UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________
Commission File # 0-15187
Jack Carl/312-Futures, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3399452
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 West Adams Street, Suite 1500, Chicago, Illinois 60606
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(312) 407-5726
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
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.
X Yes No
----- ____
As of the date of this report, the issuer had outstanding 33,624,530 shares of
common stock, $.004 par value per share.
This is page 1 of 30 sequentially numbered pages.
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Immediately following this page, the following financial information of the
Registrant is filed as part of this Report.
PAGE
----
Consolidated statements of financial condition as of December 31, 1996 and
June 30, 1996............................................................ 3
Consolidated statements of operations for the three months and six months
ended December 31, 1996 and 1995......................................... 4-5
Consolidated statement of changes in stockholders' equity for the six
months ended December 31, 1996........................................... 6
Consolidated statements of changes in liabilities subordinated to claims
of general creditors for the six months ended December 31, 1996 and
1995..................................................................... 7
Consolidated statements of cash flows for the six months ended December
31, 1996 and 1995........................................................ 8
Notes to consolidated financial statements................................ 9
2
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND JUNE 30, 1996
JUNE 30,
ASSETS DECEMBER 31, 1996 1996
------ ----------------- ------------
(UNAUDITED) (AUDITED)
Cash............................................ $ 3,110,200 $ 1,587,300
Cash segregated or secured under Commodity
Exchange Act................................... 56,300 2,009,500
U.S. Government obligations..................... 4,187,800 144,328,800
Other short term investments.................... 36,419,300 28,856,100
Deposits with clearing organizations............ 2,216,800 43,488,500
Warehouse receipts.............................. -- 959,500
Receivables:
Brokers and dealers........................... 2,800,100 2,291,900
Clearing organizations........................ -- 12,383,200
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------ -------------
Customers &
counterparties....... $1,224,000 $1,138,400
Affiliates............ 1,900 1,000
Other................. 1,386,400 1,061,800
Less--Allowance for
doubtful accounts.... (415,800) (409,300) 2,196,500 1,791,900
---------- ----------
Notes receivable......................................... 623,100 627,200
Exchange memberships, at lower of cost or market (cost of
$527,900 at December 31, 1996 and market value of
$960,400 at June 30, 1996).............................. 347,800 781,300
Furniture, equipment, and leasehold improvements, net of
accumulated depreciation and amortization of $2,261,000
and $2,213,400 at December 31, 1996 and June 30, 1996,
respectively............................................ 179,500 279,500
Other assets............................................. 141,600 503,000
----------- ------------
Total................................................ $52,279,000 $239,887,700
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Bank overdrafts.......................................... $ 114,000 $ --
Payables:
Clearing organizations................................. -- 165,900
Brokers and Dealers.................................... 205,800 --
Customers & counterparties............................. 38,245,200 216,705,300
Officers and employees................................. -- 2,865,000
Accounts payable and accrued expenses.................... 1,426,000 3,545,000
Notes payable............................................ 5,490,000 6,390,000
----------- ------------
Total................................................ 45,481,000 29,671,200
----------- ------------
Liabilities subordinated to claims of general creditors.. -- 4,000,000
----------- ------------
Stockholders' equity:
Class A preferred stock, $1 par value; 10% cumulative,
redeemable, 400,000 shares authorized and outstanding. 400,000 400,000
Common stock, $.004 par value; 150,000,000 shares
authorized, 33,624,530 shares issued and outstanding
at December 31, 1996 and June 30, 1996................ 134,500 134,500
Paid-in capital........................................ 8,395,300 8,395,300
Retained deficit....................................... (2,086,100) (2,698,800)
Cumulative translation adjustment...................... (45,700) (14,500)
----------- ------------
Total stockholders' equity........................... 6,798,000 6,216,500
----------- ------------
Total.............................................. $52,279,000 $239,887,700
=========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
3
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
------------------------
1996 1995
----------- -----------
Revenues:
Commissions........................................ $ 71,500 $ 7,149,600
Interest........................................... 669,200 1,859,300
Trading gains, net................................. 1,872,600 269,500
Other.............................................. 614,900 42,900
----------- -----------
Total revenues................................... 3,228,200 9,321,300
----------- -----------
Expenses:
Commission, floor brokerage and clearing costs..... 153,100 3,849,300
