<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO FORM 8-KA
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 27, 1999
- --------------------------------------------------------------------------------
WESTECH CAPITAL CORP.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEW YORK 33-37534-NY 13-3577716
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1250 Capital of Texas Highway, Suite 500, Austin, Texas 78746
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (512) 306-8222
<PAGE> 2
The purpose of this amendment to the Registrant's Current Report on Form 8-K,
dated August 27, 1999, is to amend Item 7 for the inclusion of (a) Financial
Statements of business acquired and (b) the pro forma financial information.
ITEM 7. Financial Statements and Exhibits
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
TEJAS SECURITIES GROUP, INC.
FINANCIAL STATEMENTS:
Independent Auditors' Report....................................................... F-1
Statements of Financial Condition.................................................. F-2
Statements of Operations........................................................... F-3
Statements of Stockholders' Equity................................................. F-4
Statements of Cash Flows........................................................... F-5
Notes to Financial Statements...................................................... F-6
INTERIM FINANCIAL STATEMENTS:
Statements of Financial Condition as of December 31, 1998
and June 30, 1999 (Unaudited).................................................. F-14
Statements of Operations for the Six Months Ended June 30, 1999
and 1998 (unaudited)........................................................... F-15
Statements of Stockholders' Equity for the Six Months Ended
June 30, 1999 and 1998 (unaudited)............................................. F-16
Statements of Cash Flows for the Six Months Ended June 30, 1999
and 1998 (unaudited)........................................................... F-17
Notes to Unaudited Financial Statements............................................ F-18
PRO FORMA FINANCIAL STATEMENTS:
Unaudited Pro Forma Combined Financial Information................................. F-20
Pro Forma Combined Statement of Financial Condition as of December
31, 1998 (unaudited)........................................................... F-21
Pro Forma Combined Statement of Operations for the Year Ended December 31, 1998
(unaudited).................................................................... F-22
Pro Forma Combined Statement of Financial Condition as of June 30, 1999
(unaudited).................................................................... F-23
Pro Forma Combined Statement of Operations for the Six Months Ended
June 30, 1999 (unaudited)...................................................... F-24
Notes to Unaudited Pro Forma Combined Financial Information........................ F-25
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tejas Securities Group, Inc:
We have audited the accompanying statements of financial condition of Tejas
Securities Group, Inc. (the "Corporation") as of December 31, 1998 and 1997, and
the related statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Corporation'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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 Tejas Securities Group, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/S/ KPMG LLP
Austin, Texas
February 12, 1999
F-1
<PAGE> 4
TEJAS SECURITIES GROUP, INC.
Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 201,312 170,474
Receivable from clearing brokers, partially restricted 1,468,424 825,707
Securities owned 1,539,424 634,419
Furniture and equipment, net 209,431 59,057
Deferred tax assets 178,500 --
Other assets 345,136 284,921
------------ ------------
Total assets $ 3,942,227 1,974,578
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 577,736 141,330
Subordinated debt 500,000 --
Payable to clearing organization 1,459,678 608,848
------------ ------------
Total liabilities 2,537,414 750,178
------------ ------------
Stockholders' equity:
Preferred stock, no par value, convertible
1,000,000 shares authorized in 1998; none issued
and outstanding -- --
Common stock, no par value
10,000,000 shares authorized; 4,679,152 and
3,858,887 shares issued and outstanding in 1998
and 1997, respectively 1,473,071 946,878
Subscriptions receivable (96,263) (100,000)
Treasury stock, at cost, 141,113 shares in 1997 -- (47,805)
Retained earnings 28,005 425,327
------------ ------------
Total stockholders' equity 1,404,813 1,224,400
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 3,942,227 1,974,578
============ ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 5
TEJAS SECURITIES GROUP, INC.
Statements of Operations
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Commissions $ 7,932,780 4,810,520 3,648,255
Underwriting and investment banking income 2,584,770 752,554 --
Net dealer inventory and investment income (299,166) 924,587 567,537
Other income 23,530 9,248 41,720
------------ ------------ ------------
Total revenue 10,241,914 6,496,909 4,257,512
------------ ------------ ------------
Expenses:
Commissions 5,921,426 3,165,701 1,797,637
Other employee compensation and benefits 2,085,937 1,293,719 1,651,063
General and administrative 2,795,773 1,544,446 1,015,567
------------ ------------ ------------
Total expenses 10,803,136 6,003,866 4,464,267
------------ ------------ ------------
Income (loss) before income tax expense (benefit) (561,222) 493,043 (206,755)
Income tax expense (benefit):
Federal:
Current -- -- --
Deferred (178,500) -- --
State 14,600 19,008 --
------------ ------------ ------------
(163,900) 19,008 --
------------ ------------ ------------
Net income (loss) $ (397,322) 474,035 (206,755)
============ ============ ============
Pro forma earnings (loss) per share (note 11):
Basic earnings (loss) per share:
Net income (loss) $ (0.04) 0.04 (0.03)
============ ============ ============
Weighted average shares outstanding 9,435,429 8,416,728 5,189,072
============ ============ ============
Diluted earnings (loss) per share:
Net income (loss) $ (0.04) 0.04 (0.03)
============ ============ ============
Weighted average shares outstanding 9,435,429 8,416,728 5,189,072
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 6
TEJAS SECURITIES GROUP, INC.
