As filed with the Securities and Exchange Commission on May 12, 1998.
Registration No. 333-49225
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
JW CHARLES FINANCIAL SERVICES, INC.
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(Exact Name of Issuer as Specified in its Charter)
Florida 58-1545984
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
Number)
980 North Federal Highway, Suite 210
Boca Raton, Florida 33432
(561) 338-2600
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(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
JOEL E. MARKS
Vice Chairman and Chief Financial Officer
1117 Perimeter Center West, Suite 500E
Atlanta, GA 30338
(770) 399-8805
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(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
Copies to:
W. RANDY EADDY, ESQ.
Kilpatrick Stockton LLP
1100 Peachtree Street, N.E.
Atlanta, Georgia 30309-4530
(404) 815-6500
Approximate date of commencement of proposed sale to the
public: From time to time after this Registration Statement
becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following box. / /
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933 (the "Securities Act"), other
than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
/ /_______________
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
PROSPECTUS
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SUBJECT TO COMPLETION, DATED MAY 12, 1998.
JW Charles Financial Services, Inc.
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767,100 Shares of Common Stock
__________________________________
The 767,100 shares (the "Shares") of Common Stock, $.001 par
value ("the "Common Stock") of JW Charles Financial Services,
Inc., a Florida corporation (the "Company") that may be sold from
time to time hereby (the "Offering") are comprised of (i) 329,600
shares of Common Stock which may be offered for resale by certain
shareholders of the Company named herein, and (ii) 437,500 shares
of Common Stock issuable upon exercise of warrants to purchase
Common Stock (the "Warrants"), which shares may be resold by the
holders of the Warrants after exercise thereof (such shareholders
referred to in (i) and warrant holders in (ii) collectively
referred to as the "Selling Shareholders"). See "Selling
Shareholders". The Company will not receive any of the proceeds
from the sale of the Shares, but will receive the exercise price
payable upon any exercise of the Warrants.
The Company has agreed to bear all expenses (other than
commissions or discounts of underwriters, dealers, or agents) of
the Selling Shareholders, including the fees and expenses of
counsel to one of the Selling Shareholders. The Company has
agreed to indemnify the Selling Shareholders, and they have
agreed to indemnify the Company, against certain liabilities
under the Securities Act of 1933, as amended (the "Securities
Act"). See "Plan of Distribution".
The Shares may be sold by the Selling Shareholders from time
to time in underwritten offerings or in ordinary brokerage
transactions at prices at or near the market price or in other
mutually negotiated transactions on terms to be negotiated at the
time of sale. Usual and customary or specifically negotiated
underwriting discounts, brokerage fees, or commissions may be
paid by the Selling Shareholders in connection with such sales.
To the extent required, the specific Shares to be sold, the terms
of the offering, including price, the name of any broker-dealer
or underwriter, and any applicable commission, discount, or other
compensation with respect to a particular sale will be set forth
in an accompanying Prospectus Supplement. See "Plan of
Distribution".
The Company's Common Stock is traded on the American Stock
Exchange ("AMEX") under the symbol "JWC". On May 11, 1998, the
last sale price of the Common Stock as reported by the AMEX was
$11.75 per share.
See "Risk Factors" Beginning on Page 5 for Certain
Information that Should be Considered by Prospective Investors.
___________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
___________________________
The date of this Prospectus is __________________, 1998.<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents are incorporated by reference into
this Prospectus and are deemed to be a part hereof from the date
of the filing of such documents:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as amended (Securities and Exchange
Commission ("Commission") File Number ("File No.") 001-
12953).
(2) All other reports filed by the Company pursuant to Sections
13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since the filing of its Annual
Report on Form 10-K for the fiscal year ended December 31,
1997.
(3) The description of the Company's Common Stock contained in
the Company's Registration Statement on Form 8-A, dated
April 30, 1997 (File No. 001-12953), including all
amendments or reports filed for the purpose of updating such
description.
(4) All other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act prior to the filing of a post-effective
amendment which indicates that all securities offered
pursuant to the Registration Statement on Form S-3 of which
this Prospectus forms a part have been sold, or which
deregisters all securities that remain unsold.
FORWARD LOOKING STATEMENTS
From time to time, information provided by the Company or
statements made by its directors, officers, or employees may
constitute "forward-looking" statements under the Private
Securities Litigation Reform Act of 1995 and are subject to
numerous risks and uncertainties. Any statements made in this
Prospectus, including any statements incorporated herein by
reference, that are not statements of historical fact are
forward-looking statements. Such forward-looking statements and
other forward-looking statements made by the Company or its
representatives are based on a number of assumptions and involve
a number of risks and uncertainties, and, accordingly, actual
results could differ materially. Factors that may cause such
differences include, but are not limited to, those set forth
under the heading "Risk Factors".
2
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THE COMPANY
GENERAL
The Company, the issuer of the Shares offered by this
Prospectus, is a diversified financial services holding company
whose subsidiaries engage primarily in securities brokerage,
investment banking, and clearing and execution of securities
transactions. The foundation of the Company's business lies in
providing traditional securities brokerage services to retail,
corporate, and institutional clients. Today, these services are
provided through the Company's three principal operating,
subsidiaries: JWCharles Securities, Inc. ("JWCS"), Corporate
Securities Group, Inc. ("CSG"), and JWCharles Clearing Corp.
("JWCC"). All three subsidiaries provide quality investment
products and services, including stocks, municipal and corporate
bonds, unit investment trusts, certificates of deposit, domestic
and international mutual funds, initial and secondary public
offerings, life and long-term care insurance, fixed and variable
annuities, equity research, corporate finance, money market
funds, individual and corporate retirement plans, and cash
management accounts.
JWCS is a New York Stock Exchange, Inc. ("NYSE") member firm
with branch offices in South Florida, Georgia, and New York.
JWCS' branches typically are owned and managed by the Company.
JWCS' brokers are "full-service" oriented and receive
compensation packages competitive with most regional and national
wire-house brokerage firms. CSG is a general securities broker-
dealer that offers its products and services to a variety of
clients through a national network of independently owned
offices. CSG offices offer a full array of investment products
and services, and can vary in size from one investment
professional to many. JWCC is a NYSE member firm that provides
clearing services on a fully disclosed basis for a variety of
correspondents 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. Correspondents include broker-dealers, banks, and
other financial institutions. JWCS and CSG clear trades through
JWCC, as well as through an outside clearing arrangement with
Bear Stearns Securities Corporation.
The Company has been a public company since 1984, and its
Common Stock is traded on the AMEX under the symbol "JWC". The
Company is a Florida corporation with its principal executive
offices at 980 North Federal Highway, Suite 210, Boca Raton,
Florida 33432, (561) 338-2600.
RECENT DEVELOPMENTS
On January 21, 1998, the Company publicly announced plans to
combine (the "Combination") with Genesis Merchant Group
Securities, LLC ("Genesis") pursuant to an Agreement and Plan of
Combination, which was amended and restated on March 9, 1998 (the
"Combination Agreement"), among the Company, Genesis, and the
holders of all of the equity interests ("Genesis Membership
Interests") of Genesis ("Genesis Members"). Upon consummation of
the Combination Agreement, which is subject to, among other
things, Company shareholder approval, the Company will become a
wholly owned subsidiary, and Genesis will become at least a 90%
owned limited liability company, of a new publicly held parent
corporation with the name of "JWGenesis Financial Corp."
