10-Q 1 v018747_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 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.) 15165 Ventura Boulevard, Suite 330, Sherman Oaks, CA 91403 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (818) 907-6580 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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No _X_ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 8, 2005, the Registrant had the following number of shares of common stock, $0.01 par value per share, outstanding: 3,580,159. PART I - FINANCIAL INFORMATION Item 1. Financial Statements JB Oxford Holdings, Inc. and Subsidiaries Consolidated Statements of Financial Condition

See accompanying notes. 2 JB Oxford Holdings, Inc. and Subsidiaries Consolidated Statements of Financial Condition

See accompanying notes. 3 JB Oxford Holdings, Inc. and Subsidiaries Consolidated Statements Of Operations (Unaudited)

See accompanying notes. 4 JB Oxford Holdings, Inc. and Subsidiaries Consolidated Statements Of Cash Flows (Unaudited)

See accompanying notes. 5 JB Oxford Holdings, Inc. and Subsidiaries Notes To Consolidated Financial Statements (Unaudited) Note 1. Company's Quarterly Report under Form 10-Q In the opinion of Management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial statements of JB Oxford Holdings, Inc. and subsidiaries (the "Company") for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial information should be read in conjunction with the Company's 2004 Annual Report on Securities and Exchange Commission ("SEC") Form 10-K. Footnote disclosures that substantially duplicate those in the Company's Annual Report on Form 10-K, including significant accounting policies, have been omitted. The accompanying consolidated financial statements have been prepared on a going concern basis, which reflects the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring operating losses and has significant pending litigation. Further, there is significant uncertainty with respect to the outcome of a pending SEC lawsuit regarding alleged late trading of mutual funds conducted by the Company. The report of the Company's independent registered public accounting firm for the year ended December 31, 2004, included an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company file for protection under Chapter 11 or be unable to continue as a going concern. During the year ended December 31, 2004, the Company sold substantially all of its revenue producing operations. Effective September 2004, National Clearing Corp ("NCC") sold its correspondent clearing operation and effective October 2004, JB Oxford & Company ("JBOC") sold its retail brokerage operation. NCC still maintains a small institutional brokerage and market making operation, with the market making operation making 10 or less markets, to facilitate the securities transactions of our institutional clients. JBOC also acquired land as an investment, which we may or may not develop and FiCorp, Inc. acquired an aircraft to assist management with the current investment, as well as to examine additional potential investments. This new investment could create a separately identifiable segment with which to report operations of in future periods. This potential segment is only comprised of these assets and consequently separate segment disclosure has not been made. The Company has incurred approximately $185,000 of costs related to this new activity in the first quarter of 2005, with no related revenues. During the periods presented, the Company generated revenues in a single industry, the securities industry. During 2004, the Company derived its revenues primarily from its retail brokerage services operations in JBOC, and its correspondent clearing services and market making activities at NCC. These operations are reported as discontinued operation in the accompanying statement of operations, see Note 4 for further discussion of discontinued operations. In 2005, the Company generated revenues from its institutional brokerage operation in NCC and revenues from its cash investments. Inter-company balances have been eliminated in the consolidated financial statements. 6 Note 2. Earnings per Share The following table reconciles the numerators and denominators of the basic and diluted earnings per share computation:

The assumed conversions have been excluded in computing the diluted earnings per share when there is a net loss for the period. They have been excluded because their inclusion would reduce the loss per share or be anti-dilutive. If the assumed conversions were used, the fully diluted shares outstanding for the three months ended March 31, 2005 and 2004 would be 3,662,527 and 3,816,474, respectively. The excluded options carry exercise prices ranging from $2.20 to $91.25 at March 31, 2005 and 2004. Options to purchase 144,250 shares of common stock at March 31, 2005 expire at various dates through October 4, 2012. Note 3. Equity Transactions and Stock Options During the first quarter of 2005, the Company acquired 112,300 shares of common stock in connection with the final resolution of all matters related to the Mr. Stock acquisition. The shares were acquired at an effective average price of $2.89 per share, based upon mutual agreement of the parties and settlement of all other remaining issues. The retirement of the stock was recorded at a cost of $2.75 per share representing the fair market value on the day the shares were acquired and $16,175 was accrued as an expense at December 31, 2004. The buy back resulted in the reduction of common stock of $1,123 and additional paid in capital of $307,702 in the first quarter of 2005. The shares have been returned to the Company and cancelled as of March 31, 2005. 7 During the first quarter of 2004, the Company issued 132,244 shares of common stock related to the acquisition of intangible assets in the amount of $466,667 in connection with the Mr. Stock transaction. The average closing market price for the ten days prior to issuance was used to determine the number of shares issued. The $466,667 was previously included in accounts payable prior to issuance. See "Litigation Related to Account Acquisitions" included at Note 6 for additional information. SFAS No.