SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

OR

Commission File No. 33-37534-NY

WESTECH CAPITAL CORP.

Registrant’s telephone number, including area code (512) 306-8222

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

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 and (2) has been subject to such filing requirements for the past 90 days. Yes X   No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K . [   ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [   ]   No [X]

As of March 31, 2004 there were 1,512,024 shares of the Registrant’s common stock, $0.001 par value, outstanding. The aggregate market value of common stock held by non-affiliates as of June 30, 2003 was $39,741 using a market price of $1.25 as quoted on the over-the-counter bulletin board as of the close of business on that date.

DOCUMENTS INCORPORATED BY REFERENCE

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TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

GENERAL

Westech Capital Corp., a Delaware corporation (“Westech”), is a holding company whose only operating subsidiary is Tejas Securities Group, Inc., a Texas corporation (“Tejas “). Tejas is engaged in the business of providing brokerage and related financial services to institutional and retail customers nationwide. References to “the Company,” “we,” “us,” “our” or similar references within the Form 10-K are to Westech and its subsidiaries.

Westech was incorporated as a shell corporation in New York on July 18, 1990, and made an initial public offering in November 1991. On August 27, 1999, Westech was acquired by Tejas in a reverse merger. On August 29, 2001, Westech acquired all of the outstanding minority interest in Tejas.

Effective June 29, 2001, Westech completed a 10-for-1 reverse stock split. As a result of this stock split, earnings (loss) per share amounts and all share amounts for prior periods have been restated to reflect the shares outstanding as though the stock split had taken effect in the prior periods.

Our business is conducted from our headquarters at 2700 Via Fortuna, Suite 400, Austin, Texas, with branch offices in Houston, Texas and Tinton Falls, New Jersey. Tejas is a registered broker-dealer and investment advisor offering: (i) brokerage services to retail and institutional customers; (ii) high quality investment research to institutional and retail customers; (iii) market-making activities in stocks traded on the Nasdaq National Market System and other national exchanges; and (iv) investment banking services. The New Jersey branch office provides additional market making services and municipal debt trading activity for the Texas offices.

Development of Business

Tejas was formed as a Texas corporation in March 1994. Initially, Tejas’ focus was to provide institutional money managers and mutual funds high quality investment research covering large U.S. based companies which were believed to be overly leveraged or which were in default or in bankruptcy. Tejas believes these companies were not followed closely by a large number of research analysts. Tejas used this opportunity to establish itself as a source of high quality research products and trading support. Tejas took advantage of its initial research success and expanded its research coverage to special situation equities. The demand for Tejas’ research by individuals led to the expansion of our client base to include retail accounts. Tejas also offers retail and institutional clients access to mortgage backed and municipal debt securities.

Tejas ended the year 2003 with its third straight year of profitability. Tejas’ ability to generate profits was due to improvements in the overall U.S. economy as well as a greater diversification of revenue generating products. While the majority of Tejas’ revenues are still derived from the sale of distressed securities, Tejas realized increases in municipal and government securities sales as well as market making profits.

In February 2004, the Company received a $2,500,000 loan from a bank for operating and financing purposes. With the proceeds from this loan, the Company repaid two previous loans from the bank in the amounts of $1,150,000 and approximately $400,000. The remaining balance was used to provide additional operating opportunities for Tejas.

The Company has applied for listing on the American Stock Exchange. Currently the application is pending and we can provide no assurances that the application will be approved.

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Products and Services

We provide our customers with a broad range of products and services generally categorized into two business segments: brokerage services and investment banking. See Note 17 to the consolidated financial statements for segment disclosures.

Brokerage Services

We provide brokerage services to approximately 5,000 retail customers and 500 institutional customers. We offer customers the ability to buy and sell securities, security options, mutual funds, index funds, fixed income products, annuities and other investment securities. We provide our customers with the ability to receive stock quotes and access research on the Internet through our website (www.tejassec.com). Our marketing strategy emphasizes our high level of service and unique knowledge of the companies covered by our research department.

We generated $29,260,473, $19,467,276 and $25,615,989 in commission revenues for the years ended 2003, 2002 and 2001, respectively, or 110%, 92% and 101% of total revenue (before giving effect to trading losses), respectively.

Research

The cornerstone of our business is our research and trading capabilities. Currently, our research department consists of five analysts with proven expertise in special situation equity research and in distressed securities research. The analyst group has the background to analyze many industries, but has a primary focus on telecommunications and technology. We believe that the rapid changes in each of these industries provide excellent investment opportunities. We anticipate that we will continue to devote a substantial portion of our resources to support our research department.

Market Making

In August 1999, the National Association of Securities Dealers, Inc. (“NASD”) approved Tejas to make markets in Nasdaq securities. Making markets in securities facilitates the execution of securities transactions for our customers. As of the date of filing this Form 10-K, Tejas acted as a market maker for approximately 170 public corporations whose stocks are traded on the Nasdaq National Market System, up from approximately 100 public corporations in 2002. The increase in the number of public corporations that Tejas makes markets for is due to the addition of the New Jersey branch.

