SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
Commission file number 0-17129
CLARK MELVIN SECURITIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-0749204
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 Jennifer Road, Suite 270, Annapolis, Maryland 21401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-841-6422
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units
Common Stock, $.01 par value
Common Stock Purchase Warrants
(Title of Class)
<PAGE>
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 twelve 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. [ ]
The aggregate market value of the Common Stock, $.01 par
value, held by non-affiliates of the registrant as of February 29, 1996, was
$86,218.
The number of shares of the registrant's Common Stock, $.01
par value, outstanding as of February 29, 1996, was 18,523,096.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Information Statement for the
1996 Annual Meeting of Stockholders are incorporated by reference into Part III.
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PART I
Item 1. Business.
Overview
Clark Melvin Securities Corporation (the "Company"),
incorporated in Delaware in December 1987, is the successor by merger to the
firm Clark Melvin Securities Corporation, a Maryland corporation which was
founded in 1960 as Clark, Melvin & Co., Inc. The Company is engaged in
securities brokerage and trading, primarily serving individual investors and
financial institutions, from offices located in Annapolis, Maryland and Hato
Rey, Puerto Rico. In addition, the Company effects transactions in fixed income,
equity and other securities, both as principal and agent. In 1995, the Company's
total revenues were derived approximately 59% from individual investors,
including interest on margin accounts, 21% from institutional investors and the
balance from other activities. The Company is a member of the National
Association of Securities Dealers, Inc. (the "NASD").
In April 1991 the Company issued 14,461,176 shares of Common
Stock in exchange for all of the shares of Azimuth Capital Corporation, a Puerto
Rico corporation. In January 1992, the Company consummated the purchase of
certain assets of Perkins-DeMaris, Inc., an Annapolis, Maryland based securities
brokerage firm.
At December 31, 1995, the Company had 22 employees (including
18 registered representatives) in its Hato Rey, Puerto Rico office and 8
employees (including 5 registered representatives) in its Annapolis, Maryland
office.
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The following table sets forth the Company's various sources
of revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Securities commissions:
Listed $ 441,663 $ 325,909 $ 365,897
OTC agency transactions 175,629 186,736 257,059
Options 39,294 19,753 18,446
Limited partnerships 17,869 114,481 25,834
Mutual funds 45,022 87,861 79,273
Interest and other income 150,395 213,482 157,075
Advisory and fee income 306,472 653,048 309,259
Principal transactions 1,128,470 850,036 1,198,144
---------- ---------- ----------
Total revenues $2,302,814 $2,451,306 $2,411,007
========== ========== ==========
</TABLE>
Retail Services
Securities transactions for individual and institutional
customers in which the Company acts on an agency basis generate securities
commission revenues. Commissions are charged on both exchange and
over-the-counter transactions in accordance with guidelines reviewed by the
NASD. The Company executes transactions on all major exchanges and in the
over-the-counter market. Revenues from retail securities commissions from
individual customers have historically served as the Company's principal source
of income and will continue to do so for the foreseeable future. The Company's
investment banking activities have, however, reduced the percentage of its total
revenues generated by retail securities commissions.
For 1995 and 1994, retail securities commissions constituted
approximately 91% and 76%, respectively, of total revenues from securities
commissions and approximately 31% and 30%, respectively, of the Company's total
revenues. As of December 31, 1995, the Company had approximately 1,525 customer
accounts for which it carried funds or securities or effected at least one
transaction during the preceding 12 months.
Institutional Business
The Company is engaged in executing securities transactions
for institutional investors such as banks and savings and loans. Such investors
normally
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purchase and sell securities in large quantities which require special marketing
and trading expertise.
Transactions are executed by the Company acting as broker or
as principal. The Company permits discounts from its commission schedule to its
institutional customers. The size of such discounts varies with the size of
particular transactions and other factors. For 1995 and 1994, revenues derived
from broker-dealer services to institutional investors constituted approximately
28% and 24%, respectively, of total revenues from securities commissions and
customer-related principal transactions and 22% and 15%, respectively, of the
Company's total revenues.
Margin Transactions
Transactions in securities may be effected on either a cash
or, to a limited extent, margin basis. In a margin account, the customer pays
less than the full cost of a security purchased, with the balance of the
purchase price being provided as a loan secured by the securities purchased or
other securities owned by the investor. The amount of the loan in purchasing
securities on margin is subject to the margin requirements of the Board of
Governors of the Federal Reserve System (Regulation T, which currently requires
50% equity for the initial purchase of securities) and the Company's internal
policies (70% equity). In permitting customers to trade securities on margin,
there is a risk that market fluctuations may reduce the value of the collateral
below the customers' indebtedness and that the customer might otherwise be
unable to pay the indebtedness.
The customer is charged interest on the margin loan. The rate
of interest presently charged to customers is the brokers' call margin rate (the
interest rate on bank loans to brokers collateralized by securities) plus an
additional amount which varies depending upon the size of the customer's debit
balances and level of account activity. For 1995 and 1994, interest income
derived from these sources was insignificant.
Principal Transactions
Principal transactions revenue is generated from the selling
of securities out of the Company's inventory or in a riskless principal
transaction. In 1995 and 1994, revenue from principal transactions comprised
approximately 46% and 35%, respectively, of the Company's total revenues.
Corporate Finance
The Company also offers financial advice to its corporate
clients attempting to raise capital. The Company arranges public and private
placements of equity and debt
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securities directly with institutional and individual investors, advises clients
with respect to matters such as acquisitions, financial planning and corporate
recapitalizations, and is responsible for selecting, structuring and pricing
underwritings.
As of December 31, 1995, the Company had 4 professionals
engaged in corporate finance. In 1995 and 1994, revenues from this area
constituted 10% and 12%, respectively, of the Company's total revenues.
Investment Banking
The Company participates as a member of underwriting
syndicates managed by others. Certain risks are involved in the underwriting of
securities. Underwriting syndicates agree to purchase securities, on a firm
commitment or best efforts basis, at a discount from the initial public offering
price. If the securities must be sold below the syndicate cost, an underwriter
is exposed to losses on the securities that it has committed to purchase. In
addition, an underwriter is subject to substantial potential liability for
material misstatements or omissions in prospectuses or other communications with
respect to underwritten offerings.
