-----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, P0cM7ZisYlypwp5bvHf8Ry04HbZPRs1ZV2Oyl423d+0Dff49mOMOI1QhaOCyo1vH QjtSFuqUlfOHZpzajR8VHQ== 0000950131-96-005859.txt : 19961118 0000950131-96-005859.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950131-96-005859 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARL JACK 312 FUTURES INC 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: 1934 Act SEC FILE NUMBER: 000-15187 FILM NUMBER: 96665475 BUSINESS ADDRESS: STREET 1: 200 WEST ADAMS ST STREET 2: STE 1500 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124075700 MAIL ADDRESS: STREET 2: 200 WEST ADAMS ST STE 1500 CITY: CHICAGO STATE: IL ZIP: 60606 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, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _______________ Commission File # 0-15187 Jack Carl/312-Futures, Inc. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 36-3399452 - ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 West Adams Street, Suite 1500, Chicago, Illinois 60606 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (312) 407-5726 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ----- ____ As of the date of this report, the issuer had outstanding 33,624,530 shares of common stock, $.004 par value per share. This is page 1 of 30 sequentially numbered pages. JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1. Financial Statements Immediately following this page, the following financial information of the Registrant is filed as part of this Report. Page ---- Consolidated statements of financial condition as of September 30, 1996 and June 30, 1996. 3 Consolidated statements of operations for the three months ended September 30, 1996 and 1995. 4 Consolidated statement of changes in stockholders' equity for the three months ended September 30, 1996. 5 Consolidated statements of changes in liabilities subordinated to claims of general creditors for the three months ended September 30, 1996 and 1995. 6 Consolidated statements of cash flows for the three months ended September 30, 1996 and 1995. 7-8 Notes to consolidated financial statements. 9 2 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION SEPTEMBER 30, 1996 AND JUNE 30, 1996 ASSETS
September 30, June 30, 1996 1996 ------------- ------------- (Unaudited) (Audited) Cash $ 2,404,100 $ 1,587,300 Cash segregated or secured under Commodity Exchange Act 5,000 2,009,500 U.S. Government obligations 4,985,800 144,328,800 Other short term investments 16,163,800 28,856,100 Deposits with clearing organizations 2,233,100 43,488,500 Warehouse receipts - 959,500 Receivables: Brokers and dealers 3,037,200 2,291,900 Clearing organizations - 12,383,200 September 30, June 30, 1996 1996 ------------ ---------- Customers $ 539,400 $1,138,400 Affiliates - 1,000 Other 1,458,600 1,061,800 Less - Allowance for doubtful accounts (415,100) (409,300) 1,582,900 1,791,900 ---------- ---------- Notes receivable 625,100 627,200 Exchange memberships, at cost (market value of $937,000 and $960,400 at September 30, 1996 and June 30, 1996, respectively) 743,000 781,300 Furniture, equipment, and leasehold improvements, net of accumulated depreciation and amortization of $2,235,800 and $2,213,400 at September 30, 1996 and June 30, 1996, respectively 221,800 279,500 Other assets 227,600 503,000 ----------- ------------ Total $32,229,400 $239,887,700 =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank overdrafts $ 212,600 $ - Payables: Clearing organizations - 165,900 Customers 18,577,300 216,705,300 Officers and employees - 2,865,000 Affiliates 18,100 - Accounts payable and accrued expenses 1,480,700 3,545,000 Notes payable 5,490,000 6,390,000 ----------- ----------- Total 25,778,700 229,671,200 ----------- ----------- Liabilities subordinated to claims of general creditors - 4,000,000 ----------- ------------ Stockholders' equity: Class A preferred stock, $1 par value; 10% cumulative, redeemable, 400,000 shares authorized and outstanding 400,000 400,000 Common stock, $.004 par value; 150,000,000 shares authorized, 33,624,530 shares issued and outstanding at September 30, 1996 and June 30, 1996 134,500 134,500 Paid-in capital 8,395,300 8,395,300 Retained deficit (2,433,400) (2,698,800) Cumulative translation adjustment (45,700) (14,500) ----------- ------------ Total stockholders' equity 6,450,700 6,216,500 ----------- ------------ Total $32,229,400 $239,887,700 =========== ============