("JWGenesis"). Shareholders of the Company and former Genesis
Members who exchange their Genesis Membership Interests will
become shareholders of JWGenesis. Each outstanding share of the
Company's Common Stock (including shares owned, and that may be
sold pursuant to this Prospectus, by the Selling Shareholders)
will be exchanged for and become the right to receive one share
of JWGenesis Common Stock, and at least 90% of the Genesis
Membership Interests will be exchanged for an aggregate of up to
1,500,000 shares of JWGenesis Common Stock; if less than 100% of
the Genesis Membership Interests are exchanged, the number of
3
<PAGE>
shares of JWGenesis Common Stock to be issued to the Genesis
Members equity will be equal to the product of 1,500,000 and the
percentage of the outstanding Genesis Membership equity interests
of Genesis exchanged. Based on the closing price of the Company's
Common Stock on the AMEX on May 11, 1998, shares of JWGenesis
Common Stock having an aggregate value of $17,625,000 will be issued
to Genesis Members pursuant to the Combination, assuming 1,500,000
shares will be issued.
Upon consummation of the Combination, based on the number of
shares of the Company's Common Stock expected to be outstanding,
and assuming that all of the equity interests of Genesis are
exchanged for JWGenesis Common Stock, the former shareholders of
the Company will own approximately 71%, and the former Genesis
Members will own approximately 29%, of the shares of JWGenesis
Common Stock expected to be then issued and outstanding (excluding
the exercise of outstanding options and warrants).
Genesis is a San Francisco-based investment banking firm
with special expertise in institutional trading and innovative
research focused on high-growth industries. The predecessor of
Genesis, an Illinois limited partnership ("Genesis LP"), was
formed in 1989 to provide brokerage, accounting, and
administrative services to investment partnerships. Reference
herein to Genesis prior to June 30, 1996 includes Genesis L.P.
As of February 1, 1998, Genesis had 59 employees (including 28
registered representatives), and its business activities include
research, sales and trading, corporate finance, and brokerage
processing. Genesis provides these services to a select
clientele consisting principally of nationally known corporate
and institutional clients and high net worth individuals.
Genesis is a California limited liability company with its
principal executive offices located at 909 Montgomery, Suite 600,
San Francisco, California 94113, (415) 677-1500.
JWGenesis is a Florida corporation and currently a wholly
owned subsidiary of the Company formed for the purpose of
becoming the parent company of the Company and Genesis as a
result of the Combination. The principal executive offices of
JWGenesis will be located at 980 North Federal Highway, Suite
210, Boca Raton, Florida 33432 and its telephone number will be
(561) 338-2600.
JWGenesis will succeed the Company as a public company, and
the JWGenesis Common Stock will be listed on the AMEX for
trading, immediately upon consummation of the Combination. See
"Unaudited Pro Forma Consolidated Condensed Financial Statements"
and "Genesis Financial Statements" appearing elsewhere in this
Prospectus.
THE OFFERING
An aggregate of 767,100 Shares are being offered hereby,
including 329,600 Shares which may be offered and sold from time
to time by certain shareholders of the Company, and 437,500
Shares which may be offered and sold from time to time by the
holders of the Warrants after any exercise thereof. The Company
will not receive any proceeds from the sale by the Selling
Shareholders of any Shares. The Selling Shareholders will
receive all such proceeds. However, the Company will receive the
exercise price payable upon exercise of the Warrants. See
"Selling Shareholders".
4<PAGE>
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A
SIGNIFICANT DEGREE OF RISK. IN DECIDING WHETHER TO PURCHASE THE
SHARES OFFERED HEREBY, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER ALL OF THE INFORMATION CONTAINED IN THIS PROSPECTUS,
INCLUDING THE FOLLOWING FACTORS THAT MAY AFFECT THE COMPANY'S
CURRENT OPERATIONS AND FUTURE PROSPECTS.
From time to time herein, when discussions are focused
on matters that relate primarily to the business or conduct
of the Company following the Combination (if it occurs), references
are made to JWGenesis in the present tense (rather than to the
Company) as if JWGenesis had already succeeded to the business
and operations of the Company. Such references are made for
purposes of simplification and convenience, as an aid to
comprehension of the substantive disclosures in this Prospectus.
They do not mean that JWGenesis, at the present time, has any
operations or has taken (or is taking) any action other than
those related to preparing to consummate the Combination when
and if it is approved by the shareholders of the Company.
JWGenesis presently is simply a wholly owned subsidiary of the
Company that does not have any business, assets, or operations.
VOLATILE NATURE OF THE SECURITIES BUSINESS
The securities business is, by its nature, subject to
significant risks, particularly in volatile or illiquid markets,
including the risk of trading losses, losses resulting from the
ownership or underwriting of securities, counterparty failure to
meet commitments, customer fraud, employee fraud, issuer fraud,
errors and misconduct, failures in connection with the processing
of securities transactions, and litigation. The Company's
principal business activities consist of retail securities
brokerage, investment banking, and clearing and execution
services and 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 factors, including economic and political conditions, broad
trends in business and finance, legislation and regulation
affecting the business and financial communities, currency
values, inflation, market conditions, the availability and cost
of short-term or long-term funding and capital, the credit
capacity or perceived creditworthiness of the securities industry
in the marketplace and the level and volatility of interest
rates. These and other factors can contribute to lower price
levels for securities and illiquid markets.
Lower price levels of securities may result in (i) reduced
volumes of securities transactions, with a consequent reduction
in commission revenues; (ii) losses from declines in the market
value of securities held in trading, investment, and underwriting
positions; and (iii) reduced management fees calculated as a
percentage of assets managed. In periods of low volume, levels
of profitability are further adversely affected because certain
expenses remain relatively fixed. Sudden sharp declines in
market values of securities and the failure of issuers and
counterparties to perform their obligations can result in
illiquid markets, which, in turn, may result in the Company
having difficulty selling securities, hedging its securities
positions, and investing funds under its management. Such
negative market conditions, if prolonged, may also lower the
Company's revenues from investment banking and other activities.
As a result of the varied risks associated with the securities
business, which are beyond the Company's control, the Company's
commissions and other revenues could be adversely affected. A
reduction in revenues or a loss resulting from the underwriting
or ownership of securities could have a material adverse effect
on the Company's results of operations and financial condition.
In addition, as a result of such risks, the Company's revenues
and operating results may be subject to significant fluctuations
from quarter to quarter and from year to year.
5
<PAGE>
<PAGE>
INHERENT UNCERTAINTIES RELATING TO CERTAIN EFFECTS OF THE
COMBINATION
COORDINATION OF OPERATIONS. The success of the Combination
in enhancing long-term shareholder value depends in part on the
ability of the respective managements of the Company and Genesis
to coordinate the operations of their two business enterprises.
As in every business combination, such coordination will require
the dedication of management resources, which may temporarily
divert attention from the day-to-day business of JWGenesis. The
difficulties of coordination may be increased by the necessity of
managing geographically separated organizations, in that the
Company will remain (and JWGenesis will be) headquartered in Boca
Raton, Florida, whereas Genesis will remain based in San
Francisco. There can be no assurance that the coordination
necessary to maximize the benefits of the Combination will be
wholly realized.
REALIZATION OF COST REDUCTIONS AND REVENUE INCREASES. The
senior managements of the Company and Genesis expect certain
increases in revenue as a result of the Combination, without
taking into account or attempting to quantify any of the
incremental operating profits expected to be realized over time
through the Combination. The Board of Directors of the Company
took into account this expectation in deciding to approve the
Combination. There can be no assurance, however, that JWGenesis
will be able to realize, or do so within any particular time
frame, the expected revenue increases, or generate additional
revenue to offset any unanticipated inability to realize such
expected revenue increases.
