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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-12926
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JMC GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2627415
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
9710 SCRANTON ROAD, SUITE 100, SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 619-450-0055
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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 [_]
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]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 10, 1997 was approximately $6,213,061 representing
approximately 4,970,449 shares.
As of March 10, 1997, the registrant had 6,024,351 shares of its common
stock, $.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The discussion of the Company's business contained in this Annual Report on
Form 10-K includes certain forward-looking statements. For a discussion of
factors which may affect the outcome projected in such statements, see
"Material Customers," "Competition," "Registration and Licensing,"
"Regulation," "Legal Proceedings," "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
JMC Group, Inc. (the "Company") is a Delaware corporation which was founded
in 1983. Its executive offices are located at 9710 Scranton Road, Suite 100,
San Diego, California 92121 and its telephone number is (619) 450-0055.
The Company operates its business in one industry segment--annuity,
insurance and mutual fund sales and sales support services through financial
institutions and the related servicing of products previously sold. This
business has historically been carried out through the Company's subsidiaries,
James Mitchell & Co. and its subsidiaries ("JMC") and JMC Investment Services,
Inc. ("JMCI"). JMC and JMCI are structured marketing organizations that sell
tax-advantaged annuities, insurance products and mutual funds as investment
vehicles to customers of financial institutions through relationships with
banks and savings and loan associations and thrifts. The Company's products
consist primarily of fixed and variable annuities underwritten by independent
life insurance companies (rated A or higher by A.M. Best) and mutual fund
shares. As previously reported, in January of 1996, the Company modified its
relationship with First Tennessee Bank National Association ("First Tennessee
Bank") and JMCI, which offered and sold mutual funds and annuities exclusively
to customers of First Tennessee Bank. The Company now provides support
services ("Integrated Support Services" or "ISS") for First Tennessee Bank's
internal program for which the Company earns monthly service fees. The Company
also terminated its relationship with Central Fidelity Bank, N. A. ("Central
Fidelity") at the end of 1996. See "Material Customers."
Although the termination or modification of contracts with financial
institutions usually ends new sales activities, JMC continues, in most cases,
to provide services to the customers of the institution and earns fees for
these services based on the accumulated asset value of the accounts being
serviced. The First Tennessee Bank modification resulted in JMC receiving
asset fees as well as additional fees for services contracted for in the new
agreement. Central Fidelity selected the option of acquiring JMC's right to
future asset-based fee revenues and made a one time payment to JMC during 1996
for such right. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--1996 compared to
1995."
During 1996, the average monthly accumulated value of assets being serviced
for such inactive clients, including First Tennessee Bank, was over $444
million generating annual 1996 asset-based fee revenues of $1,424,000.
During 1996, the Company further restructured its operations by closing down
its Virginia operations upon the termination of its contract with Central
Fidelity. The Virginia office also serviced the Company's New York customers
so servicing of those customers was moved to its corporate office. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--1996 Compared to 1995--Restructuring."
PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION
The principal market for JMC's services is banks, savings and loan
associations and thrifts. Management believes that these types of financial
institutions perceive a need to provide their customers with a wider mix of
financial products, yet often lack the infrastructure and corporate culture to
market products which are not traditional to financial institutions. In
addition, these institutions are focusing on developing fee income as a major
source of revenue. An independent marketing organization such as JMC provides
these institutions with
2
the ability to make such products available to their customers and receive fee
income. Specifically, the Company believes the primary market for such
services, in the future, is the small to medium size financial institution
which would have more difficulty offering the depth of services the Company
provides in a cost effective manner.
Historically, the primary distribution method employed by the Company and
its financial institution clients for the sale of annuities and insurance
products has been a fully managed alternative investment program. Mutual fund
products are generally sold directly by JMC's employees to financial
institution customers. JMC's structured retail marketing organization employs
the retail sales force and thereby controls the point of sale.
As a result of the streamlining of administrative and sales management
functions accomplished in the 1994 restructuring and further consolidation in
1995 and 1996, the Company has positioned itself to expand the type and nature
of services which it provides and the manner in which they are delivered. In
addition to its fully-managed program, the Company intends to contract with
financial institution clients to provide other programs such as the dual
employee program where the financial institution rather than the Company
employs the retail sales force, or the integrated support services program
("ISS program") where the bank internalizes all sales functions while the
Company provides appointment tracking, business processing and customer
account servicing. The ISS program would enable the Company to deliver a
competitive package of services which would enhance the effectiveness and
efficiency of non-deposit alternative investment programs instituted and
managed by financial institutions themselves. These services include product
selection and due diligence, sales and appointment management tracking and
reporting, annuity and mutual fund transaction processing, commission
accounting, customer service, sales personnel licensing, sales and marketing
support, and training programs. The Company commenced its first ISS program at
First Tennessee Bank as of February 1, 1996. See "Material Customers" below.
The Company has also developed a product wholesaling program in which the
Company will provide annuity and insurance products directly from provider
companies to the Bank while still providing tracking, processing and servicing
functions similar to those involved in managed and dual employee programs. The
Company anticipates this type of program to be available by the second quarter
of 1997 and that this program will be attractive to a large number of
financial institutions including the large and medium sized banks.
PRINCIPAL PRODUCTS
The principal investment products offered by JMC to customers of its
financial institution clients are fixed and variable annuities and mutual
funds, including equity funds, fixed income funds and tax exempt funds.
Annuities are primarily used as tax-deferred retirement savings vehicles.
There is a penalty if funds are withdrawn before age 59 1/2 or within a
specified period of time, usually 5 to 8 years. Unlike individual retirement
accounts there is no maximum investment cap either annually or in total and
contributions are not tax-deductible. Immediate annuities provide guaranteed
income for a specified number of years or for an individual's lifetime.
During 1996, the mix of annuities and insurance products sold by JMC was as
follows: 41% fixed annuities and 59% variable and other annuities. The
corresponding product mix percentages of annuities sold by the Company in 1995
and 1994 were 65% fixed/35% variable and other and 75% fixed/25% variable and
other, respectively. Sales of annuities represented 55%, 65% and 90%,
respectively, of total sales in each of 1996, 1995 and 1994. The gross revenue
rate received by JMC on the sale of annuity products is significantly greater
than the gross revenue rate received on mutual fund shares. In addition, the
gross revenue rate received on fixed annuity products is greater than the
gross revenue rate received on variable and other annuities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--1996 Compared to 1995" for further explanation of the
impact of product mix on revenues and gross margin.
The Company's subsidiaries have negotiated relationships with numerous
national insurance providers and, during 1996, such subsidiaries sold the
products of New York Life Insurance and Annuity Company, Keyport Life
Insurance Company, Aetna Life Insurance and Annuity Company, Liberty Life
Assurance Company, The Life Insurance Company of Virginia, Allianz Life
Insurance Company of North America and Transamerica Life
3
Insurance and Annuity Company, among others. All of these companies have A or
higher ratings from A.M. Best.
The Company's subsidiaries' arrangements with each of its annuity and
insurance provider companies are very similar. JMC acts as an agent and sells
the provider's products to customers of financial institution clients. In
addition, the Company's subsidiaries handle certain administrative
responsibilities and provide ongoing customer service. Both of these functions
are often provided directly by the annuity and insurance provider in other
agency relationships. The Company's subsidiaries earn commissions from the
sale of the provider's products. In addition to the commission on the initial
sale, they also earn a monthly asset-based fee on most products, based on the
accumulated value of each contract for as long as the contract is in force and
annuity payments have not started. Contracts with annuity and insurance
providers are generally terminable by either party on thirty days' notice with
regard to all of their provisions, except that the provider company continues
to be obligated to pay the Company its monthly asset-based fee so long as
there remains in force any accumulated value of contracts sold prior to
termination of the contract. During 1996, the Company received approximately
$4.2 million in annuity commissions and $2.4 million in asset-based fee
revenues related to annuity contracts. Commissions are net of actual and
projected chargebacks for surrenders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--1996 Compared to 1995" related to events impacting asset-based fee
income during 1996 such as the net gain on the sale of rights to certain
future asset-based fee revenue.
Management believes that the Company's subsidiaries have maintained strong
relations with their current annuity and insurance provider companies. Many of
the products are developed jointly by the Company with the annuity and
insurance provider companies specifically for use in the Company's programs.
During 1995, one of the Company's target provider companies, Life Insurance
Company of Virginia, entered into an agreement to be acquired by Great
Northern Annuity Company (GNA), a competitor of the Company. This acquisition
was not consummated until mid 1996 and the impact on product availability is
uncertain at this time. However, the Company continues to work with current
and prospective provider companies to ensure the availability of competitive
consumer products.
The Company continues to work with and negotiate for new and more
competitive products supplied by current and potential insurance carriers and
thus believes that its business is not substantially dependent upon any one of
these provider company contracts, and that if the products of any one of its
suppliers were no longer available, they could be replaced by additional
providers without a material adverse impact on the Company's results of
operation or financial condition. As product competition increases, however,
the Company may have to lower its compensation in order to generate higher
rates of return to customers in order to increase or maintain production
levels.
In connection with the sale of annuity and insurance products, JMC does not
assume any of the underwriting risks or obligations of the insurance company
itself. The Company conducts due diligence and has an established policy of
selling only the products of insurance companies which it believes are highly-
rated and financially sound.
The Company's subsidiaries have agreements to sell mutual fund shares for a
large number of mutual fund families, including Putnam, Federated, Fidelity,
Oppenheimer, Franklin-Templeton and American Capital. JMC receives commissions
for the sale of mutual fund shares and, in most instances, receives ongoing
fees for providing continuing customer service. The Company reviews the mutual
fund families it offers to ensure that they provide what the Company believes
to be an appropriate range of quality products. JMC, through its subsidiary
JMC Financial Corporation ("JMC Financial"), acts as a self-clearing agent and
a clearing agent for First Tennessee Brokerage, Inc. In connection with the
sale of mutual fund shares, JMC's representatives act strictly as agents and
neither company underwrites securities.
4
MATERIAL CUSTOMERS
During 1996, Central Fidelity, Independence Savings Bank and First Tennessee
accounted for approximately 53%, 18% and 14%, respectively, of the Company's
commission revenues. The Company's relationship with First Tennessee Bank was
modified during 1996 and its contract with Central Fidelity expired on
December 31, 1996.
On January 31, 1996, the Company signed definitive agreements with First
Tennessee Bank to provide for a transition of the Company's fully-managed
alternative investment sales program to a newly-developed integrated support
services program with an initial two-year term through the end of 1997. The
Company has developed this program to provide a variety of services to support
alternative investment programs at banks utilizing an internal sales force to
market mutual funds and annuities to its customers. The new services program
has enabled First Tennessee Bank to internalize the sales functions of the
Company's fully-managed program while maintaining the controls and
efficiencies of the program's business processing and single-point customer
service capabilities. Although the Company no longer earns fees for the
provision of a fully managed sales program, the Company will generate revenues
in the form of minimum monthly administration fees of $25,000 through December
31, 1997. The fees may increase from such minimum level based on the success
of the bank's internal sales program. In addition, the Company earns asset-
based fee revenues on products sold through January 1996. The Company's
portion of such asset-based fee revenues increased effective January 1, 1997.
