<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 June 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
----- -----
8,004,206 Common Shares, no par value were outstanding as of August 4, 1995.
Page 1 of 13
<PAGE> 2
FIRST MONTAUK FINANCIAL CORP.
FORM 10-QSB
JUNE 30, 1995
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statement of Financial Condition
as of June 30, 1995 and December 31, 1994 ..................................................... 3
Consolidated Statement of Income for the
Three Months ended June 30, 1995 and 1994
and Six months ended June 30, 1995 and 1994 .................................................. 4
Consolidated Statement of Cash Flows for the
Six Months ended June 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>
June 30, December 31,
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash and cash equivalents $ 792,185 $ 673,951
Securities owned, at market 5,261,513 4,917,218
Commissions receivable 279,020 132,967
Due from clearing firm 73,348 -
Employee and broker receivables 450,550 514,267
Fixed assets-net 608,736 553,947
Prepaid expenses and other assets 144,106 79,368
Due from officers 153,048 151,154
Deferred tax asset 59,395 59,395
---------- ----------
Total assets $7,821,901 $7,082,267
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to clearing organization $ - $2,279,250
Securities sold, but not yet purchased, at market 2,027,819 454,982
Loan payable-bank 60,511 73,478
Commissions payable 1,149,856 752,196
Accounts payable 619,427 325,949
Income taxes payable 225,700 25,279
Other liabilities 369,005 155,411
---------- ----------
Total liabilities 4,452,318 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, 8,014,190 and 8,112,406 shares issued
and outstanding, respectively 3,296,027 3,296,027
Additional paid-in capital 424,206 427,021
Less: Treasury stock-98,200 shares, at cost (80,488) -
Accumulated deficit (270,162) (707,326)
---------- ----------
Total stockholders' equity 3,369,583 3,015,722
---------- ----------
Total liabilities and stockholders' equity $7,821,901 $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>
Six months ended June 30, Three months ended June 30
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net firm trading gains $ 4,121,053 $3,982,174 $2,468,492 $1,320,937
Commissions 7,143,638 4,782,790 4,351,573 2,207,971
Investment banking 130,957 828,153 69,516 568,170
Interest and other income 447,826 277,964 215,480 152,593
----------- ---------- ---------- ----------
11,843,474 9,871,081 7,105,061 4,249,671
----------- ---------- ---------- ----------
Expenses
Compensation and benefits 8,212,937 7,526,994 4,881,532 3,164,331
Clearing charges 1,291,747 890,354 768,192 392,739
Communications and occupancy 532,782 406,050 280,248 225,794
Other operating expenses 964,188 650,591 598,885 345,370
Interest 118,840 83,938 57,457 18,682
----------- ---------- ---------- ----------
11,120,494 9,557,927 6,586,314 4,146,916
----------- ---------- ---------- ----------
Income before income taxes 722,980 313,154 518,747 102,755
Income taxes 285,816 132,087 205,035 55,772
----------- ---------- ---------- ----------
Net income $ 437,164 $ 181,067 $ 313,712 $ 46,983
=========== ========== ========== ==========
Per share of Common Stock:
Primary:
Net income $ 0.05 $ 0.02 $ 0.04 $ 0.01
=========== ========== ========== ==========
Number of shares 8,220,032 8,543,159 8,320,709 8,306,933
=========== ========== ========== ==========
Fully diluted:
Net income $ 0.04
==========
Number of shares 8,492,119
==========
</TABLE>
See notes to financial statements.