SIGNIFICANT COMPETITION
All aspects of the Company's business are highly
competitive. The Company competes 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. Such mergers and
acquisitions have increased competition from these firms, many of
which have significantly greater equity capital and financial and
other resources than the Company. With respect to retail
brokerage activities, certain of the regional firms with which
the Company competes have operated in certain markets longer than
has the Company and have established long-standing client
relationships. In addition, the Company expects competition from
commercial banks to increase as a result of recent and
anticipated legislative and regulatory initiatives in the United
States to remove or relieve certain restrictions on commercial
banks relating to the sale of securities. The Company also
competes with others in the financial services industry with
respect to the recruiting of new employees and the retention of
current employees.
The Company expects 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 the Company offers.
The Company also anticipates competition from underwriters who
attempt to effect public offerings for emerging growth companies
through new means of distribution, including transactions
effected 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 such as the Company,
the Company's operating results could be adversely affected.
6
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<PAGE>
DEPENDENCE ON KEY PERSONNEL
Most aspects of the Company's business is dependent on
highly skilled individuals. The Company devotes considerable
resources to recruiting, training, and compensating such
individuals. In addition, one component of the Company's
strategy will be to increase market penetration by recruiting
experienced investment consultants. There can be no assurance
that such recruiting efforts will be successful or, if
successful, that they will enhance the Company's business,
results of operations, or financial condition.
COMPETITION FOR PROFESSIONAL EMPLOYEES. From time to time,
individuals employed by the Company may choose to leave at any
time to pursue other opportunities. The Company has experienced
losses of research, investment banking, and sales and trading
professionals. The level of competition for key personnel
remains intense. There can be no assurance that losses of key
personnel due to such competition or otherwise 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 the Company's operating results.
LIMITATIONS OF EMPLOYEE RETENTION MECHANISMS. The Company
depends on many key employees, and in particular on its senior
executive officers, Marshall T. Leeds, its Chairman, President,
and Chief Executive Officer and Joel E. Marks, its Chief
Financial Officer. The loss of any key employee could materially
and adversely affect the Company. While the Company generally
does not have employment agreements with its employees, it
attempts to retain its employees with incentives such as long-
term deferred compensation plans, the issuance of stock subject
to continued employment, and the grant of 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 the Company's stock price
were to decline or fail to appreciate sufficiently to be a
competitive source of a portion of professional compensation.
DEPENDENCE ON OUTSIDE SOURCES OF FINANCING
The Company, like others in the securities industry, relies
on external sources to finance a significant portion of its day-
to-day operations, principally customer margin account balances
and certain transactions. The principal sources of the Company's
cash and liquidity are commissions, trading profits and
collateralized bank loans. Liquidity management includes the
monitoring of assets available to hypothecate or pledge against
short-term borrowings. The Company maintains working capital
credit lines with two banks, Wilmington Trust Company and SunTrust
Bank, South Florida, N.A., aggregating approximately $5.0 million.
Availability of financing to the Company will vary 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. There can be no
assurance that adequate financing to support the Company's
business will be available in the future on terms attractive to
the Company, or at all.
NET CAPITAL REQUIREMENTS; HOLDING COMPANY STRUCTURE
The Commission, the NYSE, the National Association of
Securities Dealers, Inc. (the "NASD"), and various other
regulatory bodies in the United States have rules with respect to
net capital requirements that affect the Company. These rules
have the effect of requiring that at least a substantial portion
of a broker-dealer's assets be kept in cash or highly liquid
investments. Compliance with the net capital requirements by
broker-dealer subsidiaries of the Company could limit operations
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<PAGE>
that require intensive use of capital, such as underwriting or
trading activities. These rules could also restrict the ability
of the Company to withdraw capital from these subsidiaries, even
in circumstances where these subsidiaries have more than the
minimum amount of required capital, which, in turn, could limit
the ability of the Company to pay dividends, implement its
strategies and pay interest on and repay the principal of its
debt. In addition, a change in such rules, or the imposition of
new rules, affecting the scope, coverage, calculation, or amount
of such net capital requirements, or a significant operating loss
or any unusually large charge against net capital, could have
similar adverse effects.
DEPENDENCE ON SYSTEMS
The Company's business is highly dependent on communications
and information systems. Any failure or interruption of such
systems could cause delays in securities trading activities and
an inability to execute client transactions, which could have a
material adverse effect on operating results of the Company.
There can be no assurance that the Company will not suffer any
such systems failure or interruption, whether caused by an
earthquake, fire, other natural disaster, power or
telecommunications failure, act of God, act of war, or otherwise,
or that the back-up procedures of the Company and capabilities in
the event of any such failure or interruption will be adequate.
YEAR 2000 COMPLIANCE
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, being controlled by microprocessor
chips, may not deal appropriately with the year "00". The
Company is evaluating its computer systems to determine which
modifications and expenditures will be necessary to make its
systems compatible with year 2000 requirements. The Company
believes that their systems will be year 2000-compliant upon
implementation of such modifications.
The Company currently estimates that the total cost of such
modifications will not be significant. However, there can be no
assurance that all necessary modifications will be identified and
corrected or that unforeseen difficulties or costs will not
arise. In addition, there can be no assurance that the systems
of other companies on which the Company 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
the systems or operations of the Company.
RISK OF REDUCED REVENUES DUE TO DECLINE IN TRADING OF GROWTH
COMPANY SECURITIES
The Company's revenues from brokerage transactions are
generally substantially lower when the level of public offering
and trading activities of securities of emerging growth companies
declines. The Company derives a significant portion of its
revenues from brokerage transactions related to the securities of
growth companies. In the past, revenues from such brokerage
<PAGE>
transactions have declined when underwriting activities in these
industry sectors declined, the volume of trading on NASDAQ
declined or industry sectors or individual companies reported
results below investors' expectations.
8<PAGE>
RISKS ASSOCIATED WITH REGULATION
The securities industry and the business of the Company are
subject to extensive regulation by the Commission, state
securities regulators, and other governmental regulatory
authorities. The business of each company also is regulated by
industry self-regulatory organizations ("SROs"), including the
NASD, the NYSE, the AMEX, and other exchanges. Compliance with
many of the regulations applicable to each company involves a
number of risks, particularly in areas where applicable
regulations may be subject to varying interpretation. In the
event of noncompliance by the Company with an applicable
regulation, governmental regulators and SROs may institute
administrative or judicial proceedings that may result in
censure, fine, civil penalties (including treble damages in the
case of insider trading violations), the issuance of cease-and-
desist orders, the deregistration or suspension of the non-
compliant broker-dealer, the suspension or disqualification of
the broker-dealer's officers or employees, or other adverse
consequences. The imposition of any such penalties or orders on
the Company could have a material adverse effect on the Company's
operating results and financial condition.
The regulatory environment is also subject to change. The
Company may be adversely affected as a result of new or revised
legislation or regulations imposed by the Commission, other
federal or state governmental regulatory authorities, or SROs.
The Company 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
The Company's underwriting, securities trading, and market-
making activities are conducted by it as principal and subject
the company's capital to significant risks, including market,
credit, counterparty, and liquidity risks. These activities
often involve the purchase, sale, or short sale of securities as
principal in markets that may be characterized by relative
illiquidity or that may be particularly susceptible to rapid
fluctuations in liquidity. The Company from time to time has
large position concentrations in securities of, or commitments
to, a single issuer, or issuers engaged in a specific industry,
particularly as a result of underwriting activities. The Company
expects to concentrate its trading positions and underwriting
activities 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 the Company's
positions and activities were less concentrated. In addition, the
trend in all major capital markets, for competitive and other
reasons, toward larger commitments on the part of lead
underwriters means that, from time to time, an underwriter
(including a co-manager) may retain significant position
concentrations in individual securities.
