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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 3l, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________
Commission File Number 0-16240
JB Oxford Holdings, Inc.
(Exact name of registrant as specified in its charter)
UTAH 95-4099866
(State of incorporation or organization) (I.R.S.
Employer
Identification
No.)
9665 Wilshire Blvd., Suite 300; Beverly Hills, 90212
California
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area (310) 777-8888
code
Securities registered pursuant to Section 12(b) None
of the Act:
Securities registered pursuant to Section 12(g)
of the Act:
Name of each
Title of each class exchange on
which registered
Common stock, $0.01 par 14,141,205 shares NASDAQ
value: outstanding at
March 13, 1998
Indicate by check mark whether the Registrant (l) has filed
all reports required to be filed by Section l3 or l5(d) of the
Securities Exchange Act of l934 during the preceding 12 months
and (2) has been subject to such filing requirements for the
past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-
affiliates of the registrant at March 13, 1998 was approximately
$8,646,627; such amount computed as the average bid and asked
prices of stock as of March 13, 1998.
PART I
Special Note Regarding Forward Looking Statements
Certain statements in the Annual Report on Form 10-K,
particularly under Items 1 through 7, constitute _forward-looking
statements_ within the meaning of the Private Securities
Litigation Reform Act of 1995 (the _Reform Act_). Such forward-
looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be
materially different from any future results, performance, or
achievements, expressed or implied by such forward-looking
statements.
Item 1. Business
JB Oxford Holdings, Inc. was incorporated in Delaware on
March 31, 1987, and relocated its state of incorporation to Utah
in 1990. The terms _Company_ _Registrant_ and/or _JBOH_ mean JB
Oxford Holdings, Inc. and its consolidated subsidiaries.
As of March 13, 1998, the Company and its subsidiaries had
approximately 300 employees. The Company considers its employee
relationships to be satisfactory.
The Company operates in a single industry segment. The only
significant subsidiary of the Company is JB Oxford & Company
(_JBOC_), the broker-dealer operation. No material part of the
Company's consolidated revenues are received from a single
customer or group of customers. The Company operates primarily
in domestic markets; however, the Company does have a foreign
office in Basel, Switzerland whose operations are not significant
to the financial statements taken as a whole.
General Developments
JBOC is a registered broker-dealer offering the following
services: (i) clearing, settlement, execution, safekeeping, cash,
and margin account services for regional broker-dealers
(_correspondents_) on a fully-disclosed basis; (ii) discount
brokerage services to the investing public through its registered
representatives; (iii) electronic and touch tone telephonic
trading services; (iv) market maker services in NASDAQ and listed
securities.
For fiscal 1997, consolidated revenues continued to grow
increasing from $57.6 million to $69.9 million, an increase of
21%. Gains were made in commission income, trading and net
interest income while clearing and other income decreased.
However, as more fully discussed below, these gains did not
translate into higher net income. Net income for 1997 was $1.5
million, a decrease of $2.5 million. As a result of Net Income
and the exercise of warrants, Shareholders' Equity increased by
$2.8 million to $15.1 million at December 31, 1997.
Clearing Brokerage Services/Trading & Execution
As of March 13, 1998, JBOC provided clearing agent services
for approximately 40 correspondents. Management believes that
this area of the business should be expanded as it has been
historically profitable for JBOC and offers a high return on
capital. There are also inherent risks to operating as a
clearing agent. Credit exposure must be constantly monitored and
actions taken on a timely basis to mitigate and minimize exposure
to these risks. JBOC mitigates its credit exposure by monitoring
the collateral in its possession from both individual customers
and correspondents. During 1997, JBOC increased the number of
experienced personnel in the correspondent clearing division and
will continue to do so as this area continues to grow.
JBOC's clearing business derives a portion of its income
from interest generated on the individual margin accounts of its
own discount customers and those of its correspondents. A margin
account allows the customer to deposit less than the full cost of
the security purchased while JBOC lends the balance of the
purchase price to the customer secured by the purchased
securities. Customers are charged interest on the amount
borrowed to finance their margin transactions ranging from .50%
below (on balances above $1 million) to 2.75% above the broker
call rate, which is the rate at which that brokers can generally
obtain financing using margin and firm owned securities as
collateral. As of December 31, 1997, JBOC had approximately
5,500 active margin accounts, which had total debit balances of
approximately $270,000,000. This reflects an increase of
$64,000,000 or 31% from the 1996 year-end. In addition, pursuant
to written agreements with customers, broker-dealers are
permitted by SEC regulations to lend customer securities held as
collateral in margin accounts. Also, as of December 31, 1997,
customer free credit balances were approximately $170,000,000.
These credit balances are available to finance customer margin
balances subject to the requirements of the Securities and
Exchange Commission's (the _SEC_) Rule 15c3-3, Customer Reserve
Requirement.
In addition to the above financing, 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 million.
In order to facilitate the execution of security
transactions for its own discount customers and the customers of
its correspondents, JBOC acts as a market maker for a number
(about 500 at March 15, 1998) of public corporations representing
a wide variety of industries. JBOC also maintains an inventory
of securities in its market making accounts. JBOC intends to
increase the number of securities in which it makes a market in
order to generate profits through increasing the number of
transactions it executes internally versus routing them to other
broker-dealers for execution.
The following table sets forth the revenue and related
number of transactions processed and the number of correspondents
for the clearing brokerage services division for the past three
years:
Year Ended December 31,
1997 1996 1995
Clearing and Execution $17,442,407 $19,452,650 $15,581,030
Interest Income $23,601,341 $14,519,507 $8,129,088
Number of Transactions 3,781,241 2,054,145 1,679,917
Cleared
Correspondent Brokers-
Dealers Under Contract 37 30 23
at Year-end
Acting as a clearing agent in the securities business
requires capital both from a working capital and regulatory
perspective. Management of the Company believes that in order
to successfully expand the clearing business, additional capital
will have to be infused into JBOC. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations, for a more extensive discussion of the need for
capital.
Discount Brokerage Services
The discount retail brokerage sales efforts are conducted
out of offices located in Massachusetts, California, Texas, New
York, Florida, and Basel, Switzerland. The Basel office serves
customers in more than thirty countries with personnel having
language capabilities in English, German, French, and Spanish.
In California, the Asian Marketing Group continues to be
successful in servicing the needs of the Asian community and a
new Asian Marketing Group office was opened in San Gabriel,
California during 1997. The investment needs of JBOC's discount
brokerage customers are handled by individually assigned account
representatives. A full menu of services and products are
offered customers including the ability to buy and sell
securities, security options, mutual funds, fixed income
products, annuities, REITs and UITs. JBOC recently started a
research department and offers its own proprietary research as
well as third party research to its customers.
Electronic Trading
JBOC's electronic trading division, JB On-lineO, through
the facility of the Internet (www.jboxford.com) or a touch tone
telephone, allows customers to trade equities and options, obtain
quotes, retrieve account information, and obtain research. The
Internet capability is available to international as well as
domestic customers of JBOC. During 1997, JBOC began banner
advertising on various financial related sites on the Internet
and this is expected to increase in 1998.
During 1997, in an effort to appeal to the on-line customer
that is solely price driven, the Company began offering deep
discount electronic services through a new subsidiary,
Stocks4less, Inc (_S4L_). Customers of S4L can also access JBOC
through the Internet (www.stocks4less.com) or a touch tone
telephone.
Competition
The securities industry, and the market areas in which JBOC
is involved are highly competitive. Many of these competitors
have substantially greater resources than JBOC. Management of
the Company believes that JBOC is able to compete due to its
ability to provide high-quality, flexible, and customer-sensitive
responses and services. JBOC continually upgrades its computer
systems and services within each of its divisions to utilize and
take advantage of the most recent technological developments.
Additionally, JBOC has specialized in identifying selected
markets and has emphasized the creation of long-term
relationships to meet customer needs more effectively.
While no single correspondent broker-dealer or customer
represents 10% or more of the Company's consolidated revenues,
the Company has several significant customers whose loss, in the
aggregate, could be material to JBOC. The Company believes that
the likelihood of losing a significant number of such customers
is remote.
Securities Industry Practices
JBOC is registered with the SEC and the National Association
of Securities Dealers, Inc. (the _NASD_) and is a member of the
following organizations: Chicago Stock Exchange, Pacific Stock
Exchange, Cincinnati Stock Exchange, DTC, NSCC, OCC and NASD.
JBOC is registered as a securities broker-dealer in all 50 states
and the District of Columbia. JBOC is also a member of the
Securities Investors Protection Corporation (_SIPC_), which
provides JBOC's customers with insurance protection for amounts
of up to $500,000 each, with a limitation of $100,000 on claims
for cash balances. JBOC has also acquired an additional $10
million in insurance coverage through National Union Fire
Insurance Company of Pittsburgh as added protection for
individual customer's securities, covering all clients of JBOC's
fully-disclosed correspondents and discount customers.
JBOC and the securities industry in the United States are
subject to extensive regulation by Federal and State laws. The
SEC is the Federal agency charged with administration of the
Federal Securities Laws. Much of the regulation of broker-
dealers, however, has been delegated to self-regulatory
organizations, principally the NASD and the national securities
exchanges. These self-regulatory organizations adopt rules
(subject to approval by the SEC) which govern the industry and
conduct periodic reviews of member broker-dealers. Securities
firms are also subject to regulation by state securities
commissions in the states in which they do business. The SEC,
self-regulatory organizations, and state securities commissions
may conduct administrative proceedings which can result in
censure, fine, suspension, or expulsion of a broker-dealer, its
officers or employees. The principal purpose of regulation and
discipline of broker-dealers is the protection of customers and
the securities markets, rather than protection of creditors and
shareholders of broker-dealers.
Business Risks
Retail broker-dealers with clearing operations, such as
JBOC, are exposed to risks which exceed the simple risk of loss
of business due to the loss of retail customers and/or
correspondents. Broker-dealers engaged in the clearing
operations for other correspondent broker-dealers are exposed to
losses beyond the loss of business in the event that the
correspondent fails. These risks result where the total assets,
securities held in inventory, and cash of the failed
correspondent are insufficient to cover the unpaid customer
debits, together with losses which may be generated in the
correspondent's trading account. JBOC has established procedures
to continuously review a correspondent's inventory and assess
JBOC's exposure to unpaid inventory positions and to monitor each
correspondent's daily activity in a continuing effort to prevent
such losses in the event of a correspondent's failure.
Management of JBOC has taken steps to assure that the
correspondent's inventory account is fully-paid, in an effort to
increase JBOC's financial security and provide added financial
protection. JBOC monitors required margin levels daily and,
pursuant to such guidelines, requires the customers to deposit
additional collateral, or to reduce positions when necessary.
The Company also requires cash deposits from correspondents which
mitigate losses from their activities.
However, areas outside the control of JBOC, which affect the
securities market, such as severe down-turns or declines in
market activity, may cause added financial exposure. This is
particularly true with regard to the receivables which are
carried in customers' margin accounts. A significant decline in
market value may decrease the value of securities pledged in the
margin accounts to a point that the margin loan would exceed such
value. While JBOC is authorized to liquidate the securities and
to utilize the correspondent's account balances to cover any
short-fall, in a worse case scenario, such collateral may not be
sufficient to cover all losses.
Net Capital Requirements
Every broker-dealer doing business with the public is
subject to the Uniform Net Capital Rule (the _Rule_), promulgated
by the SEC (Rule 15c3-1), which establishes minimum net capital
requirements for such broker-dealers. The Rule is designed to
measure financial integrity and liquidity in order to assure the
broker-dealer's financial stability within the securities market.
JBOC is a registered broker-dealer and is subject to the Rule.
In computing net capital under the Rule, various adjustments
are made to exclude assets not readily convertible into cash and
to reduce the value of other assets, such as a firm's position in
securities. A deduction is made against the market value of the
securities to reflect the possibility of a market decline prior
to sale. Compliance with the Rule could require intensive use of
capital and could limit JBOC's ability to pay dividends to the
Company, which in turn could limit the Company's ability to pay
dividends to its shareholders. JBOC has, at all times, been in
compliance with the Rule. Failure to comply with the Rule would
require the Company to infuse additional capital into the broker-
dealer and may subject the broker-dealer to certain restrictions
which may be imposed by the SEC, the NASD, and other regulatory
bodies. Moreover, in the event that the Company could not or
elected not to infuse the additional capital or otherwise bring
the broker-dealer into compliance, the broker-dealer would
ultimately be forced to cease operations.
At December 31, 1997, JBOC elected to use the alternative
method permitted by the Rule, which requires it to maintain
minimum net capital, as defined, equal to the greater of $250,000
or two percent of aggregate debit balances arising from customer
transactions, as defined. The Rule also provides, among other
things, for a restriction on the payment of cash dividends,
payments on subordinated borrowings, or the repurchase of capital
stock if the resulting excess net capital would fall below five
percent of aggregate debits. At December 31, 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.
At December 31, 1996, JBOC had net capital of $12,222,510, which
was 5.8% of aggregate debit balances and $7,986,964 in excess of
the minimum amount required. JBOC has agreed with the NASD to
maintain excess net capital of not less than $2,500,000.
Item 2. Properties
The principal offices of the Company and JBOC are located at
9665 Wilshire Boulevard, 3rd Floor, Beverly Hills, California
90212. As of March 14, 1998, the Company and its subsidiaries
conduct their operations from and have their administrative
offices at the following locations:
Location Area Principal Use Lease
(Sq. Ft.)
