<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______to_______
Commission File No. 0-6729
FIRST MONTAUK FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1737915
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
PARKWAY 109 OFFICE CENTER, 328 NEWMAN SPRINGS RD., RED BANK, NJ 07701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 842-4700
___________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the Registrant (l) 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
--- ---
7,956,406 Common Shares, no par value were outstanding as of November 14, 1995.
Page 1 of 13
<PAGE> 2
FIRST MONTAUK FINANCIAL CORP.
FORM 10-QSB
SEPTEMBER 30, 1995
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statement of Financial Condition
as of September 30, 1995 and December 31, 1994.............................. 3
Consolidated Statement of Income for the
Three Months ended September 30, 1995 and 1994
and Nine months ended September 30, 1995 and 1994 ......................... 4
Consolidated Statement of Cash Flows for the
Nine Months ended September 30, 1995 and 1994............................. 5-6
Notes to Financial Statements ................................................ 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................... 9-11
PART II. OTHER INFORMATION:
Item 5. Other Information.................................................... 12
Item 6. Exhibits and Reports on Form 8-K..................................... 12
Signatures ................................................................... 13
</TABLE>
2
<PAGE> 3
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 766,141 $ 673,951
Securities owned, at market 6,248,101 4,917,218
Commissions receivable 292,551 132,967
Employee and broker receivables 476,087 514,267
Fixed assets - net 650,653 553,947
Prepaid expenses and other assets 339,063 79,368
Due from officers 157,331 151,154
Deferred tax asset 31,191 59,395
---------- ----------
Total assets $8,961,118 $7,082,267
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to clearing organization $ 479,176 $2,279,250
Securities sold, but not yet purchased, at market 1,737,261 454,982
Loan payable - bank 54,028 73,478
Commissions payable 1,428,718 752,196
Accounts payable 912,512 325,949
Income taxes payable 352,424 25,279
Other liabilities 268,773 155,411
---------- ----------
Total liabilities 5,232,892 4,066,545
---------- ----------
Commitments and contingencies (See Notes)
STOCKHOLDERS' EQUITY
Preferred Stock, 5,000,000 shares authorized, $.10 par value,
no shares issued and outstanding -- --
Common Stock, no par value, 15,000,000 shares
authorized, 8,007,190 and 8,112,406 shares issued
and outstanding, respectively 3,297,707 3,296,027
Additional paid-in capital 424,206 427,021
Less: Treasury stock - 108,200 shares, at cost (89,238) --
Retained earnings (deficit) 95,551 (707,326)
---------- ----------
Total stockholders' equity 3,728,226 3,015,722
---------- ----------
Total liabilities and stockholders' equity $8,961,118 $7,082,267
========== ==========
</TABLE>
See notes to financial statements.
3
<PAGE> 4
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Nine months ended September 30, Three months ended September 30,
1995 1994 1995 1994
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES
Net firm trading gains $ 6,947,684 $ 6,081,670 $2,826,631 $2,099,496
Commissions 12,198,847 7,199,208 5,055,209 2,416,418
Investment banking 194,855 899,828 63,898 71,675
Interest and other income 647,065 436,605 199,239 158,641
----------- ----------- ---------- ----------
19,988,451 14,617,311 8,144,977 4,746,230
----------- ----------- ---------- ----------
EXPENSES
Compensation and benefits 13,746,682 11,058,864 5,533,745 3,531,870
Clearing charges 2,258,753 1,334,314 967,006 443,960
Communication operating expenses 869,677 674,048 336,895 267,998
Other operating expenses 1,618,416 1,040,918 654,228 390,327
Interest 158,615 105,685 39,775 21,747
----------- ----------- ---------- ----------
18,652,143 14,213,829 7,531,649 4,655,902
----------- ----------- ---------- ----------
Income before income taxes 1,336,308 403,482 613,328 90,328
Income taxes 533,431 168,859 247,615 36,772
----------- ----------- ---------- ----------
Net income $ 802,877 $ 234,623 $ 365,713 $ 53,556
=========== =========== ========== ==========
Per share of Common Stock:
Net income $ 0.10 $ 0.03 $ 0.05 $ 0.01
=========== =========== ========== ==========
Number of shares 8,148,151 8,450,648 8,005,739 8,264,377
=========== =========== ========== ==========
</TABLE>
See Notes to financial statements.
