At June 30, 2001 there were 12,048,835 shares of
common stock and equivalents issued and outstanding.
The Issuer's revenues for its most recent fiscal year
were $3,305,942. The revenues for the most recent
fiscal quarter were $1,203,037, and for the quarter
ended March 31, 2001, $881,404.
DOCUMENTS INCORPORATED BY REFERENCE
The contents of the following documents filed by the
Company, with the Securities and Exchange Commission
(the "Commission" or "SEC") are incorporated by
reference into this Interim Report on Form 10-QSB by
reference and shall be deemed to be a part hereof:
Annual Report on Form 10-KSB for F/Y/E 03/31/01 dated
06/29/01.
Annual Report on Form 10-KSB for F/YE 03/31/00 dated
August 8, 2000.
Annual Report on Form 10-KSB for F/Y/E 05/1999 dated
February 8, 2000.
Report SC 14F1 dated February 25, 2000.
Current Report on Form 8-K dated April 20, 1999.
Current Report on Form 8-K dated February 7, 2000.
All amendments to such Current Reports on Form 8-K
that are subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act. Interim Reports on Forms QSB dated August 15,
2000, November 14, 2000, and February 14, 2001.
ITEM 1 (ITEM 310(b) of REGULATION S-B). FINANCIAL
STATEMENTS.
The financial statements required to be set forth in
this Item precede and accompany this narrative
description. No comparable "year-earlier" periods are
presented since at that time the Company had only been
in business for a fiscal period of one month and such
a comparison would be meaningless.
ITEM 2 (ITEM 303 of REGULATION S-B).
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATIONS.
A. Safe Harbor Statement Under the
Private Securities Litigation Reform Act of 1995.
Certain statements contained in this section and
elsewhere in this Form 10-QSB constitute "forward
looking statements" within the meaning of the Private
Securities Reform Act of 1995. Such forward-looking
statements involve a number of known and unknown
risks, uncertainties, and other factors which may
cause actual results, performance or achievements of
the Company to be materially different from future
results, performance or achievements expressed or
implied by such forward-looking statements. Such
factors include, but are not limited to, changes in
the markets for the Company's products and services,
regulatory and economic factors, economic cyclicality,
competition, litigation, client or customer
arrangements that may expand or contract, adverse
weather conditions, possible technological advances or
obsolescence's in existing or future products or
services, the variability in the value of the
Company's securities inventory products, customer
concentration, and other risks detailed in the
Company's other periodic reports filed with the United
States Securities and Exchange Commission (SEC). The
words "believe," "expect," "anticipate," "may,"
"plan," and similar expressions identify
forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking
statements, which speak only as of the date the
statement was made.
B. Financial Results of Operations.
During the fiscal quarter of April 1, 2001 and ended
June 30, 2001, the consolidated Company had revenues
of $1,203,000 (rounded) and a net profit of $265,300
(rounded). This computes to an earnings per share of
a profit of $0.02 on a fully diluted basis.
The largest components of revenues were derived from
customer-driven riskless (or nearly riskless)
principal proprietary transactions of $656,650
(rounded), investment banking and advisory services
activities of a total of $279,500, followed by usual
and customary brokerage commissions, rebates and
interest earned on customers' money balances, and firm
trading of securities at risk for an aggregate of
$266,890 (rounded). This included a largely
unrealized loss on equity securities held by the firm
in its principal broker-dealer subsidiary of $69,502.
This means that the firm's cash revenues were actually
more nearly $1,272,500.
For the last three full operating quarters on which
the Company has reported results of operations, this
compares with revenues and profits or (losses)
respectively of $881,404 and ($441,226) (03/31/01
quarter); $612,986 and ($368,117) (12/31/00 quarter);
and $1,548,090 and $919,398 (9/30/00 quarter).
Thus, the Company enjoyed its second-greatest revenue
and profit quarter in its history after its
transformation from a dormant shell company into a
financial services holding company with operating
businesses.
The Company's management does not expect that
quarter-to-quarter, or present period to year earlier,
comparisons to be particularly instructive or
enlightening in the current and near future reporting
periods for several reasons. First, the Company is
undergoing rapid change as business lines/components
are added and expanded as business opportunities are
discovered, cultivated and brought to fruition. That
is, the Company's business character is under
development and by definition not yet mature. This is
not a process that occurs on a time line. Second,
business cycles in the financial services industry are
not in general seasonal as in certain other
businesses; for example, a recession may cause several
poor quarters in a row while good weather is producing
banner crops and all that goes with them in seasonal
businesses. The equity sector of financial services
products has been in material decline for over a year,
although prior to that it had been in ascent for an
unprecedented period. Third, and finally, as the
Company grows, it may be reasonably expected to incur
certain capital expenses that had been deferred from
earlier periods.
