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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, 2003
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 (I.R.S. Employer
of incorporation 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 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
----- -----
At April 15, 2003 8,795,670 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 $1,319,531 based
on the closing price of $.24 per share on July 30, 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, 2003 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.
2
PART I
Item 1. Business.
OVERVIEW
M.H. MEYERSON & CO., INC. (the "Company"), established in 1960, is a leading
market maker currently trading in excess of 4,400 securities listed on the
Nasdaq National Market System, Nasdaq SmallCap, OTC Bulletin Board, and the
National Quotation Bureau's Pink Sheets. This activity has accounted for 90% or
more of the Company's revenues during each of its last two fiscal years. The
Company is registered with the Securities and Exchange Commission ("SEC" or the
"Commission"), and is a member of the National Association of Securities
Dealers, Inc. ("NASD").
On January 14, 2003, John P. Leighton assumed control of its daily activities in
the capacity of Co-Chairman and Chief Executive Officer. Over the next month,
Mr. Leighton assumed the additional role of President and installed a management
team that, collectively, has over 100 years of market making and sales trading
experience. In one form or another, this team spent nearly five years together
at Knight Securities, L.P.
This new senior management team intends to create a dynamic, innovative and
service-oriented liquidity provider. New management finds the time and
circumstances propitious for such an endeavor. Over the last several years the
brokerage industry has experienced significant consolidation through
acquisition, the collapse of the Internet bubble, a protracted bear market, and
the decimalization of and reduction in trading increments. Exacerbating these
adverse conditions is an increase in competition for execution services from
Electronic Communications Networks ("ECNs") and regional securities exchanges
trading via unlisted trading privileges ("UTP Exchanges"). These factors have
reduced the number of securities dealers making markets in Nasdaq and non-Nasdaq
OTC securities from a high of about 600 just a few short years ago to about 300
today.
The presence of ECNs and UTP Exchanges means that the national market for the
trading of Nasdaq stocks has become more fragmented. These are members-only
trading systems and, unless they agree otherwise, they cannot be accessed
through the facilities of The NASDAQ Stock Market, Inc. Notwithstanding their
inaccessibility, their top-of-book is included in the national best bid/offer
("NBBO"), which drives the pricing of order executions. Moreover, without the
ability to execute against the quote of these away markets, market makers cannot
use those bids and offers to manage the risks attendant to their inventories. In
other words, market makers cannot lay off risk to those other buyers and
sellers, who may well be driving the pricing for trades, making it much more
difficult to manage their inventories and influence pricing of liquidity.
Consolidation in the industry has included the acquisition of many of the
largest wholesale market makers by global financial companies such as the
acquisition of Herzog Heine Geduld by Merrill Lynch, Nash Weiss by Quick &
Reilly, which was subsequently taken over by Fleet Bank, and NDB Capital Markets
by Deutsche Bank. These acquisitions were initiated at the height of the
previous bull market and the acquirers paid significant prices; Merrill paid in
excess of $900 million for Herzog. Because market conditions have been so
severe, even these acquisitions have been reduced or closed by these large
firms. As a result, significant opportunity exists for the remaining market
makers to obtain greater market share.
Brokers that use wholesale market makers like to have more than one
relationship. Liquidity is extremely important to brokers to satisfy their
customers' buying and selling instructions in such a way as to achieve best
executions for their orders. Dealers provide that liquidity; having several
dealers from which to choose enables brokers to manage the risks that one
dealer's trading system goes down and cannot accept the brokers' orders. In
addition, routing orders to more than one dealer creates competition among those
dealers to win a larger percentage of the brokers' better order flow. With the
disappearance of so many dealers, brokers are searching for other destinations
for their order flow. The Company intends to take advantage of that by stepping
into the void created by so many dealers vacating the markets.
The Company finds its greatest opportunity in these areas where the Company has
specialized in trading, market making and investment banking. AutEx/BlockDATA
reports, the industry's only overall ranking service for market makers, placed
the Company sixth in Bulletin Board and ninth in Nasdaq SmallCap share volume in
these markets for the 2002 calendar year. Many ranked above the Company,
including Herzog Heine Geduld and NDB Capital Markets, have either closed or
reduced their involvements in these markets over the last year. The Company
believes that it is well positioned to fill this void by offering brokers,
dealers, and asset managers another choice of liquidity provider, and in the
process garnering market share and pricing power.
Adding to this phenomenon is the trend of small regional brokerage operations to
reduce their market-making operations to divert capital to their higher margin
retail operations. These trends have created a unique opportunity to acquire
highly trained personnel who were not previously available. Current capital
regulations require that any firm that either maintains a market-making
capability or trades on a proprietary basis to maintain a minimum of $100,000
and up to $1,000,000 in net capital while a strictly retail agency operation can
be operated with as little as $5,000 in net capital. This trend has been
accelerated by the change in trading increments from fractions to decimals,
reduced profit margins, increased regulatory requirements and regulatory reviews
that have significantly increased the overhead required in the areas of trade
reporting and supervision of market-making activity.
The Company's current low daily fixed operating costs, in comparison to other
market makers may provide the Company with a significant competitive advantage.
Any new business that can be added onto the existing infrastructure should
result in much of the new revenues reaching our bottom line. Over the past
couple of years, the Company has reduced its fixed overhead by approximately 55%
and continues to look for ways to reduce operating costs even further while
seeking additional sources of top line revenue. The Company has been able to
achieve this through salary reductions, layoffs of non-producing and support
personnel, and technology realignments with cheaper service providers. Of
particular note is that most of new management has deferred their salaries until
the Company turns profitable in addition to having made equity capital infusions
of $830,100 and a subordinated loan of $500,000. Other employees have recently
added another equity capital infusion of $553,950. The Company is committed to a
goal of increasing its daily operating costs materially only as it has revenues
to match those increases. The Company anticipates that most new employees will
be production staff that will be added without a material increase to daily
fixed operating costs.
Success in the wholesale market-making business is to a great extent a function
of overall transactional volume and, as the number of market-making firms
decreases, the Company is positioning itself to exploit this potentially
significant opportunity. Management believes, based on a review of the recent
history of its revenue and transaction volume, that the development of
additional quality transactions should increase top line revenue and may return
the firm to profitability quickly. Management anticipates this will include the
development and sale of technology and the hiring of additional production staff
in the institutional and equity trading divisions. The initial goal will be to
restore the Company to profitability as quickly as possible and position it to
take advantage of current opportunities that present themselves. Current market
conditions are such that many of the Company's competitors are trimming staff
and overhead in an effort to hold down overall costs in the face of significant
revenue deterioration caused by adverse market conditions.
2
Divisions and Operations
Correspondent Services Group
The Company's long-term core client relationships include global and large
domestic firms as well as more than 500 small and regional correspondents. These
relationships require active and continuous coverage by the Correspondent
Services Group.
New management has significant contacts with many large wire houses and online
brokers. This latter group is highly dependent on multiple sources of liquidity
in their quest for best execution of their customers' orders. Several of these
contacts have already begun to send the Company orders.
Institutional Sales
The Company's Institutional Sales and Trading Desk is primarily engaged in
servicing institutional clients' order execution and execution allocation. The
Trading Desk services block transactions in stocks listed on Nasdaq, the NYSE
and Amex, as well as option orders on the appropriate exchanges.
The Trading Desk is a small but growing unit. The Company is currently searching
for additional institutional sales traders with established accountant
relationships. The Company intends to pay these sales traders a portion of the
commissions received for the execution or have them participate in the
profitability or loss of principal transactions that are executed by the market
makers. This system will minimize the Company's fixed labor costs while creating
an incentive for the sales traders to bring a high volume of transactions of a
better quality to maximize their earnings potential.
The recent change in the structure of the market where the Company now trades in
decimals, with a one-cent minimum price increment, has lead many market makers
to impose transaction fees. Larger wire house trading departments now trade with
their institutional clients on a riskless principal basis and charge fees for
the service. The Company believes that this creates a significant opportunity,
because the Company effectively can offer more competitive pricing due to
relatively low daily fixed operating costs. The Company will maintain the
ability to trade on a net basis for those clients wishing fewer transactions and
seeking the commitment of capital. This is an important capability to compete
effectively for institutional business as more and more institutional managers
seek to limit their overall costs associated with order execution.
Commissions are negotiated with each asset manager with discounts relating to
size of the trade, volume of business, and price of the securities. Principal
transactions are negotiated on a transaction-by-transaction basis and executed
net, meaning inclusive of remunerations and fees. The greatest benefit for the
asset manager with net trading will be the ability to obtain a single execution
at an average price, thus avoiding significant clearing costs for multiple
executions.
Retail Client Services
The Company has approximately 16,500 retail customer accounts representing
$120,000,000 in assets. The Company's retail clients consist of individuals who
are sophisticated securities investors and who have maintained their accounts
with the Company for a lengthy period. Pursuant to a clearing agreement, Fiserv
carries the Company's customer accounts on a "fully disclosed" basis. This
agreement also provides that each customer account's securities positions and
credit balances held at Fiserv are insured for $62.5 million and includes up to
$500,000 coverage by Securities Investors Protection Corp., of which $100,000
covers cash balances.
3
Investment Banking
The Company emphasizes the identification and execution of a range of products
and services, spanning both debt and equity, targeted primarily at developing
and small cap companies, as well as regional tax-exempt bond authorities. The
Company focuses on developing specific expertise that will support, where choice
permits, areas of technology, telecommunications, media, information technology,
biotechnology, specialty manufacturing, and resource recovery. These industry
areas occasionally change to accommodate other areas associated with the
Company's institutional sales and marketing making activities. The Company's
priority is to pursue transactions and services associated with companies that
have a current relationship with the Company, and to develop these relationships
into long-term corporate advisory roles.
Transaction oriented, market driven investment banking activities complement and
enhance the Company's trading and market making, institutional sales and
syndicate activities. This strategy encourages the building of relationships
that eventually result in the receipt of referred transactional business
(company buy backs, option exercises, Rules 144 and 144K liquidations, Form S-3
registrations) and participation in future public and private financings and
merger and acquisition activity.
The Company's focused, market oriented investment banking efforts will equip the
Company with invaluable industry knowledge, transaction processing skills and
placement expertise. These efforts will provide the Company an added advantage
to approach and secure new clients and increase business. The division is
comprised of three professionals with support staff and is located at the
Company's home office in Jersey City, New Jersey.
Fixed-Income Securities Trading
The Company's fixed-income group was originally formed in 1997 to add product
offerings to our clients and to expand and diversify the Company's revenues.
This group has been profitable since inception and presently consists of 3
professionals involved in the trading of all debt instruments including U.S.
Treasury and agency obligations, corporate and municipal debt securities, and
management or participation in municipal, government and corporate debt
offerings. The Company mainly focuses on the trading of debt securities in lots
smaller than the large wire-houses, who cannot handle those trades profitably.
The Company's current clientele includes many banks, large institutions,
municipalities and high net worth clients. Many large brokerages and banks have
increased minimum order sizes or increased fees associated with trading smaller
lots creating significant opportunities for efficient smaller trading
operations. The group concentrates on the smaller regional banks, broker-dealers
and institutions to expand its current operations and has begun to cross market
their services to the Institutional, Correspondent and Retail divisions. This
has been a driving force in the growth of the department and will be leveraged
to maximize the profit potential.
New Management and Its Business Plan
In January 2003, the Company reexamined its market-making approach and business
focus and determined that a change in senior management was in the best interest
of the shareholders. A strong management team with a thorough understanding of
the marketplace was brought on board to address the changing market dynamics and
create new opportunities for us by growing the Company's client base and
adopting new trading methodologies. The new management team has over 100 years
of collective relevant industry experience. The new Co-Chairman, President and
Chief Executive Officer, Mr. John P. Leighton, was a co-founder of Knight
Securities, L.P. and has over 26 years experience in the securities industry.
