<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K
-------------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 7, 1999
STOCKWALK.COM GROUP, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 0-22247 41-1756256
--------- ------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
5500 WAYZATA BOULEVARD
SUITE 800
MINNEAPOLIS, MINNESOTA 55416
(Address of principal executive offices) (Zip Code)
(612) 542-6000
(Registrant's telephone number, including area code)
NM HOLDINGS, INC.
SUITE 110
9850 - 51ST AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55442
(Former name or former address, if changed since last report
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
REORGANIZATION WITH MJK HOLDINGS, INC. ("MJK HOLDINGS"). On July 7,
1999, MJK Holdings and the Registrant completed the transactions described in
the Agreement and Plan of Reorganization between MJK Holdings, the Registrant
and NM Merger Co. dated March 25, 1999, as amended ("Reorganization Agreement").
The Registrant's proxy statement dated June 15, 1999 describes the transactions
in more detail. Pursuant to the Reorganization Agreement, MJK Holdings was
merged with NM Merger Co. with MJK Holdings as the surviving entity, and each
MJK Holdings shareholder received 3.72382 shares of the Registrant's common
stock for each MJK Holdings common or preferred share, with cash paid in lieu of
fractional shares. The Reorganization Agreement contemplated that the historic
business of MJK Holdings and its subsidiaries would be continued by the
Registrant. Upon consummation of the reorganization, the Registrant's Board of
Directors, other than Mr. Kline, resigned, and Eldon C. Miller, David B.
Johnson, Stanley D. Rahm, Paul R. Kuehn, and N. Lee Wesley were appointed as
directors of the Registrant. As a result of the Reorganization, MJK Holdings, a
Minnesota corporation, became a wholly-owned subsidiary of the Registrant and
Registrant, continuing the business of MJK Holdings, changed its name to
Stockwalk.com Group, Inc., a Minnesota corporation. Stockwalk.com Group, Inc.'s
common stock presently trades on the Over the Counter Bulletin Board under the
symbol STOK.
ITEM 5. OTHER EVENTS
A. Amended Articles of Incorporation/Corporate Name Change.
On July 6, 1999, the Registrant's shareholders voted to amend
and restate the Registrant Articles of Incorporation which had the
effect, among other things, of changing (i) the Registrant's corporate
name to "Stockwalk.com Group, Inc." in order to reflect the revised
nature of its business; (ii) increasing the number of authorized shares
of the Registrant to 100,000,000, of which 50,000,000 were designated
as Common Stock and 50,000,000 were undesignated capital stock, and
(iii) increasing the number of persons on the Registrant's Board of
Directors to six, and allowing for future changes to that number by the
affirmative vote of a majority of the Board of Directors. The Amended
and Restated Articles became effective July 7, 1999.
B. Change in Fiscal Year End.
As a result of the Reorganization, the Registrant adopted the
March 31 fiscal year end of the accounting acquirer, MJK Holdings, Inc.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
MJK HOLDINGS, INC. AUDITED FINANCIAL STATEMENTS
Reports of Independent Auditors
Statements of Financial Condition--March 31, 1999 and
March 31, 1998
Statements of Income--Years Ended March 31, 1999, 1998,
and 1997
Statement of Shareholders' Equity--Years Ended March 31,
1999, 1998, 1997 and 1996
Statements of Cash Flows--Years Ended March 31, 1999,
1998, and 1997
Notes to Financial Statements
(b) Pro Forma Financial Information
Unaudited Pro Forma Combined Financial Information
NM Holdings, Inc. Unaudited Consolidated Pro Forma
Statement of Operations for the twelve months Ended
March 31, 1999
NM Holdings, Inc. Unaudited Consolidated Pro Forma
Balance Sheet at March 31, 1999
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of March
25, 1999, by and among NM Holdings, Inc., NM Merger Co.
and MJK Holdings, Inc. (filed as Appendix A to the
Registrant's Definitive Proxy Statement filed on June
14, 1999 and incorporated herein by reference).
2.2 First Amendment to the Reorganization Agreement dated as
of May 7, 1999 (filed as Appendix A to the Registrant's
Definitive Proxy Statement filed on June 14, 1999 and
incorporated herein by reference).
2.3 *Second Amendment to the Reorganization Agreement dated
as of July 7, 1999.
3.1 *Third Amended and Restated Articles of Incorporation of
NM Holdings, Inc. dated July 7, 1999.
</TABLE>
- ----------------------------------
*filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 22, 1999
STOCKWALK.COM GROUP, INC.
By: /s/ Eldon C. Miller
------------------------------------------
Eldon C. Miller
Chairman and Chief Executive Officer
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth the unaudited pro forma financial
information of NM Holdings, Inc. (the "Company") (the "Unaudited Pro Forma
Financial Statements"), which consists of (i) the unaudited consolidated pro
forma balance sheet of the Company as of March 31, 1999, giving effect to the
Merger with MJK Holdings, Inc. ("MJK") on such date, and (ii) the unaudited
consolidated pro forma statement of operations of the Company for the twelve
months ended March 31, 1999, giving effect to the Merger as if such
transaction had occurred on April 1, 1998.
The Unaudited Pro Forma Financial Statements and the related notes are
provided for illustrative purposes only and are not necessarily indicative of
the balance sheet and statement of operations that would have been reported
had the Merger occurred on the dates indicated, nor do they represent a
forecast of the financial position at any future period. The statements are
based on estimates and assumptions set forth below and in the accompanying
notes, which include pro forma adjustments. The Unaudited Pro Forma Financial
Statements and the related notes should be read in conjunction with the
historical financial statements and related notes of the Company and MJK
which are included elsewhere in this Proxy Statement.
BASIS OF PRESENTATION
The Merger has been accounted for using the reverse purchase method of
accounting. Since the Company has issued new shares of Common Stock in
exchange for outstanding shares of MJK capital stock, the current
shareholders of the Company have retained approximately 6.5% of all of the
outstanding shares of Common Stock. In applying Generally Accepted Accounting
Principles ("GAAP"), the Merger has been accounted for as a reverse
acquisition by MJK. Under GAAP, the Merger has been deemed to be equivalent,
for accounting purposes, to MJK's issuance of its capital stock in exchange
for the fair market value of the assets and liabilities of the Company. As a
result, no goodwill has been recorded, and the assets of MJK and its
subsidiaries are recorded at their historic values.
