SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: September 30, 1997
Commission File Number: 000-17129
Clark Melvin Securities Corporation
(Exact name of registrant as specified in its charter)
Delaware 52-0749204
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1414 Banco Popular Center, Hato Rey, PR 00918
- ---------------------------------------------------
(Address of principal executive offices) (Zip Code)
787-759-8080
- ----------------------------------------------------
(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 the registrant's common stock, $.01 par value per share,
outstanding as of September 30, 1997 was 18,523,096.
<PAGE>
CLARK MELVIN SECURITIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The statement of financial position as of September 30, 1997, the statements of
operations for the nine month period ended September 30, 1997, and 1996 and the
statements of cash flows for the nine month period ended September 30, 1997 and
1996 have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly present the financial position at September 30, 1997 and for
all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's December 31, 1996 Annual Shareholder Report.
The results of operations for the period ended September 30, 1997 are not
necessarily indicative of the operating results for the full year.
2. FIRM TRADING SECURITIES
Firm trading securities consisted of the following:
September 30, December 31,
1997 1996
------------- ------------
Corporate Equities $ 367,070 $ 0.00
3. STOCKHOLDERS' EQUITY
Profit (Loss) per share of common stock is calculated by dividing net profit
(loss), less the preferred stock dividend requirement by the weighted average
number of common shares outstanding during the period, which was 18,523,096
shares.
4. INCOME TAXES
During 1992 the Company adopted Financial Accounting Statement No. 109,
Accounting for Income Taxes. The Company recorded no benefit from income taxes
in 1996 and a valuation allowance was provided for the deferred asset of
$683,000.
Temporary differences between amounts reported for financial reporting purposes
and income tax purposes are insignificant.
5. NET CAPITAL REQUIREMENTS
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 and requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1. The Rule also provides that equity
capital may not be withdrawn or cash dividends paid if the resulting net capital
ratio would exceed 10 to 1.
As of September 30, 1997 the Company has a negative net capital of approximately
$831,208 which was approximately a $931,208 deficit of its required net capital
and the Company's ratio of aggregate indebtedness to net capital was -2.09. As
of December 31, 1996 the Company had net capital of approximately $216,326,
which was approximately $116,326 in excess of its required net capital and the
Company's ratio of aggregate indebtedness to net capital was 1.90.
<PAGE>
6. EXTRAORDINARY EVENT
On September 23, 1997 the Company discovered that one of its brokers had
fraudulently endorsed and misappropriated the funds from over fifteen clients.
This led to an internal effort to review all customer accounts related to the
said broker. The management of the Company immediately informed the FBI and SEC
of the matter and of its internal review results.
On October 9, 1997, the Company filed a report pursuant to Rule 17a-11
promulgated under the Securities Investor Protection Corporation (SIPC) Exchange
Act of 1934 to report the misappropriation of an aggregate of approximately $2.4
million in funds through the fraudulent endorsement of checks written by the
Company and its clients. The investigation by the Puerto Rico Commissioner of
Financial Institutions, Federal Bureau of Investigation and the Securities
Exchange Commission is ongoing, but has so far revealed evidence that one of the
Company's brokers forged endorsements on approximately $ 2.4 million in checks
and wrongfully deposited them into third-party accounts. The Company voluntarily
suspended operations on October 9, 1997 due to the misappropriation and to
determine the effect on the Company's net capital position.
On November 3, 1997 the Company entered into an agreement with SIPC and SEC
whereby the Company would cease operations as a broker-dealer based on the
determination by SIPC that the customers of the Company were in need of
protection available under the Securities Investor Protection Corporation (SIPC)
Investor Protection Act. The Company has been assigned a fiscal agent by SIPC
and is currently implementing a liquidation plan to pay all customer claims.
NEGOTIATIONS WITH SAMUEL A. RAMIREZ & CO.
Subsequent to ceasing operations in October, the Company entered into
negotiations with S. Ramirez & Co., a New York based broker dealer. The
negotiations are ongoing and expect to be completed in six months at a price yet
to be determined.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
REVENUES
Total revenues increased 67% through the third quarter of 1997 compared to the
same period in 1996.