4
<PAGE> 5
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30,
1995 1994
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income ................................................ $ 437,164 $ 181,067
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ............................. 87,095 27,920
Due from clearing organization ............................ (73,348) (448,336)
Commissions receivable .................................... (146,053) (130,407)
Securities owned -- at market ............................. (344,295) 2,274,837
Prepaid expenses and other assets ......................... (64,738) 23,820
Due to clearing organization .............................. (2,279,250) (3,088,535)
Securities sold but not yet purchased...................... 1,572,837 454,883
Commissions payable ....................................... 397,660 (221,538)
Accounts payable .......................................... 293,478 13,874
Income taxes payable ...................................... 200,421 --
Other liabilities ......................................... 213,594 (64,056)
Deferred income taxes ..................................... -- 39,300
----------- -----------
Total adjustments ....................................... (142,599) (1,118,240)
----------- -----------
Net cash provided by (used in) operating activities ..... 294,565 (937,173)
----------- -----------
Cash flows from investing activities:
Due from officers ......................................... (1,894) (3,000)
Employee and broker receivables ........................... 63,717 (236,137)
Capital expenditures ...................................... (141,884) (158,215)
----------- -----------
Net cash used in investing activities ................... (80,061) (397,352)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants ........................ -- 776,908
Stock registration costs .................................. (2,815) --
Repurchase of common stock ................................ (80,488) --
Payment of loan payable ................................... (12,967) --
Warrant exercise costs .................................... -- (10,000)
----------- -----------
Net cash provided by (used in) financing activities ..... (96,270) 776,908
----------- -----------
Net increase (decrease) in cash and cash equivalents ........ 118,234 (567,617)
Cash and cash equivalents at beginning of year .............. 673,951 902,130
----------- -----------
Cash and cash equivalents at end of year .................... $ 792,185 $ 334,513
=========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE> 6
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Six months ended June 30,
1995 1994
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $118,840 $83,938
Income taxes $ 85,295 $18,215
</TABLE>
See notes to financial statements.
6
<PAGE> 7
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 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 six-month period ended June 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
----------------------- -----------------------
June 30, December 31, June 30, December 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Obligations of U.S
government and
its agencies $1,464,274 $ 659,908 $ 953,453 $ 19,951
State and
municipal
obligations 2,096,802 2,936,522 25,826 60,611
Corporate stocks
and bonds 1,622,632 1,304,788 1,042,903 363,447
Options 77,805 16,000 5,637 10,973
---------- ---------- ---------- ----------
$5,261,513 $4,917,218 $2,027,819 $ 454,982
========== ========== ========== ==========
</TABLE>
7
<PAGE> 8
FIRST MONTAUK FINANCIAL CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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
June 30, 1995, the Company had repurchased 98,200 shares for a
total of $80,488. An additional 10,000 shares were purchased
subsequently for $8,750.
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.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the six months ended June 30, 1995 the Company's cash balances increased
by $118,234 to $792,185. A total of $294,565 was provided by operating
activities during the 1995 period. Clearing account balances showed a net
increase of $2,352,598 as a result of net reductions in inventory positions of
$1,228,542. 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 $691,138. This
increase reflects higher commission expenses and other variable costs associated
with firm trading activities. Income taxes payable increased by $200,421 due to
higher tax profits and a corresponding increase in tax basis marginal rates.
Investing activities used cash of $80,061 during the 1995 period. Loans and
advances to brokers decreased by $63,717 through payments and amortization,
while expenditures for fixed assets increased by $141,884. The Company
anticipates an increase in expenditures of approximately $100,000 for
communications and other equipment during the remainder of the year.
Financing activities used cash of $96,270 due primarily to loan principal
payments and the repurchase of 98,200 shares of the Company's Common Stock for
$80,488 under a stock buy-back program initiated in May 1995.
Results of Operations
The Company reported net income of $437,164, or $.05 per share for the six
months ended June 30, 1995, as compared to $181,067, or $.02 per share for the
comparable 1994 period. Total year-to-date revenues increased approximately 20%
to $11,843,474 in 1995 as compared to $9,871,081 in 1994. All of the revenue
gains occurred in the June 1995 quarter. Revenues for the three months ended
June 30, 1995 increased approximately 67%, or $2,855,390, over the comparable
1994 period as the Company benefitted from record volume and price levels
experienced by many U.S. securities markets in the past quarter. Year-to-date
trading profits in 1995 increased by approximately 3% to $4,121,053 over 1994
levels. Record gains from equity market-making operations and an overall
increase in proprietary 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 ($2,698,881 in 1994 as
compared to
9
<PAGE> 10
$380,186 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 anticipates that 1995
MBS revenues will remain substantially below 1994 levels for the entire year. A
positive development during the June 1995 quarter, however, was the Company's
ability to offset this loss of revenue with increases from its other trading
activities.