The unaudited consolidated pro forma statement of operations data
included herein is based on the historical year ended December 31, 1998
audited statement of operations of the Company, adjusted to coincide with the
March 31, 1999 year end results of MJK, which is deemed to be the "acquiror"
under the reverse purchase method of accounting. The Company's statement of
operations results for the year ended March 31, 1999 were derived by adding
the results from continuing operations for the three month period ended March
31, 1999 to, and deducting the results from continuing operations for the
three month period ended March 31, 1998 from, the Company's statement of
operations results for the year ended December 31, 1998. All Company
operating results prior to December 23, 1998 relate to discontinued
operations and have been excluded from the accompanying unaudited
consolidated pro forma statement of operations in accordance with Securities
and Exchange Commission guidelines.
F-1
<PAGE>
NM HOLDINGS, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Unadjusted Adjustment Adjusted
Statement of for Pro Forma Statement of
Operations MJK Holdings, Inc. Adjustments Operations
-------------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Profits on principal transactions $ -- $ 15,063 $ 120 (1) $ 15,183
Interest 19 15,410 -- 15,429
Commissions -- 9,888 -- 9,888
Profits on investment banking activities -- 8,389 -- 8,389
Clearing fees -- 3,105 -- 3,105
Other -- 3,735 -- 3,735
-------------- ------------------- ------------- -------------
Total revenues: 19 55,590 120 55,729
Expenses:
Employee compensation and benefits -- 26,987 -- 26,987
Clearing fees -- 2,890 -- 2,890
Occupancy and equipment rental -- 3,285 -- 3,285
Communication -- 5,251 -- 5,251
Interest -- 11,806 -- 11,806
Other operating expenses 68 3,113 -- 3,181
-------------- ------------------- ------------- -------------
Total expenses: 68 53,332 -- 53,400
-------------- ------------------- ------------- -------------
Income (loss) from continuing operations (49) 2,258 120 2,329
Income taxes -- (985) (31)(2) (1,016)
-------------- ------------------- ------------- -------------
Net income (loss) from continuing operations $ (49) $ 1,273 $ 89 $ 1,313
============== =================== ============= =============
Net income (loss) per common share:
Basic $ (0.04) $ 0.08
Diluted $ (0.04) $ 0.08
Weighted average number of shares outstanding:
Basic 1,307,079 17,155,549
Diluted 1,307,079 17,276,953
</TABLE>
(1) Represents the increase in market value of the shares of common stock
of GalaGen Inc. (the "GalaGen Common Stock") held by the Company, in
conformity with GAAP for trading securities held for resale by
broker/dealers, which is consistent with the accounting policies of
MJK.
(2) Represents the tax expenses associated with the revenue arising from
the GAAP treatment of the increase in the market value of the shares of
GalaGen Common Stock held by the Company, offset by the tax benefit
derived by utilization of the Company's loss from continuing operations
for the period.
F-2
<PAGE>
NM HOLDINGS, INC.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Unadjusted Adjustment Adjusted
Balance for MJK Pro Forma Balance
March 31, 1999 Holdings, Inc. Adjustments March 31, 1999
---------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,939 $ 3,201 $ 155 (3) $ 5,295
Cash - Special reserve account -- 73,130 -- 73,130
Receivables from customers -- 139,911 -- 139,911
Receivables from brokers and dealers -- 69,617 -- 69,617
Receivable from clearing organization -- 733 -- 733
Secured demand notes receivable,
collateralized by securities -- 9,675 -- 9,675
Trading securities owned, at market -- 15,266 618 (1) 15,884
Furniture, equipment, and leasehold
improvements, net 1 2,201 -- 2,202
Investment in GalaGen Inc. 618 -- (618)(1) --
Other assets 36 8,619 -- 8,655
---------------- ------------ ------------ -------------
Total assets $ 2,594 $ 322,353 $ 155 $ 325,102
================ ============ ============ =============
LIABILITIES
Short-term borrowings $ -- $ 33,900 $ -- $ 33,900
Payable to customers -- 203,314 -- 203,314
Payable to brokers and dealers -- 43,389 -- 43,389
Payable to clearing broker -- 9,975 -- 9,975
Trading securities sold but not yet
purchased, at market -- 812 -- 812
Notes payable -- 4,538 -- 4,538
Liabilities subordinated to claims of
general creditors -- 9,675 -- 9,675
Other liabilities 23 9,739 -- 9,762
---------------- ------------ ------------ -------------
Total liabilities 23 315,342 -- 315,365
---------------- ------------ ------------ -------------
STOCKHOLDERS' EQUITY
Common stock 49 43 677 (2)(3)(4) 769
Preferred stock -- 4,380 (4,380)(2)(4) --
Paid-in capital 8,814 2,540 (2,434)(2)(3)(4) 8,920
Accumulated other comprehensive income 120 -- (120)(4) --
Retained (deficit) earnings (6,412) 48 6,412 (4) 48
---------------- ------------ ------------ -------------
Total stockholders' equity 2,571 7,011 -- 9,737
---------------- ------------ ------------ -------------
Total liabilities and stockholders' equity $ 2,594 $ 322,353 $ -- $ 325,102
================ ============ ============ =============
</TABLE>
(1) Represents the reclassification of the shares of GalaGen Common Stock
held by the Company as trading securities, which is consistent with the
accounting policies of MJK.
(2) Represents the acquisition of 13,250 shares of Common Stock upon the
exercise of certain options at an aggregate exercise price of $53,000
and the sale by MJK after March 31, 1999 of 13,000 shares of MJK Series
I Preferred Stock for an aggregate purchase price of $102,050.
(3) Represents adjustments in connection with the issuance of shares of
Common Stock associated with the Merger.
(4) Reflects the recapitalization of the Company, the elimination of the
Company's retained deficit and accumulated other comprehensive income
balance, and the elimination of MJK Common Stock and the MJK Series I
Preferred Stock, each in accordance with the GAAP guidelines regarding
purchase adjustments associated with accounting for a reverse
acquisition.
