-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MeUHXHWbo7hbWj3Vu5vdb38NjcPHQVgtYAgLg6yA3zRZiZxFatcwQ3kd3uoHwpJj Fxi1RUz2xxCLbU8Olvj6eA== 0000950131-98-006101.txt : 19981118 0000950131-98-006101.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950131-98-006101 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IFX CORP CENTRAL INDEX KEY: 0000792861 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 363399452 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15187 FILM NUMBER: 98750235 BUSINESS ADDRESS: STREET 1: 200 W ADAMS ST STREET 2: STE 1500 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124075700 MAIL ADDRESS: STREET 1: 200 WEST ADAMS ST STE 1500 STREET 2: 200 WEST ADAMS ST STE 1500 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: CARL JACK 312 FUTURES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: 312 FUTURES INC DATE OF NAME CHANGE: 19860916 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _________________ Commission File # 0-15187 IFX CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-3399452 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 West Adams Street, Suite 1460, Chicago, Illinois 60606 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (312) 419-9530 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 200 West Adams Street, Suite 1500, Chicago, Illinois 60606 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ----- ----- As of the date of this report, the issuer had outstanding 6,155,539 shares of common stock, $.02 par value per share. 1 IFX CORPORATION AND SUBSIDIARIES Part I - Financial Information Item 1. Financial Statements Immediately following this page, the following financial information of the Registrant is filed as part of this Report. Page ---- Consolidated statements of financial condition as of September 30, 1998 and June 30, 1998. 3 Consolidated statements of operations for the three months ended September 30, 1998 and 1997. 4 Consolidated statements of cash flows for the three months ended September 30, 1998 and 1997. 5 Notes to consolidated financial statements. 6 2 IFX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ASSETS
September 30, June 30, 1998 1998 ------------------ ------------------ (Unaudited) (Audited) Cash $ 1,297,900 $ 535,200 Short-term investments 30,205,100 36,068,800 Receivables: Brokers and dealers 8,181,700 4,573,100 Customers 803,200 1,646,800 Affiliates 171,200 54,600 Other 1,638,800 1,452,600 Less- Allowance for doubtful accounts (381,400) (358,900) ------------------ ------------------ 10,413,500 7,368,200 Investments in and advances to affiliated partnerships 78,600 134,200 Notes receivable 810,900 811,400 Furniture, equipment and leasehold improvements, net of accumulated depreciation and amortization of $338,300 and $298,800, respectively 123,700 143,000 Other assets 398,700 293,100 ------------------ ------------------ Total $ 43,328,400 $ 45,353,900 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Payables: Brokers and dealers $ 836,500 $ 863,100 Customers and counterparties 26,717,700 29,632,900 Affiliates and employees 42,900 - Accounts payable and accrued expenses 1,605,900 1,601,200 ------------------ ------------------ Total payables 29,203,000 32,097,200 Minority interest 1,967,100 1,921,500 Stockholders' equity: Common stock, $.02 par value; 150,000,000 shares authorized, 6,155,539 issued and outstanding 123,100 123,100 Paid-in-capital and retained earnings 12,035,200 11,212,100 ------------------ ------------------ Total stockholders' equity 12,158,300 11,335,200 ------------------ ------------------ Total $ 43,328,400 $ 45,353,900 ================== ==================
The accompanying notes are an integral part of the consolidated financial statements. 3 IFX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September 30, -------------------------------------------- 1998 1997 -------------------- -------------------- Revenues: Commissions $ 243,400 $ 112,800 Interest 649,600 1,029,500 Trading gains, net 1,349,100 2,071,800 Earn-out from sale of assets 1,272,300 785,500 Other 31,100 - -------------------- -------------------- Total revenues 3,545,500 3,999,600 -------------------- -------------------- Expenses: Commission and brokerage 190,300 171,200 Compensation and related benefits 610,900 626,300 Communications 182,600 198,600 Interest 344,100 687,200 Rent and other occupancy 322,200 178,300 Business promotion 123,300 120,100 Professional and consulting fees 152,700 245,600 Depreciation 39,500 51,800 Other 116,800 151,100 -------------------- -------------------- Total expenses 2,082,400 2,430,200 -------------------- -------------------- Income before income taxes and minority interest 1,463,100 1,569,400 Income tax expense 489,300 366,300 -------------------- -------------------- Net income before minority interest 973,800 1,203,100 Minority Interest 150,600 315,500 -------------------- -------------------- Net income $ 823,200 $ 887,600 ==================== ==================== Basic and diluted earnings per share: Net Income $ .13 $ .14 ==================== ==================== Weighted average number of common shares outstanding 6,155,539 6,279,130 ==================== ====================