The accompanying notes are an integral part of the consolidated financial statements. 3 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
Three Months Ended September 30, --------------------------- 1996 1995 ---- ---- Revenues: Commissions $ 61,300 $ 7,803,200 Interest 532,600 1,818,900 Trading gains, net 957,400 55,100 Other 1,033,700 41,200 ----------- ----------- Total revenues 2,585,000 9,718,400 ----------- ----------- Expenses: Commission, floor brokerage and clearing costs 54,900 4,254,400 Compensation and related benefits 927,900 2,525,400 Communications 174,200 428,600 Interest 474,900 911,800 Rent and other occupancy costs 152,200 380,500 Business promotion 87,500 478,400 Professional and consulting fees 155,100 198,500 Depreciation 22,000 69,800 Amortization of goodwill - 13,400 Other 118,700 467,900 ----------- ----------- Total expenses 2,167,400 9,728,700 ----------- ----------- Income before income taxes 417,600 (10,300) Income tax expense 152,200 44,400 ----------- ----------- Net income 265,400 (54,700) Assumed cumulative dividend on Class A preferred stock (10,000) (10,000) ----------- ----------- Net income applicable to common stock $ 255,400 $ (64,700) =========== =========== Primary earnings per common share: Net income $ .01 $ (.00) =========== =========== Weighted average number of common shares outstanding 33,624,530 33,688,308 =========== =========== Fully diluted earnings per common share: Net income $ .01 $ (.00) =========== =========== Weighted average number of common shares outstanding 33,624,530 33,688,308 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
Class A Common Stock Cumulative Preferred ------------ Paid-In Retained Translation Stock Shares Amount Capital Deficit Adjustment Total --------- ------ ------ ------- -------- ----------- ------ Balance, July 1, 1996 $400,000 33,624,530 $134,500 $8,395,300 $(2,698,800) $(14,500) $6,216,500 Net income - - - - 265,400 - 265,400 Foreign currency translation - - - - - (31,200) (31,200) -------- ---------- -------- ---------- ----------- -------- ---------- Balance, September 30, 1996 $400,000 33,624,530 $134,500 $8,395,300 $(2,433,400) $(45,700) $6,450,700 ======== ========== ======== ========== =========== ======== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
Three Months Ended September 30, ------------------------ 1996 1995 ---- ---- Liabilities subordinated to claims of general creditors, at beginning of period $ 4,000,000 $1,690,000 New borrowings - 1,750,000 Repayments (4,000,000) - ----------- ---------- Liabilities subordinated to claims of general creditors, at end of period $ - $3,440,000 =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 6 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
Three Months Ended September 30, ----------------------------- 1996 1995 ---- ---- Cash Flows From Operating Activities: Net income (loss) $ 265,400 $ (54,700) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 22,000 83,200 Deferred taxes (9,800) (30,700) Doubtful accounts benefit (56,500) (45,000) Equity in net gain of affiliated partnerships - (8,500) Loss on the sale of exchange memberships 22,300 - Gain on the sale of clearing corporation stock (664,000) - Changes in: Cash segregated or secured under Commodity Exchange Act, net 2,140,900 (572,900) U.S. Government obligations 139,343,000 (21,145,800) Other short term investments 12,692,300 - Deposits with clearing organizations 40,895,400 8,094,000 Warehouse receipts 959,500 637,600 Receivables 11,903,400 1,082,100 Other assets 285,200 (238,900) Payables (201,140,800) 12,689,300 Accounts payable and accrued expenses (2,064,300) (1,767,400) ------------- ------------ Cash provided by (used in) operating activities 4,594,000 (1,277,700) ------------- ------------ Cash Flows From Investing Activities: Investments in and advances to affiliated partnerships, net - (900) Decrease in notes receivable 2,100 1,200 Purchase of furniture, equipment and leasehold improvements (43,900) (86,800) Proceeds from the sale of exchange memberships 16,000 - Proceeds from the sale of clearing corporation stock 1,024,000 - Proceeds from the sale of furniture and equipment 79,600 - ------------- ------------ Cash provided by (used in) investing activities 1,077,800 (86,500) ------------- ------------ Cash Flows From Financing Activities: Increase in short term advance - 1,000,000 Repayment of short term advance - (1,000,000) Repayment of notes payable (900,000) - Increase in liabilities subordinated to claims of general creditors - 1,750,000 Repayment of liabilities subordinated to claims of general creditors (4,000,000) - ------------- ------------ Cash provided by (used in) financing activities (4,900,000) 1,750,000 ------------- ------------ Effect of exchange rate changes on cash (31,200) (14,500) ------------- ------------ Increase in cash 740,600 371,300 Cash, beginning of period 1,587,300 1,034,900 ------------- ------------ Cash, end of period $ 2,327,900 $ 1,406,200 ============= ============
The accompanying notes are an integral part of the consolidated financial statements. 7 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) (CONTINUED FROM PAGE 7) Supplemental Schedule of Non-Cash Investing and Financing Activities Three Months Ended September 30, 1996 - ------------------------------------- (NONE) Three Months Ended September 30, 1995 - ------------------------------------- (NONE) 8 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 1 - ORGANIZATION OF JACK CARL/312-FUTURES, INC. Jack Carl/312-Futures, Inc. ("JC/312") and Subsidiaries, (the "Company"), until July 1, 1996, engaged principally in the business of effecting transactions in futures and options on futures contracts for the accounts of customers and the operation of commodity pools. 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 Futures Group, Inc. ("Index"), until July 1, 1996, was the principal operating subsidiary of JC/312. Index remains a registered futures commission merchant with the Commodity Futures Trading Commission ("CFTC"). Index FX, Ltd. ("Index FX"), a British corporation and a subsidiary of JC/312, continues to conduct foreign exchange business. Another subsidiary of JC/312 is a registered broker- dealer. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. It is suggested that these financial statements be read in connection with the consolidated financial statements and notes included in the Report on Form 10-K of the Company for the year ended June 30, 1996. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as well as those of its majority-owned subsidiary. All material intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements have been reflected. Certain amounts previously reported have been reclassified to conform to the current method of presentation. Assets and liabilities of non-U.S. operations are translated into U.S. dollars at period-end exchange rates. Revenues and expenses are translated using monthly average exchange rates. The resulting translation adjustment is reported as a separate component of stockholders' equity. Gains and losses from non-U.S. transactions are included in results of operations. 9 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 2 - ASSETS SEGREGATED AND SECURED UNDER COMMODITY EXCHANGE ACT Under the Commodity Exchange Act, as amended, Index is required to segregate all balances due to customers in connection with transactions in regulated commodities. In addition, in accordance with CFTC Regulation 30.7, Index is required to secure all balances due to U.S. customers for activities in foreign futures or options. Effective July 1, 1996, pursuant to the Sale of Assets, Index transferred all such balances to MINC. NOTE 3 - OTHER SHORT TERM INVESTMENTS Other short term investments consist of $16,163,800 of time deposits at September 30, 1996, due at various dates through October 24, 1996, and $28,856,100 of time deposits at June 30, 1996, due July 1, 1996. NOTE 4 - DEPOSITS WITH CLEARING ORGANIZATIONS Deposits with clearing organizations are as follows:
September 30, June 30, 1996 1996 ------------- ----------- U.S. Government obligations $ - $37,961,600 Guarantee deposits 1,835,600 1,232,300 Stock in exchange clearing organization at cost (market value of $1,024,000 at June 30, 1996) - 360,000 Cash margins 397,500 3,934,600 ---------- ----------- Total $2,233,100 $43,488,500 ========== ===========
