, institutions and corporations. The Company, like
other broker dealers, is directly affected by general economics and market
conditions, including fluctuations in volume and price level of
securities, changes in interest rates and securities brokerage services,
all of which have an impact on the Company's liquidity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the
accounts of the Company and its more than 50% owned subsidiary
eMeyerson.com Inc. (the "subsidiary"), that it controlled. All significant
inter-company balances and transactions have been eliminated.
During the second quarter of fiscal year ended January 31, 2002 the
Company disposed of its interest in the subsidiary through a merger with
an affiliate of ViewTrade, Inc. ("ViewTrade"). Originally the Company
owned approximately 54% of eMeyerson.com Inc. and the financial statements
through the first quarter 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 is included as an
Investment-not readily marketable in the January 31, 2002 Statement of
Financial Condition.
Revenue - Securities transactions (and related commission revenue and
expense, if applicable) are recorded on a trade date basis.
Fair Value of Securities - Securities owned and sold, but not yet
purchased, are valued at market value and the resulting difference between
cost and market is included in income.
The market value of securities owned, consisting of equities, corporate
obligations, United States government obligations, and state and municipal
obligations, is determined by the Company utilizing quoted market prices,
dealer quotes and prices obtained from independent third parties. Other
securities with no ready market are valued at fair value as determined by
management.
17
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2002, 2001 and 2000
Substantially all of the Company's financial assets and liabilities are
carried at market value or at amounts which, because of the short-term
nature of the financial instruments, approximate current fair value.
Underwriting Revenues - Underwriting fees are recorded at the time the
underwriting is completed.
Concentration of Credit Risks - The Company maintains its cash in bank
deposit accounts that, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. Management
believes the Company is not exposed to any significant credit risk related
to cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Furniture and Equipment - Furniture and equipment is stated at cost.
Office furniture, equipment and vehicles are depreciated over the
estimated useful lives, ranging from three to seven years using
accelerated methods. Leasehold improvements are amortized over the shorter
of the remaining life of the lease or the estimated economic life of the
improvements.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents - The Company includes as cash and cash
equivalents amounts invested in money market mutual funds.
Income taxes - The Company provides for amounts of current and deferred
taxes payable or refundable as of the date of the financial statements,
utilizing currently enacted tax laws and rates. Deferred tax expenses or
benefits are recognized in the financial statements for the changes in
deferred tax assets or liabilities between years.
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.
18
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2002, 2001 and 2000
Reclassification - Certain 2001 and 2000 financial statement items have
been reclassified to conform to the current year's presentation.
3. SECURITIES OWNED AND SECURITIES SOLD BUT NOT YET PURCHASED
Marketable securities owned consist of investment securities at quoted
market values. Securities not readily marketable include investment
securities (a) for which there is no market on a securities exchange or no
independent publicly quoted market, (b) cannot be publicly offered or sold
unless registration has been effected under the Securities Act of 1933, or
(c) that cannot be offered or sold because of other arrangements,
restrictions, or conditions applicable to the securities or to the
holder of the securities.
January 31,
2002 2001
-------------- ---------------
Securities owned, marketable:
State and municipal obligations $ 1,589,813 $ 1,097,258
Corporate stocks 2,616,370 12,543,547
Other 2,461 -
-------------- ---------------
$ 4,208,644 $ 13,640,805
============== ===============
Securities owned, not readily marketable:
Corporate stocks $ 1,029,791 $ 1,693,702
Other 56,096 56,096
-------------- ---------------
$ 1,085,887 $ 1,749,798
============== ===============
Securities sold but not yet purchased:
State and municipal obligations $ 58,598 $ 1,132,700
Corporate stocks 1,198,891 1,720,517
-------------- ---------------
$ 1,257,489 $ 2,853,217
============== ===============
19
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2002, 2001 and 2000
4. FURNITURE & EQUIPMENT, AND OPERATING LEASES
Furniture and equipment is summarized as follows:
2002 2001 2000
---------------- -------------- ----------------
Furniture, fixtures, equipment
and leasehold improvements $ 2,789,001 $ 2,899,733 $ 2,515,220
Less accumulated depreciation
and amortization 2,062,264 1,872,646 1,036,176
---------------- -------------- ----------------
$ 726,737 $ 1,027,087 $ 1,116,427
================ ============== ================
Depreciation and amortization expenses totalled $207,363, $443,030 and
$393,440 for the years ended January 31, 2002, 2001 and 2000,
respectively.