Commission increased by 37% due to increases in sales transactions.
The 132% increase for the first nine months of 1997 in advisory and fee income
over the same period in 1996 is primarily due to increased activity in corporate
finance.
Interest and dividend income for the third quarter of 1997 are comparable to
those over the same period in 1996.
As of September 30, 1997, margin income decreased by 38% over the same period in
1996, primarily due to variations in margin deposit balances.
Trailer Fees increased by 40% through the third quarter of 1997 compared to the
same period in 1996 due to an increase in size of money market funds and mutual
funds.
Miscellaneous Income increased significantly during the first nine months of
1997 compared to that of 1996, primarily due to the consolidation of subsidiary
activity.
EXPENSES
Overall, expenses increased 60% through the third quarter of 1997 compared to
that of 1996, primarily due to increased sales and marketing efforts.
Compensation and benefits increased by 66% due to increases in sales
transactions and to the addition of subsidiary activity.
Occupancy expense during the third quarter of 1997 are comparable to those over
the same period in 1996.
Business development expenses increased by 184% through the third quarter of
1997 compared to expenses made over the same period in 1996, primarily due to an
increase in marketing for all departments.
Communication expenses through the third quarter of 1997 decreased by 18%
compared to those during the same period in 1996 due to continued cost-cutting
measures.
The 125% increase in other expenses for the first six months of 1997 is due
primarily to ongoing accounting reclassifications and to the addition of
subsidiary activities.
FINANCIAL POSITION, LIQUIDITY, AND CAPITAL RESOURCES
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 September 30,
1997 the Company's negative net capital was approximately $831,208 which was in
violation by approximately $931,208 in deficit of its required net capital.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company's annual meeting of stockholders was held on June 20, 1997, at which
the following directors were elected by the votes indicated:
For Withhold
--- --------
Aurelio Emanuelli All
James Finn All
Guillermo L. Martinez All
Cesar Montilla, Jr. All
Joaquin Rodriguez All
Juan Perez Toledo All
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Clark Melvin Securities Corporation
-----------------------------------
(Registrant)
By: /s/ Irene M. Harr
____________________________
Irene M. Harr
Chief Financial Officer
Date: November 13, 1997
<PAGE>
PART 1: FINANCIAL INFORMATION
CLARK MELVIN SECURITIES CORPORATION
STATEMENT OF FINANCIAL POSITION
(Unaudited)
September 30 December 31
1997 1996
ASSETS
Cash & Savings $ 652,810 $ 405,609
Deposit with Clearing Broker 100,000 100,000
Broker & Dealer Receivable 215,763 130,414
Accounts Receivable 73,308 399,020
Firm Trading Securities & Investments 367,070 0
Prepaid Expenses 47,672 40,557
Other Assets 31,235 6,946
----------- -----------
Total Current Assets $ 1,487,858 $ 1,082,546
Furniture/Fixtures/Leasehold
(net of accum. depreciation and amortization) $ 74,099 $ 32,148
Subsidiaries 14,506 1,000
Organizational Expenses 0 6,506
----------- -----------
Total Long-Term Fixed Assets 88,605 39,654
Total Assets $ 1,576,463 $ 1,122,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Payable to clearing broker $ 360,750 $ 12,317
Accounts payable and accrued liabilities 365,775 397,762
Reserve for Extraordinary 1,370,055 0
----------- -----------
Total Liabilities $ 2,096,580 $ 410,079
Stockholders' equity
Common stock, 40,000,000 shares
18,523,096 issued & outstanding $ 185,231 $ 185,231
Preferred stock, 145,000 shares 145,000 145,000
Additional Paid-in Capital 2,888,028 2,888,028
Retained Earnings (2,473,751) (2,662,100)
Treasury stock - preferred (35,000) (35,000)
Current Period Profit / (Loss) (1,229,625) 190,962
----------- -----------
Total Stockholder's Equity $ (520,117) $ 712,121