10 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 5 - CUSTOMER OWNED SECURITIES Customer-owned securities are reflected at market value in the consolidated statements of financial condition. This presentation has no effect on stockholders' equity. The total market value of customer-owned securities included in the consolidated statements of financial condition as both assets and liabilities at September 30, 1996 and June 30, 1996 is $0 and $48,891,300, respectively. NOTE 6 - NOTES PAYABLE Notes payable consist of the following:
September 30, June 30, 1996 1996 ------------- ---------- Principal stockholder, interest at prime plus 4%, due: January 31, 1997 $ 540,000 $ 540,000 January 31, 1997 400,000 400,000 Affiliates and other related parties, interest at prime plus 4%, due: January 31, 1997 - 150,000 January 31, 1997 2,000,000 2,000,000 January 31, 1997 1,800,000 1,800,000 January 31, 1997 - 750,000 January 31, 1997 750,000 750,000 ---------- ---------- Total $5,490,000 $6,390,000 ========== ==========
Interest expense on notes payable during the three months ended September 30, 1996 and 1995 was $187,700 and $205,600, respectively, all of which was earned by related parties. In September, 1996, the Company repaid $900,000 of notes payable to its former President and a former Director. In August, 1995, the principal stockholder made a $1,000,000 short term advance to the Company. The Company repaid the advance in September, 1995. 11 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 7 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS Liabilities subordinated to claims of general creditors were borrowed in accordance with the terms of a revolving subordinated debt line totalling $4,000,000. The full amount of the borrowing was repaid in August, 1996, and the line was canceled. Interest expense on liabilities subordinated to claims of general creditors during the three months ended September 30, 1996 and 1995 was $38,100 and $53,300, respectively. NOTE 8 - STOCKHOLDERS' EQUITY RIGHTS OFFERING In July, 1994, the Company offered to its common stockholders the non- transferable right to purchase, at a subscription price of $.02 per share, two- thirds of a share of common stock for each one share of common stock owned of record on July 15, 1994. 53,799,304 shares of common stock were available and purchased in the Rights Offering. The gross proceeds of the Rights Offering were $1,076,000. CLASS A PREFERRED STOCK The Company has issued 400,000 shares of Class A preferred stock, 10% cumulative, to its principal stockholder. The shares are redeemable at par, with accumulated dividends, at the option of the Company. At September 30, 1996, cumulative dividends in arrears amounted to $423,300 or $1.06 per share. No liability for these dividends has been recorded as dividends are not payable until declared. COMMON STOCK Effective at the close of business November 4, 1994, the Company effected a one-for-four reverse split of its common stock, par value $.001. Each four shares of such common stock were reclassified and changed into one share of common stock having a par value of $.004. Pursuant to the reverse split, the Company is obligated to pay any holder of fractional shares resulting from the reverse split $.05 per share of common stock up to a maximum of $.15 for three shares. At the close of business on November 4, 1994, the outstanding shares of common 12 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED) stock were reduced to approximately 33,624,565 shares from 134,498,260 shares before the reverse split. As the result of the repurchase of fractional shares, there are outstanding as of September 30, 1996, 33,624,530 shares of common stock. STOCK OPTION PLAN In March, 1986, the Company adopted an incentive stock option plan reserving 500,000 shares of common stock. In March, 1990, the Company, pursuant to the incentive stock option plan, granted options for 410,000 shares at the then market price exercisable through March, 2000. The Company also has granted options, other than in accordance with the March 1986 incentive stock option plan. In November, 1996, the Board of Directors authorized the reissuance of options for 1,250,000 shares of common stock at $.24 per share, terminating June 30, 1998. The options were originally issued in February, 1994 and terminated upon the former President accepting employment with MINC. 13 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED) The following summarizes, after restatement for the November 4, 1994 one- for-four reverse stock split, all outstanding options at September 30, 1996.