The Company is highly confident
4
that this new management team has the vision, foresight, and experience to
execute its business plan, successfully.
On April 22, 2003, Martin H. Meyerson, Co-Chairman and founder of the Company,
retired and Mr. Leighton became Chairman. Mr. Meyerson devoted 42 years to the
Company. He will be available to the Company as a consultant.
BUSINESS PLAN
New management intends to increase its revenue through various initiatives while
maintaining relatively low daily fixed operating costs to generate earnings. As
described in the Overview section, the industry has been under intense pressure
due to the adverse market conditions and certain market structure changes, in
particular the movement to decimalization with the one-cent minimum price
increment. It is now more important than ever to make markets and conduct
institutional sales trading from an efficient platform, i.e., one built on low
cost and high technology.
The Company intends to build its revenue base in a variety of ways. Essentially,
the Company will provide various aggressively priced, value-added products that
meet the diverse liquidity requirements of our clients such as:
Market Making/Block Trading - The Company will engage in the traditional
facilitation of transactions through the limited commitment of capital and the
application of sophisticated trading methodologies and skills. Market makers do
generate revenues in this space, but because their overhead is much higher than
the Company's, they are not generating any earnings. The increased risk and
value-added trading capability, including analytical trading services such as
volume weighted average price ("VWAP"), would demand the highest fees. The
Company believes that it will obtain orders because so many dealers have vacated
the space, causing brokers to look for more execution destinations.
Fee Based Trading - As directed, the Company will transact business on an agency
or riskless principal basis with an attached commission (agency) or
markup/markdown (riskless principal). The Company offers full access to its
trading skills and tools, including analytical trading services such as best
efforts VWAP, to achieve the buy-side trader's goal of receiving complete
transparency on all customer prints. Throughout this whole process the Company
will be acting simply on a pass through basis, without incurring any risk to
capital.
Sponsored Access - For the self-directed, buy-side client, sponsored access
provides the asset manager with unequalled access to liquidity in the national
market for Nasdaq securities. Sponsored access puts the trading tools into the
hands of the buy-side trader who chooses the execution destination for the
institutional client. The Company will act as the asset managers' broker and
route the order as directed.
Low Cost Client Services - The Company intends to remain a low cost provider of
executions services. The Company's low daily fixed operating costs allows the
Company to generate economies of scale, which can be passed along to the
Company's customers through our pricing schedules. This also allows us to
attract talented institutional sales traders, broker-dealer sales
representatives, and market makers through highly competitive payouts,
overrides, and commissions.
5
Expansion Strategy
The Company's future expansion will concentrate mainly on coordinating the
development of proprietary technology, institutional sales and trading, equity
trading, bonds and options. The Company also foresees opening a London office in
the near future to funnel order flow from European brokers, dealers, and asset
managers to the Company's Jersey City trading desks. Many securities firms have
abandoned this line of business for which management believes a real need exists
in Europe. The Company intends to operate the London office out of a U.K.
registered subsidiary that will exist to arrange trades on an agency basis. The
Company has strong contacts with market professionals residing in London whom
the Company may hire in due course to staff this U.K. subsidiary. Through these
persons, the Company can reach various European asset managers as well as
broker-dealers. The Company intends to start this project this month, and will
run the office with the same philosophy on cost as we have in our Jersey City
operations.
Clearing Services
The Company clears its securities transactions on a fully disclosed basis with
Spear, Leeds & Kellogg ("SLK"), a subsidiary of Goldman Sachs & Co., for market
making and Fiserv Securities Inc. ("Fiserv") for retail, institutional and prime
broker clearing.
The Company has had a long-term relationship with SLK that exceeds 20 years.
Currently, SLK clears all market-making trades for our trading desk. An increase
in transactional business will give management greater ability to maintain the
current cost structure or limit any potential increase to manageable levels. We
also utilize SLK's Redibook Plus as an available service for the trading
departments.
The current arrangement with Fiserv was effective on or about November 1, 2002.
Fiserv provides clearing services for all of the Company's retail and most of
its institutional accounts. Their services also allow for matching of listed
step-out transactions, alternative execution opportunities for listed securities
and options, and all debt security clearing and delivery functions.
The Company does not hold client funds or securities and does not directly
process back office operations. All clearing activities are carried on a fully
disclosed basis with customers. These clearing services are furnished to the
Company and its clients for a fee and include billing, custody of securities,
credit review (including for margin accounts) and similar activities. However,
if the Company's 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 the Company cannot collect from our customer, the
Company is generally liable for such losses. The Company maintains its back
office and compliance divisions to supervise its activities generally and to
ensure financial and regulatory compliance with applicable rules.
Technology
The Company's technology strategy seeks the optimum blend of vendor reliance and
proprietary innovation. The Company applies a comparative advantage model in
determining what is developed by vendors, and what is developed in-house.
In-house development focuses on automated, analytical market making, intelligent
automatic execution, and liquidity gateway services including smart order
routing.
The Company recently launched an Internet browser-based full-service equities
and equity option trading service titled "Crown Portal". Several users have
already been seamlessly connected over the Internet to provide a secure and free
order entry and trading portal into the Company. Other systems used include
REDI, Instinent, Tradeware, ADP DNS, Beta, BNET, ACES, Bloomberg and Thompson
ILX. The Company's core trading technology framework utilizes Sun, Intel, NT,
Linux, MS Visual C++, and JAVA.
The Company utilizes the FIX protocol for virtually all of its external
connectivity, including customer interfaces. The Company leverages the Radianz
secure IP virtual financial network for meshed B2B connectivity. Radianz helps
to keep connectivity infrastructure costs low as the need to have dedicated
lines to each order flow provider is eliminated.
VENDORS
The Company uses numerous third party vendors to obtain information services and
software, including
6
stock quotations, stock trading charts, news and financial data. The Company has
alternate sources for these services and, accordingly, does not consider itself
dependent on any one or more of these suppliers. The Company reviews its
relationships with vendors regularly and replaces certain vendors as needed to
maintain the most cost effective and efficient network available for its traders
and representatives.
COMPETITION
The securities industry is very competitive and, with technical innovation, is
becoming even more so. Accordingly, the Company seeks to compete based upon our
traditional strengths built over a 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
The Company also utilizes what it considers the best and most reliable of
technological advances to compete and continually enhance the quality of
services provided. The Company competes with large and small brokerage firms,
which utilize both traditional methods and electronic commerce to transact their
business.
The Company encounters intense competition in all aspects of the securities
business and competes 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. The Company's strategy to
bridge this gap is to focus on its core businesses of execution services and
create alliances with third party market product vendors thus broadening its
product line without the need for significant capital outlay. The Company
believes 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. The Company and its 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. The Company is registered as a broker/dealer
with the SEC. Much of the regulation of broker-dealers has been 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 the
Company's 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.
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 the Company 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,
7
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, 2003, the Company was required to maintain minimum net
capital, in accordance with SEC rules, of $1,000,000 and had total net capital
of approximately $1,841,000 approximately $841,000 in excess of the Company's
minimum net capital requirements.
PERSONNEL
As of March 31, 2003, the Company employed a total of 98 full-time persons,
whose primary roles are: 45 trading, 17 retail representatives, 11 back office
personnel, 3 fixed income, 3 investment banking, 6 compliance, 5 accounting, 3
retail clerical, and 5 in executive management. The Company's relations with its
employees are very good and the Company has no collective bargaining
agreements with any labor unions.
The Company's 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. The Company's success will depend on its ability to hire and
retain additional qualified trading, technical and financial personnel, who are
generally in high demand.
Item 2. Properties.
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
with two consecutive 5-year renewal options at the end of the original term.
Rent charges on this office for the years ended January 31, 2003 and January 31,
2002 were $824,730 and $824,730, respectively.
The Company, through its ongoing cost and overhead reduction strategy, may
reduce the amount of square footage leased at 525 Washington Blvd. As part of
this cost and overhead strategy, the Company has leased approximately 5,800
square feet of the 35th floor space to ViewTrade Holdings, Inc., an entity in
which the Company owns approximately a 15% interest. This agreement has a
nine-month term with automatic 90-day extensions and 90-day non-renewal
notification requirements.
The Company currently leases approximately 3,000 square feet of space in Rancho
Santa Fe, California. This space is used by a member of the Company's Merchant
Banking Wealth Management Group.
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.
Rainbow Medical (Florida)
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.
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 $2.5 million 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.
8
The Company was the placement and selling agent for 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 failed to use 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 Trial Court issued an Order denying the motion. Plaintiff appealed the
Court's Order denying class certification. On November 27, 2002, the Third
District Court of Appeal, Florida issued a decision affirming the Trial Court's
denial of class certification. 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 attorney's fees. The Company intends to defend itself
vigorously against any litigation by plaintiff of his individual claims.
Hightower
Fred D. Hightower, Lawrence J. Kelly, David Kramer, Neal Lisann, Ronald Nilsen,
Carolyn Nilsen, Richard Pizitz, Alfred Schwimmer, and John Rivi, on behalf of
themselves and all others similarly situated, Plaintiffs, v. M.H. Meyerson &
Co., Inc., Ronald Heller, David Nagelberg, 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. Claims include misrepresentation and
omissions in the Rainbow Offering Memorandum concerning the financial condition
of Rainbow, a failure to disclose pending litigation, and a failure to ensure
that Rainbow performed specific corporate actions after the close of the
Offering concerning the use of the proceeds for intended purposes and the
listing of Rainbow's stock. 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 moved to stay or dismiss the case because of the pendancy of the
identical Binder case in Florida. Plaintiffs then moved for class certification
and defendants opposed that motion. After the Florida Appeals Court in the
Binder Florida lawsuit affirmed the trial court's denial of plaintiff's class
certification motion in that case, the New Jersey Court in the Hightower case
held that the defendants motion to stay the case was moot. The defendants then
moved to dismiss the Hightower complaint for failure to state a valid claim.
The New Jersey Court held a hearing on the motion on February 20, 2003 and
denied plaintiffs' motion for class certification, without prejudice to a
renewal of that motion after completion of discovery. The New Jersey Court also
denied defendants' motion to dismiss, without prejudice to defendants' right to
move for summary judgment upon completion of discovery. Defendants believe that
the allegations of wrongdoing are meritless, and will defend against all claims
vigorously.
Federal Securities Claims (New Jersey)
In re M.H. Meyerson & Co., Inc. Securities Litigation, 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
defendants, Martin Meyerson, Kenneth Koock, Estate of Eugene Whitehouse, Jeffrey
Meyerson, Bertram Siegel, Martin Leventhal and Alfred Duncan who are
9
directors of the Company. Plaintiffs allege fraud claims under the federal
securities law relating to the Company's disclosures, and alleged failures to
disclose certain information relating to prior litigations involving the
Company, the efforts of the Company's subsidiary, eMeyerson.com, Inc., to
develop an electronic trading program through a license agreement with
TradinGear.com, Inc. and a litigation arising from eMeyerson's termination of
that agreement, and other matters. Plaintiffs seek damages in excess of $15
million for the alleged class.
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. On September 24, 2002, the District Court consolidated the two cases
under the caption, "In re M.H. Meyerson & Co. Securities Litigation," Master
File No. 02-CV-2724. The plaintiffs have served an Amended Complaint, which
repeats the allegations of the initial pleading.
The defendants believe that the allegations are meritless and fail to state
legally valid claims. The Company has filed a motion to dismiss all claims in
the amended complaint, and intends to contest the allegations of wrongdoing
vigorously.
C.V.I. Group v. M.H. Meyerson & Co., Inc. and Bear Stearns & Co., Inc.
