UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File Number 0-16240
JB OXFORD HOLDINGS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
UTAH 95-4099866
(State of incorporation or organization) (I.R.S. Employer ID No.)
9665 Wilshire Blvd., #300;
Beverly Hills, CA 90212
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (310) 777-8888
Securities registered pursuant to Section
12(b) of the Act: None
Securities registered pursuant to Section Common stock, $0.01 par
12(g) of the Act: value: 6,432,983 shares
outstanding at May 10, 1995
Name of each exchange on which registered NASDAQ
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act
of l934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- ---
The aggregate market value of the voting stock held by non-affiliates
of the registrant at May 10, 1995 was approximately $4,511,976 such amount
computed as the average bid and asked prices of stock as of May 10, 1995.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1995 December 31,
(Unaudited) 1994
---------------- ----------------
ASSETS:
Cash and cash equivalents $ 13,855,229 $ 156,984
Cash and cash equivalents segregated
under federal and other regulations 11,741,931 9,669,533
Receivable from broker/dealers and
clearing organizations 18,529,604 16,492,065
(Net of allowance for doubtful accounts
of $2,103,802)
Receivable from customers
(Net of allowance for doubtful accounts
of $4,112,762 and $4,119,204) 79,530,955 54,685,994
Other receivables
(Net of allowance for doubtful accounts 749,952 636,730
of $1,815,014)
Securities owned - at market value 2,648,625 1,467,545
Furniture, equipment and leasehold
improvements
(At cost - less accumulated depreciation 1,362,612 1,381,386
and amortization of $1,573,509 and
$1,472,158)
Income taxes refundable 359,000 359,000
Deferred income taxes
(Net of valuation allowance of 1,774,652 1,774,652
$1,615,618)
Other assets 858,413 909,557
--------------- ---------------
TOTAL ASSETS $ 131,410,973 $ 87,533,446
=============== ===============
See accompanying notes to Consolidated Financial Statements.
<PAGE>
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1995 December 31,
(Unaudited) 1994
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' DEFICIT:
LIABILITIES:
Payable to broker/dealers and clearing $ 27,047,053 $ 10,926,802
organizations
Payable to customers 89,554,551 55,030,181
Securities sold not yet purchased - at 468,212 160,760
market value
Accounts payable and accrued 5,440,870 4,006,078
liabilities
Notes payable 406,275 13,917,802
Loans from stockholders 7,083,405 4,090,905
Loans subordinated to the claims of 2,000,000 --
general creditors
--------------- ---------------
TOTAL LIABILITIES 132,000,366 88,132,528
--------------- ---------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' DEFICIT:
Common stock ($.01 par value
100,000,000 shares authorized 64,330 64,330
6,432,983 shares issued and
outstanding)
Additional paid-in capital 7,525,074 7,525,074
Accumulated deficit (8,178,797) (8,188,486)
--------------- ---------------
TOTAL STOCKHOLDERS' DEFICIT (589,393) (599,082)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 131,410,973 $ 87,553,446
=============== ===============
See accompanying notes to consolidated financial statements
<PAGE>
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For The Three Months Ended March 31
1995 1994
--------------- ---------------
REVENUES:
Clearing and execution $ 2,093,518 $ 2,731,282
Trading profits 734,328 860,545
Commissions 1,140,296 1,692,382
Valuation -- 387,080
Interest 1,169,865 617,630
Other 127,055 101,514
--------------- ---------------
Total Revenues 5,265,062 6,390,433
--------------- ---------------
EXPENSES:
Employee compensation 1,073,518 1,500,923
Commission expense 533,941 1,421,252
Clearing and floor brokerage 484,043 579,498
Communications 519,999 650,588
Occupancy 328,137 454,482
Interest 773,588 338,596
Data processing charges 535,613 550,785
Professional services 420,736 731,051
Promotional 283,903 221,476
Bad debts 32,027 103,920
Other operating expenses 263,469 328,317
--------------- ---------------
Total Expenses 5,248,974 6,880,888
--------------- ---------------
Income (Loss) Before Income Taxes 16,088 (490,455)
Income Tax Provision (Benefit) 6,400 (171,000)
--------------- ---------------
Net Income (Loss) $ 9,688 $ (319,455)
=============== ===============
Net Income (Loss) Per Share $ 0.00 $ (0.06)
=============== ===============
Weighted average number of shares of
common stock & common stock equivalents 7,593,608 5,321,872
=============== ===============
See accompanying notes to Consolidated Financial Statements.