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
MJK Holdings, Inc.
We have audited the accompanying consolidated statements of financial
condition of MJK Holdings, Inc. as of March 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MJK Holdings,
Inc. as of March 31, 1999 and 1998 and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
May 21, 1999
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Miller, Johnson & Kuehn, Incorporated
We have audited the accompanying statements of income, shareholders' equity
and cash flows of Miller, Johnson & Kuehn, Incorporated for the year ended
March 31, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Miller, Johnson & Kuehn,
Incorporated at March 31, 1997 and the results of its operations and its cash
flows for the period then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
May 15, 1997, except for Notes 17, 18 and 19
as to which the date is April 27, 1999
F-5
<PAGE>
MJK HOLDINGS, INC.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,200,661 $ 3,282,884
Cash and investments segregated under federal and other regulations
(primarily U.S. government obligations) 73,130,503 95,646,109
Receivable from customers 139,910,839 142,021,964
Receivable from brokers and dealers 69,616,726 6,183,230
Receivable from clearing organization 733,580 802,934
Trading securities owned, at market 15,265,814 3,486,824
Secured demand notes receivable, collateralized by securities 9,675,000 10,475,000
Furniture, equipment and leasehold improvements, net 2,200,912 2,461,436
Other assets 8,618,815 8,255,793
------------- -------------
Total assets $ 322,352,850 $ 272,616,174
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 33,900,000 $ 12,000,000
Payable to customers 203,313,836 194,225,936
Payable to brokers and dealers 43,388,593 4,998,591
Payable to clearing broker 9,975,000 31,608,020
Trading securities sold but not yet purchased, at market 812,212 4,193,405
Notes payable 4,538,114 5,252,521
Liabilities subordinated to claims of general creditors 9,675,000 10,475,000
Other liabilities 9,738,951 8,504,443
------------- -------------
Total liabilities 315,341,706 271,257,916
Shareholders' equity Common Stock, $.01 par value:
Authorized shares: 1999-50,000,000; 1998-50,000,000
Issued and outstanding shares: 1999-4,255,971; 1998-4,255,971 42,560 42,560
Preferred Stock
Authorized shares: 1999-5,000,000; 1998-5,000,000
Issued and outstanding shares: 1999-558,000; 1998-0 4,380,300 --
Paid-in capital 2,539,966 2,539,966
Retained earnings 48,318 (1,224,268)
------------ ------------
Total shareholders' equity 7,011,144 1,358,258
------------ ------------
Total liabilities and shareholders' equity $322,352,850 $272,616,174
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
MJK HOLDINGS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1999 1998 1997
<S> <C> <C> <C>
Revenues:
Trading profits $ 15,063,093 $ 10,634,085 $ 9,855,461
Interest 15,410,255 13,506,682 9,149,917
Commissions 9,888,209 9,039,869 3,930,256
Investment banking 8,388,876 9,656,221 7,716,272
Clearing fees 3,105,376 1,902,345 785,213
Other income 3,734,514 2,353,385 1,170,199
------------- ------------- ------------
Total revenues 55,590,323 47,092,587 32,607,318
Expenses
Employee compensation and benefits 26,986,849 25,950,355 17,736,553
Clearing fees 2,890,129 1,474,517 749,812
Occupancy and equipment 3,285,121 3,380,638 1,964,819
Communications 5,251,422 3,937,930 2,298,041
Interest 11,805,926 11,027,386 7,427,375
Other expense 3,113,290 3,145,029 2,206,915
------------- ------------- ------------
Total expenses 53,332,737 48,915,855 32,383,515
Income (loss) before income taxes 2,257,586 (1,823,268) 223,803
Income tax expense (benefit) 985,000 (599,000) 33,700
------------- ------------- ------------
Net income (loss) $ 1,272,586 $ (1,224,268) $ 190,103
============= ============= ============
Basic and dilutive earnings per share $ .30 $ (.29) $ .05
Weighted average common shares outstanding 4,255,971 4,255,971 4,195,795
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
MJK HOLDINGS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1996 $ -- $ 42,560 $ 1,226,981 $ 1,122,883 $ 2,392,424
Issuance of common stock -- 2,092 130,948 -- 133,040
Redemption of common stock -- (2,092) (60,663) (70,286) (133,041)
Net income -- -- -- 190,103 190,103
-------------- -------------- ------------- -------------- --------------
Balance at March 31, 1997 -- 42,560 1,297,266 1,242,700 2,582,526
Exchange of Miller, Johnson &
Kuehn, Inc. common stock
for MJK Holdings, Inc. -- 1,242,700 (1,242,700) --
common stock
Net loss -- -- -- (1,224,268) (1,224,268)
-------------- -------------- ------------- -------------- --------------
Balance at March 31, 1998 -- 42,560 2,539,966 (1,224,268) 1,358,258
Issuance of preferred stock 4,380,300 -- -- -- 4,380,300
Net income -- -- -- 1,272,586 1,272,586
-------------- -------------- ------------- -------------- --------------
Balance at March 31, 1999 $ 4,380,300 $ 42,560 $ 2,539,966 $ 48,318 $ 7,011,144
============== ============== ============= ============== ==============
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
MJK HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,272,586 $ (1,224,268) $ 190,103
Adjustments to reconcile net income (loss) to net cash
(used in)/provided by operating activities:
Depreciation and amortization 1,013,913 919,191 418,315
Changes in operating assets and liabilities:
Cash and securities segregated under
federal and other regulations 22,515,606 (60,772,242) (5,473,867)
Customer receivables and payables 11,199,025 35,621,774 7,019,666
Broker and dealer receivables and payables (25,043,494) (190, 464) (19,134,560)
Clearing organization receivables and payables (21,563,666) 236,274 28,653,274
Trading securities and securities sold but
not yet purchased (15,160,183) 9,724,080 4,909,592
Other assets and liabilities 763,238 5,103,662 (1,083,739)
--------------- --------------- ---------------
Net cash (used in)/provided by operating activities (25,002,975) (10,581,993) 15,498,784
INVESTING ACTIVITIES
Acquisition of certain assets and assumption of certain -- 15,400,448
liabilities of Private Brokers Clearing Corporation --
Acquisition of certain assets and assumption --
of certain liabilities of Juran & Moody, Inc. -- (9,629,020)
Increase in goodwill due to completion of --
acquisition of certain assets and assumption of
certain liabilities of Juran & Moody, Inc. (481,903) --
Net purchases of furniture, equipment and
leasehold improvements (645,141) (1,356,883) (906,585)
--------------- --------------- ---------------
Net cash (used in)/provided by investing activities (645,141) 13,561,662 (10,535,605)
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings 21,900,000 (5,000,000) (4,900,000)
Issuance of notes payable -- 5,100,000 1,214,382
Payments on notes payable (714,407) (969,037) (200,824)
Issuance of preferred stock 4,380,800 -- --
Issuance of common stock -- -- 133,040
Redemption of common stock -- -- (133,041)
--------------- --------------- ---------------
Net cash provided by/(used in) financing activities 25,565,893 (869,037) (3,886,443)
--------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents (82,223) 2,100,632 1,076,736
Cash and cash equivalents at beginning of year 3,282,884 1,172,252 95,516
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 3,200,661 $ 3,282,884 $ 1,172,252
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Interest $ 11,297,207 $ 11,188,091 $ 7,458,652
=============== =============== ===============
Income taxes (refunds) $ (373,407) $ 38,800 $ 374,532
=============== =============== ===============
</TABLE>
SEE ACCOMPANYING NOTES.
