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, 1996
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 28, 1997, was
$86,218.
The number of shares of the registrant's Common Stock, $.01
par value, outstanding as of February 28, 1997, was 18,523,096.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Information Statement for the
1997 Annual Meeting of Stockholders are incorporated by reference into Part III.
2
<PAGE>
PART I
Item 1. Business.
Overview
Clark Melvin Securities Corporation (the "Company"),
incorporated in Delaware in December 1987, is the successor by merger to the
firm Clark Melvin Securities Corporation, a Maryland corporation which was
founded in 1960 as Clark, Melvin & Co., Inc. The Company is engaged in
securities brokerage and trading, primarily serving individual investors and
financial institutions, from offices located in Annapolis, Maryland and Hato
Rey, Puerto Rico. In addition, the Company effects transactions in fixed income,
equity and other securities, both as principal and agent. In 1996, the Company's
total revenues were derived approximately 62% from individual investors,
including interest on margin accounts, 3% from institutional investors and the
balance from other activities. The Company is a member of the National
Association of Securities Dealers, Inc. (the "NASD").
In April 1991 the Company issued 14,461,176 shares of Common
Stock in exchange for all of the shares of Azimuth Capital Corporation, a Puerto
Rico corporation. In January 1992, the Company consummated the purchase of
certain assets of Perkins-DeMaris, Inc., an Annapolis, Maryland based securities
brokerage firm.
At December 31, 1996, the Company had 31 employees (including
24 registered representatives) in its Hato Rey, Puerto Rico office and 8
employees (including 5 registered representatives) in its Annapolis, Maryland
office.
3
<PAGE>
The following table sets forth the Company's various sources
of revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C>
Securities commissions:
Listed.......................$ 459,856 $ 441,663 $ 325,909
OTC agency transactions...... 405,147 175,629 186,736
Options...................... 98,895 39,294 19,753
Limited partnerships......... 57,562 17,869 114,481
Mutual funds................. 41,783 45,022 87,861
Interest and other income......... 300,977 150,395 213,482
Advisory and fee income........... 724,825 306,472 653,048
Principal transactions............ 488,535 1,128,470 850,036
---------- ---------- ----------
Total revenues............... $2,577,580 $2,302,814 $2,451,306
========== ========== ==========
</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 1996 and 1995, retail securities commissions constituted
approximately 91% and 91%, respectively, of total revenues from securities
commissions and approximately 41% and 31%, respectively, of the Company's total
revenues. As of December 31, 1996, the Company had approximately 1375 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
4
<PAGE>
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 1996 and 1995, revenues derived
from broker-dealer services to institutional investors constituted approximately
5% and 28%, respectively, of total revenues from securities commissions and
customer-related principal transactions and 3% and 22%, 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 (30% equity or $3.00 per share). 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 1996 and 1995, 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 1996 and 1995, revenue from principal transactions comprised
approximately 19% and 49%, 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
5
<PAGE>
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, 1996, the Company had 8 professionals
engaged in corporate finance. In 1996 and 1995, revenues from this area
constituted 21% and 10%, 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, 1996, the Company had 2 professionals
engaged in identifying potential underwriting opportunities. During fiscal 1996
and 1995, the Company's participation in underwriting syndicates generated
revenue constituting 1% and 4%, 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 1996 and
1995, revenue from these activities was not material.
6
<PAGE>
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, 1996, the Company had four 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. Fees paid to DLJ for 1996 were
$151,309.
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 $50,000,000 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
7
<PAGE>
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, Colorado, 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 (primarily 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
8
<PAGE>
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, 1996 the Company's ratio of
aggregate indebtedness to net capital was 1.9 to 1, net capital was
approximately $216,326, 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, 1996, the Company employed 39 persons, 25
of whom are full-time employees and 14 of whom are part-time employees. Of the
full-time employees, 15 are employed as registered representatives and 11 are
employed in administration and finance. All of the part-time employees are
employed as registered representatives.
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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.
12
<PAGE>
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 1996 and 1995, rental expense
was $160,957 and $155,082, 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. See Note 11 to Consolidated Financial Statements.
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, 70, 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.
13
<PAGE>
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
There was no offered bid for the Common Stock during 1995 or
1996.
The approximate number of stockholders of record as of December 31,
1996 was 360. 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.
