SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended June 30, 2004
| ¨ | 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: 1-15831
MCF CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 11-2936371 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
| 601 Montgomery Street, 18th Floor San Francisco, CA |
94111 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(415) 248-5600
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨
The number of shares of Registrant’s common stock outstanding as of August 3, 2004 was 57,275,247.
For the Six Months Ended June 30, 2004
| Page No. | ||
| PART I FINANCIAL INFORMATION |
||
| ITEM 1. Financial Statements (unaudited) |
||
| 3 | ||
| Condensed Consolidated Statements of Financial Condition as of June 30, 2004 and December 31, 2003 |
4 | |
| Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2004 and 2003 |
5 | |
| 7 | ||
| ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 | |
| ITEM 3. Quantitative and Qualitative Disclosures About Market Risk |
26 | |
| ITEM 4. Controls and Procedures |
27 | |
| PART II OTHER INFORMATION |
||
| ITEM 1. Legal Proceedings |
28 | |
| 29 | ||
| ITEM 6. Exhibits and Reports on Form 8-K |
30 | |
| 31 | ||
| Certifications |
||
2
Item 1. Financial Statements (unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, 2004 |
June 30, 2003 |
June 30, 2004 |
June 30, 2003 |
|||||||||||||
| Revenue: |
||||||||||||||||
| Commissions |
$ | 5,059,181 | $ | 1,722,758 | $ | 10,965,245 | $ | 3,002,599 | ||||||||
| Principal transactions |
484,042 | 516,183 | 1,108,520 | 731,523 | ||||||||||||
| Investment banking |
3,449,563 | 340,865 | 8,137,257 | 712,740 | ||||||||||||
| Other |
17,932 | — | 21,972 | — | ||||||||||||
| Total revenue |
9,010,718 | 2,579,806 | 20,232,994 | 4,446,862 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Compensation and benefits |
6,182,080 | 1,778,884 | 13,783,260 | 3,166,820 | ||||||||||||
| Brokerage and clearing fees |
582,106 | 263,533 | 1,299,655 | 566,053 | ||||||||||||
| Professional services |
378,549 | 144,886 | 633,047 | 228,975 | ||||||||||||
| Occupancy and equipment |
224,601 | 85,809 | 376,872 | 159,981 | ||||||||||||
| Communications and technology |
336,479 | 200,121 | 601,759 | 384,942 | ||||||||||||
| Depreciation and amortization |
33,921 | 17,049 | 57,861 | 32,279 | ||||||||||||
| Other |
720,594 | 343,248 | 1,238,629 | 780,061 | ||||||||||||
| Total operating expenses |
8,458,330 | 2,833,530 | 17,991,083 | 5,319,111 | ||||||||||||
| Operating income (loss) |
552,388 | (253,724 | ) | 2,241,911 | (872,249 | ) | ||||||||||
| Interest income |
25,695 | 7,633 | 35,717 | 11,734 | ||||||||||||
| Interest expense |
(18,521 | ) | (1,083,990 | ) | (77,197 | ) | (1,296,061 | ) | ||||||||
| Gain on retirement of convertible note payable |
— | 3,088,230 | — | 3,088,230 | ||||||||||||
| Income before income taxes |
559,562 | 1,758,149 | 2,200,431 | 931,654 | ||||||||||||
| Income tax expense |
(66,897 | ) | — | (463,345 | ) | — | ||||||||||
| Net income |
$ | 492,665 | $ | 1,758,149 | $ | 1,737,086 | $ | 931,654 | ||||||||
| Earnings per share: |
||||||||||||||||
| Basic |
$ | 0.01 | $ | 0.05 | $ | 0.03 | $ | 0.01 | ||||||||
| Diluted |
$ | 0.01 | $ | 0.04 | $ | 0.02 | $ | 0.01 | ||||||||
| $ | ||||||||||||||||
| Weighted average common shares outstanding: |
||||||||||||||||
| Basic |
56,787,188 | 26,120,020 | 55,666,436 | 24,827,978 | ||||||||||||
| Diluted |
79,940,980 | 32,846,345 | 78,682,847 | 27,286,542 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
| June 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | 8,452,226 | $ | 6,142,958 | ||||
| Securities owned: |
||||||||
| Marketable, at fair value |
1,246,476 | 608,665 | ||||||
| Not readily marketable, at estimated fair value |
870,898 | 637,533 | ||||||
| Restricted cash |
500,000 | 500,000 | ||||||
| Due from clearing broker |
1,437,115 | 775,697 | ||||||
| Accounts receivable, net |
2,409,674 | 498,236 | ||||||
| Equipment and fixtures, net |
361,934 | 192,421 | ||||||
| Debt issuance costs |