Statements of Stockholders' Equity
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
COMMON SUBSCRIPTIONS TREASURY RETAINED
SHARES STOCK RECEIVABLE STOCK EARNINGS TOTAL
---------- ---------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,987,096 $ 549,760 -- (133,240) 291,195 707,715
Stock issuances 1,103,467 171,424 -- -- -- 171,424
Treasury stock sales 909,437 21,336 -- 133,240 -- 154,576
Stockholder contributions -- 122,491 -- -- -- 122,491
Stockholder distributions -- -- -- -- (49,602) (49,602)
Net loss -- -- -- -- (206,755) (206,755)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 4,000,000 865,011 -- -- 34,838 899,849
Treasury stock purchases (540,686) -- -- (183,166) -- (183,166)
Treasury stock sales 399,573 81,867 (100,000) 135,361 -- 117,228
Stockholder distributions -- -- -- -- (83,546) (83,546)
Net income -- -- -- -- 474,035 474,035
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 3,858,887 946,878 (100,000) (47,805) 425,327 1,224,400
Stock issuances 679,152 475,405 -- -- -- 475,405
Treasury stock sales 141,113 50,788 -- 47,805 -- 98,593
Subscription collected -- -- 3,737 -- -- 3,737
Net loss -- -- -- -- (397,322) (397,322)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 4,679,152 $1,473,071 (96,263) -- 28,005 1,404,813
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 7
TEJAS SECURITIES GROUP, INC.
Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (397,322) 474,035 (206,755)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Deferred tax benefit (178,500) -- --
Depreciation expense 38,110 39,834 30,783
Increase in receivable from clearing brokers (642,717) (374,350) (116,176)
Decrease (increase) in other assets (126,324) (2,980) 3,803
Decrease (increase) in receivables from employees
and shareholders 135,949 (262,448) 150,000
Decrease (increase) in other receivables (69,840) 85,510 (85,510)
Decrease (increase) in trading account securities (905,005) 317,673 (952,092)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 436,406 102,850 (6,383)
Increase (decrease) in payable to clearing organization 850,830 (398,666) 1,007,514
------------ ------------ ------------
Net cash used by operating activities (858,413) (18,542) (174,816)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of furniture and equipment -- 204,268 --
Purchase of furniture and equipment (188,484) (140,933) (82,477)
------------ ------------ ------------
Net cash provided (used) by investing activities (188,484) 63,335 (82,477)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable
and subordinated debt 1,000,000 250,000 --
Principal payments on notes payable (500,000) (433,166) --
Sale of treasury stock 98,593 117,228 154,576
Stockholder distributions paid -- (83,546) (49,602)
Stockholder contributions -- -- 122,491
Subscription collected 3,737 -- --
Proceeds from stock issuances 475,405 -- 171,424
------------ ------------ ------------
Net cash provided (used) by financing activities 1,077,735 (149,484) 398,889
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 30,838 (104,691) 141,596
Cash and cash equivalents at beginning of year 170,474 275,165 133,569
------------ ------------ ------------
Cash and cash equivalents at end of year $ 201,312 170,474 275,165
============ ============ ============
Supplemental disclosures:
Interest paid $ 65,427 97,219 12,946
Taxes paid $ 23,738 22,829 1,518
</TABLE>
In 1997, the Corporation assumed $183,166 of stockholder obligations in return
for 540,686 shares of its common stock.
In 1997, the Corporation issued 100,000 shares of common stock in exchange for a
$100,000 note receivable.
See accompanying notes to financial statements.
F-5
<PAGE> 8
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
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(1) ORGANIZATION AND BASIS OF PRESENTATION
Tejas Securities Group, Inc. (the Corporation) was incorporated on March
2, 1994 under the laws of the State of Texas. The Corporation is
registered as a broker and dealer in securities with the National
Association of Securities Dealers, Inc. and clears its transactions on a
fully disclosed basis through Schroder & Co., Inc. The Corporation
maintains offices in Austin, Texas; New York, New York and Atlanta,
Georgia.
Effective May 1, 1998 the Corporation increased authorized shares of
common stock to 10,000,000 shares and authorized 1,000,000 shares of
convertible preferred stock. Also, effective May 1, 1998, the Corporation
declared a stock split. Owners of the 21,543 shares issued and
outstanding as of May 1, 1998 received new shares equal to their current
ownership percentages, resulting in 4,000,000 shares of common stock
issued as a result of the stock split. The effects of the stock split
have been given retroactive effect in the accompanying financial
statements.
The 1,000,000 convertible preferred shares may be issued from time to
time and will have the designations, preferences, voting powers,
relative, participating, optional or other special rights and privileges
and the qualifications, limitations, and restrictions as determined by
the Board.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES TRANSACTIONS
Securities transactions and the related commission revenue and expense
are recorded on a trade date basis.
The Corporation does not carry or clear customer accounts, and all
customer transactions are executed and cleared with other brokers on a
fully disclosed basis. These brokers have agreed to maintain such records
of the transaction effected and cleared in the customers' accounts as are
customarily made and kept by a clearing broker pursuant to the
requirements of Rules 17a-3 and 17a-4 of the Securities and Exchange
Commission, and to perform all services customarily incident thereto.
INVESTMENT BANKING
Investment banking revenues include gains, losses, and fees, net of
syndicate expenses, arising from securities offerings in which the
Corporation acts as an underwriter or agent. Investment banking revenues
also include fees earned from providing merger-and-acquisition and
advisory services. Investment banking management fees are recorded on
offering date, sales concessions on settlement date, and underwriting
fees at the time the underwriting is completed and the income is
reasonably determinable.
SECURITIES OWNED
Long and short positions in securities are reported at market value. The
difference between cost and market has been included in net dealer
inventory and investment income. These investments are subject to the
risk of failure of the issuer and the risk of changes in market value
based on the ability to trade such securities on the open market.
F-6
<PAGE> 9
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
respective assets.
REPURCHASE AND RESALE AGREEMENTS
Repurchase and resale agreements are treated as financing transactions
and are carried at the amounts at which the securities will be
subsequently reacquired or resold as specified in the respective
agreements. There were no repurchase or resale agreements outstanding at
December 31, 1998, 1997 and 1996.