C. Background.
During the fiscal period ended June 30, 2000, by on or
about May 17, 2000, the Company completed the
reorganization (the "2000 Reorganization") more fully
described in the Company's annual reports on Forms
10-KSB filed on or about July 13, 2001, and August 8,
2000, both of which are incorporated herein by
reference as though set forth here as fully as if set
forth verbatim. Pursuant to that reorganization, the
Company transformed itself from a "shell" company
without any significant business or operations into a
financial services holding company owning several
operating businesses and several substantial
investments. In the fiscal ten month period ended
March 31, 2001, the company completed its first full
operating "annual" equivalent. The Company's interim
Form 10-QSB reports after this one will be able to
provide comparable "year-earlier" results. This year,
however, comparing the year's "first" quarter with
last year's reported "first" period, that included
only one month, would not be meaningful or helpful to
the reader.
The principal operating business during this quarter
was Dupont Securities Group, Inc. ("DSGI"), a
broker-dealer registered with the United States
Securities and Exchange Commission ("SEC") with
membership in the National Association of Securities
Dealers, Inc. ("NASD"). The other businesses it
acquired are Wavecount Asset Management LLC (WAM),
Wavecount Futures, Inc. ("Futures"),Wavecount Advisory
Services, Inc. (WASI), in which the Company performs
its investment banking and advisory services functions
that do not necessarily require the issuance of
securities and therefore the services of a registered
broker-dealer, and a forty-nine percent (49%) interest
in Native American Financial Services Company
("NAFSCO").
D. The Operating Companies.
Dupont Securities Group, Inc. ("DSGI") is the
Company's most active and productive operating
business.
DSGI has a direct clearing arrangement with the Bank
of New York, as the acquirer of Schroder & Co., Inc.'s
clearing agent subsidiary, in order to carry on and
maintain such institutional fixed income and retail
equity trading. The Bank of New York, the oldest bank
in the country, was founded by Alexander Hamilton, and
its clearing subsidiary is housed in a separate
clearing subsidiary known as Bank of New York Clearing
Services LLC (BNY Clearing). As a result, DSGI has
posted collateral security with BNY Clearing adequate
for this purpose. The collateral deposited at BNY
Clearing for the accommodation of Guaranty Letters
remains part of DSGI's capital (regulatory and
otherwise).
DSGI provides a broad range of securities services to
a diverse clientele, including high net worth
individuals, institutions, and other broker/dealers,
and corporation finance and investment banking
services to a variety of businesses. As the business
was originally envisioned, the main business lines
were expected to center around Fixed Income
Securities, including Brokerage Execution Services,
Management of Funds to be invested in Fixed Income and
assistance in raising funds via Fixed Income
offerings.
DSGI has also placed most of its institutional fixed
income portion of its business with Prudential
Securities Incorporated's (Prudential or PSI)
wholly-owned Wexford Clearing Services Corporation
(Wexford or WCSC), another world-renowned financial
services company with a stature at least equal to that
of Schroder.
As a specialty, the Company has focused on providing
assistance to Native American Nations in analyzing
their financing requirements, structuring offerings,
evaluating business proposals for these needs and
raising funds and managing funds. During the fiscal
period ended December 31, 2000, through DIRX' 49%
ownership interest in Native American Financial
Services Co. (NAFSCo), DSGI established NAFSCo as a
branch office capable of performing minority set-aside
securities execution services for those money-managers
wishing to engage it. This business line has thus
begun to generate revenue, at the moment at a
break-even level, and it is expected to grow, possibly
exponentially, in the next several fiscal periods.
DSGI also specializes in providing Fixed Income
execution services to small dealers without their own
bond desks or by providing expertise to other bond
traders in specialized securities. DSGI's staff has
many years of experience in a wide variety of Fixed
Income products. DSGI has established alliances for
this purpose with many other dealers, with their exact
number and identity constantly changing, and generally
increasing in number.
DSGI is a member of the NASD operating under Net
Capital rules as a $100,000 broker dealer. This
entitles DSGI to provide a full line of investment
services including underwriting, market-making in both
Fixed Income and Equities, Private Placements, and
regular transactional brokerage services. DSGI has
registered as an Insurance Agency in order to provide
retail clients the opportunity to purchase
insurance-wrapped investment products such as
annuities.