9665 Wilshire Blvd., 19,263 JBOH & JBOC Leased to
3rd, & 8th Floors Oct. 2002
Beverly Hills, CA 90212
9665 Wilshire Blvd., 3,459 JBOC and S4L Leased to
2nd Floor Oct. 2002
Beverly Hills, CA 90212
5221 N. O'Connor Rd, 8,856 JBOC Leased to
Suite 800 Irving, TX Sep. 1998
75039
99 High Street, 16TH 4,132 JBOC Leased to
Floor May 2001
Boston, MA 02110
EuroAirport Basel- 5,150 JBOC Month to
Mulhouse- Month
Freiburg, CH-4030
Basel-Airport
One Exchange Plaza, 19th 7,023 JBOC Leased to
Floor New York, NY Jun. 2006
10006
801 Brickell Ave. Suite 6,993 JBOC Leased to
2450 Miami, FL 33131 Feb. 2003
140 West Valley Blvd., 2,017 JBOC Leased to
Suite 220/1 San Gabriel, May 2002
CA 91776
The Company's office, and the offices and facilities of its
subsidiaries, are considered by management to be generally
suitable and adequate for their intended purposes.
Item 3. Legal Proceedings
The Company and/or its subsidiaries are a party to a number
of pending legal or administrative proceedings, of which those
identified below, may, in the opinion of Management of the
Company, after consultation with counsel, have a substantial
impact upon the Company. All of the legal and administrative
proceedings have arisen in the ordinary conduct of its business.
Evan J. Libaw, Trustee of the E.J. Libaw Family Trust, Pamel
Libaw vs. JB Oxford & Company, Vincent Tropea NASD
Arbitration No. 96-04043
In a NASD arbitration matter filed in September 1996, the
claimants seek damages in excess of $362,000, plus interest and
punitive damages. The claimants allege that JBOC and their
account executive churned their account and breached fiduciary
duties in connection with the handling of their account. The
respondents counter that the claimants approved all trades,
understood the risks of their investments, and caused losses by
their own actions. Three days of hearings were conducted in
December 1997, with additional hearing dates currently scheduled
for June 1998. In addition, an NASDR investigation into JBOC and
claimant's broker relating to Dr. Libaw's claims has been closed
with no action being taken against JBOC or the broker. The
ultimate outcome of the arbitration and range of possible loss,
if any, is not determinable at this stage. Management intends to
vigorously contest this matter.
William R. Stratton vs. JB Oxford Holdings, Inc. Case No.
970908225CN
This is an 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 and
alleges breach of an employment agreement with OTRA Clearing
Inc., which Mr. Stratton 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, and
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.
See also Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations, _Other
Information_ section.
Item 4. Submission Of Matters To A Vote Of Security Holders
There were no matters submitted to a vote of the
shareholders during the fourth quarter of 1997.
PART II
Item 5. Market for Registrant's Common Equity & Related
Stockholder Matters
The Company's common stock is traded in the over-the-counter
market with prices quoted on the NASD's Automated Quotation
System (NASDAQ) under the trading symbol _JBOH._ Quotations
given are from NASDAQ and represent prices between dealers
exclusive of a retail mark-up, mark-down, or commission. They do
not necessarily represent actual transactions.
Stock Price and Dividend Data
Month Ended
1-31-98 2-28-98
Price range of common stock
High $0.81 $0.84
Low 0.63 0.59
Close $0.63 $0.72
Quarter Ended
3-31-97 6-30-97 9-30-97 12-31-97
Price range of common stock
High $2.28 $2.56 $2.00 $1.63
Low 1.25 1.50 0.81 0.81
Close $1.75 $1.94 $1.63 $0.84
Quarter Ended
3-31-96 6-30-96 9-30-96 12-31-96
Price range of common stock
High $3.50 $3.34 $2.94 $2.69
Low 2.25 2.75 1.75 1.28
Close $3.03 $2.88 $1.84 $1.38
The number of record holders of the Company's common stock
as of March 13, 1998, was 167. The Company believes the number
of beneficial holders of the Company's common stock as of the
same date to be approximately 2,200.
Dividends
JBOH has not declared or paid cash dividends on its common
stock. It is Management's position that, given the past
expansion and overall business growth, it has been prudent to
retain and increase its capital base. The Company does not
currently anticipate paying cash dividends. Future payments of
dividends will depend upon, among other factors, the Company's
consolidated earnings, overall financial condition, and cash and
capital requirements.
Item 6. Selected Financial Data
The information set forth below should be read and reviewed
in conjunction with the Management's discussion and analysis,
consolidated financial statements, and related notes, included
under Item 7 & 8 of this report.
JB Oxford Holdings, Inc.
Selected Consolidated Financial Information
(Amounts in thousands, except per share data)
Income Statement Data 1997 1996 1995 1994 1993
Revenues $69,962 $57,599 $39,605 $16,511 $32,560
Net Income (Loss) 1,523 4,040 5,225 (7,588) (1,807)
Basic Earnings (Loss) Per .12 0.44 0.62 (1.33) (0.35)
Share
Diluted Earnings (Loss) .09 0.23 0.40 (1.33) (0.35)
Per Share
Dividends -- -- -- -- --
Balance Sheet Data
Total Assets $342,312 $330,336 $175,764 $87,533 $61,785
Long-Term Debt 1,500 2,000 6,623 451 640
Liabilities (Excluding 325,689 315,978 160,697 87,681 55,155
Long-Term)
Total Shareholders' Equity 15,123 12,358 8,444 (599) 5,989
(Deficit)
Book Value Per Share* 1.07 1.18 0.74 (0.09) 1.13
* Computed using stockholders' equity less preferred stock with
the result divided by total outstanding common stock.
Item 7. Management's Discussion and Analysis Of Financial
Condition and Results Of Operations
Certain statements in the Annual Report on Form 10-K,
particularly under Items 1 through 8, constitute _forward-looking
statements_ within the meaning of the Private Securities
Litigation Reform Act of 1995 (the _Reform Act_). Such forward-
looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be
materially different from any future results, performance, or
achievements, expressed or implied by such forward-looking
statements.
Financial Condition
The Company and its primary subsidiary, JBOC, are directly
affected by general economic and market conditions, including
fluctuations in volume and price levels of securities, changes in
levels of customer margin accounts, free credit and stock loaned
and borrowed, changes in interest rates, and demand for financial
services, all of which have an impact on revenues. Periods of
reduced market activity adversely affect profitability for JBOC
because income from operations decreases while most expenses
remain relatively fixed. Management believes that the Company
has the ability to meet its current capital needs. However, in
order to be successful in expanding the business of JBOC
management believes that additional capital will have to be
raised. See Recent Developments and 1998 Outlook, below.
At December 31, 1997, shareholders' equity was $15,123,000
compared to $12,358,000 at December 31, 1996. The increase of
$2,765,000 was attributable to net income and the exercise of
certain warrants. Total assets at December 31, 1997, were
$342,312,000, an increase of $11,976,000 or 3.6%. The Company's
ratio of shareholders' equity to total assets increased from 3.7%
to 4.4% at December 31, 1997. Revenues for 1997 were $69,962,000
which represents an increase of $12,363,000 or 22%. Net income
decreased from $4,040,000 to $1,523,000.
In 1997, net income decreased substantially although net
revenues increased due to several different factors. Legal and
other costs, associated with a previously disclosed settlement of
a litigation matter, accounted for an approximately $1.2 million
decrease in net income. The litigation matter arose out of the
activities of JBOC's corporate finance department in 1994. JBOC
no longer engages in corporate finance activity. Additionally,
during 1997, JBOC incurred trading losses as a result of market
depreciation and writing down certain security positions to
estimated realizable value with a negative after tax impact on
earnings of approximately $1.4 million of which approximately
$400,000 occurred in the fourth quarter.
At the end of the third quarter JBOC chose not to bid on the
renewal of the clearing agreement of a correspondent whose
customers accounted for a significant amount of clearing revenue.
This was done in order to improve JBOC's regulatory financial
condition as the customers of this correspondent accounted for
approximately $75 million in margin debits which are a measure of
the regulatory capital requirements of JBOC. The financial
impact of losing this correspondent as well as several smaller
correspondents was felt in the fourth quarter as clearing
revenues declined by $2.53 million from the third quarter.
The fourth quarter of 1997 was a difficult one for the
Company. While the month of October started out with record
volumes in the stock market, there were volatile swings in market
indexes. During the months of November and December investors
seem to pause and volumes declined for JBOC. Additionally, there
was some incremental loss of business due to negative publicity
surrounding an on-going federal investigation of the Company
which began in August 1997. While commission income for JBOC
increased $7.1 million (38%) year to year, in the fourth quarter
commissions decreased from the third quarter by $892,000 or 11%.
Net interest income (interest income less interest expense)
increased for the year from $6.06 million to $9.41 million, or
55%. The fourth quarter net interest income decreased from $3.01
million to $2.17 million, or 30%. In the fourth quarter, the
decrease in revenues was offset, in part, by a decrease in non-
interest operating expenses of $775,000. Non-interest operating
expenses for the year increased by approximately $10.23 million
reflecting, among other things, increased communications and
operating personnel costs.
JBOC did not advertise during the fourth quarter of 1997.
Beginning in February of 1998, a new television campaign began
with good results. Investor sentiment appeared to turn positive
in the new fiscal year and commissions and trading profits in the
first quarter have so far exceeded fourth quarter 1997 averages.
Recent Developments and 1998 Outlook
Management believes that it has developed a well conceived
business plan for 1998 and beyond that will enhance shareholder
value. Three main areas that Management plans to concentrate on
are the following:
Electronic Discount Trading - increase the market share of
JBOC and S4L in their respective markets. Create
innovative marketing campaigns to increase market share.
Improve the systems necessary to handle anticipated
increases in volume. For example, JB-On-lineO recently
introduced artificial intelligence software which will
allow the efficient handling of orders with reductions in
personnel and other costs. Enter into strategic alliances
with other financial Internet vendors to enhance _value-
added_ online products.
Broker Related Discount Division - continue to add
qualified account representatives to offices believed to
have growth potential. Integrate the on-line features of
JBOC's product line into this area as well as other
innovative products such as wrap accounts and a research
department. Continue to stress product diversification by
expanding mutual funds, fixed income, and annuity
products.
Clearance and Trading - expand present correspondent base
by aggressive and innovative marketing campaign on a
selective basis. Emphasize service and price features of
JBOC. Increase JBOC's market making capabilities in order
to internalize order flow. Continue to invest in
communications and technology in these areas to maintain
competitiveness.
In order to carry out these plans, Management and the Board
of Directors of the Company agree that capital needs to be raised
from outside sources and infused into JBOC. There are various
regulatory capital rules and guidelines imposed on a broker-
dealer such as JBOC, which necessitate this capital infusion.
Several alternatives are currently being considered by the Board
to accomplish this goal. Should capital not be forthcoming in
the short term, the Company believes it would have to scale back
its plans for expansion and growth with a resultant negative
impact on earnings. Further, the Board would at that point
retain an investment banking firm to advise it on any additional
alternatives to realize and increase shareholder value.
Other Information
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, Chairman of
the Board of Directors of the Company, also serves as President
of Oeri Finance, Inc.
On or about the same date, the Company, its directors, 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. (Reynolds Kendrick Stratton,
Inc. is a subsidiary of the Company which has been inactive since
July 1994, but formerly operated as a broker-dealer). The
subpoenas generally call for the production of documents relating
apparently to the same issues which are the subject of the Grand
Jury investigation.
The Company has retained counsel in the above matters and
has cooperated with the 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
Irving 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 is incorrect and Company
counsel is communicating with insurance company counsel in an
attempt to resolve the issue. The Company believes that it
currently can fund the ongoing legal costs associated with the
investigations regardless of the outcome of the Company's
insurance claim.
NASDAQ Listing Requirements
The securities of JBOH currently trade on the Small Cap
Market of NASDAQ. Effective February 1998, NASDAQ implemented
revised continued listing requirements, including a minimum bid
price of $1.00. At February 13, 1998, the Company did not meet
the minimum bid price requirement, and the Company has 90 days in
order to regain compliance with the minimum bid price
requirement. Management is currently discussing various options
to bring the stock back into compliance, including, but not
limited to, a reverse split of the Company's stock.
Year 2000 Modifications
The Company currently estimates that the total cost of such
modifications will not be significant. However, there can be no
assurance that all necessary modifications will be identified and
corrected or that unforeseen difficulties or costs will not
arise. In addition, there can be no assurance that the systems
of other companies on which the Company systems rely will be
modified on a timely basis, or that the failure by another
company to properly modify its systems will not negatively impact
the systems or operations of the Company.
The company's effective tax rate varied from its statutory
federal rate due to changes in state taxes net of federal benefit
and other temporary differences.
Results of Operations
Year Ended December 31, 1997, compared to
Year Ended December 31, 1996
Total revenue increased by $12,362,243 or 21% to $69,961,623
during 1997. The most significant change was an increase in
interest revenue of $9,081,834. The increase in interest
revenues relates directly to the increase in customer account
balances. Customer receivables increased by $70,560,672 or 34%
to $280,287,735.
The Company also experienced significant growth in the deep
discount retail operation, with commission revenue up more than
38% over 1996. Commission revenue increased by $7,125,108 or 38%
to $25,939,576, and became the largest source of revenue to the
Company during 1997, consisting of 37% of total revenues for
1997.
Trading revenues increased by $1,328,145 or 144% to
$2,250,940 during 1997. The Company anticipates this trend to
continue with trading revenues replacing some of the lost
clearing and execution revenue described below.
Clearing and execution revenue decreased by $2,010,243 or
10% to $17,442,407 in 1997. The decrease occurred in the last
quarter of the year when the Company declined to bid on the
clearing contract of a large correspondent. Clearing revenues
declined by approximately 50% in the fourth quarter of 1997
compared to the three preceding quarters.
Total expense increased $15,947,569 or 31% to $67,339,066
during 1997. The largest variance was interest expense, which
increased $5,732,528 or 68% to $14,191,646 during 1997. The
increase in interest expense relates directly to the 63% increase
in interest income (discussed above). Net interest income
(interest income less interest expense) increased by $3,349,306
or 55% to $9,409,695 during 1997.
Commission expense increased by $2,050,067 or 25% to
$10,115,655 in 1997. This compared favorably with the 38%
increase in commission income discussed above. Net commission
income (commission income less commission expense) increased
$5,075,041or 47% to $15,823,921 during 1997. This growth in the
Company's discount operation is primarily the result of its
marketing efforts. This division remained profitable in 1997.
