U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10KSB
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, 1998 33-48017-A
FAS WEALTH MANAGEMENT SERVICES, INC.
(formerly Executive Wealth Management Services, Inc.)
(Exact name of Registrant as specified in its Charter)
Delaware
(formerly Florida) 59-2087068
------------------- ----------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
2323 Stickney Point Road, Sarasota, Florida 34231
(Address of principal offices, zip code)
Registrant's telephone number, including area code: 941-921-9700
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, 1998, the Registrant had revenues and other
income of $5,538,569.
As of December 31, 1998, the Registrant had 5,000,000 Shares authorized and
2,664,560 Shares outstanding. The aggregate market value of the outstanding
shares held by non-affiliates, computed by reference to the price at which the
stock was originally sold is $1,752,492.
<PAGE>
PART I
Item 1. Description of Business
-------------------------
Background: FAS WEALTH MANAGEMENT SERVICES, INC. (the "Company" or
----------
"FASW"), formerly Executive Wealth Management Services, Inc., was incorporated
under Delaware law in June 1998, formerly under Florida law in June 1981.
Effective August 31, 1998, the Agreement and Plan of Merger (the
"Agreement") with FAS Group, Inc. was effective. Executive Wealth Management
Services, Inc. merged with a subsidiary of FAS Group, Inc. and changed its name
to FAS Wealth Management Services, Inc.
During September 1998, the NASDR granted the firm's application to
change its restrictive letter to allow for market making and proprietary
trading. The new restrictive letter limits the number of securities in which
the firm can make markets to fifteen (15). It also limits the firms proprietary
position to less than ninety percent (90%) of excess net capital.
During September 1998, the Company completed an asset purchase and
bulk transfer of agents from Biltmore Securities, a Ft. Lauderdale, Florida
broker-dealer. This transaction, as well as the merger, previously mentioned,
offered the Company the opportunity to implement certain phases of its business
plan.
The Company has had several months of operations under this new
structure and management has established areas which will require the financial
and personnel resources during the next two to three fiscal quarters, additional
staff and additional work space for the corporation headquarters will be the
primary focus.
The Company is registered as a securities broker-dealer under the
Securities and Exchange Act of 1934 and the state securities statutes of Alaska,
Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware,
Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Massachusetts, Maryland, Maine, Michigan, Minnesota, Missouri,
Mississippi, Montana, Nebraska, Oklahoma, Oregon, New Jersey, New Mexico,
Nevada, New York, North Carolina, North Dakota, Ohio, Pennsylvania, Puerto Rico,
South Carolina, South Dakota, Rhode Island, Tennessee, Texas, Utah, Virginia,
Vermont, Washington, Wisconsin, West Virginia and Wyoming. FASW 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, FASW 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.
The Company received a Cease and Desist Order from the State of Alabama on
September 17, 1998, regarding the transfer of agents from Biltmore Securities,
Inc. To date, the Company has supplied the State of Alabama with its requested
information, including a copy of the asset purchase documents, plan of
rehabilitation and voluntarily issued U-5s terminating those former Biltmore
agents' licensed in the State of Alabama. The Company also requested an
informal hearing with Alabama's regulators to bring this issue to resolution.
Currently, the Alabama Securities Commission is reviewing a consent order to be
signed by FASW and the Alabama Securities Commission which would void the Cease
and Desist Order.
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, Homosassa, Florida, Ft. Lauderdale, Florida, Irvine, California, San
Diego, California and Jericho, New York. The Company's main office is located
at 2323 Stickney Point Road, Sarasota, Florida 34231.
During September 1998, assets under management under the Registered
Investment Advisory (the "RIA") umbrella surpassed 25 million which required
registration of the RIA with the Securities and Exchange Commission ("SEC").
The Company is registered under the RIA in the following states: California,
Connecticut, Florida, Illinois, Louisiana, New Mexico, New York, Pennsylvania,
Texas, Virginia, Washington and Wisconsin.
The Company will continue to operate as a specialized investment
banking firm, agency or brokerage services, investment media and services to its
customers which includes 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 and fixed insurance products and variable and
fixed annuities. 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 shares of stocks and/or options under an
Incentive Stock Option Plan which may be established by the Company. Under the
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 brokers' performance, such
securities brokers may be granted additional shares of stock or options to
purchase shares under the plan as a continuing inducement for their continued
association. The grant of such shares of stock or options is intended to
provide a greater incentive for compliance diligence and employment longevity to
the securities brokers by their having an ownership interest in the Company.
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, FASW 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 FASW 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 FASW 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
December 2000 and the lease on 1800 Second Street expires in March 2004 and both
leases may be renewed for additional two year terms. Monthly rental payments
for the Stickney Point Road office which are fixed and the 1800 Second Street
office are $2,996 and $2,813.66, 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 5% 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 a 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, 1998, to the knowledge of management, there were no
pending or threatened lawsuits against the Company or its officers in their
capacity as officers 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 1999. 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.
<PAGE>
PART II
Item 5. Market For Registrants Common Stock, Equity and Related Stockholders
--------------------------------------------------------------------
Matters
- -------
As a corporation formed under Delaware law, formerly Florida, the
Registrant has 5,000,000 shares of Common Stock authorized of which 2,664,560
shares are outstanding as of December 31, 1998. As of December 31, 1998 there
were 70 stockholders of record.
For fiscal years ended December 31, 1998 and 1997, 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, 1998 and 1997.
