1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q-SB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the nine months ended Commission File Number
- ----------------------------- ------------------------
September 30, 1998 33-48017-A
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
(a Delaware corporation, formerly a Florida corporation)
(Exact name of Registrant as specified in its Charter)
Delaware (formerly Florida 59-2087068
- ---------------------------- ---------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
2323 Stickney Point Road, Sarasota, Florida 34231
--------------------------------------------------
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (941) 921-9700
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No.
--
For the nine months ended September 30, 1998, the Registrant had revenues of
$2,576,416.
As of September 30, 1998, the Registrant had 5,000,000 Shares authorized and
2,664,560 Shares outstanding. The aggregate market value of the outstanding
shares held by non-affiliates, computed by reference to the price at which the
stock was sold is $1,752,492.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Set forth below are the unaudited financial statements reflecting the
Company's financial condition as of September 30, 1998, and the related
statements of operations and shareholders' equity for the nine and three months
ended September 30, 1998 and 1997.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
BALANCE SHEET
September 30, 1998 (Unaudited)
ASSETS
------------
CURRENT ASSETS
<S> <C>
Cash $ 43,957
Accounts receivable from
correspondent brokers 253,699
Accounts receivable from affiliates 74,923
Accounts receivable from others 2,448
------------
TOTAL CURRENT ASSETS 375,027
INVESTMENTS ---
FURNITURE, FIXTURES AND EQUIPMENT at cost
Net of accumulated depreciation 24,837
OTHER ASSETS
Deposits with clearing organizations 140,510
Other Deposits 1,934
Trading Account 851,348
------------
TOTAL ASSETS $ 1,393,656
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------
CURRENT LIABILITIES
Accounts payable $ 37,211
Commissions payable 179,474
------------
TOTAL CURRENT LIABILITIES 216,685
STOCKHOLDERS' EQUITY
Preferred Stock - authorized 750,000
shares of $.01 par value; no shares
issued or outstanding ---
Common Stock - authorized 5,000,000
shares of $.002 par value; issued and
outstanding 2,664,560 shares 5,329
Additional paid-in capital 2,331,731
Additional paid-in capital, warrants 4,410
Retained earnings (1,164,499)
------------
TOTAL STOCKHOLDERS' EQUITY $ 1,176,971
------------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 1,393,656
============
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
STATEMENTS OF OPERATION
For The Three and Nine Months Ended September 30 (Unaudited)
Nine Months Ended September 30 Three Months Ended September 30
1998 1997 1998 1997
-------------------------------- --------------------------------- ----------- -----------
REVENUE
<S> <C> <C> <C> <C>
Commissions $ 1,834,265 $ 2,896,686 $ 561,959 $1,124,606
Underwriting fees 209,920 133,548 118,950 59,948
RIA Income 171,858 --- 104,053 ---
Trading Profit 227,777 --- 227,777 ---
Other Income 132,596 109,810 109,635 39,410
-------------------------------- --------------------------------- ----------- -----------
TOTAL REVENUE 2,576,416 3,140,044 1,122,374 1,223,964
-------------------------------- --------------------------------- ----------- -----------
EXPENSES
Advertising 4,350 1,921 2,431 308
Bad debt expense 13,110 --- 13,105 ---
Board of Directors fees 18,000 14,000 6,000 6,000
Branch office support 25,000 58,000 25,000 55,000
Clearing charges 116,754 241,182 37,307 104,458
Commissions 1,964,680 2,369,145 841,741 917,879
Consulting fees 81,053 40,236 52,400 17,045
Dues and Subscriptions 6,297 7,160 1,508 2,870
Depreciation 7,769 9,092 2,601 3,031
Employee benefits 2,750 --- 2,750 ---
Insurance 8,091 9,565 6,750 6,363
Meetings and seminars (6,500) (471) (5,750) (500)
Miscellaneous 6,191 17,951 4,722 3,736
Occupancy costs 74,487 64,722 24,833 21,311
Office expenses 29,962 20,854 14,397 7,725
Professional development --- 187 --- 187
Regulatory 14,814 13,605 2,073 1,754
Rental Equipment 6,065 7,302 3,054 3,017
Salaries and wages 313,800 262,530 142,354 83,880
Taxes 30,973 26,382 11,392 6,609
Travel and lodging 50,599 24,123 34,099 8,356
Utilities 26,327 22,296 11,836 9,502
-------------------------------- --------------------------------- ----------- -----------
TOTAL
OPERATING EXPENSES 2,794,572 3,209,782 1,234,603 1,258,531
-------------------------------- --------------------------------- ----------- -----------