F-9
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
MJK Holdings, Inc. (MJKH) is the holding company of Miller, Johnson, &
Kuehn, Incorporated (MJKI), MJKH's primary subsidiary, and two other
wholly-owned subsidiaries whose activities are not significant to MJKH's
financial information on a consolidated basis. MJKI is a securities
broker-dealer headquartered in Minneapolis, Minnesota with branch offices in
Saint Paul, Minnesota; Scottsdale, Arizona; LaJolla, California; Clearwater,
Florida; Chicago, Illinois; and Dallas and Houston, Texas. MJKI is a member
of the National Association of Securities Dealers, Inc. (NASD), the
Securities Investor Protection Corporation (SIPC) and the Chicago Stock
Exchange. MJKI's primary business involves a combination of retail, principal
and agency transactions along with corporate and public financing
originations. In addition, MJKI provides a broad range of securities
transaction processing services to other broker-dealers. MJKH and MJKI are
hereinafter collectively referred to as the "Company."
BASIS OF PRESENTATION
The consolidated financial statements as of and for the years ended
March 31, 1999 and 1998 include the accounts of the MJKH and its
subsidiaries. All subsidiaries are wholly owned, and all intercompany
balances and transactions have been eliminated in consolidation. The
consolidated financial statements as of and for the year-ended March 31, 1998
are presented as if the June 9, 1997 exchange of MJKH shares for all of the
outstanding shares of MJKI occurred on April 1, 1997. MJKH had no operations
from April 1, 1997 to June 9, 1997. MJKI accounts represent substantially all
of the consolidated financial statements as of and for the years ended March
31, 1999 and 1998.
The financial statements for the year ended March 31, 1997 represent
only the accounts of MJKI and are provided for comparative purposes. Certain
amounts in the 1997 and 1998 financial statements have been reclassified to
conform to the 1999 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION AND SECURITIES TRANSACTIONS
Purchases and sales of securities are recorded on a settlement date
basis, which is generally the third business day following the transaction
date. The impact of unsettled transactions on trading securities owned,
trading securities sold but not yet purchased, and income, net of related
expenses, is not material.
VALUATION OF FINANCIAL INSTRUMENTS
Trading securities owned and trading securities sold but not yet
purchased are carried at fair value. The fair values of the financial
instruments are generally based on listed market prices. If listed market
prices are not available, fair value is based on other relevant factors,
including dealer price quotations.
F-10
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Furniture and equipment are
depreciated using an accelerated method over estimated useful lives of five
to seven years. Leasehold improvements are amortized over the shorter of the
economic useful life of the improvements or the life of the lease.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, including reverse
repurchase agreements, with a maturity of three months or less when purchased
to be cash equivalents.
Cash and cash equivalents of $73,130,503 and $95,646,109 were segregated
in special reserve bank accounts for the benefit of customers under Rule
15c3-3 of the Securities and Exchange Commission at March 31, 1999 and 1998,
respectively. The cash and cash equivalents segregated in special reserve
bank accounts included $8,730,200 and $4,000,000 of reverse repurchase
agreements at March 31, 1999 and 1998, respectively.
INCOME TAXES
Deferred income taxes are recorded to reflect the tax consequences of
differences between the tax and financial reporting bases of assets and
liabilities. Recorded amounts relate primarily to net operating loss and tax
credit carryforwards.
EARNINGS PER SHARE
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the reporting period. Dilutive earnings per
share take into account the dilutive effect, if any, of potential dilutive
securities outstanding during the period.
2. ACCOUNTING CHANGES
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, is effective for financial statements for periods beginning
after December 15, 1997. This Statement requires financial and descriptive
information about an entity's operating segments to be included in the annual
financial statements.
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, is effective for financial statements for periods beginning after
June 15, 1999. This Statement establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The adoption of SFAS No. 133 is not expected to have a material impact on the
Company.
3. BUSINESS COMBINATIONS AND INVESTING ACTIVITIES
On March 25, 1999, the Company entered into an Agreement and Plan of
Reorganization with NM Holdings, Inc. The merger transaction will be
accounted for as a business combination utilizing the reverse acquisition
method with the Company being the accounting acquirer. As such, the merger
will be treated as an acquisition using the
F-11
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
purchase method of accounting with no change in the recorded amount of the
Company's assets and liabilities. The assets and liabilities of NM Holdings,
Inc. that are acquired as a result of the merger will be recorded at their
fair market values.
In December 1997, the Company entered into clearing agreements with 16
former correspondents of Private Brokers Clearing Corporation (PBCC). At the
same time, pursuant to an asset purchase agreement, the Company purchased
certain assets of PBCC and PBCC transferred approximately $15,400,000 of net
correspondents' deposits and correspondents' customer balances. In connection
with these transactions, the Company assumed no other liabilities of PBCC.
