FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000
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: 0-29337
SUMMIT BROKERAGE SERVICES, INC.
--------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Florida 59-3041826
------- ----------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
25 Fifth Avenue, Indialantic, Florida 32903
--------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(321) 724-2303
---------------
(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 ___
---
The number of shares of registrant's Common Stock, $.0001 par value,
outstanding as of March 31, 2000 was 4,591,785 shares.
<PAGE>
SUMMIT BROKERAGE SERVICES, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Certified Public Accountant's Review Report 1
Consolidated Statements of Financial Condition 2
Consolidated Statements of Income (Loss) for the Three Months
Ended March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 4-5
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submissions of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>
FORWARD LOOKING STATEMENTS
When used in this report, the words "may, will, expect, anticipate,
continue, estimate, project or intend" and similar expressions identify
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E Securities Exchange Act of 1934 regarding events,
conditions and financial trends that may effect our future plan of operation,
business strategy, operating results and financial position. Current
stockholders and prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Such
factors are described under the headings "Business-Certain Considerations,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the financial statements and their associates notes.
Important factors that may cause actual results to differ from projections
include, for example:
- the success or failure of management's efforts to implement their business
strategy;
- our ability to protect our intellectual property rights;
- our ability to compete with major established companies;
- our ability to attract and retain qualified employees; and
- other risks which may be described in future filings with the SEC.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SUMMIT BROKERAGE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Board of Directors and Shareholders
Summit Brokerage Services, Inc. and Subsidiaries
Indialantic, Florida
We have reviewed the consolidated Statement of Financial Condition of Summit
Brokerage Services, Inc. and Subsidiaries as of March 31, 2000 and the related
consolidated statement of income for the three months ended March 31, 2000, and
the consolidated statement of cash flows for the three months ended March 31,
2000. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the aforementioned financial statements for them to be in conformity
with generally accepted accounting principles.
Hoyman, Dobson & Company, P.A.
Melbourne, Florida
May 18, 2000
1
<PAGE>
<TABLE>
<CAPTION>
SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
- --------------------------------------------------
March31,2000 December 31,
ASSETS (Reviewed) 1999
-------------- ------------
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 176,041 $ 408,957
Cash with clearing broker. . . . . . . . . . . . . . . . . 25,141 25,132
Investments. . . . . . . . . . . . . . . . . . . . . . . . 8,850 -
Commissions receivable . . . . . . . . . . . . . . . . . . 663,607 463,356
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 38,889 27,132
Other receivables, net of $31,040 allowance for
doubtful accounts at March 31, 2000 and December 31, 1999. - -
Due from related party . . . . . . . . . . . . . . . . . . 143,154 102,704
Subscription receivable. . . . . . . . . . . . . . . . . . - 48,000
Secured demand notes . . . . . . . . . . . . . . . . . . . 40,000 -
Property and equipment at cost, less accumulated
depreciation of $78,862 and $70,970 at
March 31, 2000 and December 31, 1999, respectively . . . . 77,583 79,267
Deferred tax asset, net of valuation allowance of $283,860
at March 31, 2000 and December 31, 1999. . . . . . . . . . - -
-------------- ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 1,173,265 $ 1,154,548
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 80,403 $ 63,896
Accrued commission expense . . . . . . . . . . . . . . . . 490,943 645,925
Deferred income. . . . . . . . . . . . . . . . . . . . . . 25,333 24,667
-------------- ------------
Total liabilities . . . . . . . . . . . . . . . . . . 596,679 734,488
-------------- ------------
LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS. . 40,000 -
-------------- ------------
STOCKHOLDERS' EQUITY
Common stock, par value $.0001 per share. Authorized
10,000,000 shares, 4,548,925 shares issued and 4,538,493
shares outstanding at March 31, 2000, 4,541,751 issued
and 4,538,132 outstanding at December 31, 1999 . . . . . . 455 454
Additional paid-in capital . . . . . . . . . . . . . . . . 2,588,344 2,559,389
Unearned stock compensation. . . . . . . . . . . . . . . . (443,181) (517,223)
Treasury stock, at cost. . . . . . . . . . . . . . . . . . (49,688) (18,578)
Subscriptions receivable . . . . . . . . . . . . . . . . . (45,250) (94,000)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . (1,514,094) (1,509,982)
-------------- ------------
Total stockholders' equity. . . . . . . . . . . . . . . 536,586 420,060
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . $ 1,173,265 $ 1,154,548
============== ============
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
- --------------------------------------------
For the Three Months Ended
-----------------------------------
March 31, 2000 March 31, 1999
(Reviewed) (Unaudited)
---------------- ----------------
<S> <C> <C>
REVENUES
Commissions. . . . . . . . . . . . . . . . . $ 1,909,040 $ 575,013
Interest and dividends . . . . . . . . . . . 6,324 2,832
Other. . . . . . . . . . . . . . . . . . . . 10,551 7,578
1,925,915 585,423
---------------- ----------------
EXPENSES
Commissions . . . . . . . . . . . . . . . . 1,454,142 435,309