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 No. 123. SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," requires the Company to provide information required by SFAS 123 on a quarterly basis. No options were issued during the three months ended March 31, 2005 and 2004; and there is no pro forma attribution expense on previously issued options for those respective periods. A summary of the status of the Company's stock options as of March 31, 2005 and 2004, and changes during the periods ending on those dates is presented below: March 31, 2005 March 31, 2004 ---------------------- ---------------------- Weighted Weighted Shares average Shares average ------- -------- ------- -------- Outstanding at beginning of period 144,250 $16.05 256,825 $15.66 Forfeited -- -- (200) 35.94 ------- ------- Outstanding at end of period 144,250 16.05 256,625 15.64 ======= ======= Options exercisable at quarter-end 144,250 16.05 256,625 15.64 Weighted-average fair value of options granted during the period $-- $-- Note 4. Discontinued Operations On June 4, 2004, the Company signed an asset purchase agreement with Ameritrade, Inc., a subsidiary of Ameritrade Holding Corporation, to sell the online retail accounts of JB Oxford & Company ("JBOC"), a subsidiary of JB Oxford Holdings, Inc. for up to $26 million in cash, subject to certain adjustments and an escrow. That transaction closed on October 8, 2004, with the final purchase price fixed at $25.87 million. The Company received the initial payment of $14 million in 2004, and received the second payment of $8.37 million in January 2005. The final payment of $3.5 million is due to be received in April 2006. On August 20, 2004, the Registrant entered into an agreement with North American Clearing, Inc. to sell all of its clearing rights for the correspondent accounts of its wholly-owned subsidiary National Clearing Corp. ("NCC"). Under the terms of the agreement, the Registrant received an initial payment of $100,000 in October 2004, and will receive 50% of the revenue related to the transferred correspondent accounts over the next five years, up to a maximum total payment of $2.5 million. Gain on disposal of clearing operation of $220,413 is included in discontinued operations for the period ended March 31, 2005. 8 These asset groups are the brokerage operations (both clearing and retail brokerage segments) of the Company and provided substantially all of its operating revenues in 2004. These asset groups met the criteria defined by SFAS No. 144 to be reported as discontinued operations as of June 30, 2004. Certain expenses, particularly professional fees, including legal defense costs, that are related to the discontinued operations, but remain as obligations of the Company after completion of the asset sales, are reported in ongoing operations. The following table reflects detailed amounts of revenue, expense and loss reported in discontinued operations for the respective periods ended March 31, 2005 and 2004. Operations previously reported have been restated to reflect the change in status to discontinued operations.

9 Note 5. Regulatory Requirements NCC is subject to the SEC's Uniform Net Capital Rule ("the Rule"), which requires the maintenance of minimum net capital. The Rule requires NCC to maintain minimum net capital, as defined, equal to the greater of $250,000 or 6 2/3 percent of aggregate indebtedness, as defined. At December 2004, NCC had elected the alternative method to compute its minimum net capital requirement. The alternative method requires the greater of $250,000 or two percent of aggregate debit balances arising from customer transactions, as defined. NCC no longer carried customer balances and used the aggregate indebtedness standard to compute its minimum net capital requirement at March 31, 2005. This method requires maintenance of minimum net capital of not less than 6 2/3% of aggregate indebtedness, as defined. At March 31, 2005, NCC had net capital of $2,398,168, which was $1,513,061 in excess of the minimum amount required and 18% of aggregate indebtedness with ratio of aggregate indebtedness to net capital of 5.5 to 1. At December 31, 2004, NCC had net capital of $2,640,170, which was $2,390,170 in excess of the $250,000 minimum required. Note 6. Contingent Liabilities The Company is a party to a number of pending legal, arbitration or administrative proceedings incidental to its business, including customer claims regarding brokerage transactions, and claims related to clearing services arising out of the failure of certain correspondent firms. All of the legal, arbitration and administrative proceedings have arisen in the ordinary conduct of its business. Those proceedings that management believes may have a significant impact on the Company are described below. However, there can be no assurance that in the future, other current or future proceedings will not have a material adverse effect on the Company's financial condition or results of operations. In particular, if the Company is required to pay a judgment in excess of the amount reserved, such a payment would negatively impact the financial condition of the Company. However, the Company regularly assesses its potential liability in all pending litigation to properly set the level of reserves for such litigation. To the extent that the reserves are sufficient to cover all awards and settlements, no currently threatened or pending litigation should materially impact the Company's financial position, results of operations or cash flows. The Company's aggregate reserve for pending litigation was $611,452 as of December 31, 2004. SEC Mutual Fund Lawsuit On or about August 24, 2004, the SEC's Los Angeles Office commenced a civil lawsuit against the Company, NCC, and three of its former officers and employees, alleging violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 22(c) of the Investment Company Act of 1940 and Rule 22c-1 thereunder. In January 2005, all claims under Section 17(a) of the Securities Act of 1933 were dismissed by the Court, with prejudice. The remaining claims remain pending. The suit seeks unspecified monetary damages and penalties, as well as other remedies against the individual defendants. The suit contends that the Company wrongfully allowed customers to place mutual fund trades after 4:00 p.m. EST, and wrongfully assisted clients in "market timing" of mutual funds. While the Company admits no wrongdoing and intends to vigorously defend itself, no assurance can be given as to the outcome of this matter. Although the likelihood of loss is reasonably possible, the Company has not accrued any specific amount related to this matter, as no amount of loss in the Company's estimated range of loss of zero to $20 million is more likely than another. 