In January 1997, the Company acquired certain assets and assumed certain
liabilities of Juran and Moody, Inc. (a regional broker-dealer and NASD
member firm registered under state and federal securities laws) in exchange
for approximately $9,629,000 in cash. The excess cost over fair value of the
net assets acquired (goodwill) arising from this transaction is being
amortized on a straight line basis over a 15-year period.
4. BROKER, DEALER, AND CLEARING ORGANIZATION RECEIVABLES AND PAYABLES
Broker, dealer, and clearing organization receivables and payables at
March 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Receivable from brokers and dealers $18,333,276 $ 1,831,030
Receivable from clearing organization 733,580 802,934
Securities borrowed 51,283,450 4,352,200
----------- -----------
Total receivables $70,350,306 $ 6,986,164
=========== ===========
Payable to brokers and dealers $ 5,440,078 $ 2,871,258
Payable to clearing broker 9,975,000 31,608,020
Payable to introducing brokers 2,398,315 1,941,933
Securities loaned 35,550,200 185,400
----------- -----------
Total payables $53,363,593 $36,606,611
=========== ===========
</TABLE>
Broker, dealer, and clearing organization receivables and payables arise
from securities transactions executed for customers or the Company. The
receivables are generally collected within 30 days and are collateralized by
securities in physical possession, on deposit or receivable from customers or
other brokers and dealers.
Broker and dealer payables represent amounts due upon the receipt of
securities. Should the broker, dealer, or clearing organization fail to
deliver the securities to the Company, the Company may be required to
purchase identical securities on the open market. The market value of such
securities at March 31, 1999 and 1998 approximates the amounts owed.
Securities borrowed and securities loaned are stated in the statement of
financial condition at the amounts of collateral advanced and received in
connection with the transactions. The Company measures the fair value of the
securities borrowed and loaned against the cash collateral on a daily basis.
Additional collateral is obtained as necessary to ensure such transactions
are adequately collateralized.
F-12
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CUSTOMER RECEIVABLES, PAYABLES AND SECURITIES
Receivables from and payables to customers arise from cash and margin
transactions executed by the Company on behalf of its customers. Receivables
are generally collateralized by securities with market values in excess of
the amounts due. It is the policy of the Company to monitor the market value
of the collateral and request additional collateral when required. Such
collateral is not reflected in the accompanying financial statements.
The Company is required to maintain possession or control, as defined,
of all fully paid securities and excess margin securities of customers. To
the extent such control cannot be obtained from various counter parties, the
Company may have to purchase or sell securities at prevailing market rates to
obtain such possession or control.
The Company pays interest on customers' free credit balances based on
prevailing market rates.
6. REVERSE REPURCHASE AGREEMENTS
Securities purchased under agreements to resell (reverse repurchase
agreements) are recorded at the contract amount at which the securities will
be subsequently resold plus accrued interest. These financial instruments are
collateralized by U.S. government securities. It is the Company's policy to
take possession of securities purchased under agreements to resell.
The Company's agreements with third parties specify its rights to
request additional collateral if the fair value of the underlying security,
including accrued interest, decreases in comparison to the related receivable.
7. TRADING SECURITIES
Trading securities owned and trading securities sold but not yet
purchased at March 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Owned:
Corporate equities $ 6,318,760 $ 1,843,086
State and municipal obligations 2,952,975 1,301,263
U.S. Government obligations 5,989,367 342,475
Corporate obligations 4,712 --
------------ -----------
$ 15,265,814 $ 3,486,824
============ ===========
Sold but not yet purchased:
Corporate equities $ 40,236 $ 121,409
State and municipal obligations 147,996 454,344
U.S. Government obligations 246,495 3,617,652
Corporate obligations 377,485 --
------------ -----------
$ 812,212 $ 4,193,405
============ ===========
</TABLE>
The Company's trading securities sold but not yet purchased represent
obligations of the Company to deliver a specified security at the contracted
price and thereby create a liability to purchase the security in the market
at
F-13
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
prevailing prices. Accordingly, these transactions result in
off-balance-sheet market risk as the Company's ultimate obligation to satisfy
the sale of securities sold but not yet purchased may exceed the amount
recorded in the statements of financial condition at March 31, 1999 and 1998.
8. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements at March 31 consisted of
the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Furniture and equipment $4,216,512 $3,669,044
Leasehold improvements 631,677 534,004
---------- ----------
4,848,189 4,203,048
Less accumulated depreciation and amortization 2,647,277 1,741,612
---------- ----------
$2,200,912 $2,461,436
========== ==========
</TABLE>
9. FINANCING ARRANGEMENTS
The Company had discretionary lines of credit totaling $60,000,000 at
March 31, 1999 and 1998 which are secured by firm-owned securities, customer
securities collateralizing liabilities subordinated to claims of general
creditors and unpaid customer securities. These lines are payable on demand.
Borrowings on the lines bear interest at various rates over the bank's cost
of funds; such rates generally vary daily. The weighted average interest
rates on the lines were 6.48% and 7.55% as of March 31, 1999 and 1998,
respectively. As of March 31, 1999 and 1998, there were $26,100,000 and
$48,000,000 available under these lines of credit, respectively. The March
31, 1999 outstanding balances totaling $33,900,000 were collateralized by
approximately $10,800,000 of firm-owned securities, $9,000,000 of customer
securities collateralizing liabilities subordinated to claims of general
creditors and $14,100,000 of unpaid customer securities. The March 31, 1998
outstanding balances totaling $12,000,000 were collateralized by
approximately $3,500,000 of firm-owned securities and $10,475,000 of customer
securities collateralizing liabilities subordinated to claims of general
creditors. The lines of credit require the Company to comply with certain
financial debt covenants. A compensating balance arrangement totaling
$575,000 exists with respect to one of the Company's discretionary lines of
credit.
At March 31, 1999, the Company had a note payable of $3,600,000 which
was secured by the Company's ownership interest in MJKI. The note bears an
interest rate of the bank's reference rate unless the Company's investment
account balance at the bank is less than the principal balance of the note.
