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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ______________
Commission file number 001-14205
JWGENESIS FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
Florida 65-0811010
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 North Federal Highway o Suite 310
Boca Raton, Florida 33432
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 338-2600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 12, 1999
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Common stock, $.001 par value per share 5,952,782
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1999 1998(*)
-------------------------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash and cash equivalents $ 57,399,000 $ 16,978,000
Receivable from customers, net -- 117,579,000
Receivable from brokers and dealers 4,669,000 6,915,000
Securities owned, at estimated fair value 9,686,000 13,746,000
Cost in excess of the value of net assets acquired 15,252,000 14,838,000
Furniture, equipment and leasehold improvements, net of accumulated
depreciation and amortization of $3,327,000 and $3,035,000 2,963,000 3,386,000
Deferred tax asset 4,249,000 --
Other, net 8,647,000 6,952,000
------------------------------
$102,865,000 $ 180,394,000
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Short-term borrowings from banks $ -- $ 16,988,000
Accounts payable, accrued expenses and other liabilities 13,016,000 17,319,000
Payable to customers -- 49,218,000
Payable to brokers and dealers 2,598,000 42,283,000
Securities sold, not yet purchased, at estimated fair value 1,826,000 305,000
Lines of credit -- 3,000,000
Income taxes payable 1,744,000 656,000
Deferred gain 14,500,000 --
Deferred tax liabilities -- 356,000
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33,684,000 130,125,000
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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 30,000,000 shares; issued
and outstanding 5,952,782 and 5,501,054 6,000 6,000
Additional paid-in capital 25,439,000 22,987,000
Retained earnings 46,942,000 27,283,000
Treasury Stock, at cost, 285,275 and 900 shares (3,206,000) (7,000)
------------------------------
Total stockholders' equity 69,181,000 50,269,000
------------------------------
$102,865,000 $ 180,394,000
==============================
</TABLE>
* - Derived from audited consolidated financial statements contained in
JWGenesis Financial Corp. Annual Report on Form 10-K for the fiscal year ended
December 31, 1998. See Note 2.
(The accompanying Notes to Consolidated Condensed
Financial Statements are an integral part of
these financial statements.)
Page 2
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<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Nine Months Ended
Ended September September 30,
30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 22,929,000 $ 16,793,000 $79,446,000 $43,974,000
Market making and principal transactions, net 2,242,000 5,769,000 13,890,000 16,255,000
Gain on sale of subsidiary - - 23,877,000 -
Interest 1,562,000 3,834,000 8,578,000 10,814,000
Clearing fees - 2,164,000 5,327,000 6,625,000
Other 2,185,000 1,299,000 5,849,000 3,332,000
----------------------------------- -----------------------------------
28,918,000 29,859,000 136,967,000 81,000,000
----------------------------------- -----------------------------------
Expenses:
Commissions and clearing costs 17,006,000 14,620,000 58,356,000 41,077,000
Employee compensation and benefits 4,562,000 5,962,000 21,540,000 14,847,000
Selling, general and administrative 5,828,000 6,751,000 21,990,000 14,881,000
Interest 21,000 1,564,000 2,792,000 4,277,000
----------------------------------- -----------------------------------
27,417,000 28,897,000 104,678,000 75,082,000
----------------------------------- -----------------------------------
Income before income taxes 1,501,000 962,000 32,289,000 5,918,000
Provision for income taxes 676,000 456,000 12,630,000 2,366,000
=================================== ===================================
Net income $ 825,000 $ 506,000 $ 19,659,000 $ 3,552,000
=================================== ===================================
Earnings per common share:
Basic $0.14 $.10 $3.41 $.81
=================================== ===================================
Diluted $0.12 $.09 $3.02 $.72
=================================== ===================================
Weighted average common shares outstanding:
Basic 5,840,308 5,324,990 5,756,227 4,395,018
=================================== ===================================
Diluted 6,752,809 5,739,114 6,499,069 4,938,635
=================================== ===================================
(The accompanying Notes to Consolidated Condensed
Financial Statements are an integral part of
these financial statements.)