FEDERAL INCOME TAXES
Effective January 1, 1998, the Corporation elected to be taxed as a C
Corporation under the provisions of the Internal Revenue Code.
For the year ended December 31, 1998, income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date. There were no significant deferred tax asset
or deferred tax liabilities as of January 1, 1998.
Prior to January 1, 1998, the Corporation elected to be taxed as an S
corporation under the provisions of Subchapter S of the Internal Revenue
Code. As a result, all Federal income tax expense and liability was paid
by the shareholders of the Corporation for the years ended December 31,
1997 and 1996, respectively. The amounts included as income tax expense
in the accompanying statement of operations for the year ended December
31, 1997 is a result of the income component of the Texas franchise tax
which is computed at approximately 4.5% of income before income taxes.
ESTIMATES
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.
STOCK-BASED COMPENSATION
The Corporation measures compensation expense for options granted using
the intrinsic value method. The Corporation provides pro forma
disclosures of net income (loss) and earnings (loss) per share as if the
fair value method had been applied.
F-7
<PAGE> 10
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
(3) NET CAPITAL REQUIREMENTS
The Corporation, as a registered fully licensed broker and dealer in
securities, is subject to the Securities and Exchange Commission Uniform
Net Capital Rule (Rule 15c3-1). Under this rule, the Corporation is
required to maintain a minimum "net capital" to satisfy rule 15c3-1. The
minimum "net capital" requirement for the Corporation was $100,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. "Net
capital" at December 31, 1998 aggregated $842,544. "Net capital" at
December 31, 1997 aggregated $703,302. "Net capital" at December 31, 1996
aggregated $385,677.
(4) LEASE COMMITMENTS
The Corporation leases its office facilities and certain office equipment
under operating leases. The future minimum payments due under these
operating leases as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 743,970
2000 581,851
2001 398,763
2002 366,354
2003 256,347
Thereafter 132,523
-----------
$ 2,479,808
===========
</TABLE>
Rent expense amounted to approximately $515,000, $265,000 and $92,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
On September 30, 1997, the Corporation entered into a sale-leaseback
transaction with a related party, whereby the Corporation sold furniture
and fixtures for their book value of approximately $204,000. As part of
this transaction, the Corporation agreed to lease the furniture and
fixtures commencing on October 1, 1998 through September 30, 2000.
Payments of $6,373 per month are due under the lease agreement and are
included in the above schedule.
(5) PROFIT SHARING AND STOCK OPTION PLANS
PROFIT SHARING PLAN
In January 1997, the Corporation instituted a profit sharing plan under
section 401(k) of the Internal Revenue Code. The plan allows all
employees who are over 21 years old to defer a predetermined portion of
their compensation for federal income tax purposes. Contributions by the
Corporation are discretionary. For the years ended December 31, 1998 and
1997, the Corporation made approximately $84,000 and $7,000,
respectively, of contributions to the plan.
STOCK OPTIONS
The Corporation grants options to employees for its common stock. As
provided by Financial Accounting Standards Board Statement No. 123, the
Corporation elected to continue to apply APB Opinion No. 25 and related
interpretations in accounting for its stock option plans.
F-8
<PAGE> 11
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
During 1995, options for up to 2 percent of total shares issued and
outstanding were granted for employees who met certain requirements for
two years. In addition, employees who met certain other requirements for
two years could purchase up to 5 percent of the total shares issued and
outstanding. One employee exercised the options in 1997, and purchased 3
percent of the total shares issued and outstanding. No compensation cost
was recognized for the options granted.
During 1996, two employees were granted options, vesting in 1997, to
purchase up to 2 percent and 1 percent of total shares issued and
outstanding. The option for 1 percent was exercised in 1997 and resulted
in the purchase of 40,000 shares. The other option was revoked by the
employee upon delivery of stock by a shareholder. No compensation cost
was recognized for the options granted.
During 1997, three employees were granted options, vesting in 1997, to
purchase up to 5 percent, 2.5 percent and 1 percent, respectively, of the
total shares issued and outstanding on the grant date. Two of the options
were fully exercised during 1997, resulting in the purchase of 140,000
shares. For the remaining option, one-half of the 5 percent option (or
2.5 percent) was exercised resulting in the purchase of 100,000 shares.
The remaining options total 100,000 shares at a price of $0.50 per share
and expires in September 1999. No compensation cost was recognized for
the options granted. During 1998, no options were exercised, and no new
options were granted.
Had the Corporation recorded compensation expense related to these
options under the fair value method, compensation expense would have
increased by approximately $8,000 and $4,000 for the years ended December
31, 1997 and 1996, respectively. Compensation expense was estimated in
accordance with the provisions of Financial Accounting Standards Board
Statement No. 123, using a 7.25 percent risk-free rate and an expected
dividend of 8 percent per year. The compensation expense for each option
grant was individually calculated.
A summary of the Corporation's stock option and warrant activity, and
related information for the years ended December 31, follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 100,000 $0.50 120,000 $0.10 120,000 $0.10
Granted 0 $0.00 459,946 $0.56 0 $0.00
Exercised 0 $0.00 (360,000) $0.49 0 $0.00
Forfeited 0 $0.00 (119,946) $0.36 0 $0.00
Outstanding - end of year 100,000 $0.50 100,000 $0.50 120,000 $0.10
Exercisable - end of year 100,000 $0.50 100,000 $0.50 120,000 $0.10
</TABLE>
F-9
<PAGE> 12
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 0 $0.00 0 $0.00 0 $0.00
Granted 112,500 $2.65 0 $0.00 0 $0.00
Outstanding - end of year 112,500 $2.65 0 $0.00 0 $0.00
Exercisable - end of year 112,500 $2.65 0 $0.00 0 $0.00
</TABLE>
F-10
<PAGE> 13
(6) OFF STATEMENT of FINANCIAL CONDITION RISK
The Corporation is responsible to its clearing broker for payment of all
transactions executed both on its behalf and on behalf of its customers.
