UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 0-14772
JW CHARLES FINANCIAL SERVICES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 58-1545984
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 North Federal Highway - Suite 210
Boca Raton, Florida 33432
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (407) 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 May 15, 1996
--------------------------------------- ---------------------------
Common stock, $.001 par value per share 3,599,238
<PAGE>
JW CHARLES FINANCIAL SERVICES, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements.
Consolidated Condensed Statements of Financial Condition
at March 31, 1996 and December 31, 1995
Consolidated Condensed Statements of Income for the Three
Months Ended March 31, 1996 and 1995
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
----------------------------
JW CHARLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
ASSETS 1996 1995 <F1>
------ --------------------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 9,357,000 $ 8,597,000
Commissions and other receivables from clearing brokers 4,447,000 2,750,000
Receivable from customers, net 86,390,000 81,438,000
Receivable from brokers and dealers 4,141,000 5,752,000
Securities owned, at market value 11,026,000 11,486,000
Furniture, equipment and leasehold improvements, net of
accumulated depreciation and amortization of $1,028,000 and
$962,000 1,252,000 1,253,000
Deferred tax asset 881,000 1,011,000
Other, net 3,663,000 2,927,000
-------------------------------
$121,157,000 $115,214,000
===============================
LIABILITIES, MANDATORILY REDEEMABLE COMMON STOCK AND
----------------------------------------------------
STOCKHOLDERS' EQUITY
---------------------
Liabilities:
Short-term borrowings from banks $ 25,982,000 $ 29,114,000
Accounts payable, accrued expenses and other liabilities 8,571,000 7,935,000
Payable to customers 37,130,000 31,351,000
Payable to brokers and dealers 26,183,000 22,210,000
Securities sold, not yet purchased, at market value 1,756,000 4,074,000
Notes payable to affiliates 3,250,000 3,500,000
Income taxes payable 852,000 459,000
--------------------------------
103,724,000 98,643,000
--------------------------------
Mandatorily redeemable common stock 7,280,000 7,013,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value - authorized 9,056,000 shares;
issued and outstanding 3,914,748 4,000 4,000
Additional paid-in capital 764,000 764,000
Retained earnings 9,385,000 8,790,000
--------------------------------
Total stockholders' equity 10,153,000 9,558,000
--------------------------------
$121,157,000 $115,214,000
================================
----------------------------
<FN>
<F1> - Derived from audited financial statements contained in Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
</FN>
</TABLE>
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)<PAGE>
<PAGE>
JW CHARLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
----------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Revenues:
Commissions $10,168,000 $7,744,000
Market making and principal transactions, net 5,436,000 4,706,000
Interest 2,160,000 1,370,000
Clearing fees 1,631,000 1,464,000
Other 1,616,000 826,000
21,011,000 16,110,000
Expenses:
Commissions and clearing costs 11,308,000 8,302,000
Employee compensation and benefits 3,573,000 3,459,000
Selling, general and administrative 3,846,000 3,133,000
Interest 878,000 488,000
19,605,000 15,382,000
Income before income taxes 1,406,000 728,000
Provision for income taxes 544,000 298,000
Net income $862,000 $430,000
Earnings per common share:
Net income $.21 $.11
Weighted average number of common shares outstanding during the period 4,053,000 3,981,000
</TABLE>
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)<PAGE>
<PAGE>
JW CHARLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $862,000 $430,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 66,000 58,000
Change in operating assets and liabilities:
Commissions and other receivables from clearing brokers 1,697,000) (269,000)
Receivable from customers (4,952,000) (1,034,000)
Receivable from brokers and dealers 1,611,000 2,407,000
Securities owned 460,000 1,133,000
Deferred tax asset 130,000 (3,000)
Income taxes receivable - 30,000
Other assets (736,000) (251,000)
Accounts payable, accrued expenses and other liabilities 636,000 2,204,000
Payable to customers 5,779,000 (2,273,000)
Payable to brokers and dealers 3,973,000 1,042.000
Securities sold, not yet purchased (2,318,000) (1,240,000)
Income taxes payable 393,000 -
-----------------------------
Net cash provided by operating activities 4,207,000 2,234,000
-----------------------------
INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (65,000) (202,000)
-----------------------------
FINANCING ACTIVITIES
Short-term borrowings from banks (3,132,000) (2,011,000)
Notes payable to affiliates (250,000) -
Mandatory preferred stock dividends paid - (19,000)
-----------------------------
Net cash used by financing activities (3,382,000) (2,030,000)
-----------------------------
Net increase in cash and cash equivalents 760,000 2,000
Cash and cash equivalents at beginning of period 8,597,000 5,401,000
-----------------------------
Cash and cash equivalents at end of period $9,357,000 $5,403,000
=============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $0 $201,000
=============================
Cash paid during the period for interest $878,000 $488,000
=============================
</TABLE>
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)<PAGE>
<PAGE>
JW CHARLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. BASIS OF PRESENTATION
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 1995
Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the
three month period ended March 31, 1996 are not necessarily indicative of
the results of operations to be expected for the fiscal year ending
December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation - The accompanying consolidated financial
statements include the accounts JW Charles Financial Services, Inc. and
its subsidiaries which are, Corporate Securities Group, Inc. ("CSG"), JW
Charles Securities, Inc. ("JWC Securities"), JW Charles Clearing Corp.