On August 30, 1996, the Company entered into a Program Agreement with
Horizon Bancorp of Beckley, West Virginia, to provide services on a fully
managed program basis. In addition, on November 6, 1996, the Company entered
into an agreement with Provest Services Corp. II, a wholly owned subsidiary of
Provident Bank, F. A., of Montebello, New York, to provide products and
services to bank customers. In both cases, it is too early to estimate the
fiscal impact of these agreements on the Company.
COMPETITION
The Company operates in a very competitive environment and competes for
client bank relationships with other third-party marketing firms. Some of its
competitors are subsidiaries of major insurance and mutual fund companies that
operate marketing organizations similarly targeting sales of annuities,
insurance products and mutual fund shares to customers of banks, savings and
loan associations and thrifts. Many of the organizations affiliated with
underwriters and distributors have the ability to offer very attractive
pricing to potential client financial institutions. The largest and most
recognized organizations competing in this general field are Great Northern
Annuity (GNA), Essex, Liberty Securities, Marketing One and INVEST. Some
financial institutions also elect to manage annuity, insurance and mutual fund
sales programs internally, rather than use a third-party marketing firm.
Generally it is the larger financial institutions who establish such internal
programs. In addition, customers of financial institutions who might purchase
products from the Company can obtain similar products from licensed insurance
agents, stockbrokers and financial institutions not affiliated with JMC. The
principal method of competition is price. Product and service are also
important competitive factors.
From a competitive standpoint, management relies upon the Company's sales
management and administrative procedures and systems to set it apart from its
competitors and make its programs more attractive to potential financial
institution clients than its competitors' programs. These include its
proprietary sales and appointment tracking and reporting systems, which
support its regimented sales management approach and its comprehensive
recruiting procedures as well as established administrative procedures which
insure efficient business processing and high level customer service. Defined
operating procedures are implemented and sales specialists account for their
time on a daily basis by communicating with the Company's service center.
Individual sales specialists are also directly supervised by sales managers.
For its managed programs, the Company maintains an independence towards
product distribution which it considers to be a competitive edge in terms of
customer suitability and bank regulatory control. The independence is created
through the Company's strong relationships with more than one insurance
provider
5
company as well as certain internal procedures, such as, product neutral
incentive compensation for sales representatives. The result is the ability to
offer a wide array of high-quality, attractive alternative non-deposit
investment products to suit the needs of the customers of financial
institutions. As banking regulators continue to emphasize the quality and
suitability of non-deposit investment products sold through financial
institutions, the ability of a marketing firm to provide a broad selection of
suitable and attractive products for their sales representatives to offer to
their customers will continue to be important to potential client financial
institutions.
REGISTRATION AND LICENSING
JMC and certain of its subsidiaries and JMCI are required to be licensed to
do business in certain states where they transact business. In addition, JMC
Financial Corporation and JMCI are registered broker-dealers with the
Securities and Exchange Commission ("SEC"), are members of the National
Association of Securities Dealers, Inc. ("NASD") and are licensed or
registered as securities broker-dealers in certain states where they transact
business. Finally, certain of JMC's subsidiaries and JMCI must be licensed or
registered as an insurance agency or agent in order to engage in business in
certain states. Each of JMC and its subsidiaries and JMCI are duly qualified
to transact business, and are duly registered or licensed or exempt from the
registration or licensing requirements of broker-dealers and entities which
engage in securities and insurance businesses, in every state where management
believes such entities should be so qualified, registered or licensed.
Material federal, state and local regulations affecting the business of JMC
and its subsidiaries and JMCI include the Securities Exchange Act of 1934, as
amended, the Investment Company Act of 1940, as amended, the securities and
insurance laws of each state in which JMC and JMCI do business and the local
ordinances of each city and county in which JMC and JMCI maintain an office.
REGULATION
JMC and certain of its subsidiaries and JMCI are subject to extensive state
regulation in those states in which they are licensed to do insurance
business. Each insurance department exercises jurisdiction over the licensing
of agents, supervises the form and content of sales literature and other
materials distributed to the public, and generally acts to protect consumers
from misrepresentation and other unfair conduct. Legislation changing the
substantive or procedural rules governing the insurance departments, insurers
or agents may affect the mode of operation and profitability of insurance
agencies. Insurance commissioners, to protect the public, may maintain
administrative proceedings which could result in cease and desist orders,
fines or the suspension or cancellation of an agent's license. See "Legal
Proceedings."
The securities industry in the United States is also subject to extensive
regulation under both federal and state law. The SEC is the federal agency
responsible for the administration of federal securities laws. Much of the
regulation of broker-dealers has been delegated to the self-regulatory
organizations, principally the NASD and the securities exchanges. Certain of
the Company's subsidiaries are subject to regulation by the SEC and the NASD.
The NASD conducts periodic examinations of member broker-dealers in accordance
with rules it has adopted and amended from time to time, subject to approval
by the SEC. These subsidiaries are also subject to regulation by state
securities authorities in those states in which they do business. Additional
legislation, changes in the rules promulgated by the SEC and the NASD, or
changes in the interpretation or enforcement of existing laws and rules, may
directly affect the mode of operation and profitability of broker-dealers. In
January 1996, the NASD submitted for approval to the SEC, revised proposed
rules applicable to NASD members operating on the premises of financial
institutions. These rules, if adopted, would be similar to the rules already
adopted by bank regulators. See the discussion of the "Interagency Guidelines"
below. These rules would allow the NASD to also regulate the physical location
of sales within financial institutions, the signage necessary, customer
disclosures, compensation of unregistered bank employees and public
communications, among other aspects of the business. The rules are more
comprehensive and cover areas not previously addressed by the SEC, but have
been addressed in the "Interagency Guidelines," as discussed below. The SEC,
the NASD and state securities commissions may conduct administrative
proceedings which can result in censure, fine, suspension or expulsion of a
broker-dealer, its officers or employees. The principal purpose of regulation
and discipline of broker-dealers
6
is the protection of customers and the securities markets rather than the
protection of creditors and stockholders of broker-dealers.
The Company's client financial institutions also operate in a highly
regulated environment. Existing federal rulings allow national banks and
certain other federally-regulated financial institutions to sell annuities and
mutual fund shares, but restrict the sale of many types of insurance products.
See the discussions of NationsBank vs. Variable Annuity Life Insurance Company
below. In February, 1994, all of the primary federal banking regulators issued
a single set of guidelines (the "Interagency Guidelines") regarding the retail
sale of non-deposit investment products, such as annuities and mutual funds,
through banks, savings and loan associations and thrifts. These guidelines and
their manner of implementation could significantly affect the ability of, and
the means by which, the Company's subsidiaries conduct business with
federally-regulated banks, savings and loan associations and thrifts. Since
issuance of the Interagency Guidelines, the federal banking agencies conducted
audits of the non-deposit investment programs at numerous financial
institutions. As a result of these audits, certain of the agencies have
further clarified certain provisions of the Interagency Guidelines especially
in regards to customer disclosures. In addition, state-chartered financial
institutions are subject to regulation by state banking agencies. These
agencies and state insurance regulators may limit the ability of the Company's
financial institution clients and other banks, savings and loan associations
and thrifts to engage in the annuity, insurance and mutual fund sales
businesses through third-party marketing organizations or otherwise.
On January 18, 1995, the United States Supreme Court issued its decision in
the case of NationsBank vs. Variable Annuity Life Insurance Company (the
"VALIC case"). The ruling upheld the Office of the Comptroller of the
Currency's ("OCC") decision that national banks could sell annuities. The
Comptroller had found that such products were not insurance within the meaning
of the National Bank Act and that the sale of annuities by national banks was
within the "incidental powers" granted to them under that act. The U. S.
Supreme Court concurred with this judgment. The ruling in the VALIC case
appears to open the door for federally-chartered financial institutions to
sell annuities, even in states where state insurance laws would prohibit such
sales. It also appears to create a similar opportunity for state banks in the
majority of states where state law permits state-chartered financial
institutions to engage in any business permitted for a national bank. In spite
of the decision in the VALIC case, at the present time there are federal court
proceedings and state and federal legislative proposals which could limit or
alter the ability of banking institutions to sell annuities and insurance
products. In particular, the United States Supreme Court recently heard oral
argument in the case of Barnett Bank of Marion County, N. A. vs. Gallagher.
This 11th Circuit Federal District Court case indicated that a state insurance
agency could prevent a bank from selling insurance through an insurance agency
located in a town of less than 5,000 people in the exercise of its power to
regulate the business of insurance within a state. It is not possible to
predict the outcome of any such proceeding or the likelihood that any
particular proposal will be enacted or what effect such a change would have on
the Company's continued ability to market annuities and insurance products and
mutual funds through banking institutions. In light of the VALIC case, it is
possible that banking institutions that currently utilize the Company's
subsidiaries to market such products would market such products themselves,
rather than through the Company. The same result might flow from any other
change in regulatory landscape. In such an event, the Company's ability to
continue its business as described herein would be impaired. However, the
Company's subsidiaries currently market annuities, insurance products and
mutual funds to customers of financial institutions that could legally sell
such products themselves. These financial institutions prefer to use the
Company's marketing services instead of developing their own. It is possible
that a number of banking institutions will choose to utilize the Company's
subsidiaries despite their ability to sell these products directly. In such an
event, the Company's subsidiaries would be able to continue to sell annuities,
insurance products and mutual funds through such institutions, although
perhaps on a more limited basis. It is also possible that a change resulting
from court proceedings or legislative initiatives could further restrict the
ability of banking institutions to make annuities, insurance products and
mutual funds available to their customers either directly through third-party
marketing organizations or otherwise.
Legislation or changes in tax regulations with regard to the tax-deferred
status of earnings from annuities could also significantly affect the ability
of the Company to market these products.
7
In January 1997, national banks were notified of the Office of the
Comptroller of the Currency's regulatory proposal concerning qualification
requirements for certain securities transactions conducted by bank employees.
If implemented, the qualification requirements would be administered by the
National Association of Securities Dealers, Inc. (NASD) and would require bank
employees to take and pass an examination as a prerequisite to engaging in the
retail securities transactions. After passing the exam, they would be required
to register with the NASD as a bank securities representative.
EMPLOYEES
As of March 10, 1997, the Company had 49 full-time employees.
ITEM 2. PROPERTIES
During 1996, the Company closed its Virginia office upon the termination of
business with Central Fidelity, and closed its Tennessee office, moving all
customer service for Tennessee and New York to the Company's corporate office.
This facility is suitable and adequate to meet the Company's requirements. The
Company intends to either renegotiate a new lease for the existing facility or
locate alternative suitable space upon expiration of the lease, as market
conditions indicate. The following is the lease for the principal facility
utilized in the Company's operations as of January 1, 1997:
Corporate Headquarters
9710 Scranton Road
Suites 100 and 120
San Diego, CA 92121
Exp. Date: October 1998
Square Footage: 14,169
ITEM 3. LEGAL PROCEEDINGS
FLORIDA LEGAL PROCEEDINGS
During March 1993, the Florida Department of Insurance (the "Department")
commenced an administrative proceeding against the Company's wholly owned
subsidiary, JMC. A Final Order was issued in July 1995, however, the
enforcement of the majority of the Final Order was stayed pending the outcome
of JMC's appeal. The District Court of Appeal, for all material matters,
affirmed the Final Order in August 1996, and in October 1996, the District
Court of Appeal denied JMC's Motion for Rehearing. In March 1997, the Florida
Supreme Court denied JMC's petition for review.
