UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 3l, 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
Identification No.)
9665 Wilshire Blvd., 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 None
Act:
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 12,775,205 shares NASDAQ
value: outstanding at May 1, 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
March 31, December 31,
1997 1996
(Unaudited)
Assets:
Cash and cash equivalents $ 10,959,063 $ 969,871
Cash segregated under federal and other 77,100,761 95,676,462
regulations
Receivable from broker/dealers and clearing
organizations (Net of allowance for doubtful
accounts of $2,103,802 for both periods) 7,959,216 7,034,713
Receivable from customers (Net of allowance
for doubtful accounts of $3,930.971 and
$3,931,080) 260,913,750 209,727,063
Other receivables (Net of allowance for
doubtful accounts of $1,979,793 for both
periods) 1,523,904 1,403,588
Securities owned - at market value 3,851,628 5,080,146
Furniture, equipment and leasehold
improvements (At cost - less accumulated
depreciation and amortization of $3,069,560
and $2,792,595) 3,166,418 2,987,209
Refundable income taxes 849,162 849,162
Deferred income taxes 689,795 689,795
Clearing deposits 5,687,899 4,973,246
Other assets 956,447 944,866
Total Assets $373,658,043 $330,336,121
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
March 31, December 31,
1997 1996
(Unaudited)
Liabilities and stockholders' equity:
Liabilities:
Payable to broker/dealers and clearing
organizations $ 62,522,810 $ 35,566,706
Payable to customers 283,530,638 262,019,997
Securities sold not yet purchased - at
market value 76,909 243,864
Accounts payable and accrued liabilities 6,659,263 7,605,998
Income taxes payable 790,362 --
Loans from stockholders 4,421,311 4,421,311
Notes payable 83,790 6,120,087
Loans subordinated to the claims of
general creditors 2,000,000 2,000,000
Total liabilities 360,085,083 317,977,963
Commitments and contingent liabilities
Stockholders' equity:
Convertible preferred stock ($10 par value
200,000 shares authorized; 200,000 issued
and outstanding for both periods) 2,000,000 2,000,000
Common stock ($.01 par value 100,000,000
shares authorized; 8,775,205 and
8,760,205 shares issued and outstanding) 87,752 87,602
Additional paid-in capital 9,555,396 9,541,496
Retained earnings 1,929,812 729,060
Total stockholders' equity 13,572,960 12,358,158
Total liabilities and stockholders' equity $373,658,043 $330,336,121
See accompanying notes to Consolidated Financial Statements
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Operations
(Unaudited)
For The Three Months Ended
March 31,
1997 1996
Revenues:
Clearing and execution $ 4,649,157 $ 5,049,753
Trading profits 1,364,285 280,769
Commissions 5,130,440 4,105,110
Interest 4,403,951 2,730,158
Other 69,805 738,825
Total Revenues 15,617,638 12,904,615
Expenses:
Employee compensation 2,355,979 1,795,814
Commission expense 2,130,809 1,847,175
Clearing and floor brokerage 591,661 528,905
Communications 1,126,498 1,229,333
Occupancy and equipment 846,899 581,120
Interest 2,716,039 1,578,041
Data processing charges 1,383,887 1,013,638
Professional services 1,029,783 1,048,568
Promotional 806,041 666,914
Bad debts (96,516) 211,495
Other operating expenses 621,696 457,513
Total Expenses 13,512,776 10,958,516
Income Before Income Taxes 2,104,862 1,946,099
Income Tax Provision 840,000 768,000
Net Income $1,264,862 $1,178,099
Primary Net Income Per Share $0.13 $0.11
Fully Diluted Income Per Share $0.07 $0.07
Weighted average number of shares of common
stock & common stock equivalents
Primary 9,449,398 9,893,595
Fully diluted 18,109,520 16,700,558
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Cash Flows
(Unaudited)
For The Three Months Ended
March 31,
1997 1996
Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Net income $ 1,264,862 $ 1,178,099
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation and amortization 277,035 190,736
Deferred rent (12,994) 24,487
Provision for bad debts (96,516) 211,495
Changes in assets and liabilities:
Cash segregated under federal and other
regulations 18,575,701 (29,221,749)
Receivable from broker/dealers and
clearing organizations (924,503) (1,294,483)
Receivable from customers (51,090,171) (40,303,550)
Other receivables (120,316) (1,558,801)
Securities owned 1,228,518 (1,376,264)
Clearing deposit (714,653) --
Other assets (11,581) (4,216,240)
Payable to broker/dealers and clearing
organizations 26,956,104 11,064,686
Payable to customers 21,510,641 53,105,904
Securities sold not yet purchased (166,955) 354,346
Accounts payable and accrued
liabilities (933,741) (3,417,529)
Income taxes payable/receivable 790,362 111,075
