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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 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 (I.R.S. Employer
incorporation or organization) Identification No.)
Newport Tower, 525 Washington Boulevard, Jersey City, New Jersey 07310
(Address of principal executive offices) (Zip Code)
(201) 459-9500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 6,606,964 at August
31, 2002.
M. H. Meyerson & Co., Inc.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Financial Condition, July 31, 2002 and
January 31, 2002..........................................3
Condensed Statements of Operations, Three and Six Months
Ended July 31, 2002 and 2001..............................4
Statements of Cash Flows, Six Months Ended
July 31, 2002 and 2001....................................5
Notes to Financial Statements................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................10
Item 6. Exhibits and Reports on Form 8-K............................11
Signatures...........................................................12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
M. H. MEYERSON & CO., INC.
Statements of Financial Condition
July 31, January 31,
2002 2002
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,598,823 $ 851,343
Due from clearing brokers - available for
immediate withdrawal 4,791,210 4,682,353
Securities - trading - long at market 2,563,152 4,208,644
Other current assets 2,400,906 5,753,055
----------- -----------
11,354,091 15,495,395
Investments 1,075,887 1,085,887
Fixed assets net of accumulated depreciation 619,801 726,737
----------- -----------
$13,049,779 $17,308,019
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Securities sold, not yet purchased $ 640,995 $ 1,257,489
Sales commission payable 350,366 738,105
Other liabilities and accrued items 5,156,547 5,861,877
----------- -----------
6,147,908 7,857,471
SUBORDINATED LOAN 2,000,000 2,000,000
SHAREHOLDERS' EQUITY
Common stock 65,820 65,815
Additional paid-in capital 11,735,933 11,735,641
Retained earnings (6,899,882) (4,350,908)
----------- -----------
4,901,871 7,450,548
----------- -----------
$13,049,779 $17,308,019
=========== ===========
See notes to financial statements.
3
M. H. MEYERSON & CO., INC.
Condensed Statements of Operations
(unaudited)
Three months ended Six months ended
July 31, July 31,
2002 2001 2002 2001
REVENUE
Trading profit $ 2,570,787 $ 5,622,204 $ 4,953,474 $ 8,760,527
Commission 177,463 240,873 363,117 504,176
Underwriting 0 9,657 0 59,657
Interest and other 190,040 77,354 208,470 124,921
----------- ----------- ----------- -----------
2,938,290 5,950,088 5,525,061 9,449,281
----------- ----------- ----------- -----------
EXPENSES
Clearing charges 1,250,941 2,766,647 2,298,725 5,036,201
Salesmens' draw and
commissions 567,640 885,870 1,040,550 634,058
Other personnel costs 765,688 1,544,000 1,724,395 3,876,096
Rent and office expense 614,620 1,850,252 1,367,721 3,756,764
Legal and professional 239,766 173,382 453,112 425,231
Interest expense 12,806 19,538 28,950 47,377
Other expenses 543,080 1,114,698 737,403 2,339,753
----------- ----------- ----------- -----------
3,994,541 8,354,387 7,650,856 16,115,480
----------- ----------- ----------- -----------
Income(loss) before income taxes
and minority interest (1,056,251) (2,404,299) (2,125,795) (6,666,199)
Income taxes expense (note 5) 0 0 423,179 (563,810)
----------- ----------- ----------- -----------
Net income(loss) $(1,056,251) $(2,404,299) $(2,548,974) $(6,102,389)
=========== =========== =========== ===========
Earnings(loss) per common share:
Basic $(0.16) $(0.37) $(0.39) $(0.93)
=========== =========== =========== ===========
Diluted $(0.16) $(0.37) $(0.39) $(0.93)
=========== =========== =========== ===========
Weighted average basic shares 6,606,964 6,581,514 6,606,964 6,579,837
=========== =========== =========== ===========
Diluted 6,606,964 6,581,514 6,606,964 6,579,837
=========== =========== =========== ===========
See notes to financial statements.
4
M. H. MEYERSON & CO., INC.
Statements of Cash Flows
(unaudited)
Six Months ended July 31,
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss) $(2,548,974) $(6,102,389)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 106,576 111,365
Change in assets and liabilities
(Increase) decrease in:
Receivable from clearing brokers (108,857) 2,842,549
Securities owned 1,645,492 3,630,384
Other current assets 3,352,149 2,356,951
Increase (decrease) in:
Securities sold but not yet purchased (616,494) (1,336,843)
Sales commission payable (387,739) (2,402,294)
Other liabilities and accrued items (705,330) (825,878)
----------- -----------
Net cash provided by
operating activities 736,823 (1,726,155)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments 10,000 234,283
Fixed assets 360 74,870
----------- -----------
Net cash provided by
investing activities 10,360 309,153
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of employee stock options 297 24,498
Change in equity in subsidiary 0 (2,387,314)
Increase (decrease) in minority interest 0 (1,923,462)
----------- -----------
Net cash provided by (used in)
financing activities 297 (4,286,278)
----------- -----------
NET INCREASE (DECREASE) IN CASH 747,480 (5,703,280)
CASH, BEGINNING OF PERIOD 851,343 10,451,946
----------- -----------
CASH, END OF PERIOD $ 1,598,823 $ 4,748,666
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 0 $ 0
=========== ===========
Interest paid $ 28,950 $ 47,377
=========== ===========
See notes to financial statements.