<TABLE>
<CAPTION>
Increase/
Source of Revenue Earned 1997 1998 (Decrease)
- ----------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Commission:
Transactional $2,331,860 $2,784,186 $ 452,326
Mutual fund sales 581,119 637,235 56,116
Insurance/Annuity 564,810 541,745 (23,065)
Investment banking fees 325,303 209,920 (115,383)
RIA Revenue 37,781 289,402 251,621
Trading Profit - 586,045 586,045
Sale of direct
participation programs 224,725 309,602 84,877
---------- ---------- -----------
Total Commissions 4,065,598 5,358,135 1,292,537
Miscellaneous 107,118 194,678 87,560
---------- ---------- -----------
TOTAL $4,172,716 $5,552,813 $1,380,097
========== ========== ===========
</TABLE>
Overall total revenue increased $1,380,097 or 33.07% for the year
ended December 31, 1998, as compared to same period 1997.
The Company has a diverse base of registered representatives as of
December 31, 1998, ranging from transactional oriented producers to insurance,
mutual fund producers and financial planners. During September 1998, the
Company began operating as a market maker. The increase of revenue due to this
area of $586,045 along with the transactional revenue increase of $452,326 from
the asset purchase of the Ft. Lauderdale and New York offices, represent
approximately 19.4% of total revenue for the period ended December 31, 1998.
Transactional revenue was approximately 50% of total revenue, compared to 55.90%
at December 31, 1997.
Mutual fund revenue and limited partnership revenue increased $56,116
and $84,877 respectively, or approximately 10% and 37.77% respectively for the
period ended December 31, 1998, compared to the same period ended 1997. These
increases are due primarily to market conditions and changes.
Insurance and annuity revenue decreased 4.08% or $23,065 for the
period ended December 31, 1998, as compared to the same period ended 1997. This
decrease is due primarily to market conditions and changes.
Investment banking fees decreased $115,383 or 35.47% for the year
ended December 31, 1998 as compared to the same period ended 1997. This
decrease relates to the fact that the Company closed the offering of an
affiliate, Federal Mortgage Management II, Inc. to the public during early
fiscal 1998.
RIA revenue increased $251,621 or 666% from $37,781 to $289,402 for
the period ended December 31, 1997 and 1998 respectively. During 1998, assets
under management exceeded the 25 million bench mark for registration of the RIA
with the SEC. At December 31, 1998, assets under management exceeded
$40,800,000.
Trading profit increased $586,045 for the year ended December 31, 1998
as compared to the same period ended 1997. This increase relates to the asset
purchase of the Ft. Lauderdale and New York offices and the start-up of the
market making operations of the Company.
Miscellaneous revenue increased $87,560 or 81.74% for the year ended
December 31, 1998 as compared to the same period ended 1997. This increase is
in direct proportion to the increase in transactional revenue, which increased
$452,326 or 19.57% over the same period.
This increase in revenues is expected to continue during fiscal 1999.
The Company is actively recruiting several offices.
As a result of expansion activities during most of fiscal 1998, 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, 1998, as compared to the same period in 1997:
<TABLE>
<CAPTION>
INCREASE
EXPENSE CATEGORY 1997 1998 (DECREASE) PERCENTAGE(%)
- ----------------------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Advertising $ 6,969 $ 9,839 $ 2,870 41.2
Bad Debts -- 13,110 13,110 --
Board of Directors fees 20,000 26,000 6,000 30.0
Branch office support 58,000 25,000 (33,000) (56.9)
Clearing charges 322,314 161,235 (161,081) (50.0)
Commissions 3,131,258 4,325,880 1,194,623 32.2
Consulting 57,720 122,351 64,631 112.0
Dues and Subscriptions 9,901 45,752 36,661 370.01
Employee Benefits 317 19,618 19,301 --
Insurance 10,412 11,513 1,101 10.6
Occupancy 92,946 104,096 11,150 12.0
Office Expense 25,130 45,730 20,600 81.9
Regulatory 8,248 38,348 14,440 175.1
Repairs and Maintenance 1,875 7,982 6,107 325.7
Salaries/Wages 373,702 617,169 243,467 65.2
Taxes 34,394 56,546 22,151 64.4
Telephone 31,661 39,755 8,094 25.6
Travel/Entertainment 35,952 76,477 40,525 112.7
Utilities 2,830 1,923 (907) (32.1)
</TABLE>
As noted above, most allowance items increased substantially during fiscal
1998, as compared to 1997. These increases relate to three major areas:
merger of Executive Wealth Management Services, Inc. and FAS Wealth
Management Services, Inc. The expense items affected were Board of Director
fees, consulting, employee benefits, insurance, occupancy, office supplies,
salaries and wages, taxes, telephone, travel and entertainment.
asset acquisition of Biltmore Securities, Inc. attributed directly to the
increases in commissions, office expense, to some degree salaries and wages and
the taxes associated with those increases, telephone, regulatory increases to
some degree and a significant portion of the increase in travel and
entertainment.
start-up of the firm's trading area attributed to the increases in
advertising, insurance, occupancy, office expense, a significant portion of the
increase is salaries and wages and the corresponding increases in payroll,
taxes, telephone, regulatory, the majority of the increase in dues and
subscriptions and repairs and maintenance.
