U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K-SB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended
Commission File Number
December 31, 1997 33-48017-A
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
(a Florida corporation)
(Exact name of Registrant as specified in its Charter)
Florida 59-2087068
- ------------------------------ --------------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
1800 Second Street, Suite 780, Sarasota, Florida 34236-5900
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: 813/365-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 year ended December 31, 1997, the Registrant had revenues
and other income of $4,172,716.
As of December 31, 1997, the Registrant had 5,000,000 Shares
authorized and 2,615,485 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
originally sold is $1,457,992.
PART I
Item 1. Description of Business
Background: EXECUTIVE WEALTH MANAGEMENT SERVICES, INC. (the
"Company" or "Executive") was incorporated by its initial and
original shareholders under Florida law in June, 1981 under the
name of Executive Securities, Inc. Effective January 17, 1996,
the Company changed its name. Prior to its acquisition by Gaeton
(Guy) S. Della Penna in March, 1990, the Company's principal
activities related to real estate investments which were
syndicated by the then shareholders and control persons of the
Company and offered on a limited and a private basis. In March,
1990, Guy S. Della Penna acquired all of the outstanding Common
Stock of the Company.
Since his acquisition of Executive in March, 1990, Mr. Della
Penna has enhanced the operating capabilities of the Company by
causing it to become a fully disclosed broker-dealer and by
enlarging activities to include substantially all aspects of the
investment securities business and to offer and sell both on a
best efforts underwritten agency or broker basis, a wide variety
of investment securities. Pursuant to certain exemptions
provided under the rules and regulations adopted by the United
States Securities and Exchange Commission, Executive does not
handle or retain customer funds and presently effects all of its
clearing operations and custodial responsibilities through two
New York Stock Exchange Member Firms: Raymond James &
Associates, Inc. in St. Petersburg, Florida and J.W. Charles
Clearing Corp. in Boca Raton, Florida.
Presently, the Company is registered as a securities broker-
dealer under the Securities and Exchange Act of 1934 and the
state securities statutes of Alabama, Arizona, California,
Colorado, Connecticut, Delaware, Florida, Georgia, Illinois,
Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts,
Maryland, Maine, Michigan, Minnesota, Missouri, Mississippi,
Nebraska, Oklahoma, Oregon, New Jersey, New Mexico, Nevada, New
York, North Carolina, North Dakota, Ohio, Pennsylvania, South
Carolina, Rhode Island, Tennessee, Texas, Virginia, Vermont,
Washington, Wisconsin, West Virginia and Wyoming. Executive is
also a member of the National Association of Securities Dealers
Regulation, Inc. ("NASDR") which is the self-regulatory body
exercising broad supervisory powers over the investment banking
industry and securities broker-dealers operating in the United
States. As required by law, Executive is also a member of the
Securities Investor Protection Corporation ("SIPC") which is a
public corporation established to afford a measure of protection
to the account balances of customers of securities broker dealers
which become insolvent.
On June 30, 1997, the National Association of Securities
Dealers Regulation, Inc. (NASDR) approved the Company's request
to amend the firm's Restrictive Agreement. Prior to the new
agreement, the Company was limited as to the number of branch
offices and registered persons, respectively. Due to a change in
the NASDR rules and regulations, member firms are no longer
limited as to the number of branches or registered persons.
However, the NASDR does review the Companys policies and
procedures designed to oversee the activities of registered
persons. All business and administrative assistance and support
will continue to flow directly through the Main OSJ office in
Sarasota, Florida to monitor activities for strict compliance.
The Company currently has eight branch offices and 62 registered
representatives.
The Company presently conducts its investment securities
business from offices maintained in Sarasota, Florida, Tampa,
Florida, Delray Beach, Florida, Naples, Florida, Longwood,
Florida Altamonte Springs, Florida, Spring Hill, Florida, and
New York, New York. The Company's main office is located at 2323
Stickney Point Road, Sarasota, Florida 34231.
The Company has been approved as a Registered Investment Advisor
by the states of Florida, Texas, and New Mexico. Executive also
offers insurance products and advisory services to its customers,
as well as consulting services relating to tax planning,
retirement and estate planning. Executive and certain registered
representatives of the Company hold all appropriate licenses
with respect to the offer and sale of insurance and related
products in the states of California, Florida, Georgia, Illinois,
Kansas, North Carolina, Pennsylvania and South Carolina.
The Company has and will continue to operate as a
specialized investment banking firm offering on a best efforts,
agency or brokerage basis, investment media and services to its
customers which include common and preferred stocks, corporate
and municipal bonds, United States Treasury obligations,
interests in direct participation programs (principally limited
partnerships), shares of mutual funds, investment and financial
planning, as well as investment analysis and recommendations on a
limited basis. Such services are rendered solely in connection
with the purchase or sale of securities or the anticipated
purchase or sale of securities, as well as variable insurance
products. The Company is a "fully disclosed" securities broker-
dealer and exercises no custodial powers over its customer
accounts.
The Company has and will continue to attract additional
securities brokers to staff its current offices and additional
offices, if any, by offering a more favorable commission sharing
arrangement than is believed to be available to securities
brokers who are associated with large securities broker dealers
operating a national system of offices. Additionally, management
may offer qualified securities brokers equity ownership in the
Company on an initial and continuing basis through the grant of
options under an Incentive Stock Option Plan which may be
established by the Company. Under this Incentive Stock Option
Plan, a qualified securities broker could be offered options to
purchase shares as an initial inducement to associate with the
Company. Thereafter, based upon such securities broker's
performance, such securities broker may be granted additional
options to purchase shares under the plan as a continuing
inducement for his continued association. The grant of such
options is intended to provide a greater incentive for compliance
diligence and employment longevity to the securities broker by
their having an ownership interest in the Company. In its
efforts to attract additional securities brokers, the Company
will seek securities broker personnel who, except under certain
circumstances, have been in the securities business for five or
more years, are of good business repute, reflect an acceptable
level of expertise in the securities industry, particularly with
reference to the types of investment media and services offered
and intended to be offered, hold all requisite licenses in order
to permit immediate business activity, shall have developed an
acceptable clientele and may have a reasonable degree of
participation in area community affairs.
During 1996, the majority stockholder purchased 9,581 shares
of pre-split common stock at $6.00 per share from the Company.
In May, 1996, the Board of Directors passed a resolution to
split the outstanding common stock shares of Executive Wealth
Management Services, Inc. on a five for one basis effective
September 20, 1996. Common stockholders of record as of
September 20, 1996, were entitled to the five for one forward
common stock split.
During the first quarter of 1997, the majority shareholder
purchased 42,500 shares of common stock at $1.20 per share.
In June, 1997, the Company initiated a private placement of
250,000 shares of the Companys Common Stock at a price of $2.00
per share. Net proceeds from the sale were used for general
working capital and expansion of operations. As of December 31,
1997, 81,500 shares were sold under the offering.
Competition: Presently, the Company encounters intense
competition in the conduct of its securities business. In such
regard, the investment securities business is highly competitive
and there are many firms with capital and personnel resources far
in excess of those which are presently available to the Company.
Additionally, it is affected and will continue to be affected by
the investing public's interest in the securities of issuers or
the type of securities which are offered by the Company through
its Sarasota, Florida office and/or its branch office system. In
such regard, the type of securities offered and related services
of the Company are and will be in competition with other
investment media and related services offered by other securities
broker-dealers and financial intermediaries such as commercial
banks, savings banks and similar institutions.
Regulation: As a securities broker-dealer, Executive is
subject to comprehensive regulation. Such regulation is
primarily carried out by the NASDR and the United States
Securities and Exchange Commission (the "Commission") and to a
lesser degree by the securities regulatory authorities of the
several states, including Florida. In such regard, the Company
is required to comply with a substantial body of rules and
regulations principally administered by the NASDR and the
Commission. The NASDR is a self-regulatory body, the membership
of which is constituted by securities broker-dealers operating in
the United States. The principal purpose of the NASDR is to
implement and assure compliance with the bylaws and rules and
schedules thereto of the NASDR which are primarily intended to
prevent fraud and to assure fair dealing by NASDR members with
the investing public. By becoming a member of the NASDR, a
securities broker-dealer such as Executive submits to the
jurisdiction and enforcement powers of the NASDR. As a result,
member firms are subject to disciplinary action as well as
suspension from membership or expulsion. The Commission, in
addition to acting in a review capacity with respect to the NASDR
member disciplinary action, is vested with broad statutory powers
permitting it to conduct investigations and to seek remedial or
punitive sanctions against securities broker-dealers for
violations of the Federal securities laws. Presently, any
securities broker such as Executive which utilizes
instrumentality's of interstate commerce such as the mails is
required to become a member of the NASDR as well as a securities
broker-dealer registrant under the Securities Exchange Act of
1934. Regulatory authority is also exercised over securities
broker- dealers by state securities authorities in which the
securities broker-dealer conducts its business.
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 ratio of 15 to 1.
