_____________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period ended Commission File Number
June 30, 1997 0-12926
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JMC GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2627415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9710 Scranton Road, Suite 100, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 619-450-0055
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Indicate by check mark whether the registrant (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
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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As of June 30, 1997, the registrant had 6,044,351 shares of its common
stock, $.01 par value, issued and outstanding.
_____________________________________________________________________________
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1997 1996
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,768,363 $ 4,682,883
Cash segregated under securities
regulations 1,450,958 1,247,231
Receivables from insurance companies 426,670 674,409
Receivable from financial institution - 325,000
Income taxes receivable 715,432 424,746
Deferred tax asset 208,072 194,361
Other assets 253,471 243,256
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TOTAL CURRENT ASSETS 6,822,966 7,791,886
Furniture, equipment and leasehold
improvements - net of accumulated
depreciation and amortization of
$1,475,798 in 1997 and $1,466,390 in 1996 264,828 212,844
Asset-based fees - net of accumulated
amortization of $696,921 in 1997 and
$635,836 in 1996 700,208 761,293
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TOTAL ASSETS $ 7,788,002 $ 8,766,023
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued fees to financial institutions $ 114,995 $ 321,609
Customer funds segregated under securities
regulations 1,450,958 1,247,231
Accrued expenses and other liabilities 244,765 491,556
Allowance for contract cancellations 67,633 53,813
Accrued payroll and related expenses 112,009 133,911
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TOTAL CURRENT LIABILITIES 1,990,360 2,248,120
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized
5,000,000 shares - -
Common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
6,044,351 shares in 1997 and 6,218,898
shares in 1996 60,443 62,189
Additional paid-in-capital 466,849 644,651
Retained earnings 5,270,350 5,811,063
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TOTAL STOCKHOLDERS' EQUITY 5,797,642 6,517,903
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 7,788,002 $ 8,766,023
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30,
1997 1996
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REVENUES
Commissions $ 1,080,631 $ 2,491,021
Interest 56,750 54,308
Other 675 1,879
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TOTAL REVENUES 1,138,056 2,547,208
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EXPENSES
Employee compensation and benefits 759,338 1,219,354
Fees to financial institutions 387,890 1,014,898
Professional fees 107,544 54,559
Rent 68,727 81,756
Telephone 5,457 36,723
Depreciation and amortization 29,109 145,084
Other general and administrative expenses 203,814 336,295
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TOTAL EXPENSES 1,561,879 2,888,669
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LOSS BEFORE INCOME TAXES (423,823) (341,461)
INCOME TAX BENEFIT (133,690) (126,340)
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NET LOSS $ (290,133) $ (215,121)
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LOSS PER SHARE $ (0.05) $ (0.03)
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WEIGHTED AVERAGE SHARES 6,044,351 6,218,898
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30,
1997 1996
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REVENUES
Commissions $ 2,219,422 $ 5,255,000
Interest 116,049 123,736
Other 8,811 8,549
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TOTAL REVENUES 2,344,282 5,387,285
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EXPENSES
Employee compensation and benefits 1,525,674 2,602,823
Fees to financial institutions 805,859 2,103,860
Professional fees 172,748 122,471
Rent 132,418 180,740
Telephone 21,917 82,183
Depreciation and amortization 61,236 294,674
Other general and administrative expenses 459,722 549,632
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TOTAL EXPENSES 3,179,574 5,936,383
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LOSS BEFORE INCOME TAXES (835,292) (549,098)
INCOME TAX BENEFIT (294,579) (201,735)
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NET LOSS $ (540,713) $ (347,363)
============= =============
LOSS PER SHARE $ (0.09) $ (0.06)
============= =============
WEIGHTED AVERAGE SHARES 6,067,315 6,218,898
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (540,713) $ (347,363)
Adjustments to reconcile net loss to net cash
used by operating activities:
Gain on sale of furniture and equipment (6,733) (1,998)
Depreciation and amortization 61,236 294,674
Amortization of asset-based fees 61,085 74,482
Deferred tax provision (13,711) 2,476
Changes in assets and liabilities:
Cash segregated under securities regulations (203,727) (299,246)
Receivables from insurance companies 247,739 (49,886)
Receivable from financial institution 325,000 109,450
Income taxes receivable (290,686) (399,607)
Other assets (13,166) (512,575)
Accrued fees to financial institutions (206,614) 66,114
Customer funds segregated under securities
regulations 203,727 299,246
Accrued expenses and other liabilities (246,791) (440,781)
Allowance for contract cancellations 13,820 (11,475)
Accrued payroll and related expenses (21,902) 1,472
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NET CASH USED BY OPERATING ACTIVITIES (631,436) (1,215,017)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold
improvements (111,036) (18,000)
Proceeds from sale of furniture and equipment 7,500 10,700
Payment for consulting and marketing agreement - (1,250,000)
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NET CASH USED BY INVESTING ACTIVITIES (103,536) (1,257,300)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (194,548) -
Proceeds from stock options exercised 15,000 20,000
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NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (179,548) 20,000
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NET DECREASE IN CASH AND CASH EQUIVALENTS (914,520) (2,452,317)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 4,682,883 5,832,598
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,768,363 $ 3,380,281
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ - $ 520
Income taxes $ 9,542 $ 186,575
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
ACTIVITIES
Warrants issued in connection with the consulting
and marketing agreement $ - $ 315,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do
not include all information and footnote disclosures that are
otherwise required by Regulation S-X and that will normally be
made in the Company's Annual Report on Form 10-K. The financial
statements do, however, reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the
results of the interim period presented.