Item 7: Management Discussion and Analysis of Financial Condition and Result
--------------------------------------------------------------------
of Operations
- --------------
Total revenue increased 33.1% for the year ended December 31, 1998,
compared to December 31, 1997. During 1999, management anticipates a
significant increase in all revenue items due to the ability of the firm to
attract more brokers of the transactional type because of its market making
capabilities. Management anticipates increases in underwriting fees and other
income from such brokers as well. This increase, management believes, should
allow the firm to participate in several underwritings either in a selling group
or underwriting group during fiscal 1999. At February 15, the Company is
currently engaged as a selling group member for U.S. Laboratories, Inc. Several
other such projects are in the early stages of negotiation.
During 1998, the firm participated in three underwritings,
specifically, Federal Mortgage Management II, Inc. ("FMMII"), Executive Wealth
Management Services, Inc. ("EWMS") and FAS Group, Inc. ("FAS").
The Company raised commission and underwriting fees of $91,470,
$29,450 and $89,000 respectively during fiscal 1998, or $209,920 collectively,
compared to $325,303 for the same period ended 1997. This $325,303 represents
commission and underwriting fees associated with the best efforts underwriting
of the Outlet Mall Network, Inc., $114,748, FMMII $194,255 and EWMS $16,300.
Effective November 1, 1998, the company initiated a private placement
of 750,000 units of HomeVestors of America, Inc. As of February 15, 1999, the
Company had raised $550,000 for HomeVestors of America, Inc. and earned $71,500
in commissions and fees associated with the offering.
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 Company's 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.
FASW has entered into contracts with a pre-paid tax audit defense firm
to market their services, on an exclusive basis, to members of large medical and
healthcare affinity groups and associations including, but not limited to the
American Medical Association ("AMA"). FASW has solicited AMA Solutions, Inc., a
wholly-owned subsidiary of the AMA, concerning the AMA's endorsement of the
pre-paid tax audit defense service to its physician members. In June 1998, the
AMA approved this service as a new product to be endorsed by the AMA to its
physician members. Marketing of the service by the AMA commenced during the
fourth quarter of 1998.
As of February 1999, the Company has approximately 109 registered
representatives.
Effective August 17, 1998, the SEC approved the Taping Rule. This
rule amended the NASD Rule 3010 to require members to establish special
supervisory procedures, including the tape recording of conversations, when they
have hired more than a specified percentage of registered persons from certain
firms that have been expelled or that have had their broker-dealer registrations
revoked for violation of sales practice rules.
Biltmore Securities, Inc. was expelled from membership with the NASD
during February 1999. Hence, the firm is required to have less than 20% of its
registered sales force previously registered with Biltmore Securities, Inc. in
order to avoid the taping requirement. Management has taken strides to ensure
that the firm is under the 20% bench mark.
Should the firm exceed the 20% bench mark, the requirements of this
rule could have a significant financial impact on the firm. Management is
watching these members on a daily basis to ensure it does not exceed the 20%
bench mark.
During fiscal 1999, management plans to increase revenues and decrease
the sharp rise in expenses. The plan includes, but is not limited to the
following:
Evaluate more cost effective clearing services;
Continue to work with branch offices to promote recruitment of seasoned
professionals;
Hire an in-house recruiter who is to be compensated in overrides;
Expand service and marketing to "affinity groups;"
Possible secondary public offering and capitalization;
Continued branch development and expansion.
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.
In addition, on October 6, 1997, FASW entered into an agreement with
Sun Insurance Marketing Network, Inc. ("Sun") whereby Sun, which is the national
marketing agent for AIG Life Companies, Inc.'s ("AIG") Long Term Care Insurance
Marketing Program, has agreed to refer and recruit Series 6 and Series 7
securities licensed insurance agents to FASW and to encourage said agents to
contract with the Company to place their variable life, variable annuity and
mutual fund business.
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, FASW 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 1999.
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 1998:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Net Capital $ 101,615 $1,268,182
Aggregate Indebtedness 208,756 456,766
Ratio of aggregate indebtedness
to net capital 7.85 to 1 .36 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 $130,000. As of December 31, 1998, the Company had
excess net capital of $1,168,182.
YEAR 2000
- ----------
The challenge of the year 2000, is fast approaching for every organization world
wide. The regulatory bodies of the securities industry began their response by
mandating that all member firms assess its information technology environments
and make the necessary changes to insure that automated processes with
date-sensitive components will correctly identify "00" as the year 2000, when
processing dates on and after January 1, 2000.
The firm has adopted a plan of action which will ensure that not only are the
firm's automated systems year 2000 compliance ready, but also those of the third
party vendors upon whom the firm relies. The capital costs associated with the
assessment and implementation of the firm's plan has been estimated at
approximately $7,500 for 1998, $75,000 for 1999, and $50,000 for 2000.
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.
<PAGE>
PART III
Item 10. Directors and FASW Officers of the Registrant.
----------------------------------------------------
<TABLE>
<CAPTION>
Name, age and, if a director,
the term of director service Positions held with FASW
- ------------------------------- ------------------------
<S> <C>
Guy S. Della Penna, Age 46, Director, President and Chief FASW Officer
March 1990 to present
Robert E. Windom, M.D., age 66 Director
June 1993 to present
Dennis B. Schroeder, age 61, Director
August 1997 to present
Bonnie S. Gilmore, age 37, Senior Vice President, Chief Financial Officer, Chief
Compliance Officer and Secretary
Robert H. DeVore, Esq., age 39 Senior Vice President and Director of
Insurance Marketing
Georgeanne E. Detweiler, age 32 Vice President
Barbara J. Knox, age 57 Vice President
</TABLE>
INFORMATION CONCERNING DIRECTORS AND OFFICERS
Guy S. 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 FASW, 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 FASW as a sales representative. Such association was prior to
Mr. Della Penna's acquisition of FASW 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 Secretary's 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 Florida's Aging and Adult Services Advisory
Council (1986-1991); Director of Coast Bank (now SunBank/Gulf Coast)
(1989-1993); member of Governor Robert Graham's 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 FASW.