The accompanying notes are an integral part of the consolidated financial statements. 4 IFX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended September 30, ------------------------------ 1998 1997 ----------- ----------- Cash Flows From Operating Activities: Net Income $ 823,200 $ 887,600 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 39,500 51,800 Deferred taxes -- (6,000) Doubtful accounts expense 22,500 -- Equity in net gain in partnership investments (6,700) (12,200) Changes in: Short-term investments 5,863,700 5,015,600 Receivables (3,092,900) (750,900) Other assets (105,600) 100,900 Payables (2,873,900) (7,518,500) Accounts payable and accrued expenses 4,700 (71,000) ----------- ----------- Cash provided by (used in) operating activities 674,500 (2,302,700) ----------- ----------- Cash Flows From Investing Activities: Decrease in notes receivable 500 1,700 Purchase of furniture, equipment and leasehold improvements (20,200) (1,700) Investments in / advances to partnerships 62,300 -- ----------- ----------- Cash provided by investing activities 42,600 -- ----------- ----------- Cash Flows From Financing Activities: Repayment of notes payable -- (750,000) Minority interest 45,600 315,500 ----------- ----------- Cash provided by (used in) financing activities 45,600 (434,500) ----------- ----------- Increase (decrease) in cash 762,700 (2,737,200) Cash, beginning of period 535,200 3,279,300 ----------- ----------- Cash, end of period $ 1,297,900 $ 542,100 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 5 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Basis of Presentation - --------------------- The consolidated financial statements include the accounts of IFX Corporation (formerly Jack Carl/312-Futures, Inc., "JC/312") and Subsidiaries, (collectively, the "Company"). All material intercompany accounts and transactions have been eliminated in consolidation. Until July 1, 1996, the Company engaged principally in the business of effecting transactions in futures and options on futures contracts for the accounts of customers and the operation of commodity pools. Index Futures Group, Inc. ("Index"), until July 1, 1996, was the principal operating subsidiary of JC/312. Effective July 1, 1996, Index sold, transferred and assigned substantially all of its brokerage accounts ("Sale of Assets") to E.D. & F. Man International Inc. ("MINC"). Index ceased being a registered futures commission merchant with the Commodity Futures Trading Commission ("CFTC") in December, 1996. As a condition of the Sale of Assets, Index changed its name to FX Chicago, Inc. IFX, Ltd. (formerly Index FX, Ltd.), a British corporation and a majority owned subsidiary of IFX Corporation, continues to conduct foreign exchange business as a registrant of the British Securities and Futures Authority. Following the Sale of Assets, the Company decided not to reinvest the sales proceeds in its commodities brokerage business and has been exploring other industries and business opportunities. The Company currently is negotiating to acquire a limited partnership interest in a domestic telecommunications and Internet-related venture and also is negotiating the formation of a joint venture to pursue foreign Internet-related opportunities; however the Company has not entered into a definitive agreement or understanding with respect to either transaction. There can be no assurance that the Company will complete either transaction. These consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these condensed consolidated financial statements. Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ending June 30, 1999. Certain reclassifications have been made in the 1998 financial statements to conform to the fiscal 1999 presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's financial statements on Form 10-K for the year ended June 30, 1998. 6 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Commitments and Contingencies - ----------------------------- Litigation- - ----------- The Company is a defendant in, and may be threatened with, various legal proceedings arising from its regular business activities. Management, after consultation with legal counsel, is of the opinion that the ultimate liability, if any, resulting from any pending action or proceedings will not have a material effect on the financial position or results of operations of the Company. On November 24, 1997, the trustee of two pension plans filed a Demand for Arbitration with the National Futures Association against Index and several other respondents, including an introducing broker guaranteed by Index (Kenneth N. Korsah, MD PA v. LFG L.L.C. et al., NFA arbitration case number 97-ARB-185). In the Demand, the trustee alleged breach of fiduciary duty, churning, misrepresentation, failure to supervise, breach of contract, aiding and abetting, and violation of ERISA. Claimant sought actual damages of $141,000 and punitive damages of $460,000. The Company settled the claim in October, 1998 for a payment