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Operating activities
Net income $ 19,659,000 $ 3,552,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization on furniture, 482,000 422,000
equipment and leasehold improvements
Amortization of costs in excess of fair value of 1,283,000 --
net assets acquired and other
Change in assets and liabilities, net of effect of acquisition:
Receivable from customers 117,579,000 (7,205,000)
Receivable from brokers and dealers (202,000) (1,475,000
Securities owned 4,060,000 (4,685,000)
Deferred tax asset (4,605,000) (48,000)
Other assets (3,399,000) (1,534,000)
Accounts payable, accrued expenses and other liabilities (1,623,000) (1,721,000)
Payable to customers (49,218,000) (16,557,000)
Payable to brokers and dealers (38,956,000) 22,316,000
Securities sold, not yet purchased 1,521,000 (300,000
Deferred gain 14,500,000 --
Income taxes payable 1,088,000 (1,576,000
-------------------------------
Net cash provided by (used in) operating activities 62,169,000 (5,659,000)
-------------------------------
Investing activities
Purchases of furniture, equipment and leasehold improvements (1,100,000) (866,000)
Acquisition of cost in excess of the values of net assets acquired (1,677,000) --
Disposal of furniture, equipment and leasehold improvements 75,000 --
-------------------------------
Net cash used in investing activities (2,702,000) (866,000)
-------------------------------
Financing activities
Change in short-term borrowings from banks (16,809,000) 8,678,000
Change in notes payable to affiliate -- (5,113,000)
Change in lines of credit (3,000,000) 2,110,000
Acquisition of treasury shares (1,689,000) --
Issuance of common stock 2,452,000 2,047,000
-------------------------------
Net cash provided by (used in) financing activities (19,046,000) 7,722,000
-------------------------------
Net increase in cash and cash equivalents 40,421,000 1,197,000
Cash and cash equivalents at beginning of period 16,978,000 11,512,000
-------------------------------
Cash and cash equivalents at end of period $ 57,399,000 $ 12,709,000
===============================
</TABLE>
(Continued on next page)
Page 4
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $17,190,000 $ 954,000
=========================================
Cash paid during the period for interest $1,615,000 $ 2,713,000
=========================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On March 3, 1999, the Company acquired 284,375 shares of treasury stock on
connection with its divestiture of JWGenesis Capital Markets, LLC. In exchange
for these shares, the Company transferred $1,689,000 of cash and net assets of
$1,765,000.
On July 15, 1999, the Company granted options for the purchase of an aggregate
of 500,000 shares of common stock at an exercise price of $13.40; the options
are fully vested and immediately exercisable, and have a five-year term.
(The accompanying Notes to Consolidated Condensed Financial Statements are an
integral part of these financial statements.)
</TABLE>
Page 5
<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
As discussed in the Company's 1998 Annual Report on Form 10-K, on June 12, 1998,
JWGenesis Financial Corp. ("JWGenesis" or the "Company") and its predecessor JW
Charles Financial Services, Inc. ("JWCFS") consummated a series of transactions
(the "Combination") in which the Company acquired Genesis Merchant Group
Securities LLC ("Genesis") and JWCFS, the latter pursuant to a statutory share
exchange of one share of JWGenesis common stock for each outstanding share of
JWCFS common stock. As a result of the Combination, JWGenesis succeeded to the
business and operations of JWCFS and Genesis, with both becoming wholly-owned
subsidiaries of the Company. Information 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 financial statements and related notes contained in the
Company's 1998 Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the three
and nine month periods ended September 30, 1999 are not necessarily indicative
of the results of operations to be expected for the fiscal year ending December
31, 1999.