Because underwriting commitments constitute a charge against
net capital, the Company could find it necessary to limit its underwriting
participations to remain in compliance with the net capital requirements. See
"Net Capital Requirements." Also, in the last several years, investment banking
firms have increasingly underwritten corporate offerings with fewer syndicate
participants.
As of December 31, 1995, the Company had 2 professionals
engaged in identifying potential underwriting opportunities. During fiscal 1995
and 1994, the Company's participation in underwriting syndicates generated
revenue constituting 4% and 12%, respectively, of the Company's total revenues.
Other Services
The Company also provides investment recommendations and
market information to its customers on certain companies in the commercial
banking, savings and loan and high technology industries. The Company is
registered as an investment adviser with the Securities and Exchange Commission
and receives a fee in connection with such services. During fiscal 1995 and
1994, such revenue constituted approximately 2% and 1.0%, respectively, of the
Company's total revenues.
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Operations
Administrative and operations personnel are responsible for
the processing of securities transactions, internal financial controls,
accounting functions, office services and the handling of margin accounts. As of
December 31, 1995, the Company had 4 full-time employees performing such
functions.
The Company records transactions and posts its books on a
daily basis. Operations personnel monitor day-to-day operations to assure
compliance with applicable laws, rules and regulations. Failure to keep current
and accurate books and records can subject the Company to disciplinary action by
governmental and self-regulatory organizations.
The Company executes transactions on all major exchanges and
in the over-the-counter market. The Company clears all of its securities
transactions (delivery of securities sold, receipt of securities purchased and
transfer of related funds) through the Pershing Division of Donaldson, Lufkin,
Jennette Securities Corporation ("DLJ"). The Company pays a fee based on the
number and type of transactions performed. The amounts paid to DLJ, and a
predecessor clearing agent, for 1995 was $132,521.
The Company is a member of the Securities Investor Protection
Corporation ("SIPC"). SIPC provides protection for customers up to $500,000
each, with a limitation of $100,000 for claims for cash balances. In addition,
DLJ provides protection for customers up to an additional $25,000,000 per
customer (with a limitation of $100,000 for claims for cash balances).
The Company believes that its internal controls and safeguards
are adequate, although fraud and misconduct by customers and employees and the
possibility of theft of securities are risks inherent in the securities
industry. As required by certain authorities, the Company carries a fidelity
insurance bond covering loss of theft of securities, forgery of checks and
drafts, embezzlement, fraud and misplacement of securities. Such bond provides
total coverage of up to $120,000, subject to a $5,000 deductible per claim.
Regulation
The securities industry in the United States is subject to
extensive regulation under federal and state laws. The Securities and Exchange
Commission (the "SEC") is the federal agency charged with administration of the
federal securities laws. Much of the regulation of broker-dealers has been
delegated to self-regulatory organizations, principally the NASD and the
national securities exchanges. The self-regulatory
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organizations adopt rules (which are subject to approval by the SEC) which
govern the industry and conduct periodic examinations of member broker-dealers.
Securities firms are also subject to regulation by state securities commissions
in the states in which they are registered. The Company is currently licensed
to conduct business as a broker-dealer in California, Florida, Illinois,
Maryland, New Hampshire, New York, Ohio, Oklahoma, Pennsylvania, Puerto Rico,
Virginia, Texas and the District of Columbia.
Broker-dealers are subject to regulations that cover all
aspects of the securities business, including sales methods, trade practices
among broker-dealers, the capital structure of securities firms, the payment of
dividends and other types of distributions, uses and safekeeping of customers'
funds and securities, recordkeeping and the conduct of directors, officers and
employees. Additional legislation, changes in rules promulgated by the SEC and
self-regulatory authorities, or changes in the interpretation or enforcement of
existing laws and rules, may directly affect the mode of operation and
profitability of broker-dealers. The SEC, state securities commissions and
self-regulatory organizations may conduct administrative proceedings which can
result in censure, fine, suspension or expulsion of the broker-dealer, its
officers or employees. Such administrative proceedings, whether or not resulting
in adverse rulings, can require substantial expenditures. The principal purpose
of regulation and discipline of broker-dealers is the protection of customers in
the securities market rather than the protection of creditors and stockholders
of broker-dealers.
The Company is also registered as an investment adviser with
the SEC, as from time to time it engages in the business of advising its
clients, either directly or through publications or reports, as to the value of
securities or to the advisability of investing in, purchasing or selling
securities.
Net Capital Requirements
As a registered broker-dealer doing business with the public,
the Company is subject to the Uniform Net Capital Rule (Rule 15c3-1) promulgated
by the SEC. Securities and Exchange Act Rule 15c3-1 (the "Rule") provides that a
broker-dealer shall not permit its aggregate indebtedness to exceed 15 times its
net capital, or, alternatively, that its net capital shall not be less than two
percent of aggregate debit items (principally receivables from customers and
broker-dealers) computed in accordance with the Rule. The Rule is designed to
measure the general financial integrity and liquidity of a broker-dealer and the
minimum net capital deemed necessary to meet the broker-dealer's continuing
commitments to its customers. Both methods allow broker-dealers to increase
their customer commitments only to the extent their net capital is deemed
adequate to support an increase. The Company computes its net capital under the
aggregate indebtedness method. Under the aggregate indebtedness method, a
broker-dealer may be required to reduce its business and restrict withdrawal of
subordinated capital and
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may be prohibited from expanding its business and declaring cash dividends if
its ratio of aggregate indebtedness to net capital exceeds 12 to 1. If a broker-
dealer's ratio of aggregate indebtedness to net capital exceeds 15 to 1, the
broker-dealer must cease business. In addition, a broker-dealer in violation of
these requirements may be subject to disciplinary actions by the SEC and self-
regulatory agencies such as the NASD, including fines, censure, suspension or
expulsion. In computing net capital, various adjustments are made to net worth
with a view to excluding assets which are not readily convertible into cash and
with a view to discounting the firm's position in securities to take into
account market risk. Compliance with the Rule may limit those operations of the
Company which require the use of its capital for a purpose such as maintaining
the inventory required for trading in securities and underwriting securities.
As of December 31, 1995 the Company's ratio of aggregate indebtedness to net
capital was .65 to 1, net capital was approximately $358,274, and the minimum
net capital requirement was $100,000.
