UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Amendment No. 1 to the quarterly period ended June 30, 1998
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 (310) 777-8888
code
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date. As of August 10, 1998, the Registrant had the following
number of shares of common stock, $0.01 par value per share,
outstanding: 14,141,205.<PAGE>
EXPLANATORY NOTE
This form 10-Q/A-1 is being filed by JB Oxford Holdings, Inc.,
a Utah corporation (the "Company"), as an amendment to its Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1998,
filed August 14, 1998, to re-file the Company's unaudited
Consolidated Balanc Sheet for the six months ended June 30, 1998 to
correct a document conversion error contained therein. The
"payable to customers" was incorrectly reported as $32,612,289 when
that figure is correctly reported as $232,612,289, and the "total
liablilities" was incorrectly reported as 35,955,651 when that
figure is correctly reported as $335,955,651. A corrected
consolidated Balance Sheet is filed herewith.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
June 30, 1998 December 31,
(Unaudited) 1997
Assets:
Cash and cash equivalents $ 5,275,917 2,598,062
Cash segregated under federal and other
regulations 36,985,647 34,903,262
Receivable from broker-dealers and
clearing organizations (net of allowance
for doubtful accounts of $2,103,802 for
both periods) 11,907,624 4,682,908
Receivable from customers (net of
allowance for doubtful accounts of
$4,231,102 and $4,231,016) 278,200,331 280,287,735
Other receivables (net of allowance for
doubtful accounts of $1,979,793 for both
periods) 1,351,232 2,233,321
Securities owned - at market value 3,068,894 3,737,661
Furniture, equipment, and leasehold
improvements (at cost - net of
accumulated depreciation and
amortization of $4,771,460 and
$4,051,672) 3,569,012 3,460,467
Income taxes refundable 717,396 717,396
Deferred income taxes 1,076,529 918,358
Clearing deposits 7,299,268 6,728,590
Other assets 1,231,291 2,044,588
Total assets $350,683,141 $342,312,348
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
June 30, 1998 December 31,
(Unaudited) 1997
Liabilities and stockholders' equity:
Liabilities:
Payable to broker-dealers and clearing
organizations $ 83,523,819 $90,222,450
Payable to customers 232,612,289 221,033,056
Securities sold, not yet purchased - 703,995 1,148,706
at market value
Accounts payable and accrued
liabilities 7,478,821 5,791,409
Income taxes payable -- 182,028
Loans from stockholders 9,288,811 7,288,811
Notes payable 1,097,916 22,894
Subordinated borrowings 1,250,000 1,500,000
Total liabilities 335,955,651 327,189,354
Commitments and contingent liabilities
Stockholders' equity:
Common stock ($.01 par value,
100,000,000 shares authorized;
14,141,205 shares issued and outstanding) 141,412 141,412
Additional paid-in capital 13,375,316 12,815,316
Retained earnings 1,210,762 2,166,266
Total stockholders' equity 14,727,490 15,122,994
Total liabilities and stockholders'
equity $350,683,141 $342,312,348
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Operations
(Unaudited)
For The Six Months Ended June 30,
1998 1997
Revenues:
Clearing and execution $ 4,675,070 $ 9,762,126
Trading profits 2,936,557 2,342,365
Commissions 13,303,389 11,175,128
Interest 11,332,723 10,377,115
Other 274,293 176,563
Total Revenues 32,522,032 33,833,297
Expenses:
Employee compensation 4,655,416 4,781,081
Commission expense 5,251,519 4,641,703
Clearing and floor brokerage 2,049,847 1,398,253
Communications 2,995,935 2,817,650
Occupancy and equipment 2,735,022 1,893,947
Interest 7,057,904 6,149,219
Data processing charges 2,571,640 2,479,210
Professional services 1,764,249 1,970,524
Promotional 2,045,514 2,350,711
Bad debts 672,989 1,727,964
Other operating expenses 1,367,501 1,338,001
Total Expenses 33,167,536 31,548,263