The Company is also subject to periodic unannounced
inspections and examinations conducted by the staff of the NASDR,
the Commission and the personnel of various state securities
authorities, including Florida. Additionally, the Company is and
will continue to be required to conduct its business in
accordance with the high standards of commercial honor which have
been adopted and are enforced by the NASDR and the Commission
relating to investors suitability, segregation of investor funds,
the requirement to promptly transmit investor funds to an
authorized custodian, disclosures to investors with respect to
positions, if any, of the Company in securities in which it
engages in trading activities and fairness as to compensation
arrangements concerning public offerings where it acts as
underwriter.
Violations of regulatory requirements can result in swift
and severe regulatory sanctions being imposed by the NASDR, the
Commission and various state regulatory authorities. Such
impositions may result in the total discontinuation of a broker-
dealer's business for a stated or indefinite period of time or
permanently.
Item 2. Description of Properties
The Company's main office presently occupies approximately
2,500 square feet of leased office space located at 2323 Stickney
Point Road, Sarasota, Florida. The Company also occupies
approximately 1,600 square feet of leased space at 1800 Second
Street, Suite 780, Sarasota, Florida.
The lease on the office space at Stickney Point Road expires
in October 1998 and the lease on 1800 Second Street also expires
in September, 1998 but may be renewed for an additional one-year
terms. Monthly rental payments for the Stickney Point Road
office which are fixed and the 1800 Second Street office are
$2,966 and $2,996, respectively. The lease agreement for the
1800 Second Street office allows for escalation of the rentals on
an annual basis based upon increases in the consumer price index
with a cap of 4% in any 12 month period before the annual
adjustment and charges are passed through to the Company for ad
valorem taxes.
The Company also leases approximately 1,300 square feet of
office space at 700 Front Street, San Diego, California. This
lease expires on March 31, 2002. Monthly rental payments are
$3,000 and is leased from the majority shareholder.
In the opinion of management, the leasehold and other
property interests of the Company are adequately insured from a
hazard occurrence and liability standpoint.
Item 3. Legal Proceedings
As of December 31, 1997, to the knowledge of management,
there were no pending or threatened lawsuits against the Company
or its officers. Actions have been filed against Mr. Della Penna
individually, and not in the capacity as an officer of the
Company. It is the opinion of counsel for the Company that the
actions will not have a material affect on the current or future
operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company will notice and convene an annual meeting of its
Shareholders in 1998. Shareholder business to be transacted at
such meeting is expected to involve, among other things, the
election of directors and the ratification of the appointment of
the Company's independent certified public accountants.
PART II
Item 5. Market For Registrants Common Stock, Equity and Related
Stockholders Matters
As a corporation formed under Florida law, the Registrant
has 5,000,000 shares of Common Stock authorized of which
2,615,485 shares are outstanding as of December 31, 1997. As of
December 31, 1997 there were 65 stockholders of record.
For fiscal years ended December 31, 1997 and 1996, no cash
dividends have been declared on the outstanding shares of common
stock.
There is no present market for the Common Stock of the
Company.
Item 6. Selected Financial Data
Current Operations
The table set forth below reflects the source of revenue earned
by the Company during the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Increase/
Source of Revenue Earned 1997 1996 (Decrease)
- ------------------------
<S> <C> <C> <C>
Commission:
Transactional $ 2,331,860 $ 1,516,059 $ 815,801
Mutual fund sales 581,119 687,433 (106,314)
Insurance/Annuity 564,810 402,736 162,074
Investment banking fees 325,303 58,116 267,187
Sale of direct
participation programs 224,725 252,260 (27,535)
----------- ---------- -----------
Total Commissions 4,027,817 2,916,604 1,111,213
Other:
Misscellaneous 144,899 83,440 61,459
----------- ----------- -----------
TOTAL $ 4,172,716 $3,000,044 $ 1,172,672
=========== =========== ===========
</TABLE>
Overall total revenue increased $1,172,672 or 39.10% for the
year ended December 31, 1997, as compared to same period 1996.
The Company has a diverse base of registered representatives
at December 31, 1997, ranging from transactional oriented
producers to insurance and mutual fund producers. Transactional
revenue was approximately 55.90% of total revenue, compared to
50.5% at December 31, 1996. This increase is due to the increase
in production as well as general market conditions experienced in
the three Orlando, Florida area branches. One branch office was
opened in Delray Beach, Florida during the second quarter of
1997.
Mutual fund revenue and limited partnership revenue
decreased $106,314 and $27,535 or 15.5% and 11.0%, respectively.
These decreases are due primarily to market conditions and
changes.
Insurance and annuity revenue increased 40.30% or $162,074
for the period ended December 31, 1997, as compared to the same
period ended 1996. This change reflects a deliberate change in
focus towards diversification of business at the corporate level
throughout the existing branch system as well as recruitment of
representatives.
Investment banking fees increased $267,187 or 459.80% for
the year ended December 31, 1997 as compared to the same period
ended 1996. This increase relates to the fact that the Company
was successful in bringing a best efforts offering of an
affiliate, Federal Mortgage Management II, Inc. to the public
during December 1997.
Miscellaneous revenue increased $61,459 or 73.70% for the
year ended December 31, 1997 as compared to the same period ended
1996. This increase is in direct proportion to the increase in
transactional revenue, which increased $815,801 or 53.90% over
the same period.
This historical increase in revenues is not expected to
continue during fiscal 1998. This is due to the fact that one of
the Altamonte Springs branch offices moved to their own broker
dealer during the fourth quarter of 1997. Although the branch
contributed approximately 18.3% of total revenues for fiscal
1997, the Company is in negotiations with a number of brokers and
other NASD member branch offices to supplement this temporary
loss of revenue and anticipated an ultimate increase in overall
revenues.
As a result of expansion activities during most of fiscal
1997, not only did the Company experience increased revenues, but
the related expenses have also increased. The table set forth
below reflects the expense categories of the Company in which
there were significant increases or decreases for the year ended
December 31, 1997, as compared to the same period in 1996:
<TABLE>
<CAPTION>
Increase/
Expense Category 1997 1996 (decrease)
- ---------------- ---------- ---------- -----------
<S> <C> <C> <C>
Advertising $ 6,969 $ 4,165 $ 2,804
Board of Directors fees 20,000 16,000 4,000
Branch office support 58,000 --- 58,000
Clearing charges 322,314 238,889 83,425
Commissions 3,131,258 2,275,456 855,802
Consulting 57,720 49,988 7,732
Insurance 10,412 16,651 (6,239)
Occupancy 92,946 89,343 3,603
Office Expense 25,130 27,041 (1,911)
Salaries/Wages 373,702 316,308 57,394
Taxes 34,394 29,991 4,403
Telephone 31,661 26,789 4,872
Travel/Entertainment 35,952 50,874 (14,922)
</TABLE>
Advertising expense increased $2,804 for the year ended
December 31, 1997, compared to the same period ended 1996. This
increase relates to general advertising by the Company.
Board of Directors fees increased $4,000 or 25% for the year
ended December 31, 1997 as compared to the same period ended
1996. This increase relates to the addition of one board member,
specifically, Mr. Dennis B. Schroeder during the third fiscal
quarter of 1997.
Branch office support increased $58,000 for the year ended
December 31, 1997, compared to the same period ended 1996.
Clearing charges increased for the year ended December 31,
1997 as compared to the same period in 1996 in the aggregate of
$83,425 or 35%. This increase is directly attributable to the
increase in transactional commission income. The increase of
$83,425 compared to the increase in
transactional revenue of $815,801 equates to approximately 10.3%
of the increase in transactional revenue. The Company is
currently reviewing alternative clearing agreement terms and
arrangements.
Commission expense increased $855,802 for the year ended
December 31, 1997. The increase equates to approximately 73% of
the net increase in total revenue. This increase is in direct
proportion to the overall increase in revenue when compared to
the year ended December 31, 1997 and to the same period ended
1996, specifically 75.1% and 75.8%, respectively.
Consulting fees increased $7,732 for the year ended December
31, 1997, as compared to the same period ended 1996. This
increase relates to the fact that during the second quarter of
1997, the Company entered into a contract with a board member,
Dr. Robert E. Windom. Dr. Windom is compensated $2,000 per month
to expand the marketing and servicing of Affinity Groups.
Insurance expense decreased $6,239 or 37.5% for the year
ended December 31, 1997, compared to the same period ended 1996.
This decrease relates to the fact that individual states no
longer require surety bonds.
Occupancy costs increased by $3,603 or 4% for the year ended
December 31, 1997 as compared to the same period in 1996.
Office expense decreased $1,911 or 7% for the year ended
December 31, 1997 as compared to the same period ended 1996.
Office expense includes supplies, printing and postage. The
decrease is attributable to the Companys focused efforts to
decrease variable overhead during 1997.
Salaries and wages increased $57,394 or 18.2% for the year
ended December 31, 1997, as compared to the same period ended in
1996. This increase relates to the Company employing a full time
compliance officer as well as an accounting assistant. Such
decision was based primarily upon the Companys prior reliance
upon only one individual to oversee both the compliance and
accounting functions of the Company. Coupled with the growth of
the number of representatives, branches and revenue during fiscal
1997, the increased work load to process, monitor and oversee the
transactions required additional personnel.