Prior to its acquisition by BNY Clearing,
Schroder had planned to provide Internet
access for trade execution and market
information for retail equity clients,
of its correspondents. The Company sees
this as a significant growth area for Its Securities
business. (Customers will also be able to
trade stocks electronically via these facilities).
The service will be available through DSGI's website
under the name DupontDirect.com. Via a hot link to
clients were to able to open accounts,
receive market information, execute trades and see the
status of their account. However, following the
acquisitions, the timing of the availability of
this service is uncertain. DSGI is unable to
predict or forecast a reasonable date for its expected
availability.
DSGI limits its investment banking activities to
businesses that contemplate a near-term (within twelve
months) need to raise capital, generally in the form
of securities, in which it has, through the experience
of its senior staff, an in-depth understanding of that
particular business's orientation and financial needs.
The Company currently limits its trading and
investing to maintaining inventory for the servicing
of retail clients and investments in which the
principals have particular expertise, or are willing
to school themselves as may be required.
On or about March 16, 2001, the Company agreed to
acquire another NASD member broker-dealer, Erste Bank
Artesia Securities Corp. (EBAS) from its shareholders.
The terms of the acquisition were that the Company
would acquire 100% of the stock of EBAS plus $30,000
in exchange for warrants to purchase the Company's
common stock. Because of a change in NASD Rules in
late 2000, the stock of EBAS could not be transferred
to the Company prior to providing the NASD with thirty
(30) days prior notice. Accordingly, the EBAS stock
was conveyed to the Company on or about April 20,
2001. In connection with this acquisition, EBAS' name
was changed to American International Securities, Inc.
(AIS).
The Company acquired EBAS for the purpose of housing
within it certain business lines that for practical
business reasons, such as market acceptability and
risk management, it does not wish to develop within
DSGI or NASCo. AIS is not presently conducting a
securities business while its change in ownership
undergoes NASD review. Since the Company's senior
management has been involved in the acquisition or
formation of three other broker-dealers within the
last three years, the change in ownership is
reasonably expected to be approved in due course.
According to EBAS' audited financial statements for
the fiscal year ended December 31, 2000, there was
$358,664 in stockholders' equity at that time. Based
upon the unaudited financial statements filed with the
NASD, as of May 31, 2001, the ownership equity was
$188,391. The decline is attributable to EBAS/AIS'
sale and dormancy pending the change in ownership
review.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS (Item 103 of Regulation
S-B).
As of June 30, 2001, several legal proceedings have
been initiated against the Company or its subsidiaries
in the normal course of its business, although only
two or three of these have arisen in the quarter ended
June 30, 2001. All but two of these, however, are
based on matters and events occurring prior to the
time that the Company owned the operating businesses
acquired by the Company in the Transaction.
Management believes that all of these proceedings are
frivolous and were brought when the claimants learned
that the Company was no longer dormant and had
acquired or agreed to acquire viable operating
businesses. Over the course of the year, several such
matters have been settled for relatively modest
amounts that the Company's management considers to be
"nuisance" value, i.e., to avoid the demands such
matters make on the Company's limited management
resources. With respect to any matter that cannot be
resolved for such nominal sums, it is management's
intention to defend all such matters vigorously.
There are no matters required to be
specifically identified pursuant to Item 103 of
Regulation S-B.
DSGI is registered as a broker-dealer with the SEC.
The SEC has, in large part, delegated ordinary,
day-to-day oversight of broker-dealers to the
self-regulatory organizations of the stock market,
i.e., the stock exchanges and the NASD. The
Designated Examining Authority (DEA) for DSGI is the
NASD. DSGI is subject to routine examination at any
time by both the SEC and the NASD, although it is
subject to a cyclical routine examination by the NASD
every two years. As a regular matter in the ordinary
course DSGI receives regulatory inquiries on a wide
range of securities industry subjects several times a
year. DSGI is also subject to the regulatory
authority of every state jurisdiction in which it is
registered. If DSGI fails to comply with applicable
laws and regulations, it may face penalties or other
sanctions that may be detrimental to business. That
is, for an alleged failure to comply with an
applicable law or regulation, government regulators
and self regulatory organizations may institute
administrative or judicial proceedings against the
Company that could result in censure, fine, civil
penalties (including treble damages in the case of
insider trading violations), the issuance of
cease-and-desist orders, the loss of status as a
broker-dealer, the suspension or disqualification of
officers or employees or other adverse consequences.