Income (Loss) From Operations (645,504) 2,285,034
Non-cash interest expense on
convertible notes 560,000 --
Income (Loss) Before Income Taxes (1,205,504) 2,285,034
Income Tax Provision (250,000) 915,000
Net Income (Loss) $ (955,504) $1,370,034
Basic Net Income (Loss) Per Share $(0.07) $0.12
Diluted Net Income (Loss) Per Share $(0.07) $0.08
Weighted average number of shares
Basic 14,141,205 10,547,194
Diluted 14,141,205 18,116,027
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Operations
(Unaudited)
For The Three Months Ended
June 30,
1998 1997
Revenues:
Clearing and execution $ 2,388,243 $ 5,112,969
Trading profits 1,133,673 978,080
Commissions 7,057,738 6,044,688
Interest 5,925,576 5,973,164
Other 14,378 106,758
Total Revenues 16,519,608 18,215,659
Expenses:
Employee compensation 2,309,426 2,425,102
Commission expense 2,919,337 2,510,894
Clearing and floor brokerage 1,091,310 806,592
Communications 1,596,912 1,691,152
Occupancy and equipment 1,363,688 1,047,048
Interest 3,607,967 3,433,180
Data processing charges 1,131,193 1,095,323
Professional services 731,301 940,741
Promotional 1,213,896 1,544,670
Bad debts 305,790 1,824,480
Other operating expenses 755,763 716,305
Total Expenses 17,026,583 18,035,487
(506,975) 180,172
Income (Loss) From Operations
Non-cash interest expense on
convertible notes 560,000 --
Income (Loss) Before Income Taxes (1,066,975) 180,172
Income Tax Provision (197,371) 75,000
Net Income (Loss) $ (869,604) $ 105,172
Basic Net Income (Loss) Per Share $(0.06) $0.01
Diluted Net Income (Loss) Per Share $(0.06) $0.01
Weighted average number of shares
Basic 14,141,205 12,310,095
Diluted 14,141,205 13,153,671
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Cash Flows
(Unaudited)
For The Six Months Ended June 30,
1998 1997
Increase (decrease) in cash and cash equivalents:
Cash flows provided by operating activities:
Net income (loss) $ (955,504) $ 1,370,034
Adjustments to reconcile net income
(loss) to cash used in operating
activities:
Depreciation and amortization 719,788 604,616
Deferred rent (55,378) (27,440)
Provision for bad debts 86 227,964
Non-cash interest expense on
convertible debentures 560,000 --
Changes in assets and liabilities:
Cash segregated under federal and
other regulations (2,082,385) (97,751,936)
Receivable from broker-dealers and
clearing organizations (7,224,716) (12,016,185)
Receivable from customers 2,087,318 (88,509,866)
Other receivables 882,089 (1,172,547)
Securities owned 668,767 779,138
Clearing deposits (570,678) (1,114,149)
Deferred taxes receivable (158,171) --
Other assets 813,297 (434,919)
Payable to broker-dealers and
clearing organizations (6,698,631) 56,288,365
Payable to customers 11,579,233 133,176,025
Securities sold, not yet purchased (444,711) 754,074
Accounts payable and accrued lia. 1,742,790 4,511,326
Income taxes payable/receivable (182,028) 256,972
Net cash provided by operating
activities 681,166 (3,058,528)
Cash flows from investing activities:
Capital expenditures (828,333) (902,385)
Net cash used in investing activities (828,333) (902,385)
Cash flows from financing activities:
Repayments of notes payable (250,000) --
Advances on short term borrowing 1,075,022 2,407,879
Loans from stockholders 2,000,000 3,400,000
Issuance of common stock -- 180,130
Payment of cash dividends - preferred stock -- (85,479)
Net cash provided by (used in) financing
activities 2,825,022 5,902,530
Net increase in cash and cash equivalents 2,677,855 1,941,617
Cash and cash equivalents at beginning of
the year 2,598,062 969,871
Cash and cash equivalents at end of the
year 5,275,917 2,911,488
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 its
subsidiaries (the "Company") for the periods presented. The
accompanying financial information should be read in conjunction
with the Company's 1997 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.