Shares Shares Shares Shares Shares Granted Price Exercisable Forfeited Cancelled Remaining --------- ----- ----------- ---------- --------- --------- Dec. 1990 410,000 $.60 70,000 320,469 19,531 70,000 Feb. 1992 125,000 $.25 - 125,000 - - May 1992 75,000 $.60 - 75,000 - - Sep. 1992 125,000 $.375 125,000 - - 125,000 Feb. 1994 1,250,000 $.24 - 1,250,000 - - Jan. 1995 250,000 $.125 - 250,000 - - --------- ------- --------- ------ ------- Total 2,235,000 195,000 2,020,469 19,531 195,000 ========= ======= ========= ====== =======
NOTE 9 - RELATED PARTY TRANSACTIONS A note receivable in the amount of $625,100 arose in connection with advances made by the Company to an affiliated entity. This receivable was converted into a note bearing interest at 8%, and was subsequently changed to the prime rate of interest. The Company earned interest income on this note in the amounts of $12,900 and $13,800 during the three months ended September 30, 1996 and 1995, respectively. The Company, until July 1, 1996, rented, from an officer and a director, an exchange membership. Rent expense for the three months ended September 30, 1996, and 1995 was $0 and $18,000, respectively. 14 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED) The Company receives funds, in the form of loans and advances, from its principal shareholder and an affiliated company. See Note 6 for the terms and balances at September 30, 1996 and June 30, 1996. NOTE 10 - SALE OF ASSETS On July 1, 1996, Index sold, transferred and assigned to MINC substantially all of the brokerage accounts maintained by Index, together with all positions, securities and other assets held in or for such accounts and other agreed-upon assets used in the conduct of the brokerage activities. MINC is a unit of E.D. & F. Man Group, plc, a London-based international trading and finance conglomerate. Shortly after the sale, Index ceased being a clearing member at all exchanges, though it remains a registered futures commission merchant. The purchase price payable by MINC in connection with this transaction is based on a percentage of the net income (as defined in the sales agreement) of the transferred activities during the sixty-six month period following the sale. As the purchase price is contingent upon the future earnings of the customer accounts sold, none of which is guaranteed, no gain on the sale was reflected in the financial statements for the year ended June 30, 1996. Rather, income will be recognized as earned over the next five and one-half years. A condition of the sales agreement required the principal shareholder to sign a non-competition agreement. As compensation for providing such an agreement, a portion of the purchase price will be allocated to the principal shareholder and recorded by the Company concurrently with its recognition of income as described above. Management does not believe this amount will be significant. During the three months ended September 30, 1996, the Company earned $375,500 from this transaction which is included in other income. 15 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 11 - COMMITMENTS AND CONTINGENCIES The Company has a noncancellable lease for office space which expires in the year 2002. Minimum annual rentals, excluding escalations and increases in operating expenses and taxes, are as follows: Year Ending June 30, Amount -------------------- ------ 1997 $ 255,500 1998 350,500 1999 362,300 2000 374,000 2001 and thereafter 849,900 --------- Total $2,192,200 ========= The Company has entered into employment agreements which expire at varying dates through fiscal 1998 with certain of its employees, providing for aggregate minimum annual payment for the years ending 1997 and 1998 of approximately $252,300 and $204,500, respectively. Related to the Sale of Assets, if certain conditions occur over the next two years, the Company may be subject to additional severance payments of up to $517,400. The Company had guaranteed performance under the Commodity Exchange Act of certain introducing brokers with respect to their customer accounts. These introducing broker guarantees were transferred to MINC effective July 1, 1996. Index issued a limited indemnification agreement to MINC related to the Sale of Assets. This agreement covers potential customer claims arising from activity prior to the sale. No such claims are currently outstanding. 