OPERATING
INCOME/(LOSS) (218,154) (69,738) (112,230) (34,567)
-------------------------------- --------------------------------- ----------- -----------
NET INCOME/(LOSS) $ (218,154) $ (69,738) $ (112,230) $ (34,567)
================================ ================================= =========== ===========
NET INCOME/(LOSS)
PER SHARE $ (.082) $ (.027) $ (.042) $ (.013)
================================ ================================= =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Nine Months Ended September 30 (Unaudited)
Additional
Additional Paid-In Retained
Preferred Common Paid-In Capital Earnings
Stock Stock Capital Warrants (Deficit) Total
------------ ----------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 - $ 4,983 $ 913,687 $ 4,410 $(841,105) $ 81,975
Issuance of common stock 248 213,752 214,000
Syndication costs (21,800) (21,800)
Net loss for the Nine
months ended
September 30, 1997 (69,738) (69,738)
------------ -----------
Balance at
September 30, 1997 $ - $ 5,231 $ 1,105,639 $ 4,410 $(910,843) $ 204,437
============ =========== =========== ============ ========== ===========
Additional Retained
Preferred Common Paid-In Earnings Stock
Stock Stock Capital (Deficit) Warrants Total
- -------------------------- ----------- ----------- ------------ ----------
Balance at
January 1, 1998 $ - $ 5,231 $ 1,105,689 $ (946,344) $ 4,410 $ 168,936
Issuance of Common Stock 98 1,246,569 1,246,667
Syndication Costs (20,477) (20,477)
Net loss for nine
months ended
September 30, 1998 - - - (218,154) - (218,154)
------------ ----------- ----------- ------------ ---------- -----------
Balance at
September 30, 1998 $ - $ 5,329 $ 2,331,781 $(1,164,498) $ 4,410 $1,176,972
============ =========== =========== ============ ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
STATEMENT OF CASH FLOWS
For The Nine Months Ended September 30 (Unaudited)
1998 1997
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) $ (218,154) $ (69,738)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 6,817 9,092
(Increase) decrease in operating assets:
Receivable from correspondent brokers (139,527) (217,155)
Receivable - other (31,056) (30,585)
Deposits (95,353) (1,030)
Other assets 15,000 (5,000)
Increase (decrease) in operating liabilities:
Accounts payable (69,663) 1,953
Commissions payable 78,183 134,973
----------- ----------
Net cash provided by (used in) operating activities (453,753) (177,490)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets (4,311) ---
Trading Account (851,348) ---
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,246,667 214,000
Cash paid for syndication costs (20,477) (21,800)
----------- ----------
Net cash provided by (used in) financing activities 1,226,190 192,200
----------- ----------
NET INCREASE (DECREASE) IN CASH (83,222) 14,710
CASH AT BEGINNING OF PERIOD 127,179 ---
----------- ----------
CASH AT END OF PERIOD $ 43,957 $ 14,710
=========== ==========
</TABLE>
<PAGE>
<PAGE>
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
For The Nine Months Ended September 30, 1998 and 1997
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- ----------------------------------------------
Organization
- ------------
FAS Wealth Management Services, Inc., (formerly Executive Wealth Management
Services, Inc. (the Company) is a securities broker/dealer that transacts
business through correspondent brokers and does not handle any customer
securities or funds. Customer security transactions and related commission
revenue and expenses are recorded on the trade date. The Company also markets
insurance products and services, acts as a broker/dealer in selling both public
and private securities offerings on a best efforts basis and markets to Affinity
Groups . In addition, the Company receives commissions, investment banking and
underwriting fees for its services.
Effective August 31, 1998, the Agreement and Plan of Merger ("Agreement") with
FAS Group, Inc. was effective. Executive Wealth Management Services, Inc.
merged with a subsidiary of FAS Group, Inc. and changed its name to FAS Wealth
Management Services, Inc. Details of the capitalization from the parent
company, FAS Group, Inc. are detailed in Note 8 of these financials.
On September 1998, the NASDR granted the firm's application to change its
Restrictive Letter to allow for market making and proprietary trading. The new
Restrictive Letter with the NASDR limits the number of securities in which the
firm can make markets to 15. It also limits the firms proprietary positions to
less than 90% of excess net capital.