<PAGE>
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Three Months Ended March 31
1995 1994
--------------- ---------------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income (loss) $ 9,688 $ (319,456)
Adjustments to reconcile net income
(loss) to cash provided by operating
activities:
Depreciation and amortization 107,665 96,706
Deferred rent 33,821 110,426
Provision for bad debts 32,027 103,920
Changes in assets and liabilities:
Cash segregated under federal and (2,072,398) 69,495
other regulations
Receivable from broker/dealers and (2,037,539) (2,740,421)
clearing organizations
Receivable from customers (24,838,519) (9,412,915)
Other receivables (151,692) 201,457
Securities owned (1,181,080) (1,961,661)
Other assets 44,831 17,197
Payable to broker/dealers and 16,120,251 7,485,558
clearing organizations
Payable to customers 34,524,370 7,280,927
Securities sold not yet purchased 307,452 1,598,930
Accounts payable and accrued 1,400,972 (529,751)
liabilities
Income taxes payable/receivable -- (179,119)
--------------- ---------------
Net cash provided by operating activities 22,299,849 1,821,293
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (82,577) (120,388)
--------------- ---------------
Net cash used in investing activities (82,577) (120,388)
--------------- ---------------
Cash flows from financing activities:
Repayments of notes payable (50,527) (46,770)
Repayments on short term borrowing (13,461,000) (686,397)
Subordinated loans 2,000,000
Loans from stockholders 2,992,500 (25,000)
--------------- ---------------
Net cash used in financing activities (8,519,027) (758,167)
--------------- ---------------
Net increase in cash and cash equivalents 13,698,245 942,738
Cash and cash equivalents at
beginning of period 156,984 613,062
--------------- ---------------
Cash and cash equivalents at
end of period $ 13,855,229 $ 1,555,800
=============== ===============
See accompanying notes to Consolidated Financial Statements.
<PAGE>
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. COMPANY'S QUARTERLY REPORT UNDER FORM 10-Q
The accompanying financial information should be read in conjunction with
the Company's 1994 Annual Report on Form 10-K. Footnote disclosures that
substantially duplicate those in the Company's Annual Audited Report on Form 10-
K, including significant accounting policies, have been omitted.
NOTE 2. EARNINGS (LOSS) PER COMMON SHARE
Earnings per common share for the periods presented have been computed
based upon the weighted average number of shares outstanding. Fully diluted
earnings per share have not been presented because of the anti-dilutive effect.
NOTE 3. RECEIVABLE FROM AND PAYABLE TO BROKER/DEALERS AND CLEARING
ORGANIZATIONS
Amounts receivable from and payable to broker/dealers and clearing
organizations result from the Company's normal trading activities and consist of
the following:
March 31, December 31,
1995 1994
(Unaudited)
--------------- ---------------
Receivable:
Securities borrowed $ 14,371,960 $ 15,682,300
Securities failed to deliver 3,565,874 51,030
Net settlements with clearing
organizations 591,770 758,735
--------------- ---------------
$ 18,529,604 $ 16,492,065
=============== ===============
Payable:
Securities failed to receive $ 635,724 $ 809,744
Stock Loaned 18,193,998 9,849,000
Correspondents 7,257,432 268,058
Omnibus accounts and net
settlements with clearing
organizations 959,899 --
--------------- ---------------
$ 27,047,053 $ 10,926,802
=============== ===============
Securities failed to deliver and failed to receive represent the contract
value of securities that have not been delivered or received subsequent to
settlement date.