16 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED) 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. The Company was defending against an arbitration filed by a former client to recover damages of $1,000,000 alleging misrepresentation of risk and unauthorized trading. The client's actual losses were approximately $850,000. In July, 1996, an arbitration panel entered an award of no damages for the claimant. In April, 1994, Index, without admitting or denying the allegations, paid $100,000 to the CFTC, settling an administrative action, filed on September 29, 1992. In a related action, the equity receiver of an alleged commodity pool operator brought an action to recover losses of approximately $600,000, alleging various theories such as constructive trust, negligence, breach of fiduciary duty and conversion. On May 29, 1996, the district judge dismissed the complaint in its entirety. Supplemental Plaintiff filed a Notice of Appeal with the U.S. Court of Appeals for the Seventh Circuit on June 28, 1996. The Seventh Circuit has rejected the appeal on procedural grounds, however, the Supplemental Plaintiff may file another appeal. A former officer of Index whose employment was terminated as a result of the Sale of Assets has rejected Index's severance payment offer. The officer has made a demand for $500,000, and has threatened litigation, if a satisfactory offer of settlement is not made. The Company believes that its original severance offer was reasonable and the officer's claims are without merit. 17 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 12 - INCOME TAXES Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 - Accounting for Income Taxes. Under this standard, deferred tax is recognized using the liability method, whereby tax rates are applied to cumulative temporary differences based on when and how they are expected to affect the tax return. Deferred tax assets and liabilities are adjusted for tax rate changes. The primary components of the Company's deferred tax assets and liabilities are as follows:
September 30, June 30, 1996 1996 ------------- -------- Deferred income tax assets: Bad debt reserve $ 40,600 $ 38,600 Book and tax depreciation difference 239,200 235,800 Commission accrual 38,600 37,500 Bonus accrual 4,400 4,400 -------- -------- Total deferred tax assets $322,800 $316,300 -------- -------- Deferred income tax liabilities: Unrealized gain on U.S. Government obligations $ - $ (4,500) Partnership income (34,900) (34,900) Prepaid rent - (4,900) Other, net (8,900) (2,800) -------- -------- Total deferred tax liabilities $(43,800) $(47,100) -------- -------- Net deferred tax assets (liabilities) $279,000 $269,200 ======== ========
No valuation allowance has been provided as management believes deferred taxes are realizable. 18 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK The Company, through Index, until July 1, 1996, was in the business of clearing and executing futures contracts and options on futures contracts for the accounts of its customers. As such, Index guaranteed to the respective clearinghouses its customers' performance under those contracts. To reduce its risk, Index required its customers to meet, at a minimum, the margin requirement established by each of the exchanges at which the contract was traded. This margin was a good faith deposit from the customer which reduced the risk to Index of failure on behalf of the customer to fulfill any obligation under the contract. To minimize its exposure to risk of loss due to market variation, Index adjusted these margin requirements, as needed, due to daily fluctuations in the values of the underlying positions. If necessary, certain positions may have been liquidated to satisfy resulting changes in margin requirements. Management believed that the margin deposits held at September 30, 1995, were adequate to minimize the risk of material loss which could have been created by the positions held at that time. At September 30, 1996, Index held no long or short proprietary financial futures positions or customer foreign currency forward contracts. At September 30, 1995 Index held long proprietary financial futures positions and customer foreign currency forward contracts with an aggregate notional value of $200,681,900 and proprietary short financial futures positions and customer foreign currency forward contracts with an aggregate notional value of $200,676,900. The exchange upon which financial futures and options on futures contracts were traded acted as the counterparty and, accordingly, bore the risk of performance. At September 30, 1995, Index's open financial contracts were transacted at the Chicago Mercantile Exchange, Chicago Board of Trade, Commodity Exchange, Inc. and MidAmerican Commodity Exchange. At September 30, 1995, foreign currency forward contracts were transacted at the First National Bank of Chicago. Index FX conducts business for its customers in foreign currencies on the spot market in which trades generally settle on the next business day. Index FX offsets its customer positions to manage its currency risk. It also requires certain customers to post margin deposits. Management believes that with the 19 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK (CONTINUED) trades settling the next business day, and the margin policy it employs, its credit risk is reduced substantially. At September 30, 1996, Index FX held long foreign currency positions with an aggregate notional value of $3,052,757,900 and short foreign currency positions with an aggregate notional value of $3,052,508,700. Index FX held no long or short foreign currency positions at September 30, 1995. At September 30, 1996, the Index FX foreign currency business was transacted with various counterparties including several international financial