The Company has incurred most of the anticipated costs of the appeal and
management believes that amounts accrued as of December 31, 1996 will be
sufficient to cover any additional costs. Effective October 1995, JMC
concluded its relationship with its Florida financial institution client,
Barnett Banks, Inc., and is not presently doing business in the State of
Florida.
OTHER PROCEEDINGS
The Company's broker-dealer subsidiary, JMCI, has been named as a defendant
in lawsuits arising out of the sale of real estate limited partnerships prior
to 1992 to customers of its predecessor. In addition, the Company and its
subsidiaries are involved in various legal and regulatory proceedings from
time to time in the ordinary course of business. Management does not believe
that any such proceedings will have a material adverse effect on the Company's
financial condition or results of operation, and as of March 10, 1997, no such
proceedings were pending.
8
USBA MARKETING AGREEMENT AND PROPOSED MERGER
The Company entered into an agreement with USBA Holdings, LTD ("USBA") in
January 1996. In connection with this transaction, the Company paid USBA $1.25
million to assist in the preparation and implementation of a five-year
marketing plan. The Company had the right to recover $1 million under certain
circumstances. In addition, USBA was given warrants to purchase up to 1
million shares of the Company's common stock at $2.50 per share which may have
been adjusted to approximately $1.44 per share under certain circumstances.
The warrants, which were exercisable after January 29, 1997, had an estimated
value of $315,000. Both the payment and the value of the warrants were
capitalized and were being amortized over an expected benefit period of five
years.
In the second quarter of 1996, the Company and USBA entered into an
Agreement and Plan of Merger and began the process of consummating such
merger. All costs associated with such merger were capitalized, beginning in
the second quarter of 1996, as these costs were expected to be included in the
purchase price upon consummation of the transaction. During the third quarter
of 1996, the Company terminated the Agreement and Plan of Merger, at which
time all costs previously capitalized in the second quarter and all costs
incurred during the third quarter related to the merger were expensed. These
merger related expenses, which amounted to $884,000, are included in the 1996
Statements of Operations, primarily within professional fees and other general
and administrative expenses.
The Company filed an action against USBA to recover costs incurred related
to the terminated Agreement and Plan of Merger and to recover fees paid for
the Marketing Agreement and for return of the warrants. During the fourth
quarter of 1996, the Company reached an agreement with USBA and received a
cash payment of $500,000, constituting a partial refund of amounts paid by the
Company under the Marketing Agreement and Consulting Agreement and payment of
a portion of the Company's expenses incurred in connection with the Agreement
and Plan of Merger, and the warrants were returned. The Company, during this
period, wrote off the remaining unamortized balance of the payment of $1.25
million, reversed the capitalization of the value of the returned warrants and
the amortization expense thereon for the first three quarters of 1996 and
recorded the recovery of $500,000. The write-off of the payment and the value
of warrants was not made until the fourth quarter as the Marketing Plan and
Marketing Agreement were in effect and the Company was working with several
financial institutions referred through the Marketing Agreement up through the
termination and settlement made in the fourth quarter.
The entire $1.25 million payment and recovery of $500,000 are included in
the line "Marketing plan payment--net of recovery" and thus, amortization of
the plan payment included in depreciation and amortization for the first three
quarters of 1996 has been reclassified to this line for more appropriate
presentation of material operating transactions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters other than election of directors at the annual meeting on October
7, 1996 were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended December 31, 1996.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The common stock of the Company is principally traded in the NASDAQ National
Market System under the symbol JMCG and is owned as of March 10, 1997 by
approximately 234 shareholders of record with approximately 1,600 beneficial
owners. Approximately eight broker-dealers are market makers in the Company's
stock on the NASDAQ National Market System.
The Company is also listed on the Pacific Stock Exchange under the symbol
JMC, but the trading volume in the Company's common stock on the Pacific Stock
Exchange is not material.
The following table reflects the high and low sales prices on the NASDAQ
National Market System for the Company's common stock for the four quarters of
each of 1996 and 1995.
SALES PRICES
-------------
HIGH LOW
------ ------
1996
First Quarter............................................. $3.125 $0.906
Second Quarter............................................ $4.125 $3.000
Third Quarter............................................. $3.688 $1.125
Fourth Quarter............................................ $1.563 $0.750
1995
First Quarter............................................. $1.875 $1.125
Second Quarter............................................ $1.625 $0.875
Third Quarter............................................. $1.188 $0.625
Fourth Quarter............................................ $1.031 $0.688
DIVIDENDS
No dividends were paid by the Company during fiscal 1996. Future dividends,
if any, will be determined by the Company's Board of Directors, based upon the
Company's profitability, its cash position and other considerations deemed
appropriate.
10
ITEM 6. SELECTED FINANCIAL DATA
SELECTED ANNUAL FINANCIAL DATA
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
Selected Financial Data:
Total revenues........ $11,845,436 $20,371,860 $33,357,242 $49,318,460 $39,247,926
Income (loss) from
continuing operations
before accounting
change............... $ (502,919) $ 1,741,124 $(2,370,155) $ 4,368,141 $ 4,422,688
Income (loss) from
discontinued
operations........... $ -- $ -- $ -- $ 514,904 $(2,912,225)
Accounting change..... $ -- $ -- $ -- $ -- $ 185,000
Net income (loss)..... $ (502,919) $ 1,741,124 $(2,370,155) $ 4,883,045 $ 1,695,463
=========== =========== =========== =========== ===========
Earnings Per Share:
Income (loss) from
continuing operations
before accounting
change............... $ (0.08) $ 0.28 $ (0.36) $ 0.62 $ 0.59
Income (loss) from
discontinued
operations........... $ -- $ -- $ -- $ 0.07 $ (0.38)
Accounting change..... $ -- $ -- $ -- $ -- $ 0.02
Net income (loss)..... $ (0.08) $ 0.28 $ (0.36) $ 0.69 $ 0.23
=========== =========== =========== =========== ===========
Balance Sheet:
Total assets.......... $ 8,766,023 $ 9,511,828 $ 8,380,931 $15,426,738 $14,079,204
Total liabilities..... $ 2,248,120 $ 2,511,006 $ 3,121,233 $ 6,868,923 $ 5,430,721
Stockholders' equity.. $ 6,517,903 $ 7,000,822 $ 5,259,698 $ 8,557,815 $ 8,648,483
=========== =========== =========== =========== ===========
- --------
No cash dividends were paid during 1992.
Cash dividends of $456,465 and $969,798 were paid during 1994 and 1993,
respectively.
No cash dividends were paid during 1996 or 1995.
SELECTED QUARTERLY FINANCIAL DATA
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
1996
Commission revenues........... $2,763,979 $2,491,021 $2,244,812 $2,041,916
Net income (loss)*............ $ (132,242) $ (215,121) $ (682,406) $ 526,850
Earnings per share:
Net income (loss)........... $ (0.02) $ (0.03) $ (0.11) $ 0.08
========== ========== ========== ==========
1995
Commission revenues........... $4,554,338 $4,139,820 $3,453,664 $2,164,885
Net income (loss)**........... $ 419,326 $ (335,134) $1,832,789 $ (175,857)
Earnings per share:
Net income (loss)........... $ 0.07 $ (0.05) $ 0.30 $ (0.03)
========== ========== ========== ==========
- --------
* Non-recurring items included in the quarterly net income (loss) figures for
1996 include: (a) expenses related to the proposed merger with USBA of
$704,000 ($433,000 after-tax benefit) in the third quarter; and (b) net
gain on sale of rights to future asset-based fees of $1,844,000 ($1,189,000
after-tax provision) and the write-off of the remaining unamortized balance
of the Marketing Agreement with USBA, net of a settlement with USBA, in the
amount of $515,000 ($332,000 after-tax benefit) in the fourth quarter.
11
** Non-recurring items included in the quarterly net income (loss) figures for
1995 include: (a) other revenues of $1,309,000 ($785,000 after-tax
provision) for a third party's right to hire certain personnel in the first
quarter; and (b) after-tax net gain on sale of rights to certain future
asset-based fees of $1,987,000 in the third quarter and $361,000 in the
fourth quarter. See further explanation of these items in "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--1996 Compared to 1995."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
When used in this Annual Report on Form 10-K, the words "expects,"
"believes," "estimates," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risks and
uncertainties, including those set forth below and in Item 1 of this Annual
Report on Form 10-K, that could cause actual results to vary materially from
those projected. These forward-looking statements speak only as of the date
hereof. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which
any such statement is based.
1996 Compared to 1995
General. Revenues and expenses include the accounts of the Company's
subsidiaries, JMC and JMCI.
The Company reported a net loss for the year ended December 31, 1996 of
$503,000 (after providing for income tax benefit of $243,000) compared with
net income of $1,741,000 (after providing for income taxes of $1,256,000) in
1995. Included in the 1996 and 1995 results were the following:
1996:
. A net gain of $1,844,000 ($1,189,000 or $.19 per share after estimated
tax provision) on the sale of the rights to future asset-based fee
revenues to a client financial institution. The net gain is a result of
a sales price of $2.1 million less costs associated with the loss of
Central Fidelity Bank as a client of $256,000. These costs are primarily
related to closing of facilities and consolidation of personnel
functions due to the resulting loss of business created by the Central
Fidelity termination.
. Expenses net of recoveries related to a Marketing Plan and Marketing
Agreement as well as a proposed merger with USBA (all included in 1996)
as follows:
. Payment for a Marketing Plan and Marketing Agreement of $1.25
million, which had been capitalized and was being amortized over a
five-year period, written off in its entirety in the fourth quarter
of 1996 ($806,000 or $.13 per share after estimated tax benefit);
. Expenses related to the proposed merger including primarily legal,
accounting, investment banking and printing expenses of $884,000
($570,000 or $0.09 per share after estimated tax benefit); and
. Recovery on settlement of legal proceedings with USBA for amounts
paid on the Marketing Plan as well as expenses incurred on the
proposed merger of $500,000 ($322,000 or $.05 per share after
estimated tax provision).
12
1995:
. A net gain of $3,914,000 ($2,349,000 or $0.38 per share after estimated
tax provision) on the sale of the rights to certain future asset-based
fee revenues to a client financial institution. The net gain is a result
of a purchase price of $4.05 million less costs associated with the loss
of the Company's Florida operations of $136,000.
. Other revenue in the amount of approximately $1,309,000 ($785,000 or
$0.13 per share after estimated tax provision) related to the final
portion of that same client financial institution's payment for the
right to hire certain employees and certain other services.
Excluding the above-mentioned items, the Company would have reported an
after-tax loss of $639,000 (or $.10 per share after an estimated tax benefit
of $318,000) in 1996 as compared to an after-tax loss of $1,393,000 (or $0.22
per share after an estimated tax benefit of $833,000) in 1995.
Total revenues for 1996 were $11,845,000 compared to revenues of $20,372,000
in 1995, a decrease of $8,527,000 or 42%. As previously stated, revenues for
1996 and 1995 include net gains on the sale of rights to certain asset-based
fee revenues of $1,844,000 and $3,914,000, respectively, and 1995 revenues
include a payment of $1,309,000 for the right to hire certain employees and
certain other services. In addition to these revenue items, the Company earned
transition fee revenue of $250,000 and $538,000 in 1996 and 1995,
respectively. These transition fees, which were negotiated by the Company,
were intended to cover the cost of operations during a transitional period
prior to termination of the Company's relationships with certain financial
institution clients. For purposes of analyzing revenues from operations, these
transition fees have been included as they relate to services performed. As
such, all expenses related to the same operational transitions are included in
total operating expenses.