Two of the Company's subsidiaries, JB Oxford & Company
("JBOC") and Stocks4Less, Inc. ("S4L"), are consolidated in the
quarterly financial information as of June 26, 1998 and June 27,
1997, respectively, 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. Deferred Income Taxes
Deferred income taxes are recorded at the amount Management
believes to be realizable. No valuation allowance has been
recorded, as Management believes the deferred income taxes will be
realized through future profits of the Company.
Note 3. Convertible Notes
In June 1998, the Company completed the sale of newly issued
9% Secured Convertible Notes in the principal amount of $2.0
million due December 31, 1999. The notes are convertible into
the Company's $0.01 par value common stock at a rate of $0.70 per
share. The notes will be converted into a new issue of voting
preferred stock of the Company if such new issue is approved by
the Company's shareholders at a meeting to be held late in 1998.
The new preferred stock will be convertible into common stock on
the same terms as newly issued 9% Secured Convertible Notes.
In conjunction with the above transaction, the purchasers of
the newly issued 9% Secured Convertible Notes and another
investor also acquired approximately $3.9 million in outstanding
principal amount of the Company's 9% Senior Secured Convertible
Notes. The Company agreed to reduce the conversion ratio from
$1.00 to $0.70 per share of the Company's common stock for the
entire $4,421,311 of outstanding 9% Senior Secured Convertible
Notes. The maturity date of the notes was extended to December
31, 1999, and they are immediately convertible into common
shares.
The Company incurred a non-cash interest charge of $560,000
in the second quarter of 1998 as a result of the discount
converstion feature on the debt instruments discussed above. The
discount is based on the difference of the conversion ratio to
the fair value of the underlying common stock.
Note 4. Earnings per Share
The following table reconciles the numerators and
denominators of the basic and diluted earnings per share
computation:
For The Six Months Ended
June 30,
1998 1997
Basic Earnings Per Share
Net income (loss) $(955,504) $1,370,034
Preferred stock dividends -- (85,480)
Income (loss) available to common
stockholders (numerator) $(955,504) $1,284,554
Weighted average common shares
outstanding (denominator) 14,141,205 10,547,194
Basic Earnings (Loss) Per Share $(0.07) $0.12
Diluted Earnings Per Share
Net income (loss) $(955,504) $1,370,034
Interest on convertible debentures, net
of income tax -- 119,376
Income (loss) available to common
stockholders plus assumed conversions
(numerator) $(955,504) $1,489,410
Weighted average common shares
outstanding 14,141,205 10,547,194
Weighted average options outstanding -- 1,687,935
Weighted average convertible debentures -- 4,548,487
Weighted average convertible preferred stock -- 2,254,144
Stock acquired with proceeds -- (921,733)
Weighted average common shares and
assumed conversions outstanding
(denominator) 14,141,205 18,116,027
Diluted Earnings (Loss) Per Share $(0.07) $0.08
The assumed conversions have been excluded in computing the
diluted earnings per share when there is a net loss for the
period. They have been excluded because their inclusion would
reduce the loss per share, or be antidilutive.
Options to purchase 965,000 and 405,000 shares of common
stock at June 30, 1998 and 1997, were not included in the
computation of diluted earning per share because the options'
exercise price was greater then the average market price of the
common stock during the respective periods. The options carry
exercise prices ranging from $1.08 to $3.00 at June 30, 1998, and
1997. The options outstanding at June 30, 1998 expire at various
dates through July 9, 2007. Quarter ending June 30, 1997
earnings (loss) per share have been restated to conform with
Statement of Financial Accounting Standards No. 128 "Earnings per
Share" ("SFAS 128").