Taxes increased $4,403 or 14.7%, for the year ended December
31, 1997 as compared to the same period ended 1996. This
increase directly relates to increases in the number of personnel
and to salaries and wages in general.
Telephone expense increased 18.2% or $4,872 for the year
ended December 31, 1997 as compared to the same period ended
1996. This increase relates to the Stickney Point Road location.
During the second quarter of 1997, the phone system at that
location was upgraded to include voice mail and to accommodate
several registered persons that were hired during that quarter.
However, upon termination of several of the individuals, the
costs associated with the phone system, including line charges
and long distance charges, were reevaluated and eliminated. The
Company does not expect increases in telephone expense during
1998, unless more representatives are added at the Stickney Point
Road location.
Travel and entertainment decreased $14,922 or 29.4% for the
year ended December 31, 1997, as compared to the year ended
December 31, 1996. This decrease relates to the Company's cost
cutting efforts. It is expected that travel expenses will
increase during fiscal 1998 due to the fact that the Company will
be increasing its Affinity Group marketing efforts.
Item 7: Management Discussion and Analysis of Financial
Condition and Result of Operations
Total revenue increased 39.1% for the year ended December 31,
1997, compared to a 50% increase for the year ended December 31,
1996 over the same period ended 1995. During 1998, management
anticipates a significant decrease in transactional revenue for a
least the first two fiscal quarters. This decrease is
anticipated and expected due to the loss of one of the Altamonte
Springs branches as well as general market and seasonal
conditions. However, the Company believes that with the Delray
Beach, Florida office, the New York office and several
prospective registered persons and other NASD broker dealer
branch offices with which the Company is in negotiations, the
decrease in transactional revenue will be offset. Management
is also reviewing a plan to cut overall, line item expenses.
The Company participated in three underwritings in 1997,
specifically, The Outlet Mall Network, Inc. (OMNI). Federal
Mortgage Management II, Inc. (FMMII), and the Executive Wealth
Management Services, Inc. (EWMS) private offering of 250,000
shares of common stock.
Effective September 26, 1995, the Company began a best efforts
private placement of $500,000 in 12% Promissory Notes ("Notes")
for HomeVestors. As a result of the placement of these Notes,
the Company earned placement fees of $10,000 and note offering
management fees of $3,000 for the year ended December 31, 1996.
The offering was closed in 1996, hence the Company did not
receive any fees related to this financing during fiscal 1997.
During fiscal 1997, the Company acted as managing placement
agent on a best efforts basis for the Outlet Mall Network, Inc. The
private placement offering was for 2.5 million units. The Company
earned commissions and placement fees of $111,287 for the year
ended December 31, 1997. Additionally, for serving as best
efforts managing placement agent, Executive received warrants to
purchase shares of OMNIs Class B Common Stock. The warrants
have an exercise price of $2.00 and expire June 10, 2007. The
Company has assigned no value to the warrants due to the fact
that there is no liquid quotable market and therefore, their
value is not determinable.
The Company began a best efforts public offering of $5,000,000
in Promissory Notes in Federal Mortgage Management II, Inc. As
of December 31, 1997, the Company had placed $1,532,500 principal
balance of the Notes. As of December 31, 1997, the Company
earned commissions of $109,530 offering management fees of
$43,055 and a non accountable expense allowance of $36,670.
Effective December 15, 1995, the Company initiated a new private placement
of 80,000 shares of the Company's stock at $6 a share. The
shares contained in this offering were drawn equally from the
authorized but unissued shares of the Company and the majority
shareholder. As of December 31, 1996, approximately 25,860
shares of the Company's stock had been sold resulting in gross
proceeds to the Company of approximately $77,600.
In May, 1996, the Board of Directors passed a resolution to
split the outstanding common stock shares of Executive Wealth
Management Services, Inc on a five for one basis effective
September 20, 1996. Common stockholders of record as of
September 20, 1996, were entitled to the five for one forward
common stock split.
During the first quarter of 1997, the majority shareholder
purchased 42,500 shares of Common Stock at $1.20 per share.
On June 9, 1997, the Company initiated a private placement
of 250,000 shares of the Companys Common Stock at a price of
$2.00 per share. Net proceeds from the sale were used for
general working capital and expansion of operations. As of
December 31, 1997, 81,500 shares were sold and the private
placement was closed.
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 August 19, 1997, the Company entered into a Letter of
Intent with FLAMEDCO, Inc., a for profit subsidiary of the
Florida Medical Association, Inc., to market a Business Owners
Policy to the physician members of the Florida Medical
Association. The Company and FLAMEDCO, Inc. are currently
negotiating the terms of a formal contract for this marketing
endeavor.
On October 22, 1997, Executive prepared a Form SB-2
Registration Statement under the Securities Act of 1933 to
conduct a Secondary Public Offering of the Companys Common
Stock, with the intent of fulfilling the requirements necessary
to be listed on a national stock market exchange. The Company
has engaged the services of FMC Capital Markets, Inc. to assist
it in locating a qualified broker/dealer to conduct the Secondary
Public Offering and Executive is presently meeting with various
groups and broker/dealer entities who have shown an interest in
the Company.
In addition to AHA, Executive has also entered into
contracts with the pre-paid tax audit defense firm to market
their services, on an exclusive basis, to members of other large
medical andhealthcare affinity groups and associations including,
but not limited to Kentucky Medical Association (KMA), the
American Medical Association (AMA) and the Colorado Dental
Association (CDA). On December 15, 1997, various executives of
the Company made a formal presentation to personnel of AMA
Solutions, Inc. concerning the tax audit defense firm. On
February 18, 1998, counsel for AMA Solutions, Inc. advised the
Company that they have decided to submit the tax audit defense
service as a new product for potential solicitation to AMA
physician members and that a business plan would be drafted in
the near future concerning the implementation of the service.
In April, 1996, the Company secured a Super Master General
Agent Contract with an A+ (Superior) (A.M. Best rating) insurance
company to market, on a wholesale level, the insurance company's
Universal Life Insurance, Term Insurance, Survivorship Life
Insurance and Annuity products. These insurance products are
marketed by Executive to insurance agents and agencies on a
national level, who in turn offer the products at retail to their
clients and prospect. Executive receives an override commission
on each insurance policy or annuity that is sold by the agents or
agencies who license under Executive's Super Master General Agent
Contract.
Future Operations
At September 30, 1997, the Company had approximately 98
registered representatives. At December 31, 1997 this number
dropped to approximately 65. The Company realizes the decline
will have a significant impact on the revenues of the Company.
To compensate for the loss of revenues attributable to the
decline of registered persons, the Company has devoted much time
and energy to the development of a plan to increase revenues and
decrease expenses. The plan includes, but is not limited to the
following:
Evaluate more cost effective clearing services;
Work with current branch offices to promote recruitment
of seasoned professionals;
Hire an in-house recruiter who is to be compensated
in overrides;
An across the board cost cutting to lower expenses as a
percentage of total revenues. The same approach was
used in fiscal 1994, when 1993 figures reflected that
total expenses were 153.5% of revenue. The plan was
successful and dropped the percentage of expenses to
revenues to 103.6%. Like the 1994 plan, which focused
on increasing of revenues while at the same time
decreasing expenses, the 1998 plan is comparable in its
focus. Management realizes that it is more difficult
to increase revenues by way of recruiting
representatives than to increase revenues with an
existing sales force, hence, the hiring of an in-house
recruiter with minimal upfront cost and more back end
incentive relative to their performance;
Continued development of the Companys registered investment
advisory service. The Company has devoted much effort
and time to this endeavor. The branch office most key
to the success of the RIA, is an Altamonte Springs
office. Since September, 1996, when the first stages
were implemented, the Company has placed approximately
five million dollars under management, as of January
31, 1998. The Company anticipates this amount to reach
twenty-five million dollars by December 31, 1998. If
assets reach $25,000,000, the Company will file for
federal registration with the SEC.
In 1997 management has and will be implementing 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 and capitalization,
- Continued branch development and expansion,
- Registered investment advisory activities
- Increased investment banking activities,
The Company and its management continue to pursue the
addition of new offices and new registered representatives to
existing offices. Management is currently in negotiations with
prospective offices in Florida and New York, as well as several
representatives for its home office location.
The Company had been negotiating for the acquisition or
merger of one of its Altamonte Springs branch offices into a
company owned branch. In addition, the Company would have
purchased with stock all of the outstanding shares of Allen
Douglas Securities, Inc. The Company and its President made
advances and loans to the principal(s) and/or entities during
such period. An agreement in principle was offered on July 23,
1997. A counteroffer received on July 29, 1997 was rejected and
such rejection was ratified by the Board of Directors as they
were unable to justify the terms of such counteroffer. The firm,
however, agreed to help facilitate the transition of all
registered representatives in said office to the new broker
dealer on or before December 31, 1997. All advances and/or loans
amounting to $15,000 have been repaid in full.
The Company made advances and/or loans to certain principals
and/or entities at its other Altamonte Springs branch office for
their recruitment of an additional branch office in Delray Beach,
Florida. Such advances and/or loans have been repaid in full.