Compensation and related benefits.................. 1,104,300 2,532,000
Communications..................................... 180,700 478,300
Interest........................................... 595,600 984,800
Rent and other occupancy costs..................... 80,700 407,400
Business promotion................................. 93,200 505,100
Professional and consulting fees................... 157,300 130,500
Depreciation....................................... 25,200 83,700
Amortization of goodwill........................... -- 13,400
Other.............................................. 332,400 572,600
----------- -----------
Total expenses................................... 2,722,500 9,557,100
----------- -----------
Income (loss) before income taxes.................... 505,700 (235,800)
Income tax expense................................... 158,400 71,800
----------- -----------
Net income (loss).................................... 347,300 (307,600)
Assumed cumulative dividend on Class A preferred
stock............................................... (10,000) (10,000)
----------- -----------
Net income (loss) applicable to common stock......... $ 337,300 $ (317,600)
=========== ===========
Primary earnings per common share:
Net income (loss).................................. $ .01 $ (.01)
=========== ===========
Weighted average number of common shares
outstanding....................................... 33,624,530 33,728,188
=========== ===========
Fully diluted earnings per common share:
Net income (loss).................................. $ .01 $ (.01)
=========== ===========
Weighted average number of common shares
outstanding....................................... 33,624,530 33,728,188
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1996 1995
----------- -----------
Revenues:
Commissions........................................ $ 132,800 $14,952,800
Interest........................................... 1,201,800 3,678,200
Trading gains, net................................. 2,830,000 324,600
Other.............................................. 1,648,500 84,100
----------- -----------
Total revenues................................... 5,813,100 19,039,700
----------- -----------
Expenses:
Commission, floor brokerage and clearing costs..... 208,000 8,103,700
Compensation and related benefits.................. 2,032,200 5,057,400
Communications..................................... 354,900 906,900
Interest........................................... 1,070,500 1,896,600
Rent and other occupancy costs..................... 232,900 787,900
Business promotion................................. 180,700 983,500
Professional and consulting fees................... 312,400 329,000
Depreciation....................................... 47,200 153,500
Amortization of goodwill........................... -- 26,800
Other.............................................. 451,000 1,040,500
----------- -----------
Total expenses................................... 4,889,800 19,285,800
----------- -----------
Income (loss) before income taxes.................... 923,300 (246,100)
Income tax expense................................... 310,600 116,200
----------- -----------
Net income (loss).................................... 612,700 (362,300)
Assumed cumulative dividend on Class A preferred
stock............................................... (20,000) (20,000)
----------- -----------
Net income (loss) applicable to common stock......... $ 592,700 $ (382,300)
----------- -----------
Primary earnings (loss) per common share:
Net income (loss).................................. $ .02 $ (.01)
=========== ===========
Weighted average number of common shares
outstanding....................................... 33,624,530 33,734,183
=========== ===========
Fully diluted earnings (loss) per common share:
Net income (loss).................................. $ .02 $ (.01)
=========== ===========
Weighted average number of common shares
outstanding....................................... 33,624,530 33,734,183
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
5
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
COMMON STOCK
-------------------
CLASS A CUMULATIVE
PREFERRED PAID-IN RETAINED TRANSLATION
STOCK SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
--------- ---------- -------- ---------- ----------- ----------- ---------
Balance,
July 1, 1996........... $400,000 33,624,530 $134,500 $8,395,300 $(2,698,800) $(14,500) 6,216,500
Repurchase of common
stock pursuant to
reverse split.......... -- -- -- -- -- -- --
Net income.............. -- -- -- -- 612,700 -- 612,700
Foreign currency
translation............ -- -- -- -- -- (31,200) (31,200)
-------- ---------- -------- ---------- ----------- -------- ---------
Balance, December 31,
1996................... $400,000 33,624,530 $134,500 $8,395,300 $(2,086,100) $(45,700) 6,798,000
======== ========== ======== ========== =========== ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
6
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN LIABILITIES
SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
-----------------------
1996 1995
----------- ----------
Liabilities subordinated to claims of general
creditors, at beginning of period..................... $ 4,000,000 $1,690,000
New borrowings......................................... -- 1,750,000
Repayments............................................. (4,000,000) --
----------- ----------
Liabilities subordinated to claims of general
creditors, at end of period........................... $ -- $3,440,000
=========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
7
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
-------------------------
1996 1995
------------ -----------
