<PAGE>
RULE 424(b)(3)
JW CHARLES FINANCIAL SERVICES, INC. THE AMERICAS GROWTH FUND, INC.
980 North Federal Highway 701 Brickell Avenue
Suite 210 Suite 2000
Boca Raton, Florida Miami, Florida 33131
NOTICE OF PLAN TO EFFECT "SHORT-FORM" MERGER
WITHOUT SHAREHOLDER VOTE
November 12, 1998
To the Shareholders of
The Americas Growth Fund, Inc. ("AGRO"):
This letter and the accompanying Prospectus of JWGenesis
Financial Corp. ("JWGenesis" or the "Company") constitute the 30-
day notice required by Section 3-106 of the Maryland General
Corporation Law ("MGCL"), to the shareholders of AGRO prior to the
consummation of a "short-form" merger (the "Merger"), of AGRO with
and into JW Charles Financial Services ("JWCFS"), a wholly owned
subsidiary of JWGenesis. Because JWCFS owns more than 90% of the
outstanding shares of the common stock, par value $.01 per share
(the "AGRO Shares"), of AGRO, the Merger can and will be effected
without a vote of AGRO's shareholders under Section 3-106 of the
MGCL. The terms of the Merger provide that AGRO shareholders will
be paid in shares of JWGenesis common stock for their AGRO Shares.
However, in connection with the Merger, and in accordance with
Section 3-201 et seq of the MGCL, an AGRO shareholder may object to
the Merger and demand that JWCFS pay such shareholder the fair
value of his or her AGRO Shares in cash.
The accompanying Prospectus of JWGenesis describes in detail
the terms of the Merger, and contains important information about
JWGenesis and its common stock, as well as the procedures that must
be followed by an AGRO shareholder to object to the Merger and
demand payment in cash. Accordingly, even though no vote is being
taken, and no proxy or other consent is being solicited or
requested, you should read carefully all of the information in the
accompanying Prospectus. This letter is not a summary of that
information.
Sincerely,
JW CHARLES FINANCIAL SERVICES, INC. THE AMERICAS GROWTH FUND, INC.
By: /s/ Joel E. Marks By: /s/ leonard J. Sokolow
Joel E. Marks Leonard J. Sokolow
Vice Chairman President
<PAGE>
PROSPECTUS
JWGENESIS FINANCIAL CORP.
We are JWGenesis Financial Corp., a holding company incorporated
in Florida engaged in the investment banking and securities business.
Our wholly-owned subsidiary, JW Charles Financial Services, Inc., will
pay about 49,828 shares of our common stock, par value $.001 per
share, to the shareholders of The Americas Growth Fund, Inc., or AGRO,
to merge AGRO with and into JW Charles. That will equal .431 of a
JWGenesis share for each share of AGRO common stock that JW Charles
does not already own. Because JW Charles owns more than 90% of the
outstanding shares of AGRO's common stock, applicable state law
permits us to merge AGRO with and into JW Charles without AGRO's
shareholders voting on the merger. However, under Maryland law, AGRO
shareholders can demand that JW Charles pay them the fair value of
their AGRO shares in cash, instead of exchanging their AGRO shares for
JWGenesis shares. See "The Merger Rights of Objecting Shareholders".
JW Charles intends to file Articles of Merger to complete the
merger as soon as practicable, but no earlier than 30 days after we
first send this prospectus to you. Among other consequences, after we
complete the merger, each outstanding AGRO share will cease to exist
and will convert into the right to receive .431 of a JWGenesis share
except for shares that JW Charles already owns and shares owned by AGRO
shareholders who exercise their right to receive the fair market value
of their shares in cash instead of JWGenesis shares.
JW Charles was a publicly held company before June 1998, when all
of its shareholders exchanged their shares of common stock for JW
Genesis shares on a one-for-one basis. JWGenesis replaced JW Charles
as the publicly held company at that time. In September 1997 before
the share exchange with JW Genesis JW Charles completed a tender offer
to exchange shares of its common stock, par value $.001 per share, for
AGRO shares on a .431-for-one basis. AGRO shareholders owning 823,588
AGRO shares (about 88% of the then-outstanding shares of AGRO common
stock, excluding shares already owned by JW Charles) exchanged their
shares at that time for approximately 354,851 JW Charles shares.
Taking into account AGRO shares it owned before the September 1997
exchange offer, JW Charles now owns approximately 91% of AGRO's common
stock.
JWGenesis shares trade on the American Stock Exchange. On
November 10, 1998, the last reported sale price of JWGenesis shares
was $7.375. AGRO shares traded on The Nasdaq Stock Market until
delisted on March 17, 1998. On March 13, 1998, the last day AGRO
shares traded on Nasdaq, the last reported sale price per AGRO share
was $2.75. On November 10, 1998, the last reported sale price for the
AGRO shares on the OTC Bulletin Board was $2.25 per share.
_________________________
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
_________________________
WE ARE NOT ASKING YOU FOR A PROXY; DO NOT SEND US ONE.
__________________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES WE
ARE OFFERING, OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 12, 1998.<PAGE>
CONTENTS
Page
Where You Can Find More Information........................................ 2
Forward-Looking Statements................................................. 2
Summary--General........................................................... 3
Summary--The Merger........................................................ 5
Summary Historical Financial Information................................... 7
Summary Unaudited Pro Forma Consolidated
Condensed Financial Information......................................... 9
Comparison of Certain Unaudited Per Share Data............................. 10
Risk Factors............................................................... 11
Volatile Nature of the Securities Business.......................... 11
Inherent Uncertainties Relating to Certain Effects
of the Combination of JW Charles and Genesis..................... 12
Significant Competition............................................. 12
Dependence on Key Personnel......................................... 13
Dependence on Outside Sources of Financing.......................... 14
Net Capital Requirements; Holding Company
Structure........................................................ 14
Dependence on Systems............................................... 14
Year 2000........................................................... 14
Risk of Reduced Revenues Due to Decline in Trading
of Growth Company Securities..................................... 15
Risks Associated with Regulation.................................... 15
Risk of Losses From Underwriting and Trading........................ 15
Risk of Losses Associated With Litigation and
Securities Laws.................................................. 16
Risks Associated with Management of Growth.......................... 17
Previous Schedule 13D Filings Involving AGRO........................ 17
Glossary of Certain Terms.................................................. 19
Markets for the JWGenesis and AGRO Shares.................................. 20
The Merger................................................................. 22
Background........................................................... 22
Conversion of AGRO Shares............................................ 22
Investment Decision.................................................. 23
Exchange of Certificates............................................. 23
Material Federal Income Tax Consequences............................. 24
Rights of Objecting Shareholders..................................... 25
Information About AGRO..................................................... 26
Selected Historical Financial Data of JWGenesis............................ 27
JWGenesis Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 28
Selected Financial Data of Genesis......................................... 36
Genesis Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 37
Business................................................................... 41
Directors and Executive Officers........................................... 50
Executive Compensation..................................................... 53
Certain Transactions....................................................... 57
Unaudited Pro Forma Consolidated Condensed
Financial Information.................................................... 58
Description of Capital Stock of JWGenesis.................................. 62
Legal Matters.............................................................. 64
Experts.................................................................... 64
Index to Financial Statements.............................................. F-1
Appendix A Plan of Merger.................................................. A-1
Appendix B Title 3, Subtitle 2 of the Maryland
General Corporation Law.................................................... B-1
_______________________________________
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-4
we have filed with the SEC covering the shares of our common stock we
are issuing in the merger.
Both JWGenesis and AGRO file annual, quarterly, and current
reports, proxy statements, and other information with the Securities
and Exchange Commission, or SEC. You may read and copy any materials
these companies file with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. For information
on the operation of the Public Reference Room, call the SEC at 1-800-
SEC-0330. You can also obtain reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC from the SEC's Internet site
(http://www.sec.gov). The address of that site is http://www.sec.gov.
JWGenesis also maintains an Internet site (http://jwgenesis.com).
FORWARD-LOOKING STATEMENTS
From time to time, information we provide, or statements of our
directors, officers, or employees, may be "forward-looking" statements
under the Private Securities Litigation Reform Act of 1995. Those
statements involve numerous risks and uncertainties. Any statements
made or incorporated by reference in this prospectus that are not
statements of historical fact are forward-looking statements. Such
forward-looking statements in this prospectus, and others that we or
our representatives make, are based on a number of assumptions and
involve risks and uncertainties. Consequently, actual results could
differ materially. The factors we describe under the heading "Risk
Factors" are some, but not all, of the reasons that results could be
different.
2
<PAGE>
SUMMARY--GENERAL
BECAUSE THIS IS A SUMMARY, IT MAY NOT CONTAIN ALL THE INFORMATION
YOU CONSIDER IMPORTANT. YOU SHOULD READ IT ONLY IN CONJUNCTION WITH
THE DETAILED INFORMATION APPEARING LATER IN THIS PROSPECTUS.
AS WE ARE A HOLDING COMPANY, WHEN WE DESCRIBE OUR BUSINESS, WE
GENERALLY MEAN BUSINESSES WE CONDUCT THROUGH OUR SUBSIDIARIES.
The Parties to the Merger
JWGENESIS. We are a publicly held, diversified financial
services holding company, engaged primarily in securities brokerage,
investment banking, and securities transaction clearing and execution.
Our principal operating subsidiaries are Corporate Securities Group,
Inc., JWGenesis Clearing Corp. (formerly JW Charles Clearing Corp.),
JWGenesis Securities, Inc. (formerly JW Charles Securities, Inc.), and
JWGenesis Capital Markets, LLC (formerly Genesis Merchant Group
Securities, LLC). All of our subsidiaries, except JWGenesis Capital
Markets, are owned through our wholly-owned subsidiary, JW Charles
Financial Services, Inc. We operate a full-service securities
brokerage and investment banking business that offers "one-stop-
shopping" for our customers and clients. Our company
* offers a wide range of securities brokerage and investment
services to a diversified client base,
* delivers a broad range of clearing services to
affiliated and independent broker-dealers, including
commercial bank affiliates, and
* provides investment banking services to corporate and
institutional clients and high net worth individuals.
In June 1998, JWGenesis acquired all outstanding JW Charles
common shares in exchange for JWGenesis' common shares on a one-for-one
basis. At the same time, JWGenesis acquired all the outstanding
equity interests of Genesis Merchant Group Securities, LLC from its
owners in exchange for 1,500,000 JWGenesis shares. As a result of
those transactions, JWGenesis replaced JW Charles as a public company,
and JWGenesis now owns all of JW Charles and Genesis Merchant Group
Securities, LLC.
Our common stock trades on the American Stock Exchange under the
symbol "JWG". Our principal executive offices are located at 980
North Federal Highway, Suite 210, Boca Raton, Florida 33432, (561)
338-2600.
JW CHARLES. Now one of our wholly-owned subsidiaries, JW Charles
Financial Services, Inc. was originally incorporated in Florida in
1983.
AGRO. The Americas Growth Fund, Inc., or AGRO, was organized in
1994 as a non-diversified, closed-end investment management company.
AGRO is regulated as a special type of investment company known as a
business development company under the Investment Company Act of 1940.
AGRO initially offered its shares to the public in August 1994,
raising approximately $5.15 million in net proceeds. AGRO invests in
equity and debt securities of emerging and established United States-
based companies that are "strategically linked" to the Caribbean and
Latin America. As of June 30, 1998, AGRO owned investments in one
company with a realizable value of $50,000 and had approximately
$755,600 in cash, cash equivalents, and other liquid assets that were
<PAGE>
not invested in companies. AGRO's investments in other companies have
been written down to zero. AGRO's investment objective is appreciation
of value of its investments, rather than income. To provide you with more
3<PAGE>
detailed information concerning AGRO, we reproduced AGRO's Annual Report
on Form 10-KSB for the year ended December 31, 1997 and its Quarterly
Report on Form 10-QSB for the period ended June 30, 1998 (except for exhibits)
and are delivering those reports with this prospectus.
AGRO Shares trade on the OTC Bulletin Board. AGRO is a Maryland
corporation with its principal executive offices located at 701
Brickell Avenue, Suite 2000, Miami, Florida 33131, (305) 374-0282.
BACKGROUND
JW Charles completed a tender offer to exchange JW Charles shares
for AGRO shares in September 1997, at a ratio of .431 of a JW Charles
share for one AGRO share. As a result, approximately 823,588 AGRO
shares, or 88% of the then-outstanding shares of AGRO common stock
that were not already owned by JW Charles, were exchanged for
approximately 354,851 JW Charles shares. After the exchange offer was
completed, JW Charles owned approximately 91% of the outstanding AGRO
shares. At the time of the exchange offer, JW Charles stated that it
expected to engage in another transaction (such as the merger now
proposed) in order to acquire the remaining shares of AGRO common
stock.
Because JW Charles owns more than 90% of AGRO's common stock,
under the Maryland General Corporation Law and the Florida Business
Corporation Act, AGRO is merging into JW Charles without AGRO
shareholders voting on the transaction. After the merger is
completed, each outstanding AGRO share will cease to exist, and (other
than shares owned by AGRO shareholders who opt to demand to be paid in
cash for the fair market value of their shares) will convert into the
right to receive .431 of a JWGenesis share for each AGRO share. The
merger allows JW Charles to acquire sole ownership of AGRO's assets.
In connection with the merger, JW Charles will withdraw AGRO from
its special status as a business development company. AGRO will
no longer be a separate entity as a result of the merger.
Because the SEC might have decided that the merger involves the
purchase of AGRO's property by JW Charles, the merger might have been
prohibited by Section 57(a)(2) of the Investment Company Act of 1940
unless the SEC granted exemptive relief. Consequently, JW Charles and
AGRO applied to the SEC for an exemption. The SEC granted the requested
exemption on May 20, 1998. We had to delay proceeding with this merger,
however, because of complexities associated with the June 1998
transactions described earlier by which JWGenesis replaced JW Charles
as a public holding company and acquired Genesis Merchant Group
Securities, LLC. Those matters have now been addressed, and so we are
proceeding with this merger.
RISK FACTORS
Ownership of our common stock involves significant risks. You
should therefore consider the discussion under the heading "Risk
Factors" beginning on page 11, as well as the other information in
this prospectus when making your decision whether to exercise your
right under Maryland law to object to the merger and demand to be paid
in cash.
4
<PAGE>
SUMMARY--THE MERGER
INVESTMENT DECISION
Your vote as a an AGRO shareholder is not required to approve the
merger, and we will not ask for it. Because our subsidiary, JW
Charles, owns at least 90% of AGRO's shares, we can merge AGRO with
and into JW Charles under applicable "short-form" merger laws. As an
AGRO shareholder, you nonetheless have an investment decision to make
concerning our shares because of Maryland's objecting shareholders'
rights statute. As described below, you may object to the merger and
proceed to perfect rights under Maryland law that would entitle you to
receive the fair value of your AGRO shares in cash, rather than
receive .431 of a JWGenesis share for each single AGRO share you own.
Your decision whether to object to the merger and receive cash, or
simply to receive JWGenesis shares for your AGRO shares at the
conversion ratio, is the same as a decision whether or not you want
to acquire JWGenesis shares. You cannot decide to continue to own
your AGRO shares, however, because the decision to complete the merger
has already been made, and the merger will result in the automatic
conversion or cancellation of all AGRO shares.
THE MERGER
Among other consequences, after the merger is completed
* AGRO will cease to exist as a separate entity;
* AGRO will have merged with and into our subsidiary, JW
Charles;
* JW Charles will assume all of AGRO's assets,
liabilities, and obligations; and
* each issued and outstanding AGRO share (other than
shares owned by objecting shareholders and shares
already held by JW Charles) will convert into the right
to receive .431 of a JWGenesis share.
As of June 30, 1998, approximately 115,612 AGRO shares were
issued and outstanding (other than AGRO shares held by JW Charles).
Assuming no AGRO shareholders object to the merger, approximately
49,828 JWGenesis shares will be issued to the AGRO shareholders (other
than JW Charles) in exchange for their AGRO shares. We will not issue
fractional JWGenesis shares in the merger. Instead, we will pay the
value of any fractional shares to AGRO shareholders. The 49,828
JWGenesis shares we expect to issue in the merger will represent less
than one percent (1%) of the JWGenesis shares outstanding immediately
following that issuance in the merger (assuming no other intervening
issuances or repurchases of JWGenesis shares after the date of this
prospectus).
==================================================================
AS AN EXAMPLE OF HOW THE CONVERSION IN THE MERGER
WORKS, IF YOU OWN 100 AGRO SHARES, THEN ON THE DAY THE
MERGER IS COMPLETED, YOUR SHARES WILL AUTOMATICALLY
CONVERT INTO THE RIGHT TO RECEIVE 43 JWGENESIS SHARES.
THE CALCULATION ACTUALLY YIELDS 43.1 (.431 X 100 =
43.1), BUT WE WILL PAY CASH EQUAL TO THE FAIR VALUE OF
A FRACTIONAL JWGENESIS SHARE RATHER THAN GIVING YOU A
FRACTIONAL SHARE. IN THIS EXAMPLE, WE WOULD PAY YOU
THE FAIR MARKET VALUE OF 0.1 OF A SHARE OF JWGENESIS
COMMON STOCK. THIS IS JUST AN EXAMPLE THIS PROSPECTUS
CONTAINS MORE DETAILED INFORMATION WHICH YOU SHOULD CONSULT.
==================================================================
<PAGE>
AGRO shareholders who choose to object to the merger will have
the right to demand payment in cash of the fair value of their AGRO
shares as provided under Maryland law. See "The Merger Rights of
Objecting Shareholders". If any AGRO shareholders object and opt to
receive cash for their AGRO shares, the total number of JWGenesis
shares issued in the merger will be reduced.
5<PAGE>
AGRO shareholders who do not object will receive stock
certificates representing their new shares of JWGenesis common stock
after surrendering their AGRO stock certificates to American Stock
Transfer & Trust Company of New York, which is JWGenesis' transfer
agent, or to JWGenesis.
===========================================================
DO NOT SURRENDER YOUR AGRO STOCK CERTIFICATES FOR
EXCHANGE UNTIL WE SEND YOU A LETTER OF TRANSMITTAL AND
RELATED INSTRUCTIONS AND OTHER MATERIALS AFTER THE
MERGER IS COMPLETED. SEE "THE MERGER--EXCHANGE OF
CERTIFICATES".
===========================================================
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The merger is a tax-free reorganization. AGRO shareholders will
not recognize any income, gain, or loss from receipt of JWGenesis
shares in the merger.
RIGHTS OF OBJECTING SHAREHOLDERS
As an AGRO shareholder, you may object to receiving JWGenesis
shares in the merger, and instead demand that JW Charles pay you the
fair value of your AGRO shares in cash, in accordance with Title 3,
Subtitle 2 of the Maryland General Corporation Law. JW Charles
intends to file the Articles of Merger relating to the merger and to
complete the merger as soon as practicable, but no earlier than 30
days following the date we first send this prospectus to you.
Pursuant to Maryland law, if you decide to object, you must submit a
written objection to the merger within 30 days after the date notice
of the merger is given. This prospectus serves as the notice of the
merger that JW Charles is required to give you under Maryland law.
Promptly after the Articles of Merger become effective, JW
Charles will notify each objecting shareholder of the date the
Articles of Merger were filed. Within 20 days of that notice,
objecting shareholders must make a written demand for payment of the
fair value of their shares. For a more detailed description, see "The
Merger--Rights of Objecting Shareholders".
DETERMINATION OF THE CONVERSION RATIO
The ratio for the conversion of AGRO shares into JWGenesis shares
in the merger is the same as the ratio at which AGRO shares were
exchanged for JW Charles shares in the September 1997 exchange offer.
We are using JWGenesis shares in the merger because, after that exchange
offer, JWGenesis replaced JW Charles as a public company as a result
of their June 1998 share exchange, and each JW Charles share was
converted into one JWGenesis share. The JWGenesis shares are now
publicly traded on the American Stock Exchange. JW Charles did not
obtain a fairness opinion or other analysis from an outside party
concerning the fairness or reasonableness of the terms of the
September 1997 exchange offer or this merger from the perspective of
AGRO shareholders.
MARKET PRICE
Our shares are traded on the American Stock Exchange. AGRO
shares, which previously traded on the Nasdaq Small Cap Market, were
delisted by Nasdaq on March 17, 1998, and now trade sporadically on
the OTC Bulletin Board. For information relating to market prices of
JWGenesis shares and AGRO shares, see "Markets for the JWGenesis and
AGRO Shares".
6
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
(In thousands, except per share amounts)
In the following tables, we present summary historical financial
information for JWGenesis and AGRO. We derived the summary historical
financial information of AGRO as of and for the years ended December 31,
1997, 1996 and 1995, and as of and for the six months ended June 30,
1998, from financial statements of AGRO included in AGRO's Form
10-KSB for the year ended December 31, 1997, or AGRO's Form 10-QSB for
the quarterly period ended June 30, 1998, each of which is reproduced
in its entirety (except for exhibits) and is being delivered with this
prospectus.
On June 12, 1998, JW Charles and Genesis Merchant Group
Securities, LLC completed a combination in which the two firms
combined into a new company, JWGenesis. See "Summary General" and
"Business The Share Exchange and the Combination". As a result of
that combination, JWGenesis succeeded to the business and operations
of JW Charles and Genesis. We derived the summary historical
financial information for JWGenesis relating to periods before June
12, 1998 solely from financial statements of JW Charles. Except as
otherwise expressly indicated, this information relates to matters
before the combination of JW Charles and Genesis. We derived the
summary historical financial information of JWGenesis as of and for
the five full fiscal years ended December 31, 1997 from audited
financial statements of JW Charles some of which appear elsewhere in
this prospectus. We derived the summary historical financial
information of JWGenesis as of and for the six months ended June 30,
1998 from JWGenesis' unaudited interim financial statements appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
JWGENESIS - HISTORICAL DATA:
Results of Operations for Period:
Revenues..................................... $ 51,141 $ 44,137 $ 97,182 $ 91,020 $ 80,041 $ 60,471 $ 50,066
Income Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle...................... 4,956 3,416 9,792 8,232 6,287 5,243 4,944
Net Income................................... 3,046 2,221 6,103 6,025 3,810 3,300 3,772
Earnings Per Share
Basic..................................... .78 .68 1.77 1.42 .65 .56 .63
Diluted................................... .67 .58 1.50 1.26 .64 .56 .63
Weighted Average Number of Common
Shares Outstanding
Basic..................................... 3,919 3,289 3,443 4,246 5,862 5,858 5,975
Diluted................................... 4,519 3,820 4,070 4,784 6,000 5,907 6,024
Dividends Per Common Share................... 0 0 0 0 0 0 0
Financial Condition at End of Period:
Cash and cash equivalents................. 14,564 12,967 11,512 11,836 8,597 5,401 3,289
Total assets.............................. 189,127 124,721 140,732 127,331 115,214 82,218 77,564
Short-term borrowings from banks.......... 47,257 21,744 29,423 17,375 28,138 7,303 20,271
Notes payable to affiliates............... - 5,613 5,113 8,625 3,500 5,161 2,661
Total liabilities......................... 145,514 107,128 116,066 111,959 98,643 69,459 67,454
Mandatorily redeemable common
stock..................................... - - - - 7,013 - -
Total stockholders' equity................ 43,613 17,593 24,666 15,372 9,558 12,759 10,110
</TABLE>
7<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
---------------------- ----------------------------------
1998 1997 1997 1996 1995
-------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
AGRO - HISTORICAL DATA:
Results of Operations for Period:
Revenues.................................... $ 103 $ 125 $ 233 $ 194 $ 327
Expenses.................................... 165 264 510 516 296
Net Income (loss)........................... (62) (139) (493) (315) 25
Net Income (loss) Per Common Share.......... 0.06 (0.10) (0.39) (0.25) 0.02
Average Common Shares Outstanding........... 1,265 1,265 1,265 1,265 1,265
Dividends Per Common Share ................. 0 0 0 0 0
Financial Condition at end of Period:
Total Assets................................ 4,468 4,777 4,389 4,939 5,213
Total Liabilities........................... 13 44 16 74 33
Net Asset Value Per Share................... 3.52 3.74 3.46 3.85 4.09
</TABLE>
8<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed
statement of operations of JWGenesis for the year ended December 31,
1997 and the six month period ended June 30, 1998 gives effect to the
merger as if it had occurred as of January 1, 1998. You should read
this unaudited pro forma consolidated condensed statement of
operations in conjunction with JWGenesis' historical financial
statements, including the notes thereto, appearing in this prospectus,
and the historical financial statements of Genesis Merchant Group
Securities, LLC, including the notes thereto, which are also contained
in this prospectus.
We present this unaudited pro forma consolidated condensed
statement of operations for information purposes only. It does not
necessarily indicate the financial position or operating results that
would have occurred if the merger had been completed as of the dates
indicated, nor does it necessarily indicate our future financial
conditions or operating results. No adjustment has been made to the
historical financial statements for the effect of the approximate 9%
minority interest in AGRO not owned by JWGenesis. Such adjustment, if
made, would not have a material effect on the following unaudited pro
forma consolidated condensed statement of operations. See "Risk Factors"
and "Unaudited Pro Forma Consolidated Condensed Financial Information".
<TABLE>
<CAPTION>
Pro Forma Consolidated Condensed Statement Six Months Ended Year Ended
of Income Data<F1>: June 30, 1998 December 31, 1997
---------------- -----------------
(in thousands, except shares
and per share amounts)
<S> <C> <C>
Revenues $ 63,505 $ 127,752
Income before income taxes 5,603 12,067
Net income 3,326 7,267
Net income per common share:
Basic . . . . . . . . . . . . . . . . $0.63 $1.47
Diluted . . . . . . . . . . . . . . . $0.57 $1.30
Average common shares outstanding<F2>:
Basic . . . . . . . . . . . . . . . . 5,268,753 4,943,141
Diluted . . . . . . . . . . . . . . . 5,869,065 5,569,594
<FN>
<F1> Pro forma adjustments include (a) the amortization of cost in
excess of net assets acquired (goodwill), (b) amortization of
certain payments and distributions of restricted JWGenesis shares
to Marshall T. Leeds and Joel E. Marks in connection with the
termination of the financial terms of their previous employment
arrangements with JW Charles and their execution of certain
nonsolicitation agreements with JWGenesis, and changes in
executive compensation, and (c) an income tax provision to
reflect the pro forma tax effects (i) as if Genesis Merchant
Group Securities, an LLC, were taxed as a C corporation and (ii)
amortization of the special payments described in (b) and changes
in executive compensation.
<F2> Adjusted to reflect the 1,500,000 shares of JWGenesis common
stock issued in exchange for 100% of the Genesis equity
interests in the combination of JW Charles and Genesis
(assuming the shares were outstanding for the entire period).
</FN>
</TABLE>
9<PAGE>
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
We have set forth below the historical and pro forma, giving
effect to our combination with Genesis Merchant Group Securities, LLC
earlier in the year, net income and book value per share data for
JWGenesis, the pro forma net income and book value per share data for
JWGenesis giving effect to the merger with AGRO, and the equivalent
pro forma net income and book value per share data for AGRO.
The pro forma data giving effect to the merger is based upon the
conversion of one AGRO share into .431 of a JWGenesis share. No cash
dividends were declared or paid during the period presented.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
-------------------------------------------
Pro Forma
---------------------------
Historical JWGenesis Merger
---------- --------- ------
<S> <C> <C> <C>
JWGenesis
Book value per share............................. $ 8.22 $ 8.22 $ 8.14 <F2>
Net income per share:
Basic ......................................... 0.78 0.63 0.63 <F3>
Diluted........................................ 0.67 0.57 0.56 <F3>
AGRO
Net assets per share............................. 3.52 3.54 <F1> 3.51 <F1>
Net income per share:
Basic.......................................... 0.06 0.27 <F1> 0.27 <F1>
Diluted........................................ 0.06 0.25 <F1> 0.24 <F1>
______________
<FN>
<F1> Amounts are calculated by multiplying the pro forma amounts by
the conversion ratio of .431.
<F2> Amounts are calculated by dividing JWGenesis' historical
shareholders' equity or net income by the sum of the total
outstanding shares of JWGenesis common stock plus new shares to
be issued in the merger of JW Charles and AGRO.
<F3> Amounts are calculated by dividing JWGenesis' pro forma
shareholders' equity or net income by the sum of total pro forma
outstanding JWGenesis shares plus new shares to be issued in the
merger.
</FN>
</TABLE>
10
<PAGE>
RISK FACTORS
This prospectus contains forward-looking statements that involve
risks and uncertainties. Actual results could differ materially from
those discussed in the forward-looking statements as a result of
certain factors, including those set forth below and elsewhere in this
prospectus. You should consider the following factors carefully in
addition to the other information contained in this prospectus in
connection with the merger.
Volatile Nature of the Securities Business
The securities business is, by its nature, subject to significant
risks particularly in volatile or illiquid markets. These risks
include the risks of
* trading losses * losses resulting from the
ownership or underwriting
* counterparty failure to meet commitments
* employee fraud * customer fraud
* errors and misconduct * issuer fraud
* litigation * failures in connection with
the processing of securities
transactions
Our principal business activities are retail securities
brokerage, investment banking, and clearing and execution services.
These businesses are highly competitive and subject to various risks,
volatile trading markets, and fluctuations in the volume of market
activity. The securities business is directly affected by many broad
factors, including
* economic and political conditions * broad trends in business and
finance
* legislation and regulation affecting * currency values
the business and financial communities
* inflation * market conditions
* the credit capacity or
perceived creditworthiness
* the availability and cost of of the securities industry
short-term or long-term funding and in the marketplace
capital
* interest rate levels and
volatility
These and other factors can contribute to lower price levels for
securities and illiquid markets. Lower price levels of securities may
result in
* reduced securities transactions volumes, with a correlative
reduction in commission revenues;
* losses from declines in the market value of securities held in
trading, investment, and underwriting positions; and
* reduced management fees calculated as a percentage of assets
managed.
In low volume periods, profitability levels are further adversely
affected because certain expenses remain relatively fixed. Sudden
sharp declines in securities' market values and the failure of issuers
and counterparties to perform their obligations can result in illiquid markets.
This in turn can make it difficult for us to sell securities, hedge our
11<PAGE>
securities positions, and invest funds under our management. These
negative market conditions, if prolonged, may also lower our revenues
from investment banking and other activities. As a result of the
varied risks associated with the securities business, which are
beyond our control, our commissions and other revenues could be
adversely affected. Revenue reductions and losses resulting from
securities underwriting or ownership could have a material adverse
effect on our results of operations and financial condition. In
addition, our revenues and operating results may fluctuate from
quarter to quarter and from year to year because of these risks.
INHERENT UNCERTAINTIES RELATING TO CERTAIN EFFECTS OF THE COMBINATION
OF JW CHARLES AND GENESIS
The success of the combination of Genesis Merchant Group
Securities, LLC and JW Charles into JWGenesis in enhancing long-term
shareholder value depends in part on the ability of the former
separate managements of JW Charles and Genesis (the latter has been
renamed JWGenesis Capital Markets LLC, or JWG Capital) to coordinate
their two business operations. As in every business combination, this
coordination requires the dedication of management resources, which
may temporarily divert attention from day-to-day business. Because JW
Charles was, and JWGenesis is, headquartered in Boca Raton, Florida, and
JWG Capital remains based in San Francisco, the difficulties of
coordination are increased by the necessity of managing geographically
separated organizations.
As discussed elsewhere in this prospectus, JWG Capital incurred a
pre-tax loss of approximately $2.0 million for the three month period
ended September 30, 2998. The losses were primarily attributable to
JWG Capital's trading losses, reductions in its institutional sales
volume and costs associated with its institutional sales effort. In
August 1998, we began a detailed analysis of JWG Capital's operations
which resulted in our making several significant changes in those
operations. These changes included:
* a reduction in JWG Capital's institutional sales effort,
* a reduction in securities inventory positions and other
activities that require the firm to put its capital at risk,
* a reduction in the number of industries covered by the JWG
Capital research department,
* consolidation of certain redundant activities conducted at
JWG Capital that are performed at other subsidiaries, and
* staff and expense reductions and compensation adjustments
reflecting the impact of these changes.
We have focused JWG Capital's resources on brokerage processing
services and corporate finance, the two areas of its business that we
believe are most beneficial to our organization as a whole. As a
result of these changes, JWG Capital has returned to profitability for
the month of October 1998, and we believe that our ability going
forward to coordinate the management of JWG Capital's operations with
the rest of our business has been significantly enhanced. We cannot
assure, however, that the coordination necessary to maximize the
benefits initially anticipated from the combination will be wholly
realized.
<PAGE>
SIGNIFICANT COMPETITION
All aspects of our business are highly competitive. We compete
directly with national and regional full service broker-dealers and,
to a lesser extent, with discount brokers, dealers, investment banking
firms, investment advisors, and certain commercial banks. The
financial services industry has become considerably more concentrated
as numerous securities firms have either ceased operations or have
been acquired by or merged into other firms. These mergers and acquisitions
have increased competition from these firms, many of which have
12
<PAGE>
significantly greater equity capital and financial and
other resources than we do. With respect to retail brokerage
activities, certain regional firms with which we compete have operated
in certain markets longer than us and have established long-standing
client relationships. In addition, we expect competition from
commercial banks to increase because of recent and anticipated
legislative and regulatory initiatives in the United States to remove
or relieve certain restrictions on commercial banks' securities
activities. We also compete with others in the financial services
industry in recruiting new employees and retaining current employees.
We expect to face increasing competition from companies offering
electronic brokerage services, which is a rapidly developing industry.
