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, 1999
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
(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 November 3, 1999, the Registrant had the following
number of shares of common stock, $0.01 par value per share,
outstanding: 14,384,186.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
September 30, December 30,
1999 1998
(Unaudited)
Assets:
Cash and cash equivalents (including
securities purchased under agreements to
resell of $118,754 and $140,516) $ 1,334,636 $ 2,496,572
Cash and securities purchased under
agreements to resell, segregated under
federal and other regulations 26,612,205 110,151,075
Receivable from broker-dealers and
clearing organizations (net of allowance
for doubtful accounts of $0 and
$2,103,802) 6,742,766 7,321,066
Receivable from customers (net of
allowance for doubtful accounts of
$1,792,947 and $5,354,864) 380,468,678 268,608,125
Other receivables (net of allowance for
doubtful accounts of $0 and $1,979,793) 1,565,783 1,591,482
Marketable securities owned - at market
value 233,201 2,927,071
Furniture, equipment, and leasehold
improvements (at cost - net of
accumulated depreciation and
amortization of $5,936,019 and
$5,389,576) 2,804,804 2,860,100
Income taxes refundable 859,005 717,396
Deferred income taxes 1,333,947 1,079,840
Clearing deposits 8,319,196 6,833,171
Other assets 1,697,925 1,404,455
Total assets $431,972,146 $405,990,353
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
September 30, December 31,
1999 1998
(Unaudited)
Liabilities and shareholders' equity:
Liabilities:
Short-term borrowings $7,100,000 $ --
Payable to broker-dealers and
clearing organizations 106,190,196 58,064,209
Payable to customers 275,294,832 311,958,515
Securities sold, not yet purchased
- at market value 177,713 868,085
Accounts payable and accrued 8,064,622 9,010,480
Income taxes payable -- 552,648
Loans from shareholders 8,308,071 8,538,811
Notes payable 39,908 130,997
Subordinated borrowings -- 1,250,000
Total liabilities 405,175,342 390,373,745
Commitments and contingent liabilities
Shareholders' equity:
Common stock ($.01 par value,
100,000,000 shares authorized;
15,088,226 and 14,141,205 shares
issued and outstanding) 150,882 141,412
Additional paid-in capital 16,232,281 15,345,316
Retained earnings 11,198,346 327,660
Treasury stock at cost, 704,040 and
234,500 shares respectively (784,705) (197,780)
Total shareholders' equity 26,796,804 15,616,608
Total liabilities and shareholders'
equity $431,972,146 $405,990,353
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,
1999 1998
Revenues:
Clearing and execution $17,842,532 $7,363,702
Trading profits 10,830,672 3,477,360
Commissions 22,866,490 19,352,676
Interest 20,604,848 17,225,031
Other 635,538 413,004
Total Revenues 72,780,080 47,831,773
Expenses:
Employee compensation 7,176,282 7,040,970
Commission expense 8,318,945 7,550,817
Clearing and floor brokerage 2,676,366 2,754,781
Communications 4,896,141 4,648,675
Occupancy and equipment 3,551,895 4,114,405
Interest 10,592,047 10,805,624
Data processing charges 7,259,591 4,241,868
Professional services 3,197,743 2,449,008
Promotional 3,630,788 2,890,308
Bad debts 1,380,088 1,042,319
Other operating expenses 1,697,284 1,920,333
Total Expenses 54,377,170 49,459,108
Income (Loss) From Operations 18,402,910 (1,627,335)
Non-cash interest expense on
convertible notes -- 2,530,000
Income (loss) before income taxes and
extraordinary item 18,402,910 (4,157,335)
Income Tax Provision 7,969,100 (628,000)
Income (loss) before extraordinary
item 10,433,810 (3,529,335)
Extraordinary item: Forgiveness of
debt, net of taxes 436,875 --
Net Income (Loss) $10,870,685 $(3,529,335)
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Operations - continued
(Unaudited)
For The Nine Months Ended
September 30,
1999 1998
Basic Net Income (Loss) Per Share:
Income (loss) before income taxes
and extraordinary item $0.73 $(0.25)
Extraordinary item: Forgiveness
of debt, net of taxes 0.03 --
Basic Net Income (Loss) Per Share $0.76 $(0.25)
Diluted Net Income (Loss) Per Share:
Income (loss) before income taxes
and extraordinary item $0.43 $(0.25)
Extraordinary item: Forgiveness
of debt, net of taxes 0.02 --
Diluted Net Income (Loss) Per Share $0.45 $(0.25)
Weighted average number of shares
Basic 14,265,949 14,141,205
Diluted 24,628,482 14,141,205
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,
1999 1998
Revenues:
Clearing and execution $6,838,565 $ 2,688,632
Trading profits 1,875,033 540,803
Commissions 6,668,546 6,049,287
Interest 7,274,407 5,892,308
Other 258,084 138,711
Total Revenues 22,914,635 15,309,741
Expenses:
Employee compensation 2,493,685 2,385,554
Commission expense 2,096,786 2,299,298
Clearing and floor brokerage 833,005 704,934
Communications 1,513,514 1,652,740
Occupancy and equipment 1,225,238 1,379,383
Interest 3,392,201 3,747,720
Data processing charges 2,457,296 1,670,228
Professional services 1,140,707 684,759
Promotional 1,879,532 844,794
Bad debts 334,230 369,330
Other operating expenses 508,726 552,832
Total Expenses 17,874,920 16,291,572
Income (Loss) Before Income Taxes 5,039,715 (981,831)
Income Tax Provision 2,219,100 (378,000)
Net Income (Loss) 2,820,615 (603,831)
Basic Net Income (Loss) Per Share $0.20 $(0.04)
Diluted Net Income (Loss) Per Share $0.12 $(0.04)
Weighted average number of shares
Basic 14,376,604 14,141,205
Diluted 24,554,370 14,141,205
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,
1999 1998
Increase (decrease) in cash and cash
equivalents:
Cash flows provided by operating
activities:
Net income (loss) $10,870,685 $(3,529,335)
Adjustments to reconcile net income
(loss) to cash used in operating
activities:
Depreciation and amortization 985,358 1,092,894
Deferred rent (91,099) (83,256)
Provision for bad debts 1,380,088 --
Deferred income tax benefit (254,107) (158,171)
Non-cash interest expense on
convertible debentures -- 2,530,000
Forgiveness of debt (728,125) --
Changes in assets and liabilities:
Cash segregated under federal and
other regulations 83,538,870 (32,119,719)
Receivable from broker-dealers and
clearing organizations 578,300 (1,208,682)
Receivable from customers (113,240,641) 35,559,833
Other receivables 25,699 83,619
Securities owned 2,693,870 1,663,638
Clearing deposits (1,486,025) 56,410
Other assets (293,469) 646,612
Payable to broker-dealers
and clearing organizations 48,125,987 (10,220,364)
Payable to customers (36,663,683) 12,617,625)
Securities sold, not yet purchased (690,372) (647,914)
Accounts payable and accrued
liabilities (854,759) 727,555
Income taxes payable/receivable (694,257) (837,277)
Net cash provided by (used in)
operating activities (6,797,680) 6,173,468
Cash flows from investing activities:
Capital expenditures (930,062) (857,851)
Net cash used in investing activities (930,062) (857,851)
Cash flows from financing activities:
Short-term borrowings 7,100,000 --
Increase in notes payable -- 265,943
Repayments of notes payable (91,089) (111,725)
Loans from shareholders -- 2,000,000
Issuance of common stock 393,820 --
Purchase of treasury stock (586,925) --
Payments on loans from shareholders -- (150,000)
Payment of subordinated loans (250,000) (250,000)
Net cash provided by financing
activities 6,565,806 1,754,218
Net increase (decrease) in cash and
cash equivalents (1,161,936) 7,069,835
Cash and cash equivalents at beginning
of the period 2,496,572 2,598,062
Cash and cash equivalents at end
of the period 1,334,636 9,667,897
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 1998 Annual Report on Securities and Exchange
Commission ("SEC") Form 10-K. Footnote disclosures that
substantially duplicate those in the Company's Annual 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 September 24, 1999 and
September 25, 1998 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. The operations of S4L were consolidated into the on-
line division of JBOC in December 1998.