10 Litigation Related to Oeri Notes The Company is a party to a lawsuit entitled EBC Trust v. JB Oxford Holdings, Inc., et als., pending in the Federal District Court in Los Angeles. In this suit, EBC Trust is seeking payment of the $2.9 million in notes payable. In July 2002, the court magistrate granted a pre-judgment attachment against the assets of the Company in favor of EBC Trust. In January 2003, the Court reversed the magistrate's order and dissolved the attachment. In January 2003, EBC Trust amended its claim to assert additional claims against the Company and to add claims against the officers and directors of the Company, as well as to add a claim against NCC under the $1,000,000 Oeri subordinated note. By Order dated October 14, 2003, in response to motions filed by the Company, the Court dismissed several claims, struck portions of the Amended Complaint, and compelled EBC Trust to arbitrate all claims against NCC. As to the remaining claims, the Company has asserted a number of defenses to EBC Trust's claims, including fraud, and contribution related to a judgment entered against EBC Trust's predecessor-in-interest under the notes payable and NCC in an NASD arbitration commenced by Stanley J. Cohen, Receiver for Secured Equity Title and Appraisal Agency Corp. While nominally a clearing case, the panel ruling relied primarily on testimony regarding the activities of Irving Kott while present at the Company. Mr. Kott is alleged to have provided most of the funds for the loans now being pursued by EBC Trust. NCC settled all of the claims against it in that matter in 2002, and as a part of that settlement, obtained the assignment from Secured Equity of a Judgment against Oeri Finance, Inc. Accordingly, the Company has asserted a claim of offset for the Judgment against Oeri Finance, Inc. The Company has recorded liabilities of approximately $2.9 million on its balance sheet in notes payable, additionally, the Company has $816,429 of accrued interest related to these notes included in accounts payable and accrued expenses. The Company has not yet recorded the offset of the judgment obtained in its financial statements, since the matter has not yet been adjudicated. In December 2003, EBC Trust commenced an arbitration action with the National Association of Securities Dealers, Inc., against JBOC, seeking recovery on the $1,000,000 subordinated note originally issued to RMS Network, Inc., and subsequently assigned with approval from the Company and the NASD to Oeri Finance, Inc. The Company intends to vigorously defend the action and believes that it has meritorious defenses including, without limitation: i) the suit is brought against the wrong party; ii) no valid assignment has ever been approved by the Company or the NASD to EBC Trust, as required by the terms of the note; and iii) the Company will assert an offset for the Judgment obtained against Oeri Finance, Inc., described above. Litigation Related to Account Acquisitions In October 2002, Share King LLC, as successor to Mr. Stock, Inc. commenced an arbitration proceeding related to the acquisition by us of the accounts of Mr. Stock. We counter sued for violations of the purchase agreement by Mr. Stock. The main issue in the dispute related to whether and when Mr. Stock had met all of the necessary conditions precedent to the formal closing of the transaction, as calculation of the amount to be paid was based on when the closing occurred. The key condition in dispute was whether and when certain required computer programming was completed by Mr. Stock. That litigation was settled in August 2003, on terms more favorable to us than we originally accrued for, and the cost of the Mr. Stock acquisition was adjusted down $356,174 in 2003, as a result of settlement of the arbitration. As a part of the settlement, we are required to distribute cash and/or stock, at our election to Share King LLC. In early 2004, a further dispute arose with Share King LLC regarding the registration requirements related to stock issued and to be issued. That dispute was resolved and a cash payment of $1,400,000 was made to Share King, LLC in November 2004. 178,804 shares of the Company's common stock were reacquired in the transaction, and cancelled by the Company, of which 132,244 and 46,560 shares were issued in 2004 and 2003, respectively. 11 In a related action commenced in January 2005, OCC Venture, LLC commenced suit against Share King LLC and us alleging breach of the lease buyout agreement. In March 2005, we reached a settlement with OCC Venture, pursuant to which we have made payments totaling $686,111, of which $361,111 represented the balance due on the note payable to them. In exchange, we have received a return of 112,300 shares of our common stock, and a release of the outstanding note to OCC Venture. The Company accrued a loss of approximately $16,000 for the premium paid in excess of market value for the 112,300 shares at December 31, 2004. Note 7. Supplemental Disclosures of Cash Flow Information For The Three Months Ended March 31, --------------------- 2005 2004 -------- -------- Supplemental Disclosures of Cash Flow Information Cash paid for: Interest $ 37,231 $218,152 Income taxes 146,200 2,200 Supplemental disclosure of non-cash investing and financing activities: o Treasury stock bonus issued to employees in the amount of $0 and $115,514 for 2005 and 2004, respectively. o Common stock issued to acquire intangible assets in the amount of $466,667 for 2004 (See Note 3 Equity Transactions and Stock Options). Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Special Note Regarding Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q, particularly under Items 2 and 3, as well as certain information provided periodically in writing or orally by us, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements, expressed or implied by such forward-looking statements. 12 Business Overview Through our wholly-owned subsidiaries, we were previously engaged in the business of providing brokerage and related financial services to retail customers and broker-dealers nationwide. With the completion of the transactions with Ameritrade, Inc. and North American Clearing, our brokerage operations are now limited to providing market making and institutional trading services only. See Note 4, Discontinued Operations. Our business is headquartered in Los Angeles, California. On May 16, 2005, our Board of Directors approved a new business plan for our JB Oxford & Company subsidiary. Under the new business plan, JBOC will focus primarily on the acquisition of real estate for investment and/or development. In the fourth quarter of 2004, we made our first investment in real estate, through the purchase of raw land in Destin, Florida. While we will continue to look at investments in other market sectors, including the possibility of acquiring an operating business, our primary focus at this time is in making investments in real estate, both