4
<PAGE> 5
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30,
1995 1994
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash flows from operating activities:
Net income $ 802,877 $ 234,623
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 121,405 58,489
Commissions receivable (159,584) (102,369)
Securities owned -- at market (1,330,883) 2,104,038
Prepaid expenses and other assets (259,695) 17,275
Due to clearing organization (1,800,074) (2,573,582)
Securities sold but not yet purchased 1,282,279 262,427
Commissions payable 676,522 (406,210)
Accounts payable 586,563 (42,176)
Income taxes payable 327,145 --
Other liabilities 113,362 (1,229)
Deferred income taxes 28,204 33,373
----------- -----------
Total adjustments (414,756) (649,964)
----------- -----------
Net cash provided by (used in)
operating activities 388,121 (415,341)
----------- -----------
Cash flows from investing activities:
Due from officers (6,177) (25,152)
Employee and broker receivables 38,180 (296,602)
Capital expenditures (218,111) (312,436)
----------- -----------
Net cash used in investing activities (186,108) (634,190)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants -- 776,908
Proceeds from exercise of stock options 1,680
Stock registration costs (2,815) --
Repurchase of common stock (89,238) --
Payment of loan payable (19,450) --
Warrant exercise costs -- (10,000)
----------- -----------
Net cash provided by (used in)
financing activities (109,823) 766,908
----------- -----------
Net increase (decrease) in cash and
cash equivalents 92,190 (282,623)
Cash and cash equivalents at beginning
of year 673,951 902,130
----------- -----------
Cash and cash equivalents at end of year $ 766,141 $ 619,507
=========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE> 6
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1995 1994
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 158,615 $ 105,685
Income taxes $ 64,470 $ 21,095
</TABLE>
See notes to financial statements.
6
<PAGE> 7
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 - MANAGEMENT REPRESENTATION
The accompanying financial statements are unaudited for the
interim period, but include all adjustments (consisting only of normal
recurring accruals) which management considers necessary for the fair
presentation of results at September 30, 1995 and 1994.
Moreover, these financial statements do not purport to contain
complete disclosure in conformity with generally accepted accounting
principles and should be read in conjunction with the Company's audited
financial statements at, and for the year ended December 31, 1994.
The results reflected for the nine-month period ended September
30, 1995 are not necessarily indicative of the results for the entire
fiscal year to end on December 31, 1995.
NOTE 2- BASIS OF PRESENTATION
These financial statements include the accounts of First Montauk
Financial Corp. and its three wholly-owned subsidiaries - First Montauk
Securities Corp., Montauk Insurance Services, Inc. and Montauk
Advisors, Inc.
NOTE 3 - INCOME PER SHARE
Income per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents include shares
issuable upon the exercise of options.
NOTE 4 - SECURITIES OWNED AND SECURITIES SOLD BUT NOT YET PURCHASED
Marketable securities owned and sold but not yet purchased consist of
trading securities at quoted market values, as indicated below:
<TABLE>
<CAPTION>
Sold but not
Owned yet purchased
September 30, December 31, September 30, December 31,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Obligation of U.S.
government and
its agencies $2,472,945 $ 659,908 $1,076,978 $ 19,951
State and municipal
obligations 591,827 2,936,522 45,457 60,611
Corporate stocks
and bonds 3,120,143 1,304,788 606,522 363,447
Options and warrants 63,186 16,000 8,304 10,973
---------- ---------- ---------- --------
$6,248,101 $4,917,218 $1,737,261 $454,982
========== ========== ========== ========
</TABLE>
7
<PAGE> 8
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 5 - STOCK REPURCHASE
In May 1995, the Company announced its intention to purchase up
to $100,000 of its Common Stock over a ninety-day period. As of
September 30, 1995, the Company had repurchased 108,200 shares for a
total of $89,238.
NOTE 6 - LAWSUIT
The Company is a defendant in a Civil Suit brought by Escambia
County, Florida in the U.S. District Court for the Northern District of
Florida. The suit alleges that the Company is responsible to Escambia
County for alleged losses as a result of certain mortgage-backed
securities sold to Escambia by the Company, and seeks an unspecified
amount of damages. The Company believes it has a meritorious defense to
these claims and is vigorously defending this action.
The Company is also a party to various other customer claims,
most of which are subject to arbitration. At the present time, the
Company is unable to determine the outcome of these matters or a range
of possible loss relating to the claims.
