10-Q 1 file001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2001 Commission File Number 0-25056 MAXCOR FINANCIAL GROUP INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 59-3262958 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Two World Trade Center New York, New York 10048 --------------------------------------- (Address of principal executive office) (212) 748-7000 ----------------------- (Registrant's telephone number, including area code) Indicate by check mark whether 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 registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of common stock, par value $.001 per share, of registrant outstanding as of May 11, 2001 was 7,543,493. Page 1 of 20 Pages MAXCOR FINANCIAL GROUP INC. INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): 3 Consolidated Statements of Financial Condition 4 Consolidated Statements of Operations 6 Consolidated Statements of Changes in Stockholders' Equity 7 Consolidated Statements of Cash Flows 8 Notes to the Consolidated Financial Statements 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 Page 2 of 20 Pages PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) MAXCOR FINANCIAL GROUP INC. CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (Unaudited) Page 3 of 20 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION March 31, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS ------ Cash and cash equivalents $ 19,186,720 $ 21,465,004 Deposits with clearing organizations 6,330,709 6,334,093 Receivable from broker-dealers and customers 18,682,250 15,553,303 Securities owned, held at clearing firm 25,034,702 10,720,211 Prepaid expenses and other assets 4,650,486 5,078,271 Deferred tax asset 2,265,044 2,116,581 Equity in affiliated companies 1,421,045 1,552,757 Fixed assets 6,554,773 7,400,494 Intangible assets 1,411,538 1,579,079 ------------ ------------ Total assets $ 85,537,267 $ 71,799,793 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. Page 4 of 20 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ---------------------------------------------- (Continued)
March 31, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000 ------------------------------------ ------------ ------------ (Unaudited) Liabilities: Payable to broker-dealer $ 21,012,388 $ 7,116,240 Accounts payable and accrued liabilities 12,555,856 12,004,494 Accrued compensation payable 13,208,966 15,778,214 Income taxes payable 1,336,277 114,732 Deferred taxes payable 1,023,505 1,078,760 Obligations under capitalized leases 240,276 335,635 Notes payable 1,552,960 1,723,169 ------------ ------------ 50,930,228 38,151,244 ------------ ------------ Minority interest in consolidated subsidiaries 3,476,449 3,407,628 ------------ ------------ Redeemable preferred stock: Series B, 2% cumulative, stated value $1,000, 2,000 shares issued at March 31, 2001 and December 31, 2000 2,000,000 2,000,000 Stockholders' equity: Preferred stock, $.001 par value, 1,000,000 shares authorized; 2,000 shares of Series B issued at March 31, 2001 and December 31, 2000, reported above Common stock, $.001 par value, 30,000,000 shares authorized; 11,392,269 shares issued at March 31, 2001 and December 31, 2000 11,392 11,392 Additional paid-in capital 33,187,415 33,187,415 Treasury stock at cost; 3,779,376 and 3,271,434 shares of common stock held at March 31, 2001 and December 31, 2000, respectively (6,416,308) (5,679,008) Retained earnings (accumulated deficit) 1,511,035 (823,247) Accumulated other comprehensive income: Foreign translation adjustments 1,001,614 1,494,319 Deferred hedging (losses) gains (164,558) 50,050 ------------ ------------ Total stockholders' equity 29,130,590 28,240,921 ------------ ------------ Total liabilities and stockholders' equity $ 85,537,267 $ 71,799,793 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. Page 5 of 20 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended ---------------------------- March 31, March 31, 2001 2000 ------------ ------------ Revenue: Commission income $ 43,267,000 $ 40,634,023 Interest income 642,056 421,713 Other income 1,782,520 2,632,484 ------------ ------------ 45,691,576 43,688,220 ------------ ------------ Costs and expenses: Compensation and related costs 30,994,716 29,771,872 Communication costs 3,139,667 3,520,304 Travel and entertainment 2,114,988 2,106,902 Occupancy costs 1,191,508 1,178,376 Depreciation and amortization 1,051,398 956,615 Clearing fees 855,901 841,521 Interest expense 208,182 138,807 Restructuring costs 238,400 