Receivable from Correspondent Brokers
- ----------------------------------------
The receivable from correspondent brokers and broker/dealers represent
commissions earned which had not been received at September 30, 1998.
Management has determined that these amounts are fully collectible.
Furniture, Fixtures and Equipment
- ------------------------------------
Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided for in amounts sufficient to relate the cost of assets to operations
over their estimated useful lives using the straight-line method.
Investments
- -----------
The Company was issued 55,263 shares of common stock of Flight Sciences, Inc.
This stock was issued to the Company in relation to a private offering of Flight
Sciences' promissory notes. These shares represented 5% of Flight Sciences,
Inc.'s outstanding common stock at the time. The Company has assigned no value
to the stock due to the fact that there is no ready market and its value is not
determinable.
<PAGE>
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For The Nine months Ended September 30, 1998 and 1997
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ------- -----------------------------------------------------------
Warrants Outlet Mall Network
- -------------------------------
The Company was issued 5,555 warrants of the Outlet Mall Network, Inc. ("OMNI").
OMNI had two reverse splits during 1998. The net effect of these splits was a
4.35 to 1 reverse split. The Company originally had 24,167 shares. These
warrants were issued in relation to a private offering of OMNI stock. The
warrants have an exercise price of $8.70 and expire June 10, 2002. The Company
has assigned no value to the warrants due to the fact that there is no ready
market and their value is not determinable.
Loss Per Share
- ----------------
Loss per share is computed based upon 2,664,560 and 2,615,485 shares outstanding
during the periods ended September 30, 1998 and 1997, respectively.
Note 2 - DEPOSIT WITH CLEARING ORGANIZATION
- ------- -------------------------------------
Deposits with clearing organizations represent investments in money markets. The
investments are required by the Company's clearing brokers and are in accordance
with the correspondent broker agreements between the parties. Deposits are
reflected at fair market value.
Note 3 - FURNITURE, FIXTURES AND EQUIPMENT
- ------- ------------------------------------
<TABLE>
<CAPTION>
A summary of furniture, fixtures and equipment follows:
September 30, 1998
--------------------
<S> <C>
Furniture and fixtures $ 37,951
Equipment 37,034
Leasehold improvements 8,101
--------------------
83,086
Less: Accumulated Depreciation (58,249)
--------------------
$ 24,837
====================
</TABLE>
NOTE 4 - OPERATING LEASES
- ------- -----------------
Rent expense for the nine months ended September 30, 1998 and 1997 was $74,487
and $64,722, respectively.
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For The Nine months Ended September 30, 1998 and 1997
Note 5 - NET CAPITAL REQUIREMENT
- ------- -------------------------
Pursuant to the net capital provisions of Rule 15c3-1(a)(2)(iii) of the
Securities and Exchange Act of 1934, the Company is required to maintain a
minimum net capital of $100,000 as of September 30, 1998, and $5,000 as of the
same period ended 1997. The Company had net capital of $903,823 or 903% and
$131,521 or 622% of the minimum requirement at September 30, 1998 and 1997,
respectively. The net capital rules may effectively restrict the payment of
dividends to the Company's stockholders. The Company operates pursuant to the
(K)(2)(ii) exemption provisions of the Securities and Exchange Commissions Rule
15c3-3 and does not hold customer funds or securities.
NOTE 6 - INCOME TAXES
- ------- -------------
At December 31, 1996, the Company had a net operating loss carry forward of
approximately $946,000 that will begin to expire in the year 2009. Due to the
lack of historical operations, management has elected to record a valuation
allowance equal to the deferred tax asset of $350,000, calculated using an
effective income tax rate of 37% for the Company.
.
NOTE 7 - RELATED PARTY TRANSACTIONS
- ------- ----------------------------
During the nine months ended September 30, 1998 and 1997, companies affiliated
with the Company's majority stockholder shared office space with the Company and
paid rent of $8,586 and $17,188, respectively, for the use of the space.
During the nine months ended September 30, 1998 and 1997, the Company paid rent
of approximately $27,000 to the Company's majority stockholder.