Bad debt and settlement expense increased $1,760,372 or 115%
to $3,286,421 during 1997. This increase reflects the settlement
of a litigation matter during the second quarter for which the
Company paid $1,500,000. Also during 1997 various Reynolds Kendrick
Stratton, Inc. _RKSI_ matters were resolved. It is expected this
expense will be significantly reduced during 1998.
Professional services increased $444,060, or 11% to
$4,585,781 in 1997. Of this increase, $407,216 were for legal
fees in the resolution of RKSI matters. The Company decreased
its consulting services during 1997 by $141,277, primarily
related to public relations. It is anticipated that professional
services will continue at this level for 1998.
Occupancy and equipment costs increased by $1,286,080 or 46%
to $4,108,926 in 1997. This increase relates primarily to the
upgrade of the Company's information and communication network
and, to a lesser extent, the opening of a new branch office in
San Gabriel, California.
Clearing expenses for the Company increased $809,729 or 38%
to $2,954,415 during 1997. This cost increased despite the
decline in clearing and execution revenue for the same period,
the increase in trade transaction volume, generated from the
growth in the discount division. Overall transaction volume
increased by 37% during 1997 over 1996. This is also true of
data processing costs which increased $1,070,951 or 26% to
$5,214,148 during 1997.
Other expenses such as employee compensation,
communications, and other operating costs increased in relation
to the increase in overall revenues.
The Company's effective tax rate varied from its statutory
federal rate due to changes in state taxes net of federal benefit
and other temporary differences.
Year Ended December 31, 1996,
compared to Year Ended December 31, 1995
Total revenue increased by $17,994,023 or 45% to $57,599,380
during 1996. The most significant change was an increase in
commissions of $9,583,802. 1996 year end commissions were
$18,814,468, compared with $9,230,666 in the prior year.
Clearing and execution revenue increased by $3,871,620 or
25% to $19,452,650 in 1996. This revenue increase was the direct
result of a 22% increase in transaction volume during 1996.
The Company also experienced significant growth in the deep
discount retail operation, with commission revenue up more than
100% over 1995. The Company opened additional offices in Boston
and Miami during the early part of 1996. The discount division
remained profitable in 1996.
Interest revenue increased by $6,390,419 or 79% to
$14,519,507 in 1996. This increase was directly related to the
success in the deep discount division. The Company offered
competitive interest rates, and was able to attract new customer
balances. In addition to carrying increased customer balances,
the Company earned further interest spreads by actively
participating in the stock loan and borrow business.
Other revenues increased $1,289,295 or 50% to $3,889,960 in
1996. The primary cause of this increase was $750,000 of
miscellaneous charges to correspondent brokers. Additionally the
Company had $138,000 in non-accountable expenses on an
underwriting that was completed in 1996.
Trading profits decreased by $3,141,113 or 77% to $922,795
in 1996. The Company restructured its trading function during
1996 in an effort to increase trading productivity.
Total expense increased $18,527,461 or 56% to $51,391,497
during 1996. The largest variance was interest expense, which
increased $4,047,127 or 92% to $8,459,118 during 1996. The
percentage increase in interest expense is greater than interest
income (discussed above) because the company accumulated excess
customer cash and invested in reverse repurchase agreements.
These instruments had less of a yield than that generated from
customer margin accounts.
Commission expense increased by $3,194,279 or 66% to
$8,065,588 in 1996. This compared favorably with the 104%
increase in commission income discussed above. Employee
compensation increased $3,299,998 or 58% to $9,013,089 in 1996.
This increase resulted primarily from the expansion of the deep
discount (additional branches) and on-line services the Company
offers.
Occupancy and equipment costs increased by $1,166,609 or 70%
to $2,822,846 in 1996. This increase relates to the opening of
new branch offices; New York, Switzerland, Boston and Miami
accounted for $666,427 of occupancy and equipment cost in 1996.
Professional services increased $1,707,616, or 70% to
$4,141,721 in 1996. Of this increase, $1,020,212 were for legal
fees in the resolution of RKSI matters. The Company also
incurred $740,491 more in consulting services during 1996,
primarily related to public relations.
Promotional expense increased $1,994,422, or 104% to
$3,912,089 in 1996. The most significant cause of this increase
relates to the new JB On-line products the Company introduced in
1996. The Company spent approximately $1,500,000 in advertising
for JB On-line. The Company will monitor its advertising
expenditures and the related benefits being received.
Bad debt expense decreased by $110,661 or 7% to $1,526,049
in 1996. Approximately half of the bad debt expense relates to
the resolution of RKSI and Prolyx matters. Other operating
expenses increased $431,341 or 28% to $1,981,722 in 1996. This
increase is due to the additional registration fees for its
growing discount division and additional regulatory fees
incurred.
Other expenses such as communications, data processing costs
and other operating costs have increased in relation to the
increase in related business. Clearing and floor brokerage costs
have decreased during 1996 by $551,445 or 21% to $2,144,686.
This decrease relates to the Company changing its clearing
corporation.
Income tax expenses has increased by $651,536 or 43%
primarily due to the release of the valuation allowance on the
deferred tax asset of $1,115,618 in 1995 net of $500,000 in 1996.
During the fourth quarter of 1996, the valuation allowance on the
deferred tax asset was released as it is more likely than not
that the deferred tax asset will be fully realized in 1997. The
Company's effective income tax rate varied from the statutory
federal tax rate as a result of state taxes, change in the
valuation allowance on the deferred tax asset, and a refund
related to the amendment of prior years income tax returns.
Liquidity and Capital Resources
The majority of the Company's corporate assets at December
31, 1997, were held by its subsidiary, JBOC, and consisted of
cash or assets readily convertible to cash. The Company's
statement of financial condition reflects this largely liquid
financial position. The majority of the Company's proprietary
securities positions are in JBOC's trading accounts, both long
and short; the majority of these positions are readily marketable
and actively traded. Receivables with other brokers and dealers
primarily represent current open transactions which typically
settle within a few days, or stock borrow and loan transactions
where the contracts are adjusted to market values daily.
The Company finances its business operations through funds
generated through its subsidiaries business services. JBOC is
subject to the net capital rules of the SEC. At December 31,
1997, JB Oxford had regulatory net capital of $14,380,292, which
exceeded the minimum requirement by $8,728,676. In addition to
financing the margin transactions by customer credit balances,
JBOC has established omnibus/financing accounts and lines of
revolving credit with other broker-dealers and banking
institutions with an aggregate borrowing limit approximating
$30,000,000. Additionally, the Company has available stock loan
financing when necessary. Amounts borrowed bear interest at a
fluctuating rate based on broker call and prime, with the average
rates ranging from 7.00% to 9.125% at December 31, 1997.
The Company has a deferred tax asset of $918,358 and $689,795 as
of December 31, 1997, and 1996, respectively. The deferred tax asset
represents the effect of future tax benefits resulting from temporary
differences recorded at the currently enacted federal tax rates. The
Company has not established a valuation allowance as management
believes it is more likely than not that it will generate sufficient
income in the future to utilize these assets.
Liquidity December 31, 1997 Compared to
December 31, 1996
The Company's cash position increased during 1997 by
$1,628,191 to $2,598,062 at year end. Cash provided by
operations was $5,848,138. The most significant source of cash
was the decrease in cash segregated under federal regulations in
the amount of $60,773,200. Additionally, the increase in
payables to broker dealers and clearing organizations provided
cash of $54,655,744, and all of this increase is the result of
additional securities loaned at December 31, 1997.
The most significant use of cash in operations was the
change in due to/from customers of 181,423,751. This use of cash
was offset by the sources of cash indicated above. The Company
also generated cash from net income in the amount of $1,522,685.
Cash used in financing activities was $6,682,672 primarily
from the liquidation of short term borrowing of $6,097,193. The
Company obtained cash in financing activities through additional
loans from stockholders of $2,867,500. Additionally, the Company
issued shares of its common stock in the amount of $1,327,630.
The Company used cash of $1,732,405 in investing activities,
all for capital expenditures. The Company's requirement for
capital resources is not material to the business as a whole. The
Company has no plans to open additional offices. The Company has
been in the process of upgrading its information and communication
systems. The Company has no significant commitments for capital
expenditures.
Liquidity December 31, 1996
Compared to December 31, 1995
The Company's cash position decreased in 1996, in the amount
of $14,979,706 to $969,871. Cash used in operations amounted to
$18,492,426. The most significant source of cash was the change
in amounts due to/from customers in the amount of $72,353,282.
In turn the most significant use of cash was the increase in cash
segregated under federal regulations in the amount of
$95,632,760. This relates directly to the cash provided from
customers.
The Company's operations provided cash from the net increase
in amounts due to/from broker-dealers and clearing organizations
of $5,059,436. The Company also generated cash from net income
in the amount of $4,039,574.
Cash provided by financing activities was $5,543,662
primarily from short term borrowing of $5,997,125 in short term
borrowings. Cash used in financing activities was payments of
notes payable in the amount of $328,110, and payments of
preferred stock dividends in the amount of $220,603. The Company
used cash of $2,030,942 in investing activities, all for capital
expenditures.
JB Oxford & Company
Short Term Borrowing
(Amounts in Thousands)
Category of aggregate
short-term borrowings a b c d e
borrowings
Year Ended December 31,
1997 collateralized by:
Customer securities -- -- $12,262 $4,264 6.9%
Firm securities -- -- 1,500 308 8.5%
Year Ended December 31,
1996 collateralized by:
Customer securities 4,497 7.7% 4,497 746 7.4%
Firm securities 1,500 8.4% 1,500 208 8.4%
Year Ended December 31,
1995 collateralized by:
Customer securities -- -- $13,857 $2,482 7.8%
Firm securities -- -- 850 375 8.0%
a) Balance at end of period
b) Weighted average interest rate at end of the period
c) Maximum amount outstanding during the period
d) Average amount outstanding during the period
e) Weighted average interest rate during the period
The weighted average interest rate during the period was
calculated by factoring the balances at the end of each month at
the various rates, and computing a weighted average on the
results.
Management believes that existing capital available,
together with the established revolving credit lines, provides
the Company with adequate financial resources to meet its
capital needs at the present operating level. However, in order
for the Company to assure continued growth and stability, and to
protect against the potential impact which could result from the
failure of any combination of its correspondent broker-dealer
clients, Management is exploring additional sources of capital to
increase the Company's liquidity and capital base.
Impact of Inflation
Inflation has had a minimal impact on the operations and
financial condition of the Company. The Company will continue to
monitor costs and productivity constantly and will adjust prices
and operations as necessary to meet inflationary impacts or
market changes.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (_SFAS 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 does not expect adoption to have a material
effect on its consolidated financial condition or results of
operations.
Statement of Financial Accounting Standards No. 128, _Earnings
per Share,_ (_SFAS 128_) is effective for financial statements
issued for periods ending after December 15, 1997, including interim
periods. The statement requires restatement of all prior period
earnings per share (_EPS_) data presented. The new standard requires
a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. The Company adopted SFAS 128 for the period ending
December 31, 1997, and for the peroids as presented in the
accompanying financial statements. Adoption of this standard resulted
in a restatement of prior periods EPS data as required by SFAS 128.
Statement of Financial Accounting Standards No. 129,
_Disclosure of Information about Capital Structure_ (_SFAS 123_) 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 for the period ended December 15, 1997 and it
did not have any effect on its consolidated financial position 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 standard for reporting and display
of comprehensive income and its components in a full set of
general purpose financial statements. The Company has not
determined the effect on its consolidated financial condition or
results of operations, if any, from the adoption of this statement.
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 it consolidated results of operations.
Item 8. Financial Statements and Supplementary Data
The financial statements and schedules required to be filed
by Item 8 of this form and paragraph (d) are contained herein as
follows:
Page
Report of Independent Certified Public Accountants 18
Consolidated Statements of Financial Condition 19-20
December 31, 1997, and 1996
Consolidated Statements of Operations Years Ended 21
December 31, 1997, 1996, and 1995
Consolidated Statements of Changes in 22
Stockholders' Equity (Deficit)Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows Years Ended 23
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements 24-38
Financial Statement Schedule I - Condensed 49-52
Financial Statements (Parent Company Only)
Financial Statement Schedule II - Valuation and 53
Qualifying Accounts
Report of Independent Certified Public Accountants
Board of Directors
JB Oxford Holdings, Inc.
We have audited the accompanying consolidated statements of
financial condition of JB Oxford Holdings, Inc. and Consolidated
Subsidiaries, as of December 31, 1997 and 1996 and the
related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the
three years ended December 31, 1997. We have also audited the
schedules listed in the accompanying index. These financial
statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and schedules are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements and schedules. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
financial statements and schedules. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of JB Oxford Holdings, Inc. and Consolidated
Subsidiaries at December 31, 1997 and 1996, and the
results of their operations and cash flows for each of the three
years ended December 31, 1997, in conformity with generally
accepted accounting principles.