Generally, we do not maintain inventories of securities for sale to our customers. However, we do engage in certain principal transactions where, in response to a customer order, we will go at risk to the marketplace in an attempt to capture the spread between the bid and offer. Most of our larger competitors are engaged in similar market making activities. We believe we can maintain better control and be assured of proper executions of customer trades by providing these market making services directly to our customers.

Investment Banking

In the past, we raised capital for corporations through public and private offerings of securities either as a syndicate member or as a managing underwriter. We also provided advisory services for companies involved in merger and acquisition activities. As a result of the economic downturn that began in early 2000, the rate of business development in central Texas and nationwide declined substantially, which negatively impacted our ability to generate investment banking revenues. We continue to review investment banking opportunities from time to time; however, we will not devote substantial resources to this business segment unless there is a significant increase in investment banking activities in our region.

We generated $72,799, $335,663 and $316,927 in investment banking revenues for the years ended 2003, 2002 and 2001, respectively, or 1%, 2% and 1% of total revenue, respectively.

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Margin Loans

We derive a portion of our income from fees generated on margin loans made to our customers and financed through our clearing organization. A margin account allows the customer to deposit less than the full cost of the securities purchased while the clearing organization lends the balance of the purchase price to the customer, secured by the purchased securities. The amount of the loan is subject to the margin regulations (“Regulation T”) of the Board of Governors of the Federal Reserve System and our internal policies. In most transactions, Regulation T limits the amount loaned to a customer for the purchase of a particular security to 50% of the purchase price. Customers are charged interest on the amount borrowed to finance their margin transactions ranging from 0.25% below to 2.75% above the broker call rate, which is the rate at which brokers can generally obtain financing using margined and firm owned securities as collateral. We earn a fee equal to 50% of the interest charged on customer margin loans. As of December 31, 2003, the total of all customer securities pledges on debit balances and held in active margin accounts was approximately $4.5 million.

CUSTOMERS

Historically, our customer base has been comprised of predominately large institutional customers and high net-worth retail customers. These customers demand high quality research and sophisticated trading capabilities. We believe that we have served the needs of this segment of our customer base well, resulting in increased trading volume. We believe that the increase in the scope of our research services should increase customer satisfaction and increase our revenues from institutional customers and high net-worth retail customers.

EMPLOYEES

On December 31, 2003, we had 58 employees, which was approximately the same number as on December 31, 2002. Of these employees, 28 work in sales, 9 in trading, 6 in research and investment banking and the remaining employees perform management and administrative functions. It is our goal to use the sales support functions that are currently in place to support additional sales staff. We believes that taking advantage of the infrastructure currently in place will allow an increase in productivity in the sales area with minimal additional support cost.

COMPETITION

All aspects of our business are highly competitive. In our general brokerage activities, we compete directly with numerous other broker-dealers, many of which are large well-known firms with substantially greater financial and personnel resources. Many of our competitors employ extensive advertising and actively solicit potential clients in order to increase business. In addition, brokerage firms compete by furnishing investment research publications to existing clients, the quality and breadth of which are considered important in the development of new business and the retention of existing clients. We also compete with a number of smaller regional brokerage firms in Texas and the southwestern United States.

Since the adoption of the Gramm-Leach-Bliley Act of 1999, commercial banks and thrift institutions have been able to engage in traditional brokerage and investment banking services. Competition among financial services firms also exists for investment representatives and other personnel.

The securities industry has become considerably more concentrated and more competitive since Tejas was founded, as numerous securities firms have either ceased operations or have been acquired by or merged into other firms. In addition, companies not engaged primarily in the securities business, but with substantial financial resources, have acquired leading securities firms. These developments have increased competition from firms with greater capital resources than those of ours.

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The securities industry has experienced commission discounting by broker-dealers competing for retail brokerage business. The continuation of such discounting and an increase in the number of new and existing firms offering discounts could adversely affect our retail equity business. However, we have historically derived the majority of our commission revenue from institutional customers that tend to purchase larger blocks of securities than individual customers. Transactions with institutional customers have not been subject to the same level of discounting that brokerage firms experience with retail customers due to the size of the transactions. In addition, we have concentrated our research efforts on debt securities, which have not experienced as significant of discounting as equity securities.

SECURITIES INDUSTRY PRACTICES

Tejas is registered as a broker-dealer with the Securities and Exchange Commission (the “SEC”) and the NASD. Tejas is registered as a securities broker-dealer in 39 states and the District of Columbia. Tejas is also a member of the Securities Investors Protection Corporation, which provides Tejas’ customers with insurance protection for amounts of up to $500,000 each, with a limitation of $100,000 on claims for cash balances. Tejas has also acquired an additional $1,500,000 in insurance coverage through Seabury & Smith, as added protection for individual customers’ securities, covering all clients of Tejas’ institutional and retail customers.