NOTE 8 - COMMON STOCK TRANSACTIONS
- ------- ---------------------------
In November, 1995, the Company approved a plan to grant options to certain
employees to purchase the Company's common stock. The plan provided for the
granting of options to purchase a maximum of 500,000 shares of the Company's
stock at a price to be determined at the time of grant. The price, however, is
not greater than $.60 per share. The plan required a participant to be employed
by the
Company for a number of years before exercise. Granted options expire 10 years
from the grant date. At September 30, 1998, none of the options have been
exercised.
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For The Nine months Ended September 30, 1998 and 1997
NOTE 8 - COMMON STOCK TRANSACTIONS (Continued)
- ------- ----------------------------------------
During the first quarter of 1998, the majority shareholder purchased 42,500
shares of common stock at $1.20 per share.
In May, 1996, the Board of Directors passed a resolution to forward split the
outstanding common stock shares of Executive Wealth Management Services, Inc. on
a five for one basis to common stockholders of record as of September 20, 1996.
On June 9, 1997, the Company initiated a private placement of 250,000 shares of
the Company's Common Stock at a price of $2.00 per share. Net proceeds from the
sale of stock were used for general working capital and expansion of operations.
In March, 1998, the Company and the majority shareholder initiated a private
placement of 150,000 shares of the Company's Common Stock at a price of $2.00
per share. The shares contained in the offering were drawn one third from the
authorized but unissued shares of the Company and two thirds from the majority
shareholder. As of September 30, 1998, 147,250 shares of the Company's Common
Stock had been sold under this private placement. Net proceeds from the
issuance of shares by the Company were used for costs of the merger, affinity
group marketing programs, working capital and general corporate purposes. The
majority shareholder received net proceeds for sale of its shares.
On August 19, 1998, the parent company, FAS Group, Inc. initiated a private
placement of 750,000 units consisting of 750,000 share of the Company's Class A
Common Stock and 750,000 Redeemable Class A Common Stock Purchase Warrants at a
price of $2.00 per unit. As of September 30, 1998, all 750,000 units were sold
and proceeds were used for working capital and investment in its subsidiary, FAS
Wealth Management Services, Inc., the broker/dealer.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
-------------------------------------------------------------------
Results of Operation.
-----------------------
Current Operations
- -------------------
<TABLE>
<CAPTION>
The table set forth below reflects the source of revenue earned by the Company
during the nine months ended September 30, 1998 and 1997.
1998 1997 Increase/(Decrease)
---------- ---------- --------------------
Source of Revenue Earned
- ---------------------------------
Commission:
<S> <C> <C> <C>
Investment banking fees $ 209,920 $ 133,548 $ 76,372
Transactional 740,813 1,762,944 (1,022,131)
Mutual Fund Sales 442,548 443,847 (1,299)
Insurance/Annuity 433,940 468,558 (34,618)
Limited partnership sales 216,965 221,337 (4,372)
---------- ---------- --------------------
Total Commissions 2,044,186 3,030,234 (986,048)
Other:
RIA income 171,858 28,784 143,074
Trading Profits 227,777 277,777
Miscellaneous 132,595 81,026 51,569
---------- ---------- --------------------
Total $2,576,416 $3,140,044 $ (563,628)
========== ========== ====================
</TABLE>
The Company received investment banking fees of $209,920 and $133,548 from the
sale of proprietary products or commissions which were (in-house) in character
for the nine months ended 1998 and 1997, respectively. The increase of $76,372
or 57.2% from the nine month period ended 1997 compared to the same period ended
1998 reflects the best efforts public offering of $5,000,000 in promissory notes
of Federal Mortgage Management II, Inc. During the nine months ended September
30, 1998, the Company earned fees and commissions of $91,470 compared to none
for the same period ended 1997 from such offering. The Company also earned
commission of $29,450 from the best efforts offering of 150,000 shares of its
common stock for the period ended September 30, 1998. The Company earned
commissions of $89,000 from its parent company FAS Group, Inc. for the private
placement of 750,000 units, each unit consisting of one (1) Class A Common Stock
and one (1) Redeemable Class A Common Stock Purchase Warrant.
Transactional revenues decreased by 1,022,131 or 58% for the nine month ended
September 30, 1998 as compared to same period in 1997. This decrease relates to
the fact that during the fourth quarter of 1997, one of the Altamonte Springs
branch offices began their own broker/dealer operation. Also contributing to
the decrease were general market and seasonal conditions as well as another
branch shifting from transactional to Registered Investment Advisory based fees.