These competitors may have lower costs or provide fewer services, and
may offer certain customers more attractive pricing or other terms,
than we offer. We also anticipate competition from underwriters who
attempt to conduct public offerings for emerging growth companies
through new means of distribution, including transactions using
electronic media such as the Internet. In addition, disintermediation
may occur as issuers attempt to sell their securities directly to
purchasers, including sales using electronic media such as the
Internet. To the extent that issuers and purchasers of securities
transact business without the assistance of financial intermediaries
like us, our operating results could be adversely affected.
DEPENDENCE ON KEY PERSONNEL
Most aspects of the our business are dependent on highly skilled
individuals. We devote considerable resources to recruiting,
training, and compensating these individuals. In addition, one
component of our strategy is to increase market penetration by
recruiting experienced investment consultants. We cannot assure that
these recruiting efforts will be successful or, if successful, that
they will enhance our business, results of operations, or financial
condition.
COMPETITION FOR PROFESSIONAL EMPLOYEES. From time to time, our
employees may leave to pursue other opportunities. We have
experienced losses of research, investment banking, and sales and
trading professionals. Competition for key personnel is intense. We
cannot assure that losses of key personnel due to such competition, or
for other reasons, will not occur in the future. The loss of an
investment banking, research, or sales and trading professional,
particularly a senior professional with a broad range of contacts in
an industry, could materially and adversely affect our operating
results.
LIMITATIONS OF EMPLOYEE RETENTION MECHANISMS. We depend on
many key employees, and in particular on our senior executive
officers: Marshall T. Leeds, our Chairman, President, and
Chief Executive Officer; Philip C. Stapleton, our Chief
Operating Officer; and Joel E. Marks, our Chief Financial
Officer--each of whom has an employment agreement with us.
The loss of any key employee could materially and adversely affect
JWGenesis. While we generally do not have employment agreements with
our employees, we attempt to retain employees with incentives such as
long-term deferred compensation plans, stock issuances conditioned on
continued employment, and options to buy stock that vest over a number
of years of employment. These incentives, however, may be
insufficient in light of the increasing competition for experienced
professionals in the securities industry, particularly if our stock
price were to decline, or fail to appreciate sufficiently. If that
happened, our long-term deferred compensation plans might no longer be
a competitive incentive for our key employees to stay with us.
13<PAGE>
DEPENDENCE ON OUTSIDE SOURCES OF FINANCING
Like others companies in the securities industry, we rely on
external sources to finance a significant portion of our day-to-day
operations, principally customer margin account balances and certain
transactions. Our principal cash and liquidity sources are
commissions, trading profits and collateralized bank loans. Liquidity
management includes the monitoring of assets available to hypothecate
or pledge against short-term borrowings. We maintain working capital
credit lines with banks aggregating approximately $5.0 million. The
financing available to us varies depending on market conditions, the
volume of certain trading activities, credit ratings, credit capacity,
and the overall availability of credit to the financial services
industry. We cannot assure that adequate financing to support our
business will be available in the future on attractive terms, or at
all.
NET CAPITAL REQUIREMENTS; HOLDING COMPANY STRUCTURE
The SEC, the New York Stock Exchange, the National Association of
Securities Dealers, Inc., ("NASD"), and various other regulatory
bodies in the United States have rules with respect to net capital
requirements that affect us. These rules require that at least a
substantial portion of a broker-dealer's assets be kept in cash or
highly liquid investments. Our broker-dealer subsidiaries must comply
with the net capital requirements, which could limit operations that
require intensive use of capital, such as underwriting or trading
activities. These rules could also restrict our ability to withdraw
capital from our broker-dealer subsidiaries, even in circumstances
where these subsidiaries have more than the minimum amount of required
capital. This, in turn, could limit our ability to pay dividends,
implement our strategies and pay interest on and repay the principal
of our debt. In addition, a change in these rules, or the imposition
of new rules, affecting the scope, coverage, calculation, or amount of
the net capital requirements, could have similar adverse effects.
Significant operating losses or any unusually large charge against net
capital could also have a similar material adverse effect.
DEPENDENCE ON SYSTEMS
Our business is highly dependent on communications and
information systems. If these systems fail or are interrupted, our
securities trading activities could experience delays, and we might be
unable to execute client transactions. This could have a material
adverse effect on our operating results. We cannot assure that we
will not suffer any systems failures or interruptions. These failures
or interruptions could have many causes, including earthquakes, fires,
other natural disasters, power or telecommunications failures, acts of
God, or acts of war. Nor can we assure that our back-up procedures
and capabilities will be adequate if any failures or interruptions
occur.
<PAGE>
YEAR 2000
The "year 2000 issue" arises from the widespread use of computer
programs that rely on two-digit date codes to perform computations or
decision-making functions. Many of these programs may fail due to an
inability to properly interpret date codes beginning January 1, 2000.
For example, such programs may misinterpret "00" as the year 1900
rather than 2000. In addition, some equipment controlled by
microprocessor chips may not deal appropriately with the year "00".
We are evaluating our computer systems to determine which
modifications and expenditures will be necessary to make our systems
compatible with year 2000 requirements. We believe that our systems
will be year 2000-compliant upon implementation of such modifications.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations Impact of Year 2000".
We currently estimate that the total cost of such
modifications will not be significant. However, we can not assure
that all necessary modifications will be identified and corrected
or that unforeseen difficulties or costs will
14
<PAGE>
not arise. In addition, we cannot assure that the systems of other
companies on which our systems rely will be modified on a timely
basis, or that the failure by another company to properly modify
its systems will not negatively impact our systems or operations.
RISK OF REDUCED REVENUES DUE TO DECLINE IN TRADING OF GROWTH COMPANY
SECURITIES
Our brokerage transaction revenues are generally substantially
lower when public offering levels and trading activities of emerging
growth company securities declines. We derive a significant portion
of our revenues from brokerage transactions in growth company
securities. In the past, brokerage transaction revenues have declined
when underwriting activities in these industry sectors declined, the
volume of trading on Nasdaq declined or when industry sectors or
individual companies reported results below investors' expectations.
RISKS ASSOCIATED WITH REGULATION
The securities industry and our business is extensively regulated
by the SEC, state securities regulators, and other governmental
regulatory authorities. Industry self-regulatory organizations
("SROs"), including the NASD, the New York Stock Exchange, the
American Stock Exchange and other exchanges, also regulate our broker-
dealer subsidiaries. Compliance with many of the regulations
applicable to our company and our subsidiaries involves a number of
risks, particularly in areas where applicable regulations may be
subject to varying interpretation. If we do not comply with an
applicable regulation, governmental regulators and SROs may institute
administrative or judicial proceedings. In that event, we face many
penalties, including
* censure * fines
* civil penalties (including * cease-and-desist orders
treble damages in the case of * the deregistration or
insider trading violations) suspension of the non-
compliant broker-dealer's
officers or employees
Our operating results and financial condition may suffer material
adverse consequences if these penalties or orders are imposed on us.
The regulatory environment could also change. We may be
adversely affected by new or revised legislation or regulations
imposed by the SEC, other federal or state governmental regulatory
authorities, or SROs. We also may be adversely affected by changes in
the interpretation or enforcement of existing laws and rules by these
governmental authorities and SROs.
RISK OF LOSSES FROM UNDERWRITING AND TRADING
We conduct our underwriting, securities trading, and market-
making activities as principal. These activities subject our capital
to significant risks, including market, credit, counterparty, and
liquidity risks. These activities often involve purchasing, selling,
or short-selling securities as principal in relatively illiquid
markets or markets that suffer from rapidly fluctuating liquidity .
<PAGE>
From time to time, we have large position concentrations in a single
issuer's securities, or commitments to a single issuer, or issuers in
a specific industry, particularly as a result of underwriting
activities. Our trading positions and underwriting activities are
concentrated in a more limited number of industry sectors and
portfolio companies than many other investment banks, which might
result in higher trading losses than would occur if our positions and
activities were less concentrated. In addition, there is a trend in
all major capital markets for competitive and other reasons toward
larger commitments from lead underwriters.
15<PAGE>
This means that, from time to time, an underwriter (including a co-manager)
may retain significant position concentrations in individual securities.
Unfavorable financial or economic conditions would likely reduce
the number and size of transactions in which we provide underwriting,
mergers and acquisitions advisory services and other related services.
Our investment banking revenues, in the form of underwriting discounts
and financial advisory fees, are directly related to the number and
value of the transactions in which we participate and would therefore be
adversely affected by a market downturn.
RISK OF LOSSES ASSOCIATED WITH LITIGATION AND SECURITIES LAWS
Many aspects of our business involve substantial liability risks.
Underwriters are exposed to substantial liability under federal and
state securities laws and other federal and state laws. Court
decisions, including decisions on underwriters' liability and
limitations on indemnification of underwriters by issuers, also expose
us to liability. For example, an underwriter may be held liable for
material misstatements or omissions of fact in a prospectus used to
offer securities, or for statements made by its securities analysts or
other personnel.
INCREASING FREQUENCY OF SECURITIES LITIGATION. In recent years,
litigation involving the securities industry has increased, including
class actions in which substantial damages are at stake. Our
underwriting activities usually involve offerings of emerging and mid-
size growth company securities, which often involve higher risk and
are more volatile than the securities of more established companies.
In comparison with more established companies, emerging and mid-size
growth companies are also more likely to be defendants in securities
class actions, to carry directors and officers liability insurance
policies with lower limits (or no such insurance), and to become
insolvent. These factors increase the likelihood that a company
underwriting an emerging or mid-size growth company's securities will
be required to contribute to an adverse judgment or settlement of a
securities lawsuit.
FREQUENT CLAIMS AGAINST UNDERWRITERS. The plaintiffs' attorneys
in securities class action lawsuits frequently name the managing
underwriters of a public offering as defendants. We have not been a
named defendant in any class action lawsuit relating to public
offerings in which we were a managing underwriter. Plaintiffs'
attorneys also name investment banks providing advisory services in
corporate finance transactions as defendants. We are not a defendant
in any such lawsuit. We anticipate, however, that securities class
action lawsuits naming us as a defendant may be filed from time to
time in the future, particularly if we increase our activity as
managing underwriters or corporate finance advisors. In such
lawsuits, all members of the underwriting syndicate typically are
included as defendant class members or are required by law, or
pursuant to the terms of the underwriting agreement, to bear a portion
of any expenses or losses (including amounts paid in settlement of the
litigation) incurred by the underwriters as a group in litigating the
claim, to the extent not covered by the securities issuer's
indemnification obligation. If we became a party to such a lawsuit,
our assets would be subject to risks. If the plaintiffs in any suits
against us were successful, or if we settled such suits by making
significant payments to the plaintiffs, our operating results and
financial condition could be materially and adversely affected. As is
common in the securities industry, we do not carry insurance that
would cover any such payments. In addition, our charter documents
allow indemnification of our officers, directors, and agents to the
maximum extent permitted under Florida law. If our officers,<PAGE>
directors, or agents are named as defendants in securities litigation,
they may demand indemnification from us under these charter document
provisions.
In addition, the laws relating to securities class actions are
currently in a state of flux. The eventual impact of the Private
Securities Litigation Reform Act of 1995 on securities class action
litigation is not known.
16<PAGE>
DIVERSION OF MANAGEMENT ATTENTION. In addition to these
financial costs and risks, defending litigation can, to a certain
extent, divert the efforts and attention of our management and staff.
Our management and other employees may have to devote substantial time
defending litigation, which might materially divert their attention
from other responsibilities. Securities class action litigation in
particular is highly complex and can extend for a protracted period of
time, consuming substantial management time and effort and
substantially increasing the cost of such litigation.
RISKS ASSOCIATED WITH OTHER DISPUTES. In the normal course of
business, we are defendants in various civil actions and arbitrations
arising out of our broker-dealer and underwriting activities, in our
role as an employer, and as a result of other business activities. We
have made significant payments to resolve disputed claims in the past,
and we cannot assure that we will not make significant payments to
resolve disputed claims in the future.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
Over the past several years, we have experienced significant
growth in our business activities and size, and we expect we will
continue to grow in the future. Our growth requires and will continue
to require increased investments in management personnel, financial
and management systems and controls, and facilities. If our revenue
did not also continue to grow, our operating margins would decline due
to these increased expenses. In addition, as is common in the
securities industry, we depend on the effective and reliable operation
of our communications and information systems. We believe that our
current and anticipated future growth will require us to implement new
and enhanced communications and information systems, and to train our
personnel to operate the new systems. Any difficulty or significant
delay in implementing or operating our existing systems or any new
ones, or in training our personnel, could adversely affect our ability
to manage growth.
PREVIOUS SCHEDULE 13D FILINGS INVOLVING AGRO
JW Charles filed a Schedule 13D with the SEC in March 1997 to
report certain matters concerning its ownership of AGRO shares at that
time, its analysis of how to proceed regarding that ownership, and JW
Charles' activities as a market maker for AGRO shares. When JW
Charles filed a registration statement concerning the 1997 exchange
offer for AGRO shares, the SEC questioned whether JW Charles was
required to file an amendment to its Schedule 13D to report its
acquisition of additional AGRO shares, or to report a change in its
plans respecting AGRO, before the public announcement of the exchange
offer, or whether JW Charles should have ceased making a market for
AGRO shares before it actually did so (which was just before it filed
the registration statement concerning the exchange offer with the
SEC). JW Charles does not believe it was required to take (or should
have taken) these actions in these particular circumstances, which it
explained to the SEC.
The SEC subsequently commenced an informal inquiry relating to JW
Charles' Schedule 13D filing obligations. JW Charles has been
providing the SEC the information it has requested in the inquiry, and
we expect that the SEC will complete the inquiry soon. We do not
expect, although there can be no assurance at this time, that the SEC
will take any further action concerning this matter.
It is possible, however, that the SEC or its staff may disagree
with JW Charles and that it (or other possible parties, such as AGRO
shareholders of) may try to (i) cause JW Charles to rescind the trades of
some or all of the AGRO shares that were acquired by JW Charles after
some date between March 11, 1997 (when JW Charles filed its Schedule
13D) and June 6, 1997 (when JW Charles ceased market making for AGRO
shares prior to announcing the exchange offer on June 9, 1997), or (ii)
permit the sellers of AGRO shares during that time to reacquire those
shares for the same price they received in the original trade or,
depending on the circumstances, for the number of
17<PAGE>
JW Charles shares (now JWGenesis shares) they could have received in the
exchange offer if they had continued to own the AGRO shares and made a
decision to tender in the exchange offer. JW Charles purchased a total
of 48,500 AGRO shares during that March 11, 1997 to June 6, 1997 time period,
for an aggregate of approximately $129,840, net of commission, to the sellers.
If JW Charles were required to offer to rescind all such trades on the above
basis, and all the sellers accepted the offer, JW Charles would receive
the approximately $129,840 net cash consideration paid to the sellers
and the sellers would receive the 48,500 AGRO shares they sold or shares
of JWGenesis common stock. If all the sellers received JWGenesis
shares, an aggregate of 20,904 JWGenesis shares would be issued. JW
Charles does not believe that such a rescission should be required, or
that if it were, it would have any material effect on JWGenesis'
results of operations, financial condition, prospects, or plans.
The SEC or other possible parties (such as AGRO shareholders)
might seek to take other action or pursue other remedies based on a
disagreement with JW Charles' position concerning its Schedule 13D
filing obligations or its acquisition of AGRO shares. While JW
Charles believes that its positions would be upheld if challenged, we
cannot give any assurance that this would be the case.
18
<PAGE>
GLOSSARY OF CERTAIN TERMS
The following glossary explains certain terms appearing in this Prospectus.
Other terms are defined elsewhere.
<TABLE>
<CAPTION>
<S> <C>
1940 Act.............................. The Investment Company Act of 1940, as amended
AGRO Shares........................... The common stock of AGRO, par value $.01 per share
AMEX.................................. American Stock Exchange
Application........................... Application for an Order to Exempt the Merger from Section 57(a)(2) of the
1940 Act
BDC................................... Business Development Company
Combination........................... Transaction whereby Genesis and JWCFS were combined into JWGenesis
Combination Agreement................ Amended and Restated Agreement and Plan of Combination among JWCFS,
JWGenesis, Genesis, and the owners of the Genesis Membership Interests
Commission............................ Securities and Exchange Commission
Company............................... JWGenesis Financial Corp.
Conversion Ratio...................... The ratio of .431 of a JWGenesis Share for each AGRO Share in the Merger;
also the ratio in the Exchange Offer
CSG................................... Corporate Securities Group, Inc.
Exchange Act.......................... Securities Exchange Act of 1934, as amended
Exchange Offer........................ The September 1997 offer by JWCFS to AGRO shareholders to receive .431 of a
JWCFS Share in exchange for each AGRO Share
Exchange Offer Registration The registration statement filed by JWCFS in June 1997 in connection with
Statement............................. the Exchange Offer
Genesis............................... Genesis Merchant Group Securities, LLC
Genesis Membership Interests.......... The equity interests of Genesis
JWCFS................................. JW Charles Financial Services, Inc.
JWCFS Shares.......................... The common stock of JWCFS, par value $.001 per share
JWG Capital........................... JWGenesis Capital Markets, LLC, formerly Genesis
JWG Clearing.......................... JWGenesis Clearing Corp., formerly JW Charles Clearing Corp.
JWG Securities........................ JWGenesis Securities, Inc., formerly JW Charles Securities, Inc.
JWGenesis............................. JWGenesis Financial Corp.
JWGenesis Shares...................... The common stock of JWGenesis, par value $.001 per share
Merger................................ The "short-form" merger of AGRO into JWCFS
MGCL ................................. Maryland General Corporation Law
Nasdaq................................ The Nasdaq Stock Market
NYSE.................................. New York Stock Exchange
Objecting Shares...................... Shares of AGRO shareholders who object to the Merger and demand payment of
the fair value of such shares in cash under the MGCL
Prospectus............................ This prospectus, which forms a part of the Registration Statement
Registration Statement................ Registration Statement on Form S-4 filed with the Commission, of which this
Prospectus forms a part
Securities Act........................ Securities Act of 1933, as amended
Share Exchange........................ The June 1998 statutory share exchange of one JWGenesis Share for each
JWCFS Share
</TABLE>
19
<PAGE>
MARKETS FOR THE JWGENESIS AND AGRO SHARES
JWGenesis Shares are traded on the AMEX (symbol: JWG), having
succeeded on June 15, 1998 to the prior listing of JWCFS Shares on the
AMEX (symbol: JWC), which began on May 8, 1997. Prior to May 8,
1997, JWCFS Shares were traded on Nasdaq under the symbol "KORP".
AGRO Shares were traded on Nasdaq (symbol: AGRO) until March 17, 1998,
when they were delisted. AGRO Shares currently trade on the OTC
Bulletin Board on a limited basis. The following tables set forth
the high and low sales prices per JWGenesis Share (which includes the
trading history of JWCFS Shares) and AGRO Share for each period
indicated. They also set forth the high bid and low asked prices
quoted by dealers for the JWGenesis Shares and the AGRO Shares. The
high bid at any given time is the highest price that a dealer is at
that time offering to pay to an investor who wishes to sell his or her
shares, and the low asked at any given time is the lowest price at
which a dealer is at that time offering to sell shares to an investor
who wishes to buy them. For shares with wide bid-asked spreads, the
high bid and low asked prices provide additional information
concerning market prices; because sales prices are reported for
transactions between a dealer and an investor, the reported sales
price will be relatively high if the reported transaction is a sale by
a dealer, and relatively low if it is a purchase by a dealer.
However, the bid-asked prices provide no assurance that the specified
prices are available for transactions involving more than one round
lot (100 shares).
Neither JWGenesis nor AGRO has paid a cash dividend with respect
to its shares. The fiscal year for each company ends on December 31
of each year. On November 10, 1998, the last reported sale price per
JWGenesis Share on the AMEX was $7.375. On March 13, 1998, the
last day on which the AGRO Shares traded on Nasdaq, the last
reported sale price per AGRO Share was $2.75. On November 10, 1998
the last reported sale price for the AGRO Shares on the OTC Bulletin
Board was $2.25 per share.
===========================================================
Shareholders are urged to obtain current quotations
for JWGenesis shares and AGRO shares.
===========================================================
JWGenesis Shares<F1>
Sales Price
-----------------
High Low
----- -----
1996
First Quarter....................................... $ 3.33 $ 2.75
Second Quarter...................................... 5.08 3.08
Third Quarter....................................... 5.00 3.17
Fourth Quarter...................................... 7.67 3.83
1997
First Quarter....................................... $12.50 $ 7.17
Second Quarter...................................... 10.13 6.00
Third Quarter....................................... 8.88 7.25
Fourth Quarter...................................... 15.88 8.38
1998
First Quarter....................................... $13.75 $11.38
Second Quarter...................................... 12.75 9.88
Third Quarter....................................... 11.50 6.13
Fourth Quarter (through November 10)................ 7.50 5.25
20<PAGE>
AGRO Shares<F1>
Sales Price
-----------------
High Low
----- -----
1996
First Quarter....................................... $ 3.00 $ 2.50
Second Quarter...................................... 2.75 2.25
Third Quarter....................................... 3.00 2.00
Fourth Quarter...................................... 2.88 2.50
1997
First Quarter....................................... $ 3.00 $ 2.69
Second Quarter...................................... 3.38 2.69
Third Quarter....................................... 3.13 2.75
Fourth Quarter...................................... 4.75 2.88
1998
First Quarter....................................... $ 3.00 $ 2.75
Second Quarter...................................... 4.00 2.50
Third Quarter....................................... 3.75 2.75
Fourth Quarter (through November 10)................ 2.50 2.25
_______________
[FN]
<F1> Sources: The Nasdaq Stock Market, Inc., the OTC Bulletin Board, and the
American Stock Exchange, Inc., as applicable.
</FN>
21<PAGE>
THE MERGER
BACKGROUND
On August 19, 1997, JWCFS commenced an offer to exchange all (but
not less than 51%) of the then outstanding AGRO Shares for JWCFS
Shares. At the commencement of the Exchange Offer, JWCFS owned
approximately 326,550 AGRO Shares (approximately 25.8% of the then
outstanding AGRO Shares), which shares were included for purposes of
determining whether the minimum of 51% of the AGRO Shares were
obtained. The Exchange Offer expired in accordance with its terms at
midnight, Atlanta time, on September 22, 1997. A total of
approximately 823,588 AGRO Shares were accepted by JWCFS for exchange
according to the terms of the Exchange Offer on the basis of .431 of a
JWCFS Share for each share of AGRO common stock. JWCFS issued
approximately 354,851 JWCFS Shares in exchange for the AGRO Shares
tendered. The AGRO Shares exchanged represented approximately 88% of
the then outstanding AGRO Shares not owned by JWCFS, and, together
with the AGRO Shares already owned by JWCFS, represented approximately
91% of such shares.
Since JWCFS owns more than 90% of the outstanding AGRO Shares,
under the Maryland General Corporation Law (the "MGCL") and the
Florida Business Corporation Act ("FBCA"), JWCFS may merge AGRO with
and into itself without a vote of AGRO's shareholders. Because the
Merger may be deemed to involve the purchase of property of AGRO by
JWCFS, the Merger may be prohibited under Section 57(a)(2) of the 1940
Act in the absence of exemptive relief from the Commission.
Accordingly, in December 1997, JWCFS and AGRO filed with the
Commission an Application for an Order to Exempt the Merger from
Section 57(a)(2) of the 1940 Act. Under Section 57(c) of the 1940
Act, the Commission may grant such an Order if, among other things,
the terms of the Merger are reasonable and fair, the Merger is
consistent with the policies of the business development company
("BDC") involved, and the Merger is consistent with the purposes of
the 1940 Act. The Commission published a public notice regarding the
Application on April 23, 1998, and on May 20, 1998, the Commission
granted the requested Order.
Upon consummation of the Merger, AGRO's status as a BDC will be
withdrawn and AGRO will cease to exist. In addition, each AGRO Share
then outstanding (other than Objecting Shares and shares held by
JWCFS) will be converted into the right to receive .431 of a JWGenesis
Share. The Board of Directors of JWCFS has adopted a plan of merger
providing for the Merger (the "Plan of Merger") and the Board of
Directors of AGRO has approved the Merger, in accordance with the FBCA
and MGCL, respectively. A copy of the Plan of Merger is attached
hereto as Appendix A.
In June 1998, JWGenesis and JWCFS effected the Share Exchange,
pursuant to which all JWCFS Shares (including JWCFS Shares that had
been issued to former AGRO shareholders pursuant to the Exchange
Offer) were converted into JWGenesis Shares, on a one-for-one basis,
and JWGenesis thus replaced JWCFS as a public company with the
JWGenesis Shares being listed and traded on the AMEX. Because of the
Share Exchange, JWGenesis Shares (rather than JWCFS Shares) will now
be issued to the remaining AGRO shareholders in the Merger.
CONVERSION OF AGRO SHARES
Upon the consummation of the Merger, each outstanding AGRO Share
(other than Objecting Shares and shares held by JWCFS) will be canceled
<PAGE>
and automatically converted into .431 of a JWGenesis Share. The Conversion
Ratio for the Merger is the same as the Exchange Ratio for the Exchange Offer.
However, because of the intervening Share Exchange described above, JWGenesis
Shares are being used rather than JWCFS Shares.
22
<PAGE>
JWCFS has not obtained a fairness opinion or other analysis from an outside
party concerning the fairness or reasonableness of the terms of the Merger
from the perspective of AGRO shareholders, as a financial matter.
No fraction of a JWGenesis Share will be issued, but in lieu
thereof each holder of AGRO Shares who would otherwise be entitled to
a fraction of a JWGenesis Share (after aggregating all fractional
JWGenesis Shares to be received by such holder) will receive from
JWGenesis an amount of cash (rounded to the nearest whole cent) equal
to the product of (i) such fraction, multiplied by (ii) the last sale
price of a JWGenesis Share on the trading day immediately prior to the
consummation of the Merger.
Upon the consummation of the Merger, any holders of AGRO Shares
who have validly exercised and not forfeited their right to demand
payment of the fair value of such shares in cash ("Objecting Shares")
in connection with the Merger under the MGCL, will not have such
Objecting Shares converted into JWGenesis Shares, but instead they
shall be converted into the right to receive such consideration as may
be determined to be due with respect to such Objecting Shares pursuant
to the MGCL. Each holder of Objecting Shares (an "Objecting
Shareholder") who, pursuant to the provisions of the MGCL, becomes
entitled to payment of the value of AGRO Shares shall receive payment
therefor (but only after the value therefor shall have been agreed
upon or finally determined pursuant to such provisions). In the event
of a legal obligation, after the consummation of the Merger, to
deliver JWGenesis Shares to any holder of AGRO Shares who shall have
failed to make an effective payment demand or shall have lost his or
her status as an Objecting Shareholder, JWCFS shall deliver, upon
surrender by such Objecting Shareholder of his or her certificate or
certificates representing AGRO Shares, the JWGenesis Shares to which
such Objecting Shareholder would have been entitled and cash in lieu
of fractional shares.
Upon the consummation of the Merger, all issued and outstanding
AGRO Shares owned by JWCFS shall be canceled without consideration.
INVESTMENT DECISION
No vote by AGRO shareholders is required to be (or will be) taken
on the Merger. This is because the Merger can be effected under
applicable laws as a so-called "short-form" merger because JWCFS owns
at least 90% of the AGRO shares. AGRO shareholders nonetheless have
an investment decision to make concerning JWGenesis Shares because of
the applicability to the Merger of Maryland's objecting shareholders'
rights statute. As described elsewhere herein, AGRO shareholders may
object to the Merger and proceed to perfect rights under Maryland law
that would entitle them to be paid the fair value of their AGRO Shares
in cash, rather than receive JWGenesis Shares at the Conversion Ratio.
Accordingly, a decision of whether to exercise such objecting
shareholders' rights is tantamount to an investment decision of
whether to become a holder of JWGenesis Shares. There is no
investment decision to be made, however, with respect to whether to
continue to hold AGRO Shares, because the determination to effect the
Merger has been made, and the Merger will result in the conversion or
cancellation of all AGRO Shares as described herein.
<PAGE>
EXCHANGE OF CERTIFICATES
Following effectiveness of the Merger, a letter of transmittal
with instructions will be mailed to each AGRO shareholder for use in
exchanging certificates representing AGRO Shares for certificates
representing JWGenesis Shares. Upon surrender of a certificate
representing AGRO Shares for cancellation to the American Stock
Transfer & Trust Company of New York, JWGenesis' transfer agent, or to
JWGenesis or such other agent or agents as may be appointed by JWCFS,
together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of
such certificate will be entitled to receive in exchange
23<PAGE>
therefor a certificate representing the number of whole JWGenesis Shares
equal to .431 multiplied by the number of AGRO Shares represented by the
certificate.
Following the Merger, each outstanding AGRO common stock
certificate will be deemed for all corporate purposes, other than the
payment of dividends, to evidence the ownership of the number of full
JWGenesis Shares into which such AGRO Shares shall have been so
converted as a result of the Merger and the right to receive an amount
in cash in lieu of the issuance of any fractional shares. No
dividends or other distributions in respect of JWGenesis Shares with a
record date after the consummation of the Merger will be paid to the
holder of any unsurrendered AGRO Share certificate with respect to the
JWGenesis Shares represented thereby until the holder of record of
such certificate surrenders such certificate. Subject to applicable
law, following surrender of any such certificate, there will be paid
to the record holder of the certificates representing whole JWGenesis
Shares issued in conversion thereof, without interest, at the
consummation of such surrender, the amount of any such dividends or
other distributions with a record date after the Merger theretofore
payable with respect to such shares of JWGenesis Common Stock.
=========================================================
Do not submit your AGRO stock certificates until you
receive the Letter of Transmittal and instructions
referred to above.
=========================================================
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income
tax consequences of the Merger to holders of AGRO Shares, but does not
purport to be a complete analysis of all of the potential tax effects
of the Transaction. The discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations, Internal
Revenue Service ("IRS") rulings, and judicial decisions now in effect,
all of which are subject to change at any time by legislative,
judicial, or administrative action, and any such change may be applied
retroactively. No information is provided herein with respect to
foreign, state, or local tax laws or estate and gift tax
considerations. This information is directed to AGRO shareholders who
hold their AGRO Shares as "capital assets" within the meaning of
Section 1221 of the Code. JWGenesis and JWCFS do not intend to
request a ruling from the IRS with respect to the Merger. The
following discussion of the material federal income tax consequences
relevant to the Merger constitutes the opinion of Kilpatrick Stockton
LLP, tax counsel to JWGenesis and JWCFS ("Tax Counsel"), subject to
the qualifications stated herein. Such opinion, however, has no
binding effect on the IRS or the courts.
In the opinion of Tax Counsel, the Merger will constitute a tax-
free exchange under Section 368 of the Code. In such event, (i) no
income, gain, or loss will be recognized by AGRO shareholders upon the
receipt of JWGenesis Shares upon conversion of their AGRO Shares in
the Merger, (ii) no income, gain, or loss will be recognized by JWCFS
or AGRO as a result of the Exchange Offer or the Merger, (iii) the tax
basis of the JWGenesis Shares received by AGRO shareholders will be
equal to their basis in AGRO Shares immediately before consummation of
the Merger, (iv) the holding period of the JWGenesis Shares received
by each AGRO shareholder will include the period for which such
shareholder has held the AGRO Shares converted in the Merger, and (v)
the payment of cash in lieu of fractional share interests in JWGenesis
will be treated for federal income tax purposes as if the fractional
shares were issued as part of the Merger and then were redeemed by<PAGE>
JWGenesis. The cash payments will be treated as having been received
as distributions in full payment in exchange for the shares redeemed
as provided in Section 302(a) of the Code.
If the Merger were not treated as a tax-free reorganization, (i) AGRO
shareholders would recognize gain or loss upon the receipt of JWGenesis Shares
upon conversion of their AGRO Shares, (ii) the tax basis of the
24<PAGE>
JWGenesis Shares received would be equal to the fair
market value of those shares, and (iii) the holding period for the
JWGenesis Shares received would begin on the date of consummation of
the Merger. Any gain or loss recognized by an AGRO shareholder would
be a capital gain or loss if the AGRO shareholder held the AGRO Shares
as a capital asset.
The maximum federal income tax rate applicable to an individual's
capital gains with respect to certain assets (including shares of
stock) held for greater than one year is currently 20%. Only $3,000
of an individual's net capital losses are currently deductible in any
one year against ordinary income. A corporation's capital gains are
taxable currently at the same rate as the corporation's ordinary
income, and a corporation's capital losses are deductible only to the
extent of its capital gains.
RIGHTS OF OBJECTING SHAREHOLDERS
In connection with the Merger and in accordance with Title 3,
Subtitle 2 of the MGCL, an AGRO shareholder may, by following the
procedures summarized below, demand that JWCFS pay the shareholder the
fair value of his or her AGRO Shares in cash. The following summary
of the statutory procedures to be followed by a holder of AGRO Shares
in order to object to the Merger and perfect his or her rights under
the MGCL is qualified in its entirety by reference to Title 3,
Subtitle 2 of the MGCL, a copy of which is attached as Appendix B
hereto.
In connection with the Merger, no vote of AGRO shareholders is
required to be taken (because JWCFS owns more than 90% of the
outstanding AGRO Shares and is proposing to merge AGRO into JWCFS
under applicable law without such a vote). JWCFS is hereby notifying
each record holder of AGRO Shares of the Merger at least 30 days prior
to filing the Articles of Merger under the MGCL and the FBCA. An AGRO
shareholder wishing to demand payment in cash of the fair value of any
part or all of his or her shares of AGRO ("Objecting Shares") must
submit a written notice to the Secretary of AGRO within 30 days after
the date this Prospectus is sent to AGRO shareholders, stating that
such shareholder (an "Objecting Shareholder") objects to the Merger.