Dennis B. Schroeder, 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
FASW Officer. From 1988 through 1991, Mr. Schroeder was Chairman of the Board
of Directors and Chief FASW 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 FASW 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 FASW
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 joined FASW in December 1992. Ms. Gilmore serves as
Senior Vice President, Chief Financial Officer, Chief Compliance Officer and
Corporate Secretary. Prior to joining FASW, 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 1992 to November 1993. 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., a securities
broker/dealer. 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 FASW.
Robert H. DeVore serves FASW in the capacity of Senior Vice President and
Director of Insurance Marketing. Mr. DeVore graduated from the University of
Toledo, College of Law, in 1986, with a Juris Doctor degree. 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 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 is a member of the Florida Bar and
presently holds life and health insurance and variable annuity licenses issued
by the State of Florida. Mr. DeVore holds the NASD Series 7 securities
licenses.
Georgeanne E. Detweiler serves FASW as Vice President and Director of
Branch Operations. Prior to her association with FASW, Ms. Detweiler was
employed by Smith, Barney, Harris, Upham & Co., Inc. in the capacity of
Assistant to the branch manager, syndicate manager and sales manager. Ms.
Detweiler has been involved in the securities investment industry for 12 years
and possesses extensive knowledge and experience in the retail, operational and
compliance aspects of the securities business. Ms. Detweiler holds NASD Series
4, 7, 11, 24, and 63 securities licenses.
Barbara J. Knox serves FASW as Vice President. Prior to joining FASW, 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 holds
NASD Series 3,7,24 and 63 licenses and is Florida Life and Variable Annuity
licensed.
Item 11. FASW Compensation
------------------
The table presented below presents estimated aggregate compensation to be
paid to each FASW officer of FASW in excess of $100,000 and for all FASW
officers as a group for the fiscal years ending December 31, 1998, 1997, 1996,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
(A) (B) (C) (D) (E) (F) (G) (H) (I)
- ------------- ----- ---------- -------- ---------------- ------------ ---------------- ----------- ----------------
Name and Other Restricted Securities
Principal Annual Stock Underlying LTIP All Other
Position Year Salary ($) Bonus($) Compensation ($) Award(s) ($) Options/SARs (#) Payouts ($) Compensation ($)
- ------------- ----- ---------- -------- ---------------- ------------ ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack A. 1998 88,053 2,000
Alexander,
Chairman of
the
Board/CEO
Guy S. Della 1998 158,451 8,000
Penna,
President
and COO
1997 100,000 8,000
1996 100,000 8,000
1995 102,467 8,000
1994 106,250
1993 125,000
All Other
FASW
Officers 1998 147,965
1997 136,733
1996 120,192
1995 82,224
1994 79,200
1993 147,800
</TABLE>
For their services as directors, Dr. Windom, Mr. Schroeder, Mr.
Alexander 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
FASW 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 a relationship with the Company and to reward
certain individuals or entities with commissions 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,
1998, all 500,000 options under this plan had been granted. The table below
presents the options granted to FASW officers during the year ended December 31,
1998:
<TABLE>
<CAPTION>
Option Grants For The Year Ended December 31, 1998
(a) (b) (c) (d) (e)
Percent of Total
Options Options Granted Exercise or Base
Granted (#) To Employees Price ($/Sh) Expiration
Name Pre-Split/Post-Split in Fiscal Year Pre-Split/Post-Split Date
- ------------------- --------------------- ---------------- ---------------------- --------------
<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, 1998, Guy S. Della Penna beneficially owns of
record, a total of 1,357,650 shares, which constitutes approximately 51% 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, 1998.
Amount and
Nature of Percent of Class
Name and Address Beneficial as of
Title of Class of Beneficial Owner Ownership December 31, 1998
- --------------- ------------------------ ----------- -----------------
Common Stock, Gaeton S. Della Penna,
.002 par value Trustee, Gaeton S. Della 1,357,650
Penna Rev. Living Trust Shares;
Dtd 6/1/92, Record 51%
141 Ogden Street Ownership
Sarasota, FL 34242
Common Stock, Russell W. Lee, Trustee 13.13%
.002 par value William Edmund Davies 350,000
Trust Dtd. 12/13/91 Shares
3513 Pinecrest Street Record
Sarasota, FL 34239 Ownership
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>
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 owner of
Inc. (FMMII), a Florida Corporation residential real estate all outstanding
mortgage loans voting common stock,
sole director and CEO
</TABLE>
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, 1998, as audited by Bobbitt, Pittenger & Co., P.A., Certified
Public Accountants, is included as Exhibit 1 attached to this report
<PAGE>
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.
FASW WEALTH MANAGEMENT
SERVICES, INC.