of $10,000. On May 16, 1996, Index filed suit in the Circuit Court of Cook County--Law Division against Doug Niemann, a former customer, for breach of contract, seeking to recover a debit balance of $88,200 (Index Futures Group, Inc. v. Doug Niemann, case no. 96L-5506). On January 14, 1997, Niemann filed a counterclaim for $688,200. The Company believes that the counterclaim is without merit and will defend vigorously. In April, 1994, Index without admitting or denying the allegations, paid $100,000 to the CFTC, settling an administrative action filed on September 29, 1992. In a related action, the equity receiver of a commodity pool operator brought an action to recover losses of approximately $600,000, alleging various theories such as constructive trust, negligence, breach of fiduciary duty and conversion. On May 29, 1996, the district judge dismissed the complaint in its entirety. On December 4, 1997, the Court of Appeals affirmed the district judge's dismissal of all claims against Index. On January 13, 1998, the Court of Appeals denied the Supplemental Plaintiffs' request for a rehearing of its appeal. On October 2, 1998, the attorney for the equity receiver of the commodity pool filed a class-action suit on behalf of a putative class composed of persons who had given money to the commodity pool operator to invest, some of which was deposited in brokerage accounts at Index by the commodity pool operator. (Wesselhoff v. FX Chicago, Inc. et al., Circuit Court of Cook County, Chancery Division, case number 98-CH-13396). The plaintiff seeks damages of $600,000 plus prejudgment interest, punitive damages, and lost investment opportunity. The Company believes that the allegations in the complaint against FX Chicago, Inc. and the Company are without merit and will defend vigorously. A former officer of Index whose employment was terminated as a result of the Sale of Assets rejected Index's severance payment offer. The officer had made a demand for $500,000. The Company settled this case in July, 1997 for $75,000. 7 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A lawsuit was commenced in September, 1998, in Germany against an affiliate of MINC by a German citizen seeking damages of Deutschmark 6,403,519.19 (approximately $4,000,000 given the exchange rate as of September 15, 1998). The Complaint arises out of transactions which occurred in an account introduced by Index Futures Group, AG ("Index AG"), an introducing broker of Index, prior to the Sale of Assets. The Plaintiff alleges that under German law, MINC's affiliate is successor to Index AG, and thus assumed any liabilities of Index AG. Pursuant to the Sale of Assets agreement, Index is responsible for any liability "arising out of any state of facts with respect to such Assigned Contract existing on or prior to the Closing Date". MINC has retained counsel in Germany to represent its interests in this matter. As Index AG was an introducing broker of Index and not a former subsidiary of the Company or Index, the Company does not believe that it will ultimately be liable for damages. However, as the Company first received notice of this suit on September 16, 1998, and has not received any updates from MINC, the Company does not have information as to the extent of any potential liability under the suit or legal costs required to defend such suit, at the present time. On October 27, 1998, a complaint was filed by James Feltman as liquidating agent of L. Luria & Son, Inc. (Case No. 97-16731-BKC-RAM) seeking recovery from the Company of $368,188.84. Starting in the winter of 1996, the Company entered into an arrangement with the suppliers of L. Luria & Son, Inc. pursuant to which the Company advance funds on behalf of L. Luria & Son, Inc. in order to allow it to purchase inventory. L. Luria & Son, Inc. reimbursed the Company for amounts which it advanced. The complaint alleges that the Company was an insider of L. Luria & Son, Inc. because of Joel Eidelstein's relationship to L. Luria & Son, Inc. and that the amounts that L. Luria & Son, Inc. paid the Company constituted preferences under the Bankruptcy laws. The Company does not believe that it was an insider of L. Luria & Son, Inc., does not believe that the amounts it received from L. Luria & Son, Inc. constituted preferences and intends to vigorously defend against the complaint. 