An AGRO shareholder who holds AGRO Shares of record for different
beneficial owners (e.g., a brokerage firm who owns AGRO Shares in
"street name" for different customers) may, pursuant to appropriate
instructions from one or more such beneficial owners, object to the
Merger and demand payment in cash as to some of the AGRO Shares held
of record and not as to others. However, all or none of the AGRO
Shares owned beneficially by a single person must be Objecting Shares;
that is, a person will not be permitted to object as to some but not
all of the AGRO Shares beneficially owned by the person. For this
purpose only, beneficial ownership of AGRO Shares will be determined
without regard to rules of attribution (such as, between spouses,
among siblings, etc.) that may otherwise be applicable under tax,
securities, or other laws for other purposes.
Promptly following the effectiveness of the Merger, JWCFS, as the
successor to AGRO, will notify in writing each Objecting Shareholder
of the date on which the Articles of Merger were accepted for
recording. Within 20 days of the date on which the Articles were
accepted for recording, an Objecting Shareholder must make a written
demand for payment in cash of the fair value of his or her stock,
stating the number Objecting Shares for which payment is demanded.
The notice of objection should be sent to JWCFS, 980 North Federal
Highway, Suite 310, Boca Raton, Florida 33432, Attention: Corporate
Secretary.
The notice of the date on which the Articles of Merger were
accepted may contain an offer of payment and certain financial
disclosures. If an Objecting Shareholder who has followed all of the
procedural steps required to demand payment in cash of fair value has
not received payment for his or her Objecting Shares, he or she may,
or JWCFS may, within 50 days of the acceptance of the Articles of Merger,
petition the court of equity in the appropriate county for appraisal of the
fair value of his or her AGRO Shares as of the date of the Merger, without
25<PAGE>
including any appreciation or depreciation resulting directly or indirectly
from the Merger or its proposal. Any shareholder who filed a notice of
objection, but fails to file a written demand for payment of the fair value in
a timely manner, will be bound by the terms of the Merger (and thereby would
receive JWGenesis Shares on the basis of the Conversion Ratio) and will not
be entitled to receive payment in cash. An Objecting Shareholder will also
be restored to his or her rights as an AGRO shareholder who did not object
(and thereby would receive JWGenesis Shares on the basis of the Conversion
Ratio) if the demand for payment is withdrawn, a petition of appraisal is
not filed within the time required, or a court determines that the shareholder
is not entitled to relief.
If the court finds that the Objecting Shareholder is entitled to
an appraisal of his or her stock, the court shall appoint three
disinterested appraisers to determine the fair value of the stock.
Within 60 days after appointment (or such longer period as the court
may direct), the appraisers shall file with the court and mail to each
Objecting Shareholder their report stating their conclusion as to the
fair value of the stock. Within 15 days after the filing of the
report, any party may object to the report and request a rehearing.
The court, upon motion of any party, will enter an order either
confirming, modifying, or rejecting the report and, if confirmed or
modified, enter judgment directing the time within which payment must
be made. If the report is rejected, the court may determine the fair
value or remit the proceeding to the same or other appraisers. Any
judgment entered pursuant to a court proceeding will include interest
from the date notice of the Merger is given hereby, unless the court
finds that the shareholder's refusal to accept a written offer to
purchase the shares was arbitrary, vexatious, or not in good faith.
In general, the expenses of the appraisal proceedings will be the
responsibility of JWCFS. However, all or any part of such expenses
may be assessed against any Objecting Shareholder to whom an offer to
pay for such shareholder's shares was made by JWCFS, if the court
finds the failure to accept such offer was arbitrary, vexatious, or
not in good faith.
INFORMATION ABOUT AGRO
AGRO's Annual Report on Form 10-KSB for the year ended December 31,
1997 and its Quarterly Report on Form 10-QSB for the quarterly
period ended June 30, 1998 are reproduced in their entirety (except
for exhibits) and are being delivered with this Prospectus.
26
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF JWGENESIS
(in thousands, except per share amounts)
The following tables present selected historical financial data
of JWGenesis. On June 12, 1998, JWGenesis and JWCFS effected the
Share Exchange, and JWGenesis acquired Genesis, as part of the
Combination. See "Summary General" and "Business The Share Exchange
and the Combination". As a result of the Combination, JWGenesis has
now succeeded to the business and operations of JWCFS and Genesis.
The following selected historical financial data of JWGenesis relating
to periods prior to June 12, 1998 are derived solely from financial
statements of JWCFS for such periods and, except as otherwise
expressly indicated, relate to matters prior to the Combination. Such
financial statements for the years ended December 31, 1997, 1996, and
1995, and the financial statements of JWGenesis as of and for the six
months ended June 30, 1998, appear elsewhere in this Prospectus. The
following selected historical financial data should be read in
conjunction with such financial statements and related notes.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................................. $51,141 $44,137 $97,182 $91,020 $80,041 $60,471 $50,066
Income Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle................... 4,956 3,416 9,792 8,232 6,287 5,243 4,944
Income Before Cumulative Effect of
Change in Accounting Principle....... 3,046 2,221 6,103 6,025 3,810 3,300 3,114
Cumulative Effect of Change in
Accounting Principle................. - - - - - - 658
Net Income................................ 3,046 2,221 6,103 6,025 3,810 3,300 3,772
Earnings Per Share
Basic.................................. .78 .68 1.77 1.42 .65 .56 .63
Diluted................................ .67 .58 1.50 1.26 .64 .56 .63
Weighted Average Number of Common
Shares Outstanding
Basic.................................. 3,919 3,289 3,443 4,246 5,862 5,858 5,975
Diluted................................ 4,519 3,820 4,070 4,784 6,000 5,907 6,024
Dividends Per Common Share................ 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
At June 30 At December 31
----------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF FINANCIAL CONDITION DATA:
Cash and cash equivalents.............. 14,564 12,967 11,512 11,836 8,597 5,401 3,289
Total assets........................... 189,127 124,721 140,732 127,331 115,214 82,218 77,564
Short-term borrowings from banks....... 47,257 21,744 29,423 17,375 28,138 7,303 20,271
Notes payable to affiliates............ - 5,613 5,113 8,625 3,500 5,161 2,661
Total liabilities...................... 145,514 107,128 116,066 111,959 98,643 69,459 67,454
Mandatorily redeemable common
stock............................... - - - - 7,013 - -
Total stockholders' equity............. 43,613 17,593 24,666 15,372 9,558 12,759 10,110
</TABLE>
27<PAGE>
JWGENESIS MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations presents the more significant factors affecting
JWGenesis during the six months ended June 30, 1998, and during the
three years ended December 31, 1997. On June 12, 1998, JWGenesis and
JWCFS effected the Share Exchange, and JWGenesis acquired Genesis, as
part of the Combination. See "Summary General" and Business The Share
Exchange and the Combination". As a result of the Combination,
JWGenesis has now succeeded to the business and operations of JWCFS
and Genesis. The following discussion and analysis for JWGenesis
relating to periods prior to June 12, 1998 reflect the operations of
JWCFS as if it were JWGenesis during such periods, and does not
reflect any operations of Genesis before the Combination. A separate
discussion and analysis of the operations of Genesis for its years
ended December 31, 1997, 1996, and 1995 is contained elsewhere herein.
RESULTS OF OPERATIONS
During the Company's third quarter ended September 30, 1998, the
securities markets in general experienced a significant correction
which resulted in significant market volatility that affected the
Company's operations and results it expected to report for that
quarter. While the complete results for that quarter are unavailable
for discussion here, certain aspects of that development are discussed
elsewhere in this Prospectus, including in "Business Market Making and
Principal Transactions" and "Business Recent Developments".
THREE MONTHS ENDED JUNE 30, 1998 (THE "1998 PERIOD") VS. 1997
(THE "1997 PERIOD")
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------
1998 1997 1996
(000's) % Change (000's) % Change (000's)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions............................ $14,052 33 $10,528 -20 $13,226
Market making and principal
transactions, net.................. 5,618 4 5,399 -23 7,048
Interest............................... 3,818 37 2,781 20 2,322
Clearing fees.......................... 2,642 3 2,573 -4 2,672
Other ................................. 738 2 724 -11 810
-------------------------------------------------------
$26,868 22 $22,005 -16 $26,078
=======================================================
Three Months Ended June 30,
-------------------------------------------------------
1998 1997 1996
(000's) % Change (000's) % Change (000's)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses:
Commissions and clearing costs......... $13,782 26 $10,927 -25 $14,666
Employee compensation and benefits..... 4,437 8 4,114 11 3,697
Selling, general and administrative.... 4,277 5 4,056 -10 4,487
Interest............................... 1,458 35 1,077 2 1,055
-------------------------------------------------------
$23,954 19 $20,174 -16 $23,905
=======================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------
1998 1997 1996
(000's) % Change (000's) % Change (000's)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Clearing Factor........................ 70% 1 69% -4 72%
</TABLE>
28
<PAGE>
Total revenues of $26,868,000 recorded in the 1998 Period
increased by 22% compared to last year's $22,005,000. In particular,
commissions increased by 33% to $14,052,000 from $10,528,000. The
substantial increase in commissions is primarily due to the Company's
expanded operations and generally favorable market conditions
experienced in the 1998 Period. Market making and principal
transactions, net and clearing fees both experienced increases,
although not as significant as the increase in commission income. The
increase in these revenue categories was a result of generally
favorable market conditions experienced during the 1998 Period.
Interest income and interest expense increased by 37% and 35%,
respectively primarily as a result of increased customer margin
activity and the related cost of funding customer margin balances.
Commissions and clearing costs, which represent the portion of
fee income payable by the Company to registered representatives or
other broker-dealers as a result of securities transactions (and the
related costs associated with the execution of such trades), increased
reflecting the increase in second quarter 1998 commissions and market
making and principal transactions, net. Commissions and clearing
costs as a percentage of commissions and market making and principal
transactions, net (the "Clearing Factor") increased slightly to
approximately 70% in the 1998 Period as compared to 69% in the 1997
Period. Employee compensation and benefits increased by 8% as a
result of annual salary adjustments and increase in the number of
personnel to accommodate the Company's continuing growth.
Six Months Ended June 30, 1998 (the "1998 Period") vs. 1997
(the "1997 Period")
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------------
1998 1997 1996
(000's) % Change (000's) % Change (000's)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions............................. $27,181 23 $22,066 -6 $23,394
Market making and principal
transactions, net................... 10,486 4 10,045 -20 12,484
Interest ............................... 6,980 36 5,115 14 4,482
Clearing fees........................... 4,461 2 4,381 -12 4,985
Other .................................. 2,033 -20 2,530 64 1,541
-------------------------------------------------------
$51,141 16 $44,137 -6 $46,886
=======================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------------
1998 1997 1996
(000's) % Change (000's) % Change (000's)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses:
Commissions and clearing costs......... $26,457 18 $22,485 -13 $25,974
Employee compensation and benefits..... 8,885 7 8,269 14 7,270
Selling, general and administrative.... 8,130 3 7,905 -3 8,130
Interest .............................. 2,713 32 2,062 7 1,933
-------------------------------------------------------
$46,185 13 $40,721 -6 $43,307
=======================================================
</TABLE>
<TABLE>
<CAPTION> Six Months Ended June 30,
-------------------------------------------------------
1998 1997 1996
(000's) % Change (000's) % Change (000's)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Clearing Factor...................... 70% 0 70% -3 72%
========================================================
</TABLE>
Total revenues of $51,141,000 recorded in the 1998 Period increased
by 16% compared to last year's $44,137,000. In particular, commissions
increased by approximately 23% while at the same time market making and
principal transactions, net increased by 4%. The shift in revenues between
these categories can be primarily attributed to the following two reasons.
In 1998, new regulations were introduced which have led to a narrowing of
29<PAGE>
the spread between the bidand ask prices of securities traded on the Nasdaq
Stock Market ("Nasdaq"). Secondly, as a result of the general strength and
market leadership of the "large cap" stocks throughout much of the 1998
Period, a greater percentage of the Company's securities business was
concentrated in the non-Nasdaq market as compared to the prior year.
Other income decreased as a result of the completion of a co-managed
underwriting in the 1997 Period and none occurring in the 1998 Period.
Commissions and clearing costs increased reflecting the Company's
overall business growth. Commissions and clearing costs as a
percentage of commissions and market making and principal
transactions, net, stayed constant at approximately 70% in the 1998
Period and the 1997 Period, respectively.
Employee compensation and benefits increased primarily the result
of two factors: (i) annual salary adjustments and (ii) an increase in
the number of personnel to accommodate the Company's continuing
growth.
THREE YEARS ENDED DECEMBER 31, 1997
1997 represented the Company's thirteenth consecutive year of
record revenues. The Company's results of operations for both 1997
and 1996 were buoyed by a vibrant and rising stock market.
Substantially all of the Company's business lines turned in strong
performances for these years, particularly when compared to fiscal
1995.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1997 % Increase 1996 % Increase 1995
(000's) (Decrease) (000's) (Decrease) (000's)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions.............................. $49,907 16 $42,945 6 $40,566
Market making and principal
transactions, net...................... 20,836 (14) 24,315 31 18,604
Interest................................. 11,363 18 9,625 32 7,279
Clearing fees............................ 12,338 8 11,463 13 10,176
Other.................................... 2,738 2 2,672 (22) 3,416
----------------------------------------------------------
Total Revenues........................... $97,182 7 $91,020 14 $80,041
==========================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1997 % Increase 1996 % Increase 1995
(000's) (Decrease) (000's) (Decrease) (000's)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses:
Commissions and clearing costs........... $51,238 8 $47,229 12 $42,160
Employee compensation and benefits....... 16,278 9 14,911 8 13,820
Occupancy and equipment rental........... 5,180 15 4,520 7 4,206
Communications........................... 3,361 (12) 3,809 (2) 3,867
General and administrative............... 6,946 (18) 8,431 27 6,647
Interest................................. 4,387 13 3,888 27 3,054
---------------------------------------------------------
Total Expenses........................... $87,390 6 $82,788 12 $73,754
=========================================================
</TABLE>
Total revenues of $97,182,000 recorded in 1997, a record for any
fiscal year in the Company's history, increased 7% over last year's
previous record of $91,020,000. During 1997, the Company experienced
increases in almost all revenue categories; the sole exception being
market making and principal transactions, net, which is discussed
below. During 1996 the Company experienced increases in almost all
revenue categories; the sole exception being reduction in other
income, which consists primarily of fee income, which was lower in
1996 primarily as a result of a reduction in the Company's managed or
co-managed underwriting activities in 1996 as compared to 1995.
Growth in the other revenue categories was primarily due to heightened
client activity, both retail and clearing, associated with 1997's and
1996's vibrant and rising stock market.
30
<PAGE>
Market making and principal transactions, which represents the
net realized and unrealized gain or loss experienced from trading or
otherwise acting as principal in securities transactions, represented
approximately 21%, 27% and 23% of total revenues in 1997, 1996 and
1995, respectively. The reduction from 1996 to 1997 in market making
and principal activities, in both absolute and percentage terms, is
primarily the result of a decrease in realized gains of approximately
$2.6 million in the 1997 period related to the exercise and/or sale of
warrant securities received by the Company in connection with its past
underwriting activities as compared to the 1996 period. The increase
in market making and principal transactions in both absolute and
percentage terms during 1996 was primarily due to realized gains of
approximately $3.1 million in the 1996 period related to the exercise
and/or sale of warrant securities received by the Company in
connection with its past underwriting activities.
Commissions and clearing costs, which represent the portion of
fee income payable by the Company to registered representatives or
other broker-dealers as a result of securities transactions (and the
related costs associated with the execution of such trades) increased,
reflecting the Company's overall business growth. The Company's
Clearing Factor in 1997, 1996 and 1995 was 72%, 70% and 71%,
respectively.
The Company believes that its Clearing Factor is representative
of the prevailing experience in the industry. The major component is
commission rates, and the Company's commission rates for its
independent affiliated branch office registered representatives and
its in-house employee registered representatives are comparable with
that paid by other firms in the securities brokerage industry
(typically ranging from 80% to 90% for registered representatives in
affiliated branch offices and 30% to 50% for its in-house employee
registered representatives, depending upon production levels).
Affiliated branch office registered representatives (who are not
employees of the Company, and who comprise the majority of the
Company's registered representatives) receive higher commissions from
the Company than registered representatives who are Company employees,
which reflects that each affiliated branch office is responsible for
its own overhead. Accordingly, the Company's overhead attributable to
non-employee registered representatives is less than the overhead
attributable to the Company's employee registered representatives. As
a result, the Company's margin is not adversely affected by engaging
additional affiliated branch office, non-employee registered
representatives (and paying them higher commissions) as opposed to
hiring in-house employee registered representatives.
Comparative employee compensation and benefits reflect the costs
associated with the Company's overall business growth.
Occupancy and equipment rental expenses increased by 15% from
1996 to 1997 primarily due to the expansion of and relocation of the
Company's New York City branch office in April, 1997.
Communications expense declined from 1996 to 1997 and from 1995
to 1996 due primarily to the Company's ability to take advantage of
the fiercely competitive communications environment and integrate new
cost effective technologies into its operations.
<PAGE>
Interest income consists primarily of interest earned on
receivables from customers, securities owned and customer money market
fund balances. Interest expense consists primarily of interest
incurred on short-term borrowings and deposits on securities loaned
used to finance JWG Clearing receivables from customers and securities
owned. Both have increased in each of the past three years, and in
each case the increase is primarily a result of: (i) a general
increase in interest rates experienced from 1995 through 1997 and (ii)
an increase in the average outstanding loan balances used to fund
increased customer balances from 1995 to 1997, reflecting the
Company's overall business growth.
31<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a highly liquid balance sheet with the
majority of the Company's assets consisting of cash and cash
equivalents, securities owned, which are marked to market, and
receivable from customers, brokers, dealers and clearing brokers
arising from customer related securities transactions. Receivables
from customers consist primarily of collateralized customer margin
loans, which are typically secured with marketable corporate debt and
equity securities. The nature of the Company's business as a market
maker and securities dealer requires it to carry significant levels of
securities inventories in order to meet its customer and internal
trading needs. Additionally, the Company's role as a financial
intermediary for customer activities, which it conducts on a principal
basis, results in significant levels of customer related balances.
Accordingly, the Company's total assets and financial leverage can
fluctuate significantly depending largely upon general economic and
market conditions, volume of activity, customer demand and
underwriting commitments. The Company's ability to support increases
in its total assets is a function of its ability to generate funds
internally and obtain short-term borrowings from banks.
At June 30, 1998, the Company had stockholders' equity of
$43,613,000, representing an increase of $18,947,000 from December 31, 1997,
and the Company had cash and cash equivalents of $14,564,000.
At June 30, 1998, the Company had an aggregate of $2,000,000 of
additional borrowing capacity available under its committed bank lines
of credit as described below under " Bank Lines of Credit".
Additionally, the Company presently owns approximately 300,000 shares
of common stock of Knight/Trimark Group, Inc. (NASDAQ: NITE) which
are subject to a lock up agreement until January 3, 1999 and are
unregistered. These securities are recorded at June 30, 1998 at
historical cost, which is $18,000.
The Company believes that its current borrowing arrangements
(which are discussed below), combined with anticipated levels of
internally generated funds, will be sufficient to fund its financial
requirements for the foreseeable future based on the Company's
current level of operations and certain assumptions relating to the
Company's business and planned growth. Should the Company
significantly expand either its market making activities or its
underwriting of securities on a "firm-commitment" basis, however, the
Company may need to obtain additional capital to support such
activities and to comply with regulatory requirements. The Company is
not dependent upon raising additional capital in order to maintain its
current levels of operations, and therefore does not propose to raise
additional capital unless it is available on acceptable terms. If the
Company should find that its ability to generate funds internally is
insufficient to satisfy its future capital needs, the Company will
require additional financing from outside sources.
<PAGE>
BANK LINES OF CREDIT
On January 19, 1996, the Company obtained an unsecured $2,500,000
revolving line of credit from Wilmington Trust Company for general
corporate purposes (the "Wilmington Facility"). The Wilmington
Facility matures on December 31, 2002, at which time all outstanding
borrowings plus all accrued and unpaid interest will become due and
immediately payable. Borrowings under the Wilmington Facility bear
interest at Wilmington's National Commercial Rate, with interest
payments due monthly in arrears. The Company is required to maintain
certain debt covenants, including (i) minimum stockholders' equity
equal to at least $7,000,000, plus 30% of net income for all future
fiscal quarters, plus 75% of the net proceeds from any common stock
issuances and (ii) net income, as defined, in excess of $1,500,000 for
any four quarters within any consecutive six-quarter period. At
September 30, 1998, the balance outstanding under the Wilmington
Facility was $1.5 million.
32
<PAGE>
In connection with the Wilmington Facility, the Company entered
into a Marketing Agreement with Wilmington Trust FSB (the "Wilmington
Marketing Agreement") and granted W T Investments, Inc. ("WTI") a
common stock purchase warrant, which was amended and restated on
February 27, 1998. Pursuant to the warrant, WTI may purchase 400,000
shares of the Company's common stock at any time prior to December 31,
2002 (the "Wilmington Warrant") at an exercise price per share of
$11.30. The Wilmington Marketing Agreement provides that the Company
will market certain products and services, initially personal trust
and asset management services, provided by Wilmington Trust FSB to the
Company's brokers, clients and prospects.
On December 18, 1996, the Company obtained an unsecured
$2,500,000 revolving line of credit from SunTrust Bank, South Florida,
N.A. for general corporate purposes (the "SunTrust Facility"). The
SunTrust Facility matures on April 30, 2000, at which time all
outstanding borrowings plus all accrued and unpaid interest will
become due and immediately payable. Borrowings under the SunTrust
Facility bear interest at the prime rate as announced from time to
time by SunTrust Banks of Florida, Inc., with interest payments due
quarterly in arrears. The Company is required to maintain certain
debt covenants, including (i) minimum stockholders' equity equal to at
least $9,000,000, plus 75% of net income for all future fiscal
quarters, plus 75% of the net proceeds from any common stock issuances
and (ii) net income, as defined, in excess of $1,500,000 for any four
quarters within any consecutive six-quarter period. At September 30,
1998, the balance outstanding under the SunTrust Facility was $1.5
million.
In connection with the SunTrust Facility, the Company entered
into a Marketing Agreement with SunTrust (the "SunTrust Marketing
Agreement") and granted SunTrust Banks, Inc. a warrant to purchase
37,500 shares of the Company's common stock at any time prior to
December 31, 2002. The exercise price per share is $6.67. The
SunTrust Marketing Agreement provides that the Company will market
certain products and services, through the Company's participation as
an underwriter or selling group member of various municipal finance
offerings underwritten by SunTrust Capital Markets, Inc. to the
Company's brokers, clients and prospects.
BROKER-DEALER CAPITAL REQUIREMENTS
CSG, DMG, JWG Capital, JWG Securities and JWG Clearing are
subject to the Securities and Exchange Commission's Uniform Net
Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934),
which requires the maintenance of minimum net capital and requires
that CSG's, DMG's, JWG Capital's and JWG Securities' ratio of
aggregate indebtedness to net capital (excess net capital), as defined
by the Rule, not exceed 15 to 1. JWG Clearing has elected to comply
with the "alternative net capital requirement" of Rule 15c3-1, which
requires net capital equal to or greater than 2% of aggregate debit
items computed in applying the formula for determination of reserve
requirements. Additionally, JWG Clearing is subject to the minimum
net capital requirements of the NYSE, which provide that equity
capital may not be withdrawn or cash dividends paid if the resulting
net capital would be less than 5% of aggregate debits. As of June 30,
1998, CSG, JWG Securities, JWG Capital and DMG had net capital of
$1,908,000, $1,496,000, $2,514,000, and $413,000 and excess net
capital of $1,658,000, $1,246,000, $2,264,000 and $313,000,
respectively, each of which complied with the applicable requirements
of Rule 15c3-1. At June 30, 1998, JWG Clearing's net capital was 8.5%
of aggregate debit balances as compared with the minimum of 2%, and
its Rule 15c3-1 net capital of $11,963,000 was $9,135,000 in excess of
required net capital.
IMPACT OF YEAR 2000 ISSUE
Generally, the year 2000 risk involves computer programs and
computer hardware that are not able to perform without interruption
into the year 2000. The arrival of the year 2000 poses a unique
worldwide challenge to the ability of all systems to correctly
recognize the date change from December 31, 1999 to January 1, 2000. If
33
<PAGE>
the Company's systems did not correctly recognize such a date
change, computer applications that rely on the date field could fail
or create erroneous results. Such erroneous results could affect the
Company's ability to conduct retail securities brokerage and brokerage
processing operations, or could cause the temporary inability to send
trade confirmations, customer statements or engage in similar normal
business activities. If it is not adequately addressed by the Company
or its suppliers and correspondents, the year 2000 issue could result
in a material adverse impact on the Company's financial condition and
results of operations.
JWGENESIS' STATE OF READINESS
The Company has been assessing its Year 2000 readiness since
1977. It has formed a committee charged with the task of identifying
and remediating date recognition problems in both information
technology ("IT") and non-IT systems that include microcontrollers and
other embedded computer technology. Guided by requirements of and
examination by securities regulators, the committee has developed a
comprehensive plan to assess the Company's year 2000 readiness with
respect to both IT and non-IT systems. Its inventory of both types of
systems is complete, and the Company has either repaired or replaced,
or is in the process of repairing or replacing, all noncompliant
systems. The Company believes that most mission-critical systems have
been remediated or are nearing completion of remediation. The Company
expects that all noncompliant systems will be repaired, replaced or
otherwise remediated by June 30, 1999, although there can be no
assurance that the Company's year 2000 remediation program will be
complete by then.
Testing has occurred in 1998, and further testing will occur
during 1999 of systems that have been or will be remediated. The
Company believes that it has identified all major internal business
and operational functions that will be impacted by the year 2000 date
change.
COSTS TO ADDRESS YEAR 2000 ISSUES
The Company does not anticipate that the year 2000 related costs
will be material to its financial condition or results of operations.
The Company estimates that its total costs for the evaluation,
remediation and testing of its IT and non-IT systems in connection
with the year 2000 issue will range from $1 million to $1.25 million,
$500,000 of which has been incurred to date. All of the expected
expenditures are present in the Company's 1998 and 1999 internal
capital expenditures budgets.
RISKS OF THIRD-PARTY YEAR 2000 ISSUES
The impact of year 2000 noncompliance by outside parties with
whom the Company transacts business cannot be accurately gauged. The
Company has surveyed its major business partners to ascertain their
year 2000 readiness. Although all are not year-2000 compliant at this
date, the Company has received certain assurances that such third
parties will be ready for the year 2000 date change by the end of
1999. Moreover, securities regulators have prescribed year 2000-
related programs for many of the Company's major business partners,
and monitored those companies' progress in remediating their
noncompliant systems.
If the systems of major business correspondents were not
compliant and suffered serious year 2000-related failures, the Company's
brokerage processing operations would be materially impeded. Electronic
ordering and clearing of securities transactions might fail or be interrupted.
34<PAGE>
JWGENESIS' CONTINGENCY PLANS
If the Company's transaction processing systems suffer year 2000-
related failures, retail brokerage and communication of orders might
be processed telephonically or by other means. If major business
partners with whom the Company maintains clearing arrangements suffer
systems failures, the Company could clear securities transactions
through other businesses with compliant systems. If vendors or
suppliers suffer failures, the Company will seek alternative vendors
and suppliers with compliant systems. Contingency plans in the event
of widespread failures in the securities industry are difficult to
formulate, but in such event the Company would seek to conduct its
operations via methods not dependent on noncompliant systems, and
cooperate with any industry-wide contingency plans.
IMPACT OF INFLATION
Although the precise effect of inflation on the present
operations of the Company cannot accurately be determined, management
believes that continuation of the general levels of inflation
experienced in recent years will not have a significant impact on the
Company's current and contemplated operations.
OTHER MATTERS
In its capacity as a co-general partner in an affiliated real
estate limited partnership, the Company has guaranteed certain
partnership indebtedness. Additionally, under applicable partnership
law, as a co-general partner, the Company is contingently liable for
any obligations of such limited partnership that remain unpaid after
any dissolution of the partnership. The Company has made adequate
provision in its financial statements for the possible effect on the
Company's financial condition of the above guarantees or the Company's
contingent liability as a co-general partner of its affiliated
partnership. The Company does not expect to incur any significant
losses or obligations that may materially affect the Company's
liquidity or financial condition as a result of these matters.
In connection with the Combination, the Company prepaid in full
its $2,061,000 of aggregate outstanding indebtedness owed to Gilman,
CMG, Inc. using cash on hand and $2,000,000 of borrowing under the
line of credit with the SunTrust Facility and the Wilmington Facility.
35
<PAGE>
SELECTED FINANCIAL DATA OF GENESIS
The selected financial data of Genesis set forth below as of and
for the years ended December 31, 1997, 1996, and 1995 are derived from
audited financial statements of Genesis included elsewhere herein.
The selected financial data as of and for the years ended December 31,
1994 and 1993 are derived from audited financial statements of Genesis
that are not included herein. These data should be read in
conjunction with the financial statements and related notes of Genesis
included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues..................... $30,570 $22,281 $27,588 $24,275 $24,208
Expenses..................... 26,744 21,792 21,968 19,262 15,749
Net income................... 3,826 489 5,620 5,013 8,459
Earnings Per Share Data
Basic<F1>.................... 2.55 .33 3.75 3.34 5.64
Diluted<F1>.................. 2.55 .33 3.75 3.34 5.64
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
------ ------ ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................. $ 8,221 $ 5,988 $10,230 $9,268 $7,136
Total liabilities............ 2,176 2,196 1,770 1,670 1,728
Redeemable preferred
members' capital.......... 1,275 1,289 --- --- ---
Members' capital............. 4,770 2,503 8,460 7,598 5,408
<FN>
<F1> Genesis, a California limited liability company, had no shares of
common stock outstanding. Rather, each of its Members owned a
certain percentage interest in the net assets of Genesis. In
connection with the Combination, JWGenesis issued 1,500,000 shares
of its common stock in exchange for 100% of the Genesis Membership
Interests. For purposes of this table, the Genesis per share
amounts are calculated by assuming that Genesis had 1,500,000
shares outstanding for all periods presented.
</TABLE>
36
<PAGE>
GENESIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS THREE YEARS ENDED DECEMBER 31, 1997
The following discussion and analysis of financial condition and
results of operations presents significant factors affecting Genesis
during the years ended December 31, 1997, 1996 and 1995. The
discussion and analysis should be read in conjunction with the
financial statements of Genesis and related notes and with the other
financial information concerning Genesis appearing elsewhere in this
Prospectus.
The financial information provided below has been rounded in
order to simplify its presentation. However, the percentages are
calculated using the detailed information contained in the financial
statements of Genesis and the notes thereto included elsewhere in this
Prospectus.
The following table sets forth summary data for the years ended
December 31, 1997, 1996 and 1995. Operating results for any period
are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1997 % 1996 % 1995
(000's) Change (000's) Change (000's)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions . . . . . . . . . . . $18,073 57 $11,519 (10) $12,834
Commissions--related parties . . 5,281 11 4,748 48 3,208
Market making and principal
transactions, net . . . . . . . 3,372 75 1,932 (57) 4,463
Investment banking . . . . . . . 2,760 5 2,633 207 858
Unrealized gains from not readily
marketable securities . . . . . --- --- 293 (95) 5,413
Interest and dividends . . . . . 565 6 533 (10) 590
Other . . . . . . . . . . . . . . 519 (17) 623 181 222
---------------------------------------------------------
Total Revenues . . . . . . . . . $30,570 37 $22,281 (19) $27,588
=========================================================
Expenses:
Commissions and floor brokerage . $10,098 60 $ 6,324 (19) $ 7,796
Personnel and employee benefits . 9,329 7 8,726 6 8,253
Communications . . . . . . . . . 1,529 20 1,279 (19) 1,581
Occupancy and equipment rental . 765 23 622 45 429
General and administrative . . . 5,023 4 4,840 24 3,908
---------------------------------------------------------
Total Expenses . . . . . . . . . $26,744 23 $21,791 (1) $ 21,967
=========================================================
</TABLE>
Revenues of Genesis exceeded $30 million in 1997, compared to $22
million in 1996 and $28 million in 1995. This increase in revenue in
1997 was largely due to the fact that Genesis increased its focus on,
and the level of resources devoted to, its institutional client base,
coupled with strong equity markets. The decrease in revenues in 1996
compared to 1995 was due to a restructuring of Genesis in 1996,
explained in more detail below.<PAGE>
A significant portion of the business activities of Genesis
consists of providing brokerage processing services ("BPS") to its
clients. BPS includes the provision of trading processing services
and administrative services to investment managers and investment
partnerships.
BPS revenues (approximately $3.5 million) and corporate finance activities
(approximately $2.6 million) contributed to the growth of the revenues of
Genesis in 1997. In 1997, the commissions earned by Genesis,
37<PAGE>
including from related parties, grew 44% to $23.3 million from approximately
$16.3 million in 1996, due primarily to the increased coverage by Genesis
of its institutional client base and the resulting increased revenues from
its BPS activities.
Approximately $5 million of the decrease in the revenues of
Genesis in 1996, as compared to 1995, arose out of the fact that 1996
was a transition year for Genesis. In 1996, Genesis realigned several
of its business divisions in order to better provide for future
growth, including its research and corporate finance groups. As a
result, Genesis was not able to increase its coverage of its
institutional client base in 1996 and build relationships for growth,
resulting in only a 1% increase in commissions for 1996 over 1995
commissions.