Tejas is subject to extensive regulation by federal and state laws. The SEC is the federal agency charged with administration of the federal securities laws. Much of the regulation of broker-dealers, however, has been delegated to self-regulatory organizations, principally the NASD and the national securities exchanges. These self-regulatory organizations adopt rules, subject to approval by the SEC, which govern the industry and conduct periodic reviews of member broker-dealers. Securities firms are also subject to regulation by state securities commissions in the states in which they do business. The SEC, self-regulatory organizations, and state securities commissions may conduct administrative proceedings which can result in censure, fine, suspension, or expulsion of a broker-dealer, its officers or employees. The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the securities markets, rather than protection of creditors and shareholders of broker-dealers. See “Forward-Looking Statements and Risk Factors” below.

NET CAPITAL REQUIREMENTS

Tejas is subject to SEC Rule 15c3-1, Net Capital Requirements For Brokers or Dealers (the “Rule”), which establishes minimum net capital requirements for broker-dealers. The Rule is designed to measure financial integrity and liquidity in order to assure the broker-dealer’s financial stability within the securities market. The net capital required under the Rule depends in part upon the activities engaged in by the broker-dealer.

In computing net capital under the Rule, various adjustments are made to exclude assets not readily convertible into cash and to reduce the value of other assets, such as a broker-dealer’s position in securities. A deduction is made against the market value of the securities to reflect the possibility of a market decline prior to sale. Compliance with the Rule could require intensive use of capital and could limit our ability to pay dividends to our stockholders. Failure to comply with the Rule could require the Company to infuse additional capital into Tejas, could limit the ability of Tejas to pay its debts and/or interest obligations, and may subject Tejas to certain restrictions which may be imposed by the SEC, the NASD, and other regulatory bodies. Moreover, in the event that the Company could not or elected not to infuse the additional capital or otherwise bring Tejas into compliance, Tejas would ultimately be forced to cease operations. See “Forward-Looking Statements and Risk Factors” below.

At December 31, 2003 and 2002 Tejas elected to use the alternative method permitted by the Rule, which requires it to maintain minimum net capital, as defined in the Rule, equal to the greater of $250,000 in both 2003 and 2002 or 2% of aggregate debit balances arising from customer transactions, as defined in the Rule. At December 31, 2003, Tejas had net capital of $924,132, which was $674,132 in excess of the minimum amount required. At December 31, 2002, Tejas had net capital of $945,765, which was $695,765 in excess of the minimum amount required.

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FORWARD-LOOKING STATEMENTS AND RISK FACTORS

From time to time, we make statements (including some contained in this report) which predict or forecast future events or results, which depend on future events for their accuracy, which embody projections or that otherwise contain “forward-looking information.” These statements may relate to anticipated revenues or earnings per share, anticipated changes in our business or our ability to successfully respond to such changes, the adequacy of our capital and liquidity, the adequacy of our reserves for contingencies, including litigation, or expectations regarding future financial market conditions. The statements include those that are preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “may” or similar expressions.

We caution readers that any forward-looking information provided by us or on our behalf is not a guarantee of future performance. Actual results may differ materially as a result of various factors, many of which are outside of our control, including the factors discussed below, those discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and “Quantitative and Qualitative Disclosure About Market Risk,” and those discussed in our periodic reports filed with and available from the SEC.

All forward-looking statements speak only as of the date on which they are made and we undertake no obligation to update them to reflect events or circumstances occurring after the date on which they were made or to reflect the occurrence of unanticipated events.

Failure To Effectively Manage A Changing Business Could Result In Outdated Services.

Our business and operations have changed substantially since we began offering brokerage services, and we expect the pace of change in the brokerage business to continue. This rapid change places significant demands on our administrative, operational, financial and other resources. Failure to properly manage these changes could result in our services becoming outdated, which would have a material adverse effect on our business, financial condition and operating results.

Failure Of Third-Party Vendors To Provide Critical Services Could Harm Our Business.

We rely on a number of third parties to assist in the processing of our transactions, including online and Internet service providers, back office processing organizations, and market makers. While we have selected these third-party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could have a material adverse effect on our business, financial condition and operating results.

We Are Subject To Market Forces Beyond Our Control Which Could Impact Us More Severely Than Our Competitors.

We, like other securities firms, are directly affected by economic and political conditions, broad trends in business and finance and changes in volume and price levels of securities transactions. In recent years, the U.S. securities markets have experienced significant volatility. Over the past few years, the stock markets have suffered major declines and advances that has increased the volatility of our revenues. If our trading volume decreases, our revenues decline. Also, when trading volume is low, our profitability is adversely affected because our overhead remains relatively fixed, despite lower compensation costs associated with commission revenues. Severe market fluctuations in the future could have a material adverse effect on our business, financial condition and operating results. Although we have diversified our product and service revenue streams, some of our competitors with more diverse product and service offerings might withstand such a downturn in the securities industry better than we would.