In addition, on October 6, 1997, Executive entered into an
agreement with Sun Insurance Marketing Network, Inc. (Sun)
whereby Sun, which is the national marketing agent for AIG Life
Companies, Inc. (AIG) Long Term Care Insurance Marketing
Program, has agreed to refer and recruit Series 6 and Series 7
securities licensed insurance agents to Executive and to
encourage said agents to contract with the Company to place their
variable life, variable annuity and mutual fund business.
Management believes it can recruit a significant number of these
agent/brokers during fiscal 1998.
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 in 1998.
Effective March, 1997, the Company has entered into an
exclusive "Service and Non-Circumvention Agreement" with FMC
Capital Markets, Inc. ("FMC") of Naples, Florida. Under the
Agreement, among other things, FMC shall make introductions to
and presentations with and/or on behalf of the Company to
underwriters, broker/dealers, corporations, partnerships or
individuals that may invest and/or assist Executive with a
secondary public offering of securities issued by Executive. FMC
has agreed to provide these services on a contingency basis.
Executive will issue warrants to FMC equal to 1.5% of the
securities and warrants placed as a direct effort of FMC as well
as a cash fee in the amount of 1.5% of the value of amounts
obtained or to be obtained by Executive under the Agreement.
In conjunction with and concurrent to the aforementioned
Agreement, the Company has retained the services of James D.
Cullen, P.A. to provide legal services with regard to the
structuring, documentation and other corporate matters required
and necessary for a secondary public offering of the Company's
stock. Legal fees related to such work are not to exceed $20,000
plus reimbursement for costs incurred on behalf of the Company.
The Company has provided James D. Cullen, P.A. with a $5,000
retainer, with a balance of $15,000 due only upon closing of any
secondary public offering transaction by the Company.
The Company expects to make presentations under the guidance
of FMC and James D. Cullen, P.A. to underwriters during fiscal
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.
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 December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Net Capital $101,615 $ 22,618
Aggregate Indebtedness 208,756 177,616
Ratio of aggregate
indebtedness to
net capital 7.85 to 1 2.06 to 1
</TABLE>
The National Association of Securities Dealers, Inc. (the
"NASD") requires certain members, such as the Company, to
maintain net capital equal to the greater of 130% of the
Commission's net capital requirement or 6 2/3% of aggregate
indebtedness. Thus, the Company is required to maintain a
minimum net capital requirement of $13,924. As of December 31,
1997, the Company had excess net capital of $87,691.
Item 8. Financial Statements and Supplementary Data
Included with this Annual Report on Form 10-K SB as an Exhibit
are the financial statements specified in Instruction (a) to this
Item 7.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The table set forth below reflects the directors and
officers of the Company.
<TABLE>
<CAPTION>
Name, age and, if a director,
the term of director service Positions held with Executive
- ----------------------------- -----------------------------
<S> <C>
Guy S. Della Penna, Age 45, Director, President and Chief Executive Officer
March 1990 to present
Robert E. Windom, M.D., age 65 Director
June 1993 to present
Dennis B. Schroeder, age 60, Director
August 1997 to present
Bonnie S. Gilmore, age 36, Senior Vice President, Chief
Financial Officer, Secetary
Robert H. DeVore, Esq., age 38 Senior Vice President,
General Counsel, and Director of
Insurance Marketing
Barbara J. Knox, age 56 Vice President, Chief Compliance Officer
</TABLE>
Information Concerning Directors and Officers
Mr. Della Penna has been a resident of Sarasota, Florida
since 1980 and is the founder and President of Capital
Management. Capital Management was organized by Mr. Della Penna
in 1989. Under the auspices of Capital Management, Mr. Della
Penna has provided financial and advisory services, as well as
insurance products, to individuals and corporate entities.
Capital Management acts as general agent for various insurance
companies. Mr. Della Penna has been active in the financial
industry for approximately 18 years. Mr. Della Penna is a
General Securities Principal and Financial and Operations
Principal pursuant to NASD Rules. During the period April 1980
to January 1986, Mr. Della Penna served as the Assistant to the
Chairman of the Board of Snelling & Snelling, Inc., as well as
Assistant Treasurer. Snelling & Snelling, Inc. is a franchisor
of an employee recruitment business. While with such firm, Mr.
Della Penna also served as a member of the Executive, Acquisition
and Pension and Profit Sharing Committees. Mr. Della Penna also
served as the personal business manager and financial advisor to
the Snelling family and affiliated entities and in such capacity,
was responsible for cash management, tax and investment analysis
and commitments. The Snelling family is the principal
shareholder of Snelling & Snelling, Inc.
During the period April 1978 through February 1980, Mr.
Della Penna was an associated person of Lehman Brothers, New
York, New York, where he was involved in the structuring,
documentation and marketing of tax exempt financings issued by
state and local governments. Mr. Della Penna also during the
period June 1989 to August 1989 was an associated person of
Miller Securities, Inc. and its successor Miller, Johnson &
Kuehn, Inc. in Sarasota, Florida. Mr. Della Penna holds a
Bachelor of Science degree in Business Administration from Ithaca
College, Ithaca, New York and received a Master of Business
Administration degree in Finance from the State University of New
York, Albany, New York. Mr. Della Penna also presently serves in
an individual capacity as the co-General Partner of a privately
capitalized limited partnership formed under Florida Law. Since
August 1990, Mr. Della Penna has served as the sole shareholder,
director, and officer (President, Secretary and Treasurer) of
Midwest Energy Corporation, which acts as the co-General Partner
of such privately held limited partnership. Such private limited
partnership, known as Federal Resource Income Program, Ltd.,
principally engages in the purchase and holding of producing
petroleum leases.
Mr. Della Penna, together with Capital Mortgage Management,
Inc., a Florida corporation wholly-owned by Mr. Della Penna, also
presently serve as the co-General Partners of Federal Mortgage
Investors, Ltd., a Florida limited partnership which is publicly
held. Mr. Della Penna also serves as the sole director and
officer (President, Secretary and Treasurer) of Capital Mortgage
Management, Inc. Mr. Della Penna has served in such capacities
since August 1991. Federal Mortgage Investors, Ltd. was
organized to invest, hold and deal in residential real estate
mortgages. Mr. Della Penna is also the sole shareholder of
Federal Mortgage Management, Inc., and Federal Mortgage
Management II, Inc., which were organized to invest, hold and
deal in residential real estate mortgages.
During the period June 1984 through June 1989, Mr. Della
Penna was associated with Executive as a sales representative.
Such association was prior to Mr. Della Penna's acquisition of
Executive in March 1990. Such association was not continuous
during such period. Mr. Della Penna has in the past and in the
future devoted significant time, to the business and affairs of
the Company.
Robert E. Windom, M.D. is a resident of Sarasota, Florida.
Dr. Windom holds a Bachelor of Arts degree from Duke University
and graduated from the Medical School of Duke University in 1956.
During the period 1956 through 1960, Dr. Windom engaged in an
internship residency in internal medicine at Parkland Hospital,
Dallas, Texas. During the period 1960 through 1986, Dr. Windom
engaged in the private practice of internal medicine-cardiology
in Sarasota, Florida. In 1986, Dr. Windom was appointed by
President Ronald Reagan to serve as Assistant Secretary for
Health and to head the United States Public Health Service in
Washington, D.C. Dr. Windom served as Assistant Secretary until
1989. Since 1989, Dr. Windom acted as a health care consultant
on a domestic and international basis. Currently, Dr. Windom
engages in numerous activities and holds numerous positions,
including that of Principal, Council for Excellence in
Government, Washington, D.C.; member of the Secretarys Council
on Health Promotion/Disease Prevention, Department of Health and
Human Services, Washington, D.C.; member of Governor Lawton
Chiles Healthy Start Work Group; spokesman for the Florida
Medical Association, Chairman, Cardiac Disease of the Young
Council, American Heart Association, Florida Affiliate; member of
the Advisory Board of SunBank/Gulf Coast, Sarasota, Florida;
member of the Board of Directors of Power Brands, Inc. and
BESTech, Inc.; Director of the Boys and Girls Club of Sarasota
County Foundation, Inc.; Director of the Sarasota Heart Center
Foundation; Director of New College Associates, Sarasota,
Florida; as well as Clinical Professor of Internal Medicine,
University of South Florida School of Medicine, Tampa, Florida;
and Assistant Professor of Medicine, University of Miami School
of Medicine, Miami, Florida. In the past, Dr. Windom has served
as a member of a number of Boards, both from a commercial
business standpoint and with respect to community activities,
including member of Governor Lawton Chiles Workshop on Health
Reform; Campaign Chairman of Sarasota United Way (1989-1990);
member of Floridas Aging and Adult Services Advisory Council
(1986-1991); Director of Coast Bank (now SunBank/Gulf Coast)
(1989-1993); member of Governor Robert Grahams Advisory
Committee for Alzheimer Disease (1986); and member of the Board
of Directors of First Presidential Savings and Loan Association,
Sarasota, Florida (1983-1986). Dr. Windom is a published author
and frequent speaker on medical and other subjects and has
received numerous awards and honors, including distinguished
alumnus award, Duke University Medical Center. Presently, Dr.