Note 2. Allowance for Doubtful Accounts
In the first quarter 1999, the Company deducted various
receivable items from the allowance for doubtful accounts. These
receivable items were being carried in an inactive subsidiary,
Reynolds Kendrick Stratton, Inc., and had been specifically
reserved for in prior years.
Note 3. 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 4. Earnings per Share
The following table reconciles the numerators and
denominators of the basic and diluted earnings per share
computation:
For The Nine Months Ended
September 30,
1999 1998
Basic Earnings Per Share
Income (loss) before extraordinary
item $10,433,810 $(3,529,335)
Extraordinary item: Forgiveness of
debt, net of taxes 436,875 --
Income (loss) available to common
stockholders (numerator) $10,870,685 $(3,529,335)
Weighted average common shares
outstanding (denominator) 14,265,949 14,141,205
Basic Earnings (Loss) Per Share $0.76 $(0.25)
Diluted Earnings Per Share
Income (loss) before extraordinary
item $10,433,810 $(3,529,335)
Extraordinary item: Forgiveness of
debt, net of taxes 436,875 --
Interest on convertible debentures, net
of income tax 221,341 --
Income (loss) available to common
stockholders plus assumed
conversions (numerator) $11,092,026 $(3,529,335)
Weighted average common shares
outstanding 14,265,949 14,141,205
Weighted average options outstanding 2,136,095 --
Weighted average convertible debentures 8,552,594 --
Stock acquired with proceeds (326,156) --
Weighted average common shares and
assumed conversions outstanding
(denominator) 24,628,482 14,141,205
Diluted Earnings (Loss) Per Share $0.45 $(0.25)
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 2,055,000 shares of common stock at
September 30, 1998 were not included in the computation of
diluted earning per share because the options' exercise price was
greater than the average market price of the common stock during
the respective periods. The options carry exercise prices
ranging from $0.63 to $9.00 at September 30, 1999 and $1.08 to
$3.00 at September 30, 1998. The options outstanding at
September 30, 1999 expire at various dates through June 3, 2009
and were still outstanding as of September 30, 1999.
Note 5. Related Party Transactions
In February 1999, Hareton Sales & Marketing, Inc.
("Hareton"), the former holder of $502,615 in face value of 9%
Senior Secured Convertible Notes, exercised its right to convert
this debt into common stock of the Company. The Company issued
718,021 shares of common stock in full satisfaction of this debt.
In February 1999, the Company established the JB Oxford
Revocable Government Trust (the "Trust") to purchase common stock
of the Company. Third Capital Partners, LLC serves as trustee of
the Trust, without compensation. Christopher L. Jarratt, the
Company's Chairman, is the Chief Manager and Chief Executive
Officer, and Mark D. Grossi, a member of the Company's Board of
Directors, is a member of Third Capital Partners, LLC. The
Company loaned the Trust $586,915, which the Trust used to
purchase 469,540 shares of the Company's common stock for an
average price of $1.25 per share. Pursuant to the terms of the
Trust, Third Capital Partners, LLC has the right to vote the
shares held by the Trust, but has no right to dispose of them
except upon termination of the Trust. The Trust will terminate
on the earlier of February 18, 2001, or the completion of the
investigation relating to the Company being conducted by the U.S.
Attorney's Office, the Federal Bureau of Investigation and the
SEC. See Note 7, "Contingent Liabilities," to the financial
statements for a description of the investigation. Concurrent
with the transaction, the Company relinquished its right of first
refusal as to any remaining shares held by Felix Oeri and Oeri
Finance, Inc., and Oeri Finance, Inc. forgave $728,125 in demand
debt owed by the Company. The forgiveness of debt is included in
net income as an extraordinary item ($436,875 net of taxes)
during the period. Subsequently, Oeri Finance Inc., Felix Oeri
and Hareton filed 13D Statements with the SEC indicating
ownership of less than 5% of the Company's stock.
A subordinated loan agreement, payable to Oeri Finance,
Inc., matured on March 31, 1999 in the amount of $1,000,000 and
is included in loans from shareholders. The Company has decided
to delay payment on the debt in light of the ongoing federal
investigation (see Note 7, "Contingent Liabilities"). The Company
continues to pay interest on the debt.
On November 8, 1999, Third Capital Partners, LLC, the
beneficial owner of two secured convertible notes in the
aggregate principal amount of $5,418,696, maturing December 31,
1999, agreed to extend the repayment of both notes for a period
of 12 additional months, to December 31, 2000. The Company will
continue to make interest payments only on each note, and no
other terms of the notes were affected by the extension
agreements.