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Our Customers May Default On Their Margin Accounts, Effectively Passing Their Losses On To Us.

Our customers sometimes purchase securities on margin through our clearing organization; therefore we are subject to risks inherent in extending credit. This risk is especially great when the market is rapidly declining. In such a decline, the value of the collateral securing the margin loans could fall below the amount of a customer’s indebtedness. Specific regulatory guidelines mandate the amount that can be loaned against various security types. We rigorously adhere to these guidelines and in a number of instances exceed those requirements. Independent of our review, our corresponding clearing organization independently maintains a credit review of our customer accounts. If customers fail to honor their commitments, the clearing organization would sell the securities held as collateral. If the value of the collateral were insufficient to repay the loan, a loss would occur, which we may be required to fund. Any such losses could have a material adverse effect on our business, financial condition and operating results.

We Are Subject To Strict Government Regulation And The Failure To Comply Could Result In Disciplinary Actions.

The securities industry in the U.S. is subject to extensive regulation under both federal and state laws. See “- Securities Industry Practices” above. Broker-dealers are subject to regulations covering all aspects of their business.

The SEC, NASD or other self-regulatory organizations and state securities commissions can censure, fine, issue cease-and-desist orders or suspend or expel a broker-dealer or any of its officers or employees. Our ability to comply with all applicable laws and rules is largely dependent on our establishment and maintenance of a system to ensure compliance with these laws and rules, as well as our ability to attract and retain qualified compliance personnel. We could be subject to disciplinary or other actions due to claimed noncompliance in the future, which could have a material adverse effect on our business, financial condition and operating results.

In addition, our operations and profitability may be affected by additional legislation, changes in rules promulgated by the SEC, NASD, the Board of Governors of the Federal Reserve System, the various stock exchanges and other self-regulatory organizations, and state securities commissions, or changes in the interpretation or enforcement of existing laws and rules.

The NASD regulates all of our marketing activities. The NASD can impose certain penalties for violations of its advertising regulations, including censures or fines, suspension of all advertising, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or any of its officers or employees. Tejas’ compliance officer reviews all marketing materials prior to release in an effort to ensure compliance with NASD regulations.

There can be no assurance that other federal, state or foreign agencies will not attempt to regulate our business. If such regulations are enacted, our business or operations might be rendered more costly or burdensome, less efficient, or even commercially impossible to continue, or such regulations could otherwise have a material adverse effect on our business, financial condition and operating results.

We Must Maintain Certain Net Capital Requirements That Could Slow Our Expansion Plans Or Prevent Payments Of Dividends.

The SEC, NASD and various other regulatory agencies have stringent rules with respect to the maintenance of specific levels of net capital by securities broker-dealers. Net capital is the net worth of a broker or dealer (assets minus liabilities), less deductions for certain types of assets. If a firm fails to maintain the required net capital, it may be subject to suspension or revocation of registration by the SEC and suspension or expulsion by the NASD, and could ultimately lead to the firm’s liquidation. If such net capital rules are changed or expanded, or if there is an unusually large charge against net capital, operations that require the intensive use of capital would be limited. Such operations may include trading activities and the financing of customer account balances. Also, our ability to pay dividends, repay debt and redeem

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or purchase shares of our outstanding stock could be severely restricted. A large operating loss or charge against net capital could adversely affect our ability to expand or even maintain our present levels of business, which could have a material adverse effect on our business, financial condition and operating results.

Our Business Is Highly Competitive.

We encounter intense competition in our business, and we compete directly with numerous securities firms and banks, many of which have substantially greater capital and other resources. The Gramm-Leach-Bliley Act, signed into law on November 12, 1999, allows for affiliations among banks, securities firms and insurance companies by means of a financial holding company. In addition, commercial banks have the possibility of engaging in a broad range of non-banking activities through operating subsidiaries. Such activities include all financial activities, including broker/dealer activities, with the exception of insurance underwriting and real estate investment or development.

During the past few years, a number of banks acquired securities firms and, in so doing, gained increased entry into the securities industry. These acquisitions have brought entirely new sources of capital into the securities industry, resulting in more formidable competition.

Additionally, competition among securities firms and other competitors for successful sales representatives, securities traders, securities analysts, stock loan professionals and investment bankers is intense and continuous.

We compete with other securities firms and with banks, insurance companies and other financial institutions principally on the basis of service, product selection, price, location and reputation in local markets. We operate at a price disadvantage to discount brokerage firms that do not offer equivalent services.

We Are Controlled By A Single Stockholder.

Mr. Gorman, our Chairman and Chief Executive Officer, beneficially owns over 50% of the outstanding shares of our Common Stock. As the Company’s largest stockholder, Mr. Gorman is likely to be able to maintain effective control of the Company including the ability to elect a majority of the Board of Directors. The ownership by Mr. Gorman of shares of Common Stock may discourage or prevent unsolicited mergers, acquisitions, tender offers, proxy contests or changes of incumbent management, even when stockholders other than Mr. Gorman consider such a transaction or event to be in their best interest. Accordingly, holders of Common Stock may be deprived of an opportunity to sell their shares at a premium over the trading price of the shares.