Windom is a member of the Sarasota County Medical Society, the
Florida Medical Association, the American Medical Association,
the American Heart Association, the American College of
Physicians, the American College of Cardiology, the Florida
Society of Internal Medicine and the American Society of Internal
Medicine. Dr. Windom will be compensated for his services as a
director of Executive.
Dennis B. Schroeder, age 60, serves as a director of the
Company, and resides in Naples, Florida. He has over thirty
years of experience in the investment banking industry. After
serving in the U.S. Marine Corps and attending the University of
Minnesota, Mr. Schroeder began his extensive career on the
trading desk at Juran & Moody Securities in St. Paul, Minnesota.
Mr. Schroeder continued his investment banking career with a move
to Francis I. DuPont in Minneapolis, Minnesota to head their
syndication department. In 1955 Mr. Schroeder founded Miller &
Schroeder Financial, Inc. in Minneapolis , Minnesota. Miller &
Schroeder Financial, Inc. is one of the largest regional
investment banking firms in the U.S. specializing in tax exempt
securities and corporate finance with underwriting totaling
billions of dollars annually. Mr. Schroeder retired from Miller
& Schroeder Financial, Inc. in 1988 as Chairman and chief
Executive Officer. From 1988 through 1991, Mr. Schroeder was
Chairman of the Board of Directors and Chief Executive Officer
of F & G Consultants, Inc. and signed a three year contract with
USF&G Financial Services, Inc. a division of USF&G Insurance
Company of Baltimore, Maryland (a fifteen billion dollar
company). Mr. Schroeder was responsible for establishing
distributorship for twelve USF&G mutual funds totaling
approximately one billion dollars; acting as President/Chief
Executive Officer for coordinating the marketing and distribution
efforts for USF&G Investment Services Inc.; developing a pilot
program for independent property and casualty insurance agencies
to sell securities; and coordinating the sale and divestiture of
unprofitable USF&G companies and divisions. From 1993 to 1997
Mr. Schroeder served as Chairman and Chief Executive Officer of
Lotto World, Inc., a national publishing company. Mr. Schroeder
was instrumental in raising over $14,000,000 in capital for the
company through private placements and an Initial Public
Offering. Mr. Schroeder serves on several Board of Directors
including, Gulf Coast National Bank of Naples, Florida, and
Financial Marketing Holding Company, Inc., as well as FMC Capital
Markets, Inc.
Bonnie S. Gilmore, age 36, joined Executive in December
1992. Ms. Gilmore serves as Senior Vice President, Chief
Financial Officer, Chief Compliance Officer and Secretary. Prior
to joining Executive, Ms. Gilmore was Vice President and
Assistant Operations Director of Integrity Securities Group,
Sarasota, Florida, a securities broker-dealer. Ms. Gilmore held
such position during the period December 1991 to November 1992.
During the period December 1989 to September 1991, Ms. Gilmore
was District Manager of Crossland Savings, F.S.B., Sarasota,
Florida, a Federal savings bank. During the period July 1989
through November 1989, Ms. Gilmore was an associate of Meridian
Associates, Inc. and during the period April 1989 through July
1989, served as a Vice President of John Haylett and Company,
Inc., Sarasota, Florida. During the period April 1988 through
April 1989, Ms. Gilmore served as Financial and Operations
Principal, General Securities Principal and Municipal Securities
Rule Making Board Principal of Financial Information Centers
Brokerage of Sarasota, Florida. Ms. Gilmore also serves in such
capacities with Executive. During the period May 1985 through
February `1987, Ms. Gilmore was an associated person of Stuart-
James Investment Banking, Lincolnshire, Illinois. Meridian
Associates, Inc. and Financial Information Centers Brokerage are
securities broker-dealers. John Haylett and Company, Inc. is a
financial consulting firm.
Robert H. DeVore, Esq., age 38, serves Executive Wealth
Management Services, Inc. in the capacity of Vice President and
General Counsel. Mr. DeVore graduated from Denison University in
1982 with a Bachelor of Arts Degree in Political Science. In
1986, Mr. DeVore graduated from the University of Toledo, College
of Law, and holds a Juris Doctor degree. While attending the
University of Toledo, College of Law, Mr. DeVore was a member of
the University of Toledo Law Review and received American
Jurisprudence awards for excellent achievement in the studies of
Civil Procedure and Secured Transactions. Mr. DeVore also
interned for U. S. Magistrate James G. Carr. Following
graduation from the University of Toledo College of Law, Mr.
DeVore engaged in private practice in Sarasota, Florida and was
an associate of a Sarasota, Florida law firm. Mr. DeVore's
practice emphasis related to civil, commercial and construction
litigation. During the period 1993 through March 1996, Mr.
DeVore acted as counsel for a Sarasota, Florida based insurance
agency and insurance marketing entity. Mr. DeVore has been a
producing insurance agent since 1993 in the lines of life
insurance, health insurance and annuities. Mr. DeVore is a
member of the Florida Bar and holds life and health insurance and
variable annuity licenses issued by the State of Florida as well
as a Series 7 General Securities Representative License.
Barbara J. Knox, age 56, serves the Company as Vice
President and Chief Compliance Officer. Prior to joining
Executive, Ms. Knox was Vice President and Managing Partner of
Century Securities, a Sarasota based securities firm. In the
preceding period, Ms. Knox was Vice President and Manager of the
Equity Research Department of Marion Bass Securities Corporation,
a Charlotte, North Carolina firm. During this time, Ms. Knox
also served as Due Diligence Officer and Equity Sales Trainer.
Ms. Knox also served as Vice President, Compliance Officer and
Chief Operations Manager for Meridian Associates, Inc., a
Sarasota based securities broker-dealer. Ms. Knox has been in
the securities business for over 18 years as an investment
executive and commodities broker with firms such as Shearson
American Express, Dean Witter Reynolds, Inc. and Raymond James &
Associates. Ms. Knox holds NASD Series 3,7,24 and 63 licenses
and is Florida Life and Variable Annuity licensed.
Item 11. Executive Compensation
For his services as President and Chief Executive Officer of
Executive, Mr. Della Penna is compensated on the basis of an
annual salary of $100,000. Additionally, Mr. Della Penna is
entitled to receive reimbursement for expenses sustained by him
in connection with the carrying out of his employment
responsibilities.
The table presented below presents estimated aggregate
compensation to be paid to each executive officer of Executive in
excess of $100,000 and for all executive officers as a group for
the fiscal years ending December 31, 1996, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Name Annual Restricted Under- All Other
and Compen- Stock lying LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary ($) Bonus ($) ($) ($) SARs (#) ($) ($)
- --------- ---- ---------- -------- ------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 100,000 --- 8,000 --- --- --- ---
Guy S. 1996 100,000 --- 8,000 --- --- --- ---
Della Penna 1995 102,467 --- 8,000 --- --- --- ---
President/CEO 1994 106,250 --- --- --- --- --- ---
1993 125,000 --- --- --- --- --- ---
All Other
Executive 1997 136,733 --- --- --- --- --- ---
Officers 1996 120,192 --- --- --- --- --- ---
1995 82,224 --- --- --- --- --- ---
1994 79,200 --- --- --- --- --- ---
1993 147,800 --- --- --- --- --- ---
</TABLE>
For their services as directors, Dr. Windom, Mr. Schroeder and
Mr. Della Penna receive annual compensation of $8,000 each.
Meetings of the Board of Directors of the Company are held
quarterly.
Long-Term Stock Option Plan. The Long-Term Stock Option
Plan which became effective on November 22, 1995, the date
adopted by the Board of Directors. No option granted under this
Plan may be exercised prior to stockholder approval.
The purpose of the Stock Option Plan is to initially attract
the employment of or to induce existing key employees to remain
in the employ of Executive or any subsidiary of the Company, and
to encourage such employees to secure or increase on reasonable
terms their stock ownership in the Company. Additionally, the
Plan is intended to provide benefit to contractors providing
services to the Company which have been or are believed to be
instrumental in developing or expanding the business of the
Company or which are otherwise anticipated to have significant
and material benefit to the Company, to induce any person or
entity to continue relationship with the Company and to reward
certain individuals or entities with commission or finders fees
without immediate cash payment by the Company. The Board of
Directors of the Company believes the Plan will promote
continuity of management and increase incentive and personal
interest in the welfare of the Company by those who are primarily
responsible for shaping and carrying out the long range plans of
the Company and securing its continued growth and financial
success.
The initial maximum number of shares of common stock which
were to be issued pursuant to the exercise of options granted
under the Plan is five hundred thousand (500,000) after the
reverse stock split. As of December 31, 1997, all 500,000
options under this plan had been granted. The table below
presents the options granted to executive officers during the
year ended December 31, 1997:
<TABLE>
<CAPTION>
Option Grants For The Year Ended December 31, 1997
(a) (b) (c) (d) (e)
Percent of Total
Options Granted
Options To Employees Exercise or Base Expiration
Name Granted (#) in Fiscal Year Price ($/Sh) Date
Pre-Split/Post-Split Pre-Split/Post-Split
- -------------- -------------------- ---------------- -------------------- -------------
<S> <C> <C> <C> <C>
Guy S.