Competition
The Company encounters intense competition in all aspects of
the securities business and competes directly with other securities firms, a
significant number of which are national rather than regional firms which have
substantially greater resources and offer a wide range of financial services.
Discount brokerage firms oriented to the retail market, including firms
affiliated with commercial banks and thrift institutions, are devoting
substantial funds to advertising and direct solicitation of customers in order
to increase their share of commission dollars and other securities-related
income. In many instances the Company is competing directly with such
organizations.
The Company believes that the principal factors affecting
competition 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 employ direct solicitation of potential customers
and furnish investment research publications in order to increase business and
in an effort to retain and attract potential clients. Many of the Company's
competitors engage in advertising programs, which the Company does not use to
any significant extent.
Employees
As of December 31, 1995, the Company employed 30 persons, 20
of whom are full-time employees and 10 of whom are part-time employees. Of the
full-time employees, 12 are employed as registered representatives and 8 are
employed in administration and finance. All of the part-time employees are
employed as registered representatives.
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The Company believes that its future success will depend in
large part upon its continued ability to recruit and retain qualified registered
representatives. Competition for qualified personnel is intense, particularly in
the geographical areas in which the Company is located. The Company has never
experienced a work stoppage and none of its employees is represented by a labor
organization. The Company considers its relationship with its employees to be
good.
Factors Affecting the Company and the Securities Industry
The securities industry is characterized by frequent change,
the effects of which have been difficult to predict. In addition to an evolving
regulatory environment, the industry has been subject to radical changes in
pricing structure, alternating periods of contraction and expansion and intense
competition from within and outside the industry.
Fluctuating Securities Volume and Prices
The securities industry is subject to substantial fluctuations
in volume and price levels of securities transactions. These fluctuations can
occur on a daily basis as well as over longer periods as a result of national
and international economic and political events, and broad trends in business
and finance. Reduced volume and prices generally result in lower commissions and
investment banking revenues, as well as losses from trading as principal and
from underwriting. Profitability is adversely affected in periods of reduced
volume because a significant amount of costs are fixed and remain relatively
unchanged. To the extent that purchases of securities are permitted to be made
on margin, securities firms also are subject to risks inherent in extending
credit, especially during periods of rapidly declining markets, which could
reduce collateral value below the amount of a customer's indebtedness. In the
past, heavy trading volume has caused clearance and processing problems for many
securities firms, and this could occur in the future. In addition, there is risk
of loss from errors which can occur in the execution and settlement process. See
"-Operations."
Industry Changes and Competitive Factors
Considerable consolidation has occurred in the securities
industry as numerous securities firms have either ceased operations or been
acquired by other securities firms, in many cases resulting in firms with
greater financial resources than firms such as the Company. In addition, a
number of substantial companies not previously engaged in the securities
business have made investments in and acquired securities firms. These
developments have resulted in significant additional competition for the
Company. Increasing competitive pressures in the securities industry are
requiring regional firms such as the Company to offer to their customers many of
the financial services which are provided by much larger securities firms that
have
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substantially greater resources and may have greater operating efficiencies than
the Company. A sizable number of new investment advisory firms have been
established in recent years, increasing competition in that area of the
Company's activities.
Due to an increasingly competitive environment, institutional
customers are now receiving substantial discounts on commissions. In addition,
there has been a trend in the establishment of an increasing number of firms,
including affiliates of banks and thrift institutions, which offer discount
brokerage services to retail customers. These firms generally effect
transactions at lower commission rates on an "execution only" basis, without
offering other services such as investment advice and research which are
provided by "full-service" brokerage firms such as the Company. In addition,
some discount brokerage firms have increased the range of services which they
offer. The existence of and anticipated continued increase in the number of
discount brokerage firms and services provided by such firms may adversely
affect the Company.
SEC Rule 415 permits registration of certain securities that
are to be offered on a delayed or continuous basis in the future. This procedure
provides a competitive advantage to securities firms with substantial capital
and large in-house distribution networks, reducing opportunities for regional
brokerage firms such as the Company to participate in major underwritings.
Additionally, the prospect of "Company" registration, rather than registration
of discrete offerings of securities by companies could provide a further
advantage to larger firms that could take advantage of economies of scale.
Certain institutions, notably commercial banks and thrift
institutions, have become a competitive factor by offering certain investment
banking and corporate and individual financial services traditionally provided
only by securities firms. The Federal Reserve Board has approved the
applications of several leading bank holding companies to allow affiliated
entities to underwrite equity securities, municipal revenue bonds, third-party
commercial paper, securities backed by mortgages or consumer debt and debt
securities. The total of all securities underwriting activities of such an
affiliate may not exceed 10% of its gross revenue. The Federal Reserve Board has
also approved the application of numerous bank holding companies to establish
affiliates which offer investment advisory and brokerage services.
Various groups have proposed major revisions to the laws
governing the relationship between the banking and securities industries. Under
many of these proposals, banks would be able to establish affiliates to engage
in a wide range of securities activities not currently permitted to be engaged
in by banks. In addition, recently proposed Congressional legislation would
repeal the Glass-Steagall Act, which restricts banks from affiliating with
securities firms. It is presently not possible to predict the type and extent of
competitive services which banks and other institutions ultimately may offer or
the extent to which administrative or legislative barriers will be repealed or
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modified. To the extent that such services are offered on a large scale,
securities firms such as the Company, which are heavily oriented to individual
retail customers, may be adversely affected.
The SEC recently instituted rule changes which changed the
traditional securities transactions settlement cycle from five business days to
three business days from trade date ("T+3"). The T+3 rules, although designed to
reduce risk in the settlement of securities trades, could adversely impact
trading by individual retail customers.
The Securities Reform Act of 1975 was enacted to promote the
establishment of a national market system and eliminate barriers to competition
in the securities industry. As a result of actions taken by the SEC and
self-regulatory authorities to implement this legislation, the Company may find
it necessary in some instances to begin making markets in and carrying
inventories of securities which it presently purchases and sells for customers
only on an agency basis on securities exchanges. Such an eventuality could
require a substantial expansion of the trading capabilities of the Company,
additional capital and greater exposure to the risks inherent in such
activities.