The decrease of $1, 022, 131 is offset to some degree with the increase in RIA
income of $143,074 and trading profit increase of $227,777 for a net decrease of
transactional revenue of $651,280 or 37%. The firm believes that this decrease
in transaction revenue will not continue and will be offset with increased RIA
income, trading profit income and securities and insurance commissions over the
next two fiscal quarters.
Mutual fund, insurance/annuity and limited partnership revenue all decreased for
the nine month period ended September 30, 1998 as compared to the same period in
1997. The decreases of $1,299, $34,619, $4,372, respectively for $40,289
cumulative decrease are primarily due to general market conditions.
As noted above RIA income increased $143,074 for the nine month period ended
September 30, 1998 as compared to the same period ended 1997. This increase
represents a 497% increase over 1997. Management believes this revenue stream
from the Registered Investment Advisor will continue throughout fiscal 1998 and
well into fiscal 1999.
During the month of September 1998, assets under management has surpassed the
$25,000,000 benchmark for registration with the SEC. At September 30, 1998, the
firm had filed an application to register its RIA with the SEC and assets under
management as of October 15, had surpassed approximately $30,000,000.
Overall total revenues decreased $563,628 or 18% for the nine months ended
September 30, 1998 as compared to the same period ended 1997. Such decrease is
expected to level off during the last fiscal quarter of 1998 and into the first
fiscal quarter of 1999. Management believes that with the bulk transfer of the
Ft. Lauderdale and New York office, the change of operations to allow for market
making and proprietary trading and other offices that the firm is seeking to
recruit that revenues will steadily increase over the next two to three fiscal
quarters.
The Company had considered market making and proprietary trading for several
years. However, management had never found the right individuals with whom to
participate or undertake this endeavor.
The merger with FAS Wealth Management Services, Inc., a subsidiary of FAS Group,
Inc., whose principal, Jack Alexander, had experience in growing a retail
brokerage firm, with emphasis in investment banking, firm commitment
underwritings, market making and proprietary trading in conjunction with the
asset purchase and bulk transfer of agents from Biltmore Securities, Inc.,
afforded the Company the opportunity to implement this phase of its business
plan in an expeditious and orderly manner.
The union of the Company, FAS Wealth Management Services, Inc., and the agents
from Biltmore Securities, Inc., gives the Company an additional base upon which
to expand this area of the business. Management understands the task into which
it has entered regarding these agents and is prepared to utilize the talents of
its senior management team to give them the opportunity to grow their careers on
a broader product base which includes mutual funds, variable annuities, life
insurance and investment advisory services under strict supervision and
compliance training .
The Company received a Cease and Desist Order from the State of Alabama on
September 17, 1998, regarding the transfer of agents from Biltmore Securities,
Inc. To date, the Company has supplied the State of Alabama with its requested
information, including a copy of the asset purchase documents, plan of
rehabilitation and voluntarily issued U-5s terminating those former Biltmore
agents' licensed in the State of Alabama. The Company also requested an
informal hearing with Alabama's regulators to bring this issue to resolution.
Other states, such as New Hampshire have requested that the Company withdraw its
request for registration in their respective state until the matter such as the
one with Alabama is resolved. Management has requested that New Hampshire
reconsider its position based upon the structure of the asset purchase, the plan
of rehabilitation and the Company's history of compliance with all regulatory
bodies. As of October 27, 1998, the Company has not received a response from
the State of New Hampshire.
<TABLE>
<CAPTION>
The table set forth below reflects the expense categories of the Company in
which there was a significant increase or decrease for the nine months ended
September 30, 1998 as compared to the same period in 1997. Several expense
categories increased dramatically during the third fiscal quarter of 1998.
These increases are directly related to the changes to the firm's Restrictive
Letter with the NASD and the bulk transfer of the Ft. Lauderdale and New York
offices. In order to facilitate the growth in the firm's future plan of
operation, areas such as advertising for new personnel, consulting fees, dues
and subscriptions, office expense, regulatory fees, salaries, wages and taxes,
travel and lodging as well as utilities all increased during the nine months
ended September 30, 1998 as compared to the same period ended 1997.