8 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Other- - ------ In connection with the Sale of Assets, if certain conditions occur over the next year, the Company may be subject to pay former employees additional severance payments of up to $100,000. The Company has entered into a consulting contract with an affiliate. This contract provides for annual payments of $24,000. The Company has also entered into a consulting contract which expires during fiscal 1999, providing for aggregate minimum payments of $6,500 remaining as of September 30, 1998. Index issued a limited indemnification agreement to MINC related to the Sale of Assets. This agreement covers potential customer claims arising from activity prior to the sale. The Company has guaranteed certain liabilities of a limited partnership to Qwest / LCI, International. The general partner of this limited partnership is an officer of the Company. There is no maximum amount payable under this guarantee. However, the Company does not expect that the potential liability will exceed $100,000 based on the business of the limited partnership. Sale of Assets - -------------- The purchase price payable by MINC in connection with the Sale of Assets is based on a percentage of the net income, as defined in the Sales Agreement, of the transferred activities during the sixty-six month period following the sale. During the three months ended September 30, 1998 and 1997, the Company earned $1,272,300 and $781,800 respectively from the Sale of Assets. Reported revenues during previous quarters of fiscal 1998 and 1997 were adjusted and increased by $283,000 by MINC, during the quarter ended September 30, 1998. These adjustments are reflected in the earnings from the Sale of Assets for the quarter ended September 30, 1998. Stock Option Grant - ------------------ In November, 1998, the Board of Directors authorized the issuance, to the Company's President, of options for 300,000 shares of common stock exercisable at $3.00 per share. The issuance of stock options is subject to the approval of the shareholders of the Company at its next scheduled annual meeting. Capital Requirements - -------------------- IFX Ltd. became a registrant of the British Securities and Futures Authority ("SFA") during November, 1996. As such, IFX Ltd. is subject to the financial resources requirements adopted and administered by the SFA. As of September 30, 1998, IFX Ltd.'s financial resources, as defined by the SFA, were $6,934,000 which was $3,573,000 in excess of its requirements. 9 IFX CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Period Ended September 30, 1998. Overview - -------- IFX Corporation (formerly Jack Carl/312-Futures, Inc.), (which when consolidated with its subsidiaries is henceforth referred to as the "Company") is a holding company which operates its business through its subsidiaries. Index Futures Group, Inc. ("Index"), until July 1, 1996, the Company's principal operating subsidiary, provided a full range of futures brokerage, clearing and back office services for institutional and public commodity traders. It was a clearing member of all major U.S. commodity exchanges. Effective July 1, 1996, Index sold, transferred and assigned substantially all of its brokerage accounts ("Sale of Assets") to E.D.& F. Man International, Inc. ("MINC"). As a result of the Sale of Assets, Index no longer acts as a futures commission merchant. It immediately withdrew as a clearing member from all commodity exchanges, and terminated its registration as a futures commission merchant in December, 1996. As a condition of the Sale, Index changed its name to FX Chicago Inc. Operations at FX Chicago Inc. are currently limited to activity relating to the net income derived from the Sale of Assets. IFX Ltd. (formerly Index FX, Ltd.), a British corporation and a subsidiary of IFX Corporation continues to conduct foreign exchange business as a registrant of the British Securities and Futures Authority ("SFA"). IFX Ltd. commenced trading operations in October, 1995 and became an SFA registrant in November, 1996. Following the Sale of Assets, the Company decided not to reinvest the sales proceeds in its commodities brokerage business and has been exploring other industries and business opportunities. Based on its research, the Company has determined that the Internet and telecommunications industries present the greatest opportunities for the Company's future investment and growth. Accordingly, the Company intends to pursue the development and acquisition of Internet services and telecommunication businesses with the proceeds from the Sale of Assets, joint ventures and private equity offerings. The Company currently is negotiating to acquire a limited partnership interest in a domestic telecommunications and Internet-related venture and also is negotiating the formation of a joint venture to pursue foreign Internet-related opportunities; however the Company has not entered into a definitive agreement with respect to either transaction. There can be no assurance that the Company will complete either transaction, or any other similar transaction, or regarding the ultimate purchase prices of or the definitive terms of any completed transaction. Liquidity and Capital Resources - -------------------------------- The Company maintains a highly liquid balance sheet with a majority of the Company's assets consisting of short-term investments, which are reflected at market. IFX Ltd.'s role as a market maker in spot and forward foreign exchange markets for customer activities, results in significant levels of customer- related balances on the Company's balance sheet. The Company's cash and short-term investment portfolio totaled $31,503,000 at September 30, 1998. Included in this amount is approximately $20,289,500 of funds from IFX Ltd. customers, which have been invested by IFX Ltd. on the customers' behalf or are held in segregated cash accounts, pursuant to rules of the SFA. The Company's positions are generally liquid. 