The receivable from clearing organizations represents failed to deliver and
failed to receive on a continuous net settlement basis. All open positions are
adjusted to market daily.
Securities borrowed and securities loaned represent deposits made or
received from other broker/dealers and relate to securities failed to deliver or
failed to receive transactions. The Company also participates in the lending
and borrowing of securities other than those of customers. All open positions
are adjusted to market values weekly. These deposits approximate the market
value of the underlying securities.
The Company clears security transactions for correspondent broker/dealers.
Settled securities and related transactions for these correspondents are
included in Payable - Correspondents.
NOTE 4. RECEIVABLE FROM AND PAYABLE TO CUSTOMERS AND OTHERS
Accounts receivable from and payable to customers include amounts due on
cash and margin transactions. Securities owned by customers are held as
collateral for receivables. Such collateral is not reflected in the financial
statements.
Included in other receivables at March 31, 1995 and December 31, 1994 are
judgment receivable of $50,000, which are net of amounts deemed to be
uncollectible. Included in other assets at March 31, 1995 and December 31, 1994
are amounts receivable from officers totaling $24,110.
NOTE 5. NOTE PAYABLE
JB Oxford & Company ("JBOC") maintains firm and customer financing
arrangements with an aggregate borrowing limit of $22,000,000. Amounts loaned
bear interest at a fluctuating rate based on broker call and prime and are fully
collateralized by marketable securities.
At March 31, 1995 and December 31, 1994 notes payable consist of the
following:
Maximum Average Weighted
Weighted amount amount average
average outstanding outstanding interest
Balance at interest during the during the rate
end of rate period period during
period the
period
----------- ------- ----------- ----------- --------
March 31, 1995 (Unaudited)
--------------------------
Collateralized by:
Customer securities $ 5,716 8.0% $5,932,000 $7,183,000 8.0%
Firm securities -- 8.6% 225,000 137,000 8.6%
Other 400,559 9.5% 781,000 616,000 9.5%
-----------
$ 406,275
===========
December 31, 1994
-----------------
Collateralized
by:
Customer securities $12,480,662 7.8% $12,481,000 $6,331,000 6.5%
Firm securities 986,054 8.5% 2,030,000 1,471,000 7.1%
Other 451,086 9.5% 781,000 616,000 9.5%
-----------
$13,917,802
===========
NOTE 6. LOANS FROM STOCKHOLDERS
At March 31, 1995 and December 31, 1994 loans from stockholders consist of
the following:
Interest
Balance rate
-------------- ---------
March 31, 1995 (Unaudited)
--------------------------
Demand debt $ 52,405 9%
Convertible Debentures 7,031,000 9%
--------------
$ 7,083,405
==============
December 31, 1994
-----------------
Demand debt $ 3,500,000 11%
Demand debt 590,905 9%
Convertible Debentures -- --
--------------
$ 4,090,905
==============
See Note 9 for further discussion of the convertible debentures.
NOTE 7. LOANS SUBORDINATED TO THE CLAIMS OF GENERAL CREDITORS
At March 31, 1995, loans subordinated to the claims of general creditors
totaled $2,000,000 which consists of four separate agreements each with
identical terms. All the loans have a scheduled maturity date of March 31, 1998
and bear interest at the broker call rate plus 2%, not to exceed 9%. Interest
payments are due on the last day of each calendar month until the scheduled
maturity date.
NOTE 8. ADJUSTMENT
The Company's major subsidiary, JBOC is consolidated in the quarterly
financial information as of March 31, 1995 and March 25, 1994, because the last
settlement Friday of each month is consistently treated as month end.
Accordingly, this is reflected in the consolidated financial statements of the
Company.
In the opinion of Management, all adjustments which are necessary to a fair
statement of the results for the interim periods have been made.