The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date. It is recommended that
these financial statements be read in conjunction with the
Company's financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1996.
NOTE 2. NET LOSS PER SHARE
Net loss per share amounts are computed based on the weighted
average shares outstanding during the periods which include any
dilutive stock options and warrants.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". This statement specifies the computation,
presentation, and disclosure requirements for earnings per share
for entities with publicly held common stock. SFAS No. 128 is not
in effect for the Company in the second quarter of 1997, but will
be in effect for financial statements issued for periods ending
after December 15, 1997, including interim periods. The Company
does not expect the adoption of SFAS No. 128 to have a material
effect on its net earnings or loss per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion of the Company's business contained in this Form 10-Q includes
certain forward-looking statements. For a discussion of factors which may
affect the outcome projected in such statements, see "Material Customers,"
"Competition," "Registration and Licensing," "Regulation," "Legal
Proceedings," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
RESULTS OF OPERATIONS
- ---------------------
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
The Company realized a net loss of $290,000 (or $0.05 per share) in the second
quarter of 1997 compared to a net loss of $215,000 (or $0.03 per share) for
the second quarter of last year. For the six months ended June 30, 1997, the
Company had a net loss of $541,000 (or $0.09 per share) compared to net loss
of $347,000 (or $0.06 per share) during the first six months of 1996.
Total revenues for the quarter ended June 30, 1997 were $1,138,000, a decrease
of $1,409,000 or 55% from $2,547,000 in the second quarter of 1996. This
reduction in revenues is primarily a result of the following:
. A decrease in sales production related gross revenues of $1,165,000 or
66%. This decrease is a result of gross sales production volumes declining
$20 million or 65% in the second quarter of 1997 as compared to the second
quarter of 1996. This decline in sales volume is attributable to the
termination of the Company's Virginia operation in the fourth quarter of
1996. See "Trends and Uncertainties -- Declining Revenues". The combined
annuity and mutual fund gross revenue rate for the second quarter of 1997
as compared to such rate in the second quarter of 1996 declined from 5.6%
to 5.4% primarily as a result of changes in annuity commission rates.
. A decrease in asset-based fee revenues of approximately $245,000 in the
second quarter of 1997 compared to 1996 as a result of the sale of the
rights to the portion of such asset-based fee revenues that related to the
termination of the Company's Virginia operation during the fourth quarter
of 1996. Second quarter 1996 asset-based fees related to the Virginia
operation totaled approximately $205,000.
Total revenues for the first six months of 1997 were $2,344,000 versus
$5,387,000 for the first six months of 1996, a decrease of $3,043,000 or 56%.
The decrease in revenues for the six month period of 1997 as compared to 1996
is also a result of a decrease in gross sales production of 67% and a decrease
in asset-based revenues offset by an increase in service fee revenue.
Total expenses for the quarters ended June 30, 1997 and 1996 were $1,562,000
and $2,889,000, respectively. This $1,327,000 or 46% decrease is attributable
to:
. A $627,000 or 62% reduction in fees to financial institutions due to
lower sales volume.
. A reduction of $107,000 or 72% in salespersons' commissions also due to
lower sales volume.
. A $593,000 or 34% reduction in the remaining base operating expenses
primarily due to the downsizing of the Company's administrative and sales
management functions and a reduction in personnel related to the
termination of the Company's Virginia operation as previously discussed.
Included in the base operating expenses for the second quarter of 1996 is
$78,000 related to the amortization of a payment made to USBA Holdings,
Inc. as well as the value of warrants issued in the first quarter of 1996
in connection with a terminated business consolidation transaction. (See
"USBA Marketing Agreement and Proposed Merger" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.)
For the same reasons, total expenses for the six months ended June 30, 1997
decreased $2,756,000 or 46% to $3,180,000 from $5,936,000 in the first half of
1996.