for investment and development purposes. Recent Developments On May 16, 2005, our Board approved a new business plan. In addition to continuing our limited brokerage business, our primary focus is now the purchase and sale of real estate for investment and/or development purposes. In addition, we reserve the right to make investments in other areas, including the possibility of investing in other operating entities. Investment Activities Our JBOC subsidiary received $14 million in October 2004 from the sale of assets to Ameritrade, Inc. In January 2005, we received an additional $8.3 million. The final payment of $3.5 million is held in escrow under the terms of the Asset Purchase Agreement with Ameritrade and is payable in 2006, less the amount of any liabilities to Ameritrade thereunder. In May 2005, we merged our JBOC subsidiary into our FiCorp subsidiary. The sale proceeds, less operating expenses to date, are available for investment. On December 2, 2004, the Company, through a new 99.9% owned subsidiary of JBOC, Dolphin Bay, LLC, acquired approximately 10 acres of undeveloped land in Destin, Florida, for $5.5 million. The Company has not determined whether to hold the land for short-term appreciation, longer-term appreciation or development. We did not acquire any additional property in the first quarter of 2005. Market Making Activities In order to facilitate the execution of security transactions for our own customers, NCC acts as a market maker for approximately 10 public corporations whose stocks are traded on the NASDAQ over-the-counter Bulletin Board System. The number of companies in which NCC acts as a market maker fluctuates depending upon various factors, including trading volume and the number of employees in a trading capacity. Our market making activities concentrate on the execution of unsolicited transactions for customers and are required to be in compliance with the rules of the National Association of Securities Dealers, Inc. ("NASD") regarding best execution. 13 Results of Operations Quarter Ended March 31, 2005 Compared with Quarter Ended March 31, 2004 Continuing Operations Revenues from ongoing institutional sales and trading services provided $279,358 in brokerage revenue for the three months ended March 31, 2005 as compared to $28,462 for the same period in 2004. The Company started to provide these services in March 2004. Interest earned for the three months ended March 31, 2005 amounted to $127,236. All of the interest earned in 2004 was included in discontinued operations. Our general and administrative expense increased by $155,463 or 11% to $1,524,539 in the first three months of 2005 from $1,369,076 in the first three months of 2004. This increase resulted primarily from employee compensation that increased $277,512 to $331,204 in the first three months of 2005 from $53,692 in the first three months of 2004. This increase is primarily the result of an increase in broker salary and commission from the institutional sales operation in the amount of $160,145. General and administrative expenses consist primarily of legal fees of $948,053 and $1,146,463 for the three months ended March 31, 2005 and 2004, respectively, related to legal matters as discussed in Note 6 above. Depreciation and amortization expense increased $27,836 for the three months ended March 31, 2005 over the three months ended March 31, 2004 because of the addition of the plane in late 2004. Depreciation on the plane amounted to $39,821 for the period ended March 31, 2005. We recognized a tax benefit of $350,013 in the first quarter of 2005, which was the reversal of deferred tax credits, as compared to an income tax expense of $400 for the same period in 2004. Our loss from continuing operations decreased 45% to $850,584 for the period ended March 31, 2005 compared to $1,535,968 for the period ended March 31, 2004. $350,413 of this decrease was the change in the provision (benefit) for income taxes in the respective periods. Discontinued Operations Discontinued operations generated net income of $132,860 in the first quarter of 2005 compared to a loss of $655,464 in the first quarter of 2004. This is a change of $788,324 or 120% decrease in the loss. Revenues from Discontinued Operations Our total discontinued brokerage revenues totaled $272,347 for the first three months of 2005, as compared $4,200,119 in the first three months of 2004. Operations for the retail and clearing operations ceased in the forth quarter of 2004. The primary source of discontinued operations revenue for the period ended March 31, 2005 is the result of our sales of security positions. The positions consisted of low priced securities which are not widely traded. 14 Expenses from Discontinued Operations Our total discontinued brokerage expenses totaled $359,900 for the first three months of 2005, as compared $4,853,783 in the first three months of 2004. As described above, operations for the retail and clearing operations ceased in the forth quarter of 2004. The primary source of operations expense for the period ended March 31, 2005 is data processing charges of $223,271. We expect these to continue through June 2005, at such time we will have completed our filing of information tax returns for our former retail customers. Additionally, we had rent and maintenance expense for our former New York office totaling $66,028 for the three months ended March 31, 2005, net of $47,714 sub rental payments received. Gain on Disposal of Operating Assets Included in the discontinued operation for the period ended March 31, 2005 is $220,413 from the sale of our clearing operation. We expect these proceeds to continue on a gradually declining basis. Liquidity and Capital Resources During the year ended December 31, 2004, we sold substantially all of our revenue producing operations. Effective September 2004, we sold our correspondent clearing operation of National Clearing Corporation and effective October 2004, we sold our retail brokerage operation of JB Oxford & Company. These transactions have added liquidity to our current financial position, however we currently have no significant operations that generate cash. As of March 31, 2005, we have $14,497,373in available cash. We received and additional $8,370,000 in January 2005 from the sale of retail accounts to Ameritrade and expect to receive and additional $3,500,000 in April 2006. NCC is subject to the requirements of the NASD and the SEC relating to liquidity, net capital, and the use of customer cash and securities. (See Note 5. "Regulatory Requirements" above.) At March 31, 2005, NCC had net capital of $2,398,168, which was $1,513,061 in excess of the