Cash Flows From Operating Activities:
Net income (loss)................................. $ 612,700 $ (362,300)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................... 47,200 180,300
Deferred taxes.................................. 7,600 (120,900)
Doubtful accounts benefit....................... 6,500 (69,000)
Equity in net gain of affiliated partnerships... -- (8,900)
Gain on sale of exchange membership............. (234,900) --
Loss on the sale of exchange memberships........ 22,300 --
Writedown of Exchange membership................ 180,100 --
Gain on the sale of clearing corporation stock.. (664,000) --
Changes in:
Cash segregated or secured under Commodity
Exchange Act, net................................ 1,953,200 (3,786,800)
U.S. Government obligations....................... 140,141,000 (29,605,800)
Other short term investments...................... (7,563,200) (1,517,500)
Deposits with clearing organizations.............. 40,911,700 16,418,600
Warehouse receipts................................ 959,500 606,900
Receivables....................................... 11,463,900 (641,600)
Other assets...................................... 353,800 106,100
Payables.......................................... (181,285,200) 21,929,600
Accounts payable and accrued expenses............. (2,119,000) (1,787,400)
------------ -----------
Cash provided by (used in) operating activities. 4,793,200 1,341,300
------------ -----------
Cash Flows From Investing Activities:
Investments in and advances to affiliated
partnerships, net................................ -- 1,400
Decrease in notes receivable...................... 4,100 2,400
Purchase of furniture, equipment and leasehold
improvements..................................... (63,100) (226,800)
Proceeds from the sale of exchange memberships.... 466,000 --
Proceeds from the sale of clearing corporation
stock............................................ 1,024,000 --
Proceeds from the sale of furniture and equipment. 115,900 --
------------ -----------
Cash provided by (used in) investing activities. 1,546,900 (223,000)
------------ -----------
Cash Flows From Financing Activities:
Increase in short term advance.................... -- 1,000,000
Repayment of short term advance................... -- (1,000,000)
Repayment of notes payable........................ (900,000) --
Increase in liabilities subordinated to claims of
general creditors................................ -- 1,750,000
Repayment of liabilities subordinated to claims of
general creditors................................ (4,000,000) --
------------ -----------
Cash provided by (used in) financing activities. (4,900,000) 1,750,000
------------ -----------
Effect of exchange rate changes on cash............. (31,200) (14,500)
------------ -----------
Increase in cash.................................... 1,408,900 2,853,800
Cash, beginning of period........................... 1,587,300 1,034,900
------------ -----------
Cash (net of overdrafts), end of period............. $ 2,996,200 $ 3,888,700
============ ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
SIX MONTHS ENDED DECEMBER 31, 1996
(NONE)
SIX MONTHS ENDED DECEMBER 31, 1995
(NONE)
The accompanying notes are an integral part of the consolidated financial
statements.
8
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
NOTE 1--ORGANIZATION OF JACK CARL/312-FUTURES, INC.
Jack Carl/312-Futures, Inc. ("JC/312") and Subsidiaries, (the "Company"),
until July 1, 1996, engaged 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"), until July 1, 1996, was the principal operating subsidiary of
JC/312. Effective July 1, 1996, Index sold, transferred and assigned
substantially all of its brokerage accounts ("Sale of Assets") to E.D. & F.
Man International Inc. ("MINC"). Index ceased being a registered futures
commission merchant with the Commodity Futures Trading Commission ("CFTC") in
December, 1996. IFX, Ltd., (formerly Index FX, Ltd. "IFX"), a British
corporation and a subsidiary of JC/312, continues to conduct foreign exchange
business as a registrant of the Securities and Futures Authority in London.
Another subsidiary of JC/312 is a registered broker-dealer.
The results of operations for interim periods are not necessarily indicative
of the results to be expected for the full year.
It is suggested that these financial statements be read in connection with
the consolidated financial statements and notes included in the Report on Form
10-K of the Company for the year ended June 30, 1996.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries as well as those of its majority-owned
subsidiary. All material intercompany accounts and transactions are eliminated
in consolidation. In the opinion of management, all adjustments necessary for
a fair presentation of the interim financial statements have been reflected.
Certain amounts previously reported have been reclassified to conform to the
current method of presentation.
Assets and liabilities of non-U.S. operations are translated into U.S.
dollars at period-end exchange rates. Revenues and expenses are translated
using monthly average exchange rates. The resulting translation adjustment is
reported as a separate component of stockholders' equity. Gains and losses
from non-U.S. transactions are included in results of operations.
NOTE 2--ASSETS SEGREGATED AND SECURED UNDER COMMODITY EXCHANGE ACT
Under the Commodity Exchange Act, as amended, Index was 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 was to secure all balances due to U.S. customers for activities in
foreign futures or options. Effective July 1, 1996, pursuant to the Sale of
Assets, Index transferred all such balances to MINC.
