UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 3L, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
Identification No.)
9665 Wilshire Blvd., Suite 300; Beverly Hills, 90212
California
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 777-8888
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each
Title of each class exchange on
which registered
Common stock, $0.01 par 8,775,205 shares NASDAQ
value: outstanding at March 14,
1997
Non-Voting Preferred stock, 200,000 shares N/A
$10.00 par value: outstanding at March 14,
1997
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 ___
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 [ ].
The aggregate market value of the voting stock held by non-affiliates
of the registrant at March 14, 1997 was approximately $11,487,805; such
amount computed as the average bid and asked prices of stock as of March
14, 1997.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in the Annual Report on Form 10-K, particularly under
Items 1 through 8, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements, expressed or implied by such forward-looking statements.
PART I
ITEM 1. BUSINESS
JB Oxford Holdings, Inc. was incorporated in Delaware on March 31, 1987,
and relocated its state of incorporation to Utah in 1990. The terms "Company"
"Registrant" and/or "JBOH" mean JB Oxford Holdings, Inc. and its consolidated
subsidiaries.
As of March 14, 1997, the Company and its subsidiaries had approximately
340 employees. The Company considers its employee relationships to be
satisfactory.
The Company operates in a single industry segment. The only significant
subsidiary of the Company is JB Oxford & Company ("JBOC"), the broker-dealer
operation. No material part of the Company's consolidated revenues are received
from a single customer or group of customers. The Company operates primarily in
domestic markets, however the Company does have a foreign office in Basel,
Switzerland which is insignificant to the financial statements taken as a whole.
General Developments
- --------------------
JB Oxford & Company ("JBOC") is a registered broker-dealer offering the
following services: (i) clearing, settlement, execution, safekeeping, cash and
margin account services for regional broker-dealers ("correspondents") on a
fully-disclosed basis; (ii) discount brokerage services to the investing public
through its registered representatives; (iii) electronic and telephonic trading
services.
During fiscal year 1996, Management continued the steady implementation of
a significant capital and business restructuring of the Company that began in
1994. The Company significantly improved its capital position during 1996 by
generating net profits and concluding certain transactions that had the
cumulative effect of increasing shareholders equity at December 31, 1996 to
approximately $12,358,158 as compared to shareholder equity of approximately
$8,443,937 at December 1995. The Company has wound down all operations of Prolyx
Data Systems, Inc. (Prolyx). This computer product marketing subsidiary was not
significant to the Company's operations and its closure does not have a
significant impact on the Company's earnings. Management also continues to
monitor the winding down of prior Reynolds Kendrick Stratton, Inc. ("RKSI")
operations.
Clearing Brokerage Services/Trading & Execution
The clearing division continued to grow in 1996 spurred by increased
advertising and promotion of the clearing brokerage services. As of March 14,
1997, JBOC provided clearing services for 30 correspondents, a 30% increase over
the number of correspondents serviced in 1995. JBOC will continue to grow this
area of business on a controlled basis. JBOC is a member of three major
clearing mechanisms for the securities clearing industry: Depository Trust
Company (DTC); National Securities Clearing Corporation (NSCC); and the Options
Clearing Corporation (OCC). Membership has enabled JBOC to settle transactions
more efficiently and at greater cost savings. These memberships also allow JBOC
to utilize the latest technologies available to enhance the Company's current
clearing and execution services.
JBOC's clearing business derives a portion of its income from interest
generated on individual customer margin accounts. A margin account allows the
customer to deposit less than the full cost of the security purchased while JBOC
lends the balance of the purchase price to the customer secured by the purchased
securities. Customers are charged interest on the amount borrowed to finance
their margin transactions ranging from .25% below to 2.25% above the broker call
rate, which is the rate at which JBOC can generally obtain financing using the
margined securities and firm securities as collateral. As of December 31, 1996,
JBOC had approximately 4,000 active margin accounts which had total debit
balances of approximately $206,000,000. This reflects an increase of
$78,000,000, or 61%, from the 1995 year-end. In addition, pursuant to written
agreements with customers, broker-dealers are permitted by SEC regulations to
lend customer securities held as collateral in margin accounts. As of December
31, 1996, customer free credit balances available to JBOC approximated
$210,000,000.
In addition to financing the margin transactions by customer credit
balances, JBOC has established omnibus/financing accounts and lines of revolving
credit with other broker-dealers and banking institutions with an aggregate
borrowing limit of $12,000,000.
During fiscal year 1996, JBOC acted as a market-maker for a number of
public corporations representing a wide variety of industries. JBOC also
maintains an inventory of securities in its trading account. These securities
are used to facilitate sales to clients, as well as being actively traded by
JBOC with an intent to generate profits.
The following table sets forth the revenue and related number of
transactions processed and the number of correspondents for the clearing
brokerage services division for the past three years:
Year Ended December 31
1996 1995 1994
------------- ------------- -------------
Clearance and Execution $ 19,452,650 $ 15,581,030 $ 9,710,609
Interest Income 14,519,507 8,129,088 3,134,825
Number of Transactions 2,054,145 1,679,917 1,091,250
Processed
Correspondent Brokers-Dealers
Under Contract at Year-end 30 23 18
Discount Brokerage Services
In August 1994, JBOC inaugurated its discount securities business. The
development of this new division included the recruiting and training of
brokers, and the launching of a national advertising campaign utilizing both
television and print media. The business has rapidly grown from its startup in
1994; approximately 3,200 trades a day are executed as of March 14, 1997.
The deep discount retail operations are conducted out of the Beverly Hills,
Dallas, New York, Boston, Miami and Basel, Switzerland offices. JBOC's deep
discount business continued to expand in 1996 with the opening of the Boston and
Miami offices. The Basel office serves customers in more than thirty countries
with language capabilities in English, German, French and Spanish; and recently
opened a courtesy desk at the main terminal in the Basel, Switzerland airport.
In Beverly Hills, the specialized marketing group formed to offer discount
services and financial products to the Asian community has become a profitable
division of the Company.
Electronic Trading
In September 1994, JBOC unveiled its electronic securities trading
business, JB On-linea. In February 1996, JBOC introduced to the market a new,
Windows based version of its electronic trading product. Using this service,
customers are able, through their personal computer, to trade equities and
options, obtain quotes, retrieve account information and obtain research. Also,
using JBOC's Telephone Tradera service, customers can trade using any touch tone
telephone. Initial reaction to the introduction of JB On-linea and Telephone
Tradera have been better than expected and JBOC intends to eventually introduce
these products to its European customers. The growth of the Internet led
Management to pursue the establishment of a Web site for JBOC. In the third
quarter of 1996, JBOC introduced an electronic trading facility accessible on
the Internet that enables customers to trade as well as obtain quotes and
research.
Competition
- -----------
The securities industry, and the market areas in which JBOC is involved are
highly competitive. Some of these competitors have substantially greater sales
and assets than JBOC. Management of the Company believes that JBOC is able to
compete due to its ability to provide high-quality, flexible and customer
sensitive responses and services. JBOC continually upgrades its computer
systems and services within each of its divisions to utilize and take advantage
of the most recent technological developments. Additionally, JBOC has
specialized in identifying selected markets and has emphasized the creation of
long-term relationships to meet customer needs more effectively.
While no single correspondent broker/dealer or customer represents 10% or
more of the Company's consolidated revenues, the Company has several significant
customers whose loss, in the aggregate, could be material to JBOC. The Company
believes that the likelihood of losing all such customers is remote.
Securities Industry Practices
- -----------------------------
JBOC is registered with the SEC and the NASD and is a member of the
following organizations: Chicago Stock Exchange, Pacific Stock Exchange,
Cincinnati Stock Exchange, DTC, NSCC, OCC and NASD. JBOC is registered as a
securities broker-dealer in all 50 states and the District of Columbia. JBOC is
also a member of the Securities Investors Protection Corporation ("SIPC"), which
provides JBOC's customers with insurance protection for amounts of up to
$500,000 each, with a limitation of $100,000 on claims for cash balances. JBOC
has also acquired an additional $10 million in insurance coverage through Lloyds
of London as added protection for individual customer's securities, covering all
clients of JBOC's fully-disclosed correspondents and discount customers.
JBOC and the securities industry in the United States are subject to
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.
Business Risks
- --------------
Retail broker/dealers with clearing operations, such as JBOC, are exposed
to risks which exceed the simple risk of loss of business due to the loss of
retail customers and/or correspondents. Broker-dealers engaged in the clearing
operations for other correspondent broker/dealers are exposed to losses beyond
the loss of business in the event that the correspondent fails. These risks
result where the total assets, securities held in inventory and cash of the
failed correspondent are insufficient to cover the unpaid customer debits,
together with losses which may be generated in the correspondent's trading
account. JBOC has established procedures to timely review a correspondent's
inventory and assess JBOC's exposure to unpaid inventory positions and to
monitor each correspondent's daily activity in a continuing effort to prevent
such losses in the event of a correspondent's failure. Management of JBOC has
taken steps to assure that the correspondent's inventory account is fully-paid,
in an effort to increase JBOC's financial security and provide added financial
protection. JBOC monitors required margin levels daily and, pursuant to such
guidelines, requires the customers to deposit additional collateral, or to
reduce positions when necessary. The Company also requires cash deposits from
correspondents which mitigate losses from their activities.
However, areas outside the control of Management of JBOC and which affect
the securities market, such as severe down-turns or declines in market activity,
may cause added financial exposure. This is particularly true with regard to
the receivables which are carried in customers' margin accounts. A significant
decline in market value may decrease the value of securities pledged in the
margin accounts to a point that the margin loan would exceed such value. While
JBOC is authorized to liquidate the securities and to utilize the
correspondent's account balances to cover any short-fall, in a worse case
scenario, such collateral may not be sufficient to cover all losses.
Net Capital Requirements
- ------------------------
Every broker/dealer doing business with the public is subject to the
Uniform Net Capital Rule (the "Rule"), promulgated by the SEC (Rule 15c3-1),
which establishes minimum net capital requirements for such 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. JBOC is a
registered broker/dealer and is subject to the Rule.
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 firm'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 JBOC's ability to pay dividends to the Company,
which in turn could limit the Company's ability to pay dividends to its
shareholders. JBOC has, at all times, been in compliance with the Rule.
Failure to comply with the Rule would require the Company to infuse additional
capital into the broker/dealer and may subject the broker/dealer 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 the broker/dealer into
compliance, the broker/dealer would ultimately be forced to cease operations.
At December 31, 1996, JBOC has elected to use the alternative method
permitted by the Rule, which requires it to maintain minimum net capital, as
defined, equal to the greater of $250,000 or two percent of aggregate debit
balances arising from customer transactions, as defined. The Rule also
provides, among other things, for a restriction on the payment of cash
dividends, payments on subordinated borrowings or the repurchase of capital
stock if the resulting excess net capital would fall below five percent of
aggregate debits. At December 31, 1996, JBOC had net capital of $12,222,510,
which was 5.8% of aggregate debit balances and $7,986,964 in excess of the
minimum amount required. At December 31, 1995, JBOC had net capital of
$12,494,561, which was 8.6% of aggregate debit balances and $9,598,267 in excess
of the minimum amount required. JBOC has agreed with the NASD to maintain
excess net capital of not less than $2,500,000.