Also, in our opinion, the schedules present fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Los Angeles, California
March 27, 1998
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
December 31,
1997 1996
Assets:
Cash and cash equivalents (Note 3) $2,598,062 $969,871
Cash segregated under federal and other 34,903,262 95,676,462
regulations (Note 4)
Receivable from broker-dealers and
clearing organizations
(net of allowance for doubtful accounts 4,682,908 7,034,713
of $2,103,802 for
both years) (Note 5)
Receivable from customers (net of
allowance for doubtful accounts of 280,287,735 209,727,063
$4,231,016 and $3,931,080) (Note 6)
Other receivables (net of allowance for
doubtful accounts of $1,979,793 for both 2,233,321 1,403,588
years)
Securities owned - at market value 3,737,661 5,080,146
(Note 7)
Furniture, equipment, and leasehold
improvements (at cost - net of
accumulated depreciation and 3,460,467 2,987,209
amortization of $4,051,672 and
$2,792,595)
Income taxes refundable (Note 11) 717,396 849,162
Deferred income taxes (Note 11) 918,358 689,795
Clearing deposits 6,728,590 4,973,246
Other assets 2,044,588 944,866
Total assets $342,312,348 $330,336,121
Liabilities and stockholders' equity:
Liabilities:
Payable to broker-dealers and clearing $90,222,450 $35,566,706
organizations (Note 5)
Payable to customers (Note 6) 221,033,056 262,019,997
Securities sold not yet purchased - at
market value (Note 7) 1,148,706 243,864
Accounts payable and accrued liabilities 5,791,409 7,605,998
Income taxes payable (Note 11) 182,028 --
Loans from stockholders (Note 12) 7,288,811 4,421,311
Notes payable (Note 8) 22,894 6,120,087
Subordinated borrowings (Note 9) 1,500,000 2,000,000
Total liabilities 327,189,354 317,977,963
Commitments and contingent liabilities (Note 15)
Stockholders' equity:
Convertible preferred stock ($10 par value, -- 2,000,000
200,000 shares authorized; 200,000 shares
issued and outstanding in 1996) (Note 10)
Common stock ($.01 par value, 100,000,000 141,412 87,602
shares authorized; 14,141,205 and
8,760,205 shares issued and outstanding)
Additional paid-in capital 12,815,316 9,541,496
Retained earnings 2,166,266 729,060
Total stockholders' equity 15,122,994 12,358,158
Total liabilities and stockholders'
equity $342,312,348 $330,336,121
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Operations
For The Years Ended December 31,
1997 1996 1995
Revenues:
Clearing and execution $17,442,407 $19,452,650 $15,581,030
Trading profits 2,250,940 922,795 4,063,908
Commissions 25,939,576 18,814,468 9,230,666
Interest 23,601,341 14,519,507 8,129,088
Other 727,359 3,889,960 2,600,665
Total Revenues 69,961,623 57,599,380 39,605,357
Expenses:
Employee compensation 10,231,818 9,013,089 5,713,091
Commission expense 10,115,655 8,065,588 4,871,309
Clearing and floor brokerage 2,954,415 2,144,686 2,696,131
Communications 6,560,425 5,181,392 3,134,580
Occupancy 4,108,926 2,822,846 1,656,237
Interest 14,191,646 8,459,118 4,411,991
Data processing charges 5,214,148 4,143,197 2,841,834
Professional services 4,585,781 4,141,721 2,434,105
Promotional 3,709,631 3,912,089 1,917,667
Bad debt and settlement expense 3,286,421 1,526,049 1,636,710
Other operating expenses 2,380,200 1,981,722 1,550,381
Total Expenses 67,339,066 51,391,497 32,864,036
Income Before Income Taxes 2,622,557 6,207,883 6,741,321
Income Tax Provision 1,099,872 2,168,309 1,516,773
Net Income $1,522,685 $4,039,574 $5,224,548
Basic Net Income Per Share 0.12 0.44 0.67
Diluted Income Per Share 0.09 0.23 0.40
Weighted average number of
shares of common stock & common
stock equivalents
Basic 12,334,517 8,704,235 7,615,631
Diluted 18,746,264 18,380,780 13,478,573
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Colidated Statements Of Changes in Stockholders' Equity (Deficit)
Preferred Stock Common Stock
Additional Retained
Paid-in Earnings
Shares Amount Shares Amount Capital (Accum. Deficit) Total
Balance at January 1, 1995 -- -- 6,432,983 $64,330 $7,525,074 $(8,188,486) (599,082)
Issuance of preferred stock 200,000 $2,000,000 -- -- -- -- 2,000,000
Excercise of warrants -- -- 2,222,222 22,222 1,922,222 -- 1,944,444
Net Income -- -- -- -- -- 5,224,548 5,224,548
Cash Dividends-preferred stock -- -- -- -- -- (125,973) (125,973)
Balance December 31, 1995 200,000 2,000,000 8,655,205 86,552 9,447,296 (3,089,911) 8,443,937
Exercise of warrants -- -- 105,000 1,050 94,200 -- 95,250
Net Income -- -- -- -- -- 4,039,574 4,039,574
Cash Dividents-preferred stock -- -- -- -- -- (220,603) (220,603)
Balance at December 31, 1996 200,000 2,000,000 8,760,205 87,602 9,541,496 729,060 12,358,158
Issuance of common stock -- -- 65,000 650 124,150 -- 124,800
Excercise of warrants -- -- 1,316,000 13,160 1,189,670 -- 1,202,830
Conversion of preferred stock (200,000)(2,000,000) 4,000,000 40,000 1,960,000 -- --
Net Income -- -- -- -- -- 1,522,685 1,522,685
Cash Dividends-preferred stock -- -- -- -- -- (85,479) (85,479)
Balance at December 31, 1997 -- -- $14,141,205 $141,412 $12,815,316 $2,166,266 $15,122,994
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Consolidated Statements Of Cash Flows
For The Years Ended December 31,
1997 1996 1995
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income (loss) $1,522,685 $4,039,574 $5,224,548
Adjustments to reconcile net income (loss)to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,259,147 882,773 545,481
Disposal of property and equipment -- 204,807 --
Deferred rent (62,700) 70,079 (772)
Provision for bad debts 299,936 1,526,049 1,636,710
Changes in assets and liabilities:
Cash segregated under federal and other
regulations 60,773,200 (95,632,760) 9,625,831
Receivable from broker-dealers
and clearing organizations 2,351,805 (427,160) 9,884,512
Receivable from customers (70,860,608)(68,083,528)(88,697,676)
Other receivables (829,733) (534,989) (1,654,493)
Securities owned 1,342,485 (492,724) (3,119,877)
Clearing deposits (1,755,344) (4,540,383) (19,815)
Other assets (1,099,722) (262,891) (191,780)
Payable to broker-dealers and clearing org's 54,655,744 5,486,596 19,153,308
Payable to customers (40,986,941)140,436,810 66,553,006
Securities sold not yet purchased 904,842 19,701 63,403
Accounts payable and accrued accrued liablilities (1,751,889) (403,302) 3,933,915
Income taxes payable/refundable/deferred 85,231 (781,078) 1,375,773
Net cash provided by (used in) operating activities 5,848,138 (18,492,426) 24,312,074
Cash flows from investing activities:
Capital expenditures (1,732,405) (2,030,942) (1,201,628)
Net cash used in investing activities (1,732,405) (2,030,942) (1,201,628)
Cash flows from financing activities:
Repayments of notes payable -- (328,110) (201,246)
Advances (repayments) on short term borrowing (6,097,193) 5,997,125 (13,466,716)
Subordinated loans (500,000) -- 2,000,000
Loans from stockholders 2,867,500 -- 2,531,638
Issuance of stock 1,327,630 95,250 1,944,444
Payment of cash dividends - preferred stock (85,479) (220,603) (125,973)
Net cash provided by (used in) financing activities (2,487,542) 5,543,662 (7,317,853)
Net increase (decrease) in cash and cash equivalents 1,628,191 (14,979,706) 15,792,593
Cash and cash equivalents at beginning of year 969,871 15,949,577 156,984
Cash and cash equivalents at end of year $2,598,062 $969,871 $15,949,577
See accompanying notes to Consolidated Financial Statements.
JB Oxford Holdings, Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 1. Basis of Presentation
Reporting Entity
The accompanying consolidated financial statements for 1997
and 1996 include the accounts of JB Oxford Holdings, Inc. (_the
Company_) (_JBOH_), and its wholly-owned subsidiaries, JB Oxford
& Company (_JBOC_), Stocks 4 Less, Inc. (_S4L_), Reynolds
Kendrick Stratton, Inc. (_RKSI_); and its 90% owned subsidiary,
Prolyx Data Systems, Inc. (_Prolyx_). The Company operates in one
significant geographic and industry segment. The Company derives
its revenues primarily from its correspondent clearing services,
discount operation, and market making activities. No individual
customer accounts for 10% or more of consolidated revenues.
Intercompany balances have been eliminated in consolidation.
Additionally, minority shareholders' interests are not separately
presented as the amounts are not significant.
The Company and JBOC have their principal offices in Beverly
Hills, California. JBOC's discount division has branches in
Beverly Hills, California; Irving, Texas; New York, New York;
Miami, Florida; Boston, Massachusetts; and Basel, Switzerland.
S4L maintains its office in Beverly Hills, California.
Note 2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments
purchased with maturities of three months or less when purchased to
be cash equivalents. Highly liquid investments are both readily
convertible to known amounts of cash and are so near their
maturity that they present insignificant risk of changes in value
because of interest rate changes.
Security Transactions
Proprietary securities transactions in regular-way trade are
recorded on trade date. Profit and loss arising from all
securities and commodities transactions entered into for the
account and risk of the Company are recorded on a trade basis.
Customers' securities transactions are reported on a settlement
date basis with related commission income and expenses reported
on a trade date basis.
Amounts receivable and payable for securities transactions
that have not reached their contractual settlement date are
recorded net on the consolidated statement of financial
condition.
Securities owned and sold, not yet purchased are valued at
market value. Securities not readily marketable are valued at
estimated fair value as determined by management.
Securities-Lending Activities
Securities borrowed and securities loaned transactions are
generally reported as collateralized financing except where
letters of credit or other securities are use as collateral.
Securities-borrowed transactions require the Company to deposit
cash, letters of credit, or other collateral with the lender.
With respect to Securities loaned, the Company receives collateral
in the form of cash or other collateral generally in excess of the
market value of securities loaned. The Company monitors the
market value of securities borrowed and loaned on a daily basis,
with additional collateral obtained or refunded as necessary.
Collateral
The Company continues to report assets it has pledged as
collateral in secured borrowing and other arrangements when the
secured party cannot sell or re-pledge the assets or the Company
can substitute collateral or otherwise redeem it on short notice.
The Company generally does not report assets received as
collateral in secured lending and other arrangements because the
debtor typically has the right to redeem the collateral on short
notice.
Depreciation and Amortization
Depreciation of furniture and equipment is provided on a
straight-line basis over the estimated useful lives of the
property which range from three to seven years. Leasehold
improvements are amortized over the lesser of the estimated
useful lives of the improvements or the term of the lease.
Promotional
Advertising costs are expensed as incurred.
Earnings Per Share
Basic earnings per share of common stock was computed by
dividing net earnings, after deducting the preferred dividend
requirements, by the weighted average number of common shares.
Diluted earnings per share are computed based on the
weighted average number of shares of common stock and dilutive
securities outstanding during the period. Dilutive securities are
options that are freely exercisable into common stock at less
than market exercise prices, the convertible debentures(after
giving retroactive effect to the elimination of interest expense,
net of tax) and convertible preferred stock. Dilutive securities
are not included in the weighted average number of shares when
the inclusion would increase the earnings per share or decrease
the loss per share.
Statement of Financial Accounting Standard No. 128,
_Earnings per Share_ (SFAS 128) issued by the FASB is effective
for financial statements with fiscal years and interim periods
ending after December 15, 1997 with retroactive statement for
prior periods. SFAS 128 provides for the calculation of Basic
and Diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income available
to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share
reflects the potential dilutions of securities that could share
in the earnings of an entity, such as stock options, warrants or
convertible debentures. The Company adopted SFAS 128 on December
15, 1997.
Basic earnings per share, in accordance with SFAS 125 is $0.05
higher than primary earnings per share, calculated in accordance
with APB 15 for the years ended December 31, 1996 and 1995.
The following table reconciles the numerators and
denominators of the basic and diluted earnings per share
computation:
For The Years Ended December 31,
1997 1996 1995
Basic Earnings Per Share
Net income $1,522,685 $4,039,574 $5,224,548
Preferred stock dividends (85,479) (220,603) (125,973)
Income available to common
stockholders (numerator) $1,437,206 $3,818,971 $5,098,575
Weighted average common shares
outstanding (denominator) 12,334,517 8,704,235 7,615,631
Basic Earnings Per Share $0.12 $0.44 $0.67
Diluted Earnings Per Share
Net income $1,522,685 $4,039,574 $5,224,548
Interest on convertible
debentures, net of income tax 238,752 242,162 180,428
Income available to common
stockholders plus assumed $1,761,437 $4,281,736 $5,404,976
conversions (numerator)
Weighted average common shares 12,334,517 8,704,235 7,615,631
outstanding
Weighted average options 1,379,805 1,903,304 1,437,304
outstanding
Weighted average convertible 4,421,311 4,548,487 3,729,264
debentures
Weighted average convertible 1,494,505 4,000,000 1,290,715
preferred stock
Stock acquired with proceeds (883,874) ( 775,246) (594,341)
Weighted average common shares
and assumed conversions 18,746,264 18,380,780 13,478,573
outstanding (denominator)
Diluted Earnings Per Share $0.09 $0.23 $0.40
Options to purchase 700,000 and 35,000 shares of common
stock at December 31, 1997 and 1996, and were not included in
the computation of diluted EPS because the options' exercise
price was greater that the average market price of the common
share during the respective periods. The options carry exercise
prices ranging from $1.59 to $3.00 at December 31, 1997, and
$2.75 to $3.00 at December 31 1996. The options at December 31,
1997 expire at various dates through July 9, 2007 and were still
outstanding at the end of 1997.
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the
financial statements carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation
allowance is provided when management cannot determine whether or
not it is more likely that the net deferred tax asset will be
realized. The effect on deferred tax assets and liabilities of a
change in the rates is recognized in income in the period that
includes the enactment date.
Stock-Based Compensation
As of January 1, 1996 the Company adopted Statement of
Financial Accounting Standards No. 123, _Accounting for Stock-
Based Compensation_ (SFAS 123). SFAS 123 allows an entity to
elect to continue to measure compensation cost under Accounting
Principles Board Opinion No. 25. _Accounting for Stock Issued to
Employees_ APB No. 25), but requires pro forma disclosure of net
earnings and earnings per share as if the fair-valued-based
method of accounting had been applied. In accordance with SFAS
123, the Company elected to continue to measure compensation cost
under APB No. 25 and comply with the pro forma disclosure
requirements.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1996
financial statements to conform with presentation in the 1997
financial statements.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 125,
_Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities_ (_SFAS 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 does not expect adoption to have a material
effect on its consolidated financial condition or results of
operations.