General, administrative and other expenses 1,642,998 1,461,563 ------------ ------------ 41,199,358 40,214,360 ------------ ------------ Subtotal 4,492,218 3,473,860 Income from equity affiliate 16,124 113,686 ------------ ------------ Income before provision for income taxes and minority interest 4,508,342 3,587,546 Provision for income taxes 1,984,579 1,501,918 ------------ ------------ Income before minority interest 2,523,763 2,085,628 Minority interest in (income) loss of consolidated subsidiaries (179,481) 177,707 ------------ ------------ Net income $ 2,344,282 $ 2,263,335 ============ ============ Weighted average common shares outstanding - basic 7,825,912 8,337,437 Weighted average common shares outstanding - diluted 7,825,912 8,618,880 Basic earnings per share $ .30 $ .27 Diluted earnings per share $ .30 $ .26
The accompanying notes are an integral part of these consolidated financial statements. Page 6 of 20 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIODS ENDED DECEMBER 31, 2000 AND (UNAUDITED) MARCH 31, 2001
Retained Accumulated Additional Earnings Other Comprehensive Common Paid-in Treasury (Accumulated Comprehensive Income Stock Capital Stock Deficit) Income Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1999 $ 11,392 $33,187,415 ($5,454,036) ($2,608,011) $ 2,282,836 $27,419,596 Comprehensive income Net income for the year ended December 31, 2000 $ 2,002,099 2,002,099 2,002,099 Foreign translation adjustment (net of income tax benefit of $171,940) (788,517) (788,517) (788,517) Deferred hedging gain (net of income tax expense of $12,519) 50,050 50,050 50,050 ----------- Comprehensive income $ 1,263,632 =========== Acquisition of treasury stock (894,494) (894,494) Issuance of shares from treasury stock 669,522 (177,335) 492,187 Redeemable preferred stock dividends (40,000) (40,000) ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2000 11,392 33,187,415 (5,679,008) (823,247) 1,544,369 28,240,921 Comprehensive income Net income for the three months ended March 31, 2001 $ 2,344,282 2,344,282 2,344,282 Foreign translation adjustment (net of income tax benefit of $81,917) (492,705) (492,705) (492,705) Deferred hedging Current period loss (net of income tax benefit of $79,913) (202,082) (202,082) (202,082) Reclassification to earnings (net of income tax expense of $3,131) (12,526) (12,526) (12,526) ----------- Comprehensive income $ 1,636,969 =========== Acquisition of treasury stock (737,300) (737,300) Redeemable preferred stock dividends (10,000) (10,000) ----------- ----------- ----------- ----------- ----------- ----------- Balance at March 31, 2001 $ 11,392 $33,187,415 ($6,416,308) $ 1,511,035 $ 837,056 $29,130,590 =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements Page 7 of 20 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended ---------------------------- March 31, March 31, 2001 2000 ------------ ------------ Cash flows from operating activities: Net income $ 2,344,282 $ 2,263,335 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,051,398 956,615 Provision for doubtful accounts 40,744 (26,102) Gain on partial sale of subsidiary (2,235,511) Net gain on disposal of fixed assets (3,937) (1,000) Minority interest in earnings (losses) of consolidated subsidiaries 257,335 (102,306) Undistributed earnings of unconsolidated subsidiaries (36,379) (118,458) Deferred hedging loss (214,608) Deferred income taxes (201,422) 729,901 Change in assets and liabilities: Decrease (increase) in deposits with clearing organizations 3,384 (84,596) Increase in receivable from broker-dealers and customers (3,584,130) (4,919,308) (Increase) decrease in securities owned, held at clearing firm (14,314,491) 6,544,253 Decrease in prepaid expenses and other assets 354,925 202,089 Increase (decrease) in payable to broker-dealer 13,896,148 (5,977,929) Increase (decrease) in accounts payable and accrued liabilities 867,855 (826,422) Decrease in accrued compensation payable (2,219,691) (1,133,886) Increase (decrease) in income taxes payable 1,238,482 (203,024) ------------ ------------ Net cash used in operating activities (520,105) (4,932,349) ------------ ------------ Cash flows from investing activities: Purchase of fixed assets (181,810) (892,941) Proceeds from the sale of fixed assets 53,578 12,968 Proceeds from the partial sale of subsidiary 2,399,002 ------------ ------------ Net cash (used in) provided by investing activities (128,232) 1,519,029 ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. Page 8 of 20 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