Occupancy . . . . . . . . . . . . . . . . . 29,634 28,938
Amortization of unearned stock compensation 102,998 40,407
Management fees . . . . . . . . . . . . . . - 284,707
Other operating expenses. . . . . . . . . . 343,253 123,525
---------------- ----------------
1,930,027 912,886
---------------- ----------------
5
<PAGE>
NET LOSS BEFORE INCOME TAXES . . . . . . . . . (4,112) (327,463)
PROVISION FOR INCOME TAXES . . . . . . . . . . - -
NET LOSS . . . . . . . . . . . . . . . . . . . $ (4,112) $ (327,463)
================= ================
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING. . . . 4,542,105 3,948,671
================= ================
EARNINGS PER SHARE . . . . . . . . . . . . . . $ (0.0009) $ (0.0829)
================= ================
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
- -----------------------------------------
For the Three Months Ended
----------------------------------
March 31, 2000 March 31, 1999
(Reviewed) (Unaudited)
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers. . . . . . . . . $ 1,719,340 $ 451,322
Cash paid to suppliers and employees. . . . . (2,009,153) (647,037)
Interest received . . . . . . . . . . . . . . 6,324 2,832
---------------- ----------------
Net cash used in operating activities . . . (283,489) (192,883)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments . . . . . . . . . . . (8,850) -
Purchase of property and equipment. . . . . . (6,208) (6,757)
---------------- ----------------
Net cash used in investing activities . . . (15,058) (6,757)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock . . . . . . . . . . (44,813) -
Issuance of treasury stock . . . . . . . . . . 13,703 -
Proceeds received from subscription receivable 96,750 -
Issuance of common stock . . . . . . . . . . . - 135,000
---------------- ----------------
Net cash provided by financing activities . 65,640 135,000
---------------- ----------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . (232,907) (64,640)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 434,089 132,181
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . $ 201,182 $ 67,541
================ ================
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - Continued
- -------------------------------------------------------
For the Three Months Ended
----------------------------------
March 31, 2000 March 31, 1999
(Reviewed) (Unaudited)
---------------- ----------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . $ (4,112) $ (327,463)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation . . . . . . . . . . . . . . . . . 7,892 7,842
Amortization of unearned stock
compensation/expense. . . . . . . . . . . . 102,998 40,407
Increase in commissions receivable . . . . . . (200,251) (141,119)
Decrease (increase) in prepaid expenses. . . . (11,757) 40,338
Decrease (increase) in due from related party. (40,450) 1,999
Decrease in other receivables. . . . . . . . . - 9,850
Decrease in other assets . . . . . . . . . . . - 8,856
Increase (decrease) in accounts payable. . . . 16,507 (6,625)
Increase (decrease) accrued commission expense (154,982) 57,749
Increase in due to related party . . . . . . . - 33,462
Increase in deferred income. . . . . . . . . . 666 81,821
---------------- ----------------
Net cash used in operating activities. . . . $ (283,489) $ (192,883)
================ ================
Cash and cash equivalents for the purpose of this
statement consisted of the following at March 31:
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 176,041 $ 41,625
Cash with clearing broker. . . . . . . . . . . . . . 25,141 25,916
---------------- ----------------
$ 201,182 $ 67,541
================ ================
</TABLE>
5
<PAGE>
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
In the fiscal quarter ended March 31, 2000, the Company issued a $40,000
secured demand note for $40,000 of subordinated debt.
In the fiscal quarter ended March 31, 2000, the Company issued 13,168 shares
of common stock for $28,956 of unearned compensation.
6
<PAGE>
SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - GENERAL
The consolidated financial statements for the three months ended March 31, 2000
reflect all adjustments (consisting only of normal recurring adjustment) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim period. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Annual Report on Form 10-SB for the fiscal year ended
December 31, 1999. The results of operations for the three months ended March
31, 2000 are not necessarily indicative of the results for the entire fiscal
year ending December 31, 2000.
NOTE 2 - LIABILTIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
On March 31, 2000, the Company entered into a secured demand note collateral
agreement with a corporation 100% owned by Summit's majority shareholder. The
note is due on April 30, 2001 and accrues interest at 12.0% per annum. The
subordinated borrowing is available in computing net capital under the SEC's
uniform net capital rule. To the extent that such borrowings are required for
the Company's continued compliance with minimum net capital requirements, it may
not be repaid.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of its operations for the three month periods ended March 31, 2000
and 1999, should be read in conjunction with the Company's financial statements
included elsewhere herein. When used in the following discussions, the words
"believes," "anticipates," "intends," "expects," and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks and uncertainties, which could cause results to differ materially
from those projected.
Results of Operations Three Months ended March 31, 2000 vs. March 31, 1999
Revenues for the quarter ended March 31, 2000 were $1,925,915, an increase
of $1,340,492 or 229% from $585,423 for the same period of 1999. This change
was due to the increase in new branch offices from 1999 to 2000 (from 28 to 43,)
higher revenues from existing offices (those added prior to 2000,) and the
increase in new offices that employ higher producing registered representatives.