Net cash provided by (used in) operating
activities 16,531,793 (15,147,788)
Cash flows from investing activities:
Capital expenditures (456,244) (774,796)
Net cash used in investing activities (456,244) (774,796)
Cash flows from financing activities:
Repayments of notes payable (6,036,297) (29,634)
Advances (repayments) on short term -- 3,015,063
borrowing
Repayments of loans from stockholders -- (74,056)
Issuance of common stock 14,050 --
Payment of cash dividends - preferred
stock (64,110) (54,849)
Net cash provided by (used in) financing
activities (6,086,357) 2,856,523
Net increase (decrease) in cash and cash
equivalents 9,989,192 (13,066,061)
Cash and cash equivalents at beginning of
year 969,871 15,949,577
Cash and cash equivalents at end of year $ 10,959,063 $ 2,883,516
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 (all of which are normal and recurring in
nature) 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 Securities and Exchange Commission ("SEC") 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's major subsidiary, JBOC is consolidated in the quarterly
financial information as of March 28, 1997 and March 29, 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. Regulatory Requirements
JBOC is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1), which
requires the maintenance of minimum net capital.
At March 31, 1997, JBOC had net capital of $13,501,304 which was 5.1% of
aggregate debit balances and $8,236,314 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.
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
$76,200,750. Securities purchased are U.S. Treasury instruments having a market
value of 102% of cash tendered. The Company acquired an additional $5,000,000
of these securities on April 1, 1997 pursuant to these rules.
Note 3. Contingent Liabilities
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, the
most significant of which follow:
a)In an arbitration matter the claimant seeks recission of certain sales in
his customer account and damages of $750,000. The claimant alleged that
Reynolds Kendrick Stratton, Inc. ("RKSI" - a subsidiary which was closed in
July 1994) 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)In an action commenced in March 1995 in the United States District Court of
New York, a claim was brought by former counsel for the Company and alleges
payment due for professional services in the amount of $681,217. An answer
and counter claim by the Company was filed asserting among other claims that
the Company was overcharged for services. The ultimate outcome and range of
possible loss, if any, is not determinable at this stage. Management intends
to vigorously contest this matter.
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.
Note 4. Supplemental Disclosures of Cash Flow Information
For the Three Months Ended
March 31,
1997 1996
(Unaudited) (Unaudited)
Supplemental Disclosures of Cash Flow
Information
Cash paid during the quarter for:
Interest $2,716,779 $1,584,401
Income taxes 49,638 656,925
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Changes in Financial Condition
- ------------------------------
The Company's financial condition continued to improve as in past quarters,
concurrent with the Company's continued growth. Total assets increased
$43,321,922 or 13% during the first quarter of 1997. The largest dollar
increase was in receivables from customers in the amount of $51,186,687 or 24%
to $260,913,750. At March 31, 1997, receivables from customers represented 70%
of the assets of the Company. Cash segregated under federal regulations
decreased during the first quarter by $18,575,701 to $77,100,761. Cash and cash
equivalents increased by $9,989,192 or 1030% from December 31, 1996 to March 31,
1997.
Total liabilities increased $42,107,120 or 13% to $360,085,083. Payables
to customers increased $21,510,641 or 8% to $283,530,638. At March 31, 1997,
customer payables represented 79% of the total liabilities of the Company.
Payables to broker dealers increased by $26,956,104 or 76% to $62,522,810 during
the quarter ended March 31, 1997. Notes payable decreased $6,036,297 to
$83,790.
Comparison of Operations
- ------------------------
The Company recorded net income of $1,264,862 for the quarter ended March
31, 1997, compared to $1,178,099 reported for the quarter ended March 31, 1996,
an increase of $86,763.
Total revenue increased $2,713,023 or 21% to $15,617,638 for the three
months ended March 31, 1997 compared to the same three months of 1996.
Commission revenue increased by $1,025,330 or 25% during the first quarter
of 1997 compared to the first quarter of 1996. Net commissions (commission
revenue less commission expense) increased $1,348,051 during the same period.