Basic and diluted earnings per share, in accordance with
SFAS 128, are $0.01 higher than primary and diluted earnings per
share calculated in accordance with APB 15 at June 30, 1997.
Note 5. Regulatory Requirements
JBOC and S4L are subject to the SEC'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 2% 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 5% of aggregate
debits. S4L is a fully disclosed non-clearing broker-dealer,
which is required to maintain minimum net capital, as defined,
equal to the greater of $5,000 or 6 2/3% of aggregate
indebtedness, as defined by the rule.
At June 30, 1998, JBOC had net capital of $15,799,057, which
was 5.5% of aggregate debit balances and $10,087,552 in excess of
the minimum amount required. At December 31, 1997, JBOC had net
capital of $14,380,292, which was 5.1% of aggregate debit
balances and $8,728,676 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 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 of
$37,725,360 and $34,554,930 at June 30, 1998 and December 31,
1997, respectively. Securities purchased are U.S. Treasury
instruments having a market value of 102% of cash tendered.
Note 6. Contingent Liabilities
The Company and/or its subsidiaries are defendants in
several lawsuits and arbitrations, descriptions of the most
significant of which follow:
a) In a District Court action commenced in November 1997, in the
Third Judicial District Court of the State of Utah. The claim
is brought by a former officer and director of the Company,
William R. Stratton, and alleges breach of an employment
agreement with OTRA Clearing Inc. (a subsidiary of the
Company, later known as Reynolds Kendrick Stratton, Inc.,
which has been inactive since July 1994, but formerly operated
as a broker-dealer), which claimant alleges is binding on the
Company. Mr. Stratton alleges that he is owed damages of not
less than $1.2 million, comprised of additional compensation,
insurance benefits, and vacation pay. The Company has filed
an answer denying that Mr. Stratton is owed any additional
amounts. Discovery has commenced. The ultimate outcome and
range of possible loss, if any, is not determinable at this
stage. Management intends to vigorously contest this matter.
Accordingly, no provision for any liability that might result
has been made in the accompanying financial statements.
b) On August 19, 1997, a search warrant was served at the
Beverly Hills, California corporate offices of the Company and
its subsidiary, JBOC, pursuant to a request made by the
Federal Bureau of Investigation. The Company and certain of
its 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 U.S.
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
JBOC as well as the offices of Oeri Finance, Inc. were
searched by French and Swiss authorities pursuant to a request
made by the U.S. Justice Department. Felix A. Oeri, the
former Chairman of the Board of Directors of the Company,
serves as President of Oeri Finance, Inc.
On or about the same date, the Company, its directors,
JBOC and certain of its officers and employees were served
with subpoenas duces tecum issued by the SEC in connection
with an investigation conducted by that agency entitled In the
matter of Reynolds Kendrick Stratton, Inc. 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 U.S. Attorney's Office and the SEC
in their on-going investigations. Pursuant to the subpoenas
served by the U.S. 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 and Mr. Kott.
Under an existing Directors and Officers liability
insurance policy held by the Company, a claim was filed with
the insurer for the reimbursement of legal fees incurred in
connection with the federal investigations. The policy calls
for a maximum reimbursement to the Company of $2 million. The
insurance company preliminarily denied the Company's claim
under their interpretation of the terms of the policy. The
Company believes that the insurance company has improperly
denied the Company's claim and has filed an action alleging
breach of contract. The Company believes that it currently
can fund the ongoing legal costs associated with the
investigations regardless of the outcome of the Company's
claim.
Note 7. Supplemental Disclosures of Cash Flow Information
For the Six Months Ended June 30,
1998 1997
(Unaudited) (Unaudited)
Supplemental Disclosures of Cash Flow Information
Cash paid during the quarter for:
Interest $6,318,076 $6,150,204
Income taxes 346,829 658,028
Note 8. Comprehensive Income
Comprehensive income (as defined by SFAS 130) is the change
in the Company's equity during the period from transactions and
events other than those resulting from investments by, and
distributions to owners. Net income is the only component of
comprehensive income recorded by the Company for the periods
presented. Therefore, all elements of comprehensive income are
presented in the statement of operations.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking Statements
Certain statements in this Report on Form 10-Q, particularly
under Item 2, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
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.