10 The portfolio is invested primarily in U.S. dollar denominated securities, but also includes foreign currency positions deposited by IFX customers. As a registrant, IFX Ltd. is subject to the financial resources requirements adopted and administered by the SFA. As of September 30, 1998, IFX Ltd.'s financial resources, as defined by the SFA, were $6,934,000, which was $3,573,000 in excess of its requirements. Stockholders' equity at September 30, 1998 was $12,158,300. Outstanding shares of common stock as of September 30, 1998 totaled 6,155,539. The Company continues to repurchase and retire shares of its common stock, pursuant to a repurchase program which permits the Company to purchase up to 1,000,000 shares. The Company did not repurchases any shares, pursuant to this program, during the quarter ended September 30, 1998. As of June 30, 1998, the Company had outstanding lease commitments of approximately $2,100,000 through the year 2002. The majority of this commitment related to space leased in Chicago. While the Company remains legally committed under terms of the lease, subsequent to June 30, 1998, the Company subleased its' office space in Chicago, through the end of the lease term. The Company has signed a sublease to occupy a much smaller space in Chicago through June 1999, providing for aggregate lease payments of approximately $70,000. For the year ended September 30, 1998, cash provided by operations was $674,500 compared to cash used in operations of $2,302,700 for the same period in fiscal 1998. The majority of cash provided by or used in operations is related to customer funds from customers of IFX Ltd. Cash flows from operations include the changes in customer funds and customer payables, and will vary depending on the amount of excess customer funds at a given time. In fiscal 1999, the amount of excess customer funds was greater than the excess in 1998, thus contributing to greater cash provided by operations in 1999. In addition, the Company invests cash not needed for operations at FX Chicago, Inc. in short- term investments such as U.S. Government obligations and overnight time deposits. As of September 30, 1998, the Company held $6,375,000 in U.S. short- term investments. Management believes existing cash and short-term investments together with operating cash flows, access to equity capital, and borrowing capacity through its principal stockholder, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses and development of new projects. Year 2000 The Company currently is evaluating its information and non-information technology infrastructure for Year 2000 compliance. The Company does not expect that the cost to modify its information technology infrastructure to be Year 2000 compliant will be material to its financial position or results of operations. The Company does not anticipate any material disruption in its operations as a result of any failure by the Company to be in compliance, and the majority of the Company's suppliers have indicated that they are in the process of or have already achieved Year 2000 compliance. In the event that any of the Company's significant suppliers or customers does not successfully and timely achieve Year 2000 compliance, the Company's business and results of operations could be adversely affected. 11 Results of Operations IFX Ltd., the Company's London-based operation, appears to be experiencing a slow-down of its growth in recent months. Its future prospects are less certain, in light of recent market events, including the stock-market turmoil and its related effect on hedge funds along with growing uncertainty in foreign markets. If there is a resulting overall tightening of credit, lenders may place greater emphasis on a borrower's balance sheet, a fact that could impede both the operations and growth of IFX, Ltd.'s business. In addition, the Company is concerned that the implementation of a single European currency as a result of the European Monetary Union may greatly reduce the profit opportunities available from foreign currency trading. On the other hand, the Company's earnings from the Sale of Assets have continued to increase as MINC generates additional business from the brokerage accounts it purchased from Index, and reduces the costs associated with that business. These earn-out revenues have somewhat offset the reduction in earnings by IFX, Ltd. Additionally, MINC paid the Company additional income on this business during this quarter that was related to prior periods. Pursuant to the Sale of Assets agreement, the Company's percentage of earnings from the brokerage accounts will decrease based upon a predetermined schedule as defined in the sales agreement, over the remainder of the original sixty-six month period following the sale. As such, earnings from the Sale of Assets may decrease accordingly. The first reduction is scheduled to take place with the quarter ended March 31, 1999. Revenues were $3,545,500 during the period