By: /s/ Guy S. Della Penna
--------------------------------------
Guy S. Della Penna, President
Chief FASW Officer
By: /s/ Bonnie S. Gilmore
-------------------------------------------
Bonnie S. Gilmore
Senior Vice President, Chief Financial
Officer and Secretary
February 26, 1999
<PAGE>
EXHIBIT 1
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS
--------
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
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 15
COMPUTATIONS OF NET CAPITAL AND NET CAPITAL
REQUIREMENTS UNDER RULE 15c3-1 OF THE
SECURITIES AND EXCHANGE COMMISSION 16
COMPUTATION FOR DETERMINATION OF RESERVE
REQUIREMENTS UNDER RULE 15c3-3 OF THE
SECURITIES AND EXCHANGE COMMISSION 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON INTERNAL ACCOUNTING CONTROL REQUIRED
BY SEC RULE 17a-5 18
</TABLE>
<PAGE>
January 27, 1999
BOARD OF DIRECTORS
FAS Wealth Management Services, Inc.
(formerly Executive Wealth Management Services, Inc.)
Sarasota, Florida
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------
We have audited the accompanying statements of financial condition of FAS Wealth
Management Services, Inc. (formerly Executive Wealth Management Services, Inc.),
as of December 31, 1998 and 1997, 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 Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 FAS Wealth Management Services,
Inc. as of December 31, 1998 and 1997, 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
<PAGE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF FINANCIAL CONDITION
December 31,
-------------------------
1998 1997
------------ -----------
ASSETS
<S> <C> <C>
Cash $ 418,894 $ 127,771
Receivables
Broker/dealers 67,438 45,406
Correspondent brokers 152,772 68,766
Clearing organization 201,167
Customers 13,105
Affiliates and employees 81,532 18,363
Other 1,640 14,847
Securities owned at market value 170,673
Trading and investment account
with clearing organization 1,389,798
Furniture, fixtures and equipment - net 59,466 27,343
Deposits with clearing organizations 140,103 45,157
Other assets 6,000 15,000
Other deposits 1,934 1,934
------------ -----------
$ 2,691,417 $ 377,692
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 76,204 $ 107,465
Commissions payable 262,509 101,291
Payable to clearing organization 435,330
Securities sold, not yet purchased, at market value 207,318
Due to affiliates 100,000
------------
1,081,361 208,756
STOCKHOLDERS' EQUITY
Common stock - authorized 5,000,000 shares;
par value $.002; issued and outstanding,
2,664,560 shares and 2,615,485 shares
in 1998 and 1997, respectively 5,329 5,231
Preferred stock - authorized 750,000 shares
of $.01 par value; no shares issued
Stock warrants 4,410 4,410
Additional paid-in capital 2,783,230 1,105,639
Accumulated deficit (1,182,913) (946,344)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 1,610,056 168,936
------------ -----------
$ 2,691,417 $ 377,692
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF INCOME
Year Ended December 31,
------------------------
1998 1997
----------- -----------
REVENUE
<S> <C> <C>
Commissions $4,974,108 $3,723,815
Unrealized gains on trading and investment account 98,619
Underwriting fees 91,470 304,002
Other 388,616 144,899
----------- -----------
5,552,813 4,172,716
EXPENSES
Commissions 4,325,880 3,131,258
Employer compensation and benefits 668,599 406,052
Clearing charges and regulatory fees 199,662 346,223
Professional fees 137,674 57,720
Office 135,490 122,135
Occupancy and equipment rental 113,148 130,494
Depreciation 11,824 10,811
Bad debt expense 13,110
Other operating expenses 195,454 100,815
----------- -----------
5,800,841 4,305,508
----------- -----------
OPERATING LOSS (248,028) (132,792)
OTHER INCOME
Rent 11,459 27,553
----------- -----------
LOSS BEFORE INCOME TAXES (236,569) (105,239)
INCOME TAXES
NET LOSS $ (236,569) $ (105,239)
=========== ===========
NET LOSS PER SHARE - basic $ (.090) $ (.041)
=========== ===========
NET LOSS PER SHARE - assuming dilution $ (.085) $ (.038)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FAS 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, 1997 $ 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
Issuance of
common stock 98 98,068 98,166
Syndication costs (20,477) (20,477)
Contributed capital 1,600,000 1,600,000
Net loss (236,569) (236,569)
----------- -----------
BALANCE,
December 31, 1998 $ 5,329 $ $ 2,783,230 $(1,182,913) $ 4,410 $1,610,056
=========== =========== ============= ============ ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF CHANGES IN LIABILITIES
SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
The Company has no subordinated claims as of December 31, 1998 and 1997.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------
1998 1997
- --------------------------------------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (236,569) $(105,239)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 11,824 10,811
Unrealized gain on investment account (98,619)
(Increase) decrease in operating assets:
Receivables:
Broker dealers (22,032) (5,100)
Correspondent brokers (84,006) 53,435
Clearing organization (201,167)
Affiliates and employees (63,169) (14,713)
Customers 13,105 (105)
Other 13,207 (14,847)
Deposits (1,415)
Deposits with clearing organizations (94,946)
Other assets 9,000 (15,000)
Increase in operating liabilities:
Accounts payable (31,261) 70,982
Due to affiliates 100,000
Commissions payable 161,218 (42,275)
Payable to clearing organization 435,330
------------
148,484 41,773
------------ ----------
NET CASH USED IN OPERATING ACTIVITIES (88,085) (63,466)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, fixtures and equipment (43,947) (962)
Purchase of trading and investment account (1,291,179)
Net sales of securities 36,645
------------
NET CASH USED BY INVESTING ACTIVITIES (1,298,481) (962)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution by parent company 1,600,000
Proceeds from sale of common stock 98,166 214,000
Syndication costs (20,477) (21,801)
------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,677,689 192,199
------------ ----------
NET INCREASE IN CASH 291,123 127,771
CASH, at beginning of year 127,771
------------
CASH, at end of year $ 418,894 $ 127,771
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(formerly Executive Wealth Management Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
FAS Wealth Management Services, Inc. (formerly Executive Wealth Management
Services, Inc.) (the "Company") is a securities broker/dealer that transacts
business through correspondent brokers and does not handle any customer
securities or funds. Customer security transactions and related commission
revenue and expenses are recorded on the trade date. The Company also acts as a
broker/dealer in selling both public and private securities offerings on a best
efforts basis and markets to Affinity Groups. The Company receives commissions
and underwriting fees for its services. Affinity Groups are professional groups
or associations, including physicians, lawyers, engineers and others.