Our Trading Systems May Fail, Resulting In Service Interruptions.

We receive and process trade orders through internal trading software and touch-tone telephones and we depend heavily on the integrity of the electronic systems supporting this type of trading. Heavy stress placed on our systems during peak trading times could cause our systems to operate too slowly or fail. If our systems or any other systems in the trading process slow down significantly or fail even for a short time, our customers would suffer delays in trading, potentially causing substantial losses and possibly subjecting us to claims for such losses or to litigation claiming fraud or negligence. During a systems failure, we may be able to take orders by telephone; however, only associates with securities broker’s licenses can accept telephone orders, and an adequate number of associates may not be available to take customer calls in the event of a systems failure. In addition, a hardware or software failure, power or telecommunications interruption or natural disaster could cause a system failure. Any systems failure that interrupts our operations could have a material adverse effect on our business, financial condition and operating results.

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No Active Public Market For Our Common Stock Currently Exists And None May Develop.

An active public market for our common stock does not currently exist. Over 80% of our issued common stock is held by fewer than ten individuals. Until a broader distribution of our common stock is made no active public market will develop.

Executive Officers of the Registrant

The following information sets forth certain information with respect to our executive officers. Their respective backgrounds are described below.

JOHN J. GORMAN. Mr. Gorman became our Chairman of the Board of Directors and Chief Executive Officer in August 1999. He has been the Chairman and Chief Executive Officer of Tejas since July 1997. Mr. Gorman has over 19 years of experience in the brokerage industry. Mr. Gorman became a principal of Tejas on April 18, 1995. From 1988 until joining Tejas, Mr. Gorman worked at APS Financial Inc. as a Senior Vice President. Mr. Gorman served primarily in a broker capacity at APS Financial Inc., a broker-dealer in Austin, Texas. Mr. Gorman has held positions at APS Financial Inc., Landmark Group, Shearson Lehman and Dean Witter. Mr. Gorman is the nephew of Charles H. Mayer through marriage. Mr. Gorman received his B.B.A. from Southern Methodist University in 1983.

CHARLES H. MAYER. Mr. Mayer joined us in September 1999 as the Chief Operating Officer and a Director. Mr. Mayer became our President in December 2000. From 1995 until he joined us, Mr. Mayer was self-employed and managed personal investments in a number of companies not related to the securities industry. From 1990 to 1995, Mr. Mayer was a Managing Director and the Chief Information Officer with CS First Boston. Other experience includes 21 years in senior positions with Morgan Stanley, Tech Partners, Salomon Brothers, Lehman Brothers and the Federal Reserve Bank of New York. Mr. Mayer earned a BBA and MBA from Seton Hall University.

KURT J. RECHNER, CPA, CFA. Mr. Rechner became our Chief Financial Officer in January 2000, our Treasurer in September 2000 and our Secretary in September 2002. Mr. Rechner has spent the past 22 years in the financial services industry. Prior to joining us, Mr. Rechner was employed from 1997 through 1999 as an Executive Vice President, Finance & Operations, CFO for Xerox Federal Credit Union. From May 1995 to 1997 Mr. Rechner was the Chief Executive Officer for Prism Capital Management, LLC, which managed a global fixed income hedge fund. From 1990 through May 1995, Mr. Rechner was the Senior Vice President of Accounting and Finance for Security Service Federal Credit Union. Mr. Rechner earned a B.S. in Business Administration from the University of Illinois in 1984 and an M.B.A. from Trinity University in 1985. Mr. Rechner also holds the professional designations of Certified Public Accountant and Chartered Financial Analyst.

A. REED DURANT. Mr. Durant became our Director of Compliance in August 1999. Mr. Durant joined Tejas in November 1998 as the Compliance Director. From January 1996 until joining Tejas, Mr. Durant worked as Senior Compliance Examiner for the NASD in the Regulation and Enforcement area. From 1988 until joining the NASD, Mr. Durant worked at Principal Financial Securities. Mr. Durant brings over 22 years experience in the securities industry, including 8 years as Compliance Director of a 400-broker, 30-branch NYSE member firm. Mr. Durant graduated from Texas Tech University with a BA in economics.

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JOHN F. GARBER, CPA. Mr. Garber became our Director of Finance in August 1999. Mr. Garber joined Tejas in October 1998 as Director of Finance. From April 1999 until joining Tejas, Mr. Garber was employed as the Controller for Loewenbaum & Co. Inc., an Austin based broker-dealer. Prior to joining Loewenbaum & Co., Inc. in April 1998, he was employed by KPMG LLP from 1995 to 1998 in the financial assurance department. Mr. Garber graduated from the University of Florida in 1992 with a B.S.B.A. in Finance. Mr. Garber holds the professional designation of Certified Public Accountant.