Note 6. 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, equal to the
greater of $5,000 or 6 2/3% of aggregate indebtedness, as defined
by the rule. The operations of S4L were consolidated into the on-
line division of JBOC in December 1998.
At September 30, 1999, JBOC had net capital of $25,246,119,
which was $17,593,913 in excess of the minimum amount required.
At December 31, 1998, JBOC had net capital of $17,754,370, which
was $12,352,063 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
$22,812,730 and $104,469,048 at September 30, 1999 and December
31, 1998, respectively. Securities purchased are U.S. Treasury
instruments having a market value of 102% of cash tendered.
Note 7. Contingent Liabilities
The Company and/or its subsidiaries are defendants in
several lawsuits and arbitrations, the most significant of which
are described below:
The Company is under investigation by the SEC and the
Los Angeles office of the United States Attorney's Office (the
"USAO"). Management believes the investigations arise out of the
activities of a former consultant to the Company and the
activities of a company affiliated with the former Chairman of
the Board of Directors of the Company, and have been reported in
the Company's prior filings. The Company has continued to
cooperate with the authorities with respect to these
investigations. To date, no charges have been brought against
the Company as a result of the SEC's investigation or the USAO's
investigation. Presently, it is not possible to predict the
ultimate outcome or financial impact, if any, of the
investigations on the Company; however, at this time, the
Company cannot rule out the possibility that the outcome of the
matter may have a material adverse impact upon the Company.
Note 8. Supplemental Disclosures of Cash Flow Information
For the Nine Months Ended
September 30,
1999 1998
(Unaudited) (Unaudited)
Supplemental Disclosures of Cash
Flow Information
Cash paid during the quarter for:
Interest $10,621,732 $10,862,685
Income taxes 7,201,400 346,829
Supplemental disclosure of non-cash investing and financing
activities:
Hareton, the former holder of $502,615 in face value of
convertible debentures, converted this debt to common stock
during the first quarter of 1999.
In February 1999, the Company executed an agreement with Oeri
Finance, Inc. that resulted in the forgiveness of notes payable
to shareholders in the amount of $728,125, which is included in
net income during the period. Additionally, the Company
reclassified a subordinated borrowing to loans from shareholders
in the amount of $1,000,000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q,
particularly under Items 2 and 3, constitute "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These 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. See "Risk Factors" below.
Business Overview
JB Oxford Holdings, Inc. (together with its consolidated
subsidiaries, the "Company"), through its wholly-owned
subsidiaries, is engaged in the business of providing brokerage
and related financial services to retail customers and broker-
dealers nationwide. The Company's primary subsidiary is JB
Oxford & Company ("JBOC"), a registered broker-dealer offering
the following services: (i) discount and electronic brokerage
services to the investing public; (ii) clearing and execution
services to correspondents on a fully-disclosed basis; and (iii)
acting as a market maker in NASDAQ National Market System, New
York Stock Exchange ("NYSE") and other national exchange listed
securities.
Discount and Electronic Brokerage Services
JBOC provides a full line of brokerage services and products
to customers, including the ability to buy and sell securities,
security options, mutual funds, fixed income products, annuities
and other investment securities. The Company continues to upgrade
and improve its brokerage technologies in order to provide its
customers with the resources necessary to conveniently and
economically execute securities transactions and access related
financial information. In addition to its trading capabilities,
the Company's Internet site (www.jboxford.com) currently provides
market quotes, charts, company research, and customer account
information, such as cash balances, portfolio balances and
similar information.
Management believes that the Company can continue to grow
its discount and electronic brokerage division due to its ability
to provide high quality, flexible, and customer-sensitive
responses and services. The Company continually upgrades
computer systems and services within each of its divisions to
utilize and take advantage of new technological developments.
Clearing and Execution Services
JBOC is self-clearing and provides clearing and execution
services to independent broker-dealers. This line of business was
historically profitable for JBOC but has experienced some profit
erosion in recent years as a result of increased competition that
has affected operating margins. However, during the last 4
quarters, trading volume has significantly increased, resulting
in greater revenues and increased profitability from clearing
operations. The clearing business offers a high return on
capital, and management believes that by careful selection and
monitoring of the Company's correspondents, this business segment
will remain profitable.
Market Making Activities
In order to facilitate the execution of security
transactions for its own customers and the customers of its
correspondents, JBOC acts as a market maker for approximately 500
public corporations whose stocks are traded on the NASDAQ
National Market System, NYSE or other national exchanges. The
Company's market making activities concentrate on the execution
of unsolicited transactions for customers and are required to be
in compliance with the National Association of Securities
Dealers, Inc.'s ("NASD") rules regarding best execution.
Recent Expansions and Developments
During the third quarter of 1999, Management took steps to
enhance and improve JBOC's online brokerage services. In August,
JBOC offered extended trading hours to its customers, allowing
the placement of limit order trades (authorizing the buying or
selling of stock at a specified price or better) 45 minutes
before and after traditional market hours. In September, JBOC
launched its redesigned web site at www.jboxford.com. In
addition to its brighter look, the updated design features
improved speed and easier navigation, as well as expanded
selection of timely market information and research tools. The
new site also offers live, one-on-one technical support.
Also during the third quarter of 1999, JBOC introduced a new
account service package, "JB Oxford npower," featuring free
Internet access, online trading capabilities, electronic banking
services, including online bill payment and a free ATM/check
card, upon maintaining a minimum account balance of $2000. These
new services are the focus of JBOC's national ad campaign that
commenced in October 1999 and encourages consumers to "Put Your
Money to Work."
Results of Operations
Nine Months Ended Septemebr 30k, 1999 compared to Nine Months Ended
Septemebr 30, 1998
Revenues
The Company's total revenues were $72,780,080 for the nine
months ended September 30, 1999, an increase of 52% from
$47,831,773 in the comparable first nine months of 1998. A
primary reason for the increase was a rise in clearing and
execution revenue of 142% to $17,842,532 in the current period
from $7,363,702 in the first nine months of 1998. Additionally,
trading profits increased 211% to $10,830,672 in the first nine
months of 1999 from $3,477,360 in the first nine months of 1998.
The trading profit increases resulted from an increase in trading
volume from the Company's discount and on-line brokerage
operations, from the discontinuance of proprietary trading
positions and investment banking activities which had negatively
affected trading profits, and from an increase in the Company's
overall market-making activities.