Expenses for the quarter ended March 31, 2000 increased by $1,017,141 or
111% to $1,930,027 from $912,886 in the first quarter of 1999. The higher
expenses were largely attributable to related direct cost of the increased
revenues - commissions expense (the payments to the registered representatives
for their portion of the revenue.) Such commission expenses were $1,454,142 for
the quarter ended March 31, 2000 compared with $435,309 in the first quarter of
1999. The Company also incurred higher non-cash expenses for amortization of
unearned stock compensation in the amount of $102,998 for the quarter ended
March 31, 2000, compared with $40,407 in the first quarter of 1999.
Management fees expense as a category was eliminated in the quarter ended
March 31, 2000, due to the termination of the agreement with the former
management company, Summit Group of Companies, Inc., effective January 1, 2000.
The services were replaced internally by the Company, and the expenses are now
reflected in various General and Administrative categories, such as Salaries and
Wages. In the first quarter of 1999, total management fees expense was
$284,707.
Net income (loss) for the quarter ended March 31, 2000 was $(4,112) an
increase of $323,351 or 99% from $(327,463) in the first quarter of 1999.
Financing Activities
In the first quarter of 1999, $135,000 was received from the issuance of
common stock through a limited private placement offering. No such issuance
occurred in the quarter ended March 31, 2000.
8
<PAGE>
On March 31, 2000 the Company entered into a secured demand note collateral
agreement with a corporation 100% owned by Summit's majority shareholder. The
note is due on April 30, 2001 and accrues interest at 12% per annum. The
subordinated borrowing is available in computing net capital under the SEC's
uniform net capital rule. To the extent that such borrowings are required for
the Company's continued compliance with minimum net capital requirements, it may
not be repaid.
Net income for the quarter ended March 31, 2000 was a negative .21% of
revenues compared to net income for the quarter ended March 31, 1999 which was a
negative 55.94% of revenues. The increase in income from operations overall
resulted primarily from increased revenues and gross profits. The Company's
basic earnings per share were $(0.0009) in the quarter ended March 31, 2000
compared to $(0.0829) in the quarter ended March 31,1999.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the Company's existing working
capital and anticipated cash flows from the Company's operations will be
sufficient to satisfy the Company's cash requirements for at least twelve
months. As the Company continues to grow, additional equity offerings may be
considered, in part or in combination, as the situation warrants. In addition,
in the event the Company's plans change or its assumptions change or prove to be
inaccurate, or if projected cash flow otherwise proves insufficient to fund
operations, the Company might need to seek other sources of financing to conduct
its operations. There can be no assurance that any such other sources of
financing would be available when needed, on commercially reasonable terms, or
at all.
Cautionary Statement
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements that involve a number of risks and uncertainties. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities Act of
1934, as amended. Factors that could cause actual results to differ materially
from those projected in such forward-looking statements include the following:
the competitive environment for the Company's products and services, movements
in the stock markets, and changes in the US economy. The words "believe,"
"estimate," "expect," "intend," "anticipate," "will," "could," "may," and
similar expressions and variations thereof identify certain of such
forward-looking statements, which speak only as of the dates on which they were
made. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
indicated in the forward-looking statements as a result of various factors.
Readers are cautioned not to place undue reliance on these forward-looking
statements.
9
<PAGE>
Inflation
Inflation has not been a major factor in the Company's business since
inception. There can be no assurances that this will continue if and when the
Company completes an acquisition or merger.
PART II - Other Information
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings or litigation, and the
officers and directors are aware of no other pending litigation.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Events
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed by the registrant
for the quarter ending March 31, 2000.
10
<PAGE>
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.
SUMMIT BROKERAGE SERVICES, INC.
Date: May 26, 2000 By: /s/ Richard Parker
--------------------
Richard Parker,
Chairman & CEO
(Principal Executive Officer)
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated balance sheet as of March 31, 2000 and the consolidated statement
of income for the three months ended March 31, 2000 of Summit Brokerage
Services, Inc. and Subsidiaries and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 201182
<SECURITIES> 8850
<RECEIVABLES> 837801
<ALLOWANCES> 31040
<INVENTORY> 0
<CURRENT-ASSETS> 1055682
<PP&E> 156445
<DEPRECIATION> 78862
<TOTAL-ASSETS> 1173265
<CURRENT-LIABILITIES> 596679
<BONDS> 0
0
0
<COMMON> 455
<OTHER-SE> 536131
<TOTAL-LIABILITY-AND-EQUITY> 1173265
<SALES> 1909040
<TOTAL-REVENUES> 1925915
<CGS> 0
<TOTAL-COSTS> 1930027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4112)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4112)
<EPS-BASIC> (0.001)
<EPS-DILUTED> (0.001)
</TABLE>