14
<PAGE>
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C>
OPERATING RESULTS
Revenues $2,577,580 $2,302,814 $2,451,306 $2,411,007 $1,790,404
Operating expenses 2,386,618 2,293,912 2,723,676 2,304,294 2,064,864
---------- ---------- ---------- ---------- ----------
(Loss) earnings before
income taxes 190,962 $ 8,902 $ (272,370) $ 106,713 $ (274,460)
Income taxes
0 0 0 0 0
---------- ---------- ---------- ---------- ----------
Net earnings (loss) 190,962 $ 8,902 $ (272,370) $ 106,713 $ (274,460)
========== ========== ========== ========== ==========
PER SHARE DATA
Earnings (loss) per
common share $ .01 $ ---- $ (0.01) $ 0.01 $ (0.01)
========== ========== ========== ========== ==========
FINANCIAL POSITION
Total assets 1,122,200 $ 764,954 $ 553,481 $ 879,248 $ 605,339
Total stockholders'
equity $ 712,121 $ 531,490 $ 438,851 $ 646,603 $ 453,543
</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:
15
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
Revenues:
Commissions $1,063,243 $ 717,477 $ 734,740
Principal Transactions 488,535 1,128,470 850,036
Advisory & Fee Income 724,825 306,472 653,048
Interest & Other Income 300,977 150,395 213,482
---------- ---------- ----------
Total Revenues $2,577,580 $2,302,814 $2,451,306
========== ========== ==========
Expenses as percentages:
Compensation and benefits 59% 58.5% 58.8%
Clearing and exchange fees 8% 7.1% 5.8%
Occupancy and equipment rental 11% 13.4% 14.6%
Business development 4% 3.2% 5.6%
Interest .2% .001% .7%
Communications 8% 8.7% 9.6%
Other 9% 7.0% 16.1%
</TABLE>
Revenues
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Total revenues increased 12% through the fourth quarter of 1996
compared to the same period in 1995 due to an increase in completed projects by
the corporate division.
Commissions increased by 48% due to increases in OTC agency
transactions, options commissions, and activity with limited partnerships.
The 137% increase for 1996 in advisory and fee income over the same
period in 1995 is primarily due to increased volume of activity in the corporate
division.
Interest and other income through the fourth quarter of 1996
increased by 100% over the same period in 1995 due to the overall increase in
company revenue.
16
<PAGE>
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.
Expenses
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Overall, expenses increased by 4% through the fourth quarter of 1996
compared to that of 1995.
Compensation and benefits through the fourth quarter of 1996 are
comparable to those over the same period in 1995.
The 22% increase in clearing and exchange expenses through the fourth
quarter of 1996 compared to that of 1995 is due to increased volume.
The 12% decrease through the fourth quarter in occupancy expenses over
the same period in 1995 is due to a move made by the Annapolis office to smaller
quarters.
The 7% decrease in communication expenses through the fourth quarter of
1996 is due to continuing cost-cutting measures.
Business development expenses increased by 38% by the end of 1996
compared to expenses incurred over the same period in 1995 primarily due to an
increase in advertising.
The 30% increase in other expenses for 1996 compared to 1995 is due
primarily to an overall increase in volume and activity.
17
<PAGE>
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.
Net (Loss) Earnings and the Provision (Benefit) for Income Taxes
The Company had net earnings of $190,962 in 1996. 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 net earnings of $8,902 in 1995 compared to a net loss
of $272,370 in 1994.
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,
1995, the Company's net capital was approximately $358,274, which exceeded the
minimum net capital by $258,274. As of December 31, 1996, the Company's net
capital was approximately $216,326, which exceeded the minimum net capital
requirement by $116,326.
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 December 31,
1996, the
18
<PAGE>
Company's net capital was approximately $216,326 which was
approximately $116,326 in excess of its required net capital.