It would not be unusual for the Company to settle such
matters without respect to the underlying merits of
the allegations since it would unduly tax the
Company's executive and staff resources to contest
such allegations, even though the Company may well not
be culpable in such situations. The imposition of any
material penalties or orders on DSGI could have a
material adverse effect on the Company's business,
operating results and financial condition.
Subsequent to March 31, 2001, DSGI underwent its
bi-annual routine examination by the NASD. NASD staff
performed on-site field work at DSGI for nine (9) days
in June 2001. While the complete results of the
examination are not yet known because DSGI is still
collecting miscellaneous information requested by the
NASD staff, and the results of the fieldwork analyzed
and reported to NASD supervisory personnel, the NASD
field-work staff conducted exit conferences with DSGI
management at the conclusion of the field work. Those
exit conferences did not appear to disclose any
regulatory deficiencies that cannot be readily
remedied, as several of which already had been even
before the examination based upon DSGI's own discovery
of them. The exit conferences also did not appear to
disclose, in the opinion of DSGI's management, any
matters of the magnitude or character likely to pose
regulatory disciplinary jeopardy to DSGI.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO SHAREHOLDERS' VOTE.
None.
A special Meeting of Shareholders, in lieu of
the By-Law specified Annual Meeting on July 15th, is
anticipated to be called before October 30, 2001. At
that meeting, management's slate of director nominees
will be presented, and certain matters of corporate
governance, such as permitting management to set the
annual shareholders meeting at a convenient time
following the filing of the Company's annual report on
Form 10-KSB, will be voted upon. All such matters
will be subject to a definitive Proxy Statement that
is expected to be presented to the shareholders within
approximately the next 45 days.
ITEM 5. OTHER INFORMATION.
None not heretofore reported.
SIGNATURES.
In accordance with the requirements of the Exchange
Act, the Registrant caused this Report to be signed on
its behalf by the undersigned, duly authorized.
Dupont Direct Financial Holdings, Inc.
/s/
Randy M. Strausberg, Chairman and
President
DUPONT DIRECT FINANCIAL HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001(UNAUDITED)AND MARCH 31, 2001
June 30, March 31,
2001 2001
\ (UNAUDITED)
------------ ------------
ASSETS
Current Assets
Cash, brokerage clearing accounts $ 353,099 $ 209,302
Cash, other 34,732 37,504
Due from clearing agents 33,042 32,487
Due from stockholders 288,400 1,318,510
Trading marketable equity securities 199,726 71,257
Gov't securities, at market value 799,984 798,888
Bridge loan to dev. stage company 178,079 114,290
Prepaid expenses and other current assets 7,964 2,819
------------ ------------
Total current assets 1,895,026 2,585,057
------------ ------------
Property and equipment at cost 142,422 142,422
Less accumulated depreciation (104,210) (99,496)
------------ ------------
38,212 42,926
------------ ------------
Other Assets
Investment in affiliates 114,408 113,807
Marketable investment securities 1,000,000 -
Rent security deposit 68,329 68,329
------------ ------------
1,182,737 182,136
------------ ------------
$ 3,115,975 $ 2,810,119
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 255,368 $ 289,020
Payable to clearing broker 97,637 166,176
Corp. inc. and franch. taxes payable 77,730 9,480
Marketable securities sold short 27,579 87,021
----------- ------------
Total current liabilities 458,314 551,697
----------- ------------
Deferred rent payable 209,113 76,562
------------ ------------
Shareholders' Equity
Common stock, $0.01 par value-auth. 20,000,000 shs.,
March 31, 2001-issued 12,126,756 shares,
outstanding 11,976,756 shares;
June 3O, 2001-issued 12,198,835 shares,
outstanding 12,048,835 shares 120,488 119,768
Preferred stock, $0.01 par value-auth. 5,000,000 shs.