RISK OF LOSSES ASSOCIATED WITH LITIGATION AND SECURITIES LAWS
Many aspects of the Company's business will involve
substantial risks of liability. An underwriter is exposed to
substantial liability under federal and state securities laws,
other federal and state laws and court decisions, including
decisions with respect to underwriters' liability and limitations
on indemnification of underwriters by issuers. For example, a
firm that acts as an underwriter may be held liable for material
misstatements or omissions of fact in a prospectus used in
connection with the securities being offered or for statements
made by its securities analysts or other personnel.
9<PAGE>
INCREASING FREQUENCY OF SECURITIES LITIGATION. In recent
years, there has been an increasing incidence of litigation
involving the securities industry, including class actions that
seeks substantial damages. The Company's underwriting activities
will usually involve offerings of the securities of emerging and
mid-size growth companies, which often involve a higher degree of
risk and are more volatile than the securities of more
established companies. In comparison with more established
companies, such emerging and mid-size growth companies are also
more likely to be the subject of securities class actions, to
carry directors and officers liability insurance policies with
lower limits, or no such insurance and to become insolvent. Each
of these factors increases the likelihood that an underwriter of
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 as
defendants the managing underwriters of a public offering. The
Company has not been a named defendant in any class action
lawsuit relating to public offerings in which it served as a
managing underwriter. Plaintiffs' attorneys also name as
defendants investment banks that provide advisory services in
corporate finance transactions. The Company is not a defendant
in any such lawsuit. The Company anticipates, however, that
securities class action lawsuits naming the Company as a
defendant may be filed from time to time in the future,
particularly if the Company increases its level of activity in
such transactions. In such lawsuits, all members of the
underwriting syndicate typically are included as members of a
defendant class 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 connection
with the litigation, to the extent not covered by the
indemnification obligation of the issuer of the securities
underwritten. If the Company were to become a party to such
lawsuits, the Company's assets would be subject to risks. If the
plaintiffs in any suits against the Company were to successfully
prosecute their claims, or if the Company were to settle such
suits by making significant payments to the plaintiffs, the
Company's operating results and financial condition could be
materially and adversely affected. As is common in the
securities industry, the Company does not carry insurance that
would cover any such payments. In addition, the Company's
charter documents allow indemnification of the Company's
officers, directors, and agents to the maximum extent permitted
under Florida law. The Company may be the subject of
indemnification assertions under these charter documents by
officers, directors, or agents of the Company who are or may
become defendants in litigation.
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.
DIVERSION OF MANAGEMENT ATTENTION. In addition to these
financial costs and risks, the defense of litigation can, to a
certain extent, divert the efforts and attention of management
and staff. The amount of time that management and other
employees may be required to devote in connection with the
defense of litigation could be substantial and 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, thereby consuming
substantial time and effort of management and substantially
increasing the cost of such litigation.
RISKS ASSOCIATED WITH OTHER DISPUTES. In the normal course
of business, the Company is a defendant in various civil actions
and arbitrations arising out of its activities as a broker-dealer
in securities, as an underwriter, as an employer and as a result
of other business activities. The Company has in the past made
significant payments in connection with the resolution of
10
<PAGE>
disputed claims, and there can be no assurance that significant
payments in connection with the resolution of disputed claims
will not occur in the future with respect to the Company.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
Over the past several years, the Company has experienced
significant growth in its business activities and the number of
its employees, and it is contemplated that the Company will
continue to experience similar growth in the future. Such growth
has required and will continue to require increased investments
in management personnel, financial and management systems and
controls, and facilities, which, in the absence of continued
revenue growth, would cause the Company's operating margins to
decline from current levels for the Company. In addition, as is
common in the securities industry, the Company is highly
dependent on the effective and reliable operation of its
communications and information systems. The Company believes
that its current and anticipated future growth will require
implementation of new and enhanced communications and information
systems and training of its personnel to operate such systems.
Any difficulty or significant delay in the implementation or
operation of existing or new systems or the training of personnel
could adversely affect the Company's ability to manage growth.
11<PAGE>
SELLING SHAREHOLDERS
The following table sets forth the names of the Selling
Shareholders, the number of Shares beneficially owned by such
Selling Shareholder as of March 16, 1998, and the percentage of
the total outstanding Common Stock of the Company owned by each
Selling Shareholder prior to any Offering hereby. All the Shares
beneficially owned prior to any Offering hereby are covered by
this Prospectus and the Registration Statement of which it forms
a part, and may be offered for resale by the Selling Shareholders
from time to time. Except for SunTrust Banks, Inc. ("SunTrust")
and WT Investments, Inc. ("WTI"), the Selling Shareholders
acquired such Shares in privately negotiated transactions between
the Selling Shareholders and Marshall T. Leeds, who is the
Chairman, President, and Chief Executive Officer of the Company.
SunTrust and WTI acquired Warrants to purchase authorized but
unissued shares of Common Stock from the Company, which are
exercisable in whole or in part from time to time until and
through December 31, 2002. Except as set forth in the footnotes
to the table below, no Selling Shareholder has had any position,
office, or other material relationship with the Company or any of
its predecessors or affiliates within the past three years.
<TABLE>
<CAPTION>
Beneficial Ownership Prior
to Any Offering Hereby
---------------------------------------------------
Number of Shares Percentage <F1>
---------------- ----------
<S> <C> <C>
WT Investments, Inc. <F2><F3> 400,000 9.7%
Avatex Corporation 300,000 8%
SunTrust Banks, Inc. <F4><F5> 37,500 1%
AMIC Securities Limited 20,000 *
Putnam, Lovell & Thornton, Inc. <F6> 9,600 *
- ------------------------
<FN>
* Less than 1%.
<F1> Based on 3,728,093 shares outstanding on March 4, 1998, except as
explained in notes 3 and 5.
<F2> An affiliate of WTI provides an unsecured $2,500,000 revolving
line of credit to the Company. In addition, the Company has
agreed to provide an affiliate of WTI access to its broker
network for the purpose of facilitating the affiliate's
business, and to introduce the Company's brokers to the
affiliate's products and services. The Company, WTI, and
affiliates of WTI trade securities through each other in the
normal course of their respective businesses.
<F3> Shares are issuable upon exercise by WTI of Warrant acquired from
the Company; number and percentage assume full exercise of the
Warrant by WTI, but not the exercise by SunTrust of its
Warrant.
<F4> SunTrust provides an unsecured $2,500,000 revolving line of
credit to the Company. In addition, the Company has agreed to
provide an affiliate of SunTrust access to its broker network
for the purpose of facilitating the affiliate's business, and
to introduce the Company's brokers to the affiliate's products
and services. The Company, SunTrust, and affiliates of
SunTrust trade securities through each other in the normal
course of their respective businesses.
<F5> Shares are issuable upon exercise by SunTrust of Warrant acquired
from the Company; number and percentage assume full exercise
of the Warrant by SunTrust, but not the exercise by WTI of its
Warrant.
12
<PAGE>
<F6> In January 1998, Putnam, Lovell & Thornton, Inc. ("PLT") acted
as placement agent for Mr. Leeds in connection with the sale of
300,000 Shares to Avatex Corporation ("Avatex") and 20,000
Shares to AMIC Securities Limited. PLT also served as an
advisor to Genesis in connection with the proposed
Combination. See "The Company - Recent Developments".
</FN>
</TABLE>
This Prospectus also covers the possible resale of the
Shares by certain other currently unknown persons who may become
the record or beneficial owners of such Shares as a result of
certain types of private transactions, including but not limited
to gifts and transfers pursuant to a foreclosure or similar
proceeding by a lender or other creditor to whom Shares may be
pledged as collateral to secure an obligation of a Selling
Shareholder. Each such transferee of a Selling Shareholder is
hereby deemed to be a Selling Shareholder for purposes of making
resales of Shares using this Prospectus. To the extent required
by applicable law, information (including the name and number of
Shares owned and proposed to be sold) about such transferees, if
there shall be any, will be set forth in an appropriate
supplement to this Prospectus.
