<PAGE>
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 June 30, 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
incorporation or organization) Identification No.)
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 August 1, 1996
- --------------------------------------- -----------------------------
Common stock, $.001 par value per share 2,001,399
<PAGE>
JW CHARLES FINANCIAL SERVICES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements.
Consolidated Condensed Statements of Financial Condition
at June 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Income for the Three
Months Ended June 30, 1996 and 1995 4
Consolidated Condensed Statements of Income for the Six
Months Ended June 30, 1996 and 1995 5
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Page 2<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
<CAPTION>
JW CHARLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------
June 30, December 31,
ASSETS 1996 1995(*)
- ------ --------------------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 10,433,000 $ 8,597,000
Commissions and other receivables from clearing brokers 6,192,000 2,750,000
Receivable from customers, net 104,567,000 81,438,000
Receivable from brokers and dealers 12,753,000 5,752,000
Securities owned, at market value 8,775,000 11,486,000
Furniture, equipment and leasehold improvements, net of
accumulated depreciation and amortization of $1,087,000 and
$962,000 1,137,000 1,253,000
Deferred tax asset 1,015,000 1,011,000
Other, net 2,661,000 2,927,000
------------------------------
$147,533,000 $115,214,000
==============================
LIABILITIES, MANDATORILY REDEEMABLE COMMON STOCK AND
- ----------------------------------------------------
STOCKHOLDERS' EQUITY
- --------------------
Liabilities:
Short-term borrowings from banks $ 38,050,000 $29,114,000
Accounts payable, accrued expenses and other liabilities 9,592,000 7,935,000
Payable to customers 43,135,000 31,351,000
Payable to brokers and dealers 27,722,000 22,210,000
Securities sold, not yet purchased, at market value 7,573,000 4,074,000
Notes payable to affiliate 9,125,000 3,500,000
Income taxes payable 837,000 459,000
------------------------------
136,034,000 98,643,000
------------------------------
Mandatorily redeemable common stock - 7,013,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value - authorized 9,056,000
shares; issued and outstanding 2,001,399 and 3,914,748 2,000 4,000
Additional paid-in capital 764,000 764,000
Retained earnings 10,733,000 8,790,000
------------------------------
Total stockholders' equity 11,499,000 9,558,000
------------------------------
$147,533,000 $115,214,000
==============================
</TABLE>
* - Derived from audited financial statements contained in Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)
Page 3<PAGE>
JW CHARLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------
1996 1995
---------------------------------
<S> <C> <C>
Revenues:
Commissions $13,226,000 $10,232,000
Market making and principal transactions, net 7,048,000 4,707,000
Interest 2,322,000 1,423,000
Clearing fees 2,672,000 2,089,000
Other 810,000 518,000
--------------------------------
26,078,000 18,969,000
Expenses:
Commissions and clearing costs 14,666,000 10,736,000
Employee compensation and benefits 3,697,000 3,218,000
Selling, general and administrative 4,487,000 3,346,000
Interest 1,055,000 618,000
--------------------------------
23,905,000 17,918,000
--------------------------------
Income before income taxes 2,173,000 1,051,000
Provision for income taxes 827,000 399,000
--------------------------------
Net income $1,346,000 $652,000
================================
Earnings per common share:
Net income $.37 $.16
================================
Weighted average number of common shares outstanding
during the period 3,632,000 3,952,000
================================
</TABLE>
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)
Page 4<PAGE>
JW CHARLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1996 1995
----------------------------
<S> <C> <C>
REVENUES:
Commissions $23,394,000 $17,976,000
Market making and principal transactions, net 12,484,000 9,413,000
Interest 4,482,000 2,793,000
Clearing fees 4,985,000 4,053,000
Other 1,541,000 844,000
----------------------------
46,886,000 35,079,000
----------------------------
EXPENSES:
Commissions and clearing costs 25,974,000 19,038,000
Employee compensation and benefits 7,270,000 6,677,000
Selling, general and administrative 8,130,000 6,479,000
Interest 1,933,000 1,106,000
----------------------------
43,307,000 33,300,000
----------------------------
Income before income taxes 3,579,000 1,779,000
Provision for income taxes 1,371,000 697,000
----------------------------
Net income $2,208,000 $1,082,000
============================
EARNINGS PER COMMON SHARE:
Net income $.56 $.27
============================
Weighted average number of common shares outstanding
during the period 3,935,000 3,952,000
============================
</TABLE>
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)
Page 5<PAGE>
JW CHARLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $2,208,000 $1,082,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 125,000 123,000
Change in operating assets and liabilities:
Cash and securities segregated under federal regulations - (119,000)
Commissions and other receivables from clearing brokers (3,442,000) (2,599,000)
Receivable from customers (23,129,000) (8,968,000)
Receivable from brokers and dealers (7,001,000) (1,158,000)
Securities owned 2,711,000 (1,831,000)
Deferred tax asset (4,000) (106,000)
Income taxes receivable - 79,000
Other assets 266,000 1,489,000
Accounts payable, accrued expenses and other liabilities 1,657,000 3,515,000
Payable to customers 11,784,000 (6,810,000)
Payable to brokers and dealers 5,512,000 3,512.000
Securities sold, not yet purchased 3,499,000 2,391,000
Income taxes payable 378,000 -
Net cash used by operating activities (5,436,000) (9,400,000)
----------------------------
INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (9,000) (247,000)
----------------------------
FINANCING ACTIVITIES
Short-term borrowings from banks 8,936,000 10,140,000
Repayment of notes payable to affiliate (500,000) (1,000,000)
Cash flow distributions and redemptions of common stock (1,155,000) (1,000)
----------------------------
Net cash used by financing activities 7,281,000 9,139,000
----------------------------
Net increase (decrease) in cash and cash equivalents 1,836,000 (508,000)
Cash and cash equivalents at beginning of period 8,597,000 5,401,000
----------------------------
Cash and cash equivalents at end of period $10,433,000 $4,893,000
============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $968,000 $653,000
============================
Cash paid during the period for interest $1,933,000 $1,106,000
============================
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
AND INVESTING ACTIVITIES
Repurchase of mandatorily redeemable common stock
by issuance of $6,125,000 of notes payable to affiliates
in 1996.