AVAILABLE INFORMATION

We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Securities Exchange Act of 1934 (the “Exchange Act.”). You may read and copy any materials that are on file with the SEC at the SEC’s public reference room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains a website that contains these SEC filings. You can obtain these filings at the SEC’s website at http://www.sec.gov.

We also make available free of charge on or through our website (http://www.tejassec.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such materials with, or furnish it to, the SEC.

ITEM 2. PROPERTIES

The Company’s headquarters are located at 2700 Via Fortuna, Suite 400, Austin, Texas. The Company leases space for its offices in Austin, Texas, Houston, Texas and Tinton Falls, New Jersey, which consist of approximately 24,700 square feet, 5,400 square feet and 1,900 square feet, respectively. Future commitments associated with the leases are included in Note 18 to the Consolidated Financial Statements. These leases are for terms of four years, three years and five years, respectively, and contain renewal options. The Company subleased approximately 40% of its space in the Austin location during 2003. The Company also has leased space of approximately 2,500 square feet in Atlanta, Georgia, with a lease term expiring in 2005. In September 2002, the Company subleased approximately 85% of its Atlanta, Georgia office space. The Company subleased the remaining 15% of its Atlanta, Georgia office space in March 2003.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than litigation incidental to our business, which the Company believes will not have a material adverse affect, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

RECENT STOCK PRICES

The Company’s common stock trades under the symbol “WSTH” on the over-the-counter electronic bulletin board. The trading does not constitute a well-established public trading market for our common stock. On December 31, 2003, there were in excess of 350 holders of record of the Company’s common stock and we believe in excess of 5 beneficial holders of the Company’s common stock. The following table sets forth for the periods indicated the high and low market prices for our common stock, which reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. The Company has not paid cash or stock dividends and has no present plan to pay any such dividends. The payment of future dividends will be decided by our Board of Directors and will be based upon the Company’s future earnings, financial condition and capital requirements. Our current loan agreement prohibits us from paying any dividends.

RECENT SALES OF UNREGISTERED STOCK

None.

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ITEM 6. SELECTED FINANCIAL DATA

The summary statement of operations data and the summary statement of financial condition data as of and for each of the years in the five-year period ended December 31, 2003 is as follows. Historical financial results may not be indicative of future performance of the Company or its affiliates.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMPANY OVERVIEW

General

We are primarily engaged in the business of offering (1) brokerage services to retail and institutional customers, (2) high quality investment research to institutional and retail customers, (3) market-making activities in stocks traded on the Nasdaq National Market and other national exchanges, and (4) investment banking services. All of these activities are highly competitive.

While our brokerage commissions revenue is dependent on trading volume, which may fluctuate significantly, our overhead remains relatively fixed. Thus, if our trading volume decreases, our profitability is adversely affected despite lower compensation costs associated with the lower trading volume. Consequently, net-operating results can vary significantly from period to period. Our business is also subject to substantial governmental regulations and changes in legal, regulatory, and compliance requirements that may have a substantial impact on our business and results of operations. For a discussion of risks associated with our business, see “Forward-Looking Statements and Risk Factors” in Part I and see Item 7A of this Form 10-K.

Brokerage Services

We provide brokerage services to approximately 5,000 retail customers and 500 institutional customers. We offer customers the ability to buy and sell securities, security options, mutual funds, index funds, fixed income products, annuities and other investment securities. Commission revenue from customer security transactions, as well as the related compensation expense, is recorded on a trade date basis.

Research

We have a research department dedicated to the analysis and performance of markets/industry conditions. Currently, our research department consists of five analysts with proven expertise in special situation equity research and in distressed securities research. This analyst group has the background to analyze many industries, but has a primary focus on telecommunications and technology.

Market Making

We are a market maker for approximately 170 public companies whose stocks are traded on the Nasdaq National market. Generally, we do not maintain inventories of securities for sale to our customers. However, we do engage in certain principal transactions where, in response to a customer order, we will go at risk to the marketplace in an attempt to capture the spread between the bid and offer.

When we enter into securities transactions for our own account, we recognize realized gains and losses upon the completion of trades and unrealized gains and losses based upon a mark to market of securities held by us. Securities with readily determinable market values are marked to market based on quoted market prices. Securities with limited market activity for which quoted market prices are not readily determinable are based on our management’s best estimate, which may include dealer price quotations and price quotations for similar instruments traded.

Investment Banking

Our investment banking services primarily relate to helping companies raise capital through public or private offerings of securities as a syndicate member or a managing underwriter and providing advisory services for companies involved in mergers and acquisitions. Investment banking revenues include fees,

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net of syndicate expenses, arising from securities offerings where we act as a syndicate member or managing underwriter and fees earned from providing merger and acquisition advisory services.

Margin Loans

We extend credit to our customers, which is financed through our clearing organization, to help facilitate customer securities transactions. This credit, which earns interest income, is known as “margin lending.” In margin transactions, the client pays a portion of the purchase price of securities, and we make a loan (financed by our clearing organization) to the client for the balance, collateralized by the securities purchased or by other securities owned by the client.