The Selling Shareholders may offer and sell all or a portion
of the Shares from time to time, but are under no obligation to
offer or sell any of the Shares. See "Plan of Distribution".
Because the Selling Shareholders may sell all, none, or any part
of the Shares from time to time, no estimate can be given as to
the number of Shares that will be beneficially owned by the
Selling Shareholders upon termination of any Offering or as to
the percentage of the total outstanding Common Stock of the
Company that the Selling Shareholders will beneficially own after
termination of any Offering.
PLAN OF DISTRIBUTION
The Shares may be offered and sold by or for the account of
a Selling Shareholder, from time to time as market conditions
permit, on the AMEX or otherwise, at prices and on terms then
prevailing or in negotiated transactions. The Shares may be sold
by one or more of the following methods, without limitation: (a)
a block trade in which a broker or dealer so engaged will attempt
to sell the Shares as agent, but may position and resell a
portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer (including a specialist or
market maker) as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker
solicits purchasers; and (d) face-to-face transactions between
sellers and purchasers without a broker-dealer. In effecting
sales, brokers or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from the
Selling Shareholders and/or the purchasers of the Shares for whom
such brokers or dealers act as agents or to whom they sell as
principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions), in
amounts to be negotiated. At the time a particular offer of the
Shares is made by one or more of the Selling Shareholders, if
required, a Prospectus Supplement will be distributed which will
set forth the aggregate number of Shares being offered and the
terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions, and
other items constituting compensation from the Selling
Shareholders, and any discounts, commissions, or concessions
allowed or reallocated or paid to dealers, including the proposed
selling price to prospective purchasers. The Selling
Shareholders and such brokers and dealers and any other
participating brokers or dealers may be deemed to be
"underwriters", within the meaning of the Securities Act, in
connection with such sales. There can be no assurance, however,
that all or any of the Shares will be offered by the Selling
Shareholders. See "Selling Shareholders". The Company knows of
no existing arrangements between the Selling Shareholders and any
broker, dealer, finder, underwriter, or agent relating to the
sale or distribution of the Shares.
13
<PAGE>
The Company will not receive any of the proceeds of any
sales of the Shares by the Selling Shareholders. The Company
will, however, receive any exercise price payable upon exercise
of the Warrants. The Company will bear substantially all
expenses of the Offering under the Securities Act, including,
without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees of the NASD, transfer
taxes, fees of transfer agents and registrars, and costs of
insurance, if any. All underwriting discounts, selling
commissions, and broker's fees applicable to the sale of any
Shares will be borne by the Selling Shareholders or by such
persons other than the Company as agreed by and among the Selling
Shareholders and such other persons. The Company or Mr. Leeds
will reimburse Avatex, but no other Selling Shareholder, for the
reasonable fees and disbursements of one counsel chosen by Avatex
to represent Avatex in connection with the registration of the
Shares, up to a maximum of $10,000.
The Company has also agreed to indemnify the Selling
Shareholders and any underwriter against certain liabilities in
connection with the registration of the Shares, including
liabilities under the Securities Act. The Selling Shareholders
have agreed to indemnify the Company against certain liabilities
in connection with the registration of the Shares, including
liabilities under the Securities Act.
14
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma consolidated condensed balance sheet
of JWGenesis at December 31, 1997 gives effect to the Combination
as if it was consummated on such date. The unaudited pro forma
consolidated statement of operations of JWGenesis for the year
ended December 31, 1997 gives effect to the Combination as if it
had occurred as of January 1, 1997. The unaudited pro forma
consolidated condensed financial statements should be read in
conjunction with (i) the historical financial statements of the
Company, including the notes thereto, incorporated herein by
reference, and (ii) the historical financial statements of
Genesis, including the notes thereto, which are contained in this
Prospectus. The unaudited pro forma consolidated condensed
financial statements are presented for information purposes only
and are not necessarily indicative of the financial position or
operating results that would have occurred if the Combination had
been consummated as of the dates indicated, nor are they
necessarily indicative of future financial conditions or
operating results. The Company and Genesis expect to realize
certain revenue enhancements as a result of strategic
initiatives relating to the integration of the operations of
Genesis and the Company into JWGenesis; however, such incremental
revenue has not been reflected in the unaudited pro forma
consolidated condensed financial statements of operations of
JWGenesis as they are not quantifiable.
15
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AT DECEMBER 31, 1997
(In thousands)
------------------
As Reported
------------------
Company Genesis Combined Adjustments As Adjusted
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . $ 11,512 $ 2,589 $ 14,101 $ 14,101
Commissions and other receivables from clearing
brokers . . . . . . . . . . . . . . . . . . . 716 716 716
Receivable from customers, net . . . . . . . . . 107,507 107,507 107,507
Receivable from brokers and dealers . . . . . . . 4,532 1,477 6,009 6,009
Securities owned, at market value . . . . . . . . 9,010 2,551 11,561 11,561
Furniture, equipment and leasehold improvements,
net . . . . . . . . . . . . . . . . . . . . . 1,742 1,208 2,950 2,950
Deferred tax asset . . . . . . . . . . . . . . . 1,621 1,621 1,621
Income tax receivable . . . . . . . . . . . . . . 294 294 294
Other, net . . . . . . . . . . . . . . . . . . . 3,798 396 4,194 4,194
Cost in excess of net value of assets acquired . $ 17,400 b 17,400
------------------------------------------------- --------
$ 140,732 $ 8,221 $148,953 $ 17,400 $166,353
=============================================== ========
LIABILITIES AND
STOCKHOLDERS' /MEMBERS' EQUITY
Liabilities:
Short-term borrowings from banks . . . . . . . . $ 29,423 $ 29,423 $ 29,423
Accounts payable, accrued expenses and other
liabilities . . . . . . . . . . . . . . . . . 12,043 $ 554 12,597 $ 900 b 13,497
Distributions payable to members . . . . . . . . 1,770 a 1,770
Payable to customers . . . . . . . . . . . . . . 35,055 35,055 35,055
Payable to brokers and dealers . . . . . . . . . 32,975 1,185 34,160 34,160
Securities sold, not yet purchased, at market value 567 180 747 747
Notes payable to affiliate . . . . . . . . . . . 5,113 257 5,370 1,275 e 6,645
Lines of credit . . . . . . . . . . . . . . . . . 890 890 890
------------------------------------------------- --------
116,066 2,176 118,242 3,945 122,187
=============================================== ========
Redeemable preferred members' capital . . . . . 1,275 1,275 (1,275) e -
Stockholders' equity/Members' capital:
Common stock . . . . . . . . . . . . . . . . . . 4 4 2 b 6
Members' capital . . . . . . . . . . . . . . . . 4,770 4,770 (1,770) a -
(3,000) b
Additional paid-in capital . . . . . . . . . . . 4,018 4,018 19,498 b 23,516
Retained earnings . . . . . . . . . . . . . . . . 20,651 20,651 20,651
Treasury stock . . . . . . . . . . . . . . . . . (7) (7) (7)
----------------------------------------------- --------
Total stockholders' equity/Members' capital . . . 24,666 4,770 29,436 14,730 44,166
----------------------------------------------- --------
$140,732 $8,221 $148,953 $ 17,400 $166,353
=============================================== ========
</TABLE>
(See Notes to Pro Forma Consolidated Condensed Financial Statements)
16
<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
------------------
Company 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 f 26,479
Selling, general and administrative . . . . . . . 15,487 7,316 22,803 870 c 23,673
Interest . . . . . . . . . . . . . . . . . . . . 4,387 4,387 4,387
------------------------------------------------ ------------
87,390 26,744 114,134 1,741 115,875
------------------------------------------------ ------------
Income before income taxes . . . . . . . . . . . 9,792 3,826 13,618 (1,741) 11,877
Provision for income taxes . . . . . . . . . . . 3,689 3,689 1,111 d 4,800
------------------------------------------------ ------------
Net income . . . . . . . . . . . . . . . . . . . $ 6,103 $ 3,826 $ 9,929 $ (2,852) $ 7,077
================================================ ============
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . $ 1.77 $ 1.43
======= =========
Diluted . . . . . . . . . . . . . . . . . . . . . $ 1.50 $ 1.27
======= =========
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)
17
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(a) To adjust Genesis equity to the minimum equity required by the
Combination Agreement and record the distribution payable of the excess
Genesis equity to the Genesis Members.
