FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-15900
DUPONT DIRECT FINANCIAL HOLDINGS, INC.
(Exact name of Issuer as specified in its charter)
Georgia 59-3461241
other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
42 Broadway, Suite 1100-26
New York, New York 10004
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (917) 320-4800
Indicate by check mark whether the Issuer (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Issuer
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No[_]
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable dates.
At March 31, 2000 there was 1,320,000 shares issued and outstanding. In
connection with the Reorganization Transaction 5,830,000 were issued to
Wavecount. In connection with other activities 1,441,000 were issues or agreed
to be issued bringing the total to 7,271,000.
ITEM 1. FINANCIAL STATEMENTS.
The financial statements required to be set forth in this Item accompany this
narrative description.
Dupont Direct Financial Holdings, Inc.
Balance Sheet
June 30, 2000
(Unaudited)
Dupont Direct Dupont
Financial Wavecount Securities
Consolidated Eliminations Holdings, Inc. Futures, Inc. Group, Inc.
--------------- -------------- -------------- -------------- --------------
ASSETS
Current Assets
Cash $ 9,001 $ 502 $ 16 $ 8,483
Receivable from clearing agent 11,701 11,701
Trading marketable equity
securities, at market value 161,548 161,548
Government securities, at
market value 197,868 197,868
Prepaid expenses and other
current assets 8,120 8,120
--------------- -------------- -------------- --------------
Total current assets 388,238 502 16 387,720
--------------- -------------- -------------- --------------
Property & equipment, at cost 142,042 142,042
Less accumulated depreciation and
amortization (78,283) (78,283)
--------------- -------------- -------------- --------------
63,759 - 63,759
--------------- -------------- -------------- --------------
Investment in subsidiaries - (347,187) 347,187
Investment in affiliates 82,089 82,089
Investment in marketable securities, net
of allowance for unrealized loss 158,125 158,125
Investment in warrants on marketable securities,
net of allowance for unrealized loss 293,019 293,019
Other assets
Rent security deposit 68,329 68,329
--------------- -------------- -------------- -------------- --------------
$ 1,053,559 $ (347,187) $ 949,251 $ 16 $ 451,479
=============== ============== ============== ============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued expenses 102,958 $ 102,958
Income taxes payable 29,550 28,200 1,350
Due to stockholder 31,244 31,244
Deferred rent payable 37,906 37,906
--------------- -------------- -------------- --------------
Total current liabilities 201,658 97,350 - 104,308
--------------- -------------- -------------- --------------
Stockholder's equity
Common stock 75,120 (1,796,135) 75,120 119 1,796,016
Additional paid-in capital 1,150,273 1,150,273
Accumulated deficit (24,968) 1,448,948 (24,968) (103) (1,448,845)
Unrealized loss on securities (348,524) (348,524)
--------------- -------------- -------------- -------------- --------------
851,901 (347,187) 851,901 16 347,171
--------------- -------------- -------------- -------------- --------------
$ 1,053,559 $ (347,187) $ 949,251 $ 16 $ 451,479
=============== ============== ============== ============== ==============
Dupont Direct Financial Holdings, Inc.
Statement of Income and Retained Earnings
Three months ended June 30, 2000
(Unaudited)
Dupont Direct Dupont
Financial Wavecount Securities
Consolidated Eliminations Holdings, Inc. Futures, Inc. Group, Inc.
--------------- -------------- ------------- ------------- --------------
Revenues
Investment banking fees $ 119,622 $ 119,622 $ - $ -
Commissions and rebates 50,045 - - 50,045
Dividends and interest 1,833 276 21 1,536
Firm trading income 91,962 - - 91,962
--------------- ------------- ------------- --------------
263,462 119,898 21 143,543
--------------- ------------- ------------- --------------
Expenses
Employee compensation 88,596 88,596
Clearance 23,157 23,157
Communication 19,504 19,504
Rent 18,953 6,411 12,542
Commissions 5,207 5,207
Depreciation 2,357 2,357
Fees and licenses 3,104 1,606 1,498
Office expense 5,632 4,174 124 1,334
Net loss of consolidated subsidiaries - (10,755) 10,755
--------------- -------------- ------------- ------------- --------------
166,510 (10,755) 22,946 124 154,195
--------------- -------------- ------------- ------------- --------------
Income (loss) before income
tax expense 96,952 10,755 96,952 (103) (10,652)
Income tax expense 27,400 27,400
--------------- -------------- ------------- ------------- --------------
NET INCOME (LOSS) 69,552 10,755 69,552 (103) (10,652)
Retained earnings (deficit) at beginning of period (94,520) 1,438,193 (94,520) - (1,438,193)
--------------- -------------- ------------- ------------- --------------
Retained earnings (deficit) at end of period $ (24,968) $ 1,448,948 $ (24,968) $ (103) $(1,448,845)
=============== ============== ============= ============= ==============
- - - - -
Basic and fully diluted earnings per share $ 0.01
===============
Dupont Direct Financial Holdings, Inc.