General
JB Oxford Holdings, Inc. was incorporated in Delaware on
March 31, 1987, and relocated its state of incorporation to Utah
in 1990. The Company is a holding company and operates in a
single industry segment. The most significant subsidiary of the
Company is JB Oxford & Company, a registered broker-dealer
offering the following services: (i) full service discount
brokerage services to the investing public through its registered
representatives; (ii) proprietary electronic and touch tone
telephonic trading services; (iii) clearing, settlement,
execution, safekeeping, cash, and margin account services for
regional broker-dealers ("correspondents") on a fully-disclosed
basis; and (iv) market maker services in NASDAQ and listed
securities. In addition, and in an effort to appeal to the on-
line customer who is solely price driven, in 1997 the Company
began offering deep discount electronic services through a new
subsidiary, Stocks4Less, Inc. ("S4L").
Changes in Financial Condition
The Company's assets declined during the second quarter of
1998 after increasing during the first quarter of 1998. This
decline is due to a reduction in segregated cash, which is a
result of customer credits being used to acquire securities or
paid out to the customer. Cash segregated under federal
regulations decreased during the second quarter of 1998 by
$39,247,044 to $36,985,647. Total assets decreased $36,815,584
or 10% during the second quarter of 1998, as compared to the
first quarter of 1998, however assets remain above December 31,
1997 levels by 2%. Cash and cash equivalents decreased by
$5,355,824 or 50%. At June 30, 1998 receivables from customers
represented 79% of the Company's assets.
Total liabilities decreased $36,505,980 or 10% to
$335,955,651. Payables to customers decreased $32,013,076 or 12%
to $232,612,289. At June 30, 1998 customer payables represented
69% of the total liabilities of the Company.
Comparison of Operations
The Company recorded a net loss of $869,604 for the quarter
ended June 30, 1998 after a non-cash accounting charge for
interest of $560,000. This one time non-cash accounting charge
(which has no impact on the Company's net worth) represents the
difference between fair value of the Company's common stock and
the exercise value of such stock underlying convertible notes
either issued during the second quarter or on existing
convertible notes where the exercise value was reduced during the
second quarter in connection with certain transactions. See
"Recent Expansions and Developments." This compares to net income
of $105,172 for the quarter ended June 30, 1997, and a net loss
of $85,900 for the quarter ended March 31, 1998.
Total revenues for the second quarter of 1998 were
$16,519,608, a decrease of $1,696,051 from the comparable 1997
quarter and an increase of $517,184 from the first quarter of
1998. Total expenses for the second quarter were $17,026,583, a
decrease of $1,008,904 from the comparable quarter in 1997, and
an increase of $885,630 from the first quarter of 1998.
The following table presents comparisons of significant
components of revenues and expenses between the current quarter,
the year ago quarter and the trailing quarter:
For the Three Months Ended
June June March
Reveunues (000's) 1998 1997 1998
Clearing $2,388 $5,113 $2,287
Trading 1,134 978 1,803
Commissions 7,058 6,045 6,246
Interest Income 5,926 5,973 5,407
Other 14 107 260
Expenses (000's)
Commissions 2,919 2,511 2,332
Salaries 2,309 2,425 2,346
Interest 3,608 3,433 3,450
Communications
& Data Processing 2,728 2,786 2,839
Promotional 1,214 1,545 832
Professional Fees 731 941 1,033
Clearing 1,091 807 959
Six Months Ended June 30, 1998 compared to Six Months Ended
June 30, 1997
The Company recorded a loss of $955,504 for the six months
ended June 30, 1998 compared to net income of $1,370,034 for the
period ended June 30, 1997, the most significant contributor
being the decrease in clearing revenue, discussed below. Total
revenue decreased $1,311,265, or 4%, to $32,522,032 for the six
months ended June 30, 1998 when compared to the same period in
1997.