For the Three Months Ended ---------------------------- March 31, March 31, 2001 2000 ------------ ------------ Cash flows from financing activities: Net borrowings under revolving credit facility 558,702 Repayment of notes payable (124,069) (114,399) Repayment of obligations under capitalized leases (80,712) (49,792) Acquisition of treasury stock (737,300) Redeemable preferred stock dividends (10,000) (10,000) ------------ ------------ Net cash (used in) provided by financing activities (952,081) 384,511 ------------ ------------ Effect of exchange rate changes on cash (677,866) (327,865) ------------ ------------ Net decrease in cash and cash equivalents (2,278,284) (3,356,674) Cash and cash equivalents at beginning of period 21,465,004 20,054,275 ------------ ------------ Cash and cash equivalents at end of period $ 19,186,720 $ 16,697,601 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ 195,010 $ 126,341 Income taxes paid 298,867 435,749 Non-cash financing activities: Conversion of account payable to note payable 318,220
The accompanying notes are an integral part of these consolidated financial statements. Page 9 of 20 Pages MAXCOR FINANCIAL GROUP INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION: ----------------------------------------------- Maxcor Financial Group Inc. ("MFGI") is a publicly-held financial services holding company that was incorporated in Delaware in 1994. In August 1996, MFGI acquired Euro Brokers Investment Corporation ("EBIC"), a privately held international and domestic inter-dealer broker. In August 2000, MFGI acquired Tradesoft Technologies, Inc. ("Tradesoft"), a privately held developer of e-commerce technology. EBIC, incorporated in December 1986 in connection with a management buyout of predecessor operations dating to 1970, through its subsidiaries and affiliates is primarily an inter-dealer broker of money market instruments, derivative products and selected securities, with principal offices in New York, London and Tokyo, other offices in Switzerland and Mexico, and correspondent relationships with other brokers throughout the world. Tradesoft is a developer of leading-edge e-commerce trading systems and matching engines to enable customers to deal electronically through the automation of order entry, price distribution, order matching and straight through processing. The consolidated financial statements include the accounts of MFGI and its majority-owned subsidiaries and other entities over which it exercises control (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. Investments in unconsolidated affiliates where the Company may exercise significant influence over operating and financial policies have been accounted for using the equity method. The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. For further information, refer to the audited consolidated financial statements of the Company included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 ("2000 Form 10-K"). Page 10 of 20 Pages NOTE 2 - EARNINGS PER SHARE: --------------------------- The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three months ended March 31, 2001 and March 31, 2000: Three Months Ended -------------------------- March 31, March 31, 2001 2000 ----------- ----------- Numerator (basic and diluted calculation): Net income $ 2,344,282 $ 2,263,335 Less redeemable preferred stock dividends (10,000) (10,000) ----------- ----------- Net income available to common stockholders 2,334,282 2,253,335 Denominator: Weighted average common shares outstanding - basic calculation 7,825,912 8,337,437 Dilutive effect of stock options 281,443 ----------- ----------- Weighted average common shares outstanding - diluted calculation 7,825,912 8,618,880 Earnings per share: Basic $ .30 $ .27 Diluted $ .30 $ .26 Antidilutive common stock equivalents: Options 1,780,000 385,000 Warrants 734,980 734,980 NOTE 3 - STOCKHOLDERS' EQUITY: ----------------------------- PREFERRED STOCK: --------------- Pursuant to the Company's adoption of a shareholder rights plan (the "Plan") in December 1996, the Company authorized the creation of Series A Junior Participating Preferred Stock and reserved 300,000 shares thereof for issuance upon exercise of the rights that, pursuant to the Plan, were at the time dividended to holders of common stock. At March 31, 2001 and December 31, 2000, the Company had outstanding 2,000 shares of Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") with an aggregate stated value of $2,000,000. COMMON STOCK AND WARRANTS: ------------------------- At December 31, 2000, the Company had outstanding 8,120,835 shares of common stock and held 3,271,434 shares in treasury. In January 2001, the Company completed the repurchase of the full 833,744 shares originally authorized in May 2000 and authorized the repurchase of an additional 787,869 shares, or 10% of the then outstanding shares, with purchases to be made from time to time as market and business conditions warrant, in open market, negotiated or block transactions. Total repurchases during the three months ended March 31, 2001 amounted to 507,942 shares at an aggregate price of $737,300, or $1.45 per share, with 265,800 of such shares accounted for under the January 2001 authorization. Page 11 of 20 Pages NOTE 3 - STOCKHOLDERS' EQUITY (CONTINUED): ----------------------------------------- As a result of these activities, at March 31, 2001 the Company had outstanding 7,612,893 shares of common stock and held 3,779,376 shares in treasury. At March 31, 2001 and December 31, 2000, the Company had outstanding 685,948 redeemable common stock purchase warrants (issued in connection with the Company's initial public offering) and 49,032 Series B redeemable common stock purchase warrants (issued in connection with the Company's acquisition of EBIC and economically identical in their terms to the other series of warrants). At March 31, 2001 and December 31, 2000, the Company had 734,980 shares of common stock reserved for issuance upon exercise of all warrants and an additional 1,800,000 shares reserved for issuance upon exercise of options that have been granted pursuant to the Company's 1996 Stock Option Plan. NOTE 4 - NET CAPITAL REQUIREMENTS: --------------------------------- The Company's U.S. broker-dealer subsidiary, Maxcor Financial Inc. ("MFI"), is subject to the Securities and Exchange Commission's Uniform Net Capital Rule (rule 15c3-1), which requires the maintenance of minimum regulatory net capital. MFI has elected to use the alternative method, as permitted by the rule, which requires that MFI maintain minimum regulatory net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit items arising from customer transactions, as defined; or 4% of the funds required to be segregated pursuant to the Commodity Exchange Act and regulations thereunder. MFI's membership in the Government Securities Clearing Corporation ("GSCC") requires it to maintain minimum excess regulatory net capital of $10,000,000. In addition, a number of the Company's other subsidiaries operating in various countries are subject to capital rules and regulations issued by the designated regulatory authorities to which they are subject. At March 31, 2001, MFI's regulatory net capital was approximately $12,309,000 and exceeded the minimum regulatory requirement under rule 15c3-1 of $250,000 by approximately $12,059,000. NOTE 5 - SEGMENT REPORTING: -------------------------- In accordance with the requirements for interim period reporting under Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), the Company is reporting the operating revenues (commission income, trading gains and information sales revenue) and net income (loss) attributable to its operating segments. The Company has defined its operating segments based upon geographic location. Although all segments are engaged in the inter-dealer brokerage business, they are managed separately to reflect their unique market, employment and regulatory environments. The reportable segments for the three months ended March 31, 2001 and March 31, 2000 as defined by SFAS 131 consist of the United States, United Kingdom, Japan and Switzerland. United States amounts are principally derived from the Company's New York office, but include all U.S. based operations. Page 12 of 20 Pages NOTE 5 - SEGMENT REPORTING (CONTINUED): -------------------------------------- Japan amounts include the consolidated results of operations of a derivatives brokering venture in Tokyo (the "Tokyo Partnership"), with net income (loss) amounts net of minority interests in the Tokyo Partnership. United Kingdom amounts include the consolidated balances of Euro Brokers Finacor Limited ("EBFL"), the Company's combined venture with Finacor S.A. ("Finacor"), with net income amounts net of Finacor's minority interest. Other geographic segments which did not meet the SFAS 131 materiality thresholds for the year ended December 31, 2000 and which are not expected to meet these thresholds for the year ended December 31, 2001 have been included in "All Other."