Commission income from the sale of listed and over-the-counter securities,
mutual funds, leasing, and other agency transactions rose approximately 49% to a
record $7,143,638 in 1995 as compared to $4,782,790 in 1994. Again, most of the
increase occurred in the second quarter of 1995 as a result of the surge in
retail investment activity during the period. 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 337 in June
1995.
Investment banking revenues were $130,957 in 1995 as compared to $828,153 in
1994. The decrease was attributable to the company's involvement in fewer
syndications during the 1995 period, and is not necessarily indicative of a
trend for the remainder of the year. The Company completed its first managed
underwriting in 1994 and intends to continue exploring other opportunities in
the investment banking area.
Interest and other income increased by 61% to $447,826 in 1995. The increase was
due primarily to a rise in interest income, which resulted from a combination of
higher interest rates, 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 $8,212,937 in 1995 as
compared to $7,526,993 in 1994. Commissions paid to registered representatives
for 1995 were $7,031,938 (59% of total revenues) as compared to $6,648,959 (67%
of total revenues). Commission compensation is directly related to the 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 clearing costs per revenue dollar.
10
<PAGE> 11
Communications and occupancy costs increased by $126,732, or 31%. 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 $650,591 in 1994 to $964,188 in 1995. An
addition to reserves for legal costs in the June 1995 quarter as well as higher
depreciation costs relating to fixed assets purchased in connection with the
Company's expansion 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 $83,938 in 1994 to $118,840 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 May 1995 the Company announced its intention to buy back up to
$100,000 of its Common Stock over a ninety-day period. During the period the
Company repurchased 98,200 shares for an aggregate purchase price of $80,488.
Subsequent to the period, the Company purchased an additional 10,000 shares.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 11 - Computation of Income per Common Share.
(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: August 4, 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
No. Description
------- -----------
11 Computation of Income per Common Share
27 Financial Data Schedule
<PAGE> 1
FIRST MONTAUK FINANCIAL CORP.
COMPUTATION OF INCOME PER SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
Six months ended June 30, Three months ended June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computation for Statement of Operations
Primary:
Net income $ 437,164 $ 181,067 $ 313,712 $ 46,983
========= ========= ========= =========
Reconciliation of weighted average number of shares
outstanding to amount used in primary computation:
Weighted average shares outstanding 8,103,679 8,027,488 8,094,968 8,112,390
Add shares issuable from assumed exercise of options
and warrants the treasury stock method 116,353 515,671 225,742 194,543
--------- --------- --------- ---------
Total primary shares outstanding 8,220,032 8,543,159 8,320,710 8,306,933
========= ========= ========= =========
Primary income per share $ 0.05 $ 0.02 $ 0.04 $ 0.01
========= ========= ========= =========
Fully Diluted:
Reconciliation of net income per primary computation
to amount used in fully diluted computation:
Net income per primary computation $ 437,164 $ 313,712
========= =========
Weighted average shares per primary computation 8,220,032 8,320,710
Add additional shares from assumed exercise of options 85,074 171,409
--------- ---------
Weighted average number of shares outstanding,
as adjusted 8,306,736* 8,492,119
========= =========
Fully diluted income per share $ 0.05 $ 0.04
========= =========
</TABLE>
* This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION - JUNE 30, 1995 AND CONSOLIDATED
STATEMENT OF INCOME - THREE MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FORM 10QSB JUNE 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 792
<RECEIVABLES> 279
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 5,262
<PP&E> 609
<TOTAL-ASSETS> 7,822
<SHORT-TERM> 0
<PAYABLES> 2,424
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 2,028
<LONG-TERM> 0
<COMMON> 3,296
0
0
<OTHER-SE> 74
<TOTAL-LIABILITY-AND-EQUITY> 7,822
<TRADING-REVENUE> 2,468
<INTEREST-DIVIDENDS> 215
<COMMISSIONS> 4,352
<INVESTMENT-BANKING-REVENUES> 70
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 57
<COMPENSATION> 4,882
<INCOME-PRETAX> 519
<INCOME-PRE-EXTRAORDINARY> 314
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 314
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