In May 1999, claimants filed a Statement of Claim in arbitration with the
National Association of Securities Dealers alleging that the Company wrongfully
transferred 20,000,000 shares of Whitehall Enterprises, Inc. that were deposited
with the Company and its then clearing agent, Bear Stearns & Co., Inc. ("Bear
Stearns"). Claimants contend that their damages are based upon the market price
of the shares at the date of the transfer, $.25 per share. This claim is
partially covered by the Company's Broker/Dealer Errors and Omissions Policy for
net of $1,000,000.
The Company denied all liability and asserted that the transfer of the shares
were authorized and duly executed by each of the claimant entities, EMES, SLR,
and Ontario, to Global Financial. Each of EMES, SLR, and Ontario, in its
respective Power of Attorney, appointed Global Financial as its agent and
attorney-in-fact with full and unlimited power and authority to buy, sell,
assign, endorse, and transfer all securities of any nature standing anywhere in
the name, respectively, of EMES, SLR, and Ontario. Claimants sent copies of each
of the Powers of Attorney to the Company to facilitate the transfer of the
shares to Global Financial.
The evidence showed that claimants did not send a revocation of the Power of
Attorney until January 27, 2000 - three days after the shares were transferred.
Moreover, the Power of Attorney specifically stated that any revocation is
ineffective as to any transaction that was initiated before a revocation. This
matter was arbitrated in Buffalo, New York on October 15-17, 2001.
On January 8, 2002, the NASD 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. Bear Stearns Securities Corp.
may attempt to assert a cross claim against the Company for its share of such
damages relying on the indemnification provisions of the clearing agreement. The
Company has filed a pending complaint in the federal district court of New
Jersey in which it seeks to vacate the decision in its entirety alleging
violation of several legal issues. The Claimants removed the proceeding to the
United States District Court, District of New Jersey.
While both the management of the Company and its legal counsel reasonably
anticipate a favorable outcome from the complaint, due to the fact that the
$5,000,000 arbitration 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.
10
eMeyerson.com, Inc.
Two plaintiffs filed federal securities fraud claims against the Company and
certain affiliated or related parties, arising from plaintiff's private
placement purchase of $300,000 in stock of eMeyerson.com Inc. that was then a
subsidiary of the Company. The lawsuit was filed in the United States District
Court, District of New Jersey, Hemphill v. Meyerson, Civ. No. 01-5134.
Plaintiffs alleged that defendants failed to disclose material facts concerning,
inter alia, eMeyerson's ownership of stock in a vendor company that was under
contract to develop for eMeyerson an electronic trading platform. Defendants
moved to dismiss the complaint.
On April 25, 2002, the District Court granted defendants' motion and dismissed
the complaint with prejudice and without leave to replead. The plaintiffs
appealed the District Court's order to the United States Court of Appeals for
the Third Circuit. The Court of Appeals has affirmed the District Court's order
and has entered a Final Judgment dismissing the case.
Optomedic Medical Technologies Ltd.
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 its underwriting in June 1998 of Optomedic
securities. The Company believes that plaintiffs have filed a deficient
pleading, and has made a motion to dismiss the plaintiffs' complaint. The court
has had the Company's motion since June 2000 but has not yet indicated its
decision. The accountants for Optomedic have not been joined by counterclaim to
the action but the Company has reserved its right to do so. Following the
court's response to its motion, to the extent that the matter or any portion
thereof remains pending, the Company intends to depose various parties to prove
its defense and to defend itself vigorously against plaintiff's claims.
Miscellaneous
From time to time, certain of the Company's past and present officers, directors
and employees have been named as parties in lawsuits, securities arbitration and
administrative claims. These past and present officers, directors and employees
are currently the subject of proceedings that are in their initial stages. In
the opinion of management, based upon consultation with legal counsel, the
Company is not currently a party to any other legal or arbitration proceeding
not already disclosed, the adverse outcome of which, individually or in the
aggregate, that can be predicted with any reasonable certainty, could have a
material adverse effect on the Company's business, financial condition and
operating results.
Dissatisfied customers of the Company's broker-dealer clients may complain to
the NASD or the SEC who may investigate those complaints. These complaints may
even rise to the level of arbitration or disciplinary action. In addition, the
securities industry is subject to extensive regulation under federal, state and
applicable international laws. As a result, the Company is required to comply
with many complex laws and rules and the Company's ability to so comply is
dependent in large part upon the establishment and maintenance of a qualified
compliance system. The Company is aware of no other SEC or NASD review, or NASD
arbitration that would have a materially adverse impact on the Company's
business, financial condition and operating results.
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 2003.
11
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the SmallCap Market ("SmallCap") under
the symbol "MHMY". The Company's Common Stock was traded on the NASDAQ National
Market ("NMS") through July 17, 2002. 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 and the SmallCap from February 1, 2001 through January
31, 2003. Such information reflects interdealer quotations, without retail
mark-up, mark-down or commissions, and may not necessarily represent actual
transactions.
Fiscal Year 2002 High Low
---------------- ---- ---
1st Quarter $3.20 $2.00
2nd Quarter $1.50 $1.06
3rd Quarter $1.29 $0.55
4th Quarter $0.85 $0.33
Fiscal Year 2003
----------------
1st Quarter $0.85 $0.31
2nd Quarter $0.71 $0.16
3rd Quarter $0.42 $0.15
4th Quarter $1.03 $0.33
The number of shareholders of record of the Company's Common Stock on March 31,
2003 was approximately 85, 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 1,788 holders.
The Company did not declare any dividends on its Common Stock during the fiscal
years ended January 31, 2003 and January 31, 2002.
As compensation for services to be rendered pursuant to an employment agreement
with the Company, John P. Leighton, Chairman, Chief Executive Officer and
President of the Company, was issued 375,000 shares of Common Stock on each of
January 14, 2003 and January 30, 2003. On January 15, 2003, Michael T. Dorsey,
Executive Vice President, General Counsel and Director of New Product
Development of the Company, purchased 200,000 shares of Common Stock for an
aggregate purchase price of $100,000. All of such shares of Common Stock were
issued pursuant to the exemption provided by Section 4(2) of the Securities Act
of 1933, as amended.
Item 6. Selected Financial Data.
The historical selected financial data set forth below for the five years ended
January 31, 2003 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 three years in the period ended January 31, 2001 have been audited
by Vincent R. Vasallo, certified public accountant. The financial statements for
each of the two years in the period ended January 31, 2003 have been audited by
Sanville & Company, certified public accountants, whose report with respect
thereto appears elsewhere in this report.
12
January 31,
-------------- -------------- -------------- -------------- --------------
2003 2002 2001 2000 1999
BALANCE SHEET DATA:
Assets $ 10,520,816 $ 17,308,019 $ 35,878,287 $ 36,361,522 $ 21,577,799
Liabilities 5,821,170 7,857,471 9,913,990 12,948,157 7,021,214
Subordinated liability 3,000,000 2,000,000 2,000,000 2,000,000 2,000,000
Minority interest in subsidiary 0 0 1,923,462 680,852 0
Shareholders' equity 1,699,646 7,450,548 22,040,835 20,732,513 12,556,585
STATEMENT OF OPERATIONS DATA:
Year Ended
January 31,
-------------- -------------- -------------- -------------- --------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
REVENUES
Net gain on securities
transactions $ 9,187,197 $ 15,173,605 $ 66,937,422 $ 57,690,503 $ 28,784,099
Underwriting and investment banking fees 295,346 77,657 2,274,166 1,621,399 2,966,120
Commissions 893,265 1,145,960 1,951,047 1,992,818 1,728,938
Interest and other revenue 51,199 139,763 1,227,089 816,820 400,665
-------------- -------------- -------------- -------------- --------------
Total revenues 10,427,007 16,536,985 72,389,724 62,121,540 33,879,822
-------------- -------------- -------------- -------------- --------------
EXPENSES
Compensation and benefits 5,801,054 8,928,583 29,995,573 27,181,296 16,451,594
Clearance charges 2,164,443 6,996,105 28,930,685 18,620,819 7,328,909
Communications 2,932,796 4,605,124 4,875,907 4,616,220 3,544,838
Professional fees 813,375 4,439,751 2,637,445 1,276,145 916,005
Occupancy and equipment
costs 1,059,762 1,010,983 1,044,700 1,034,680 996,603
Other operating expenses 3,480,772 5,887,996 6,429,984 4,446,301 4,185,103
-------------- -------------- -------------- -------------- --------------
Total expenses 16,252,202 31,868,542 73,914,294 57,175,461 33,423,052
-------------- -------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE TAXES (5,825,195) (15,331,557) (1,524,570) 4,946,079 456,770
MINORITY INTEREST 0 0 800,099 100,920 0
PROVISION FOR INCOME TAXES 423,504 (3,104,086) (216,199) 2,003,377 220,321
-------------- -------------- -------------- -------------- --------------
NET INCOME $ (6,248,699) $ (12,227,471) $ (508,272) $ 3,043,622 $ 236,449
============== ============== ============== ============== ==============
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:
13
PERCENT OF TOTAL REVENUES
YEAR ENDED JANUARY 31,
----------------------
2003 2002 2001
---- ---- ----
Net gain on securities transactions............ 88.1 91.8 92
Underwriting................................... 2.8 .5 3
Commissions.................................... 8.6 6.9 3
Interest and other............................. .5 .8 2
--------- ------- -------
100 100 100
--------- ------- -------
Compensation and benefits...................... 56 54 41
Clearance charges ............................. 21 42 40
Communications ................................ 28 28 7
Professional fees ............................. 8 27 4
Occupancy and equipment costs.................. 10 6 1
Other operating expenses....................... 33 35 9
--------- ------- -------
Total expenses...................... 156 192 102
--------- ------- -------
Income before income taxes.......... (56) (93) (2)
Minority interest .................. 0 0 1
Provision for income taxes.......... 4 (20) *
--------- ------- -------
Net income.......................... (60) (73) (1)
========= ======= =======
* 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 2003 COMPARED WITH FISCAL YEAR 2002
Total revenues in fiscal year 2003 decreased to $10,427,007 from $16,536,985 or
37.8%. This is attributable mainly to the 38.1% decrease in trading revenue,
underwriting and interest and other revenue and a decrease in commission revenue
of 22.1%. The decrease in trading revenue is due to the overall market
conditions and reflects a decline in the level of transactional activity
initiated by our correspondents and the decrease in margins brought about by
decimalization, between bid price and offer price within the securities markets.
Compensation and benefits decreased to $5,801,054 from $8,928,583, a change of
35%. This is a result of the decrease in revenue for the year.
Clearing charges decreased to $2,164,443 from $6,996,105, also due to the
decrease in volume over last year.
Communications expense decreased by 36.3%, from $4,605,124 to $2,932,796.
14
Other operating expenses, comprising professional fees, research fees,
occupancy, and various other operating costs decreased from $11,338,730 to
$5,353,909.
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 savings as well.
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.
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.
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 commissions 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 61% and 68% of
total assets at January 31, 2003 and January 31, 2002, respectively.
The Company finances its operations primarily with existing capital and funds
generated from operations. In addition to the equity capital infusions
aggregating $1,384,050 from management and other employees, the Company raised
$315,000 in a private placement completed in April 2003.
The Company currently believes that existing capital and cash flow from
operations should be sufficient to meet our anticipated working capital and
capital expenditure cash requirements for the near future.
15
RISK FACTORS
Set forth below are certain risks and uncertainties relating to the Company's
business. These are not the only risks and uncertainties the Company faces.
Additional risks and uncertainties not presently known to the Company or that
the Company currently deems immaterial may also impair the Company's business.
If any of the following risks actually occur, the Company's business, operating
results or financial condition could be materially adversely affected.
