UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 Id. No.)
9665 Wilshire Boulevard, Suite 300
Beverly Hills, California 90212
(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 14,141,205 shares NASDAQ
value: outstanding at
November 7, 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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
September 30, December 31,
1997 1996
(Unaudited)
Assets:
Cash and cash equivalents $ 3,190,862 969,871
Cash segregated under federal and other 92,055,588 95,676,462
regulations
Receivable from broker/dealers and 11,026,139 7,034,713
clearing organizations (Net of
allowance for doubtful accounts of
$2,103,802 for both periods)
Receivable from customers (Net of 348,909,623 209,727,063
allowance for doubtful accounts of
$3,930,845 and $3,931,080)
Other receivables (Net of allowance for 2,285,454 1,403,588
doubtful accounts of $1,979,793 for
both periods)
Securities owned - at market value 3,517,067 5,080,146
Furniture, equipment and leasehold 3,335,168 2,987,209
improvements (At cost - less
accumulated depreciation and
amortization of $3,729,512 and
$2,792,595)
Income tax receivable 849,162 849,162
Deferred income taxes 689,795 689,795
Clearing deposits 9,969,823 4,973,246
Other assets 1,427,275 944,866
Total assets $477,255,956 $330,336,121
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
September 30, December 31,
1997 1996
(Unaudited)
Liabilities and stockholders' equity:
Liabilities:
Payable to broker/dealers and $ 71,970,850 $ 35,566,706
clearing organizations
Payable to customers 372,269,530 262,019,997
Securities sold not yet purchased - 782,707 243,864
at market value
Accounts payable and accrued 6,602,131 7,605,998
liabilities
Income taxes payable 584,622 --
Loans from stockholders 7,688,811 4,421,311
Notes payable -- 6,120,087
Loans subordinated to the claims of 1,500,000 2,000,000
general creditors
Total liabilities 461,398,651 317,977,963
Commitments and contingent liabilities
Stockholders' equity:
Convertible preferred stock ($10 par -- 2,000,000
value 200,000 shares authorized;
200,000 issued and outstanding at
12/31/96)
Common stock ($0.01 par value 141,412 87,602
100,000,000 shares authorized;
14,141,205 and 8,760,205 shares
issued and outstanding)
Additional paid-in capital 12,815,316 9,541,496
Retained earnings 2,900,577 729,060
Total stockholders' equity 15,857,305 12,358,158
Total liabilities and stockholders' $477,255,956 $330,336,121
equity
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Operations
(Unaudited)
For The Nine Months Ended
September 30,
1997 1996
Revenues:
Clearing and execution $ 14,931,784 $ 14,836,620
Trading profits 1,871,828 1,986,922
Commissions 19,003,452 13,853,917
Interest 17,627,762 9,997,497
Other 425,244 2,770,526
Total revenues 53,860,070 43,445,482
Expenses:
Employee compensation 7,375,896 6,546,358
Commission expense 7,531,871 6,021,739
Clearing and floor brokerage 2,324,898 1,602,262
Communications 4,699,389 4,157,246
Occupancy and equipment 3,024,469 1,989,734
Interest 10,387,351 5,649,011
Data processing charges 3,946,683 3,070,670
Professional services 3,202,684 2,931,612
Promotional 2,968,586 2,726,955
Bad debts and settlements 2,780,162 1,789,346
Other operating expenses 1,812,827 1,559,141
Total expenses 50,054,816 38,044,074
Income before income taxes 3,805,254 5,401,408
Income tax provision 1,548,258 2,180,000
Net income $ 2,256,996 $ 3,221,408
Primary net income per share $0.18 $0.31
Fully diluted income per share $0.13 $0.19
Weighted average number of shares of
common stock & common stock equivalents
Primary 12,259,345 9,874,075
Fully diluted 18,183,723 18,295,386
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Operations
(Unaudited)
For The Three Months Ended
September 30,
1997 1996
Revenues:
Clearing and execution $ 5,169,659 4,512,869
Trading profits (losses) (470,537) 1,222,426
Commissions 7,828,323 3,913,463
Interest 7,250,647 3,832,904
Other 248,681 877,544
Total revenues 20,026,773 14,359,206
Expenses:
Employee compensation 2,594,815 2,276,038
Commission expense 2,890,168 1,610,461
Clearing and floor brokerage 926,644 572,272
Communications 1,881,740 1,370,607
Occupancy and equipment 1,130,522 753,622
Interest 4,238,132 2,134,568
Data processing charges 1,467,473 948,463
Professional services 1,232,160 820,199
Promotional 617,875 1,017,503
Bad debts and settlements 1,052,198 733,519
Other operating expenses 474,826 606,486
Total expenses 18,506,553 12,843,738