Regulation
The business of the Company and its subsidiaries in the
securities industry is subject to regulation by various regulatory authorities
which are charged with protecting the interests of broker-dealers' customers.
See "Regulation."
Effect of Net Capital Requirements
The SEC has stringent rules with respect to the net capital
requirements of securities firms. A significant operating loss or
extraordinary charge against net capital may adversely affect the ability of
the Company to expand or even maintain its present level of business. In
addition, the Company's ability to pay dividends is affected by the
amount of capital it has in excess of its net capital requirements. See
"Net Capital Requirements."
Litigation
Many aspects of the Company's business involve substantial
risks of liability. There has been an increased incidence of litigation in the
securities industry in recent years, including class action suits which
generally seek substantial damages.
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Item 2. Properties.
The Company's administrative offices currently occupy
approximately 4,200 square feet of a facility located at 170 Jennifer Road,
Suite 270, Annapolis, Maryland 21401. The Company also leases 4,000 square feet
of space in the Banco Popular Center, 1414 Munoz Rivera Avenue, Hato Rey, Puerto
Rico 90918, which houses its executive offices. In 1995 and 1994, rental expense
was $155,082 and $161,412, respectively.
Item 3. Legal Proceedings.
The Company is involved in litigation before the Commission of
Financial Institutions of Puerto Rico, the NASD and the Superior Court of Puerto
Rico involving a broker formerly employed in its Puerto Rico Office relating to
complaints by certain clients regarding unauthorized trading. The aggregate
claims exceed $500,000.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4A. Executive Officers of the Company.
Executive officers are elected annually by the Board of
Directors and serve at the discretion of the Board of Directors. Information
regarding the executive officer of the Company who is not a director is as
follows:
IRENE M. HARR, 68, has served as Senior Vice President of the
Company and its predecessor since January 1984. Ms. Harr was Chief Financial
Officer of the Company and its predecessor from January 1984 until September
1988, and has also served in that position since September 1989.
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PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
The Company's Common Stock trades over-the-counter and is
reported in the OTC Pink Sheets.
The range of high and low bid quotations for the Common Stock
as reported by the NASD by quarters is as follows:
<TABLE>
<CAPTION>
1994 First Second Third Fourth
<S> <C> <C> <C> <C> <C>
High .02 .02 .02 .02
Common Stock Low .02 .02 .02 .01
1995 First Second Third Fourth
Common Stock Low * * * *
High * * * *
</TABLE>
* There was no offered bid for the Common Stock during these quarters.
The approximate number of stockholders of record as of December 31,
1995, was 375. The Company has never paid cash dividends on its Common Stock,
and the Board of Directors currently intends to continue the policy of not
paying cash dividends and of retaining all earnings for use in the Company's
business.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $2,302,814 $2,451,306 $2,411,007 $1,790,404 $1,243,005
Operating expenses
2,293,912 2,723,676 2,304,294 2,064,864 2,124,324
---------- --------- --------- --------- ---------
(Loss) earnings before
income taxes $ 8,902 $ (272,370) $ 106,713 $(274,460) $(881,319)
Income taxes 0 0 0 0 0
---------- ---------- ---------- --------- ---------
Net (loss) earnings $ 8,902 $(272,370) $ 106,713 $(274,460) $(881,319)
========= ========= ========= ========= =========
PER SHARE DATA
(Loss) earnings per
common share $ -- $ (0.01) $ 0.01 $ (0.01) $ (0.05)
======== ======== ======== ========= =========
FINANCIAL POSITION
Total assets $ 764,954 $ 553,481 $ 879,248 $ 605,339 $ 883,447
Total stockholders'
equity $ 531,490 $ 438,851 $ 646,603 $ 453,543 $ 655,801
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The Company, like other securities firms, is directly affected
by general economic and market conditions, including fluctuations in volume and
price levels of securities and changes in levels of interest rates. These
conditions impact the Company's commissions and principal transactions revenues,
and its liquidity. In periods of reduced market activity, profitability is
adversely affected by expenses, such as communications and occupancy, that
remain relatively fixed. Due to changing market conditions, substantial
fluctuations occur in the Company's business, and results of operations for any
period shown should not be considered representative for any other period.
Highlights of revenues and expenses expressed as a percentage
of total revenues for the years ending December 31:
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<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Commissions $ 717,477 $ 734,740 $ 746,529
Principal Transactions 1,128,470 850,036 1,198,144
Advisory & Fee Income 306,472 653,048 309,259
Interest & Other Income 150,395 213,482 157,075
------- ------- -------
Total Revenues $2,302,814 $2,451,306 $2,411,007
========== ========== ==========
Expenses as percentages:
Compensation and benefits 58.5% 58.8% 57.8%
Clearing and exchange fees 7.1% 5.8% 6.8%
Occupancy and equipment rental 13.4% 14.6% 12.1%
Business development 3.2% 5.6% 2.1%
Interest .001% .7% .3%
Communications 8.7% 9.6% 8.9%
Other 7.0% 16.1% 7.6%
</TABLE>
Revenues
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
Commission income decreased by 2.3% due to a sales concentration on
fixed income securities.
Principal income increased by 32.3% due primarily to an increase in the
volume of corporation bond transactions.
Advisory and fee income decreased by 53% due to a decrease in
completed projects by the corporate bond division.
Interest income decreased by 29.5% due primarily to reductions in
interest rates.
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Comparison of Year Ended December 31, 1994 to Year Ended December 31, 1993.
Commission income decreased by 1.6% due to a 10.9% decrease in listed
equity trades, and a 27.4% decline in OTC trading. These decreases were
partially offset by a 343.1% increase in limited partnership business.
Principal transactions decreased by 29% as the increases in interest
rates effectively stopped the purchase of securities by financial institutions,
resulting in a decrease of 48.6% in government/agency transactions and an 80.9%
decline in municipal bond business. These declines were partially offset by
increases of 283.9% in trading income, and 458.5% in sales from syndicate
accounts.
Advisory and fee income rose by 111.2% as the Corporate Finance
Division completed several of its scheduled projects, complemented by
underwriting fees associated with the transactions.
Interest and other income increased by 35.9% due to a 21.4% increase
in margin income, a 37.6% increase in trailer fees, and a 97% increase in rental
income.