General Risks Associated With Fluctuations in the Securities Business
The securities industry has undergone several fundamental changes over the last
six years as a result of new regulations at the federal and state level, the
emergence of electronic communication networks, the increased prominence of
retail investors, consolidation among firms in the securities industry, and the
increased use of technology. These changes have resulted in an increase in the
volume of equity securities traded in the U.S. equity markets and a decrease in
quoted spreads between the bid and the ask prices. The introduction of
decimalization and the one-penny minimum price increment in 2001 further reduced
quoted spreads with a resulting decrease in our profitability and revenue
capture per trade. There can be no assurance that the spreads market makers
receive upon execution of trades in equity securities will not continue to
decrease in the future. Any further decline in the quoted spreads between the
bid and ask prices could have a material adverse effect on the Company's
business, financial condition and operating results.
Harm From Regulatory and Legal Uncertainties
The securities industry in the United States is subject to extensive regulation
under both federal and state laws. Market makers are subject to regulations
concerning certain aspects of their business, including trade practices, best
execution practices, capital structure, record retention, and the conduct of
directors, officers and employees. The Company's operations and profitability
may be directly affected by, among other things, additional legislation, changes
in rules promulgated by the SEC, NASD, the Federal Reserve, the various stock
exchanges and other self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules. Failure to comply with
any of these laws, rules or regulations could result in censures, fines, the
issuance of cease-and-desist orders or the suspension or disqualification of the
Company's directors, officers or employees. The Company's ability to comply with
applicable laws and rules is largely dependent on its internal system to ensure
compliance, as well as its ability to attract and retain qualified compliance
personnel. The Company could be subject to disciplinary or other actions in the
future due to claimed noncompliance, which could have a material adverse effect
on its business, financial condition and results of operations.
Risk of Loss Associated With Market-Making and Trading Activities
The Company conducts its market-making activities predominantly as a principal,
which exposes the Company's capital to significant risks. These activities
involve the purchase, sale or a short sale of securities for the Company's own
account and, accordingly, involve risks of price fluctuations and poor
liquidity, or rapid changes in the liquidity of markets that may limit or
restrict the Company's ability to either resell securities the Company purchases
or to repurchase securities the Company sells in such transactions.
From time to time, the Company may have large position concentrations in
securities of a single issuer or issuers engaged in a specific industry, which
might result in higher trading losses than would occur if the Company's
positions and activities were less concentrated. The success of the Company's
market-making activities depends upon its ability to attract order flow, the
skill of its personnel, general market conditions, the price volatility of
specific securities, and the availability of capital. To attract order flow, the
Company must be competitive on order execution quality, technology, reputation,
and customer service.
16
In the Company's role as a market maker, attempts to derive a profit from the
difference between the price at which it buys and sells securities. Competitive
forces, however, often require the Company to match the quotes other market
maker's display and to hold varying amounts of securities in inventory. By
having to maintain inventory positions, the Company is subject to a high degree
of market risk. There can be no assurance that the Company will be able to
manage such risk successfully or that the Company will not experience
significant losses from such activities. All of the above factors could
materially adversely affect the Company's business, financial condition and
operating results.
Harm by Adverse Economic, Political, and Market Conditions
By its nature, the securities business generally is volatile. It is directly
affected by numerous national and international factors that are beyond the
Company's control including, among others, economic, political and market
conditions; the availability of short-term and long-term funding and capital;
the level and volatility of interest rates; legislative and regulatory changes;
currency values and inflation. Any one or more of these factors may contribute
to lower levels of activity in the securities markets generally, or increased
market volatility, which could result in lower revenues from the Company's
market-making activities. Any reduction in revenues or any loss resulting from
the above factors could have a material adverse effect on the Company's business
financial condition and operating results.
Harm From Competition to Market Share and Financial Performance
The Company derives substantially all of its revenues from market-making
activities. The market for these services is rapidly evolving and intensely
competitive. The Company expects the competitive environment to continue and
intensify in the future. The Company faces direct competition in its equity
market-making business primarily from national and regional broker-dealers,
alternative trading systems, such as ECNs, and regional exchanges trading stocks
via unlisted trading privileges.
The Company competes in market making primarily on the basis of execution
standards, its relationship with its customers, reputation and technology. A
number of the Company's competitors have greater financial, technical, marketing
and other resources than the Company. Some of the Company's competitors offer a
wider range of services and financial products than the Company. These
competitors may be able to respond more quickly to new or evolving
opportunities, technologies and customer requirements than the Company and may
be able to undertake more extensive promotional activities and offer more
attractive terms to clients. Moreover, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties or may consolidate to enhance their services and products. The
Company believes that new competitors may also emerge and they may acquire
significant market share. There can be no assurance that the Company will be
able to compete effectively with current or future competitors, which could have
a material adverse effect on its business, financial condition and results of
operations.
Fluctuation of the Market Price of Common Stock
The Company's common stock has experienced price fluctuations in the last two
years along with the stock market in general. Exacerbating the Company's
fluctuations is the small float for the common stock. As a result, the price of
the Company's common stock could continue to fluctuate.
Seasonality in Business
The Company has experienced, and may experience in the future, seasonality in
our business. The Company has historically experienced a decrease in revenues in
the third quarter of the year, due to lower volumes typically associated with
the summer months. The Company believes that this seasonal trend will continue
for the foreseeable future and that the Company's business, financial conditions
and operating results may be adversely affected by such trends in the future. As
a result, period-to-period comparisons of the revenues and operating results of
the Company are not necessarily meaningful and reliance upon such comparisons as
indicators of future performance may be generally misplaced.
17
Harm From Systems Failures and Delays
The Company's market-making activities are heavily dependent on the integrity
and performances of the computer and communications systems supporting them. The
Company's systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, computer viruses, intentional acts
of vandalism, and similar events. Extraordinary trading volumes or other events
could cause the Company's computer systems to operate at an unacceptably low
speed or even fail. Any significant degradation or failure to the Company's
computer systems or any other systems in the trading process could cause clients
to suffer delays in trading. Such delays could cause substantial losses for the
Company's clients and could subject the Company to claims from its clients for
losses.
Systems failures and delays may occur and could cause, among other things,
unanticipated disruptions in service to the Company's clients, slower system
response times resulting in client dissatisfaction, and harm to its reputation.
If any of these events were to occur, the Company could suffer a loss of clients
or a reduction in the growth of its client base, increased operating expenses,
financial losses, or other client claims, and regulatory sanctions or additional
regulatory burdens. In addition, the Company currently does not have a live
disaster recovery center. If the Company is prevented from using its current
trading operations, the Company will not have business continuity. This could
have a material adverse effect on the Company's business, financial condition
and operating results.
Harm from Capacity Constraints of Systems
If the Company's business significantly increases, the Company will need to
expand and upgrade its transaction processing systems, network infrastructure
and other aspects of its technology. Many of the Company's systems are designed
to accommodate additional growth without redesign or replacement; however, the
Company may need to continue to make investments in additional hardware and
software to accommodate growth. The Company may not be able to project
accurately the rate, timing or cost of any increases in its business, or to
expand and upgrade its systems and infrastructure to accommodate any increases
in a timely manner. Failure to make necessary expansions and upgrades to the
Company's systems and infrastructure could lead to failures and delays, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Failure to Keep to Keep Pace with Change, Technological or Otherwise
The markets in which the Company competes are characterized by rapidly changing
technology, evolving industry standards, frequent new product and service
announcements, introductions and enhancements and changing customer demands. If
the Company is not able to keep up with these rapid changes on a timely and
cost-effective basis, the Company may be at a competitive disadvantage. In
addition, the widespread adoption of new Internet, networking or
telecommunications technologies, or other technological changes could require
the Company to incur substantial expenditures to modify or adapt its services or
infrastructure. Any failure by the Company to anticipate or respond adequately
to technological advancements, customer requirements, or changing industry
standards, or any delays in the development, introduction or availability of new
services, products or enhancements could have a material adverse effect on the
Company's business, financial condition and operating results.
Failure to Maintain Capital Requirements
The SEC, the NASD and various other regulatory agencies have stringent rules
regarding the maintenance of specific levels of net capital by securities
broker-dealers. Net capital is an SEC-defined measure of a broker-dealer's
readily available liquid assets, reduced by its total liabilities other than
approved subordinated debt. If the Company fails to maintain the required net
capital, the SEC could suspend or revoke the Company's registration, or the NASD
and other regulatory bodies could suspend or expel the Company, which could
ultimately lead to its liquidation. Moreover, if the Company falls below certain
early warning levels, the NASD could force the Company to constrict its business
by reducing the number of markets it makes.
18
If the net capital rules are changed or expanded, or if there is an unusually
large charge against net capital, operations that require the intensive use of
capital would be limited. A significant operating loss or any unusually large
charge against net capital could adversely affect the Company's ability to
expand or even maintain its present levels of business, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Of the Company's $3 million in subordinated loans, $2,000,000 will become due
and payable on August 31, 2003. The lender of that amount, SLK and the Company
are in discussions now to renew that loan. There is no guarantee that the
Company will be able to renew that loan before it matures. If the Company is
unable to renew or replace that loan, the Company's ability to remain in
business would be materially impaired.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company's market making activities expose the Company to significant risks,
including but not limited to changes in price and/or liquidity of its trading
positions. The Company uses an automated trading system to provide management
with a real-time overview of its traders' activity, positions, and profit/loss.
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 the Company's business, it maintains inventory, consisting
mainly of NASDAQ and OTC securities and municipal bonds. The market value of the
Company's inventory at January 31, 2003 was $1,302,826 million in long positions
and $217,777 million in short positions. The loss to the Company, assuming a 10%
decline in prices, would be $108,505 million due to the losses on the long
positions being partially offset by gains on the short positions.
The Company invests, from time to time, in certificates of deposit and/or
maintain interest bearing balances in its accounts with its 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.
19
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report............................................... 21
Consolidated Statements of Financial Condition
at January 31, 2003 and 2002 ..................................... 22
Consolidated Statements of Operations for the years
ended January 31, 2003, 2002 and 2001............................. 23
Consolidated Statements of Stockholders' Equity for the years
ended January 31, 2003, 2002 and 2001 ............................ 24
Consolidated Statements of Cash Flows for the years
ended January 31, 2003, 2002 and 2001 ............................ 25
Notes to Consolidated Financial Statements................................. 26
20
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and
Board of Directors
M. H. MEYERSON & CO., INC.
We have audited the accompanying consolidated statements of financial
condition of M. H. MEYERSON & CO., INC. (the Company) as of January 31, 2003 and
2002, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years 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 audits. The financial statements of the Company for the year ended January
31, 2001 were audited by other auditors whose report dated April 21, 2001,
expressed an unqualified opinion on these statements.
We conducted our audits 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 audits provide 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., as of January 31, 2003 and 2002, and the results of its operations
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
Abington, Pennsylvania /s/Sanville & Company
March 20, 2003 Certified Public Accountants
21
M. H. MEYERSON & CO., INC.
Consolidated Statements of Financial Condition
January 31, 2003 and 2002
2003 2002
------------ ------------
ASSETS
Cash and cash equivalents $ 961,465 $ 851,343
Receivables:
Clearing broker (Note 5) 4,152,243 4,682,353
Income taxes 13,392 2,847,494
Other 2,438,989 2,022,249
Securities owned: (Notes 2 and 3)
Marketable 1,302,826 4,208,644
Investments, not readily marketable 840,962 1,085,887
Furniture and equipment, net (Note 4) 562,969 726,737
Other assets 247,970 883,312
------------ ------------
Total assets $ 10,520,816 $ 17,308,019
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to clearing broker $ 254,683 $ 166,864
Payable to trading representatives - 738,105
Securities sold, not yet purchased (Notes 2 and 3) 217,777 1,257,489
Accounts payable and accrued expenses 5,348,710 5,695,013
------------ ------------
Total liabilities 5,821,170 7,857,471
------------ ------------
Commitments and contingent liabilities (Note 14)
Subordinated Loans (Note 9) 3,000,000 2,000,000
------------ ------------
Stockholders' Equity:
Common stock 75,320 65,815
Additional paid-in capital 12,223,933 11,735,641
Retained earnings (deficit) (10,599,607) (4,350,908)
------------ ------------
Total stockholders' equity 1,699,646 7,450,548
------------ ------------
Total liabilities and stockholders' equity $ 10,520,816 $ 17,308,019
============ ============
The accompanying notes are an integral part of these financial statements.