Income before income taxes 1,520,220 1,515,468
Income tax provision 633,258 625,000
Net income $ 886,962 $ 890,468
Primary net income per share $0.06 $0.09
Fully diluted income per share $0.05 $0.05
Weighted average number of shares of
common stock & common stock equivalents
Primary 14,188,194 9,734,828
Fully diluted 18,612,957 18,156,139
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Cash Flows
(Unaudited)
For The Nine Months Ended
September 30,
1997 1996
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 2,256,996 $ 3,221,408
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 936,921 622,747
Deferred rent (38,271) 70,762
Provision for bad debts 628,214 512,514
Subordinated debt (500,000) --
Changes in operating assets and liabilities:
Cash segregated under federal and 3,620,874 (96,922,358)
other regulations
Receivable from broker/dealers and (3,991,426) (550,951)
clearing organizations
Receivable from customers (139,810,774)(34,039,833)
Other receivables (881,866) (848,999)
Securities owned 2,688,079 (1,055,502)
Clearing deposits (4,996,577) --
Other assets (482,409) (4,703,955)
Payable to broker/dealers and clearing 36,404,144 13,593,953
organizations
Payable to customers 110,249,533 118,057,173
Securities sold not yet purchased 538,843 (100,426)
Accounts payable and accrued (965,596) (3,494,066)
liabilities
Income taxes payable/receivable 584,622 (755,092)
Net cash provided by (used in) operating 6,241,307 (6,392,625)
activities
Cash flows from investing activities:
Long term investments (1,125,000) --
Capital expenditures (1,284,880 (1,445,109)
Net cash used in investing activities (2,409,880) (1,445,109)
Cash flows from financing activities:
Repayments of notes payable (6,120,087) (117,432)
Loans from stockholders 3,402,500 --
Proceeds from exercise of warrants 1,147,500 --
Repayments of loans from stockholders (135,000) (201,232)
Proceeds from issuance of common stock 180,130 95,250
Payment of cash dividends - preferred (85,479) (165,150)
stock
Net cash used in financing activities (1,610,436) (388,564)
Net increase (decrease) in cash and cash 2,220,991 (8,226,298)
equivalents
Cash and cash equivalents at beginning of 969,871 15,949,577
period
Cash and cash equivalents at end of $3,190,862 7,723,279
period
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Notes To Consolidated Financial Statements
(Unaudited)
Note 1. Company's Quarterly Report Under Form 10-Q
In the opinion of Management, the accompanying unaudited
financial statements contain all adjustments necessary to present
fairly the financial statements of JB Oxford Holdings, Inc. and
subsidiaries (the Company) for the periods presented. The
accompanying financial information should be read in conjunction
with the Company's 1996 Annual Report on Form 10-K. Footnote
disclosures that substantially duplicate those in the Company's
Annual Audited Report on Form 10-K, including significant
accounting policies, have been omitted.
The Company formed two subsidiaries, Stocks4Less, Inc.
(S4L) and JB Oxford Insurance Services, Inc. (JBOI) during
the current year. S4L commenced business at the end of the
second quarter, and JBOI commenced operations in October, 1997.
The Company's broker/dealer subsidiaries, JB Oxford &
Company (JBOC) and S4L are consolidated in the quarterly
financial information as of September 26, 1997 and September 27,
1996, because the last settlement Friday of each month is
consistently treated as month-end. Accordingly, this is
reflected in the consolidated financial statements of the
Company.
Note 2. Derivative Financial Instruments
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.
Options and warrants are valued at quoted market value and
options and warrants not readily marketable are valued at fair
value as determined by management. Fluctuations in market value
(or fair value) are included in the consolidated statement of
operations.
Note 3. New Accounting Pronouncements
The Statement of Financial Accounting Standard Number 128
(SFAS No. 128), Earnings Per Share (EPS), issued by the
Financial Accounting Standards Board (FASB) is effective for
financial statements issued for the periods ending after December
15, 1997, including interim periods. The SFAS No. 128 requires
restatement of all prior period EPS data presented. The new
standard also requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. The Company does not
expect that the adoption will have a material effect on its EPS
calculation.
Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure (SFAS
No. 129) issued by the FASB is effective for financial statements
issued for the periods ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements
previously in effect under Accounting Principles Board Opinion
No. 15, which has been superseded by SFAS No. 128. The Company
does not expect adoption of SFAS No. 129 to have a material
effect, if any, on its financial position or results of
operations.
Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (SFAS No. 130) issued by the
FASB is effective for financial statements with fiscal years
beginning after December 15, 1997. Earlier application is
permitted. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company does not
expect adoption of SFAS No. 130 to have a material effect, if
any, on its results of operations.
Statements of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related
Information (SFAS No. 131) issued by the FASB is effective for
financial statements beginning after December 15, 1997. The new
standard requires that public business enterprises report
certain information about operating segments in complete sets of
financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders.
It also requires that public business enterprises report certain
information about their products and services, the geographic
areas in which they operate and their major customers. The
Company does not expect adoption of SFAS No. 131 to have a
material effect, if any, on its results of operations.
Note 4. Loans from Shareholders
The Company has outstanding loans due to shareholders in the
amount of $7,688,811. These loans consist of Subordinated
Convertible Debentures in the amount of $4,421,311 and demand
notes in the amount of $3,267,500. The demand notes are
unsecured, due on demand after January 1, 1998 and bear interest
at 8 1/4% per annum due quarterly.
Note 5. Convertible Preferred Stock
The 200,000 shares of preferred stock were converted to
4,000,000 shares of $.01 par value common stock at the rate of
$.50 per share of common stock. This was based on the par value
of the preferred stock, and occurred on April 12, 1997, when the
holder exercised the conversion option.
Note 6. Stockholders' Equity
On April 12, 1997, 200,000 shares of preferred stock was
converted into 4,000,000 shares of $.01 par value common stock.
During the nine months ending September 30, 1997, 41,000 shares
of common stock was issued upon the exercise of various stock
options. Additionally, 65,000 shares of common stock were issued
as compensation to a spokesperson to appear in JBOC media and
print advertisements.
Note 7. Regulatory Requirements
JBOC and S4L are subject to the Securities and Exchange
Commission's (SEC) Uniform Net Capital Rule (Rule 15c3-1),
which requires the maintenance of minimum net capital. JBOC is
subject to the SEC's Customer Protection Rule (Rule 15c3-3).
At September 30, 1997, JBOC had net capital of $16,730,538
which was 4.6% of aggregate debit balances and $9,426,705 in
excess of the minimum amount required. 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 September 30, 1997, S4L had net capital of $141,649 which was
$131,187 in excess of the minimum amount required.
JBOC's 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 accounts are securities purchased under
agreements to resell on an overnight basis in the amount of
$94,655,588 as of September 30, 1997. Securities purchased are
U.S. Treasury instruments having a market value of 102% of cash
tendered. The Company deposited $2,600,000 of these securities
on September 30, 1997 pursuant to these rules.
Note 8. Contingent Liabilities
In the ordinary conduct of business, the Company and/or its
subsidiaries have been named as Defendants in a number of
lawsuits and arbitration matters or have instituted legal
proceedings as Plaintiffs to recover moneys owing. Moreover, due
to the inherent nature of litigation and arbitration proceedings,
it is not possible to predict the ultimate outcome and/or amount
of loss. In the opinion of Management, there are no individually
significant open arbitrations or lawsuits which would have a
material impact on the financial condition of the Company.
Moreover, the Company believes that the resolution of all such
open arbitrations and lawsuits will not have a significant impact
on the financial condition of the Company.
Note 9. Supplemental Disclosures of Cash Flow Information
For the Nine Months Ended
September 30,
1997 1996
(Unaudited) (Unaudited)
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $10,322,652 $5,686,859
Income taxes 869,378 3,260,996
Supplemental schedule of noncash investing
and financing activities:
In September 1997, a subordinated 500,000 --
loan was assigned due to a correspondents
early termination agreement.
In April 1997, 200,000 shares of 2,000,000 --
$10 par value non-voting convertible
preferred stock was exchanged for
4,000,000 shares of $0.01 par value
common stock.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Special Note Regarding Forward Looking Statements
Certain statements 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.