Effective August 31, 1998, the Agreement and Plan of Merger ("Agreement") with
FAS Group, Inc. was effective. Executive Wealth Management Services, Inc.
merged with a subsidiary of FAS Group, Inc. and changed its name to FAS Wealth
Management Services, Inc. Details of the merger and capitalization from the
parent company, FAS Group, Inc. are in Note J.
On September 1998, the National Association of Securities Dealers, Inc. (NASD)
granted the firm's application to change its Restrictive Letter to allow for
market making and proprietary trading. The new Restrictive Letter with the NASD
limits the number of securities in which the firm can make markets to fifteen.
It also limits the firms proprietary positions to less than 90% of excess net
capital.
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.
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per Share
- --------------------
Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the year. Diluted EPS reflects the potential dilution that could occur if
dilutive securities and other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
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 1997 financial statements to
conform with the 1998 financial statement presentation. Such reclassifications
had no effect on net income as previously reported.
NOTE B - TRADING AND INVESTMENT ACCOUNT
The Company maintains trading and investment accounts with a clearing
organization. At December 31, 1998, the trading account consisted of eleven
common stocks in which the companies makes markets and performs proprietary
trading. Certain losses incurred in the trading portfolio are absorbed by
securities brokers who have independent contractor agreements with the Company.
The losses totaled $270,809 at December 31, 1998. Commissions payable to these
independent contractors have been reduced by these losses. The investment
account consists of common stock in a listed company. Unrealized gains on the
portfolio total $98,619.
NOTE C - FURNITURE, FIXTURES AND EQUIPMENT - net
A summary of furniture, fixtures and equipment follows at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Furniture and fixtures $ 46,561 $ 37,951
Equipment 68,060 34,202
Leasehold improvements 8,101 6,622
--------- ---------
122,722 78,775
Less accumulated depreciation (63,256) (51,432)
--------- ---------
$ 59,466 $ 27,343
========= =========
</TABLE>
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE D - DEPOSITS WITH CLEARING ORGANIZATIONS
Deposits with clearing organizations represent investments in money market funds
and mutual funds. The investments are required by the Company's clearing
brokers and are in accordance with the correspondent broker agreements between
the parties. Deposits are reflected at their fair market value.
NOTE E - OPERATING LEASE
The Company leases office space under operating lease agreements which expire in
2001 and 2002. Rent expense for the years ended December 31, 1998 and 1997 was
$110,953 and $112,403, respectively.
<TABLE>
<CAPTION>
The future minimum rental commitment for the noncancellable lease agreements as
of December 31, 1998 is as follows:
<S> <C>
1999 $ 69,600
2000 69,600
2001 69,600
2002 9,000
--------
$217,800
========
</TABLE>
NOTE F - 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 $100,000 for the period ending December 31, 1998. In December, 1991, the
National Association of Securities Dealers, Inc. approved the Company as a fully
disclosed broker/dealer. The Company had 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 the period ended December 31, 1997.
The Company had a net capital of $1,359,227 or 1359% and $101,615 or 730% of the
minimum requirement at December 31, 1998 and 1997, respectively. The net
capital rules may effectively restrict the payment of dividends to the Company's
stockholders. The Company operates pursuant to the (K)(2)(ii) exemptive
provisions of the Securities and Exchange Commission's 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 Company's ratio was .80
to 1 and 2.05 to 1 at December 31, 1998 and 1997, respectively.
<PAGE>
NOTE G - INCOME TAXES
At December 31, 1998, the Company has a net operating loss carryforward of
approximately $989,000 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 $366,000, calculated
using an effective income tax rate of 37% for the Company. The Company has no
significant differences between book and taxable income. Based upon the change
of ownership as a result of the merger, however, use of the loss to offset
annual taxable income will be limited
NOTE H - NET LOSS PER SHARE
<TABLE>
<CAPTION>
he following sets forth the computation of basic and diluted earnings per
share.
Numerator 1998 1997
----------- -----------
<S> <C> <C>
Net Loss $ (236,539) $ (105,239)
=========== ===========
Denominator
Denominator for basic earnings
per share - weighted average shares 2,632,463 2,560,117
Effect of dilutive securities:
Stock warrants 154,350 182,663
----------- -----------
Denominator for dilutive earnings
per share - adjusted weighted average
shares and assumed conversion 2,786,813 2,742,780
=========== ===========
Basic Net Loss Per Share $ (.090) $ (.041)
=========== ===========
Diluted Net Loss Per Share $ (.085) $ (.038)
=========== ===========
</TABLE>
NOTE I - 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 Company's financial position or results of operations for
1998 or 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.