5
M. H. MEYERSON & CO., INC.
Notes to Financial Statements
(unaudited)
Note 1. Presentation Of Financial Statements
The Statement of Financial Condition as of July 31, 2002, the
Statements of Operations for the three months and six months ended July
31, 2002 and 2001, and the Statement of Cash Flows for the six months
ended July 31, 2002 and 2001 have been prepared by M.H. MEYERSON & CO.,
INC. (the "Company") without audit. The Statement of Financial
Condition as of January 31, 2002 has been audited. In the opinion of
management, all adjustments and accruals (which include only normal
recurring items) necessary to present fairly the financial condition,
results of operations, and cash flows at July 31, 2002 and 2001 have
been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the
financial statements and notes to financial statements included in the
Company's Annual Report to Shareholders for the year ended January 31,
2002. The results of the periods ended July 31, 2002 and 2001 are not
necessarily indicative of the operating results for the full year.
During the quarter ended July 31, 2001, the Company disposed of its
interest in eMeyerson.com Inc. ("EMEY") through a merger with a sister
company of an unaffiliated broker-dealer, ViewTrade Securities Inc.
("ViewTrade"). Originally, the Company owned an approximately 54%
interest in EMEY and financial statements through the quarter ended
April 30, 2001 had been reported on a consolidated basis. The Company's
interest in ViewTrade Holding Corporation, the parent company of
Viewtrade, after the merger is approximately 15.5% and we are now
accounting for the investment using the equity method.
The current financial statements are presented on this basis.
Note 2. Earnings Per Common Share
Earnings per common share is calculated using the weighted average
number of common shares outstanding during the period. Shares issuable
upon the exercise of stock options and warrants that are dilutive have
been included in the computation of earnings per share based on the
modified treasury stock method.
Note 3. Commitments And Contingent Liabilities
In the normal course of business the Company enters into underwriting
commitments. There were no transactions open at July 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
alleging violation of several legal issues. While both the management
of the Company and its legal counsel reasonably anticipate a favorable
6
outcome from the complaint, due to the fact that the $5,000,000 award
has very limited grounds for being successfully overturned on appeal,
the Company has recorded the $5,000,000 adverse award as a liability in
the financial statements. The Company has a Securities Broker/Dealer's
Professional Liability Insurance policy with coverage of $1,000,000 for
each loss. The insurance company has acknowledged that the adverse
arbitration award is covered under the policy. The Company has recorded
a $1,000,000 insurance receivable in the financial statements.
The Company, incidental to its securities business, is a defendant in
several pending lawsuits and arbitration cases. Management of the
Company, after consultation with outside legal counsel, believes that
the resolution of these various lawsuits and arbitrations will not
result in any material adverse effect on the Company's financial
position.
Note 4. Net Capital Requirements
As a registered broker-dealer, the Company is subject to the
requirements of Rule 15c3-1 (the "Net Capital Rule") under the
Securities Exchange Act of 1934, as amended. The object of the rule is
to require the broker-dealer to have at all times sufficient liquid
assets to cover its current indebtedness. Specifically, the Net Capital
Rule prohibits a broker-dealer from permitting its "aggregate
indebtedness" from exceeding fifteen times its net capital as those
terms are defined.
On July 31, 2002, the Company's aggregate indebtedness and net capital
were $5,506,913 and $2,859,925, respectively, a ratio of 1.93 to 1.00.
Note 5. Income Taxes
Income tax expense for the quarter ended April 30, 2002 is attributable
to an adjustment in the estimate in the receivable for refundable
Federal taxes, under the Job Creation and Worker Assistance Act of 2002
which enabled the Company to carryback its 2002 net operating loss five
years. The Company has a net operating loss carryforward in the amount
of approximately $10,024,000 available to offset future income. The
Company has provided a full valuation allowance for the tax asset
because it is impossible to determine whether the Company will be able
to use this asset in the future.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
Certain statements set forth in the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 2002 are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that forward-looking statements involve risks and uncertainties, including
general economic conditions, delays and risks associated with the performance of
contracts, the process of regulatory approval and supervision, potential
acquisitions, consumer and industry acceptance, litigation and the volatility of
domestic securities markets.