19
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 18
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 19
CONSOLIDATED STATEMENTS OF EARNINGS 20
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 21
CONSOLIDATED STATEMENTS OF CASH FLOWS 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24
20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
Board of Directors
Clark Melvin Securities Corporation
We have audited the accompanying consolidated statements of financial condition
of Clark Melvin Securities Corporation and subsidiaries as of December 31, 1996
and 1995 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. 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 and per share data
and ratios 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Clark Melvin
Securities Corporation and subsidiaries as of December 31, 1996 and 1995 and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Baltimore, Maryland
January 23, 1997
21
<PAGE>
Clark Melvin Securities Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
================================================================================
ASSETS 1996 1995
---------- ----------
Cash $ 405,195 $ 265,243
Receivables
Brokers and dealers 129,376 201,123
Advisory fee 300,000 -
Employee advances 20,984 15,990
Other 79,489 74,763
Deposit with clearing broker 100,000 125,979
Other 55,008 27,430
Office equipment and leasehold improvements, net
of accumulated depreciation and amortization of
$271,073 ($327,879 in 1995) 32,148 54,426
---------- ----------
Total assets $ 1,122,200 $ 764,954
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to clearing broker $ 12,317 $ 6,095
Accounts payable and accrued liabilities 397,762 227,369
----------- -----------
Total liabilities 410,079 233,464
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock 145,000 145,000
Common stock 185,231 185,231
Additional paid-in capital 2,888,028 2,888,028
Accumulated deficit (2,471,138) (2,651,769)
Treasury stock, at cost (35,000) (35,000)
---------- ---------
Total stockholders' equity 712,121 531,490
---------- ---------
Total liabilities and stockholders'
equity $ 1,122,200 $ 764,954
========== =========
The accompanying notes are an integral part of these financial statements
22
<PAGE>
Clark Melvin Securities Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31,
================================================================================
1996 1995 1994
------------ ------------ ------------
Revenues:
Principal transactions $ 488,535 $1,128,470 $ 850,036
Commissions 1,063,243 717,477 734,740
Advisory and fee income 724,825 306,472 653,048
Interest and other income 300,977 150,395 213,482
---------- ---------- ----------
Total revenues 2,577,580 2,302,814 2,451,306
Expenses:
Compensation and benefits 1,411,957 1,384,134 1,440,221
Clearing and exchange fees 201,082 164,157 142,590
Occupancy and equipment rental 271,123 307,547 357,558
Communications 185,780 200,116 234,701
Business development 101,033 73,358 136,756
Interest 5,916 2,687 16,180
Other 209,727 161,913 395,670
---------- ---------- ----------
Total expenses 2,386,618 2,293,912 2,723,676
---------- ---------- ----------
EARNINGS (LOSS) $ 190,962 $ 8,902 $ (272,370)
========== ========== ==========
Earnings (loss) per common share $ .01 - $ (.01)
========== ========== ==========
The accompanying notes are an integral part of these financial statements
23
<PAGE>
Clark Melvin Securities Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
1996, 1995 and 1994
================================================================================
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- --------------------------
Shares Amount Shares Amount
--------- ---------- ---------- ----------
<S> <C>
Balance at January 1, 1994 260,000 $ 260,000 17,332,536 $173,326
Subscriptions collected - - - -
Common stock issued - - 1,195,460 11,954
Retirement of common stock
held in treasury - - (4,900) (49)
Preferred stock dividend - - - -
Acquisition of preferred
stock for treasury - - - -
Retirement of preferred stock (115,000) (115,000) - -
Net loss - - - -
-------- ---------- ---------- --------
Balance at December 31, 1994 145,000 145,000 18,523,096 185,231
Subscriptions collected - - - -
Preferred stock dividend - - - -
Net earnings - - - -
Acquisition of preferred
stock for treasury - - - -
--------- ---------- ---------- --------
Balance at December 31, 1995 145,000 145,000 18,523,096 185,231
Preferred stock dividend - - - -
Net loss - - - -
--------- ---------- ---------- --------
Balance at December 31, 1996 145,000 $ 145,000 18,523,096 $185,231
========= ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Paid-in Accumulated Treasury Subscription
Capital (Deficit) Stock Receivable Total
---------- ------------ ---------- ---------- -----------
<S> <C>
Balance at January 1, 1994 $2,815,767 $(2,361,227) $ (1,906) $(239,357) $ 646,603
Subscriptions collected - - - 113,139 113,139
Common stock issued 74,118 - - - 86,072
Retirement of common stock
held in treasury (1,857) - 1,906 - -
Preferred stock dividend - (14,593) - - (14,593)
Acquisition of preferred
stock for treasury - - (115,000) - (115,000)
Retirement of preferred stock - - 110,000 - (5,000)
Net loss - (272,370) - - (272,370)
---------- ----------- --------- --------- ---------
Balance at December 31, 1994 2,888,028 (2,648,190) (5,000) (126,218) 438,851
Subscriptions collected - - - 126,218 126,218
Preferred stock dividend - (12,481) - - (12,481)
Net earnings - 8,902 - - 8,902
Acquisition of preferred
stock for treasury - - (30,000) - (30,000)
---------- ----------- --------- --------- ---------
Balance at December 31, 1995 2,888,028 (2,651,769) (35,000) - 531,490
Preferred stock dividend - (10,331) - - (10,331)
Net loss - 190,962 - - 190,962