22
M. H. MEYERSON & CO., INC.
Consolidated Statements of Operations
For the Years Ended January 31, 2003, 2002 and 2001
2003 2002 2001
---------------- ---------------- ----------------
REVENUES
Net gain on securities transactions $ 9,187,197 $ 15,173,605 $ 66,937,422
Underwriting and investment banking fees 295,346 77,657 2,274,166
Commissions 893,265 1,145,960 1,951,047
Interest and other 51,199 139,763 1,227,089
---------------- ---------------- ----------------
Total revenues 10,427,007 16,536,985 72,389,724
---------------- ---------------- ----------------
EXPENSES
Compensation and benefits 5,801,054 8,928,583 29,995,573
Clearance charges 2,164,443 6,996,105 28,930,685
Communications 2,932,796 4,605,124 4,875,907
Professional fees 813,375 4,439,751 2,637,445
Occupancy and equipment costs 1,059,762 1,010,983 1,044,700
Other operating expenses 3,480,772 5,887,996 6,429,984
---------------- ---------------- ----------------
Total expenses 16,252,202 31,868,542 73,914,294
---------------- ---------------- ----------------
Income (loss) before income taxes
and tax benefits (5,825,195) (15,331,557) (1,524,570)
Provision for income taxes (Note 11) 423,504 (3,104,086) (216,199)
Minority interest - - 800,099
---------------- ---------------- ----------------
Net income (loss) $ (6,248,699) $ (12,227,471) $ (508,272)
================ ================ ================
Basic earnings (loss) per share of common
stock (Note 2) $ (0.94) $ (1.86) $ (0.08)
================ ================ ================
Diluted earnings (loss) per share of common
stock (Note 2) $ (0.94) $ (1.86) $ (0.08)
================ ================ ================
Weighted average number of shares outstanding 6,625,571 6,580,683 6,566,022
================ ================ ================
Diluted weighted average number
of shares outstanding 6,625,571 6,580,683 6,566,022
================ ================ ================
The accompanying notes are an integral part of these financial statements.
23
M. H. MEYERSON & CO., INC.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended January 31, 2003, 2002 and 2001
Common Stock Additional Retained Total
------------------------------------- Paid-In Earnings/ Stockholders'
Shares (1) Amount Capital (Deficit) Equity
----------------- ---------------- ------------------- ------------------ ------------------
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
Net loss - - - (6,248,699) (6,248,699)
Shares sold 200,000 2,000 98,000 - 100,000
Shares issued as compensation 750,000 7,500 390,000 - 397,500
Options exercised 450 5 292 - 297
----------------- ---------------- ------------------- ------------------ ------------------
Balances at January 31, 2003 7,531,964 $ 75,320 $ 12,223,933 $ (10,599,607) $ 1,699,646
================= ================ =================== ================== ==================
(1) Common Stock - $0.01 par value, 25,000,000 shares authorized.
The accompanying notes are an integral part of these financial statements.
24
M. H. MEYERSON & CO., INC.
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2003, 2002 and 2001
2003 2002 2001
---------------- ----------------- -----------------
Cash flows from operating activities:
Net income (loss) $ (6,248,699) $ (12,227,471) $ (508,272)
Adjustments to reconcile net income (loss) to net
cash provided (expended) in operating activities:
Depreciation and amortization 163,768 207,363 443,030
Common stock issued as compensation 397,500 - -
Changes in assets and liabilities:
(Increase) decrease in assets:
Receivables:
Clearing broker 530,110 (1,405,139) 6,022,012
Other (416,740) (1,715,932) -
Income taxes 2,834,102 437,939 (3,285,433)
Securities owned 3,150,743 8,933,634 673,325
Other assets 635,342 1,256,375 504,318
Increase (decrease) in liabilities:
Payable to clearing broker (166,864) 166,864 -
Securities sold, not yet purchased (1,039,712) (1,595,728) (357,647)
Payable to trading representatives (483,422) (3,534,954) (2,627,491)
Accounts payable and accrued expenses (346,303) 2,907,299 (49,029)
---------------- ----------------- -----------------
Net cash provided (expended) in operating activities (990,175) (6,569,750) 814,813
---------------- ----------------- -----------------
Cash flows from financing activities:
Proceeds from subordinated loans 1,000,000 - -
Treasury stock purchased and retired - - (278,521)
Common stock issued 100,000 - -
Options exercised 297 24,498 400,782
---------------- ----------------- -----------------
Net cash provided in financing activities 1,100,297 24,498 122,261
---------------- ----------------- -----------------
Cash flows from investing activities:
Investments - 1,162,438 257,523
Investment in subsidiary - (2,387,314) 1,694,334
Purchase of fixed assets, net of disposals - 92,987 (353,690)
Minority interest in subsidiary - (1,923,462) 1,242,610
---------------- ----------------- -----------------
Net cash provided (expended) in investing activities - (3,055,351) 2,840,777
---------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents 110,122 (9,600,603) 3,777,851
Cash and cash equivalents at beginning of year 851,343 10,451,946 6,674,095
---------------- ----------------- -----------------
Cash and cash equivalents at end of year $ 961,465 $ 851,343 $ 10,451,946
================ ================= =================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 29,299 $ 78,464 $ 141,140
Income taxes $ - $ 274,018 $ 4,167,696
The accompanying notes are an integral part of these financial statements.
25
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements
January 31, 2003, 2002 and 2001
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"). All significant intercompany
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 the Subsidiary 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% and is included as an
Investment-not readily marketable in the January 31, 2003 and 2002
Statements 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.
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.
26
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
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 principles 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.
Reclassification - Certain 2001 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) that 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
company.
27
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
3. SECURITIES OWNED AND SECURITIES SOLD BUT NOT YET PURCHASED (continued)
January 31,
2003 2002
--------------- --------------
Securities owned, marketable:
State and municipal obligations $ 10,804 $ 1,589,813
Corporate stocks 1,280,263 2,616,370
Other 11,759 2,461
--------------- --------------
$ 1,302,826 $ 4,208,644
=============== ==============
Securities owned, not readily marketable:
Corporate stocks $ 820,790 $ 1,029,791
Other 20,172 56,096
--------------- --------------
$ 840,962 $ 1,085,887
=============== ==============
Securities sold but not yet purchased:
State and municipal obligations $ - $ 58,598
Corporate stocks 217,777 1,198,891
--------------- --------------
$ 217,777 $ 1,257,489
=============== ==============
4. FURNITURE & EQUIPMENT, AND OPERATING LEASES
Furniture and equipment is summarized as follows:
2003 2002 2001
---------------- -------------- ----------------
Furniture, fixtures, equipment
and leasehold improvements $ 2,788,641 $ 2,789,001 $ 2,899,733
Less accumulated depreciation
and amortization 2,225,672 2,062,264 1,872,646
---------------- -------------- ----------------
$ 562,969 $ 726,737 $ 1,027,087
================ ============== ================
Depreciation and amortization expenses totalled $163,768, $207,363 and
$443,030 for the years ended January 31, 2003, 2002 and 2001,
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 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, 2003
are as follows.
28
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
4. FURNITURE & EQUIPMENT, AND OPERATING LEASES (continued)
Office
Year ending January 31, Space Equipment
---------------- -----------------
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 $ 7,463,734 $ 81,794
================ =================
Annual aggregate office rental and equipment lease expense for the years
ended January 31, 2003, 2002 and 2001 totalled $1,047,885, $928,601 and
$1,044,700, 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.
5. DEPOSIT WITH, RECEIVABLE FROM AND PAYABLE TO CLEARING BROKER
The Company maintains clearing agreements with Spear, Leads & Kellogg
("SLK") and Fiserv Securities, Inc., ("Fiserv"), who acquired Investec
Ernst and Company's clearing business in November of 2002. 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 Fiserv the Company maintains a
clearing deposit of $100,000. The Company primarily clears its proprietary
municipal bond business and customer transactions through Fiserv.
6. PAYABLE TO TRADING REPRESENTATIVES
Payable to trading representatives represents commissions earned by market
makers and retail representatives. Prior to Fiscal 2001, trading
representatives were required to maintain a balance with the Company
equivalent to approximately twenty-five percent of their net trading
positions. Any remaining balances are 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 Fiserv.
29
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
8. RELATED PARTY TRANSACTIONS
Transactions with related parties are summarized as follows:
Year ended January 31,
2003 2002 2001
-------------- --------------- -------------
Maintenance charges paid on space owned by the
principal shareholder (included in rent
expense) $ - $10,020 $10,020
Rent for space which is leased in the name of
the principal shareholder $ - $11,185 $32,000
The Company has loaned Anthony F. Dudzinski, the Company's former
president, $200,000 to purchase 50,000 shares of the Company's stock. The
loan matures February 21, 2004 and is non-interest bearing. The shares of
the Company are pledged as collateral for the loan.
9. SUBORDINATED LOANS
The Company entered into a 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.
The Company has entered into a NASD approved subordinated loan agreement
with two stockholders. The first agreement was effective December 10,
2002 in the amount of $500,000. This agreement bears interest at an
annual rate of 6% and matures December 31, 2003. The second agreement was
effective January 14, 2003 in the amount of $500,000. This agreement
bears interest at an annual rate of 6% and matures January 31, 2004.
All of the aforementioned subordinated loans are considered debt for
purposes of the debt to debt-equity ratio.
10. NET CAPITAL REQUIREMENTS
Pursuant to the net capital provisions promulgated under the Securities
Exchange Act of 1934, as amended, 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, 2003, 2002
and 2001, the Company had net capital of $1,841,137, $2,618,372 and
$10,020,976, respectively, and a minimum net capital requirement each
year of $1,000,000. The Company's net capital ratios were 3.04, 2.46 and
.70 to 1 for the years ended January 31, 2003, 2002 and 2001,
respectively.
30
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
11. INCOME TAXES
The Company elected to carryback its operating loss for the fiscal year
ended January 31, 2002 and was able to recover approximately $2,350,000
in federal taxes previously paid during the fiscal year ended January 31,
2003. At January 31, 2003 the Company has approximately $11,095,000 in
net operating losses available for carryforward. Of these losses,
$4,765,000 expire in 2022 and $6,330,000 expire in 2023.
For state income tax purposes the Company has an available operating loss
carryforward of approximately $17,300,000 at January 31, 2003 of which
$11,000,000 and $6,300,000 expires in 2009 and 2010, respectively.