— | 23,340 | ||||||
| Prepaid expenses and other assets |
519,202 | 325,096 | ||||||
| Total assets |
$ | 15,797,525 | $ | 9,703,946 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Accounts payable |
$ | 443,164 | $ | 179,620 | ||||
| Commissions payable |
2,079,474 | 1,006,192 | ||||||
| Accrued liabilities |
2,410,464 | 1,149,321 | ||||||
| Due to clearing and other brokers |
107,999 | 154,995 | ||||||
| Securities sold, not yet purchased |
545 | 225 | ||||||
| Capital lease obligation |
152,799 | 24,401 | ||||||
| Convertible notes payable, net |
403,089 | 520,612 | ||||||
| Notes payable |
1,364,777 | 1,407,370 | ||||||
| Total liabilities |
6,962,311 | 4,442,736 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, Series A—$0.0001 par value; 2,000,000 shares authorized; 53,722 and 657,201 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively; aggregate liquidation preference of $151,360 |
5 | 66 | ||||||
| Preferred stock, Series B—$0.0001 par value; 12,500,000 shares authorized; 8,750,000 shares issued and 0 shares outstanding as of June 30, 2004 and December 31, 2003; aggregate liquidation preference of $0 |
— | — | ||||||
| Preferred stock, Series C—$0.0001 par value; 14,200,000 shares authorized; 11,800,000 shares issued and 0 shares outstanding as of June 30, 2004 and December 31, 2003; aggregate liquidation preference of $0 |
— | — | ||||||
| Common stock, $0.0001 par value; 300,000,000 shares authorized; 59,829,538 and 55,951,675 shares issued; and 59,749,538 and 55,871,675 shares outstanding as of June 30, 2004 and December 31, 2003, respectively |
5,975 | 5,587 | ||||||
| Treasury stock |
(363,653 | ) | (363,653 | ) | ||||
| Additional paid-in capital |
98,791,329 | 95,870,008 | ||||||
| Deferred compensation |
(2,316,024 | ) | (1,244,490 | ) | ||||
| Accumulated deficit |
(87,282,418 | ) | (89,006,308 | ) | ||||
| Total stockholders’ equity |
8,835,214 | 5,261,210 | ||||||
| Total liabilities and stockholders’ equity |
$ | 15,797,525 | $ | 9,703,946 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 1,737,086 | $ | 931,654 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Gain on retirement of convertible note payable |
— | (3,088,230 | ) | |||||
| Depreciation and amortization |
57,861 | 32,279 | ||||||
| Stock-based compensation |
485,723 | — | ||||||
| Stock options and warrants issued |
9,849 | 76,381 | ||||||
| Amortization of discounts on convertible notes payable |
32,478 | 523,959 | ||||||
| Amortization of debt issuance costs |
23,340 | 538,277 | ||||||
| Gain on securities owned |
(215,420 | ) | — | |||||
| Common stock and stock warrants received for advisory services |
(461,933 | ) | (1,250 | ) | ||||
| Other |
9,611 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Marketable securities owned |
(193,503 | ) | (298,082 | ) | ||||
| Due from clearing broker |
(661,418 | ) | (48,145 | ) | ||||
| Accounts receivable |
(1,911,438 | ) | (26,888 | ) | ||||
| Prepaid expenses and other assets |
(194,106 | ) | (240,535 | ) | ||||
| Accounts payable |
263,544 | 208,830 | ||||||
| Commissions payable |
1,073,282 | 237,959 | ||||||
| Accrued liabilities |
1,261,143 | 321,974 | ||||||
| Due to clearing and other brokers |
(46,996 | ) | (41,205 | ) | ||||
| Deferred revenue |
— | 25,000 | ||||||
| Net cash provided by (used in) operating activities |
1,269,103 | (848,022 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Purchase of equipment and fixtures |
(98,095 | ) | (129,293 | ) | ||||
| Net cash used in investing activities |
(98,095 | ) | (129,293 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from the issuance of common stock |
390,000 | — | ||||||
| Proceeds from the issuance of Series B preferred stock |
— | 1,750,000 | ||||||
| Proceeds from the issuance of Series C preferred stock |
— | 250,000 | ||||||
| Proceeds from the issuance of convertible notes payable |
— | 1,000,000 | ||||||
| Proceeds from the exercise of stock options and warrants |
735,558 | 71,420 | ||||||
| Cash used to retire convertible notes payable |
— | |||||||