ITEM 2. PROPERTIES
The principal offices of the Company and JBOC are located at 9665 Wilshire
Blvd., 3rd Floor, Beverly Hills, California 90212. As of March 14, 1997, the
Company and its subsidiaries conduct their operations from and have their
administrative offices at the following locations:
Area
Location (Sq. Feet) Principal Use Owned Or Leased
- ---------------------------- --------- ------------- --------------
9665 Wilshire Blvd., 3rd, 8th Leased to
Floors Beverly Hills, CA 19,263 JBOH and JBOC Oct. 2002
9665 Wilshire Blvd., 2nd
Floor Beverly Hills, CA 3,459 JBOC Month to Month
5221 N. O'Connor Rd, Suite Leased to
800 Irving, Texas 8,856 JBOC Sept. 1998
Peter Merian-Strasse 50
Basel, CH-4002 Switzerland 1,880 JBOC Month to Month
One Exchange Plaza, 19th Leased from
Floor 7,023 JBOC June 1995 to
New York, NY June 2006
801 Brickell Ave. Suite 2450 Leased from Feb
Miami, FL 6,993 JBOC 1996 to Feb
2003
The Company's office and the offices and facilities of its subsidiaries are
considered by management to be generally suitable and adequate for their
intended purposes.
ITEM 3. LEGAL PROCEEDINGS
The Company and/or its subsidiaries are a party to a number of pending
legal or administrative proceedings, of which those identified below, may, in
the opinion of Management of the Company, after consultation with counsel, have
a substantial impact upon the Company. All of the legal and administrative
proceedings have arisen in the conduct of its business. Previously reported
matters which have been resolved are also discussed below.
Robert F. Smith vs. Reynolds Kendrick Stratton, Inc., William Stratton, Wm.
Michael Reynolds, et al. NASD Arbitration No. 94-00519
- --------------------------------------------------------------------------
In an arbitration matter filed in February 1994, the claimant seeks
rescission of certain sales in his customer account and damages of $750,000.
The claimant alleged that RKSI 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.
Marvin & Dorothy Frankel vs. JB Oxford & Company, JB Oxford Holdings, Inc.,
Reynolds Kendrick Stratton, Inc., Robert Kendrick, Wm. Michael Reynolds, et al.
- ------------------------------------------------------------------------------
NASD Arbitration No. 94-04075
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.
Shea & Gould vs. RKS Financial Group, Inc., et al. Case No. 95-0641
- -------------------------------------------------------------------
This is an action commenced in March 1995, in the United States District
Court of New York. The claim is 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.
Olde Discount Corporation vs. JB Oxford & Company NASD Arbitration No. 95-
04710
- -------------------------------------------------------------------------------
In an arbitration matter filed in October 1995, the Claimant alleges that
JB Oxford & Company induced breach of contract by former and current Olde
employees, misappropriated and converted confidential and proprietary Olde
information, and interfered with Olde's prospective business relationships.
Claimant sought unspecified damages in excess of $10 million. The parties have
entered into a Memorandum of Understanding to settle and resolve this matter,
with no admission of liability and no payment of damages by either party. JBOC
will reimburse to Olde a portion of costs and fees related to the action, the
payment of which will have no material impact on the Company's earnings.
Rafi M. Khan vs. William R. Stratton, Walter Senior and JB Oxford & Company.
NASD Arbitration No. 94-03333, consolidated with NASD Arbitration No. 95-03643,
Rafi M. Khan vs. JB Oxford & Company and Reynolds Kendrick Stratton, Inc.; and
NASD Arbitration No. 95-04086, Reynolds Kendrick Stratton, Inc. vs. Rafi M.
Kahn.
- --------------------------------------------------------------------------------
In three arbitration matters filed in August 1994, July 1995, and August
1995, respectively, Claimant (Khan) alleged misappropriation of funds and sought
indemnification for costs and damages incurred defending suits arising from his
employment with Respondent (RKSI) and Respondent alleged Claimant was
financially responsible for losses suffered in Claimant's customers' accounts.
The three matters were consolidated, and after a full hearing, all of Claimant's
claims were dropped or dismissed, and Respondent (RKSI) was awarded $2,838,500
in compensatory damages and $1,000,000 in punitive damages. RKSI has moved to
confirm the arbitration award in order to pursue collection efforts. Management
has reserved for those amounts it deems to be uncollectible
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders during the
fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market with
prices quoted on the NASD's Automated Quotation System (NASDAQ) under the
trading symbol "JBOH." Quotations given are from NASDAQ and represent prices
between dealers exclusive of a retail mark-up, mark-down or commission. They do
not necessarily represent actual transactions.
STOCK PRICE AND DIVIDEND DATA
Month Ended
1-31-97 2-29-97
-------- --------
Price range of common stock
High $ 1.63 $ 2.25
Low 1.25 1.25
Close 1.44 2.06
Quarter Ended
3-31-96 6-30-96 9-30-96 12-31-96
-------- -------- -------- ----------
Price range of common stock
High $ 3.50 $ 3.34 $ 2.94 $ 2.69
Low 2.25 2.75 1.75 1.28
Close 3.03 2.88 1.84 1.38
Quarter Ended
3-31-95 6-30-95 9-30-95 12-31-95
-------- -------- -------- ----------
Price range of common stock
High $ 1.59 $ 1.69 $ 2.03 $ 2.94
Low 1.50 1.50 1.88 2.63
Close 1.59 1.50 1.94 2.82
The number of record holders of the Company's common stock as of March 14,
1997 was 168. The Company believes the number of beneficial holders of the
Company's common stock as of the same date to be approximately 2,500.
Dividends
- ---------
JBOH has not declared or paid cash dividends on its common stock. It is
Management's position that, given the past expansion and overall business
growth, it has been prudent to retain and increase its capital base. The
Company does not currently anticipate paying cash dividends. Future payments of
dividends will depend upon, among other factors, the Company's consolidated
earnings, overall financial condition and cash requirements.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read and reviewed in conjunction
with the Management's discussion and analysis, consolidated financial statements
and related notes, all included under Item 7 & 8 of this report.
JB OXFORD HOLDINGS, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Amounts in Thousands, Except Per Share Data)
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
INCOME STATEMENT DATA
Revenues $ 57,599 $ 39,605 $ 16,511 $ 32,560 $ 16,207
Net Income (Loss) 4,040 5,225 (7,588) (1,807) 225
Primary Earnings 0.39 0.62 (1.33) (0.35) 0.06
(Loss) Per Share
Fully Diluted Earnings 0.23 0.40 (1.33) (0.35) 0.06
(Loss) Per Share
Dividends -- -- -- -- --
BALANCE SHEET DATA
Total Assets $ 330,336 $ 175,764 $ 87,533 $ 61,785 $ 39,707
Long-Term Debt 2,000 6,623 451 640 548
Liabilities (Excluding 315,978 160,697 87,681 55,155 33,365
Long-Term)
Total Shareholders' 12,358 8,444 (599) 5,989 5,794
Equity (Deficit)
Book Value Per Share* 1.18 .74 (.09) 1.13 1.56
* Computed using stockholders' equity less preferred stock with the result
divided by total outstanding common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company and its primary subsidiary are directly affected by general
economic and market conditions, including fluctuations in volume and price
levels of securities, changes in levels of customer margin accounts, free credit
and stock loan and borrowed, changes in interest rates and demand for financial
services, all of which have an impact on revenues from all sources. With regard
to the Company's primary subsidiary, JBOC, periods of reduced market activity
adversely affect profitability because income from operations decreases while
certain expenses remain relatively fixed. Management believes that the Company
is financially sound and that it has the ability to meet its present and future
capital needs.
The Company's financial condition continued to improve during 1996. At
year end, Shareholders' Equity was approximately $12,358,000 compared to
approximately $8,444,000 at December 31, 1995. Total assets at December 31,
1996 were $330,336,000, an increase of $154,572,000 or 88% over amounts at
December 31, 1995. Revenues for 1996 were $57,599,000 which represents an
increase of $17,994,000 or 45%. Net income decreased from $5,225,000 to
$4,040,000 or 23%.
Management attributes the fact that net income decreased while net revenues
increased to several factors. It has taken longer than anticipated for several
of JBOC's discount branch offices to become profitable. This has been due
primarily to unexpected delay in staffing these offices with qualified sales
staff resulting in under utilization of income producing capacity while having
to incur certain fixed overhead in these branches. Management has taken steps
to cure this situation through aggressive recruitment and believes that all
domestic branches will turn profitable by the end of the third quarter of 1997
and the Basel, Switzerland branch will turn profitable by the end of the fourth
quarter of 1997. In the first half of 1996, JBOC developed and introduced to
the public several electronic trading products including JB On-lineO, Telephone
TraderO and the JB Oxford Internet Investment Center. During 1996, costs were
incurred including vendor development, personnel, office expansion,
communication and advertising without offsetting commission and net interest
income as the products gained acceptance and customer assets and trading
increased. The electronic trading division is currently operating at profitable
levels. In the clearing division, a significant portion of clearance charges
are for active day traders and are at a low charge per trade. Although total
day trading tickets processed in 1996 were up over comparable trades for 1995,
the average revenue per trade for 1996 for these trades was lower than for 1995
due to competitive pressures. Finally, trading during 1996 was not as
profitable as in 1995.
Recent Developments and 1997 Outlook
- ------------------------------------
Management has set an agenda for 1997 that encompasses devoting its
resources to the areas it believes offers the best return on investment. Among
these areas are the following:
Electronic Discount Trading
---------------------------
Management continues to believe that electronic trading including the
Internet, touch tone phones and dedicated software is a segment of the
discount market that potentially offers high return on investment. JBOC
is in the process of improving and updating its Web site and dedicated
software and recently introduced a new version of its Telephone TraderO
to good reviews. Management believes that the keys to increasing its
market share of the electronic trading customer base are price, marketing
and advertising, follow through on new leads and customer service and
will employ its efforts in these areas. The goal is to create a critical
mass of customer accounts and assets so as to immunize, to the extent
possible, this area of the business from cyclical down turns in the stock
market or other negative economic events.
Broker Related Discount Division
--------------------------------
JBOC has five domestic branch offices and one European branch office.
There is currently available space for an additional 75-100 account
executives primarily in the domestic branch offices opened in second
quarter of 1996. Management of JBOC is aggressively recruiting qualified
account executives and believes that it will be successful in this
endeavor. Product diversification is a high priority for JBOC; fixed
income products and mutual funds continue to be stressed. Additionally,
JBOC anticipates it will introduce annuity and other insurance products
in the second quarter of 1997.
Clearance and Trading
---------------------
JBOC currently clears the securities transactions for the customers of 30
correspondent broker-dealers as well as its own discount customers. This
business continues to be profitable and JBOC will, on a select basis,
seek to increase the number of correspondents it clears for. Management
recognizes that this area of its business has credit and market risk
associated with it and that this risk must be monitored on a day to day
basis. JBOC believes that it has developed appropriate procedures to
monitor and mitigate these risks. JBOC is also expanding its
trading/market making capabilities which it believes is appropriate given
the growth of discount and correspondent clearance businesses.
Other
-----
The securities of JB Oxford Holdings, Inc. currently trades on the Small
Cap Market of NASDAQ. In order for the Company to relist on the National
Market System ("NMS") of NASDAQ, certain net worth requirements as well
as securities trade price requirements must be met. At December 31,
1996, the Company meets the net worth requirements. When and if the
securities of the Company trade at required levels in 1997, Management
intends to reapply for listing on NMS.