Excluding the one-time payments for the right to hire certain JMC employees
in 1995 and the net gain on the sale of the rights to certain asset-based fee
revenues in 1996 and 1995, but including transition fees, revenues for 1996
would have been $10,001,000 compared to $15,149,000 in 1995 (a decrease of
$5,148,000 or 34%). This reduction in revenues is primarily attributable to
the following:
. Lower gross sales volumes which declined $67 million or 36% due
primarily to:
. The transition of the First Tennessee program as of January 31, 1996
and the termination of the Florida operations during 1995 (see also
"Trends and Uncertainties" later in this section) contributed to a
$92 million sales volume decline in 1996 vs. 1995. This decrease is
offset by an increase of $25 million from existing clients. The
Company transitioned the relationship with its Tennessee client from
sales to services on February 1, 1996 and thus sales production for
this client is not reflected after this date. The Company terminated
sales production with its Florida client after August 1995.
. A slight decrease in the gross revenue rate on products sold in 1996
compared to 1995 due to a shift in the product mix to mutual funds and
variable annuities, both of which pay lower commissions than that of
fixed annuities. Annuity sales as a percentage of total product sales
were 55% in 1996 compared to 65% in 1995. In addition, fixed annuity
sales as a percentage of total annuity sales were 41% in 1996 as
compared to 65% in 1995.
. A decrease of approximately $2,161,000 in asset-based fee revenue in
1996 compared to 1995. This decrease is primarily a result of the sale
of the rights to certain future asset-based fee revenues for its
Florida-based client at the end of August 1995.
13
Total expenses for 1996 were $12,592,000 compared to $17,375,000 in 1995.
Excluding the previously described one-time charges of $884,000 in merger-
related expenses and $750,000 net loss on a marketing agreement, total
expenses for 1996 would have been $10,958,000, a decrease of $6,417,000 or
37%, when compared to 1995 expenses. This drop in total expenses is primarily
attributable to the following:
. A $2,472,000 or 39% reduction in fees to financial institutions due to
lower sales volume. The percentage decrease to financial institutions is
slightly more than the decrease in production due to the fact that the
fee rates on those clients with lower production volumes was greater
than the fee rates on the remaining clients or clients who had an
increase in production;
. A $284,000 or 34% reduction in salesperson's commissions also due to
lower sales volume; and
. An additional $3,661,000 or 36% reduction in base operating expenses as
a result of the following:
. The reconfiguration and ultimate termination of the Company's
Florida operations in August 1995.
. The reconfiguration of the Company's Tennessee operations in
February 1996.
The Company's gross margin rate (gross revenue rate less payout rate to
financial institutions and salesperson commissions) is sensitive to changes in
product mix which is impacted by fluctuations in interest rates and other
market conditions. The highest gross margin rate is achieved on the sale of
fixed annuities, followed by variable annuities with mutual funds producing
the lowest gross margin rate.
Fixed annuities achieve a higher gross margin rate because the Company
receives a higher gross revenue rate on fixed annuities but makes payments to
its financial institution clients and sales personnel at a constant rate.
Mutual Funds achieve the lowest gross margin rate due to the significantly
lower gross revenue rate paid on these products, even though the payout to the
Company's financial institution clients is a fixed percentage of the gross
revenue rate. During 1996, variable annuity and mutual fund sales comprised
77% of total sales compared to 58% of total sales in 1995, resulting in a
decline in the gross margin rate on total product sales in 1996 from 1995.
As previously stated, the Company transitioned its Tennessee operations from
a sales program to a services program for which it generates service fees. Due
to the restructuring of the Company's operations, the Company is able to
provide such services in a more cost efficient manner. Thus, although service
revenue is less than what was generated by sales revenue, management expects
pre-tax operating profit from such services will equal or even exceed what was
generated by sales production due to significantly reduced costs.
As of December 31,1996, the balance remaining in the restructuring reserve
was approximately $12,000, which is primarily to cover the remaining net
obligation on leases of offices closed during restructuring. Management
believes this reserve balance is adequate to cover its remaining obligations
related to the restructuring.
1995 Compared to 1994
General. Revenues and expenses include the accounts of the Company's
subsidiaries, JMC and JMCI.
The Company reported net income for the year ended December 31, 1995 of
$1,741,000 (after providing for income taxes of $1,256,000) compared with a
net loss of $2,370,000 (after providing for income taxes of $492,000) in 1994.
Included in the 1995 and 1994 results were the following:
1995:
. A net gain of $3,914,000 ($2,349,000 or $0.38 per share after estimated
tax provision) on the sale of the rights to certain future asset-based
fee revenues to a client financial institution.
14
. Other revenue in the amount of approximately $1,309,000 ($785,000 or
$0.13 per share after estimated tax provision) related to the final
portion of that same client financial institution's payment for the
right to hire certain employees and certain other services.
1994:
. One-time pre-tax charges totaling $3,074,000. As explained in detail
below, the charges consisted of a restructuring charge of $557,000
($345,000 or $.05 per share after estimated tax benefit of $212,000) and
a write-off of goodwill which amounted to $2,517,000 (or $.39 per share)
with no corresponding tax benefit.
. Revenue in the amount of approximately $1,000,000 ($600,000 or $.09 per
share after estimated tax provision of $400,000) resulting from a
payment from a financial institution client for the right to hire
certain JMC employees.
Excluding the above-mentioned items and amortization of goodwill in 1994,
the Company would have reported an after-tax loss of $1,393,000 (or $0.22 per
share after an estimated tax benefit of $833,000) in 1995 compared to net
income of $407,000 (or $0.06 per share after providing for income taxes of
$304,000) in 1994.
Total revenues for 1995 were $20,372,000 compared to revenues of $33,357,000
in 1994, a decrease of $12,985,000 or 39%. Revenues for 1995 include the
previously mentioned one-time payments from a client financial institution and
the net gain on the sale of rights to certain asset-based fee revenues to that
same client totaling $5,223,000 as well as transition fees of $538,000 which
are included in other revenues:
. The transition fees were intended to cover the cost of operating the
Florida operations during a transitional period prior to termination of
the Company's relationship with its Florida financial institution
client. For purposes of analyzing revenues from operations, these
transition fees have been included as they relate to services performed.
As such, all expenses related to the same operational transition are
included in total operating expenses.
1994 revenues include the previously mentioned $1,000,000. Excluding the
one-time payments for the right to hire certain JMC employees in 1994 and 1995
and the net gain on the sale of the rights to certain asset-based fee revenues
in 1995, but including $538,000 for transition fees, revenues for 1995 would
have been $15,149,000 compared to $32,357,000 in 1994 (a decrease of
$17,208,000 or 53%). This reduction in revenues is primarily attributable to
the following:
. Lower gross sales volumes which declined $297 million or 62% due
primarily to:
. The reconfiguration and ultimate termination of the Company's
Florida operations contributed to $241 million or 81% of the sales
volume decline. The Company terminated its relationship with its
Florida financial institution client in August, 1995.
. The termination of another client relationship in the fourth quarter
of 1994 due to that client being acquired by First Interstate Bank
contributed to $18 million or 6% of the total gross sales decline in
1995 compared to 1994.
. Declining interest rates and increased competition, primarily from
Certificates of Deposits during 1995 also contributed to the sales
decline.
. A decrease of approximately 70 basis points or 12% in the gross revenue
rate on products sold in 1995 compared to 1994 due to a shift in the
product mix to mutual funds and variable annuities, both of which pay
lower commissions than that of fixed annuities. Annuity sales as a
percentage of total product sales were 65% in 1995 compared to 90% in
1994. In addition, fixed annuity sales as a percentage of total annuity
sales were 65% in 1995 as compared to 75% in 1994.
. A decrease of approximately $654,000 in asset-based fee revenue in 1995
compared to 1994. This decrease is a result of the sale of the rights to
certain future asset-based fee revenues at the end of
15
August for which the Company recognized a pre-tax net gain of
approximately $3,914,000 during 1995. Because of the timing of this
sale, the Company did not receive asset-based fee revenues for the last
four months of 1995 which would have generated approximately $1.1
million in additional asset-based fee revenue for 1995.
Total expenses for 1995 were $17,375,000 compared to $35,235,000 in 1994.
Excluding the previously described one-time charges of $3,074,000, total
expenses for 1994 would have been $31,646,000 (which also excludes
amortization of goodwill in 1994 of $515,000). Excluding the aforementioned
charges in 1994, total expenses in 1995 decreased $14,271,000 or 45% when
compared to 1994 expenses. This drop in total expenses is primarily
attributable to the following:
. A $6,744,000 or 51% reduction in fees to financial institutions due to
lower sales volume.
. A $783,000 or 48% reduction in salesperson's commissions also due to
lower sales volume; and
. An additional $6,745,000 or 40% reduction in base operating expenses as
a result of the following:
. The full impact of the Company's restructuring plan implemented in
the latter part of 1994, coupled with additional cost reductions
during 1995.
. The reconfiguration and ultimate termination of the Company's Florida
operations; and
. A reduction in legal fees related to the Company's administrative
proceeding with the Florida Department of Insurance. The Company
incurred significant legal expenses in connection with the five-week
administrative hearing which occurred in February and March of 1994.
The percentage decrease in fees to financial institutions in 1995 compared
to 1994 is less than the percentage decrease in sales volume primarily due to
the following:
. The Company pays out to its financial institution clients a higher
percentage of its asset-based fee revenue than it does on front
commission revenue. Thus, as asset-based fee revenue becomes a larger
percentage of total revenue (32% in 1995 vs. 17% in 1994) the total
payout percentage to the financial institution will increase. The
increased percentage of revenues paid out offset the decrease due to
decreased revenues generated.
The Company's gross margin rate (gross revenue rate less payout rate to
financial institutions and salesperson commissions) is sensitive to changes in
product mix which is impacted by fluctuations in interest rates and other
market conditions. The highest gross margin rate is achieved on the sale of
fixed annuities, followed by variable annuities with mutual funds producing
the lowest gross margin rate.
Fixed annuities achieve a higher gross margin rate because the Company
receives a higher gross revenue rate on fixed annuities but makes payments to
its financial institution clients and sales personnel at a constant. Mutual
Funds achieve the lowest gross margin rate due to the significantly lower
gross revenue rate paid on these products, even though the payout to the
Company's financial institution clients is a fixed percentage of the gross
revenue rate. During 1995, variable annuity and mutual fund sales comprised
58% of total sales compared to 33% of total sales in 1994, resulting in a
decline in the gross margin rate on total product sales in 1995 from 1994.
Restructuring. During the third quarter of 1994, the Company's Board of
Directors approved a restructuring plan which was developed by management to
enhance operating efficiencies by streamlining the Company's administrative
and sales management functions. During 1995 the Company realized the benefits
from this restructuring in terms of a reduced base operating overhead at the
beginning of the year. In addition, with the centralization of support
functions the Company was able to react quickly to effect further cost
reductions as sales volumes continued to decline, primarily as a result of the
reconfiguration and ultimate termination of its Florida operations.
16
As of December 31, 1995 the balance remaining in the restructuring reserve
was approximately $60,000 which is primarily to cover the remaining net
obligation on leases of offices closed during restructuring. Management
believes this reserve balance is adequate to cover its remaining obligations
related to the restructuring.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had cash and cash equivalents of
approximately $4,683,000, a decrease of $1,150,000 from $5,833,000 in cash and
cash equivalents at December 31, 1995.