NOTE 9. RELATED PARTY TRANSACTIONS
In March, 1995, the Company restructured $5,031,000 of its demand debt to
term debt in the form of senior secured convertible notes with a thirty month
term, amortized over 10 years, at an annual interest rate of 9%. The notes may
be converted, in whole or part, but in no event in an amount less than $100,000,
to fully paid and non-assessable shares of the Company common stock. The
conversion price is $.90 per share in the event of a default, $1.00 per share in
the case of a merger or maturity of the notes, and $1.25 per share in the event
of a public offering of common shares. Stock options with a strike price of
$.90 a share totaling 1,200,000 shares of common stock were awarded to the
lenders as additional consideration for restructuring its demand debt. As part
of this transaction, an additional $2,000,000 of senior secured convertible
notes were issued under identical terms. As an additional inducement for the
convertible note, the Company has agreed to pay any refunds received from the
Internal Revenue Service as a prepayment on the note. The parties further
agreed to negotiate in good faith to extend the maturity date up to 60 months.
At March 31, 1995 and December 31, 1994, loans from shareholders totaled
$7,083,405 and $4,090,905.
. In conjunction with the restructuring of the note, JBOC and Prolyx stocks
were pledged as collateral by the Company.
Future annual payments required under the terms of the senior secured
convertible notes are as follows:
Year ending December 31:
------------------------
1995 $ 609,159
1996 1,059,551
1997 6,646,372
-------------
$ 8,315,082
=============
The Company has borrowed marketable securities from certain shareholders.
The obligations accrue interest at 9% per annum compounded monthly, based on the
average closing bid price each Friday. The marketable securities are used to
collateralize inter-company balances due from the Company to JBOC for net
capital purposes. The market value of the securities at March 31, 1995 was
$720,000.
NOTE 10. REGULATORY REQUIREMENTS
JBOC is subject to the Securities and Exchange Commission's Uniform Net
Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net
capital
At March 31, 1995 JBOC had net capital of $7,400,836 which was 7.7% of
aggregate debit balances and $5,475,638 in excess of the minimum amount
required. At December 31, 1994 JBOC had net capital of $2,676,782, which was
3.8% of aggregate debit balances and $1,274,386 in excess of the minimum amount
required
In accordance with Rule 15c3-3 of the Securities and Exchange Commission,
JBOC has a portion of its cash and cash equivalents segregated in a special
reserve bank account for the exclusive benefit of customers. Such segregated
cash amounted to $ 11,741,931 and $9,669,533 at March 31, 1995 and December 31,
1994.
In January 1995, the Company increased its capital base through a $1
million cash capital contribution by the Parent. In March, 1995, the Company
increased its capital base through a $2 million cash capital contribution by the
Parent and $2 million in cash subordinated debt
NOTE 11. COMMITMENTS, CONTINGENT LIABILITIES AND OTHER
RKSI is a defendant in several lawsuits and arbitrations the most
significant of which follows:
(a)In a class action lawsuit against RKSI, plaintiff class representatives have
alleged wrongdoing in charging a maintenance fee on its customer accounts
and in its practice of liquidating customer accounts if the customer failed
to pay the fee. The class has been certified and RKSI has contested the
form of the notice. Those customers subject to an arbitration clause have
been excluded from the class. The lawsuit is presently in the discovery
stage and the ultimate outcome and range of possible loss, if any, is not
determinable at this stage. Management intends to vigorously contest this
matter.
(b)In an arbitration matter the claimant seeks rescission of certain sales in
his customer account and damages of $750,000. The claimant alleged that
RKSI and current and former principals breached fiduciary duties and failed
to disclose material information. The ultimate outcome is not determinable
at this stage and Management intends to vigorously contest this matter.
(c)In a matter consisting of twenty-six causes of action naming twenty various
respondents, Reynolds Kendrick Stratton, Inc., William R. Stratton, and
David Phillips, former CFO of RKSI, have been named in three. The three
causes of action regarding the Company and its officers or former officers,
revolve around the purchase, sell-out, buy-in, and reinstatement of certain
trades in specific accounts. Reynolds Kendrick Stratton, Inc. and the
individually named respondents, have filed an answer. The NASD has not
specified the relief sought.