Statement of Cash Flows
Three months ended June 30, 2000
(Unaudited)
Dupont Direct Dupont
Financial Wavecount Securities
Consolidated Eliminations Holdings, Inc. Futures, Inc. Group, Inc.
--------------- -------------- ---------------------------- --------------
Cash provided by operating activities
Net income (loss) $ 69,552 $ 10,755 $ 69,552 $ (103) $ (10,652)
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in loss of subsidiaries - (10,755) 10,755
Depreciation 2,357 - - 2,357
Decrease in receivable from clearing agent 21,823 - - 21,823
Decrease in inventories of securities 12,410 - - 12,410
Decrease in prepaid expenses 1,106 - - 1,106
Decrease in accounts payable and
accrued expenses (36,412) (6,531) - (29,881)
Increase in income taxes payable 26,600 26,600 - -
Deferred rent 6,411 6,411 - -
--------------- -------------- ------------- ------------- --------------
Net cash provided by operating
activities 103,847 - 106,787 (103) (2,837)
--------------- -------------- ------------- ------------- --------------
Cash flows from investing activities
Employee loan (7,000) (7,000)
Cash remitted to subsidiary prior
to acquisition (60,800) (60,800)
Net cash remitted to stockholder (37,085) (37,085)
Investment in affiliate (20,000) (20,000)
Investment in subsidiary - 8,400 (8,400)
--------------- -------------- ------------- ------------- --------------
Net cash applied to
investing activities (124,885) 8,400 (126,285) - (7,000)
--------------- -------------- ------------- ------------- --------------
Cash flows from financing activities
Cash balances of subsidiaries acquired 10,039 10,039
Capital contribution 20,000 (8,400) 20,000 8,400
--------------- -------------- ------------- ------------- --------------
Net cash provided by
financing activities 30,039 1,639 20,000 - 8,400
--------------- -------------- ------------- ------------- --------------
NET INCREASE (DECREASE)
IN CASH 9,001 10,039 502 (103) (1,437)
Cash at beginning of period - (10,039) - 119 9,920
--------------- -------------- ------------- ------------- --------------
Cash at end of period $ 9,001 $ - $ 502 $ 16 $ 8,483
=============== ============== ============= ============= ==============
There was no cash paid for interest and income taxes.
During the 3 months ended June 30, 2000, the Company issued 7,271,000 shares of
common stock, in exchange for various securities valued at approximately
$1,170,000 plus approximately $10,000 in cash.
The purchase of operating subsidiaries was completed in late May 2000, following
the expiration of the notice period of a Change in Ownership of a securities
dealer required by the NASD. Hence, the financial statements represent only the
first full operating month of DIRX with all of the subsidiaries included - June
2000, not a full quarter of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 report on Form 10-KSB filed on or about August
8, 2000. 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. The principal operating business it acquired is 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"), and a forty-nine percent (49%) interest in Native American
Financial Services Company ("NAFSCO"). The investments it acquired are 300,000
shares of Kings Road Entertainment, Inc. ("KREN"), 250,000 shares each of
Chariot International Holdings, Inc. ("CHIH"), Immediate Entertainment Group,
Inc. ("IEGP"), and 255,000 warrants to purchase the equivalent amount of CDKNet,
Inc. ("CDKN").
With respect to the operating businesses aside from DSGI, a brief description of
each other business follows.