Changes in Financial Condition
At September 30, 1997, total assets decreased $55,312,052 or
10% from June 30,1997, but increased by $146,919,835 or 44% over
1996 year-end balances. Net assets (assets less liabilities) of
the Company increased by $3,499,147 or 28% to $15,857,305 from
December 31, 1996. This increase is a result of profitable
operations and the exercise of common stock options.
Receivables from customers increased $139,182,560 or 66% to
$348,909,623 during the first nine months of 1997. Receivables
from customers represent 73% of the Company's total assets at
September 30, 1997, up from 63% at December 31, 1996.
Receivables from broker/dealers and clearing organizations
increased $3,991,426 or 57% to $11,026,139 during the nine months
ended September 30, 1997. Clearing deposits increased by
$4,996,577 or 100% to $9,969,823 during the same period. This
increase in clearing deposits represents additional deposits
required by JBOC's clearing organizations.
From December 31, 1996 to September 30, 1997, total
liabilities increased $143,420,688 or 45% to $461,398,651.
Payables to customers increased $110,249,533 or 42% to
$372,269,530 during the same period. Customer payables represent
81% of the total liabilities of the Company. Payables to broker
dealers increased by $36,404,144 or 102% to $71,970,850 during
the nine months ended September 30, 1997. Of this increase,
$63,640,460 was attributable to increases in securities loaned.
These increases in receivables and payables to and from
customers, and receivables and payables to and from
broker/dealers, results primarily from growth in the business.
Accounts payable and accrued liabilities decreased by
$1,003,867 or 13% during the nine months ended September 30,
1997. The increase in loans from shareholders represents the
addition of demand notes on moneys borrowed from shareholders.
Comparison of Operations
The Company recorded net income of $2,256,996 for the nine
months ended September 30, 1997 compared to $3,221,408 in 1996,
and net income of $886,962 for the quarter ended September 30,
1997 compared to $890,468 in 1996. This represents a decrease of
$964,412 and $3,506 in earnings compared to the same periods in
1996. Net income for the nine months ended September 30, 1997
was negatively impacted by the previously disclosed settlement of
a lawsuit in the second quarter that resulted in an after-tax
loss of $900,000.
Total revenues increased $10,414,588 or 24% to $53,860,070
for the nine months ended September 30, 1997 compared to the same
nine months of 1996. Revenues for the third quarter of 1997
increased $5,667,567 or 39% compared to the same quarter of 1996,
and $2,201,114 or 12% over the second quarter of 1997.
Clearing and execution revenue increased by $95,164 or 1% to
$14,931,784 during the first nine months of 1997 compared to the
same period of 1996.
Commission revenue increased by $5,149,535 or 37% during the
first nine months of 1997. Net commissions (commission revenue
less commission expense) increased $3,639,403 or 46% during the
same period. The increase in commissions is directly related to
the increase in discount transaction volume, which increased 69%
over the same period for the prior year.
Interest revenue increased by $7,630,265 or 76% during the
first nine months of 1997. This increase was the result of
increased customer margin balances. Net interest income
increased $2,891,925 or 67% during the first nine months of 1997.
Trading profits decreased $115,094 or 6% during the first
nine months of 1997 compared to the same period in 1996.
Included in trading profits for the third quarter of 1997 is a
pre-tax charge of $500,000 related to the write-down of certain
inventory security positions to estimated realizable value.
The Company's total expenses increased by $12,010,742 or 32%
during the first nine months of 1997. Expenses for the quarter
ended September 30, 1997 increased $5,662,815 or 44% compared to
the quarter ended September 30, 1996 and $471,066 or 3% over the
second quarter of 1997.
Commission expense increased by $1,510,132 or 25% to
$7,531,871 during the first nine months of 1997. However,
related commission revenue increased by 37%.
Interest expense increased by $4,738,340 or 84% during the
first nine months of 1997 compared to the first nine months of
1996. This increase is directly related to the increase in
interest revenue described above.
Salaries and other operational expenses have increased as a
result of the increase in transaction volume and related revenue.
This growth is primarily the result of Management's efforts to
expand JBOC's discount division. In a continuing effort to
manage costs and maximize returns on dollars spent, Management
will monitor its customer leads in relation to the advertising
dollars being spent.