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 and state tax benefit if the net operating loss is
fully utilized would be approximately $3,750,000 and $1,500,000,
respectively. 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,
2003 2002 2001
----------- ----------- -----------
Current tax expense (benefit)
Federal $ 423,179 $(3,131,333) $ (196,643)
State 325 27,247 (19,556)
----------- ----------- -----------
$ 423,504 $(3,104,086) $ (216,199)
=========== =========== ===========
Reconciliation from the statutory federal income tax rate to the effective
tax rate is as follows:
Year ended January 31,
2003 2002 2001
---------- ---------- ----------
U.S. statutory rate (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit -- -- (6.7)
Other 41.3 13.8 26.5
---------- ---------- ----------
7.3% (20.2)% (14.2)%
========== ========== ==========
31
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
12. STOCK OPTIONS
The Company has established employee stock option plans administered by
the Board of Directors. Under the plans, options may be granted to
employees of the Company and other qualified individuals up to an
aggregate of 3,500,000 shares of Common stock. As of January 31, 2003,
3,074,328 options have been granted under these plans. A summary of the
status of the Company's stock options as of January 31, 2003, 2002 and
2001 and changes during the years then ended is presented below:
Weighted-Average Expiration
Total Exercise Price Dates
---------- ---------------- ------------
Balance, January 31, 2000 1,270,520 $ 2.88 3/00-12/04
Granted 699,689 $ 4.50
Cancelled (8,000) $ 7.00
Exercised (107,500) $ 2.79
Expired (100,000) $ 1.06
---------- ---------- ------------
Balance, January 31, 2001 1,754,709 $ 3.62 6/01-8/10
---------- ---------- ------------
Granted 127,389 $ 0.95
Cancelled (235,000) $ 4.35
Exercised -- $ --
Expired (55,000) $ 2.25
---------- ---------- ------------
Balance, January 31, 2002 1,592,098 $ 3.35 6/02-7/11
---------- ---------- ------------
Granted 633,712 $ 0.47
Cancelled (129,479) $ 4.56
Exercised (450) $ .66
Expired (155,000) $ 2.25
---------- ---------- ------------
Balance, January 31, 2003 1,940,881 $ 2.41 3/03-7/11
========== ========== ============
The disclosure requirements of SFAS 123 require companies which elect not
to record the fair value of stock-based compensation awards in the
Consolidated Statement of Income to provide pro forma disclosures of net
income and earnings per share in the Notes to the Consolidated Financial
Statements as if the fair value of stock-based compensation had been
recorded. The Company utilized the Black-Scholes option-pricing model to
quantify the pro forma effects on net income and earnings per common
share of the fair value of the stock options granted and outstanding
during 2003, 2002 and 2001. Based on the results of the model, the
weighted-average fair value of the stock options granted was $0.53, $0.82
and $3.78 for 2003, 2002 and 2001, respectively. The weighted-average
assumptions which were used for 2003, 2002 and 2001 included risk-free
interest rates of 2.38%, 4.28% and 6.30% an expected life of 3.67 years,
6 years and 4.51 years, and expected volatility of 135%, 113 % and 119%,
respectively. In addition, no dividends were used for the 2003, 2002 and
2001 options, respectively.
32
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
12. STOCK OPTIONS (Continued)
Under the retroactive alternative to SFAS 123, the Company's 2003, 2002
and 2001 pro forma net loss would have been $6,284,955, $12,631,023 and
$3,012,613 respectively, compared to actual net loss of $6,248,699,
$12,227,471 and $508,272 respectively. Pro forma earnings per common
share for 2003, 2002 and 2001 would have been ($0.95), ($1.92) and
($0.46), respectively, compared to actual earnings per common share of
($0.94), ($1.86) and ($0.08), respectively.
Had the Company elected to expense its stock options in fiscal 2003 under
the alternative to SFAS 123, net income and earnings per share would have
decreased by $36,256 and $.01 per share, respectively.
The following tables provide further details relating to the Company's
stock options outstanding as of January 31, 2003:
Stock Options
Options Outstanding
------------------------------------------------------------
Weighted-
Weighted- Average
Average Remaining
Range of Number Exercise Contractual
Exercise Prices Outstanding Price Life (in years)
--------------------------- ----------------- -------------- --------------------
Below-$1.40 852,692 $ 0.60 4.49
$1.40-$2.60 559,689 2.26 2.49
$2.60-$3.80 - - -
$3.80-$5.00 150,000 4.22 4.59
$5.00-$6.20 300,000 5.71 0.97
$6.20 to above 78,500 7.05 1.26
----------------- -------------- --------------------
Balance, 1/31/2003 1,940,881 $ 2.41 3.25
================= ============== ====================
33
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
12. STOCK OPTIONS (Continued)
Stock Options
Options Exercisable
------------------------------------
Weighted-
Average
Range of Number Exercise
Exercise Prices Exercisable Price
--------------------------- ----------------- --------------
Below - $1.40 312,692 $ 0.80
$1.40-$2.60 559,689 2.26
$2.60-$3.80 - -
$3.80-$5.00 150,000 4.22
$5.00-$6.20 300,000 5.71
$6.20 to above 78,500 7.05
----------------- --------------
Balance, 1/31/2003 1,400,881 $ 3.15
================= ==============
13. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business the Company enters into underwriting
commitments. There were no transactions open at January 31, 2003,
relating to such underwriting commitments.
LITIGATION
The following litigation and/or arbitration matters are pending:
RAINBOW MEDICAL (FLORIDA)
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.
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 $2.5 million
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. The Company was the placement and
selling agent for the private placement. Martin Leventhal, C.P.A., a
director of the Company became an outside director of Rainbow after the
offering closed.
34
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
13. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
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 failed to
use 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 Trial Court issued an Order denying the
motion. Plaintiff appealed the Court's Order denying class certification.
On November 27, 2002, the Third District Court of Appeal, Florida issued a
decision affirming the Trial Court's denial of class certification.
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 attorney's fees. The Company intends to defend itself vigorously
against any litigation by plaintiff of his individual claims.
HIGHTOWER
Fred D. Hightower, Lawrence J. Kelly, David Kramer, Neal Lisann, Ronald
Nilsen, Carolyn Nilsen, Richard Pizitz, Alfred Schwimmer, and John Rivi,
on behalf of themselves and all others similarly situated, Plaintiffs, v.
M.H. Meyerson & Co., Inc. Ronald Heller, David Nagelberg, 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. Claims include
misrepresentation and omissions in the Rainbow Offering Memorandum
concerning the financial condition of Rainbow, a failure to disclose
pending litigation, and a failure to ensure that Rainbow performed
specific corporate actions after the close of the Offering concerning the
use of the proceeds for intended purposes and the listing of Rainbow's
stock. 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 moved to stay or dismiss the case because of the pendancy
of the identical Binder case in Florida. Plaintiffs then moved for class
certification and defendants opposed that motion. After the Florida
Appeals Court in the Binder Florida lawsuit affirmed the trial court's
denial of plaintiff's class certification motion in that case, the New
Jersey Court in the Hightower case held that the defendants motion to stay
the case was moot. The defendants then moved to dismiss the Hightower
complaint for failure to state a valid claim.
The New Jersey Court held a hearing on the motion on February 20, 2003 and
denied plaintiffs' motion for class certification, without prejudice to a
renewal of that motion after completion of discovery. The New Jersey Court
also denied defendants' motion to dismiss, without prejudice to
defendants' right to move for summary judgment upon completion of
discovery. Defendants believe that the allegations of wrongdoing are
meritless, and will defend against all claims vigorously.
35
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
13. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
FEDERAL SECURITIES CLAIMS (NEW JERSEY)
In re M.H. Meyerson & Co., Inc. Securities Litigation, United States
District Court, District of New Jersey, 02 div. 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 defendants, Martin Meyerson, Kenneth Koock, Estate of
Eugene Whitehouse, Jeffrey Meyerson, Bertram Siegel, Martin Leventhal and
Alfred Duncan who are directors of the Company. Plaintiffs allege fraud
claims under the federal securities law relating to the Company's
disclosures, and alleged failures to disclose certain information
relating to prior litigations involving the Company, the efforts of the
Company's subsidiary, eMeyerson.com, Inc., to develop an electronic
trading program through a license agreement with TradinGear.com, Inc. and
a litigation arising from eMeyerson's termination of that agreement, and
other matters. Plaintiffs seek damages in excess of $15 million for the
alleged class.
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. On September 24, 2002, the District Court
consolidated the two cases under the caption, "In re M.H. Meyerson & Co.
Securities Litigation," Master File No. 02-CV-2724. The plaintiffs have
served an Amended Complaint, which repeats the allegations of the initial
pleading.
The defendants believe that the allegations are meritless and fail to
state legally valid claims. The Company has filed a motion to dismiss all
claims in the amended complaint, and intends to contest the allegations
of wrongdoing vigorously.
C.V.I. GROUP V. M.H. MEYERSON & CO., INC. AND BEAR STEARNS & CO., INC.
In May 1999, claimants filed a Statement of Claim in arbitration with the
National Association of Securities Dealers alleging that the Company
wrongfully transferred 20,000,000 shares of Whitehall Enterprises, Inc.
that were deposited with the Company and its then clearing agent, Bear
Stearns & Co., Inc. ("Bear Stearns"). Claimants contend that their
damages are based upon the market price of the shares at the date of the
transfer, $.25 per share. This claim is partially covered by the
Company's Broker/Dealer Errors and Omissions Policy for net of
$1,000,000.
The Company denied all liability and asserted that the transfer of the
shares were authorized and duly executed by each of the claimant
entities, EMES, SLR, and Ontario, to Global Financial. Each of EMES, SLR,
and Ontario, in its respective Power of Attorney, appointed Global
Financial as its agent and attorney-in-fact with full and unlimited power
and authority to buy, sell, assign, endorse, and transfer all securities
of any nature standing anywhere in the name, respectively, of EMES, SLR,
and Ontario. Claimants sent copies of each of the Powers of Attorney to
the Company to facilitate the transfer of the shares to Global Financial.
The evidence showed that claimants did not send a revocation of the Power
of Attorney until January 27, 2000 - three days after the shares were
transferred. Moreover, the Power of Attorney specifically stated that any
revocation is ineffective as to any transaction that was initiated before
a revocation. This matter was arbitrated in Buffalo, New York on October
15-17, 2001.
36
M. H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
13. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
On January 8, 2002, the NASD 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. Bear Stearns
Securities Corp. may attempt to assert a cross claim against the Company
for its share of such damages relying on the indemnification provisions of
the clearing agreement. The Company has filed a pending complaint in the
federal district court of New Jersey in which it seeks to vacate the
decision in its entirety alleging violation of several legal issues. The
Claimants removed the proceeding to the United States District Court,
District of New Jersey.
While both the management of the Company and its legal counsel reasonably
anticipate a favorable outcome from the complaint, due to the fact that
the $5,000,000 arbitration 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.
EMEYERSON.COM, INC.
Two plaintiffs filed federal securities fraud claims against the Company
and certain affiliated or related parties, arising from plaintiff's
private placement purchase of $300,000 in stock of eMeyerson.com Inc. that
was then a subsidiary of the Company. The lawsuit was filed in the United
States District Court, District of New Jersey, Hemphill v. Meyerson, Civ.
No. 01-5134. Plaintiffs alleged that defendants failed to disclose
material facts concerning, inter alia, eMeyerson's ownership of stock in a
vendor company that was under contract to develop for eMeyerson an
electronic trading platform. Defendants moved to dismiss the complaint.
On April 25, 2002, the District Court granted defendants' motion and
dismissed the complaint with prejudice and without leave to replead. The
plaintiffs appealed the District Court's order to the United States Court
of Appeals for the Third Circuit. The Court of Appeals has affirmed the
District Court's order and has entered a Final Judgment dismissing the
case.
OPTOMEDIC MEDICAL TECHNOLOGIES LTD.
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 its underwriting in June 1998
of Optomedic securities. The Company believes that plaintiffs have filed a
deficient pleading, and has made a motion to dismiss the plaintiff's
complaint. The court has had the Company's motion since June 2000 but has
not yet indicated its decision. The accountants for Optomedic have not
been joined by counterclaim to the action but the Company has reserved its
right to do so. Following the court's response to its motion, to the
extent that the matter or any portion thereof remains pending, the Company
intends to depose various parties to prove its defense and to defend
itself vigorously against plaintiff's claims.
37
M H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
13. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
MISCELLANEOUS
From time to time, certain of the past and present officers, directors and
employees have been named as parties in lawsuits, securities arbitration
and administrative claims. These past and present officers, directors and
employees are currently the subject of proceedings that are in their
initial stages. In the opinion of management, based upon consultation with
legal counsel, the Company is not currently a party to any other legal or
arbitration proceeding not already disclosed, the adverse outcome of
which, individually or in the aggregate, that can be predicted with any
reasonable certainty, could have a material adverse effect on its
business, financial condition and operating results.