The Company signed a 15 year lease for new office space, effective August
1, 1996, and added additional space effective March 15, 1997. The Company
also pays rent for space under agreements with the principal shareholder.
The Company leases its office equipment under various leases expiring in
2003, 2005, and 2006. Minimum annual rental and lease commitments for all
office space with a remaining term of one year or more at January 31, 2002
are as follows:
Office
Space Equipment
Year ending January 31, ------------- ---------------
2003 $ 856,410 $ 461,928
2004 856,410 56,379
2005 856,410 23,460
2006 856,410 1,955
2007 874,836 -
Remainder through July 31, 2011 4,019,668 -
------------- ---------------
Net minimum lease payments $ 8,320,144 $ 543,722
============= ===============
Annual aggregate office rental expenses for the years ended January 31,
2002, 2001 and 2000 totalled $928,601, $1,044,700 and $1,034,680,
respectively.
Effective September 25, 2001, the Company has subleased a portion of its
office space under an agreement which calls for monthly payments of
$16,335. The sublease is for a term of three months with automatic
renewals.
20
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2002, 2001 and 2000
5. DEPOSIT WITH, RECEIVABLE FROM AND PAYABLE TO CLEARING BROKER
The Company maintains clearing agreements with Spear, Leads & Kellogg
("SLK") and Investec Ernst and Company ("Investec Ernst"). Under the
agreement with SLK the Company maintains a clearing deposit of $1,000,000.
The Company primarily clears its proprietary equity market making activity
through SLK. Under the agreement with Investec Ernst the Company maintains
a clearing deposit of $100,000. The Company primarily clears its
proprietary municipal bond business and customer transactions through
Investec Ernst.
6. PAYABLE TO TRADING REPRESENTATIVES
Payable to trading representatives represents commissions earned by market
makers and retail representatives. Market makers are required to maintain
a balance with the Company equivalent to approximately twenty-five percent
of their net trading positions. The remaining balance of commissions is
available for immediate withdrawal.
7. COMPUTATION FOR DETERMINATION OF RESERVE REQUIREMENTS
The Company will operate in accordance with the exemptive provisions of
paragraph (k)(2)(ii) of SEC Rule 15c3-3. All customer transactions are
cleared through SLK and Investec Ernst.
8. RELATED PARTY TRANSACTIONS
Transactions with related parties are summarized as follows:
Year ended January 31,
2002 2001 2000
---------------- --------------- --------------
Maintenance charges paid on space owned by the
principal shareholder (included in
rent expense) $10,020 $10,020 $10,335
Rent for space which is leased in the name
of the principal shareholder $11,185 $32,000 $38,400
21
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2002, 2001 and 2000
Employment agreement:
The Company has an employment agreement with Anthony F. Dudzinski,
President. The agreement provides for base annual compensation of
$150,000. The agreement is for one year ending January 31, 2001, and is
renewed automatically for succeeding periods of one year. Prior to the
current fiscal year the Company had employment agreements with Martin H.
Meyerson, Chairman and Chief Executive Officer, and Eugene M. Whitehouse,
former Chief Operating Officer. The agreements provide for base annual
compensation of $600,000 and $200,000 respectively. The agreements were
for a three (3) year period from October, 1993 and 2000 respectively and
are renewed automatically for succeeding periods of one year. In the event
the Company terminates, without cause, the employees, the employee shall
receive an amount equal to one year's base salary plus accrued benefits
and incentive compensation.
The Company has loaned Mr. Dudzinski $200,000 to purchase 50,000 shares of
the Company's stock. The loan matures February 21, 2003 and is non
interest bearing. The shares of the Company are pledged as collateral for
the loan.
9. SUBORDINATED LOAN
The Company entered into an NASD approved subordinated loan agreement with
SLK dated June 3, 1997 and effective August 1, 1997. The loan is for
$2,000,000 and matured on August 31, 1999 but was extended to August 31,
2003. It is subject to monthly interest payments at the rate of one half
percent below the Prime Rate and is unsecured.