ended September 30, 1998, representing a decrease of 11% from the same period a year ago. Trading revenues decreased by 35% for the period ended September 30, 1998, compared to the same period a year ago, largely due to volatility in the foreign currency market during the period. This market volatility likely contributed to a reduction of trading activity by IFX, Ltd.'s customers who are sensitive to perceived increased risk in the foreign currency markets. Interest income decreased by 37% for the period ended September 30, 1998, compared to the same period a year ago. Lower market interest rates together with a decrease in IFX Ltd. customer funds on deposit contributed to lower overall interest income for the quarter ended September 30, 1998. Revenues from the Sale of Assets increased by $486,800, or 62%, for the period ended September 30, 1998, compared to the same period a year ago. Reported revenues during previous quarters of fiscal 1997 and 1998 were subsequently adjusted and increased by $283,000 by MINC. These adjustments are included in the earnings from the Sale of Assets for the period ended September 30, 1998, attributing to a significant portion of the increase in the revenue from the Sale of Assets for the period ended September 30, 1998, compared to the same period a year ago. The Company's earnings from the Sale of Assets also increased due to MINC generating more business from the brokerage accounts it purchased from Index while at the same time holding down the costs it takes to operate the business. Total expenses were $2,082,400 for the period ended September 30, 1998, representing a decrease of 14% from the same period a year ago. The decrease in expenses is largely attributable to a reduction of consulting fees resulting from the Sale of Assets, and a reduction of interest expense. The interest expense reduction resulted from the repayment of debt which was outstanding during part of the quarter ended September 30, 1997, but which was paid off prior to the end of that quarter. The reduction in expense was offset somewhat by the increase in rent and occupancy expense resulting in large part due to a one-time brokerage fee paid by the Company to sublet its office space in Chicago. 12 As a result of the aforementioned changes in revenues and expenses, net income for the period ended September 30, 1998 is $823,200 or $.13 per share compared to net income of $887,600 or $.14 per share for the period ended September 30, 1997. The Board of Directors is exploring various business opportunities for the Company now that FX Chicago, Inc. no longer acts as a futures commission merchant, and as a result has capital available for investments. The Company currently is negotiating to acquire a limited partnership interest in a domestic telecommunications and Internet-related venture and also is negotiating the formation of a joint venture to pursue foreign Internet-related opportunities; however, the Company has not entered into a definitive agreement or understanding with respect to either transaction. There can be no assurance that the Company will complete either transaction, or any other similar transaction, or regarding the definitive terms of any completed transaction. Forward-Looking Statements Statements contained in this Form 10-Q regarding the Company's prospective business opportunities, anticipated future results of operations and planned expansion are forward-looking statements that involve substantial risks and uncertainties. Such forward-looking statements include (i) the Company's belief that it will not incur material costs or operational disruptions as a result of Year 2000 problems that may be resident in its, or its customers' and suppliers' computer information systems, (ii) potential changes in the projected future business prospects and continued profitability of IFX Ltd.'s operations, (iii) the Company's belief that the Internet and telecommunications industries present growth opportunities for the Company and the Company's plans to pursue the development and acquisition of Internet services and telecommunication businesses, (iv) the amount of future revenues the Company expects to receive from MINC pursuant to the Sale of Assets Agreement, (v) the amount and nature of planned capital expenditures, (vi) the Company's belief that its existing cash, short-term investments, operating cash flows, access to equity capital and borrowing capacity will be sufficient to finance the Company's ongoing operations and future capital expenditures, and (vii) statements relating to the Company or its operations that are preceded by terms such as "anticipates", "expects", "believes" and similar expressions. In accordance with the Private Securities Litigation Reform Act of 1995, following are important factors that could cause the Company's actual results, performance or achievements to differ materially from those implied by such forward-looking statements: The Company has not determined (and may be unable to determine), with certainty, the magnitude and scope of any Year 2000 problems that may be resident on its, or on its customers' or suppliers' information or non-information systems. There can be no assurance that IFX Ltd. can maintain its historic growth rate or profitability. The amount of revenues the Company receives pursuant to the Sale of Assets agreement is dependent upon (i) the amount of earnings MINC generates from the brokerage accounts it purchased from Index and (ii) the contractual percentage of such earnings to which the Company is entitled, which is set forth in the agreement and decreases over time. The Company cannot accurately predict how creation of a single European currency and the implementation of the European Monetary Union will affect the profitability of its foreign currency trading operations. The Company has never conducted business in the telecommunications or Internet-related industries and there can be no assurance that the Company's entrance into these industries will be successful. 13 Item 3. - Quantitative and Qualitative Disclosures About Market Risk The Company's exposure to market risk is directly related to its role, through IFX Ltd., as a foreign exchange market maker in customer-related transactions. IFX Ltd.'s primary market risk exposure relates to foreign exchange rate risk. Foreign exchange rate risk arises from the possibility that changes in foreign currency exchange rates will adversely impact the value of the financial instruments. When IFX Ltd. buys or sells a foreign currency or a financial instrument denominated in a foreign currency, exposure exists from the net open currency position. Until the position is covered by selling or buying an equivalent amount of the same currency, IFX Ltd. is exposed to the risk that the exchange rate may move against it. In general, IFX Ltd. offsets it open customer positions, thus substantially reducing its foreign exchange rate risk. IFX Ltd. is also exposed to credit risk. Credit risk arises from the potential inability of market counterparties, such as exchanges and banks, or customers to perform an obligation in accordance with the terms of the contract. IFX Ltd. has established policies and procedures to manage credit risk. A Credit Committee is responsible for approving and reviewing new and existing customer accounts. The Committee is responsible for establishing margin requirements and margin call levels, position limits and trade restrictions (i.e., 1 month forward trading, instrument types, etc.). The Finance Officer is responsible for monitoring all customer accounts on a daily basis to ensure that they are in compliance with the agreed terms of trading. Customer trading positions, equity balances, margin excess amounts, and margin calls are monitored daily. As IFX Ltd. conducts the majority of its business for its customers in foreign currencies on the spot market, its trades generally settle on the next business day. However, if margin calls are necessary and not satisfied in a timely manner, (within 5 days), IFX Ltd. reserves the right to liquidate all or part of the customer's open positions. Management believes that with trades settling the next business day and the margin policies it employs, its credit risk is somewhat mitigated. 14 Part II - Other Information Item 1. Legal Proceedings See Notes to Financial Statements. Item 5. Other Information The Company's 1998 Annual Meeting of Shareholders currently is scheduled to be held on January 21, 1999. All shareholders of record as of the close of business on December 11, 1998 will be entitled to receive notice of and to vote at the Company's 1998 Annual Meeting. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits 11.1 Computation of earnings per Common Share 27 Financial Data Schedule (EDGAR only) (B) REPORTS ON FORM 8-K - No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1998. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IFX CORPORATION -------------------------- (Registrant) Dated: November 16, 1998 By: /s/ CHRISTINA S. DONKA ---------------------- Christina S. Donka Chief Financial Officer 16 EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Exhibit 11.1 IFX CORPORATION AND SUBSIDIARIES Computation of Earnings Per Common Share as Restated for the One-for-Five Reverse Split of Common Stock
Three Months Ended September 30, 1998 September 30, 1997 ------------------ ------------------ Earnings: Net income $ 823,200 $ 887,600 ========== ========== Shares: Weighted average number of common shares outstanding 6,155,539 6,279,130 ========== ========== Earnings per common share: Net income $ .13 $ .14 ========== ==========
Note: Diluted earnings per share have not been presented because the effects are not material. EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from IFX Corporation's Form 10-Q as of 9/30/98 and is qualified in its entirety by reference to such financial statements. 3-MOS JUN-30-1999 JUL-01-1998 SEP-30-1998 1,297,900 30,205,100 10,794,900 (381,400) 0 41,995,100 462,000 (338,300) 43,328,400 29,203,000 0 0 0 123,100 12,035,200 43,328,400 243,400 3,545,500 0 0 1,738,300 0 344,100 1,463,100 489,300 823,200 0 0 0 823,200 .13 .13
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