Della Penna
President
& CEO 79,000/395,000 79% $3.00/$.60 November 2005
Other 21,000/105,000 21% $3.00/$.60 November 2005
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
As of December 31, 1997, Guy S. Della Penna beneficially
owns of record, a total of 1,455,835 shares, which constitutes
approximately 56.6% of the shares outstanding. The table
presented below reflects the percentage of share ownership vested
in Mr. Della Penna of record and beneficially as of December 31,
1997.
<TABLE>
<CAPTION>
Amount and
Nature of Percent of Class
Name and Address Beneficial as of
Title of Class of Beneficial Owner Ownership December 31, 1997
- --------------- ------------------- ----------- -----------------
<S> <C> <C> <C>
Common Stock, Gaeton S. Della Penna,
$.002 par value Trustee, Gaeton S. 1,455,835
Della Penna Rev. Living Shares;
Trust Dtd 6/1/92, Record 56%
141 Ogden Street Ownership
Sarasota, FL 34242
Common Stock, Russell W. Lee, Trustee 13%
$.002 par value William Edmund Davies 350,000
Trust Dtd. 12/13/91 Shares
3513 Pinecrest Street Record
Sarasota, FL 34239 Ownership
</TABLE>
Item 13. Certain Relationships and Related Transactions
As a result of ownership or contractual provisions vested in
or involving Mr. Della Penna, the Company is affiliated with
several business entities ("Affiliates"). Set forth below is a
listing of such Affiliates, indicating the basis or nature of Mr.
Della Penna's control of such Affiliates:
<TABLE>
<CAPTION>
Name of Affiliate and Summary of Nature or Basis
Form of Organization Business Activity of Control
- ----------------------------- ------------------ ----------------
<S> <C> <C>
Federal Mortgage Investors, Ltd. Buyer and seller Individual co-general
("Federal Mortgage"), a Florida of residential real partner; beneficial
limited partnership estate mortgage loans owner of all outstanding
voting common stock of
corporate co-general
partner, Capital Mortgage
Management, Inc.
Federal Resource Income Program, Owner of producing Individual co-general
Ltd. ("Federal Resource"), a oil and gas leaseholds Partner; beneficial
Florida limited partnership owner of all outstanding
voting common stock
of corporate co-general partner,
Midwest Energy Corporation
Capital Growth Management, Inc. Investor in equity Beneficial owner of
("Capital Growth"), a Florida and debt securities all outstanding voting
corporation common stock; sole
director and officer
Capital Management Group, Inc. Seller of Insurance Beneficial owner of
("Capital Management"), a Florida and related products, all outstanding voting
corporation financial planning common stock; sole
services director and officer
Federal Mortgage Management, Inc. Buyer and seller Beneficial owner of
("FMMI"), a Florida corporation of residential real all outstanding vot-
estate mortgage loans ing common stock, sole
director and CEO
HomeVestors Funding, Inc. Franchise development Beneficial owner of 50%
(HVF), a Florida corporation outstanding voting common
stock
Federal Mortgage Management II Buyer and seller of Beneficial ownder of
Inc. (FMMII), a Florida residential real all outstanding voiting
Corporation estate common stock, sole director
mortgage loans and CEO
</TABLE>
Federal Mortgage is a publicly held limited partnership.
No current transactions between the Company and Federal Mortgage
are pending or proposed.
The limited partnership interests of Federal Resource are
beneficially held by 28 persons. No current transactions between
the Company and Federal Resource Income Program are pending or
proposed.
Federal Mortgage Management II, Inc. is a development stage
corporation. Upon a successful public offering of its Promissory
Notes, it will commence operational activities.
Item 14.Exhibits, Financial Statement Schedules and Reports on
Form 8K
(a)The Financial statements of the Company for the fiscal year
ended December 31, 1997, as audited by Bobbitt,
Pittenger & Co., P.A., Certified Public Accountants, is
included as Exhibit 1 attached to this report
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EXECUTIVE WEALTH MANAGEMENT
SERVICES, INC.
By: Guy S. Della Penna
----------------------
Guy S. Della Penna, President
Chief Executive Officer
By: Bonnie S. Gilmore
----------------------
Bonnie S. Gilmore
Senior Vice President, Chief Financial
Officer and Secretary
February 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 127,771
<SECURITIES> 45,157
<RECEIVABLES> 177,421
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 350,349
<PP&E> 78,349
<DEPRECIATION> (51,432)
<TOTAL-ASSETS> 377,692
<CURRENT-LIABILITIES> 208,756
<BONDS> 0
0
0
<COMMON> 5,231
<OTHER-SE> 163,705
<TOTAL-LIABILITY-AND-EQUITY> 377,692
<SALES> 0
<TOTAL-REVENUES> 4,172,716
<CGS> 0
<TOTAL-COSTS> 4,277,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (105,239)
<INCOME-TAX> 0
<INCOME-CONTINUING> (105,239)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (105,239)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.03)
</TABLE>
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
CONTENTS
<TABLE>
<CAPTION>
PAGE
FINANCIAL STATEMENTS
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1
STATEMENTS OF FINANCIAL CONDITION 2
STATEMENTS OF INCOME 3
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY 4
STATEMENTS OF CHANGES IN LIABILITIES
SUBORDINATED TO CLAIMS OF GENERAL CREDITORS 5
STATEMENTS OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
ADDITIONAL INFORMATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON ADDITIONAL INFORMATION 13
COMPUTATIONS OF NET CAPITAL AND NET CAPITAL
REQUIREMENTS UNDER RULE 15c3-1 OF THE
SECURITIES AND EXCHANGE COMMISSION 14
COMPUTATION FOR DETERMINATION OF RESERVE
REQUIREMENTS UNDER RULE 15c3-3 OF THE
SECURITIES AND EXCHANGE COMMISSION 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON INTERNAL ACCOUNTING CONTROL REQUIRED
BY SEC RULE 17a-5 16
</TABLE>
February 6, 1998
BOARD OF DIRECTORS
Executive Wealth Management Services, Inc.
Sarasota, Florida
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying statements of financial
condition of Executive Wealth Management Services, Inc., as of
December 31, 1997 and 1996, and the related statements of income,
changes in stockholders equity, changes in liabilities
subordinated to claims of general creditors, and cash flows for
the years then ended that you are filing pursuant to rule 17a-5
under the Securities Exchange Act of 1934. These financial
statements are the responsibility of the Companys 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 Executive Wealth Management Services, Inc. as of December 31,
1997 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally
accepted accounting principles.
Certified Public Accountants
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- ----------
- -
<S> <C> <C>
ASSETS
Cash $ 127,771 $ -
Receivables
Broker/dealers 45,406 40,306
Correspondent brokers 68,766 122,201
Customers 13,105 13,000
Affiliates and employees 18,363 3,650
Other 14,847
Furniture, fixtures and equipment
net cost, net of accumulated depreciation 27,343 37,192
Deposits with clearing organizations 45,157 43,742
Other deposits 1,934 1,934
Syndication costs 15,000 -
----------- ----------
$ 377,692 $ 262,025
=========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES:
Accounts payable $ 107,465 $ 36,483
Commissions payable 101,291 143,566
----------- ----------
208,756 180,049
STOCKHOLDERS EQUITY
Common stock-authorized 5,000,000 shares;
par value $.002 in 1997 and $.002 in 1996;
issued and outstanding, 2,615,485 shares
and 2,491,490 shares in 1997 and 1996,
respectively 5,231 4,983
Preferred stock-authorized 750,000 shares
of $.01 par value; no shares issued
Stock warrants 4,410 4,410
Additional paid-in capital 1,105,639 913,688
Accumulated deficit (946,344) (841,105)
------------ ----------
TOTAL STOCKHOLDERS EQUITY 168,936 81,976
------------ ----------
$ 377,692 $262,025
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
------------ -----------
REVENUE
<S> <C> <C>
Commissions $ 3,723,815 $ 2,909,749
Underwriting fees 304,002 32,500
Other 144,899 57,795
------------ -----------
4,172,716 3,000,044
EXPENSES
Employer compensation and benefits 406,052 345,561
Commissions 3,131,258 2,275,456
Clearing charges and regulatory fees 346,223 262,542
and equipment rental 130,494 125,968
Depreciation 10,811 11,844
Other operating expenses 280,670 214,687
------------ -----------
4,305,508 3,236,058
------------ -----------
OPERATING LOSS (132,792) (236,014)
OTHER INCOME
Rent 27,553 23,969
------------ -----------
LOSS BEFORE INCOME TAXES (105,239) (212,045)
INCOME TAXES
NET LOSS $ (105,239) $ (212,045)
============ ============
NET LOSS PER SHARE - basic $ (.041) $ (.088)
============ ============
NET LOSS PER SHARE-assuming dilution $ (.038) $ (.079)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<TABLE>
<CAPTION>
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Additional
Common Preferred Paid-in Accumulated Stock
Stock Stock Capital Deficit Warrants Total
------- --------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
January 1,
1996 $ 4,629 $ $ 706,853 $ (629,060) $ 4,410 $ 86,832
Issuance of
common stock 354 222,638 222,992
Syndication costs ( 15,803) (15,803)
Net loss (212,045) (212,045)
------- -------- ----------- ------------- --------- ----------
BALANCE,
December 31,
1996 4,983 913,688 (841,105) 4,410 81,976
Issuance of
common stock 248 213,752 214,000
Syndication costs (21,801) (21,801)
Net loss (105,239) (105,239)
------- ------- ----------- -------------- -------- ----------
BALANCE,
December 31,
1997 $ 5,231 $ $1,105,639 $ (946,344) $ 4,410 $ 168,936
======= ======== =========== ============= ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
STATEMENT OF CHANGES IN LIABILITIES
SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
The Company has no subordinated claims as of December 31, 1997
and 1996.