Statement of Financial Accounting Standards No. 128, _Earnings
Per Share_ (_SFAS 128_)is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods.
The statement requires restatement of all prior period earnings per
share (_EPS_) data presented. The new statndard requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. The Company adopted SFAS 128 for the period ending
December 31, 1997 and for prior periods as presented in the
accompanying financial statements. Adoption of this standard
resulted in a restatement of prior periods EPS data as required by
SFAS 128.
Statement of Financial Accounting Standards No. 129,
_Disclosure of Information about Capital Structure_ (_SFAS 123_)
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 it consolidated financial position 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 has not
determined the effect on its consolidated financial position or
results of operations, if any, from the adoption of this
statement.
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 it consolidated results of operations.
Note 3. Cash and Cash Equivalents
Included in cash and cash equivalents are securities
purchased under agreements to resell on an overnight basis in the
amount of $101,246 and $89,506 at December 31, 1997 and 1996.
Securities purchased are U.S. Treasury instruments which must be
at least 102% of the cash tendered. The market value of these
securities are $103,271 and $91,296 at December 31, 1997 and
1996.
Note 4. Cash Segregated Under Federal and Other
Regulations
Cash is segregated in special reserve bank accounts for the
exclusive benefit of customers under Rule 15c3-3 of the
Securities and Exchange Act of 1934, as amended. Included in the
special reserve bank account are securities purchased under
agreements to resell on an overnight basis in the amount
$34,554,930 and $93,009,301 at December 31, 1997 and 1996.
Securities purchased are U.S. Treasury instruments having a
market value of $35,246,028 and $94,869,487, respectively. The
Company had excess funds of $1,182,611 and $1,832,767 at December
31, 1997 and 1996.
Note 5. Receivable From and Payable to Broker-Dealers and
Clearing Organizations
At December 31, amounts receivable from and payable to
broker-dealers and clearing organizations result from the
Company's normal trading activities and consist of the following:
Receivable Payable
1997
Receivable:
Deposits for securities borrowed/loaned $3,919,001 $86,627,666
Securities failed to deliver/receive 629,050 285,476
Payable to correspondents -- 3,309,308
Receivable from clearing organizations 89,745 --
Other 45,112 --
Total $4,682,908 $90,222,450
Receivable Payable
1996
Receivable:
Deposits for securities borrowed/loaned $6,304,389 $29,597,102
Securities failed to deliver/receive 411,657 466,483
Payable to correspondents -- 5,503,121
Receivable from clearing organizations 318,667 --
Total $7,034,713 $35,566,706
Securities failed to deliver and receive represent
the contract value of securities that have not been delivered or
received subsequent to settlement date. At December 31, 1997 the
market value of the securities failed to deliver was $624,455 and
failed to receive was $273,263. At December 31, 1996, the market
value of the securities failed to deliver was $417,754 and failed
to receive was $461,493.
The amounts receivable from and payable to clearing
organizations represents securities failed to deliver and failed
to receive on a continuous net settlement basis. All open
positions are adjusted to market daily.
Securities borrowed and securities loaned represent securities
borrowed or loaned from other broker-dealers. The equivalent value
in money is deposited by the borrower. All open positions are
adjusted to market values weekly. These deposits approximate the
market value of the underlying securities.
The Company clears security transactions for correspondent
broker-dealers. Settled securities and related transactions for
these correspondents are included in payable to correspondents.
Note 6. Receivable From and Payable to Customers
Receivables from customers include amounts due on cash and
margin transactions. Payables to customers represent debit
balances in the customer accounts. Securities owned by customers
are held as collateral for receivables. Such collateral is not
reflected in the financial statements.
Note 7. Securities Owned and Securities Sold, Not Yet
Purchased
Marketable securities owned and sold but not yet purchased
consist of trading and investment securities at quoted market
values, as illustrated below:
Sold, But Not
Owned Yet Purchased
Balances as of December 31, 1997:
Corporate bonds, debentures, and notes $ -- $ 8,234
Corporate stocks 3,722,870 1,139,722
Options and warrants 14,791 750
Total $3,737,661 $1,148,706
Balances as of December 31, 1996:
Corporate bonds, debentures, and notes $ 71,311 $ 7,690
Corporate stocks 5,001,335 236,174
Options and warrants 7,500 --
Total $5,080,146 $ 243,864
As a part of its ongoing trading activities the Company may
hold derivative financial instruments for trading purposes.
These instruments consist of options and warrants and are not
used as hedge instruments to reduce financial market risks. The
Company does not trade futures, forward, swap or any other
derivative financial instruments except options and warrants.
The market value of warrants at December 31, 1997, and 1996, is
$14,791 and $7,500, respectively. Trading gains or losses
relating to options and warrants are not material to the
operations of the Company.
Note 8. Notes Payable
JBOC maintains firm and customer financing arrangements with
an aggregate borrowing limit approximating $30,000,000. Amounts
loaned bear interest at a fluctuating rate based on broker call
and prime and are fully collateralized by marketable securities.
The Company had no such loans outstanding at December 31, 1997.
The Company had outstanding borrowings collateralized by
marketable securities valued at $20,651,987 at December 31, 1996.
Such collateral included $18,552,994 of customers' margin account
securities and $2,098,993 of securities owned by the Company and
non-customers.
At December 31, notes payable consisted of the following:
Balance at
end of a b c d
period
1997
Collateralized by:
Customer securities $ -- -- $12,262,000 $4,264,000 6.9%
Firm securities -- -- 1,500,000 308,000 8.5%
Other 22,894 9.5% 122,962 56,197 9.5%
Total $22,894
1996
Collateralized by:
Customer securities $4,497,125 7.7% 4,497,000 746,000 7.4%
Firm securities 1,500,000 8.4% 1,500,000 208,333 8.4%
Other 122,962 9.5% 249,840 186,401 9.5%
Total $6,120,087
a) Weighted average interest rate.
b) Maximum amount outstanding during the period.
c) Average amount outstanding during the period.
d) Weighted average interest rate during the period.
This amount was calculated by factoring the balances at the end
of each month at the various rates, and computing a weighted
average on the results.
See Note 12: Related Party Transactions for disclosure
relating to shareholder loans outstanding at December 31, 1997,
and 1996.
Note 9. Subordinated Borrowings
The borrowings under subordinated loan agreements at
December 31, 1997 and 1996, consist of three separate loans
totaling $1,500,000 and $2,000,000, respectively. Each agreement
carries interest at broker call plus 2%, not to exceed 9% payable
monthly. All agreements are due March 31, 1998. On January 12,
1996, $1,000,000 of the above subordinated debt was assigned, for
consideration, to a company controlled by a significant
shareholder of the Company. The fair value of the debt
approximates carrying value. The subordinated loan agreements
have been approved by the NASD and are thus available in
computing regulatory net capital. Subsequent to December 31,
1997, the Company renewed a $1,000,000 subordinated loan with the
same terms due on March 31, 1999. The additional two loan
agreements will be renegotiated with substantially the same
renewal terms, less a total of $250,000 in principal balance
which will be paid on renewal.
Note 10. Convertible Preferred Stock
On June 5, 1995, $2,000,000 of the convertible debentures
were exchanged for 200,000 shares of $10 par value non-voting
convertible preferred stock. The preferred stock is convertible
to common stock at the rate of $.50 per share of common stock
based on the par value of the preferred stock. In accordance
with a provision of the preferred stock agreement, the conversion
rate changed from $0.90 to $0.50 due to an ownership change
during 1996. The preferred stock currently pays a quarterly
dividend of 11% which will increase periodically to a maximum of
15%. The dividends are cumulative, and the Company has certain
redemption rights. The convertible preferred stock was converted
to common stock in April of 1997.
Note 11. Income Taxes
The income tax provision in the Consolidated Statements of
Operations consists of the following components:
Years Ended December 31,
1997 1996 1995
Current
Federal $916,955 $749,851 $900,989
State 411,480 729,083 220,302
Subtotal 1,328,435 1,478,934 1,121,291
Deferred
Federal (174,101) 670,169 108,961
State (54,462) 19,206 286,521
Subtotal (228,563) 689,375 395,482
Total $1,099,872 $2,168,309 $1,516,773
The significant components of deferred income tax expense
are as follows:
Years Ended December 31,
1997 1996 1995
Changes in:
Temporary $(348,447) $(140,511) $(296,705)
differences, net
Federal net
operating loss 135,857 1,184,336 1,452,299
carry forwards
State net operating
loss carry -- 125,550 355,506
forwards
Valuation allowance -- (500,000) (1,115,618)
Deferred tax liability (15,973) 20,000 --
Total $(228,563) $689,375 $395,482
Deferred tax assets - net included in the Consolidated
Statements of Financial Condition are as follows:
Years Ended December 31,
1997 1996
Temporary differences resulting
in future deductible amounts $922,385 $573,938
Federal net operating loss 135,857
carryforwards
Deferred tax assets 922,385 709,795
Deferred tax liability (4,027) (20,000)
Deferred tax asset - net $918,358 $689,795
Reconciliations of the provision for income taxes to the
expected income tax based on statutory rates are as follows:
Years Ended December 31,
1997 1996 1995
Provision - Federal statutory rate $891,669 $2,110,680 $2,292,050
Increase (decrease) in income taxes
resulting from:
Valuation allowance -- (500,000) (1,115,618)
State tax net of Fed tax benefit 271,576 742,240 404,479
Amendment of tax return -- (102,127) --
Other (63,373) (82,484) (64,138)
Total $1,099,872 $2,168,309 $1,516,773
Note 12. Related Party Transactions
In March, 1995, the Company restructured 100% of its
$5,031,000 demand debt to term debt in the form of senior secured
convertible notes (loans from stockholders) with an original
thirty month term, amortized over 10 years, at an annual interest
rate of 9%. As part of the restructuring, an additional
$2,000,000 of senior secured convertible notes were issued by the
Company under identical terms to the restructured demand debt.
The total convertible notes outstanding at December 31, 1997, and
1996, were $4,421,311. Related interest expense for 1997, 1996
and 1995 was $397,918, $403,603 and $520,297. Subsequent to
December 31, 1997, the due date of the notes was extended to
December 1998. Additionally, the Company obtained $2,867,500 in
demand notes from shareholders during 1997. This debt bears
interest at 8.25%, which is payable quarterly. Related interest
expense for 1997 was $129,324. Due to the related party nature
and terms of the shareholder loans, the fair market value of such
financial instruments cannot be estimated.
During 1995, in connection with opening and maintaining a
representative office in Switzerland, JBOC reimbursed a company
controlled by a significant shareholder of the Company
approximately $800,000 in expenses which are included in the
consolidated statement of operations. In October 1995, the
representative office became a branch office of JBOC.
Note 13. Options and Warrants
At December 31, 1997, the Company has one stock option
plan, which is described below. The Company applies APB Opinion
25, _Accounting for Stock Issued to Employees,_ and related
Interpretations in accounting for the plan. Under APB Opinion
25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the
date of grant, no compensation cost is recognized.
The Company has adopted a stock option plan (the _Plan_)
pursuant to which 453,000 shares of common stock have been
reserved for issuance to officers and full-time employees of the
Company. The Plan is administered by the Company's Board of
Directors which determines, among other things, the persons to be
granted options under the Plan, the number of shares subject to
each option and the option price, which shall not be less than
market value.
SFAS 123, Accounting for Stock-Based Compensation, requires
the Company to provide pro forma information regarding net income
and earnings per share in accordance with the compensation based
method prescribed in SFAS 123. The Company estimates the fair
value of each stock option at the grant date by using the Black-
Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996, and 1995,
respectively: dividend yield of 0%; expected volatility ranging
from 22% to 26%; risk-free interest rates ranging from 5.09% to
6.89%. The weighted average fair value of options granted during
1997, 1996 and 1995 was $0.52, $1.40, and $0.67, respectively.
Under the accounting provisions of SFAS 123, the Company's
net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
For The Years Ended December
31,
1997 1996 1995
Net income:
As reported $1,522,685 $4,039,574 $5,224,548
Pro forma 1,501,085 3,871,374 5,144,148
Basic earnings per share:
As reported 0.12 0.44 0.67
Pro forma 0.11 0.42 0.66
Diluted earnings per share:
As reported 0.09 0.23 0.40
Pro forma $0.09 $0.22 $0.40
Due to the fact that the company's stock option programs
vest over many years and additional awards are made each year,
the above pro forma numbers are not indicative of the financial
impact had the disclosure provisions of FASB 123 been applicable
to all years of previous option grants. The above numbers do not
include the effect of options granted prior to 1995 that vested
in 1995, 1996, and 1997.