minimum amount required. At December 31, 2004, NCC had net capital of $2,640,170, which was $2,390,170 in excess of the $250,000 minimum required. Because NCC is subject to the Net Capital Rule, there are restrictions on advances to affiliates, repayment of subordinated liabilities, dividend payments and other equity withdrawals that are subject to regulatory notification. We expect our current cash resources to be sufficient to fund our expected working capital and capital expenditure requirements for the current calendar year. We have no current commitments for capital resources; we did however acquire an aircraft for $1,115,000 at the end of 2004. It is currently anticipated that we will use approximately $4,400,000 of cash in operations for the calendar year 2005 in our core brokerage operations, excluding any proceeds we may realize from the sale of our investment in land or any costs we may incur if we choose to develop our land investment. We anticipate generating approximately $2,000,000 in gross commissions, interest earned, and continuing receipts from the sale of our clearing operation. The primary use of cash for operations is an estimated $4,000,000 in professional fees, primarily legal costs to defend us in various legal matters. If funds, which may be needed, are raised through the issuance of additional equity securities, our existing shareholders may experience additional dilution in ownership percentages or book value. Additionally, such securities may have rights, preferences and privileges senior to those of the holders of our current common stock. We cannot give any assurance that additional funds will not be needed. If additional funds are needed, there can be no assurance that additional financing will be available or whether it will be available on terms satisfactory to us. If we are unable to raise additional funds when needed, we may have to file for protection under Chapter 11 of the United States Bankruptcy Code. 15 Going Concern As previously noted, we have sold substantially all of our ongoing business operations and do not have generated significant revenues from current operations. There is significant doubt as to whether our limited remaining operations can generate sufficient revenue to be a continuing viable going concern. Further, there is significant uncertainty with respect to the outcome of the SEC lawsuit related to the late trading allegedly conducted by us. As a result, the report of our independent registered public accounting firm issued in connection with our December 31, 2004 consolidated financial statements indicates there is substantial doubt about our ability to continuing as a going concern. Should the outcome or judgment against us from the SEC lawsuit related to the ongoing mutual fund investigations (as disclosed in Note 6, Contingent Liabilities) be significant, the demand for payment resulting from such outcome or judgment coupled with our deteriorating financial results will likely affect our ability to meet our obligations as they become due in the normal course of business. Should we be unable to meet our obligations as they become due, we would be forced to immediately file for protection under Chapter 11 of the United States Bankruptcy Code (Chapter 11). Liquidity at March 31, 2005 Our cash position increased during the first three months of 2005 by $9,227,296 to $14,497,373. This compares with a net decrease in cash and cash equivalents of $1,066,651 in the first three months of 2004. We do not anticipate making any payments on notes payable in the principal amount of $2,889,375 (See "Litigation Related to Oeri Notes" in Legal Proceedings in Part II, below). Cash Flows from Operating Activities Net cash provided by operating activities (including discontinued operating activities) was $1,398,486 for the first three months of 2005, compared to cash of $927,191 used in operations during the first three months of 2004. Our net cash provided by or used in operating activities is impacted by changes in the brokerage-related assets and liabilities of NCC. During the first three months of 2005, the most significant source of cash was the decrease in cash segregated under federal and other regulations of $2,920,049. Additionally, clearing deposits decreased to provide cash of $445,592. These sources of cash were offset by the decreases in accounts payable and accrued liabilities of $540,791 and the net loss of $1,226,236 after adjustments to reconcile net loss to cash used in operating activities. 16 Cash Flows Used In Investing Activities The net cash provided by investing activities during the first three months of 2005 was $8,231,588 compared with cash used of $97,794 during the first three months of 2004. The most significant source of cash was cash received from the sale of operating assets of $8,590,413. The primary use of cash was to acquire 112,300 share of our common stock (see Note 3, "Equity Transactions and Stock Options"). All of the cash used for investing activities in the period ended March 31, 2004 was for capital expenditures. We presently have no plans to open additional offices and no significant commitments for capital expenditures. Therefore, our requirement for capital resources is not material to the business as a whole. Cash Flows from Financing Activities The net cash used in financing activities during the first three months of 2005 was $402,778 compared with cash used in financing activities of $41,666 in the first three months of 2004. The cash used in both periods was for the repayment of notes payable. The payment made in 2005 was to pay the note off in conjunction with the acquisition of 112,300 of share of our common stock (see above and Note 6 "Contingent Liabilities" under "Litigation Related to Account Acquisitions"). Risk Factors You should carefully consider the risks described below before making an investment decision in our securities. The risks and uncertainties described below are not the only ones we face and there may be additional risks that we do not presently know of or that we currently deem immaterial. All of these risks may impair our business operations. The forward-looking statements in this report involve risks and uncertainties and actual results may differ materially from the results we discuss in the forward-looking statements. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our stock could decline, and you may lose all or part of your investment. We have sold substantially all of our ongoing operations and have adopted a new business plan. In September 2004, we sold our correspondent clearing business to North American Clearing, Inc. In October 2004, we sold our retail brokerage accounts to Ameritrade, Inc. While these asset sales have provided us substantial working capital, we have just announced our intention to enter into the real estate investment and development business, and have yet to significantly begin work in that area. Further, given that an entity controlled by our CEO and Chairman of the Board owns over 53% of our outstanding stock, he alone can require the Company to take certain actions by requesting a shareholder vote. We Have Incurred Operating Losses in the Past and May incur Future Operating Losses. While we did not incur a loss in 2004, this was as a result of the sale of substantially all of our ongoing operations. We incurred a loss of $6.5 million in 2004 on our continuing operations. Further, we incurred losses from continuing operations of approximately $4.5 and $5.1 million for each of the years ended December 31, 2003, and, 2002, respectively. If we continue to incur losses and negative cash flow, we may need additional capital to fund working capital and cash flow deficits. There can be no assurance that such capital will be available to us, or if available, on terms that are not substantially dilutive to existing shareholders. The unavailability of such capital could require us to further curtail our operations in the future. 17 Substantial Doubt Exists Relating to Our Ability to Continue as a Going Concern. As noted in this section, we have sold substantially all of our ongoing business operations and do not have an ongoing business plan for future operations. There is significant uncertainty as to whether our limited remaining operations can generate sufficient revenue to be a continuing viable going concern. Further, there is significant uncertainty with respect to the outcome of the SEC lawsuit related to the late trading allegedly conducted by us. As a result, the report of our independent registered public accounting firm indicates there is substantial doubt about our ability to continuing as a going concern. Securities Litigation Could Adversely Affect Our Business. We are a party to several lawsuits, most particularly that commenced by the SEC related to market timing and late trading, discussed above, that in the aggregate seek millions of dollars in damages and penalties. A substantial settlement or award against us in these actions could have a material adverse effect on our business. In addition, our ongoing securities brokerage business involves substantial risks of liability and corresponding litigation including class action and other suits that generally seek substantial damages including punitive damages. Like other securities brokerage firms, from time to time we are named as a defendant in civil lawsuits and arbitrations. Any significant monetary judgments against us in the course of litigation could have a material adverse effect on our business, financial condition and operating results. Your Interests as a Stockholder May Conflict with Our Controlling Stockholder, Our Chief Executive Officer and Our President. Our executive officers, directors and principal shareholders beneficially own approximately 56% of our outstanding common stock. As a result, our controlling shareholders have the power to control or direct our business affairs including matters requiring stockholder approval. This concentration of ownership could effectively delay, defer or prevent a change in control or other significant corporate transactions that might give you the opportunity to realize a premium over our then prevailing stock price. In addition, various conflicts of interest may arise in the future as a result of our relationship with Third Capital Partners, LLC, ("Third Capital Partners"), a company controlled by our Chief Executive Officer who also serves on our Board of Directors. Serving us as an officer and director as well as Third Capital Partners could result in our Chief Executive Officer being placed in a conflict of interest should he have to make decisions that have materially different implications for us and for Third Capital Partners. An affiliate of Third Capital Partners receives management fees from us, which could influence decisions. 18 Our Business is Subject to Extensive Regulation Under Both Federal and State Laws. The securities industry is subject to extensive regulation and broker-dealers are subject to regulations covering all aspects of the securities business. The SEC, NASD, and other self-regulatory organizations and state and foreign regulators can, among other things, fine, issue cease-and-desist orders to, suspend or expel a broker-dealer or any of its officers or employees. Our ability to comply with applicable laws and rules is largely dependent on our internal system to ensure compliance, as well as our ability to attract and retain qualified compliance personnel. We could be subject to disciplinary or other actions in the future due to claimed noncompliance, which could have a material adverse effect on our operations and profitability. The Trading Price of Our Common Stock has been and May Continue to be Subject to Wide Fluctuations. During the past twelve months, our common stock traded as low as $1.20 and as high as $4.24. Our stock price may fluctuate in response to a number of events and factors, such as the nature and timing of any new business alternatives or investments we determine to pursue, our litigation, and factors bearing on our institutional trading and market making operations. In addition, the stock market in general, and the market prices for Internet related companies in particular, have experienced extreme volatility that has often been unrelated to operating performance. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. Our Stock Price Could Materially Decline if Third Capital Sells it Shares. In September 2004, Third Capital Partners converted the notes then held by it into approximately 2 million shares of our common stock. As a result of the conversion, Third Capital Partners owns approximately 53% of our common stock. If Third Capital Partners sells substantial amounts of our common stock into the public market, it could cause a significant decrease in our stock price. Furthermore, the awareness that a large number of shares is available for sale under this registration statement could cause the price of our stock to fall or could prevent the price from rising. In addition to the adverse effect a price decline would have on our shareholders, it could impede our ability to raise capital through the issuance of securities or utilize our common stock for acquisitions. Furthermore, if the price decline is significant enough, it could result in our common stock being delisted from the NASDAQ SmallCap Market. A delisting of our shares could further harm our stock price and make it more difficult for our shareholders to sell their shares. The Loss of Certain Key Executive Officers Could Harm Our Business. Our success is substantially dependent upon the continuing services of certain key executive officers, especially our Chief Executive Officer and our President. We have entered into written employment agreements with the key executive officers of our operating subsidiaries, which expire in June 2006. However, we do not maintain "key person" life insurance on any of our executive officers. There can be no assurance that any of our executive officers will continue to work for us nor can there be any assurance that upon ceasing to work for us they will not compete against us. The loss of our Chief Executive Officer and President could have a material adverse effect on our business, financial condition and results of operations. 