Commission revenue increased by $2,128,261, or 19%, during
the first six months of 1998 compared to the first six months of
1997. Net commissions (commission revenue less commission
expense) increased $1,518,445 during the same period.
Clearing revenue declined $5,087,056 or 52%, during the six
months ended June 30, 1998 compared to the period ended June 30,
1997. This decline is the result of a reduction in the number of
trades executed for correspondent brokers in the first six months
of 1998. A significant portion of this decline resulted from the
Company not renewing the clearing agreement with a major
correspondent broker in the fourth quarter of 1997. Payment for
order flow continued to decline during the second quarter of
1998, resulting in lower execution revenues.
Interest revenue increased $955,608 or 9% to $11,332,723
during the first half of 1998 compared to the first half of 1997.
Net interest income increased $46,923 or 1%, during the first six
months of 1998 over the first six months of 1997. Revenue from
trading profits increased $594,192 or 25%, during the first half
of 1998 compared to the first half of 1997. The Company has
increased the number of securities that it is making a market in,
which is the primary cause of the increase in trading profits.
The Company's total expenses increased by $1,619,273 or 5%,
during the six months ended June 30, 1998 compared to the six
months ended June 30, 1997. Clearing expense increased $651,594
or 47%, during the first half of 1998 compared to the first half
of 1997. This increase was primarily due to making markets in
listed securities, which resulted in higher execution costs.
The most significant decrease was bad debts expense, which
decreased $1,054,975 or 61%, to $672,989. This decrease is
directly related to litigation that was settled in the second
quarter of 1997, and the related expense being reported at that
time. Occupancy and equipment costs have increased $841,075 or
44% to $2,735,022 during the first half of 1998 over 1997. This
increase relates directly to the Company upgrading its
communication and other information systems. Equipment lease
costs are up $648,239 and depreciation is up $115,172 in the
first six months of 1998.
Liquidity and Capital Resources
The Company's liquidity and financial condition remain
sound. The Company's equity to total assets ratio decreased
during the quarter from 4.4% to 4.2%. This ratio will increase
upon conversion of the newly issued 9% Secured Convertible Notes
(the "New Notes") into a new issue of preferred stock, if
approved by the shareholders' later in 1998. Additionally,
Management is assessing the need for, and timing of, an infusion
of additional capital into the Company. Third Capital Partners,
LLC ("Third Capital Partners") has agreed to undertake to obtain
an additional $7.0 million in new equity capital for the Company.
Third Capital Partners had agreed to commence this undertaking as
soon as practicable, but no later than September 8, 1998.
However, with the Company's Common Stock currently trading at
approximately 70% of its book value, Management would like to
fully assess the benefits and detriments of raising additional
equity capital at this time.
The increase in cash of $2,677,855 resulted from a normal
fluctuation in the settlement cycle; the Company collected from
the settlement of trades at the end of the quarter, whereas at
the end of 1997, the Company was paying for the settlement of
trades. Additionally, the Company received cash in the amount of
$2,825,022 from financing activities. The most significant
portion was the $2.0 million proceeds from the issuance of the
New Notes in June 1998.
Cash of $681,166 was provided from operating activities
during the first six months of 1998. The most significant source
of operating cash was from the change in amounts due to/from
customers in the amount of $13,666,551. The largest use of
operating cash was from the change in amounts due to/from broker-
dealers and clearing organizations in the amount of $13,923,347.
The Company used cash of $828,333 for investing activities
in the acquisition of property and equipment. The Company does
not have any significant commitments for capital expenditures.
Year 2000 Compliance
The Company utilizes and is dependent upon various data
processing, trading, communication, and information systems and
software to conduct its business. The Company has initiated a
review and assessment of all hardware and software to confirm
that it will function properly in the year 2000 and beyond.