NOTE 3--OTHER SHORT TERM INVESTMENTS
Other short term investments consist of $36,419,300 of time deposits at
December 31, 1996, due at various dates through January 31, 1997, and
$28,856,100 of time deposits at June 30, 1996, due July 1, 1996.
9
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--DEPOSITS WITH CLEARING ORGANIZATIONS
Deposits with clearing organizations are as follows:
DECEMBER 30, JUNE 30,
1996 1996
------------ -----------
U.S. Government obligations..................... $ -- $37,961,600
Guarantee deposits.............................. 2,216,800 1,232,300
Stock in exchange clearing organization at cost
(market value of $1,024,000 at June 30, 1996).. -- 360,000
Cash margins.................................... -- 3,934,600
---------- -----------
Total....................................... $2,216,800 $43,488,500
========== ===========
NOTE 5--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. The total market value of customer-owned securities
included in the consolidated statements of financial condition as both assets
and liabilities at December 31, 1996 and June 30, 1996 is $0 and $48,891,300,
respectively.
NOTE 6--NOTES PAYABLE
Notes payable consist of the following:
DECEMBER 31, JUNE 30,
1996 1996
------------ ----------
Principal stockholder, interest at prime plus
4%, due:
January 31, 1997.............................. $ 540,000 $ 540,000
January 31, 1997.............................. 400,000 400,000
Affiliates and other related parties, interest
at prime plus 4%, due:
January 31, 1997.............................. -- 150,000
January 31, 1997.............................. 2,000,000 2,000,000
January 31, 1997.............................. 1,800,000 1,800,000
January 31, 1997.............................. -- 750,000
January 31, 1997.............................. 750,000 750,000
---------- ----------
Total....................................... $5,490,000 $6,390,000
========== ==========
Interest expense on notes payable, all of which was earned by related
parties, is as follows:
1996 1995
-------- --------
Three months ended December 31......................... $180,400 $204,800
Six months ended December 31........................... $368,100 $410,400
In September, 1996, the Company repaid $900,000 of notes payable to its
former President and a former Director.
Subsequent to December 31, 1996, the Company repaid $940,000 of notes
payable to the principal stockholder. The Company also extended the maturity
of the remaining notes to January 31, 1998.
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.
10
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to claims of general creditors were borrowed in
accordance with the terms of a revolving subordinated debt line totaling
$4,000,000. The full amount of the borrowing was repaid in August, 1996, and
the line was canceled.
Interest expense on liabilities subordinated to claims of general creditors
is as follows:
1996 1995
------- --------
Three months ended December 31........................... $ -- $101,900
Six months ended December 31............................. $38,100 $155,200
NOTE 8--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.
Class A Preferred Stock
The Company had issued 400,000 shares of Class A preferred stock, 10%
cumulative, to its principal stockholder. The shares were redeemable at par,
with accumulated dividends, at the option of the Company. At December 31, 1996,
cumulative dividends in arrears amounted to $433,300 or $1.08 per share. No
liability for these dividends had been recorded as dividends were not payable
until declared.
On January 31, 1997, the Company redeemed and retired the 400,000 issued and
outstanding shares of its Class A preferred stock, all of which were owned by
its principal stockholder. The preferred stock was redeemed at a price equal to
the aggregate par value thereof plus the accrued but undeclared and unpaid
dividends thereon, totaling $836,600. As payment, the Company issued its
principal stockholder a promissory note for $836,600, bearing interest at the
prime rate and maturing on January 31, 1998.
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 December 31, 1996, 33,624,530 shares 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, pursuant to the
incentive stock option plan, 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 November, 1996, the Board of Directors authorized the issuance of
options for 1,250,000 shares of common stock at $.24 per share, terminating
11
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
June 30, 1998. These options replace those that were originally issued in
February, 1994 and terminated upon the former President accepting employment
with MINC.
The following summarizes, after restatement for the November 4, 1994 one-
for-four reverse stock split, all outstanding options at December 31, 1996.
SHARES SHARES SHARES SHARES SHARES
GRANTED PRICE EXERCISABLE FORFEITED CANCELLED REMAINING
--------- ----- ----------- --------- --------- ---------
December 1990........ 410,000 $ .60 25,000 365,469 19,531 25,000
February 1992........ 125,000 $ .25 -- 125,000 -- --
May 1992............. 75,000 $ .60 -- 75,000 -- --
September 1992....... 125,000 $.375 125,000 -- -- 125,000
February 1994........ 1,250,000 $ .24 -- 1,250,000 -- --
January 1995......... 250,000 $.125 -- 250,000 -- --
November 1996........ 1,250,000 $ .24 1,250,000 -- -- 1,250,000
--------- --------- --------- ------ ---------
Total................ 3,485,000 1,400,000 2,065,469 19,531 1,400,000
========= ========= ========= ====== =========
NOTE 9--RELATED PARTY TRANSACTIONS
A note receivable in the amount of $623,100 arose in connection with
advances made by the Company to an affiliated entity. This receivable was
converted into a note bearing interest at 8%, and was subsequently changed to
the prime rate of interest. The Company earned interest income on this note in
the amounts of $12,900 and $13,800 during the three months ended December 31,
1996 and 1995, respectively and $25,800 and $27,600 during the six months
ended December 31, 1996, and 1995, respectively.
The Company, until July 1, 1996, rented, from an officer and a director, an
exchange membership. Rent expense for the three months ended December 31,
1996, and 1995 was $0 and $16,500, respectively, and for the six months ended
December 31, 1996 and 1995 rent expense was $0 and $34,500 respectively.
The Company receives funds, in the form of loans and advances, from its
principal shareholder and an affiliated company. See Note 6 for the terms and
balances at December 31, 1996 and June 30, 1996.
In November, 1996, the Company entered into a one-time inventory financing
transaction with an affiliated Company. The amount financed of $346,100, plus
$22,100 in interest, was repaid to the Company in January, 1997. The interest
is included in other revenue on the Statements of Operations.
NOTE 10--SALE OF ASSETS
On July 1, 1996, Index sold, transferred and assigned to 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. MINC is a
unit of E.D. & F. Man Group, plc, a London-based international trading and
finance conglomerate. Shortly after the sale, Index ceased being a clearing
member at all exchanges, though it remained a registered futures commission
merchant until December, 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 ended June 30, 1996.
Rather, income will be recognized as earned over the next five and one-half
years. A condition of
12
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 may 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.
During the three months and six months ended December 31, 1996, the Company
earned $340,900 and $716,400 respectively from this transaction. Such earnings
are included in other revenue in the Statements of Operations.
Given the Sale of Assets, the Company no longer has a need to own exchange
memberships, and is currently in process of selling them. During the three
months and six months ended December 31, 1996, the Company recorded a $234,900
gain and a $212,600 net gain, respectively, on the sale of certain exchange
memberships. These amounts have been included in other revenue in the
Statements of Operations. The Company has reflected its investment in the
remaining exchange memberships at the lower of cost or market value as of
December 31, 1996, to more closely approximate current liquidation value. As
such, the Company recorded a loss on the write-down of its remaining
memberships of $180,100 during the six months ended December 31, 1996. This
amount is included in other expenses in the Statements of Operations.
NOTE 11--COMMITMENTS AND CONTINGENCIES
The Company has a noncancellable lease for office space which expires in the
year 2002. Minimum annual rental commitments as of December 31, 1996, excluding
escalations and increases in operating expenses and taxes, are as follows:
YEAR ENDING JUNE 30, AMOUNT
-------------------- ----------
1997........................................................... $ 170,300
1998........................................................... 350,500
1999........................................................... 362,300
2000........................................................... 374,000
2001 and thereafter............................................ 849,900
----------
Total...................................................... $2,107,000
==========
The Company has entered into employment agreements which expire at varying
dates through fiscal 1998 with certain of its employees, providing for
aggregate minimum annual payment for the years ending 1997 and 1998 of
approximately $246,200 and $204,500, respectively.
Related to 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 had guaranteed performance under the Commodity Exchange Act of
certain introducing brokers with respect to their customer accounts. These
introducing broker guarantees were terminated or transferred to MINC effective
July 1, 1996.
Index issued a limited indemnification agreement to MINC related to the Sale
of Assets. This agreement covers potential customer claims arising from
activity prior to the sale. No such claims are currently outstanding.
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 action or proceedings will not have a
material effect on the financial position or results of operations of the
Company.
13
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 dismissed the claim.
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
all claims against Index. The Seventh Circuit has rejected the Supplemental
Plaintiff's appeal on procedural grounds, pending a final order from the
district judge.
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, but not yet instituted,
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 12--INCOME TAXES
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
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:
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
Deferred income tax assets:
Bad debt reserve...................................... $ 40,900 $ 38,600
Book and tax depreciation difference.................. 219,500 235,800
Commission accrual.................................... 35,500 37,500
Bonus accrual......................................... -- 4,400
-------- --------
Total deferred tax assets........................... $295,900 $316,300
-------- --------
Deferred income tax liabilities:
Unrealized gain on U.S. Government obligations........ $ -- $ (4,500)
Partnership income.................................... (34,900) (34,900)
Prepaid rent.......................................... -- (4,900)
Other, net............................................ 600 (2,800)
-------- --------
Total deferred tax liabilities...................... $(34,300) $(47,100)
-------- --------
Net deferred tax assets (liabilities)............... $261,600 $269,200
======== ========
No valuation allowance has been provided as management believes deferred
taxes are realizable.
NOTE 13--FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND CONCENTRATION OF
CREDIT RISK
The Company, through Index, until July 1, 1996, 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 those 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
14
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 believed that the margin deposits
held at December 31, 1995, were adequate to minimize the risk of material loss
which could have been created by the positions held at that time. At December
31, 1996, Index held no long or short proprietary financial futures positions
or customer foreign currency forward contracts. At December 31, 1995 Index held
long proprietary financial futures positions and customer foreign currency
forward contracts with an aggregate notional value of $230,156,200 and
proprietary short financial futures positions and customer foreign currency
forward contracts with an aggregate notional value of $230,161,200. No
positions were held subsequent to July 1, 1996.
The exchange upon which financial futures and options on futures contracts
were traded acted as the counterparty and, accordingly, bore the risk of
performance. At December 31, 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 December 31,
1995, foreign currency forward contracts were transacted at the First National
Bank of Chicago, Daiwa Securities America, Inc. and Refco, Inc.
IFX conducts business for its customers in foreign currencies on the spot
market in which trades generally settle on the next business day. IFX 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 December 31, 1996, Index FX held long foreign
currency positions with an aggregate notional value of $3,289,188,200 and short
foreign currency positions with an aggregate notional value of $3,290,336,200.
At December 31, 1995 IFX held long foreign currency positions with an aggregate
notional value of $210,041,500 and short foreign currency positions with an
aggregate notional value of $208,973,500.
At December 31, 1996, the IFX foreign currency business was transacted with
various counterparties including several international financial institutions.
NOTE 14--CAPITAL REQUIREMENTS
Until December, 1996 , Index was subject to the minimum capital requirements
adopted and administered by the Commodity Futures Trading Commission ("CFTC")
and by certain exchanges of which it was a member. Index has since withdrawn
its registration as a futures commission merchant and, as such, is no longer
subject to minimum capital requirements.
IFX became a registrant of the Securities and Futures Authority ("SFA") in
London during November, 1996. As such, IFX is subject to the financial
resources requirements adopted and administered by the SFA. As of December 31,
1996, IFX's financial resources, as defined by the SFA, were $3,729,000, which
was $1,786,000 in excess of its requirements.
A subsidiary of JC/312 is subject to the Uniform Net Capital Rule adopted and
administered by the Securities and Exchange Commission. At December 31, 1996,
the subsidiary was in compliance with those requirements.
NOTE 15--CASH FLOWS
For purposes of reporting cash flows, cash includes non-segregated cash and
bank overdrafts, and does not include net segregated or secured cash, as
defined, in the Commodity Exchange Act. Interest paid during the six months
ended December 31, 1996 and 1995 amounted to $1,192,600 and $1,778,200,
respectively. The Company made income tax payments in the amount of $135,000
and $1,100,000 during the six months ended December 31, 1996, and 1995,
respectively.
15
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1996.
Jack Carl/312-Futures, Inc. and subsidiaries (the "Company") is a holding
company which operates its business through its subsidiaries. Index Futures
Group, Inc. ("Index"), until July 1, 1996, the Company's principal operating
subsidiary, provided a full range of futures brokerage, clearing and back
office services for institutional and public commodity traders. It was a
clearing member of all major U.S. commodity exchanges. Effective July 1, 1996,
Index sold, transferred and assigned substantially all of its brokerage
accounts ("Sale of Assets") to E.D. & F. Man International, Inc. ("MINC"). As
a result of the Sale of Assets, Index no longer acts as a futures broker for
public customers. It immediately withdrew as a clearing member from all
commodity exchanges, and terminated its registration as a futures commission
merchant in December, 1996. IFX, Ltd. (formerly Index FX, Ltd. "IFX"), a
British corporation and a subsidiary of Jack Carl/312-Futures, Inc., continues
to conduct foreign exchange business as a registrant of the Securities and
Futures Authority in London. IFX commenced trading operations in October,
1995. The other subsidiaries of Jack Carl/312-Futures, Inc. and Index
currently have minimal operations.