Dissatisfied customers of the Company's broker-dealer clients may complain
to the NASD or the SEC who may investigate those complaints. These
complaints may even rise to the level of arbitration or disciplinary
action. In addition, the securities industry is subject to extensive
regulation under federal, state and applicable international laws. As a
result, the Company is required to comply with many complex laws and rules
and the Company's ability to so comply is dependent in large part upon the
establishment and maintenance of a qualified compliance system. The
Company is aware of no other SEC or NASD review, or NASD arbitration that
would have a materially adverse impact on the Company's business,
financial condition and operating results.
14. 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 made no contributions to the plan for the years ended January
31, 2003, 2002 or 2001.
15. STOCK ISSUANCE AND MANAGEMENT CHANGE
In January 2003 the Company's board of directors appointed a new
President, Chief Executive Officer and Co-Chairman of the board, John P.
Leighton. Mr. Leighton was issued 750,000 shares of the Company's stock in
connection with his employment agreement. The 750,000 shares were valued
at the closing price of the Company's stock at the signing of Mr.
Leighton's agreement and subsequent amendment to the agreement. A value of
$397,500 of compensation expense has been recorded in the financial
statements. As the marketability of these shares is conditional and based
upon certain subsequent events, the treatment for tax purposes may be
subject to further criteria and have an effect on subsequent periods.
Mr. Leighton has assembled a new management team in order to reorganize
the Company. In one form or another this team spent nearly five years
together at Knight Securities, L.P., the largest Nasdaq market maker. Mr.
Leighton and the new management team have implemented a plan to redirect
the Company's market making operations to obtain a greater market share in
the Nasdaq Small Cap and OTC Bulletin Board markets. The new management
team believes strongly that this
38
M H. MEYERSON & CO., INC.
Notes to Consolidated Financial Statements (Continued)
January 31, 2003, 2002 and 2001
15. STOCK ISSUANCE AND MANAGEMENT CHANGE (Continued)
new business model will reverse the significant operating losses the
Company has incurred in the past two fiscal years.
The new management team has implemented plans to raise additional capital
for the Company. Effective January 14, 2003, Mr. Leighton has contributed
$500,000 in the form of a subordinated note (See Note 9) to the Company.
Certain members of this new management team purchased 200,000 shares of
Common Stock for an aggregate purchase price of $100,000. In February and
March of 2003 the Company raised additional capital from members of the
new management team and other employees by issuing shares of Common Stock
for an aggregate purchase price of $638,753.
39
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
---- --- ---------------------
John P. Leighton 47 Chairman, President, Chief Executive
Officer and Director
Michael T. Dorsey 47 Executive Vice President, General
Counsel, Director of New Product
Development and Director
Jeffrey M. Hoobler 47 Executive Vice President, Chief
Operating Officer and Director
Timothy M. Demarest 42 Executive Vice President and Chief
Technology Officer
Mark Neiderfer 45 Senior Vice President and Manager of
Broker-Dealer Equity Sales
Michael B. Silver 33 Senior Vice President and Manager of
OTC Market Making
Jeffrey E. Meyerson 37 Vice President, Trading and Director
Mark D. Goldsmith 59 Chief Financial Officer and Treasurer
Bertram Siegel 64 Director
Martin Leventhal 65 Director
Alfred T. Duncan 58 Director
BIOGRAPHICAL INFORMATION
John P. Leighton, Chairman, Chief Executive Officer, President and Director
Mr. Leighton became Co-Chairman, Chief Executive Officer and a Director of the
Company in January 2003. Later in January 2003, he was named President and in
April 2003 he became Chairman of the Company. From November 2000 until joining
the Company, Mr. Leighton was a private investor. From March 1995 to November
2000, Mr. Leighton was Executive Vice President, Managing Director Global
Institutional Sales at Knight Securities, L.P., a broker-dealer. Mr. Leighton
received a B.S. from Niagara University.
40
Michael T. Dorsey, Executive Vice President, General Counsel, Director of New
Product Development and Director
Mr. Dorsey became Executive Vice President, General Counsel, Director New
Product Development and a Director of the Company in January 2003. From March
1998 until joining the Company, Mr. Dorsey served as General Counsel, Corporate
Secretary, Director of Compliance and Director of Legislative and Regulatory
Affairs at Knight Trading Group, Inc. Mr. Dorsey received a B.S.B.A. from St.
Louis University, a J.D. from the University of Missouri - Columbia, and an
LL.M. from Georgetown University Law Center.
Jeffrey M. Hoobler, Executive Vice President, Chief Operating Officer and
Director
Mr. Hoobler became Executive Vice President and Chief Operating Officer of the
Company in January 2003. From July 1997 through September 2001 and from July
2002 until joining the Company, Mr. Hoobler served as Senior Vice President with
responsibility, among other areas, for Institutional eCommerce Sales, Restricted
Equities, and Sponsored Access for Institutions at Knight Securities, L.P., a
subsidiary of Knight Trading Group, Inc. Mr. Hoobler received a B.S. from the
United States Naval Academy.
Timothy M. Demarest, Executive Vice President and Chief Technology Officer
Mr. Demarest became Executive Vice President and Chief Technology Officer of the
Company in February 2003. From September 2002 until joining the Company, he
served as Chief Information Officer of Radianz, a provider of secure IP network
services to the financial industry. From April 2000 through September 2001, Mr.
Demarest served as Senior Vice President and U.K. European Chief Information
Officer for Knight Securities International Ltd., a subsidiary of Knight Trading
Group, Inc. From May 1996 through March 2000, he served as Senior Vice President
and Chief Information Officer of Knight Securities, L.P., a subsidiary of Knight
Trading Group, Inc. Mr. Demarest received his Bachelor of Business
Administration from the George Washington University.
Mark Neiderfer, Senior Vice President and Manager of Broker-Dealer Equity Sales
Mr. Neiderfer became Senior Vice President and Manager of Broker-Dealer Equity
Sales of the Company in January 2003. From 1996 until joining the Company, Mr.
Neiderfer served as Senior Vice President, Broker-Dealer Sales Manger at Knight
Securities, L.P., a subsidiary of Knight Trading Group, Inc. He received a B.A.
from Syracuse University.
Michael B. Silver, Senior Vice President and Manager of OTC Market Making
Mr. Silver became Senior Vice President and Manager of OTC Market Making of the
Company in January 2003. From 2001 until joining the Company, he was Senior Vice
President of NASDAQ Trading at Jeffries & Co. He served as Vice President of
Market Making at Knight Securities, L.P, a subisidiary of Knight Trading Group,
Inc. from 1995 through 2001. He received a degree in Accounting from West
Virginia University.
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. From 1999 through 2001, he was
President and Chief Executive Officer of eMeyerson.com Inc. He received an
Economics/Management degree from Ithaca College in 1987. Mr. Meyerson became a
Director of the Company in 1993.
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
41
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.
Bertram Siegel, 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, 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 was Executive Vice President and Chief
Financial Officer of On Site Sourcing Inc. (1998-2000) and Chief Financial
Officer of the New Jersey Devils Franchise of the National Hockey League
(1997-1998). 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 currently receive options to purchase 7,500 shares of the Company's
Common Stock annually. Immediately following the next annual meeting of
shareholders of the Company, Directors will receive options to purchase 20,000
shares of the Company's Common Stock annually. Outside Directors are compensated
$20,000 per year for service on the Board of Directors. Employee 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, 2003, based upon an examination of the
public filings, all of the Company's officers and directors timely filed reports
on Form 3 and Form 4 except for the following filings: Messrs. Demarest, Hoobler
and Silver's initial filings on Form 3 were inadvertently filed late and Mr.
Silver inadvertently filed a Form 4 late. Neither of Messrs. Demarest and
Hoobler own any shares of Common Stock.
Item 11. Executive Compensation.
The following table sets forth as of the years ended January 31, 2003, 2002, and
2001 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:
42
Long Term
Compensation
Securities
Fiscal Underlying
Name and Principal Position Year Salary Bonus Options/SARS(#)
Martin H. Meyerson, Co-Chairman 2003 $ - $ - -
2002 100,000 - 1,513
2001 600,000 200,000 24,000
Kenneth J. Koock, Vice Chairman (1) 2003 44,400 - 444
2002 279,858 - 2,751
2001 1,307,558 - 1,500
Eugene M. Whitehouse, Senior Vice President
and Chief Operating Officer (2) 2003 - - -
2002 169,234 - 76,238
2001 177,002 75,000 24,354
Jeffrey E. Meyerson, Vice President, Trading 2003 157,361 - 101,501
2002 167,361 - -
2001 336,578 - 24,000
Mark D. Goldsmith, Treasurer and Chief Financial 2003 153,379 - 26,238
Officer (3)
John P. Leighton, Co-Chairman, Chief Executive
Officer and President (4) 2003 - - -
Jeffrey M. Hoobler, Senior Vice President, 2003 13,846 - 75,000
Managing Director of Sales and Marketing (5)
(1) Mr. Koock resigned his employment with the Company on March 21, 2003.
(2) Mr. Whitehouse passed away on January 10, 2002.
(3) Mr. Goldsmith commenced employment with the Company on March 1, 2002.
(4) Mr. Leighton commenced employment with the Company on January 14,
2003. No compensation was paid during the fiscal year ended January
31, 2003. Based on Mr. Leighton's compensation arrangements, he would
have been named in the Summary Compensation Table had he been employed
for the last full fiscal year.
(5) Mr. Hoobler commenced employment with the Company on January 14, 2003.
Based on Mr. Hoobler's compensation arrangements, he would have been
named in the Summary Compensation Table had he been employed for the
last full fiscal year.
This table does not specify "other compensation" since it is the lesser of
either $50,000 or 10% of the total salary and bonus reported for each officer.
Mr. Koock does not receive a base salary. His compensation is based on
commissions earned. Mr. Whitehouse and Mr. Jeffrey Meyerson earned compensation
based on commissions earned in addition to their contracted salary and incentive
amounts.
OPTION GRANTS IN LAST FISCAL YEAR
Number of % of Total
Securities Options Potential Realizable Value at
Underlying Granted to Exercise Assumed Annual Rates of Stock
Options Employees in Price Expiration Price Appreciation for Option Term
Name Granted Fiscal Year ($/sh) Date 5%($) 10%($)
Martin H. Meyerson - - - - - -
Kenneth J. Koock 444 0.1 $.41 1/1/08 232 293
Eugene M. Whitehouse - - - - - -
Jeffrey E. Meyerson 100,000 17.0 $.43 1/8/08 54,880 69,252
Jeffrey E. Meyerson 1,501 0.3 $.41 1/1/08 785 991
43
John P. Leighton - - - - - -
Jeffrey M. Hoobler 75,000 12.7 $.48 1/14/08 45,946 57,978
Mark D. Goldsmith 1,238 0.2 $.41 1/1/08 648 817
Mark D. Goldsmith 25,000 4.2 $.43 1/8/08 13,720 17,313
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
There were no option exercises during the fiscal year ended January 31,
2003 by the executive officers named in the Summary Compensation Table. The
following table contains information concerning the number and value, at January
31, 2003 of unexercised options held by executive officers named in the Summary
Compensation Table:
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at FY-End(#) Options at FY-End ($)
Name (Exercisable/Unexercisable) (Exercisable/Unexercisable)
Martin H. Meyerson 239,604/0 560/0
Kenneth J. Koock 299,921/0 18,568/0
Jeffrey E. Meyerson 27,128/100,000 1,477/60,000
John P. Leighton 0/0 0/0
Jeffrey M. Hoobler 0/75,000 0/41,250
Mark D. Goldsmith 1,238/25,000 768/15,000
The following table sets forth information as of January 31, 2003 with
respect to compensation plans (including individual compensation arrangements)
under which shares of the Company's Common Stock are authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
Equity compensation plans
approved by security
holders 1,940,881 $2.41 414,840
Equity compensation plans
not approved by security
holders 0 N/A 0
Total 1,940,881 $2.41 414,840
The above table does not include a Stock Purchase Warrant to purchase 1,000,000
shares of Common Stock at an exercise price of $.40 per share issued to John P.