<TABLE>
<CAPTION>
DR.(CR.)
------------
<S> <C>
Members' capital.............................................. 1,770,000
Distributions payable to members.............................. (1,770,000)
</TABLE>
(b) To record the issuance of JWGenesis common stock to acquire 100% of the
Genesis Membership Interests and the related direct costs of the
Combination.
<TABLE>
<S> <C>
Number of shares of JWGenesis Common Stock to be issued in the
Combination.................................................. 1,500,000
Per share value at the date the Combination Agreement was
executed and announced....................................... $ 13.00
-----------
Value of shares issued........................................ 19,500,000
Direct costs of Combination................................... 900,000
-----------
Total......................................................... $20,400,000
===========
</TABLE>
<TABLE>
<CAPTION>
DR.(CR.)
-------------
<S> <C>
Accounts payable.............................................. (900,000)
Common stock.................................................. (2,000)
Additional paid-in capital.................................... (19,498,000)
Goodwill...................................................... 17,400,000
Net assets acquired........................................... 3,000,000
</TABLE>
(c) To record the amortization of goodwill resulting from the Combination
using the straight-line method of amortization and an estimated useful
life of twenty (20) years.
<TABLE>
<CAPTION>
DR.(CR.)
---------
<S> <C>
Amortization expense.......................................... 870,000
</TABLE>
(d) To record the net effect on income taxes attributable to (i) Genesis
pretax income since Genesis has not recorded such a provision as a
result of its status as a limited liability company, (ii) amortization
of certain payments and restricted stock distributions of JWGenesis to
Messrs. Marshall T. Leeds and Joel E. Marks in connection with the
termination of the financial terms of their existing employment
arrangements with the Company and the execution of certain
nonsolicitation agreements (the "Special Payments"), and (iii) changes
in executive compensation. The income taxes are being recorded at
JWGenesis' statutory income tax rate of 37.6%.
<TABLE>
<CAPTION>
DR.(CR.)
----------
<S> <C>
Provision for income taxes.................................... 1,111,000
</TABLE>
18
<PAGE>
(e) To reclassify Genesis redeemable preferred members' capital to notes
payable.
<TABLE>
<CAPTION>
DR.(CR.)
----------
<S> <C>
Redeemable preferred members' capital......................... 1,275,000
Notes payable................................................. (1,275,000)
</TABLE>
(f) 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
expected to be executed by certain executive officers of the Company
and Genesis.
<TABLE>
<CAPTION>
DR.(CR.)
----------
<S> <C>
Employee compensation and benefits.......................... 871,000
</TABLE>
19
<PAGE>
SELECTED HISTORICAL 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 which
are not included or incorporated by reference herein. This summary should
be read in conjunction with the financial statements and other financial
information 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
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 LLC, has no shares of common stock
outstanding. Rather, each of its Members owns a certain
percentage interest in the net assets of Genesis. In connection
with the Combination, JWGenesis will issue 1,500,000 shares of
its common stock in exchange for 100% of the Genesis Membership
Interests. For purposes of this table, the Genesis historical
per share amounts are calculated by assuming that Genesis had
1,500,000 shares outstanding for all periods presented.
</FN>
</TABLE>
20
<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
consolidated financial statements of Genesis, the notes thereto
and the other financial data concerning Genesis 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
21
<PAGE>
markets. The decrease in revenues in 1996 compared to 1995 was
due to a restructuring of Genesis in 1996, explained in more
detail below.
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, 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.
22
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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.
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.
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 $250,00) 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.
23
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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.
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 $2,100,000) by the members of Genesis.
24
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BUSINESS OF GENESIS
Genesis is a San Francisco-based investment banking firm
offering corporate finance, institutional sales and trading, and
institutionally focused research and investment advisory services
and having special expertise in institutional trading and
innovative research focused on high-growth industries. Its
corporate finance services include equity underwriting and merger
and acquisition advisory services. Its customer base is
comprised principally of institutional, corporate, and high-net
worth individual clients. Genesis was formed in 1989 primarily
to provide brokerage, accounting and administrative services to
investment partnerships. As of February 1, 1998, Genesis had 59
employees. Genesis' Research, Capital Markets, Corporate Finance,
and Brokerage Processing Services Departments work closely to
allow Genesis to offer a wide range of resources to its clients,
while providing the attention of a smaller boutique catering to
middle market companies.
CORPORATE FINANCE
Over the past nine years, Genesis or the three principals in
its Corporate Finance Department have participated in more than
300 public underwritings and private placements (including 24 in
which Genesis served as a manager or co-manager) and more than 40
mergers, acquisitions, and other recapitalizations. Working in
partnership with the Research and Capital Markets Departments,
the Corporate Finance Department is able to meet most of the
financial advisory and capital funding requirements necessary to
develop its clients' businesses. Following an offering, Genesis
maintains after-market support by providing in-depth research
analysis, after-market trading, and sponsorship in the investment
community. Genesis often becomes the dominant force in the
after-market trading of the stock it underwrites.
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.
BROKERAGE PROCESSING SERVICES
Genesis' brokerage operations were originally established in
1989 to support affiliated money management organizations 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,
these various asset management operations have grown
significantly and, with them, so has the firm's brokerage
processing unit, which accounted for approximately 40% of total
revenue for the year ended December 31, 1997, compared to
approximately 39% for the year ended December 31, 1996.
The Department currently serves two primary types of
organizations investment partnerships and fee-based investment
advisors. Total gross processing commissions were approximately $12
25
<PAGE>
million for the year ended December 31, 1997, compared to
approximately $8.5 million for the year ended December 31, 1996.
Genesis also offers trading execution, clearing, and
settlement. It performs record keeping, account balance
tracking, and trading strategies tracking, as well as daily and
monthly transaction reporting. Genesis has clearing agreements
with three firms to act as its clearing agent: ABN Amro/The
Chicago Corporation, Alex Brown/Bankers Trust and Morgan Stanley
& Co.
In addition, the Department offers financial accounting
functions (tax preparation and certification), legal support
(including partnership documentation, offering memoranda, and
investment advisor registration), administrative resources and
systems (hardware, software, and networking), fund accounting
(performance reports and other recordkeeping), custodial
accounting, and compliance services. Investment partnerships
accounted for approximately 68% and 56% of total processing
revenues for the years ended December 31, 1997 and December 31,
1996, respectively.
RESEARCH
Genesis provides comprehensive coverage of a select group of
industries and companies that are not widely followed by the
investment community. Genesis 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 Genesis Research Department follows over
50 companies in principal areas: correctional services,
healthcare technology, retailing, real estate, electronic
commerce, and wireless communications components.
CAPITAL MARKETS
Working in partnership with its Research Department, the
Capital Markets Department encompasses all of the trading
operations at Genesis, including over-the-counter ("OTC") and
listed trading, syndicate, and corporate services.