Expenses
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
Clearing and exchange fees increased by 15.1% due to increased volume.
Business development expenses decreased by 46.4% as the Company
continued to decrease its advertising and travel budgets.
Interest expense decreased by 83.3% primarily due to lower rates and
lower margin charges due to decreases in equity holdings.
Occupancy and equipment rental expenses decreased by 14% primarily due
to decreases in rental payments, municipal and property taxes and office supply
expenses.
Communications expenses decreased by 14.9% as compared to 1994, as the
result of the elimination of certain computer and quotation systems in Puerto
Rico.
Other expenses decreased by 54% primarily due to reduced legal expense.
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Comparison of Year Ended December 31, 1994 to Year Ended December 31, 1993
Compensation and benefits expense increased by 3.3% primarily due to
increases in commissions paid on investment banking transactions, and a 227%
increase in clerical services involved with those projects. The increases were
offset by reductions in executive salaries of 19.5%, and in sales commissions
for other securities of 12.5%.
Expenses for clearing and exchange fees decreased by 13.3% due to the
reduction in ticket volume for equities and municipal bonds.
Occupancy and equipment rental expenses increased by 23% primarily due
to a 66% increase in the Puerto Rico Municipal tax, and a 2,067% increase taxes
paid in Puerto Rico. Rental expense increased by 5.6% and office supplies
increased by 105.9%.
Business development costs increased by 174% due to 194.2 increased in
travel costs, and the promotional expenses related to the tax sheltered
investments sold in 1994.
Interest expense increased by 144.7% due to higher margin costs on
inventory.
Other expenses increased by 114.8% primarily due to nonrecurring
charges. See Note 10 to the Notes to Financial Statements.
Net (Loss) Earnings and the Provision (Benefit) for Income Taxes
The Company had net earnings of $8,902 in 1995. The Company has net
operating loss carry-forwards that expire at various dates through 2009, which
will be available to offset future earnings that otherwise would be subject to
federal and state income taxes.
The Company had a net loss of $272,370 in 1994 compared to net earnings
of $106,713 in 1993.
The Company is required to comply with the Uniform Net Capital Rule of
the Securities and Exchange Commission. The Rule is intended to measure the
general financial soundness and liquidity of broker-dealers. The Company has
consistently exceeded the minimum net capital requirement. As of December 31,
1994, the Company's net capital was approximately $270,877, which exceeded the
minimum net capital by $170,877. As of December 31, 1995, the Company's net
capital was approximately $358,274, which exceeded the minimum net capital
requirement by $258,274.
18
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 18
STATEMENTS OF FINANCIAL CONDITION 19
STATEMENTS OF EARNINGS 20
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 21
STATEMENTS OF CASH FLOWS 22
NOTES TO FINANCIAL STATEMENTS 24
19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Clark Melvin Securities Corporation
We have audited the accompanying statements of financial condition of Clark
Melvin Securities Corporation as of December 31, 1995 and 1994 and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. 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.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Clark Melvin Securities
Corporation as of December 31, 1995 and 1994 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Baltimore, Maryland
January 31, 1996
20
<PAGE>
<TABLE>
<CAPTION>
Clark Melvin Securities Corporation
STATEMENTS OF FINANCIAL CONDITION
December 31,
- -------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash $ 265,243 $ 235,122
Receivables
Brokers and dealers 201,123 53,251
Employee advances 15,990 17,061
Other 74,763 19,295
Firm trading securities, at fair market value (note 4) -- 4,800
Deposit with clearing broker 125,979 100,000
Other 27,430 35,810
Office equipment and leasehold improvements, net of
accumulated depreciation and amortization of
$327,879 ($290,995 in 1994) 54,426 88,142
----------- ------------
Total assets $ 764,954 $ 553,481
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to clearing broker (note 5) $ 6,095 $ 11,283
Accounts payable and accrued liabilities 227,369 103,347
---------- ----------
Total liabilities 233,464 114,630
COMMITMENTS AND CONTINGENCIES (notes 6 and 11) - -
STOCKHOLDERS' EQUITY (note 7)
Preferred stock 145,000 145,000
Common stock 185,231 185,231
Additional paid-in capital 2,888,028 2,888,028
Accumulated deficit (2,651,769) (2,648,190)
Treasury stock, at cost (35,000) (5,000)
Subscriptions receivable and accrued interest - (126,218)
----------- -----------
Total stockholders' equity 531,490 438,851
----------- -----------
Total liabilities and stockholders' equity $ 764,954 $ 553,481
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
Clark Melvin Securities Corporation
STATEMENTS OF EARNINGS
Years ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Principal transactions $1,128,470 $ 850,036 $1,198,144
Commissions 717,477 734,740 746,529
Advisory and fee income 306,472 653,048 309,259
Interest and other income 150,395 213,482 157,075
------- ------- -------
Total revenues 2,302,814 2,451,306 2,411,007
Expenses:
Compensation and benefits 1,384,134 1,440,221 1,393,453
Clearing and exchange fees 164,157 142,590 164,559
Occupancy and equipment rental 307,547 357,558 290,668
Communications 200,116 234,701 215,127
Business development 73,358 136,756 49,790
Interest 2,687 16,180 6,613
Other 161,913 395,670 184,084
------- ------- -------
Total expenses 2,293,912 2,723,676 2,304,294
--------- --------- ---------
EARNINGS (LOSS) $ 8,902 $ (272,370) $ 106,713
============ ========== ==========
Earnings (loss) per common share (note 2) $ -- $ (.01) $ .01
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
Clark Melvin Securities Corporation
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
- -------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 260,000 $260,000 16,658,191 $166,582 $2,815,767 $(2,449,487)
Subscriptions collected - - - - - -
Accrued interest on subscriptions receivable - - - - - -
Common stock issued - - 674,345 6,744 - -
Preferred stock dividend - - - - - (18,453)
Net earnings - - - - - 106,713
- - - - -
Balance at December 31, 1993 260,000 260,000 17,332,536 173,326 2,815,767 (2,361,227)
Subscriptions collected - - - - - -
Common stock issued - - 1,195,460 11,954 74,118 -
Retirement of common stock held in treasury - - (4,900) (49) (1,857) -
Preferred stock dividend - - - - - (14,593)
Acquisition of preferred stock for treasury - - - - - -