A summary of the status of the Company's stock options and
warrants as of December 31, 1997, 1996, and 1995, and changes
during the years ending on those date is presented below:
December 31, December 31, December 31, 1995
1997 1996
Weighted Weighted Weighted
Shares average Shares average Shares average
Outstanding at
beginning of year 2,271,692 $1.28 1,956,692 $1.05 2,552,222 $0.90
Granted 205,000 1.79 420,000 2.30 1,626,692 1.03
Exercised (1,275,000) 0.90 (105,000) 1.05 (2,222,222) 0.88
Forfeited (236,692) 1.64 -- -- -- --
Outstanding at end
of year 965,000 1.82 2,271,692 1.28 1,956,692 1.05
Options excercisable
at year-end 800,000 $1.82 2,221,692 $1.25 1,881,692 $1.01
Weighted-average fair
value of options
granted during
the year $0.60 $1.40 $0.67
Information relating to stock options and warrants at
December 31, 1997, summarized by exercise price are as follows:
Options Outstanding Options Exercisable
Number Weighted- Weighted- Number Weighted-
Outstandi Average Average Exercisable Average
Exercise ng at Contractual Exercise at Exercise
Prices 12/31/96 Life Price 12/31/96 Price
1.08 250,000 5 1.08 250,000 0.50
1.13 15,000 3 1.13 -- 0.90
1.59 100,000 10 1.59 40,000 1.08
1.78 25,000 10 1.78 -- 1.78
1.94 200,000 3 1.94 200,000 1.94
1.97 15,000 10 1.97 -- 1.97
2.25 260,000 7 2.25 260,000 2.25
2.32 50,000 10 2.32 -- 2.32
2.87 25,000 10 2.87 25,000 2.87
3.00 25,000 10 3.00 25,000 3.00
Total 965,000 6 1.82 800,000 1.82
Note 14. Regulatory Requirements
JBOC is subject to the Securities and Exchange Commission's
Uniform Net Capital Rule (Rule 15c3-1), which requires the
maintenance of minimum net capital. JBOC has elected to use the
alternative method permitted by the Rule, which requires it to
maintain minimum net capital, as defined, equal to the greater of
$250,000 or two percent of aggregate debit balances arising from
customer transactions, as defined. The Rule also provides, among
other things, for a restriction on the payment of cash dividends,
payments on subordinated borrowings or the repurchase of capital
stock if the resulting excess net capital would fall below five
percent of aggregate debits.
At December 31, 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. At December 31, 1996,
JBOC had net capital of $12,222,510, which was 5.8% of aggregate
debit balances and $7,986,964 in excess of the minimum amount
required.
Note 15. Commitments and Contingent Liabilities
The Company offers its employees participation in a 401(k)
savings plan. Eligible employees are able to contribute a
portion of their compensation. The Company matches 25% of these
contributions up to 6% of the employees wage. This expense for
1997, 1996, and 1995 amounted to $43,731, $76,917, and $17,420.
The Company and/or its subsidiaries are defendants in
several lawsuits and arbitrations the most significant of which
follow:
a) In a NASD arbitration matter filed in September 1996,
the claimants seek damages in excess of $362,000, plus
interest and punitive damages. The claimants allege that JBOC
and their account executive churned their account and breached
fiduciary duties in connection with the handling of their
account. The respondents counter that the claimants approved
all trades, understood the risks of their investments and
cause losses by their own actions. Three days of hearings were
conducted in December 1997, with additional hearing dates
currently scheduled for June 1998. In addition, an NASDR
investigation into JBOC and claimant's broker relating to Dr.
Libaw's claims has been closed with no action being taken
against JBOC or the broker. The ultimate outcome of the
arbitration and range of possible loss, if any, is not
determinable at this stage. Management intends to vigorously
contest this matter.
b) 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, Mr. Stratton, and alleges breach of an employment
agreement with OTRA Clearing Inc., 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.
c) On August 19, 1997, a search warrant was served at the
Beverly Hills, California corporate offices of the Company and
its subsidiary, JB Oxford & Company, pursuant to a request
made by the Federal Bureau of Investigation. The Company and
certain of 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
JB Oxford & Company 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,
Chairman of the Board of Directors of the Company, also serves
as President of Oeri Finance, Inc.
On or about the same date, the Company, its directors,
JB Oxford & Company and certain of its officers and employees
were served with subpoenas duces tecum issued by the
Securities and Exchange Commission in connection with an
investigation conducted by that agency entitled In the matter
of Reynolds Kendrick Stratton, Inc. (Reynolds Kendrick
Stratton, Inc. is a subsidiary of the Company which has been
inactive since July 1994, but formerly operated as a broker-
dealer). The subpoenas generally call for the production of
documents relating apparently to the same issues which are the
subject of the Grand Jury investigation.
The Company has retained counsel in the above matters
and has cooperated with the 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. 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 is
incorrect and Company counsel is communicating with insurance
company counsel in an attempt to resolve the issue. 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.
Future annual minimum rental payments required under
operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 1997, were
as follows:
Year ending
December 31:
1998 $2,219,342
1999 2,115,957
2000 1,932,735
2001 1,694,080
2002 1,283,401
Thereafter 1,999,333
Total $11,244,848
The Company received certain concessions for a lease
included above which is being amortized ratably over the lease
term.
Rent expense was as follows:
Year ending
December 31:
1997 $1,995,852
1996 1,185,303
1995 $822,873
The Company has an Employee Stock Ownership Plan which
covers employees of the Company. Contributions to the Plan are
determined annually by the Board of Directors of the Company. No
contributions have been made for the years ended December 31,
1997, 1996, and 1995.
Note 16. Financial Instruments With Off-Balance Sheet Risk
In the normal course of business, the Company's customer and
correspondent clearance activities involve the execution,
settlement and financing of various securities and financial
instrument transactions. In the event the customers or
correspondents are unable to fulfill their contractual
obligations, the Company may be obligated to discharge the
obligation of the non-performing party and, as a result, may
incur a loss.
As a part of its normal brokerage activities, the Company
sells securities not yet purchased ("short sales") for its own
account. The establishment of short positions exposes the
Company to an off-balance sheet market risk in the event prices
increase, as the Company may be obligated to acquire the
securities at prevailing market prices.
The Company's customer securities activities are transacted
on either a cash or margin basis. In a margin transaction, the
Company extends credit to the customer, subject to various
regulatory and internal margin requirements, collateralized by
cash and securities in the customer's account. In addition, the
Company executes and clears customer transactions involving the
sale of securities not yet purchased ("short sales") and the
writing of option contracts. Such transactions may expose the
Company to significant off-balance-sheet risk in the event margin
requirements are not sufficient to fully cover losses which
customers may incur. In the event the customer fails to satisfy
its obligations, the Company may be required to purchase or sell
financial instruments at prevailing market prices in order to
fulfill the customer's obligations.
The Company seeks to control the risks associated with its
customer activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal
guidelines. The Company monitors required margin levels daily
and, pursuant to such guidelines, requires the customers to
deposit additional collateral, or to reduce positions, when
necessary. Additionally, the Company requires clearing deposits
from the correspondents.
The Company is a market-maker for public corporations
representing a wide variety of industries whose securities are
traded in the NASD's Automated Quotation System (_NASDAQ_), the
NASDAQ National Market System and, to a minor extent, on the NASD
Bulletin Board. 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 correspondents'
clients. Market making activities may result in concentration of
securities which may expose the Company to additional off-
balance-sheet risk.
In the normal course of business, the Company executes, as
agent or principal, transactions on behalf of customers. If the
agency or principal transactions do not settle because of failure
to perform by either the customer or the counterparty, the
Company may be obligated to discharge the obligation of the non-
performing party and, as a result, may incur a loss if the market
value of the securities are different from the contract amount of
the transactions.
The Company does not anticipate nonperformance by customers
or counterparties in the above situation. The Company's policy
is to monitor its market exposure and counterparty risk. In
addition, the Company has a policy of reviewing, as considered
necessary, the credit standing of each customer with which it
conducts business.
The Company arranges secured financing by pledging
securities owned and unpaid customer securities for short term
borrowings, securities loaned and to satisfy margin deposits of
clearing organizations. The Company also actively participates
in the borrowing and lending of securities. In the event the
counterparty in these and other securities loaned transactions is
unable to return such securities pledged or repay the deposit
placed with them, the Company may be exposed to the risks of
acquiring the securities at prevailing market prices or holding
collateral possessing a market value less than that of the
related pledged securities. The Company controls the risks by
monitoring the market value of securities pledged and requiring
adjustments of collateral levels where necessary.
Note 17. Supplemental Disclosures of Cash Flow Information
1997 1996 1995
Cash paid during the year for:
Interest $14,128,501 $8,428,614 $4,457,909
Income taxes $1,008,672 $3,204,726 $500,000
Supplemental disclosure of non-cash investing and financing ativities:
During 1995, $2,000,000 of the loans to stockholders was
exchanged for 200,000 shares of $10 par value non-voting
convertible preferred stock. During 1997 the convertible
preferred stock was converted into 4,000,000 shares of common
stock.
Note 18. Unaudited Supplemental Quarterly Financial Information
Below is selected quarterly financial data for each fiscal
quarter during the years ended December 31, 1997 and 1996. This
information should be read in conjunction with the consolidated
financial statements included elsewhere herein.
First Second Third Fourth
Quarter Quarter Quarter Quarter
1997
Revenues $15,617,638 $18,215,659 $20,026,773 $16,101,553
Income before tax 2,104,862 180,172 1,520,220 (1,182,697)
Net income 1,264,862 105,172 886,962 (734,311)
Basic earnings
(loss) per share 0.14 0.01 0.06 (0.05)
Diluted earnings
(loss) per share 0.07 0.01 0.05 (0.05)
1996
Revenues $12,904,615 $16,181,661 $14,359,206 $14,153,898
Income before
taxes 1,946,099 1,939,843 1,515,468 806,473
Net income 1,178,099 1,152,843 890,468 818,164
Basic earnings
per share 0.11 0.11 0.09 0.08
Diluted earnings
per share 0.07 0.07 0.05 0.05
During the fourth quarter of 1996, Management made a
$500,000 adjustment to the deferred tax valuation allowance,
which reduced income tax expense during this period.
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures
There were no changes in and or disagreements with the
accountants on accounting or financial disclosures.
PART III
Item 10. Directors and Executive Officers of the Registrant
Listed below are the directors and executive officers of the
Registrant followed by their business experience:
Name Age Position Period Served
Executive
Officers
Stephen
Rubenstein 54 Director, President, CEO Since March 1994
(Director since
May 1994)
Mitchell S.T.
Wine 39 Director, Secretary Since August 1993
Michael J.
Chiodo 40 CFO, Treasurer Since May 1994
Scott G. Monson 38 General Counsel, Since September 1997
Assistant Secretary Since August 1994
Directors
John Broome 65 Director Since September 1995
Felix A. Oeri 53 Director Since August 1996
Chairman of International
Sales of JBOC
Business Experience
STEPHEN M. RUBENSTEIN
President and CEO of Registrant and JBOC, August 1994 to
present. Chief Administrative Officer of RKSI and JBOC, March
1994 to August 1994. Financial Consultant specializing in
services to financial industry participants and attorneys, June
1992 - March 1994. Managing Director, Price Waterhouse,
Financial Services Industry Group, December 1990 - June 1992.
Chief Operations Officer and Chief Financial Officer and
Treasurer, Cantor Fitzgerald & Co., 1985 - 1990. Mr. Rubenstein
holds a Bachelor of Science degree in Accounting from Bernard
Baruch College, NYC, 1968 and is currently affiliated with AICPA,
California Society of CPA's, SIA and Association of Western
Securities Management.
MITCHELL S.T. WINE
Vice President of WSP Marketing International Ltd., a sales
promotion and marketing firm, Toronto, Ontario, 1990-present.
Received Masters in Business & Administration from Columbia
University, New York, NY, 1989. Admitted to California State Bar
in 1985. Admitted to Province of Ontario Bar, 1982. Practiced
law with McCarthy Tetrault in Toronto, Ontario, 1982-1988. Mr.
Wine received a law degree (LL.B.) from University of Toronto,
Toronto, Ontario: Awarded Dean's key on graduation, 1982.
Received Bachelor of Arts degree Cum Laude from Queen's
University in Kingston, Ontario, 1979.
MICHAEL J. CHIODO
Chief Financial Officer and Treasurer, JB Oxford Holdings,
Inc., September 1997 to present. Acting Chief Financial Officer,
JB Oxford Holdings, Inc., August 1994 to September 1997. Chief
Financial Officer, JB Oxford & Company, January 1994 to present.
Mr. Chiodo was previously employed by Reynolds Kendrick Stratton,
Inc. from August 1990 to December 1993, where he was named the
Chief Financial Officer in October 1992. He is a former partner
of the accounting firm of Sorensen, Chiodo & May. Mr. Chiodo
received a Bachelor of Science degree in Accounting from
Westminster College in Salt Lake City, Utah in 1978. Mr. Chiodo
is a Certified Public Accountant and is affiliated with AICPA.
SCOTT G. MONSON
General Counsel, JB Oxford Holdings, Inc. and its
subsidiaries, September 1997 to present. Associate General
Counsel, JB Oxford Holdings, Inc. and subsidiaries, August 1994
to September 1997. Legal Counsel, JB Oxford Holdings, Inc. and
subsidiaries, March 1989 - August 1994. Admitted to: California
State Bar, 1997; Texas State Bar, 1995; District of Columbia
Bar, 1993; Utah State Bar, 1985. Mr. Monson received a Juris
Doctor degree from the University of Utah College of Law in Salt
Lake City, Utah in 1985, and received a Bachelor of Science
degree in Psychology from Brigham Young University in Provo, Utah
in 1982.
JOHN BROOME
Mr. Broome is a retired Chartered Accountant (the Canadian
equivalent of a U.S. Certified Public Accountant). Mr. Broome
was formerly the Managing Partner of KPMG, Montreal office, 1974
- 1988. Among his professional assignments was assisting in
taking Air Canada public, in 1990. Mr. Broome is currently
active as a Director in several private and public companies,
including Delhi Industries, Toronto; CompAs Electronics, Ottawa;
and Trustee, Franklands Foundation, Montreal; his duties include
chairing the Audit Committees of many of these Boards. Mr.
Broome received a degree in Commerce from McGill University in
Montreal, 1954; became a Chartered Accountant in 1958, and
received an honorary designation as Fellow Chartered Accountant
in 1989.
FELIX OERI
Chairman and CEO of Oeri Finance Inc., a Swiss financial
institution and trust company, providing broker-dealer services
for securities, foreign exchange and precious metals, July 1987
to present. From 1979 to 1987, Mr. Oeri served as Chairman and
CEO of Bank Fuer Privates Eigentum BPE, Basel. Mr. Oeri served
as a member of the Grosser Rat des Kantons Basel-Stadt
(Parliament) and its Finance Committee from 1981 to 1991.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act requires the
Company's directors, executive officers, and persons who own more
than ten percent of a registered class of the Company's equity
securities, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission.