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: JWGenesis Financial Services, Inc.
formerly JW Charles Financial Services, Inc. ("JWGFS") Corporate Securities
Group, Inc. ("CSG"), JWGenesis Securities, Inc. formerly JW Charles Securities,
Inc. ("JWG Securities"), JWGenesis Capital Markets, Inc. formerly JWGenesis
Capital Corp. ("JWG Markets"), JWGenesis Insurance Services, Inc. formerly First
Investors Life Agency, Inc. ("JWG Insurance"), DMG Securities, Inc. ("DMG") and
GSG Securities, Inc. formerly Discount Securities Group, Inc. ("GSG"). In
addition, the accompanying consolidated financial statements include the
accounts of JWGenesis Capital Markets, LLC ("JWG Capital") (effective June 12,
1998) (See Note 5, "Acquisitions and Divestitures") and JWGenesis Clearing Corp.
("JWG Clearing) through May 31, 1999 (See Note 5, "Acquisitions and
Divestitures"). All significant intercompany transactions have been eliminated
in consolidation.
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.
Page 6
<PAGE>
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. At September 30, 1999, the net capital positions of the Company's
broker- dealer subsidiaries were as follows:
CSG:
Ratio of aggregate indebtedness to net capital 1.22
Net capital $3,435,000
Required net capital $280,000
JWG Securities:
Ratio of aggregate indebtedness to net capital 4.18
Net capital $1,434,000
Required net capital $400,000
GSG:
Ratio of aggregate indebtedness to net capital 2.89
Net capital $515,000
Required net capital $100,000
DMG:
Ratio of aggregate indebtedness to net capital .32
Net capital $296,000
Required net capital $100,000
5. ACQUISITIONS AND DIVESTITURES
On June 12, 1998, the Company acquired JWG Capital, formerly known as Genesis
Merchant Group Securities, LLC, a San Francisco-based investment banking firm.
The acquisition (which was accounted for under the purchase method) was
accomplished by the Company through the issuance of 1,500,000 shares of its
authorized but unissued common stock in exchange for a 100% ownership in JWG
Capital. The purchase price of $18,650,000 exceeded the fair value of net assets
acquired by approximately $15,250,000, which is being amortized on a
straight-line basis over 20 years.
On March 3, 1999, the Company divested JWG Capital, whose operations consisted
primarily of the Company's San Francisco-based brokerage processing services
unit that had been acquired in the Combination on June 12, 1998, to an investor
group led by certain former owners of JWG Capital in exchange for 284,375 shares
of common stock of the Company and various mutual releases. As part of the
divestiture, JWG Capital transferred its investment banking, corporate finance
and portions of its capital markets business to another Company subsidiary, so
that those operations would be retained by the Company. The Company assumed
responsibility for and retained occupancy of the New York City office of JWG
Capital.
On June 1, 1999, the Company completed the sale of JWG Clearing to Fiserv, Inc.
("Fiserv") through its wholly owned subsidiary Fiserv Clearing, Inc. ("Fiserv
Clearing"). JWG Clearing had functioned primarily as the Company's securities
clearing, execution, and back office services unit, and only those operations
comprised JWG Clearing at the time the sale was consummated. For the sale to
Fiserv, the Company received cash consideration of $58,870,000, and may receive
additional consideration based on the outcome of various matters. Of this
amount, $18,870,000 represented the net book value of JWG Clearing and $40
million represented the purchase price in excess of the net book value of JWG
Clearing. Of the $40 million, $25 million was recorded as income (reduced by
certain expenses related to the sale) in the current period under the caption
"gain on sale of subsidiary" and the remaining $15 million was recorded as a
deferred gain and will be accreted into income ratably over 10 years.