If the Company's investment account at the bank is less than the principal
balance of the note, the note bears an interest rate of the bank's reference
rate plus one-half of one percent. The interest rate on the note at March 31,
1999 was 7.75%. The note matures in installments through July 31, 1999.
The Company also has various notes payable at March 31, 1999 and 1998 of
$938,114 and $1,252,521, respectively, which were secured by all furniture
and equipment. Borrowings bear interest at either a fixed rate or various
rates over the bank's cost of funds; such rates generally vary daily. The
interest rates ranged from 7.00% to 8.75% as of March 31, 1999 and 7.00% to
9.50% as of March 31, 1998. The notes mature at various dates through October
10, 2002.
F-14
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company's notes payable at March 31, 1999 mature as follows:
<TABLE>
<CAPTION>
Year ending March 31:
<S> <C>
2000 $ 919,773
2001 3,226,959
2002 243,366
2003 148,016
------------
$ 4,538,114
============
</TABLE>
10. LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to claims of general creditors at March 31,
1999 represent 36 secured demand notes receivable which are collateralized by
securities with market values in excess of their respective face amounts. The
notes bear interest at rates from 5.00% to 6.25% and mature as follows:
<TABLE>
<CAPTION>
Year ending March 31:
<S> <C>
2000 $2,850,000
2001 6,075,000
2002 750,000
----------
$9,675,000
==========
</TABLE>
11. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorization to issue up to 50,000,000 shares of common
stock. On June 9, 1997, MJKH exchanged 4,255,971 shares of common stock for
all of the issued and outstanding shares of common stock of MJKI. As a
result, the Company became the sole shareholder of MJKI.
During fiscal 1997, MJKI redeemed 209,182 shares of common stock from a
shareholder and later reissued these shares to the remaining common stock
shareholders on a pro rata basis.
PREFERRED STOCK
The Company has authorization to issue up to 5,000,000 shares of
preferred stock. In March 1999, the Company issued 558,000 shares of Series I
Non-Voting Convertible Preferred Stock at $7.85 per share. The Series I
Non-Voting Convertible Preferred Stock has no dividend rights and is
convertible to common stock if the Company consolidates or merges with
another company. The Company's Board of Directors may issue one or more
series of preferred stock and fix the voting rights, liquidation preferences,
dividend rights, repurchase rights, conversion rights, and redemption rights
and terms of the preferred stock.
12. NET CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS
The Company is subject to the Securities and Exchange Commission's
Uniform Net Capital Rule (Rule 15c3-1) which requires the maintenance of
minimum net capital. The Company has elected to use the alternative method
F-15
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
permitted by Rule 15c3-1 which requires that the Company maintain minimum net
capital equal to the greater of $250,000 or 2% of aggregate debit balances
arising from customer transactions, as defined. At March 31, 1999, the
Company's net capital of $11,201,974 was 7% of aggregate debit balances and
$7,996,849 in excess of required net capital. The net capital rule also
provides that equity capital may not be withdrawn or cash dividends paid if
resulting net capital would be less than 5% of aggregate debits.
Under the provisions of financing arrangements entered into during
fiscal 1998, the Company may not declare or pay dividends on any of its
outstanding capital stock.
13. EMPLOYEE BENEFIT PLANS
The Company has a qualified profit-sharing plan and a 401(k) plan, which
cover all employees with six months of continuous employment who are at least
21 years old. Employees may contribute up to 10% of their compensation to the
401(k) plan. Employer contributions are made to the profit-sharing plan at
the discretion of the Company's Board of Directors. The Company contributed
$100,000 to the profit-sharing plan in fiscal 1999. There were no
contributions to the profit-sharing plan in fiscal years 1998 or 1997.
14. COMMITMENTS AND CONTINGENCIES
The Company is obligated for the rental of office space, automobiles and
equipment under noncancellable operating leases which expire at various dates
from 1999 to 2005. The office lease includes escalation clauses for increases
in taxes and operating expenses of the leased premises. Minimum annual rental
payments under noncancellable leases in effect at March 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Year ending March 31:
<S> <C>
2000 $1,815,000
2001 1,752,000
2002 1,690,000
2003 1,503,000
2004 378,000
Thereafter 307,000
----------
Total minimum future rental payments $7,445,000
==========
</TABLE>
Rent expense charged to operations under operating leases, including
taxes and operating expenses of the leased premises, was approximately
$1,648,000, $1,583,000 and $983,000 for the years ended March 31, 1999, 1998
and 1997, respectively.
The Company is involved in various litigation and arbitration matters
arising in the normal course of business. In the opinion of management, the
ultimate resolution of such matters will not have a material adverse effect
on the financial position of the Company. During 1998, the Company expended
approximately $150,000 to satisfy arbitration decisions and other amounts in
defense of certain matters of litigation. No amounts were expended in 1999 or
1997. The Company aggressively defends these matters to reduce the expected
amount of related legal fees in future periods.
F-16
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. RELATED PARTY TRANSACTIONS
Liabilities subordinated to claims of general creditors included two
secured demand notes as of March 31, 1999 and 1998 entered into by
shareholders of the Company. The notes totaled $600,000 and mature at various
dates through 2001 and 1999 for 1999 and 1998, respectively. The notes are
considered equity for the purpose of the net capital computation debt to
debt/equity total computed in accordance with Rule 15c3-1(d).
The Company also had $1,484,119 and $1,438,544 of notes receivable from
employees which are included in other assets as of March 31, 1999 and 1998,
respectively. The amounts consist of 33 and 24 notes which bear various
interest rates and mature at various dates through 2003 at March 31, 1999 and
1998, respectively.
16. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets as of March 31
are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Amortization of leasehold improvements $ 70,133 $ 41,756
Amortization of notes receivable 41,244 30,600
Deferred rent 17,114 17,114
Accrued bonuses 11,400 --
Other -- 3,808
----------- -----------
139,891 93,278
Alternative minimum tax credit carry forwards -- 12,499
Net operating loss carry forwards 172,812 481,293
----------- -----------
172,812 493,792
----------- -----------
Total deferred tax assets 312,703 587,070
Valuation allowance (29,838) (125,154)
----------- -----------
Net deferred tax assets $ 282,865 $ 461,916
=========== ===========
</TABLE>
The income tax expense (benefit) for the years ended March 31 included
the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Federal $ 705,995 $ (344,710) $ 5,613
State 99,954 5,000 25,513
Deferred 179,051 (259,290) 2,574
--------- ----------- --------
$ 985,000 $ (599,000) $ 33,700
========= =========== ========
</TABLE>
F-17
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Reconciliations of the provisions for income taxes and the amounts that
would be computed using statutory federal income tax rates for the years
ended March 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Tax at statutory rate $ 769,733 $ (620,359) $ 76,093
Tax-exempt interest, net of related expenses 22,794 (30,828) (64,211)
State taxes, net of federal tax benefit 128,683 (63,988) 16,839
Non-deductible life insurance 52,872 40,623 28,539
Non-deductible meals and entertainment 29,685 31,312 21,781
Change in valuation allowance (95,316) -- (47,658)
Other 76,549 44,240 2,317
---------- ---------- ---------
$ 985,000 $ (599,000) $ 33,700
========== ========== =========
</TABLE>
At March 31, 1999, the Company has a net operating loss (NOL)
carryforward of approximately $432,000 for income tax purposes that expires
in 2004. The utilization of a portion of the NOL carryforward is restricted
under the provisions of Section 382 of the Internal Revenue Code.
17. EARNINGS PER SHARE
The components of earnings per share at March 31 were:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income $ 1,272,586 $ (1,224,268) $ 190,103
Weighted average shares outstanding 4,255,971 4,255,971 4,195,795
------------ ------------ ------------
Basic earnings per share $ .30 $ (.29) $ .05
============ ============ ============
Net income $ 1,272,586 $ (1,224,268) $ 190,103
Weighted average shares outstanding 4,255,971 4,255,971 4,195,795
Effect of dilutive securities: Convertible preferred stock 1,529 -- --
------------ ------------ ------------
4,257,500 4,255,971 4,195,795
------------ ------------ ------------
Diluted earnings per share $ .30 $ (.29) $ .05
============ ============ ============
</TABLE>
18. SEGMENTS
The Company's reportable segments are as follows: clearing services,
retail sales, investment banking, and other. The clearing services segment
consists of clearing services provided on a fully-disclosed basis to
approximately 30 other broker-dealers. The retail segment consists of various
retail branch locations which conduct security transactions for individual
and institutional investors. The investment banking segment consists of the
management, co-management, and participation by the Company in the
underwriting of corporate equity and debt securities. Other consists of
general corporate, administrative support functions, and net gains or losses
on the investment account.
Segment results are derived from the Company's branch location
profitability reporting system. Intersegment transactions are measured on the
same basis as if the transactions occurred with external customers. In
reviewing the segment operating results, the Company's operating decision
makers do not distinguish between intersegment
F-18
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
transactions and external customer transactions. Intersegment revenue is
eliminated to reconcile total segment revenue to consolidated revenue. Income
tax expense or benefit is not allocated to the Company's operating segments.
The Company does not provide balance sheet data for segment reporting as this
data is not measured for its operating segments.
Information concerning operations in these segments of business is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1999 1998 1997
------------------ ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Clearing Services $ 21,692 $ 17,141 $ 9,722
Retail Sales 30,672 28,009 19,787
Investment Banking 4,338 2,174 2,340
Other 1,301 941 865
------------------ ---------------- --------------
$ 58,003 $ 48,265 $ 32,714
================== ================ ==============
Pretax income (loss):
Clearing Services $ 2,051 $ 1,080 $ 340
Retail Sales (272) (3,065) (375)
Investment Banking 485 162 233
Other (6) -- 26
------------------ ---------------- --------------
$ 2,258 $ (1,823) $ 224
================== ================ ==============
</TABLE>
Reconciliation of segment revenue to consolidated revenue:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1999 1998 1997
------------------ ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Segment revenue $ 58,003 $ 48,265 $ 32,714
Intersegment eliminations (2,413) (1,172) (107)
------------------ ---------------- --------------
Consolidated revenue $ 55,590 $ 47,093 $ 32,607
================== ================ ==============
</TABLE>
F-19
<PAGE>
MJK HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited data reflecting the Company's results of operations
for each of the last eight quarters are shown in the following table. The
information for each of these quarters includes all normal and recurring
adjustments and accruals which the Company considers necessary for a fair
presentation. These operating results, however, are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
<S> <C> <C> <C> <C>
Fiscal Year 1999
Revenues $ 13,662,387 $ 13,832,950 $ 13,989,816 $ 14,105,170
Net income (loss) 392,315 442,310 499,768 (61,807)
Basic income (loss) per share $ .09 $ .10 $ .12 $ (.01)
Fiscal Year 1998
Revenues $ 10,776,229 $ 10,915,452 $ 11,664,330 $ 13,736,576
Net loss (41,512) (95,383) (525,719) (561,654)
Basic loss per share $ (.01) $ (.02) $ (.13) $ (.13)
</TABLE>
20. YEAR 2000 (UNAUDITED)
Similar to other financial and business organizations and individuals
around the world, the Company could be affected if the computer systems used
by it and its service providers do not properly process and calculate
date-related information relating to the year 2000. The Company is taking
steps that it believes are reasonably designed to address year 2000
compliance with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by each of its
major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any impact on the Company.
F-20
<PAGE>
AMENDMENT NO. 2 TO AGREEMENT AND
PLAN OF REORGANIZATION AND CONSENT
THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF REORGANIZATION AND
CONSENT (the "Amendment") is entered into as of July 6, 1999 by MJK Holdings,
Inc. ("MJK"), NM Holdings, Inc. ("NM"), and NM Merger Co. ("NM Merger").