The loans from stockholders (Senior Convertible Notes), which at December
31, 1996 was $4,421,000, matures in September of 1997. In accordance
with the terms of the Note, the Noteholders and the Company have begun
restructuring negotiations. Management believes it will be able to
successfully restructure this debt without any negative financial impact.
Holders of the Company's Convertible Preferred Stock in the amount of
$2,000,000 have indicated to the Company their intent to convert their
Preferred Stock into the common stock of the Company.
Results of Operations
- ---------------------
YEAR ENDED DECEMBER 31, 1996, COMPARED TO
YEAR ENDED DECEMBER 31, 1995
Total revenue increased by $17,994,023 or 45% to $57,599,380 during 1996.
The most significant change was an increase in commissions of $9,583,802. The
current year's commissions were $18,814,468, compared with $9,230,666 in the
prior year.
Clearing and execution revenue increased by $3,871,620 or 25% to
$19,452,650 in 1996. This revenue increase is the direct result of a 22%
increase in transaction volume during 1996. The Company expects growth to
continue in the correspondent clearing division in the coming year.
The Company also experienced significant growth in the deep discount retail
operation, with commission revenue up more than 100% over 1995. The Company
opened additional offices in Boston and Miami during the early part of 1996.
The discount division remained profitable in 1996.
Interest revenue increased by $6,390,419 or 79% to $14,519,507 in 1996.
This increase is directly related to the success in the deep discount division.
The Company offers competitive interest rates, and has been able to attract new
customer balances. In addition to carrying increased customer balances, the
Company earns further interest spreads by actively participating in the stock
loan and borrow business.
Other revenues increased $1,289,295 or 50% to $3,889,960 in 1996. The
primary cause of this increase was $750,000 of miscellaneous charges to
correspondent brokers. Additionally the Company had $138,000 in non-accountable
expenses on an underwriting that was completed in 1996.
Trading profits decreased by $3,141,113 or 77% to $922,795 in 1996. The
Company restructured its trading function during 1996 in an effort to increase
trading productivity.
Total expense increased $18,527,461 or 56% to $51,391,497 during 1996. The
largest variance was interest expense, which increased $4,047,127 or 92% to
$8,459,118 during 1996. The percentage increase in interest expense is greater
than interest income (discussed above) because the company accumulated excess
customer cash and invested in reverse repurchased agreements. These instruments
have less of a yield than generated from customer margin accounts.
Commission expense increased by $3,194,279 or 66% to $8,065,588 in 1996.
This compares favorably with the 104% increase in commission income discussed
above. Employee compensation increased $3,299,998 or 58% to $9,013,089 in 1996.
This increase results primarily from the expansion of the deep discount
(additional branches) and on-line services the Company is offering. It is
anticipated that employee wages and related expenses will continue this trend in
the upcoming year.
Occupancy and equipment costs increased by $1,166,609 or 70% to $2,822,846
in 1996. This increase relates to the opening of new branch offices; New York,
Switzerland, Boston and Miami accounted for $666,427 of occupancy and equipment
cost in 1996.
Professional services increased $1,707,616, or 70% to $4,141,721 in 1996.
Of this increase, $1,020,212 were for legal fees in the resolution of RKSI
matters. The Company also incurred $740,491 more in consulting services during
1996, primarily related to public relations.
Promotional expense increased $1,994,422, or 104% to $3,912,089 in 1996.
The most significant cause of this increase relates to the new JB On-line
products the Company introduced in 1996. The Company spent approximately
$1,500,000 in advertising for JB On-line. The Company will monitor its
advertising expenditures and the related benefits being received.
Bad debt expense decreased by $110,661 or 7% to $1,526,049 in 1996.
Approximately half of the bad debt expense relates to the resolution of RKSI and
Prolyx matters. Other operating expenses increased $431,341 or 28% to
$1,981,722 in 1996. This increase is due to the additional registration fees
for its growing discount division and additional regulatory fees incurred.
Other expenses such as communications, data processing costs and other
operating costs have increased in relation to the increase in related business.
Clearing and floor brokerage costs have decreased during 1996 by $551,445 or 21%
to $2,144,686. This decrease relates to the Company changing its clearing
corporation.
Income tax expenses has increased by $651,536 or 43% primarily due to the
release of the valuation allowance on the deferred tax asset of $1,115,618 in
1995 net of $500,000 in 1996. During the fourth quarter of 1996, the valuation
allowance on the deferred tax asset was released as it is more likely than not
that the deferred tax asset will be fully realized in 1997. The Company's
effective income tax rate varied from the statutory federal tax rate as a result
of state taxes, change in the valuation allowance on the deferred tax asset, and
a refund related to the amendment of prior years income tax returns.
YEAR ENDED DECEMBER 31, 1995, COMPARED TO
YEAR ENDED DECEMBER 31, 1994
Total revenue increased by $23,093,998 or 140% to $39,605,357 during 1995.
The most significant change was an increase in trading profits of $7,120,082.
The current year's trading profits were $4,063,908, compared with trading losses
of $3,056,174 in the prior year.
Clearing and execution revenue increased by $5,870,421 or 60% to
$15,581,030 in 1995. This revenue increase is the direct result of a 71%
increase in transaction volume during 1995 due to changes in the rules governing
day trading and the additional correspondents obtained from a failed broker-
dealer.
The Company also experienced significant growth in the deep discount retail
operation. This division was launched in August 1994 in Beverly Hills and late
1994 in Dallas. These operations became profitable in 1995 as commission
revenue increased $5,399,567 or 141% to $9,230,666 in 1995. The Company also
reorganized its representative office in Basel Switzerland to a branch office in
the last quarter of 1995. Additionally, the Company opened an office in the
Wall Street District of New York City.
Interest revenue increased by $4,994,263 or 159% to $8,129,088 in 1995.
This increase is largely due to the success in the deep discount division. The
Company offers competitive interest rates, and has been able to attract new
customer balances. In addition to carrying increased customer balances, the
Company earns further interest spreads by actively participating in the stock
loan and borrow business. During 1995, interest rates in general were higher
than 1994, which also contributed to the increased interest revenues.
Valuation revenues decreased by $1,236,319 or 100% in 1995 from 1994
because the Houlihan Valuation subsidiaries were sold in late 1994.
Other revenues increased $945,984 or 57% to $2,600,665 in 1995.
Approximately $1,000,000 of the other revenues in 1995 resulted from devalued
investment securities being sold in the open market at the time of subsequent
increases in value. Included in other revenues in the current year are
investment banking fees of approximately $226,000 generated by the Capital
Markets Group. It is anticipated that this division will experience significant
growth during 1996.
Total expense increased $6,743,193 or 26% to $32,864,036 during 1995. The
largest variance was interest expense, which increased $2,780,210 or 170% to
$4,411,991 during 1995. The percentage increase in interest expense is greater
than interest income (discussed above) because of an effort to attract customer
balances, JBOC offered very competitive rates on both debit and credit balances
that reduced historical interest spreads.
Commission expense increased by $2,447,788 or 101% to $4,871,309 in 1995.
This compares favorably with the 141% increase in commission income discussed
above. The percentage pay out for the deep discount operation is less than the
pay out on the full service retail operation that dominated the 1994 commission
expense.
Employee compensation decreased $510,060 or 8% to $5,713,091 in 1995. This
decrease results primarily from the disposition of the Houlihan Valuation
subsidiaries which accounted for approximately $725,000 of the total for 1994.
It is anticipated that employee wages and related expenses will increase over
the next year as the Company continues to expand.
Occupancy and equipment costs decreased by $214,062 or 11% to $1,656,237 in
1995. This decrease consists mostly of the closing of the RKSI subsidiary in
July 1994, with the rent expense continuing for the balance of the year. This
closure resulted in the reduction of rent in the San Francisco and Florida
offices of RKSI, in the approximate amount of $300,000. Additionally, the
Valuation subsidiaries incurred approximately $100,000 of rent expense in 1994.
Promotional expense increased $496,263, or 35% to $1,917,667 in 1995.
Advertising and the production of television commercials represent $1,510,955 of
this expense for 1995. The Company is also focusing on more advertising in
Europe for the Basel, Switzerland branch office. As new branches are opened,
additional advertising funds will be budgeted to promote the development of such
offices.
Bad debt expense increased by $416,557 or 34% to $1,636,710 in 1995.
Approximately half of the bad debt expense relates to resolution of RKSI class
action suits. Because most of the suits are resolved, bad debt expense is
expected to decline in the coming year.
Other expenses such as communications, clearing, and data processing costs
have increased in relation to the increase in related business.
Liquidity and Capital Resources
- -------------------------------
The majority of the Company's corporate assets at December 31, 1996, were
held by its subsidiary, JBOC, and consisted of cash or assets readily
convertible to cash. The Company's statement of financial condition reflects
this largely liquid financial position. The majority of the Company's
proprietary securities positions are in JBOC's trading accounts, both long and
short; the majority of these positions are readily marketable and actively
traded. Receivables with other brokers and dealers primarily represent current
open transactions which typically settle within a few days, or stock borrow and
loan transactions where the contracts are adjusted to market values weekly.
The Company finances its business operations through funds generated
through its subsidiaries business services. JBOC is subject to the net capital
rules of the SEC. At December 31, 1996, JB Oxford had regulatory net capital of
$12,222,510, which exceeded the minimum requirement by $7,986,964. In addition
to financing the margin transactions by customer credit balances, JBOC has
established omnibus/financing accounts and lines of revolving credit with other
broker/dealers and banking institutions with an aggregate borrowing limit of
$12,000,000. Additionally, the Company has available stock loan financing when
necessary. Amounts borrowed bear interest at a fluctuating rate based on broker
call and prime, with the average rates ranging from 7.25% to 8.625% at December
31, 1996.
LIQUIDITY DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
The Company's cash position decreased in 1996, in the amount of $14,979,706
to $969,871. Cash used in operations amounted to $18,492,426. The most
significant source of cash was the change in amounts due to/from customers in
the amount of $72,353,282. In turn the most significant use of cash was the
increase in cash segregated under federal regulations in the amount of
$95,632,760. This relates directly to the cash provided from customers.
The Company's operations provided cash from the net increase in amounts due
to/from broker/dealers and clearing organizations of $5,059,436. The Company
also generated cash from net income in the amount of $4,039,574.
Cash provided by financing activities was $5,543,662 primarily from short
term borrowing of $5,997,125 in short term borrowings. Cash used in financing
activities was payments of notes payable in the amount of $328,110, and payments
of preferred stock dividends in the amount of $220,603.
The Company used cash of $2,030,942 in investing activities, all for
capital expenditures. The Company's requirement for capital resources is not
material to the business as a whole. The Company has no plans to open additional
offices. The Company is in the process of replacing its telephone/communication
system. The cost of this new system will be approximately $850,000, and will be
functional in the second quarter of 1997. The Company has no other significant
commitments for capital expenditures.
LIQUIDITY DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
The Company's cash position increased in 1995, increasing $15,792,593 to
$15,949,577. Cash generated from operations amounted to $24,312,074. The most
significant source of cash was the change in amounts due to/from brokers in the
amount of $29,037,820. The Company was able to utilize the cash segregated
under federal regulations as a current source of cash in the amount of
$9,625,831, additionally, net income of $5,224,548 was a source of cash.