Over the last three years, Genesis experienced an increase in BPS
revenues from affiliates with increased assets under management,
creating a more stable revenue stream than traditional transaction-
oriented investment banking and trading revenues. BPS revenues
attributable to related parties accounted for $533,000 of the increase
in revenues in 1997 as compared to 1996.
Market making and principal transactions, net, which consists of
net inventory and investment gains and losses, syndicate sales credits
and underwriting income, increased by 75% from 1996 to 1997 and
decreased by 57% from 1995 to 1996 for the reasons discussed below.
Net inventory and investment losses, which result from the
purchasing or selling securities by Genesis to facilitate customer
transactions, declined to $1.0 million in 1997, compared to $1.5
million in 1996. This decrease was due to better risk management by
Genesis in employing capital to facilitate customer transactions.
Syndicate sales credits, or the selling concession received by Genesis
on securities sold in an underwriting, in 1997 were $3.2 million,
representing 17% growth over 1996 levels of $2.7 million. Increased
research coverage by Genesis facilitated its participation in the
selling groups of an increased number of public offerings. Syndicate
sales credits increased 91% from $1.4 million in 1995 to $2.7 million
in 1996 due to increased public offering activity. In 1997, the
underwriting income of Genesis reflecting the increased activity in
the public underwriting arena, was $1.1 million (gross of expenses), a
60% increase from $700,000 in 1996. This increase represents the
results of the increased resources devoted by Genesis to research and
investment banking operations. An 18% increase in underwriting income
of Genesis from 1995 to 1996 reflected the increased efforts of
Genesis to enhance its public underwriting presence.
Investment banking income of Genesis, generated from public and
private offering (approximately $1.4 million) as well as merger and
acquisition activities (approximately $1.4 million), was $2.8 million
in 1997, up 5% from its 1996 level of $2.6 million. Due to the lag
time incurred between the 1995 and early 1996 addition by Genesis of
revenue-producing investment bankers and the closing of merger and
acquisitions transactions, investment banking income fees increased
over 200% from 1995 to 1996.
Unrealized gains from not readily marketable securities, which
represents gains attributable to the increase in value of warrant and
option positions acquired by Genesis and distributed to its members,
fluctuates from year to year based upon the performance of such
positions and the decision by Genesis to distribute such securities to
its members.
<PAGE>
Although expenses grew during 1997 as a result of Genesis'
overall revenue growth, expense growth trailed revenue growth. The
resulting increased operating margin of 14% for 1997, compared to 1%
for 1996 and 1995, was largely attributable to increased efficiency at
Genesis throughout 1997.
38<PAGE>
Commission and floor brokerage expenses of Genesis, consisting
primarily of the cost to execute and settle transactions, equaled
approximately $10.1 million in 1997, a 60% increase over 1996 levels
of approximately $6.3 million. This increase directly relates to the
increase in commission revenue for the same period. The decrease in
commission and floor brokerage expenses from 1995 to 1996 occurred as
a result of the negotiation by Genesis of more favorable clearing
contracts and execution arrangements with the clearing and executing
firms utilized by Genesis.
Total personnel expenses for Genesis were approximately $9.3
million in 1997 as compared to $8.7 million in 1996, a 7% increase.
The increase in total personnel expenses for 1997, as well as the
increase in total personnel expenses for 1996 over 1995, is
attributable to revenue growth and increased competitiveness in the
marketplace for financial service professionals.
Communications expenses of Genesis, comprised of telephone and
quotation expenses, increased to $1.5 million in 1997, a 20% increase
over 1996 levels. This approximately $250,000 increase in costs is
primarily attributable to the expansion of the internal and external
communication and information systems utilized by Genesis
(approximately $250,000) but also reflects increased usage as a result
of Genesis' higher volume of business. The reduction of communication
expenses from 1995 to 1996 is attributable to the successful
negotiation of a variety of contracts for communication services.
Occupancy and equipment rental expenses of Genesis showed steady
increases from 1995 to 1997 due, in large part, to the opening by
Genesis of its New York office in the summer of 1996.
General and administrative expenses, which consist primarily of
travel expenses, dues and subscriptions, office supplies and other
expenses of a similar nature, increased to $5.0 million in 1997
compared to $4.8 million in 1996 and $3.9 million in 1995. The net
increase in 1997 is primarily attributable to a significant increase
in travel expenses (approximately $137,000) due to an increase in
sales efforts by professionals and the opening by Genesis of its New
York City office, and a decrease in certain other operating expenses
due to increased controls and efficiency of Genesis.
LIQUIDITY AND CAPITAL RESOURCES
Genesis maintains a liquid balance sheet. A majority of the
assets of Genesis consists of cash, securities and receivables from
broker dealers. The total assets of Genesis can fluctuate
significantly depending largely upon general economic and market
conditions, volume of business activity by Genesis, and underwriting
and trading commitments of Genesis. The ability of Genesis to support
increases in its total assets is a function of its ability to generate
funds internally and its ability to obtain short term borrowings.
<PAGE>
At December 31, 1997, Genesis had members' capital of
approximately $4,770,000, representing an increase of $2.3 million
from its members' capital at December 31, 1996. Also, at December 31,
1997, Genesis had cash and cash equivalents of $2.6 million. Genesis
believes that its internally generated funds will be sufficient to
fund its financial requirements for the foreseeable future based on
its current level of operations and planned growth. Should Genesis
significantly expand its capital expenditures or enter into any long-
term commitments, Genesis may need to obtain additional capital to
support such activities and to comply with regulatory requirements.
If Genesis should find that its ability to generate funds internally
is insufficient to satisfy its future capital needs, Genesis will
require additional financing from outside sources.
39<PAGE>
Genesis is subject to the Commission's Uniform Net Capital Rule
(Rule 15c3-1 under the Exchange Act) which requires the maintenance of
minimum net capital and requires that the ratio of the aggregate
indebtedness of Genesis to the net capital of Genesis (excess net
capital) as defined by the rules, not exceed 15 to 1. As of December 31,
1997, Genesis had aggregate indebtedness of $1.1 million and net
capital of $4.1 million, yielding excess net capital of $4.0 million
and a ratio of 0.27 to 1. Accordingly, at December 31, 1997, Genesis
complied with the applicable capital requirements of Rule 15c3-1.
During the year ended December 31, 1997, Genesis generated cash
flow from operating activities of $3.7 million, compared to
approximately $622,000 for the year ended December 31, 1996 and $2.4
million for the year ended December 31, 1995. The increase in cash
flow from operating activities in 1997 was due to the net income of
Genesis for 1997. The decrease in cash flow from operating activities
for the year ended December 31, 1996 was due to the reduction in cash
and securities deposited with clearing brokers.
Net cash used in investing activities was $762,000 for the year
ended December 31, 1997, compared to $861,000 for the year ended
December 31, 1996. The increase in net cash used in investing
activities of $520,000 for the year ended December 31, 1996 compared
to the year ended December 31, 1995 was primarily due to investment in
non-marketable securities.
Net cash provided by (used in) financing activities was
($657,000) for the year ended December 31, 1997 compared to $293,000
for the year ended December 31, 1996 and ($4.0 million) for the year
ended December 31, 1995. The variations in net cash provided by (used
in) financing activities for those years reflect the distribution to
the members of Genesis of income (approximately $6,700,000) as well as
the contribution of new capital (approximately $2,100,00) by the
members of Genesis.
40
<PAGE>
BUSINESS
BACKGROUND AND GENERAL
JWGenesis Financial Corp. (the "Company" or "JWGenesis") is a
diversified financial services holding company whose principal
operating subsidiaries Corporate Securities Group, Inc. ("CSG"),
JWGenesis Clearing Corp. ("JWG Clearing"), JWGenesis Securities, Inc.
("JWG Securities") and JWGenesis Capital Markets, LLC ("JWG Capital",
formerly Genesis Merchant Group Securities, LLC) on a combined basis
operate a full-service securities brokerage and investment banking
business that offers "one-stop-shopping" to the Company's customers
and clients. The Company provides a wide range of securities
brokerage and investment services to a diversified client base,
delivers a broad range of clearing services to affiliated and
independent broker-dealers, including affiliates of commercial banks,
and provides investment banking services to corporate and
institutional clients and high net worth individuals.
JWGenesis was incorporated as a Florida corporation in January
1998; however, as a result of the Share Exchange on June 12, 1998
described elsewhere herein, JWGenesis succeeded to the business and
operations of JW Charles Financial Services, Inc. ("JWCFS"), which was
incorporated as a Florida corporation in December 1983. Also on June 12,
1998, as a result of the Combination (of which the Share Exchange
was a part), JWGenesis acquired 100% of Genesis and succeeded to its
business, which had commenced in 1989. On November 1, 1990, JWCFS had
acquired by merger 100% of a privately owned financial services
holding company then known as JW Charles Financial Services, Inc.
("Old JWC Financial"). The principal subsidiaries of Old JWC
Financial encompassed the operations of what is now JWG Securities and
JWG Clearing, whose operations date back to 1973.
JWG Securities is a New York Stock Exchange ("NYSE") member firm
with branch offices in South Florida, California, Georgia, and New
York. JWG Securities' branches typically are owned as well as managed
by the Company, and its brokers are "full-service" oriented and
receive compensation packages that are competitive with most regional
and national wire-house brokerage firms. JWG Capital is a San
Francisco-based NASD member firm that specializes in investment
banking services, institutional trading and research. JWG Capital
also has an office in New York City. CSG, a NASD member firm, is a
general securities broker dealer that offers a full array of
investment products and services to a variety of clients through a
national network of independently owned offices. CSG offices can vary
in size from one investment professional to many. JWG Clearing is a
NYSE member firm that provides clearing services, including on a fully
disclosed basis for a variety of correspondents (such as broker
dealers, banks, and other financial institutions) who are engaged in
the securities brokerage business but who lack the back office or
other support capabilities to process and clear securities
transactions for their clients. JWG Securities and CSG clear trades
through JWG Clearing as well as through an outside clearing
arrangement with Bear Stearns Securities Corp. A fifth subsidiary of
the Company, DMG Securities, Inc. ("DMG"), is also engaged in the
securities brokerage business. All of JWGenesis' operating
subsidiaries, except for JWG Capital, are owned through our wholly-
owned subsidiary, JWCFS.
The Company's activities generate revenue for the Company
primarily in the form of commission and fee income, market making and
principal transactions revenues, securities transaction processing
fees ("clearing fees") and interest income. The Company also derives
revenues from corporate finance transactions, insurance brokerage
services and consulting services. The following table indicates the
percentage of total revenues represented by each of these activities
during the past three years and recent interim six-month period:
41<PAGE>
<TABLE>
<CAPTION>
Percentage of Total Revenues<F1>
------------------------------------------------
Year Ended December 31,
Six Months Ended ----------------------------
June 30, 1998 1997 1996 1995
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Commissions................................... 53% 57% 52% 53%
Market making and principal transactions,
net......................................... 20% 19% 23% 26%
Interest...................................... 11% 9% 9% 7%
Clearing fees................................. 7% 10% 10% 9%
Other (including corporate finance and
consulting)................................. 8% 5% 6% 5%
<FN>
<F1> Includes the separate results of JWCFS and Genesis for the
periods prior to June 12, 1998, on a combined basis, as if such
combination had comprised the results of the Company.
</FN>
</TABLE>
The following table indicates the amounts and percentages of
total revenues generated by each of the Company's principal investment
banking and securities brokerage subsidiaries in each of the past
three years and recent interim six-month period:
<TABLE>
<CAPTION>
Revenues<F1>
(Amounts in Millions of Dollars)
-----------------------------------------------------------------------
Six Months Ended Year Ended December 31,
June 30, 1998 1997 1996 1995
----------------- --------------- ------------- -------------
Amount % Amount % Amount % Amount %
------ -- ------ -- ------ -- ------ --
<S> <C> <C> <C> <C> <C> <C> <c. <C>
Corporate Securities Group, Inc. .......... $20.2 32 $34.2 27 $30.2 27 $31.3 29
JWG Capital Markets, LLC .................. $13.4 21 $30.6 24 $22.2 20 $27.6 25
JWGenesis Securities, Inc. ................ $16.0 25 $34.8 27 $31.4 28 $24.8 23
JWGenesis Clearing Corp. .................. $12.9 20 $26.4 20 $24.3 22 $21.8 20
DMG Securities, Inc. ...................... $ 1.4 2 $ 2.9 2 $ 3.6 3 $ 2.9 3
<FN>
<F1> Includes the separate results of JWCFS and Genesis for the
periods prior to June 12, 1998, on a combined basis, as if such
combination had comprised the results of the Company.
</FN>
</TABLE>
THE SHARE EXCHANGE AND THE COMBINATION
Pursuant to the Share Exchange on June 12, 1998, JWGenesis
acquired all of the outstanding shares of JWCFS common stock in
exchange for JWGenesis Shares on a one-for-one basis, and thus
replaced JWCFS as the publicly held holding company. The Share
Exchange was part of a larger transaction, the Combination,
consummated on the same date pursuant to the Combination Agreement
among JWCFS, JWGenesis, Genesis, and the owners of all of the equity
interests in Genesis, in which the owners of Genesis exchanged their
equity interests for 1,500,000 JWGenesis Shares. As a result of the
Combination, JWGenesis succeeded to the respective business and
operations of JWCFS and Genesis and replaced JWCFS as the publicly
held holding company.
<PAGE>
3-FOR-2 STOCK SPLIT
Unless otherwise indicated, all information with respect to
numbers of shares of common stock, prices of common stock, and
earnings per common share appearing in this Prospectus have been
adjusted to reflect JWCFS' three-for-two stock split effected in the
form of a 50% stock dividend on February 7, 1997.
42<PAGE>
Retail Brokerage
The Company conducts its retail brokerage business primarily
through CSG, JWG Securities and DMG. The following table sets forth
certain statistical information concerning registered representatives
and branch offices of each of these subsidiaries:
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------------ -----------------------------------------------------------------------------
1998 1997 1996 1995
------------------------ ------------------------ ------------------------- ------------------------
Registered Registered Registered Registered
Representatives Offices Representatives Offices Representatives Offices Representatives Offices
--------------- ------- --------------- ------- --------------- ------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JWG Securities 213 13 210 10 205 10 225 12
CSG 279 91 242 86 260 88 266 66
DMG 20 1 18 1 31 2 20 2
----- ----- ----- --- ----- ----- ----- -----
Total 512 105 470 97 496 100 511 80
===== ===== ===== === ===== ===== ===== =====
</TABLE>
JWGENESIS SECURITIES, INC.
JWG Securities is a NYSE member organization and a member of the
NASD. JWG Securities' activities primarily consist of retail
securities brokerage, management and participation in underwritings of
equity and fixed income securities, distribution of mutual funds and
unit trusts, and research and investment advisory services. JWG
Securities has clearing agreements with JWG Clearing and Bear Stearns
Securities Corp. ("Bear Stearns"), both NYSE member organizations,
under which agreements they provide JWG Securities with back office
support, transaction processing services on all principal national and
international securities exchanges, and access to many other financial
services and products. These agreements allow JWG Securities to offer
a range of products and services that is generally offered only by
firms that are larger and have more capital than JWG Securities.
All of JWG Securities' registered representatives are in-house
employees. Through its retail branch network, JWG Securities markets
a wide variety of investment products, including common and preferred
equities, tax-free and taxable bonds, unit trusts, mutual funds,
insurance and annuity products, and options.
CORPORATE SECURITIES GROUP, INC.
CSG, a general securities broker-dealer, provides products and
services similar to those offered by JWG Securities for the accounts
of its customers and for its own account. CSG is a member of the NASD
and has clearing agreements with Bear Stearns and JWG Clearing, under
which agreements they provide CSG with back office support,
transaction processing services on all principal national and
international securities exchanges, and access to many other financial
services and products. These agreements allow CSG to offer a range of
products and services that is generally offered only by firms that are
larger and have more capital than CSG.
All of CSG's branch offices operate as independently owned
affiliates. In affiliated branch office situations, the office is
owned and operated by an independent person who obtains appropriate
NASD licenses to supervise or manage the branch office by virtue of
affiliating with CSG and being subject to its supervisory jurisdiction.
Each such office is responsible for its own overhead and other operational
expenses, although all of its revenues from securities brokerage transactions
accrue to CSG. CSG, on the other hand, pays commissions to the branch offices
on the revenues generated by them (at higher rates than those that would be paid
to registered representatives working at a branch office owned by CSG) and
provides other support for the operations, including required home office
supervisory functions and access to CSG's securities transaction clearing
agreements with
43<PAGE>
Bear Stearns and JWG Clearing. All registered representatives who are
associated with CSG, whether by working at a branch office owned by CSG or
at any one of the affiliated branch offices, are licensed with the NASD.
The affiliated branch office system permits the Company to expand
its base of revenue and its network for the retail distribution of
securities underwritten by the Company (and for trading in connection
with the Company's market making activities), without the capital
expenditures that would be required to open company-owned offices and
the additional administrative and other costs of hiring in-house
registered representatives who are employees.
DMG SECURITIES, INC.
DMG, also a NASD member firm, conducts its brokerage operations
from a single location in Virginia, Florida. DMG's office is owned
and operated by an independent person who obtains appropriate NASD
licenses to supervise or manage the branch office by virtue of
affiliating with DMG and being subject to its supervisory
jurisdiction. The office is responsible for its own overhead and
other operational expenses, and operates in a manner similar to that
described for affiliated branch offices of CSG. DMG also has a
clearing agreement with JWG Clearing that provides DMG with back
office support, execution services on all principal national
securities exchanges, and access to many of its in-house financial
services and products. This agreement allows DMG to offer a range of
products and services that is generally offered only by firms that are
larger and have more capital than DMG.
CAPITAL MARKETS
The acquisition of Genesis (now JWG Capital) substantially
enhanced the Company's capital markets capabilities from general
corporate finance and investment banking transactions to research and
related services over the level that had previously existed at
JWCFS. As part of its integration of the previously separate
operations of JWCFS and Genesis, the Company is restructuring its
capital markets activities to seek to maximize the combined strengths
of those firms. While certain capital markets functions continue to
be performed by personnel of JWG Securities and JWG Clearing (and to a
more limited extent, CSG), the Company is reorganizing internally to
use JWG Capital as its principal arm for capital market services.
At the time of the Combination, JWG Capital functioned
principally as an investment banking boutique, offering corporate
finance, institutional sales and trading, and institutionally focused
research and investment advisory services. Its corporate finance
services included equity underwriting and merger and acquisition
advisory services. Its customer base was comprised principally of
institutional, corporate, and high-net worth individual clients.
CORPORATE FINANCE
The Company's Corporate Finance Department is involved in a
variety of activities, including public and private debt and equity
financing for corporate clients, merger and acquisition advisory
services, fairness opinions, business analyses and evaluations, and
general financial consulting services. Such activities include
securing the Company's participation in the distribution of securities
<PAGE>
both initial public offerings ("IPOs") and secondary offerings. The
Company has traditionally concentrated its underwriting efforts in the
IPO marketplace, seeking out emerging enterprises in industries that
it believes offer reasonable opportunities for future growth.
Following an offering, the Company (through a subsidiary) maintains
after-market support by providing in-depth research analysis, after-
market trading, and sponsorship in the investment community. The
Company often becomes the dominant force in the after-market trading
of the stock it underwrites.
44<PAGE>
The Corporate Finance Department has experience in each stage of
a merger, acquisition, divestiture, buyout, and recapitalization
transaction, including the identification of potential acquisitions
and/or acquirers, the optimal "packaging" of a client for a
transaction, the preparation of client meetings, the structuring of
merger and sale transactions, and the negotiation of sale and purchase
terms. The Corporate Finance Department also renders valuation and
fairness opinions for both private and public companies. Its work
generally includes a comprehensive operational and financial review of
a client and the development of financial analyses that incorporate
both quantitative and qualitative factors. Working in partnership
with the Research Department, the Corporate Finance Department is able
to meet most of the financial advisory and capital funding
requirements necessary to develop its clients' businesses.
Through JWG Capital, the Company also has strong block trading
capabilities, and it is aware of "unsolicited buyers" and advantageous
opportunities for a client's sale of restricted securities. Its
personnel responsible for these activities are cognizant of the
Commission rules and regulations that govern restricted sales
transactions and are supported by a compliance and operations group.
Compensation for the Company's corporate finance services and
capital markets includes cash fees in the form of underwriting
commissions and, in certain situations, stock purchase warrants,
direct equity positions, or consulting fees.
RESEARCH
The Company maintains a Research Department (i) to provide
coverage on a select but broad range of companies, daily market
commentary, and trading ideas, (ii) to complement the Corporate
Finance Department by offering their services as an added benefit
to attracting and retaining corporate finance clients, and (iii)
to increase the availability and use of in-house research by the
Company's retail oriented registered representatives by fostering
increased coordination among the Research, Syndicate, and Corporate
Finance Departments. The Research Department provides comprehensive
coverage of a select group of industries and companies that are in
many instances not otherwise generally widely followed by the
investment community. The Research Department publishes numerous
materials for its clients, including quarterly earnings reports,
company updates, company reports, which initiate research coverage,
industry overviews, and emphasis lists, which encompass all covered
industries. The Research Department follows over 75 companies in the
following principal areas: business services and outsourcing, correctional
services, healthcare technology, regional banking, retailing, real estate,
special situations, electronic commerce, leisure and entertainment and
wireless communications components.
SYNDICATE
The Syndicate Department coordinates the Company's participation
in underwriting syndicates or selling groups of other underwriters and
assists the Company in obtaining participation from other firms in
underwritings managed by the Company. Over the past years, the Company
has participated in a diverse range of offerings as a manager, co-
manager, underwriter, or selling group member. These offerings
included both initial and secondary offerings of common and preferred
equity and fixed income and closed-end funds offerings.
FIXED INCOME
Through its Fixed Income Department, the Company distributes both
taxable and tax-exempt fixed income products (such as corporate,
government and mortgage-backed securities as well as municipal bonds
and unit investment trusts). The Company positions taxable fixed
income securities and municipal bonds in both the primary
45
<PAGE>
and secondary markets as principal and participates as underwriter,
dealer and selling group member for corporate, municipal taxable and
non-taxable unit trusts offerings.
MARKET MAKING AND PRINCIPAL TRANSACTIONS
The Company's market making and principal transaction activities
are conducted through JWG Clearing and JWG Capital. Activities
related to research recommendations, institutional order flow and JWG
Capital's brokerage processing services unit are currently conducted
through JWG Capital. Activities related to the Company's retail
brokerage and fully disclosed clearing business are conducted through
JWG Clearing. Through such subsidiaries, the Company currently acts
as a market maker for approximately 110 securities that are traded in
the over-the-counter securities market, including those followed by
the Research Department.
In its capacity as a market maker, the Company facilitates
trading in select securities by buying and selling securities as a
principal for its own account, rather than as an agent for the
accounts of its customers. The Company attempts to derive profits
through its market making activities by buying stock at its quoted bid
price and then either selling the stock at the current ask price or
holding the stock in inventory for future sale at a higher price. If
the market for such securities declines, however, or if the Company is
otherwise unable to resell the securities at a favorable price, the
Company could suffer losses and such losses could be substantial.
Additionally, the Company engages in short sales, primarily to fill
customer orders. A short sale represents an obligation of the Company
to deliver specified securities at the contracted price, thereby
creating a liability to purchase the securities at a future time at
prevailing market prices. Accordingly, these transactions result in
off-balance-sheet risk as the Company's ultimate obligation to satisfy
the sale of these securities may exceed the amount recognized by the
Company at the time the short sale was executed.
The Company's general policy historically has been not to hold a
substantial volume of securities for any significant period of time,
so as to reduce the risk of losses from market declines or unfavorable
developments. The Company's market making activities have
historically accounted for a significant portion of its revenues, and
from the Company's inception through June 1998, losses incurred in
connection with these activities were not significant. During July,
August and September, 1998, however, the securities markets in general
experienced a significant correction which resulted in significant
market volatility. Also, the historical policy of Genesis with
respect to amounts and holding periods for securities acquired in
market making had been less conservative than the Company's general
policy, and the Company had not yet changed that policy for JWG
Capital's ongoing operations following the Combination. As a result
of JWG Capital's inventory and trading strategies during this period
of market correction and volatility, JWG Capital experienced a pre-tax
trading loss of approximately $0.5 million during those three months.
The Company has implemented procedures to lessen the likelihood
of experiencing such losses at JWG Capital in the future. Such
procedures included (i) reducing the level of JWG Capital's securities
inventory and (ii) curtailing of other intra-day trading strategies
that required the Company's capital to be placed at significant risk.
See "--Recent Developments" for more information about changes at JWG
Capital. The Company anticipates that market making and principal
transaction activities will continue to be a significant factor in the
Company's operations and its prospects for profitability.
46<PAGE>
BROKERAGE PROCESSING OPERATIONS
The Company provides a variety of brokerage processing services
through both JWG Clearing and JWG Capital.
JWG Clearing provides clearing services on a fully disclosed
basis for a variety of customers ("Correspondents") who are engaged in
the securities brokerage business but who lack the back office or
other support capacities to process and clear securities transactions
for their clients. Correspondents include broker-dealers, banks, and
other financial institutions. In a fully disclosed transaction, the
identity of the Correspondent's client is known to JWG Clearing, and
JWG Clearing physically maintains the client's account and performs a
variety of services as agent for the Correspondent. The execution and
clearing process requires the performance of a series of complex
steps, many of which are accomplished with the assistance of
sophisticated data processing hardware and software. JWG Clearing has
approximately 90 Correspondents.
JWG Capital's (formerly Genesis') brokerage operations were
originally established in 1989 to support affiliated money management
organizations of Genesis by recapturing trading commissions, making
spreads generated by trading activity, and providing administrative
and other services in exchange for trading and processing business.
Over the years, those various asset management operations grew
significantly and, with them, so did Genesis' brokerage processing
unit. This aspect of JWG Capital's operations currently serves two
primary types of organizations investment partnerships and fee-based
investment advisors although JWG Capital also offers trading and
clearing services to others. JWG Capital has clearing agreements with
ABN Amro/The Chicago Corporation, Alex Brown/Bankers Trust, and Morgan
Stanley & Co., as well as having access to such services from JWG
Clearing.
RECENT DEVELOPMENTS
The Company incurred a pre-tax loss at JWG Capital of
approximately $2.0 million for the three-month period ended September 30,
1998, approximately one-fourth of which losses were the result of
trading activities. Non-trading losses were primarily attributable to JWG
Capital's reductions in its institutional sales volume and costs
associated with its institutional sales effort. In August, 1998, the
Company began a detailed analysis of JWG Capital's operations which
resulted in the Company making several significant changes in those
operations. These changes included: (i) a reduction in JWG Capital's
institutional sales effort, (ii) a reduction in securities inventory
positions and other activities that require the firm to put its
capital at risk, (iii) a reduction in the number of industries covered
by the JWG Capital research department, (iv) consolidation of certain
redundant activities conducted at JWG Capital that are performed at
other subsidiaries, and (v) staff and expense reductions and
compensation adjustments reflecting the impact of these changes. The
Company has focused JWG Capital's resources on brokerage processing
services and corporate finance, the two areas of its business that
management believes are most beneficial to the Company's operations as
a whole. As a result of these changes, JWG Capital has returned to
profitability for the month of October 1998, and management believes
that its strategy for the ongoing conduct of operations by JWG Capital
will permit it to sustain long term profitable operations at that
business unit, consistent with the Company's strategies for
profitability of its business generally.
COMPETITION
The Company competes with numerous investment banking and brokerage
firms, consulting firms, and financial service companies that are larger,
better financed, have longer operating histories, and, in some instances,
47<PAGE>
offer a range of financial and other services to clients that exceed the
services offered by the Company. In addition, there is increasing
competition from other businesses that now offer financial services, such
as commercial banking and insurance companies and certain accounting firms.
The principal competitive factors in the securities industry are the quality
and ability of professional personnel, the relative prices of services and
products offered, the scope of such services and products (increasingly
the ability to offer "one-stop-shopping" to customers and clients), and
the efficiency of back office operations. The Company has tried to
position itself competitively by targeting its investment banking
services to smaller companies, providing competitively priced products
and services, and developing one-stop-shopping services.
Additionally, the Company has targeted markets that it believes are
not adequately served by, and are not a primary focus of, most of
these other larger firms. The Company believes that its clearing
services and back office support agreements with Bear Stearns provides
it additional ability to compete with larger firms.
EMPLOYEES AND REGISTERED REPRESENTATIVES
As of September 30, 1998, the Company and its subsidiaries had a
total of approximately 300 salaried employees and 512 registered
representatives. Of these totals, 299 registered representatives are
independent contractors affiliated with one of the 92 affiliated, but
independently owned and operated, CSG and DMG branch offices which
existed at such time.
PROPERTY
The Company owns no real property. The Company leases its
corporate offices and operations facilities, located at 980 North
Federal Highway, Boca Raton, Florida 33432, where it occupies
approximately 19,500 square feet of space. JWG Securities branch
offices are also leased premises, comprising an aggregate of
approximately 46,000 square feet of office space in several cities.
JWG Capital leases 22,000 square feet of space in San Francisco and
5,400 square feet of space in New York. The Company believes that its
office facilities are adequate for its current and reasonably
foreseeable operations.
REGULATION
The securities industry in the United States is subject to
extensive regulation under various federal and state laws and
regulations. The Securities and Exchange Commission is the federal
agency charged with the administration of most of the federal
securities laws. Much of the regulation of the securities industry,
however, has been assigned to various self regulatory organizations
("SROs"), principally the NASD, and in the case of NYSE member firms,
the NYSE. The SROs, among other things, promulgate regulations and
provide oversight in areas of (i) sales practices, (ii) trade
practices among broker-dealers, (iii) capital requirements, (iv)
record keeping and (v) conduct of employees and affiliates of member
organizations. In addition to promulgating regulations and providing
oversight, the Commission and the SROs have the authority to conduct
administrative proceedings which can result in the censure, fine,
suspension or expulsion of a broker-dealer, its officers or employees.
Furthermore, new legislation, changes in the rules and regulations
promulgated by the Commission and SROs, or changes in the
interpretation or enforcement of existing laws and rules often
directly affect the operation and profitability of broker-dealers.
The stated purpose of much of the regulation of broker-dealers is the
protection of customers and the securities markets rather than the
protection of creditors and shareholders of broker-dealers.
48<PAGE>
LEGAL PROCEEDINGS
There are no material legal proceedings pending or threatened in
which JWGenesis is party or of which its property is the subject. The
Company or its subsidiaries have been named in various arbitration and
legal proceedings arising in the ordinary course of its securities
brokerage business. Although arbitration and litigation involves
contingencies that cannot be definitively predicted, including the
unpredictability of actions that might be taken by an arbitration
panel or jury on matters that are submitted to them, JWGenesis expects
that the ultimate disposition of arbitration and litigation arising
from the ordinary course of business will not have a material adverse
impact upon its financial position and results of operations. The
Company or its subsidiaries may be involved from time to time in other
litigation arising in the normal course of business.
49<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position(s) with the Company
---- --- ----------------------------
<S> <C> <C>
Marshall T. Leeds . . . . . . . . . . . . . . . . 43 President, Chief Executive Officer,
and Chairman of the Board
Will K. Weinstein . . . . . . . . . . . . . . . . 57 Vice Chairman of the Board
Philip C. Stapleton . . . . . . . . . . . . . . . 50 Chief Operating Officer and
Director
Joel E. Marks . . . . . . . . . . . . . . . . . . 42 Executive Vice President, Chief
Financial Officer, Secretary, and
Director
Jeffrey H. Lehman . . . . . . . . . . . . . . . . 38 Executive Vice President and
Director
Wm. Dennis Ferguson . . . . . . . . . . . . . . . 55 Executive Vice President and
Director
Gregg S. Glaser . . . . . . . . . . . . . . . . . 39 Executive Vice President,
Treasurer, and Director
Harvey R. Heller . . . . . . . . . . . . . . . . 56 Director
Curtis Sykora . . . . . . . . . . . . . . . . . . 68 Director
</TABLE>
MARSHALL T. LEEDS, a co-founder of JWCFS, the predecessor of the
Company, in 1983, also serves as President and Chief Executive Officer
of certain of the Company's wholly-owned subsidiaries. Mr. Leeds is a
past Chairman of Regional Investment Association, Inc. ("RIBA"), the
country's largest association of independent broker-dealers involved
in the underwriting of debt and equity securities, and he currently
serves on the Independent Contractor Firm Committee of the Securities
Industries Association.
WILL K. WEINSTEIN was a co-founder of JWG Capital in 1989.
Between 1982 and 1986, Mr. Weinstein was the managing partner and
Chairman of the Investment Policy Committee of Montgomery Securities.
From 1962 to 1976 he was with the investment firm of Oppenheimer &
Co., where he ultimately became a member of the executive committee.
From 1972 to 1976 Mr. Weinstein served as a Governor of the Midwest
Stock Exchange He is currently a Governor of the American Stock
Exchange.
PHILIP C. STAPLETON is also President of JWG Capital, which he
co-founded in 1989. From 1983 to 1989 Mr. Stapleton was a partner of
Montgomery Securities and was responsible for the Administration
Department of that firm. He was employed by Morgan, Stanley & Co.
from 1977 to 1983 as an Administrative Manager of the Capital Markets
Division.
JOEL E. MARKS, the other co-founder of JWCFS, also serves as
Executive Vice President of certain of the Company's wholly-owned
subsidiaries. Mr. Marks is a Certified Public Accountant, and prior
to 1983, he was employed in various capacities in both the audit and
<PAGE>
tax departments of the international accounting and consulting firm of
Deloitte & Touche LLP. From 1987 to 1994, he served as Senior Vice
President and Chief Financial Officer of Automobile Protection
Corporation-APCO, an unaffiliated public corporation. From 1996 to
1998, Mr. Marks served as the Chairman of RIBA.