In permitting clients to purchase on margin, we are subject to the risk of a market decline, which could reduce the value of our collateral below the client’s indebtedness. Agreements with margin account clients permit our clearing organization to liquidate our clients’ securities with or without prior notice in the event of an insufficient amount of margin collateral. Despite those agreements, our clearing organization may be unable to liquidate clients’ securities for various reasons including the fact that the pledged securities may not be actively traded, there is an undue concentration of certain securities pledged, or a trading halt is issued with regard to pledged securities.

CRITICAL ACCOUNTING POLICIES

We have identified the policies and estimates set forth below as critical to our operations and the understanding of our results of operations. The impact of these policies is further discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, where these policies affect our reported amounts. Our significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements.

Fair Value of Securities

We routinely purchase and sell securities for our proprietary accounts and our customers, including employees. Financial securities used in our trading activities are recorded at fair value, with unrealized gains and losses reflected in investment income. Securities with readily determinable market values are based on quoted market prices. Many of the securities held are those of distressed companies in which there may be limited market activity. The value of securities with limited market activity for which quoted market values are not readily determinable are based on our management’s best estimate, which may include dealer price quotations and price quotations for similar instruments traded. In addition, changes in the market prices of securities (and changes in our estimates of market values of securities) could result in losses to us. For a further discussion of this market risk, including the effects of a hypothetical 10% decline in prices, see Item 7A of this Form 10-K.

Receivable (Payable) to Clearing Organization

We utilize our equity in securities owned at our clearing organization to facilitate the purchase of additional securities for trading purposes. The value of the equity at the clearing organization is primarily affected by realized trading gains and losses, unrealized gains and losses, the purchase and sale of accrued interest on debt securities, and cash withdrawals and deposits at the clearing organization. As a result of this activity, including the purchase and sale of securities, we may have either a receivable or payable balance to the clearing organization. In the event that we have a payable balance to the clearing organization, we may be restricted in our ability to withdraw funds from the clearing organization to cover routine operating expenses. Additionally, if the value of the equity at the clearing organization is insufficient to cover the margin requirements on the value of the securities borrowed, we may be required to either liquidate our holdings at the clearing organization or provide additional funds to cover margin requirements. For these reasons, we carefully monitor our receivable or payable balance so that we can provide sufficient funds for operations.

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LIQUIDITY AND CAPITAL RESOURCES

As a broker-dealer, we are required to maintain a certain level of liquidity or net capital in accordance with NASD regulations. Factors affecting our liquidity include the value of securities held in trading accounts, the value of non-current assets, the amount of unsecured receivables, and the amount of general business liabilities, excluding amounts payable to its clearing broker and NASD approved subordinated debt.

Our inventory balance fluctuates daily based on the current market value and types of securities held. We typically invest in securities in which we provide research coverage. The types of securities may include publicly traded debt, equity, options and private security issuances. As a market maker, we provide bid and ask quotes on certain equity securities on the NASDAQ market.

Market values for some of the distressed securities may not be easily determinable depending upon the volume of securities traded on open markets, the operating status of the companies or the types of securities issued by companies. If the underlying securities of a company become illiquid, our liquidity may be affected depending on the value of the securities involved. During times of general market declines, we may experience market value losses, which ultimately affects our liquidity through our broker-dealer net capital requirements. In addition, we may decide not to liquidate our security holdings to increase cash availability if our management believes a market turnaround is likely in the near term or if our management believes the securities are undervalued in the current market.

We utilize the equity in securities owned at our clearing organization to fund operating and investing activities. The value of the equity at the clearing organization is also used to secure temporary financing for the purchase of investments in our trading accounts. The value of our equity balance held at the clearing organization may fluctuate depending on factors such as the market valuation of securities held in our trading accounts, realized trading profits, commission revenue, cash withdrawals and clearing costs we are charged for conducting our trading activities. As a result of this activity, we may have either a receivable or payable balance to the clearing organization. As of December 31, 2003, we had a payable balance due to the clearing organization of $742,334.

Cash Flows From Operating Activities

Net cash provided by (used in) operating activities was $640,070, $(710,296) and $1,897,460 in 2003, 2002 and 2001, respectively. The net cash provided by (used in) operating activities is impacted primarily by the brokerage operating activities and changes in the brokerage-related assets and liabilities.

In 2003, the primary uses of cash were from the $229,317 decrease in the payable to clearing organization and the $763,931 decrease in securities sold, not yet purchased. The primary source of cash was from the $383,523 decrease in securities owned. The net effect of these transactions on cash flows from operating activities was $609,725 in cash used in operations, with the remaining increase consisting of $847,130 in net income plus changes in other asset and liability accounts.