The Company's main use of cash was to increase the net customer balances in
1995 by $22,144,670. Additionally $3,119,877 of cash was used to acquire
additional marketable securities.
Cash used in financing activities was $7,317,853 primarily for the
reduction of $13,466,716 in short term borrowings. Cash provided by financing
activities was in the form of notes payable which are subordinated to the claims
of general creditors in the amount of $2,000,000. Additionally, there were
loans from stockholders and the exercise of warrants providing $4,476,082 in
cash to the Company.
The Company used cash of $1,201,628 in investing activities, all for
capital expenditures. The Company's requirement for capital resources is not
material to the business as a whole. The Company planned to open two additional
offices in the second quarter of 1996; Miami, and Boston. The budget for
capital expenditures for these offices was estimated at $150,000 per office.
The Company had tentatively planned to open two additional offices in late 1996,
in Chicago and San Francisco.
The Company planned to continue to up-grade its communication systems in
1996. Costs to upgrade these systems is recovered over a period of one to two
years, and was not deemed to be significant.
JB OXFORD & COMPANY
SHORT TERM BORROWING
(Amounts in Thousands)
Category of aggregate
short-term borrowings a b c d e
------------------- ---------- ---------- ---------
Year Ended December 31, 1996
collateralized by:
Customer securities $ 4,497 $ 7.7% $ 4,497 $ 746 7.4%
Firm securities 1,500 8.4% 1,500 208 8.4%
Year Ended December 31, 1995
collateralized by:
Customer securities $ -- $ -- $ 13,857 $ 2,482 7.8%
Firm securities -- -- 850 375 8.0%
Year Ended December 31, 1994
collateralized by:
Customer securities $ 12,481 7.8% $ 12,481 $ 6,331 6.5%
Firm securities 986 8.5% 2,030 1,471 7.1%
a)
b)
c)
d)
e) Weighted average interest rate during the period
The weighted average interest rate during the period was calculated by
factoring the balances at the end of each month at the various rates, and
computing a weighted average on the results.
Management believes that existing capital available, together with the
established revolving credit lines, provides the Company with adequate financial
resources to meet its capital needs at the present operating level. However,
in order for the Company to assure continued growth and stability, and to
protect against the potential impact which could result from the failure of any
combination of its correspondent broker/dealer clients, Management is exploring
additional sources of capital to increase the Company's liquidity and capital
base.
The Company has federal loss carryforwards of approximately $399,578 which
expire in 2009. The tax effect of the net operating loss carryforwards has been
recorded as Management believes it is more likely than not that the Company will
realize this asset. Federal tax rules impose limitation on the use of net
operating losses following certain changes in ownership. The Company
experienced such a change in 1995, which limited the use of the federal net
operating loss carryforward to $1,972,550 per year.
Impact of Inflation
- -------------------
Inflation has had a minimal impact on the operations and financial
condition of the Company. The Company will continue to monitor costs and
productivity constantly and will adjust prices and operations as necessary to
meet inflationary impacts or market changes.
New Accounting Pronouncements
- -----------------------------
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS No. 125) issued by the Financial Accounting Standards Board (FASB) is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The new
standard provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. The Company does not
expect adoption to have a material effect on its financial position or results
of operations.
Statements of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS No. 128) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The statement requires restatement of all
prior period earnings per share (EPS) data presented. The new standard requires
a reconciliation of the numerator and denominator of the basic EPS computation
(EPS) to the numerator and denominator of the diluted EPS computation. The
Company has not determined the effect of adoption on its EPS computation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Certified Public Accountants 19
Consolidated Statements of Financial Condition 20-21
December 31, 1996 and 1995
Consolidated Statements of Operations 22
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity 23
(Deficit)
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows 24
Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements 25-39
Financial Statement Schedule I - Condensed Financial 44-47
Statements (Parent Company Only)
Financial Statement Schedule II - Valuation and Qualifying 48
Accounts
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
JB Oxford Holdings, Inc.
Beverly Hills, California
We have audited the accompanying consolidated statements of financial condition
of JB Oxford Holdings, Inc. and Consolidated Subsidiaries, as of December 31,
1996 and 1995 and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the three years ended
December 31, 1996. We have also audited the schedules listed in the
accompanying index. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audit.
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 and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of JB Oxford Holdings,
Inc. and Consolidated Subsidiaries at December 31, 1996 and 1995, and the
results of their operations and cash flows for each of the three years ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.
BDO SEIDMAN, LLP
Los Angeles, California
March 25, 1997
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
1996 1995
------------ ------------
ASSETS:
Cash and cash equivalents $ 969,871 $15,949,577
Cash segregated under federal and other regulations 95,676,462 43,702
Receivable from broker/dealers and clearing
organizations (Net of allowance for doubtful
accounts of $2,103,802 for both years) 7,034,713 6,607,553
Receivable from customers
(Net of allowance for doubtful accounts of
$3,931,080 and $4,333,291) 209,727,063 143,169,584
Other receivables
(Net of allowance for doubtful accounts of
$1,979,793 for both years) 1,403,588 868,599
Securities owned - at market value 5,080,146 4,587,422
Furniture, equipment, and leasehold improvements
(At cost - net of accumulated depreciation and
amortization of $2,792,595 and $2,011,326) 2,987,209 2,043,847
Income taxes refundable 849,162 --
Deferred income taxes
(Net of valuation allowance of $0 and $500,000) 689,795 1,379,170
Clearing deposits 4,973,246 432,863
Other assets 944,866 681,975
------------ -----------
TOTAL ASSETS $330,336,121 $175,764,292
============ ===========
See accompanying notes to Consolidated Financial Statements.
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
1996 1995
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Payable to broker/dealers and clearing $ 35,566,706 $ 30,080,110
organizations
Payable to customers 262,019,997 121,583,187
Securities sold not yet purchased - at 243,864 224,163
market value
Accounts payable and accrued liabilities 7,605,998 7,939,221
Income taxes payable -- 621,291
Loans from stockholders 4,421,311 4,622,543
Notes payable 6,120,087 249,840
Loans subordinated to the claims of 2,000,000 2,000,000
general creditors
------------- -------------
TOTAL LIABILITIES 317,977,963 167,320,355
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock ($10 par value
200,000 shares authorized; 200,000 shares
issued and outstanding) 2,000,000 2,000,000
Common stock ($.01 par value 100,000,000
shares authorized; 8,760,205 and 8,655,205
shares issued and outstanding) 87,602 86,552
Additional paid-in capital 9,541,496 9,447,296
------------- -------------
Retained earnings (deficit) 729,060 (3,089,911)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 12,358,158 8,443,937
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 330,336,121 $175,764,292
============= =============
See accompanying notes to Consolidated Financial Statements
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31
1996 1995 1994
------------ ------------ -----------
REVENUES:
Clearing and execution $19,452,650 $ 15,581,030 $ 9,710,609
Trading profits (losses) 922,795 4,063,908 (3,056,174)
Commissions 18,814,468 9,230,666 3,831,099
Valuation -- -- 1,236,319
Interest 14,519,507 8,129,088 3,134,825
Other 3,889,960 2,600,665 1,654,681
------------ ------------ -----------
Total Revenues 57,599,380 39,605,357 16,511,359
------------ ------------ -----------
EXPENSES:
Employee compensation 9,013,089 5,713,091 6,223,151
Commission expense 8,065,588 4,871,309 2,423,521
Clearing and floor brokerage 2,144,686 2,696,131 2,168,257
Communications 5,181,392 3,134,580 2,445,640
Occupancy 2,822,846 1,656,237 1,870,299
Interest 8,459,118 4,411,991 1,631,781
Data processing charges 4,143,197 2,841,834 2,198,797
Professional services 4,141,721 2,434,105 3,360,230
Promotional 3,912,089 1,917,667 1,421,404
Bad debts 1,526,049 1,636,710 1,220,153
Other operating expenses 1,981,722 1,550,381 1,157,610
------------ ------------ -----------
Total Expenses 51,391,497 32,864,036 26,120,843
------------ ------------ -----------
Income (Loss) Before Income Taxes 6,207,883 6,741,321 (9,609,484)
Income Tax Provision (Benefit) 2,168,309 1,516,773 (2,021,102)
------------ ------------ -----------
Net Income (Loss) $ 4,039,574 $ 5,224,548 $(7,588,382)
=========== =========== ===========
Primary Net Income (Loss) Per Share 0.39 0.62 (1.33)
Fully diluted Income (Loss) Per Share 0.23 0.40 (1.33)
Weighted average number of shares of
common stock & common stock
equivalents
Primary 9,832,293 8,205,626 5,711,522
Fully diluted 18,380,780 13,478,573 5,711,522
See accompanying notes to Consolidated Financial Statements.
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Additional Earnings
Preferred Stock Common Stock Paid-in R/E
Shares Amount Shares Amount Capital (Deficit)
------- ---------- --------- ------- ---------- ----------
Balance at 1-1-94 -- $ -- 5,321,872 $53,219 $6,536,185 $ (600,104)
Issuance of stock -- -- 1,111,111 11,111 988,889 --
Net Loss -- -- -- -- -- (7,588,382)
------- ---------- --------- ------- ---------- ----------
Balance at 12-31-94 -- -- 6,432,983 64,330 7,525,074 (8,188,486)
Issuance of
preferred stock 200,000 2,000,000
Exercise of warrants 2,222,222 22,222 1,922,222
Net Income -- -- -- -- -- 5,224,548
Cash Dividends -
preferred stock -- -- -- -- -- (125,973)
------- ---------- --------- ------- ---------- ----------
Balance at 12-31-95 200,000 2,000,000 8,655,205 86,552 9,447,296 (3,089,911)
------- ---------- --------- ------- ---------- ----------
Exercise of warrants 105,000 1,050 94,200
Net Income -- -- -- -- -- 4,039,574
Cash Dividends -
preferred stock -- -- -- -- -- (220,603)
------- ---------- --------- ------- ---------- ----------
Balance at 12-31-96 200,000 $2,000,000 8,760,205 $87,602 $9,541,496 729,060
======= ========== ========= ======= ========== ==========
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31
1996 1995 1994
Increase (decrease) in cash and cash
equivalents:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,039,574 $ 5,224,548 $(7,588,382)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 882,773 545,481 313,901
Disposal of property and equipment 204,807 -- --
Deferred rent 70,079 (772) 326,797
Provision for bad debts 1,526,049 1,636,710 1,220,153
Gain recognized on sale of -- -- (67,726)
subsidiaries
Changes in assets and liabilities:
Cash segregated under federal and
other regulations (95,632,760) 9,625,831 (9,669,533)
Receivable from broker/dealers and
clearing organizations (427,160) 9,884,512 (7,498,623)
Receivable from customers (68,083,528) (88,697,676)(10,189,947)
Other receivables (534,989) (1,654,493) 277,402
Securities owned (492,724) (3,119,877) 1,471,536
Clearing deposits (4,540,383) (19,815) (413,047)
Other assets (262,891) (191,780) (84,982)
Payable to broker/dealers and
clearing organizations 5,486,596 19,153,308 6,619,361
Payable to customers 140,436,810 66,553,006 21,525,233
Securities sold not yet purchased 19,701 63,403 12,339
Accounts payable and accrued
liabilities (403,302) 3,933,915 (213,432)
Income taxes
payable/refundable/deferred (781,078) 1,375,773 (1,727,676)
Net cash provided by (used in) operating
activities (18,492,426) 24,312,074 (5,686,626)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of subsidiaries -- -- (16,565)
Capital expenditures (2,030,942) (1,201,628) (384,500)
------------ ------------ ------------
Net cash used in investing activities (2,030,942) (1,201,628) (401,065)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (328,110) (201,246) (188,639)
Advances (repayments) on short term
borrowing 5,997,125 (13,466,716) 2,515,800
Subordinated loans -- 2,000,000 --
Loans from stockholders -- 2,531,638 2,234,905
Issuance of stock 95,250 1,944,444 1,000,000
Payment of cash dividends - preferred (220,603) (125,973) --
stock
------------ ------------ ------------
Net cash provided by (used in) financing 5,543,662 (7,317,853) 5,562,066
activities
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (14,979,706) 15,792,593 (525,625)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 15,949,577 156,984 682,609
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR$ 969,871 $ 15,949,577 $ 156,984
============ ============ ============
See accompanying notes to Consolidated Financial Statements.