Class C nonvoting, conv. into 0.5 common share-
issued and outstanding 500,000 shares 1,000,000 1,000,000
Additional paid in capital 1,885,472 1,884,828
Retained earnings(Accumulated deficit) 22,256 (243,068)
Unrealized loss on inv. securities (579,668) (579,668)
----------- ------------
2,448,548 2,181,860
----------- ------------
$ 3,115,975 $ 2,810,119
=========== ============
DUPONT DIRECT FINANCIAL HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
AND THE THREE MONTHS ENDED JUNE 30, 2000(UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30,2001 JUNE 30,2000
(UNAUDITED) (UNAUDITED)
------------- ------------
Revenues
Investment banking fees $ 279,500 $ 119,622
Commissions and rebates 111,564 43,130
Customer driven principal transactions 656,648 52,072
Handling charges and miscellaneous income 191,279 6,915
Firm trading net profit (69,502) 39,890
Dividends and interest 33,548 1,833
------------ ------------
Total revenue 1,203,037 263,462
------------ ------------
Expenses
Employee compensation 421,241 156,451
Clearance fees 106,399 23,157
Communications and data processing 43,804 19,504
Rent 44,037 18,953
Depreciation 4,714 2,357
Fees and licenses 137,341 263,304
General and administrative 104,157 10,839
----------- ------------
Total expenses 861,693 494,565
---------- ------------
Income (loss) before income taxes 341,344 (231,103)
Corporate income and franchise taxes 76,020 27,400
----------- ------------
NET INCOME (LOSS) 265,324 (258,503)
Accumulated deficit at beginning of period (243,068) (94,520)
----------- ------------
Accumulated deficit at end of period 22,256 $ (353,023)
============= ============
Common stock-$.01 par-beg.of pd. $ 121,268 $ 13,320
Shares issued 72,079 in 2001;7,356,000in 2000 720 73,560
Shares owned by subsid. 150,000 shs in 2001 (1,500) -
Shares outstanding at end of pd., 12,048,835
------------- ------------
shares in 2001 and 8,688,000 in 2000 120,488 $ 86,880
============= ============
Class C Nonvoting Preferred Stock-$0.01 par value
Issued 500,000 shs. On
March 30, 2001-at $2 $ 1,000,000 $ -
------------- ------------
Balance at end of period-500,000 shares $ 1,000,000 -
============= ============
Additional paid in capital at beginning
of pd. $ 1,884,828 $ 41,574
Additional amounts received during period 644 876,939
----------- ------------
Additional paid in capital at end of
period $ 1,885,472 $ 918,513
============= ============
Unrealized loss on investment securities
Balance at beginning of period $ (579,668) $ -
Prov. for loss in value of inv. Securities - (286,649)
------------ ------------
Balance at end of period $ (579,668) $ (286,649)
============= ============
Shareholders Equity at end of pd. $ 2,467,368 $ 693,776
============= ============
Average number of shares outstanding 11,994,181 4,976,355
Basic and fully diluted income(loss)per share $0.02 $(0.05)
DUPONT DIRECT FINANCIAL HOLDINGS INC.
STATEMENTS OF CONSOLIDATED CASH FLOW
FOR THE THREE MONTHS ENDED JUNE 30,2001(UNAUDITED)
AND THE THREE MONTHS ENDED JUNE 30, 2000(UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
(UNAUDITED) (UNAUDITED)
------------ ------------
Cash flows from operating activities
Net income (loss) $ 265,324 $ (258,503)
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,263 2,357
Compensation and fees not paid in cash 36,038 328,055
Increase in government securities (1,097) -
Decrease in receiv.from clearing agent (555) 21,823
Increase in other current assets (6,163) 1,106
Increase in accounts payable (39,255) (36,412)
Increase in margin balances (68,539) -
Increase in income taxes payable 68,250 26,600
Increase in deferred rent payable 4,285 6,411
Decrease in equity securities (127,888) 12,410
Decrease in marketable securities
sold short (59,442) -
------------ ------------
Total adjustments (189,103) 362,350
------------ ------------
Net cash provided (used) by operations 76,221 103,847
------------ ------------
Cash flow from investing activities:
Cash paid for the purch. of property - -
Cash remitted prior to aquisition of sub. - (60,800)
Loan to development stage company (63,789) -
Cash invested in investees (1,300) (20,000)
------------ ------------
Net cash (used) by investing activities (65,089) (80,800)
----------- ------------
Cash flow from financing activities:
Net cash remitted to shareholders (257,116) (44,085)
Cash balances-subsidiaries acquired 166,259 10,039
Cash paid as capital contributions 220,750 20,000
------------ ------------
Net cash provided (used) by fin. act. 129,893 (14,046)
------------ ------------
Net increase in cash and equivalents 141,025 9,001
Cash and equivalents, beginning of year 246,806 -
------------ ------------
Cash and equivalents, end of year $ 387,831 $ 9,001
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense $ 12,954 -
============ ============
Income Tax $ 7,569 -
============ ============
During the three months ended June 30,2001 the Company received
shares of certain restricted securities in exchange for a receivable
of $1,000,000.
12