United United States Kingdom Japan Switzerland All Other Total ----------- ----------- ----------- ----------- ----------- ----------- Three months ended March 31, 2001 Operating revenues $25,428,874 $13,710,909 $ 4,817,257 $ 357,822 $ 729,069 $45,043,931 Net income (loss) 1,657,176 726,686 (55,720) 56,383 (40,243) 2,344,282 Three months ended March 31, 2000 Operating revenues $20,308,904 $14,399,872 $ 5,232,080 $ 186,901 $ 1,015,091 $41,142,848 Net income (loss) 974,238 51,164 1,495,666 (160,387) (97,346) 2,263,335
Page 13 of 20 Pages ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Commission income for the three months ended March 31, 2001 increased $2,632,977 to $43,267,000, compared to $40,634,023 for the comparable period in 2000, primarily from increased brokerage in New York. This increase principally reflected increased brokerage in interest rate derivatives and brokerage derived from a newly hired U.S. government agency securities brokerage team. In London, improved brokerage was offset by the currency effects of translating weakened British pound sterling amounts to U.S. dollars. Interest income for the three months ended March 31, 2001 increased $220,343 to $642,056, compared to $421,713 for the three months ended March 31, 2000, reflecting an increase in the average inventory of municipal securities held. Other income for the three months ended March 31, 2001 decreased $849,964, to $1,782,520, compared to $2,632,484 for the three months ended March 31, 2000, primarily due to the inclusion of a gain of approximately $2.2 million, net of related costs, during the prior period related to the partial sale of the Company's interest in the Tokyo Partnership. This decrease was offset in part by an increase in trading gains on municipal securities transactions. Compensation and related costs for the three months ended March 31, 2001 increased $1,222,844 to $30,994,716, compared to $29,771,872 for the three months ended March 31, 2000. This increase was primarily the result of increased employment costs in New York of approximately $3.2 million, due primarily to increased operating revenues, and was offset in part by decreased employment costs in London of approximately $1.5 million, reflecting both cost reduction efforts and the effect of translating weakened British pound sterling amounts to U.S. dollars. As a percentage of operating revenues, compensation and related costs decreased to 68.8% for the three months ended March 31, 2001, as compared to 72.4% for the three months ended March 31, 2000, primarily reflective of reductions in fixed salary costs in London and the impact of improved operating revenues on fixed salary costs in New York. Communication costs for the three months ended March 31, 2001 decreased $380,637 to $3,139,667, compared to $3,520,304 for the three months ended March 31, 2000, primarily as a result of cost reduction efforts in EBFL throughout 2000 and into 2001, including the closing of EBFL's branch office in Paris, and the effect of translating weakened British pound sterling amounts to U.S. dollars. Travel and entertainment costs were comparable for the three months ended March 31, 2001 and March 31, 2000, at $2,114,988 and $2,106,902, respectively. As a percentage of operating revenues, travel and entertainment costs decreased to 4.7% for the three months ended March 31, 2001, as compared to 5.1% for the three months ended March 31, 2000, reflective of management's continued efforts to control these costs. Page 14 of 20 Pages Occupancy costs represent expenses incurred in connection with various operating leases for the Company's office premises and include base rent and related escalations, maintenance, electricity and real estate taxes. These costs were comparable for the three months ended March 31, 2001 and March 31, 2000, at $1,191,508 and $1,178,376, respectively. Depreciation and amortization expense consists principally of depreciation of communication and computer equipment and leased automobiles and amortization of leasehold improvements, software, goodwill and other intangible assets. For the three months ended March 31, 2001, depreciation and amortization increased $94,783 to $1,051,398, compared to $956,615 for the three months ended March 31, 2000, primarily as a result of an increase in amortizable software, goodwill and other intangible assets, offset in part by a reduction in depreciable equipment. The increase in amortizable software, goodwill and other intangible assets primarily reflects the effects of the August 2000 Tradesoft acquisition, while the decrease in depreciable equipment reflects in part the Company's increased use of operating leases to finance the upgrading of communication and information systems. Clearing fees are fees for transaction settlements and credit enhancements, which generally