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Reporting Entity:
- -----------------
The accompanying consolidated financial statements for 1996 and 1995
include the accounts of JB Oxford Holdings, Inc. ("the Company") ("JBOH"), and
its wholly-owned subsidiaries, JB Oxford & Company ("JBOC"), Reynolds Kendrick
Stratton, Inc. ("RKSI"); and its 90% owned subsidiary, Prolyx Data Systems,
Inc. ("Prolyx"). The consolidated statements of operations and cash flows for
1994 also include the following wholly-owned subsidiaries which have been
subsequently sold: Oxford Transfer and Registrar Agency, Inc. ("Oxford
Transfer"); Houlihan Dorton Jones Nicolatus & Stuart Inc. ("HDJ"); Houlihan
Valuation Advisors of Northern California ("HVANC"); Houlihan Valuation Advisors
of Southern California ("HVASC"); Houlihan Valuation Advisors of Kansas City,
Inc. ("HVAKC"); and Houlihan Valuation Advisors East ("HVAE"). The Company
operates in one significant geographic and industry segment. The Company
derives its revenues primarily from its correspondent clearing services,
discount operation, and trading activities. No individual customer accounts for
10% or more of consolidated revenues. Intercompany balances have been
eliminated in consolidation. Additionally, minority shareholders' interests are
not separately presented as the amounts are not significant.
Effective August 1994, the Company disengaged its association with the
Houlihan Valuation Advisor subsidiaries. These entities have been returned to
the ownership of the individual valuation personnel. While the spin-offs did
not result in sales proceeds, the Company did recognize a gain of $20,823. In
addition, the Company is no longer at risk for ongoing operating costs and
future liabilities associated with these entities. Similarly, on May 31, 1994,
the Company sold its securities transfer subsidiary, Oxford Transfer & Registrar
Agency, Inc. for a gain of $46,903. None of these entities were significant to
the Company's consolidated balance sheet or consolidated statement of
operations.
The Company and JBOC have their principal offices in Beverly Hills,
California. JBOC's discount division has branches in Beverly Hills, CA; Irving,
TX; New York, NY; Miami, FL; Boston, MA; and Basel, Switzerland.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents. Highly liquid
investments are both readily convertible to known amounts of cash and are so
near their maturity that they present insignificant risk of changes in value
because of interest rate changes.
Security Transactions
- ---------------------
Customers' security transactions are recorded on a settlement date basis
with related revenue and expenses recorded on a trade date basis. Proprietary
security transactions of the Company are recorded on a trade date basis.
Securities Owned
- ----------------
Marketable securities are valued at quoted market value and securities not
readily marketable are valued at fair value as determined by the management of
the Company. Fluctuations in market value (or fair value) are included in the
consolidated statement of operations.
Depreciation and Amortization
- -----------------------------
Depreciation of furniture and equipment is provided on a straight-line
basis over the estimated useful lives of the property which range from three to
seven years. Leasehold improvements are amortized over the lesser of the
economical useful lives of the improvements or the term of the lease.
Promotional
- ----------
Advertising costs are expensed as incurred.
Earnings (Loss) Per Share
- -------------------------
Primary earnings (loss) per share of common and common stock equivalents
were computed by dividing net earnings (loss), after deducting the preferred
dividend requirements of $220,603, $125,973 and $0 in 1996, 1995 and 1994, by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Common stock equivalents are options
that are freely exercisable into common stock at less than market exercise
prices. Common stock equivalents are not included in the weighted average
number of shares when the inclusion would increase the earnings per share or
decrease the loss per share.
For 1994 options and or warrants are not included in common stock
equivalents because of the anti-dilutive effect.
Fully diluted earnings per share are computed based on the weighted average
number of shares of common stock and common stock equivalents outstanding during
the period, as if the convertible debentures and convertible preferred stock
were converted into common stock at the beginning of the period after giving
retroactive effect to the elimination of interest expense of $242,162, $180,428
and $0 in 1996, 1995 and 1994, net of income tax effect, applicable to the
convertible debentures.
Income Taxes
- ------------
Deferred income taxes represent temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities.
Stock-Based Compensation
- ------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123) establishes a fair value method of accounting for
stock-based compensation plans and for transactions in which a company acquires
goods or services from non-employees in exchange for equity instruments. The
Company adopted this accounting standard on January 1, 1996. SFAS 123 also
gives the option to account for stock-based employee compensation in accordance
with Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
issued to Employees" or SFAS 123. The Company has chosen to continue to account
for stock-based compensation utilizing the intrinsic value method prescribed in
APB 25. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the fair market price of the Company's stock at the date of
grant over the amount an employee must pay to acquire the stock.
If SFAS 123 is not adopted related to stock-based employee compensation,
SFAS 123 for footnote purposes requires that companies measure the cost of
stock-based employee compensation at the grant date based on the value of the
award and recognize this cost over the service period. The value of the stock
based award is determined using a pricing model whereby compensation cost is the
excess of the fair value of the sock as determined by the model at grant date or
other measurement date over the amount an employee must pay to acquire the
stock.
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 year.
Actual results could differ from those estimates.
Reclassifications
- -----------------
Certain reclassifications have been made to the 1995 financial statements
to conform with presentation in the 1996 financial statements.
New Accounting Pronouncements
- -----------------------------
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS No. 125) issued by the Financial Accounting Standards Board (FASB) is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The new
standard provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. The Company does not
expect adoption to have a material effect on its financial position or results
of operations.
Statements of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS No. 128) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The statement requires restatement of all
prior period earnings per share (EPS) data presented. The new standard requires
a reconciliation of the numerator and denominator of the basic EPS computation
(EPS) to the numerator and denominator of the diluted EPS computation. The
Company has not determined the effect of adoption on its EPS computation.
NOTE 3. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents are securities purchased under
agreements to resell on an overnight basis in the amount of $89,506 and
$11,122,438 at December 31, 1996 and 1995. Securities purchased are U.S.
Treasury instruments which must be at least 102% of the cash tendered. The
market value of these securities are $91,296 and $11,344,887 at December 31,
1996 and 1995
NOTE 4. CASH SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
Cash is segregated in special reserve bank accounts for the exclusive
benefit of customers under Rule 15c3-3 of the Securities and Exchange Act of
1934, as amended. Included in the special reserve bank account are securities
purchased under agreements to resell on an overnight basis in the amount
$93,009,301 and $0 at December 31, 1996 and 1995. Securities purchased are
U.S.Treasury instruments having a market value of $94,869,487. The Company had
excess funds of $1,832,767 at December 31, 1996. A deposit of $3,000,000 was
made by the Company pursuant to these rules into the special reserve account on
January 3, 1996, for the December 31, 1995 computation.
NOTE 5. RECEIVABLE FROM AND PAYABLE TO BROKER/DEALERS AND CLEARING
ORGANIZATIONS
At December 31, amounts receivable from and payable to broker/dealers and
clearing organizations result from the Company's normal trading activities and
consist of the following:
1996 1995
------------ ------------
Receivable:
Securities borrowed $ 6,304,389 $ 6,309,865
Securities failed to deliver 411,657 297,688
Net settlements with clearing
organizations 318,667 --
------------ ------------
$ 7,034,713 $ 6,607,553
============ ============
Payable:
Securities failed to receive $ 466,483 $ 352,349
Securities loaned 29,597,102 21,148,266
Correspondents 5,503,121 7,187,078
Omnibus accounts and net
settlements with clearing -- 1,392,417
organizations
------------ ------------
$ 35,566,706 $ 30,080,110
============ ============
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. At December 31, 1996 the market value of the securities failed
to deliver was $417,754 and failed to receive was $461,493. At December 31,
1995 the market value of the market value of the securities failed to deliver
was $298,577 and failed to receive was $345,465.
The amounts receivable from and payable to clearing organizations
represents securities 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 6. RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
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.
NOTE 7. SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
Marketable securities owned and sold but not yet purchased consist of
trading and investment securities at quoted market values, as illustrated below:
Sold, But Not
Owned Yet Purchased
--------------- ----------------
Balances as of December 31, 1996:
Corporate bonds, debentures, and $ 71,311 $ 7,690
notes
Corporate stocks 5,001,335 236,174
Options and warrants 7,500 --
--------------- ----------------
$ 5,080,146 $ 243,864
=============== ===============
Balances as of December 31, 1995:
Corporate bonds, debentures, and $ -- $ 17,471
notes
Corporate stocks 4,015,855 206,692
Options and warrants 571,567 --
--------------- ----------------
$ 4,587,422 $ 224,163
=============== ===============
The Company also holds securities (a) for which there is no market on a
securities exchange or no independent publicly quoted market, (b) that cannot be
publicly offered or sold unless registration has been effected under the
Securities Act of 1933, or (c) that cannot be offered or sold because of the
other arrangements, restrictions, or conditions applicable to the securities or
to the Company. Such securities are carried at nominal value and are not
material to the financial statements.
As a part of its ongoing trading activities the Company may hold derivative
financial instruments for trading purposes. These instruments consist of
options and warrants and are not used as hedge instruments to reduce financial
market risks. The Company does not trade futures, forward, swap or any other
derivative financial instruments except options and warrants. The market value
of warrants at December 31, 1996 and 1995 is $7,500 and $571,567, respectively.
Trading gains or losses relating to options and warrants are not material to the
operations of the Company.
NOTE 8. NOTES PAYABLE
JBOC maintains firm and customer financing arrangements with an aggregate
borrowing limit of $12,000,000. Amounts loaned bear interest at a fluctuating
rate based on broker call and prime and are fully collateralized by marketable
securities valued at $20,651,987 at December 31, 1996. Such collateral includes
$18,552,994 of customers' margin account securities and $2,098,993 of securities
owned by the Company and non-customers. The Company has no outstanding
borrowings collateralized by marketable securities at December 31, 1995.
At December 31, notes payable consist of the following:
Balance at
end of period a b c d
------------- ----- ------------------------
1996
- ----
Collateralized by:
Customer securities $ 4,497,125 7.7% 4,497,000 746,000 7.4%
Firm securities 1,500,000 8.4% 1,500,000 208,333 8.4%
Other 122,962 9.5% 249,840 186,401 9.5%
------------
$ 6,120,087
============
1995
- ----
Collateralized by:
Customer securities $ -- -- 13,857,000 2,482,000 7.8%
Firm securities -- -- 850,000 375,000 8.0%
Other 249,840 9.5% 267,000 342,000 9.5%
------------
$ 249,840
============
a)
b)
c)
d)
by factoring the balances at the end of each month at the various rates, and
computing a weighted average on the results.