Increase/
Expense Category 1998 1997 (decrease)
- ----------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Advertising $ 4,350 $ 1,921 $ 2,429
Bad debt expense 13,110 --- 13,110
Board of Directors fees 18,000 14,000 4,000
Branch office support 25,000 58,000 (33,000)
Clearing fees 116,754 241,182 (124,428)
Commissions 1,964,680 2,369,145 (404,465)
Consulting fees 81,053 40,236 40,817
Dues and subscriptions 13,297 7,160 6,137
Employee Benefits 2,750 --- 2,750
Meetings and seminars (6,500) (471) 6,029
Miscellaneous expense 6,191 17,951 (11,760)
Occupancy costs 74,487 64,722 9,765
Office Expense 31,354 20,854 10,500
Regulatory 21,006 13,605 7,401
Salaries & Wages 313,800 262,530 51,270
Taxes 30,973 26,382 4,591
Travel and lodging 50,599 24,123 26,476
Utilities 26,327 22,296 4,031
</TABLE>
Future Operations
- ------------------
As of September 30, 1998, FASWMS had approximately 120 registered
representatives and is in the process of recruiting several new office
locations.
During the remainder of 1998 and into 1999, management will continue to focus on
several growth and expansion related initiatives. These initiatives will
include, but are not limited to the following:
- Expanded service and marketing to "Affinity Groups",
- Possible secondary public offering,
- Continued branch development and expansion,
- Registered investment advisory activities
- Increased investment banking activities, and
- Implementation of market making and proprietary trading activities
For approximately two and one half years, the Company has aggressively engaged
in, and committed significant financial and personnel resources to an extensive
market study and analysis of the viability of marketing, on an exclusive and
endorsed basis, various insurance, financial and securities-related products,
and other services to members of large medical affinity groups and associations.
In this regard, Executive has established contacts and relationships with
various medical associations and affinity groups and has presented comprehensive
marketing proposals to specific groups. The Company will continue to develop
these relationships along with attempting to establish additional relationships
with new groups throughout 1998.
As of March 13, 1997, the Company had entered into a Letter of Intent with
American Healthcare Alliance ("AHA"), the largest nationwide network of
Preferred Provider Managed Healthcare Systems and Organizations, whereby the
parties agreed to undertake a formal contractual relationship in which Executive
will engage in the marketing, on an endorsed basis, of designated financial
services and products as well as other services to physician and healthcare
providers who are members of AHA's Preferred Provider Organizations. In this
regard, Executive has obtained an exclusive marketing agreement with the
nation's largest provider of a pre-paid tax audit defense program to offer their
services to AHA's 180,000 plus physician members on an endorsed basis. The
marketing of this program, conducted on a direct mail basis, commenced on
February 4, 1997. Pursuant to the terms of the exclusive marketing agreement,
the Company receives first year and renewal commissions on the fees paid by the
physician members for the service.
On October 15, 1998 the American Medical Association ("AMA") and AMA Solutions,
Inc., a wholly owned subsidiary of the AMA, entered into a contract with
TaxResources, Inc.'s pre-paid tax audit defense service for sale and
solicitation to its physician members through AMA Solutions, Inc. FASWMS acted
as a broker in the transaction and will receive first year and renewal
commissions on the sale of the service. Solicitation of AMA physician members
for the sale of TaxResources, Inc.'s services should commence during the end of
the third quarter or beginning of the fourth quarter of 1998.
Regulatory Net Capital
- ------------------------
As a securities broker-dealer, the Company is subject to the net capital rules
of the United States Securities and Exchange Commission and similar rules in
force in the states where the Company is registered as a securities
broker-dealer. The aggregate indebtedness of a securities broker-dealer in
relation to its net capital is also subject to Commission rules. Such rules are
somewhat complex in the manner that regulatory net capital is computed. In
summary, however, the computation of regulatory net capital relates to the
stockholder's equity of the Company taking into account deductions from such
stockholder's equity which relate to non-allowable assets which are a non-liquid
type and reductions in the market value of investment securities owned by the
Company in accordance with rule-prescribed "haircuts". Under the rules, the
aggregate indebtedness of the Company in relation to its net capital may not
exceed a ration of 15 to 1.