10. NET CAPITAL REQUIREMENTS
Pursuant to the net capital provisions of the SEC, the Company is required
to maintain net capital as defined under such provisions. Net capital and
the related net capital ratio may fluctuate on a daily basis. At January
31, 2002, 2001, and 2000, the Company had net capital of $2,618,372,
$10,020,976 and $14,555,034, respectively, and a minimum net capital
requirement each year of $1,000,000. The Company's net capital ratios were
2.46, .70 and .66 to 1 for the years ended January 31, 2002, 2001 and
2000, respectively.
11. INCOME TAXES
For federal income tax purposes the Company has elected to carryback the
net operating loss for the year ended January 31, 2002. The Company is
able to recover
22
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2002, 2001 and 2000
approximately $2,540,000 in federal income taxes paid in the last five
fiscal years. The Company has available a remaining net operating loss
carryforward of approximately $3,520,000 which expires in 2022.
For state income tax purposes the Company has available a net operating
loss carryforward of approximately $11,050,000 which expires in 2009.
In accordance with FASB Statement No. 109, Accounting for Income Taxes,
the Company has a future tax benefit of its current net operating loss.
The potential federal tax benefit if the net operating loss is fully
utilized would be approximately $1,200,000. The potential state income
benefit is approximately $990,000. The Company has determined to provide
for a full valuation allowance for the future tax benefit.
The provision for income taxes is as follows:
Year ended January 31,
2002 2001 2000
------------ ------------- ------------
Current tax expense (benefit)
Federal $ (3,131,333) $ (196,643) $ 1,669,330
State 27,247 (19,556) 334,047
------------- ------------- ------------
$ (3,104,086) $ (216,199) $ 2,003,377
============= ============= ============
Reconciliation from the statutory federal income tax rate to the effective
tax rate is as follows:
Year ended January 31,
2002 2001 2000
------------- ---------------- -------------
U.S. statutory rate (34.0)% (34.0)% 34.0%
State taxes, net of federal benefit - (6.7) 6.7
Other 13.8 26.5 (0.2)
------------- ---------------- -------------
(20.2)% (14.2)% 40.5%
------------- ---------------- -------------
23
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2002, 2001 and 2000
12. STOCK OPTIONS
The Company established an employee stock option plan administered by the
Board of Directors. Under the plan, options may be granted to employees of
the Company and other qualified individuals up to an aggregate of
3,000,000 shares of common stock. As of January 31, 2002, 2,841,073
options have been granted under this plan, all of which became exercisable
as of January 31, 2002. The outstanding options have exercise prices of
$0.66 to $7.8125 per share. 1,136,980 options were exercised and 1,704,093
are outstanding.
During the year, the Company established an additional stock option plan
administered by the Board of Directors. Under this plan, options may be
granted to employees of the Company and other qualified individuals up to
an aggregate of 500,000 shares of common stock. To date, no options have
been issued under this plan.
13. STOCK-BASED COMPENSATION
The Company uses the intrinsic value method to account for stock-based
employee compensation plans. Under this method, compensation cost is
recognized for stock option awards only if the quoted market price (or
estimated fair market value of the stock prior to the stock becoming
publicly traded) is greater than the amount the employee must pay to
acquire the stock.
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for stock options
granted under the plan. Had compensation cost been determined based on the
fair value at the grant dates for stock option awards consistent with the
method of SFAS 123, there would have been no material effect on the
Company's net income and earnings per share.
The exercise price of each option granted under the plan is determined by
the Company's Board of Directors at the time of grant. The exercise price
of incentive stock options must be at least equal to the fair market value
of the Company's stock on the date of the grant.
24
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2002, 2001 and 2000
14. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business the Company enters into underwriting
commitments. There were no transactions open at January 31, 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 on the grounds
that the arbitration panel disregarded the law, committed manifest legal
error, and violated procedural requirements. 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.
15. 401(K) SAVINGS PLAN
Employees of the Company may participate in a 401(K) savings plan, whereby
the employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting age and length-of-service requirements.
The Company makes no contributions to the plan.