The Capital Markets Department is a market maker in 75 OTC
stocks and has a significant presence in 75 listed
securities including 58% of the securities followed by the
Research Department. Total OTC trading volume of Genesis for the
year ended December 31, 1997 was approximately 169 million shares
compared to approximately 151 million shares for the year ended
December 31, 1996. Total listed trading volume of Genesis for
the year ended December 31, 1997 was approximately 176 million
shares compared to approximately 100 million shares for the year
ended December 31, 1996.
Over the past four years, Genesis has been a syndicate
member in 251 public offerings. Because it believes syndicate
participation is becoming an increasingly important function of
an investment bank's research capability, Genesis expects that it
will continue to be involved in a significant number of offerings
every year.
The Corporate Services Group was formed in 1995 to
facilitate restricted securities sales. Genesis is an active
market maker with strong block trading capabilities and it is
aware of "unsolicited buyers" and advantageous opportunities for
a client's sale of restricted securities. The Group's members
are cognizant of the Securities and Exchange Commission rules and
regulations that govern restricted sales transactions and are
supported by a compliance and operations group.
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FACILITIES AND EMPLOYEES
As of February 1, 1998, Genesis employed 59 persons, eight
of whom work in the firm's New York office which opened in 1996.
Genesis leases 22,000 square feet of space in San Francisco and
3,000 square feet of space in New York.
GOVERNMENT REGULATION
The securities industry and the business of Genesis, similar
to the business of the Company, are subject to extensive regulation
by the Commission, state securities regulators, and other governmental
regulatory authorities. The business also is regulated by SROs, including
the NASD, the NYSE, the AMEX, and other exchanges.
LEGAL PROCEEDINGS
Genesis may be involved from time to time in litigation arising
in the normal course of business. As of the date of this Prospectus,
Genesis is not a party to any material legal proceeding.
DESCRIPTION OF JWGENESIS CAPITAL STOCK
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, and 5,000,000 shares of
Preferred Stock, par value $.10 per share ("JWGenesis Preferred
Stock"). Except for 100 shares of Common Stock owned by JWCFS (which
will be cancelled in the Combination), no shares of JWGenesis capital
stock is or will be issued and outstanding immediately prior to the
Effective Time.
COMMON STOCK
Each share of JWGenesis Common Stock will entitle its holder of
record to one vote for the election of directors and all other matters
to be voted on by the shareholders. Holders of JWGenesis Common Stock
will not have cumulative voting rights; therefore the holders of a
majority of the shares of JWGenesis Common Stock 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 Common Stock will be 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 Common Stock will be
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 Common Stock 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 JWGenesis 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 JWGenesis Preferred Stock would reduce the amount of
funds available for the payment of dividends on JWGenesis Common
Stock. Holders of JWGenesis Preferred Stock would normally be
27<PAGE>
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 Common Stock. In
addition, under certain circumstances, the issuance of such JWGenesis
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 JWGenesis Preferred Stock, the Board of
Directors of JWGenesis, without shareholder approval, may issue
JWGenesis Preferred Stock with voting and conversion rights which
could adversely affect the rights of holders of shares of JWGenesis
Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for JWGenesis Common Stock is
American Stock Transfer & Trust Company, New York, New York.
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 knowing violation of
law; (iii) for any improper distribution under the Florida Business
Corporations Act (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 Share Exchange. 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 "Comparison of Shareholder
Rights Special Meetings of Shareholders" and "Comparison of
Shareholder Rights Shareholder Action Without Meeting". 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.
COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
If the Combination is consummated, holders of the Company's
Common Stock will become holders of JWGenesis Common Stock. The
rights of the former Company shareholders will continue to be
governed by the Florida Business Corporations Act (the "FBCA")
because JWGenesis is also a Florida corporation. However, the
28<PAGE>
JWGenesis Articles of Incorporation and Bylaws differ in certain
respects from the comparable documents of the Company. The
material differences are summarized below. This summary is
qualified in its entirety by reference to the full text of the
FBCA and the aforementioned documents, which are available from
the Company upon request from Joel E. Marks, Vice Chairman and
Chief Financial Officer, 1117 Perimeter Center West, Suite 500E,
Atlanta, Georgia 30338.
AUTHORIZED SHARES
The JWGenesis Articles of Incorporation authorize 35,000,000
shares of capital stock, consisting of 30,000,000 shares of
Common Stock, and 5,000,000 shares of Preferred Stock. As to the
Preferred Stock, the JWGenesis Articles of Incorporation
authorize the Board of Directors to determine or alter the
designations, voting powers, preferences, and relative,
participating, optional, or other special rights, and the
qualifications, limitations, and restrictions on such rights, as
authorized by resolutions duly adopted prior to the issuance of
any shares of a series of preferred stock.
The Company's Articles of Incorporation authorize 14,056,000
shares of capital stock, consisting of 9,056,000 shares of Common
Stock and 5,000,000 shares of special stock, par value $.001,
with such designations, voting powers, preferences, and rights as
the board of directors shall determine. The Company's Board of
Directors had previously established a series of special stock,
known as Series A Special Distribution Stock, none of which is
outstanding.
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.
For a special meeting of shareholders to be called by the
corporation, the Company requires, by virtue of the operation of
the FBCA, only the written request of 10% of the votes entitled to
be cast on any issue proposed to be considered at a 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 and could have the effect of frustrating
the ability of acquirors to consummate acquisitions of JWGenesis at
substantial premiums to market prices. 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. The Company had not
opted-out of that provision. Accordingly, unlike with the
Company, 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.
29
<PAGE>
Because JWGenesis, like the Company, will have 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 or impede the ability
of acquirors to consummate acquisitions of JWGenesis at substantial
premiums to market prices. It may also 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.
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.
The Company's Bylaws do not prescribe specific procedures
for a shareholder to bring a matter before an annual meeting. The
Company's Bylaws state simply that shareholders may, at the
annual meeting, elect a board of directors and transact such
other business as may properly come before the meeting.
VACANCIES ON THE BOARD OF DIRECTORS
The JWGenesis Bylaws provide that a vacancy occurring on the
Board of Directors may be filled for the unexpired term, unless
the shareholders have elected a successor, by the affirmative
vote of a majority of the remaining directors, whether or not the
remaining directors constitute a quorum. If the vacant office
was held by a director elected by a particular voting group, only
the holders of shares of that voting group or the remaining
directors elected by that voting group shall be entitled to fill
the vacancy. If the vacant office was held by a director elected
by a particular voting group and there is no remaining director
elected by that voting group, the other remaining directors or
director (elected by another voting group or groups) may fill the
vacancy during an interim period before the shareholders of the
vacated director's voting group act to fill the vacancy.
30
<PAGE>
The Company's Bylaws state simply that any vacancy shall be
filled by a majority vote of the remaining directors in office.
LEGAL MATTERS
The validity of the securities offered hereby will be passed
upon by counsel to the Company, Kilpatrick Stockton LLP, Atlanta,
Georgia.
EXPERTS
The consolidated financial statements of the Company
incorporated in this Prospectus by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997,
as amended, have been so incorporated in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The Statement of Financial Condition of JWGenesis, as of
January 16, 1998, included in this Prospectus has been audited by
Price Waterhouse 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 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 public
accountants, as indicated in their report with respect thereto,
and are included herein in reliance upon the authority of such
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to certain informational reporting
requirements of the Exchange Act, and in accordance therewith
files periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements,
and other information filed by the Company with the Commission
can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices in New York (Seven World Trade
Center, 13th Floor, New York, New York 10048) and Chicago
(Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661). Filings are also available from the
Commission's World Wide Web site on the Internet at
http://www.sec.gov. After the consummation of the Combination,
the Company will no longer file reports, proxy statements, or
other information with the Commission. Instead, such information
will be provided, to the extent required, in filings made by
JWGenesis.