50<PAGE>
JEFFREY H. LEHMAN is also Executive Vice President and Director
of Corporate Finance of JWG Capital. From 1984 to 1996 he was
employed by Ladenburg, Thalmann & Co. Inc., most recently as Managing
Director of Corporate Finance and Director of Mergers and
Acquisitions. Mr. Lehman also served as a member of the Board of
Directors and Management Committee of Ladenburg, Thalmann. He
received his Masters in Business Administration with distinction from
the Wharton School of the University of Pennsylvania in 1983.
WM. DENNIS FERGUSON also serves as Executive Vice President of
certain of the Company's wholly-owned subsidiaries. From July 21,
1990 to October 31, 1990, prior to its acquisition by Company, Mr.
Ferguson served as acting President and Chief Executive Officer of the
predecessor company ("Old JWC Financial") which was acquired by the
Company on November 1, 1990. From 1981 to 1990, he held various
executive positions at Old JWC Financial. Mr. Ferguson received a
Bachelor of Science degree from Florida Southern College and attended
Florida Atlantic University Graduate School. From 1978 to 1980, Mr.
Ferguson was Area Vice President and Office Manager for the investment
banking firm of Dean Witter Reynolds.
GREGG S. GLASER also serves as Executive Vice President and
Treasurer of certain of the Company's wholly-owned subsidiaries. Mr.
Glaser graduated with a Bachelor of Science degree from the University
of Florida. From 1981 to 1986, when he joined Old JWC Financial, Mr.
Glaser was a senior auditor with the Fort Lauderdale office of the
international accounting and consulting firm of Price Waterhouse LLP.
HARVEY R. HELLER is President of Heller Brothers Packing
Corporation, a family-owned enterprise engaged in growing and packing
citrus fruit and vegetables, and has held such position for more than
the past five years. Mr. Heller received his Bachelor of Science
degree in economics from the Wharton School of Business of the
University of Pennsylvania in 1964.
CURTIS SYKORA has over 30 years of management experience with an
emphasis on finance and real estate development, and has been retired
for more than the past five years. As a self-employed business
consultant, he remains active in these endeavors today. Mr. Sykora
received his Masters in Business Administration from Harvard
University School of Business in 1956.
BOARD COMMITTEES
AUDIT COMMITTEE. The Audit Committee supervises independent
audits of the Company and its subsidiaries and oversees the
establishment of appropriate policies and internal accounting
controls. Members are Messrs. Sykora, Heller, and Glaser.
The Audit Committee's principal functions include reviews of
audit plans, scope of examinations and findings of the Company's
independent public accountants; significant legal matters; internal
controls; and the adequacy of insurance coverage. Further, it is the
responsibility of this committee to recommend to the Board the annual
appointment of the independent public accountants; to review the
findings of external regulatory agencies; and to oversee the
accounting policies used in preparing the Company's financial
statements.
COMPENSATION COMMITTEE. The Compensation Committee oversees the
Company's compensation polices and programs. Members are Messrs.
Sykora, Heller, and Marks.
51
<PAGE>
The Compensation Committee reviews and approves the Company's
general compensation policies and programs to maintain an environment
that attracts and retains people of high capability, commitment, and
integrity, while also providing incentive for executives and other
personnel for the Company to contribute to the success and
profitability of the Company for the benefit of its stockholders.
EXECUTIVE COMMITTEE. The Executive Committee, pursuant to
authority delegated by the Board, from time to time considers certain
matters in lieu of convening a meeting of the full Board, subject to
any restrictions in applicable law related to the delegation of
certain powers to a committee of the Board. Messrs. Leeds, Marks, and
Stapleton comprise the members of the Executive Committee.
The Company does not have a standing nominating committee of the
Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors and persons who
beneficially own more than ten percent of the Company's common stock
("ten-percent stockholders") to file reports of ownership and changes
in ownership with the Securities and Exchange Commission (the "SEC")
and with the AMEX. Officers, directors, and ten-percent stockholders
are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received
by it and information furnished to the Company by such persons, the
Company believes that during the period from inception as a public
company in June 1998 until the date of this Prospectus, all its
officers, directors, and ten-percent stockholders complied with the
Section 16(a) reporting requirements.
ARRANGEMENTS FOR BOARD AND MANAGEMENT
Messrs. Leeds and Weinstein have agreed to vote the shares of
Company common stock controlled by them (i) to cause the number of
directors that constitutes the Company Board to be nine and (ii) in
favor of five nominees designated by Mr. Leeds and four nominees
designed by Mr. Weinstein. Messrs. Leeds and Weinstein have also
agreed to use their respective best efforts to prevent the Company's
Board of Directors from taking any action during the pendency of any
vacancy in the Board unless the person that designated the director
whose position is vacant fails to designate a replacement within 10
days of written notice by the Company to designate a person to fill
the vacancy. The agreement will terminate on the earlier of (i) the
written agreement of Messrs. Leeds and Weinstein; (ii) December 31,
2001; (iii) the dissolution, bankruptcy, or insolvency of the Company;
or (iv) the date on which either Mr. Weinstein or Mr. Leeds controls
less than 60% of the number of shares of Company common stock
controlled by the other.
In connection with the series of transactions between JWCFS and
Wilmington Trust Company ("Wilmington"), as more fully described under
"Certain Transactions" herein, JWCFS granted Wilmington the right to
appoint one person to serve on its Board of Directors. The Company
has agreed to honor that agreement. Wilmington has not yet exercised
such right.
52<PAGE>
EXECUTIVE COMPENSATION
Information concerning compensation by JWCFS of its executive
officers, who constitute executive officers of the Company, for the
years 1997, 1996, or 1995 is contained in this Prospectus because the
Company has not been organized for one full fiscal year and may be
deemed the successor in interest to JWCFS. The full slate of
executive officers of the Company is set forth under "Directors and
Executive Officers" in this Prospectus, and information about
employment agreements of certain Company executive officers is set
forth under " Employment Agreements" and " Nonsolicitation
Agreements"
The following table sets forth the annual and long-term
compensation for services rendered in all capacities to JWCFS and its
subsidiaries for JWCFS' Chief Executive Officer and each of the other
executive officers of JWCFS whose aggregate cash compensation exceeded
$100,000 ("Named Executive Officers") during any of JWCFS' last three
fiscal years:
<TABLE>
<CAPTION>
Summary Compensation Table
- --------------------------------------------------------------------------------------------------
Long-Term
Compensation
Annual Compensation Awards<F1>
- -------------------------------------------------------------------------------- ---------- -------------
Name Options/ All Other
and Principal Position Year Salary Bonus Other SARs Compensation
====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Marshall T. Leeds 1997 $279,446 $1,110,895 $ 430,868<F2> 75,000 $13,200<F3>
President and Chief 1996 $270,519 $1,246,612 - 75,000 $13,000
Executive Officer 1995 $263,681 $1,050,672 - - $13,000
- --------------------------------------------------------------------------------------------------------------------
Joel E. Marks 1997 $180,775 $ 388,813 - 26,250 $ 3,200<F4>
Chief Financial Officer 1996 $175,000 $ 431,616 - 26,250 $ 3,000
Executive Vice President 1995 $120,000 $ 267,407 - - $ 3,000
- ---------------------------------------------------------------------------------------------------------------------
Wm. Dennis Ferguson 1997 $120,000 $ 194,977 - - $ 3,200<F4>
Executive Vice President 1996 $120,000 $ 262,563 - 7,500 $ 3,000
1995 $120,000 $ 180,199 - - $ 3,000
- ---------------------------------------------------------------------------------------------------------------------
Gregg S. Glaser 1997 $128,594 $ 85,450 - 11,250 $ 3,200<F4>
Treasurer and Executive 1996 $125,253 $ 72,696 - 11,250 $ 3,000
Vice President 1995 $122,592 $ 56,408 - - - $ 3,000
<FN>
<F1> There were no payouts of long-term compensation during the fiscal year.
<F2> Represents gross-up for the payment of taxes upon exercise of stock
options.
<F3> Includes $10,000 for tax return preparation and financial services
of JWCFS' matching contribution of $3,200 with respect to JWCFS'
401(k) plan.
<F4> Represents JWCFS matching contribution with respect to JWCFS'
401(k) plan.
</FN>
</TABLE>
____________
53<PAGE>
Company directors that are not employed by the Company or any
subsidiary or affiliate receive an annual retainer of $5,000, $750 per
Board meeting attended, and $500 per Committee meeting attended, as
well as reimbursement for travel and related expenses incurred in
connection with attendance at meetings of the Board of Directors and
Board Committees. Directors that are employed by the Company or any
of its subsidiaries or affiliates are not compensated for service on
the Board or a committee thereof, but are reimbursed for travel and
related expenses incurred in connection with attending meetings.
The following tables show, as to JWCFS' Chief Executive Officer
and Named Executive Officers, certain information with respect to
options granted to them by JWCFS.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
The following table sets forth further information on grants of
stock options during 1997 by JWCFS, all of which have been assumed by
the Company and now relate to shares of Company common stock, to the
Named Executive Officers. No SARs were granted during 1997.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Individual Grants Price Appreciation for
Option Term<F1>
- ----------------------------------------------------------------------------- -----------------------
% of total
Number of Options
Securities granted to
Underlying employees Exercise or
Options in fiscal base price Expiration
Name Granted (#) year ($/Share) Date 5% 10%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marshall T. Leeds 75,000 16.7 $9.075 9/16/02 $187,941 $415,299
Joel E. Marks 26,250 5.8 $9.075 9/16/02 $ 65,779 $145,355
Gregg S. Glaser 11,250 2.5 $8.250 9/16/02 $ 25,642 $ 56,663
<FN>
<F1> Illustrates the value that may be realized upon the exercise of
options immediately prior to the expiration of their term, assuming
specified compound rates of appreciation on JWCFS' common stock over
the five year term of the options. Assumed rates of appreciation
are not necessarily indicative of future stock performance. The
assumed annual rates of appreciation of five and ten percent would
result in the per share price of JWCFS' common stock increasing to
$11.58 and $14.61, respectively. Over the period from 1992 through
1997, the market price for JWCFS' common stock increased at a
compound annual rate of approximately 34%. As part of the Share
Exchange, the Company assumed the outstanding JWCFS options. As of
November 10, 1998, the closing sales price of the Company common
stock on AMEX was $7.375.
</FN>
</TABLE>
54
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth further information with respect
to option exercises during 1997 and unexercised stock options held by
the Named Executive Officers at December 31, 1997.
<TABLE>
<CAPTION>
Value of
Unexercised In-
Number of Securities the-Money
Underlying Options at
Unexercised December 31,1997
Options at ($)<F1>
December 31, 1997 (#)
Shares Acquired on Exercisable (E)/ Exercisable (E)/
Name Exercise (#) Value Realized ($) Unexercisable (U) Unexercisable (U)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marshall T. Leeds 112,500 $618,750 75,000 (E) $534,900 (E)
75,000 (U) $191,250 (U)
Joel E. Marks - - 26,250 (E) $187,222 (E)
26,250 (E) $ 66,938 (U)
Wm. Dennis Ferguson 15,000 $ 86,955 52,500 (E) $491,775 (E)
-(U) $ - (U)
Gregg S. Glaser - - 11,250 (E) $ 84,803 (E)
11,250 (U) $ 37,969 (U)
<FN>
<F1> At December 31, 1997, the closing price of JWCFS' common stock
on AMEX was $11.625. As part of the Share Exchange, the Company
assumed the outstanding JWCFS options. As of November 10, 1998, the
closing sales price of the Company common stock on AMEX was $7.375.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
MESSRS. LEEDS, STAPLETON, MARKS, AND GLASER. The Company has
entered into an employment agreement with each of Messrs. Leeds,
Stapleton , Marks, and Glaser pursuant to which Mr. Leeds is employed
as Chairman of the Board, President, and Chief Executive Officer of
the Company, Mr. Stapleton is employed as Chief Operating Officer of
the Company, Mr. Marks is employed as Executive Vice President and
Chief Financial Officer of the Company and Mr. Glaser is employed as
Executive Vice President of the Company.
The term of the agreement for each of Messrs. Leeds, Stapleton,
and Marks extends to December 31, 2001, and for Mr. Glaser, to
December 31, 2000, and is automatically extended for successive one-
year terms thereafter unless either party gives six-months' prior
written notice to the other party of its election not to extend the
term. Messrs. Leeds', Stapleton's, Marks', and Glaser's base annual
salaries are $500,000, $250,000, $250,000, and $250,000, respectively,
with an annual cost of living increase, if applicable.
In addition, the agreements require the Company to establish an
executive bonus pool (the "Executive Bonus Pool"), which has been
established in the form of the Management Incentive Bonus Plan, that
<PAGE>
is described above and proposed for stockholder approval at the Annual
Meeting, pursuant to which an aggregate of 15% of the Company's annual
pre-tax profits will be paid to Messrs. Leeds, Marks, and Stapleton.
Messrs. Leeds, Stapleton and Marks will be eligible to receive 50%, 28.5%,
and 21.5%, respectively, of the Executive Bonus Pool as determined by the
committee of the Board of Directors responsible for the Executive Bonus
Pool of the Company, subject to downward adjustment to 35%, 20%, and 5%,
respectively, at the discretion of such committee. Pursuant
55<PAGE>
to Mr. Glaser's agreement, the Company will pay an annual bonus to him
equal to 0.616% of the Company's consolidated pre-tax income. In addition,
the Company has issued to Mr. Glaser options to purchase 60,000 shares of
Company common stock at an exercise price of $10.50 per share. Options for
20,000 shares vested on the date of grant, and options for an additional
20,000 shares will vest on each of June 16, 1999 and 2000.
If the Company (i) terminates the employment of Messrs. Leeds,
Stapleton, Marks, or Glaser other than for cause or as a result of the
death or disability of any such person; (ii) reduces his authority,
duties, or standing within the Company without his consent; or (iii)
experiences a change of control (as defined) without his consent and
he subsequently terminates his employment, then the Company will pay
to such person an amount equal to his aggregate base annual salary for
the remainder of the term of his employment agreement (or a minimum of
12 months) and bonus payments to which he would have been entitled for
the remainder of the term had his employment not terminated, and all
outstanding stock options held by such person will become fully
vested.
WILL K. WEINSTEIN. The Company has also entered into an
employment agreement with Mr. Weinstein that extends to December 31,
2001, providing for his employment as Vice Chairman of the Company.
Mr. Weinstein's employment agreement calls for Mr. Weinstein to use
his best efforts, in the course of his business and personal
activities: (i) to promote the interests of the Company and its
subsidiaries and affiliates; (ii) to convey information regarding the
Company and its subsidiaries and affiliates to potential customers and
clients; and (iii) to facilitate contacts and communications between
the Company and its subsidiaries and affiliates and potential clients
and customers. Mr. Weinstein is required to devote such reasonable
amount of time to the promotion of the Company's interests as he deems
is necessary to discharge his duties in good faith, with the
understanding that he shall not be required to work full time or keep
regular or specified office hours or provide his services at a
particular location. Mr. Weinstein's agreement is not automatically
extended after December 31, 2001.
The Company will pay Mr. Weinstein incentive compensation based
upon the gross income received by the Company related to retail and
institutional accounts serviced by Mr. Weinstein and investment
banking fees generated by the Company from transactions with respect
to which Mr. Weinstein made the introduction that led to the
transactions. Subject to certain limitations, Mr. Weinstein will
receive an annual accountable allowance for expenses incurred in
connection with furtherance of the business of the Company in the
amount of $450,000. If the Company terminates the employment of Mr.
Weinstein for any reason other than cause, death, or disability then
(i) the Company will pay to Mr. Weinstein the amount of any accrued
but unpaid incentive compensation that otherwise would become payable
to Mr. Weinstein if there had been no termination and any amount
reimbursable for expenses incurred prior to termination; (ii) the
Company will pay to Mr. Weinstein a lump sum allowance which would
otherwise be payable through December 31, 2001, absent the
termination; and (iii) all outstanding stock options held by Mr.
Weinstein will become fully vested.
<PAGE>
Additionally, on each of the annual anniversary dates of the
commencement of Mr. Weinstein's employment on which he remains
employed by the Company, the Company will transfer to Mr. Weinstein
20% of the $3.5 million aggregate face amount of certain term life
insurance policies upon Mr. Weinstein's life. The remainder of such
life insurance will be transferred to Mr. Weinstein on December 31,
2001 if Mr. Weinstein remains employed by the Company at such date.
Mr. Weinstein will be responsible for paying the premiums upon such
portions of the life insurance policies as he owns.
NONSOLICITATION AGREEMENTS
Messrs. Leeds and Marks have entered into nonsolicitation agreements with
the Company for a period of seven years from June 12, 1998 (the "Nonsolicitation
Agreements"). In connection with those agreements and in consideration for
Messrs. Leeds' and Marks' agreements to terminate the financial terms of their
employment
56<PAGE>
agreements with JWCFS in connection with the Share Exchange, the Company
agreed to make certain payments to each of them (the "Special Payments").
Messrs. Leeds and Marks agreed to accept their respective Special Payments
in the form of one-half cash and one-half restricted shares of JWGenesis
Common Stock.
The cash portion of the Special Payments consists of four equal
installments, the first paid in July 1998 and the remaining
installments to be paid on January 15, 1999, 2000 and 2001, in the
amounts of $533,750 and $215,000 each for Messrs. Leeds and Marks,
respectively. If the employment of either Messrs. Leeds or Marks is
terminated for any reason other than cause, any unpaid cash
installment due to him must be paid within 30 days of termination. The
restricted shares portion of the Special Payments will be paid by the
issuance to Messrs. Leeds and Marks (of 255,689 shares and 102,994 shares,
respectively) of JWGenesis Common Stock, subject to forfeiture as described
below. (Such numbers of shares were derived from a formula to yield a value
(based on 80% of the average closing price of the JWCFS Common Stock for the
10 consecutive trading days immediately preceding consummation of the
Combination, or $8.35 per share) equal to $2,135,000 in the case of Mr. Leed
and $860,000 in the case of Mr. Marks.) Twenty-five percent of the shares
issued to Messrs. Leeds and Marks will vest on January 15, 2002 and an
additional 25% on each January 15 in 2003 through 2005. All unvested shares
of Messrs. Leeds or Marks will be subject to forfeiture at any time there is
a violation of his respective Nonsolicitation Agreement. In the event of
a change in control of the Company, all such shares become immediately
vested, and the forfeiture provisions with respect to such shares will
no longer be in force.
CERTAIN TRANSACTIONS
In January 1996, JWCFS obtained an unsecured $2,500,000 revolving
line of credit from Wilmington Trust Company ("Wilmington") for
general corporate purposes (the "Wilmington Facility"). The
Wilmington Facility matures on December 31, 2002, at which time all
outstanding borrowings plus all accrued and unpaid interest will
become due and immediately payable. Borrowings under the Wilmington
Facility bear interest at Wilmington's National Commercial Rate, with
interest payments due monthly in arrears. The Company is required to
maintain certain debt covenants, including (i) minimum stockholders'
equity equal to at least $7,000,000, plus 30% of net income for all
future fiscal quarters, plus 75% of the net proceeds from any common
stock issuances and (ii) net income, as defined, in excess of
$1,500,000 for any four quarters within any consecutive nine-quarter
period. In connection with the Share Exchange, the Company assumed the
obligations of JWCFS under the Wilmington Facility, including
obligations of JWCFS with respect to board membership, the Wilmington
Warrant and the Wilmington Marketing Agreement, all described in the
next paragraph. At September 30, 1998, the balance outstanding under
the Wilmington Facility was $1.5 million.
In connection with the Wilmington Facility, Wilmington has the
right to designate one person to serve on the Company's Board of
Directors, which right Wilmington has not yet exercised. In addition,
JWCFS entered into a Marketing Agreement with Wilmington Trust FSB
(the "Wilmington Marketing Agreement") and granted W T Investments,
Inc. a warrant, which has been assumed by the Company and now relates
to the purchase of up to 400,000 shares of the Company's common stock
at any time prior to December 31, 2002 (the "Wilmington Warrant") at
an exercise price of $11.30. The Wilmington Marketing Agreement
provides that the Company will market certain products and services,
initially personal trust and asset management services, provided by
Wilmington Trust FSB to the Company's brokers, clients, and prospects.
57<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL INFORMATION
The unaudited pro forma consolidated condensed statements of
operations of JWGenesis for the year ended December 31, 1997 and
the six month period ended June 30, 1998 gives effect to the Merger
as if it had occurred as of January 1, 1998. The unaudited pro forma
consolidated condensed statements of operations should be read in
conjunction with (i) the historical financial statements of JWGenesis,
including the notes thereto, appearing herein, and (ii) the historical
financial statements of Genesis, including the notes thereto, which
are also contained in this Prospectus. The unaudited pro forma
consolidated condensed statements of operations are presented
for information purposes only and are not necessarily indicative
of the financial position or operating results that would have
occurred if the Merger had been consummated as of the dates
indicated, nor are they necessarily indicative of future financial
conditions or operating results. No adjustment has been made to the
historical financial statements for the effect of the approximate 9%
minority interest in AGRO not owned by JWGenesis. Such adjustment, if
made, would not have a material effect on the following unaudited pro
forma consolidated condensed financial statements of operations.
58
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except for share and per share amounts)
--------------------
As Reported
JWGenesis Genesis Combined Adjustments As Adjusted
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Commissions . . . . . . . . . . . . . . . . . . . $49,907 $23,355 $ 73,262 $ 73,262
Market making and principal transactions, net . . 20,836 3,371 24,207 24,207
Interest . . . . . . . . . . . . . . . . . . . . 11,363 565 11,928 11,928
Clearing fees . . . . . . . . . . . . . . . . . . 12,338 12,338 12,338
Other . . . . . . . . . . . . . . . . . . . . . . 2,738 3,279 6,017 6,017
--------- --------- ---------- ---------- ---------
$97,182 $30,570 $127,752 $127,752
--------- --------- ---------- ---------- ---------
EXPENSES:
Commission and clearing costs . . . . . . . . . . 51,238 10,098 61,336 61,336
Employee compensation and benefits . . . . . . . 16,278 9,330 25,608 $ 871 a 26,479
Selling, general and administrative . . . . . . . 15,487 7,316 22,803 680 c 23,483
Interest . . . . . . . . . . . . . . . . . . . . 4,387 4,387 4,387
--------- --------- ---------- ---------- ---------
87,390 26,744 114,134 1,551 115,685
--------- --------- ---------- ---------- ---------
Income before income taxes . . . . . . . . . . . 9,792 3,826 13,618 (1,551) 12,067
Provision for income taxes . . . . . . . . . . . 3,689 3,689 1,111 b 4,800
--------- --------- ---------- ---------- ---------
Net income . . . . . . . . . . . . . . . . . . . $ 6,103 $ 3,826 $ 9,929 $(2,662) $ 7,267
========= ========= ========== ========== =========
EARNINGS PER COMMON SHARE:
Basic . . . . . . . . . . . . . . . . . . . . . . $ 1.77 $ 1.47
========= =========
Diluted . . . . . . . . . . . . . . . . . . . . . $ 1.50 $ 1.30
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic . . . . . . . . . . . . . . . . . . . . . . 3,443,141 1,500,000 4,943,141
========= ========= =========
Diluted . . . . . . . . . . . . . . . . . . . . . 4,069,594 1,500,000 5,569,594
========= ========= =========
</TABLE>
(See Notes to Pro Forma Consolidated Condensed Financial Statements)
59
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
(In thousands, except for share and per share amounts)
As Reported
--------------------
JWGenesis Genesis Combined Adjustments As Adjusted
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions . . . . . . . . . . . . . . . . . . . $27,181 $ 6,686 $ 33,867 $ 33,867
Market making and principal transactions, net . . 10,486 2,130 12,616 12,616
Interest . . . . . . . . . . . . . . . . . . . . 6,980 260 7,240 7,240
Clearing fees . . . . . . . . . . . . . . . . . . 4,461 4,461 4,461
Other . . . . . . . . . . . . . . . . . . . . . . 2,033 3,288 5,321 5,321
--------- --------- ---------- ---------- ---------
51,141 12,364 63,505 63,505
--------- --------- ---------- ---------- ---------
Expenses:
Commission and clearing costs . . . . . . . . . . 26,457 3,492 29,949 29,949
Employee compensation and benefits . . . . . . . 8,885 3,321 12,206 $214 c 12,420
Selling, general and administrative . . . . . . . 8,130 4,353 12,483 323 a 12,806
Interest . . . . . . . . . . . . . . . . . . . . 2,713 14 2,727 2,727
--------- --------- ---------- ---------- ---------
46,185 11,180 57,365 537 57,902
--------- --------- ---------- ---------- ---------
Income before income taxes . . . . . . . . . . . 4,956 1,184 6,140 (537) 5,603
Provision for income taxes . . . . . . . . . . . 1,910 1,910 367 b 2,277
--------- --------- ---------- ---------- ---------
Net income . . . . . . . . . . . . . . . . . . . $ 3,046 $ 1,184 $ 4,230 $ (904) $ 3,326
========= ========= ========== ========== =========
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . $ 0.78 $ 0.63
========= =========
Diluted . . . . . . . . . . . . . . . . . . . . . $ 0.67 $ 0.57
========= =========
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . 3,918,753 1,350,000 d 5,268,753
========= =========== =========
Diluted . . . . . . . . . . . . . . . . . . . . . 4,519,065 1,350,000 d 5,869,065
========= =========== =========
</TABLE>
(See Notes to Pro Forma Consolidated Condensed Financial Statements)
60
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(a) To record the amortization of goodwill resulting from the
Merger using the straight-line method of amortization and an estimated
useful life of twenty (20) years.
Year Ended Six Months Ended
December 31, 1997 June 30, 1998
----------------- ----------------
Amortization expense 680,000 323,000
================= ================
(b) To record the net effect on income taxes attributable to (i)
an increase in income taxes as a result of Genesis' pretax income
since Genesis has not recorded such a provision as a result of its
status as a limited liability company, (ii) a decrease in income taxes
resulting from the amortization of certain payments and restricted
stock issuances by JWGenesis to Marshall T. Leeds and Joel E. Marks in
connection with the termination of the financial terms of their
previous employment arrangements with JWCFS and their execution of
certain nonsolicitation agreements with JWGenesis (the "Special
Payments"), and (iii) a decrease in income taxes resulting from
changes in executive compensation. The income taxes are being
recorded at JWGenesis' statutory income tax rate of 37.6%.
Year Ended Six Months Ended
December 31, 1997 June 30, 1998
----------------- ----------------
Provision for income taxes 1,111,000 367,000
================= =================
(c) To record the amortization of Special Payments using the
straight-line method of amortization over the seven-year
nonsolicitation period and the net effect of the new JWGenesis
employment agreements which were executed by certain executive
officers of JWCFS and Genesis.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1997 June 30, 1998
----------------- ----------------
<S> <C> <C>
Employee compensation and benefits 871,000 214,000
================= ================
</TABLE>
(d) To record the effect on weighted average shares outstanding
related to the issuance on June 12, 1998 of 1,500,000 shares of
JWGenesis common stock used to acquire a 100% interest in Genesis.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF JWGENESIS
The JWGenesis Articles of Incorporation provide that the
authorized capital stock of JWGenesis consists of 30,000,000 shares of
common stock, par value $.001 per share (which are the JWGenesis
Shares), and 5,000,000 shares of preferred stock, par value $.10 per
share. As of November 12, 1998, there were 5,306,622 JWGenesis
Shares and no shares of preferred stock issued and outstanding. The
following summary of JWGenesis capital stock does not purport to be
complete and is qualified in its entirety by reference to the Articles
of Incorporation and Bylaws of JWGenesis that are incorporated by
reference in the Registration Statement of which this Prospectus forms
a part, and the applicable provisions of the Florida Business
Corporation Act (the "FBCA").
COMMON STOCK
Holders of JWGenesis Shares are entitled to one vote for the
election of directors and all other matters to be voted on by the
shareholders. Holders of JWGenesis Shares do not have cumulative
voting rights; therefore the holders of a majority of the JWGenesis
Shares voting for the election of directors may elect all nominees
standing for election as JWGenesis directors. Subject to the rights
of holders of preferred stock, holders of JWGenesis Shares are
entitled to receive such dividends, if any, as may be declared from
time to time by JWGenesis by the JWGenesis Board of Directors in its
discretion from funds legally available for that use. Subject to the
rights of holders of preferred stock, holders of JWGenesis Shares are
entitled to share on a pro rata basis in any distribution to
shareholders upon liquidation, dissolution, or winding up of
JWGenesis. No holder of JWGenesis Shares will have any preemptive
right to subscribe for any stock or other security of JWGenesis.
PREFERRED STOCK
The Board of Directors of JWGenesis, without further action by
shareholders, may from time to time authorize the issuance of shares
of preferred stock in one or more series and with certain limitations,
rights, preferences, qualifications, or restrictions thereon and the
number of shares constituting such series and the designation of such
series. Satisfaction of any dividend preferences on outstanding
preferred stock would reduce the amount of funds available for the
payment of dividends on JWGenesis Shares. Holders of preferred stock
would normally be entitled to receive a preference payment in the
event of any liquidation, dissolution, or winding up of JWGenesis
before any payment is made to the holders of JWGenesis Shares. In
addition, under certain circumstances, the issuance of such preferred
stock may render more difficult or tend to discourage a change in
control of JWGenesis. Although JWGenesis currently has no plans to
issue shares of preferred stock, the Board of Directors of JWGenesis,
without shareholder approval, may issue preferred stock with voting
and conversion rights which could adversely affect the rights of
holders of JWGenesis Shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for JWGenesis Shares is American
Stock Transfer & Trust Company, New York, New York.
<PAGE>
INDEMNIFICATION AND LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
JWGenesis' Articles of Incorporation and Bylaws provide for
indemnification of officers and directors to the fullest extent permitted
by Florida law and, to the extent permitted by such law, eliminate, or limit
the personal liability of directors to JWGenesis and its shareholders for
monetary damages for certain breaches of fiduciary duties. The liability
of a director is not eliminated or limited (i) for any breach of the
director's duty of loyalty to JWGenesis or its shareholders; (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
62<PAGE>
knowing violation of law; (iii) for any improper distribution under the FBCA;
or (iv) for any transaction from which the director derived an improper
personal benefit. Such indemnification may be available for liabilities
arising in connection with the Merger. Insofar as indemnification for
liabilities under the Securities Act may be permitted to directors,
officers, or persons controlling JWGenesis pursuant to the foregoing
provisions, JWGenesis has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
CERTAIN ANTI-TAKEOVER MATTERS
No provision of JWGenesis' Articles of Incorporation or Bylaws
has been adopted in order to accomplish any anti-takeover objective of
the Board of Directors or management. However, certain provisions of
the JWGenesis Bylaws and Articles of Incorporation could have the
effect of making a hostile, unsolicited offer to take control of
JWGenesis more difficult. See " Special Meetings of the Shareholders"
and " Shareholder Action Without Meeting", below. Management does not
believe that any other provisions of JWGenesis' Bylaws or Articles of
Incorporation have such anti-takeover effects, and management does not
have any current plans to adopt or propose for adoption any anti-
takeover measure in a future proxy solicitation.
SPECIAL MEETINGS OF SHAREHOLDERS
The JWGenesis Bylaws require a special meeting to be called by
the corporation only upon the written request of the holders of shares
representing 40% or more of the votes entitled to be cast on each
issue proposed to be considered at the special meeting. By requiring
a shareholder or a group of shareholders to gain the support of a
larger percentage of the holders of shares before the shareholder or
group of shareholders can require JWGenesis to call a special meeting,
the JWGenesis Bylaw provision could have the effect of making a
hostile or unsolicited offer to take control of JWGenesis more
difficult. This is because, without the support of the Board of
Directors an acquiror would not be able to call a meeting to address
all of the shareholders until the requisite support was obtained. On
the other hand, requiring a greater percentage of support also helps
to ensure that special meetings are not called to address matters that
may not be important to a significant number of the shareholders.
SHAREHOLDER ACTION WITHOUT MEETING
In its Articles of Incorporation, JWGenesis has elected to opt-
out of the FBCA provision that permits any action required or
permitted to be taken at an annual or special meeting of shareholders
to be taken without a meeting if the action is taken by written
consent of not less than the minimum number of votes with respect to
each voting group necessary to authorize or take action at a meeting
at which all voting groups and shares entitled to vote are present and
voted. Shareholders of JWGenesis may take action without a vote only
if the action is taken by unanimous written consent of the holders of
the outstanding stock of each voting group entitled to vote thereon.
<PAGE>
Because JWGenesis has public shareholders, this provision will
make it impossible, as a practical matter, for actions to be taken by
written consent without a meeting of the shareholders. This provision
could have the effect of making a hostile or unsolicited offer to take
control of JWGenesis more difficult and may discourage the
accumulation of substantial blocks of JWGenesis' stock because, at a
meeting, opposing groups would have a chance to speak out and voice
their concerns. The provision does not limit the actions that the
shareholders can take, however it merely limits the way in which the
actions may be taken. This provision was adopted because management
and the Board of Directors believe that the opportunity for a meeting
and a full discussion of matters upon which shareholders may vote is
preferable to allowing the holders of 51% of the shares the ability to
act unilaterally by written consent.