Commission revenues increased 18% to $22,866,490 in the
first nine months of 1999 from $19,352,676 in the first nine
months of 1998. Commission revenue was the largest single source
of revenue to the Company during the comparable periods,
consisting of 31% for the first nine months of 1999 and 40% for
the first nine months of 1998. The Company anticipates increased
commission revenue as the Company experiences growth in its
discount and on-line brokerage divisions and as these revenues
track the overall growth in trading volume experienced during
recent years.
Interest revenues increased 20% to $20,604,848 in the first
nine months of 1999 compared with $17,225,031 in the first nine
months of 1998. Changes in interest revenues are consistent with
usual fluctuation of debit balances in brokerage margin accounts
as well as increases in broker-call rates on which the interest
charged to customers is calculated. Net interest income
(interest income less interest expense) increased 56% to
$10,012,801 in the first nine months of 1999 from $6,419,407 in
the first nine months of 1998.
Expenses
Expenses totaled $54,377,170 for the first nine months of
1999, an increase of 10% from $49,459,108 in the first nine
months of 1998. Many of the Company's expenses, including
commission expense, interest expense, and data processing charges
are directly related to commission revenues, trading revenues,
and clearing and execution revenues, which are all up from the
prior period. Data processing expense increased 71% to
$7,259,591 in the first nine months of 1999 from $4,241,868 in
the first nine months of 1998. This increase is the result of
growth in correspondent clearing activities, in addition to
commission expenses and trading volumes. The increase in
expenses since 1998 is primarily a result of the growth in the
Company's discount and on-line brokerage divisions.
Operating expenses decreased as a percentage of total
revenues from 103% in the first three quarters of 1998 to 75% in
the first three quarters of 1999. Expenses for salaries
increased by 2% in the first nine months of 1999 to $7,176,282
from $7,040,970 in the comparable period of 1998. Occupancy and
equipment costs decreased 14% to $3,551,895 in the first three
quarters of 1999 from $4,114,405 in the first three quarters of
1998. These decreases reflect new management's concerted effort
to contain costs and improve efficiency. These efforts continue
to produce positive results, as total expenses were 75% of total
revenues in the first nine months of 1999 as compared to 98%,
96%, and 89% of total revenues during the years ended 1998, 1997,
and 1996, respectively.
During the third quarter of 1999 the Company launched a new
national advertising campaign and incurred $1,879,532 in expenses
associated with this campaign. It is anticipated the Company
could spend as much as $10,000,000 on advertising in the last
quarter of 1999. The amount of spending will be influenced by
market conditions and revenue growth generated from the campaign,
among other factors. Management expects increased advertising
costs will have a negative effect on the Company's profitability
in the short term.
Quarter Ended September 30, 1999 compared to Quarter Ended
September 30, 1998
The Company recorded a net profit of $2,820,615 for the
quarter ended September 30, 1999. This compares to a net loss of
$603,831 for the quarter ended September 30, 1998. The Company
reported income from operations of $5,039,715 for the quarter
ended September 30, 1999, compared to a loss from operations of
$981,831 for the quarter ended September 30, 1998.
Total revenues for the third quarter of 1999 were
$22,914,635, an increase of $7,604,894 or 50% from the comparable
1998 quarter and a decrease of $3,957,211 or 15% from the second
quarter of 1999. Total expenses for the third quarter of 1999
were $17,874,920, an increase of $1,583,348 or 10% from the
comparable quarter of 1998, and a decrease of $1,119,164 or 6%
from the second quarter of 1999.
Extraordinary Item
In February 1999, the Company executed an agreement with
Oeri Finance, Inc. that resulted in the forgiveness of notes
payable to shareholders in the amount of $728,125, which is
included in net income ($436,875 net of taxes) and has been
reflected as an extraordinary item during the period.
Liquidity and Capital Resources
The Company finances its growth through the use of funds
generated from the business operations of its subsidiaries,
mainly JBOC. Additionally, JBOC has established
omnibus/financing accounts and lines of revolving credit with
other broker-dealers and banking institutions with an aggregate
borrowing limit approximating $30,000,000. Further, the Company
has available stock loan financing when necessary. Amounts
borrowed bear interest at a fluctuating rate based on the broker
call and prime rates.
The majority of the Company's corporate assets at September
30, 1999 were held by its subsidiary, JBOC, and consisted of cash
or assets readily convertible to cash. The Company's statement
of financial condition reflects this largely liquid financial
position. Receivables with other brokers and dealers primarily
represent current open transactions that typically settle within
a few days, or stock borrow-and-loan transactions where the
contracts are adjusted to market values daily. Additionally,
JBOC is subject to the requirements of the NASD and the SEC
relating to liquidity, net capital, and the use of customer cash
and securities. See Note 6, "Regulatory Requirements" to the
Company's consolidated financial statements above for regulatory
requirements of the Company.
The Company currently anticipates that its cash resources
and available credit facilities will be sufficient to fund its
expected working capital and capital expenditure requirements for
the foreseeable future. However, in order to more aggressively
expand its business, respond to competitive pressures, develop
additional products and services, or take advantage of strategic
opportunities, the Company may need to raise additional funds.
If funds are raised through the issuance of equity securities, or
securities which are convertible into equity securities, the
Company's existing shareholders may experience additional
dilution in ownership percentages or book value. Additionally,
such securities may have rights, preferences and privileges
senior to those of the holders of the Company's common stock. If
additional funds are needed, there can be no assurance that
additional financing will be available or whether it will be
available on terms satisfactory to the Company.
In February 1999, Hareton Sales & Marketing, Inc.
("Hareton"), the holder of $502,615 in face value of 9% Senior
Secured Convertible Notes, exercised its right to convert this
debt into common stock of the Company and the Company issued
718,021 shares of common stock in full satisfaction of this debt.
In February 1999, the Company established the JB Oxford
Revocable Government Trust (the "Trust") to purchase common stock
of the Company. Third Capital Partners, LLC serves as trustee of
the Trust, without compensation. Christopher L. Jarratt, the
Company's Chairman, is the Chief Manager and Chief Executive
Officer, and Mark D. Grossi, a member of the Company's Board of
Directors, is a member of Third Capital Partners, LLC. The
Company loaned the Trust $586,915, which the Trust used to
purchase 469,540 shares of the Company's common stock for an
average price of $1.25 per share. Pursuant to the terms of the
Trust, Third Capital Partners, LLC has the right to vote the
shares held by the Trust, but has no right to dispose of them
except upon termination of the Trust. The Trust will terminate
on the earlier of February 18, 2001, or the completion of the
investigation relating to the Company being conducted by the U.S.