<TABLE>
<CAPTION>
The table set forth below, with respect to the Company, the amount of regulatory
net capital and the amount of aggregate indebtedness and the ratio thereof to
such regulatory net capital as of September 30, 1998 and 1997:
1998 1997
--------- ----------
Net Capital $903,823 $131,521
<S> <C> <C>
Aggregate Indebtedness 216,685 316,975
Ratio of aggregate indebtedness
to net capital .24 to 1 2.41 to 1
</TABLE>
YEAR 2000
- ----------
The challenge of the year 2000, is fast approaching for every organization world
wide. The regulatory bodies of the securities industry began their response by
mandating that all member firms assess its information technology environments
and make the necessary changes to insure that automated processes with
date-sensitive components will correctly identify "00" as the year 2000, when
processing dates on and after January 1, 2000.
The firm has adopted a plan of action which will ensure that not only are the
firm's automated systems year 2000 compliance ready, but also those of the third
party vendors upon whom the firm relies. The capital costs associated with the
assessment and implementation of the firm's plan has been estimated at
approximately $50,000 for 1998, $75,000 for 1999, and $50,000 for 2000. These
figures are based upon current operating facilities and are not reflective of
potential growth areas that management is considering.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Reference is made to the S-4 recently filed.
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Reference is made to the S-4 recently filed.
Item 5. Other Information.
FAS Group, Inc., the parent company, and the consolidated financials.
Item 6. Exhibits and Reports on Form 8-K.
Not Applicable
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant
causes this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FAS WEALTH MANAGEMENT
SERVICES, INC.
NOVEMBER, 1998
- ---------------
BY Guy S. Della Penna
---------------------
Guy S. Della Penna, President and
Chief Executive Officer
NOVEMBER, 1998
- ---------------
BY Bonnie S. Gilmore
-------------------
<PAGE>
Bonnie S. Gilmore, Senior Vice President
Chief Financial Officer and Secretary
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ITEM 5. OTHER INFORMATION: FINANCIALS OF THE PARENT COMPANY
FAS GROUP, INC. AND CONSOLIDATED FINANCIALS
BALANCE SHEET
AS OF SEPTEMBER 30, 1998 (UNAUDITED)
FAS GROUP, INC. FAS WEALTH ELIMINATIONS CONSOLIDATED
--------------- ----------- ------------- -------------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash 7,608 43,957 --- 51,565
Accounts receivable from
correspondent brokers --- 253,699 --- 253,699
Accounts receivable from affiliates --- 74,923 --- 74,923
Accounts receivable from others --- 2,448 --- 2,448
--------------- ----------- ------------- -------------
Total Current Assets 7,608 375,027 --- 382,635
INVESTMENTS
Marketable Securities 587,600 --- --- 587,600
Investments Subsidiary 1,148,500 --- (1,148,500) ---
--------------- ----------- ------------- -------------
TOTAL INVESTMENTS 1,736,100 --- (1,148,500) 587,600
FURNITURE, FIXTURES AND EQUIPMENT AT COST
Net of accumulated depreciation --- 24,837 --- 24,837
OTHER ASSETS
Organizational costs
net of accumulated amortization 57,544 --- --- 57,544
Deposits with clearing
organizations --- 140,510 --- 140,510
Other deposits --- 1,934 --- 1,934
Trading account --- 851,348 --- 851,348
--------------- ----------- ------------- -------------
TOTAL OTHER ASSETS 57,544 993,792 --- 1,051,336
TOTAL ASSETS 1,801,252 1,393,656 (1,148,500) 3,194,908
=============== =========== ============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable 1,266 37,211 --- 38,477
Incomes taxes payable 186,515 --- --- 186,515
Commissions payable --- 179,474 --- 179,474
--------------- ----------- ------------- -------------
187,781 216,685 --- 404,466
Common stock --- 5,329 (5,329) ---
Common stock Class A 2,664 --- 1,620 4,284
Common stock Class B 630 --- 370 1,000
Paid in capital 1,248,370 2,331,731 (1,140,885) 2,439,216
Paid in stock warrants 750 4,410 (4,276) 884
Retained earnings 361,058 (1,164,499) --- (803,442)
--------------- ----------- ------------- -------------