Included in these systems, such as the Company's back office
accounting and regulatory system, are applications developed and
maintained by third party vendors. These systems run on the
Company's data network. Third party vendor testing is scheduled
in October 1998 and February 1999. All mission-critical system
testing is scheduled to be completed by June 30, 1999. Street-
wide testing is scheduled to start in February 1999, and be
completed in October 1999. Based on the results of these tests
the Company will formulate a contingency plan as deemed
appropriate. Current costs of the survey and testing have not
been significant to date and are not estimated to be significant
in the future. The Company does not have a current cost estimate
for remediation, if any is required.
The Company is not aware of any system that is not or cannot
be made year 2000 compliant by June 30, 1999. Additionally, the
Company is not aware of any system, in Management's opinion, that
creates a material risk of disruption of operations. Evaluation
of these issues is ongoing and there can be no assurance that
issues not presently known to the Company will not be discovered
which could present a material risk of disruption to the
Company's operations.
Recent Expansions and Developments
During the second quarter, the Company and certain
shareholder/creditors of the Company entered into a series of
transactions with a group of investors (the "Investors") led by
Third Capital Partners and 3421643 Canada Inc. (the "Bier Group").
The Investors purchased approximately $3.9 million of the
Company's outstanding 9% Senior Secured Convertible Notes (the
"Senior Notes") from Oeri Finance Inc. ("Oeri Finance"), a
company controlled by Felix A. Oeri, the Company's then Chairman
of the Board. The conversion price into the Company's common
stock, par value $0.01 per share (the "Common Stock"), was
reduced from $1.00 per share to $0.70 per share and conversion
was allowed at any time the Senior Notes are outstanding.
Previously, conversion was generally allowed only at maturity.
The maturity date of the Senior Notes was also extended to
December 31, 1999. Third Capital Partners also purchased $2.0
million in newly issued 9 % Secured Convertible Notes maturing
December 31, 1999. The New Notes are convertible into Common
Stock at $0.70 per share (or a new issue of voting convertible
preferred stock if such action is approved at the Company's next
annual shareholders' meeting).
In connection with these transactions, Felix A. Oeri and
Oeri Finance granted an irrevocable proxy to vote approximately
2.4 million shares of Common Stock to Christopher Jarratt, Chief
Executive Officer of Third Capital Partners. Mr. Oeri and Oeri
Finance also granted the Investors a right of first refusal to
purchase such stock and any other stock, options or warrants of
the Company now or thereafter owned by Mr. Oeri or Oeri Finance.
Upon completion of the aforementioned transactions, the
former Board members of the Company resigned and were replaced by
Mr. Jarratt, as Chairman, and three other members of the
Investors. Mr. Jarratt was also named Chief Executive Officer of
the Company and James G. Lewis was named President and Chief
Operating Officer of the Company.
The Company and Third Capital, LLC, a Tennessee limited
liability company ("Third Capital"), entered into an advisory
agreement which calls for $30,000 monthly payments by the Company
to Third Capital. Mr. Jarratt is the Chief Manager and Mr. Lewis
is the Chief Operation Officer of Third Capital. Under the
advisory agreement, Third Capital will provide certain services
of Messrs. Jarratt and Lewis to the Company. Under the terms of
the advisory agreement, Messrs. Jarratt and Lewis are not
required to devote all of their time and efforts to the business
of the Company.
Mr. Jarratt and Mr. Lewis are working closely with
Management of the Company and JBOC to develop a business plan for
enhancing shareholder value. Areas of cost containment are being
identified and capital needs for expanding profitable business
divisions are being assessed.
In the area of correspondent clearing, JBOC continued in its
efforts to increase correspondent revenues by actively seeking to
add new correspondents. During the second quarter of 1998, three
new correspondents signed clearing agreements, and since the
close of the quarter three additional correspondents have signed
clearing agreements. JBOC is also currently negotiating with
several other potential correspondents.