Total Liabilities & Stockholders' Equity $ 1,576,463 $ 1,122,200
=========== ===========
<PAGE>
CLARK MELVIN SECURITIES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
Increase (Decrease) in cash 1996 1997
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $(1,229,625) $ 13,874
Adjustments to reconcile net profit (loss) to net
cash (used for) provided by operating activities:
Depreciation and amortization 18,516 22,396
(Increase) decrease in operating assets:
Receivables:
Brokers and dealers (85,350) 38,181
Employee advances (6,766) (5,756)
Other (14,778) 4,702
Firm trading securities/Investments (367,070)
Securities sold short
Other 309,267 19,893
Increase (decrease) in operating liabilities:
Payable to clearing broker 348,506 (3,169)
Accounts payable and accrued liabilities (32,060) (78,755)
Accounts payable reserve for extraordinary
expenses 1,370,055
----------- --------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVIT$ES 310,695 $ 11,366
=========== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment and leasehold improvements (60,467) (5,083)
Proceeds from sales of other investments
----------- --------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVIT$ES (60,467) $ (5,083)
=========== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock
Payment of preferred stock dividend (2,613) (5,130)
Redemption of preferred stock
Payment of subscriptions
----------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVIT$ES (2,613) $ (5,130)
=========== ========
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 247,615 $ 1,153
=========== ========
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 405,195 $265,243
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 157,580 $264,090
=========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 2,894 $ 1,071
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CLARK MELVIN SECURITIES CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C>
REVENUES
Commissions $ 569,792 $ 427,564 $ 1,501,254 $ 1,096,835
Advisory and Fee Income 280,272 135,250 704,125 302,910
Interest / Dividends 4,475 5,072 14,224 15,155
Margin 6,572 12,527 20,876 33,818
Trailer Fees 25,641 20,596 72,567 51,906
Miscellaneous 69,693 3,575 241,952 25,459
----------- ----------- ----------- -----------
Total Revenues $ 956,445 $ 604,584 $ 2,554,998 $ 1,526,083
EXPENSES
Compensation and Benefits $ 562,658 $ 355,841 $ 1,448,022 $ 871,514
Clearing Fees 37,386 43,252 125,129 127,546
Occupancy 47,380 34,669 114,604 104,013
Business Development 42,791 6,016 108,986 38,431
Interest 412 1,071 1,489 3,904
Communications 40,132 49,986 119,509 146,009
Other 157,925 30,296 496,829 220,792
----------- ----------- ----------- -----------
Total Expenses $ 888,684 $ 521,131 $ 2,414,568 $ 1,512,209
Profit / (Loss) Before Income Taxes $ 67,761 $ 83,453 $ 140,430 $ 13,874
=========== =========== =========== ===========
Extraordinary Expense 1,370,055 -- 1,370,055 --
Income Taxes:
Current Tax Expense -- -- -- --
Benefit of Loss Carryover -- -- -- --
----------- ----------- ----------- -----------
Net Profit (Loss) $(1,302,294) $ 83,453 $(1,229,625) $ 13,874
=========== =========== =========== ===========
Profit (Loss) per common share $ (0.07) $ 0.00 $ (0.07) $ 0.00
=========== =========== =========== ===========
</TABLE>
Accompanying notes are an integral part of these financial statements.
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 652,810
<RECEIVABLES> 289,071
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 74,099
<TOTAL-ASSETS> 1,576,463
<SHORT-TERM> 1,487,858
<PAYABLES> 2,096,580
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
145,000
0
<COMMON> 185,231
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,576,463
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 4,475
<COMMISSIONS> 569,792
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 280,272
<INTEREST-EXPENSE> 412
<COMPENSATION> 562,658
<INCOME-PRETAX> 67,761
<INCOME-PRE-EXTRAORDINARY> 67,761
<EXTRAORDINARY> 1,370,055
<CHANGES> 0
<NET-INCOME> (1,302,294)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