Clearing expense increased $722,636 or 45% during the first
nine months of 1997 compared to the first nine months of 1996.
This increase relates directly to an increase in overall
transaction volume which is up 57% during the first nine months
of 1997.
Bad debts and settlements expense increased by $990,816 or
55% to $2,780,162 during the first nine months of 1997 compared
to the same period of 1996. The most significant items were
related to the settlement of litigation matters. Occupancy and
equipment costs increased $1,034,735 or 52% during the first nine
months of 1997. Included in this increase is an increase in
depreciation expense of $314,174 and equipment rental expense of
$424,378. These increases reflect the Company's decision to
upgrade its communication and computer equipment.
Included in other revenues is $500,000 attributable to the
assignment to the Company of a subordinated loan previously due a
correspondent of JBOC. The assignment was the result of a
negotiated early termination of the clearing agreement between
JBOC and the correspondent.
Also included in other revenues is a pre-tax charge of
approximately $400,000 attributable to the write-down to
estimated fair value of an investment in the shares of a public
company made by JB Oxford Holdings, Inc. during the third quarter
of 1997. The sale of shares are restricted under Rule 144.
Liquidity and Capital Resources
The Company's equity to total assets ratio increased during
the quarter, from 2.6 % at June 30, 1997 to 3.3% at September 30,
1997. The increase in cash of $2,220,991 resulted primarily from
cash provided by operations of $6,241,307. Holders of 1,275,000
of the Company's options gave notice, effective July 7, 1997, to
exercise their options for the purchase of common stock, thereby
increasing equity by $1,147,500, and reducing the loans from
shareholders by a like amount.
Cash of $6,241,307 was provided by operating activities
during the first nine months of 1997. The largest source of cash
was in net amounts due to/from broker/dealers and clearing
organizations of $32,412,718. Cash was also provided from net
income in the amount of $2,256,996 and from the liquidation of
cash segregated under federal and other regulations in the amount
of $3,620,874.
The largest use of operating cash was used in due to/from
customers of $29,561,241. The increase in clearing deposits also
used cash in the amount of $4,996,577.
The Company used cash of $2,409,880 for investing activities
for the nine months ended September 30, 1997. The company
invested $1,125,000 in 486,486 shares of Beachport Entertainment
Corporation which is a long-term investment. Additionally, the
Company spent $1,284,880 in the acquisition of property and
equipment.
Cash of $1,610,436 was used for financing activities. The
largest use of cash was the repayments of notes payable in the
amount of $6,120,087. Cash in the amount of $3,267,500 was
provided from additional loans from stockholders. Additionally,
$1,147,500 cash was provided from the exercise of common stock
options.
Management of the Company believes that in order to carry
out its current business plan, it will need additional capital
beyond internal capital generated by retained earnings.
Therefore, the Company is seeking additional capital from outside
sources. The form and amount of such capital infusion is not
fixed and the Company is considering several alternatives. JBOC
is also seeking additional lines of credit to finance its
customer margin activity and growth. There is no assurance that
the Company will be able to obtain additional capital or lines of
credit in which case the Company's ability to increase its
business would be negatively impacted.
Recent Expansions
Trade volumes and revenues continued their growth from the
second quarter into the third quarter of 1997. Revenues for the
third quarter of 1997 were $20 million, an increase over the
second quarter of $1.8 million or 10%. Total average daily
trades cleared by JBOC increased in September 1997 over June 1997
by 8%. Of this increase, 73% was due to correspondent business.
The traditional retail discount business continues to expand
as does JBOC's electronic trading division, JB On-lineO. Sales
of mutual funds and fixed income products continue to grow at
record levels as the company continues to expand its product
base. JB Oxford Insurance Services, Inc., the Company's
insurance subsidiary, is licensing agents in order to offer
annuity and other insurance related products to customers of
JBOC. During the third quarter of 1997, the Company's
subsidiary, Stocks4Less, Inc. (_S4L_), continued to grow its
customer base, offering deep, deep discount electronic trading
services to retail accounts for the trading of equities and
options. S4L offers services through multiple access points
including the Internet (at http://www.stocks4less.com), direct
modem access via a personal computer, and touch-tone telephones.
Recent Developments
During the third quarter of 1997, JBOC's net capital fell
below 5% of its aggregate customer debit items requiring
notification to the SEC and NASD under Early Warning rules. JBOC
has, however, maintained approximately $9,000,000 of net capital
in excess of minimum requirements (2% of aggregate customer debits).