Significant sources and uses of such amounts during 1996 included:
. The Company generated approximately $1,800,000 related to the net gain
on sale of rights to future asset fees. This amount was generated by a
sales price of $2.1 million less $300,000 of such sale which was
received in the first quarter of 1997. The approximately $250,000 in
accrued costs associated with this transaction will impact cash flow
primarily in 1997.
. The Company paid $1,250,000 to USBA Holdings, Ltd. for a Consulting
Agreement established in connection with a five-year business plan and
$884,000 in costs associated with a proposed merger with the same
company. Upon termination of the Merger Agreement, the Company filed
suit against USBA Holdings for which it received a cash settlement in
the amount of $500,000, which payment constituted a partial refund of
amounts paid by the Company under the Marketing Agreement and Consulting
Agreement and a portion of the Company's expenses incurred in connection
with the proposed JMCG/USBA merger during the fourth quarter of 1996.
. Excluding the above-mentioned items, the Company's operations generated
a pre-tax loss of $957,000 for the year.
Note: While the Company did not realize the positive cash flow from tax
benefits during 1996, it does intend to file for a refund on prior-year
taxes paid. The Company plans to file for such refund immediately upon
completion of its 1996 tax return and anticipates in excess of $300,000
to be generated during 1997.
The Company's cash needs are affected by its ongoing expenses. These
expenses include fees to financial institutions and sales commissions, which
fluctuate with sales production volumes ("production-based expenses") and
other operating expenses, such as employee salaries and rent, which bear no
precise correlation to sales volume ("base operating expenses"). The Company
has made a diligent effort and has been successful in reducing and controlling
the level of base operating expenses since its restructuring plan was
implemented in 1994. Base monthly operating expenses decreased from
approximately $650,000 in January of 1996 to $515,000 in December of 1996.
The Company is actively pursuing new client financial institutions.
Management believes that, as new client financial institutions are acquired,
the Company will benefit from spreading its base operating expenses over a
larger revenue base. However, the exact amount and nature of this benefit
cannot be ascertained with any certainty and will depend, in large part, upon
the nature of the services provided to new client financial institutions and
sales volume generated. Depending upon the nature of these services and sales
volume produced, the Company may need to increase base operating expenses from
their current levels. In any event, under the new consolidated structure, the
Company believes it has the ability to add new clients with significantly
reduced start-up costs compared to historical amounts. In addition, the
Company will service these new relationships on a more centralized basis to
take full advantage of operating efficiencies. Management does not anticipate
opening a new distribution center for each new client financial institution in
the future.
The Company sells financial products, primarily annuities and mutual funds.
Under its arrangements with the provider companies, the Company earns
commissions on each sale and is entitled to ongoing asset-based
17
fees and 12b-1 fees on the average accumulated value of assets. Under
arrangements with most of its client financial institutions, the Company is
also required to pay an asset-based fee which, although varying by product,
amounts to approximately 50-55% of the fee earned from its provider companies
for as long as the marketing relationship with the financial institution
continues. The provisions for payment of asset-based fees to client financial
institutions after the termination of the marketing relationship varies from
institution to institution and depends upon the manner in which the
relationship is terminated. At December 31,1996, the accumulated value of
assets on which the Company will receive asset-based fee revenue was
approximately $580 million (including mutual funds paying 12b-1 fees). Asset-
based fee revenue and asset-based fee expense to financial institutions
amounted to approximately $2,705,000 and $1,558,000, respectively, in 1996.
The reduction in these amounts as compared to 1995 is primarily the result of
the sale of the rights to asset-based fees generated by the Florida operation.
Due to the sale of rights to future asset-based fees to Central Fidelity at
the end of 1996, future asset fee revenues and asset fees expensed to
financial institutions will be lower in 1997. During 1996, the Central
Fidelity assets, for which the right to future asset-based fees was sold to
the bank on December 31, 1996, generated $849,000 in asset fee revenues but
also required $631,000 in fees to the bank for a net to JMC of $218,000.
Future fees, both those due from the provider company and those due to
financial institution clients, are not reflected as an asset or a liability in
the Consolidated Balance Sheets. However, management does believe a value
exists related to the present value of the projected future net asset fees to
be retained by the Company. Such projected future net asset fees are a
function of the projected accumulated value of assets in-force multiplied by
the net asset fee rate (gross asset fee rate less amount committed to the
financial institution). The current value to the Company would then be the
discounted present value of such projected future asset fees less the present
value of an estimated cost to service the customers making up such in-force
assets. Management's belief that a present value for such future asset-based
fees exists and the estimates used to calculate the range of such value are
supported by the sale of the right to these types of future fees in 1996 and
prior years. The projected value of the future asset-based fees on the
remaining block of business at December 31, 1996 is based on assumptions as to
growth, persistency and risk adjusted discount rates. The assumptions as to
persistency and growth of the business are based on historical data maintained
by the Company since its inception. The discount rate used of between 8% and
10% is based on a risk-free rate of return plus a nominal additional factor
for risk (taking into account that risk factors are materially covered by the
estimated persistency and growth rates). Management believes the value of
these net future revenues is appropriately estimated at $6 million to $8
million, pre-tax, based on the Company's valuation calculations. Such
estimated value is based on realization of the estimates on the variables used
in the calculation (which are consistent with estimates used in prior sales of
future rights) and the actual realization, if any, could be higher or lower
than this range.
While the Company's revenue base declined during 1996 and will decline even
further in 1997 due to the termination of the Central Fidelity program, base
operating expenses have declined as well. Thus, with the approximate $4.7
million of cash at year-end coupled with the anticipated cash flow in 1997
resulting from the final installment on the Central Fidelity purchase
($300,000 in February 1997) and a tax refund (approximately $300,000 projected
for the third quarter of 1997), management expects the Company will meet its
operating and capital expenditure needs over the next twelve months, exclusive
of adding new business which would most likely generate positive cash flow for
the Company.
TRENDS AND UNCERTAINTIES
Regulatory Environment. The Company and its financial institution clients
operate in a highly regulated environment. Both state and federal laws govern
the manner in which insurance agencies, broker-dealers and financial
institutions may make annuities, insurance products and mutual funds available
to customers of financial institutions. Recently, federal banking regulators,
the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. have focused attention in this area. Changes in, or
interpretations of, the laws and regulations governing these activities or
changes in the implementation or enforcement of such laws and regulations
could affect the ability of, and the means by which, the Company and its
financial institution clients make annuities, insurance products and mutual
funds available to customers of banks, savings and loan associations and
thrifts.
18
Declining Revenues. The Company experienced a continued decline in revenues
in 1996 as compared to 1995. The primary reason for this decline was the
termination of the Company's Florida program in August 1995 and the transition
of the First Tennessee Bank fully managed program to an Integrated Support
Services ("ISS") program effective February 1, 1996. The ISS program generates
less gross revenue but produces a comparable pre-tax contribution as the
Company's fully managed program due to the significantly reduced costs.
Based on a continuing trend of the larger financial institutions
internalizing their alternative investment product distribution and not
utilizing services of third-party marketing firms like the Company and the
exposure to low production volumes at the smaller financial institutions, the
Company has taken a strategic approach which includes the following:
. Target the small to medium sized financial institutions with the
Company's dual employee program. This offers the bank all of the
benefits of the fully managed program but requires the bank to employ
the sales force and pay salaries and benefits of such sales force.
. Offer services which are logically outsourced by financial institutions
to assist their alternative product distribution programs. Utilizing the
Company's reduced cost structure, these services can be offered to
financial institutions with competitive pricing while still allowing the
Company to realize adequate profit margins.
. Offer tracking, processing and servicing capabilities to other
institutions outside the bank marketplace.
. Offer products to the larger financial institutions in a "wholesaling"
capacity while still providing business processing and customer
servicing for the provider company and the financial institution.
In general, these new type of services offered by the Company generate less
gross revenue than the traditional fully managed program. However, with a
significantly reduced cost commitment, management believes the Company can
generate comparable pre-tax contributions and not be subject to the same
production break-even risk as was the case in the past.
19
ITEM 8. FINANCIAL STATEMENTS
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT............................................... 21
CONSOLIDATED BALANCE SHEETS................................................ 22
CONSOLIDATED STATEMENTS OF OPERATIONS...................................... 23
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY................. 24
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................... 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................. 26
20
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of JMC Group,
Inc. and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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, such consolidated financial statements present fairly, in
all material respects, the financial position of JMC Group, Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 21, 1997
21
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents............................ $4,682,883 $5,832,598
Cash segregated under securities regulations......... 1,247,231 894,269
Receivables from insurance companies................. 674,409 826,971
Receivable from financial institution................ 325,000 109,450
Income taxes receivable.............................. 424,746 65,334
Deferred tax asset................................... 194,361 159,354
Other assets......................................... 243,256 281,947
---------- ----------
TOTAL CURRENT ASSETS............................... 7,791,886 8,169,923
Furniture, equipment and leasehold improvements--net of
accumulated depreciation and amortization of
$1,466,390 in 1996 and $1,498,291 in 1995............. 212,844 362,261
Asset-based fees purchased--net of accumulated
amortization of $635,836 in 1996 and $417,485 in 1995. 761,293 979,644
---------- ----------
TOTAL ASSETS....................................... $8,766,023 $9,511,828
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accrued fees to financial institutions............... $ 321,609 $ 367,287
Customer funds segregated under securities
regulations......................................... 1,247,231 894,269
Accrued expenses and other liabilities............... 491,556 894,180
Allowance for contract cancellations................. 53,813 142,503
Accrued payroll and related expenses................. 133,911 212,767
---------- ----------
TOTAL CURRENT LIABILITIES.......................... 2,248,120 2,511,006
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized 5,000,000
shares.............................................. -- --
Common stock, $.01 par value; authorized 20,000,000
shares; issued and outstanding 6,218,898 shares in
1996 and 6,198,898 in 1995.......................... 62,189 61,989
Additional paid-in-capital........................... 644,651 624,851
Retained earnings.................................... 5,811,063 6,313,982
---------- ----------
TOTAL STOCKHOLDERS' EQUITY......................... 6,517,903 7,000,822
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $8,766,023 $9,511,828
========== ==========
The accompanying notes are an integral part of these financial
statements.