During 2002, the primary uses of cash were from the increase in securities owned, increase in other investments, and the decrease in accounts payable, accrued expenses and other liabilities. Securities owned increased by $2,973,638, which were financed primarily through the increase in the net payable to clearing organization. Other investments increased by $1,250,000 as we were required to collateralize one of our notes payable to a bank with a certificate of deposit. Accounts payable, accrued expenses and other liabilities decreased by $803,352 from the prior year as a result of reduced bonuses and commissions payable at year-end compared with December 31, 2001. The primary sources of cash consisted of the net increase in the net payable to clearing organization of $2,876,989 and the increase in securities sold, not yet purchased of $652,629. The net effect of these transactions on cash flows from operating activities was $1,497,372 in cash used in operations, with the remaining increase consisting of $290,052 in net income plus changes in other asset and liability accounts.

During 2001, the primary use of cash resulted from the $1,626,382 decrease in the net payable to clearing organization. Our increased commission revenue and decrease in investment losses allowed us to increase

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our cash balances on deposit at the clearing organization. In addition, the increased revenues allowed us to increase our security holdings by $578,645. The primary sources of cash related to the receipt of income tax refunds for prior year carrybacks and the reduction in cash paid due to the increase in accounts payable and accrued expenses related to year-end bonus accruals. The net effect of these transactions on cash flows from operating activities was $916,297 in cash availability, with the remaining $981,163 increase consisting of $833,022 in net income plus changes in other asset and liability accounts.

We anticipate that a significant portion of the cash provided from our future operating activities will be used to reduce our overall debt structure. Future operating cash flows may also be used to facilitate additional investing activities.

Cash Flows From Investing Activities

Net cash used in investing activities was $56,239, $10,169 and $77,261 in 2003, 2002 and 2001, respectively. In 2003, we purchased $56,239 of property and equipment in the ordinary course of business. During 2002, the Company purchased $10,169 of property and equipment in the ordinary course of business. During 2001, the Company purchased $77,261 of property and equipment in the ordinary course of business.

Cash Flows From Financing Activities

Net cash (used in) provided by financing activities was $(782,720), $923,450 and $(1,755,000) in 2003, 2002 and 2001, respectively.

On February 17, 2004, the Company entered into an agreement with a bank to borrow $2,500,000 for operating and financing purposes. The Company used a portion of the proceeds to repay the March 2002 and the June 2003 loan agreements in full. The loan is due on demand or by February 15, 2007 if no demand is made. The loan accrues interest at prime plus 2% and is to be paid in equal monthly payments of $70,000, plus accrued interest, commencing on March 15, 2004. The loan is secured by the common stock of the Company’s primary operating subsidiary, Tejas Securities, as well as the personal guaranty of an officer of the Company. On March 4, 2004, Tejas Securities redeemed the $1,150,000 certificate of deposit held as collateral against the March 2002 loan. The loan agreement contains covenants that, among other things, limit our ability to incur debt and liens, limit our ability to pay dividends, and restrict our ability to make loans or investments or incur obligations as a guarantor or surety.

In June 2003, the Company entered into an agreement with a bank to borrow $805,000 for refinancing purposes. The loan was due on demand or by December 1, 2004 if no demand was made. The loan accrued interest at prime plus 1.5% and was to be paid in equal monthly installments of $50,000, plus accrued interest, commencing on July 1, 2003. The balance of the loan agreement was $505,050 as of December 31, 2003.

In March 2002, the Company entered into a term loan agreement with a bank to borrow $2,500,000 for operating purposes. The loan was originally due and payable on demand or by March 15, 2003 if no demand was made. The loan accrued interest at 5.5% per annum. The Company purchased a certificate of deposit in the amount of $2,500,000 as collateral for the loan. During 2002, the Company repaid $1,100,000 of the loan from the bank through its own financing arrangements. The bank in turn released from collateralization $1,100,000 of the certificate of deposit to the Company, of which $1,000,000 was used for operations, including repayment of $500,000 of the Company’s subordinated debt. The remaining $100,000 was not redeemed and was included in other investments at December 31, 2002. In addition, the Company repaid $250,000 of a loan from the bank through the redemption of $250,000 of the certificate of deposit during 2002. As of December 31, 2002, the term loan agreement balance was $1,150,000, which was collateralized by the certificate of deposit in the amount of $1,250,000 (which was included as other investments in the accompanying consolidated statements of financial condition). On March 15, 2003, the Company extended the maturity date of the loan to March 15, 2004.

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General

Our primary sources of cash are cash flows from operations and borrowings. Our cash flows from operations and our ability to make scheduled payments of principal and interest on, or to refinance, our indebtedness will depend on our future performance, which is subject to the risks discussed in Part I and Item 7A of this Form 10-K. Likewise, our ability to borrow will depend on these factors. Based upon the current level of our operations, we believe that cash flows from our operations and available cash, together with borrowings, will be adequate to meet our future liquidity needs for both the short term and for at least the next several years. However, there can be no assurance that our business will generate sufficient cash flows from operations or that future borrowings will be available in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs.

As of December 31, 2003, our contractual cash obligations and the periods in which payments under such cash obligations are due are as follows: