UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended June 30, 1996
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 0-15187
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Jack Carl/312-Futures, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 36-3399452
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 West Adams Street, Chicago, Illinois 60606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 407-5726
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Securities registered pursuant to Section 12(g) of the Act:
$.004 Par Value Common Stock
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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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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As of August 30, 1996, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $2,438,700.
As of August 30, 1996, there were outstanding 33,624,530 shares of the
Registrant's common stock.
This is page 1 of 100 sequentially numbered pages.
PART I
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Item 1 - Business
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(a) General Development of Business.
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The Registrant was incorporated under the laws of the State of Illinois on
July 26, 1985 under the name SFA, Inc. On August 1, 1985, SFA, Inc. acquired
100% of the capital stock of a corporation (the "Predecessor Corporation") from
Oppenheimer Rouse Futures, Inc. The Registrant is the successor to the business
and operations of the Predecessor Corporation. As of November 21, 1985, the
Predecessor Corporation was merged into SFA, Inc. and SFA, Inc., changed its
name to 312-Futures, Inc. At that time and until Jack Carl Associates, Inc., a
privately held Delaware corporation, ("JCA"), merged on August 29, 1986, into
the Registrant, the Registrant's business activities were limited to effecting
transactions in futures contracts and options on futures contracts on a
"discounted basis" for retail customers nationwide. The Registrant is the
surviving corporation of the merger and its corporate name was changed to Jack
Carl/312-Futures, Inc. As a consequence of the merger, the Registrant's
brokerage activities were expanded and diversified with it succeeding to the
clearing membership of JCA on the Chicago Mercantile Exchange and clearing the
transactions on that Exchange for approximately 200 professional market makers
and for customers of introducing brokers on a fully disclosed basis.
Accordingly, for the fiscal year ended June 30, 1987, the Registrant was engaged
in the commodity brokerage business, which included effecting transactions in
futures contracts and options on futures contracts as a clearing member firm on
the Chicago Mercantile Exchange for its various customers. During the fiscal
year ended June 30, 1987, the Registrant cleared its customer's transactions at
the Chicago Board of Trade and certain other exchanges on an omnibus basis
through its then affiliate, Index Futures Group, Inc. ("Index").
On July 1, 1987, the Registrant purchased all of the stock of its
affiliate, Index. Incidental to such purchase, the Registrant transferred all
of its commodity futures customer accounts to Index and, since such transfer,
such business has been conducted through Index and its divisions. During fiscal
1988, in an effort to better manage risk, the Registrant effectively
discontinued the business of clearing transactions for professional market
makers. On January 1, 1989, the Registrant voluntarily withdrew its
registration as a futures commission merchant. The Registrant is currently a
holding company with its businesses conducted through its subsidiaries.
On November 16, 1990, Jack Carl/312-Futures, Inc. and Index sold to Credit
Agricole Futures, Inc. certain assets used by Index in its clearing operations.
Concurrent with the sale, approximately 30 employees of Index became employees
of Credit
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Agricole Futures, Inc. Index continued to be a clearing member of various
commodity exchanges.
In January, 1993, Brokers Resource Corp., at the time, a wholly-owned
subsidiary of Index, and a wholly-owned subsidiary of the Registrant, until it
was dissolved in May, 1996, sold the majority of its guaranteed introducing
broker business to an unrelated entity.
In May, 1994, the Registrant, by written consent of the shareholders,
changed its state of incorporation from Illinois to Delaware.
In July, 1994, the Registrant offered to its common stockholders the non-
transferable right to purchase, at a subscription price of $.02 per share, two-
thirds of a share of common stock for each one share of common stock owned of
record on July 15, 1994 ("Rights Offering"). 53,799,304 shares of common stock
were available and purchased in the Rights Offering.
Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer, the
Registrant's President and a director and Michael J. Moss, President of Index,
purchased their allocable number of shares in the Rights Offering. In addition,
Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02,
immediately following the expiration of the Rights Offering, the shares of
common stock which were not purchased by other shareholders so that all
53,799,304 shares of common stock were purchased. The gross proceeds of the
Rights Offering were $1,076,000.
Effective at the close of business November 4, 1994, the Registrant
effected a one-for-four reverse split of its common stock, par value $.001. Each
four shares of such common stock were reclassified and changed into one share of
common stock having a par value of $.004. Pursuant to the reverse split, the
Registrant is obligated to pay any holder of fractional shares resulting from
the reverse split $.05 per share of common stock up to a maximum of $.15 for
three shares. At the close of business on November 4, 1994, the outstanding
shares of common stock were reduced to approximately 33,624,565 shares from
134,498,260 shares before the reverse split. As the result of the repurchase of
fractional shares, there were outstanding as of June 30, 1996, 33,624,530 shares
of common stock.
On May 31, 1996, an agreement was reached to sell, transfer and assign to
E.D.& F. Man International Inc. ("MINC") substantially all of the brokerage
accounts maintained by Index, together with all positions, securities, and other
assets held in or for such accounts and other agreed-upon assets used in the
conduct of the brokerage activities ("Sale of Assets"). MINC is a unit of E.D.&
F. Man Group, plc, a London-based international trading and finance
conglomerate. This sale was completed as of July 1, 1996.
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As the result of this transaction, Index no longer acts as a futures broker
for public customers and has withdrawn as a clearing member from all commodity
exchanges, where there no longer will be any necessity for it to maintain such
status, though it remains a registered futures commission merchant. In addition,
commencing July 1, 1996, 207 of Index's 313 employees began employment at MINC
and 85 employees resigned or were terminated. During the next approximately six
months' transition period, MINC may terminate additional former Index employees.
By withdrawing from clearing memberships, Index no longer will be required
to maintain substantial qualifying capital required to be a clearing member.
Furthermore, inasmuch as the public discount futures brokerage business as
conducted by Index was a labor intensive one, the substantial reduction in its
personnel should provide a substantial cost savings to Index and thereby the
Registrant. Moreover, a portion of Index's regulatory capital represented by
subordinated loans will now be prepaid, thereby saving interest expense on the
principal amount of such loans. In addition, other costs of operating a futures
brokerage firm dealing with the public, such as operating and maintaining
computer installations, substantial bookkeeping and accounting expenses,
communications systems expenses, and the like, will no longer be incurred by
Index. The Registrant believes that the foregoing should enable it to reduce
its consolidated costs and expenses associated with operating a clearing futures
brokerage business and should make capital available for expansion or
establishment of other activities. No such other activities, other than foreign
exchange trading, as yet have been identified.
While the Registrant has not yet determined what, if any, other alternative
operations it may commence, there is no present intention either to liquidate
the Registrant or for it to "go private".
The Registrant continues to believe that, while there are no current
proceeds to Index, the Sale of Assets will provide a significant stream of
income over approximately the next 5 1/2 years. The Registrant believes this is
especially true in light of the requirements that Index receive substantial
payments from MINC if certain major customer accounts are terminated or if MINC
disposes of or ceases the discount brokerage business it acquired from Index.
All payments under the Sale of Assets agreement are guaranteed by its ultimate
parent, E.D.& F. Man Group, plc, a worldwide conglomerate whose shares are
traded on the London Stock Exchange. The Registrant estimates, based on historic
levels of revenues as well as estimates of reductions in the business expenses
as the result of the transaction, that the total purchase price over the time
will be between $7,000,000 and $16,000,000. (This range is less than previously
estimated due to a general slowdown in trading volume in recent months.)
However, there can be no assurance that the aggregate purchase price will be in
that range. This is principally because of the uncertainty that former Index
customers will
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not continue to maintain their account at MINC or trade there at levels similar
to their trading at Index, or the risk that MINC will not retain sufficient
former Index or other employees adequate to service such customers and their
trading. However, the Registrant does believe that the amounts it will receive
will likely be significant.
In considering this transaction, the Board of Directors of the Registrant
took into account the continuing growth of competitive pressure on the retail
futures discount brokerage business, including the costs of providing additional
services to customers, the costs of additional regulatory capital necessary for
significant increases in the amounts of customer segregated funds to be held on
deposit, the potential "economies of scale" to Index based on the reductions in
costs for generating revenues from its customer base, and what appears to be the
continuing consolidation of firms in the futures brokerage industry, especially
with firms and other financial institutions of international stature.
Historically in the futures industry when customer accounts have been
transferred from one firm to another, "trail commissions," or continuing
payments to the transferor over some period of time, have been commonplace. As
such, the Board of Directors believes that the level of payments to be received
over the course of the term of the agreement with MINC are favorable to Index
when compared with what the Board of Directors believes would have been the
results of operations had Index continued to operate as a futures commission
merchant and clearing member with all the attendant costs, both operationally
and with respect to regulatory capital, over the same time period.
In addition, in light of his services in connection with finding and
negotiating the transaction with MINC and its ultimate parent, E.D.& F. Man
Group, plc, the Board of Directors determined that Mr. Lee S. Casty, the
principal stockholder of the Registrant, should receive a finder's fee. Shortly
following the closing of the transaction, Mr. Casty advised the Registrant that
he will decline to accept any finder's fee with respect to the transaction.
With each payment Index is to receive, there will be an accompanying
written report prepared by MINC setting forth the computation and supporting
documentation in sufficient detail to permit Index to verify the accuracy of the
payment received. This is true with respect to the quarterly payments and the
year end payments. Any dispute under the agreement which the parties are unable
or unwilling to resolve informally are subject to submission to binding
arbitration to be held in Chicago, Illinois, in accordance with the Rules of the
American Arbitration Association.
Index intends to account for the transaction as a contingent payment sale
of its business over the sixty-six month term of the payments to be received.
Accordingly, payments Index receives
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will be taxed as income in the year of receipt. Thus, there will be no direct
federal income tax assessed against any stockholder by reason of the
transaction, and Index will be taxed only as the payments are received.
Effective at the close of business July 1, 1996, Burton J. Meyer, formerly
President of the Registrant, became an executive of MINC and as of that date
resigned all his positions with the Registrant and its subsidiaries. Because of
his expertise in operating the business transferred to MINC and the necessity
for the continued success of that business to maximize the purchase price to be
received by Index, it was a condition precedent to consummation of the
transaction by the Registrant that Mr. Meyer enter into an employment agreement
with MINC acceptable to him. Accordingly, Mr. Meyer has entered into an
employment agreement with an initial term expiring June 30, 1998 to serve as
President of the Jack Carl Futures Discount Division of MINC and as a Managing
Director of the MINC Group Brokerage Division in charge of the activities
transferred from Index to MINC. Under the employment agreement, Mr. Meyer
receives a base salary of $300,000 per year and an annual incentive bonus based
on the profitability of MINC's operations under his direction.
In terminating Mr. Meyer's employment agreement, the Board of Directors
authorized the Registrant to pay Mr. Meyer severance in the amount of $316,100.
Mr. Meyer will be paid an additional $316,100 by the Registrant if he leaves the
employ of MINC, voluntarily or involuntarily, before the expiration of twelve
months. In addition, in connection with such termination by the Registrant, and
as an additional inducement to Mr. Meyer, to accept employment with MINC, the
Board of Directors of the Registrant extended until June 30, 1998 his options to
purchase 1,250,000 shares of the Registrant's common stock at an option price of
$.24 per share. This five year option was originally granted to Mr. Meyer on
February 28, 1994 and contains an early termination if Mr. Meyer no longer is
employed by the Registrant.
The only contractual obligation for severance payments which the Registrant
has as a result of the Sale of Assets is to Philip Tanzar, formerly General
Counsel to the Registrant, in the amount of $100,000. Mr. Tanzar is now
employed as an in-house counsel at MINC and has advised the Registrant that he
will waive such severance as long as he continues to be employed by MINC through
and including December 31, 1998. Mr. Tanzar has also resigned as a director of
the Registrant effective October 1, 1996.
The purchase price payable by MINC in connection with this transaction is
based on a percentage of the net income (as defined in the sales agreement) of
the transferred activities during the sixty-six month period following the sale.
As the purchase price is contingent upon the future earnings of the customer
accounts sold, none of which is guaranteed, no gain on the sale was reflected in
the financial statements for the year
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ended June 30, 1996. Rather, income will be recognized as earned on a quarterly
basis over the next five and one-half years. A condition of the Sale of Assets
agreement required Mr. Casty, the principal shareholder, to sign a non-
competition agreement. As compensation for providing such an agreement, a
portion of the purchase price will be allocated to the principal shareholder and
recorded by the Registrant concurrently with its recognition of income as
described above. Management does not believe this amount will be significant.
A net pre-tax, restructuring charge of $1,556,500, related to the Sale of
Assets, was reflected in the statement of operations for fiscal year 1996.
Additionally, a restructuring gain of $664,000, from the sale of Board of Trade
Clearing Corporation stock, will be reflected in income in fiscal 1997.
Effective July 1, 1996, the Registrant's revenue stream will primarily
consist of the net income of the transferred activities, as defined in the Sale
of Assets agreement, interest on its capital and income from operations of Index
FX, Ltd.
(b) Narrative Description of Business.
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General
The Registrant is a holding company with its businesses conducted through
Index and other subsidiaries. The Registrant was a futures commission merchant
registered with the Commodity Futures Trading Commission ("CFTC") until January
1, 1989 when it voluntarily withdrew its registration as a futures commission
merchant. The Registrant no longer handles commodity futures customer accounts,
having transferred all of its accounts to Index. Effective July 1, 1996, neither
the Registrant nor any of its subsidiaries will handle commodity futures
customer accounts.
Index is a futures commission merchant registered with the CFTC and the
Securities and Futures Authority ("SFA") in the United Kingdom and is a member
of the National Futures Association ("NFA"). Prior to the Sale of Assets, it was
involved in all aspects of brokerage of futures and options on futures
contracts. It was a clearing member of the Chicago Mercantile Exchange, the
Chicago Board of Trade, the Mid-America Commodity Exchange, the Commodity
Exchange, Inc., the New York Mercantile Exchange, the New York Futures Exchange,
the New York Cotton Exchange and the Coffee, Sugar & Cocoa Exchange. It provided
a full-range of futures brokerage, clearing and back office services for
professional, institutional and public commodities traders and, through a
subsidiary, Index Management Services, Inc., until July 1, 1996 acted as a
commodity pool operator. Index, until July 1, 1996, was the clearing agent for
other non-clearing futures commission merchants, financial institutions,
regional brokerage houses and introducing brokers.
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Index presently has one wholly-owned subsidiary, Index Management Services,
Inc. ("IMSI"). Index Futures Arb Group, Inc. ("Arb"), Index Forward Trading
Group, Inc. ("IFTG") and Index Currency Trading Group, Inc. ("ICTG") were
wholly-owned subsidiaries of Index until they were dissolved in fiscal 1995.
IMSI, which was organized in May, 1986, is registered with the CFTC as a
commodity pool operator and is a member of the NFA. IMSI was organized to
create and offer to the public, either by itself or in cooperation with others
through joint ventures, various commodity futures fund offerings which may be
marketed through broker-dealers or through participating regional brokerage
houses. As of July 1, 1996, IMSI no longer operates commodity pools.
Arb, a Delaware corporation, was organized in September, 1988, as Manhattan
Coin Exchange, Inc. and was thereafter renamed Jack Carl Options Management,
Inc. In May, 1991, its name was changed to Index Futures Arb Group, Inc. Its
business was to conduct proprietary arbitrage trading in foreign currencies.
Arb commenced and ceased operations during the year ended June 30, 1993. Arb
was dormant during fiscal 1994 and was dissolved in fiscal 1995.
IFTG, a Delaware corporation, was organized in July, 1992 to conduct
proprietary arbitrage trading in foreign currencies. IFTG was dormant during
fiscal 1993 and 1994 and was dissolved in fiscal 1995.
ICTG, a Delaware corporation was organized in July, 1992 to conduct
proprietary arbitrage trading in foreign currencies. ICTG was dormant during
fiscal 1993 and 1994 and was dissolved in fiscal 1995.
In addition to Index, Index Securities, Inc. ("ISI"), Jack Carl Management
and Trading, Inc. ("JCMT") and Index FX, Ltd. ("IFX") are wholly-owned
subsidiaries of the Registrant. Stark Research, Inc. ("Stark") is a majority-
owned subsidiary of the Registrant. Brokers Resource Corp. ("BRC"), formerly a
subsidiary of Index, was a subsidiary of the Registrant until its dissolution in
May, 1996.
In December, 1993, Index transferred its investment in BRC to the
Registrant, in the form of a dividend.
BRC, organized in February, 1985, was a non-clearing futures commission
merchant which provided a full range of services to the independent futures
professional. These services included product development (such as providing
its customers with ideas in advertising and the generation of leads to increase
business), office operation services (such as assisting in compliance matters
and in acquiring equipment and systems that promote efficient operations) and
trading support services (including
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availability of market information, providing accurate and timely statements and
access to international markets). BRC was a member of the NFA and was
registered with the CFTC. BRC was dissolved in May, 1996.
In January, 1993, BRC sold the majority of its guaranteed introducing
broker business to an unrelated entity in return for a portion of future
earnings on such business. In connection with this sale, Index and BRC issued
a limited indemnification agreement to the purchaser. The agreement covers
potential customer claims arising from activity prior to the sale. There have
been no such claims to date. Subsequent to the sale, BRC's operations were
minimal. In January, 1994, BRC voluntarily withdrew its registration as a
futures commission merchant.
ISI was organized in January, 1987 and is a registered securities broker-
dealer. In June, 1990, ISI sold all of its customer accounts to an unrelated
party and its activities presently are primarily limited to acting as the
selling agent for commodity pools. As a broker-dealer, ISI is regulated by the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc.
JCMT was organized in January, 1992 to serve as a commodity trading advisor
("CTA") and is registered with the CFTC as a CTA. The operations of JCMT were
minimal during fiscal 1994 and 1995. There was no activity in 1996.
In September, 1993, the Registrant purchased a controlling interest in
Stark and became the majority shareholder in that company. Stark is an
investment research company which publishes monthly and quarterly magazines
regarding investments with a primary focus on funds investing in commodities.
IFX, a British corporation located in London, England was organized in
August, 1995. IFX primarily makes a market in interbank foreign exchange
currencies for primarily non private customers. The transactions made with
customers are offset with money center banks and other major foreign exchange
dealing firms.
Effective July 1, 1996, the Registrant's revenue stream will primarily
consist of the net income of transferred activities as defined in the Sale of
Assets agreement, interest on its capital and income from operations of IFX.
Management intends to sell or dissolve all subsidiaries except Index and
IFX during the coming year. All remaining companies, including the Registrant,
will be required to change their names in accordance with the Sale of Assets
agreement.
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Customers
The Registrant is a holding company. Prior to the Sale of Assets, Index
was the Registrant's principal source of revenue and was the Registrant's
principal operating subsidiary responsible for commodity and futures related
activities. Included in its full-range of services, Index maintained retail and
discount divisions. With respect to its discount brokerage customers, Index
acted as an agent for the transmitting of orders and did not provide in-house
generated research. Such discount brokerage customers obtained trading advice
elsewhere or made their own trading decisions. Commissions charged by Index to
such discount brokerage customers were discounted from those charged by full
service commodity brokerage firms. Index's discount customers were charged
round-turn transaction commissions which were generally between $12 and $30, as
compared to full service firms which management believes charged between $45 and
$100 per round-turn. Index provided a full range of futures brokerage, clearing
and back office services for professional, institutional and public commodities
traders. In addition, through its subsidiary IMSI, it created and offered to
the public, either by itself or in cooperation with others, various commodity
futures fund offerings which may have been marketed through broker-dealers or
through regional brokerage houses.
Index's revenues from trading activities related directly to the volume of
its customers' orders, generally irrespective of the underlying prices of
futures contracts. Such revenues were directly affected by substantial
fluctuations in trading volume. Trading volume may be affected by price levels
of commodity transactions which are directly affected by regional, national and
international economic and political conditions, broad trends in business and
finance, inflation and supply and demand of commodities underlying futures and
options contracts.
A material amount of Index's revenues were derived from interest earned on
uncommitted cash balances of customer deposits. This practice complies with
CFTC regulations and is standard industry practice.
Marketing
For the fiscal year ended June 30, 1996, Index's primary marketing and
advertising activities centered around the promotion of its Jack Carl Futures
Discount Division utilizing the print and electronic media, primarily
newspapers, magazines and television, which report on the futures markets and
their activities. Index, from time to time, engaged in promotions whereby it
provided subscriptions to independent research materials and/or portable futures
price quotation machines at advantageous prices or without charge.
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Competition
Prior to the Sale of Assets, Index competed directly with other firms, both
discount and full commission. Competition among futures brokerage firms is
intense and is based upon both price and service. Other institutions offer
their customers some or all of the same types of services provided by Index and
may offer more services than those provided by Index. At the same time, the
number of active participants in futures trading is relatively small when
compared to those engaged in securities trading. In addition, other independent
securities and commodities brokerage firms may enter the brokerage business in
direct competition with Index.
Regulation
In order to maintain its listing on the National Association of Securities
Dealers' Automated Quotation System ("NASDAQ"), the Registrant must satisfy the
National Association of Securities Dealers, Inc.'s revised entry and maintenance
standards for NASDAQ listed stocks. One such requirement is that a minimum of
two active market makers be maintained.
In May, 1994, the Registrant was advised by NASDAQ that it had failed to
meet the two active market maker requirement and would become subject to a
formal delisting action if it failed to obtain the required market makers by
June 3, 1994. The Registrant requested both a temporary exception to the
minimum active market maker requirement and a hearing on the matter.
On August 17, 1994, the Registrant was advised by NASDAQ that the NASDAQ
Listing Qualifications Committee determined that an exception to the market
maker requirement would not be granted and, accordingly, the securities of the
Registrant were delisted from the NASDAQ SmallCap Market effective August 18,
1994.
The Registrant appealed NASDAQ's decision and secured additional market
makers. On December 7, 1994, the Registrant's common stock resumed trading on
the NASDAQ SmallCap Market. The Registrant's common stock, from April 16, 1994
to December 6, 1994, was traded in the over-the-counter market OTC Bulletin
Board of the NASDAQ.
Commodity exchanges and professionals in the United States are subject to
regulation by the CFTC under the Commodity Exchange Act, as amended (the "Act")
and the regulations promulgated thereunder, and by the NFA and by various self-
regulatory organizations. The principal function of the CFTC is to promote
orderly and efficient commodity futures markets through regulation.
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As a futures commission merchant, Index is subject to the Act. With
respect to domestic futures and options trading, the Act requires all futures
commission merchants, such as Index, to meet and maintain specified financial
requirements, and maintain segregated accounts for all customers' funds,
property and positions, and specified books and records on customer
transactions, all of which are open to inspection by the staff of the CFTC.
Failure to meet its regulatory requirements could subject Index to disciplinary
actions including fines, censure, suspension or revocation of registration.
In addition, under the Act, the NFA is registered with the CFTC as a self-
regulatory body which has established and enforces training standards and
proficiency tests, minimum financial requirements and standards of fair
practice. The CFTC has delegated its registration functions to the NFA.
ISI is subject to the Uniform Net Capital Rule adopted by the Securities
and Exchange Commission and as such is required to maintain minimum net capital.
Throughout the year ISI was in compliance with such requirements.
Index is subject to the minimum capital requirements under the Act and
accordingly, is required to maintain minimum adjusted net capital, as defined by
the CFTC. Adjusted net capital changes from day to day, but at June 30, 1996,
Index had adjusted net capital of approximately $12,038,300 which was
approximately $5,216,200 in excess of its required minimum. BRC also was
subject to the minimum capital requirement under the Act until January, 1994,
when BRC withdrew its registration as a Futures Commission Merchant. The
minimum net capital requirements may effectively restrict, among other things,
the payment of cash dividends and the repayment of subordinated loans.
The Chicago Mercantile Exchange was the designated self-regulatory
organization of Index until July 9, 1996 when the NFA assumed that role. As
self-regulatory organizations, the NFA and the Chicago Mercantile Exchange have
authority to enforce their rules, the violation of which could lead to various
penalties, including expulsion. Since NFA membership is mandatory for all CFTC
registered commodity professionals, loss or suspension of such membership would
preclude a firm from engaging in the futures business.
The above-described regulatory structure may be modified by the CFTC or by
legislative changes enacted by the Congress.
Prior to the Sale of Assets, Index was in the business of clearing and
executing futures contracts and options on futures contracts for the accounts of
its customers. As such, Index guaranteed to the respective clearinghouses its
customers' performance under these contracts. To reduce its risk, Index
required its customers to meet, at a minimum, the margin
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requirement established by each of the exchanges on which the contract is
traded. This margin is a good faith deposit from the customer which reduces the
risk to Index of failure on behalf of the customer to fulfill any obligation
under the contract. To minimize its exposure to risk of loss due to market
variation, Index adjusted these margin requirements, as needed, due to daily
fluctuations in the values of the underlying positions. If necessary, certain
positions may be liquidated to satisfy resulting changes in margin requirements.
Management believes that the margin deposits held at June 30, 1996, were
adequate to minimize the risk of material loss which could be created by the
positions held at that time.
Index has a branch office in London, and as a result is also subject to the
rules and regulations of the SFA. The SFA generally defers to the United States
regulators for activities in the United States.
Employees
As of June 30, 1996, the Registrant had 313 full and part-time employees.
These employees included 105 floor operations employees, 80 back office
employees, 41 discount department employees, 60 sales employees and 27
administrative employees. Effective with the Sale of Assets, 207 employees were
offered employment at MINC and 85 employees resigned or were terminated.
Item 2 - Properties
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The Registrant leases office space at 200 West Adams Street, Chicago,
Illinois. This location serves as the Registrant's primary business location
and corporate headquarters.
At June 30, 1996, the Registrant or its subsidiaries also had offices at
the Chicago Mercantile Exchange Center, 30 South Wacker Drive, Chicago,
Illinois, 111 West Jackson Boulevard, Chicago, Illinois, 14 Wall Street, New
York, New York, 1020 Prospect Street, La Jolla, California and in London,
England, Zurich and Lugano, Switzerland and Istanbul, Turkey. All such
facilities were leased at rates competitive for the respective locations.
As of July 1, 1996, the leases for all offices, except for the corporate
headquarters and London, England, were transferred to MINC or terminated.
Item 3 - Legal Proceedings
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As a brokerage firm having numerous customers and correspondents, Index,
from time to time, is subject to various lawsuits, including civil litigation,
arbitrations and reparations proceedings and administrative proceedings by
regulators in the commodity futures industry relating to customers and
regulatory requirements incidental to carrying on such brokerage business. Such
matters range from those in which
-13-
Index is a party plaintiff against customers to collect deficit amounts due from
customers, to customer complaints, allegations by regulatory authorities of
alleged improprieties by, or lack of registration of, employees of Index and the
like. It also may be likely in some of these actions that allegations
requesting such items as monetary penalties, license suspensions or revocations
and the like will be made. The number of such complaints, matters of litigation
and administrative proceedings amount to a small percentage of Index's total
business. The foregoing discussion is also applicable to BRC. Management of
the Registrant, after consultation with legal counsel, is of the opinion that
neither the Registrant nor Index, nor any of the Registrant's other
subsidiaries, is involved in any current civil litigation or administrative
proceeding which it believes would have a material adverse effect on either the
Registrant's, Index's, or any of the Registrant's other subsidiaries financial
condition.
Notwithstanding that, the following matters are ordinary and routine
litigation incidental to the business, the Registrant believes it appropriate to
set forth the following information:
On September 29, 1992, the CFTC filed an administrative action against
Index alleging that on or about October 24, 1989, Index violated certain
sections of the Commodity Exchange Act and CFTC Regulations alleging the
conversion of funds of a commodity pool, and failure to properly segregate and
separately account for, treat and deal with customer funds. In April, 1994,
Index, without admitting or denying the allegations, paid a $100,000 penalty to
the CFTC, settling the administrative action. In a related action in the United
States District Court for the Northern District of Illinois entitled CFTC v.
-------
Tobin, et al; John Troelstrup, Equity Receiver v. Index Futures Group, Inc. (89
- ---------------------------------------------------------------------------
C 8576), the equity receiver of the alleged commodity pool operator brought an
action to recover losses of approximately $600,000, alleging various theories
such as constructive trust, negligence, breach of fiduciary duty and conversion.
On May 29, 1996, the district judge dismissed the complaint in its entirety.
Supplemental Plaintiff filed a Notice of Appeal with the U.S. Court of Appeals
for the Seventh Circuit on June 28, 1996. The Seventh Circuit has yet to rule
on whether this case may be appealed.
Index was also defending against a Demand for Arbitration (Klein v. Index
--------------
Futures Group, Inc. and Jay Tuch, 95-ARB-29) filed on March 20, 1995, before the
- --------------------------------
National Futures Association ("NFA"). The claimant, a former client, was
seeking damages of $1,000,000, alleging misrepresentation of risk and
unauthorized trading. In July, 1996, an arbitration panel entered an award of
no damages for the claimant.
-14-
In Arnold and Edith Katzowski v. Philip B. Jones and Index Futures Group,
----------------------------------------------------------------------
Inc., (E.D. Pa. No. 95-CV-1181), Index defended a complaint filed by former
- ----
partners of a general partnership which cleared its trades at Index. The
plaintiffs alleged that the general partner, a co-defendant, defrauded them by
failing to disclose risks and misrepresenting account performance. Index is
alleged to have aided and abetted the general partner by permitting him to act
as a Commodity Pool Operator without proper registration and by furnishing
account statements and other account data to the general partner which were then
altered by the general partner and used to defraud plaintiffs. Plaintiffs'
actual losses were approximately $157,000. This case was settled in November,
1995 for $25,000.
Edward Schwarz ("Schwarz"), a former executive of Index whose employment
was terminated as a result of the Sale of Assets, has rejected Index's severance
payment offer. Schwarz has made a demand for $500,000, and has threatened
litigation, if a satisfactory offer of settlement is not made. The Registrant
believes that its original severance offer was reasonable and Schwarz's claims
are without merit.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
During the fourth quarter of the fiscal year ended June 30, 1996, no
matters were submitted to a vote of security holders. However, on June 11, 1996,
a definite Information Statement ("Information Statement") was filed by the
Registrant with the Securities and Exchange Commission and sent to stockholders
to notify them, in accordance with Section 228 of the Delaware General
Corporation Law, that the holders of a sufficient number of votes by written
consent, on July 1, 1996, would consent to the transaction between Index and
MINC. No votes were solicited and no meeting was held. On September 4, 1996, the
Registrant sent a notice to its security holders that the Sale of Assets was
completed on July 1, 1996. MINC's principal office is located at Two World
Financial Center, New York, New York 19281-2700.
As noted above, no consents were solicited by the Information Statement.
Delaware law does not provide dissenters' rights for a transaction such as the
Sale of Assets. On July 1, 1996, a total of 19,443,354 shares of the 33,624,530
shares of common stock issued and outstanding of the Registrant and owned by Mr.
Lee S. Casty, his two minor children, his father, Mr. David Casty, and Mr.
Burton J. Meyer, at the time President of the Registrant, constituting 57.82% (a
majority) of all the issued and outstanding common stock of the Registrant, by
written consent in lieu of a meeting, authorized the Registrant, as the sole
shareholder of Index, to consummate the Sale of Assets.
-15-
PART II
-------
Item 5 - Market for Registrant's Common Equity and Related
- ----------------------------------------------------------
Stockholder Matters
- -------------------
Principal Markets
Since June 10, 1986, the Registrant's securities have been traded in the
over-the-counter market. The common stock was, until April 15, 1994, quoted on
NASDAQ.
In order to maintain its listing on NASDAQ, the Registrant, must satisfy
the National Association of Securities Dealers, Inc.'s revised entry and
maintenance standards for NASDAQ listed stocks. One such requirement is that a
minimum of two active market makers be maintained.
In May, 1994, the Registrant was advised by NASDAQ that it had failed to
meet the two active market maker requirement and would become subject to a
formal delisting action if it failed to obtain the required market makers by
June 3, 1994. The Registrant requested both a temporary exception to the
minimum active market maker requirement and a hearing on the matter.
On August 17, 1994, the Registrant was advised by NASDAQ that the NASDAQ
Listing Qualifications Committee determined that an exception to the market
maker requirement would not be granted and, accordingly, the securities of the
Registrant were delisted from the NASDAQ SmallCap Market effective August 18,
1994.
The Registrant appealed NASDAQ's decision and secured additional market
makers. On December 7, 1994 the Registrant's common stock resumed trading on
the NASDAQ SmallCap Market. The Registrant's common stock, from April 16, 1994
to December 6, 1994, was traded in the over-the-counter market OTC Bulletin
Board of the NASDAQ.
In July, 1994, the Registrant offered to its common stockholders the non-
transferable right to purchase, at a subscription price of $.02 per share, two-
thirds of a share of common stock for each one share of common stock owned of
record on July 15, 1994. 53,799,304 shares of common stock were available and
purchased in the Rights Offering.
Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer, the
Registrant's President and a director and Michael J. Moss, President of Index,
purchased their allocable number of shares in the Rights Offering. In addition,
Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02,
immediately following the expiration of the Rights Offering, the shares of
common stock which were not purchased by other shareholders so that all
53,799,304 shares of common stock
-16-
were purchased. The gross proceeds of the Rights Offering were $1,076,000.
Effective at the close of business November 4, 1994, the Registrant
effected a one-for-four reverse split of its common stock, par value $.001. Each
four shares of such common stock were reclassified and changed into one share of
common stock having a par value of $.004. Pursuant to the reverse split, the
Registrant is obligated to pay any holder of fractional shares resulting from
the reverse split $.05 per share of common stock up to a maximum of $.15 for
three shares. At the close of business on November 4, 1994, the outstanding
shares of common stock were reduced to approximately 33,624,565 shares from
134,498,260 shares before the reverse split. As the result of the repurchase of
fractional shares, there were outstanding as of June 30, 1996, 33,624,530 shares
of common stock.
Set forth below is the range of high and low, trade prices per share of the
common stock in the over-the-counter market as reported by NASDAQ for the
periods indicated. The quotations do not include retail markups, markdowns, or
commissions. The prices have been restated for the November 4, 1994 one-for-four
reverse split of common stock.
On August 30, 1996, the closing representative bid price and ask price per
share of common stock, as reported through NASDAQ, in the over-the-counter
market was bid: 1/8; ask: 3/16.
Type of Quarter
Security Ended High Trade Low Trade
- -------- ------- ---------- ---------
Common Stock 12/31/94 (1) 1/4 1/8
3/31/95 3/16 1/8
6/30/95 9/32 1/8
9/30/95 13/32 5/32
12/31/95 9/32 1/8
3/31/96 3/16 3/32
6/30/96 13/32 3/32
8/31/96 (2) 3/16 1/8
(1) Includes only the period December 7, through December 31, 1994.
(2) Includes only the months of July, 1996 and August, 1996.
Although the Registrant's common stock was traded on NASDAQ there are no
bid and ask quotations available for the period April 15, 1994 through August
18, 1994, due to lack of market maker participation. Set forth below is the
range of high and low trade prices per share of common stock or the range of
high and low, bid and ask prices per share of common stock in the OTC Bulletin
Board market as reported by NASDAQ for the periods indicated. The quotations do
not include retail markups,
-17-
markdowns or commissions. The prices have been restated for the November 4,
1994 one-for-four reverse split of common stock. On December 6, 1994, the last
day of trading on the OTC Bulletin Board, the closing trade price per share of
common stock as quoted through NASDAQ's OTC Bulletin Board was $.125.
Type of
Security Period High Trade Low Trade
- -------- ------ -------------- ----------------
Common Stock 7/01/94-8/18/94 1/4 1/16
Bid Ask
-------------- ----------------
High Low High Low
------ ------ ------- -------
8/18/94-9/30/94 $.16 $.04 $.20 $.16
10/01/94-12/06/94 $.20 $.03125 $.25 $.09375
Approximate Number of Holders of Securities
As of August 30, 1996, there were 1,015 holders of record of the
Registrant's common stock. The Registrant believes it has a greater number of
shareholders because the Registrant believes that a substantial amount of its
common stock is held of record in street name by broker-dealers for their
customers.
Dividends
The Registrant has never paid a cash dividend on its common stock and does
not expect to pay a cash dividend in the foreseeable future, but intends to
devote all funds to the operation of its business.
Item 6 - Selected Financial Data
- --------------------------------
Summary Financial Information
The following table presents summary historical information for the
Registrant. This summary information is derived from the historical financial
statements of the Registrant.
-18-
HISTORICAL FINANCIAL INFORMATION
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
--------------------------------------------
Year Ended June 30,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Operating Data:
Revenues $41,134,900 $41,658,300 $37,565,300 $36,670,400 $39,227,300
========== ========== ========== ========== ==========
Income (loss) before income taxes
and extraordinary item $(1,307,200) $ 3,947,800 $ 992,300 $ 308,900 $ 1,210,100
Income tax expense (benefit) (174,100) 1,536,200 406,200 149,600 361,600
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item (1,133,100) 2,411,600 586,100 159,300 848,500
Extraordinary item (1) - - - - 3,000
---------- ---------- ---------- ---------- ----------
Net income (loss) (1,133,100) 2,411,600 586,100 159,300 851,500
Assumed cumulative dividend on Class A
preferred stock (40,000) (40,000) (40,000) (40,000) (40,000)
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to
common stock $(1,173,100) $ 2,371,600 $ 546,100 $ 119,300 $ 811,500
========== ========== ========== ========== ==========
Primary earnings (loss) share as
restated for the one-for-four
reverse split of common stock (2):
Income (loss) before extraordinary item $ (.03) $ .08 $ .03 $ .01 $ .04
========== ========== ========== ========== ==========
Net income (loss) $ (.03) $ .08 $ .03 $ .01 $ .04
========== ========== ========== ========== ==========
Weighted average number of shares
outstanding, as restated for the
one-for-four reverse split of
common stock 33,721,179 30,680,524 20,175,612 20,178,239 20,178,239
========== ========== ========== ========== ==========
Fully diluted earnings (loss) per share
as restated for the one-for-four
reverse split of common stock (2):
Income (loss) before extraordinary item $ (.03) $ .08 $ .03 $ .01 $ .04
============ ============ ============ ============ ============
Net income (loss) $ (.03) $ .08 $ .03 $ .01 $ .04
============ ============ ============ ============ ============
Weighted average number of shares
outstanding, as restated for the
one-for-four reverse split of
common stock 33,721,179 30,680,524 20,175,612 20,178,239 20,178,239
============ ============ ============ ============ ============
Balance Sheet Data:
As of June 30,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total assets $239,887,700 $190,932,400 $202,806,200 $151,817,500 $143,654,300
Notes payable 6,390,000 6,390,000 7,690,000 9,615,600 10,140,600
Subordinated debt 4,000,000 1,690,000 2,000,000 - 225,000
Stockholders' equity 6,216,500 7,364,100 3,876,500 3,295,200 3,135,900
- --------------------------------
(1) Represents tax benefits resulting from utilization of net operating loss
carryforward.
(2) Earnings per share are computed on the basis of the weighted average number
of shares of common stock outstanding during each year, adjusted for the
effect of common stock equivalents arising from the assumed exercise of
stock options and warrants if dilutive.
-19-
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations for the Year Ended
- --------------------------------
June 30, 1996
- -------------
Liquidity and Capital Resources
Jack Carl/312-Futures, Inc. ("JC/312") is a holding company that operates
its business through its various subsidiaries. JC/312 is a significant source
of capital for its subsidiaries through subordinated loans.
Index is subject to the minimum capital requirements adopted and
administered by various exchanges and regulatory bodies. Among these are
requirements for registered futures commission merchants to maintain minimum net
capital based on a percentage of the amount of customer funds required to be
segregated. During the year ended June 30, 1996, Index's segregated asset
requirement increased by approximately $27,976,800 to $183,950,300. At June 30,
1996, Index's segregated funds exceeded the requirement by $3,536,200. Index is
also required to secure all balances due to U.S. based customers for activities
in foreign futures or options. At June 30, 1996, funds secured in separate
accounts exceeded secured requirements by $4,333,300. These increases in the
segregated and secured asset requirements resulted in a increase in Index's net
capital requirements. As of June 30, 1996, Index's regulatory capital exceeded
the minimum net capital requirements of the CFTC by $5,216,200.
Prior to March, 1996, Index exceeded the net capital requirements of the
CFTC and the various exchanges of which it is a member. In March, 1996, at the
request of its non-regulated customers trading in the cash markets, Index
transferred funds to IFX. Upon clarification of the net capital rules, it was
determined that the receivable from IFX could not accurately be classified as a
current asset. As a result, Index was under early warning and minimum capital
requirements. As of March 31, 1996, Index's regulatory capital was $11,272,800
less than the minimum net capital requirements of the CFTC. Index informed the
Chicago Mercantile Exchange and the CFTC of the capital deficiency. Index took
immediate action to correct the deficiency and as of April 23, 1996, was fully
in compliance with minimum net capital requirements.
The Registrant, at June 30, 1996, had $6,390,000 in notes payable to
related parties and $4,000,000 of subordinated debt maturing during the year
ending June 30, 1997. The majority of the proceeds from the notes were loaned to
Index in the form of subordinated loans which are included in net capital for
regulatory purposes. Index had a $4,000,000 revolving subordinated debt line of
credit. As of June 30, 1996, Index borrowed the total $4,000,000 from this line
of credit. These borrowings were repaid in full in August, 1996 and the line of
-20-
credit was cancelled. The ability to refinance its debt depends on the lenders
desire to continue such loans with the Registrant.
The Registrant has historically satisfied its needs for capital from (i)
subordinated loans and notes payable, which, in the aggregate, increased
$2,310,000 at June 30, 1996 compared to the prior year, and (ii) the proceeds
from the issuance of stock, which since inception through June 30, 1996 were
approximately $8,930,000. It is anticipated that the Registrant's short-term
and long-term capital needs will primarily be satisfied through loans,
operations and investing activities as well as from the proceeds of the issuance
of stock. As the business now exists subsequent to the Sale of Assets, the
Registrant's capital needs are significantly reduced. This may change if the
Registrant enters into new business ventures.
The Registrant, during fiscal 1996 generated $3,000,000 cash from new
subordinated loans from its revolving credit line. This cash was used for
various operating activities as well as to repay $690,000 of subordinated debt
and for start up costs, including purchases of furniture and equipment, incurred
by the Registrant's London subsidiary, which began trading operations in
October, 1995.
The majority of the Registrant's assets are liquid in nature and are not
significantly affected by inflation. However, the rate of inflation affects the
Registrant's expenses, such as employee compensation and other operating
expenses.