NOTE 7 - INVESTMENT IN ECM
The Company has purchased 150,000 shares of Environmental
Coupon Marketing, Inc. ("ECM") for $.04 per share, or $60,000. ECM is a
closely-held marketer of recycling programs to retailers using store
coupons and cash incentives to consumers. In consideration, ECM will
issue the Company 60,000 warrants to purchase its Common Stock at the
price of $3.33 per share upon completion of a private offering of ECM
stock. The Company also loaned ECM $100,000 in August 1995. The loan
bears interest at the rate of 6% per annum and matures on the earlier
of the proposed private placement of ECM securities or the one-year
anniversary of the loan. In October 1995, the Company loaned an
additional $182,000 to ECM. This loan is non-interest bearing and may
be converted into up to 350,000 shares of ECM common stock at the rate
of $.52 per share. The loans are unsecured.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the nine months ended September 30, 1995 the Company's cash balances
increased by $92,190 to $766,141. A total of $388,121 was provided by operating
activities during the 1995 period. Clearing account balances showed a net
increase of $1,800,074 due primarily to a combination of earnings growth and
increases in firm payables. The balances in the Company's cash, clearing firm
and inventory accounts can fluctuate significantly from day to day, depending on
market conditions, daily trading activity, and investment opportunities. The
Company monitors these accounts on a daily basis in order to ensure compliance
with regulatory capital requirements and to preserve liquidity. As a result of
higher trading volume during the 1995 period, payables increased by $1,263,085.
This increase reflects higher commission expenses and other variable costs
associated with firm trading activities, as well as an increase in fixed
overhead expenses. Income taxes payable increased by $327,145 due to higher tax
profits and a corresponding increase in marginal tax rates. These payments are
expected to come due during the first quarter of 1996.
Investing activities used cash of $186,108 during the 1995 period. Loans and
advances to brokers decreased by $38,180 through payments and amortization,
while expenditures for fixed assets increased by $218,111. The Company
anticipates an increase in expenditures of approximately $200,000 for
communications and other equipment during the remainder of the year. The Company
is continuing its investment in technology and systems development in order to
enhance services to its affiliate brokers.
Financing activities used cash of $109,823 due primarily to loan principal
payments and the repurchase of 108,200 shares of the Company's Common Stock for
$89,238 under a stock buy-back program initiated in May 1995.
Results of Operations
The Company reported net income of $802,877, or $.10 per share for the nine
months ended September 30, 1995, as compared to $234,623, or $.03 per share for
the comparable 1994 period. Total year-to-date revenues increased approximately
37% to $19,988,451 in 1995 as compared to $14,617,311 in 1994. Revenues for the
three months ended September 30, 1995 increased approximately 72%, or
$3,398,747, over the comparable 1994 period as the Company benefitted from
record volume and price levels experienced by many U.S. securities markets
during the year. Year-to-date trading profits in 1995 increased by approximately
14% to $6,947,684 over 1994 levels. Record gains from equity market-making
operations and an overall increase in proprietary
9
<PAGE> 10
trading of bonds and unit investment trusts offset a significant reduction in
profits from the sale of mortgage-backed securities ("MBS") by one of the
Company's affiliate offices ($3,713,940 in 1994 as compared to $370,148 in
1995). The MBS market has suffered a dramatic drop in volume, precipitated by
higher interest rates commencing in the second quarter of 1994. The MBS market
remains out of favor with investors due to continuing volatility and interest
rate uncertainty. Consequently, the Company has discontinued proprietary trading
in these securities and expects volume to remain substantially below 1994 levels
for the entire year. However, a positive development during the second quarter
of 1995 and continuing into the third quarter, was the Company's ability to
offset this loss of revenue with increases from its other trading departments,
particularly in equities.
Commission income from the sale of listed and over-the-counter securities,
mutual funds, leasing, and other agency transactions rose approximately 69% to a
record $12,198,847 in 1995 as compared to $7,199,208 in 1994. Most of the
increase occurred in the second and third quarters of 1995 as a result of the
surge in retail investment activity during these periods. Another factor
contributing to higher commission revenues was an increase in the number of
registered representatives affiliated with the Company from 270 in June 1994 to
350 in September 1995.
Investment banking revenues were $194,855 in 1995 as compared to $899,828 in
1994. The Company completed its first managed underwriting in 1994. No public
offerings have been scheduled for the current year. The decrease was also
attributable to the Company's involvement in fewer syndications during the 1995
period. The Company intends to continue exploring opportunities in the
investment banking area, including securities private placements. The Company
has also purchased a minority interest in Environmental Coupon Marketing, Inc.
("ECM"), a privately-owned marketer of recycling programs, and has loaned ECM a
total of $282,000 to date in short-term financing.
Interest and other income increased by 48% to $647,065 in 1995. The increase was
due primarily to a rise in interest income, which resulted from a combination of
an increase in the number of customer accounts, and an expansion of firm trading
in interest-bearing securities.
The Company paid total compensation and benefits of $13,746,682 in 1995 as
compared to $11,058,864 in 1994. Commissions paid to registered representatives
for 1995 were $11,834,626 (59% of total revenues) as compared to $9,625,408 (66%
of total revenues). Commission compensation is directly related to the
10
<PAGE> 11
level of revenues generated from firm trading, agency and investment banking
activities. The decrease in 1995 as a percentage of revenues was directly
related to the lower production of the affiliate office specializing in the MBS
market discussed above. The Company's in-house brokers were also responsible for
a larger share of commission income in 1995. In-house brokers receive a lower
percentage commission payout than independent affiliates but are not generally
required to pay their own expenses. In addition, clearing and other fees charged
against broker payouts were greater in 1995 due to the increase in agency
business, which carries the highest execution costs per revenue dollar.
Communications and occupancy costs increased by $195,629, or 29%. The Company
completed the expansion of its corporate headquarters during the first quarter
of 1994, which accounts for higher occupancy costs in subsequent periods.
Telephone charges, market data services, and computer consulting costs also rose
due to the addition of trading personnel and additional in-house brokers.
Other operating expenses increased from $1,040,918 in 1994 to $1,618,416 in
1995. An addition to reserves for legal costs during the current year, higher
depreciation costs relating to fixed assets purchased in connection with the
Company's expansion, as well as higher administrative costs relating to revenue
growth, primarily accounted for the increase. The Company is a party to various
customer arbitrations and civil actions arising in the normal course of its
securities business. At the present time, the Company is unable to determine the
outcome of these matters or a range of possible loss relating to the claims.
Interest expense increased from $105,685 in 1994 to $158,615 in 1995. The
increase is due primarily to higher margin debt on firm inventory positions.
11
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
In October 1995 the Company announced its intention to buy back up to a
maximum of 500,000 shares of its outstanding Common Stock over a ninety-day
period. Subsequent to the reporting period, the Company has repurchased 58,800
shares for an aggregate purchase price of $53,493.75.
During the period the Company issued 3,000 shares of Common Stock
pursuant to the exercise of certain Incentive Stock Options granted to one of
the Company's employees. Subsequent to the reporting period an additional 8,000
shares were issued to another employee who exercised Incentive Stock Options.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed.
12
<PAGE> 13
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.
FIRST MONTAUK FINANCIAL CORP.
(Registrant)
Dated: November 14, 1995
/s/ William J. Kurinsky
-----------------------------
William J. Kurinsky
Secretary/Treasurer
Chief Financial Officer and
Principal Accounting Officer
/s/ Herbert Kurinsky
-----------------------------
Herbert Kurinsky
President
13
<PAGE> 14
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION -- SEPTEMBER 30, 1995 AND
CONSOLIDATED STATEMENT OF INCOME -- THREE MONTHS ENDED SEPTEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10QSB SEPTEMBER 30, 1995
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-1-1995
<PERIOD-END> SEP-30-1995
<CASH> 766
<RECEIVABLES> 293
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 6,248
<PP&E> 651
<TOTAL-ASSETS> 8,961
<SHORT-TERM> 0
<PAYABLES> 2,694
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 1,737
<LONG-TERM> 54
<COMMON> 3,298
0
0
<OTHER-SE> 431
<TOTAL-LIABILITY-AND-EQUITY> 8,961
<TRADING-REVENUE> 2,827
<INTEREST-DIVIDENDS> 199
<COMMISSIONS> 5,055
<INVESTMENT-BANKING-REVENUES> 64
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 40
<COMPENSATION> 5,538
<INCOME-PRETAX> 613
<INCOME-PRE-EXTRAORDINARY> 366
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