Attorney's Office, the Federal Bureau of Investigation and the
SEC. See Note 7, "Contingent Liabilities," to the financial
statements for a description of the investigation. Concurrent
with the transaction, the Company relinquished its right of first
refusal as to any remaining shares held by Felix Oeri and Oeri
Finance, Inc., and Oeri Finance, Inc. forgave $728,125 in demand
debt owed by the Company. The forgiveness of debt is included in
net income as an extraordinary item ($436,875 net of taxes)
during the period. Subsequently, Oeri Finance Inc., Felix Oeri
and Hareton filed 13D Statements with the SEC indicating
ownership of less than 5% of the Company's stock.
A subordinated loan agreement, payable to Oeri Finance,
Inc., matured on March 31, 1999 in the amount of $1,000,000 and
is included in loans from shareholder. The Company has decided
to delay payment on the debt in light of the ongoing federal
investigation (see Note 7, "Contingent Liabilities," to the
financial statements). The Company continues to pay interest on
the debt.
On November 8, 1999, Third Capital Partners, LLC, the
beneficial owner of two secured convertible notes in the
aggregate principal amount of $5,418,696, maturing December 31,
1999, agreed to extend the repayment of both notes for a period
of 12 additional months, to December 31, 2000. The Company will
continue to make interest payments only on each note, and no
other terms of the notes were affected by the extension
agreements.
Liquidity at Septemebr 30, 1999
The Company's cash position decreased during the first nine
months of 1999 by $1,161,936 to $1,334,636. This compares with a
net increase in cash and cash equivalents of $7,069,835 in the
first nine months of 1998. The fluctuation in the Company's cash
position can be impacted by the settlement cycles of the business
which relate directly to the cash provided from or used in
operations.
Cash Flow From Operating Activities
Net cash used in operating activities was $6,797,680 for the
first nine months of 1999, compared to cash of $6,173,468
provided by operations during the first nine months of 1998. The
Company's net cash provided by or used in operating activities is
impacted by changes in the brokerage-related assets and
liabilities of JBOC.
During the first nine months of 1999, the most significant
use of cash was the increase in receivables from customers of
$113,240,641. Additionally, a decline in payables to customers
used cash of $36,663,683. This use of cash was funded by the
decrease in cash segregated under federal and other regulations
of $83,538,870 for the same period. The additional use of cash
was financed through an increase in stock loans, which is
represented in the increase in payables to broker-dealers and
clearing organizations of $48,125,987.
Cash Flows Used In Investing Activities
The net cash used in investing activities during the first
nine months of 1999 was $930,062 compared with $857,851 during
the same period of 1998. These cash uses are a direct result of
capital expenditures made by the Company during these periods.
The Company's requirement for capital resources is not material
to the business as a whole. The Company presently has no plans
to open additional offices. The Company has been in the process
of upgrading its information and communication systems, along
with testing for year 2000 compliance. See "Year 2000 Compliance"
below. Future expenditures for upgrading of the Company's various
information and communication systems are not estimated to be
material to the operation of the Company. The Company has no
significant commitments for capital expenditures.
Cash Flows From Financing Activities
Financing activities provided cash of $6,565,806 in the
first nine months of 1999, compared to $1,754,218 cash provided
by financing activities in the first nine months of 1998. The
most significant source of cash was funds obtained from short-
term borrowings. These borrowings fluctuate with the settlement
cycles of the business. The most significant use of cash for
financing activity was the purchase of treasury stock in the
amount of $586,925. During 1998 the Company received $2,000,000
in loan proceeds from shareholders.
Year 2000 Compliance
The Year 2000 problem arises when computer programs have
been written using two digits rather than four to define the
applicable year. As a result, date-sensitive hardware and
software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or
other disruption of operations and impede normal business
activities.
The Company developed a comprehensive plan to deal with the
Year 2000 issue. The Company believes the plan will result in
timely and adequate modifications of its systems and technology
and those of its outside vendors to address Year 2000 issues
appropriately. The plan has five phases:
. Awareness - defining the Year 2000 problem, gaining
support and resources, developing a plan and establishing
a project team.
. Assessment - assessing the size and complexity of the
project and identifying all systems affected by the Year
2000 date change.
. Renovation - obtaining hardware and software upgrades and
outside vendor certifications.
. Validation - testing systems including connections with
other systems and acceptance of such by internal and
external users.
. Implementation - developing a contingency plan.
The Company has substantially completed the five phases of
its plan. However, to ensure success, the Company continues to:
. Engage in ongoing discussions with outside vendors to
determine if they have been successful in validating
their compliance with their Year 2000 plans;
. Use its best efforts to ensure that new systems or
subsequent changes in existing systems are verified as
Year 2000 compliant;
. Test certain third-party systems which have computerized
interfaces with the Company's systems; and
. Refine its contingency plan.
The Company has engaged the services of independent
consultants to review the overall Year 2000 project. The
independent consultants have emphasized testing of vendor-
reliant, mission-critical systems and to assist in the
development of a contingency plan.
The Company relies substantially on outside vendors to
provide computer hardware and software systems for its
operations. Consequently, the Year 2000 plan places heavy
emphasis on compliance by outside vendors. The plan prioritizes
outside vendors by the degree of dependence on the computer
systems they provide. The plan also addresses customer
capabilities to become Year 2000 compliant. Finally, the plan
requires review of non-information technology systems, such as
the alarm systems.
The Company has engaged on a regular basis in discussions
with those outside vendors that the Company has determined to be
significant. These outside vendors have advised the Company that
they expect to be Year 2000 compliant prior to December 31, 1999,
and there are no Year 2000 compliance issues which appear to be
uncorrectable by that date. For such outside vendors that
provide mission-critical systems, the Company has conducted
testing, and will continue to test, to validate Year 2000
compliance.
The Company determined that other outside vendors will not
have a material impact on its operations, whether or not they are
Year 2000 compliant.
The Company sent a questionnaire to each of its significant
customers to determine the extent of risk created by any failure
by them to remediate their own Year 2000 issues. All these
customers responded. Each customer is categorized according to
its state of readiness based on its response to the questionnaire
and the Company's review of the customer. The Company continues
to reassess each significant customer's risk on a regular basis.
The Company has tested its non-information technology
systems, such as microprocessors controlling its environmental
and alarm systems and verified that they are Year 2000 compliant.