("JWC Clearing"), JW Charles Capital Corp., JW Charles Insurance
Services, Inc., DMG Securities, Inc. ("DMG") and Discount Securities
Group, Inc. All significant intercompany transactions have been
eliminated in consolidation.
Reclassifications - Certain amounts in the prior period's financial
statements have been reclassified to conform to the current period's
presentation. These reclassifications are not material to the
consolidated 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.
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 ("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 March 31, 1996, the net
capital positions of the Company's broker-dealer subsidiaries were as
follows:
<PAGE>
JWC Clearing (alternative method elected):
Net capital as a percent of aggregate debit items 7.8%
Net capital $7,605,000
Required net capital $1,944,000
CSG:
Ratio of aggregate indebtedness to net capital 1.54
Net capital $2,368,000
Required net capital $250,000
4. NET CAPITAL (cont.)
JWC Securities:
Ratio of aggregate indebtedness to net capital 1.57
Net capital $1,968,000
Required net capital $250,000
DMG:
Ratio of aggregate indebtedness to net capital .59
Net capital $509,000
Required net capital $100,000
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 (THE "1996 PERIOD") VS. 1995 (THE
"1995 PERIOD")
The Company's results of operations for 1996 were buoyed by a
vibrant and rising stock market. Substantially all of the Company's
business lines turned in strong performances, particularly when compared
to the corresponding period of the prior year.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------
1996 % Increase 1995 % Increase 1994
(000's) (Decrease) (000's) (Decrease) (000's)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $10,168 31 $7,744 7 $7,231
Market making and principal
transactions, net 5,436 16 4,706 41 3,329
Interest 2,160 58 1,370 36 1,010
Clearing fees 1,631 11 1,464 16 1,259
Other 1,616 96 826 35 612
---------------------------------------------------------
$21,011 30 $16,110 20 $13,441
=========================================================
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------
1996 % Increase 1995 % Increase 1994
(000's) (000's) (000's)
---------------------------------------------------------
Expenses:
Commissions and clearing costs $11,308 36 $8,302 25 $6,632
Employee compensation and benefits 3,573 3 3,459 33 2,610
Selling, general and administrative 3,846 23 3,133 6 2,947
Interest 878 80 488 59 306
---------------------------------------------------------
$19,605 27 $15,382 23 $12,495
=========================================================
</TABLE>
Total revenues of $21,011,000 recorded in the 1996 Period increased
30% over last year's $16,110,000. During the 1996 Period the Company
experienced increases in all revenue categories. Growth in the various
revenue categories was primarily due to heightened client activity, both
retail and clearing, associated with 1996's vibrant and rising stock
market.
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. Commissions and clearing costs as
a percentage of commissions and market making and principal transactions,
net (the "Clearing Factor"), in the 1996 and 1995 Periods were 72% and
67%, respectively. The Company believes that the Clearing Factor has
increased primarily as a result of (i) an increase in the average
production per registered representative which results in a higher
percentage payout and (ii) an increase in the percentage of the Company's
commission business being cleared through Bear Stearns as compared to JWC
Clearing. Clearing costs paid to Bear Stearns are recorded as an expense
whereas clearing costs paid to JWC Clearing are eliminated in
consolidation.
The Company believes that its Clearing Factor is representative of
the prevailing experience in the industry, although sufficient industry
data is not available to make a precise comparison. The major component,
however, 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
<PAGE>
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 and selling, general
and administrative expenses reflect the costs associated with the
Company's overall business growth.
Interest income consists primarily of interest earned on receivables
from customers, securities owned and customer money market fund balances.
Interest expense, which consists primarily of interest incurred on short-
term borrowings and notes payable used to finance JWC Clearing
receivables from customers and securities owned has increased in each of
the past three years. The increase in both of these items is primarily a
result of: (i) a general increase in interest rates experienced during
1995, and (ii) an increase in the average outstanding loan balances used
to fund increased customer balances from 1995 to 1996 reflecting the
Company's overall business growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a highly liquid balance sheet with the
majority of the Company's assets consisting of securities owned, which
are marked to market daily, and receivables from customers arising from
customer related securities transactions. Receivables from customers
consist primarily of collateralized customer margin loans and securities
borrowed, 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.