(d)In an arbitration matter filed with the NASD, the claimants are a group of
investors who sold short certain stock. Claimants did not have an account
with RKSI, however, they have alleged that RKSI is responsible for the
damages Claimants realized when their short positions in FCMI were bought
in. Claimants are seeking damages in the amount of $740,000, plus punitive
damages. The ultimate outcome is not determinable at this stage and
Management intends to vigorously contest this matter.
(e)In an arbitration matter filed in October 1994, the claimants allege that
RKSI and former principals breached fiduciary duties, recommended non
suitable investments, fraud, and failure to disclose material information.
JBOC has been named as an alleged successor to RKSI; JBOH has been named as
the parent company. Claimants seek damages in the amount of $482,000. The
ultimate outcome is not determinable at this stage and Management intends to
vigorously contest this matter.
(f)In an arbitration matter, the claimant alleges that RKSI and former
principals breached fiduciary duties, recommended non suitable investments,
fraud, failure to disclose material information, and failure to supervise.
JBOH has been named as the parent company to RKSI. Claimant seeks damages
in the amount of $525,000. The ultimate outcome is not determinable at this
stage and Management intends to vigorously contest this matter.
(g)In a consolidated class action against RKSI and JBOH, pending in the United
States District Court for the Northern District of Texas, Dallas Division,
plaintiffs have requested an unspecified amount of punitive and compensatory
damages. The claim arises out of the purchase and sale by the plaintiffs
and the Class of certain stock. The class has been certified and the
lawsuit is presently in the discovery stage. The ultimate outcome and range
of possible loss, if any, is not determinable at this stage. Management
intends to vigorously contest this matter.
(h)In an action commenced in October 1993 against RKSI and JBOH, pending in the
United States District Court for the Southern District of New York, the
Complaint alleges that the defendant made materially false and misleading
statements concerning a specified stock, for which RKSI was a market maker.
The claim was brought by and on behalf of a purported class of persons who
purchased the common stock of a specified stock in order to cover short
sales after May 17, 1993 and before August 31, 1993. Plaintiffs have
requested an unspecified amount of punitive and compensatory damages. The
lawsuit is in the preliminary stages. The ultimate outcome and range of
possible loss, if any, is not determinable at this stage. Management
intends to vigorously contest this matter.
(i)In an action commenced in March 1995, in the United States District Court of
New York. A claim was brought by former counsel for the Company and alleges
payment due for professional services in the amount of $681,217. An answer
and counter claim by the Company was filed asserting among other claims that
the Company was overcharged for services. The ultimate outcome and range of
possible loss, if any, is not determinable at this stage. Management
intends to vigorously contest this matter.
(j)In a complaint filed in February 1995 by the NASD District 1 office in San
Francisco, California against RKSI and certain of its former principals and
brokers, the complaint alleges violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 of the SEC, and alleges violations of
the NASD's Rules of Fair Practice. The complaint seeks a fine of $300,000
against RKSI and its permanent expulsion from the NASD. Management intends
to vigorously defend this action, however, notes that RKSI has voluntarily
withdrawn its membership. The ultimate outcome and range of possible loss,
if any, is not determinable at this stage.
The ultimate outcome of these uncertainties discussed above is unknown.
Accordingly, no provision for any liability that might result has been made in
the accompanying financial statements.
NOTE 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the Three Months Ended March 31,
1995 1994
(Unaudited) (Unaudited)
--------------- ---------------
Supplemental Disclosures of Cash Flow
Information
Cash paid during the quarter for:
Interest $ 614,646 $ 338,596
Supplemental schedule of noncash
investing and financing activities:
Market value of stock borrowed from
shareholders on date of borrow 1,049,600 --
Certain amounts in 1994 have been reclassified to conform with the 1995
presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Changes in Financial Condition
------------------------------
The Company's financial condition changed significantly during the first
quarter of 1995. Total assets at March 31, increased by in excess of
$43,000,000. This is growth of more than 50% in the Company's assets. This
growth is related to the new business acquired from the Trustee for Adler
Coleman (see recent expansion and developments). In conjunction with this
acquisition, the Company received $2,000,000 in additional financing from a
significant shareholder and $2,000,000 from unrelated parties in notes payable
subordinate to the claims of general creditors. This financing together with
the new business growth has increased the cash position of the Company
dramatically.