---------- ----------- --------- --------- ---------
Balance at December 31, 1996 $2,888,028 $(2,471,138) $ (35,000) $ - $ 712,121
========== =========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
24
<PAGE>
Clark Melvin Securities Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
================================================================================
<TABLE>
<CAPTION>
Increase (decrease) in cash 1996 1995 1994
---------- ---------- ----------
<S> <C>
Cash flows from operating activities
Net earnings (loss) $ 190,962 $ 8,902 $(272,370)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 27,361 44,652 51,701
Changes in operating assets:
Receivables
Clearing broker deposit 25,979 (25,979) -
Brokers and dealers 71,747 (147,872) 292,177
Employee advances (4,994) 9,661 (14,540)
Other (304,726) (64,058) 9,701
Firm trading securities - 4,800 (4,784)
Other assets (27,578) 8,380 (1,421)
Payable to clearing broker 6,222 (5,188) (6,082)
Securities sold short - - (107,950)
Accounts payable and accrued
liabilities 170,393 124,022 (3,983)
--------- --------- ---------
Net cash provided by (used in)
operating activities 155,366 (42,680) (57,551)
Cash flows from investing activities
Purchases of office equipment and leasehold
improvements (5,083) (10,936) (35,856)
--------- --------- ---------
</TABLE>
25
<PAGE>
Clark Melvin Securities Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS, CON'T
Years ended December 31,
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C>
Cash flows from financing activities
Collections on subscriptions receivable - 126,218 113,139
Acquisition of treasury stock - (30,000) (115,000)
Proceeds from issuance of common stock - - 84,166
Payment of dividends on preferred stock (10,331) (12,481) (14,593)
Other - - (3,094)
-------- -------- ---------
Net cash (used in) provided by
financing activities (10,331) 83,737 64,618
-------- -------- ---------
NET INCREASE (DECREASE)
IN CASH 139,952 30,121 (28,789)
Cash at beginning of year 265,243 235,122 263,911
-------- -------- ---------
Cash and at end of year $405,195 $265,243 $ 235,122
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for interest $ 5,916 $ 2,687 $ 16,180
======== ======== ========
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
26
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS
Clark Melvin Securities Corporation (Clark Melvin) is incorporated in the
State of Delaware. Clark Melvin is registered as both a broker/dealer in
securities and an investment adviser with the Securities and Exchange
Commission. In this capacity, it executes principal transactions and
performs underwriting and investment banking services. Clark Melvin
conducts business primarily with its clearing broker on behalf of its
customers and for its own proprietary accounts. Clark Melvin's customers
are primarily located in the mid-Atlantic region and in Puerto Rico.
The consolidated financial statements include the accounts of Clark Melvin
and its wholly-owned subsidiaries, CineFund Management Corporation (Cine)
and CMS Credit Corporation (CMS) (collectively "the Company"). Clark
Melvin conducts the primary business of the Company. Cine is engaged in
the management of Puerto Rico investment funds for which Clark Melvin acts
as the underwriting agent. CMS is inactive at December 31, 1996.
All material intercompany balances and transactions are eliminated in
consolidation.
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.
27
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
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 in 1996 and 1995, respectively,
which have been amortized over 60 months on the straight-line method.
In 1996, Clark Melvin acquired a noncontrolling 50% interest in Irurena
Management Company (Irurena). This investment is accounted for under the
equity method. The Company's proportionate share of the net income of
Irurena is included in the accompanying consolidated financial statements.
The net assets and revenue of Irurena were not material at December 31,
1996.
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 1996 and 1995, and 17,853,375 in 1994). 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.
28
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 (resigned December, 1995) was
approximately $178,800 and $119,300 in 1995 and 1994, respectively based
primarily on commissions earned as a broker of the Company. The President
and CEO, also a major stockholder, earned compensation of approximately
$133,000, $117,000 and $135,800 in 1996, 1995 and 1994, respectively. A
significant portion of his compensation was based on commissions earned.
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 were approximately $20,000. No fees were charged
subsequently.
NOTE 4 - ADVISORY FEE RECEIVABLE
Effective October 29, 1996, the Company earned a $300,000 advisory fee
from a customer for services rendered in connection with the modification
of the customer's mortgage loan with the U.S. Department of Housing and
Urban Development (HUD).
The Company holds a promissory note for the amount of the fee payable by
its customer and expects payment upon final approval by HUD of the
transaction documentation.
29
<PAGE>
NOTE 5 - PAYABLE TO CLEARING BROKER
Substantially all of the clearing and depository operations for the
Company's proprietary transactions are performed by a clearing broker.
Amounts due the clearing broker at December 31, 1996 and 1995 represent
fees for services provided.
The Company has agreed to indemnify the clearing broker for losses it may
sustain as a result of the failure of the Company's customers to satisfy
their obligations in connection with securities transactions. As of
December 31, 1996, no customers of the Company held short or unsecured
positions.