Some of the Company's computer hardware and software
applications were modified or replaced in order to maintain their
functionality as the Year 2000 approaches. The total direct
costs, including independent consultants, of the Year 2000 effort
were less than $250,000 in 1998 and they will be less than
$350,000 in 1999.
Management believes that its Year 2000 compliance efforts
will be successful. However, third-party systems with which the
Company has computerized interfaces may create Year 2000 issues.
It is also possible that the expenses or liabilities to which the
Company may become subject as a result of such issues could be
material. Any such event or occurrence could have a material
adverse effect on the Company's business, prospects, operating
results and financial condition.
Ultimately, the potential impact of the Year 2000 issue on
the Company will depend on a series of complex factors, including
the following:
. The corrective measures undertaken by the Company itself;
. The measures undertaken by outside vendors to become Year
2000 compliant;
. The accuracy of representations made by outside vendors
to the Company concerning their state of readiness;
. The degree of compliance by governmental agencies,
businesses (including telephone and other utility
companies) and other entities that engage in essential
communications or third-party computerized interfaces
with the Company and its customers; and
. The degree of compliance by customers.
At worst, the Company's customers and outside vendors will
face severe Year 2000 issues. Large on-line customers or day
traders negatively affected by Year 2000 issues could face
increased risk of the inability to execute securities
transactions. The Company may also be required to replace non-
compliant outside vendors with more expensive Year 2000 compliant
outside vendors.
The Company has taken steps to avail itself of the safe
harbor provision of the newly-enacted Year 2000 Information and
Readiness Disclosure Act by clearly labeling written
communications to customers and vendors as a "Year 2000 Readiness
Disclosure," thereby prompting a prompt, candid and thorough
exchange of information on Year 2000 readiness and limiting
liability for any errors.
The Company has created a contingency plan to take effect
should there be circumstances preventing timely implementation.
Outside vendors of mission-critical systems are major U.S.
companies, and management has assessed the relevant financial and
operational capabilities of its hardware and software to provide
Year 2000 processing.
In addition, for each mission-critical system, the Company
has identified alternate procedures wherever possible to achieve
a successful resumption of business in case its computer systems,
or those of its mission-critical outside vendors, fail. The
alternative procedures include development of a manual process
for implementing the system and identifying alternative outside
vendors. However, the time frame to convert to another outside
vendor in the Year 2000 is relatively long and therefore the
ability to obtain replacement outside vendors will be limited.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). The Company is required to and will implement the
provision of this new standard effective with its 2000 fiscal
year. SFAS 133 establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the
statement of condition as either an asset or as a liability
measured at its fair value, and that changes in the fair value be
recognized currently in the statement of operations. The Company
has not yet quantified the impact of adopting SFAS 133 on its
financial statements but does not believe it will have a material
effect on the Company's financial position or results of
operations.
In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferred of the
Effective Date of FASB Statement No. 133." This statement is an
amendment to SFAS No. 133 and modifies the effective date of the
statement to fiscal years beginning after June 15, 2000 and
various initial application procedures.
Risk Factors
In accordance with "plain English" guidelines provided by
the SEC, the Risk Factors have been written in the first person.
You should carefully consider the risks described in our
Form 10-K for the year ended December 31, 1998 before making an
investment decision in the Company. These risks include:
. The fact that our business is ever-changing;
. The market for discount and electronic brokerage services
is at an early stage of development;
. The U.S. securities markets are subject to fluctuation;
. Our clearing operations expose us to risks that exceed
the simple risk of loss of business;
. Possible delays in the introduction of new services and
products;
. Costs associated with our marketing campaign, with no
guaranty when or if the campaign will lead to additional
customer base;
. Competition;
. Government regulation;
. The pending SEC/USAO investigation of the Company;
. Net capital requirements;
. Systems failures;
. Stock price volatility;
. The Year 2000 problem.
These risks and uncertainties are not the only ones we face,
and there may be additional risks that we do not presently know
of or that we currently deem immaterial. All of these risks may
impair our business operations. This document also contains
forward-looking statements that involve risks and uncertainties
and actual results may differ materially from the results we
discuss in the forward-looking statements. If any of the risks
actually occur, our business, financial condition or results of
operations could be materially adversely affected. In that case,
the trading price of our stock could decline, and you may lose
all or part of your investment.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Market Risk Disclosures
The following discussion about the Company's market risk
disclosures involves forward-looking statements. Actual results
could differ materially from those projected in the forward-
looking statements. See Item 2 "Special Note Regarding Forward-
Looking Statements" above. The Company is exposed to market risk
related to changes in interest rates and equity security price
risk. The Company does not hold derivative financial instruments
for speculative or trading purposes.
Retail broker-dealers with clearing operations, such as the
Company, are exposed to risks that exceed the simple risk of loss
of business due to the loss of retail customers and/or
correspondents. Broker-dealers engaged in clearing operations
for other correspondent broker-dealers are exposed to losses
beyond the loss of business in the event that the correspondent
fails. These risks result where the total assets, securities
held in inventory, and cash of the failed correspondent are
insufficient to cover the unpaid customer debits, together with
losses which may be generated in the correspondent's trading
account. The Company has established procedures to review a
correspondent's inventory and activities in an effort to prevent
such losses in the event of a correspondent's failure.
Areas outside the control of the Company which affect the
securities market, such as severe downturns or declines in market
activity, may cause substantial financial exposure. This is
particularly true with regard to the receivables that are carried
in customers' margin accounts. A significant decline in market
value may decrease the value of securities pledged in the margin
accounts to a point that the margin loans would exceed such
value. Although the Company is authorized to liquidate the
securities and to utilize the correspondent's account balances to
cover any shortfall, in a worst case scenario, such collateral
may not be sufficient to cover all losses.
Interest Rate Sensitivity and Financial Instruments
For its working capital and reserves that are required to be
segregated under federal or other regulations, the Company
invests primarily in U.S. Treasury securities under agreements to
resell. These agreements have maturity dates ranging from one to
seven days, and do not present a material interest rate risk.
Equity Price Risk
JBOC acts as a market maker for approximately 500 public
corporations whose stocks are traded on the NASDAQ National
Market System, NYSE or other national exchanges. The Company
selects companies in which it makes a market based on a review of
the current market activity, and also to facilitate trading
activity of its own and correspondent's clients. Market making
may result in a concentration of securities which may expose the
Company to additional risk; however, the Company maintains a
minimal inventory of equity securities.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are a party to a number of
pending legal or administrative proceedings, including suits
involving various customers that allege damages arising as a
result of brokerage transactions by the Company. All of the
legal and administrative proceedings have arisen in the ordinary
conduct of its business. See also Note 7, "Contingent
Liabilities," to the financial statements for a discussion
regarding the federal investigation.