Therefore, the Corporation is exposed to off statement of financial
condition risk in the event a customer cannot fulfill its commitment and
the clearing broker must purchase or sell a financial instrument at
prevailing market prices. The Corporation and its clearing broker seek to
control risk associated with customer transactions through daily
monitoring to assure margin collateral is maintained under regulatory and
internal guidelines.
The Corporation's due from clearing brokers represents amounts on deposit
with Schroder & Co., Inc. The Corporation is exposed should Schroder &
Co., Inc. be unable to fulfill its obligations for securities
transactions. Schroder & Co., Inc. requires the Corporation to maintain
$100,000 in its account at all times.
The Corporation deposits its cash with financial institutions.
Periodically such balances exceed applicable FDIC insurance limits.
The Corporation had revenues from two accounts which exceeded 10% of
total revenue during 1996. The Corporation had revenues from three
accounts which exceeded 10% percent of total revenue during 1997. No
individual account exceeded 10% percent of total revenue in 1998.
F-11
<PAGE> 14
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
(7) SUBORDINATED DEBT
The Corporation has $500,000 in debt subordinated to claims of general
creditors as of December 31, 1998. The subordinated debt is due November
1, 2001 and bears interest at 11.5 percent. Interest is paid monthly. As
a condition of the loan agreement, the Corporation issued to the lender
warrants to purchase 112,500 shares of common capital stock of the
Corporation, exercisable at a price of $2.65 per share of common stock.
The warrants expire on November 12, 2003. As of December 31, 1998, none
of the warrants had been exercised.
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 Corporation's continued compliance with minimum net
capital requirements, they may not be repaid. It is the Corporation's
intention not to renew the secured demand note collateralizing agreements
due on November 1, 2001.
(8) RECEIVABLE FROM EMPLOYEE AND STOCKHOLDER
A $300,000 advance was made during 1995 as an incentive for an employee
accepting a position with the Corporation. Under the terms of the
agreement, the advance was forgiven if the employee was still employed
with the Corporation on certain trigger dates. During 1995, $150,000 of
the note receivable was forgiven and included in other employee
compensation and benefits in the accompanying statements of operations.
The remainder of the receivable was forgiven and expensed during 1996.
The Corporation makes advances to certain employees in months when their
commission payout does not meet a predetermined amount. As of December
31, 1998, approximately $126,500 had been advanced to employees under
this agreement. As of December 31, 1997 approximately $44,000 had been
advanced to employees and $219,000 to the Corporation's Chairman of the
Board under this agreement. These receivables are to be repaid through
reductions of future commissions.
During 1998, the Corporation forgave approximately $135,000 in advances
receivable from its Chairman of the Board and approximately $163,000 in
advances receivable from employees. The amounts forgiven are included in
commission expense in the accompanying financial statements.
The Corporation received a $100,000 note from an employee in
consideration for the issuance of common stock. The note bears no
interest and is due and payable on December 31, 1999. This amount has
been recorded as stock subscriptions receivable in the accompanying
financial statements. During 1998, the Corporation collected $3,737 of
the subscriptions receivable, resulting in a balance of $96,263 in
subscriptions receivable as of December 31, 1998.
(9) INCOME TAX
Income tax benefit for the year ended December 31, 1998 differs from the
amount computed by applying the U.S. Federal income tax rate of 34
percent to pretax loss as a result of the following:
<TABLE>
<S> <C>
Computed "expected" benefit $ 190,815
Meals and entertainment (34,325)
State Franchise tax (14,600)
Other 22,010
---------
$ 163,900
=========
</TABLE>
F-12
<PAGE> 15
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 145,700
Other 32,800
---------
Gross deferred tax assets 178,500
Valuation allowance --
---------
Net deferred tax asset $ 178,500
=========
</TABLE>
There were no significant deferred tax liabilities at December 31, 1998.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more
likely than not the Corporation will realize the benefits of these
deductible differences net of the existing valuation allowances at
December 31, 1998.
At December 31, 1998, the Corporation has net operating loss
carryforwards for Federal income tax purposes of approximately $381,000
which are available to offset future Federal taxable income, if any,
through 2018. Additionally, the Corporation has state net operating loss
carryforwards available.
(10) CONTINGENCIES AND COMMITMENTS
The Corporation is involved in various claims and legal actions that have
arisen in the ordinary course of business. It is management's opinion
that liabilities, if any, arising from these actions would not have a
significant adverse effect on the financial condition and results of
operations of the Corporation.
(11) EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT
On August 27, 1999, pursuant to an Agreement and Plan of Merger, by and
among the Corporation, Tejas Securities Group Holding Company, a Texas
Corporation ("Tejas Holding"), Westech Capital Corp., a New York
corporation ("Westech"), and Westech Merger Sub, Inc., a Delaware
corporation ("Merger Sub"), the Corporation acquired Westech through a
reverse merger ( the "Merger") of Tejas Holding and Merger Sub. Tejas
Holding and Merger Sub were established for the sole purpose of affecting
this transaction. As a result of the Merger, Tejas Holding became a
wholly owned subsidiary of Westech. Tejas Holding is the holder of
approximately 83% of the outstanding common stock issued by the
Corporation.
After the completion of the Merger, Westech had 12,537,218 shares of
common stock issued and outstanding. Earnings (loss) per share
information is based on pro forma calculations as if the Corporation had
completed the transaction in 1996, reflecting the additional shares
issued as part of the Merger. The historical share amounts prior to the
merger date have been adjusted on a pro forma basis to reflect the
merger transaction utilizing the same exchange ratio (2.4825 to one)
effected by the merger.