25
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The executive officers, directors and key employees of the Company are as
follows:
Name Age Position with Company
---- --- ---------------------
Martin H. Meyerson 71 Chairman, Chief Executive Officer and
Director
Kenneth J. Koock 59 Vice Chairman and Director
Anthony F. Dudzinski 39 President, Chief Operating Officer and
Director
Jeffrey E. Meyerson 36 Vice President, Trading and Director(1)
Mark D. Goldsmith 58 Chief Financial Officer and Treasurer(2)
Bertram Siegel, Esq. 64 Director
Martin Leventhal, CPA 65 Director
Alfred T. Duncan 58 Director
(1) Jeffrey E. Meyerson is the son of Martin H. Meyerson
(2) Mark D. Goldsmith became Chief Financial Officer and Treasurer on March 1,
2002
BIOGRAPHICAL INFORMATION
Martin H. Meyerson, Chairman, Chief Executive Officer and Director
Martin H. Meyerson is the Chairman, Chief Executive Officer and a director of
the Company and was its President until 1984. Mr. Meyerson was also the
President and a director of Bio Recovery Technology, Inc., a research and
development company involved in microbiological and pollution control products,
from 1984 through 1986. He was also the chairman of the board of Bio Metallics,
Inc., also involved in pollution control products, from 1987 through 1990. Mr.
Meyerson graduated from Packard College in 1952, majoring in Business
Administration.
Kenneth J. Koock, Vice Chairman and Director
Kenneth Koock has been with the Company since 1977. In 1993, Mr. Koock became a
Director of the Company. Mr. Koock received his B.A. degree from Duke University
in 1963 and a law degree in 1966 from St. John's University. He was president of
Bio Metallics, Inc. from 1987 through 1990 and is a member of the New York State
Bar Association.
26
Anthony F. Dudzinski, President, Chief Operating Officer and Director
Anthony F. Dudzinski joined the Company in February 2000. He was appointed
President in July 2001 and became a member of the Board of Directors at that
time. He was added to the Executive Committee and was named Chief Operating
Officer in February 2002. Prior to joining the Company he was employed by Marion
Bass Securities in Atlanta, Georgia where he served as Director of Equity
Markets. Mr. Dudzinski was a senior trader with the Company for fifteen years
before relocating to Atlanta in 1997. He has extensive experience in trading and
retail operations, communications, trading room and back office systems and
compliance. He attended Bernard M. Baruch College and the New York Institute of
Finance and currently holds NASD Series 4,7,24,53,55,63 and 65 licenses.
Mark D. Goldsmith, Treasurer and Chief Financial Officer
Mark D. Goldsmith has been with the Company since January 2002. On March 1,
2002, he became Treasurer and Chief Financial Officer. He is a former allied
member of the New York Stock Exchange and from 1979 through 1989 was Treasurer
and Chief Financial Officer of Muller & Company, Inc., a New York Stock Exchange
member firm. He has been a board member of public companies. He is an alumnus of
Pace University and until joining the Company, was the principal officer of Paul
L. Forchheimer & Co. Inc., a securities brokerage and investment banking firm.
Jeffrey E. Meyerson, Vice President, Trading and Director
Jeffrey E. Meyerson has been with the Company since 1987. He became Vice
President of the Trading Department in 1989. He received an Economics/Management
degree from Ithaca College in 1987. Mr. Meyerson became a Director of the
Company in 1993.
Bertram Siegel, Esq., Director
Bertram Siegel became a Director of the Company in 1994. Mr. Siegel is a partner
in the law firm of Siegel and Siegel, and was a member of the Board of Directors
of Bio Metallics, Inc. from 1987 through 1990. He is a member of the New Jersey
and Bergen County Bar Associations, and received his Juris Doctor degree from
Rutgers, the State University of New Jersey in 1963.
Martin Leventhal, CPA, Director
Martin Leventhal graduated from Brooklyn College in 1958 and became a Certified
Public Accountant in 1963. With the exception of time spent in military service,
he has been actively involved in public accounting since his graduation. In
1971, he founded the firm most recently known as Martin Leventhal & Company, a
CPA firm with approximately 25 employees. In 1997, Martin Leventhal & Company
merged with Weinick, Sanders & Co. to form Weinick, Sanders, Leventhal & Co.,
LLP, with approximately 100 employees, of which Mr. Leventhal is the executive
partner. He is a member of the American Institute of Certified Public
Accountants and the New York Society of Certified Public Accountants, for which
he served on numerous committees. He has also held a principal's license in the
securities industry.