Item 2. Changes in Securities and Use of Proceeds
There has been no material modification of ownership rights
of securities holders during this reporting period. Certain
subsidiary companies, as part of their normal broker-dealer
activities, have minimum capital requirements imposed by
regulatory agencies. See Note 6, "Regulatory Requirements," to
the financial statements. These requirements may restrict the
payment of dividends.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4.2 9% Senior Secured Convertible Note due December 31, 1999 in
the principal amount of $3,418,969 issued by the Company to
Third Capital Partners, LLC.
4.3 Extension Agreement dated November 8, 1999, between the
Company and Third Capital Partners, LLC, extending the
maturity date of the 9% Senior Secured Convertible Note in
the principal amount of $3,418,969.
4.4 Extension Agreement dated November 8, 1999, between the
Company and Third Capital Partners, LLC, extending the
maturity date of the 9% Secured Convertible Note in the
principal amount of $2,000,000.
(b) During the third quarter, the Company did not file a 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.
/s/ Michael J. Chiodo
Michael J. Chiodo
Chief Financial Officer
November 12, 1999
Exhibit 4.2
NO. R-7
NEITHER THIS NOTE NOR ANY SECURITIES
INTO WHICH IT IS CONVERTIBLE HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE
SECURITIES LAW OF ANY JURISDICTION AND
MAY NOT BE TRANSFERRED UNTIL (i) A
REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT OR SUCH APPLICABLE
SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii)
IN THE OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY REGISTRATION UNDER SUCH
SECURITIES ACT OR SUCH APPLICABLE
SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER,
INCLUDING, WITHOUT LIMITATION, PURSUANT
TO REGULATION S PROMULGATED UNDER SUCH
SECURITIES ACT.
JB OXFORD HOLDINGS, INC.
9% Secured Convertible Note Due December 31, 1999
$3,418,695.59 May 26, 1998
FOR VALUE RECEIVED, JB OXFORD HOLDINGS, INC., a
Utah corporation ("Issuer"), hereby promises to pay,
pursuant to the terms and conditions hereof, to Third
Capital Partners, LLC or registered assigns ("Payee"), the
principal sum of Three Million Four Hundred Eighteen
Thousand Six Hundred Ninety-five Dollars and Fifty-nine
Cents ($3,418,695.59), together with interest from the date
first written above on the unpaid principal balance at nine
percent (9%) per annum, compounded monthly. Interest shall
be computed on the basis of actual days elapsed in a 365 or
366 day year, as the case may be.
1. Parents of Principal and Interest. On the
last day of each month commencing on May 31, 1998 and
continuing through and including November 30, 1999, Issuer
will pay interest only on the Note calculated in accordance
with the provisions set forth above. Thereafter, on
December 31, 1999, Issuer shall pay all remaining principal
and accrued interest thereon. If the specified payment date
for any payment of principal and/or interest shall be on
Saturday, Sunday or a legal holiday, or the equivalent for
banking institutions generally in the State of California,
then such payment may be made in the next succeeding day
which is not one of the foregoing days without additional
interest and with the same force and effect as if made on
the specified date for such payment, and such date shall be
deemed the "payment date" of such payment for all purposes
hereof.
2. Application of Payments. All sums paid by
Issuer to Payee in connection with this Note shall be
applied first to accrued but unpaid interest thereon, next
to principal thereof and the balance, if any, to any other
obligations owing hereunder (if any).
3. Compounding Interest. If any installment of
principal or interest hereunder is not paid when due with
respect to this Note, Payee shall have the right to (in
addition to the other rights set forth herein, in the Note
Purchase Agreement, and under law) compound interest by
adding the unpaid interest to the principal balance of the
Note, with such amount thereafter bearing interest at the
rate provided in this Agreement.
4. Note Purchase Agreement, Conversion:
Redemption, Defaults.
Reference is hereby made to the further provisions of this
Note set forth, in full in the Note Purchase Agreement, dated as
of March 10, 1995, as amended, by and between Issuer and Payee
(as assignee from Oeri Finance, Inc. (the "Note Purchase Agreement"),
including, without limitation, the provisions relating to
conversion, redemption and events of default of this Note,
all of which provisions shall for all purposes have the same
effect as if set forth in full herein. Attached hereto and
incorporated herein by this reference is a form of
Conversion Notice. Terms not otherwise defined in this Note
shall have the meanings ascribed to them in the Note
Purchase Agreement.
5. Security for Payment. This Note is secured
by a pledge of Common Stock of JB Oxford & Company, a Utah
corporation, and a pledge of Common Stock of Prolyx Data
Systems, Inc., a Utah corporation, pursuant to a Stock
Pledge Agreement, dated as of the date hereof, by and
between Issuer and Oeri Finance, Inc. and assigned to Payee.
6. No Usurious Charges. Issuer acknowledges
that Payee does not intend to contract for, charge or
receive any interest or other charge which is usurious.
Notwithstanding any other provision hereof, in no event
shall the interest rate and other charges hereunder exceed
the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that a court determines
that the Payee has received interest and other charges
hereunder in excess of the highest rate applicable hereto,
such excess shall be deemed received on account of, and
automatically shall be applied to reduce, the principal of
this Note, other than interest, and the provisions hereof
shall be deemed amended to provide for the highest
permissible rate. If there is no principal balance of this
Note outstanding, Payee shall refund to Issuer such excess
interest paid.
7. Registered Form of Note.
(a) This Note is one of a duly authorized
issue of Notes of Issuer designated as its 9% Secured
Convertible Notes due December 31, 1999 (herein called the
"Notes"), issued under the Note Purchase Agreement.
Reference is hereby made to the Note Purchase Agreement for
a statement of the respective rights, limitations, duties
and obligations thereunder of Issuer and Payee, and the
terms upon which the Notes are, and are to be, authenticated
and delivered.
(b) The Notes are issuable only in
registered form without coupons in denominations of $1,000
and integral multiples of $1,000 in excess thereof and
transferable and be changeable as provided in the Note
Purchase Agreement. As provided in the Note Purchase
Agreement and subject to certain limitations therein set
forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized
denomination, as requested by the holder surrendering the
same.