SECOND QUARTER 1997 COMPARED TO FIRST QUARTER 1997
The Company realized a net loss of $290,000 (or $0.05 per share) in the second
quarter of 1997 compared to net loss of $251,000 (or $.04 per share) in the
first quarter of 1997.
Total revenues declined $68,000 or 6% to $1,138,000 in the second quarter of
1997 from $1,206,000 in the first quarter of 1997. The decrease is a result
of a decrease in gross sales production of 2% and a decrease in asset-based
revenues. Total expenses in the second quarter of 1997 were $1,562,000 versus
$1,618,000 in the first quarter of 1997, a reduction of $56,000 or 3%. Such
reduction is primarily attributable to the reduction in sales volumes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1997, the Company had cash and cash equivalents of
approximately $3,768,000, a decrease of approximately $915,000 from $4,683,000
in cash and cash equivalents at December 31, 1996. Significant uses of cash
and cash equivalents include the following:
. A payment of $195,000 to repurchase stock from a former officer and
director of the Company.
. A reduction of approximately $461,000 in current liability balances
during the first six months of 1997 primarily as a result of the transition
of the operation and closing of the Company's facility in Virginia.
. Pre-tax losses incurred in the first six months of 1997 of approximately
$835,000.
. These cash uses were offset, in part, by the receipt of $300,000 for the
remaining balance of the proceeds from the sale of rights to future asset-
based fees and a reduction of $248,000 in current receivable balance during
the first six months of 1997.
Future fees, both those due from the provider company and those due to
financial institution clients, are not reflected as an asset or a liability in
the Consolidated Balance Sheets. However, management does believe a value
exists related to the present value of the projected future net asset fees to
be retained by the Company. Such projected future net asset fees are a
function of the projected accumulated value of assets in-force multiplied by
the net asset fee rate (gross asset fee rate less amount committed to the
financial institution). The current value to the Company would then be the
discounted present value of such projected future asset fees less the present
value of an estimated cost to service the customers making up such in-force
assets. Management's belief that a present value for such future asset-based
fees exists and the estimates used to calculate the range of such value are
supported by the sale of the rights to certain future fees in 1996 and prior
years. The projected value of the future asset-based fees on the remaining
block of business at June 30, 1997 is based on assumptions as to growth,
persistency and risk adjusted discount rates. The assumptions as to
persistency and growth of the business are based on historical data maintained
by the Company since its inception. The discount rate used of between 8% and
10% is based on a risk-free rate of return plus a nominal additional factor
for risk (taking into account that risk factors are substantially covered by
the estimated persistency and growth rates). Management believes the value of
these net future revenues is appropriately estimated at $6 million to $8
million, pre-tax. Such estimated value is based on the estimates of the
variables used in the calculation (which are consistent with estimates used in
prior sales of future rights) and the actual realization, if any, could be
higher or lower than this range.
Based upon the Company's cash position as of June 30, 1997, Management expects
the Company will meet its operating and capital expenditure needs for the
remainder of its current fiscal year.
TRENDS AND UNCERTAINTIES
- ------------------------
DECLINING REVENUES
The Company's gross sales production decreased 65% when comparing the second
quarter of 1997 to the second quarter of 1996. This decrease is primarily
attributed to the termination of the Virginia operation in the fourth quarter
of 1996. Responding to these decreases in revenues, the Company has reduced
its operating expenses by more than $593,000 as compared to the second quarter
of 1996. The Company continues to explore new business development
opportunities and strategic alternatives including business combinations and
other transactions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's broker-dealer subsidiary, JMC Investment Services,
Inc., has been named as a defendant in lawsuits arising out of the
sale of real estate limited partnerships prior to 1992 to
customers of its predecessor. In addition, the Company and its
subsidiaries are involved in various legal and regulatory
proceedings from time to time in the ordinary course of business.
Management does not believe that any such proceedings will have a
material adverse effect on the Company's financial condition or
results of operation, and as of June 30, 1997, no such proceedings
were pending.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of JMC Group, Inc. was held on
May 5, 1997. The following matter was submitted to a vote of
security holders:
Election of Directors: Edward J. Baran, Charles H. Black and
Donald E. Weeden were elected to serve a three-year term, until
the annual meeting of stockholders in 2000, or until their
successors are duly elected.
The tally of voting for each nominee was as follows:
For Withheld
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Edward J. Baran 4,712,971 60,694
Charles H. Black 4,717,971 55,694
Donald E. Weeden 4,711,936 61,729
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits.
The following exhibit is filed herewith:
27 Financial Data Schedule
b.) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1997 /s/ James K. Mitchell
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James K. Mitchell, Chairman, President and
Chief Executive Officer
Date: August 13, 1997 /s/ Daniel M. Harkins
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Daniel M. Harkins, Senior Vice President,
General Counsel and Chief Financial Officer