7
Results of Operations
The following table sets forth for the periods indicated the percentage of total
revenue represented by certain line items in the Company's Statement of
Operations:
Percent of Total Revenues
-------------------------
Six Months Ended July 31,
2002 2001
---- ----
Net gain on securities transactions 89.7 92.7
Commissions 6.6 5.4
Underwriting 0 0.6
Interest and other 3.7 1.3
----- -----
100.0 100.0
----- -----
Clearing charges 41.6 53.3
Compensation and benefits 50.0 47.7
Rent and Office 24.8 39.8
Professional fees 8.2 4.5
Interest and other operating expenses 13.9 25.2
---- ----
Total expenses 138.5 170.5
----- -----
Income (loss) before income taxes (38.5) (70.5)
Income taxes (7.6) (6.0)
----- -----
Net income (loss) (46.1) (64.5)
====== ======
Calculation of Earnings Per Share
The calculation of earnings per share in the financial statements included in
this report are based on the weighted average number of shares outstanding.
Quarter Ended July 31, 2002 compared with Quarter Ended July 31, 2001
Total revenues for the quarter ended July 31, 2002 were $2,938,290, a 50.6 %
decrease from the $5,950,088 reported for the quarter ended July 31, 2001. This
decrease is attributable mainly to a decrease in trading volume and in general a
decline in the transactional activity in all securities markets. Profitability
on a per trade basis has been negatively effected due to decimalization where
respective spreads have decreased. There have been decreases in retail revenue
as well as fee based revenue relating to underwriting fees.
Clearing and execution charges decreased from $2,766,647 to $1,250,941,
representing a decrease of 54.8% representative of the decline in trading volume
and the successful efforts of management to reduce costs and increase
efficiency.
Compensation and benefits decreased from $2,429,870 to $1,333,328, representing
a decrease of 45.1%. This was the result of the decreased trading volume during
the second quarter of fiscal 2002 and the
8
effects of our costcutting efforts to date.
Interest expense is due to a subordinated loan, which was effective on August 1,
1997, and renewed effective August 1, 2001.
The operating (pre tax) loss for the quarter ended July 31, 2002 was $1,056,251
compared with July 31, 2001 of $2,404,299, a reduction of 56%. This reduction in
the operating loss was the result of cost cutting efforts which will continue
throughout the remaining months of the year.
Viability of Operating Results
The Company, like many securities firms, is directly affected by general
economic and market conditions. U.S. securities markets have been effected by
regulations such as decimalization where spreads have been significantly
reduced. In general, the recessionary economic conditions have had a dampening
effect on all securities markets resulting in a decline in revenue in all areas
of business. These factors have had an impact on the Company's net gain from
securities transactions, underwriting, and commission revenues. In periods of
reduced market activity, profitability is adversely affected because certain
expenses, consisting primarily of non-commission compensation and benefits,
communications and occupancy and equipment remain relatively fixed.
Liquidity and Capital Resources
The Company's Statement of Financial Condition reflects a liquid financial
position as cash and assets readily convertible to cash represent 69% and 56% of
total assets at July 31, 2002 and January 31, 2002, respectively.
The Company finances its operations primarily with existing capital and funds
generated from operations. The Company believes that existing capital and cash
flow from operations will be sufficient to meet its cash requirements.
Accounting for Taxes
At July 31, 2002 the Company has a net operating loss carryforward of
$11,082,281 which is available to offset future income expiring in 2022. The
Company has provided a full valuation allowance for the tax asset because it is
impossible to determine whether the Company will be able to use this asset in
the future.
Item 3. 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 a real-time overview of our
traders' activity, positions, and profitability. Each trader's total positions
are limited by management, which helps to limit the Company's risks. The
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 primarily of
NASDAQ and OTC securities and municipal bonds. The market value of our inventory
at July 31, 2002 was $2,563,152 in long positions and $640,995 in short
positions. The loss to the Company, assuming a 10% decline in prices, would be
$192,216 due to the losses on the long positions being partially offset by gains
9
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 60
days or less, and do not present a material market risk. The Company does not
normally trade or carry positions in derivative securities.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
1. Harry Binder, on behalf of himself and all others similarly situated,
Plaintiff, v. Rainbow Medical Inc., Rainbow Pediatrics Inc., M.H.
Meyerson & Co., Inc., Hugo D. Goldstraj, M.D., Marcela C. Goldstraj,
M.D., Roberto P. Novo, M.D., Sandra R. Giblin, Martin Leventhal, Gina
Bertinelli, Defendants, Circuit Court of the Eleventh Judicial Circuit,
Miami Dade, Florida, Case No. 00-24851 CA 06:
On September 19, 2000, plaintiff commenced a class action lawsuit
alleging that the class, consisting of all investors who purchased
investment units in Rainbow Medical, Inc. ("Rainbow") in a private
placement offering in June 1997, purchased units which became worthless
when, after the offering closed, certain officers and inside directors
of Rainbow, specifically defendants Hugo D. Goldstraj, M.D., Marcela C.