TOTAL STOCKHOLDERS
EQUITY 1,613,472 1,176,971 (1,148,500) 1,641,943
TOTAL STOCKHOLDERS
EQUITY 1,801,252 1,393,656 (1,148,500)1 2,046,408
=============== =========== ============= =============
</TABLE>
Footnote:
1. Elimination and proforma calculations. Proforma calculations assumes merger
effective as of September 30, 1998.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ITEM 5. OTHER INFORMATION: FINANCIALS OF THE PARENT COMPANY
FAS GROUP, INC. AND CONSOLIDATED FINANCIALS
STATEMENT OF CASH FLOW
AS OF SEPTEMBER 30, 1998 (UNAUDITED)
FAS GROUP, INC. FAS WEALTH CONSOLIDATED
---------------- ----------- -------------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) 361,058 (218,154) 142,904
Adjustments to reconcile net income to net
cash used in operating activities --- --- ---
Depreciation --- 6,817 6,817
(Increase) decrease in operating assets --- --- ---
Receivable from correspondent brokers --- (139,527) (139,527)
Receivable - other --- (31,056) (31,056)
Deposits --- (95,353) (95,353)
Other assets (57,544) 15,000 (42,544)
Marketable securities (587,600) --- (587,600)
Increase (decrease) in operating liabilities
Accounts payable 187,780 (69,663) 118,117
Commissions payable --- 78,183 78,183
---------------- ----------- -------------
Net cash provided by (used in) operating activities (96,306) (453,753) (550,059)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of assets --- (4,311) (4,311)
Trading account --- (851,348) (851,348)
Investment - subsidiary (1,148,500) --- (1,148,500)
---------------- ----------- -------------
Net cash provided by (used in) investing activities (1,148,500) (855,659) (2,004,159)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,502,544 1,246,667 2,749,211
Cash paid for syndication costs (250,130) (20,477) (270,607)
---------------- ----------- -------------
Net cash provided by (used in) financing activities 1,252,414 1,226,190 2,478,604
NET INCREASE (DECREASE) IN CASH 7,608 (83,222) (75,614)
CASH AT BEGINNING OF PERIOD --- 127,179 127,179
---------------- ----------- -------------
CASH AT END OF PERIOD 7,608 43,957 51,565
================ =========== =============
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ITEM 5. OTHER INFORMATION: FINANCIALS OF THE PARENT COMPANY
FAS GROUP, INC. AND CONSOLIDATED FINANCIALS
INCOME STATEMENT
AS OF SEPTEMBER 30, 1998 (UNAUDITED)
FAS GROUP, INC. FAS WEALTH CONSOLIDATED
--------------- ----------- -------------
REVENUE
<S> <C> <C> <C> <C>
Commissions --- 1,834,265 1,834,265
Underwriting fees --- 209,920 209,920
RIA income --- 171,858 171,858
Trading profits --- 227,777 227,777
Other income 745 132,596 133,341
Consulting fees 1,200,000 --- 1,200,000
--------------- ----------- -------------
TOTAL REVENUE 1,200,745 2,576,416 3,777,161
EXPENSES
Advertising --- 4,350 4,350
Bad debt expense --- 13,110 13,110
Board of director fees --- 18,000 18,000
Branch office support --- 25,000 25,000
Clearing charges --- 116,754 116,754
Commissions --- 1,964,680 1,964,680
Consulting fees 30,000 81,053 111,053
Dues and subscriptions --- 6,297 6,297
Depreciation --- 7,769 7,769
Employee benefits --- 2,750 2,750
Insurance --- 8,091 8,091
Loss on investment 612,400 --- 612,400
Meetings and seminars --- (6,500) (6,500)
Miscellaneous 2,032 6,191 8,223
Occupancy costs 3,477 74,487 77,964
Office expense --- 29,962 29,962
Regulatory --- 14,814 14,814
Rental equipment --- 6,065 6,065
Salaries and wages --- 313,800 313,800
Taxes 4,810 30,973 35,783
Travel and lodging --- 50,599 50,599
Utilities 453 26,327 26,780
--------------- ----------- -------------
TOTAL OPERATING EXPENSES 653,172 2,794,572 3,447,744
OPERATING INCOME (LOSS) 547,573 (218,154) 329,419
PROVISION FOR INCOME TAXES 186,515 --- ---
NET INCOME (LOSS) 361,058 (218,154) 329,4193
=============== =========== =============
NET INCOME (LOSS) PER SHARE .111 (0.08) 2 .08
=============== =========== ============= ===
</TABLE>
Footnotes:
1. Per share is based on 3,294,000 shares outstanding at September 30, 1998.
2. Per share is based on 2,664,570 shares outstanding at September 30, 1998.
3. Net income of $329,419 takes into consideration the net loss carry forward
resulting in a zero tax liability at September 30, 1998.