See Note 12: Related Party Transactions for disclosure relating to
shareholder loans outstanding at December 31, 1996 and 1995.
NOTE 9. LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
The borrowings under subordinated loan agreements at December 31, 1996 and
1995, consist of three separate loans totaling $2,000,000. Each agreement
carries interest at broker call plus 2%, not to exceed 9% payable monthly. All
agreements are due March 31, 1998. On January 12, 1996, $1,000,000 of the above
subordinated debt was assigned, for consideration, to a company controlled by a
significant shareholder of the Company. The fair value of the debt approximates
carrying value. The subordinated loan agreements have been approved by the NASD
and are thus available in computing regulatory net capital.
NOTE 10. CONVERTIBLE PREFERRED STOCK
On June 5, 1995, $2,000,000 of the convertible debentures were exchanged
for 200,000 shares of $10 par value non-voting convertible preferred stock. The
preferred stock is convertible to common stock at the rate of $.50 per share of
common stock based on the par value of the preferred stock. In accordance with
a provision of the preferred stock agreement, the conversion rate changed from
$0.90 to $0.50 due to an ownership change during 1996. The preferred stock
currently pays a quarterly dividend of 11% which will increase periodically to a
maximum of 15%. The dividends are cumulative, and the Company has certain
redemption rights.
NOTE 11. INCOME TAXES (BENEFIT)
The income tax provision (benefit) in the Consolidated Statements of
Operations consists of the following components:
Years Ended December 31,
1996 1995 1994
------------ ------------ ------------
Current
Federal $ 749,851 $ 900,989 $ (359,000)
State 729,083 220,302 --
------------ ------------ ------------
1,478,934 1,121,291 (359,000)
------------ ------------ ------------
Deferred
Federal 670,169 108,961 (1,255,995)
State 19,206 286,521 (406,107)
------------ ------------ ------------
689,375 395,482 (1,662,102)
------------ ------------ ------------
TOTAL $ 2,168,309 $ 1,516,773 $ (2,021,102)
============ ============ ============
The significant components of deferred income tax expense (benefit) are as
follows:
Years Ended December 31,
1996 1995 1994
------------ ------------ ------------
Changes in:
Temporary differences, net $ (140,511)$ (296,705)$ (63,566)
Federal net operating loss
carryforwards 1,184,336 1,452,299 (2,772,492)
State net operating loss
carryforwards 125,550 355,506 (350,212)
Valuation allowance (500,000) (1,115,618) 1,615,618
Deferred tax liability 20,000 -- --
Additional refund received -- -- (91,450)
------------ ------------ ------------
$ 689,375 $ 395,482 (1,662,102)
============ ============ ============
Deferred tax assets - net included in the Consolidated Statements of
Financial Condition are as follows:
Year Ended December 31,
1996 1995
------------- -------------
Temporary differences resulting in
future deductible amounts $ 573,938 $ 433,427
Federal net operating loss
carryforwards 135,857 1,320,193
State net operating loss carryforwards -- 125,550
------------- -------------
Deferred tax assets 709,795 1,879,170
Temporary differences resulting in
future taxable amounts
Deferred tax liability (20,000) --
Valuation allowance -- (500,000)
------------- -------------
Deferred tax asset - net $ 689,795 $ 1,379,170
============= =============
The Company has federal loss carryforwards of approximately $399,578 which
expire in 2009. The tax effect of the net operating loss carryforwards (net of
a valuation allowance of $0 and $500,000 in 1996), has been recorded as
Management believes it is more likely than not that the Company will realize
this asset. Federal tax rules impose limitations on the use of net operating
losses following certain changes in ownership. The Company experienced such a
change in 1995, which limited the use of the federal net operating loss
carryforward to $1,972,550 per year.
Reconciliations of the provision for income taxes (benefit) to the expected
income tax based on statutory rates are as follows:
Years Ended December 31,
1996 1995 1994
------------ ------------ ------------
Provision (benefit)-Federal statutory
rate $ 2,110,680 $ 2,292,050 $(3,267,225)
Increase (decrease) in income taxes
resulting from:
Valuation allowance (500,000) (1,115,618) 1,615,618
State taxes net of Federal tax benefit 742,240 404,479 (262,005)
Amendment of tax return (102,127) -- --
Other (82,484) (64,138) (107,490)
------------ ------------ ------------
$ 2,168,309 $ 1,516,773 $(2,021,102)
============ ============ ============
NOTE 12. RELATED PARTY TRANSACTIONS
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 (loans from
stockholders)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. The total shareholder loan outstanding
at December 31, 1996 and 1995 was $4,421,311 and $4,622,543. Related interest
expense for 1996, 1995 and 1994 was $403,603, $520,297 and $263,487. Due to the
related party nature and terms of the shareholder loans, the fair market value
of such financial instruments cannot be estimated.
During 1995, in connection with opening and maintaining a representative
office in Switzerland, JBOC reimbursed a company controlled by a significant
shareholder of the Company approximately $800,000 in expenses which are included
in the consolidated statement of operations. In October 1995, the
representative office became a branch office of JBOC.
NOTE 13. OPTIONS AND WARRANTS
In the third quarter of 1994 as part of the sale of stock to raise capital
of $1,000,000, investors received 1,111,111 Series A warrants to purchase one
additional share of stock at $0.85, expiring on August 1, 1996 and 1,111,111
Series B Warrants to purchase one additional share of stock $0.90 expiring on
August 1, 1997. In addition, during 1994, four employees and a director
received options to purchase 460,000 shares.
In the second quarter of 1993 as part of the sale of stock to raise capital
of $2,000,000, each investor received a warrant to purchase one additional share
of stock at the exercise price of $1.25 for each share originally purchased;
such exercise must occur within 18 months of the original investment.
At December 31, 1996, the Company has one stock option plan, which is
described below. The Company applies APB Opinion 25, Accounting for Stock
Issued to Employees, and related Interpretations in accounting for the plan.
Under APB Opinion 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation cost is recognized.
The Company has adopted a stock option plan (the "Plan") pursuant to which
453,000 shares of common stock have been reserved for issuance to officers and
full-time employees of the Company. The Plan is administered by the Company's
Board of Directors which determines, among other things, the persons to be
granted options under the Plan, the number of shares subject to each option and
the option price, which shall not be less than market value.
SFAS 123, Accounting for Stock-Based Compensation, requires the Company to
provide pro forma information regarding net income and earnings per share as if
compensation based method prescribed in SFAS 123. The Company estimates the
fair value of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995, respectively: dividend yield of 0%; expected
volatility of 26%; risk-free interest rates ranging from 5.09% to 6.89%. The
weighted average fair value of options granted during 1996 and 1995 was $1.40
and $0.67
Under the accounting provisions of SFAS 123, the Company's net income
(loss) and earnings (loss) per share would have been reduced to the pro forma
amounts indicated below:
For The Years Ended December 31,
1996 1995
---------------- ---------------
Net income (loss):
As reported $ 4,039,574 $ 5,224,548
Pro forma 3,871,374 5,144,148
Primary earnings (loss) per share:
As reported $ 0.39 $ 0.62
Pro forma 0.37 0.61
Fully diluted earnings (loss) per share:
As reported $ 0.23 $ 0.40
Pro forma 0.22 0.40
Due to the fact that the company's stock option programs vest over many
years and additional awards are made each year, the above proforma numbers are
not indicative of the financial impact had the disclosure provisions of FASB 123
been applicable to all years of previous option grants. The above numbers do
not include the effect of options granted prior to 1995 that vested in 1995 and
1996.
A summary of the status of the Company's stock options and warrants as of
December 31, 1996, 1995 and 1994 and changes during the years ending on those
date is presented below:
December 31, 1996 December 31, 1995 December 31, 1994
------------------ ------------------ --------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
--------- ------- ---------- -------- -------- --------
Outstanding at
beginning of
year 1,956,692 $ 1.05 2,552,222 $ 0.90 2,100,000 $ 1.25
Granted 420,000 2.30 1,626,692 1.03 2,682,222 0.91
Exercised (105,000) 1.05 (2,222,222) 0.88 -- 1.20
Forfeited -- -- -- -- (2,230,000) 1.24
--------- ---------- ----------
--
Outstanding at
end of year 2,271,692 1.77 1,956,692 1.05 2,552,222 0.90
========= ========== ==========
Options
exercisable at
year-end 2,221,692 1.25 1,881,692 1.01 2,552,222 0.90
Information relating to stock options and warrants at December 31, 1996
summarized by exercise price are as follows:
Options Outstanding Options Exercisable
----------------------- -----------------------
Number Weighted- Weighted- Number Weighted-
Exercise Outstanding Average Average Exercisable Average
Prices at 12/31/96 Contractual Exercise at 12/31/96 Exercise
Life Price Price
- ----------- ----------- ----------- ----------- ----------- -----------
0.50 30,000 1 0.50 30,000 0.50
0.90 1,356,692 3 0.90 1,356,692 0.90
1.08 295,000 5 1.08 295,000 1.08
1.94 200,000 3 1.94 200,000 1.94
2.25 260,000 7 2.25 210,000 2.25
2.75 60,000 1 2.75 60,000 2.75
2.87 35,000 10 2.87 35,000 2.87
3.00 35,000 10 3.00 35,000 3.00
----------- -----------
Total 2,271,692 4 1.77 2,221,692 1.25
=========== ===========
NOTE 14. 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. JBOC has elected to use the alternative method permitted by the Rule,
which requires it to maintain minimum net capital, as defined, equal to the
greater of $250,000 or two percent of aggregate debit balances arising from
customer transactions, as defined. The Rule also provides, among other things,
for a restriction on the payment of cash dividends, payments on subordinated
borrowings or the repurchase of capital stock if the resulting excess net
capital would fall below five percent of aggregate debits.
At December 31, 1996 JBOC had net capital of $12,222,510, which was 5.8% of
aggregate debit balances and $7,986,964 in excess of the minimum amount
required. At December 31, 1995, JBOC had net capital of $12,494,561, which was
8.6% of aggregate debit balances and $9,598,267 in excess of the minimum amount
required.
NOTE 15. COMMITMENTS, CONTINGENT LIABILITIES AND OTHER
The Company offers its employees participation in a 401(k) savings plan.
Eligible employees are able to contribute a portion of their compensation. The
Company matches 25% of these contributions up to 6% of the employees wage.
Expense for 1996 and 1995 amounted to $76,917 and $17,420.
The Company and/or its subsidiaries are defendants in several lawsuits and
arbitrations the most significant of which follow:
a)
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.
b)
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.
c)
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.
The ultimate outcome of these uncertainties discussed above is unknown.
Moreover, due to the nature of arbitration matters, it is impossible to predict
the ultimate outcome and/or range of loss. Accordingly, no provision for any
liability that might result has been made in the accompanying financial
statements. Future annual minimum rental payments required under operating
leases that have initial or remaining non-cancelable lease terms in excess of
one year as of December 31, 1996, were as follows:
Year ending December 31:
1997 1,612,154
1998 1,529,253
1999 1,425,869
2000 1,429,786
2001 1,303,631
Thereafter 1,746,356
--------------
$ 9,047,049
==============
The Company received certain concessions for a lease included above which
is being amortized ratably over the lease term.