Page 7
<PAGE>
In connection with the sale, (i) the Company entered into a Transition Services
Agreement pursuant to which, following the sale, it will continue to provide
certain assistance and services to JWG Clearing and Fiserv Clearing, and will
permit JWG Clearing and Fiserv Clearing to use certain facilities during a
transition period for a monthly fee approximating actual costs; (ii) the Company
agreed not to compete for ten years in the securities clearing and execution
business and not to solicit personnel of JWG Clearing or Fiserv and its
affiliates; and (iii) the Company agreed, subject to certain limitations and
exclusions (primarily related to independent contractor registered
representatives, possible future acquisitions, and a one-year phase-in period),
to use and cause its subsidiaries and affiliates to use the clearing services of
designated Fiserv affiliates for at least 90% of their securities brokerage
transactions, and, in the case of independent contractor registered
representatives, to impose a surcharge on certain such transactions that are not
cleared through a Fiserv affiliate, during the 10-year period following the
sale. The Company has the right, however, to be released from the above
obligations to use Fiserv affiliates or to impose a surcharge by repaying to
Fiserv a portion of the sales price based on a prescribed formula that takes
into account the price paid in the sale and the amount of clearing services
business then being generated by the Company or its affiliate seeking the
release.
As a result of the sale and the above agreements, the Company ceased providing
clearing services, both to third party correspondents (such as broker dealers,
banks, and other financial institutions) and for its own securities brokerage
transactions.
6. SEGMENT ANALYSIS
The Company's reportable segments are: captive retail distribution,
independently owned retail distribution, clearing and trading, capital markets
and other. The captive retail distribution segment includes the 22 retail
branches of JWG Securities and GSG located in Florida, California, Georgia,
Illinois, Colorado, Connecticut and New York. These branches provide securities
brokerage services including the sale of equities, mutual funds, fixed income
products and insurance to their retail clients. The independently owned retail
distribution segment includes the 118 CSG offices and one DMG office, all of
which are located in the U.S., providing securities brokerage services including
the sale of equities, mutual funds, fixed income products and insurance to their
retail clients. The clearing and trading segment now comprises primarily of the
trading of equities and fixed income products as principal, investments in
trading firms including Knight/Trimark Group, Inc. and Strike Technologies LLC,
and proceeds from the sale of JWG Clearing. Until June 1, 1999, this segment
also included securities clearing, execution, and related back office services,
none of which the Company now provides. The capital markets segment includes
management and participation in underwritings (exclusive of sales credits, which
are included in the distribution segments), mergers and acquisitions, public
finance, institutional trading, institutional research and market making for
institutional research. Segment data includes charges allocating corporate
overhead to each segment. Intersegment revenues and charges are eliminated
between segments. The Company evaluates the performance of its segments and
allocates resources to them based on return on investment. The Company has not
disclosed asset information by segment as the information is not produced
internally.
All long-lived assets are located in the U.S. The Company's business is
predominantly in the U.S.
Page 8
<PAGE>
Information concerning operations in these segments of business is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ----------------------------------
1999 1998 1999 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Captive retail distribution $ 15,230,000 $ 7,030,000 $ 48,398,000 $ 22,143,000
Independently owned distribution 12,132,000 9,146,000 37,575,000 30,708,000
Clearing and trading 1,249,000 8,378,000 46,801,000 21,752,000
Capital markets 304,000 5,276,000 4,187,000 6,320,000
Other 3,000 29,000 6,000 77,000
------------ ------------ ------------- ------------
Total $ 28,918,000 $ 29,859,000 $ 136,967,000 $ 81,000,000
============ ============ ============= ============
Pre-tax income:
Captive retail distribution $ (170,000) $ (133,000) $ 856,000 $ 912,000
Independently owned distribution 989,000 540,000 2,854,000 2,546,000
Clearing and trading 1,282,000 2,621,000 29,738,000 4,378,000
Capital markets (120,000) (2,029,000) (303,000) (2,029,000)
Other (480,000) (37,000) (856,000) 111,000
------------ ------------ ------------- ------------
Total $ 1,501,000 $ 962,000 $ 32,289,000 $ 5,918,000
============ ============ ============= ============
</TABLE>
Page 19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JWGENESIS FINANCIAL CORP.
Date: November 19, 1999 By: /s/ Gregg S. Glaser
Gregg S. Glaser
(Duly Authorized Officer)
and
(Principal Financial and Accounting Officer)