WAM is a New York state-registered investment advisor that anticipates
generating revenues from money-management activities, principally linked to
clientele obtained or secured by NAFSCO. Aside from strict "directed equity"
business pursuant to which the trust funds belonging to the Navajo Native
American Nation, and other Native American Nations, are invested in the United
States equity markets with a portion required to be invested through or via the
facilities of minority (Navajo)-owned broker-dealers, WAM offers all clients
access to a fixed income yield-enhancement program based on U.S. government zero
coupon instruments. Since NAFSCO is the only financial services firm recognized
as a certified Navajo enterprise, WAM expects to capture a substantial amount of
the more than $1.4 billion under management for the Navajo Nation Trust. WAM's
zero-coupon investment program typically can enhance a conservative,
fixed-income investment portfolio by 2% per annum on the investment, or an
incredible 30% to 40% of the yield. This component of DIRX' business lines has
not yet begun to generate any appreciable revenues.
Futures is a firm registered with the Commodities Futures Trading Commission
("CFTC") for the purpose of engaging in dealing and brokerage in the financial
services instruments based upon commodities and futures. This business line has
not yet produced any significant revenues for the Company, but the character of
such a business is such that its revenue production is developed over a
relatively long time line. That is, very substantial revenue is derived from
relatively few transactions that require the short-term investment of high
amounts of human capital. The Company's results of operations during the fiscal
period herein reported upon do not include the consummation of any transactions
in this business line, but significant transactions are nonetheless under
development. Futures recently became a guaranteed introducing broker of Refco,
Inc., the world's largest nonbank futures commission merchant. Refco and its
sister companies offer world-wide clearing services in corporate, government,
and emerging market securities, prime brokerage and currencies.
NAFSCO is the Company's business embodiment of its involvement in the
development of financial services relations with the many Native American
Nations. At the present time, these relations are linked principally to the
Navajo Nation, which is the single largest Native American Nation, not only in
population and land area, but in secured Trust Funds as well. During the fiscal
quarter ended June 30th, the Company commenced the application process to guide
NAFSCO through the NASD to become, or more precisely to own, its own
broker-dealer Native American Securities Company ("NASCo") that will have an
office on the Navajo Nation. The Company is also involved with the Nation's
political subdivisions for the financing of badly-needed municipal
infrastructure such as schools and hospitals, and with the management of its
Trust Funds provided by the United States government. The Company also expects
to enjoy the benefits of a significant amount of "directed equity" retail stock
commission business. This means that the institutional money managers who
control the investments of the Trust Funds will be required to place a
significant amount of the transactions for their Native American funds through a
firm such as NASCo. This business line also produced little or no revenue for
the Company during the present quarter, but until the "directed equity" business
is firmly obtained, revenue from NAFSCO will tend to be sporadic or nonexistent,
and exceptionally high when the "directed equity" business is firmly secured.
Dupont Securities Group, Inc. ("DSGI") is the Company's most active and
productive operating business. Through its new ownership and management provided
by Wavecount, Inc. ("WVCI") (and now "DIRX"), 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. The main business lines
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. 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. DSGI has recently expanded its
retail equity sales force and therefore expects this business line to contribute
materially more significantly to its revenues and earnings in the forthcoming
fiscal periods.
DSGI is registered as a broker-dealer with the Securities and Exchange
Commission (SEC) pursuant to section 15 of the Securities Exchange Act of
1934,(`34 Act or Exchange Act), and is a member of the National Association of
Securities Dealers, Inc. (NASD), a national securities association registered
with the SEC pursuant to section 15A of the `34 Act. It is also registered with
the Municipal Securities Rulemaking Board (MSRB), a board appointed by the SEC
and under its supervision, and a subscriber to the coverage of the Securities
Investors Protection Corporation (SIPC). As a result of these various
qualifications, it is eligible to conduct its operations nationwide, including
its districts and territories, and is in fact licensed to conduct its business
in some 32 of those jurisdictions.
DSGI is an introducing broker/dealer that ultimately clears and settles all of
its customer and proprietary trades through Schroder and Co which has recently
been acquired by the Salomon Smith Barney Division of Citigroup, Inc., an
international financial services firm with offices worldwide. Through Schroder
the firm's retail accounts are insured up to $50 million ($100,000 for cash, the
same as a bank). This arrangement provides DSGI with back office support,
transaction processing on all principal, national and international securities
exchanges, and access to many other financial services and products. This allows
DSGI to provide or offer products and services comparable to the world's largest
and most prestigious securities firms.