are charged by clearing institutions through which the Company processes riskless principal securities transactions on a fully matched basis. These expenses were comparable for the three months ended March 31, 2001 and March 31, 2000, at $855,901 and $841,521, respectively. Interest expense for the three months ended March 31, 2001 increased $69,375 to $208,182, compared to $138,807 for the comparable period in 2000, primarily as a result of an increase in average margin borrowings to finance municipal securities positions. During the three months ended March 31, 2000, the Company incurred restructuring costs of $238,400 relating to the planned closing of the Company's Toronto-based subsidiary, which ultimately occurred in June 2000. These costs primarily consisted of employee severance, the disposal/write-off of fixed assets and lease termination costs. General, administrative and other expenses include such expenses as corporate insurance, office supplies and expenses, professional fees, food costs and dues to various industry associations. For the three months ended March 31, 2001, these expenses increased $181,435 to $1,642,998, as compared to $1,461,563 for the three months ended March 31, 2000, primarily as a result of an increase in professional fees. Income from equity affiliate represents the Company's share of the income or loss realized by its 15% equity affiliate, Yagi Euro Nittan Corporation ("Yagi Euro"). For the three months ended March 31, 2001 this item decreased $97,562 to $16,124, compared to $113,686 for the three months ended March 31, 2000, primarily as a result of the inclusion during the prior period of the Company's share of a one-time, after-tax gain of approximately $86,000 realized by Yagi Euro on its restructuring activities. Page 15 of 20 Pages Provision for income taxes for the three months ended March 31, 2001 increased $482,661 to $1,984,579, compared to $1,501,918 for the three months ended March 31, 2000, primarily due to increased levels of pre-tax income. For the three months ended March 31, 2001, minority interest in consolidated subsidiaries resulted in a reduction of net income from such subsidiaries of $179,481, as compared to a reduction of net losses from such subsidiaries of $177,707 for the comparable period in 2000, primarily as a result of the improved profitability of EBFL, the Company's combined venture with Finacor in London. LIQUIDITY AND CAPITAL RESOURCES A substantial portion of the Company's assets, similar to other brokerage firms, is liquid, consisting of cash, cash equivalents and assets readily convertible into cash, such as receivables from broker-dealers and customers and securities owned. Cash and cash equivalents and accrued compensation payable at March 31, 2001 reflect reductions from levels at December 31, 2000, principally due to the timing of employee bonus payments, which occurred in February 2001. Securities owned principally reflect municipal security positions taken in connection with the Company's brokerage of municipal securities business. Positions are generally held for short periods of time and for the purpose of facilitating anticipated customer needs and are generally financed by margin borrowings from a broker-dealer that clears these transactions on the Company's behalf on a fully-disclosed basis. At March 31, 2001, as reflected on the Consolidated Statements of Financial Condition, the Company had net assets relating to its municipal securities business of approximately $4.0 million, reflecting securities owned of approximately $25.0 million, financed by a payable to its clearing brokers of approximately $21.0 million. MFI is a member of the GSCC for the purpose of clearing U.S. Treasury repurchase agreements. Pursuant to such membership, MFI is required to maintain excess regulatory net capital of $10,000,000, including a deposit of $5,000,000. In addition, MFI's clearing arrangements require certain minimum collateral deposits with its clearing firms. The aforementioned deposits have been reflected as deposits with clearing organizations on the Consolidated Statements of Financial Condition. At March 31, 2001, the Company did not have a loan outstanding under its revolving credit facility with General Electric Capital Corporation ("GECC"). The facility provides for borrowings of up to $5 million, expires on June 17, 2004 and is secured by substantially all the assets of Euro Brokers Inc. ("EBI"), a U.S. subsidiary. The borrowing availability under the facility (which approximated $3.9 million at March 31, 2001) is determined based upon the level and condition of the billed accounts receivable of EBI. The agreement with GECC contains certain covenants, which require EBI, and the Company as a whole, to maintain certain financial ratios and conditions. Page 16 of 20 Pages Notes