Alfred T. Duncan, Director
Alfred T. Duncan has been an independent management consultant since 1992,
specializing in financial management for small growth firms. Prior to 1992, he
held numerous senior positions with Commodore International, Ltd. including
General Manager of Latin America and Eastern Europe (1990-1991) and General
Manager of U. S. operations (1987-1990). He was President and Chief Executive
Officer of Victor Technologies (1986-1987) and has held financial management
positions with A. M. International, Abbott Laboratories, First National Bank of
Chicago, and Ford Motor Company. He is currently Executive Vice President and
Chief Financial Officer of On Site Sourcing Inc. He received an M.B.A. degree
from Harvard University in 1972 and a B.S.C.E. degree from Duke University in
1965.
Directors receive options to purchase 7,500 shares of our common stock annually.
Outside Directors are
27
compensated $500 for each meeting of the Board of Directors he attends. Inside
Directors have waived their right to be compensated for attending meetings of
the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended January 31, 2002, based upon an examination of the
public filings, all of the Company's officers and directors timely filed reports
on Form 4.
Item 11. Executive Compensation.
The following table sets forth as of the years ended January 31, 2002, 2001, and
2000 the compensation we paid for services rendered in all capacities to the
Company's Chairman and all executive officers whose compensation exceeded
$100,000 during these years:
Long Term
Compensation
Securities
Fiscal Underlying
Name and Principal Position Year Salary Bonus Options/SARS(#)
Martin H. Meyerson 2002 $100,000 $ - 1,513
2001 600,000 200,000 24,000
2000 600,000 200,000 -
Kenneth J. Koock, Vice Chairman 2002 279,858 - 2,751
2001 1,307,558 - 1,500
2000 1,149,800 - 22,500
Eugene M. Whitehouse, Senior Vice President and
Chief Operating Officer (1) 2002 169,234 - 24,354
2001 177,002 75,000 76,238
2000 146,712 - -
Jeffrey E. Meyerson, Vice President, Trading 2002 167,361 - 1,477
2001 336,578 - 24,000
2000 207,000 - -
(1) Mr. Whitehouse passed away during fiscal year 2002.
This table does not specify "other compensation" since it is less than 10% of
the total salary and bonus reported for each officer. Mr. Koock does not receive
a base salary. His compensation is based on commissions earned. Mr. Whitehouse
and Mr. Jeffrey Meyerson earned compensation based on commissions earned in
addition to their contracted salary and incentive amounts.
28
OPTION GRANTS IN LAST FISCAL YEAR
Number of % of Total Exercise Expiration Date Potential Realizable Value at
Securities Options Price($/sh) Assumed Annual Rates of
Underlying Granted to Stock Price Appreciation for
Options Employees in Term ($)
Name Granted Fiscal Year 5% 10%
Martin H. Meyerson 1,513 1.0 .66 1/1/05 0 651
Kenneth J. Koock 2,751 1.8 .66 1/1/05 0 1,183
Eugene M. Whitehouse 22,500 14.9 1.21 7/31/11 0 28,919
1,854 1.2 .66 1/1/05 0 797
Jeffrey E. Meyerson 1,477 1.0 .66 1/1/05 0 635
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning (i) option exercises during
the fiscal year ended January 31, 2002 by executive officers named in the
Summary Compensation Table, and (ii) the number and value, at January 31, 2002,
of unexercised options held by executive officers named in the Summary
Compensation Table:
Value of
Underlying Unexercised In-the-
Unexercised Money Options at
Options at FY-End FY-End
Shares Acquired on (#) (Exercisable/ (Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable) Unexercisable)($)
Martin H. Meyerson - - 299,033/0 136/0
Kenneth J. Koock 5,000 7,500 286,751/0 248/0
Eugene M. Whitehouse - - 100,592/0 167/0
Jeffrey E. Meyerson 5,000 7,500 144,000/0 133/0
EMPLOYMENT AGREEMENTS
We have employment agreements with Martin H. Meyerson and Anthony F. Dudzinski.
The agreements provide for base annual compensation of $600,000 and $150,000,
respectively, plus certain incentive compensation. The agreements expire in
October, 2002 and January 2003, respectively and are automatically renewable for
periods of one (1) year. In the event we terminate without cause, the employment
of Mr. Meyerson (except by causing non-renewal of his employment agreement), he
would receive a severance payment equal to one year's base salary plus accrued
benefits and incentive compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information known to the Company, as of April 1,
2002, relating to the beneficial ownership of shares of Common Stock by each
person who is known by the Company to be the
29
beneficial owner of more than five percent of the outstanding shares of Common
Stock; each director; and all executive officers and directors as a group.