Results of Operations - Fiscal 1996 Compared to Fiscal 1995
The Registrant's commission revenues relate directly to the volume of its
customers' orders, generally irrespective of the underlying prices of futures
contracts. Trading volume may be affected by price levels of commodities which
are directly affected by regional, national and international economic and
political conditions, broad trends in business and finance, inflation and supply
and demand of the commodities underlying futures and options contracts.
In January, 1993, BRC, at the time a wholly-owned subsidiary of Index, and
a wholly-owned subsidiary of the Registrant until it was dissolved in May, 1996,
sold the majority of its guaranteed introducing broker business to an unrelated
entity in return for a portion of future earnings on such business through
January 15, 1995.
The Company, during fiscal 1996, organized IFX, located in London, England
to conduct foreign exchange business. IFX incurred start up costs early in the
year and commenced trading operations in October, 1995. The revenue generated
by IFX is recorded as trading gains.
-21-
On May 31, 1996, an agreement was reached to sell, transfer and assign to
MINC substantially all of the brokerage accounts maintained by IFG, together
with all positions, securities, and other assets held in or for such accounts
and other agreed-upon assets used in the conduct of the brokerage activities.
MINC is a unit of E.D.& F. Man Group, plc, a London-based international trading
and finance conglomerate. This sale was completed as of July 1, 1996. Shortly
thereafter, Index ceased being a clearing member at all exchanges, though it
remains a registered futures commission merchant.
The purchase price payable by MINC in connection with this transaction is
based on a percentage of the net income (as defined in the sales agreement) of
the transferred activities during the sixty-six month period following the sale.
As the purchase price is contingent upon the future earnings of the customer
accounts sold, none of which is guaranteed, no gain on the sale was reflected in
the financial statements for the year ended June 30, 1996. Rather, income will
be recognized as earned on a quarterly basis over the next five and one-half
years. A condition of the Sale of Assets agreement required the principal
shareholder to sign a non-competition agreement. As compensation for providing
such an agreement, a portion of the purchase price will be allocated to the
principal shareholder and recorded by the Registrant concurrently with its
recognition of income as described above. Management does not believe this
amount will be significant.
A net pre-tax, restructuring charge of $1,556,500, related to the Sale of
Assets, was reflected in the statement of operations for fiscal year 1996.
Additionally, a restructuring gain of $664,000, from the sale of Board of Trade
Clearing Corporation stock, will be reflected in income in fiscal 1997.
Effective July 1, 1996, the Registrant's revenue stream will primarily
consist of the net income of the transferred activities, as defined in the Sale
of Assets agreement, interest on its capital and income from operations of IFX.
Commission revenues, which generally are related to trading volume,
decreased $3,058,500 or 9% in 1996. Included in commission revenue for 1995 is
$481,900 from the sale of BRC's introducing broker business. Commission
revenue, excluding the affect of the BRC revenue, decreased 8% on an 8% increase
in trading volume. The decrease in commission revenue compared to the increase
in trading volume is primarily attributable to the Registrant's business mix
which has changed toward business that generates higher trading volume and lower
revenues and expenses per trade than other types of retail business. Included
in this type of business are accounts from non-clearing futures commission
merchants, other wholesale business and execution only business.
-22-
Interest income increased $555,800 in 1996 compared to 1995. The
increase in interest income is primarily attributable to the following factors.
The Registrant's continuing to invest in longer term U.S. Government obligations
which increases the yield on its investments. Such investments are interest
rate sensitive which cause fluctuation in income as interest rates vary. The
change in the appreciation of these investments due to market value fluctuations
generated a $301,200 decrease in interest income in 1996 compared to 1995.
Also, the Registrant during 1996, by increasing its customer base and by
increasing its subordinated debt borrowings, had additional funds available to
invest and those investments generally yielded higher returns because interest
rates, for the majority of fiscal 1996, continued their upward trend.
Trading gains increased $2,246,500 during the year ended June 30, 1996.
Included in trading gains in fiscal 1996 is $2,058,900 of revenue generated from
IFX.
Commissions, floor brokerage and clearing costs decreased $1,556,300 or 8%
in 1996. The decrease in expense is the result of the gradual restructuring of
sales agreements to include the absorption of certain production related costs
by certain sales people before commissions are earned, thus reducing commission
expense. Also, as part of the restructuring, certain sales people are being
compensated by salary in addition to commissions. Another reason for the
decrease in commissions, floor brokerage and clearing costs is the change in
business mix toward business which generates higher trading volume and lower
commission revenues and expenses per trade than other types of retail business.
Included in this type of business are accounts from non-clearing futures
commission merchants, other wholesale business and execution only business.
Compensation and related benefits increased $1,588,400 or 18% during fiscal
1996. The increase is the result of an increase in the number of employees,
which includes employees at IFX, and salary increases. Also contributing to the
increase is the restructuring of sales agreements which provide for certain
sales people to be compensated by salary in addition to commissions.
Interest expense increased $915,900 during fiscal 1996 compared to fiscal
1995. Included in interest expense during 1996 is a $100,000 interest accrual
related to the settlement of prior revenue agent reviews through 1992. The
balance of the increases are the result of higher interest rates on the
Company's obligations during fiscal 1996 and increased customer deposits on
which the Company pays interest expense.
-23-
Business promotion expense increased $493,900 during fiscal 1996 compared
to fiscal 1995. The increase is primarily the result of a general increase in
print advertising, promotions and increased television advertising during fiscal
1996.
Doubtful accounts expense increased $726,600 in fiscal 1996 compared to
1995. This increase is due to a $586,000 credit to bad debt expense in fiscal
1995. The credit was primarily the result of the receipt of a bankruptcy
settlement for a bad debt which was previously written off, collection of
deficit accounts and a reduction in the Registrant's bad debt experience.
During fiscal 1996, the Registrant took a net pre-tax restructuring charge
of $1,556,500, related to the sale of brokerage accounts to MINC.
The aforementioned revenue and expenses resulted in a net loss of
$1,133,100 or $.03 per share for fiscal 1996 compared to net income of
$2,411,600 or $.08 per share for fiscal 1995.
Results of Operations - Fiscal 1995 Compared to Fiscal 1994
Commission revenues, which generally are related to trading volume,
increased $135,900 in 1995 on a 21% increase in trading volume. The revenue
from the sale of BRC in the amounts of $481,900 and $982,000 for 1995 and 1994,
respectively, is included in commission revenue. The small increase in
commission revenue compared to the increase in trading volume is primarily
attributable to the Registrant's business mix which has changed toward business
that generates higher trading volume and lower revenue and expense per trade
than other types of retail business. Included in this type of business are
accounts from non-clearing futures commission merchants, other wholesale
business and execution only business.
Interest income increased $3,975,300 in 1995 compared to 1994. This
increase in interest income is attributable to the following factors. The
Registrant is continuing to invest in longer term U.S. Government obligations
which increases the yield on its investments. These investments are interest
rate sensitive which cause fluctuations in income as interest rates vary. The
change in the appreciation of these investments due to market value fluctuations
generated an increase in interest income of $494,300 in 1995 compared to 1994.
The Registrant, during 1995, by increasing its customers base, had additional
funds available to invest and those investments generally yielded higher returns
because interest rates continued their upward trend during fiscal 1995.
Commissions, floor brokerage and clearing costs decreased $1,198,500 or 6%
in 1995. The decrease is the result of the gradual restructuring of sales
agreements to include the
-24-
absorption of certain production related costs by certain sales people before
commissions are earned. Also, as a part of the restructuring, certain sales
people are being compensated by salary in addition to commissions. Another
reason for the decrease in commissions, floor brokerage and clearing costs is
the change in business mix toward business which generates higher trading volume
and lower commission revenue and expense per trade than other types of retail
business. Included in this type of business are accounts from non-clearing
futures commission merchants, other wholesale business and execution only
business.
Compensation and related benefits increased $1,342,700 or 18% in 1995. The
increase is attributed to a 15% increase in the number of employees and salary
increases. Another factor contributing to the increase is the restructuring of
sales agreements which provide for certain sales people to be compensated by
salary in addition to commissions.
Interest expense increased $1,515,300 in 1995. The increase is the result
of higher interest rates on the Registrant's obligations during fiscal 1995 and
increased deposits on which the Registrant pays interest expense.
Business promotion increased $457,700 or 37% in 1995 compared to 1994. The
increase is the result of a general increase in the advertising of Index's
discount division which included a series of television commercials.
Communications expense decreased $301,500 or 15% in 1995 compared to 1994.
The decrease is the result of a change in long distance carrier which led to
lower rates and a one time $50,000 "sign-on" credit. The Registrant also
realized savings resulting from its increased capital expenditures on more
efficient communications equipment.
Professional and consulting fees decreased $446,100 in 1995. The decrease
is the result of a decrease in legal fees incurred in fiscal 1995 due to
decreased activity on pending litigation.
Doubtful accounts expense decreased $635,100 in 1995 compared to 1994. The
decrease is the result of the receipt of funds from a bankruptcy settlement for
a debt that was previously written off, collection of deficit accounts and a
reduction in the Registrant's bad debt experience.
The aforementioned revenue and expenses resulted in net income of
$2,411,600 or $.08 per share for fiscal 1995 compared to net income of $586,100
or $.03 per share for fiscal 1994.
-25-
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
For financial information, see the financial statements and notes thereto
set forth at Item 14 hereof.
Item 9 - Changes In and Disagreements With Accountants On Accounting and
- ------------------------------------------------------------------------
Financial Disclosures
- ---------------------
The Registrant did not have any changes in, or any material disagreements
on accounting and financial disclosure with, its accountants in fiscal 1996 or
1995.
PART III
--------
Item 10 - Directors and Executive Officers
- ------------------------------------------
The Directors and Executive Officers of the Registrant as of June 30, 1996
were as follows:
Name Age Office
- ----------------------- --- ---------------------------
Burton J. Meyer 49 President and Director
Joel M. Eidelstein 29 Director
George A. Myers 46 Director
Allyson D. Laackman 39 Chief Financial Officer
Bruce E. Mathias 45 Treasurer and Secretary
Michael J. Moss 49 President of Index
Philip A. Tanzar 46 Director and Vice President
and General Counsel
Burton J. Meyer has been with the Registrant since its inception and has
been a Director since August, 1986 and President since July, 1987. Since July
20, 1987, Mr. Meyer has also been an executive vice president and a director of
Index, president of the Jack Carl/312-Futures discount division of Index until
November, 1990 when he became Chief Executive Officer of Index. Also since July
20, 1987, Mr. Meyer has been a director of Brokers Resource Corp. ("BRC"), a
wholly-owned subsidiary of the Registrant, a director of Index Securities, Inc.
("ISI"), a wholly-owned subsidiary of the Registrant, since September, 1988. Mr.
Meyer has been a director of Index Management Services, Inc. ("IMSI"), a wholly-
owned subsidiary of Index, since November, 1990 and served as president from
November, 1990 until January, 1992 and has been chief executive officer of IMSI
since May, 1992. Since May, 1991, Mr. Meyer has also been president and
-26-
secretary of Index Futures Arb Group, Inc. ("Arb"). Since January, 1992, Mr.
Meyer has been vice president of Jack Carl Management and Trading, Inc.
("JCMT"). Since July, 1992, Mr. Meyer has been president of Index Forward
Trading Group, Inc. ("IFTG") and Index Currency Trading Group, Inc. ("ICTG").
All officer positions Mr. Meyer held with the Registrant and its
subsidiaries were effectively terminated with the expiration of his employment
contract on July 1, 1996. Mr. Meyer resigned as a Director effective as of the
close of business July 1, 1996.
Joel M. Eidelstein was elected Director of the Registrant effective
November 16, 1990. Mr. Eidelstein graduated from Brandeis University in May,
1988. Since June, 1988, until immediately prior to the Sale of Assets, he was
an independent trader and a floor manager with Index.
George A. Myers was elected Director of the Registrant effective November
16, 1990. Mr. Myers, since 1981, has been managing general partner of MC
Capital, a diversified real estate company with offices in Chicago, Illinois;
Phoenix, Arizona; and San Diego, California.
On September 14, 1992, Allyson D. Laackman, became Chief Financial Officer
of the Registrant, BRC and ISI and chief financial officer and director of
Index, Arb, JCMT, IFTG and ICTG. Ms. Laackman was also Chief Financial Officer
and director of IMSI from September 14, 1992 until she voluntarily resigned from
those positions in January, 1994. Prior to joining the Registrant, Ms.
Laackman, a Certified Public Accountant, had been with Arthur Andersen & Co.
since 1981 and was an experienced manager in the financial services division.
Bruce E. Mathias has been Treasurer of the Registrant since November 16,
1990. Mr. Mathias was also Assistant Secretary of the Registrant from November
16, 1990 until he was appointed Secretary in March, 1994. He was also Chief
Financial Officer of the Registrant, Index, BRC, IMSI, RDI and Arb from
November, 1990 until January, 1992 when he was elected president of IMSI until
February, 1994, when he was reappointed chief financial officer of IMSI. Prior
to November, 1990 he was the Director of Financial Reporting of the Registrant
from May, 1987 and secretary of Index since November, 1987. In addition, since
November 16, 1990, he has been treasurer and a director of Index and treasurer
and assistant secretary of BRC. Since November, 1990, Mr. Mathias has been a
director of IMSI. Mr. Mathias is a Certified Public Accountant.
Michael J. Moss has been president and a director of Index since January,
1992. Prior to joining Index, Mr. Moss was an independent floor trader from
1978 until 1987. Mr. Moss was senior vice president of Gerald, Inc., a futures
commission merchant, from 1987 until December, 1991.
-27-
In accepting employment with MINC, Mr. Moss resigned as president effective
July 1, 1996.
Philip A. Tanzar joined 312-Futures, Inc. at its inception in 1983. Mr.
Tanzar was chief operating officer of the discount brokerage division of Index
from 1986 until November, 1990. In November, 1990, Mr. Tanzar was appointed
chief operating officer of Index until March, 1993 when Mr. Tanzar was appointed
Vice President and General Counsel of the Registrant, Index, BRC and IMSI. In
February, 1994, Mr. Tanzar was elected a Director of the Registrant. On
September 24, 1996, Mr. Tanzar resigned as a Director of the Registrant
effective October, 1, 1996.
All executive officer positions Mr. Tanzar held with the Registrant and its
subsidiaries were effectively terminated, upon accepting employment with MINC.,
on July 1, 1996.
Directors are elected and serve until the next annual meeting or until
their successors are elected and qualified. Officers are elected annually by
the Board of Directors.