NOTE 6 - COMMITMENTS
The Company conducts operations in two facilities. One lease which expires
in July, 2001, is renewable at the market rental. The other lease expired
in March, 1996; the Company continues payment at the lease rate. Rent
expense was $160,757, $153,467 and $161,412 in 1996, 1995 and 1994,
respectively. The minimum annual rental commitments through the end of the
present lease term is approximately $59,000 in 1997, $61,400 in 1998,
$63,800 in 1999, $66,400 in 2000 and $33,800 in 2001.
The Company leased for $20,400 in 1994 certain office furniture from a
company owned by a relative of a major shareholder.
NOTE 7 - STOCKHOLDERS' EQUITY
The authorized shares of capital stock were as follows:
Preferred stock, cumulative, $1.00 par value, callable; authorized
1,000,000 shares.
Common stock, $.01 par value; authorized 40,000,000 shares.
30
<PAGE>
NOTE 7 - STOCKHOLDERS' EQUITY - Continued
The preferred stock is callable at par. Dividends at the annual rate of 1%
over the prime rate, as determined on the date of payment, are paid
quarterly. Substantially all outstanding preferred shares are held by
related parties.
In January 1989 the Board of Directors adopted a key employee restricted
stock award plan and a stock option plan. 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 grants is charged to compensation expense over
the periods in which the employees are providing the related services. As
of December 31, 1996, twenty-two employees had been granted 1,500,000
shares in the aggregate.
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
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. Options granted and outstanding under this plan are
not material at December 31, 1996.
In 1994, the Company approved a separate stock option plan for its
President and in May 1994, granted options for 1,752,500 shares of
common stock at $.05 a share. These options expire after five years.
No options were granted, exercised, forfeited or canceled in 1996 or 1995
for either plan.
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.
31
<PAGE>
NOTE 7 - STOCKHOLDERS' EQUITY - Continued
Subscriptions receivable arose from the sale of common stock in 1991 for
four notes receivables of $100,000, each maturing in 1991 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 have been shown as a reduction in stockholders'
equity. All subscriptions receivable had been collected as of December 31,
1995.
NOTE 8 - INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". Temporary differences between amounts
reported for financial reporting purposes and income tax purposes are
insignificant. The deferred tax asset related to the Company's loss
carryforwards amounts to approximately $683,000 and $751,000 at December
31, 1996 and 1995, respectively. The full amount of this asset was
reserved.
Net operating loss carryforwards for income tax purposes are approximately
$1,816,000 and expire between years 2005 and 2009.
Reconciliation of income taxes:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C>
Federal statutory income tax rate 34% 34% 34%
========= ========= =========
Income taxes (benefit) at statutory rate $ 82,500 $ 14,790 $(92,606)
Effect of net operating loss carryforward
deferred (utilized) (82,500) (14,790) 92,606
--------- --------- ---------
Income tax $ - $ - $ -
========= ========= =========
</TABLE>
32
<PAGE>
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, 1996 the Company had net capital of $216,326, which was
$116,326 in excess of its requirement.
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 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.
33
<PAGE>
NOTE 11 - PENDING LITIGATION - Continued
Management believes it has meritorious defenses and will prevail against
all parties. However, in the interest of conservatism, it has provided
additional reserves of $10,000 and $33,000 in 1996 and 1995, respectively
against the litigation and costs associated with these suits.
34
<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 1997 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 1997 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 1997
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 1997 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:
35
<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).
36
<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).
27. Financial Data Schedule
(b) The Company did not file a report on Form 8-K for the quarter ended
December 31, 1996.
37
<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, 1997
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, 1997
- --------------------------- Executive Officer and Director
Cesar A. Montilla, Jr. (Principal Executive Officer)
/s/ Irene M. Harr Senior Vice President and Chief March 28, 1997
- --------------------------- Financial Officer (Principal
Irene M. Harr Financial and Accounting Officer)
/s/ James Finn Director March 28, 1997
- ---------------------------
James Finn
/s/ Aurelio Emanuelli Director March 28, 1997
- ---------------------------
Aurelio Emanuelli
/s/ Joaquin Rodriguez Director March 28, 1997
- ---------------------------
Joaquin Rodriguez
/s/ Guillermo L. Martinez
- --------------------------- Director March 28, 1997
Guillermo L. Martinez
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 405,195
<RECEIVABLES> 529,849
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 32,148
<TOTAL-ASSETS> 1,122,200
<SHORT-TERM> 1,082,547
<PAYABLES> 410,079
<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> 1,122,200
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 21,055
<COMMISSIONS> 1,063,243
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 724,825
<INTEREST-EXPENSE> 5,916
<COMPENSATION> 1,411,957
<INCOME-PRETAX> 190,962
<INCOME-PRE-EXTRAORDINARY> 190,962
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190,962
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