WHEREAS, MJK, NM and NM Merger entered into an Agreement and Plan of
Reorganization dated March 25, 1999 as amended May 7, 1999 ("the Agreement");
and
WHEREAS, MJK and NM desire to delete certain conditions to their
obligations to close the transaction contemplated by the Agreement as such
conditions were not feasible, required, or could not be completed by the Closing
Date of the transaction;
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. The second sentence of Section 2.4(b) shall be revised and
amended to provide as follows: "In lieu thereof, NM shall pay to the owner
thereof cash equal to the pro rata market price of a share of NM Common Stock
based on the last reported closing sales price of the NM Common Stock on the
Effective Date as reported on the Over the Counter Bulletin Board." Any other
references to the "NASDAQ Small Cap Market" in connection with payment for
fractional shares shall be similarly revised and amended accordingly.
2. Section 7.1(d) of the Agreement is hereby deleted and of no
further legal effect.
3. Section 7.2(e) of the Agreement is hereby deleted and of no
further legal effect. Any other references to the term "Fairness Opinion" set
forth in the Agreement shall be deleted and be of no legal effect.
4. The words "Surviving Corporation" in Section 7.1(c)(iii) shall be
replaced with "NM" and the reference to "Section 356(a)(1)(B)" in the same
section shall be changed to "Section 354(a)(1)."
5. The parties hereto acknowledge that NM's common stock was
delisted from NASDAQ Small Cap Market System effective May 7, 1999 and presently
trades on the Over the Counter Bulletin Board. As a result thereof, the parties
hereto hereby amend Section 7.3(a) of the Agreement to except out the
representation contained in the last sentence of Section 4.3 from the
representations and warranties of NM made at and as of the Effective Date.
6. Except as hereinabove supplemented and amended, all of the terms,
covenants and conditions of the Agreement, as amended May 7, 1999, shall remain
in full force and effect, are hereby ratified and confirmed.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
MJK HOLDINGS, INC. NM HOLDINGS, INC.
By /s/ David B. Johnson By /s/ George E. Kline
--------------------------------- ---------------------------------
David B. Johnson George E. Kline
Senior Vice President President and
Chief Executive Officer
NM MERGER CO.
By /s/ George E. Kline
---------------------------------
George E. Kline
President and
Chief Executive Officer
<PAGE>
THIRD AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NM HOLDINGS, INC.
Under and pursuant to the Minnesota Business Corporation Act, the Board of
Directors and shareholders of NM Holdings, Inc. (f/k/a Nutrition Medical, Inc.)
have resolved to amend the Second Restated Articles of Incorporation of the
corporation, which are amended and restated as follows:
ARTICLE I.
NAME
The name of this corporation is "Stockwalk.com Group, Inc."
ARTICLE II.
REGISTERED OFFICE
The registered office of this corporation is 5500 Wayzata Boulevard, Suite
800, Minneapolis, Minnesota 55426.
ARTICLE III.
CAPITAL STOCK
1. The aggregate number of authorized shares of the corporation is One
Hundred Million shares (100,000,000), par value of $.04 per share, of which
Fifty Million shares (50,000,000) are designated as common stock. The remaining
shares shall be divisible into classes and series, have the designations, voting
rights, and other rights and preferences, and be subject to the restrictions,
that the board of directors may from time to time establish, fix, and determine,
consistent with these Articles of Incorporation. Unless otherwise designated by
the board of directors, all issued shares shall be deemed common stock with
equal rights and preferences.
2. Shares of any class or series of the corporation, including shares of
any class or series which are then outstanding, may be issued to the holders of
shares of another class or series of the corporation, whether to effect a share
dividend or split, including a reserve share split, or otherwise, without
authorization, approval or vote of the holders of shares of any class or series
of the corporation.
ARTICLE IV.
DIRECTORS
1. The business of this corporation shall be managed by or under the
direction of a board of directors. Directors need not be shareholders of the
corporation. The board of directors in its discretion may elect honorary
directors who shall serve without voting power.
<PAGE>
2. The board of directors of this corporation shall consist of six (6)
directors or such other number of directors as shall be determined by the
affirmative vote of a majority vote of the board of directors.
3. Directors shall serve for the term for which they were appointed or
elected and until their successors are elected and qualified. If any vacancy
occurs in the board of directors, the remaining directors, by the affirmative
vote of a majority thereof, shall elect a director to fill the vacancy until the
next regular meeting of the shareholders.
4. The directors shall have all of the powers conferred upon directors by
the Minnesota Business Corporation Act.
5. An action required or permitted to be taken by the board of directors
of this corporation may be taken by written action signed by the number of
directors that would be required to take the same action at a meeting of the
board at which all directors are present except as to those matters which
require shareholder approval, in which case the written action must be signed by
all members of the board of directors.
ARTICLE V.
CERTAIN SHAREHOLDER RIGHTS.
Shareholders shall have no preemptive rights to purchase, subscribe for or
otherwise acquire any new or additional securities of the corporation. No
shareholder shall be entitled to cumulative voting rights.
ARTICLE VI.
BYLAWS
The power to adopt, amend and repeal Bylaws for the corporation shall be
vested in the board of directors, except to the extent otherwise limited by the
Minnesota Business Corporation Act.
ARTICLE VII.
LIMITATION ON LIABILITY/INDEMNIFICATION
1. A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for (i) liability based on a breach of the duty of
loyalty to the corporation or the shareholders; (ii) liability for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) liability based on the payment of an improper dividend
or an improper repurchase of the corporation's stock under Section 559 of the
Minnesota Business Corporation Act (Minnesota Statutes, Chap. 302A) or; (iv)
liability for any transaction from which the director derived an improper
personal benefit. If the Minnesota Business Corporation Act hereafter is
amended to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the corporation, in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Minnesota Business Corporation Act. Any
repeal or modification of this Article by the
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shareholders of the corporation shall be prospective only and shall not
adversely affect any limitation on the personal liability of a director of the
corporation existing at the time of such repeal or modification.
2. The corporation shall indemnify any person who, in relation to or
because of such person's service to the corporation in an official capacity, was
or is a party or is threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the corporation), to the full extent permitted
by the Minnesota Business Corporation Act.
ARTICLE VIII.
AMENDMENT OF ARTICLES
These Articles of Incorporation may be amended by the affirmative vote of
the holder or holders of the majority of the voting power of the common stock
present at a shareholders' meeting where said amendments are submitted to a
vote.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of July, 1999.
/s/ George E. Kline
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George E. Kline
Chairman and Chief Executive Officer
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