As of March 13, 1998, based on copies of such reports
furnished to the Company, there were no reportable untimely
filings under Forms 3,4, or 5 by persons subject to Section 16(a)
of the Securities Exchange Act of 1934.
See _Item 12. Security Ownership of Certain Beneficial
Owners and Management_ below for beneficial owners of more than
ten percent or any other person subject to disclosure per Section
16 of the Exchange Act.
Item 11. Executive Compensation
The following Summary Compensation Table sets forth the
annual compensation for those serving as executive officers and
directors as of December 31, 1997 and compensated by the Company
or any of its subsidiaries for each of the last three completed
fiscal years.
Long Term
Annual Compensation Compensation
Name and Other Options
Principal Annual
Position Year Salary($) Bonus($) Compensation (shares)
Stephen 1997 $287,500 $25,000 $456 100,000
Rubenstein
Director, CEO 1996 253,605 100,000 456 50,000
1995 213,956 -- -- 100,000
Michael J. 1997 110,000 5,000 76 --
Chiodo
CFO, Treasurer 1996 100,000 15,000 50 --
1995 102,575 26,000 -- --
Scott G. Monson 1997 100,000 5,000 -- --
General Counsel 1996 90,000 9,000 -- --
Asst. Sec. 1995 $89,750 $7,500 $ -- --
This table excludes the value of certain incidental personal
benefits. The incremental cost to the Company of providing such
incidental personal benefits did not, for the current year,
exceed the lesser of $50,000 or 10% of annual salary and bonus
for any of the respective individuals named in the table as set
forth. Outside directors are compensated $2,500 for each
quarterly meeting attended. The chairman of the compensation
committee and audit committee receives an additional $5,000 and
$7,500 a year respectively for his duties. Mr. Broome serves as
the Chairman to both the compensation committee and the audit
committee. Employee directors are not compensated for meeting
attendance.
Mr. Rubenstein serves pursuant to an employment agreement
that extends until March 31, 2000. The agreement provides that
he will be President and Chief Executive Officer of the Company
with a salary of $300,000 beginning April 1, 1997, $325,000 the
following year and $350,000 the year after that. In 1997, in
connection with the execution of the agreement, Mr. Rubenstein
received a bonus of $25,000 and the forgiveness of a loan of
$50,000. The agreement can then be renegotiated, terminated or
continued on a month-to-month basis. Mr. Rubenstein was granted
options to purchase 100,000 shares of the Company's common stock,
as described elsewhere herein, pursuant to the agreement. Mr.
Rubenstein receives life and disability insurance, as well as
standard benefits received by all officers. In the event that
Mr. Rubenstein is terminated without cause, he is entitled to the
full payment of all compensation called for by the agreement.
Mr. Monson executed an employment agreement with the Company
in June 1994, which presently continues on a month-to-month
basis. The only significant obligation of the Company remaining,
other than Mr. Monson's salary described above, is his right to
four months written notice of termination and three months
severance pay upon termination.
JB Oxford Holdings, Inc.
Option Grants in the Last Fiscal Year
12-31-97
The following table summarizes individual grants of stock options
made during the current year to each of the named executive officers.
(a) ( b ) ( c ) ( d ) ( e ) ( f ) ( g ) ( h ) ( i )
Stephen
Rubenstien 4-1-97 20,000 -- $1.59 4-1-97 4-1-07 20,024 50,827
4-1-97 10,000 -- 1.59 7-1-97 7-1-07 9,707 24,497
4-1-97 10,000 -- 1.59 10-1-97 10-1-07 10,336 26,444
4-1-97 10,000 -- 1.59 1-1-98 1-1-08 10,972 28,436
4-1-97 10,000 -- 1.59 4-1-98 4-1-08 11,307 29,545
4-1-97 10,000 -- 1.59 7-1-98 7-1-08 11,643 30,653
4-1-97 10,000 -- 1.59 10-1-98 10-1-08 11,979 37,762
4-1-97 10,000 -- 1.59 1-1-99 1-1-09 12,315 32,870
4-1-97 10,000 -- 1.59 4-1-99 4-1-09 12,667 34,089
Total 100,000 49%
(a) Name of executive officer.
(b) Grant date.
(c) The number of securities underlying the options granted.
(d) For the options granted, its % of total options granted to employees in
the current year.
(e) Excercise price per share.
(f) Date first excerciseable.
(g) Expiration date.
(h) Potential realized value at assumed annual rates of stock price
appreciation of 5% compounded for the option term.
(i) Potential realized value at assumed annual rates of stock price
appreciation of 10% compounded for the option term.
JB Oxford Holdings, Inc.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-end Option/SAR Values
12-31-97
The following table summarizes any options exercised during the current
year by each of the named executive officers, and the year-end value of
unexercised options on an aggregate basis.
( a ) ( b ) ( c ) ( d ) ( e )
Ex. Unex. Ex. Unex.
Stephen Rubenstein -- -- 200,000 -- 59,000 --
-- -- 25,000 -- -- --
-- -- 25,000 -- -- --
(a) Name of executive officer
(b) The number of shares received upon exercise of the option.
(c) The aggregate dollar value realized upon exercise of the option.
(d) The total number of securities underlying unexercised options and SAR's
held at the end of the last completed fiscal year, separately identifying
the excerciseable and unexercised options and SAR's.
(e) The aggregate dollar value of in-the-money, unexercised options and SAR's
held at the end of the fiscal year, separately identifying the exercisable
and unexcercised options and SAR's.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is currently comprised of the
following Directors who were elected to the committee on
September 19, 1997. Both members were re-elected, having served
the prior year.
John Broome, Chair
Mitchell S.T. Wine
Mitchell S.T. Wine also serves as the Secretary of the
Company, in addition to his responsibilities on the Compensation
Committee.
As required under Item 402(j)(1)(iii) and 402(j)(3) of
Regulation S-K, none of the members of the Compensation Committee
had any relationship requiring disclosure under any paragraph of
Item 404 of Regulation S-K.
Compensation Committee Report on Executive Compensation
The Compensation Committee, consisting solely of non-
employee directors, administers the executive compensation
programs of the Company and determines the compensation of senior
management. Part of this compensation, as described above, is
paid pursuant to employment agreements with Messrs. Rubenstein
and Monson. Beyond this, in determining compensation for senior
management, the Committee seeks to evaluate the officer's
performance during the year, taking into consideration the
Company's performance, the officer's level of responsibility for
such performance the officer's experience, market or other
conditions outside the officer's control that may have affected
performance, achievement of any specified goals or objectives
relating to the officer's position, and other factors. Based on
its evaluation, the Committee may recommend increases or
decreases in standard senior management compensation, the award
of bonus compensation, the grant of stock options, or other
incentives in appropriate circumstances.
Performance
The Company's common shares are traded on the National
Association of Securities Dealers Automated Quotations (_NASDAQ_)
under the trading symbol JBOH. The Performance Graph and table
below shows changes over the past five years in the value of $100
invested in (1) JB Oxford Holding, Inc.'s Common Stock, and (2)
the NASDAQ Financial Industry Index. The performance of the
index and the Company's Common Stock assumes the reinvestment of
all dividends.
Performance Table
Closing Index
JBOH Price NASDAQ compared
Date closing compared Index to base
price to base year
year
Base Year 12/31/92 $4.500 $100 213.884 100
12/31/93 1.125 25 248.587 116
12/31/94 1.000 22 249.168 116
12/31/95 2.813 63 363.023 170
12/31/96 1.375 31 465.167 217
12/31/97 $0.844 $19 710.669 332
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth those individuals who
beneficially owned more than five percent of the Company's Common
Stock as of March 13, 1998. In addition, the number of shares of
the Company's Common Stock beneficially owned by each director
and officer, and the number of shares beneficially owned by the
directors and executive officers of the Company as a group, as of
March 13, 1998 are disclosed below in the same table. The
information was furnished to the Company by the identified
individuals and by the Company's Transfer Agent.
Amount and Nature of Percent of Common
Name Beneficial Ownership(1) Shares Outstanding
Beneficial Owners of More Than 5%
Oeri Finance Inc. 2,557,199 (2) 16.9%
Peter Merian-Strasse 50
CH-4002 Basel, Switzerland
Felix A. Oeri 3,421,865 (3) 22.6%
Peter Merian-Strasse 50
CH-4002 Basel, Switzerland
Executive Officers
Stephen Rubenstein 360,561 (4) 2.5%
Michael J. Chiodo 5,771 (5) --% (9)
Scott G. Monson 26,119 (6) --% (9)
Directors
Mitchell S.T. Wine 220,000 (7) 1.6%
John Broome 60,000 (8) --% (9)
Directors & Executive Officers
as a Group 4,094,316 26.2%
(1) All shares are common class.
(2) Includes 1,001,446 shares which may be acquired pursuant to the terms
of the Senior Secured Convertible Note.
(3) Includes the amount and nature of beneficial ownership held by Oeri
Finance, Inc., a company of which Mr. Oeri is a principal shareholder.
(4) Includes 350,000 shares which may be acquired upon exercise of options,
and 561 shares pursuant to the Company Employee Stock Ownership Plan,
which are 60% vested.
(5) Includes 5,771 shares pursuant to the Company Employee Stock Ownership
Plan, which are 100% vested.
(6) Includes 4,169 shares pursuant to the Company Employee Stock Ownership
Plan, which are 100% vested.
(7) Includes 60,000 shares which may be acquired upon exercise of options.
(8) Includes 60,000 shares which may be acquired upon exercise of options.
(9) Less than 1%.
Item 13. Certain Relationships and Related Transactions
During 1997, all transactions involving officers or
directors of the Company were considered by Management to be
adequately disclosed elsewhere in the 10-K. See Note 11.
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On
Form 8-K
The financial statements and schedules required to be filed
by Item 8 of this form and paragraph (d) are contained herein as
follows:
Page
Report of Independent Certified Public Accountants 18
Consolidated Statements of Financial Condition 19-20
December 31, 1997, and 1996
Consolidated Statements of Operations Years Ended 21
December 31, 1997, 1996, and 1995
Consolidated Statements of Changes in 22
Stockholders' Equity (Deficit)Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows Years Ended 23
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements 24-38
Financial Statement Schedule I - Condensed 49-52
Financial Statements (Parent Company Only)
Financial Statement Schedule II - Valuation and 53
Qualifying Accounts
Listed below are exhibits as required by Item 601 of Regulation S-K:
Exhibit No. Description
3.1 Articles of Incorporation of JBOH, as amended, October 16,
1990 (incorporated herein by reference to Exhibit 1 of
JBOH's Current Report on Form 8-K, dated October 30, 1990,
filed with the Commission).
3.2 By-Laws of JBOH, as amended, October 16, 1990 (incorporated
herein by reference to Exhibit 1 of JBOH's Current Report on
Form 8-K dated October 30, 1990, filed with the Commission).
10.1 Standard Office Lease between St. George Beverly Hills, Inc.
and OTRA Clearing, Inc., dated January 31, 1992, to lease
Beverly Hills office space (incorporated herein by reference
to Exhibit 10.3 of JBOH's Annual Report on Form 10-K for the
year ended December 31, 1991, filed with the Commission).
10.2 Data Service Agreement between Securities Industry Software
Corp. and OTRA Clearing, Inc., dated June 8, 1992
(incorporated herein by reference to Exhibit 10 of JBOH's
Quarterly Report on Form 10-Q for the period ended June 30,
1992, filed with the Commission).
10.3 Lease Agreement between T-Las Colinas Towers Corp. and
Reynolds Kendrick Stratton, Inc., dated October 1, 1993, to
lease Irving, Texas office space for Dallas area branch
(incorporated herein by reference to Exhibit 10.8 of the
JBOH Form 10-K filed with the Commission for the year ended
December 31, 1993).
10.4 Assignment and Assumption Agreement for Beverly Hills office
space between JBOH and RKSI, executed as of December 31,
1993 (incorporated herein by reference to Exhibit 10.8 of
the JBOH Form 10-K filed with the Commission for the year
ended December 31, 1993).
10.5 Commercial office lease Agreement between Bank of
Communications. and JB Oxford & Company, executed as of
June, 1995, to lease New York office space (incorporated
herein by reference to Exhibit 10.1 of the JBOH Form 10-Q
filed with the Commission for the quarter ended June 30,
1995).
10.6 Commercial office lease Agreement between Brickell Square
Corporation Limited. and JB Oxford Holdings, Inc., executed
as of February 21, 1996, to lease Miami office space,
(incorporated herein by reference to Exhibit 10.16 of the
JBOH Form 10-K filed with the Commission for the year ended
December 31, 1995).
10.7 * Executive Employment Agreement between JBOH and Stephen
Rubenstein, dated December 11, 1997, and effective as of
April 1, 1997, filed herewith (Pages 54-56).
22 List of significant subsidiaries, filed herewith (Page 57).
28 Employee Stock Ownership Plan (incorporated herein by
reference to Exhibit 28 of JBOH's Annual Report on Form 10-K
for the year ended December 31, 1988, filed with the
Commission).
* Indicates that exhibit is a management contract or compensatory
plan or arrangement.
Reports on Form 8-K
During the fourth quarter, ended December 31, 1997, the
Company did not file a Report on Form 8-K.
Schedule I. Condensed Financial Information (Parent Company Only)
JB Oxford Holdings, Inc. Statements of Financial Condition
December 31,
1997 1996
Assets:
Cash and cash equivalents $250,023 $157,099
Investment in subsidiaries 20,908,327 17,694,794
Receivables from subsidiaries 1,778,991 --
Income taxes refundable 717,396 --
Deferred income taxes 918,358 1,879,170
Other assets 1,601,857 553,611
Total assets $26,380,491 $20,284,674
Liabilities and stockholders' equity:
Liabilities:
Accounts payable and accrued liabilities 1,270,995 1,278,419
Net payables to subsidiaries 2,276,735 1,739,085
Income taxes payable 181,827 354,043
Loans from stockholders 7,288,811 4,421,311
Notes payable 33,590 133,658
Total liabilities 11,257,497 7,926,516
Commitments and contingent liabilities
Stockholders' equity :
Convertible preferred stock ($10 par
value 200,000 shares authorized; -- 2,000,000
200,000 and 0 shares issued and
outstanding)
Common stock ($.01 par value
100,000,000 shares authorized;
8,760,205 and 8,655,205 shares issued 141,412 87,602
and outstanding)
Additional paid-in capital 12,815,316 9,541,496
Retained earnings 2,166,266 729,060
Total stockholders' equity 15,122,994 12,358,158
Total liab. and stockholders' equity $26,380,491 $20,284,674
See accompanying notes to Condensed Financial Information.