Retirement of preferred stock (115,000) (115,000) - - - -
Net loss - - - - - (272,370)
Balance at December 31, 1994 145,000 145,000 18,523,096 185,231 2,888,028 (2,648,190)
Subscriptions collected - - - - - -
Preferred stock dividend - - - - - (12,481)
Net earnings - - - - - 8,902
Acquisition of preferred stock for treasury - - - - - -
Balance at December 31, 1995 145,000 $ 145,000 18,523,096 $185,231 $2,888,028 $(2,651,769)
</TABLE>
<TABLE>
Treasury Subscriptions
Stock Receivable Total
<S> <C> <C> <C>
Balance at January 1, 1993 $(1,906) $(337,413) $453,543
Subscriptions collected - 100,000 100,000
Accrued interest on subscriptions receivable - (1,944) (1,944)
Common stock issued - - 6,744
Preferred stock dividend - - (18,453)
Net earnings - - 106,713
Balance at December 31, 1993 (1,906) (239,357) 646,603
Subscriptions collected - 113,139 113,139
Common stock issued - - 86,072
Retirement of common stock held in treasury 1,906 - -
Preferred stock dividend - - (14,593)
Acquisition of preferred stock for treasury (115,000) - (115,000)
Retirement of preferred stock 110,000 - (5,000)
Net loss - - (272,370)
Balance at December 31, 1994 (5,000) (126,218) 438,851
Subscriptions collected - 126,218 126,218
Preferred stock dividend - - (12,481)
Net earnings - - 8,902
Acquisition of preferred stock for treasury (30,000) - (30,000)
Balance at December 31, 1995 $(35,000) - $531,490
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
Clark Melvin Securities Corporation
STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net earnings (loss) $ 8,902 $(272,370) $ 106,713
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 44,652 51,701 80,922
Compensation paid with common stock - - 6,744
Decrease (increase) in operating assets:
Receivables
Clearing broker deposit (25,979) - -
Brokers and dealers (147,872) 292,177 (229,382)
Employee advances 9,661 (14,540) 16,154
Other (64,058) 9,701 1,385
Firm trading securities 4,800 (4,784) 25,008
Other assets 8,380 (1,421) (3,035)
Increase (decrease) in operating liabilities
Payable to clearing broker (5,188) (6,082) 6,282
Securities sold short - (107,950) 106,250
Accounts payable and accrued
liabilities 124,022 (3,983) (31,683)
(51,582) 214,819 (21,355)
Net cash (used in) provided by
operating activities (42,680) (57,551) 85,358
Cash flows from investing activities
Purchases of office equipment and leasehold
improvements (10,936) (35,856) (34,740)
Net cash used in investing
activities (10,936) (35,856) (34,740)
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
Clark Melvin Securities Corporation
STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31,
- ------------------------------------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities
Collections on subscriptions receivable 126,218 113,139 98,056
Acquisition of treasury stock (30,000) (115,000) -
Proceeds from issuance of common stock - 84,166 -
Payment of dividends on preferred stock (12,481) (14,593) (18,453)
Purchase of treasury stock - (3,094) -
Net cash provided by
financing activities 83,737 64,618 79,603
NET INCREASE (DECREASE)
IN CASH 30,121 (28,789) 130,221
Cash at beginning of year 235,122 263,911 133,690
Cash and at end of year $ 265,243 $ 235,122 $ 263,911
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for interest $ 2,687 $ 16,180 $ 6,613
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Retirement of common stock held in treasury $ - $ 1,906 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
Clark Melvin Securities Corporation
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NOTE 1 - DESCRIPTION OF BUSINESS
Clark Melvin Securities Corporation (the Company) is incorporated in the
State of Delaware. The Company is registered as a broker/dealer in securities
with the Securities and Exchange Commission. In this capacity, it executes
principal transactions and performs underwriting and investment banking
services. The Company conducts business primarily with its clearing broker on
behalf of its customers and for its own proprietary accounts. The Company's
customers are primarily located in the mid-Atlantic region and in Puerto
Rico.
In the normal course of its business, the Company may enter into financial
transactions where the risk of potential loss due to changes in the market
(market risk) or failure of the other party to the transaction to perform
(credit risk) exceeds the amounts recorded for the transaction. The nature of
these risks, if any, are described in the footnotes.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with industry practice, the Company records customer
transactions on a settlement date basis which is generally three business
days after the trade date. Revenues and expenses on a trade date basis are
not materially different from revenues and expenses on a settlement date
basis. The Company is exposed to risk of loss on these transactions should
customers or brokers become unable to meet the terms of their contracts. As a
result, the Company may have to purchase or sell the financial instruments at
prevailing market prices.
Firm trading and investment securities are carried at market quotations.
Changes in unrealized appreciation or depreciation of such securities are
reflected in the statement of operations with interest and other income.
In the normal course of business, the Company's customers may sell securities
short. The Company's policy is to obtain cash or securities as collateral for
customers' short positions. Subsequent market fluctuations may require the
Company to obtain additional collateral from the customers.
26
<PAGE>
Clark Melvin Securities Corporation
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Office equipment and leasehold improvements are recorded at cost. Office
equipment is depreciated using accelerated methods over useful lives of five
to seven years. Leasehold improvements are amortized on the straight-line
method over the lesser of the estimated economic useful life of the
improvements or the remaining term of the lease. Included in other assets are
organization expenses of $800 and $6,800 in 1995 and 1994, respectively,
which are being amortized over 60 months on the straight-line method.
The earnings or loss per share of common stock is calculated by dividing the
net earning or loss, adjusted for the preferred stock dividend requirement,
by the weighted average number of common shares outstanding during the year
(18,523,096 in 1995, 17,853,375 in 1994, and 16,970,749 in 1993). The effect
of assuming exercise of warrants outstanding has not been considered because
the market price of the common stock obtainable has never been higher than
the exercise price.
In preparing financial statements in conformity with General Accepted
Accounting Principles (GAAP), management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from these estimates.