-28-
Item 11 - Executive Compensation
- --------------------------------
The following table sets forth all cash compensation paid by the Registrant
as well as the number of stock options earned by the Registrant's chief
executive officer and the three other most highly compensated executive
officers, exceeding $100,000, during the last three fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------------------------
Long Term
Compensation
------------
Name and Year Other Option
Principal Ended Annual Awards All Other
Position June 30, Salary Bonus Compensation (Shs) (5) Compensation
- ----------------------- -------- -------- -------- ------------ ------------ ------------
Burton J. Meyer (1) (6) 1996 $300,000 $344,600 - - $316,100
President and 1995 $300,000 $153,700 - -
Director 1994 $225,000 $ 50,000 - 1,250,000
Michael J. Moss (2) (6) 1996 - - $538,800 - -
President 1995 - - $668,200 -
of Index 1994 - - $414,100 500,000
Allyson D. Laackman (3) 1996 $135,000 $74,700 - - -
Chief Financial 1995 $133,200 $14,100 - -
Officer 1994 $125,000 $ 5,800 - -
Philip A. Tanzar (4)(6) 1996 $130,000 $14,300 - - -
Director and Vice 1995 $122,000 $16,700 - -
President and 1994 $117,000 $ 2,600 - -
General Counsel
- --------------------------------
(1) Mr. Meyer's bonuses relate to the prior fiscal years. All Other
Compensation is a severance payment. Mr. Meyer resigned as a Director as of
the close of business July 1, 1996.
(2) Mr. Moss's 500,000 options expired June 30, 1995. Other annual compensation
is commissions.
(3) Ms. Laackman earned a $38,800 bonus for fiscal 1994 and 1995, $24,700 of
which was paid in fiscal 1996. Also, Ms. Laackman earned a $50,000 bonus
for fiscal 1996, which was paid in fiscal 1996.
(4) Mr. Tanzar became a Director effective February, 1994. He has resigned
October 1, 1996.
(5) The options have been restated for the November, 1994 one-for-four reverse
split.
(6) Resigned from executive officer positions effective July 1, 1996.
-29-
Fiscal 1996 Option Grants Table
The following table sets forth stock options granted to the Registrant's
chief executive officer and the Registrant's three other most highly compensated
executive officers during fiscal 1996. Under Securities and Exchange Commission
regulations, companies are required to project an estimate of appreciation of
the underlying shares of stock during the option term. The Registrant has
chosen the 5% - 10% formula approved by the SEC. However, the ultimate value
will depend on the market value of the Registrant's stock at a future date,
which may or may not correspond to the projections below.
OPTION GRANTS IN FISCAL 1996
Individual Grants
- ----------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
% of Appreciation
Total Options for Option Term
Granted to -----------------------
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
- -------------------- -------- ------------- -------- ---------- --------- ---------
No options were granted to the Registrant's chief executive officer or the
Registrant's three other most highly compensated executive officers during
fiscal 1996.
-30-
Fiscal 1996 Option Exercises and Year-End Value Table
The following table sets forth options exercised by the Registrant's chief
executive officer and the Registrant's three other most highly compensated
executive officers during fiscal 1996, and the number and value of all
unexercised options at year end. The value of "in-the-money" options refers to
options having an exercise price which is less than the market price of the
Registrant's stock on June 30, 1996.
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares Acquired June 30, 1996 June 30, 1996
on Exercise Value Exercisable/ Exercisable/
Name Realized Unexercisable Unexercisable
- ---------------------------- --------------- -------- ------------- -------------
Burton J. Meyer - - 1,850,000/0 $15,625/0
Michael J. Moss - - 0/0 $0/0
Allyson D. Laackman - - 125,000/0 $0/0
Philip A. Tanzar - - 25,000/0 $0/0
-31-
Compensation of Directors
Directors are not currently compensated in connection with their duties as
directors, but may be reimbursed for expenses incurred by them.
Executive Employment Contracts
Mr. Meyer's employment agreement, effective July 1, 1994, provides, among
other things, that he serve as the Registrant's President and for a base annual
compensation of $300,000 for a term ending July 1, 1996. In addition to his
base annual compensation, Mr. Meyer is entitled to an incentive bonus if certain
pre-tax earnings levels are achieved, or if such pre-tax earnings levels are not
achieved, Mr. Meyer may receive a discretionary bonus.
In the event that the terms of Mr. Meyer's employment agreement are not
extended by the Registrant, for reasons other than "good cause", on terms
substantially equivalent to the current terms, the Registrant is obligated to
pay Mr. Meyer a severance of $300,000 plus an amount equal to the bonus for the
previous fiscal year.
As a result of the Sale of Assets, Mr. Meyer's employment contract was not
extended. As a settlement of his contract the Board of Directors agreed to pay
Mr. Meyer $316,100 in severance. If Mr. Meyer's position at MINC is terminated
voluntarily or involuntarily prior to July 1, 1997, Mr. Meyer will be entitled
to receive additional severance of $316,100.
Ms. Laackman's employment agreement, effective September 14, 1994, provides,
among other things, that she serve as the Registrant's Chief Financial Officer
and for a base annual compensation of $135,000 for a term ending December 31,
1995. In addition to her base annual compensation, Ms. Laackman is entitled to
a discretionary bonus which may not exceed 100% of her base salary.
Effective July 1, 1995, Ms. Laackman signed another employment agreement
which supersedes the September 14, 1994 agreement. This agreement provides,
among other things, that she serve as the Registrant's Chief Financial Officer
and for a base annual compensation of $135,000 for a term ending June 30, 1996.
In addition to her base annual compensation, Ms. Laackman is entitled to an
annual bonus if certain pre-tax earnings levels are achieved.
In the event that the terms of Ms. Laackman's employment are not extended by
the Registrant, for reasons other than "good cause", on terms substantially
equivalent to the current terms, the Registrant is obligated to pay Ms. Laackman
a severance equal to nine months of base salary. The severance may be reduced
-32-
under certain circumstances. This contract has not yet been extended, however,
Ms. Laackman continues to serve as Chief Financial Officer.
Mr. Tanzar's employment agreement, effective November 1, 1993, provides,
among other things, that he serve as the Registrant's Vice President and General
Counsel and for a base annual compensation of $122,000 for a term ending
December 31, 1995. In addition to his base annual rate of compensation, Mr.
Tanzar is entitled to a guaranteed bonus of $5,000 per annum. However, such
bonus may exceed $5,000 as determined by the President of the Registrant.
Mr. Tanzar's employment agreement, effective December 31, 1995, provides,
among other things, that he serves as the Registrant's Vice President and
General Counsel and for a base annual compensation of $138,200 for a term ending
December 31, 1996. In addition to his base annual rate of compensation, Mr.
Tanzar is entitled to a discretionary bonus.
In the event that the terms of Mr. Tanzar's employment are not extended by
the Registrant for reasons other than "good cause", on terms substantially
equivalent to the current terms, the Registrant is obligated to pay Mr. Tanzar a
severance of $100,000.
Effective July 1, 1996 Mr. Tanzar accepted employment at MINC, thereby
terminating his employment contract with the Registrant. As an inducement for
Mr. Tanzar to accept employment with MINC and as a settlement of his contract,
the Registrant has agreed to pay him up to $100,000 as severance if he is
terminated by MINC prior to January 1, 1999.
Mr. Moss's letter of understanding dated August 4, 1993 provides, among other
things, that he serve as President of Index and for a monthly draw of $20,000
against commissions earned for the term of employment a term ending June 30,
1995. Mr. Moss's agreement was extended, on July 1, 1995, until June 30, 1997.
In the event that the terms of Mr. Moss's letter of understanding are not
renewed under the same general terms or he is terminated without cause, Index is
obligated to pay Mr. Moss any commissions due him for the nine months following
the termination without cause or the expiration and non-renewal of the letter of
understanding. This agreement was terminated when Mr. Moss accepted employment
with MINC on July 1, 1996.
Compensation Committee Interlocks and Insider Participation
Compensation Decisions
The Registrant does not have a compensation committee. Prior to the Sale of
Assets, Mr. Burton J. Meyer, at the time, President and a Director of the
Registrant, participated in the negotiations of employment agreements for
executive officers of the Registrant.
-33-
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth as of August 30, 1996, certain information
regarding the common stock beneficially owned by each present director, the
Registrant's chief executive officer and the Registrant's three other most
highly compensated officers, each person known by the Registrant to own more
than five percent or more of the common stock of the Registrant and all present
officers and directors as a group:
Approximate
Amount and Nature of Percent
Name Beneficial Ownership of Class
- -------------------------- -------------------- ------------
Lee S. Casty (1) (2) (3) 16,164,453 48.07%
Burton J. Meyer(4) (7) (8) 3,571,074 10.07
Joel M. Eidelstein 127,975 .38
George A. Myers 3,666 .01
Allyson D. Laackman (5) 125,000 .37
Michael J. Moss (7) 1,801,063 5.36
Philip A. Tanzar (6) (7) (9) 25,000 .07
All officers and directors
as a group (5 persons) 306,641 .91
(1) Does not give effect to 400,000 shares of Class A Preferred Stock, $1.00
par value, one vote per share, beneficially owned by Mr. Casty and
constituting 100% of the issued and outstanding Class A Preferred Stock of
the Registrant. By giving effect to one vote per share of the Class A
Preferred Stock the percentage of the total number of votes that can be
cast by Mr. Casty will increase.
(2) Mr. Casty may be deemed a parent and promoter of the Registrant as those
terms are defined under the Securities Act of 1933, as amended.
(3) c/o French-American Securities, Inc., 200 West Adams Street, Suite 1500,
Chicago, Illinois 60606.
(4) Includes 1,850,000 exercisable options, of which beneficial ownership can
be acquired.
(5) Includes 125,000 exercisable options, of which beneficial ownership can be
acquired.
(6) Includes 25,000 exercisable options, of which beneficial ownership can be
acquired.
(7) Ceased to be an executive officer effective July 1, 1996.
(8) Resigned as Director effective close of business July 1, 1996.
(9) Resigned as a Director effective October 1, 1996.
-34-
In July, 1994, the Registrant offered to holders of record of its common
stock, the non-transferable right to purchase, at a subscription price of $.02
per share, two-thirds of a share of common stock for each one share of common
stock owned of record on July 15, 1994, by such shareholder ("Rights Offering").
53,799,304 shares of common stock were available in the Rights Offering.
Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer the
Registrant's President and a director and Michael J. Moss, President of Index,
purchased their allocable number of shares in the Rights Offering. In addition,
Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02,
immediately following the expiration of the Rights Offering, the shares of
common stock which were not purchased by other shareholders so that all
53,799,304 shares of common stock available were purchased. The gross proceeds
of the Rights Offering were $1,076,000.
The Registrant, on October 24, 1994, received shareholder approval to amend
its Certificate of Incorporation which resulted in a reverse split of its common
stock, effective November 4, 1994, on a basis whereby each four shares of common
stock was reclassified and changed into one share of common stock having a par
value of $.004.
Item 13 - Certain Transactions
- ------------------------------
Effective November 30, 1985, Mr. Casty, the principal shareholder, loaned
the Registrant $400,000 evidenced by a "satisfactory subordination agreement"
approved by the regulatory authorities to which the Registrant is subject. This
subordinated loan was due to mature on December 1, 1988. On March 5, 1986, the
Registrant amended its Articles of Incorporation to authorize 400,000 shares of
Preferred Stock, par value $1.00 per share, 10% cumulative, all of which
Preferred Stock was thereupon issued to Mr. Casty in satisfaction of such
subordinated loan. The Preferred Stock is redeemable, with cumulative
dividends, at the option of the Registrant under certain circumstances. At June
30, 1996, cumulative dividends in arrears amounted to $413,300. No liability
for these dividends has been recorded as dividends are not payable until
declared. As part of the Merger, the Articles of Incorporation of the
Registrant were amended and the Preferred Stock was redesignated "Class A
Preferred Stock."
In January, 1996, all notes payable due to Mr. Casty aggregating $940,000
were extended to January 31, 1997.
The Registrant, during the year ended June 30, 1996, paid Mr. Casty,
approximately $117,900 in interest on notes payable.
-35-
In August, 1995, Mr. Casty made a $1,000,000 short term advance to the
Registrant. The Registrant repaid the advance in September, 1995.
The Registrant, during the year ended June 30, 1996, earned $53,500 of
interest income on a note receivable from C. Adam, Ltd., a company wholly-owned
by Mr. Casty.
In January, 1996, all notes payable to French-American Securities, Inc., a
company wholly-owned by Mr. Casty, aggregating $4,550,000 were extended to
January 31, 1997.
The Registrant, during the year ended June 30, 1996, paid French-American
Securities, Inc. $570,600 in interest on notes payable.
In January, 1996, all notes payable to Mr. Meyer aggregating $900,000 were
extended to January 31, 1997.
The Registrant during the year ended June 30, 1996 paid Mr. Meyer $112,900
in interest on notes payable.
The Registrant, during the year ended June 30, 1996, paid Mr. Meyer $61,500
for rent of an exchange membership.
-36-
PART IV
-------
Item 14 - Exhibits, Financial Statement Schedules and Reports on
- ----------------------------------------------------------------
Form 8-K
- --------
(a) The following documents are filed as a part of this report:
(1) Financial Statements:
The following financial statements are attached to this Form 10-K
commencing on page 41.
Page
----
Report of Independent Public Accountants 41
Consolidated Statements of Financial Condition
as of June 30, 1996 and 1995 42
Consolidated Statements of Operations for the Years
Ended June 30, 1996, 1995 and 1994 43
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1996, 1995 and
1994 as Restated for the One-For-Four Reverse Split of
Common Stock 44
Consolidated Statements of Changes in Liabilities
Subordinated to Claims of General Creditors for
the Years Ended June 30, 1996, 1995 and 1994 45
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996, 1995 and 1994 46
Notes to Consolidated Financial Statements 48
(2) Schedules
---------
Schedule II - Valuation and qualifying accounts 65
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required or because the required
information is not material or is included in the financial statements or notes
thereto.
-37-
(3) Exhibits
--------
The following exhibits required by Item 601 of Regulation S-K to be filed
herewith are incorporated by reference to previously filed documents:
Exhibit No. Description
----------- -----------
The following exhibits are hereby incorporated by reference
from Form 10-K for the Registrant as filed on September 27,
1993 with the Securities and Exchange Commission:
10.34 Letter of understanding, dated August 4, 1993, between Index
Futures Group, Inc. and Michael Moss.