The Company has borrowed over the past few years an aggregate of
$5,000,000 from Gilman CMG, Inc. ("GCMG") or an affiliate thereof, which,
at March 31, 1996, owned approximately 49% of the Company's outstanding
shares of Common Stock. On May 15, 1995, the Company and GCMG entered
into a new loan agreement (the "Gilman Loan") for a refinancing of that
debt, pursuant to which the debt was converted to a $5,000,000 term loan,
bearing interest at a rate of 10% per annum. At May 15, 1996, $3,000,000
was outstanding under the Gilman Loan with principal payable in equal
quarterly installments of $250,000 due on July 15, October 15, January
15, and April 15, of each year until paid in full. Interest accrues on
the principal outstanding from time to time and is payable quarterly on
<PAGE>
the same dates that principal payments are required. The Company has the
option to prepay principal, in whole or in part at any time, without
premium or penalty.
On May 15, 1995, the Company entered into a Stock Repurchase
Agreement (the "Agreement") with GCMG to repurchase all of the
approximately 49% of the Company's outstanding common stock then held by
GCMG. Beginning April 15, 1996, the Company commenced to repurchase
stock each year in an amount equal to 50% of annual net income, as
defined, until all the Gilman stock is repurchased. For purposes of
determining the aggregate amount of stock required to be repurchased each
year, net income is reduced by principal payments on the Gilman Loan.
The repurchase price per share is a minimum of $3.00, subject to certain
adjustments each year based upon changes in the Company's net tangible
book value, as defined. On April 15, 1996, the Company paid $1,155,000 to
GCMG for the 1996 installment under the original repurchase agreement.
On May 15, 1995, the Company reclassified $5,978,000, representing
$3.12 per share, from additional paid-in capital and retained earnings to
mandatorily redeemable common stock to reflect the terms of the
Agreement. The difference between the initially recorded cost of the
mandatorily redeemable common stock and the adjusted purchase price has
been accreted to mandatorily redeemable common stock through a direct
charge to retained earnings.
On May 14, 1996, the Company and GCMG agreed in principle to modify
their existing Agreement to provide that the Company will repurchase all
the shares of Common Stock of the Company owned by Gilman in exchange for
a promissory note in the amount of $6,125,000 (the "Stock Loan") bearing
interest, which is payable quarterly, at a rate of 10% per annum.
Beginning April 15, 1997, the Company will be 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. The Stock Loan will
contain 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 will be prepayable, in whole or in
part, at any time by paying GCMG a prepayment penalty equal to 10% of the
prepayment amount. Upon execution of the modified Agreement and Stock
Loan, $6,125,000 will be reclassified from mandatorily redeemable common
stock to notes payable to affiliates.
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 May 15, 1996, the balance outstanding
under the Wilmington Facility was $0.
In connection with the Wilmington Facility, the Company entered into
a Marketing Agreement with Wilmington Trust FSB and granted W T
Investments, Inc. a warrant to purchase up to 400,000 shares of the
Company's common stock at any time prior to December 31, 2002. The
exercise price per share is the greater of $5.50 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. The 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.
The Company believes that its current borrowing arrangements,
combined with anticipated levels of internally generated funds, will be
sufficient to fund its financial requirements for the foreseeable future.
This estimate is 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.
At March 31, 1996, the Company had stockholders' equity of
$10,153,000, representing an increase of $595,000 from December 31, 1995.
The increase in stockholders' equity is due to reported net income of
$862,000 for the 1996 Period, net of the reclassification of $267,000
from stockholders' equity to mandatorily redeemable common stock.
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 not made any provision in its financial
statements for the possible effect on the Company's financial condition
of the above guarantees and the Company's contingent liability as a
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.
II - OTHER INFORMATION
Item 1. Legal Proceedings
In July 1994, a third amended complaint was filed in the matter of
Marilyn Norwood, as guardian for Samuel Laten, v. JW Charles Securities,
Inc., et al., Case No. 93-19727, in the Circuit Court for the Seventeenth
Judicial Circuit In and For Broward County, Florida (the "Norwood
Matter") which asserted claims against JW Charles Securities, Inc. and
certain of its registered representatives. In October, 1994, a hearing
was held to rule on JW Charles Securities, Inc. motion to compel
arbitration. The Court granted the Company's motion and the case was
dismissed as to JW Charles Securities, Inc. and its registered
representatives and subsequently moved to arbitration alleging the same
acts. On May 9, 1996, the Norwood Matter was settled at a nominal cost
to the Company.
Of Counsel Enterprises, Inc. (now Co-Counsel) has instituted a civil
proceeding in federal court in Houston, Texas against eleven (11)
different defendants including JW Charles Securities, Inc. ("JWCS") and
Corporate Securities Group ("CSG") (alleging violations of state and federal
securities laws as well as Texas common law in connection with the initial
public offering and aftermarket activity in 1993 associated with the Co-Counsel
stock. The damages claimed were in excess of $10 million. On February
29, 1996, JW Charles Securities, Inc. and Corporate Securities Group,
Inc. jointly filed a Motion to Dismiss the Supplemental Complaint. On
May 10, 1996 JWCS, CSG and Co-Counsel reached a preliminary settlement
agreement pursuant to which Co-Counsel agreed to dismiss all claims
against JWCS and CSG and agreed to indemnify JWCS and CSG for any claims,
causes of action (including defense) arising out of the claims that had been
set forth in the Co-Counsel complaint against JWCS and CSG. Pursuant to the
settlement agreement, JWCS and CSG will transfer and assign to Co-Counsel
50,000 of the warrants it received in connection with the underwriting of
Co-Counsel's 1993 initial public offering. These Warrants had a nominal
carrying value, and the settlement will not otherwise have a material
adverse effect on the Company's financial condition or its results of
operations.
In addition to these matters, the Company has been named in various
arbitration and legal proceedings arising out of 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, the Company 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 or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10(a) Agreement In Principle Gilman CMG, Inc. and JW Charles
Financial Services, Inc.
27 - Financial Data Schedule
(b) Reports on From 8-K:
None.
<PAGE>
<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.
JW CHARLES FINANCIAL SERVICES, INC.
Date: May 20, 1996 /s/ Joel E. Marks
(Joel E. Marks, Vice Chairman)
(Duly Authorized Officer)
Date: May 20, 1996 /s/ Joel E. Marks
(Joel E. Marks, Principal Financial and
Accounting Officer)
AGREEMENT IN PRINCIPLE
JW Charles Financial Services, Inc., a Florida corporation (the
"Company"), and Gilman CMG, Inc. a Delaware corporation ("Gilman"),
hereby execute this Agreement in Principle in order to set forth their
mutual understanding and good faith intentions to work cooperatively and
use their best efforts to complete negotiations and preparations of
definitive documents to effectuate an immediate repurchase of all of the
Company's shares which are currently subject to that certain Stock
Repurchase Agreement, dated May 15, 1995, between the Company and Gilman,
a payment of cash and the issuance of a Note for the aggregate amount of
such repurchase based upon the terms set forth on Exhibit A attached
hereto.
With respect to the stock repurchase and Note summarized in Exhibit
A, the Company and Gilman acknowledge that a draft of the Note and such
other necessary documents are currently being prepared to reflect those
terms set forth in Exhibit A.
The Company and Gilman confirm their intention and agreement to
proceed as promptly as practicable with definitive documentation for the
transactions described above and that the execution and delivery of a
definitive agreement with respect to the Note is subject to and
conditioned upon the respective approvals by the board of directors of
the Company and Gilman of such definitive agreement. The Company and
Gilman each recognize and agree that either or both of them may make a
press release announcing this Agreement in Principle and referring to the
parties' intention to proceed as described herein.
IN WITNESS WHEREOF, this Agreement in Principle has been executed on
behalf of the parties by their duly authorized representatives on this
14th day of May, 1996.
JW CHARLES FINANCIAL SERVICES, INC. GILMAN CMG, INC.
By: /s/ Joel E. Marks By:/s/ John Faiella
Joel E. Marks John Faiella
Vice Chairman and Chief President
Financial Officer
<PAGE>
EXHIBIT A
Note Amount: $6,125,000.
Cash Amount $1,155,000
Interest Rate: 10% per annum.
Interest Payable: Quarterly.
Principal Payments: Beginning April 15, 1997, the Company
will be obligated to make principal
payments each year in an amount equal to
the Modified Net Income, as defined,
until the entire outstanding principal
balance has been repaid in full.
"Modified Net Income" for each year means
50% of the Company's audited net income
for the immediately preceding fiscal year
after subtracting the aggregate amount of
principal payments made to GCMG on the
existing GCMG indebtedness during such
fiscal year.
The Note will contain a balloon payment
feature requiring, without regard to the
above formula, that the entire
outstanding principal balance be repaid
in full on 4/15/2000.
Prepayment Provisions: The Note will be prepayable, in whole or
in part, at any time by paying GCMG a
prepayment penalty equal to 10% of the
prepayment amount.
Covenants: The Note will contain protective
covenants similar to those contained in
the Company's line of credit agreement
with Wilmington Trust Company.
Directorships: Mr. Leeds and Mr. Marks have agreed to
support those persons, who together will
constitute one-half of the board of
directors, who are identified by GCMG for
election as directors of the Company.
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<CIK> 0000741557
<NAME> JW CHARLES FINANCIAL SERVICES
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