NOTE 3 - RELATED PARTY TRANSACTIONS
Major stockholders are also officers of the Company. Compensation expense for
the Chairman of the Executive Committee was approximately $178,800, $119,300,
and $170,200 in 1995, 1994 and 1993, respectively based primarily on
commissions earned as a broker of the Company. The President and CEO, also a
major stockholder, earned compensation of approximately $117,000, $135,800
and $88,000 in 1995, 1994 and 1993, respectively. A significant portion of
his compensation was based on commissions earned.
27
<PAGE>
Clark Melvin Securities Corporation
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NOTE 3 - RELATED PARTY TRANSACTIONS - Continued
A member of the Board of Directors is a partner of a law firm that provides
legal services to the Company. Fees incurred for such services provided
during 1994 and 1993 were approximately $20,000 and $12,000, respectively. No
fees were charged during 1995.
NOTE 4 - FIRM TRADING SECURITIES
Firm trading securities in 1994 consisted solely of corporate equities.
NOTE 5 - PAYABLE TO CLEARING BROKER
Substantially all of the clearing and depository operations for the Company's
proprietary transactions were performed by a clearing broker pursuant to a
clearance agreement. Amounts due the clearing broker at December 31, 1995 and
1994 represent fees for services provided.
The Company has agreed to indemnify the clearing broker for losses the
clearing broker may sustain as a result of the failure of the Company's
customers to satisfy their obligations in connection with their securities
transactions. As of December 31, 1995, no customers of the Company held short
or unsecured positions.
NOTE 6 - COMMITMENTS
The Company conducts its operations in two facilities under non-cancelable
operating leases expiring in March and July 1996. At the end of their term,
the leases are renewable at the then fair rental values. Total lease expense
for the year was $153,467, $161,412 and $148,303 in 1995, 1994 and 1993,
respectively. The minimum rental commitment through the end of the present
lease terms is approximately $140,000.
28
<PAGE>
Clark Melvin Securities Corporation
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NOTE 6 - COMMITMENTS - Continued
The Company leased through 1994 certain office furniture from a company owned
by a relative of a major shareholder. The rent under the lease, which was
$20,400 and $12,200 in 1994 and 1993, respectively.
NOTE 7 - STOCKHOLDERS' EQUITY
The authorized, issued and outstanding shares of capital stock were as
follows:
(bullet) Preferred stock, cumulative, $1.00 par value, callable; authorized
1,000,000 shares; issued 145,000 shares in 1995 and 1994 (in treasury
35,000 and 5,000 shares at December 31, 1995 and 1994, respectively).
(bullet) Common stock, $.01 par value; authorized 40,000,000 shares;
issued 18,523,096 in 1995 and 1994.
During 1994, the Company issued 1,195,460 shares of restricted common stock.
The preferred stock is callable at $1.00 per share upon 30 days written
notice to the holders. Dividends at the annual rate of 1% over the prime
rate, as determined on the date of restricted payment, are payable quarterly.
As of December 31, 1995, all cumulative dividends had been declared and paid.
Substantially all outstanding preferred shares are held by related parties.
During 1994, 115,000 shares of preferred stock were acquired of which 110,000
were retired. During 1995, 30,000 shares of preferred stock were acquired and
held in treasury.
In January 1989 the Board of Directors adopted a restricted stock award plan
and a stock option plan. Under the stock award plan, restricted common stock
may be granted to each of key employees. Shares are subject to forfeiture if
the recipient terminates employment with the Company prior to completion of a
vesting period. The vesting period is two years from the date of grant with
one half of the shares vesting after the first year. The market value of
shares granted is amortized to compensation expense over the periods in which
the employees are providing the related services. As of December 31, 1995,
the Board of Directors had granted to twenty-two employees 1,500,000 shares
in the aggregate.
29
<PAGE>
Clark Melvin Securities Corporation
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NOTE 7 - STOCKHOLDERS' EQUITY - Continued
Under the stock option plan, a total of 250,000 shares of common stock may be
purchased by certain key employees and directors. Incentive stock options and
non-qualified stock options may be granted under the plan. Discounts from
options granted at exercise prices that are less than the fair market value
of the common stock at the date of grant are amortized to compensation
expense over the period in which the employees are providing the related
services. No stock had been purchased under the stock option plan as of
December 31, 1995.
In 1994, the Company approved a separate stock option plan for its President
and CEO. Under the stock option plan, a total of 1,752,500 shares of common
stock may be purchased at $.05 a share over the next five years. No stock had
been purchased under the stock option plan as of December 31, 1995.
At December 31, 1994, the Company had outstanding 1,391,260 common stock
purchase warrants that were exercisable at $.10 per share through July 22,
1995 (in treasury 2,500 at December 31, 1994). These warrants expired
without being exercised.
Subscriptions receivable arose from the sale of common stock in 1991 for four
notes receivables of $100,000, each maturing in 1993 through 1994, plus
interest at 7%. A subscription for an additional $500,000 of common stock was
rescinded during 1993. In accordance with SEC accounting rules, subscriptions
receivable are shown as a reduction in stockholders' equity. All
subscriptions receivable had been collected as of December 31, 1995.
NOTE 8 - INCOME TAXES
During 1992, the Company Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109). Temporary differences between
amounts reported for financial reporting purposes and income tax purpose are
insignificant. The deferred tax asset related to the Company's loss
carryforwards amounts to approximately $751,000 and $754,000 at December 31,
1995 and 1994, respectively. The full amount of this asset was reserved.
30
<PAGE>
Net operating loss carryforwards for income tax purposes are approximately
$2,098,000 and expire as follows: $3,000 in 2003, $172,000 in 2004, $515,000
in 2005, $884,000 in 2006, $249,000 in 2007 and $275,00 in 2009.
1995 1994 1993
---- ---- ----
Federal statutory income tax rate 34% 34% 34%
==== ==== ====
Income taxes (benefit) at Federal
statutory rate $ 14,790 $(92,606) $ 36,282
Effect of net operating loss
carryforward deferred (utilized) (14,790) 92,606 (36,282)
------- ------- -------
Income tax $ - $ - $ -
======= ======= =======
NOTE 9 - NET CAPITAL REQUIREMENTS
As a registered broker dealer and member of the National Association of
Securities Dealers, Inc., the Company is subject to the Securities and
Exchange Commission Uniform Net Capital Rule (Rule 15c3-1) which requires the
maintenance of minimum net capital. As applied to the Company, the Rule
requires minimum net capital of $100,000. As of December 31, 1995 the Company
had net capital of $358,274, which was $258,274 in excess of its requirement.