JB Oxford Holdings, Inc. Statements Of Operations
For The Years Ended December 31
1997 1996 1995
Revenues 1,534,483 2,119,756 2,173,421
Expenses
General and administrative 1,120,941 870,728 1,915,569
Interest expense 559,664 799,133 550,509
Bad debt and settlement 1,837,209 (458,472) (178,129)
expense
Total Expenses 3,517,814 1,211,389 2,287,949
Income (Loss) before equity (1,983,331) 908,367 (114,528)
interest in subsidiary income
Equity interest in subsidiary 4,605,888 5,299,516 6,855,849
income (loss)
Income (Loss) Before Income 2,622,557 6,207,883 6,741,321
Taxes
Income Tax Provision (Benefit) 1,099,872 2,168,309 1,516,773
Net Income (Loss) $1,522,685 $4,039,574 $5,224,548
JB Oxford Holdings, Inc. Statements Of Cash Flows
For The Years Ended December 31
1997 1996 1995
Net cash provided by (used in) $(3,466,659) $790,706 $3,037,946
operating activities
Cash flows from investing
activities:
Investment in subsidiaries (450,000) -- (4,000,000)
Capital expenditures -- 16,000 (16,000)
Net cash provided by (used in) (450,000) 16,000 (4,016,000)
investing activities
Cash flows from financing activities:
Notes payable (100,068 (1,031,379) (2,682,169)
Loans from stockholders 2,867,500 (201,232) 2,531,638
Issuance of stock 1,327,630 95,250 1,944,444
Payment of cash dividends - (85,479) (220,603) (125,973)
preferred stock
Net cash provided by (used in) 4,009,583 (1,357,964) 1,667,940
financing activities
Net increase (decrease) in cash 92,924 (551,258) 689,886
and cash equivalents
Cash and cash equivalents at 157,099 708,357 18,471
beginning of year
Cash and cash equivalents at end $250,023 $157,099 $708,357
of year
See accompanying notes to Condensed Financial Information.
JB Oxford Holdings, Inc. Notes to Condensed Financial Information
Note 1. Basis of Presentation
The parent company only financial statements present JB
Oxford Holdings, Inc.'s statements of financial condition,
operations and cash flows by accounting for the investment in its
consolidated subsidiaries on the equity method.
The accompanying condensed financial information should be
read with the consolidated financial statements and notes to
consolidated financial statements.
Note 2. Revenues
The Company receives substantially all of its revenues from
its subsidiaries. Management fees of $1,300,000 and $1,400,000
were received from JBOC in 1997 and 1996, respectively. The
balance of the revenues for 1997, 1996 and 1995 consists of rents
received from subsidiaries for office space and furniture and
equipment.
Note 3. Restrictions on the Transfer of Funds from
Subsidiary to the Parent
JBOC, as part of its normal broker-dealer activity has
minimum capital requirements as imposed by regulatory agencies
which restricts the amount of funds that can be transferred to
the Parent Company. See Note 14 to the consolidated financial
statements for discussion of these requirements.
Note 4. Loans from Stockholders
In March, 1995, the Company restructured 100% of its
$5,031,000 demand debt to term debt in the form of senior secured
convertible notes with an original thirty month term, amortized
over 10 years, at an annual interest rate of 9%. As part of the
restructuring, an additional $2,000,000 of senior secured
convertible notes were issued by the Company under identical
terms to the restructured demand debt. The total shareholder
loan outstanding at December 31, 1997 and 1996 was $4,421,311 for
both periods. Related interest expense for 1997, 1996 and 1995
was $397,918, $403,603 and $520,297. Subsequent to December 31,
1997,the due date of the notes was extended to December, 1998.
Additionally, the Company obtained $2,867,500 in demand notes
from shareholders during 1997. This debt bears interest at
8.25%, which is payable quarterly. Related interest expense for
1997 was $129,324. Due to the related party nature and terms of
the shareholder loans, the fair market value of such financial
instruments cannot be estimated.
Future annual payments including interest required under the
terms of the senior secured convertible notes are $4,421,311 Year
ending December 31,1998.
Note 5. Commitments and Contingent Liabilities
The Company is a defendant in several lawsuits and
arbitrations. The most significant of which is 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 and alleges breach of an
employment agreement with OTRA Clearing Inc., which Mr. Stratton
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, and discovery has been commenced. The
ultimate outcome and range of possible loss, if any, is not
determinable at this stage. Management intends to vigorously
contest this matter.
The ultimate outcome of these uncertainties discussed above
is unknown. Moreover, due to the nature of arbitration matters,
it is impossible to predict the ultimate outcome and/or range of
loss. Accordingly, no provision for any liability that might
result has been made in the accompanying financial statements.
The Company and its subsidiary, JBOC, are under investigation
by the SEC and the Los Angeles office of the United States
Attorney's Office (the _USAO_). Both investigations focus on the
Company's prior relationship with, and the activities
of, a former consultant of the Company and possible market
manipulation. In August 1997, in connection with both
investigations, the government agencies mentioned above served the
Company and certain of its officers and directors with subpoenas
dueces tecum and Grand Jury subpeonas, respectively. The Company
has retained counsel in these matters and has cooperated fully with
both the SEC and USAO. To date, no charges have been brought
against the Company as a result of the SEC's investigation or the
USAO's investigation. At this stage, it is not possible to predict
the ultimate outcome nor financial impact, if any, of the
investigations on the Company.
See also Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations, _Other
Information_ section, and Note 15 to the consolidated financial
statements included above.
Future annual minimum rental payments required under
operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 1997, were
as follows:
Year ending
December 31:
1997 $1,040,553
1998 1,086,589
1999 1,096,923
2000 1,143,693
2001 1,082,972
Thereafter 956,831
Total $6,407,561
Schedule II - Valuation and Qualifying Accounts
Additions
Balance charged
at to costs Balance at
beginning and Deductions end of
of period expenses ns period
1997
Allowance for:
Receivable from $2,103,802 $-- $-- $2,103,802
broker/ dealers and
clearing
organizations
Customer Accounts 3,931,080 299,936 (599,872) 4,231,016
Other Receivables 1,979,793 -- -- 1,979,793
1996
Allowance for:
Receivable from $2,103,802 $-- $-- $2,103,802
broker/ dealers and
clearing
organizations
Customer Accounts 4,333,291 1,526,049 (1,928,260) 3,931,080
Other Receivables 1,979,796 -- -- 1,979,793
Deferred tax asset 500,000 -- (500,000) --
1995
Allowance for:
Receivable from $2,103,802 $-- $-- $2,103,802
broker/ dealers and
clearing
organizations
Customer Accounts 4,119,204 1,636,710 (1,422,623) 4,333,291
Other Receivables 1,815,014 164,779 -- 1,979,793
Deferred tax asset 1,615,618 -- (1,115,618) 500,000
Deductions represent amounts written off.
EXHIBIT 10.7
December 11, 1997
Stephen Rubenstein
JB Oxford Holdings, Inc.
9665 Wilshire Blvd., 3rd Floor
Beverly Hills, CA 90212
Dear Stephen:
This letter will confirm the terms of your continued
employment with JB Oxford Holdings, Inc. (the _Company_). These
terms were reached between you and the Board of Directors of the
Company, at an executive session of the Board held on July 9,
1997, following the Board meeting, and are as follows:
1. You will continue to be employed by the Company and its
subsidiary, JB Oxford & Company (_JBOC_), as President and Chief
Executive Officer for a term of three (3) years, effective April
1, 1997, and continuing through March 31, 2000. You will assume
and perform those duties and responsibilities associated with the
position of President and CEO, and such other responsibilities as
may be directed by the Board from time to time. You will report
to the Board of Directors.
2. You will be compensated at a salary of $300,000 gross,
per annum, during the first year of this agreement; $325,000
gross, per annum, during the second year of this agreement, and
$350,000 gross, per annum, during the third year of this
agreement, paid in accordance with JBOC's standard payroll
practice.
3. At the end of this three (3) year term, the parties
will renegotiate the agreement in good faith, or terminate the
agreement. If the agreement is not renegotiated or terminated,
the agreement shall continue in effect on a month-to-month term.
4. You will be granted options to purchase 100,000 shares
of the Company's common stock under the Company's stock option
plan all of which are exercisable at the stock's closing price of
April 1, 1997. The closing price on April 1, 1997 was $1.59.
The options granted will vest as follows:
a. 20,000 options shall be vested upon
commencement of the term of this agreement,
April 1, 1997.
b. 10,000 options shall be vested on the
first day of each quarter from July 1, 1997
through April 1, 1999, at the stock's closing
price on the date of grant.
5. You shall receive all employee benefits provided by
JBOC, upon the terms and conditions of benefits so provided to
other JBOC executive employees. Medical benefits shall also be
provided to your family.
6. You will continue to be covered by a $1 million term
life insurance policy with the beneficiary to be named by you.
7. The Company shall provide you disability insurance at
an amount equal to sixty (60%) percent of your annual salary,
with benefits payable to age 65, and a waiting period of ninety
(90) days; premiums to be paid by the Company.
8. You shall be entitled to five (5) weeks of vacation
annually without loss of compensation. Vacation time may not be
accrued. You shall also be entitled to sick leave pursuant to the
Company's then-existing policy.
9. Your employment agreement with the Company may be
terminated by either party upon thirty (30) days written notice.
If such notice is given, the following applies:
a. If notice of termination is given by the
Company for cause as defined as: i) your
conviction of a felony; ii) your material breach
of your obligations pursuant to this agreement
and/or refusal to perform your duties under this
agreement; iii) your gross negligence or; iv)
your death or disability where you have been
unable to perform your duties for a continuous
period of ninety (90) days or more; the Company
will be responsible for paying you only accrued
but unpaid salary and vacation time and all
options granted but not exercised will be
nullified, except in the event of death or
disability, and then the terms of the Stock
Option Plan will govern.
b. If notice of termination is given by you,
then the Company will be responsible for paying
you only accrued but unpaid salary and vacation
time and all options granted but not exercised
will be nullified.
c. If notice of termination is given by the
Company, other than pursuant to the provisions
of paragraph (a) above for cause, you are
entitled to all compensation set forth in
paragraphs 2 and 4 (salary and stock options)
payable as if you had not been terminated.
10. You will receive a signing bonus of $25,000, which you
acknowledge you have already received.
11. The $50,000 loan from the Company to you shall be
forgiven on January 1, 1998.
12. You agree to keep confidential and to protect the
Company and its business, including the businesses of the
Company's subsidiaries, from the unauthorized use and
appropriation of confidential and proprietary information
developed, held, and used by the Company.
13. The Company agrees that it will defend, indemnify, and
hold you harmless, for all acts of the Company as set forth in
the By-Laws of the Company as in effect as of April 1, 1997.
14. In the event that a dispute arises related to your
employment agreement, you and the Company agree to seek mediation
of their dispute. If within thirty (30) days following written
notice of a dispute, the parties are unable to successfully
mediate the dispute, then the parties will agree to commence
binding arbitration pursuant to the rules of the American
Association of Arbitration.
15. All notices and other communications provided for in
this agreement shall be in writing and shall be deemed to have
been duly given when delivered by hand or mailed by U.S.
registered mail, return receipt requested, postage prepaid, or by
overnight delivery service, addressed as follows:
To the Company: JBOH and JBOH
9665 Wilshire Blvd. 9665 Wilshire Blvd.
3rd Floor 3rd Floor
Beverly Hills, CA 90212 Beverly Hills, CA 90212
Attn: General Counsel Attn: Chairman of the Board
To You: Stephen Rubenstein
9358 Hanna Avenue
Chatsworth, CA 91311
or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
16. Your employment agreement, at all times and all places
and in all proceedings, is to be governed by and construed in
accordance with the laws of the state of California without
regard to its conflict of laws.
17. Your employment agreement may be modified only by
written instrument, executed by both you and the members of the
Board of Directors.
DATED this 11th day of December, 1997.
JB OXFORD HOLDINGS, INC.
MEMBERS OF THE BOARD OF DIRECTORS
___________/s/_______________________
Felix A. Oeri, Chairman of the Board
___________/s/_______________________
John Broome, Director
___________/s/_______________________
Mitchell Wine, Director
EXHIBIT 22
Name State Or Percentage
Jurisdiction Of Voting
Incorporation Securities
Owned By
Parent
JB Oxford & Company Utah 100%
Stocks 4 Less, Inc. Delaware 100%
JB Oxford Insurance Services California 100%
JB Oxford & Co. Advertising, California 100%
Inc. (inactive)
Wall Street On-Line Inc. Delaware 100%
(inactive)
JB Oxford Trading, Inc. Utah 100%
(inactive)
Reynolds Kendrick Stratton, Colorado 100%
Inc. (inactive)
Prolyx Data Systems, Inc. Utah 90%
(inactive)
The subsidiaries listed above are all of the subsidiaries owned
by JB Oxford Holdings, Inc.
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, JB Oxford Holdings, Inc. has
duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JB Oxford Holdings, Inc.
____/s/______________________ ____/s/______________________
Stephen M. Rubenstein Mitchell S.T. Wine, Director
Chief Executive Officer
____/s/______________________ ____/s/______________________
Michael J. Chiodo John M. Broome, Director
Chief Financial Officer, Treasurer,
Chief Accounting Officer
____/s/______________________
Stephen Rubenstein, Director
__________________________
Felix A. Oeri, Director
March 27, 1998