Comparison of Operations
------------------------
The Company was in the process of restructuring during 1994 and assessing
its various operations. In 1994, the Company ceased or sold operations in its
retail broker/dealer, transfer agency and valuation companies. This process
continued into 1995, and in April, the Company closed its San Carlos, California
office of Prolyx Data Systems, Inc. and relocated the Prolyx operations to its
Beverly Hills facility.
The Company's overall operations began to stabilize during the first
quarter of 1995. The Company realized a pre-tax profit of $16,088 for the three
months ended March 31,1995 which is an increase of $506,543 over the pre-tax
loss of $490,455 during the same period for 1994. Total revenue decreased
$1,125,371 or 18% to $5,265,062 for the three months ended March 31, 1995
compared to the same three months of 1994.
Clearing and execution revenue decreased by $637,764 or 23% to $2,093,518
during the first quarter of 1995 compared to the first quarter of 1994. The
decrease is due to reductions in the amount charged on trade tickets and the
increase in tickets being processed by the deep discount division (for which
there is no clearance revenue). The ticket volume for the same period increased
by 7%.
Trading profits decreased by $126,217 or 15% to $734,328 during the first
quarter of 1995 compared to the first quarter of 1994. This area has become
more stable in light of the significant losses occurring during the later part
of 1994.
Commission revenue declined by $552,086 or 33% to $1,140,296 during the
first quarter of 1995 compared to the first quarter of 1994; however net
commissions (commission revenue less commission expense) increased $335,225
during the same periods. This decrease in revenue was due to the closure of the
retail broker/dealer subsidiary. It is anticipated that commission revenue will
grow throughout 1995 as the Company continues the development of the deep
discount retail division of JBOC.
Interest revenue increased by $552,235 or 89% to $1,169,865 during the
first quarter of 1995 compared to the first quarter of 1994. This increase is
the result of increased margin balances and interest rates during the respective
periods. The net interest increased $117,243 during the first quarter of 1995
over 1994.
The Houlihan Valuation Subsidiaries where disposed of during 1994, thus the
related revenues have been eliminated during the three months ended March 31,
1995, compared to $387,080 for the three months ended March 31, 1994.
The Company's total expenses decreased $1,631,914 or 24% during the period
ended March 31, 1995 over the period ended March 31, 1994. The most significant
reduction is in commission expense, which decreased $887,311 or 62%. This
decrease relates directly to the decline in commission revenue as described
above.
The Company had a decrease in employee compensation of $427,405 or 28% to
$1,073,518 during the period ended March 31, 1995 over the period ended March
31, 1994.
Promotional expenses increased by $62,427 or 28% to $283,903 during the
first quarter of 1995 compared to the first quarter of 1994. This increase is
the result of an increase in advertising for the discount retail division of
JBOC. Advertising expense has increased $189,289 during this period, while
travel and entertainment expense has been reduced by $126,862. Management
believes it is spending its promotional dollars much more effectively.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity improved significantly during the first of quarter
of 1995. Cash provided from operations amounted to $22,299,849. The largest
source of cash is $14,082,712 of cash provided from net receivables/payables
from broker dealers. Cash provided from net customer receivables/payables
amounted to $9,685,851. Much of this is the result of the new business acquired
from the Trustee for Adler Coleman (see recent expansions and developments).
The Company was able to pay off its short term borrowing in the amount of
$13,461,000 with this additional cash generated from operations.
After December 31, 1994, JBOC increased its capital base by $5,000,000
through a combination of equity contributed by the Company of $3,000,000 and
subordinated debt of $2,000,000 contributed by unrelated third parties.