22
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
----------- ----------- -----------
REVENUES
Commissions............................ $ 9,541,728 $14,312,707 $32,147,555
Net gain on sale of rights to certain
future asset-based fee revenues....... 1,844,393 3,914,350 --
Interest............................... 204,505 244,401 199,530
Other.................................. 254,810 1,900,402 1,010,157
----------- ----------- -----------
TOTAL REVENUES....................... 11,845,436 20,371,860 33,357,242
----------- ----------- -----------
EXPENSES
Employee compensation and benefits..... 4,852,670 7,428,369 13,095,319
Fees to financial institutions......... 3,928,024 6,400,349 13,144,841
Professional fees...................... 1,089,861 770,121 1,514,468
Rent................................... 376,917 510,691 638,744
Telephone.............................. 142,273 231,714 474,148
Depreciation and amortization.......... 227,040 394,188 1,054,770
Other general and administrative
expenses.............................. 1,224,926 1,639,136 2,239,510
Goodwill write-off..................... -- -- 2,516,683
Restructuring charges.................. -- -- 557,002
Marketing plan payment--net of
recovery.............................. 750,000 -- --
----------- ----------- -----------
TOTAL EXPENSES....................... 12,591,711 17,374,568 35,235,485
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........ (746,275) 2,997,292 (1,878,243)
INCOME TAX PROVISION (BENEFIT)........... (243,356) 1,256,168 491,912
----------- ----------- -----------
NET INCOME (LOSS).................. $ (502,919) $ 1,741,124 $(2,370,155)
=========== =========== ===========
EARNINGS (LOSS) PER SHARE................ $ (0.08) $ 0.28 $ (0.36)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
23
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK
------------------- ADDITIONAL
OUTSTANDING PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ------- ---------- ----------- -----------
Balances--January 1,
1994................... 6,484,898 $64,849 $1,093,488 $ 7,399,478 $ 8,557,815
Dividends paid ($0.07
per share)............. -- -- -- (456,465) (456,465)
Stock options exercised. 40,000 400 56,960 -- 57,360
Reduction of income
taxes payable due to
stock option
transactions........... -- -- 114,453 -- 114,453
Repurchase and
retirement of common
stock.................. (326,000) (3,260) (640,050) -- (643,310)
Net loss for the year
ended December 31,
1994................... -- -- -- (2,370,155) (2,370,155)
--------- ------- ---------- ----------- -----------
Balances--December 31,
1994................... 6,198,898 61,989 624,851 4,572,858 5,259,698
Net income for the year
ended
December 31, 1995...... -- -- -- 1,741,124 1,741,124
--------- ------- ---------- ----------- -----------
Balances--December 31,
1995................... 6,198,898 61,989 624,851 6,313,982 7,000,822
Stock options exercised. 20,000 200 19,800 -- 20,000
Net loss for the year
ended December 31,
1996................... -- -- -- (502,919) (502,919)
--------- ------- ---------- ----------- -----------
Balances--December 31,
1996................... 6,218,898 $62,189 $ 644,651 $ 5,811,063 $ 6,517,903
========= ======= ========== =========== ===========
The Company's certificate of incorporation also authorizes 5,000,000 shares
of no par value preferred stock, none of which has been issued.
The accompanying notes are an integral part of these financial statements.
24
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ (502,919) $ 1,741,124 $(2,370,155)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Net gain on sale of rights to certain
future asset-based fee revenues...... (1,844,393) (3,914,350) --
Realized loss on short-term
investments.......................... -- -- 72,763
Loss on sale of furniture and
equipment............................ 5,036 28,170 --
Depreciation and amortization......... 227,040 394,188 1,054,770
Marketing plan payment--net of
recovery............................. 750,000 -- --
Goodwill write-off.................... -- -- 2,516,683
Amortization of asset-based fees
purchased............................ 218,351 156,195 170,447
Deferred tax provision (benefit)...... (35,007) 265,230 496,535
Changes in assets and liabilities:
Cash segregated under securities
regulations.......................... (352,962) (846,523) (47,746)
Short-term investments................ -- 536,000 (536,000)
Receivables from insurance companies.. 152,562 598,495 587,565
Receivable from financial institution. 84,450 (109,450) --
Income taxes receivable............... (359,412) 103,658 837,228
Other assets.......................... 26,887 26,299 (64,877)
Accrued fees to financial
institutions......................... (45,678) (611,255) (630,101)
Customer funds segregated under
securities regulations............... 352,962 846,523 47,746
Accrued expenses and other
liabilities.......................... (402,624) (44,361) (434,451)
Accrued restructuring expenses........ -- (201,865) 472,804
Allowance for contract cancellations.. (88,690) (248,036) (344,968)
Accrued payroll and related expenses.. (78,856) (318,792) (109,970)
Reserve for discontinued operations... -- -- (492,836)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES.......................... (1,893,253) (1,598,750) 1,225,437
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from net sale of rights to
certain future asset-based fee
revenues.............................. 1,544,393 3,914,350 --
Payment for the consulting and
marketing agreement................... (1,250,000) -- --
Recovery of payment and expenses for
consulting and marketing agreement.... 500,000 -- --
Purchase of furniture, equipment and
leasehold improvements................ (89,464) (109,677) (158,013)
Proceeds from sale of furniture and
equipment............................. 18,609 15,787 --
Purchase of short-term investments..... -- -- (2,389,463)
Redemption of short-term investments... -- -- 6,519,737
----------- ----------- -----------
NET CASH PROVIDED BY INVESTING
ACTIVITIES.......................... 723,538 3,820,460 3,972,261
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock............. -- -- (2,606,641)
Proceeds from stock options exercised.. 20,000 -- 57,360
Dividends paid......................... -- -- (456,465)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES.......................... 20,000 -- (3,005,746)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... (1,149,715) 2,221,710 2,191,952
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................... 5,832,598 3,610,888 1,418,936
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................ $ 4,682,883 $ 5,832,598 $ 3,610,888
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for:
Interest.............................. $ 765 $ 1,395 $ 6,365
Income taxes.......................... $ 273,468 $ 979,550 $ 248,837
SUPPLEMENTAL DISCLOSURES OF NON-CASH
OPERATING ACTIVITIES
Depreciation charged against accrued
restructuring expenses................ $ -- $ 32,441 $ --
The accompanying notes are an integral part of these financial statements.
25
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACQUISITION
The consolidated financial statements include the accounts of JMC Group,
Inc. ("JMCG" or the "Company"), its wholly owned subsidiaries, JMC Investment
Services, Inc. ("JMCI") (formerly Priority Investment Services, Inc. which was
formerly Spear Rees & Co.) and James Mitchell & Co. and its subsidiaries
("JMC"). The Company is engaged in the business of selling and providing
support services for the sales of annuities, insurance products, and mutual
funds to the customers of banks, savings and loan associations and thrifts.
Effective January 25, 1994, Spear Rees & Co. changed its name to Priority
Investment Services, Inc. Effective July 23, 1996, Priority Investment
Services, Inc. changed its name to JMCI. JMCI is registered with the
Securities and Exchange Commission and the National Association of Securities
Dealers (NASD) as a broker-dealer.
In 1988, JMCG acquired all of the outstanding stock of JMC in a business
combination accounted for by the purchase method of accounting. The total cost
of the acquisition exceeded the fair value of the net assets acquired and the
excess was allocated to the cost of goodwill which was originally being
amortized over ten years. This amortization period was derived from the terms
of the contracts that JMC had with its remaining financial institution clients
at the time of the acquisition. During the third quarter of 1994, the Company
was notified of the termination of its contract with the last significant
client remaining from those existing at the time of the 1988 acquisition.
Accordingly, the Company accelerated its amortization and wrote-off $2,516,683
representing the remaining unamortized book value of goodwill during 1994.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers cash on hand, cash in banks, and all highly liquid
investments purchased with a maturity of three months or less to be cash and
cash equivalents.
Cash Segregated Under Securities Regulations
JMC Financial Corporation, James Mitchell & Co.'s broker-dealer subsidiary
("JMC Financial"), began self-clearing mutual fund transactions for itself and
JMCI at the end of 1994. As such, JMC Financial carries customer funds for
transactions which have been initiated but not settled as of the balance sheet
date. Cash of $1,247,231 has been segregated in a special bank account for the
benefit of customers under Rule 15c3-3 of the Securities and Exchange
Commission.
Long-Lived Assets
Statement of Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," was adopted by
the Company in 1996. The standard requires that impairment losses be
recognized when the carrying value of an asset exceeds its fair value.
The Company periodically reviews the value of its long-lived assets to
determine if an impairment has occurred. The Company measures the potential
impairment of the recorded amount by the undiscounted value of expected future
operating cash flows in relation to its net capital investment in the
subsidiaries. Based on its review, the Company does not believe that an
impairment of its long lived assets has occurred.
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
26
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
The Company recognizes and records commission revenue when a sale has been
consummated. Annuity and insurance sales are deemed to be consummated when
proof of premium payment, the completed application and supporting
documentation have been received in the Company's distribution/service center.
Mutual fund sales are recorded on the trade date of such sale. Front
commission revenues for 1996, 1995, and 1994 were $6,470,807, $9,447,074, and
$26,628,216, respectively. Annuity and insurance sales commission revenue is
reported net of chargebacks. The Company recognizes and records asset-based
fee revenues as they become due from the provider companies, based upon the
average accumulated value of assets in force. Asset-based fee revenues for
1996, 1995 and 1994 were $2,705,055, $4,865,633, and $5,519,339, respectively.
Beginning in 1996, the Company began providing support services related to the
sale of annuities and mutual funds with its Tennessee client. Revenue is
recognized when services have been performed. Service related fees for 1996
were $365,866 and are included in commission revenue for the year.
Fees to Financial Intermediaries
Fees to financial intermediaries consist of front commission fees and asset-
based fees. The Company records front commission fees when a sale has been
consummated as described in Revenue Recognition. Front commission fees to
financial institutions for 1996, 1995 and 1994 were $2,369,951, $3,332,006 and
$9,379,359, respectively. The Company recognizes and records asset-based fees
monthly as they become due to the financial intermediaries, based upon the
average accumulated assets in force during the month. Asset-based fees to
financial institutions for 1996, 1995 and 1994 were $1,558,074, $3,068,343 and
$3,765,482, respectively.
Allowance for Contract Cancellations
The Company reflects a liability on its balance sheet identified as
"Allowance for Contract Cancellations". This allowance is a recognition that
certain commissions earned by the Company on the sale of annuities and
insurance products must be returned to the provider companies if policies are
surrendered within the first year after purchase. A formula is used to
calculate the returned commission exposure. This formula was developed based
on the Company's policy surrender patterns, actual commissions received by
month, "known" unprocessed surrenders, and the availability of recoveries of
client fees and sales personnel commissions. The chargeback expense associated
with this liability is reflected as a reduction in commission revenue as
previously stated in "Revenue Recognition."
Net Gain on Sale of Rights to Certain Future Asset-Based Fee Revenue
During the fourth quarter of 1996, the Company signed an agreement to
terminate its contract with its Virginia-based financial institution client.
As part of the termination agreement, the financial institution exercised its
right to purchase future asset-based fee revenues from the Company. The
Company recorded a net gain of $1,844,393 from the sale.
During the third quarter of 1995, the Company signed an agreement to
terminate its Florida operations. As part of the termination agreement, the
Florida-based financial institution exercised its right to purchase certain
future asset-based fee revenues from the Company. The Company recorded a net
gain of $3,914,350 from the sale.
27
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Income
For 1995 and 1994, other income includes revenue received from the Company's
Florida-based financial institution client, for the right to hire certain JMC
employees of $1,308,500 and $1,000,000, respectively. In addition, 1995 other
income includes fees of $538,200 paid to the Company by the same financial
institution to transition the sales operation to the financial institution. In
1996, other income includes fees of $250,000 paid to the Company by the
Company's Virginia-based financial institution client to transition the sales
operations to the financial institution. Costs incurred by the Company to
facilitate such transactions are included in expenses for each respective
year.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are recorded at cost. Depreciation is provided using
the straight line method over the estimated useful lives of the property which
range from three to five years. Leasehold improvements, also recorded at cost,
are amortized over the lesser of the estimated life of the improvement or the
term of the lease.