The increase in commission is directly related to the 70% increase in discount
transaction volume. The decrease in amounts earned per transaction results from
the establishment of JB Online which has a lower commission structure. The
Company will introduce a new subsidiary broker dealer in the second quarter of
1997 which will offer "no-frills" electronic trading at deep discount commission
rates.
Clearing revenue declined $400,596 or 8% during the first quarter of 1997
compared to the first quarter of 1996. This decline is the result of a
reduction of amounts charged to process certain type of transactions to
correspondent brokers. This change is the result of competitive forces in the
market place. Clearing transaction volume in the first quarter of 1997 is up
20% over the first quarter of 1996. Payment for order flow has also declined
during the first quarter of 1997, resulting in lower execution revenues.
Interest revenue increased by $1,673,793 or 61% during the first quarter of
1997 compared to the first quarter of 1996. This increase is the result of
increased customer margin balances during the first quarter of 1997 compared to
1996. Net interest income increased $1,687,912 or 223% during the first quarter
of 1997 over the first quarter of 1996. Trading profits increased $1,083,516 or
386% during the first quarter of 1997 compared to the first quarter of 1996.
The Company's total expenses increased by $2,554,260 or 23% during the
first quarter of 1997 compared to the first quarter of 1996. The most
significant expense increase in dollars was the interest expense, which
increased $1,137,998 or 72% to $2,716,039. This increase is directly related to
the increase in interest revenue discussed above.
Salaries and other operational expenses increased concurrent with the
increase in transaction volume. The most significant increase of employee
compensation, $200,000, occurred in the Online division. This growth is
primarily the result of Management's efforts to expand the discount division of
the broker dealer subsidiary and more specifically the Online trading.
Clearing expense had a modest increase of only $62,756 or 12% from the
first quarter of 1997 compared to the first quarter of 1996. Contrasted with
the increase in total ticket volume of over 30%, as discussed above, the
clearing cost per transaction has been substantially reduced. This reduction is
attributed to a change in the subsidiary company's clearing corporation
resulting in a substantial decrease in clearing and safekeeping expenses.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity and financial condition remain sound at the end of
the first quarter of 1997. The Company's equity to total assets ratio decreased
slightly during the quarter, from 3.7% to 3.6%. This resulted from the growth
which occurred in the assets and liabilities as described above.
The increase in cash of $9,989,192 resulted from cash of $16,531,793 being
provided from operations, compared to a usage of $15,147,788 in 1996. The
largest source of cash was $26,031,601 provided from the net change in amounts
due from/to broker/dealers and clearing organizations. Cash and cash
equivalents segregated under federal and other regulations decreased by
$18,575,701 which also provided cash to operations. The cash position of the
Company remains strong Subsequent to the end of the quarter, the Company
obtained a $50,000,000 equity repurchase line of credit to increase its
liquidity.
The largest use of operating cash used for customers in the amount of
$29,579,530. This represents a net increase of customer receivables over
customer payables.
The Company used cash of $456,244 for investing activities involving the
acquisition of property and equipment. Cash of $6,086,357 was used in
financing activities, of which $6,036,297 was used for payments of notes
payable.
Recent Expansions and Developments
- ----------------------------------
The Company continues to pursue its electronic trading capabilities with
customers. During the first quarter of 1997, JBOC signed TV actor and
businessman/investor Wayne Rogers to act as spokesman for both the Company's
conventional and electronic trading operations in a series of new TV and print
advertising spots to begin airing in early summer. Management believes that
additional advertising exposure is critical to the Company's continued growth.
Also during the first quarter, the Company signed a cross marketing
agreement with Ira Epstein & Company Futures (Discount) of Chicago ("IEC"),
Illinois. JBOC will refer discount futures business to IEC, and IEC will refer
discount securities business to JBOC. The referral business will be done
primarily over the respective companies Internet sites and by direct mail, and
is in line with JBOC's efforts to provide additional financial services to its
customers.
The Company implemented a new trading system to accommodate the JB Oxford
Internet Investment CenterTM and Telephone TraderTM and an entirely new Web
site home page will be introduced in May 1997. The Company has also established
a new subsidiary, to begin business in the second quarter of 1997, aimed at a
"no-frills," low commission electronic market.