The JB Oxford Internet Investment Center underwent a
complete site redesign that was released during the second
quarter of 1998. The new site is more user friendly and includes
more products and features for on-line customers, such as
research and access to mutual funds and other products. The site
may be accessed through the Internet at "www.jboxford.com."
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"), as amended by SFAS
No. 127, is effective for transactions occurring after December
31, 1996, except for secured borrowings, repurchase agreements,
dollar rolls, securities lending, and similar transactions, for
which SFAS 125 is effective for transactions occurring after
December 31, 1997. SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on the consistent
application of a financial-components approach that focuses on
control. The Company adopted SFAS 125 on January 1, 1998, and it
did not have any effect on its consolidated financial conditions
or results of operations.
Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"),
is effective for financial statements ending December 15, 1997.
SFAS 129 reinstates various securities disclosure requirements
previously in effect under Accounting Principles Board Opinion
No. 15, which has been superseded by SFAS 128. The Company
adopted SFAS 129 on December 15, 1997, and it did not have any
effect on its consolidated financial conditions or results of
operations.
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), is effective for
financial statements with fiscal years beginning after December
15, 1997. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set
of general purpose financial statements. The Company adopted
SFAS 130 on January 1, 1998, and it did not have any effect on
its consolidated financial conditions or results of operations.
Statement of Financial Accounting Standards No. 131,
"Disclosure about Segment of an Enterprise and Related
Information" ("SFAS 131"), is effective for financial statements
with fiscal years 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 condensed financial
statements of interim periods issued to stockholders. It also
requires that public business enterprises report certain
information about their products issued to stockholders. 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 131 to have a material
effect, if any, on its consolidated results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and/or its subsidiaries are a party to a number
of pending legal or administrative proceedings, all of which have
arisen in the ordinary conduct of its business. Those that may
have a significant impact on the Company have been disclosed in
previous filings or are updated below:
Evan J. Libaw, Trustee of the E.J. Libaw Family Trust,
Pamela Libaw vs. JB Oxford & Company, Vincent Tropea NASD
Arbitration No. 96-04043
In a NASD arbitration matter filed in September 1996, the
claimants sought damages in excess of $362,000, plus interest and
punitive damages. The parties settled the matter on June 22,
1998 by JBOC paying to the claimants $250,000. Payment of this
amount did not have a material adverse impact on the Company's
financial statement.
Item 2. Changes in Securities and Use of Proceeds
There has been no material modification of ownership rights
of securities holders. Certain subsidiary companies, as part of
their normal broker-dealer activities, have minimum capital
requirements imposed by regulatory agencies. (See Note 5 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 during
this reporting period.
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 during this reporting period that
require disclosure under this item.
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits to be filed with this report as
required by Item 601 of
Regulation S-K.
(b) During this quarter, a Report on Form 8-K was filed on
June 19, 1998, reporting under Item 1. Changes in
Control of Registrant, the purchase by Third Capital
Partners and the Bier Group of approximately $3.9
million in outstanding principal amount of the
Company's Senior Notes from Oeri Finance; the purchase
by Third Capital Partners from the Company of $2.0
million in newly issued New Notes; a granting to
Christopher L. Jarratt, CEO of Third Capital Partners,
of the right to vote all Common Stock of the Company
beneficially owned by Felix A. Oeri and Oeri Finance
and a grant, to Third Capital Partners and the Bier
Group, of a right of first refusal to purchase such
stock owned by Oeri and Oeri Finance; the resignation
of the Company's former members of the Board of
Directors and the appointment of four new Board
members; and the entering into of an advisory agreement
between Third Capital and the Company. Under Item 7.
Exhibits, the Company filed a copy of the Purchase
Agreement and a copy of the $2.0 million New Notes, as
described in the Report on Form 8-K.
Pursuant to the requirements 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.
Michael J. Chiodo
Chief Financial Officer
August 14, 1998
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