Asset-Based Fees Purchased
The asset is being amortized over 13 years from the acquisition date which
represents the estimated life of the asset-based fees purchased. The
unamortized balance of this capital asset as of December 31, 1996 was
$761,293.
Restructuring
Restructuring expenses represent costs specifically associated with the
Company's restructuring, which was approved in the third quarter of 1994,
including employee severance, asset write-downs and lease write-offs for
closed offices.
USBA Marketing Agreement and Proposed Merger
The Company entered into an agreement with USBA Holdings, Ltd. ("USBA") in
January 1996. In connection with this transaction, the Company paid USBA $1.25
million to assist in the preparation and implementation of a five-year
marketing plan. The Company had the right to recover $1 million under certain
circumstances. In addition, USBA was given warrants to purchase up to 1
million shares of the Company's common stock at $2.50 per share which may have
been adjusted to approximately $1.44 per shares under certain circumstances.
The warrants, which were exercisable after January 29, 1997, had an estimated
value of $315,000. Both the payment and the value of the warrants were
capitalized and were being amortized over an expected benefit period of five
years.
In the second quarter of 1996, the Company and USBA entered into an
Agreement and Plan of Merger and began the process of consummating such
merger. All costs associated with such merger were capitalized, beginning in
the second quarter of 1996, as these costs were expected to be included in the
purchase price upon consummation of the transaction. During the third quarter
of 1996, the Company terminated the Agreement and Plan of Merger, at which
time all costs previously capitalized in the second quarter and all costs
incurred during the third quarter related to the merger were expensed. These
merger related expenses, which amounted to $884,000, are included in the 1996
Statements of Operations, primarily within professional fees and other general
and administrative expenses.
The Company filed an action against USBA to recover costs incurred related
to the terminated Agreement and Plan of Merger and to recover fees paid for
the Marketing Agreement and for return of the warrants. During
28
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the fourth quarter of 1996, the Company reached an agreement with USBA and
received a cash payment of $500,000, constituting a partial refund of amounts
paid by the Company under the Marketing Agreement and Consulting Agreement and
payment of a portion of the Company's expenses incurred in connection with the
Agreement and Plan of Merger, and the warrants were returned. The Company,
during this period, wrote off the remaining unamortized balance of the payment
of $1.25 million, reversed the capitalization of the value of the returned
warrants and the amortization expense thereon for the first three quarters of
1996 and recorded the recovery of $500,000. The write-off of the payment and
the value of warrants was not made until the fourth quarter as the Marketing
Plan and Marketing Agreement were in effect and the Company was working with
several financial institutions referred through the Marketing Agreement up
through the termination and settlement made in the fourth quarter.
The entire $1.25 million payment and recovery of $500,000 are included in
the line "Marketing plan payment--net of recovery" and thus, amortization of
the plan payment included in depreciation and amortization for the first three
quarters of 1996 has been reclassified to this line for more appropriate
presentation of material operating transactions.
NOTE 3. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases an office facility and equipment under the terms of
operating leases which expire through 1998. At December 31, 1996 the aggregate
minimum annual noncancelable lease commitments are as follows:
MINIMUM
AGGREGATE
YEAR ENDING DECEMBER 31, RENTALS
------------------------ ---------
1997........................................................ $352,783
1998........................................................ 180,307
--------
$533,090
========
The above schedule of minimum aggregate rentals represents lease payments on
all of the Company's offices as if rents were paid on all offices through
their respective lease terms less amounts to be received by the Company for
offices which have been subleased.
As of January 1, 1997 the Company had two offices which were being
subleased. The net obligation on such offices, included in the above minimum
aggregate rentals, is included in accrued expenses and other liabilities as of
December 31, 1996.
LEGAL MATTERS
Florida Legal Proceedings
During March 1993, the Florida Department of Insurance (the "Department")
commenced an administrative proceeding against the Company's wholly owned
subsidiary, JMC. A Final Order was issued in July 1995, however, the
enforcement of the majority of the Final Order was stayed pending the outcome
of JMC's appeal. The District Court of Appeal, for all material matters,
affirmed the Final Order in August 1996, and in October 1996, the District
Court of Appeal denied JMC's Motion for Rehearing. In March 1997, the Florida
Supreme Court denied JMC's petition for review.
The Company has incurred most of the anticipated costs of the appeal and
management believes that amounts accrued as of December 31, 1996 will be
sufficient to cover any additional costs. Effective October 1995, JMC
concluded its relationship with its Florida financial institution client,
Barnett Banks, Inc., and is not presently doing business in the State of
Florida. As described in Note 8, Barnett Bank accounted for revenues of
$10,239,630 and $20,176,680 during 1995 and 1994, respectively.
29
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Matters
The Company's broker-dealer subsidiary, JMCI, has been named as a defendant
in lawsuits arising out of the sale of real estate limited partnerships prior
to 1992 to customers of its predecessor. In addition, the Company and its
subsidiaries are involved in various legal and regulatory proceedings from
time to time in the ordinary course of business. Management does not believe
that any such proceedings will have a material adverse effect on the Company's
financial condition or results of operation, and of March 10, 1997, no such
proceedings were pending.
NOTE 4. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
1996 1995
----------- -----------
Furniture, equipment and leasehold improvements
consist of:
Furniture and fixtures.......................... $ 621,247 $ 858,151
Computer equipment.............................. 1,007,262 959,440
Leasehold improvements.......................... 50,725 42,961
----------- -----------
1,679,234 1,860,552
Less:
Accumulated depreciation and amortization..... (1,466,390) (1,498,291)
----------- -----------
Net furniture, equipment and leasehold
improvements.................................... $ 212,844 $ 362,261
=========== ===========
NOTE 5. STOCKHOLDERS' EQUITY
Common Stock
In 1994, the Board of Directors authorized the purchase of up to 500,000
shares of the Company's common stock. During 1994, the Company repurchased
326,000 shares of common stock at a total cost of $643,310. In January of
1997, the Company repurchased 194,547 shares of common stock from a former
officer and director at a price of $1.00 per share.
Stock Compensation Plans
At December 31, 1996, the Company has three stock-based compensation plans
which are described below. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the Company's
stock option plans been determined based on the fair market value at the grant
date for awards in 1996 and 1995, consistent with the provisions of SFAS No.
123, the Company's net earnings and earnings per share would have been reduced
to the pro forma amounts indicated below:
1996 1995
--------- ----------
Net income (loss)
As reported....................................... $(502,919) $1,741,124
Pro forma......................................... $(510,093) $1,692,197
Earnings (loss) per share
As reported....................................... $ (0.08) $ 0.28
Pro forma......................................... $ (0.08) $ 0.27
The assumption regarding the stock options issued in 1995 and 1996 was that
100% of such options vested in the respective year rather than the actual
vesting schedules which range from one year to three years.
The impact of outstanding non-vested stock options granted prior to 1995 has
been excluded from the pro forma calculation; accordingly, the 1996 and 1995
pro forma adjustments are not indicative of future period pro
30
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
forma adjustments, when the calculation will apply to all applicable stock.
The estimated fair value of options granted is subject to the assumptions
illustrated below and if the assumptions changed, the estimated fair value
amounts could be significantly different.
The fair value of options granted during 1996 and 1995 was estimated at
$11,000 and $82,000, respectively, on the date of grant using the Black-
Scholes option-pricing model with the following weighted average assumptions
by respective year:
1996 1995
--------- ---------
Dividend yield rate................................... 0% 0%
Volatility rate....................................... 122% 70%
Risk free interest rate............................... 6.04% 5.25%
Expected lives........................................ 3 years 3 years
In 1983, the Company adopted a Stock Option Plan (the "1983 Plan") pursuant
to which options to purchase an aggregate of 1,000,000 shares of common stock
could be granted to directors, officers and key employees. The 1983 Plan
expired by its terms in November 1993, although there are still options
outstanding under the 1983 Plan. In 1993, the Company adopted the 1993
Executive Stock Option Plan (the "Executive Plan") pursuant to which options
to purchase an aggregate of 750,000 shares of common stock may be granted to
officers and directors of the Company and its subsidiaries and the 1993
Employee Stock Option Plan (the "Employee Plan") pursuant to which options to
purchase an aggregate of 750,000 shares of common stock may be granted to
employees of the Company and its subsidiaries (collectively, the "1993 Plans"
and, together with the 1983 Plan, the "Plans"). Under the Plans, incentive
stock options, as defined in section 422A of the Internal Revenue Code, or
non-qualified stock options may be granted. Non-employee directors receive
formula grants of options pursuant to the Executive Plan.
A summary of changes in outstanding common stock options during 1996, 1995,
and 1994 follows:
NUMBER
OF OPTION PRICE
SHARES PER SHARE
-------- -------------
Stock options outstanding at December 31, 1993..... 254,000 $1.380-11.000
1994
Granted............................................ 243,000 $4.000- 4.400
Canceled or exercised.............................. (91,000) $1.380- 9.000
1995
Granted............................................ 218,000 $0.625- 3.625
Canceled or exercised.............................. (112,000) $1.690-11.000
1996
Granted............................................ 25,000 $0.969- 3.750
Canceled or exercised.............................. (107,000) $0.750- 4.000
-------- -------------
Outstanding at December 31, 1996................... 430,000 $0.625-11.000
======== =============
31
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Of the 25,000, 218,000 and 243,000 options granted in 1996, 1995 and 1994
respectively, options granted under the Executive Plan amounted to 12,000 for
1996, 152,000 for 1995 and 170,000 for 1994. Options granted under the
Employee Plan amounted to 13,000 in 1996, 66,000 in 1995 and 73,000 in 1994.
The 430,000 options outstanding at December 31, 1996 became or will become
exercisable as follows: 328,001 shares in 1996 and prior; 66,000 in 1997;
28,666 in 1998; and 7,333 in 1999. As of December 31, 1996, options to
purchase 546,834 shares had been exercised under the 1983 Plan and options for
93,000 shares were outstanding. As of December 31, 1996, 482,000 shares were
available for future grants under the Executive Plan and 661,000 shares were
available for future grants under the Employee Plan. As of December 31, 1996,
a total of 1,593,000 shares were reserved for issuance under the Plans.
NOTE 6. EARNINGS PER SHARE
Earnings per share for 1996 and 1994 were computed based upon the weighted
average number of shares of common stock during such periods. Earnings per
share for 1995 was computed based upon the weighted average number of shares
of common stock and common stock equivalents outstanding during the period.
The weighted average number of shares outstanding for 1995 was adjusted to
reflect the dilutive effect of the assumed exercise of stock options using the
treasury stock method.
For earnings per share purposes, the weighted average number of shares of
common stock and common stock equivalents outstanding for the periods
presented is as follows: 6,218,898 in 1996; 6,201,318 in 1995; and 6,494,388
in 1994.
In February of 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share
(EPS). This statement requires the presentation of earnings per share to
reflect both "Basic EPS" as well as "Diluted EPS" on the face of the income
statement. In general, Basic EPS excludes dilution created by stock
equivalents and is a function of the weighted average number of common shares
outstanding for the period. Diluted EPS does reflect the potential dilution
created by stock equivalents if such equivalents are converted into common
stock and is calculated in the same manner as fully Diluted EPS illustrated in
Accounting Principals Board Opinion No. 15 "Earnings Per Share" ("APB
No. 15").
The Company will be required to adopt the new method of reporting EPS for
the year ending December 31, 1997. The Company's EPS as reflected in this
document includes Basic EPS for 1996 and 1994 and Diluted EPS for 1995 due to
the rules of APB No. 15 and the use of stock equivalents only when they are
dilutive.