</TABLE>
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)
Page 6<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 and six month periods ended June 30, 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.
7<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. 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 June 30,
1996, 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 6.4%
Net capital $7,835,000
Required net capital $2,430,000
CSG:
Ratio of aggregate indebtedness to net capital 1.35
Net capital $2,730,000
Required net capital $250,000
JWC Securities:
Ratio of aggregate indebtedness to net capital 1.47
Net capital $2,491,000
Required net capital $250,000
DMG:
Ratio of aggregate indebtedness to net capital .39
Net capital $582,000
Required net capital $100,000
8<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 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.
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------
1996 % Increase 1995 % Increase 1994
(000's) (Decrease) (000's) (Decrease) (000's)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $13,226 29 $10,232 154 $4,035
Market making and principal
transactions, net 7,048 50 4,707 (11) 5,270
Interest 2,322 63 1,423 22 1,168
Clearing fees 2,672 28 2,089 73 1,208
Other 810 56 518 (27) 712
---------------------------------------------------------
$26,078 37 $18,969 53 $12,393
=========================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------------
1996 % Increase 1995 % Increase 1994
(000's) (000's) (000's)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses:
Commissions and clearing costs $14,666 37 $10,736 76 $6,096
Employee compensation and benefits 3,697 15 3,218 32 2,442
Selling, general and administrative 4,487 34 3,346 32 2,539
Interest 1,055 71 618 63 380
---------------------------------------------------------
$23,905 33 $17,918 56 $11,457
=========================================================
</TABLE>
Total revenues of $26,078,000 recorded in the 1996 Period
increased 37% over last year's $18,969,000. 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
and the continued expansion of the Company's branch office
network.
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"), remained constant at approximately 72%
in both the 1996 and 1995 Periods.
9<PAGE>
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 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.
SIX MONTHS ENDED JUNE 30, 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. All of the Company's business
lines turned in strong performances, particularly when compared
to the corresponding period of the prior year.
10<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------
1996 %Increase 1995 % Increase 1994
(000's) (Decrease) (000's) (Decrease) (000's)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $23,394 30 $17,976 87 $9,590
Market making and principal
transactions, net 12,484 33 9,413 (8) 10,276
Interest 4,482 60 2,793 28 2,178
Clearing fees 4,985 23 4,053 64 2,467
Other 1,541 83 844 (36) 1,324
-----------------------------------------------------------
$46,886 34 $35,079 36 $25,835
===========================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------------
1996 % Increase 1995 % Increase 1994
(000's) (000's) (000's)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses:
Commissions and clearing costs $25,974 36 $19,038 50 $12,728
Employee compensation and benefits 7,270 9 6,677 32 5,052
Selling, general and administrative 8,130 25 6,479 18 5,487
Interest 1,933 75 1,106 61 686
------------------------------------------------------------
$43,307 30 $33,300 39 $23,953
============================================================
</TABLE>
The underlying reasons for most of the variances to the
prior period are substantially the same as the comparative
quarterly discussions above and the statements contained in the
foregoing discussion also apply to the six month comparison.
Therefore this section is limited to the discussion of additional
factors which effected the results of operations for the six
month periods.
The Clearing Factor, in the 1996 and 1995 Periods were 72%
and 70%, 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.