<PAGE>
NOTE J - MERGER
Effective August 31, 1998, Executive Wealth Management Services, Inc., a Florida
corporation changed its name to FAS Wealth Management Services, Inc. a Florida
corporation (FAS Wealth). Also effective August 31, 1998, FAS Wealth Management
Services, Inc., a Florida corporation merged with FAS Wealth Management
Services, Inc., a Delaware corporation (FAS Wealth Delaware), a wholly owned
subsidiary of FAS Group, Inc., with FAS Wealth surviving the merger as a
Delaware corporation. This resulted in shares of common stock of FAS Wealth
being converted into the right to receive .5872 shares of common stock of FAS
Group, Inc. for each share of common stock of FAS Wealth owned as of the date of
the Merger. FAS Wealth Delaware was incorporated under the laws of Delaware
after the Merger as a wholly owned subsidiary of FAS Group, Inc. (FAS), whose
Certificate of Incorporation authorizes FAS to issue 25,000,000 shares of Class
A common stock, par value $.001 per share and 1,000,000 shares of Class B common
stock, and 1,000,000 preferred shares with a par value of $.001 per share.
The Certificate of Incorporation and Bylaws of FAS Wealth Delaware as in effect
on August 31, 1998 will be the Certificate of Incorporation and Bylaws of the
surviving corporation.
The effective date of the change of control and succession date will be the
effective date of the registration statement filed with the Securities and
Exchange Commission (SEC), pursuant to which the shares of common stock of FAS
Group, will be exchanged for the outstanding shares of capital stock of FAS
Wealth. The registration statement was filed with the SEC on January 22, 1999.
As of the date of these financial statements, the registration statement had not
cleared the SEC.
As part of the merger, the Stock Incentive Plan will permit the new board of
directors, or a special committee of the new board of directors to award three
types of stock incentives to directors, officers, and certain key employees of
FAS and FAS Wealth Delaware. Such discretionary stock incentives could include
stock options, stock appreciation rights, and "restricted" stock.
Immediately after the effective date, the board of directors shall authorize the
issuance of 655,000 incentive stock options to three of the officers of FAS
Wealth. The options shall vest and be exercisable immediately, subject to a
Lock-up Agreement at $0.60 per share. In addition, common stock warrants to
purchase 22,800 shares of Class A common stock are issuable to FMC Capital
Markets, Inc. at $3.29 per share subject to a Lock-up Agreement.
FAS Group, Inc. assumed in the merger all employment, compensation, and benefit
agreements and plans relating to employees of FAS Wealth, including without
limitation, all employment contracts, change of control agreements, severance,
and indemnity agreements with such employees and former employees, all FAS
Wealth employee benefit plans, all grants and awards under FAS Wealth 1995 Stock
Option Plan relating to current FAS Wealth employees: and any other agreements
or obligation set forth in the Agreement and Plan of Merger.
<PAGE>
NOTE J - MERGER (CONTINUED)
On August 19, 1998, the parent company, FAS Group, Inc., initiated a private
placement of 750,000 units consisting of 750,000 shares of the Company's Class A
common stock and 750,000 Redeemable Class A common stock purchase warrants at a
price of $2.00 per unit. As of September 30, 1998, all 750,000 were sold and
proceeds were used for working capital and investment in its subsidiary, FAS
Wealth. At December 31, 1998, $1,600,000 had been advanced to FAS Wealth.
Corporate Resolutions of FAS Group, Inc. indicate that this was to be considered
contributed capital to its wholly owned subsidiary. The $1,600,000 has been
reflected as an increase in additional paid-in capital in the financial
statements.
Effective August 31, 1998, FAS Group, Inc. executed an agreement with Biltmore
Securities, Inc., for the transfer to FAS Wealth furniture, fixtures, and
equipment, and NASD registered representatives. The NASD registered
representatives will work as independent contractors in locations that are
Offices of Supervisory Jurisdictions (OSJ) of FAS Wealth. FAS Wealth will
impose extensive supervision for compliance, accountability, prudence, diligence
and long-term commitment to good business conduct. FAS Wealth may terminate
registered representatives at will and the OSJ as a whole if deemed necessary.
FAS Wealth will also provide on-going education and equity research. The OSJ's
are restricted as to the opening of accounts for individuals within certain
income and net worth parameters. The Agreement provides for a payout of gross
commissions of 82% to the OSJ for the first two years of the agreement and 85%
thereafter. FAS Wealth is also paying monthly a finders fee to an individual.
The fee is three percent of gross commissions earned by the OSJ's. FAS Wealth
has advanced funds totaling $72,000 to the OSJ's. FAS Wealth has the ability to
withhold commission payments for these advances. The advances are considered
fully collectible.
FAS Wealth paid $35,000 for furniture, fixtures and equipment to Biltmore
Securities, Inc. Biltmore Securities had a deposit of $100,000 with a clearing
organization that was transferred to FAS Wealth's investment account. This
deposit belongs to the OSJ's and will be transferred in 1999. It is shown in
the balance sheet as Due to affiliates.
NOTE K - RELATED PARTY TRANSACTIONS
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 totaling approximately $162,000 and $118,000, in
1998 and 1997 respectively, relating to the offering of notes for this
corporation. This offering opened in July 1997 and closed in May 1998.
During the years ended December 31, 1998 and 1997, companies affiliated with the
Company's majority stockholder shared office space with the Company and paid
rent of $11,500 and $27,500, respectively, for the use of the space.
During the years ended December 31, 1998 and 1997, the Company paid rent of
$36,000 to the Company's majority stockholder for the use of office space. The
lease with this stockholder expires March, 2002.
<PAGE>
NOTE K - RELATED PARTY TRANSACTIONS (CONTINUED)
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. Payment
for the receivable was received in 1998.