This situation was a result of customer debits increasing as the
Company did more business with and for its customers. In an effort
to improve its capital position, JBOC chose not to bid on the
renewal of a clearing agreement with a correspondent
broker/dealer whose customers accounted for approximately
$75,000,000 in debits on JBOC's books. This correspondent
broker/dealer accounted for a significant percentage of JBOC's
trade ticket volume and clearing revenue. However, as the
clearance fees charged this correspondent were among the lowest
charged by JBOC, the impact on net income will not be as great.
The combination of not renewing the clearing agreement and
profitable operations improved JBOC's net capital position such
that estimated net capital at October 31, 1997 was 5.5% of
aggregate customer debits and excess net capital at that same
date was approximately $10,000,000. Management believes that the
reduction of clearing revenue attributable to not renewing this
clearing agreement will be offset, in part, by additional
revenues attributable to growth of existing correspondents, the
acquisition of new correspondents and growth of JBOC's discount
commission business.
At a recent meeting of the Board of Directors of the
Company, held in September 1997, Michael J. Chiodo, who had been
serving as Acting Chief Financial Officer, was named Chief
Financial Officer, and Scott G. Monson, who had been serving as
Associate General Counsel, was named General Counsel. On October
28, 1997, Gregg A. Herbert tendered his resignation from the
Board of Directors of the Company.
On August 19, 1997, a search warrant was served at the
Beverly Hills, California corporate offices of the Company and
its subsidiary, JB Oxford & Company, pursuant to a request made
by the Federal Bureau of Investigation. The Company and certain
of it officers and employees were also served with Grand Jury
subpoenas. The search warrant and subpoenas were issued in
connection with an investigation being conducted by the US
Attorney's Office in Los Angeles. A focus of the investigation
appears to be the relationship and activities of Irving Kott with
the Company and possible market manipulation. The Company
cannot, however, say with any certainty that these are the only
issues involved in the investigation. Mr. Kott is an individual
who had been retained through an entity named Turret Consultants
as a consultant to the Company. In connection with this
investigation, the Swiss branch office of JB Oxford & Company as
well as the offices of Oeri Finance, Inc. were searched by French
and Swiss authorities pursuant to a request make by the US
Justice Department. Felix A. Oeri, Chairman of the Board of
Directors of the Company, also serves as President of Oeri
Finance, Inc.
On or about the same date, the Company, its directors, JB
Oxford & Company and certain of its officers and employees were
served with subpoenas duces tecum issued by the Securities and
Exchange Commission in connection with an investigation conducted
by that agency entitled In the matter of Reynolds Kendrick
Stratton, Inc. (Reynolds Kendrick Stratton, Inc. is a subsidiary
of the Company which has been inactive since July 1994, but
formerly operated as a broker/dealer). The subpoenas generally
call for the production of documents relating apparently to the
same issues which are the subject of the Grand Jury
investigation.
The Company has retained counsel in the above matters and
has cooperated with the US Attorney's Office and the SEC in their
on-going investigations. Pursuant to the subpoenas served by the
US Attorney's Office and the SEC, the Company has and is
continuing to produce various documents responsive to such
subpoenas. At this stage of both investigations, it is not
possible to predict their ultimate outcome or the financial
impact on the Company, if any. In September of 1997, the Company
ended its consulting relationship with Turret Consultants.
In November 1997, the Company retained the law firm of Bryan
Cave, LLP to provide the Company a prospective regulatory
oversight review of the Company's broker/dealer operations. The
review is being conducted under the direction of Gerald E. Boltz,
Esq.; Mr. Boltz is a former Regional Director of the SEC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary conduct of business, the Company and/or its
subsidiaries have been named as Defendants in several lawsuits
and arbitration matters or have instituted legal proceedings as
plaintiffs to recover moneys owing. There have been no material
changes in such matters other than as follows:
Olde Discount Corporation vs. JB Oxford & Company NASD
Arbitration No. 95-04710
In an arbitration matter filed in October 1995, the Claimant
alleged 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
entered into a Memorandum of Understanding to settle and resolve
the matter, with no admission of liability and no payment of
damages by either party. The parties have now executed the final
settlement agreement, and JBOC has reimbursed to Olde a portion
of costs and fees related to the action, the payment of which had
no material impact on the Company's earnings.