31
<PAGE>
Clark Melvin Securities Corporation
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NOTE 10 - CONCENTRATION OF CREDIT RISK - CASH
The Company maintains its cash accounts in one financial institution in
Maryland. At times, cash balances may exceed federally insured limits. The
Company has not experienced any losses in such account and believes the
Company is not exposed to a significant credit risk.
NOTE 11 - PENDING LITIGATION
The Company is considering pursuing arbitration proceedings against a former
broker in its Puerto Rico office as a result of losses and complaints from
certain clients regarding unauthorized trading. In 1994, the Company charged
approximately $154,000 against earnings for this and another unrelated claim
as nonrecurring expenses that are included in other expenses in the statement
of operations.
Three former customers have filed suits claiming damages of $542,000 in
connection with these allegations. The actual trading loss to the plaintiffs
aggregated approximately $184,000. One other party's claim was dismissed
because the plaintiff had executed an arbitration agreement. That individual
has not filed an arbitration claim and suffered no trading loss.
Management believes it has meritorious defenses and will prevail against all
parties. However, in the interest of conservatism, it has provided an
additional reserve, in 1995, of $33,000 against the litigation and costs
associated with these suits.
32
<PAGE>
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers.
For information with respect to the executive officer of the
Company who is not a director, see "Item 4A - Executive Officers of the
Company". For information with respect to the directors of the Company, see
information set forth under the caption "Election of Directors" in the Company's
Information Statement issued in connection with the Company's 1996 Annual
Meeting of Stockholders, incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item is contained under the
caption "Management Compensation" in the Company's Information Statement issued
in connection with the Company's 1996 Annual Meeting of Stockholders,
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is contained under the
caption "Security Ownership of Management and Principal Stockholders" in the
Company's Information Statement issued in connection with the Company's 1996
Annual Meeting of Stockholders, incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is contained under the
caption "Certain Transactions" in the Company's Information Statement issued in
connection with the Company's 1996 Annual Meeting of Stockholders, incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
33
<PAGE>
1. The following report and financial statements have been included under
Item 8 of this Report:
Report of Independent Certified Public Accountants
Statements of Financial Condition
Statements of Earnings
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
The schedules to the financial statements for which provision is made in the
accounting regulations of the Commission are not applicable, not required or the
information is included in the financial statements or notes thereto and
therefore have been omitted.
3. Exhibits
3.1.1 Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 filed with
Registration Statement on Form S-18 (No.
33-20106A)).
3.1.2 Certificate of Correction to the Certificate of
incorporation of the Company, dated May 18, 1989
(incorporated by reference to Exhibit 3.1.2 filed
with Form 10-K for the year ended December 31, 1989).
3.1.3 Certificate of Amendment to the Certificate of
Incorporation of the Company, dated May 18, 1989
(incorporated by reference to Exhibit 3.1.3 filed
with Form 10-K for the year ended December 31, 1989).
3.1.4 Certificate of Designation dated May 18, 1989
(incorporated by reference to Exhibit 3.1.4 filed
with Form 10-K for the year ended December 31, 1989).
3.1.5 Certificate of Amendment to Certificate of
Incorporation of the Company, dated September 27,
1990 (incorporated by reference to Exhibit 3.1.5
filed with Form 10-K for the year ended December 31,
1990).
34
<PAGE>
3.2 By-laws of the Company as currently in effect
(incorporated by reference to Exhibit 3.2 filed
with Registration Statement on Form S-18 (No.
33-20106A)).
10.1 Agreement of Lease dated July 24, 1987 between J. R.
Annapolis Associates and Clark Melvin Financial
Services, Inc. (incorporated by reference to
Exhibit 10.2 filed with Form 10-K for the year ended
December 31, 1988).
10.2 First Amendment of Agreement of Lease dated
January 15, 1988 between J. R. Annapolis
Associates and Clark Melvin Financial Services,
Inc. (incorporated by reference to Exhibit 10.3 filed
with Form 10-K for the year ended December 31, 1988).
10.3 Second Amendment to Lease Agreement dated July 19,
1991 by and between J.R. Annapolis Associates,
Clark Melvin Financial Services, Inc. and the Company
(incorporated by reference to Exhibit 10.3 filed with
Form 10-K for the year ended December 31, 1991).
10.4 Agreement of Lease dated March 28, 1991 between Banco
Popular de Puerto Rico and the Company (incorporated
by reference to Exhibit 10.4 filed with Form 10-K for
the year ended December 31, 1991).
10.5 Clark Melvin Securities Corporation 1989 Stock
Option Plan (incorporated by reference to Exhibit
10.4 filed with Form 10-K for the year ended December
31, 1989).
10.6 Clark Melvin Securities Corporation Stock Bonus
Plan (incorporated by reference to Exhibit 10.5
filed with Form 10-K for the year ended
10.7 Stock Exchange Agreement dated August 17, 1990 by
and among Azimuth Capital Corporation, the
Azimuth Group, the Company and Lawrence T. Lewis,
III (incorporated by reference to Exhibit 10.6 filed
with Form 10-K for the year ended December 31, 1990).
21. Subsidiaries of the Company (incorporated by
reference to Exhibit 22 filed with Form 10-K for the
year ended December 31, 1991).
(b) The Company did not file a report on Form 8-K for the quarter ended
December 31, 1995.
35
<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.
CLARK MELVIN SECURITIES CORPORATION
(Registrant)
By: /s/Irene M. Harr
Irene M. Harr
Senior Vice President and
Chief Financial Officer
Date: March 28, 1996
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 in the capacities and on the dates indicated.
Signature Title Date
/s/ Cesar A. Montilla, Jr. Chairman, President, Chief March 28, 1996
Cesar A. Montilla, Jr. Executive Officer and Director
(Principal Executive Officer)
/s/ Irene M. Harr Senior Vice President and Chief March 28, 1996
Irene M. Harr Financial Officer (Principal
Financial and Accounting Officer)
/s/ James Finn Director March 28, 1996
James Finn
/s/ Aurelio Emanuelli Director March 28, 1996
Aurelio Emanuelli