Effective January 1, 1998 the Corporation elected to be taxed as a C
corporation under the provisions of the Internal Revenue Code. In prior
years the Corporation had elected S corporation status for Federal
Income Tax purposes. Accordingly, net income (loss) and earnings (loss)
per share information for 1997 and 1996 are based on pro forma
calculations as if the Corporation had been a C corporation for those
years.
Pro forma basic earnings (loss) per share of common stock are computed
by dividing net earnings by the pro forma weighted average number of
common shares outstanding.
Pro forma diluted earnings (loss) per share reflects dilution from
contingently issuable shares, which include options and warrants.
Contingently issuable shares are not included in the pro forma weighted
average number of shares when the inclusion would increase net income
per share or decrease the loss per share.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share" is effective for financial statements with fiscal years and
interim periods ending after December 15, 1997 with retroactive statement
for prior periods. SFAS 128 provides for the calculation of Basic and
Dilutive earnings per share. Basic earnings per share includes no
dilution and is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share reflect
potential dilutions of securities that could share in the earnings (loss)
of the Corporation, such as stock options, warrants or convertible
debentures.
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
1998 1997 1996
<S> <C> <C> <C>
BASIC EARNINGS (LOSS) PER
SHARE
Net income (loss) $ (397,322) $ 316,035 $ (140,755)
Shares 9,435,429 8,416,728 5,189,072
Basic earnings (loss) per share $ (0.04) $ 0.04 $ (0.03)
DILUTED EARNINGS (LOSS) PER
SHARE
Net income (loss) $ (397,322) $ 316,035 $ (140,755)
Effect of dilutive securities:
Warrants 0 0 0
Options 0 0 0
Diluted earnings (loss) per share $ (0.04) $ 0.04 $ (0.03)
</TABLE>
Options to purchase 100,000, 100,000 and 120,000 shares of common stock
at December 31, 1998, 1997 and 1996 were not included in the computation
of diluted earnings (loss) per share because the options' exercise price
was greater than the estimated market value per share during the period.
Warrants to purchase 112,500 shares of common stock as of December 31,
1998 were not included in the computation of diluted earnings (loss) per
share because the warrants' exercise price was greater than the estimated
market value per share of common stock for the period. In addition,
Management does not consider these to be "nominal value" contingently
issuable shares and therefore has not considered the amounts in
disclosing pro forma earnings (loss) per share amounts.
F-13
<PAGE> 16
TEJAS SECURITIES GROUP, INC.
Statements of Financial Condition
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 334,047 201,312
Receivable from clearing brokers, partially restricted 11,439,542 1,468,424
Securities owned 11,545,748 1,539,424
Furniture and equipment, net 226,933 209,431
Deferred tax assets -- 178,500
Other assets 406,152 345,136
------------ ------------
Total assets $ 23,952,422 3,942,227
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 3,981,420 577,736
Subordinated debt 1,000,000 500,000
Securities sold, not yet purchased 1,050,135 --
Payable to clearing organization 13,099,946 1,459,678
------------ ------------
Total liabilities 19,131,501 2,537,414
------------ ------------
Stockholders' equity:
Preferred stock, no par value, convertible
1,000,000 shares authorized; none issued
and outstanding -- --
Common stock, no par value
10,000,000 shares authorized; 5,725,555 and
4,679,152 shares issued and outstanding 2,200,841 1,473,071
Subscriptions receivable (281,675) (96,263)
Retained earnings 2,901,755 28,005
------------ ------------
Total stockholders' equity 4,820,921 1,404,813
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 23,952,422 3,942,227
============ ============
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE> 17
TEJAS SECURITIES GROUP, INC.
Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Commissions $ 15,465,352 3,281,799
Underwriting and investment banking income 165,766 1,653,460
Net dealer inventory and investment income 3,516,592 (306,494)
Other income 87,065 --
------------ ------------
Total revenue 19,234,775 4,628,765
------------ ------------
Expenses:
Commissions 9,948,064 2,409,050
Other employee compensation and benefits 2,540,501 930,462
General and administrative 2,007,036 1,280,603
------------ ------------
Total expenses 14,495,601 4,620,115
------------ ------------
Income before income tax expense 4,739,174 8,650
Income tax expense:
Federal: 1,660,424 18,960
State 205,000 6,876
------------ ------------
1,865,424 25,836
------------ ------------
Net income (loss) $ 2,873,750 (17,186)
============ ============
Pro forma earnings (loss) per share (note 3):
Basic earnings (loss) per share:
Net income (loss) $ 0.27 --
============ ============
Weighted average shares outstanding 10,761,429 8,647,008
============ ============
Diluted earnings (loss) per share:
Net income (loss) $ 0.27 --
============ ============
Weighted average shares outstanding 10,761,429 8,647,008
============ ============
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE> 18
TEJAS SECURITIES GROUP, INC.
Statements of Stockholders' Equity
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON SUBSCRIPTIONS TREASURY RETAINED
SHARES STOCK RECEIVABLE STOCK EARNINGS TOTAL
--------- ---------- ------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 3,858,887 $ 946,878 (100,000) (47,805) 425,327 1,224,400
Stock issuances 679,152 477,612 -- -- -- 477,612
Treasury stock sales 141,113 50,789 -- 47,805 -- 98,594
Net loss -- -- -- -- (17,186) (17,186)
--------- ---------- -------- -------- --------- ---------
Balance at June 30, 1998 4,679,152 $1,475,279 (100,000) -- 408,141 1,783,420
========= ========== ========= ======== ========= =========
Balance at December 31, 1998 4,679,152 $1,473,071 (96,263) -- 28,005 1,404,813
Stock issuances 1,046,403 727,770 (704,883) -- -- 22,887
Treasury stock purchases (282,000) -- -- (172,114) -- (172,114)
Treasury Stock Sales 282,000 -- -- 172,114 -- 172,114
Subscription collected -- -- 519,471 -- -- 519,471
Net loss -- -- -- -- 2,873,750 2,873,750
--------- ---------- -------- -------- --------- ---------
Balance at June 30, 1999 5,725,555 $2,200,841 (281,675) -- 2,901,755 4,820,921
========= ========== ========= ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 19
TEJAS SECURITIES GROUP, INC.
Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,873,750 (17,186)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Deferred tax benefit 178,500 --
Depreciation expense 29,144 14,943
Increase in receivable from clearing brokers (9,971,118) (3,139,157)
Decrease (increase) in other assets and receivables (61,016) 13,341
Increase in trading account securities (8,956,189) (13,700)
Increase in accounts payable, accrued
expenses and other liabilities 3,403,684 1,032,138
Increase in payable to clearing organization 11,640,268 1,746,459
------------ ------------
Net cash used by operating activities (862,977) (363,162)
------------ ------------
Cash flows from investing activities:
Purchase of furniture and equipment (46,646) (105,863)
------------ ------------
Net cash used by investing activities (46,646) (105,863)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable
and subordinated debt 500,000 --
Purchase of treasury stock (172,114) --
Sale of treasury stock 172,114 98,594
Subscription collected 519,471 --
Proceeds from stock issuances 22,887 477,612
------------ ------------
Net cash provided by financing activities 1,042,358 576,206
------------ ------------
Net increase in cash and cash equivalents 132,735 107,181
Cash and cash equivalents at beginning of period 201,312 170,474
------------ ------------
Cash and cash equivalents at end of period $ 334,047 277,655
============ ============
Supplemental disclosures:
Interest paid $ 239,983 23,764
Taxes paid $ 502,987 25,015
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 20
TEJAS SECURITIES GROUP, INC.
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
(1) GENERAL
The accompanying unaudited financial statements of Tejas Securities
Group, Inc. (the "Corporation") have been prepared in accordance with the
instructions for interim financial statements in Article 10 of Regulation
S-X and, therefore do not include all information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, the interim financial
statements include all adjustments (consisting only of normal recurring
accruals) necessary to state fairly the information shown therein. The
nature of the Corporation's business is such that the results of any
interim period are not necessarily indicative of results of a full fiscal
year.
(2) ACQUISITION
On August 27, 1999, pursuant to an Agreement and Plan of Merger, by and
among the Corporation, Westech Capital Corp. ("Westech"), Tejas
Securities Group Holding Company, a Texas corporation ("Tejas Holding)
and Westech Merger Sub, Inc., a Delaware corporation ("Merger Sub"), the
Corporation acquired Westech through a reverse merger (the "Merger") of
Tejas Holding and Merger Sub. Upon the effectiveness of the Merger,
Westech's board of directors resigned and John J. Gorman, Jay W. Van Ert
and Joseph F. Moran were appointed as directors of Westech.
Under the terms of the Agreement and Plan of Merger, the shareholders of
Tejas Holding exchanged their shares for shares of Westech at a ratio of
2.4825 to one. The former shareholders of Tejas Holding currently own
95.21% of the issued and outstanding common stock of Westech, $.001 par
value per share.
(3) Pro Forma Earnings (Loss) Per Share
After the completion of the Merger, Westech had 12,537,218 shares of
common stock issued and outstanding. Earnings (loss) per share
information is based on pro forma calculations as if the Corporation had
completed the transaction in January 1998.
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
PRO FORMA EARNINGS (LOSS) PER SHARE
Net income (loss) $ 2,873,750 $ (17,186)
Shares 10,761,429 8,647,008
Basic earnings (loss) per share $ 0.27 $ 0.00
DILUTED EARNINGS (loss) PER SHARE
Net income (loss) $ 2,873,750 $ (17,186)
Effect of dilutive securities:
Warrants 0 0
Options 0 0
Diluted earnings per share $ 0.27 $ 0.00
</TABLE>
Options to purchase 100,000 shares of common stock at June 30, 1998 were
not included in the computation of diluted earnings (loss) per share
because the options' exercise price was greater than the estimated market
value per share during the period. Warrants to purchase 112,500 and
225,000 shares of common stock as of June 30, 1998 and 1999, respectively
were not included in the computation of diluted earnings (loss) per share
because the warrants' exercise price was greater than the estimated
market value per share of common stock for the respective periods. In
addition, Management does not consider these to be "nominal value"
contingently issuable shares and therefore has not considered the amounts
in disclosing pro forma earnings (loss) per share amounts.
F-18
<PAGE> 21
TEJAS SECURITIES GROUP, INC.
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
(5) LEASE COMMITMENTS
In September 1999, Westech entered into a lease agreement for new office
space for the Corporation's Austin, Texas office. The Corporation is the
operating subsidiary of Westech and Tejas Holding, and depending on cash
availability at Westech and Tejas Holding, may be required to provide
funds for future lease payments. The future annual lease payments due
under this operating lease as of December 31, 1999 are as follows,
commencing on February 15, 2000:
<TABLE>
<S> <C>
2000 $ 364,040
2001 436,848
2002 436,848
2003 436,848
2004 436,848
Thereafter 654,296
-----------
$ 2,765,728
===========
</TABLE>
(6) SUBORDINATED DEBT
The Corporation issued an additional $500,000 in debt subordinated to
claims of general creditors as of June 17, 1999. The subordinated debt is
due November 1, 2001 and bears interest at 11.5 percent. Interest is paid
monthly. As a condition of the loan agreement, the Corporation issued to
the lender warrants to purchase 112,500 shares of common capital stock of
the Corporation, exercisable at a price of $2.65 per share of common
stock. The warrants expire on November 12, 2003. As of June 30, 1999,
none of the warrants had been exercised.