The following exhibits are hereby incorporated by reference
from Form 10-K for the Registrant as filed on September 28,
1994 with the Securities and Exchange Commission:
3.1 Certificate of Incorporation of 312 Merger Corporation
3.2 By-Laws of 312 Merger Corp.
3.3 Certificate of Ownership and Merger of Jack Carl/312-
Futures, Inc. (an Illinois Corporation) into 312 Merger
Corporation (a Delaware Corporation)
10.35 Employment agreement, dated November 1, 1993, between Jack
Carl/312-Futures, Inc. and Philip A. Tanzar.
10.36 Employment agreement, dated January 7, 1994, between Jack
Carl/312-Futures, Inc. and Anthony J. Pecoraro.
10.37 Employment agreement dated July 1, 1994, between Jack
Carl/312-Futures, Inc. and Burton J. Meyer.
The following exhibits are hereby incorporated by reference
from Form 10-K for the Registrant as filed on September 27,
1995 with the Securities and Exchange Commission:
10.38 Employment agreement, dated September 14, 1994, between Jack
Carl/312-Futures, Inc. and Allyson D. Laackman
-38-
10.39 Employment agreement, dated July 1, 1995, between Jack
Carl/312-Futures, Inc. and Allyson D. Laackman
10.40 Letter containing terms of employment, dated January 27,
1995, between Index Futures Group (UK) Limited and Charles
Romilly
10.41 Letter of understanding, dated July 1, 1995, between Index
Futures Group, Inc. and Michael Moss
The following exhibits are filed herewith:
10.42 Employment agreement, dated December 31, 1995, between Jack
Carl/312-Futures, Inc. and Philip A. Tanzar
10.43 Heads of Agreement, dated July 19, 1995 between Jack
Carl/312-Futures, Inc., Simon Drabble, Graham Wellesley and
Lorenzo Naldini
10.44 Service Agreement, dated July 19, 1995 between Index Forex
Limited and Simon Drabble, Graham Wellesley and Lorenzo
Naldini
11.1 Computation of Earnings per Common Share
17.1 Letter confirming resignation, dated September 26, 1996,
from Burton J. Meyer
17.2 Letter of resignation, dated September 24, 1996, from Philip
A. Tanzar
21.1 Subsidiaries of the Registrant
24.1 Power of Attorney
27 Financial Data Schedule (Edgar Version Only)
99.1 Report on Form 8-K for the Registrant as filed on June 14,
1996 with the Securities and Exchange Commission
(b) Reports on Form 8-K:
The Registrant filed a report on Form 8-K on June 14, 1996, reporting under
item 2, a consummation of a material sale to E.D.& F. Man International
Inc., substantially all of the business of the Registrant's principal
wholly-owned subsidiary, Index Futures Group, Inc.
-39-
EXHIBIT 24.1
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
JACK CARL/312-FUTURES, INC.
- --------------------------------------------------------------------------------
By: /S/ ALLYSON D. LAACKMAN
- --------------------------------------------------------------------------------
Allyson D. Laackman, Chief Financial Officer
Date: September 27, 1996
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Allyson D. Laackman his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign this Form 10-K and all amendments thereto and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/ ALLYSON D. LAACKMAN Chief Financial Officer September 27, 1996
- ----------------------
Allyson D. Laackman
/S/ JOEL M. EIDELSTEIN Director September 27, 1996
- ----------------------
Joel M. Eidelstein
/S/ GEORGE A. MYERS Director September 27, 1996
- ----------------------
George A. Myers
Director
- ----------------------
Philip A. Tanzar
-40-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders of
Jack Carl/312-Futures, Inc.
and Subsidiaries:
We have audited the accompanying consolidated statements of financial condition
of JACK CARL/312-FUTURES, INC. (a Delaware corporation) AND SUBSIDIARIES as of
June 30, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity, changes in liabilities subordinated to claims
of general creditors and cash flows for the years ended June 30, 1996, 1995 and
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jack Carl/312-Futures, Inc. and
Subsidiaries as of June 30, 1996 and 1995, and the results of their operations
and their cash flows for the years ended June 30, 1996, 1995 and 1994, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not a part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states, in all material respects, the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Chicago, Illinois,
September 27, 1996
-41-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 AND 1995
ASSETS
1996 1995
---- ----
Cash $ 1,587,300 $ 1,034,900
Cash segregated or secured under Commodity
Exchange Act 2,009,500 1,181,700
U.S. Government obligations 144,328,800 82,885,600
Other short term investments 28,856,100 -
Deposits with clearing organizations 43,488,500 78,030,700
Warehouse receipts 959,500 1,537,200
Receivables:
Brokers and dealers 2,291,900 9,253,400
Clearing organizations 12,383,200 12,627,900
1996 1995
---- ----
Customers $1,138,400 $1,152,200
Affiliates 1,000 7,300
Other 1,061,800 379,100
Less - Allowance
for doubtful
accounts (409,300) (191,900) 1,791,900 1,346,700
--------- ---------
Investments in and advances to
affiliated partnerships - 39,100
Notes receivable 627,200 633,700
Exchange memberships, at cost (market value
of $960,400 in 1996 and $1,228,100 in 1995 781,300 781,300
Furniture, equipment, and leasehold
improvements, net of accumulated depreciation
and amortization of $2,213,400 in 1996 and
$1,602,800 in 1995 279,500 682,900
Goodwill, net of accumulated amortization of
$4,596,400 in 1996 and $4,054,500 in 1995 - 541,900
Other assets 503,000 355,400
----------- -----------
Total $239,887,700 $190,932,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables:
Clearing organizations $ 165,900 $ 185,900
Customers 216,705,300 168,500,000
Officers and employees 2,865,000 2,221,500
Accounts payable and accrued expenses 3,545,000 4,580,900
Notes payable 6,390,000 6,390,000
----------- -----------
Total 229,671,200 181,878,300
----------- -----------
Liabilities subordinated to claims of
general creditors 4,000,000 1,690,000
----------- -----------
Stockholders' equity:
Class A preferred stock, $1 par value;
10% cumulative, redeemable, 400,000
shares authorized and outstanding 400,000 400,000
Common stock, restated for reverse
split, $.004 par value; 150,000,000 shares
authorized, 33,624,530 and 33,624,532
shares issued and outstanding in 1996
and 1995, respectively 134,500 134,500
Paid-in capital 8,395,300 8,395,300
Retained deficit (2,698,800) (1,565,700)
Cumulative translation adjustment (14,500) -
----------- -----------
Total stockholders' equity 6,216,500 7,364,100
----------- -----------
Total $239,887,700 $190,932,400
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
-42-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
Revenues:
Commissions $30,606,500 $33,665,000 $33,529,100
Interest 7,920,800 7,365,000 3,389,700
Trading gains, net 2,411,400 164,900 330,300
Other 196,200 463,400 316,200
----------- ----------- -----------
Total revenues 41,134,900 41,658,300 37,565,300
----------- ----------- -----------
Expenses:
Commissions, floor brokerage and
clearing costs 16,825,600 18,381,900 19,580,400
Compensation and related benefits 10,536,500 8,948,100 7,605,400
Interest 4,238,900 3,323,000 1,807,700
Communications 2,066,800 1,672,000 1,973,500
Business promotion 2,173,900 1,680,000 1,222,300
Rent and other occupancy costs 1,546,300 1,465,900 1,382,600
Professional and consulting fees 670,400 451,100 897,200
Depreciation 320,800 234,800 254,900
Amortization of goodwill 53,600 53,600 53,600
Doubtful accounts expense (benefit) 140,600 (586,000) 49,100
Other 2,312,200 2,086,100 1,746,300
Restructuring charge, net 1,556,500 - -
----------- ----------- -----------
Total expenses 42,442,100 37,710,500 36,573,000
----------- ----------- -----------
Income (loss) before income taxes (1,307,200) 3,947,800 992,300
Income tax expense (benefit) (174,100) 1,536,200 406,200
----------- ----------- -----------
Net income (loss) (1,133,100) 2,411,600 586,100
Assumed cumulative dividend on Class
A preferred stock (40,000) (40,000) (40,000)
----------- ----------- -----------
Net income (loss) applicable to
common stock $(1,173,100) $ 2,371,600 $ 546,100
=========== =========== ===========
Primary earnings (loss) per share,
restated for reverse split:
Net income (loss) $ (.03) $ .08 $ .03
=========== =========== ===========
Weighted average number of shares
outstanding 33,721,179 30,680,524 20,175,612
=========== =========== ===========
Fully diluted earnings (loss) per
share, restated for reverse split:
Net income (loss) $ (.03) $ .08 $ .03
=========== =========== ===========
Weighted average number of shares
outstanding 33,721,179 30,680,524 20,175,612
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
-43-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK)
Class A Common Stock Cumulative
Preferred ------------ Paid-In Retained Translation
Stock Shares Amount Capital Deficit Adjustment Total
--------- ----------------- ------- -------- ------------ -----
Balance June 30, 1993 $400,000 20,178,239 $80,700 $ 7,377,900 $(4,563,400) $ - $ 3,295,200
Conversion of redeemable
convertible preferred stock - (3,500) - (4,800) - - (4,800)
Net income - - - - 586,100 - 586,100
-------- ---------- ------- ----------- ----------- ----------- ----------
Balance June 30, 1994 400,000 20,174,739 80,700 7,373,100 (3,977,300) - 3,876,500
Issuance of common stock
pursuant to rights offering - 13,449,826 53,800 1,022,200 - - 1,076,000
Repurchase of common stock
pursuant to reverse split - (33) - - - - -
Net income - - - - 2,411,600 - 2,411,600
-------- ---------- ------- ---------- ----------- ----------- -----------
Balance June 30, 1995 400,000 33,624,532 134,500 8,395,300 (1,565,700) - 7,364,100
Repurchase of common
stock pursuant to
reverse split - (2) - - - - -
Net (loss) - - - - (1,133,100) - (1,133,100)
Foreign currency translation - - - - - (14,500) (14,500)
-------- ---------- ------- ---------- ----------- ----------- -----------
Balance June 30, 1996 $400,000 33,624,530 $134,500 $8,395,300 $(2,698,800) $ (14,500) $6,216,500
======== ========== ======== ========== =========== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
-44-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN LIABILITIES
SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Balance, June 30, 1993 $ -
New borrowings 2,000,000
---------
Balance, June 30, 1994 2,000,000
New borrowings 1,190,000
Reissuance 2,000,000
Reductions:
Repayments (1,500,000)
Maturities (2,000,000)
----------
Balance, June 30, 1995 $1,690,000
New borrowings 4,000,000
Maturities (1,690,000)
----------
Balance, June 30, 1996 $4,000,000
==========
The accompanying notes are an integral part of the consolidated
financial statements.
-45-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
------------- ------------- -------------
Cash Flows From Operating Activities:
Net income (loss) $ (1,133,100) $ 2,411,600 $ 586,100
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 374,400 288,400 308,500
Deferred taxes (272,300) 315,600 175,000
Doubtful accounts expense (benefit) 140,600 (586,000) 49,100
Gain on sale of assets - - (8,500)
Equity in net (gain) loss of affiliated partnerships (6,400) 18,700 7,900
Restructuring charge, net 1,556,500 - -
Changes in:
Cash segregated or secured under
Commodity Exchange Act (827,800) 2,098,100 (1,726,700)
U.S. Government obligations (61,443,200) 40,898,300 (19,094,900)
Other short term investments (28,856,100) - -
Deposits with clearing organizations 34,542,200 (25,147,900) (23,442,900)
Warehouse receipts 577,700 (573,500) (234,400)
Receivables 6,620,400 (5,633,200) (6,503,900)
Other assets 92,800 (188,500) 34,900
Payables 48,828,800 (14,577,900) 49,007,500
Accounts payable and accrued expenses (1,699,000) 826,500 1,325,500
------------ ------------ ------------
Cash provided by (used in) operating activities (1,504,500) 150,200 483,200
------------ ------------ ------------
Cash Flows From Investing Activities:
(Increase) decrease in investments in and advances
to affiliated partnerships 45,500 (13,400) 98,000
Decrease in notes receivable 6,500 7,600 30,000
Purchase of exchange membership - (130,000) -
Purchase of furniture, equipment and leasehold
improvements (290,600) (357,800) (227,900)
Rebate from purchase of equipment - 50,000 -
Proceeds from sale of assets - - 8,500
------------ ------------ ------------
Cash (used in) investing activities (238,600) (443,600) (91,400)
------------ ------------ ------------
Cash Flows From Financing Activities:
Increase in short term advance 1,000,000 - -
Repayment of short term advance (1,000,000) - -
Increase in liabilities subordinated
to claims of general creditors 3,000,000 1,190,000 2,000,000
Repayment of liabilities subordinated
to claims of general creditors (690,000) (1,500,000) -
Repayments of notes payable - (1,300,000) (1,925,600)
Conversion of redeemable convertible preferred stock - - (4,800)
Issuance of common stock pursuant to rights offering - 1,076,000 -
------------ ------------ ------------
Cash provided by (used in) financing activities 2,310,000 (534,000) 69,600
----------- ------------ ------------
Effect of exchange rate changes on cash (14,500) - -
----------- ------------ ------------
Increase (decrease) in cash 552,400 (827,400) 461,400
Cash, beginning of period 1,034,900 1,862,300 1,400,900
------------ ------------ ------------
Cash, end of period $ 1,587,300 $ 1,034,900 $ 1,862,300
============ ============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
-46-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Supplemental Schedule of Non Cash Investing
and Financing Activities
1996
Notes payable aggregating $6,390,000 due January 31, 1996 were extended to
January 31, 1997.
In February, 1996, $1,000,000 of a $1,690,000 subordinated loan was
extended to February 24, 1997. The remaining $690,000 was repaid.
1995
Notes payable aggregating $7,590,000, due January 31, 1995 were extended to
January 31, 1996, of which $1,200,000 was subsequently repaid.
In March, 1995 a subordinated loan in the amount of $2,000,000 was extended
to February 28, 1996.
1994
Notes payable aggregating $3,700,600, due July 31, 1993 were extended to
July 31, 1994. A $540,000 note payable due July 31, 1993 was extended to
January 1, 1994 and subsequently extended to January 31, 1994.
A $250,000 note payable due November 1, 1993 was extended to November 1,
1994. Notes payable aggregating $5,000,000 due December 31, 1993 were extended
to January 31, 1994.