63<PAGE>
MATTERS CONSIDERED AT ANNUAL MEETINGS
The JWGenesis Bylaws specify that the only business that may be
conducted at an annual meeting of shareholders shall be business
brought before the meeting (i) by or at the direction of the Board of
Directors prior to the meeting; (ii) by or at the direction of the
Chairman of the Board, the Chief Executive Officer, or the President;
or (iii) by a shareholder of the corporation who is entitled to vote
with respect to the business and who complies with certain prior
notice procedures. The prior notice procedures provide that a
shareholder must have given timely notice of the proposed business in
writing to the secretary of the corporation. To be timely, a
shareholder's notice must be delivered or mailed to and received at
the principal offices of the corporation on or before the later to
occur of (i) 14 days prior to the annual meeting or (ii) five days
after notice of the meeting is provided to the shareholders. A
shareholder's notice to the secretary must set forth a brief
description of each matter of business the shareholder proposes to
bring before the meeting and the reasons for conducting that business
at the meeting; the name, as it appears on the corporation's books,
and address of the shareholder proposing the business; the series or
class and number of shares of the corporation's capital stock that are
beneficially owned by the shareholder; and any material interest of
the shareholder in the proposed business. The chairman of the meeting
has discretion to declare to the meeting that any business proposed by
a shareholder to be considered at the meeting is out of order and that
such business shall not be transacted at the meeting if the chairman
concludes that the matter has been proposed in a manner inconsistent
with the requirements, or the chairman concludes that the subject
matter of the proposed business is inappropriate for consideration by
the shareholders at the meeting.
LEGAL MATTERS
The validity of the securities offered hereby has been passed
upon for JWGenesis by Kilpatrick Stockton LLP, Atlanta, Georgia. That
firm has also furnished the tax opinion upon which the discussion in
"The Merger Material Federal Income Tax Consequences" is based.
EXPERTS
The Statement of Financial Condition of JWGenesis, as of January 16,
1998, included in this Prospectus has been audited by Price
Waterhouse LLP, now PricewaterhouseCoopers LLP, independent
accountants, as indicated in their report with respect thereto, and
has been included in this Prospectus and the registration statement of
which it forms a part in reliance on such report given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of JWCFS included in this
Prospectus for the three years ended December 31, 1997 have been
audited by PriceWaterhouse LLP, now PricewaterhouseCoopers LLP,
independent accountants, as indicated in their report with respect
thereto, and have been included in this Prospectus and the
registration statement of which it forms a part in reliance on such
report given on the authority of said firm as experts in auditing and
accounting.
<PAGE>
The financial statements of Genesis for the three years ended
December 31, 1997 appearing herein have been audited by Lallman,
Feltman, Shelton & Peterson, P.A., independent accountants, as
indicated in their report with respect thereto, and has been included
in this Prospectus and the registration statement of which it forms a
part in reliance on such report given on the authority of said firm as
experts in auditing and accounting.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
JWGENESIS FINANCIAL CORP.
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . F-2
Statement of Financial Condition as of January 16, 1998 . . . . . . . . . . . . . . . . . . . . F-3
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Unaudited Consolidated Condensed Statements of Financial Condition at June 30, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Unaudited Consolidated Condensed Statements of Income for the Three Month and
Six Month Periods Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . F-6
Unaudited Consolidated Condensed Statements of Cash Flows for the Six Month Periods
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Unaudited Consolidated Condensed Financial Statements . . . . . . . . . . . . . . . . F-8
JW CHARLES FINANCIAL SERVICES, INC.*
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . F-11
Consolidated Statements of Financial Condition December 31, 1997 and 1996 . . . . . . . . . . F-12
Consolidated Statements of Income Years Ended December 31, 1997, 1996 and 1995 . . . . . . . F-13
Consolidated Statements of Changes in Stockholders' Equity Years Ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Consolidated Statements of Cash Flows Years Ended December 31, 1997, 1996 and 1995 . . . . . F-15
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-16
GENESIS MERCHANT GROUP SECURITIES, LLC
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
Statements of Financial Condition at December 31, 1997 and 1996 . . . . . . . . . . . . . . . F-33
Statements of Operations for the Year Ended December 31, 1997, 1996, and 1995 . . . . . . . . F-34
Statements of Changes in Members' Capital for the Year Ended Dec. 31, 1997, 1996, 1995 . . . F-35
Statements of Cash Flows for the Year Ended December 31, 1997, 1996, and 1995 . . . . . . . . F-36
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-37
</TABLE>
- -----------------------------
* As a result of a statutory share exchange effected on June 12, 1998,
JWGenesis Financial Corp. ("JWGenesis") acquired and succeeded to the
business and operations of JW Charles Financial Services, Inc. ("JWCFS").
Although that transaction is accounted for as a purchase and not as
a pooling of interests, JWGenesis has presented and discussed in this
Prospectus the information contained in the financial statements of
JWCFS as historical financial information of JWGenesis.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of
JWGenesis Financial Corp.
In our opinion, the accompanying statement of financial condition
presents fairly, in all material respects, the financial position
of JWGenesis Financial Corp. (a wholly-owned subsidiary of JW Charles
Financial Services, Inc.) at January 16, 1998 in conformity with
generally accepted accounting principles. This financial statement
is the responsibility of the Company's management; our responsibility
is to express an opinion on this financial statement based on our
audit. We conducted our audit in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion express above.
PRICE WATERHOUSE LLP
Tampa, Florida
April 16, 1998
F-2
<PAGE>
JW GENESIS FINANCIAL CORP.
STATEMENT OF FINANCIAL CONDITION AS OF JANUARY 16, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
TOTAL ................................................................................ $ 0
========
LIABILITIES AND STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY:.................................................................
Preferred stock $.01 par value -- authorized 5,000,000 shares; none
issued or outstanding ............................................................. $ --
Common Stock $.001 par value -- authorized 30,000 shares; 1,000 shares
issued and outstanding ............................................................ 1
Additional paid-in capital............................................................ 999
Less subscriptions receivable from parent company .................................... (1,000)
--------
Total stockholder's equity ........................................................... 0
--------
TOTAL ................................................................................ $ 0
========
The accompanying notes to financial statement are an integral part of this financial statement.
</TABLE>
F-3
<PAGE>
JWGENESIS FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
OPERATIONS
JWGenesis Financial Corp. ("JWGenesis" and the "Company") was
incorporated in the State of Florida on January 16, 1998 and is a
wholly-owned subsidiary of JW Charles Financial Services, Inc. ("JWCFS").
JWGenesis was formed for the purpose of becoming the parent company of
JWCFS and Genesis Merchant Group Securities, LLC ("Genesis") as a result
of a proposed business combination as discussed below.
SUBSEQUENT EVENT
On March 9, 1998, JWCFS executed an Amended and Restated Plan of
Combination (the "Combination Agreement") between JWCFS, Genesis and the
owners of all of the outstanding equity interests in Genesis (the "Genesis
membership Interests") and JWGenesis. Genesis is a San Francisco-based
investment banking firm with special expertise in institutional research,
sales and trading, corporate finance and brokerage processing services.
The Combination Agreement contemplates, among other things, that (i)
JWGenesis will acquire the outstanding shares of JWCFS Common Stock, on a
one-for-one basis, with the result that JWCFS will become a wholly-owned
subsidiary of JWGenesis and each issued and outstanding share of JWCFS will
be exchanged for and become the right to receive one share of JWGenesis
Common Stock and (ii) Genesis members holding at least 90% of the Genesis
Membership Interests will exchange such interest for up to 1,500,000 shares
of JWGenesis Common Stock with the result that Genesis will become at least
a 90% owned limited liability company of JW Genesis.
The Combination, which will be accounted for as a purchase, is expected
to be completed during 1998 and is subject to approval by the shareholders of
JWCFS as well as other customary conditions of closing.
F-4
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
June 30, December 31,
1998 1997(*)
--------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 14,564,000 $ 11,512,000
Receivable from customers, net 132,488,000 107,507,000
Receivable from brokers and dealers 7,407,000 5,248,000
Securities owned, at market value 11,421,000 9,010,000
Cost in excess of the value of net assets acquired 12,911,000
Furniture, equipment and leasehold improvements, net of accumulated
depreciation and amortization of $1,654,000 and $1,433,000 3,150,000 1,742,000
Deferred tax asset 1,648,000 1,621,000
Other, net 5,538,000 4,092,000
--------------------------------
$ 189,127,000 $ 140,732,000
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Short-term borrowings from banks $ 47,257,000 $ 29,423,000
Accounts payable, accrued expenses and other liabilities 12,666,000 12,043,000
Payable to customers 19,042,000 35,055,000
Payable to brokers and dealers 61,894,000 32,975,000
Securities sold, not yet purchased, at market value 700,000 567,000
Lines of credit 3,000,000 890,000
Notes payable to affiliates - 5,113,000
Income taxes payable 955,000 -
--------------------------------
145,514,000 116,066,000
--------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value - authorized 5,000,000 shares;
no shares issued or outstanding - -
Common stock, $.001 par value - authorized 9,056,000 shares; issued
and outstanding 5,306,622 and 3,690,743 5,000 4,000
Additional paid-in capital 20,167,000 4,018,000
Retained earnings 23,448,000 20,651,000
Treasury stock, at cost, 900 shares (7,000) (7,000)
--------------------------------
Total stockholders' equity 43,613,000 24,666,000
--------------------------------
$ 189,127,000 $ 140,732,000
=================================
</TABLE>
* - Derived from audited financial statements contained in
JW Charles Financial Services, Inc. Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997. See Note 2.
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)
F-5<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ------------------------------
1998 1997 1998 1997
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 14,052,000 $ 10,528,000 $ 27,181,000 $ 22,066,000
Market making and principal transactions, net 5,618,000 5,399,000 10,486,000 10,045,000
Interest 3,818,000 2,781,000 6,980,000 5,115,000
Clearing fees 2,642,000 2,573,000 4,461,000 4,381,000
Other 738,000 724,000 2,033,000 2,530,000
---------------------------- ------------------------------
26,868,000 22,005,000 51,141,000 44,137,000
---------------------------- ------------------------------
EXPENSES:
Commissions and clearing costs 13,782,000 10,927,000 26,457,000 22,485,000
Employee compensation and benefits 4,437,000 4,114,000 8,885,000 8,269,000
Selling, general and administrative 4,277,000 4,056,000 8,130,000 7,905,000
Interest 1,458,000 1,077,000 2,713,000 2,062,000
---------------------------- ------------------------------
23,954,000 20,174,000 46,185,000 40,721,000
---------------------------- ------------------------------
Income before income taxes 2,914,000 1,831,000 4,956,000 3,416,000
Provision for income taxes 1,138,000 622,000 1,910,000 1,195,000
---------------------------- ------------------------------
Net income $ 1,776,000 $ 1,209,000 $ 3,046,000 $ 2,221,000
============================ ==============================
Earnings per common share:
Basic $ .43 $ .37 $ .78 $ .68
============================ ==============================
Diluted $ .38 $ .32 $ .67 $ .58
============================ ==============================
Weighted average common shares outstanding:
Basic 4,090,801 3,307,780 3,918,753 3,288,978
============================ ==============================
Diluted 4,646,906 3,813,625 4,519,065 3,820,255
============================ ==============================
</TABLE>
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)
F-6<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1998 1997
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES $ 3,047,000 $ 2,221,000
Net income
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 241,000 158,000
Change in assets and liabilities, net of effect of acquisition:
Receivable from customers (24,981,000) 10,225,000
Receivable from brokers and dealers 994,000 (3,962,000)
Securities owned (2,382,000) (1,752,000)
Deferred tax asset (27,000) (10,000)
Other assets (1,667,000) (483,000)
Accounts payable, accrued expenses and other liabilities (1,972,000) 626,000
Payable to customers (16,013,000) (22,672,000)
Payable to brokers and dealers 28,527,000 13,282,000
Securities sold, not yet purchased 133,000 2,393,000
Income taxes payable 955,000 183,000
-------------------------------
Net cash (used in) provided by operating activities (13,145,000) 209,000
-------------------------------
INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (521,000) (435,000)
-------------------------------
FINANCING ACTIVITIES
Change in short-term borrowings from banks 17,834,000 4,369,000
Change in notes payable to affiliate (5,113,000) (3,012,000)
Change in lines of credit 2,110,000 -
Issuance of common stock 400,000 -
-------------------------------
Net cash provided by financing activities 15,231,000 1,357,000
-------------------------------
Net increase in cash and cash equivalents 1,565,000 1,131,000
Cash and cash equivalents at beginning of period 12,999,000 11,836,000
-------------------------------
Cash and cash equivalents at end of period $ 14,564,000 $ 12,967,000
===============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 954,000 $ 964,000
===============================
Cash paid during the period for interest $ 2,713,000 $ 2,062,000
===============================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On June 12, 1998, the Company issued 1,500,000 shares of common stock in connection with its acquisition of Genesis
Merchant Group Securities, LLC (Note 5).
</TABLE>
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)
F-7
<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
As discussed elsewhere in this Report, on June 12, 1998,
JWGenesis Financial Corp. (the "Company") consummated a series
of transactions (the "Combination") in which it (i) acquired
Genesis Merchant Group Securities LLC ("Genesis") through the
issuance of 1,500,000 shares of its authorized but unissued common
stock and (ii) acquired JW Charles Financial Services, Inc. ("JWCFS")
pursuant to an exchange offer of one share of its common stock for
each outstanding share of JWCFS common stock and each of Genesis
and JWCFS became wholly owned subsidiaries of the Company. As a result of
the Combination, the Company has now succeeded to the business and operations
of JWCFS and Genesis. The information in the Financial Section of this
Report relating to periods prior to June 12, 1998 is derived solely from
information and financial statements of JWCFS and, except as otherwise
expressly indicated, relates to matters prior to the Combination.
The interim financial information included herein is unaudited;
however, such information reflects all adjustments, which are, in
the opinion of management, necessary for a fair presentation of
the periods indicated.
The accompanying consolidated condensed financial statements
include the accounts of the Company and its subsidiaries. Certain
information and footnote disclosures normally included in
financial statements prepared in conformity with generally
accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and
Exchange Commission. These consolidated condensed financial
statements should be read in conjunction with the consolidated
condensed financial statements and related notes contained in the
JWCFS 1997 Annual Report on Form 10-K/A.
Because of seasonal and other factors, the results of operations
for the three month and six month periods ended June 30, 1998 are
not necessarily indicative of the results of operations to be
expected for the fiscal year ending December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
- ----------------------
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries which are: JWCFS,
Corporate Securities Group, Inc. ("CSG"), JW Charles Securities,
Inc. ("JWC Securities"), JW Charles Clearing Corp. ("JWC Clearing"),
CMG Capital Corp. ("CMGCC"), First Investors Life Agency, Inc.
("FILA"), DMG Securities, Inc. ("DMG") and Discount Securities
Group, Inc. ("DSG"). In addition, the accompanying consolidated
financial statements include the accounts of Genesis (effective
June 12, 1998) (See Note 5, "Acquisitions") and The Americas Growth
Fund, Inc. ("AGRO") (effective September 22, 1997) (See Note 5,
"Acquisitions"). All significant intercompany transactions have
been eliminated in consolidation.
<PAGE>
Reclassifications
- -----------------
Certain amounts in the prior period's consolidated condensed
financial statements have been reclassified to conform to the
current period's presentation. These reclassifications are not
material to the consolidated condensed financial statements.
3. CONTINGENCIES
The Company is involved in various claims and possible actions
arising out of the normal course of its business. Although the
ultimate outcome of these claims cannot be ascertained at this
time, it is the opinion of the Company, based on knowledge of
facts and advice of counsel, that the resolution of such actions
will not have a material adverse effect on the Company's
financial condition and results of operations.
F-8<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONT'D
(Unaudited)
4. NET CAPITAL
The broker-dealer subsidiaries of the Company are subject to the
requirements of Rule 15c3-1 under the Securities Exchange Act of
1934. This rule requires that aggregate indebtedness, as
defined, not exceed fifteen times net capital, as defined. Rule
15c3-1 also provides for an "alternative net capital requirement"
which, if elected, requires that net capital be equal to the
greater of $250,000 or two percent of aggregate debit items
computed in applying the formula for determination of reserve
requirements. The New York Stock Exchange, Inc. ("NYSE") may
require a member organization to reduce its business if its net
capital is less than four percent of aggregate debit items and
may prohibit a member firm from expanding its business if its net
capital is less than five percent of aggregate debit items. At
June 30, 1998, the net capital positions of the Company's broker-
dealer subsidiaries were as follows:
JWC Clearing (alternative method elected):
Net capital as a percent of aggregate debit items 8.46
Net capital $11,963,000
Required net capital $2,828,000
CSG:
Ratio of aggregate indebtedness to net capital 1.97
Net capital $1,908,000
Required net capital $250,000
JWC Securities:
Ratio of aggregate indebtedness to net capital 2.32
Net capital $1,496,000
Required net capital $250,000
Genesis:
Ratio of aggregate indebtedness to net capital .68
Net capital $2,514,000
Required net capital $250,000
DMG:
Ratio of aggregate indebtedness to net capital .50
Net capital $413,000
Required net capital $100,000
5. ACQUISITIONS
On June 12, 1998, the Company completed the acquisition of
Genesis a San Francisco-based investment banking firm with
special expertise in institutional sales and trading, research,
brokerage processing and corporate finance. The acquisition
(which was accounted for under the purchase method) was accomplished
by the Company though the issuance of 1,500,000 shares of its
authorized but unissued common stock in exchange for a 100%
ownership in Genesis. The purchase price of $16,600,000 exceeded
the fair value of net assets acquired by approximately $12,911,000,
which is being amortized on a straight-line basis over 20 years.
The results of operations of Genesis are included in the accompanying
financial statements from the date of acquisition.
F-9<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-CONT'D
(Unaudited)
The following unaudited pro forma financial information presents
the Company's results of operations as though Genesis had been
acquired as of the beginning of each of the six month periods
ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Six Months Ended
June 30, (Unaudited)
---------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $ 63,505,000 $ 58,517,000
Net income $ 3,326,000 $ 2,382,000
Earnings per common share:
Basic $ .63 $ .50
Diluted $ .57 $ .45
</TABLE>
The pro forma results of operations are not necessarily
indicative of what actually would have occurred if the
acquisition of Genesis had been completed as of the beginning of
each of the fiscal period presented, nor are they necessarily
indicative of future consolidated results.
On September 22, 1997, JWCFS completed its exchange tender
offer (the "Exchange Offer") for all (but not less than 51%) of
the outstanding shares of common stock of AGRO not already owned
by the Company. Prior to the commencement of the Exchange Offer,
the Company owned 26% of the outstanding shares of common stock
of AGRO. A total of approximately 823,000 shares of AGRO common
stock, representing approximately 65% of the outstanding shares
of AGRO common stock, were tendered pursuant to the Exchange
Offer. All shares of AGRO common stock tendered were accepted
for exchange by the Company according to the terms of the
Exchange Offer on the basis of .431 shares of the Company's
common stock for each share of AGRO, resulting in the issuance by
JWCFS of 354,851 shares of its authorized but unissued common
stock. The tendered shares together with the shares already owned
by JWCFS represent approximately 91% of the outstanding shares of
AGRO common stock, with the remaining 9% of AGRO shares held by
minority shareholders (the "AGRO"). The AGRO acquisition was
accounted for under the purchase method of accounting. The Company
has consolidated the accounts of AGRO in the accompanying financial
statements effective as of September 22, 1997. The AGRO Minority
Shareholders' interests in these accounts is reflected as accounts payable,
accrued expenses and other liabilities in the accompanying financial
statements.
F-10<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
JW Charles Financial Services, Inc.
In our opinion, the accompanying consolidated statements of
financial condition and the related consolidated statements of
income, changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of JW
Charles Financial Services, Inc. and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted
accounting principles. 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 of these statements in
accordance with generally accepted auditing standards which
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, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Tampa, Florida
March 5, 1998
F-11
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
===========================================================================
<TABLE>
<CAPTION>
December 31,
1997 1996
-----------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 11,512,000 $ 11,836,000
Commissions and other receivables from clearing brokers 716,000 2,203,000
Receivable from customers, net of allowance for
doubtful accounts of $546,000 and $421,000 107,507,000 98,610,000
Receivable from brokers and dealers 4,532,000 3,689,000
Securities owned, at market value 9,010,000 5,308,000
Furniture, equipment and leasehold improvements, net
of accumulated depreciation and amortization of
$1,433,000 and $1,162,000 1,742,000 1,194,000
Income taxes receivable 294,000 -
Deferred tax asset 1,621,000 1,719,000
Other, net of allowance for doubtful accounts
of $900,000 and $608,000 3,798,000 2,772,000
-------------- --------------
$ 140,732,000 $ 127,331,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term borrowings from banks $ 29,423,000 $ 17,375,000
Accounts payable, accrued expenses and other liabilities 12,043,000 10,441,000
Payable to customers 35,055,000 50,898,000
Payable to brokers and dealers 32,975,000 24,136,000
Securities sold, not yet purchased, at market value 567,000 450,000
Line of credit 890,000 -
Notes payable to affiliates (Notes 7 and 15) 5,113,000 8,625,000
Income taxes payable - 34,000
-------------- --------------
116,066,000 111,959,000
-------------- --------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock $.001 par value--authorized 5,000,000
shares; no shares issued or outstanding - -
Common stock $.001 par value-authorized 9,056,000
shares; issued and outstanding 3,690,743 and 3,230,436
shares at December 31, 1997 and 1996, respectively 4,000 3,000
Additional paid-in capital 4,018,000 821,000
Retained earnings 20,651,000 14,548,000
Treasury stock, at cost, 900 shares in 1997 and 0 shares in 1996 (7,000) -
-------------- --------------
Total stockholders' equity 24,666,000 15,372,000
-------------- --------------
$ 140,732,000 $ 127,331,000
============= ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-12
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income
===========================================================================
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Revenues:
Commissions $ 49,907,000 $ 42,945,000 $ 40,566,000
Market making and principal
transactions, net 20,836,000 24,315,000 18,604,000
Interest 11,363,000 9,625,000 7,279,000
Clearing fees 12,338,000 11,463,000 10,176,000
Other 2,738,000 2,672,000 3,416,000
------------- ------------- --------------
97,182,000 91,020,000 80,041,000
------------- ------------- --------------
Expenses:
Commissions and clearing costs 51,238,000 47,229,000 42,160,000
Employee compensation and benefits 16,278,000 14,911,000 13,820,000
Occupancy and equipment rental 5,180,000 4,520,000 4,206,000
Communications 3,361,000 3,809,000 3,867,000
General and administrative 6,946,000 8,431,000 6,647,000
Interest 4,387,000 3,888,000 3,054,000
------------- ------------- --------------
87,390,000 82,788,000 73,754,000
------------- ------------- --------------
Income before income taxes 9,792,000 8,232,000 6,287,000
Provision for income taxes 3,689,000 2,207,000 2,477,000
------------- ------------- --------------
Net income $ 6,103,000 $ 6,025,000 $ 3,810,000
============= ============= ==============
Net income per common share:
Basic $ 1.77 $ 1.42 $ .65
------------- ------------- --------------
Diluted $ 1.50 $ 1.26 $ .64
------------- ------------- --------------
Weighted average common shares:
Basic 3,443,141 4,245,895 5,862,296
------------ ------------- --------------
Diluted 4,069,594 4,783,582 5,999,767
------------ ------------- --------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-13
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
===========================================================================
<TABLE>
<CAPTION>
Additional Total
Preferred Stock Common Stock Paid-In Retained Treasury Stock Stockholders'
Shares Amount Shares Amount Capital Earnings Shares Amount Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 700,000 $ 1,000 5,861,097 $ 6,000 $1,076,000 $11,676,000 - $ - $ 12,759,000
Issuance of common stock upon
exercise of stock options - - 2,250 - 3,000 - - - 3,000
Reinstatement of forfeited
common stock - - 8,775 - - - - - -
Net income - - - - - 3,810,000 - - 3,810,000
Redemption of preferred stock (700,000) (1,000) - - - - - - (1,000)
Reclassification of mandatorily
redeemable common stock - - - - (317,000) (5,661,000) - - (5,978,000)
Accretion of mandatorily
redeemable common stock - - - - - (1,035,000) - - (1,035,000)
-------- -------- --------- ------ -------- ----------- ----- ----- ----------
Balance at December 31, 1995 - - 5,872,122 6,000 762,000 8,790,000 - - 9,558,000
Issuance of common stock upon
exercise of stock options - - 232,087 - 56,000 - - - 56,000
Net income - - - - - 6,025,000 - - 6,025,000
Purchase of mandatorily
redeemable common stock - - (2,873,773) (3,000) 3,000 - - - -
Accretion of mandatorily
redeemable common stock - - - - - (267,000) - - (267,000)
-------- -------- --------- ------ -------- ----------- ----- ----- -----------
Balance at December 31, 1996 - - 3,230,436 3,000 821,000 14,548,000 - - 15,372,000
Issuance of common stock upon
exercise of stock options - - 105,456 - 37,000 - - - 37,000
Issuance of common stock for
AGRO acquisition - - 354,851 1,000 2,927,000 - - - 2,928,000
Net income - - - - - 6,103,000 - - 6,103,000
Purchase of treasury shares - - - - - - (900) (7,000) (7,000)
Tax benefit related to non-
qualified option exercise - - - - 233,000 - - - 233,000
-------- -------- --------- ------ ---------- ----------- ---- ------- ------------
Balance at December 31, 1997 - $ - 3,690,743 $4,000 $4,018,000 $20,651,000 (900) $(7,000) $ 24,666,000
======== ======= ========= ====== ========== =========== ==== ======= ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-14
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
===========================================================================
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,103,000 $ 6,025,000 $ 3,810,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization on furniture,
equipment and leasehold improvements 335,000 264,000 246,000
Amortization of other assets 95,000 535,000 668,000
(Gain) loss on disposal of furniture, equipment and
leasehold improvements (3,000) 7,000 -
Provision for doubtful accounts - - 679,000
Change in assets and liabilities, net of effect from acquisition:
Commissions and other receivables from clearing brokers 1,487,000 547,000 150,000
Receivable from customers (8,897,000) (17,172,000) (31,984,000)
Receivable from brokers and dealers (843,000) 2,063,000 232,000
Securities owned (335,000) 6,178,000 (148,000)
Income taxes receivable (294,000) - -
Deferred tax asset 98,000 (708,000) (651,000)
Other assets (1,121,000) (380,000) 1,513,000
Accounts payable, accrued expenses and other liabilities 1,163,000 1,530,000 2,331,000
Payable to customers (15,843,000) 19,547,000 1,063,000
Payable to brokers and dealers 8,839,000 1,926,000 6,055,000
Securities sold, net yet purchased 117,000 (3,624,000) (874,000)
Income taxes payable (34,000) (425,000) 459,000
------------- ------------ ------------
Net cash (used in) provided by operating activities (9,133,000) 16,313,000 (16,451,000)
------------- ------------ ------------
INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (886,000) (312,000) (529,000)
Proceeds from disposal of furniture, equipment and leasehold improvements 6,000 100,000 24,000
------------- ------------ ------------
Net cash used by investing activities (880,000) (212,000) (505,000)
------------- ------------ ------------
FINANCING ACTIVITIES
Change in short-term borrowings from banks 12,048,000 (10,763,000) 21,811,000
Change in line of credit 890,000 - -
Change in notes payable to affiliate (3,512,000) (1,000,000) (1,661,000)
Repurchase of mandatorily redeemable common stock - (1,155,000) -
Issuance of common stock 270,000 56,000 3,000
Cash flow distributions and redemptions of preferred stock - - (1,000)
Purchase of treasury stock, at cost (7,000) - -
------------ ------------ ------------
Net cash provided (used) by financing activities 9,689,000 (12,862,000) 20,152,000
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (324,000) 3,239,000 3,196,000
Cash and cash equivalents at beginning of year 11,836,000 8,597,000 5,401,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 11,512,000 $ 11,836,000 $ 8,597,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 3,619,000 $ 3,814,000 $ 2,885,000
============ ============ ============
Income taxes $ 3,611,000 $ 3,886,000 $ 2,404,000
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During fiscal 1995, the Company reinstated 8,755 shares of common stock originally forfeited in fiscal 1992.
During fiscal 1996, the Company redeemed mandatorily redeemable common stock in the amount of $6,125,000 by using an
unsecured promissory note payable to an affiliate for an equal amount.
During fiscal 1997 and 1996, respectively, the Company issued 112,500 and 277,500 shares of common stock relating to options
exercised for which the consideration received was 38,156 and 86,288 shares of common stock, respectively.
On September 22, 1997, the Company issued 354,851 shares of common stock in connection with the acquisition of The Americas
Growth Fund, Inc. (Note 18)
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-15
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PROCEDURES:
OPERATIONS
JW Charles Financial Services, Inc. ("JWCFS" and the "Company"),
formerly Corporate Management Group, Inc., was incorporated in the
State of Florida on December 19, 1983, and through its subsidiaries is
primarily engaged in the securities brokerage and investment banking
business.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of JW Charles Financial Services, Inc. and its subsidiaries,
Corporate Securities Group, Inc. ("CSG"), JW Charles Securities, Inc.
("JWC Securities"), JW Charles Clearing Corp. ("JWC Clearing"), CMG
Capital Corp., First Investors Life Agency, Inc., DMG Securities, Inc.
("DMG"), Discount Securities Group, Inc., and The Americas Growth
Fund, Inc. ("AGRO"). All consolidated subsidiaries are 100% owned by
the Company except for AGRO, which is 91% owned (see Note 18). JWCFS
does not have any significant assets or liabilities other than
investments in subsidiaries and notes payable to affiliates. JWCFS
functions principally as a holding company and, therefore, it does not
have any operations that are material to the consolidated financial
statements. All significant intercompany transactions and accounts
have been eliminated in consolidation.
MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
Securities owned, which are readily marketable and securities sold,
not yet purchased are recorded at market value. Securities sold, not
yet purchased represent obligations to the Company to deliver
specified securities at the contracted prices, thereby creating a
liability to purchase the securities at prevailing market prices.
Securities owned, which are not readily marketable, are valued at fair
value as determined by management. The resulting difference between
cost and market (or fair value) is included in income.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are recorded at cost.
Depreciation and amortization on furniture, equipment and leasehold
improvements is provided utilizing the straight-line method over the
estimated useful lives of the related assets, which range from five to
seven years.
<PAGE>
TRANSACTION REPORTING
Securities transactions and the related revenues and expenses are
recorded in the accounts on trade date. Clearing fees include service
charges, execution fees and commissions on order flow.
F-16<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
EARNINGS PER COMMON SHARE
Earnings per common share are calculated in accordance with the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), effective for 1997. SFAS 128
requires the Company to report both basic earnings per common share,
which is based on the weighted average number of common shares
outstanding, and diluted earnings per common share, which is based on
the weighted average number of common shares outstanding and all
dilutive potential common shares outstanding. Earnings available for
common stockholders has been reduced by the amount of mandatory
preferred stock dividends, if any (see Note 13), but has not been
reduced by the amount of accretion of mandatorily redeemable common
stock (see Note 15). Stock repurchasable pursuant to the mandatorily
redeemable common stock agreement is included in the weighted average
number of common shares outstanding until redeemed. All prior years'
earnings per share data in this report have been recalculated to
reflect the provisions of SFAS 128 (see Note 17).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, including cash in banks and
money market funds.
STOCK-BASED COMPENSATION
The Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," ("SFAS 123") during
1996. Upon adoption of SFAS 123, the Company has retained the
intrinsic value method of accounting for stock-based compensation and
has disclosed pro forma net income and earnings per common share
amounts.
INCOME TAXES
The Company utilizes the asset and liability approach defined in
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial statement
amounts and the tax bases of assets and liabilities.
RECLASSIFICATIONS
Certain amounts from prior years have been reclassified to conform to
the current year presentation. These reclassifications are not
material to the consolidated financial statements.
2. CLEARING AGREEMENTS:
CSG, JWC Clearing and JWC Securities have clearing agreements with an
unaffiliated clearing broker. Under such agreements, the clearing
broker provides CSG, JWC Clearing and JWC Securities with certain
back-office support and clearing services on all principal exchanges.
In order to facilitate transactions with this unaffiliated clearing
broker, CSG, JWC Clearing and JWC Securities maintain cash balances of
approximately $300,000 which earn interest at a rate equal to 1% above
the rate customarily paid on credit balances to the clients of the
clearing broker. The $300,000 is included in commissions and other
receivables from clearing brokers on the accompanying consolidated
statements of financial condition.
Credit losses could arise should the clearing broker fail to perform.
The Company does not require collateral.
3. RECEIVABLE FROM AND PAYABLE TO BROKERS AND DEALERS:
Amounts receivable from and payable to brokers and dealers consist of
the following:
F-17<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Receivable:
Securities failed to deliver $ 680,000 $ 780,000
Deposits on securities borrowed 3,642,000 2,347,000
Other amounts due from brokers and dealers 210,000 562,000
----------- -----------
$ 4,532,000 $ 3,689,000
=========== ===========
Payable:
Securities failed to receive $ 805,000 $ 776,000
Deposits on securities loaned 27,622,000 18,049,000
Other amounts due to brokers and dealers 4,548,000 5,311,000
----------- -----------
$32,975,000 $24,136,000
=========== ===========
</TABLE>
Deposits on securities borrowed and securities loaned represent cash
on deposit with or received from other brokers and dealers relating to
securities borrowed and securities loaned transactions, respectively.
The Company monitors the market value of securities borrowed and
loaned on a daily basis, with additional collateral obtained or
refunded as necessary.
4. RECEIVABLE FROM AND PAYABLE TO CUSTOMERS:
Receivable from and payable to customers arise from cash and margin
transactions executed by the Company on the customer's behalf.
Receivables are collateralized by securities owned by customers. Such
collateral is not reflected in the accompanying consolidated
statements of financial condition.
5. SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED:
Securities owned and securities sold, not yet purchased consist of
securities, at market value, as follows:
F-18<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Securities owned:
U.S. Government obligations $ 4,224,000 $ 1,057,000
Certificates of deposit 86,000 -
State and municipal government obligations 2,054,000 1,837,000
Corporate obligations 1,064,000 510,000
Corporate stocks 751,000 1,243,000
Non-marketable 546,000 416,000
Other 285,000 245,000
----------- -----------
$ 9,010,000 $ 5,308,000
=========== ===========
Securities sold, not yet purchased:
U.S. Government obligations $ 83,000 $ 85,000
Certificates of deposit 101,000 -
State and municipal government obligations 62,000 99,000
Corporate stocks 146,000 171,000
Other 175,000 95,000
----------- -----------
$ 567,000 $ 450,000
=========== ===========
</TABLE>
6. SHORT-TERM BORROWINGS FROM BANKS:
Borrowings under the Company's financing agreement with a bank bear
interest based upon the federal funds rate, are restricted to a
percentage of the market value of the related collateral securities,
and are due on demand. At December 31, 1997, 1996 and 1995
approximately $29,423,000, $17,375,000, and $28,138,000, respectively,
were outstanding under this arrangement. The market value of the
collateral relating to this arrangement was approximately $40,000,000
$20,000,000 and $50,000,000 at December 31, 1997, 1996 and 1995,
respectively, including customer margin account securities of
approximately $37,000,000, $9,000,000, and $40,000,000, respectively.
The maximum and average amounts outstanding during the year ended
December 31, 1997 were approximately $39,000,000, $28,000,000 ,
respectively ($38,000,000 and $22,000,000, respectively, for the year
ended December 31, 1996, and $28,000,000 and $12,000,000,
respectively, for the year ended December 31, 1995). The average
interest rates during the same periods were 6.8%, 6.3%, and 6.8%,
respectively.
F-19<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
7. NOTES PAYABLE TO AFFILIATE:
On May 24, 1993, the Company issued a $2,500,000 unsecured promissory
note to Gilman Securities Corporation ("Gilman"), an affiliate of a
principal stockholder of the Company, and on March 31, 1994, the
Company issued a second $2,500,000 unsecured promissory note to Gilman
(collectively, the "Note"). The Note bears interest at the per annum
rate of 1% above the prime rate of Morgan Guaranty & Trust Company
(8.5% at December 31, 1994). On May 15, 1995, the Company and Gilman
amended the terms of the Note. The amended Note provided for a
principal payment of $1,000,000 in May 1995 and quarterly principal
payments beginning July 15, 1995. Interest is payable quarterly at
the per annum rate of 10%. Under the terms of the amended Note, the
Company is restricted from entering into new commitments or
borrowings, outside of the ordinary course of business, over specified
amounts. At December 31, 1997 and 1996, $1,500,000 and $2,500,000,
respectively, was outstanding under the Note and is included in notes
payable to affiliates on the accompanying consolidated statements of
financial condition. Aggregate annual future payments due on the Note
are as follows:
1998 $1,000,000
1999 500,000
----------
1,500,000
===========
The Company recorded interest expense of approximately $628,000,
$637,000 and $420,000 for the years ended December 31, 1997, 1996 and
1995, respectively, related to notes payable to affiliates.
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires the disclosure of the
fair value of financial instruments, including assets and liabilities
recognized and not recognized in the consolidated statements of
financial condition.
The Company's securities owned, which are readily marketable, and
securities sold, not yet purchased are carried at market value.
Management estimates that the aggregate net fair value of other
financial instruments recognized on the consolidated statements of
financial condition (including cash and cash equivalents, receivables
and payables, and short-term borrowings) approximates their carrying
value, as such financial instruments are short-term in nature, bear
interest at current market rates or are subject to repricing.
9. COMMITMENTS AND CONTINGENCIES:
In the normal course of business, the Company enters into underwriting
commitments. There were no outstanding underwriting commitments at
December 31, 1997, 1996 and 1995.
The Company leases its operations headquarters, branch offices and
certain equipment under operating leases that generally allow for
renewal and are in effect for various terms through 2003. Lease
expense with respect to operating leases for the years ended December
31, 1997, 1996 and 1995 approximated $1,650,000, $1,448,000 and
$1,559,000, respectively.
Based upon long-term noncancelable leases and other contractual
commitments, the future minimum commitments as of December 31, 1997
are as follows:
F-20<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
1998 $ 1,959,000
1999 1,927,000
2000 1,899,000
2001 889,000
2002 336,000
Thereafter 7,000
-----------
$ 7,017,000
===========
Included in other assets in the accompanying consolidated statements
of financial condition at December 31, 1997 and 1996 are investments
in real estate partnerships of $34,000 and $42,000, respectively.
Under applicable partnership law, the Company, as co-general partner,
is contingently liable for any obligations of these real estate
limited partnerships that remain unpaid after any dissolution of the
partnerships. The Company has not made any provision in the
consolidated financial statements for the possible effect of the
Company's contingent liability as a co-general partner of its
affiliated partnerships. The Company does not expect to incur any
losses or obligations that will have a material adverse effect on its
financial position or results of operations.
The Company is a defendant or co-defendant in various lawsuits
incidental to its securities business. The Company is contesting the
allegations of the complaints in these cases and believes that there
are meritorious defenses in each of these lawsuits. In view of the
number and diversity of claims against the Company, the number of
jurisdictions in which litigation is pending and the inherent
difficulty of predicting the outcome of litigation and other claims,
the Company cannot state with certainty what the eventual outcome of
pending litigation or other claims will be. In the opinion of
management, based on discussions with counsel, the outcome of the
matters will not result in a material adverse effect on the financial
position or results of operations of the Company.
10. INCOME TAXES:
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $3,115,000 $2,823,000 $2,829,000
State 477,000 535,000 299,000
---------- ---------- ----------
3,592,000 3,358,000 3,128,000
---------- ---------- ----------
Deferred provision (benefit):
Federal 84,000 (998,000) (589,000)
State 13,000 (153,000) (62,000)
---------- ---------- ----------
97,000 (1,151,000) (651,000)
---------- ---------- ----------
$3,689,000 $2,207,000 $2,477,000
========== ========== ==========
</TABLE>
F-21<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
At December 31, 1997, the Company has a net operating loss ("NOL")
carryforward of approximately $750,000 for income tax purposes that
expires in 2005. The NOL carryforward, which was acquired by merger
in 1990, is limited under the separate return limitation year rules.
It is anticipated that the Company will generate sufficient future
taxable income to realize the deferred income tax asset.
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 net deferred tax
asset as of December 31 are as follows:
1997 1996
---- ----
Reserve for bad debts $ 544,000 $ 476,000
Contingency accruals 793,000 972,000
Net operating loss carryforward 282,000 302,000
Other 2,000 44,000
---------- ------------
Gross deferred tax assets $1,621,000 1,794,000
---------- ------------
Gross deferred tax liability - (75,000)
---------- ------------
Net deferred tax asset $1,621,000 $ 1,719,000
========== ===========
The Company's effective tax rate on pre-tax income differs from the
statutory federal income tax rate due to the following:
December 31,
1997 1996 1995
---- ---- ----
Tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Effect of state income tax 3.6% 2.4% 3.6%
Effect of reversal of valuation
allowance - (10.0%) -
Effect of nondeductible travel
and entertainment 2.0% 1.0% 1.3%
Other (2.0%) (0.6%) 0.5%
------ ----- -----
37.6% 26.8% 39.4%
====== ===== =====
11. NET CAPITAL AND RESERVE REQUIREMENTS:
The broker-dealer subsidiaries of the Company are subject to the
requirements of Rule
15c3-1 under the Securities Exchange Act of 1934. This rule requires
that aggregate indebtedness, as defined, not exceed fifteen times net
capital, as defined. Rule 15c3-1 also provides for an "alternative
net capital requirement" which, if elected, requires that net capital
be equal to the greater of $250,000 or two percent of aggregate debit
items computed in applying the formula for determination of reserve
requirements. The New York Stock Exchange, Inc. ("NYSE") may require
a member organization to reduce its business if its net capital is
less than four percent of aggregate debit items and may prohibit a
member firm from expanding its business if its net capital is less
than five percent of aggregate debit items. Net capital positions of
the Company's broker-dealer subsidiaries were as follows:
F-22
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
<TABLE>
<CAPTION>
December 31,
1997 1996
---------------------
<S> <C> <C>
JWC Clearing (alternative method elected):
Net capital as a percentage of aggregate debit items 10.4% 11.9%
Net capital $ 12,222,000 $ 12,863,000
Required net capital $ 2,341,000 2,160,000
CSG:
Ratio of aggregate indebtedness to net capital 1.50% 1.86%
Net capital $ 2,024,000 $ 1,476,000
Required net capital $ 250 000 $ 250,000
JWC Securities:
Ratio of aggregate indebtedness to net capital 2.21% 1.53%
Net capital $ 1,685,000 $ 2,153,000
Required net capital $ 250,000 $ 250,000
DMG:
Ratio of aggregate indebtedness to net capital 0.51% 1.14%
Net capital $ 451,000 $ 317,000
Required net capital $ 100,000 $ 100,000
</TABLE>
JWC Clearing is also subject to Rule 15c3-3 under the Securities
Exchange Act of 1934 which specifies certain conditions under which
brokers and dealers carrying customer accounts are required to
maintain cash or qualified securities in a special reserve bank
account for the exclusive benefit of customers. Amounts to be
maintained, if required, are computed in accordance with a formula
defined in the rule and as required by the NYSE. At December 31, 1997
and 1996, JWC Clearing had no requirement to segregate funds under the
rule.
JWC Securities, CSG and DMG are exempt from the provisions of Rule
15c3-3, since they clear all transactions with and for customers on a
fully-disclosed basis with affiliated and unaffiliated clearing
brokers.
Additionally, pursuant to Rule 15c3-1, JWC Clearing, JWC Securities,
CSG and DMG must notify and obtain approval from the Securities and
Exchange Commission and either the National Association of Securities
Dealers, Inc. (CSG and DMG) or the NYSE (JWC Clearing and JWC
Securities) for any advances or loans to JWCFS or any other affiliate,
if such advances or loans would exceed in the aggregate, in any 30
calendar day period, 30% of that company's excess net capital and
$500,000. Rule 15c3-1 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 or 120% of the minimum net capital
required by the rule.
F-23<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
12. OFF-BALANCE-SHEET RISK:
In the normal course of business, the Company's customer and
correspondent clearance activities involve the execution, settlement,
and financing of various customer securities transactions. These
activities may expose the Company to off-balance-sheet risk in the
event the customer or other broker is unable to fulfill its contracted
obligations and the Company has to purchase or sell the financial
instrument underlying the contract at a loss.
In addition, the Company has sold securities that it does not
currently own and will therefore be obligated to purchase such
securities at a future date. The Company has recorded these
obligations in the financial statements at the December 31, 1997
market values of the related securities and will incur a loss if the
market value of the securities increases subsequent to December 31, 1997.
The Company's customer securities activities are transacted on either
a cash or margin basis. In margin transactions, the Company extends
credit to its customers, subject to various regulatory and internal
margin requirements, collateralized by cash and securities in the
customers' accounts. In connection with these activities, the Company
executes and clears customer transactions involving the sale of
securities not yet purchased, substantially all of which are
transacted on a margin basis subject to individual exchange
regulations. Such transactions may expose the Company to significant
off-balance-sheet risk in the event margin requirements are not
sufficient to fully cover losses that customers may incur. In the
event the customer fails to satisfy its obligations, the Company may
be required to purchase or sell financial instruments at prevailing
market prices to fulfill the customer's obligations.
The Company seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. The
Company monitors required margin levels daily and, pursuant to such
guidelines, requires the customer to deposit additional collateral, or
to reduce positions, when necessary.
The Company's customer financing and securities settlement activities
require the Company to pledge customer securities as collateral in
support of various secured financing sources such as bank loans and
securities loaned. In the event the counterparty is unable to meet
its contractual obligation to return customer securities pledged as
collateral, the Company may be exposed to the risk of acquiring the
securities at prevailing market prices in order to satisfy its
customer obligations. The Company controls this risk by monitoring
the market value of securities pledged on a daily basis and by
requiring adjustments of collateral levels in the event of excess
market exposure. In addition, the Company establishes credit limits
for such activities and monitors compliance on a daily basis.
F-24<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
13. PREFERRED STOCK:
On October 30, 1990, the Company's stockholders voted to approve an
amendment to the Company's Articles of Incorporation to authorize
5,000,000 shares of $.001 par value Special Stock and to designate
2,000,000 of such shares as Series A Special Distribution Stock (the
"Series A Stock"). All of the Series A Stock was issued in 1990 in
connection with the acquisition of certain subsidiaries.
Beginning November 1, 1990, each share of Series A Stock was entitled
to receive a cumulative quarterly dividend of $.03025 per share
("Mandatory Dividends"). All outstanding shares of Series A Stock, as
a group, are entitled to receive special cash distributions ("Cash
Flow Distributions") in the aggregate amount of $2,200,000 payable,
when and as declared by the Board of Directors. The Company was
required to declare and pay as Cash Flow Distributions, until the
aggregate amount of Cash Flow Distributions paid was equal to
$2,200,000 (the "Maximum Cash Flow Distributions"), not less than 80%
of the Company's cumulative excess cash flow, determined at the end of
each fiscal quarter of the Company ending after November 1, 1990,
minus the aggregate amount of Cash Flow Distributions previously paid.
Cumulative excess cash flow is equal to excess cash flow, as defined,
for the period from November 1, 1990 through the calculation date.
Also, to the extent dividends are declared on common stock, Series A
Stock will be entitled to participate in such dividends on a share-
per-share basis with the shares of common stock.
As Cash Flow Distributions were paid, the Company had the right to
redeem a number of outstanding shares of Series A Stock equal to the
amount of Cash Flow Distributions previously paid divided by 1.1. The
redemption price is $.001 per share. Upon liquidation, after payment
of any unpaid Mandatory Dividends, the holders of Series A Stock shall
have no right or claim to any of the remaining assets of the Company.
In conjunction with a stock repurchase agreement entered into with
Gilman (described in detail in Note 15), the Company purchased all of
the Company's outstanding preferred stock from Gilman for an aggregate
price of $700 during 1995.
14. COMMON STOCK SPLIT
On December 23, 1996, the Company's Board of Directors declared a 3-
for-2 stock split in the form of a dividend payable on February 7,
1997 to shareholders of record on January 24, 1997. The Company's
capital accounts at December 31, 1996 were adjusted to retroactively
give effect to the dividend in the same manner as would be done if the
dividend were issued before December 31, 1996. All references in the
consolidated financial statements and accompanying notes to amounts
per share and to the number of common shares have been retroactively
adjusted for the stock split.
15. MANDATORILY REDEEMABLE COMMON STOCK:
On May 15, 1995, the Company entered into a Stock Repurchase Agreement
(the "Old Agreement") with Gilman to repurchase all of the
approximately 49% of the Company's outstanding common stock held by
Gilman. The repurchase price per share was a minimum of $2.00,
<PAGE>
subject to certain adjustments each year based upon changes in the
Company's net tangible book value, as defined. Beginning April 15,
1996, the Company was obligated under the Old Agreement to repurchase
stock each year in an amount equal to 50% of annual net income, as
defined, until all Gilman stock was repurchased. For purposes of
determining the aggregate amount of stock required to be repurchased
each year, net income was reduced by principal repayments on the Note
to Gilman (see Note 7). The Company was required to complete the
repurchase of all Gilman stock by April 15, 2003 or pay a $672,000
penalty.
F-25
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
On May 15, 1995, the Company reclassified $5,978,000, representing
$2.08 per share from additional paid-in capital and retained earnings
to mandatorily redeemable common stock to reflect the terms of the Old
Agreement. The difference between the initially recorded cost of the
mandatorily redeemable common stock and the adjusted purchase price at
December 31, 1995 was accreted to mandatorily redeemable common stock
through a $1,035,000 direct charge to retained earnings for the year
ended December 31, 1995.
On April 15, 1996, the Company repurchased 473,265 shares of stock
from Gilman at a price per share of $2.44 for a total consideration of
approximately $1,155,000.
On June 11, 1996, the Company entered into an Amended and Restated
Stock Repurchase Agreement (the "New Agreement") with Gilman for, and
simultaneously consummated, the accelerated repurchase of all of the
Company's shares of common stock owned by Gilman and subject to the
Old Agreement. The total consideration paid by the Company consisted
of a promissory note in the principal amount of $6,125,000 (the "Stock
Loan"), along with the $1,155,000 in cash that was paid to Gilman in
connection with the April 15, 1996 installment purchase under the Old
Agreement. The difference between the adjusted purchase price of the
mandatorily redeemable common stock at December 31, 1995, and the
adjusted purchase price at June 11, 1996 was accreted to mandatorily
redeemable common stock through a $267,000 direct charge to retained
earnings for the year ended December 31, 1996. The Stock Loan bears
interest, which is payable quarterly, at a rate of 10% per annum.
Beginning April 15, 1997, the Company is obligated to make principal
payments each year in an amount equal to 50% of annual net income, as
defined, until the Stock Loan is repaid in full. Accordingly, on
April 15, 1997, the Company made a principal payment to Gilman in the
amount of $2,512,000. At December 31, 1997, the balance outstanding
under the Stock Loan was $3,613,000, of which $2,552,000 is due on
April 15, 1998. The Stock Loan contains a balloon payment feature
requiring, without regard to the above formula, that the entire
outstanding principal balance be repaid in full on April 15, 2000.
The Stock Loan is prepayable, in whole or in part, at any time by
paying Gilman a prepayment penalty equal to 10% of the prepayment
amount. Additionally, Gilman's consent is required prior to the
Company consummating any merger or reorganization. Simultaneous with
the execution of the New Agreement, $6,125,000, which was the
mandatorily redeemable common stock balance on June 11, 1996, was
reclassified from mandatorily redeemable common stock to notes payable
to affiliate.
<PAGE>
16. EMPLOYEE BENEFIT PLANS:
On October 30, 1990, the Company adopted a stock option plan ("1990
Plan") pursuant to which 600,000 shares of common stock have been
reserved for issuance upon exercise of options designated as
"incentive stock options" or "nonqualified options." During 1994, the
Company increased the number of shares of common stock reserved for
issuance under the 1990 Plan from 600,000 to 1,200,000 shares. These
options are to be issued to certain officers and employees of the
Company, and certain other key persons instrumental to the success of
the Company, and provide them a greater personal interest in the
success of the Company. The 1990 Plan is administered by the Board of
Directors of the Company, or a committee appointed by the Board of
Directors, which determines, among other things, the persons to be
granted options under the 1990 Plan, the number of shares subject to
each option and the option price. The options are granted at fair
market value. Options granted become exercisable in equal annual
installments over a period of one to three years and expire five years
from the date of grant.
Information for the 1990 Plan for the years ended December 31, 1997,
1996 and 1995 is summarized as follows:
F-26<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
OF SHARES RANGE EXERCISE PRICE
-----------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1994 451,875 $ 1.33 - 2.50 $ 1.90
Granted 210,000 2.25 - 2.55 2.50
Exercised (2,250) 1.33 1.33
Forfeited (66,000) 1.33 - 2.50 2.49
-------- -------------- -----------
Balance, December 31, 1995 593,625 1.33 - 2.55 2.05
Granted 272,089 2.85 - 4.49 3.74
Exercised (208,125) 1.33 - 1.95 1.70
Forfeited (18,238) 2.55 - 2.85 2.70
-------- --------------- ------------
Balance, December 31, 1996 639,351 1.95 - 4.49 2.87
Granted 449,190 6.50 -10.00 7.36
Exercised (17,000) 1.95 - 4.09 2.20
Forfeited (5,385) 6.73 -10.00 7.64
--------- --------------- -------------
Balance, December 31, 1997 1,066,156 $ 1.95 - 9.08 $ 4.75
--------- --------------- -------------
During 1993, the Company granted discretionary options to an officer
of the Company to purchase 225,000 shares of the Company's common
stock at an exercise price of $2.50 per share. The exercise price was
greater than the fair market value of the common stock on the date of
grant. The options vest in increments of 75,000 shares on December
31, 1993, 1994 and 1995, and may be exercised in whole or in part,
with respect to such vested amounts of shares, until the expiration of
the options on December 31, 1997. As of December 31, 1997, all of the
options had been exercised.
The Company has a restricted stock plan providing for the issuance of
up to 750,000 shares of its authorized but unissued common stock to
nonexecutive employees and registered representatives. As of December 31,
1997 and 1996, 10,500 shares had been issued under the restricted
stock plan and 739,500 shares of common stock have been reserved for
future issuance.
In accordance with the provisions of SFAS 123 the Company applies APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its plans and does not
recognize compensation expense for its stock-based compensation plans
other than for restricted stock. If the Company had elected to
recognize compensation expense based upon the fair value at the grant
date for awards under these plans consistent with the methodology
prescribed by SFAS 123, the Company's net income and earnings per
common share would be reduced to the pro forma amounts indicated
below:
F-27<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
NET INCOME:
As reported $ 6,103,000 $6,025,000 $3,810,000
Pro forma $ 5,404,000 $5,822,000 $3,643,000
Basic earnings per common share:
As reported $ 1.77 $ 1.42 $ .65
Pro forma $ 1.57 $ 1.37 $ .62
Diluted earnings per common share:
As reported $ 1.50 $ 1.26 $ .64
Pro forma $ 1.33 $ 1.22 $ .61
</TABLE>
These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is
amortized to expense over the vesting period and additional options
may be granted in future years. For disclosure purposes the fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for stock purchase rights granted in 1997 and 1996,
respectively: dividend yields of 0.0% for both years; expected
volatility of 53.2% and 52.1%; risk-free interest rates of 6.0% and
6.1%; and expected life of 5 years for all grants. The weighted
average fair value of stock options granted in 1997 and 1996 was $3.88
and $1.96, respectively. The weighted average remaining contractual
life of options outstanding at December 31, 1997 and 1996 is 3.3 and
3.4 years, respectively. At December 31, 1997, 1996 and 1995, the
Company had options available for future grants of 306,469, 92,788 and
364,875, respectively. The following table summarizes information
about the options exercisable at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Number of shares 395,499 262,500 375,625
Exercise price ranges $ 1.95-6.50 $1.95-2.50 $ 1.33-2.50
Weighted average exercise price $ 3.56 $ 2.20 $ 2.03
</TABLE>
The Company adopted a Pension and Profit Sharing Plan (the "Plan") in
1986 which offers all full-time employees over the age of 21 of the
Company tax advantages pursuant to Section 401(k) of the Internal
Revenue Code. Under the terms of the Plan, participants may elect to
defer up to 10% of their compensation. The Company will make a
matching contribution to the Plan of 50% of the first 4% of
compensation contributed by each participant who is employed by the
Company or its subsidiary on December 31 of such year. Participant's
contributions to the Plan are fully vested at all times and are not
subject to forfeiture. The Company's matching contribution vests to
each participant over a five-year vesting schedule based upon the
participant's years of service with the Company. Contributions are
made by participants by means of a payroll deduction program. Within
specified limits, participants have the right to direct their savings
into certain kinds of investments as specified in the Plan. Employee
compensation and benefits include approximately $225,000, $264,000,
and $197,000 of Company matching contributions made during 1997, 1996
and 1995, respectively.
F-28<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
On October 1, 1997, the Company adopted an Employee Stock Purchase
Plan, which is authorized to issue up to 400,000 shares of common
stock to its full-time employees to purchase shares of common stock
through voluntary contributions, including periodic payroll
deductions. Under the terms of the Plan, employees are limited to a
monthly contribution varying between $50 and $1,650 of after-tax
dollars to purchase the Company's common stock. The purchase price of
the stock is the lesser of 85 percent of the market price on the first
day of the quarter, or on the stock purchase date designated after the
end of each quarter. Under the Plan, the Company is committed to
issue or purchase in the open market 25,151 shares of common stock at
December 31, 1997.
17. EARNINGS PER COMMON SHARE:
Presented below is basic and diluted EPS under SFAS 128 for
the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------
<S> <C> <C> <C>
1997
Earnings per share of common stock $ 6,103,000 3,443,141 $ 1.77
Effect of dilutive securities:
Stock options --- 626,453 ---
----------- ---------- -----------
Earnings per share of common stock --
assuming dilution $ 6,103,000 4,069,594 $ 1.50
----------- ---------- -----------
1996
Earnings per share of common stock $ 6,025,000 4,245,895 $ 1.42
Effect of dilutive securities:
Stock options --- 537,687 ---
----------- ---------- -----------
Earnings per share of common stock --
assuming dilution $ 6,025,000 4,783,582 $ 1.26
=========== ========== ===========
1995
Earnings per share of common stock $ 3,810,000 5,862,296 $ .65
Effect of dilutive securities:
Stock options --- 137,471 ---
----------- ---------- ----------
Earnings per share of common stock --
assuming dilution $ 3,810,000 5,999,767 $ .64
=========== ========== ==========
</TABLE>
F-29
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
18. ACQUISITION:
On September 22, 1997, the Company completed its exchange tender offer
(the "Exchange Offer") to acquire all of the outstanding shares of
common stock of The Americas Growth Fund, Inc. ("AGRO") not already
owned by the Company. AGRO is a non-diversified, closed-end,
management investment company. Prior to the commencement of the
Exchange Offer, the Company owned 26% of the outstanding shares of
common stock of AGRO. A total of approximately 823,000 shares of AGRO
common stock, representing approximately 65% of AGRO common stock
tendered were accepted for exchange by the Company according to the
terms of the Exchange Offer on the basis of .431 shares of the
Company's common stock for each share of AGRO resulting in the
issuance by the Company of 354,851 shares of common stock at a price
of $8.25 per share. The tendered shares together with the shares
already owned by the Company represent approximately 91% of the
outstanding shares of AGRO common stock, with the remaining 9% of AGRO
shares held by minority shareholders.
The AGRO acquisition was accounted for under the purchase method of
accounting. The Company has consolidated the accounts of AGRO in the
accompanying financial statements effective as of September 22, 1997.
In accordance with the Exchange Offer, the purchase of the 65% of AGRO
common stock tendered was allocated to the fair value of the net
assets acquired as follows:
Tangible assets acquired $2,948,000
Liabilities assumed (20,000)
----------
$2,928,000
==========
The AGRO Minority Shareholders' interests in these accounts is
reflected as accrued expenses in the accompanying financial
statements. The Company is presently considering its options to
effect a transaction that would result in its ownership of 100% of the
shares of AGRO or the liquidation of AGRO and pro rata distribution of
its assets to the Company and the holders of the remaining 9% of AGRO
shares. Pro forma information for AGRO is not presented as management
has determined that this information does not materially impact the
historical financial data.
19. LINES OF CREDIT:
On January 19, 1996, the Company obtained an unsecured $2,500,000
revolving line of credit from Wilmington Trust Company for general
corporate purposes (the "Wilmington Facility"). The Wilmington
Facility matures on December 31, 2002, at which time all outstanding
borrowings plus all accrued and unpaid interest will become due and
immediately payable. Borrowings under the Wilmington Facility bear
interest at Wilmington's National Commercial Rate, with interest
payments due monthly in arrears. The Company is required to maintain
certain debt covenants, including (i) minimum stockholders' equity
equal to at least $7,000,000, plus 30% of net income for all future
fiscal quarters, plus 75% of the net proceeds from any common stock
issuances and (ii) net income, as defined, in excess of $1,500,000 for
any four quarters within any six consecutive quarterly periods. At
December 31, 1997 the balance outstanding under the Wilmington
Facility was $0.
F-30<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Cont'd
===========================================================================
In connection with the Wilmington Facility, the Company entered into a
Marketing Agreement with Wilmington Trust FSB (the "Wilmington
Marketing Agreement") and granted W T Investments, Inc. a warrant to
purchase up to 600,000 shares of the Company's common stock at any
time prior to December 31, 2002 (the "Wilmington Warrant"). The
exercise price per share is the greater of $3.67 or an amount equal to
the sum of total (i) gross revenues multiplied by .175 plus (ii)
earnings before tax multiplied by 2.5 and divided by the weighted
average number of common shares outstanding based upon the Company's
audited financial statements. At December 31, 1997, the Wilmington
Warrant exercise price per share was approximately $11.30. The
Wilmington Marketing Agreement provides that the Company will market
certain products and services, initially personal trust and asset
management services, provided by Wilmington Trust FSB to the Company's
brokers, clients and prospects.
On December 18, 1996, the Company obtained an unsecured $2,500,000
revolving line of credit from SunTrust Bank, South Florida, N.A. for
general corporate purposes (the "SunTrust Facility"). The SunTrust
Facility matures on April 30, 2000, at which time all outstanding
borrowings plus all accrued and unpaid interest will become due and
immediately payable. Borrowings under the SunTrust Facility bear
interest at the prime rate of interest as announced from time to time
by SunTrust Banks of Florida, Inc., with interest payments due
quarterly in arrears. The Company is required to maintain certain
debt covenants, including (i) minimum stockholders' equity equal to at
least $9,000,000, plus 75% of net income for all future fiscal
quarters, plus 75% of the net proceeds from any common stock issuances
and (ii) net income, as defined, in excess of $1,500,000 for any four
quarters within any consecutive six-quarter period. At December 31,
1997 the balance outstanding under the SunTrust Facility was $890,000.
In connection with the SunTrust Facility, the Company entered into a
marketing agreement with SunTrust (the "SunTrust Marketing Agreement")
and granted SunTrust Banks, Inc. a warrant to purchase 37,500 shares
of the Company's common stock at any time prior to December 31, 2002.
The exercise price per share is $6.67. The SunTrust Marketing
Agreement provides that the Company will market certain products and
services, through the Company's participation as an underwriter or
selling group member of various municipal finance offerings
underwritten by SunTrust Capital Markets, Inc., to the Company's
brokers, clients and prospects.
20. SUBSEQUENT EVENTS
On January 21, 1998, the Company executed an Agreement and Plan of
Combination (the "Combination Agreement") with Genesis Merchant Group
Securities Group, LLC ("Genesis"), the owners (the "Genesis Members")
of all of the outstanding equity interests in Genesis (the "Genesis
Membership Interests") and JWGenesis Financial Corp., a newly formed
Florida corporation and currently a wholly-owned subsidiary of the
Company ("JWGenesis"). Genesis is a San Francisco-based investment
banking firm with special expertise in institutional research, sales
and trading, corporate finance and brokerage processing services.
The Combination Agreement contemplates, among other things, that (i)
JWGenesis will acquire the outstanding shares of JWCFS Common Stock,
pursuant to a statutory share exchange, in exchange for shares of
JWGenesis Common Stock, on a one-for-one basis, with the result that
JWCFS will become a wholly-owned subsidiary of JWGenesis and each
issued and outstanding share of JWCFS will be exchanged for and become<PAGE>
the right to receive one share of JWGenesis Common Stock and (ii)
Genesis Members holding at least 90% of the Genesis Membership
Interests will exchange such interests for up to 1,500,000 shares of
JWGenesis Common Stock with the result that Genesis will become at
least a 90% owned limited liability company of JWGenesis.
The Combination, which will be accounted for as a purchase, is
expected to be completed during 1998 and is subject to approval by the
shareholders of the Company as well as other customary conditions of
closing.
F-31
<PAGE>
INDEPENDENT AUDITOR'S REPORT
January 30, 1998
Members
Genesis Merchant Group Securities, LLC
San Francisco, CA 94133
We have audited the accompanying statements of financial condition of
Genesis Merchant Group Securities, LLC as of December 31, 1997 and 1996, and
the related statements of operations, changes in Members' capital, and cash
flows for each of the three years in the period ended December 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Genesis Merchant Group
Securities, LLC as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ LALLMAN, FELTMAN, SHELTON & PETERSON, P.A.