The accompanying notes are an integral part of these financial
statements.
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (105,239) $(212,045)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 10,811 11,844
(Increase) decrease in operating assets:
Receivables:
Broker dealers (5,100) (963)
Correspondent brokers 53,435 20,772
Affiliates and employees (14,713) (3,650)
Customers (105) (13,000)
Other (14,847)
Deposits (1,415) (1,318)
Syndication costs (15,000)
(Decrease) increase in operating liabilities:
Accounts payable 70,982 (21,570)
Commissions payable (42,275) (977)
----------- ----------
41,773 (8,862)
----------- ----------
NET CASH USED IN OPERATING ACTIVITIES (63,466) (220,907)
----------- ----------
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of furniture, fixtures
and equipment (962) (6,685)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 214,000 222,992
Syndication costs (21,801) (15,803)
----------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 192,199 207,189
----------- ----------
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
(Continued)
NET INCREASE (DECREASE) IN CASH 127,771 (20,403)
----------- ----------
CASH, at beginning of year 20,403
----------- ----------
CASH, at end of year $ 127,771 $
=========== ==========
Supplemental Disclosures:
Interest Paid $ - $ -
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
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 acts as a broker/dealer in selling both public and private
securities offerings on a best efforts basis. The Company
receives commissions and underwriting fees for its services.
Use of 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.
Receivables from Correspondent Brokers and Broker/Dealers
The receivables from correspondent brokers and broker/dealers
represent commissions earned which had not been received at year-
end. Management has determined that these amounts are fully
collectible.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost.
Depreciation is provided 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 represent 5% of Flight Sciences, Inc. outstanding
common stock. The Company has assigned no value to the stock due
to the fact there is no ready market and its value is not
determinable.
During 1997, the Company acted as managing placement agent on a
best efforts basis for the Outlet Mall Network, Inc. private
placement offering of 2.5 million units. The Company earned
commissions and placement fees of $111,287 for the year ended
December 31, 1997. Additionally, for serving as best efforts
managing placement agent, Executive received warrants to purchase
shares of OMNI Class /B/ Common Stock. The warrants have an
exercise price of $2.00 and expire June 10, 2007. The Company
has assigned no value to the warrants due to the fact that there
is no liquid quotable market and therefore, their value is not
determinable.
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per Share
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, /Earnings per Share/. Statement 128 replaced
the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excluded any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per
share amounts for all periods have been prepared, and where
appropriate, restated to conform to the Statement 128
requirements.
Statements of Cash Flows
For purposes of reporting cash flows, the Company considers cash
and cash equivalents as those amounts which are not subject to
restrictions or penalties and have an original maturity of three
months or less.
Reclassifications
Certain reclassifications have been made to the 1996 financial
statements to conform with the 1997 financial statement
presentation. Such reclassifications had no effect on net income
as previously reported.
NOTE B - DEPOSITS WITH CLEARING ORGANIZATIONS
Deposits with clearing organizations represent investments in
money market funds and mutual funds. The investments are
required by the Company clearing brokers and are in accordance
with the correspondent broker agreements between the parties.
Deposits are reflected at their fair market value.
NOTE C - FURNITURE, FIXTURES AND EQUIPMENT
A summary of furniture, fixtures and equipment follows at
December 31:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Furniture and fixtures $ 37,951 $ 37,951
Equipment 34,202 33,240
Leasehold improvements 6,622 6,622
-------- --------
78,775 77,813
Less accumulated depreciation (51,432) (40,621)
-------- --------
$ 27,343 $ 37,192
======== ========
</TABLE>
NOTE D - OPERATING LEASE
The Company leases office space under operating lease agreements
which expire in 1996 through 1998. Rent expense for the years
ended December 31, 1997 and 1996 was $112,403 and $103,452,
respectively.
The future minimum rental commitment for the noncancellable lease
agreements as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1998 $ 103,452
1999 36,000
2000 36,000
2001 36,000
2002 18,000
---------
$ 229,452
=========
</TABLE>
NOTE E - NET CAPITAL REQUIREMENT
Pursuant to the net capital provisions of Rule 15c3-1 of the
Securities and Exchange Act of 1934, the Company is required to
maintain a minimum net capital of $5,000. In December, 1991, the
National Association of Securities Dealers, Inc. approved the
Company as a fully disclosed broker/dealer. The Company has a
restrictive agreement to maintain the greater of a net capital of
130% of the minimum requirement or 6 2/3% of aggregate
indebtedness for each of the two years in the period ended
December 31, 1997.
The Company had a net capital of $101,615 or 730% and $22,618 or
188% of the minimum requirement at December 31, 1997 and 1996,
respectively. The net capital rules may effectively restrict the
payment of dividends to the Companys stockholders. The Company
operates pursuant to the (K)(2)(ii) exemptive provisions of the
Securities and Exchange Commissions Rule 15c3-3 and does not
hold customer funds or securities.
Rule 15c3-1 also requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15
to 1. The Companys ratio was 2.05 to 1 and 7.85 to 1 at
December 31, 1997 and 1996, respectively.
NOTE F - INCOME TAXES
At December 31, 1997, the Company has a net operating loss
carryforward of approximately $769,000 that will be available to
offset future taxable income through 2012. Based on historical
operations, management has elected to record a valuation
allowance equal to the deferred tax asset of $285,000, calculated
using an effective income tax rate of 37% for the Company. The
Company has no significant differences between book and taxable
income.
NOTE G - NET LOSS PER SHARE
The following sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
Numerator 1997 1996
------------ ------------
<S> <C> <C>
Net Loss $ (105,239) $( 212,045)
============ ============
Denominator
Denominator for basic earnings
per share-weighted average shares 2,560,117 2,413,300
Effect of dilutive securities:
Stock warrants 182,663 257,250
------------ ----------
Denominator for dilutive earnings
per share - adjusted weighted average
shares and assumed conversion 2,742,780 2,670,550
Basic Net Loss Per Share $ (.041) $ (.088)
=========== ===========
Diluted Net Loss Per Share $ (.038) $ (.079)
=========== ===========
</TABLE>
NOTE H - STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123 /Accounting for Stock-Based
Compensation,/ effective January 1, 1997. This statement
encourages companies to adopt a fair value based method of
accounting for compensation costs of employee stock compensation
plans. As permitted by SFAS No. 123, the Company will continue
to apply its current accounting policy using the intrinsic value
method of accounting prescribed by Accounting Principles Board
Opinion No. 25 with respect to measuring stock-based
compensation. The adoption of SFAS No. 123, therefore, had no
effect on the Companys financial position or results of
operations for 1997. Proforma footnote disclosures of net
earnings and earnings per share, as if the fair value based
method of accounting had been applied, have not been presented as
awards have not been granted during the year.
NOTE I - RELATED PARTY TRANSACTIONS
The majority stockholder is the controlling stockholder of a
corporation organized in 1995 to develop and implement a
franchise business pursuant to which the franchisee will purchase
residential single family houses for resale. The Company
realized placement and management fees of $32,500 during 1996,
relating to the offering of notes for this corporation.
The majority stockholder is the sole stockholder of a corporation
formed and capitalized primarily to originate, underwrite,
acquire, hold and deal in a portfolio of primarily first lien
residential mortgage loans. The Company realized commission and
fees of approximately $110,000 and $80,000, respectively,
relating to the offering of notes for this corporation.
During the years ended December 31, 1997 and 1996, companies
affiliated with the Companys majority stockholder shared office
space with the Company and paid rent of $27,500 and $24,000,
respectively, for the use of the space.
During the year ended December 31, 1997 and 1996, the Company
paid rent of $36,000 and $36,000, respectively, to the Companys
majority stockholder for the use of office space. The lease with
this stockholder expires June, 2002.
Effective June 1, 1997, the Corporation entered into an
Independent Contractor Agreement with a member of the Board of
Directors to act as a Director of Medical Affinity Programs.
In September 1997, the Corporation purchased accounts receivable
from an affiliated corporation. There was no gain or loss on the
transaction. The receivable is believed by management to be
fully collectible.
In the ordinary course of business the Company makes and receives
loans with affiliated entities and stockholders. These loans are
short term and are non-interest bearing. Loans made and repaid
in 1997 totaled approximately $230,000.
See Note K for additional related party transactions.
NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS IN ACCORDANCE WITH
THE REQUIREMENTS OF SFAS NO. 107
The Corporations financial instruments consist of all of its
assets and liabilities. The Corporations management has
determined that the fair value of all of its financial
instruments is equivalent to the carrying cost.