Goldstraj, M.D. and Roberto P. Novo, M.D., looted Rainbow and stole the
proceeds of the offering, approximately $2.3 million. The Company was
the placement and selling agent in connection with the private
placement. Martin Leventhal, C.P.A., a director of the Company, became
an outside director of Rainbow after the offering closed.
Plaintiff in its Amended Complaint claims against the Company and
Leventhal for breach of fiduciary duty, negligent misrepresentation and
negligence. Plaintiff alleged that the Company failed to make certain
disclosures in the offering memorandum concerning legal proceedings
involving Rainbow's officers, that the Company failed to ensure that
Rainbow engaged in certain corporate actions and that Rainbow used the
offering proceeds in the manner stated in the offering memorandum.
Plaintiff sought approximately $2.6 million in damages on behalf of the
"class" of investors.
On July 19, 2001, plaintiff Harry Binder, as the putative class
representative, filed a motion to have the lawsuit certified as a class
action. On December 11, 2001, the Court issued an Order denying the
motion. Accordingly, the only claims that now remain in the case are
plaintiff's individual claims, which seek damages of $37,500, together
with interest and attorneys fees.
Plaintiff has appealed the Court's Order denying class certification.
The Company believes that the Court's Order was correct under the
applicable law and will oppose the appeal. Oral argument is scheduled
for October 10, 2002. The Company also intends to vigorously defend
against any litigation by plaintiff of his individual claims.
Fred D. Hightower, Lawrence J. Kelly, David Kramer, Neal Lisann, Ronald
Nilsen, Carolyn Nilsen, Richard Pizitz, Alfred Schwimer, and John Rivi,
on behalf of themselves and all others similarly situated, Plaintiffs,
v. M.H. Meyerson & Co., Inc., Ronald Heller, David Nagelberg,
10
Martin Leventhal and John Does 1-50, Defendants, Superior Court of New
Jersey, Hudson County, Law Division, Docket No. L-3876-02:
On June 6, 2002, the plaintiffs commenced a class action lawsuit in New
Jersey alleging virtually the same claims that are alleged in the
Binder lawsuit in Florida which is discussed above. In addition to the
Company and Leventhal, the plaintiffs in this New Jersey lawsuit have
also named as defendants Ronald Heller and David Nagelberg, who were
involved with the June 1997 Private Placement on behalf of the Company.
The defendants have until September 20 to respond to the Complaint.
Defendants believe that the allegations of wrongdoing are meritless.
Defendants will oppose any motion to certify any class in the lawsuit,
and intend to move to dismiss the lawsuit.
2. Harry Binder, on behalf of himself and all others similarly situated,
Plaintiff v. M.H. Meyerson & Co., Inc., Martin Meyerson, Kenneth Koock,
Estate of Eugene Whitehouse, Jeffrey Meyerson, Bertram Siegel, Martin
Leventhal and Alfred Duncan, Defendants, United States District Court,
District of New Jersey, 02 Civ. 2724:
On June 6, 2002, the plaintiff (who is also the plaintiff in the
Florida lawsuit discussed above) filed a Class Action Complaint against
the Company and the other defendants, directors of the Company.
Plaintiffs allege fraud claims under the federal securities laws
relating to the Company's disclosures, and alleged failures of
disclosures, of certain information relating to prior litigations
involving the Company, and other matters.
Subsequently, a virtually identical class action lawsuit was filed by
other plaintiffs against the same defendants in the same court, Choung
v. M.H. Meyerson & Co., Inc., et al., United States District Court of
New Jersey, 02 Civ, 3622. It is believed that the plaintiffs in both
these lawsuits are seeking to consolidate their complaints.
Defendants have been served with a Summons and Complaint in both cases.
The Company believes that the allegations are meritless and fail to
state legally valid claims. The Company intends to move to dismiss and
to contest the allegations of wrongdoing vigorously.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number Description of Exhibit
11 Calculation of Earnings per Share of the Company
99.1 Certification by Chief Executive Officer
99.2 Certification by Chief Financial Officer
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter
ended July 31, 2002.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
M.H. MEYERSON & CO., INC.
(Registrant)
Date: September 13, 2002 By: /s/ Martin H. Meyerson
-------------------------------------
Martin H. Meyerson
Chairman and Chief Executive Officer
Date: September 13, 2002 By: /s/ Mark D. Goldsmith
-------------------------------------
Mark D. Goldsmith
Treasurer and Chief Financial Officer
12