Number of Shares Percent of Shares
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned
Martin H. Meyerson 1,823,703 26.4%
Electronic Trading Group, LLC 451,380 6.8%
900 Third Avenue
New York, NY 10022
Dimensional Fund Advisors Inc. 447,050 6.8%
1299 Ocean Avenue
Santa Monica, CA 90401
Kenneth J. Koock 379,376 5.5%
Jeffrey E. Meyerson 330,477 4.9%
Anthony F. Dudzinski 99,932 1.5%
Estate of Eugene M. Whitehouse 176,830 2.6%
Bertram Siegel, Esq. 105,500 1.6%
Martin Leventhal, C.P.A. 97,500 1.5%
Alfred T. Duncan 52,500 *
All directors and executive officers as a
group (8 people) 3,065,818 40.3%
====================
*Less than 1%
The number of shares beneficially owned by Martin H. Meyerson includes 299,033
shares of Common Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by Kenneth J. Koock includes 286,751
shares of Common Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by Jeffrey E. Meyerson includes 144,477
shares of Common Stock issuable upon exercise of currently exercisable options
and 50,000 shares of Common Stock owned by trusts for the benefit of Martin H.
Meyerson's family. Mr. Meyerson is the trustee of such trusts.
The number of shares beneficially owned by the Estate of Eugene M. Whitehouse
include 100,592 shares of Common Stock issuable upon exercise of currently
exercisable options.
The number of shares beneficially owned by Bertram Siegal includes 47,500 shares
of Common Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by Martin Leventhal includes 32,500
shares of Common Stock issuable upon exercise of currently exercisable options
and 50,000 shares of Common Stock owned by a trust for the benefit of members of
Martin H. Meyerson's family. Mr. Leventhal, along with Jeffrey E. Meyerson, is a
trustee of such trust.
The number of shares beneficially owned by Alfred T. Duncan includes 52,500
shares of Common Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by Anthony F. Dudzinski includes 49,932
shares of Common
30
Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by all of our officers and directors are
a group includes 1,009,285 shares of Common Stock issuable upon exercise of
currently exercisable options.
Unless otherwise stated, the business address of each of the named individuals
in this table is c/o M.H. MEYERSON & CO., INC., 525 Washington Blvd., Jersey
City, New Jersey 07310.
Item 13. Certain Relationships and Related Transactions.
Information regarding relationships and related transactions is disclosed in the
notes to financial statements included in Item 8 of this Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Exhibits:
Reference is made to Item 8 for a list of the financial statements included in
this Report.
Exhibit Number Description of Exhibit
3.1 Articles of Incorporation (1)
3.2 By-Laws (1)
4.1 Common Stock Specimen (1)
10.1 Employment Agreement between the Company and Martin (1)
H. Meyerson
10.3 Employment Agreement between the Company and Anthony
F. Dudzinski
11 Calculation of Earnings Per Share of the Company
23.1 Consent of Vincent R. Vassallo C.P.A., independent auditors
23.2 Consent of Sanville & Company, independent auditors
- -------------
(1) Incorporated herein by reference from the Registration Statement
(Reg. No. 33-70566) filed by the Company on Form SB-2.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the fiscal year
ended January 31, 2002.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Anthony F. Dudzinski
-----------------------------
Anthony F. Dudzinski
President and Chief Operating Officer
Date: April 30, 2002
In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated
and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Martin H. Meyerson Chairman, Chief Executive Officer April 30, 2002
- ---------------------- and Director (Principal Executive
Martin H. Meyerson Officer)
/s/ Kenneth J. Koock Vice Chairman and Director April 30, 2002
- --------------------
Kenneth J. Koock
/s/ Anthony F. Dudzinski President and Chief Operating April 30, 2002
- ------------------------ Officer
Anthony F. Dudzinski
/s/ Mark Goldsmith Treasurer and Chief Financial April 30, 2002
- ------------------ Officer (Principal Financial
Mark Goldsmith Officer)
/s/ Jeffrey E. Meyerson Vice President, Trading and April 30, 2002
- ----------------------- Director
Jeffrey E. Meyerson
/s/ Bertram Siegel
- ------------------ Director April 30, 2002
Bertram Siegel
/s/ Martin Leventhal
- -------------------- Director April 30, 2002
Martin Leventhal
/s/ Alfred T. Duncan
- -------------------- Director April 30, 2002
Alfred T. Duncan
32