In March, 1995, the Company restructured 100% of its $5,031,000 demand debt
to term debt in the form of senior secured convertible notes with a thirty month
term, amortized over 10 years, at an annual interest rate of 9%. As part of the
restructuring, an additional $2,000,000 of senior secured convertible notes were
issued by the Company under identical terms to the restructured demand debt. As
an additional inducement for the convertible note, the Company has agreed to pay
any refunds received from the Internal Revenue Service as a prepayment on the
note. The parties further agreed to negotiate in good faith to extend the
maturity date up to 60 months. See Note 9 (Related Party Transactions) to the
Consolidated Financial Statements for further details.
Recent Expansions and Developments
----------------------------------
As a result of its effort to seek new correspondent business, on March 3,
1995, JBOC announced that it had reached an agreement with SIPC and the Trustee
for the liquidation of Adler, Coleman Clearing Corp. (`Adler Coleman'') in
which a majority of Adler Coleman's customers would be transferred to JBOC. As
a result of the agreement, which was confirmed by the United States Bankruptcy
Court, approximately 100,000 customer accounts were transferred in a tape-to-
tape conversion to JBOC. Management anticipates that JBOC and the Company will
experience a significant increase in trade ticket count and clearing and
execution revenues, based upon the prior twelve months of activity of the Adler
Coleman correspondents for whom JBOC now clears. The cost of acquiring the
accounts was $25,000 plus a per ticket charge for each customer trade cleared by
JBOC for a period of six months after the sale. This transaction substantially
increased JBOC's clearing business. As there was existing capacity in the
clearing division, this additional business will be absorbed with a relatively
small increase in overhead. JBOC has entered into initial three year clearing
agreements with former Adler Coleman correspondents that account for the major
portion of the new business.
As a result of the increased clearing business and better than anticipated
growth of JBOC's discount brokerage business, JBOC is negotiating to acquire
branch office space in New York City. This action is in line with the Company's
plans to open branch offices in major finacial centers.
On May 3, 1995, the Company signed a letter of intent to acquire 100% of
the outstanding stock of an Houston based corporate finance firm, McFarland,
Grossman, Inc. The transaction, which is stock for stock, calls for the
shareholders of McFarland, Grossman to receive 450,000 shares of the Company's
common stock. Approximately 340,000 shares will be placed in escrow subject to
achieving certain annual levels of profitability. It is intended that
McFarland, Grossman, which is headed by co-founders Clifford McFarland and Cary
Grossman, will change its name to JB Oxford Capital Markets, Inc., and will
function as the investment banking and syndicate arm of the Company. Upon
completion of the transaction, Cary Grossman will serve on the Board of
Directors of the Company. management of the Company believes this transactions
will lead to managing or co-managing equity underwritings, as well as the
traditional investment banking activities. Closing is anticipated to occur,
subject to due diligence, within sixty days of the letter of intent.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary conduct of business, the Company and/or its subsidiaries
have been named as Defendants in several lawsuits and arbitration matters or
have instituted legal proceedings as Plaintiffs to recover moneys owing. There
have been no material pending legal proceedings other than ordinary routine
litigation incidental to the business. Those which may have a significant
impact on the Company have been disclosed in previous filings.
ITEM 2. CHANGES IN SECURITIES
There has been no material modification of ownership rights of securities
holders.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There has been no default in payments of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of security holders in the
first quarter of 1995.
ITEM 5. OTHER INFORMATION
Effective March 17, 1995, Felix A. Oeri submitted his letter of resignation
from the Board of Directors of the Company, due to increased demands of other
businesses. Effective April 5, 1995, William R. Stratton submitted his letter
of resignation from the Board of Directors of the Company. No replacement
directors have been named as of the filing of this report.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits to be filed with this report as required by Item 601
of Regulation S-K.
(b) A Report on Form 8-K was filed on March 22, 1995, reporting, under Item 5
Other Events, the restructuring of a demand debt to a term debt; the
acquisition of former Adler, Coleman Clearing Corp's correspondent
business; and an increase in JBOC's capital.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, JB OXFORD HOLDINGS, INC. has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Stephen Rubenstein Chief Executive Officer May 12, 1995
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