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
11<PAGE>
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 June 30, 1995, 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 July 31, 1996, $2,750,000
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 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 "Old 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 was
required to repurchase stock each year in an amount equal to 50%
of annual net income, as defined, until all the GCMG stock was
repurchased. In connection with this transaction, 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 Old
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 June 11, 1996, the Company entered into an Amended and
Restated Stock Repurchase Agreement (the "New Agreement") with
GCMG for, and simultaneously consummated, the repurchase of all
of the Company' shares of common stock owned by GCMG and subject
to the Old Agreement. Effective as of April 15, 1996, the
Company had repurchased 315,510 shares of common stock from GCMG
12<PAGE>
pursuant to the Old Agreement, which was amended and restated by
the New Agreement to accelerate the repurchase by the Company for
the remaining 1,600,399 shares of common stock owned by GCMG.
The total consideration paid by the Company consisted of a
promissory note in the principal amount of $6,125,000 (the "New
Loan"), along with the $1,155,000 in cash that was paid to GCMG
in connection with the April 15, 1996 installment purchase under
the Old Agreement. The New 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. The New 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 New Loan is prepayable, in whole
or in part, at any time by paying GCMG a prepayment penalty equal
to 10% of the prepayment amount. Simultaneous with the execution
of the New Agreement, $6,125,000 was reclassified from
mandatorily redeemable common stock to notes payable to
affiliate.
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 June 30, 1996 and July 31, 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
13<PAGE>
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 June 30, 1996, the Company had stockholders' equity of
$11,499,000, representing an increase of $1,941,000 from December
31, 1995. The increase in stockholders' equity is due to
reported net income of $2,208,000 for the 1996 Period, net of the
reclassification of $267,000 from stockholders' equity to notes
payable to affiliate to reflect the terms of the New Agreement.
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.
14<PAGE>
II - OTHER INFORMATION
Item 1. Legal Proceedings
- ---------------------------
There are no material legal proceedings pending or
threatened in which the Company is party or of which the
Company's property is the subject. The Company has 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, 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 and results of operations.
Item 4. Submission of Matters to Vote of Security Holders.
- ------------------------------------------------------------
On June 11, 1996 at the Annual Meeting of Shareholders of JW
Charles Financial Services, Inc. Messrs. Marshall T. Leeds, Joel
E. Marks, Wm. Dennis Ferguson, Gregg S. Glaser, Stephen W.
Cropper, John R. Faiella, Joseph P. Robilotto and Michael B.
Weinberg each were elected as a director to serve a term that
continues until the next annual meeting and until their
successor, if there is to be one, is duly elected and qualified.
The number of shares voted for, or withheld from, each candidate
is set forth in the table below.
<TABLE>
<CAPTION>
Number of Number of Number of
Votes Votes Votes
Nominee For Election Withheld Not Voted
------- ------------ -------- ----------
<S> <C> <C> <C>
Marshall T. Leeds 3,503,399 1,200 0
Joel E. Marks 3,503,399 1,200 0
Wm. Dennis Ferguson 3,495,399 1,200 8,000
Gregg S. Glaser 3,503,399 1,200 0
Stephen W. Cropper 3,495,399 1,200 8,000
John R. Faiella 3,495,399 1,200 8,000
Joseph P. Robilotto 3,498,399 1,200 5,000
Michael B. Weinberg 3,500,399 1,200 3,000
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits:
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
Form 8-K reporting date - June 14, 1996
Item Reported - Item 5, Other Events
Item 7(c)(i), Amended and Restated Stock
Purchase Agreement among JW Charles
Financial Services, Inc., Gilman
CMG, Inc., Marshall T. Leeds
and Joel E. Marks dated June 11,
1996
Item 7(c)(ii), $6,125,000 Promissory Note
issued by JW Charles Financial
Services, Inc. to Gilman CMG, Inc.
dated June 11, 1996
15<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: August 15, 1996 /s/ Joel E. Marks
-----------------------------------
(Joel E. Marks, Senior Vice President)
(Duly Authorized Officer)
Date: August 15, 1996 /s/ Joel E. Marks
-------------------------------------
(Joel E. Marks, Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000741557
<NAME> JW CHARLES FINANCIANL
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,433,000
<SECURITIES> 8,775,000
<RECEIVABLES> 123,512,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 142,720,000
<PP&E> 1,137,000
<DEPRECIATION> 1,087,000
<TOTAL-ASSETS> 147,533,000
<CURRENT-LIABILITIES> 138,408,000
<BONDS> 9,125,000
0
0
<COMMON> 2,000
<OTHER-SE> 11,497,000
<TOTAL-LIABILITY-AND-EQUITY> 147,533,000
<SALES> 0
<TOTAL-REVENUES> 46,886,000
<CGS> 0
<TOTAL-COSTS> 41,374,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,933,000
<INCOME-PRETAX> 3,579,000
<INCOME-TAX> 1,371,000
<INCOME-CONTINUING> 2,208,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,208,000
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