LIQUIDITY AND CAPITAL RESOURCES
Until December, 1996 , Index was subject to the minimum capital requirements
adopted and administered by the Commodity Futures Trading Commission ("CFTC")
and by certain exchanges of which it was a member. Index has since withdrawn
its registration as a futures commission merchant and, as such, is no longer
subject to minimum capital requirements.
IFX became a registrant of the Securities and Futures Authority ("SFA") in
London during November, 1996. As such, IFX is subject to the financial
resources requirements adopted and administered by the SFA. As of December 31,
1996, IFX's financial resources, as defined by the SFA, were $3,729,000, which
was $1,786,000 in excess of its requirements.
A subsidiary of JC/312 is subject to the Uniform Net Capital Rule adopted
and administered by the Securities and Exchange Commission. At December 31,
1996, the subsidiary was in compliance with those requirements.
The Company, at December 31, 1996, had $5,490,000 in notes payable to
related parties maturing January 31, 1997. Subsequent to December 31, 1996,
the Company repaid $940,000 of these notes and extended the maturity of the
remaining notes to January 31, 1998. The Company during the six months ended
December 31, 1996 repaid $900,000 of notes payable. The Company also had a
$4,000,000 revolving subordinated debt line of credit which was repaid in full
in August, 1996, and the line was cancelled. The ability to refinance its debt
depends on the lenders' desire to continue such loans with the Company.
The Company has historically satisfied its capital needs from subordinated
loans, notes payable and proceeds from the issuance of stock. The Company,
since inception through December 31, 1996, has realized approximately
$8,930,000 from the issuance of stock. It is anticipated that the Company's
short-term and long-term capital needs will be primarily satisfied through
loans and operations as well as from the proceeds of the issuance of stock.
On January 31, 1997, the Company redeemed and retired the 400,000 issued and
outstanding shares of its Class A preferred stock, all of which were owned by
its principal stockholder. The preferred stock was redeemed at a price equal
to the aggregate par value thereof plus the accrued but undeclared and unpaid
dividends thereon, totalling $836,600. As payment the Company issued its
principal stockholder a promissory note for $836,600, bearing interest at the
prime rate and maturing on January 31, 1998.
16
The Company, during the six months ended December 31, 1996, generated
approximately $4,793,200 cash from operating activities and $1,546,900 from
investing activities. The majority of the cash generated by operations and
investing activities is due to the Sale of Assets. Such cash was primarily used
to repay subordinated loans and notes payable.
Total stockholders' equity increased $581,500 to $6,798,000 at December 31,
1996, from $6,216,500 at June 30, 1996. The increase in stockholders' equity is
the net result of net income and the foreign currency translation adjustment
for the period.
The majority of the Company's assets are liquid in nature and are not
significantly affected by inflation. However, the rate of inflation affects the
Company's expenses, such as employee compensation and other operating expenses.
RESULTS OF OPERATIONS
As a result of the Sale of Assets in July, 1996, Index no longer acts as a
futures broker for public customers. Therefore, the results of operations for
the periods ending December 31, 1996 and 1995 are not comparable. 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.
Such revenue is recorded as other income.
The Company, during the period ended December 31, 1995, organized IFX,
located in London, England to conduct foreign exchange business. IFX commenced
trading operations in October, 1995; however, it incurred start up costs during
the six months ended December 31, 1995. The income tax benefit resulting from
the loss generated by IFX during the three months ended December 31, 1995,
cannot be consolidated to reduce the Company's overall tax liability. The
revenue generated by IFX is recorded as trading gains.
Total revenues for the quarter ended December 31, 1996 are $3,228,200
compared to $9,321,300 for the quarter ended December 31, 1995. Total revenues
for the six months ended December 31, 1996 are $5,813,100 compared to
$19,039,700 for the six months ended December 31, 1995.
Commission revenue and interest income decreased because Index no longer acts
as a futures broker and transferred to MINC the assets related to such
business.
Trading gains increased by $1,603,100 and $2,505,400 during the quarter and
six months ended December 31, 1996, respectively, compared to the same period a
year ago. The primary component in trading gains in 1996 is the revenue from
IFX which began trading operations in October, 1995.