Based on the Company's capital structure, the anticipated results of
implementing SFAS No. 128 would reflect EPS materially in the same manner as
currently reported.
32
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. INCOME TAXES
The provision (benefit) for income taxes is allocated as follows:
1996 1995 1994
--------- ---------- ---------
(Benefit) Provision........................ $(243,356) $1,256,168 $ 606,365
Additional tax deduction due to stock
option transactions........................ -- -- (114,453)
--------- ---------- ---------
Total.................................... $(243,356) $1,256,168 $ 491,912
========= ========== =========
1996 1995 1994
--------- ---------- ---------
Current:
Federal................................... $(166,680) $ 792,750 $ 86,843
State..................................... (41,669) 198,188 22,987
--------- ---------- ---------
(208,349) 990,938 109,830
Deferred................................... (35,007) 265,230 496,535
Additional tax deduction due to stock
option transactions........................ -- -- (114,453)
--------- ---------- ---------
Total.................................... $(243,356) $1,256,168 $ 491,912
========= ========== =========
The provisions for income taxes for continuing operations differs from the
amount computed using the statutory federal tax rate of 34% as a result of the
following:
1996 1995 1994
--------- ---------- ----------
Expected tax (benefit) using statutory
rate...................................... $(253,734) $1,019,079 $ (638,603)
Effects of:
State income taxes, net of Federal tax
benefit................................. 9,642 178,039 (109,051)
Nondeductible amortization.............. -- -- 1,212,585
Other................................... 736 59,050 26,981
--------- ---------- ----------
Total................................... $(243,356) $1,256,168 $ 491,912
========= ========== ==========
At December 31, 1996 and 1995, the components of the deferred income tax
asset are as follows:
1996 1995
-------- --------
Allowance for contract cancellations...................... $ 21,493 $ 56,916
Accrued restructuring expenses............................ 4,617 24,111
Accrued payroll and related expenses...................... 102,016 69,161
Other..................................................... 6,084 (22,760)
Franchise taxes........................................... 60,151 31,926
-------- --------
Deferred taxes.......................................... $194,361 $159,354
======== ========
33
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. MAJOR CUSTOMERS
During the years ended December 31, 1996, 1995 and 1994, the following
client financial institutions individually accounted for 10% or more of the
Company's total revenues:
1996
Central Fidelity National Bank (Virginia)....................... $ 7,373,399
Independence Savings Bank (New York)............................ $ 1,716,939
First Tennessee Bank (Tennessee)................................ $ 1,346,557
1995
Barnett Banks, Inc. (Florida)................................... $10,239,630
Central Fidelity National Bank (Virginia)....................... $ 4,331,633
First Tennessee Bank (Tennessee)................................ $ 3,149,677
1994
Barnett Banks, Inc. (Florida)................................... $20,176,680
Central Fidelity National Bank (Virginia)....................... $ 6,210,464
As described in Note 3, the Company's relationship with Barnett Banks, Inc.
was terminated effective October 31, 1995.
Effective February 1, 1996, the Company's level of service provided to First
Tennessee Bank was reduced from a fully managed alternative investments
program to an administrative support program.
As described in Note 2, effective December 31, 1996, the Company's
relationship with Central Fidelity National Bank was terminated.
NOTE 9. SHAREHOLDER RIGHTS PLAN
In 1990, the Company's Board of Directors adopted a Shareholder Rights Plan
(the "Plan"). The Plan provided for the distribution of one common stock
purchase right as a dividend for each outstanding share of common stock of the
Company as of April 1, 1990. The right entitles stockholders to buy one share
of the Company's common stock at thirty dollars per share, subject to
adjustment per the Plan. All rights expire on February 23, 2000.
Generally, each right may be exercised ten days after any person or group
("Acquirer") acquires beneficial ownership of 20% of the outstanding shares of
common stock, or ten days after an Acquirer announces a tender offer or other
business combination, which would result in the Acquirer obtaining beneficial
ownership of 20% or more of the voting power of the Company, unless such
tender offer or acquisition is made with approval of the Board of Directors.
Under certain circumstances, including the acquisition of 25% of the
Company's common stock and the occurrence of certain "self-dealing
transactions" by an Acquirer or certain other 20% holders, all rights holders
except the Acquirer may purchase the Company's common stock at approximately
50% of the prevailing market price. Similarly, if the Company is acquired in a
merger after the acquisition of specified percentages of the voting power of
the Company, and the Acquirer is the resultant corporation, the rights holders
with the exception of the Acquirer, may purchase the Acquirer's shares at a
similar discount.
The Board of Directors may effect the redemption of the rights at any time
before the rights become exercisable at a nominal price payable in cash and/or
shares of common stock.
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from information contained in the Proxy Statement
for the 1997 Annual Meeting of Stockholders under the headings "DIRECTORS AND
EXECUTIVE OFFICERS" and "SECURITY OWNERSHIP--Compliance with Section 16(a) of
the Securities Exchange Act of 1934."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information contained in the Proxy
Statement for the 1997 Annual Meeting of Stockholders under the headings
"EXECUTIVE COMPENSATION" and "BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information contained in the Proxy
Statement for the 1997 Annual Meeting of Stockholders under the heading
"SECURITY OWNERSHIP."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following documents are filed herewith:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations For the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity For the
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows For the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a)(2) Not applicable.
35
(a)(3) The following exhibits are filed herewith:
3.1 Certificate of Incorporation of the Registrant.*
3.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant.*
3.3 By-laws of the Registrant.*
4.1 Shareholder Rights Agreement, dated as of February 21, 1990, between
Spear Financial Services, Inc. and First Interstate Bank, Ltd., as
Rights Agent, as amended effective, July 16, 1992.*
m10.1 JMC Group, Inc. 1993 Employee Stock Option Plan.**
m10.2 JMC Group, Inc. 1993 Executive Stock Option Plan.***
10.3 Agreement, dated December 9, 1994, by and between James Mitchell &
Co. and Barnett Banks, Inc.****
10.4 Amendment No. 3 to Services Agreement dated January 1, 1995, by and
between James Mitchell & Co. and Central Fidelity National Bank.****
10.5 Interim Services Agreement dated October 19, 1995 between James
Mitchell & Co., Barnett Banks, Inc. and Barnett Banks Trust Company,
N.A.*****
10.6 Termination and Assignment Agreement dated October 19, 1995 between
James Mitchell & Co., Barnett Banks, Inc. and Barnett Banks Trust
Company, N.A.*****
10.7 Assignment and Notice of Assignment of Renewal (Asset) Fees between
James Mitchell & Co., JMC Insurance Services Corporation and JMC
Financial Corporation and Barnett Annuities Corporation and the
Acknowledgment and Acceptance of Assignment from Keyport Life
Insurance Company.*****
10.8 Assignment and Notice of Assignment of Renewal (Asset) Fees between
James Mitchell & Co., JMC Insurance Services Corporation and JMC
Financial Corporation and Barnett Annuities Corporation and the
Acknowledgment and Acceptance of Assignment from Life Insurance
Company of Virginia.*****
10.9 Assignment of Renewal (Asset) Fees and Notice of Assignment of
Renewal (Asset) Fees between James Mitchell & Co., JMC Financial
Corporation and JMC Insurance Services Corporation and Barnett
Annuities Corporation and the Acknowledgment and Consent to
Assignment from Transamerica Life and Annuity Co.*****
10.10 Assignment and Notice of Assignment between James Mitchell & Co., JMC
Financial Corporation and JMC Insurance Services Corporation and
Barnett Annuities Corporation and the Acceptance and Release between
Western and Southern Life Assurance Company and James Mitchell & Co.,
JMC Insurance Services Corporation and JMC Financial
Corporation.*****
10.11 Consulting Agreement between USBA Holdings, Ltd. and James Mitchell &
Co. dated January 26, 1996.*****
10.12 Marketing Agreement between JMC Group, Inc. and USBA Holdings, Ltd.
dated January 29, 1996 with exhibits.*****
10.13 Integrated Support Services Agreement dated January 31, 1996 between
JMC Group, Inc., James Mitchell & Co., JMC Insurance Services
Corporation, JMC Financial Corporation, First Tennessee Bank National
Association and First Tennessee Brokerage, Inc.*****
10.14 Termination and Transition Agreement dated January 31, 1996 between
JMC Group, Inc., James Mitchell & Co., Priority Investment Services,
Inc., and First Tennessee Bank National Association.*****
10.15 Termination and Assignment Agreement dated December 31, 1996 between
James Mitchell & Co., JMC Insurance Services Corporation, JMC
Financial Corporation and Central Fidelity National Bank.
36
10.16 Settlement and Mutual Release dated November 20, 1996 between JMC
Group, Inc., James K. Mitchell, D. Mark Carlson, Simon C. Baitler,
Kevin L. Rakin, USBA Holdings, Ltd., James P. Cotton, Jr., Ronald D.
Wallace and Louie W. Moon.
10.17 Nondeposit Investment Sales Agreement dated November 6, 1996 between
James Mitchell & Co., JMC Insurance Agency of New York, Inc., JMC
Financial Corporation, Provest Services Corp. II and Provident Savings
Bank, F. A. with sample sublease and sub-sublease.
10.18 Program Agreement dated August 30, 1996 between James Mitchell & Co.,
JMC Insurance Services Corporation, JMC Financial Corporation and
Horizon Bancorp, Inc. with sample lease attached.
22 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27 Financial Data Schedule
- --------
* Filed as an exhibit to the Registrant's Form 10-K for the Fiscal Year
ended December 31, 1993.
** Filed as an exhibit to the Registrant's Form S-8 Registration Statement
No. 33-74842 filed with the SEC on February 7, 1994.
*** Filed as an exhibit to the Registrant's Form S-8 Registration Statement
No. 33-74840 filed with the SEC on February 7, 1994.
**** Filed as an exhibit to the Registrant's Form 10-K for the Fiscal Year
ended December 31, 1994.
***** Filed as an exhibit to the Registrant's Form 10-K for the Fiscal Year
ended December 31, 1995.
m Management Contract or Compensatory Plan or Arrangement.
(b) No current reports on Form 8-K were filed by the Company during the
fourth quarter of fiscal year 1995.
37
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, in Los Angeles,
California, on the 31st day of March, 1997.
JMC Group, Inc.
/s/ James K. Mitchell
By:____________________________
James K. Mitchell
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report 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/ James K. Mitchell
- ------------------------------------ March 31, 1997
James K. Mitchell Chairman and Chief
Executive Officer
/s/ D. Mark Carlson
- ------------------------------------ March 31, 1997
D. Mark Carlson Chief Financial Officer and
Principal Accounting
Officer
/s/ Edward J. Baran
- ------------------------------------ March 31, 1997
Edward J. Baran Director
/s/ Barton Beek
- ------------------------------------ March 31, 1997
Barton Beek Director
/s/ Charles H. Black
- ------------------------------------ March 31, 1997
Charles H. Black Director
/s/ Herbert Kawahara
- ------------------------------------ March 31, 1997
Herbert Kawahara Director
/s/ Robert G. Sharp
- ------------------------------------ March 31, 1997
Robert G. Sharp Director
/s/ Donald E. Weeden
- ------------------------------------ March 31, 1997
Donald E. Weeden Director
38