Ketchum, Idaho
F-32
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
Assets:
Cash and cash equivalents.................................... $2,588,927 $ 259,523
Receivables from brokers and dealers......................... 1,477,415 2,697,287
Readily marketable securities owned, at market value......... 2,281,085 466,882
Not readily marketable securities owned, at market value..... 269,440 683,812
Furniture, equipment, and leasehold improvements, net of
accumulated depreciation of $1,381,452 and $1,233,377,
respectively................................................ 1,207,914 1,215,593
Secured demand note from related party....................... 256,882 ---
Other........................................................ 139,620 664,748
---------- ----------
$8,221,283 $5,987,845
========== ==========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
MEMBERS' CAPITAL, AND MEMBERS' CAPITAL
Liabilities:
Accounts payable............................................. $ 553,976 $ 981,282
Payable to brokers and dealers............................... 1,185,138 460,688
Securities sold, not yet purchased, at market value.......... 179,871 298,805
Payables to related parties.................................. --- 455,000
Subordinated borrowings from related party................... 256,882 ---
---------- ----------
2,175,867 2,195,775
---------- ----------
Mandatorily redeemable preferred members' capital 1,275,174 1,288,778
---------- ----------
Commitments and contingencies (Note 3)
Members' Capital............................................. 4,770,242 2,503,292
---------- ----------
$8,221,283 $5,987,845
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-33
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Commissions.............................. $18,073,683 $11,518,563 $12,834,210
Commissions-related parties.............. 5,281,000 4,748,000 3,208,000
Market making and principal transactions,
net..................................... 3,371,904 1,932,159 4,462,836
Investment banking....................... 2,759,567 2,633,040 857,502
Unrealized gain from not readily
marketable securities................... -- 292,775 5,413,048
Interest and dividends................... 565,113 533,313 590,199
Other.................................... 518,501 622,693 222,180
----------- ----------- -----------
30,569,768 22,280,543 27,587,975
----------- ----------- -----------
Expenses:
Commission and floor brokerage........... 10,097,656 6,324,226 7,795,721
Personnel and employee benefits.......... 9,329,277 8,726,101 8,253,440
Communications........................... 1,529,390 1,279,141 1,581,035
Occupancy and equipment rental........... 765,032 622,290 429,339
General and administrative............... 5,022,403 4,840,238 3,908,160
----------- ----------- -----------
26,743,758 21,791,996 21,967,695
----------- ----------- -----------
Net income................................. $ 3,826,010 $ 488,547 $ 5,620,280
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-34
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE
PREFERRED
MEMBERS' MEMBERS'
CAPITAL CAPITAL
----------- -----------
<S> <C> <C>
Partners' Capital, January 1, 1995.................... $ -- $ 7,597,938
Contributions of capital............................ -- 66,000
Distributions of capital............................ -- (4,823,987)
Net income.......................................... -- 5,620,280
---------- -----------
Partners' Capital, December 31, 1995.................. -- 8,460,231
---------- -----------
Contributions of capital............................ -- 1,916,680
Transfer to mandatorily redeemable preferred........ 1,988,993 (1,988,993)
Distributions of capital............................ (791,551) (6,281,837)
Net income.......................................... 91,336 397,211
---------- -----------
Members' Capital, December 31, 1996................... 1,288,778 2,503,292
---------- -----------
Contributions of capital............................ -- 127,664
Transfer to mandatorily redeemable preferred........ 385,766 (385,766)
Distributions of capital............................ (477,245) (1,223,083)
Net income.......................................... 77,875 3,748,135
---------- -----------
Members' Capital, December 31, 1997................... $1,275,174 $ 4,770,242
========== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-35
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income............................ $ 3,826,010 $ 488,547 $ 5,620,280
Adjustment to reconcile net income to
cash provided (used) by operating
activities:
Depreciation........................ 267,947 354,711 336,000
Unrealized gain from not readily
marketable securities.............. -- (292,775) (5,413,048)
Change in assets and liabilities:
Receivables from brokers and
dealers............................ 1,219,872 252,901 (1,275,547)
Securities owned, at market value... (1,814,203) (147,294) 2,419,395
Other assets........................ 525,128 (460,221) 582,393
Accounts payable.................... (427,305) 563,114 (34,209)
Payable to brokers and dealers...... 724,450 (44,974) 458,511
Securities sold, net yet purchased.. (118,934) (544,765) (318,170)
Payables to related parties......... (455,000) 452,530 (6,030)
----------- ----------- -----------
Net cash flows provided by
operating activities............. 3,747,965 621,774 2,369,575
----------- ----------- -----------
Investing activities
(Purchase of) proceeds from not
readily marketable securities........ (244,440) (393,358) 132,310
Acquisition of secured demand note
from related party................... (256,882) -- --
Purchase of furniture, equipment, and
leasehold improvements............... (260,268) (468,004) (473,226)
----------- ----------- -----------
Net cash flows used in investing
activities....................... (761,590) (861,362) (340,916)
----------- ----------- -----------
Financing activities
Acquisition of subordinated debt...... 256,882 -- --
Distributions paid to members......... (1,041,517) (1,623,694) (4,071,836)
Contributions received from members... 127,664 1,916,680 66,000
----------- ----------- -----------
Net cash flows (used) provided by
financing activities............. (656,971) 292,986 (4,005,836)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 2,329,404 53,398 (1,977,177)
Cash and cash equivalents, beginning of
year................................... 259,523 206,125 2,183,302
----------- ----------- -----------
Cash and cash equivalents, end of year.. $ 2,588,927 $ 259,523 $ 206,125
=========== =========== ===========
Supplemental information:
Cash paid for interest................ $ 3,853 $ -- $ --
=========== =========== ===========
Noncash transactions:
Distributions of not readily
marketable securities to members..... $ (658,812) $(5,449,694) $ (752,151)
=========== =========== ===========
Transfer of members' capital to
mandatorily redeemable preferred
members' capital..................... $ 385,766 $ 1,988,993 $ --
=========== =========== ===========
</TABLE>
The accompany Notes to Financial Statements are
an integral part of these financial statements.
F-36
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF OPERATIONS
Genesis Merchant Group Securities, LLC (the "Firm") a California limited
liability company, commenced operations on March 16, 1989. The Firm, formerly
organized as a limited partnership, became a limited liability company
("LLC"), which is an unincorporated association of members, on July 1, 1996.
The Firm will continue to operate until March 31, 1999 unless the members
elect otherwise.
The Firm is a broker/dealer in securities with customers throughout the
United States. The Firm's primary office is in San Francisco and it maintains
a secondary office in New York City. The Firm's services include investment
banking and investment advisory services. The Firm introduces all of its
trades, on a fully-disclosed basis, to other broker/dealers and is therefore
exempt from SEC Rule 15c3-3 under provisions provided for in subparagraph
(k)(2)(ii).
MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, including cash in banks and
money market funds.
RECEIVABLE FROM BROKERS AND DEALERS
The Firm's receivable from brokers and dealers consists primarily of
amounts due from other broker/dealers for trades initiated by the Firm and
executed and cleared by these other broker/dealers. These amounts due from
other broker/dealers are typically received shortly after the accounting
period in which they are recorded and the Firm has not experienced any
significant uncollectible accounts receivable.
SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
Securities owned and securities sold, not yet purchased are recorded at
market value with unrealized gains or losses reflected in income currently.
Included in securities owned are not readily marketable securities. These
securities are defined as securities (a) for which there is no market on a
securities exchange or no independent publicly quoted market, (b) that cannot
be publicly offered or sold unless registration has been effected, and/or (c)
that cannot be offered or sold because of other arrangements, restrictions, or
conditions applicable to the securities or to the Firm. These securities are
carried at their estimated fair value as determined by management with
unrealized gains and losses included in income.
F-37
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Assets classified as furniture, equipment, and leasehold improvements are
shown at historical cost and are being depreciated over their estimated useful
lives of five to ten years using accelerated and straight-line methods.
INCOME TAXES
The financial statements do not reflect a provision or liability for
federal or state income taxes since under the Internal Revenue Code, an LLC is
treated as a partnership. Accordingly, the individual Members report their
share of the Firm's income on each member's individual tax return.
REVENUE RECOGNITION
The Firm recognizes all income and expenses relating to security
transactions on a trade date basis and the net realized gain or loss on sales
of securities is determined on a first-in, first-out (FIFO) cost basis.
Investment banking revenue is recognized as follows: Management fees are
recognized on offering date and underwriting fees at the time the underwriting
is completed and the income is reasonably determinable.
RECLASSIFICATION
Certain amounts from prior years have been reclassified to conform to the
current year presentation. These reclassifications are not material to the
financial statements.
2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires the disclosure of the fair value
of financial instruments, including assets and liabilities recognized and not
recognized in the statement of financial condition.
The Firm's securities owned and securities sold, not yet purchased are
carried at market value.
Management estimates that the aggregate net fair value of other financial
instruments recognized on the statement of financial condition (including cash
and cash equivalents and receivables and payables) approximates their carrying
value, as such financial instruments are short-term in nature, bear interest
at current market rates or are subject to repricing.
3. COMMITMENTS AND CONTINGENCIES:
The Firm rents office space under noncancelable operating leases. Rental
expense under the leases approximated $663,600, $560,000 and $402,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. Future minimum
rental payments under these leases are as follows:
[S] [C]
1998.................................................... $ 663,600
1999.................................................... 669,600
2000.................................................... 669,600
2001.................................................... 605,600
2002.................................................... 516,000
-----------
$ 3,124,400
===========
F-38
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Firm has entered into an operating lease for certain furniture. The
terms of this lease call for monthly payments aggregating $69,500 annually
through December 2000.
In the ordinary course of business, the Firm regularly enters into
agreements for the use of quotation, trading, and other services. These
agreements are typically for periods of one year or less.
The Firm is involved in various claims and possible actions arising out
of the normal course of its business. Although the ultimate outcome of these
claims cannot be ascertained at this time, it is the opinion of the Firm,
based on knowledge of facts and advice of counsel, that the resolution of
such claims and actions will not have a material adverse effect on the Firm's
financial condition or results of operations.
The Firm has adopted a Profit Sharing 401(k) Plan. The Plan is a defined
contribution plan which provides for voluntary employee contributions as well
as discretionary matching allocations by the employer as set forth by the
Plan. The Plan covers substantially all full-time employees who meet the
Plan's eligibility requirements as defined by the Plan. As of December 31,
1997, no employer contributions had been made to the Plan.
4. SECURED DEMAND NOTE/SUBORDINATED BORROWINGS
Subordinated borrowings consist of a loan from a member of the Firm, which
is due by July 31, 1998 and bears interest at 6% per annum, payable quarterly.
The Firm has a secured demand note receivable from this same member in an
amount equal to the subordinated borrowing; this note is collateralized with
marketable securities.
The subordinated borrowings are available in computing net capital under
the SEC's uniform net capital rule. To the extent that such borrowings are
required for the Firm's continued compliance with minimum net capital
requirements, they may not be repaid.
5. RELATED PARTY TRANSACTIONS:
RECEIVABLES FROM AND PAYABLES TO RELATED PARTIES
Periodically, the Firm advances certain payments on behalf of Seneca
Capital Management, LLC (Seneca), an investment advisor which was controlled
by a member and provides services to Seneca. These amounts are reimbursed
to the Firm on a regular basis and, as such, no interest is charged. Total
fees earned from these services amounted to $327,000, $574,000 and $222,000
for the years ended December 31, 1997, 1996 and 1995, respectively. On July
17, 1997, the majority interest in Seneca was purchased by an unrelated party;
subsequent to this date, Seneca was no longer considered a related party.
The Firm periodically borrows money from Genesis Merchant Group, L.P.,
a registered investment advisor controlled by members of the Firm.
COMBINED REVENUES
The Firm has a number of customers who are related parties. Commissions
earned from these customers amounted to approximately $5,281,000, $4,748,000
and $3,208,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
F-39
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
EXPENSES PAID ON BEHALF OF RELATED PARTIES
In exchange for providing brokerage services, the Firm has also agreed to
pay certain operating expenses on behalf of customers who are related parties.
These expenses are included in general and administrative and amounted to
approximately $1,522,000, $1,226,000 and $678,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
6. MANDATORILY REDEEMABLE PREFERRED MEMBERS' CAPITAL:
Mandatorily redeemable preferred members' capital consists of Class C and
Class D membership interests, as defined in the Members' agreement. These
interests are specifically allocated a cumulative, priority return of net
profits equal to 7% of their remaining capital balances. The basis of the
Class C interests was determined at the date of the reduction of the member's
profits interest in the Firm and was based upon the proportionate decrease in
the affected member's capital balance. The basis of Class D interests is
determined at the time of the termination of their employment by the Firm or
their reduction in profit allocation and is based upon their capital balance
at time of employment termination or reduction of profit allocation.
Class C interests are to be redeemed over a five year period and Class D
interests over a two year period. For the year ended December 31, 1997 and
1996, respectively, a total of $385,766 and $426,294 of members' equity was
converted to Class D interests. For the year ended December 31, 1996, a total
of $1,562,699 was converted to Class C interests. If these payments become in
arrears, no distributions to other members may occur until the payments to
Class C and D members become current. The aggregate amount of redemption
requirements, including profit allocation, are as follows:
1998....................................................... $ 468,000
1999....................................................... 477,000
2000....................................................... 272,000
2001....................................................... 153,000
----------
$1,370,000
==========
7. DISTRIBUTIONS TO MEMBERS:
Included in distributions to members are cash distributions and
distributions of not readily marketable securities. Pursuant to the Members
agreement in effect at the time of the distributions, the distributions of
not readily marketable securities were specifically allocated to certain
partners/members. On January 17, 1998, an additional cash distribution of
$933,000 was paid to members.
8. NET CAPITAL REQUIREMENTS:
The Firm is subject to the Securities and Exchange commission Uniform
Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net
capital and provides for certain ratios of aggregate indebtedness to net
capital, both as defined. The Firm has consistently operated in excess of the
minimum net capital requirements imposed by these rules.
F-40
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Net capital positions of the Firm were as follows:
DECEMBER 31,
--------------------
1997 1996
---------- --------
Net capital as a percent of aggregate debit items... 27.45% 279.06%
Net capital......................................... $4,129,017 $679,759
Required net capital................................ $ 156,000 $250,000
9. EDIT RISK CONCENTRATION AND OFF-BALANCE SHEET RISK:
SECURITIES SOLD, NOT YET PURCHASED
Securities sold, not yet purchased represent obligations of the Firm to
deliver the specified financial instrument at the contracted price, and
thereby create a liability to repurchase the financial instrument in the
market at the then prevailing price. Accordingly, these transactions result in
off-balance sheet risk as the Firm's ultimate obligation to satisfy the sale
of securities sold, not yet purchased may exceed the amount recognized on the
statement of financial condition.
CONCENTRATIONS
As of December 31, 1997, substantially all of the amounts receivable from
brokers and dealers is due from either ABN AMRO Chicago Corp. or BT Alex
Brown. Cash and securities deposited with clearing brokers and dealers is held
by ABN AMRO Chicago Corp. and the amounts shown as cash and cash equivalents
are held by a single bank.
CREDIT RISK
As a securities broker and dealer, the Firm is engaged in various
securities underwriting, brokerage, and trading activities. These services
are provided to a diverse group of investors. A portion of the Firm's securities
transactions are collateralized and executed with and on behalf of other
institutional investors, including other brokers and dealers. The Firm's
exposure to credit risk associated with the non-performance of these customers
and counterparties in fulfilling their contractual obligations pursuant to
securities transactions can be directly impacted by volatile trading markets,
which may impair customers' and counterparties' abilities to satisfy their
obligations to the Firm.
10. SUBSEQUENT EVENTS:
On March 9, 1998, the Firm executed an Amended and Restated Agreement and
Plan of Combination (the "Combination Agreement") with JW Charles Financial
Services, Inc. ("JWCFS"). Under the structure of this transaction, the two
firms will combine to create a new holding company with the name "JWGenesis
Financial Corp." ("JWGenesis"). The Combination Agreement contemplates, among
other things, that (i) JWGenesis will acquire the outstanding shares of JWCFS
Common Stock, pursuant to a statutory share exchange, in exchange for shares
of JWGenesis Common Stock, on a one-for-one basis, with the result that JWCFS
will become a wholly-owned subsidiary of JWGenesis and each issued and
outstanding share of JWCFS will be exchanged for and become the right to
receive one share of JWGenesis Common Stock and (ii) Genesis Members holding
at least 90%
F-41
<PAGE>
GENESIS MERCHANT GROUP SECURITIES, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
of the Genesis Membership Interests will exchange such interests for up to
1,500,000 shares of JWGenesis Common Stock with the result that Genesis will
become at least a 90% owned limited liability company of JWGenesis.
The Combination, which will be accounted for as a purchase, is expected
to be completed during 1998 and is subject to approval by the shareholders of
JWCFS as well as other customary conditions of closing.
F-42
<PAGE>
APPENDIX A
PLAN OF MERGER
OF
JW CHARLES FINANCIAL SERVICES, INC.
AND
THE AMERICAS GROWTH FUND, INC.
_________________
Section 1
The names of the parties proposing to merge are JW Charles
Financial Services, Inc., a Florida corporation ("JWCFS") and a
wholly-owned subsidiary of JWGenesis Financial Corp. ("JWGenesis"), a
Florida corporation, and The Americas Growth Fund, Inc., a Maryland
corporation ("AGRO").
Section 2
At the Effective Time (as defined in Section 3), subject to the
applicable provisions of the Maryland General Corporation Law and the
Florida Business Corporation Act, (a) AGRO shall be merged with and
into JWCFS (the "Merger"), (b) the separate existence of AGRO shall
cease, (c) JWCFS shall be the surviving corporation and (d) all the
estate, property (real, personal, and mixed), rights, powers,
privileges, immunities, and franchises of AGRO (public or private in
nature), all the debts due on account to either of them, and all stock
subscriptions and choses in action or other interests of or belonging
or due to either of them, shall be transferred to and vested in JWCFS,
the surviving corporation, without any further act or deed. The title
to all real estate vested in AGRO shall not revert or be in any way
impaired by reason of the Merger, but shall be vested in JWCFS as the
surviving corporation.
Section 3
The Merger shall become effective on the later of 12:01 A.M. on
_______________, 1998 or the time and date that the Articles of Merger
of JWCFS are filed with the Department of State of the State of
Florida under the Florida Business Corporation Act and are accepted by
the State Department of Assessments and Taxation of the State of
Maryland under the Maryland General Corporation Law (the "Effective
Time").
Section 4
The manner of converting in the Merger shares of the issued and
outstanding common stock, $.01 par value, of AGRO (the "AGRO Common
Stock") into shares of the common stock, $.001 par value, of JWGenesis
(the "JWGenesis Common Stock") is as follows:
4.1 Each share of AGRO Common Stock issued and outstanding at
the Effective Time (other than shares of AGRO Common Stock (i) held by
JWCFS, or (ii) as to which the holder thereof has validly exercised
the right to demand payment in cash of the fair value of such shares),
by virtue of the Merger and without any further action on the part of
<PAGE>
the holder thereof, shall be canceled and converted into and become
the right to receive .431 of a fully paid and nonassessable share of
JWGenesis Common Stock.
4.2 No fractional shares of JWGenesis Common Stock will be
issued, but in lieu thereof, each holder of shares of AGRO Common
Stock who would otherwise be entitled to a fraction of a share of
JWGenesis Common Stock shall receive from JWCFS an amount of cash
based on the last reported sale price of the JWGenesis Common Stock as
reported on The American Stock Exchange on the last trading date
immediately prior to the Effective Time.
A-1<PAGE>
4.3 At the Effective Time, all issued and outstanding shares of
AGRO Common Stock owned by JWCFS, and any shares of AGRO Common Stock
held in AGRO's treasury, shall be canceled without consideration.
4.4 At the Effective Time, JWCFS will cause the JWGenesis
transfer agent to make available for delivery to the shareholders of
AGRO the number of shares of JWGenesis Common Stock and cash in lieu
of fractional shares to be received by them in the Merger. From and
after the Effective Time, the sole right (except as provided herein)
of the holders of certificates theretofore representing AGRO Common
Stock shall be to receive shares of JWGenesis Common Stock or cash as
provided above. As soon as practicable after the Effective Time, each
holder of record as of the Effective Time of any shares of AGRO Common
Stock, upon presentation and surrender of the certificate or
certificates representing such shares to JWCFS or its designee, shall
be entitled to receive in exchange therefor certificates representing
the number of shares of JWGenesis Common Stock, amount of cash, or
both to which such holder shall be entitled upon the aforesaid basis
of exchange. Until so surrendered, each such outstanding certificate
that prior to the Effective Time represented shares of AGRO Common
Stock shall be deemed for all corporate purposes to evidence ownership
of the number of shares of JWGenesis Common Stock or right to receive
such amount of cash, or both, into which the same will have been
converted.
4.5 If, as of the Effective Time, any holder of shares of AGRO
Common Stock shall have validly exercised and not forfeited its right
to demand payment of the fair value of such shares in cash ("Objecting
Shares") in connection with the Merger under Maryland Law, such shares
shall not be converted into JWGenesis Common Stock but instead shall
be converted into the right to receive such consideration as may be
determined to be due with respect to such Objecting Shares pursuant to
the Maryland Law. Each holder of Objecting Shares (an "Objecting
Shareholder") who, pursuant to the provisions of Maryland Law, becomes
entitled to payment in cash of the value of Objecting Shares shall
receive payment therefor (but only after the value therefor shall have
been agreed upon or finally determined pursuant to such provisions).
In the event of a legal obligation, after the Effective Time, to
deliver shares of JWGenesis Common Stock to any holder of shares of
AGRO Common Stock who shall have failed to make an effective payment
demand or shall have lost his or her status as an Objecting
Shareholder, JWCFS shall issue and deliver, upon surrender by such
Objecting Shareholder of his or her certificate or certificates
representing shares of AGRO Common Stock, the shares of JWGenesis
Common Stock to which such Objecting Shareholder would have been
entitled under Section 4.1 and cash in lieu of fractional shares
pursuant to Section 4.2.
Section 5
From and after the Effective Time, the effect of the Merger will
be as provided in Section 607.1106 of the Florida Business Corporation
Act and Section 3-114 of the Maryland General Corporation Law.
Section 6
Neither the rights of creditors nor any liens or other
encumbrances upon the property of AGRO or JWCFS shall in any manner be
impaired by the Merger, but JWCFS as the surviving corporation shall
be deemed to have assumed, and shall be liable for, all liabilities
and obligations of each of AGRO and JWCFS in the same manner and to
the same extent as if JWCFS had itself incurred each such liability or
obligation. No action or proceeding then pending before any court or
tribunal in which AGRO or JWCFS is a party shall abate or be
discontinued by reason of the Merger, but any such action or
proceeding may be prosecuted to final judgment or other determination
as though no Merger had taken place, or JWCFS as the surviving
corporation may be substituted as a party in place of AGRO by the
court or other tribunal in or before which such action or proceeding
is pending.
Section 7
If at any time JWCFS as the surviving corporation shall consider
necessary or desirable any further assignments, assurances, or other
things in order to vest in it, according to the terms hereof, the
title to any property or to rights of AGRO, the proper officers and
directors of AGRO shall make, execute, and deliver all such proper
assignments and assurances, and do all things necessary and proper, in
order to vest such title in JWCFS as the surviving corporation, or in
order to otherwise carry out the purposes of this Plan of Merger.
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<PAGE>
Section 8
The Articles of Incorporation and Bylaws of JWCFS in effect
immediately prior to the Effective Time shall be the Articles of
Incorporation and Bylaws, respectively, of the surviving corporation,
JWCFS.
Section 9
Concurrently with the Effective Time, the effect of the Merger,
before the cessation of the separate existence of AGRO and the
conversion or cancellation of outstanding shares of AGRO Common Stock
as provided in Sections 2, 4, and 5, shall be that (a) JWCFS shall be
deemed the sole owner of all outstanding shares of AGRO Common Stock,
and (b) as such sole owner, JWCFS shall be deemed to have approved the
withdrawal of AGRO's status as a business development company ("BDC")
under the Investment Company Act of 1940, as amended (the "1940 Act"),
and to have authorized the filing of a Form N-54C notification of such
withdrawal determination with the Securities and Exchange Commission
(the "Commission"), without the necessity for any further action on
the part of JWCFS or AGRO to evidence or effect such approval of
withdrawal. Notwithstanding the foregoing, but without affecting the
approval of AGRO's withdrawal of BDC status provided therein, the
concurrent effect of the Merger as of the Effective Time shall
thereafter be as provided in Section 2, 4, and 5. The provisions of
this Section 9 are included solely to comply with certain matters
under the 1940 Act and requirements of the Commission and do not
otherwise affect or confer any right of or upon any other party or
person.
IN WITNESS WHEREOF, AGRO and JWCFS have caused this Plan of
Merger to be executed by officers thereunto duly authorized, as of the
____ day of __________, 1998.
[CORPORATE SEAL] JW CHARLES FINANCIAL SERVICES, INC.
Attest:
________________________________ By:_________________________________________
Secretary or Assistant Joel E. Marks
Secretary Vice Chairman and Chief Financial Officer
[CORPORATE SEAL] THE AMERICAS GROWTH FUND, INC.
Attest:
_______________________________ By:_________________________________________
Secretary or Assistant Leonard J. Sokolow
Secretary President
A-3
<PAGE>
APPENDIX B
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TITLE 3
SUBTITLE 2
OF THE MARYLAND GENERAL CORPORATION LAW
RIGHTS OF OBJECTING SHAREHOLDERS
SECTION 3-201
DEFINITION
(a) In this subtitle, except as provided in subsection (b) of
this section, "successor" includes a corporation which amends its
charter in a way which alters the contract rights, as expressly set
forth in the charter, of any outstanding stock, unless the right to do
so is reserved by the charter of the corporation.
(b) When used with reference to a share exchange, "successor"
means the corporation the stock of which was acquired in the share
exchange.
SECTION 3-202
RIGHT TO FAIR VALUE OF STOCK
(a) Except as provided in subsection (c) of this section, a
stockholder of a Maryland corporation has the right to demand and
receive payment of the fair value of the stockholder's stock from the
successor if:
(1) The corporation consolidates or merges with another
corporation;
(2) The stockholder's stock is to be acquired in a share
exchange;
(3) The corporation transfers its assets in a manner
requiring action under Section 3-105(d) of this title;
(4) The corporation amends its charter in a way which
alters the contract rights, as expressly set forth in the charter, of
any outstanding stock and substantially adversely affects the
stockholder's rights, unless the right to do so is reserved by the
charter of the corporation; or
(5) The transaction is governed by Section 3-602 of this title or
exempted by Section 3-603(b) of this title.
(b) (1) Fair value is determined as of the close of business:
(i) With respect to a merger under Section 3-106 of this
title of a 90 percent or more owned subsidiary into its
parent, on the day notice is given or waived under Section 3-106;
or
(ii) with respect to any other transaction, on the day
the stockholders voted on the transaction objected to.
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(2) Except as provided in paragraph (3) of this subsection,
fair value may not include any appreciation or depreciation which
directly or indirectly results from the transaction objected to or
from its proposal.
(3) In any transaction governed by Section 3-602 of this title
or exempted by Section 3-603(b) of this title, fair value shall be value
determined in accordance with the requirements of Section 3-603(b) of this
title.
(c) Unless the transaction is governed by Section 3-602 of this title
or is exempted by Section 3-603(b) of this title, a stockholder may not
demand the fair value of his stock and is bound by the terms of the
transaction if:
(1) The stock is listed on a national securities exchange
or is designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc.:
(i) With respect to a merger under Section 3-106 of this
title of a 90 percent or more owned subsidiary into its
parent, on the date notice is given or waived under Section 3-106;
or
(ii) With respect to any other transaction, on the
record date for determining stockholders entitled to vote on
the transaction objected to;
(2) The stock is that of the successor in a merger; unless:
(i) The merger alters the contract rights of the stock
as expressly set forth in the charter, and the charter does
not reserve the right to do so; or
(ii) The stock is to be changed or converted in whole
or in part in the merger into something other than either
stock in the successor or cash, scrip, or other rights or
interests arising out of provisions for the treatment of
fractional shares of stock in the successor; or
(3) The stock is that of an open-end investment company
registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and the value placed on the stock in
the transaction is its net asset value.
SECTION 3-203
PROCEDURE BY STOCKHOLDER
(a) A stockholder of a corporation who desires to receive
payment of the fair value of his stock under this subtitle:
(1) Shall file with the corporation a written objection to
the proposed transaction:
(i) With respect to a merger under Section 3-106 of this
title of a 90 percent or more owned subsidiary into its
parent, within 30 days after notice is given or waived under
Section 3-106; or
(ii) With respect to any other transaction, at or
before the stockholders' meeting at which the transaction
will be considered;
B-2<PAGE>
(2) May not note in favor of the transaction; and
(3) Within 20 days after the Department accepts the
articles for record, shall make a written demand on the successor for
payment for his stock, stating the number and class of shares for
which he demands payment.
(b) A stockholder who fails to comply with this section is bound
by the terms of the consolidation, merger, share exchange, transfer of
assets, or charter amendment.
SECTION 3-204
EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS
A stockholder who demands payment for his stock under this
subtitle:
(1) Has no right to receive any dividends or distributions
payable to holders of record of that stock on a record date after the
close of business on the day as at which fair value is to be
determined under Section 3-202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect
to that stock, except the right to receive payment of its fair value.
SECTION 3-205
WITHDRAWAL OF DEMAND
A demand for payment may be withdrawn only with the consent of
the successor.
SECTION 3-206
RESTORATION OF DIVIDEND AND OTHER RIGHTS
(a) The rights of a stockholder who demands payment are restored
in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the
time required by this subtitle;
(3) A court determines that the stockholder is not entitled
to relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) The restoration of a stockholder's rights entitles him to
receive the dividends, distributions, and other rights he would have
received if he had not demanded payment for his stock. However, the
restoration does not prejudice any corporate proceedings taken before
the restoration.
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<PAGE>
SECTION 3-207
PROCEDURE BY SUCCESSOR
(a) (1) The successor promptly shall notify each objecting
stockholder in writing of the date the articles are accepted for
record by the Department.
(2) The successor also may send a written offer to pay the
objecting stockholder what it considers to be the fair value of his
stock. Each offer shall be accompanied by the following information
relating to the corporation which issued the stock:
(i) A balance sheet as of a date not more than six
months before the date of the offer;
(ii) A profit and loss statement for the 12 months
ending on the date of the balance sheet; and
(iii) Any other information the successor considers
pertinent.
(b) The successor shall deliver the notice and offer to each
objecting stockholder personally or mail them to him by registered
mail at the address he gives the successor in writing, or, if none, at
his address as it appears on the records of the corporation which
issued the stock.
SECTION 3-208
PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS;
JOINDER OF OBJECTORS
(a) Within 50 days after the Department accepts the articles for
record, the successor or an objecting stockholder who has not received
payment for his stock may petition a court of equity in the county
where the principal office of the successor is located or, if it does
not have a principal office in this State, where the resident agent of
the successor is located, for an appraisal to determine the fair value
of the stock.
(b) (1) If more than one appraisal proceeding is instituted,
the court shall direct the consolidation of all the proceedings on
terms and conditions it considers proper.
(2) Two or more objecting stockholders may join or be
joined in an appraisal proceeding.
SECTION 3-209
CERTIFICATE MAY BE NOTED
(a) At any time after a petition for appraisal is filed, the
court may require the objecting stockholders parties to the proceeding
to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a
stockholder fails to comply with the order, the court may dismiss the
proceeding as to him or grant other appropriate relief.
(b) If any stock represented by a certificate which bears a
notation is subsequently transferred, the new certificate issued for
the stock shall bear a similar notation and the name of the original
objecting stockholder. The transferee of this stock does not acquire
rights of any character with respect to the stock other than the
rights of the original objecting stockholder.
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<PAGE>
SECTION 3-210
APPRAISAL OF FAIR VALUE
(a) If the court finds that the objecting stockholder is
entitled to an appraisal of his stock, it shall appoint three
disinterested appraisers to determine the fair value of the stock on
terms and conditions the court considers proper. Each appraiser shall
take an oath to discharge his duties honestly and faithfully.
(b) Within 60 days after their appointment, unless the court
sets a longer time, the appraisers shall determine the fair value of
the stock as of the appropriate date and file a report stating the
conclusion of the majority as to the fair value of the stock.
(c) The report shall state the reasons for the conclusion and
shall include a transcript of all testimony and exhibits offered.
(d) (1) On the same day that the report is filed, the
appraisers shall mail a copy of it to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may
object to it and request a hearing.
SECTION 3-211
CONSIDERATION BY COURT OF APPRAISERS' REPORT
(a) The court shall consider the report and, on motion of any
party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the
stockholder.
(b) (1) If the appraisers' report is confirmed or modified by
the order, judgment shall be entered against the successor and in
favor of each objecting stockholder party to the proceeding for the
appraised fair value of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter
judgment for the stockholder; or
(ii) Remit the proceedings to the same or other
appraisers on terms and conditions it considers proper.
(c) (1) Except as provided in paragraph (2) of this subsection,
a judgment for the stockholder shall award the value of the stock and
interest from the date as to which fair value is to be determined
under Section 3-202 of this subtitle, and
B-5
<PAGE>
(2) The court may not allow interest if it finds that the
failure of the stockholder to accept an offer for the stock made under
Section 3-207 of this subtitle was arbitrary and vexatious or not in good
faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the
stock;
(ii) The financial statements and other information
furnished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(d) (1) The costs of the proceedings, including reasonable
compensation and expenses of the appraisers, shall be set by the court
and assessed against the successor. However, the court may direct the
costs to be apportioned and assessed against any objecting stockholder
if the court finds that the failure of the stockholder to accept an
offer for the stock made under Section 3-207 of this subtitle was arbitrary
and vexatious or not in good faith. In making this finding, the court
shall consider:
(i) The price which the successor offered for the
stock;
(ii) The financial statements and other information
furnished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The
reasonable fees and expenses of experts may be included only if:
(i)The successor did not make an offer for the stock
under Section 3-207 of this subtitle; or
(ii) The value of the stock determined in the proceeding
materially exceeds the amount offered by the successor.
(e) The judgment is final and conclusive on all parties and has
the same force and effect as other decrees in equity. The judgment
constitutes a lien on the assets of the successor with priority over
any mortgage or other lien attaching on or after the effective date of
the consolidation, merger, transfer, or charter amendment.
SECTION 3-212
SURRENDER OF STOCK
The successor is not required to pay for the stock of an
objecting stockholder or to pay a judgment rendered against it in a
proceeding for an appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered
to it, indorsed in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the
certificates and sufficient indemnity bond are furnished.
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<PAGE>
SECTION 3-213
RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK
(a) A successor which acquires the stock of an objecting
stockholder is entitled to any dividends or distributions payable to
holders of record of that stock on a record date after the close of
business on the day as at which fair value is to be determined under
Section 3-202 of this subtitle.
(b) After acquiring the stock of an objecting stockholder, a
successor in a transfer of assets may exercise all the rights of an
owner of the stock.
(c) Unless the articles provide otherwise stock in the successor
of a consolidation merger, or share exchange otherwise deliverable in
exchange for the stock of an objecting stockholder has the status of
authorized but unissued stock of the successor. However, a proceeding
for reduction of the capital of the successor is not necessary to
retire the stock or to reduce the capital of the successor represented
by the stock.
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