Rent expense was as follows:
Year ending December 31:
1996 $ 1,185,303
1995 822,873
1994 969,395
The Company has an Employee Stock Ownership Plan which covers employees of
the Company. Contributions to the Plan are determined annually by the Board of
Directors of the Company. No contributions have been made for the years ended
December 31, 1996, 1995, and 1994.
NOTE 16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, JBOC's customer and correspondent
clearance activities involve the execution, settlement and financing of various
securities and financial instrument transactions. In the event the customers or
correspondents are unable to fulfill their contractual obligations, JBOC may be
obligated to discharge the obligation of the non-performing party and, as a
result, may incur a loss.
As a part of its normal brokerage activities, JBOC sells securities not yet
purchased ("short sales") for its own account. The establishment of short
positions exposes JBOC to an off-balance sheet market risk in the event prices
increase, as JBOC may be obligated to acquire the securities at prevailing
market prices.
JBOC's customer securities activities are transacted on either a cash or
margin basis. In a margin transaction, JBOC extends credit to the customer,
subject to various regulatory and internal margin requirements, collateralized
by cash and securities in the customer's account. In addition, JBOC executes
and clears customer transactions involving the sale of securities not yet
purchased ("short sales") and the writing of option contracts. Such
transactions may expose JBOC to significant off-balance-sheet risk in the event
margin requirements are not sufficient to fully cover losses which customers may
incur. In the event the customer fails to satisfy its obligations, JBOC may be
required to purchase or sell financial instruments at prevailing market prices
in order to fulfill the customer's obligations.
JBOC seeks to control the risks associated with its customer activities by
requiring customers to maintain margin collateral in compliance with various
regulatory and internal guidelines. JBOC monitors required margin levels daily
and, pursuant to such guidelines, requires the customers to deposit additional
collateral, or to reduce positions, when necessary. Additionally, JBOC requires
clearing deposits from the correspondents.
JBOC is a market-maker for public corporations representing a wide variety
of industries whose securities are traded in the NASD's Automated Quotation
System ("NASDAQ"), the NASDAQ National Market System and, to a minor extent, on
the NASD Bulletin Board. JBOC selects companies in which it makes a market
based on a review of the current market activity, and also to facilitate trading
activity of its correspondents' clients. Market making activities may result in
concentration of securities which may expose JBOC to additional off-balance-
sheet risk.
In the normal course of business, JBOC executes, as agent or principal,
transactions on behalf of customers. If the agency or principal transactions do
not settle because of failure to perform by either the customer or the
counterparty, JBOC may be obligated to discharge the obligation of the non-
performing party and, as a result, may incur a loss if the market value of the
securities are different from the contract amount of the transactions.
JBOC does not anticipate nonperformance by customers or counterparties in
the above situation. JBOC's policy is to monitor its market exposure and
counterparty risk. In addition, JBOC has a policy of reviewing, as considered
necessary, the credit standing of each customer with which it conducts business.
JBOC arranges secured financing by pledging securities owned and unpaid
customer securities for short term borrowings, securities loaned and to satisfy
margin deposits of clearing organizations. JBOC also actively participates in
the borrowing and lending of securities. In the event the counterparty in these
and other securities loaned transactions is unable to return such securities
pledged or repay the deposit placed with them, JBOC may be exposed to the risks
of acquiring the securities at prevailing market prices or holding collateral
possessing a market value less than that of the related pledged securities.
JBOC controls the risks by monitoring the market value of securities pledged and
requiring adjustments of collateral levels where necessary.
NOTE 17. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
1996 1995 1994
---------------------- -----------
Cash paid during the year for:
Interest $8,428,614 $4,457,909 $1,610,734
Income taxes 3,204,726 500,000 --
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1995, $2,000,000 of the loans to stockholders was exchanged for
200,000 shares of $10 par value non-voting convertible preferred stock.
During 1994, stock with a market value of $1,049,600 was borrowed from
shareholders.
During 1994, the company sold a subsidiary and recorded a gain on the sale
of $46,903 including the cash proceeds of $32,465, issuance of a note
receivable of $40,000, net of the fair value of assets sold totaling $25,562.
During 1994, the company disposed of other subsidiaries and recorded a loss
on the sale of $20,823 including cash given up of $49,030 net of the fair value
of non-cash net liabilities assumed totaling $69,853.
NOTE 18. UNAUDITED SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION
Below is selected quarterly financial data for each fiscal quarter during
the years ended December 31, 1996 and 1995. This information should be read in
conjunction with the consolidated financial statements included elsewhere
herein.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
----------- ----------- ----------- ----------- -----------
1996
- ----
Revenues $ 12,904,615 $16,181,661 $14,359,206 $ 14,153,898 $57,599,380
Income before 1,946,099 1,939,843 1,515,468 806,473 6,207,883
taxes
Net income 1,178,099 1,152,843 890,468 818,164 4,039,574
Primary earnings
per share .11 .11 .09 .08 .39
Fully diluted
earnings per
share .07 .07 .05 .05 .23
1995
- ----
Revenues $ 5,265,062 $ 8,618,339 $11,912,823 $ 13,809,133 $39,605,357
Income before 16,088 1,403,323 2,490,803 2,831,107 6,741,321
taxes
Net income 9,688 841,723 1,494,804 2,878,333 5,224,548
Primary earnings
per share -- .12 .16 .28 .62
Fully diluted
earnings per
share -- .07 .10 .18 .40
During the fourth quarter of 1996 and 1995, Management made an adjustment
to the valuation allowance of the deferred tax asset of $500,000 and $1,115,618,
respectively. This reduced income tax expense during this period.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no changes in and or disagreements with the accountants on
accounting or financial disclosures.
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
The information required by these Items is omitted because the Company will
file, within 120 days after the close of the Company's last fiscal year, a
definitive proxy statement pursuant to Regulation 14A, which information, other
than the section entitled "Compensation Committee Report on Executive
Compensation" or matters related to such report contained therein, is
incorporated herein by reference as if set out in full.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The financial statements and schedules required to be filed by Item 8 of
this form and paragraph (d) are contained herein as follows:
Page
------
Report of Independent Certified Accountants 19
Consolidated Statements of Financial Condition
December 31, 1996 and 1995 20-21
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994 22
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) Years Ended December 31, 1996, 1995 and 1994 23
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994 24
Notes to Consolidated Financial Statements 25-39
Financial Statement Schedule I - Condensed Financial
Statements (Parent Company Only) 44-47
Financial Statement Schedule II - Valuation and Qualifying
Accounts 48
Listed below are exhibits as required by Item 601 of Regulation S-K:
Exhibit No Description
- ---------- -----------
3.1 Articles of Incorporation of JBOH, as amended, October 16, 1990
(incorporated herein by reference to Exhibit 1 of JBOH's Current Report on
Form 8-K, dated October 30, 1990, filed with the Commission).
3.2 By-Laws of JBOH, as amended, October 16, 1990 (incorporated herein by
reference to Exhibit 1 of JBOH's Current Report on Form 8-K dated October
30, 1990, filed with the commission).
10.1 * Executive Employment Agreement between OTRA Clearing, Inc. and William R.
Stratton, dated March 31, 1987 (incorporated herein by reference to Exhibit
7 of JBOH's Form S-18, Registration Statement No. 33-14002LA, filed with
the Commission).
10.2 Office Building Lease between First Interstate Bank of Utah and Frank K.
Stuart & Associates Inc., dated December 3, 1987, for HDJ Salt Lake City,
Utah office space (incorporated herein by reference to Exhibit 10.1 of
JBOH's Annual Report on Form 10-K for the year ended December 31, 1990,
filed with the Commission).
10.3 Office Lease Agreement between J. Michael Martin Properties and OTRA
Securities Group, Inc., dated December 20, 1991, to lease Salt Lake City
office space (incorporated herein by reference to Exhibit 10.1 of JBOH's
Annual Report on Form 10-K for the year ended December 31, 1991, filed with
the Commission).
10.4 Commercial Office Lease between One Eighty Montgomery St. and OTRA
Securities Group, Inc., dated September 25, 1991, to lease San Francisco
office space (incorporated herein by reference to Exhibit 10.2 of JBOH's
Annual Report on Form 10-K for the year ended December 31, 1991, filed with
the Commission).
10.5 Standard Office Lease between St. George Beverly Hills, Inc. and OTRA
Clearing, Inc., dated January 31, 1992, to lease Beverly Hills office space
(incorporated herein by reference to Exhibit 10.3 of JBOH's Annual Report
on Form 10-K for the year ended December 31, 1991, filed with the
Commission).
10.6 Data Service Agreement between Securities Industry Software Corp. and OTRA
Clearing, Inc., dated June 8, 1992 (incorporated herein by reference to
Exhibit 10 of JBOH's Quarterly Report on Form 10-Q for the period ended
June 30, 1992, filed with the Commission).
10.7 Lease Agreement between Denver-Place Associates Ltd. Partnership and
Reynolds Kendrick Stratton, Inc. dated Oct. 22, 1987, for Denver office
space (incorporated herein by reference to Exhibit 10.2 of the JBOH Form
10-K filed with the Commission for the year ended December 31, 1987).
10.8 Lease Agreement between T-Las Colinas Towers Corp. and Reynolds Kendrick
Stratton, Inc., dated October 1, 1993, to lease Irving, Texas office space
for Dallas area branch (incorporated herein by reference to Exhibit 10.8 of
the JBOH Form 10-K filed with the Commission for the year ended December
31, 1993).
10.9 * Executive Employment Agreement between JBOH and Mark M. Rossow, dated
January 3, 1994 (incorporated herein by reference to Exhibit 10.9 of the
JBOH Form 10-K filed with the Commission for the year ended December 31,
1993).
10.10 * Executive Employment Agreement between JBOH and Stephen Rubenstein,
dated March 23, 1994 (incorporated herein by reference to Exhibit 10.10 of
the JBOH Form 10-K filed with the Commission for the year ended December
31, 1993).
10.11 * Executive Employment Agreement between JBOH and Bruce A. Cole, dated
March 31, 1994 (incorporated herein by reference to Exhibit 10.11 of the
JBOH Form 10-K filed with the Commission for the year ended December 31,
1993).
10.12 * Signing Bonus Agreement and Note between RKSI and Robert W.
Kendrick, dated February 25, 1993 (incorporated herein by reference to
Exhibit 10.8 of the JBOH Form 10-K filed with the Commission for the year
ended December 31, 1993).
10.13 Asset Purchase Agreement between RKSI and JBOC & Company, executed as
of December 31, 1993 (incorporated herein by reference to Exhibit 10.13 of
the JBOH Form 10-K filed with the Commission for the year ended December
31, 1993).
10.14
JBOH and RKSI, executed as of December 31, 1993 (incorporated herein by
reference to Exhibit 10.8 of the JBOH Form 10-K filed with the Commission
for the year ended December 31, 1993).
10.15
Oxford & Company, executed as of June, 1995, to lease New York office space
(incorporated herein by reference to Exhibit 10.1 of the JBOH Form 10-Q
filed with the Commission for the quarter ended June 30, 1995).
10.16
Limited. and JB Oxford Holdings, Inc., executed as of February 21, 1996, to
lease Miami office space, (incorporated herein by reference to Exhibit
10.16 of the JBOH Form 10-K filed with the Commission for the year ended
December 31, 1995).