In February, 1994, all notes payable due at various dates, were extended to
January 1995.
-47-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 - ORGANIZATION OF JACK CARL/312-FUTURES, INC.
Jack Carl/312-Futures, Inc. ("JC/312") and Subsidiaries, (the "Company"),
engages principally in the business of effecting transactions in futures and
options on futures contracts for the accounts of customers and the operation of
commodity pools. Index Futures Group, Inc. ("Index"), the principal operating
subsidiary of JC/312, is a registered futures commission merchant with the
Commodity Futures Trading Commission ("CFTC"). Another subsidiary of JC/312 is
a registered broker-dealer. Subsequent to June 30, 1996, Index sold,
transferred and assigned substantially all of its brokerage accounts ("Sale of
Assets") to E.D.& F. Man International Inc. ("MINC"). (See Note 19)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of JC/312 and
its wholly-owned subsidiaries, Index, Index Securities, Inc., Jack Carl
Management and Trading, Inc. and Index FX, Ltd. ("Index FX") as well as those of
its majority-owned subsidiary, Stark Research, Inc. All material intercompany
accounts and transactions are eliminated in consolidation. Brokers Resource
Corp., formerly a subsidiary of JC/312, was dissolved in May, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Commission revenues on commodity futures and options transactions and
related commission expenses are recorded on a half-turn basis.
U.S. Government Obligations
U.S. Government obligations are valued at market. The change in unrealized
appreciation on house and customer funds invested in U.S. Government obligations
is reflected in interest income.
-48-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Partnerships
The investments in partnerships are accounted for on the equity method.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the lesser of their useful lives or the
remaining terms of the leases. See Note 19 for the effect of the Sale of Assets
on furniture, equipment and leasehold improvements.
Goodwill
Prior to the Sale of Assets, the excess of cost over estimated fair value
of net assets acquired was reflected as goodwill and was being amortized over
twenty years. Goodwill arose as a result of business combinations which
occurred in 1985 and 1986. As a result of the Sale of Assets, the remaining
goodwill was written off as of June 30, 1996. See Note 19 for further
information.
Customer-Owned Securities
Customer-owned securities are reflected at market value in the consolidated
statements of financial condition. This presentation has no effect on
stockholders' equity. At June 30, 1996 and 1995, the total market value of
customer-owned securities included in the consolidated statements of financial
condition as both assets and liabilities was $46,891,300 and $45,768,800,
respectively.
Income Taxes
Deferred income taxes are provided to reflect the tax effects of timing
differences between financial and tax reporting. The nature of the timing
differences are discussed in Note 12.
Earnings per Share
Earnings per share are computed on the basis of the weighted average number
of shares of common stock outstanding during each year, adjusted for the effect
of common stock equivalents arising from the assumed exercise of stock options,
if dilutive. The
-49-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
earnings per share data has been restated for the November, 1994 one-for-four
reverse split of common stock.
Reclassification
Certain amounts previously reported have been reclassified to conform to
the current method of presentation.
New Pronouncements
The Company is required to adopt Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation",
effective July 1, 1996. This statement requires a fair value based method of
accounting for employee stock options, and establishes disclosure requirements
for stock-based employee compensation arrangements. Management has not yet
calculated the effect of adopting SFAS 123. However, it does not believe that
it will have a material impact on its financial statements.
NOTE 3 - ASSETS SEGREGATED AND SECURED UNDER COMMODITY EXCHANGE
ACT
Under the Commodity Exchange Act, Index is required to segregate all
balances due to customers in connection with transactions in regulated
commodities. In addition, in accordance with CFTC Regulation 30.7, Index is
required to secure all balances due to U.S. customers for activities in foreign
futures or options. Segregated and secured assets included in the consolidated
statements of financial condition at June 30, are as follows:
1996 1995
------------ ------------
Cash $ 2,009,500 $ 1,181,700
U.S. Government obligations 142,898,700 81,482,000
Deposits with clearing
organizations 37,464,000 69,531,900
Receivables from clearing
organizations, net 12,223,000 12,043,300
Receivables from brokers and dealers 1,879,000 8,436,200
Warehouse receipts 959,500 1,537,200
------------ ------------
Total segregated and
secured assets $197,433,700 $174,212,300
============ ============
Amount required to be
segregated and secured $189,564,200 $167,730,300
============ ============
-50-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 4 - OTHER SHORT TERM INVESTMENTS
Other short term investments consist of $28,856,100 of time deposits due
July 1, 1996.
NOTE 5 - DEPOSITS WITH CLEARING ORGANIZATIONS
Deposits with clearing organizations, including house and customer funds,
at June 30, are as follows:
1996 1995
----------- -----------
U.S. Government obligations $37,961,600 $75,964,600
Guarantee deposits 1,232,300 1,163,700
Stock in exchange clearing organization
at cost (market value of $1,024,000 in
1996 and $960,000 in 1995) 360,000 360,000
Cash margins 3,934,600 542,400
----------- -----------
Total $43,488,500 $78,030,700
=========== ===========
NOTE 6 - INVESTMENTS IN AND ADVANCES TO AFFILIATED PARTNERSHIPS
Index Management Services, Inc. ("IMSI"), a subsidiary of Index, as a
general partner, invested in commodity pools and was a Co-general partner of
Index Asset Management Partners ("IAMP"), which was a general partner of a
commodity pool. In addition, IMSI was also the sponsor of an exempted Cayman
Islands limited liability company. At June 30, the investment in and advances
to such entities consist of the following:
1996 1995
------- -------
Investment $ - $28,000
Advances - 11,100
------- -------
Total $ - $39,100
======= =======
-51-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 6 - INVESTMENTS IN AND ADVANCES TO AFFILIATED PARTNERSHIPS (Continued)
IMSI was required to maintain minimum net worth and investments in the
commodity pools as defined in the commodity pool partnership agreements. At
June 30, 1995, IMSI was in compliance with those requirements. At June 30, 1996
there were no such requirements. Index provided commodity brokerage services to
the pools at agreed upon rates and IMSI received administrative fees from
certain pools.
NOTE 7 - NOTES PAYABLE
Notes payable at June 30, consist of the following:
1996 1995
---------- ----------
Principal stockholder,
interest at prime plus 4%, due:
January 31, 1997 and January 31, 1996 $ 540,000 $ 540,000
January 31, 1997 and January 31, 1996 400,000 400,000
Affiliates and other related parties,
interest at prime plus 4%, due:
January 31, 1997 and January 31, 1996 2,000,000 2,000,000
January 31, 1997 and January 31, 1996 1,800,000 1,800,000
January 31, 1997 and January 31, 1996 750,000 750,000
January 31, 1997 and January 31, 1996 750,000 750,000
January 31, 1997 and January 31, 1996 150,000 150,000
---------- ----------
Total $6,390,000 $6,390,000
========== ==========
Interest paid on notes payable during the years ended June 30, 1996, 1995
and 1994 was $801,400, $894,100 and $764,000, respectively, substantially all of
which was paid to related parties.
-52-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 7 - NOTES PAYABLE (Continued)
The weighted average interest rates on short-term borrowings outstanding at
June 30, 1996 and 1995 are 11.8% and 12.9%, respectively. Short-term borrowings
include notes payable and liabilities subordinated to claims of general
creditors. The weighted average interest rate was calculated by dividing
interest expense by the related average amount outstanding in June.
At June 30, 1996, all notes payable mature during the year ended June 30,
1997. In September, 1996, $900,000 of notes payable to affiliates and other
related parties were repaid.
NOTE 8 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to claims of general creditors at June 30, consist
of the following:
1996 1995
---------- ----------
Bank, interest at prime plus 3%, due:
February 28, 1996 $ - $1,690,000
September 30, 1996 1,750,000 -
February 26, 1997 1,000,000 -
April 28, 1997 1,250,000 -
---------- ----------
Total $4,000,000 $1,690,000
========== ==========
These liabilities are borrowed in accordance with the terms of a revolving
subordinated debt line totalling $4,000,000. Had any of the remaining funds
been borrowed, during fiscal 1995, Index's regulatory capital would have
increased on a dollar for dollar basis. The full amount of the borrowing was
repaid in August, 1996 and the line was cancelled.
Interest expense on liabilities subordinated to claims of general creditors
during the years ended June 30, 1996, 1995, and 1994 was $352,000, $234,100 and
$54,400, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
Rights Offering
In July, 1994, the Company offered to its common stockholders the non-
transferable right to purchase, at a subscription price of $.02 per share, two-
thirds of a share of common stock for each one share of common stock owned of
record on July 15, 1994. 53,799,304 shares of common stock were available and
purchased in the Rights Offering. The gross proceeds of the Rights Offering
were $1,076,000.
-53-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
Class A Preferred Stock
The Company has issued 400,000 shares of Class A preferred stock, 10%
cumulative, to its principal stockholder. The shares are redeemable at par,
with accumulated dividends, at the option of the Company. At June 30, 1996,
cumulative dividends in arrears amounted to $413,300 or $1.03 per share. No
liability for these dividends has been recorded as dividends are not payable
until declared.
Common Stock
Effective at the close of business November 4, 1994, the Company effected a
one-for-four reverse split of its common stock, par value $.001. Each four
shares of such common stock were reclassified and changed into one share of
common stock having a par value of $.004. Pursuant to the reverse split, the
Company is obligated to pay any holder of fractional shares resulting from the
reverse split $.05 per share of common stock up to a maximum of $.15 for three
shares. At the close of business on November 4, 1994, the outstanding shares of
common stock were reduced to approximately 33,624,565 shares from 134,498,260
shares before the reverse split. As the result of the repurchase of fractional
shares, there are outstanding as of June 30, 1996, 33,624,530 shares of common
stock.
All outstanding share, earnings per share and weighted average information
has been restated to reflect the one-for-four reverse split of common stock.
Stock Option Plan
In March, 1986, the Company adopted an incentive stock option plan
reserving 500,000 shares of common stock. In December, 1990, the Company
granted options for 410,000 shares at the then market price exercisable through
December, 2000. The Company also has granted options other than in accordance
with the March 1986 incentive stock option plan.
In January, 1995, the Company granted to two officers options totalling
250,000 shares of common stock exercisable from January 3, 1995 until the
termination of their respective agreements. On June 30, 1995, options granted
in May, 1994 expired and options for 500,000 shares of common stock were
-54-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
forfeited. The following summarizes, after restatement for the November 4, 1994
one-for-four reverse stock split, all outstanding options at June 30, 1996.
Shares Shares Shares Shares Shares
Granted Price Exercisable Forfeited Cancelled Remaining
------- ----- ----------- --------- --------- ---------
Dec.
1990 410,000 $.60 317,500 72,969 19,531 317,500
Feb.
1992 125,000 $.25 125,000 - - 125,000
May
1992 75,000 $.60 50,000 25,000 - 50,000
Sept.
1992 125,000 $.375 125,000 - - 125,000
Feb.
1994 1,250,000 $.24 1,250,000 - - 1,250,000
Jan.
1995 250,000 $.125 250,000 - - 250,000
--------- --------- ------- ------ ---------
Total 2,235,000 2,117,500 97,969 19,531 2,117,500
========= ========= ======= ====== =========
NOTE 10 - RELATED PARTY TRANSACTIONS
A note receivable in the amount of $627,200 arose in connection with
advances made by the Company to an affiliated entity. These demand receivables
were converted into a demand note bearing interest at 8% and was subsequently
changed to the prime rate of interest. The Company earned $53,500, $52,400, and
$39,000 of interest income on this note during the years ended June 30, 1996,
1995 and 1994, respectively.
The Company rents from an officer and director, an exchange membership
having a market value at June 30, 1996 of approximately $525,000. Rent expense
for the years ended June 30, 1996, 1995 and 1994 was $61,500, $64,000, and
$49,200, respectively.
-55-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 10 - RELATED PARTY TRANSACTIONS (Continued)
Certain exchange memberships owned by officers and others, having an
aggregate market value of $4,870,000 have been pledged to various exchange
clearinghouses or corporations on behalf of the Company and may be used by them
under certain circumstances to fulfill the Company's obligations to those
clearinghouses or corporations. These exchange memberships are not included in
the Company's consolidated statements of financial condition. The Company in the
ordinary course of business, guarantees certain loans which are secured by
exchange memberships owned by an individual who is an officer and director, and
by the principal shareholder.
The Company receives funds, in the form of loans, from its principal
shareholder, an affiliated company and an officer and director of the Company.
See Note 7 for the terms and balances at June 30, 1996 and 1995.
In August, 1995, the principal stockholder made a $1,000,000 short term
advance to the Company. The Company repaid the advance in September, 1995.
Pursuant to the Rights Offering, the principal shareholder, the president
of the Company and the president of Index, immediately following the expiration
of the Rights Offering, purchased, in addition to their allocable number of
shares in the Rights Offering, 9,768,516, 4,884,259 and 4,884,259 shares,
respectively, of the Registrant's common stock at the subscription price of $.02
per share. Such shares were the shares not purchased by other shareholders
during the Rights Offering.
NOTE 11 - SALE OF BRC ASSETS
In January, 1993, Brokers Resource Corp. ("BRC"), at the time a wholly-
owned subsidiary of Index and until it was dissolved in May, 1996, a wholly-
owned subsidiary of the Company, sold the majority of its guaranteed introducing
broker business to an unrelated entity in return for a portion of future
earnings on such business through January 15, 1995. No gain was recognized at
the date of the sale due to the uncertainty of future earnings. During the years
ended June 30, 1995 and 1994, the Company earned $481,900, and $982,000,
respectively, from the transaction, which is included in commission income. The
revenue stream from this transaction ended effective January 15, 1995.
-56-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 12-INCOME TAXES
The provision for Federal income taxes for each of the years ended June 30,
is as follows:
1996 1995 1994
---------- ---------- ----------
Current $ 98,200 $1,220,600 $ 581,200
Deferred (272,300) 315,600 (175,000)
---------- ---------- ----------
Total provision $(174,100) $1,536,200 $ 406,200
========== ========== ==========
State income tax expense is immaterial for the years ended June 30, 1996,
1995 and 1994.