NOTE K - COMMON STOCK TRANSACTIONS
During 1995, the Company and its majority stockholder sold 44,100
shares of the Companys common stock. The price of the stock was
$5.90 per share and each purchaser of a share received a warrant
which gave the purchaser the right to purchase one share of the
Companys stock from the Company for $7.00 per share. The price
of the warrants were $.10 each and expire on December 1, 1999.
The proceeds of the warrants were retained by the Company. After
the 1996 stock split there are now 220,500 warrants outstanding
with an exercise price of $1.40.
In November, 1995, the Company approved a plan to grant options
to certain employees to purchase the Companys common stock. The
plan provides for the granting of options to purchase a maximum
of 500,000 shares of the Companys stock at a price to be
determined at the time of grant. The price, however, shall not
be greater than $.60 per share. The plan requires 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 December 31, 1995, all of the options had been granted. Under
the plan the Company has complete discretion in approving
exercise of the options, which encompasses the option price as
well as whether any options will be allowed to be exercised.
On December 15, 1995, the Company and the majority stockholder
initiated a private placement of 80,000 shares of the Companys
common stock at a price of $6.00 per share. The shares contained
in the offering are to be drawn equally from the authorized but
unissued shares of the Company and the majority stockholder.
Accordingly, gross proceeds from the sale of the stock will be
shared equally by the Company and the majority stockholder. The
proceeds from this private placement were utilized for additional
expansion and working capital by the Company. During 1996, the
Company sold 38,164 shares, of which 10,898 were sold to the
majority stockholder. All sales were at $6.00 per share.
In May 1996, the Board approved a five to one stock split of its
common stock which reduced its par value to $.002. In September
1996 the split became effective.
In January 1997, the Company authorized the issuance of a maximum
of 100,000 shares of its common stock at a price of $1.20 per
share. 42,500 shares were sold to the controlling stockholder.
The proceeds from these shares were utilized for working capital.
In June 1997, the Company initiated a private placement of
250,000 shares of common stock at a price of $2.00 per share.
During 1997, the Company sold 81,500 shares. All sales were at
$2.00 per share. The proceeds from these shares were utilized
for expansion and working capital by the Company.
February 6, 1998
BOARD OF DIRECTORS
Executive Wealth Management Services, Inc.
Sarasota, Florida
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON ADDITIONAL INFORMATION
We have audited the accompanying financial statements of
Executive Wealth Management Services, Inc. as of December 31,
1997 and 1996. Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole.
The supplementary schedules of Computations of Net Capital and
Net Capital Requirements Under Rule 15c3-1 of the Securities and
Exchange Commission and Computation for Determination of Reserve
Requirements under Rule 15c3-3 of the Securities and Exchange
Commission are presented for the purposes of additional analysis
and are not a required part of the basic financial statements.
The accompanying schedules are required by Rule 17a-5 of the
Securities and Exchange Commission. Such information has been
subjected to the testing procedures applied in the audit of the
basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial
statements taken as a whole.
The Company is exempt from the determination of reserve
requirements in compliance with provisions under SEC Rule 15c3-3.
We found no material differences in the computation of net
capital under SEC Rule 15c3-1.
Certified Public Accountants
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
COMPUTATIONS OF NET CAPITAL AND NET CAPITAL REQUIREMENTS
UNDER RULE 15c3-1 OF THE SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---------- ----------
<S> <C> <C>
NET CAPITAL
Stockholders equity $ 168,936 $ 81,976
Deductions - non-allowable assets
Furniture, fixtures and equipment (27,343) (37,192)
Deposits (1,934) (1,934)
Petty cash (100) (100)
Accounts receivable (19,751) (19,257)
Syndication costs (15,000)
Mutual funds (2,290)
----------- ----------
Net capital before haircuts
on securities 102,518 23,493
Haircuts on securities (903) (875)
----------- ----------
NET CAPITAL $ 101,615 $ 22,618
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE INDEBTEDNESS
<S> <C> <C>
Items included in balance sheet
Accounts payable $ 107,465 $ 34,050
Commissions payable 101,291 143,566
Total Aggregate Indebtedness $ 208,756 $ 177,616
Ratio: Aggregate Indebtedness
to Net Capital 2.05 to 1 7.85 to 1
CAPITAL REQUIREMENTS
MINIMUM NET CAPITAL REQUIREMENT PER
SEC RULE 15c3-1 $ 5,000 $ 5,000
NET CAPITAL REQUIREMENT PER NATIONAL
ASSOCIATION OF SECURITIES DEALERS (130%
OF MINIMUM NET CAPITAL REQUIREMENT
OR 6 2/3% AGGREGATE INDEBTEDNESS) $ 13,924 $ 11,842
</TABLE>
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
COMPUTATION FOR DETERMINATION OF RESERVE REQUIREMENTS
UNDER RULE 15c3-3 OF THE SECURITIES AND EXCHANGE COMMISSION
DECEMBER 31, 1997 AND 1996
The Company is exempt from the determination of reserve
requirements under provisions of SEC Rule 15c3-3 exemption
(K)(2)(ii).
February 6, 1998
BOARD OF DIRECTORS
Executive Wealth Management Services, Inc.
Sarasota, Florida
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON INTERNAL
ACCOUNTING CONTROL REQUIRED BY SEC RULE 17a-5
In planning and performing our audit of the financial statements
of Executive Wealth Management Services, Inc. for the years ended
December 31, 1997 and 1996, we considered its internal control
structure in order to determine our auditing procedures for the
purposes of expressing our opinion on the financial statements
and not to provide assurance on the internal control structure.
We also made a study of the practices and procedures followed by
the Company, in making the periodic computations of aggregate
indebtedness and net capital under Rule 17a-3(a)(11) and the
procedures for determining compliance with the exemption
provisions of Rule 15c3-3. We did not review the practices and
procedures followed by the Company in making the quarterly
securities examinations, counts, verifications and the
recordation of differences required by Rule 17a-13 or in
complying with the requirements for prompt payment for securities
under Section 8 of Regulation T of the Board of Governors of the
Federal Reserve System because the Company did not carry security
accounts for customers or perform custodial functions relating to
customer securities.
The management of the Company is responsible for establishing and
maintaining a system of internal accounting control and the
practices and procedures referred to in the preceding paragraph.
In fulfilling this responsibility, estimates and judgements by
management are required to assess the expected benefits and
related costs of control procedures and of the practices and
procedures referred to in the preceding paragraph and to assess
whether those practices and procedures can be expected to achieve
the Commissions above-mentioned objectives. The objectives of a
system of internal accounting control and the practices and
procedures are to provide management with reasonable, but not
absolute, assurance that assets for which the Company has
responsibility are safeguarded against loss from unauthorized use
or disposition, and that transactions are executed in accordance
with managements authorization and recorded properly to permit
the preparation of financial statements in accordance with
generally accepted accounting principles. Rule 17a-5(g) lists
additional objectives of the practices and procedures listed in
the preceding paragraph.
Because of inherent limitations in any internal accounting
control procedures or the practices and procedures referred to
above, errors or irregularities may nevertheless occur and not be
detected. Also, projection of any evaluation of control
procedures to future periods is subject to the risk that they may
become inadequate because of changes in conditions or that the
degree of compliance with them may deteriorate.
BOARD OF DIRECTORS
Page Two
February 6, 1998
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control
structure that might be material weaknesses under standards
established by the American Institute of Certified Public
Accountants. A material weakness is a condition in which the
design or operation of the specific internal control structure
elements does not reduce to a relatively low level the risk that
errors or irregularities in amounts that would be material in
relation to the financial statements being audited may occur and
not be detected within a timely period by employees in the normal
course of performing their assigned functions. We noted the
following matter involving the control environment and its
operation that we consider to be a material weakness as defined
above. This condition was considered in determining the nature,
timing and extent of the procedures to be performed in our audits
of the financial statements of Executive Wealth Management
Services, Inc. for the years ended December 31, 1997 and 1996,
and this report does not affect our report thereon dated February
6, 1998.
Segregation of Duties
Because of a limited number of personnel, it is not always
possible to adequately segregate certain incompatible duties so
that no one employee has access to both physical assets and the
related accounting records, or to all phases of a transaction.
Consequently, the possibility exists that unintentional or
intentional errors or irregularities could exist and not be
promptly detected.
Our audit did not reveal any significant errors or irregularities
resulting from this lack of segregation of employee duties and
responsibilities.
We understand that practices and procedures that accomplish the
objectives referred to in the second paragraph of this report are
considered by the Commission to be adequate for its purpose in
accordance with the Securities Exchange Act of 1934 and related
regulations, and that practices and procedures that do not
accomplish such objectives in all material respects indicate a
material inadequacy for such purposes. Based on this
understanding and on our study, we believe that the Companys
practices and procedures were adequate at December 31, 1997 and
1996, to meet the Commissions objectives.
This report is intended solely for the use of management of
Executive Wealth Management Services, Inc. and the Securities and
Exchange Commission and other regulatory agencies which rely on
Rule 17a-5(g) under the Securities Exchange Act of 1934 and
should not be used for any other purpose.
Certified Public Accountants