(c) Prior to due presentment of this Note
for registration of transfer, Issuer and any agent of
Issuer, may treat the person in whose name this Note is
registered as the owner hereof.
(d) Issuer shall maintain a written record
of the ownership of this Note and the obligations to pay
interest and principal evidenced hereby. In addition to any
other provisions regarding transfer of the Note set forth
herein, the obligations evidenced by the Note to pay
principal and interest may only be transferred if the holder
shall indorse the Note in favor of a named transferee, and
the transferee, as new holder thereof, shall surrender the
Note to the Company, whereupon the Issuer shall promptly
issue a new Note in favor of such transferee. The Note may
not be transferred to, or otherwise indorsed, in favor of
bearer, nor may it be indorsed in blank. The Issuer shall
recognize as the holder of a Note only a holder who has
acquired title in the manner described in the preceding
sentences.
(e) Prior to making any payments under the
Note, the Issuer shall ascertain whether it is obligated
under Internal Revenue Code Sections 1441 or 1442, as
applicable, to withhold in respect to any such payment. If
requested by the Issuer, the holder of this Note shall
execute and deliver an IRS Form W-8 Certificate of Foreign
Status to the Issuer certifying that such holders are
foreign entities that are not subject to U.S. information
return reporting or withholding rules. In the event the
Issuer has determined that withholding is required, and the
holder of this Note claims the benefits of any applicable
tax treaty providing for a reduced rate of withholding, the
holder of this Note shall execute and deliver to the Issuer
Internal Revenue Service Form 1001. All holders of this
Note shall notify the Issuer of any loss of, or exchange in,
its exempt status.
(f) Payee and its transferees, if any, agree
to indemnify the Issuer for any tax, interest or penalty
loss imposed on the Issuer in the event that any taxing
authority determines that the Issuer is or was required to
withhold with respect to any payment made hereunder.
However, the previous sentence shall not apply to any tax,
interest or penalty imposed after the Issuer has either been
notified by any taxing authority that withholding is
required, or after the Payee (or such transferee) has
informed the Issuer that the Payee (or such transferee) is
no longer exempt from withholding. In that event, the Payee
(or such transferee, as applicable) shall not be liable for
interest and penalties imposed by any taxing authority that
arise out of the Issuer's failure to withhold. If the
Issuer fails to withhold the necessary amount from any
subsequent payment, the Issuer's only remedy shall be to
withhold tax on any subsequent payments, or to obtain
reimbursement for the tax only.
8. Amendments and Waivers. No failure on the
part of Payee to exercise any right or remedy hereunder
shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or remedy preclude
further exercise thereof or the exercise of any other right
or remedy hereunder. This Note may be amended, or in
compliance with any provision hereof waived, only by a
written agreement duly executed by Payee (or any successor
or assign) and Issuer.
9. Cumulative Rights. The remedies of Payee as
provided herein shall be cumulative and concurrent and may
be pursued successively or concurrently against Issuer
and/or the collateral securing this Note, and the failure to
exercise any such right or remedy shall in no event be
construed as a waiver or release of the same.
10. Attorneys' Fees. In the event of any
litigation in connection with this Note, the prevailing
party shall be entitled to reasonable costs, including,
without limitation, attorneys' fees.
11. Issuer's Waivers. Issuer waives notice of
acceptance hereof, presentment and demand for payment,
protest and notice of dishonor or default, trial by jury,
and the right to interpose any set-off or counterclaim of
any nature or description.
12. Severability. If any section or provision of
this Note, or the application of such section or provision,
is held invalid, the remainder of this Note and the
application of such section or provision to persons or
circumstances other than those to which its application is
held invalid shall not be affected thereby.
13. Assignment by Payee. Payee may assign its
rights under this Note as described in the Note Purchase
Agreement.
14. Governing Law. This Note and the legal
relations between Issuer and Payee shall be governed by and
construed in accordance with the internal laws of the State
of California.
IN WITNESS WHEREOF, the undersigned has executed
and delivered this Note as of the date first above written.
JB OXFORD HOLDINGS, INC.,
By: Michael J. Chiodo
Its: Chief Financial Officer
Exhibit 4.3
EXTENSION AGREEMENT
Date: November 8, 1999
To JB Oxford Holdings, Inc.:
On behalf of Third Capital Partners, LLC, as the
beneficial owner of $3,418,695.59 principal amount of the 9%
senior Secured Convertible Note, dated May 26, 1998, issued
pursuant to the JB Oxford Holdings, Inc. Senior Secured
Convertible Note Purchase Agreement, dated March 10, 1995,
and having a Maturity Date of December 31, 1999, Third
Capital Partners, LLC, hereby extends the repayment of said
Note for a period of twelve additional months, to December
31, 2000. Until the new Maturity Date of December 31, 2000,
JB Oxford Holdings, Inc. is authorized to make interest
payments only, and no principal payments shall be due. All
other terms of the Senior Secured Convertible Note Purchase
Agreement shall remain in effect.
DATED this 8th day of November, 1999,
THIRD CAPITAL PARTNERS, LLC
a Tennessee limited liability company
By:________________________________
Christopher L. Jarratt
Its: Chief Manager
314 Church Street, Ninth Floor
Nashville, TN 37201
Exhibit 4.4
EXTENSION AGREEMENT
Date: November 8, 1999
To JB Oxford Holdings, Inc.:
On behalf of Third Capital Partners, LLC, as the
beneficial owner of $2,000,000 principal amount of the 9%
Secured Convertible Note, dated June 8, 1998, issued
pursuant to the JB Oxford Holdings, Inc. Secured Convertible
Note Purchase Agreement, dated June 8, 1998, and having a
Maturity Date of December 31, 1999, Third Capital Partners,
LLC, hereby extends the repayment of said Note for a period
of twelve additional months, to December 31, 2000. Until
the new Maturity Date of December 31, 2000, JB Oxford
Holdings, Inc. is authorized to make interest payments only,
and no principal payments shall be due. All other terms of
the Senior Secured Convertible Note Purchase Agreement shall
remain in effect.
DATED this 8th day of November,1999,
THIRD CAPITAL PARTNERS, LLC
a Tennessee limited liability company
By:________________________________
Christopher L. Jarratt
Its: Chief Manager
314 Church Street, Ninth Floor
Nashville, TN 37201
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<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> SEP-30-1999 SEP-30-1999
<PERIOD-END> JAN-01-1999 JUL-01-1999
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