Leighton on January 14, 2003 (the "Warrant"). The Warrant will be submitted to
the shareholders of the Company for their approval at the next Annual Meeting of
Shareholders.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with John Leighton and Jeffrey M.
Hoobler.
44
John P. Leighton is employed as Chief Executive Officer. The agreement
provides for base compensation of $450,000 for the first year of the agreement
and $675,000 per year for the second and third years of the agreement. The
agreement expires in January 2006. Mr. Leighton is eligible, during the term of
the agreement, to receive a semi-annual cash bonus, subject to the Company's
achieving certain pre-tax earnings, of 11% of the Company's pre-tax earnings.
Mr. Leighton is also eligible to receive a performance bonus of $1,000,000 of
the Company's revenues during any 12-month period during the term of the
agreement are equal to or greater than $50,000,000 (but less than $100,000,000)
and the Company has pre-tax profit of $3,000,000 for such period. Mr. Leighton
can only receive such performance bonus for reaching the $50,000,000 target once
during the term of the agreement. If Mr. Leighton receives the $1,000,000
performance bonus, he will be eligible to receive an additional $2,000,000
performance bonus whenever the Company's revenues during any 12-month period
during the term of the agreement exceed $100,000,000 and the Company has
$5,000,000 pre-tax profit for such period. Mr. Leighton can only receive such
additional performance bonus for reaching the $100,000,000 target once during
the term of the agreement. Pursuant to the agreement, Mr. Leighton was issued
750,000 shares of Common Stock. Mr. Leighton was also issued a warrant to
purchase 1,000,000 shares of Common Stock.
During the term of the agreement, if Mr. Leighton introduces the
Company to an unaffiliated third-party which consummates an acquisition
transaction with the Company resulting in a change of control, Mr. Leighton
shall upon the consummation of such transaction, as compensation for such
introduction, pay Mr. Leighton in addition to all compensation provided for in
the agreement and the acceleration of the warrants then held by Mr. Leighton, an
aggregate sum of (i) $600,000 and (ii) the sum determined by multiplying (x) the
number of unexercised warrants then held by Mr. Leighton, whether vested or not,
by (y) the difference between (A) the per share price paid in the transaction
(or the fair market value of the non-cash consideration paid if the purchase
price is not paid in cash) and (B) the average closing price of the Common Stock
for the last 45 days prior to the consummation of the transaction. Upon payment
of the amounts set forth above and any other amounts then due Mr. Leighton under
the agreement, with the consent of the acquiring entity, the agreement shall
cease to have any further binding effect.
If payment or accrual for payment of the amount due Mr. Leighton
pursuant to an incentive bonus or a performance bonus would cause the Company to
have less than $1,500,000 in Net Capital (as defined by the rules promulgated
under the Securities Exchange Act of 1934, as amended), the Company is only
required to pay Mr. Leighton, or accrue for payment, such amount of the
incentive bonus or performance bonus as would allow the Company to maintain Net
Capital of not less than $1,500,000 and the balance of such incentive bonus or
performance bonus will be forfeited by Mr. Leighton.
Notwithstanding the above, in no event shall Mr. Leighton's aggregate
annual cash compensation exceed 50% of the Company's pre-tax earnings for any
given year during the term of the agreement.
If Mr. Leighton's agreement is terminated without cause, (i) the
Company will pay Mr. Leighton all base salary that would have been paid to him
if he completed the term of the agreement, (ii) Mr. Leighton will be entitled to
payment of the incentive bonus if the applicable pre-tax earnings target is met;
(ii) Mr. Leighton will be entitled to payment of a performance bonus if the
required revenues targets are achieved, and (iv) the Warrants will be fully
vested. Notwithstanding the foregoing, the Company may satisfy its obligations
to Mr. Leighton by paying him a lump sum of $1,500,000.
Jeffrey M. Hoobler is employed as Executive Vice President and Chief
Operating Officer. The agreement provides for base compensation of $400,000 per
year. The agreement expires in January 2005. In the event the Company
terminates, without cause, Mr. Hoobler, he shall receive the full salary for the
remaining term of the agreement if Mr. Hoobler provides the Company with a
release. If Mr. Hoobler does not provide the Company with a release, he will
receive only salary earned but not paid as of the date of such termination
without cause.
45
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table sets forth information known to the Company, as of April 15,
2003, relating to the beneficial ownership of shares of Common Stock by each
person who is known by the Company to be the 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.
Name and Address of Number of Shares Percent of Shares
Beneficial Owner Beneficially Owned Beneficially Owned
John P. Leighton 3,332,181 36.8
Martin H. Meyerson 1,189,274 13.2
Jeffrey E. Meyerson 620,761 7.0
Kenneth J. Koock 392,546 4.3
Michael T. Dorsey 250,000 2.8
Martin Leventhal 205,000 2.3
Estate of Eugene M. Whitehouse 0 n/a
Bertram Siegel 72,400 *
Alfred T. Duncan 37,500 *
Jeffrey M. Hoobler 37,500 *
Mark D. Goldsmith 9,738 *
All directors and executive officers as a 4,170,414 43.4
group (12 people)
- ----------
* Less than 1%
The number of shares beneficially owned by John P. Leighton includes (i)
1,189,274 shares of Common Stock that Mr. Leighton may acquire from Martin H.
Meyerson upon the exercise of a right of first refusal granted to Mr. Leighton
by Mr. Meyerson (the "Right of First Refusal") and (ii) 2,404,404 shares of
Common Stock (including the 1,189,274 shares of Common Stock referred to in
clause (i) above) over which Mr. Leighton has shared voting power. The number of
shares beneficially owned by Mr. Leighton does not include 1,000,000 shares of
Common Stock which may be acquired by Mr. Leighton pursuant to a Warrant which
will be submitted to shareholders for approval later this year.
The number of shares beneficially owned by Martin H. Meyerson includes 239,604
shares of Common Stock issuable upon exercise of currently exercisable options
but does not include 150,000 shares of Common Stock owned by a trust for the
benefit of members of his family. The shares beneficially owned by Mr. Meyerson
are subject to (i) the Right of First Refusal and (ii) a voting agreement.
The number of shares beneficially owned by Jeffrey E. Meyerson includes 61,128
shares of Common Stock issuable upon exercise of currently exercisable options,
81,300 shares of Common Stock in an IRA account for the benefit of Mr. Meyerson
and 150,000 shares of Common Stock owned by a trust for the benefit of members
of Martin H. Meyerson's family. Mr. Meyerson is a trustee of such trust. The
shares beneficially owned by Mr. Meyerson (including the 150,000 shares of
Common Stock owned by the trust described above) are subject to a voting
agreement.
The number of shares beneficially owned by Michael T. Dorsey includes 50,000
shares of Common Stock issuable upon exercise of currently exercisable options.
46
The number of shares beneficially owned by Kenneth J. Koock includes 299,921
shares of Common Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by Martin Leventhal includes 55,000
shares of Common Stock issuable upon exercise of currently exercisable options
and 150,000 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 Bertram Siegel includes 22,500 shares
of Common Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by Alfred T. Duncan includes 37,500
shares of Common Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by Jeffrey M. Hoobler includes 37,500
shares of Common Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by Mark D. Goldsmith includes 9,738
shares of Common Stock issuable upon exercise of currently exercisable options.
The number of shares beneficially owned by all of our officers and directors as
a group includes 822,891 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 Boulevard, 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.
Item 14. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure the reliability of
financial statements and other disclosures included in this report. Within the
90 days prior to the filing of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information required to be included in the
Company's periodic Securities and Exchange Commission filings.
(b) Changes in Internal Controls
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date the Company carried out its evaluation.
PART IV
Item 15. 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.
47
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
10.4 Letter Agreement, dated as of January 14, 2003, by (2)
and between M.H. MEYERSON & CO., INC. and John P.
Leighton
10.5 Employment Agreement, dated as of January 14, 2003, (2)
by and between M.H. MEYERSON & CO., INC. and John P.
Leighton
10.6 Option Agreement, dated as of January 14, 2003, by (2)
and between M.H. MEYERSON & CO., INC. and John P.
Leighton
10.7 Stock Purchase Warrant dated as of January 14, 2003, (2)
issued by M.H. MEYERSON & CO., INC. to John P.
Leighton
10.8 First Amendment, dated as of January 30, 2003, to (3)
Letter Agreement, dated as of January 14, 2003, by
and between M.H. MEYERSON & CO., INC. and John P.
Leighton
10.9 First Amendment, dated as of January 30, 2003, to (3)
Employment Agreement, dated as of January 14, 2003,
by and between M.H. MEYERSON & CO., INC. and John P.
Leighton
10.10 Termination of Option Agreement, dated as of January (3)
30, 2003, by and between M.H. MEYERSON & CO., INC.
and John P. Leighton
11 Calculation of Earnings Per Share of the Company
23 Consent of Independent Auditors
99.1 Certification of Periodic Report by Chief Executive
Officer
99.2 Certification of Periodic Report by Chief Financial
Officer
- -------------
(1) Incorporated herein by reference from the Registration Statement (Reg.
No. 33-70566) filed by the Company on Form SB-2.
(2) Incorporated herein by reference from the Report on Form 8-K filed by
the Company on January 23, 2003.
(3) Incorporated herein by reference from the Report on Form 8-K filed by
the Company on February 19, 2003.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter of the
fiscal year ended January 31, 2003:
On January 23, 2003, a Form 8-K was filed by the Company under Item 5 "Other
Events and Regulation FD Disclosure."
On February 19, 2003, a Form 8-K was filed by the Company under Item 5" Other
Events and Regulation FD Disclosure."
48
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/ John P. Leighton
----------------------------------
John P. Leighton
Chief Executive Officer and President
Date: May 1, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John P. Leighton Chairman, Chief Executive May 1, 2003
- -------------------- Officer, President and Director
John P. Leighton (Principal Executive Officer)
/s/ Michael T. Dorsey Executive Vice President, General May 1, 2003
- ---------------------- Counsel, Director of New Product
Michael T. Dorsey Development and Director
/s/ Jeffrey M. Hoobler Executive Vice President, May 1, 2003
- ---------------------- Chief Operating Officer and
Jeffrey M. Hoobler Director
/s/ Mark Goldsmith Treasurer and Chief Financial May 1, 2003
- ------------------ Officer (Principal Financial
Mark Goldsmith Officer)
/s/ Jeffrey E. Meyerson Vice President, Trading and May 1, 2003
- ----------------------- Director
Jeffrey E. Meyerson
/s/ Bertram Siegel Director May 1, 2003
- ------------------
Bertram Siegel
/s/ Martin Leventhal Director May 1, 2003
- --------------------
Martin Leventhal
/s/ Alfred T. Duncan Director May 1, 2003
- --------------------
Alfred T. Duncan
49
CERTIFICATIONS
I, John P. Leighton, certify that:
1. I have reviewed this annual report on Form 10-K of M.H. MEYERSON &
CO., INC.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in any other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 1, 2003
/s/ John P. Leighton
Chief Executive Officer
50
CERTIFICATIONS
I, Mark D. Goldsmith, certify that:
1. I have reviewed this annual report on Form 10-K of M.H. MEYERSON &
CO., INC.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in any other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 1, 2003
/s/ Mark D. Goldsmith
Chief Financial Officer
51