In April 1997 the holders of 200,000 shares of the Company's Senior Secured
Convertible Preferred Stock ("Preferred Shares") converted the Preferred Shares
into 4,000,000 shares of the Company's $0.01 par value Common Stock ("Common
Shares"). The Preferred Shares carried a quarterly dividend payment of 11% as
of the date of conversion. The effect on an annual basis is to increase fully
diluted earnings per share by approximately $0.015 per share and create a cash
savings of $300,000. Approximately 1,000,000 of the Common Shares issued upon
conversion of the Preferred Shares are held by an affiliate of the Company who
has agreed that any public resale of the 1,000,000 Common Shares in the United
States will be conducted in compliance with the provisions of Rule 144 under the
Securities Act of 1933 (the "Act") relating to the resale of securities held by
affiliates. Management believes that the holders of the newly issued Common
Shares are long-term investors who have no present intention of disposing of
their holdings. Management of the Company continues to negotiate new terms with
the holders of the Company's senior secured convertible debt that becomes due in
September of 1997 and believes it will be able to obtain new terms favorable to
the Company.
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
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 has not determined the effect of adoption on its EPS calculation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary conduct of business, the Company and/or its subsidiaries
have been named as Defendants in several lawsuits and arbitration matters or
have instituted legal proceedings as Plaintiffs to recover moneys owing. There
have been no material pending legal proceedings other than ordinary routine
litigation incidental to the business. Those which may have a significant
impact on the Company have been disclosed in previous filings. One matter
previously addressed has been decided as follows:
Marvin and Dorothy Frankel vs. Robert Kendrick, Reynolds Kendrick Stratton,
Inc., 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. Claimants sought damages in the amount
of $482,000. After a full hearing in the matter claimants were awarded
$180,000.
Item 2. Changes in Securities
There has been no material modification of ownership rights of securities
holders. The subsidiary company, as part of its normal broker/dealer activity,
has minimum capital requirements as imposed by regulatory agencies. (See Note 2
to the financial statements.) These requirements may restrict the payment of
dividends.
Item 3. Defaults Upon Senior Securities
There has been no default in payments of the Company.
Item 4. Submission of Matters to Vote of Security Holders
There have been no matters submitted to a vote of security holders during
this reporting period.
Item 5. Other Information
There have been no matters that require disclosure under this item.
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 11
(b) During this quarter, there were no events as required to be reported on
Form 8-K.
Exhibit 11
JB Oxford Holdings, Inc. and Subsidiaries
Computation of Earnings Per Share
(Unaudited)
For The Three Months
Ended March 31,
1997 1996
Primary Earnings Per Share
Net income $1,264,862 $1,178,099
Preferred stock dividends (64,110) (54,849)
Net income for primary earnings $1,200,752 $1,123,250
Weighted average common shares outstanding 8,764,705 8,655,205
Weighted average options outstanding 1,702,192 1,970,703
Stock acquired with proceeds (1,017,499) (732,313)
Weighted avg. common shares & equivalents
outstanding 9,449,398 9,893,595
Primary Earnings Per Share $0.13 $0.11
Fully Diluted Earnings Per Share
Net income $1,264,862 $1,178,099
Interest on convertible debentures, net of income
tax 59,688 61,739
Net Income for fully diluted earnings $1,324,550 $1,239,838
Weighted average common shares outstanding 8,764,705 8,655,205
Weighted average options outstanding 1,702,192 1,970,703
Weighted average convertible debentures 4,548,487 4,548,487
Weighted average convertible preferred stock 4,000,000 2,222,222
Stock acquired with proceeds (905,864) (696,059)
Weighted avg. shares common shares & equivalents
outstanding 18,109,520 16,700,558
Fully Diluted Earnings Per Share $0.07 $0.07
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
May 15, 1997
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 88060
<RECEIVABLES> 265615
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 6321
<INSTRUMENTS-OWNED> 10496
<PP&E> 3166
<TOTAL-ASSETS> 373658
<SHORT-TERM> 84
<PAYABLES> 341066
<REPOS-SOLD> 0
<SECURITIES-LOANED> 12437
<INSTRUMENTS-SOLD> 77
<LONG-TERM> 6421
0
2000
<COMMON> 88
<OTHER-SE> 11485
<TOTAL-LIABILITY-AND-EQUITY> 373658
<TRADING-REVENUE> 1364
<INTEREST-DIVIDENDS> 4404
<COMMISSIONS> 5130
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 70
<INTEREST-EXPENSE> 2716
<COMPENSATION> 4487
<INCOME-PRETAX> 2105
<INCOME-PRE-EXTRAORDINARY> 2105
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1264
<EPS-PRIMARY> .13
<EPS-DILUTED> .07
</TABLE>