The Company realized $89,000 in placement fees for a private offering of stock
for its parent group during the year ended December 31, 1998.
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 in 1998 totaled approximately $58,400.
Repayments received from affiliated entities totaled approximately $64,700.
See Note J and N for additional related party transactions.
NOTE L - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in lawsuits incidental to its securities business.
Management of the Company, after consultation with outside legal counsel,
believes that the resolution of these various lawsuits will not result in any
material adverse effect on the Company's consolidated financial position.
In the normal course of business, the Company enters into underwriting
commitments. Transactions relating to such underwriting commitments that were
open at December 31, 1998, and were subsequently settled had no material effect
on the financial statements as of the date.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS IN ACCORDANCE WITH THE
REQUIREMENTS OF SFAS NO. 107
The Corporation's financial instruments consist of all of its assets and
liabilities. The Corporation's management has determined that the fair value of
all of its financial instruments is equivalent to the carrying cost.
NOTE N - COMMON STOCK TRANSACTIONS
During 1995, the Company issued 44,100 warrants in connection with a sale of
common stock. Each warrant which gave the purchaser the right to purchase one
share of the Company's stock for $7.00 per share. The price of the warrants
were $.10 each and expire on December 1, 1999. After the 1996 stock split there
are now 220,500 warrants outstanding with an exercise price of $1.40.
<PAGE>
NOTE N - COMMON STOCK TRANSACTIONS (CONTINUED)
In November, 1995, the Company approved a plan to grant options to certain
employees to purchase the Company's common stock. The plan provides for the
granting of options to purchase a maximum of 500,000 shares of the Company's
stock at a price to be determined at the time of grant. The price, however,
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.
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 and 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.
In March 1998, the Company and the majority stockholder initiated a private
placement of 150,000 shares of the Company's common stock at a price of $2.00
per share. The shares contained in the offering were drawn one share from the
authorized but unissued shares of the Company for every two shares sold by the
stockholder. Accordingly, gross proceeds from the sale of the stock were shared
one-third by the Company and two-thirds by the majority stockholder. Commission
expense of ten percent of shares sold was also shared one-third by the Company
and two-thirds by the majority shareholder. The proceeds from this private
placement were utilized for additional expansion and working capital by the
Company. In the offering, 49,075 shares were sold by the Company at a price of
$2.00 per share.
<PAGE>
ADDITIONAL INFORMATION
<PAGE>
January 27, 1999
BOARD OF DIRECTORS
FAS Wealth Management Services, Inc.
Sarasota, Florida
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------
ON ADDITIONAL INFORMATION
---------------------------
We have audited the accompanying financial statements of FAS Wealth Management
Services, Inc. as of December 31, 1998 and 1997. 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
<PAGE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
COMPUTATIONS OF NET CAPITAL AND NET CAPITAL REQUIREMENTS
UNDER RULE 15c3-1 OF THE SECURITIES AND EXCHANGE COMMISSION
Year Ended December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET CAPITAL
Stockholders' equity $1,610,056 $ 168,936
Deductions - non-allowable assets
Furniture, fixtures and equipment (59,466) (27,343)
Deposits (2,037) (1,934)
Petty cash (100) (100)
Accounts receivable (81,532) (19,751)
Prepaid (7,640)
Syndication costs (15,000)
Mutual funds (1,301) (2,290)
----------- -----------
Net capital before haircuts on securities 1,457,980 102,518
Haircuts on securities (98,753) (903)
----------- -----------
NET CAPITAL $1,359,227 $ 101,615
=========== ===========
AGGREGATE INDEBTEDNESS
Items included in statements of financial condition
Accounts payable $ 176,204 $ 107,465
Commissions payable 262,509 101,291
Payable to clearing organization 435,330
Securities sold, not yet purchased, at market value 207,318
-----------
Total Aggregate Indebtedness $1,081,361 $ 208,756
=========== ===========
Ratio: Aggregate Indebtedness to Net Capital .80 to 1 2.05 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 $ 100,000 $ 13,924
=========== ===========
<PAGE>
Reconciliation with the Company's computation
(included in Part II A of Form X-17A-5 as of
December 31, 1998)
Net capital as reported in Company's Part II
(unaudited) FOCUS report 1,268,182
Audit adjustment for unrealized gain on investments 14,244
Changes in other deductions and charges (2,276)
Changes in haircuts 79,077
-----------
NET CAPITAL PER ABOVE $1,359,227
===========
</TABLE>
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
COMPUTATION FOR DETERMINATION OF RESERVE REQUIREMENTS
UNDER RULE 15c3-3 OF THE SECURITIES AND EXCHANGE COMMISSION
DECEMBER 31, 1998 AND 1997
The Company is exempt from the determination of reserve requirements under
provisions of SEC Rule 15c3-3 exemption (K)(2)(ii).
<PAGE>
January 27, 1999
BOARD OF DIRECTORS
FAS 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 FAS Wealth
Management Services, Inc. for the years ended December 31, 1998 and 1997, 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 Commission's 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 management's 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.
<PAGE>
F - 1
BOARD OF DIRECTORS
Page Two
January 27, 1999
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 FAS Wealth Management Services, Inc.
for the years ended December 31, 1998 and 1997, and this report does not affect
our report thereon dated January 27, 1999.
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 Company's practices and procedures were adequate at
December 31, 1998 and 1997, to meet the Commission's objectives.
* * * * *
This report is intended solely for the use of management of FAS 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