11.1 Computation of earnings per share, filed herewith.
18.1 Letter regarding change in certified public accountants from Deloitte &
Touche to BDO Seidman, dated September 20, 1993 (incorporated herein by
reference to Exhibit 1 of JBOH's Current Report on Form 8-K, dated
September 24, 1993 and amended October 28, 1993, filed with the
Commission).
22 List of significant subsidiaries, filed herewith.
28 Employee Stock Ownership Plan (incorporated herein by reference to Exhibit
28 of JBOH's Annual Report on Form 10-K for the year ended December 31,
1988, filed with the Commission).
* Indicates that exhibit is a management contract or compensatory plan or
arrangement.
REPORTS ON FORM 8-K
There were no events as required to be reported on Form 8-K during the
fourth quarter ended December 31, 1996.
SCHEDULE I. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
JB OXFORD HOLDINGS, INC.
STATEMENTS OF FINANCIAL CONDITION
December 31,
1996 1995
------------ ------------
ASSETS:
Cash and cash equivalents $ 157,099 $ 708,357
Investment in subsidiaries 17,694,794 14,674,072
Income taxes refundable -- --
Deferred income taxes (Net of valuation
allowance of $0 and $500,000) 1,879,170 1,379,170
Other assets 553,611 598,882
------------ ------------
TOTAL ASSETS $ 20,284,674 $ 17,360,481
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities 1,278,419 2,292,363
Net payables to subsidiaries 1,739,085 215,310
Income taxes payable 354,043 621,291
Loans from stockholders 4,421,311 4,622,543
Notes payable 133,658 1,165,037
------------ ------------
TOTAL LIABILITIES 7,926,516 8,916,544
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY :
Convertible preferred stock ($10 par value
200,000 shares authorized; 200,000 and 0 shares
issued and outstanding) 2,000,000 2,000,000
Common stock ($.01 par value 100,000,000
shares authorized; 8,760,205 and 8,655,205
shares issued and outstanding) 87,602 86,552
Additional paid-in capital 9,541,496 9,447,296
Retained earnings (deficit) 729,060 (3,089,911)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,358,158 8,443,937
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,284,674 $ 17,360,481
============ ============
See accompanying notes to Condensed Financial Information
JB OXFORD HOLDINGS, INC.
STATEMENTS OF OPERATIONS
For The Years Ended December 31
1996 1995 1994
------------ ------------ ------------
REVENUES 2,119,756 2,173,421 532,373
------------ ------------ ------------
EXPENSES
General and administrative 870,728 1,915,569 3,449,380
Interest expense 799,133 550,509 340,494
Bad debt expense (458,472) (178,129) 192,951
------------ ------------ ------------
Total Expenses 1,211,389 2,287,949 3,982,825
------------ ------------ ------------
Income (Loss) before equity interest
in subsidiary income 908,367 (114,528) (3,450,452)
Equity interest in subsidiary
income(loss) 5,299,516 6,855,849 (6,159,032)
------------ ------------ ------------
Income (Loss) Before Income Taxes 6,207,883 6,741,321 (9,609,484)
Income Tax Provision (Benefit) 2,168,309 1,516,773 (2,021,102)
------------ ------------ ------------
Net Income (Loss) $ 4,039,574 $ 5,224,548 $ (7,588,382)
============ ============ ============
JB OXFORD HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
For The Years Ended December 31
1996 1995 1994
------------ ------------ ------------
Net cash provided by (used in)
operating activities $ 790,706 $ 3,037,946 $ (1,231,886)
------------ ------------ ------------
Cash flows from investing activities:
Investment in subsidiaries -- (4,000,000) (1,409,581)
Sale of subsidiaries -- -- 141,581
Capital expenditures 16,000 (16,000) (29,320)
------------ ------------ ------------
Net cash provided by (used in) 16,000 (4,016,000) (1,297,320)
investing activities
------------ ------------ ------------
Cash flows from financing activities:
Notes payable (1,031,379) (2,682,169) (694,887)
Loans from stockholders (201,232) 2,531,638 2,234,905
Issuance of stock 95,250 1,944,444 1,000,000
Payment of cash dividends - (220,603) (125,973) --
preferred stock
------------ ------------ ------------
Net cash provided by (used in) (1,357,964) 1,667,940 2,540,018
financing activities
------------ ------------ ------------
Net increase (decrease) in cash and (551,258) 689,886 10,812
cash equivalents
Cash and cash equivalents at 708,357 18,471 7,659
beginning of year
------------ ------------ ------------
Cash and cash equivalents at end of
year $ 157,099 $ 708,357 $ 18,471
============ ============ ============
See accompanying notes to Condensed Financial Information
JB OXFORD HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL INFORMATION
NOTE 1. BASIS OF PRESENTATION
The parent company only financial statements present JB Oxford Holdings,
Inc.' s statements of financial condition, operations and cash flows by
accounting for the investment in its consolidated subsidiaries on the equity
method.
The accompanying condensed financial information should be read with the
consolidated financial statements and notes to consolidated financial
statements.
NOTE 2. REVENUES
The Company receives substantially all of its revenues from its
subsidiaries. Management fees of $1,400,000 and $2,000,000 were received from
JBOC in 1996 and 1995, respectively. The balance of the revenues for 1996, 1995
and 1994 consists of rents received from subsidiaries for office space and
furniture and equipment.
NOTE 3. RESTRICTIONS ON THE TRANSFER OF FUNDS FROM SUBSIDIARY TO THE PARENT
JBOC, as part of its normal broker/dealer activity has minimum capital
requirements as imposed by regulatory agencies which restricts the amount of
funds that can be transferred to the Parent Company. See Note 13 to the
consolidated financial statements for discussion of these requirements.
NOTE 4. LOANS FROM STOCKHOLDERS
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.
The total shareholder loan outstanding at December 31, 1996 and 1995 was
$4,421,311 and $4,622,543. Related interest expense for 1996, 1995 and 1994 was
$403,603, $520,297 and $263,487.
Future annual payments including interest required under the terms of the
senior secured convertible notes are as follows:
Year ending December 31:
1997 $ 4,421,311
===============
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a defendant in several lawsuits and arbitrations the most
significant of which follows:
a)
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.
b)
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.
c)
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.
The ultimate outcome of these uncertainties discussed above is unknown.
Moreover, due to the nature of arbitration matters, it is impossible to predict
the ultimate outcome and/or range of loss. Accordingly, no provision for any
liability that might result has been made in the accompanying financial
statements.
Future annual minimum rental payments required under operating leases that
have initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 1994, were as follows:
Year ending December 31:
1997 1,040,553
1998 1,086,589
1999 1,096,923
2000 1,143,693
2001 1,082,972
Thereafter 956,831
--------------
$ 6,407,561
==============
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at charged to Balance at
beginning costs and end of
of period expenses Deductions period
----------- ----------- ----------- -----------
1996
- -----
Allowance for:
Receivable from broker/
dealers and clearing $2,103,802 $ -- $ -- $ 2,103,802
organizations
Customer Accounts 4,333,291 1,526,049 (1,928,260) 3,931,080
Other Receivables 1,979,796 -- -- 1,979,793
Deferred tax asset 500,000 -- (500,000) --
1995
- -----
Allowance for:
Receivable from broker/
dealers and clearing
organizations $2,103,802 $ -- $ -- $ 2,103,802
Customer Accounts 4,119,204 1,636,710 (1,422,623) 4,333,291
Other Receivables 1,815,014 164,779 -- 1,979,793
Deferred tax asset 1,615,618 -- (1,115,618) 500,000
1994
- -----
Allowance for:
Receivable from broker/
dealers and clearing
organizations $2,090,859 $ 12,943 $ -- $ 2,103,802
Customer Accounts 4,103,609 1,220,153 (1,204,558) 4,119,204
Other Receivables 1,960,014 -- (145,000) 1,815,014
Deferred tax asset -- 1,615,618 -- 1,615,618
Deductions represent amounts written off.
EXHIBIT 11
JB OXFORD HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For The Years Ended December 31
1996 1995 1994
------------ ------------ ------------
PRIMARY EARNINGS PER SHARE
Net income (loss) $ 4,039,574 $ 5,224,548 $ (7,588,382)
Preferred stock dividends (220,603) (125,973) --
------------ ------------ ------------
Net income for primary earnings $ 3,818,971 $ 5,098,575 $ (7,588,382)
============ ============ ============
Weighted average common shares
outstanding 8,704,235 7,615,631 5,711,522
Weighted average options outstanding (1) 1,903,304 1,437,304 --
Stock acquired with proceeds (775,246) (847,309) --
------------ ------------ ------------
Weighted average common shares and
equivalents outstanding 9,832,293 8,205,626 5,711,522
============ ============ ============
Primary Earnings Per Share $ 0.39 $ 0.62 $ (1.33)
============ ============ ============
FULLY DILUTED EARNINGS PER SHARE
Net income (loss) $ 4,039,574 $ 5,224,548 $ (7,588,382)
Interest on convertible debentures, net
of income tax 242,162 180,428 --
------------ ------------ ------------
Net Income for fully diluted earnings $ 4,281,736 $ 5,404,976 $ (7,588,382)
============ =========== ============
Weighted average common shares
outstanding 8,704,235 7,615,631 5,711,522
Weighted average options outstanding (1) 1,903,304 1,437,304 --
Weighted average convertible debentures 4,548,487 3,729,264 --
Weighted average convertible preferred
stock 4,000,000 1,290,715 --
Stock acquired with proceeds (775,246) (594,341) --
------------ ----------- ------------
Weighted average shares common shares
and equivalents outstanding 18,380,780 13,478,573 5,711,522
=========== ============ ============
Fully Diluted Earnings Per Share $ 0.23 $ 0.40 $ (1.33)
=========== ============ ============
(1)
would decrease the loss per share.
EXHIBIT 22
State Or Percentage
Jurisdiction Of Voting
Name Incorporation Securities
Owned By Parent
- ------------------------------------ --------------- ---------------
JB Oxford & Company Utah 100%
Reynolds Kendrick Stratton, Inc. Colorado 100%
Prolyx Data Systems, Inc. Utah 90%
Greystone Securities Utah 100%
The subsidiaries listed above are all of the subsidiaries owned by JB Oxford
Holdings, Inc.
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.
JB Oxford Holdings, Inc.
Stephen M. Rubenstein Chief Executive Officer
Michael J. Chiodo Acting Chief Financial Officer
Mitchell S.T. Wine Director
John M. Broome Director
March 29, 1997
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<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 96646 96646
<RECEIVABLES> 211862 211862
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 6304 6304
<INSTRUMENTS-OWNED> 5080 5080
<PP&E> 2987 2987
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<SHORT-TERM> 5997 5997
<PAYABLES> 275596 275596
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 29597 29597
<INSTRUMENTS-SOLD> 244 244
<LONG-TERM> 6544 6544
0 0
2000 2000
<COMMON> 88 88
<OTHER-SE> 10270 10270
<TOTAL-LIABILITY-AND-EQUITY> 330336 330336
<TRADING-REVENUE> 923 (1064)
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<COMMISSIONS> 18814 4960
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<INTEREST-EXPENSE> 8459 2810
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<INCOME-PRETAX> 6208 807
<INCOME-PRE-EXTRAORDINARY> 6208 807
<EXTRAORDINARY> 0 0
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