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 Corporation's continued compliance with minimum net
capital requirements, they may not be repaid. It is the Corporation's
intention not to renew the secured demand note collateralizing agreements
due on November 1, 2001.
(7) CONTINGENCIES AND COMMITMENTS
In June 1999, Starlight Entertainment, Inc., submitted a claim in an
arbitration proceeding for damages in the amount of $6,800,000 for the
failed underwriting of a public offering of Starlight's common stock. The
amount of Starlight's claim is based upon the gross receipts that were
expected from the proposed public offering less the underwriting
commission plus attorney's fees.
The Corporation's counsel has reviewed the complaint and is preparing an
answer with respect to the arbitration. The Corporation believes the
complaint to be without merit.
There are no other liabilities arising from claims or legal actions that
management believes would have a significant adverse effect on the
financial condition or results of operations of the Corporation.
F-19
<PAGE> 22
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On August 27, 1999, pursuant to an Agreement and Plan of Merger, by and among
Westech Capital Corp. ("Westech"), Tejas Securities Group Holding Company
("Tejas Holding"), Tejas Securities Group, Inc. ("Tejas Securities") and Westech
Merger Sub, Inc. ("Merger Sub"), Tejas Securities acquired Westech through a
reverse merger of Tejas Holding and Merger Sub. Tejas Holding and Merger Sub
were established solely for the purpose of affecting this transaction, and
neither company had results of operations prior to August 27, 1999. As a result
of this transaction, Tejas Holding became a wholly owned subsidiary of Westech.
Tejas Holding is the holder of approximately 83% of the outstanding common stock
issued by Tejas Securities. Tejas Holding has no other assets, liabilities or
results of operations.
The accompanying unaudited Pro Forma Combined Statements of Financial Condition
as of December 31, 1998 and June 30, 1999, and the Pro Forma Combined Statements
of Operations for the year ended December 31, 1998 and the six months ended June
30, 1999 are based on the historical financial statements of Tejas Securities
adjusted as if the reverse acquisition of Westech had occurred on January 1,
1998. The Pro Forma Combined Financial Statements do not reflect the activities
of Tejas Holding as the company was established solely for this transaction, and
has no other assets or operations.
As Tejas Securities is the operating entity, the reported assets, liabilities,
revenues and expenses on the Pro Forma Combined Statements of Financial
Condition and the Pro Forma Combined Statements of Operations are presented in a
manner consistent with presentation for the brokerage industry. This Unaudited
Pro Forma Combined Financial Information is not necessarily indicative of the
operating results that would have been achieved had such transaction occurred at
the beginning of the period. This information is based on the assumptions set
forth in the notes to such statements and should be read in conjunction with the
related financial statements and notes thereto of Tejas Securities included
elsewhere in this document.
F-20
<PAGE> 23
PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Tejas Acquisition Pro Forma
ASSETS Securities(1) Westech (2) Adjustments(3) Combined
------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 201,312 9,529 -- $ 210,841
Receivable from clearing brokers, partially restricted 1,468,424 -- -- 1,468,424
Securities owned 1,539,424 -- -- 1,539,424
Furniture and equipment, net 209,431 -- -- 209,431
Deferred tax assets 178,500 -- 3,820 (5) 182,320
Other assets 345,136 -- -- 345,136
----------- ----------- ----------- -----------
$ 3,942,227 9,529 3,820 $ 3,955,576
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 577,736 1,580 -- $ 579,316
Subordinated debt 500,000 -- -- 500,000
Payable to clearing organization 1,459,678 -- -- 1,459,678
----------- ----------- ----------- -----------
Total liabilities 2,537,414 1,580 -- 2,538,994
----------- ----------- ----------- -----------
Minority interests in consolidated subsidiaries -- -- 240,917 (4) 240,917
Stockholders' equity:
Preferred stock -- -- -- (6) --
Common stock 1,473,071 599 (1,461,133)(6) 12,537
Capital in excess of par value -- 7,350 1,128,756 (6) 1,136,106
Subscriptions receivable (96,263) -- 96,263 (6) --
Retained earnings 28,005 -- (983)(6) 27,022
----------- ----------- ----------- -----------
Total stockholders' equity 1,404,813 7,949 (237,097) 1,175,665
----------- ----------- ----------- -----------
$ 3,942,227 9,529 3,820 $ 3,955,576
=========== =========== =========== ===========
</TABLE>
F-21
<PAGE> 24
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Tejas Acquisition Pro Forma
Securities Westech(2) Adjustments(3) Combined
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenue:
Commissions $ 7,932,780 -- -- $ 7,932,780
Underwriting and investment banking income 2,584,770 -- -- 2,584,770
Net dealer inventory and investment income (299,166) -- -- (299,166)
Other income 23,530 -- -- 23,530
------------ ------------ ------------ ------------
Total revenue 10,241,914 -- -- 10,241,914
------------ ------------ ------------ ------------
Expenses:
Commissions, employee compensation and benefits 5,921,426 -- -- 5,921,426
Other employee compensation and benefits 2,085,937 -- -- 2,085,937
General and administrative 2,692,236 10,753 -- 2,702,989
------------ ------------ ------------ ------------
Total expenses 10,699,599 10,753 -- 10,710,352
Depreciation and amortization 38,110 -- -- 38,110
------------ ------------ ------------ ------------
Operating income (495,795) (10,753) -- (506,548)
Interest expense 65,427 -- -- 65,427
------------ ------------ ------------ ------------