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk Market Risk Disclosures The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. See "Special Note Regarding Risk Factors" below. We are exposed to market risks related to changes in interest rates and equity security price risk. We do not have derivative financial instruments for speculative or trading purposes. Areas outside our control that affect the securities market, such as severe downturns or declines in market activity, may cause substantial financial exposure. Interest Rate Sensitivity and Financial Instruments For our working capital and reserves that are required to be segregated under federal or other regulations, we invest primarily in U.S. bank certificates of deposit and savings accounts. The certificates of deposit have maturity dates ranging from three to six months, and do not present a material interest rate risk. Equity Price Risk NCC acts as a market maker for approximately 10 public corporations whose stocks are traded primarily on the NASDAQ over-the-counter Bulletin Board System. We select companies in which we make a market based on a review of the current market activity, and also to facilitate trading activity of our clients. Market making may result in a concentration of securities that may expose us to additional risk; however, we do not maintain a significant inventory of equity securities. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We have adopted internal controls and procedures in order to ensure that the information required to be disclosed in the report is recorded, processed, summarized and reported on a timely basis. We carried out an evaluation (the "Evaluation"), under the supervision and with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures ("Disclosure Controls") as of the end of the period covered by this report. Based on the Evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. 20 Changes in Internal Controls Because of the reduction of personnel, there have been changes in internal accounting controls regarding the proper segregation of duties. Because of the lack of personnel, some duties have been combined, where segregation of such duties would be more desirable. CEO and CFO Certifications Appearing immediately following the Signatures section of this report are Certifications of the CEO and the CFO. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 ("the Section 302 Certifications"). This Item of this report provides information concerning the Evaluation referred to in the Section 302 Certifications, and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented. PART II - OTHER INFORMATION Item 1. Legal Proceedings In addition to those matters described below, we are from time to time subject to legal, arbitration or administrative proceedings arising in the ordinary course of our business, including claims by former customers relating to brokerage services, as well as matters related to our former clearing services. We are also subject to periodic regulatory audits and inspections by the SEC and NASD that could give rise to claims against us. While we make provision for a liability when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated, legal matters are inherently unpredictable and expensive to defend. If there are adverse outcomes in our legal proceedings, it could have a material adverse effect on our business and financial condition. Those proceedings that management believes may have a significant impact are described below. However, there can be no assurance that in the future, other current or future proceedings will not have a material adverse effect on our financial condition or results of operations. In particular, if we were required to pay a judgment in excess of the amount reserved, such a payment would negatively impact the financial condition of the Company. We regularly assesses its potential liability in all pending litigation to properly set the level of reserves for such litigation. To the extent that the reserves are sufficient to cover all awards and settlements, no currently threatened or pending litigation should materially impact the our financial position, results of operations or cash flows. Our aggregate reserve for pending litigation was $611,452 as of December 31, 2004. SEC Mutual Fund Lawsuit On or about August 24, 2004, the SEC's Los Angeles Office commenced a civil lawsuit against the Company, NCC, and three of its former officers and employees, alleging violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 22(c) of the Investment Company Act of 1940 and Rule 22c-1 thereunder. In January 2005, all claims under Section 17(a) of the Securities Act of 1933 were dismissed by the Court, with prejudice. The remaining claims remain pending. The suit seeks unspecified monetary damages and penalties, as well as other remedies against the individual defendants. The suit contends that we wrongfully allowed customers to place mutual fund trades after 4:00 p.m. EST, and wrongfully assisted clients in "market timing" of mutual funds. While we admit no wrongdoing and intend to vigorously defend ourselves, no assurance can be given as to the outcome of this matter. Although the likelihood of loss is reasonably possible, we have not accrued any specific amounts related to this matter, as no amount of loss in the our estimated range of loss of zero to $20 million is more likely than another. 