Other revenue increased $572,000 during the quarter ended December 31, 1996,
compared to the same period a year ago. Included in other revenue for the
quarter ended December 31, 1996 is a gain of $234,900 from the sale of exchange
memberships, $340,900 from the Sale of Assets, and $22,100 of interest from the
one-time inventory financing transaction.
Other revenue increased by $1,564,400 during the six months ended December
31, 1996, compared to the same period a year ago. Included in other revenue is
a one time gain of $664,000 on the sale of clearing corporation stock, a
$212,600 net gain on the sale of exchange memberships, $716,400 from the Sale
of Assets and $22,100 of interest from an inventory-financing transaction. The
revenue from the Sale of Assets is based on a percentage of net income of the
transferred activities for the quarters ended September 30, 1996 and December
31, 1996.
Total expenses decreased $6,834,600 or 72% and $14,396,000 or 75% during the
quarter and six months ended December 31, 1996, respectively, compared to the
same periods a year ago. The decrease in all expense classifications is the
result of the Sale of Assets. The expenses for the quarter and six months ended
17
December 31, 1996, reflect the ongoing expenses of IFX, ongoing expenses for
Jack Carl/312-Futures, Inc. and Index, transitional expenses from the Sale of
Assets and minimal expenses for other subsidiaries. Management believes that
certain expenses will decrease further in the future as the transitional
employees continue to leave the Company.
The Board of Directors is exploring various business opportunities for the
Company now that Index no longer acts as a futures broker. Inventory financing
is one of the businesses currently under consideration. In November, 1996, the
Company entered into a one-time inventory financing transaction. $22,100 earned
from this transaction is recorded in other revenue.
Also, pursuant to the Sale of Assets agreement, Index FX, Ltd. has changed
its name to IFX, Ltd. Index Futures Group, Inc. will be changing its name to
IFG, Inc. The shareholders of Jack Carl/312-Futures, Inc. will vote on the
change of the Company's name to IFX Corporation at its annual meeting in
February, 1997.
As a result of the aforementioned revenues and expenses, net income for the
quarter ended December 31, 1996 is $347,300 or $.01 per share compared to a net
loss of $307,600 or less than $.01 per share for the same period a year ago.
Net income for the six months ended December 31, 1996 is $612,700 or .02 per
share compared to net loss of $362,300 or $.01 per share for the same period a
year ago.
18
EXHIBIT 11.1
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
PRIMARY
EARNINGS (LOSS)
Net income (loss)......... $ 347,300 $ (307,600) $ 612,700 $ (362,300)
Deduct assumed dividends
on Class A preferred
stock.................... (10,000) (10,000) (20,000) (20,000)
----------- ----------- ----------- -----------
Net income (loss)
applicable to common
stock.................... $ 337,300 $ (317,200) $ 592,700 $ (382,300)
=========== =========== =========== ===========
SHARES
Weighted average number of
common shares
outstanding.............. 33,624,530 33,728,188 33,624,530 33,734,183
=========== =========== =========== ===========
Primary earnings (loss)
per common share:
Net income (loss)......... $ .01 $ (.01) $ .02 $ (.01)
=========== =========== =========== ===========
ASSUMING FULL DILUTION
EARNINGS (LOSS)
Net income (loss)......... $ 347,300 $ (307,600) $ 612,700 $ (362,300)
=========== =========== =========== ===========
SHARES
Weighted average number of
common shares
outstanding.............. 33,624,530 33,728,188 33,624,530 33,734,183
=========== =========== =========== ===========
Earnings (loss) per common
share assuming full
dilution:
Net income (loss)......... $ .01 $ (.01) $ .02 $ (.01)
=========== =========== =========== ===========
19
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
PART II--OTHER INFORMATION
DECEMBER 31, 1996
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Immediately following this page is an Exhibit Index setting forth the
exhibits to this Quarterly Report on Form 10-Q and the page number in the
sequential numbering system where such exhibits can be found.
(b) Reports on Form 8-K--The Registrant filed a report on Form 8-K on October
1, 1996, reporting under Item 6, the resignation of a Director effective
October 1, 1996.
20
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
PAGE
----
(11) Statement re: Computation of per share earnings....................... 19
21
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Jack Carl/312-Futures, Inc.
_____________________________________
(Registrant)
LOGO
By: _________________________________
Allyson Laackman
Chief Financial Officer
Dated: February 13, 1997
22