Loss before income taxes and minority interest (561,222) (10,753) -- (571,975)
Income taxes (163,900) 680 (3,820)(5) (167,040)
Minority interest in loss -- -- (68,141)(4) (68,141)
------------ ------------ ------------ ------------
Net loss $ (397,322) (11,433) 71,961 $ (336,794)
============ ============ ============ ============
Basic earnings per share:
Net loss $ (0.03)
============
Weighted average shares outstanding 12,537,218
============
Diluted earnings per share:
Net loss $ (0.03)
============
Weighted average shares outstanding 12,537,218
============
</TABLE>
F-22
<PAGE> 25
PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Tejas Acquisition Pro Forma
ASSETS Securities Westech(2) Adjustments(3) Combined
------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 334,047 6,498 -- $ 340,545
Receivable from clearing brokers, partially restricted 11,439,542 -- -- 11,439,542
Securities owned 11,545,748 -- -- 11,545,748
Furniture and equipment, net 226,933 -- -- 226,933
Other assets 406,152 -- -- 406,152
------------ ------------ ------------ ------------
$ 23,952,422 6,498 -- $ 23,958,920
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 2,782,845 3,382 -- $ 2,786,227
Securities sold, not yet purchased 1,050,135 -- -- 1,050,135
Payable to clearing organization 13,099,946 -- -- 13,099,946
Subordinated debt 1,000,000 -- -- 1,000,000
Deferred tax liability 1,198,575 -- (1,896)(5) 1,196,679
------------ ------------ ------------ ------------
Total liabilities 19,131,501 3,382 (1,896) 19,132,987
------------ ------------ ------------ ------------
Minority interests in consolidated subsidiaries -- -- 826,760 (4) 826,760
Stockholders' equity:
Preferred stock, no par value, convertible -- -- -- (6) --
Common stock 2,200,841 599 (2,188,903)(6) 12,537
Capital in excess of par value -- 2,517 1,581,102 (6) 1,583,619
Subscriptions receivable (281,675) -- 281,675 (6) --
Retained earnings 2,901,755 -- (498,738)(6) 2,403,017
------------ ------------ ------------ ------------
Total stockholders' equity 4,820,921 3,116 (824,864) 3,999,173
------------ ------------ ------------ ------------
$ 23,952,422 6,498 -- $ 23,958,920
============ ============ ============ ============
</TABLE>
F-23
<PAGE> 26
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Tejas Acquisition Pro Forma
Securities Westech(2) Adjustments(3) Combined
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Commissions $15,465,352 -- -- $15,465,352
Underwriting and investment banking income 165,766 -- -- 165,766
Net dealer inventory and investment income 3,516,592 -- -- 3,516,592
Other income 87,065 -- -- 87,065
----------- ----------- ----------- -----------
Total revenue 19,234,775 -- -- 19,234,775
----------- ----------- ----------- -----------
Expenses:
Commissions 9,948,064 -- -- 9,948,064
Other employee compensation and benefits 2,540,501 -- -- 2,540,501
General and administrative 1,737,909 4,833 -- 1,742,742
----------- ----------- ----------- -----------
Total expenses 14,226,474 4,833 -- 14,231,307
Depreciation and amortization 29,144 -- -- 29,144
----------- ----------- ----------- -----------
Operating income 4,979,157 (4,833) -- 4,974,324
Interest expense 239,983 -- -- 239,983
----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interest 4,739,174 (4,833) -- 4,734,341
Income taxes 1,865,424 -- (1,896)(5) 1,863,528
Minority interest in income -- -- 492,851 (4) 492,851
----------- ----------- ----------- -----------
Net income (loss) $ 2,873,750 (4,833) (490,955) $ 2,377,962
=========== =========== =========== ===========
Basic earnings per share:
Net income $ 0.19
===========
Weighted average shares outstanding 12,537,218
===========
Diluted earnings per share:
Net income $ 0.19
===========
Weighted average shares outstanding 12,537,218
===========
</TABLE>
F-24
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Balances were obtained from the 1998 audited financial statements of
Tejas Securities.
(2) Includes the account balances and results of Westech's operations
beginning January 1, 1998 prior to the Company's acquisition.
(3) Includes pro forma adjustments relating to the acquisition of Westech,
including provisions for income taxes on the consolidated entity,
restatement of Westech's equity and adjustments to record the minority
interest in Tejas Securities.
(4) To reflect the minority interest in Tejas Securities resulting from the
merger transaction, which approximates 17% of the outstanding common
stock of Tejas Securities. Of the 5,803,888 shares of common stock issued
and outstanding for Tejas Securities, 995,333 non accredited
stockholders' shares were not exchanged for shares of Tejas Holding.
These remaining 995,333 shares represent the minority interest in Tejas
Securities. See note 6 below.
(5) To record the adjustment for the provision for income taxes on the
combined entity. The pro forma adjustment is based on the income
(loss) before income taxes and minority interest, and the effective tax
rate in effect for the period.
(6) The pro forma acquisition adjustments reflect the exchange of 4,808,555
shares representing 83% of Tejas Securities common stock for Tejas
Holding common stock on a one-for-one basis. Concurrently, shareholders
of Tejas Holding exchanged their 4,808,555 shares of common stock for
11,937,237 shares of Westech common stock with a par value of $.001 per
share. As a result of this transaction, Westech's shareholders' pro forma
equity would be comprised of the following:
<TABLE>
<S> <C>
December 31, 1998:
Common stock $ 12,537
Capital in excess of par value 1,136,106
Retained earnings 27,022
June 30, 1999:
Common stock $ 12,537
Capital in excess of par value 1,583,619
Retained earnings 2,403,017
</TABLE>
F-25
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Westech Capital Corp.
Date: November 8, 1999 By: /s/ JOHN J. GORMAN
--------------------------------------
John J. Gorman
Chief Executive Officer