21 Litigation Related to Oeri Notes We are a party to a lawsuit entitled EBC Trust v. JB Oxford Holdings, Inc., et als., pending in the Federal District Court in Los Angeles. In this suit, EBC Trust, as the assignee of certain notes described below issued by us is seeking payment of the $2.9 million of such notes. We issued $2.9 million in demand notes to former shareholders during 1997. The notes bore interest at 8 1/4%, payable quarterly. In 1998, $250 thousand was paid on the demand notes. In 1999, $728 thousand of the debt was forgiven by Oeri Financial, Inc. and Felix A. Oeri (collectively "Oeri"), leaving a balance due of $1.9 million, which was reclassified to notes payable in 1999. A $1.0 million subordinated loan agreement, payable to Oeri Finance, Inc., matured by its terms on March 31, 1999. The balance due was reclassified to note payable at that time. Since in or about March 1999, we have refused to make payment under the notes payable totaling approximately $2.9 million, plus interest, and has asserted defenses and counterclaims against the alleged holders of the notes related to: i) an award entered jointly against us and the holders related to alleged wrongful conduct by our NCC subsidiary in clearing certain customer accounts during the time that the holders of the notes payable ran the Company; and, ii) we have acquired a Judgment against Oeri Finance, Inc., which we intends to use as a set-off against claims on the notes payable. The amount of the Judgment acquired is substantially in excess of the total claimed due on the notes payable. In July 2002, the court magistrate granted a pre-judgment attachment against our assets in favor of EBC Trust. In January 2003, the Court reversed the magistrate's order and dissolved the attachment. In January 2003, EBC Trust amended its claim to assert additional claims against us and to add claims against our officers and directors, as well as to add a claim against NCC under the $1.0 million Oeri subordinated note. By Order dated October 14, 2003, in response to motions filed by us, the Court dismissed several claims, struck portions of the Amended Complaint, and compelled EBC Trust to arbitrate all claims against NCC. As to the remaining claims, we have asserted a number of defenses to EBC Trust's claims, including fraud, and contribution related to a judgment entered against EBC Trust's predecessor-in-interest under the notes payable and NCC in an NASD arbitration commenced by Stanley J. Cohen, Receiver for Secured Equity Title and Appraisal Agency Corp. While normally a clearing case, the panel ruling relied primarily on testimony regarding the activities of Irving Kott while present at the Company. Mr. Kott is alleged to have provided most of the funds for the loans now being pursued by EBC Trust. NCC settled all of the claims against it in that matter in 2002, and as a part of that settlement, obtained the assignment from Secured Equity of a Judgment against Oeri Finance, Inc. Accordingly, we have asserted a claim of offset for the Judgment against Oeri Finance, Inc. We recorded liabilities of approximately $2.9 million on our balance sheet in notes payable, additionally, we have $816 thousand of accrued interest related to these notes included in accounts payable and accrued expenses. We have not yet recorded the offset of the judgment obtained in our financial statements as the claim has not yet been adjudicated. 22 In December 2003, EBC Trust commenced an arbitration action with the National Association of Securities Dealers, Inc., against JBOC, seeking recovery on the $1.0 million subordinated note originally issued to RMS Network, Inc., and subsequently assigned with approval from our NCC subsidiary and the NASD to Oeri Finance, Inc. We intend to vigorously defend the action and believe that we have meritorious defenses including, without limitation: i) the suit is brought against the wrong party; ii) no valid assignment has ever been approved by us or the NASD to EBC Trust, as required by the terms of the note; and iii) we will assert an offset for the Judgment obtained against Oeri Finance, Inc., described above. Litigation Related to Account Acquisitions In October 2002, Share King LLC, as successor to Mr. Stock, Inc. commenced an arbitration proceeding related to the acquisition by us of the accounts of Mr. Stock. We counter-sued for violations of the purchase agreement by Mr. Stock. That litigation was settled in August 2003, on terms more favorable to us than we originally accrued for, and the cost of the Mr. Stock acquisition was adjusted down $356 thousand in 2003, as a result of settlement of the arbitration. As a part of the settlement, we are required to distribute cash and/or stock, at our election to Share King LLC. In early 2004, a further dispute arose with Share King LLC regarding the registration requirements related to the stock to be issued. In October 2004, we settled the dispute with Share King LLC by making a one-time payment of $1.4 million. As a part of that settlement, all shares issued to Share King LLC were returned to the Company and were cancelled. In a related action commenced in January 2005, OCC Ventures, LLC commenced suit against Share King LLC and us alleging breach of the lease buyout agreement. In March 2005, we reached a settlement with OCC Ventures, pursuant to which we have made payments totaling approximately $686,000. In exchange, we have received a return of 112,300 shares of our common stock to be cancelled, and a release of the outstanding note to OCC Ventures. We accrued a loss of approximately $16,000 for the premium paid in excess of market value for the 112,300 shares at December 31, 2004. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information None. 23 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31.1 Certification of Christopher L. Jarratt, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Michael J. Chiodo, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Christopher L. Jarratt, Chief Executive Officer, pursuant to 18 U.S.C. ss. 1350. 32.2 Certification of Michael J. Chiodo, Chief Financial Officer, pursuant to 18 U.S.C. ss. 1350. (b) Reports on Form 8-K. During the first quarter, we we did not make any reports on Form 8-K. After the end of first quarter, but before the date hereof, we filed one Report on Form 8-K: On April 25, 2005, the Company reported that it had received a notice from the NASDAQ stock market indicating that it was subject to delisting due to late filing of its Annual Report. The Company also indicated that subsequent to receipt of the notice, it had filed its Annual Report on Form 10-K. Pursuant to the requirements of the Securities Exchange Act of 1934, JB Oxford Holdings, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JB Oxford Holdings, Inc. /s/ Michael J. Chiodo --------------------- Michael J. Chiodo Chief Financial Officer May 19, 2005 24

JB OXFORD HOLDINGS INC 10-Q