DSGI provides principal dealing services to Institutional and Retail Clients.
Currently, the firm has opened as accounts a number of well-known International
Banks, Investment Funds and Quasi-Governmental Agencies to trade in a variety of
Investment Grade Securities. Generally, a salesmen will receive a firm order to
buy or sell a security or group of securities from an Institutional account.
Typically, these orders are executed with large market-making bond dealers,
usually those designated as Primary Dealers by the Federal Reserve Bank of New
York. DSGI trades with these large accounts by way of a guaranty letter provided
by Schroder, Inc.
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 with
other dealers.
Each of the Company's senior managers has over 20 years of investment
experience, particularly Fixed Income. The senior managers have an established
clientele of institutional investors and individual investors who require a wide
variety of analytical and brokerage services, and that demand hands-on trading
and order execution capabilities that are not generally available through
similar-sized competitive firms in the securities brokerage, commodities
brokerage and investment banking industries.
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.
Through Schroder, DSGI will shortly be able to provide Internet access for trade
execution and market information for retail clients. The Company sees this as a
significant growth area for Fixed Income and Equity business. Customers will
also be able to electronically trade stocks. The service will be available
through DSGI's website under the name DupontDirect.com. Via a hot link to
Schroder, clients will be able to open accounts, receive market information,
execute trades and see the status of their account.
DIRX limits its investment banking activities to businesses in which it has,
through the experience of its senior staff, an in depth understanding of a
particular business's orientation and financial needs. As a result, DIRX has
developed stong relationships with some emerging companies, generating a
significant portion of the company's revenues thus far. 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.
Subsequent Events.
Following June 30, 2000, the Company reached an agreement with Capital
International CSBIC, LP (CISBIC), a small business investment corporation
licensed by the Small Business Administration ("SBA") of the United States
Department of Commerce. The Agreement provides for DIRX to obtain up to
$1,500,000 and up to 14.9% of the stock of the CISBIC presently worth
approximately $4.9MM, in exchange for 500,000 shares of its own voting common
stock, and 600,000 shares of its convertible (1:1) Series A 7.5% Preferred
(Nonvoting) Stock. The purpose of a Small Business Investment Corporation
("SBIC") is to foster, on behalf of the SBA, the development of nascent business
enterprises through loans that are made possible by the SBA lending funds to the
particular SBIC at a ratio of 3X the equity of the SBIC. Aside from the value
that this lends to the business on its balance sheet directly, DIRX expects that
the businesses developed by the CISBIC will require further financing, and that
DIRX will be instrumental in working with these companies to procure that
financing. DIRX expects that such work will result in
commensurate compensation, and related earnings.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
As of March 31, 2000, there were none. Since March 31, to the date of this
Report several legal proceedings have been initiated against the Company or its
subsidiaries in the normal course of its business. All of these, however, are
based on matters and events occurring prior to the time that WVCI owned the
operating businesses acquired by the Company from WVCI. Management believes that
all of these proceedings are frivolous and have been brought at this time when
the claimants learned that the Company was no longer dormant and had acquired or
agreed to acquire viable operating businesses. All of these matters are so
recent that literally no discovery has taken place, but it is management's
intention to defend all such matters vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the quarter, the Company issued approximately 7,271,000 additional shares
of its common stock in connection with various transactions related to its
ongoing operations. The Company also agreed to issue additional shares of its
common stock, in varying amounts, depending on the performances of the
prospective recipients in the matters for which they respectively have been
engaged. Both the aggregate number of shares and their recipients are subject to
adjustment based on future performance.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO SHAREHOLDERS' VOTE.
None.
ITEM 5. OTHER INFORMATION.
During the period following the end of the fiscal period ending June 30, 2000,
and the filing of this Report, the Company, aside from the arrangement with the
CISBIC described above, the Company also reached an agreement with Refco
relative to that firm providing a guarantee relationship for its Futures
subsidiary.
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
August 15, 2000
/s/
----------------------------------------
David W. Parsons, Director and Secretary