payable at March 31, 2001 of approximately $1.6 million reflects the remaining principal installments of approximately $700,000 due on a fixed rate note payable to GECC issued in December 1997, which is secured by all owned equipment of EBI and is payable in monthly installments through December 2002, and subordinated notes issued by EBFL to Monecor (London) Limited ("Monecor"), a subsidiary of Finacor and the direct minority shareholder of EBFL, in the aggregate amount of (pound)600,000 (approximately $850,000 at March 31, 2001), payable upon three months prior notice by EBFL or Monecor and with prior regulatory approval. The Series B Preferred Stock, with an aggregate stated value of $2,000,000, is redeemable at any time at the Company's option and is subject to mandatory redemption on October 1, 2008 or within 60 days of the disposition of the Company's investment in Yagi Euro, the current holder. All payments required under the terms of the loan, notes and Series B Preferred Stock are expected to be paid in timely fashion from the Company's resources. As of March 31, 2001, the Company had authorization remaining for the repurchase of up to 521,889 shares of its common stock under the repurchase program expansion approved by its Board of Directors in January 2001. Purchases are to be made from time to time as market and business conditions warrant, in open market, negotiated or block transactions. Purchases are anticipated to be funded using the Company's existing cash resources, including available borrowings under the revolving credit facility with GECC. The Company and its subsidiaries, in the ordinary course of their business, are subject to extensive regulation at international, federal and state levels by various regulatory bodies which are charged with safeguarding the integrity of the securities and other financial markets and protecting the interest of customers. The compliance requirements of these different regulatory bodies may include, but are not limited to, net capital or stockholders' equity requirements. The Company has historically met regulatory net capital and stockholders' equity requirements and believes it will be able to continue to do so in the future. FORWARD-LOOKING STATEMENTS Certain statements contained in this Item 2 and elsewhere in this report, as well as other oral and written statements made by the Company to the public, contain and incorporate by reference forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Wherever possible, the Company has identified these forward-looking statements by words such as "believes," "anticipates," "expects," "intends" and similar phrases. Such forward-looking statements, which describe the Company's current beliefs concerning future business conditions and the outlook for the Company, are subject to significant uncertainties, many of which are beyond the control of the Company. Actual results or performance could differ materially from that expected by the Company. Uncertainties include factors such as market and economic conditions, the success of technology development and deployment, the status of relationships with employees, clients, business partners and clearing firms, possible third-party litigations or other unanticipated contingencies, the actions of competitors and government Page 17 of 20 Pages regulatory changes. For a fuller description of these and additional uncertainties, reference is made to the "Competition," "Regulation," "Cautionary Statements" and "Quantitative and Qualitative Disclosures about Market Risk" sections of the Company's 2000 Form 10-K and to the Company's subsequent filings with the Securities and Exchange Commission. The forward-looking statements made herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company's market risk analysis did not materially change from the market risk analysis as of December 31, 2000 presented in the Company's 2000 Form 10-K. Page 18 of 20 Pages PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (b) Reports on Form 8-K During the three months ended March 31, 2001, the Company filed one current report on Form 8-K, dated February 6, 2001. The Form 8-K attached three press releases that respectively reported on the expansion of the Company's stock repurchase program, the Company's preliminary 2000 fourth quarter results and the commencement by a Company subsidiary of a brokerage service in U.S. government agency debt. Page 19 of 20 Pages SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 15, 2001 MAXCOR FINANCIAL GROUP INC. (Registrant) /s/ GILBERT D. SCHARF ---------------------------------------------- Gilbert D. Scharf, Chairman of the Board, President and Chief Executive Officer /s/ KEITH E. REIHL ---------------------------------------------- Keith E. Reihl, Chief Financial Officer and Director Page 20 of 20 Pages