Shea & Gould vs. RKS Financial Group, Inc. et al., United States
District Court for the Southern District of New York, Case No.
95-0641
In an action commenced in March 1995, a claim was brought by
former counsel for the Company and alleges payment due for
professional services in the amount of $681,217. This matter was
settled by the parties in November, 1997; the settlement did not
have a material impact on the Company's earnings.
Item 4. Submission of Matters to Vote of Security Holders
The Company held its Annual Meeting of Stockholders on
September 19, 1997. The following matters were submitted to a
vote of security holders at that meeting:
1. The election of a new Board of Directors to serve until the
next Annual Stockholders' meeting, to be held in 1998. The
following individuals were so elected:
Stephen Rubenstein Felix A. Oeri
Mitchell Wine Gregg Herbert
John Broome
2. The Stockholders ratified the appointment of BDO Seidman, LLP
as the independent public accountants of the Company for
fiscal year ending December 31, 1997.
3. The Stockhareholders ratified all purchases, contracts,
contributions, compensations, acts, decisions, proceedings,
elections and appointments of the Board of Directors, as
taken by the Board, since the last Shareholders' Meeting,
August 9, 1996.
4. The Stockholders voted against a proposal to amend the
Company's 1994 Employee Stock Option Plan, to increase the
number of shares of common stock issuable under the Plan by
an additional 1,000,000 shares.
Item 6 Exhibits and Reports on Form 8-K
(a) The following exhibit is filed with this report as required
by Item 601 of Regulation S-K:
Exhibit No. Description Page
11 Computation of Earnings Per Share 16 - 17
(b) During this quarter, the Company did not file a Report on
Form 8-K.
Exhibit 11
JB Oxford Holdings, Inc. and Subsidiaries
Computation of Earnings Per Share
(Unaudited)
For The Nine Months Ended
September 30,
1997 1996
Primary earnings per share
Net income $2,256,996 $3,221,408
Preferred stock dividends (85,479) (165,150)
Net income for primary earnings $2,171,517 $3,056,258
Weighted average common shares outstanding 11,725,670 8,687,778
Weighted average options outstanding 1,283,461 1,875,177
Stock acquired with proceeds (749,786) (688,880)
Weighted average common shares and 12,259,345 9,874,075
equivalents outstanding
Primary earnings per share $0.18 $0.31
Fully diluted earnings per share
Net income $2,256,996 $3,221,408
Interest on convertible debentures, net 179,064 182,474
of income tax
Net Income for fully diluted earnings $2,436,060 $3,403,882
Weighted average common shares outstanding 11,725,670 8,687,778
Weighted average options outstanding 1,283,461 1,875,177
Weighted average convertible debentures 4,421,311 4,421,311
Weighted average convertible preferred 1,494,505 4,000,000
stock
Stock acquired with proceeds (741,224) (688,880)
Weighted average shares common and 18,183,723 18,295,386
equivalents outstanding
Fully diluted earnings per share $0.13 $0.19
Exhibit 11
JB Oxford Holdings, Inc. and Subsidiaries
Computation of Earnings Per Share
(Unaudited)
For The Three Months Ended
September 30,
1997 1996
Primary earnings per share
Net income $ 886,962 890,468
Preferred stock dividends -- (55,452)
Net income for primary earnings $ 886,962 835,016
Weighted average common shares 14,044,194 8,732,542
outstanding 94
Weighted average options outstanding 487,703 1,834,355
Stock acquired with proceeds (343,703) (832,069)
Weighted average common shares & 14,188,194 9,734,828
equivalents outstanding
Primary earnings per share $0.06 $0.09
Fully diluted earnings per share
Net income $ 886,962 890,468
Interest on convertible debentures, net 59,688 60,010
of income tax
Net income for fully diluted earnings $ 946,650 950,478
Weighted average common shares 14,044,194 8,732,542
outstanding
Weighted average options outstanding 487,703 1,834,355
Weighted average convertible debentures 4,421,311 4,421,311
Weighted average convertible preferred -- 4,000,000
stock
Stock acquired with proceeds (340,251) (832,069)
Weighted average shares common & 18,612,957 18,156,139
equivalents outstanding
Fully diluted earnings per share $0.05 $0.05
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 Chief Financial Officer
November 11, 1997
29 <PAGE>
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