Reconciliation of the total provision for income taxes to the Federal
statutory rate for the years ended June 30, is as follows:
1996 1995 1994
---- ---- ----
Amount % Amount % Amount %
----------------- -------------- --------------
At Federal
statutory rate $ (444,400) 34.0 $1,342,300 34.0 $337,400 34.0
Amortization of
goodwill 184,300 (14.1) 18,200 .5 18,200 1.8
Non-taxable
translation gain (10,600) .8 - - - -
Additional tax due IRS
for 1987-1989
settlement 30,300 (2.3) 49,500 1.2 - -
Non-deductible travel
and entertainment 18,000 (1.4) 8,600 .2 4,000 .4
Non-deductible loss
of majority-owned
subsidiary 6,000 (.5) 41,200 1.0 40,500 4.1
Additional provision
for current and
deferred taxes 32,500 (2.4) 8,800 .9 - -
Penalties - - 45,100 .5 - -
Other, net 9,800 (.8) 22,500 .6 6,100 .6
-------- ----- -------- ---- ------- ----
Net amounts $ (174,100) 13.3 $1,536,200 38.9 $406,200 40.9
========= ==== ========= ==== ======= ====
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes. Under this standard,
deferred tax is recognized using the liability method, whereby tax rates are
applied to cumulative temporary differences based on when and how they are
expected to
-57-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 12 - INCOME TAXES (Continued)
affect the tax return. Deferred tax assets and liabilities are
adjusted for tax rate changes. The primary components of the Company's deferred
tax assets and liabilities are as follows:
June 30, June 30,
1996 1995
-------- --------
Deferred income tax assets:
Bad debt reserve $ 38,600 66,100
Book and tax depreciation
difference 235,800 67,500
Commission accrual 37,500 -
Bonus accrual 4,400 65,400
Accrued legal expense - 40,800
-------- ---------
Total deferred tax assets $316,300 $ 239,800
-------- ---------
Deferred income tax liabilities:
Unrealized gain on U.S.
Government obligations $ (4,500) $(135,900)
Partnership income (34,900) (26,200)
Prepaid rent (4,900) (18,100)
1987-1989 audit adjustment - (61,300)
Other, net (2,800) (1,400)
-------- ---------
Total deferred tax liabilities $(47,100) $(242,900)
-------- ---------
Net deferred tax assets
(liabilities) $269,200 $ (3,100)
======== =========
No valuation allowance has been provided as management believes deferred
tax assets are realizable.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company has a noncancellable lease for office space which expires in
the year 2002. Minimum annual rentals, excluding escalations and increases in
operating expenses and taxes, are as follows:
Year Ending June 30, Amount
-------------------- ---------
1997 $ 283,900
1998 350,500
1999 362,300
2000 374,000
2001 and thereafter 849,900
---------
Total $2,220,600
=========
-58-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
Other office space leases the Company had at June 30, 1996 were transferred
to MINC, effective July 1, 1996, and have not been included in the above
amounts.
As a result of the Sale of Assets, if certain conditions occur over the
next two years, the Company may be subject to additional severance payments of
up to $517,400.
The Company has guaranteed performance under the Commodity Exchange Act of
certain introducing brokers with respect to their customer accounts. These
introducing broker guarantees were transferred to MINC effective July 1, 1996.
Index and BRC issued a limited indemnification agreement to the purchaser
of the BRC business (see Note 11). This agreement covers potential customer
claims arising from activity prior to the sale. No such claims are currently
outstanding.
A similar limited indemnification agreement was issued to MINC related to
the Sale of Assets. No claims are currently pending. See Note 19.
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK
Prior to the Sale of Assets, the Company, through Index, was in the
business of clearing and executing futures contracts and options on futures
contracts for the accounts of its customers. As such, Index guaranteed to the
respective clearinghouses its customers' performance under these contracts. To
reduce its risk, Index required its customers to meet, at a minimum, the margin
requirement established by each of the exchanges at which the contract was
traded. This margin was a good faith deposit from the customer which reduced the
risk to Index of failure on behalf of the customer to fulfill any obligation
under the contract. To minimize its exposure to risk of loss due to market
variation, Index adjusted these margin requirements, as needed, due to daily
fluctuations in the values of the underlying positions. If necessary, certain
positions may have been liquidated to satisfy resulting changes in margin
requirements. Management believes that the margin deposits held at June 30,
1996, were adequate to minimize the risk of material loss which could be created
by the positions held at that time.
To facilitate small orders from customers, the Company entered into
proprietary positions at the MidAmerica Commodity Exchange and offsets these
positions at the Chicago Board of Trade and the Chicago Mercantile Exchange,
thereby assuming no market risk. At June 30, 1996, Index held proprietary long
financial futures positions with an aggregate notional value of $165,130,900 and
proprietary short financial futures positions with an aggregate notional value
of $165,130,900. At June 30, 1995, Index held proprietary long financial futures
positions and
-59-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK (Continued)
foreign currency forward contracts with an aggregate notional value of
$223,616,200 and proprietary short financial futures positions and foreign
currency forward contracts with an aggregate notional value of $243,566,100.
The exchange upon which financial futures and options on futures contracts
are traded acts as the counterparty and, accordingly, bears the risk of
performance. At June 30, 1996 Index's open financial contracts were transacted
at the Chicago Mercantile Exchange, Chicago Board of Trade, and MidAmerican
Commodity Exchange. At June 30, 1996, Index held no foreign currency forward
contracts. At June 30, 1995, Index's open financial contracts were transacted at
the Chicago Mercantile Exchange, Chicago Board of Trade, Commodity Exchange,
Inc. and MidAmerican Commodity Exchange. At June 30, 1995, foreign currency
forward contracts were transacted at DAIWA Securities America, Inc. and Refco,
Inc.
Index FX conducts business for its customers in foreign currencies on the
spot market in which trades generally settle on the next business day. Index FX
offsets its customer positions to manage its currency risk. It also requires
certain customers to post margin deposits. Management believes that with the
trades settling the next business day and the margin policy it employs, its
credit risk is reduced substantially. At June 30, 1996, Index FX held long
foreign currency positions with an aggregate notional value of $2,101,661,100
and short foreign currency positions with an aggregate notional value of
$2,101,662,400.
At June 30, 1996, the Index FX foreign currency business was transacted
with several international financial institutions.
NOTE 15 - LITIGATION
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate liability,
if any, resulting from any pending or threatened action or proceedings will not
have a material effect on the financial position or results of operations of the
Company.
-60-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 15 - LITIGATION (Continued)
The Company, in October, 1994 settled an Internal Revenue Service
assessment which resulted from the review of its calendar year 1990 customer
income tax withholding filings. The settlement did not materially affect the
financial position or the operations of the Company.
The Company was defending against an arbitration filed by a former client
to recover damages of $1,000,000 alleging misrepresentation of risk and
unauthorized trading. The client's actual losses were approximately $850,000. In
July, 1996, an arbitration panel entered an award of no damages for the
claimant.
In April, 1994, Index without admitting or denying the allegations, paid
$100,000 to the CFTC, settling an administrative action filed on September 29,
1992. In a related action, the equity receiver of an alleged commodity pool
operator brought an action to recover losses of approximately $600,000, alleging
various theories such as constructive trust, negligence, breach of fiduciary
duty and conversion. On May 29, 1996, the district judge dismissed the
complaint in its entirety. Supplemental Plaintiff filed a Notice of Appeal with
the U.S. Court of Appeals for the Seventh Circuit on June 28, 1996. The Seventh
Circuit has yet to rule on whether this case may be appealed.
Index defended a complaint filed by former partners of a general
partnership which cleared its trades at Index. The plaintiff alleged that the
general partner, a co-defendant, defrauded them by failing to disclose risks and
misrepresenting account performance. The Plaintiffs' actual losses were
approximately $157,000. The case was settled in November, 1995 for $25,000.
A former officer of Index whose employment was terminated as a result of
the Sale of Assets has rejected Index's severance payment offer. The officer has
made a demand for $500,000, and has threatened litigation, if a satisfactory
offer of settlement is not made. The Company believes that its original
severance offer was reasonable and the officer's claims are without merit.
NOTE 16 - CAPITAL REQUIREMENTS
Index is subject to the minimum capital requirements adopted and
administered by the CFTC and by certain exchanges of which Index is a member. As
of June 30, 1996, adjusted net capital, as
-61-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 16 - CAPITAL REQUIREMENTS (Continued)
defined, of approximately $12,038,300 is approximately $5,216,200 in excess of
the minimum required under the regulations of the CFTC and exchanges. The net
capital requirements may effectively restrict the payment of cash dividends and
the repayment of subordinated borrowings.
At the request of certain of its non-regulated customers trading in the
cash markets, Index transferred funds to its affiliate Index FX. Upon
clarification of the net capital rules, it was determined that the receivable
from Index FX could not accurately be classified as a current asset. As a
result, Index was under early warning and minimum capital requirements and as of
March 31, 1996 it had an adjusted net capital, as defined, of $4,406,800 which
was $11,272,800 less than the minimum required under the regulations of the CFTC
and exchanges. Index informed the Chicago Mercantile Exchange and the CFTC of
the capital deficiency. Index took immediate action to correct the deficiency
and as of April 23, 1996, was fully in compliance with minimum capital
requirements.
A subsidiary of JC/312 is subject to the Uniform Net Capital Rule adopted
and administered by the Securities and Exchange Commission. At June 30, 1996,
the subsidiary is in compliance with those requirements.
NOTE 17 - NASDAQ LISTING
On August 17, 1994, the Company was advised by NASDAQ that the securities
of the Company were delisted from the NASDAQ SmallCap Market effective August
18, 1994. The Company appealed NASDAQ's decision and secured additional market
makers. On December 7, 1994, the Company's common stock resumed trading on the
NASDAQ SmallCap Market.
NOTE 18 - CASH FLOWS
For purposes of reporting cash flows, cash does not include segregated or
secured cash, as defined in the Commodity Exchange Act. Interest paid during the
years ended June 30, 1996, 1995 and 1994 amounted to $4,043,800, $3,194,300 and
$1,706,300, respectively. The Company made income tax payments in the amount of
$1,100,000, $444,600 and $185,000 during the years ended June 30, 1996, 1995 and
1994, respectively.
NOTE 19 - SUBSEQUENT EVENT - SALE OF ASSETS
On May 31, 1996, an agreement was reached to sell, transfer and assign to
MINC substantially all of the brokerage accounts maintained by Index,
-62-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 19 - SUBSEQUENT EVENT - SALE OF ASSETS (Continued)
together with all positions, securities and other assets held in or for such
accounts and other agreed-upon assets used in the conduct of the brokerage
activities. MINC is a unit of E.D.& F. Man Group, plc, a London-based
international trading and finance conglomerate. This sale was completed as of
July 1, 1996. Shortly thereafter, Index ceased being a clearing member at all
exchanges, though it remains a registered futures commission merchant.
The purchase price payable by MINC in connection with this transaction is
based on a percentage of the net income (as defined in the sales agreement) of
the transferred activities during the sixty-six month period following the sale.
As the purchase price is contingent upon the future earnings of the customer
accounts sold, none of which is guaranteed, no gain on the sale was reflected in
the financial statements for the year ended June 30, 1996. Rather, income will
be recognized as earned over the next five and one-half years. A condition of
the sales agreement required the principal shareholder to sign a non-competition
agreement. As compensation for providing such an agreement, a portion of the
purchase price will be allocated to the principal shareholder and recorded by
the Company concurrently with its recognition of income as described above.
Management does not believe this amount will be significant.
A net pre-tax, restructuring charge of $1,556,500, related to the sale, was
reflected in the income statement for fiscal year 1996. Additionally, a
restructuring gain of $664,000 will be reflected in income in fiscal 1997. These
amounts consisted of the following:
Write-off of remaining goodwill $ (488,400)
Accrue employee benefits related to
terminated and transferred employees (643,700)
Revalue of furniture, fixtures and equipment (373,100)
Accrue lease obligation (154,600)
Accrue legal expenses related to the sale (110,000)
Write-off printing stock (97,100)
Reduce bonus accrual, related to terminated
and transferred employees 195,000
Write-off deferred rent for assumed lease 65,200
Reduce business promotion accruals 50,200
-----------
Total restructuring charge in fiscal 1996 $(1,556,500)
===========
Gain on sale of Board of Trade Clearing
Corporation stock, July, 1996 $ 664,000
===========
-63-
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 19 - SUBSEQUENT EVENT - SALE OF ASSETS (Continued)
It is anticipated that the exchange memberships Index currently holds will
be liquidated in fiscal 1997 at close to their current market value, which would
result in a pre-tax gain of approximately $149,000.
In addition, in conjunction with the sale, the Company issued a limited
indemnification agreement to MINC. The agreement covers potential customer
claims arising from activity prior to the sale.
-64-
SCHEDULE II
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Additions
----------------------
Charged to
(Benefits Charged
Balance at Against) to Other Balance
Beginning Costs and Accounts Deductions at End of
Description of Period Expenses (Describe) (Describe) Period
- ------------- ---------- --------- ---------- ------------ ---------
Allowance for
doubtful
accounts
For the year
ended June 30,
1996: $191,900 $140,600 $144,800(b) $ (68,000)(a) $409,300
For the year
ended June 30,
1995: $506,600 $(586,000) $323,900(b) $ (52,600)(a) $191,900
For the year
ended June 30,
1994: $613,200 $ 49,100 $ - $(155,700)(a) $506,600
(a) Uncollected receivables written off.
(b) Collection of receivables previously written off.
-65-
Exhibit Index
-------------
Certain exhibits to this report on Form 10-K have been incorporated by
reference. For a list of these exhibits, see Item 14 hereof.
Page In
Sequentially
Numbered System
Where Found
-----------------
Exhibit No. Description
- ----------- -----------
The following exhibits are filed herewith:
10.42 Employment agreement, dated December 31,
1995, between Jack Carl/312-Futures,
Inc. and Philip A. Tanzar 70
10.43 Heads of Agreement, dated July 19, 1995
between Jack Carl/312-Futures, Inc.,
Simon Drabble, Graham Wellesley and
Lorenzo Naldini 78
10.44 Service Agreement, dated July 19, 1995
between Index Forex Limited and
Simon Drabble, Graham Wellesley and
Lorenzo Naldini 82
11.1 Computation of Earnings
Per Common Share 67
17.1 Letter confirming resignation, dated September
26, 1996, from Burton J. Meyer 93
17.2 Letter of resignation, dated September
24, 1996, from Philip A. Tanzar 94
21.1 Subsidiaries of the Registrant 69
24.1 Power of Attorney 40
99.1 Report on Form 8-K for the Registrant
as filed on June 14, 1996 with the
Securities and Exchange Commission 95
-66-