The Common Stock of the Company is publicly traded on the
AMEX, and reports, proxy material, and other information
concerning the Company may be inspected at the American Stock
Exchange, 86 Trinity Place, New York, New York 10086.
This Prospectus constitutes a part of a Registration
Statement on Form S-3 filed by the Company with the Commission
under the Securities Act. This Prospectus omits certain of the
information contained in the Registration Statement, and reference
is hereby made to the Registration Statement and to the exhibits
31
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relating thereto for further information with respect to the
Company and the Shares offered hereby. Statements contained
or incorporated by reference herein containing the provisions of
any agreement or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are
not necessarily complete, and reference is hereby made to the
copy thereof so filed for more detailed information. Each such
statement is qualified in its entirety by such reference.
The Company hereby undertakes to provide without charge to
each person to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of
the documents incorporated herein by reference (not including
exhibits to such documents unless such exhibits are specifically
incorporated by reference into such documents). Requests for
such copies may be directed to JW Charles Financial Services,
Inc., 1117 Perimeter Center West, Suite 500E, Atlanta, Georgia
30338, Attention: Joel E. Marks; telephone number (770) 399-8805.
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
GENESIS MERCHANT GROUP SECURITIES, LLC
<TABLE>
<S> <C>
Independent Auditor's Report......................................................................... F-1
Statements of Financial Condition at December 31, 1997 and 1996...................................... F-2
Statements of Operations for the Year Ended December 31, 1997, 1996, and 1995........................ F-3
Statements of Changes in Members' Capital for the Year Ended December 31, 1997, 1996, and 1995....... F-4
Statements of Cash Flows for the Year Ended December 31, 1997, 1996, and 1995........................ F-5
Notes to Financial Statements........................................................................ F-6
JWGENESIS FINANCIAL CORP.
Report of Independent Certified Public Accountants .................................................. F-12
Statement of Financial Condition as of January 16, 1998 ............................................. F-13
Notes to Financial Statements ....................................................................... F-14
</TABLE>
33
<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-1
<PAGE>
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-2
<PAGE>
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-3
<PAGE>
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-4
<PAGE>
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-5
<PAGE>
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-6
<PAGE>
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-7
<PAGE>
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-8
<PAGE>
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-9
<PAGE>
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
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
JWCFS as well as other customary conditions of closing.
F-11
<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-12
<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-13
<PAGE>
JWGENESIS FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENT
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-14
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================
<S> <C>
No person has been authorized to give any
information or to make any representations other
than those contained or incorporated by reference
in this Prospectus and, if given or made, such
information or representations must not be relied 767,100 SHARES
upon as having been authorized by the Company or the
Selling Shareholders. This Prospectus does not
constitute an offer to sell, or a solicitation of
an offer to buy, any securities other than the JW CHARLES FINANCIAL
securities to which it relates or an offer to, or a SERVICES, INC.
solicitation of, any person in any jurisdiction
where such an offer or solicitation would be
unlawful. Brokers or dealers should ascertain the
existence of an exemption from registration or
should effectuate such registration in connection
with the offer and sale of the Shares. Neither the
delivery of this Prospectus nor any sale made COMMON STOCK
hereunder shall, under any circumstances, create any
implication that there has been no change in the
affairs of the Company since the date hereof or
since the date of any documents incorporated herein
by reference, or that the information contained ______________________
herein or therein is correct as of any time
subsequent to the date hereof or thereof. PROSPECTUS
______________________
TABLE OF CONTENTS
Incorporation of Documents by Reference . . . 2
Forward Looking Statements . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . 3
The Offering . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . 5
Selling Shareholders . . . . . . . . . . . . . 12
Plan of Distribution . . . . . . . . . . . . . 13
Unaudited Pro Forma Consolidated Condensed
Financial Statements . . . . . . . . . . . . 15
Selected Historical Financial Data of Genesis . 20 _______, 1998
Genesis Management's Discussion and
Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . 22
Business of Genesis . . . . . . . . . . . . . . 25
Description of JWGenesis Capital Stock . . . . 27
Comparison of Shareholder Rights . . . . . . . 28
Legal Matters . . . . . . . . . . . . . . . . . 31
Experts . . . . . . . . . . . . . . . . . . . . 31
Available Information . . . . . . . . . . . . . 31
Index to Financial Statements . . . . . . . . . 33
===============================================================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS
The exhibits included as part of this Registration Statement are as
follows:
Exhibit Number Exhibit
- -------------- -------
5.1 Opinion of Kilpatrick Stockton LLP, counsel to
the Company*
23.1 Consent of Price Waterhouse LLP, independent
public accountants to the Company
23.2 Consent of Lallman, Feltman, Shelton & Peterson,
P.A., independent public accountants to Genesis
23.3 Consent of Kilpatrick Stockton LLP, counsel to
the Company (included in Exhibit 5.1)*
25.1 The Powers of Attorney contained on the signature
pages of this Registration Statement are hereby
incorporated by reference.*
- ----------------
* Previously filed.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Amendment
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Atlanta, State of Georgia, on
May 12, 1998.
JW CHARLES FINANCIAL SERVICES, INC.
By: /s/ Joel E. Marks
-------------------------------------------------
Joel E. Marks
Vice Chairman and Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed by the following persons in the
capacities indicated on May 12, 1998.
/s/ * President, Chief Executive Officer,
- --------------------------- and Chairman of the Board of Directors
MARSHALL T. LEEDS (Principal Executive Officer)
/s/ Joel E. Marks Vice Chairman, Chief Financial Officer,
- --------------------------- Secretary, and Director (Principal
JOEL E. MARKS Financial and Accounting Officer)
/s/ * Director
- ---------------------------
WM. DENNIS FERGUSON
/s/ * Director
- ---------------------------
GREGG S. GLASER
/s/ * Director
- ---------------------------
STEPHEN W. CROPPER
/s/ * Director
- ---------------------------
JOHN R. FAIELLA
/s/ * Director
- ---------------------------
JOSEPH P. ROBILOTTO
/s/ * Director
- ---------------------------
JEROME SIEGEL
/s/ * Director
- ---------------------------
CURTIS SYKORA
II-2<PAGE>
/s/ * Director
- ---------------------------
MICHAEL B. WEINBERG
* By: /s/ Joel E. Marks Attorney-in-fact
----------------------
JOEL E. MARKS
II-3
<PAGE>
EXHIBIT INDEX TO
REGISTRATION STATEMENT ON FORM S-3
Exhibit Number Exhibit
- -------------- -------
23.1 Consent of Price Waterhouse LLP, independent
public accountants to the Company
23.2 Consent of Lallman, Feltman, Shelton & Peterson,
P.A., independent public accountants to Genesis
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on Form S-3
Amendment No. 1 of our report dated March 5, 1998 appearing on page F-2
of JW Charles Financial Services, Inc.'s Annual Report on Form 10-K/A for
the year ended December 31, 1997. We also consent to the use of our report
dated April 16, 1998 on the financial statement of JWGenesis Financial
Corp. as of January 16, 1998 included in this Registration Statement.
We also consent to the references to us under the heading "Experts" in
such Prospectus.
/s/ PRICE WATERHOUSE LLP
Tampa, Florida
May 11, 1998
EXHIBIT 23.2
CONSENT OF LALLMAN, FELTMAN, SHELTON & PETERSON, P.A.
INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent (i) to the use
of our reports on the financial statements of Genesis Merchant Group
Securities, LLC for the three fiscal years ended December 31, 1997
included in or made a part of this Registration Statement and (ii) to any
reference to our Firm in this Registration Statement.
May 11, 1998 /s/ Lallman, Feltman, Shelton & Peterson, P.A.
Ketchum, Idaho