institutions. NOTE 14 - CAPITAL REQUIREMENTS Index is subject to the minimum capital requirements adopted and administered by the Commodity Futures Trading Commission ("CFTC") and by certain exchanges of which Index is a member. As of September 30, 1996, adjusted net capital, as defined of approximately $4,403,400 is approximately $4,153,400 in excess of the minimum required under the regulations of the CFTC and exchanges. The net capital requirements may effectively restrict the payment of cash dividends and the repayment of subordinated borrowings. A subsidiary of JC/312 is subject to the Uniform Net Capital Rule adopted and administered by the Securities and Exchange Commission. At September 30, 1996, the subsidiary was in compliance with those requirements. NOTE 15 - CASH FLOWS For purposes of reporting cash flows, cash includes non-segregated cash and bank overdrafts, and does not include net segregated or secured cash, as defined, in the Commodity Exchange Act. Interest paid during the three months ended September 30, 1996 and 1995 amounted to $690,400 and $920,600, respectively. The Company made income tax payments in the amount of $35,000 and $1,100,000 during the three months ended September 30, 1996, and 1995, respectively. 20 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 16 - SUBSEQUENT EVENT The Board of Directors is exploring various business opportunities for the Company, now that Index no longer acts as a futures broker. Inventory financing is one of the businesses currently under consideration. In November, 1996, the Company entered into a one-time inventory financing transaction. 21 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Period Ended September 30, 1996. Jack Carl/312-Futures, Inc. (the "Company") is a holding company and operates its business through its subsidiaries. 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 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. As a result of the Sale of Assets, Index no longer acts as a futures broker for public customers and has withdrawn as a clearing member from all commodity exchanges, where there no longer will be any necessity for it to maintain such status, though it remains a registered futures commission merchant. Index also acted as a registered commodity pool operator through one of its subsidiaries. Index FX, Ltd. ("Index FX"), a British corporation and a subsidiary of Jack Carl/312-Futures, Inc., continues to conduct foreign exchange business. Index FX commenced trading operations in October, 1995. The other subsidiaries of Jack Carl/312-Futures, Inc. and Index currently have minimal operations. Liquidity and Capital Resources - ------------------------------- Index, because it remains a non-clearing futures commission merchant, is still subject to minimum capital requirements adopted and administered by various exchanges and regulatory bodies. Among these are requirements for non- clearing futures commission merchants, that do not hold customer funds, to maintain $250,000 minimum net capital. Throughout the three months ended September 30, 1996, Index exceeded the net capital requirements of the Commodity Futures Trading Commission ("CFTC"). As of September 30, 1996, Index's regulatory capital exceeded the minimum net capital requirement by $4,153,400. The Company, at September 30, 1996, had $5,490,000 in notes payable to related parties maturing January 31, 1997. The Company during the quarter repaid $900,000 of notes payable. The Company also had a $4,000,000 revolving subordinated debt line of credit which was repaid in full in August, 1996, and the line was cancelled. The ability to refinance its debt depends on the lenders' desire to continue such loans with the Company. 22 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES The Company has historically satisfied its capital needs from subordinated loans, notes payable and proceeds from the issuance of stock. The Company, since inception through September 30, 1996, has realized approximately $8,930,000 from the issuance of stock. It is anticipated that the Company's short-term and long- term capital needs will be primarily satisfied through loans and operations as well as from the proceeds of the issuance of stock. The Company, during the three months ended September 30, 1996, generated approximately $4,594,000 cash from operating activities and $1,077,800 from investing activities. The majority of the cash generated by operations and investing activities is due to the Sale of Assets. Such cash was primarily used to repay subordinated loans and notes payable. Total stockholders' equity increased $234,200 to $6,450,700 at September 30, 1996, from $6,216,500 at June 30, 1996. The increase in stockholders' equity is the result of the net income and the foreign currency translation adjustment for the period. The majority of the Company's assets are liquid in nature and are not significantly affected by inflation. However, the rate of inflation affects the Company's expenses, such as employee compensation and other operating expenses. Results of Operations - --------------------- Effective July 1, 1996, Index sold, transferred and assigned to MINC substantially all of the brokerage accounts maintained by Index together with all positions, securities, and other assets held in or for such accounts and other agreed-upon assets used in the conduct of the brokerage activities. As a result of this transaction, Index no longer acts as a futures broker for public customers. Therefore, comparisons of operations for the periods ending September 30, 1996 and 1995 are of little value. The purchase price payable by MINC in connection with this transaction is based on a percentage of the net income, as defined in the sales agreement, of the transferred activities during the sixty- six month period following the sale. Such revenue is recorded as other income. The Company, during the period ended September 30, 1995, organized Index FX, located in London, England to conduct foreign exchange business. Index FX commenced trading operations in October, 1995; however, it incurred start up costs during the three months ended September 30, 1995. Due to international tax 23 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES laws, the income tax benefit resulting from the loss generated by Index FX during the three months ended September 30, 1995, cannot be consolidated to reduce the Company's overall tax liability. The revenue generated by Index FX is recorded as trading gains. Total revenues for the quarter ended September 30, 1996 are $2,585,000 compared to $9,718,400 for the quarter ended September 30, 1995. Commission revenue and interest income decreased because Index no longer acts as a futures broker and transferred to MINC the assets related to such business. Trading gains increased by $900,000 during the quarter ended September 30, 1996, compared to the same period a year ago. Included in trading gains in 1996 is the revenue from Index FX which began trading operations in October, 1995. Other revenue also increased, by $992,500 during the quarter ended September 30, 1996, compared to the same period a year ago. Included in other revenue in 1996 is a one time gain of $664,000 on the sale of clearing corporation stock, a $22,300 loss from the sale of exchange memberships, and $375,500 from the Sale of Assets. The revenue from the Sale of Assets is based on a percentage of net income of the transferred activities for the quarter ended September 30, 1996. The Company is in the process of selling its remaining exchange memberships and will record gains or losses from such sales in future periods. Total expenses for the quarter ended September 30, 1996, are $2,167,400 compared to $9,728,700 for the quarter ended September 30, 1995. The decrease in all expense classifications is the result of the Sale of Assets and because Index no longer acts as a futures broker. The expenses for the quarter ended September 30, 1996, reflect the ongoing expenses of Index FX, ongoing expenses for Jack Carl/312-Futures, Inc. and Index, transitional expenses from the Sale of Assets and minimal expenses for other subsidiaries. Management believes that certain expenses will decrease further in the future as the transitional employees leave the Company. 24 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES The Board of Directors is exploring various business opportunities for the Company, now that Index no longer acts as a futures broker. Inventory financing is one of the businesses currently under consideration. In November, 1996, the Company entered into a one-time inventory financing transaction. Also, subsequent to September 30, 1996 and pursuant to the Sale of Assets agreement, Index FX, Ltd. has changed its name to IFX, Ltd. Jack Carl/312- Futures, Inc. and Index Futures Group, Inc., also pursuant to the Sale of Assets agreement, must change their names. However, new names have yet to be selected for these entities. As a result of the aforementioned revenues and expenses, net income for the quarter ended September 30, 1996 is $265,400 or less than $.01 per share compared to a net loss of $54,700 or less than $.01 per share for the same period a year ago. 25 Exhibit 11.1 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended September 30, ------------------------- 1996 1995 ----------- ----------- PRIMARY - ------- EARNINGS (LOSS) Net income (loss) $ 265,400 $ (54,700) Deduct assumed dividends on Class A preferred stock (10,000) (10,000) ----------- ----------- Net income (loss) applicable to common stock $ 255,400 $ (64,700) =========== =========== SHARES Weighted average number of common shares outstanding 33,624,530 33,688,308 =========== =========== Primary earnings (loss) per common share: Net income (loss) $ .01 $ (.00) =========== ===========
26 Exhibit 11.1 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended September 30, ------------------------- 1996 1995 ----------- ----------- ASSUMING FULL DILUTION - ---------------------- EARNINGS (LOSS) Net income (loss) $ 265,400 $ (54,700) =========== =========== SHARES Weighted average number of common shares outstanding 33,624,530 33,688,308 =========== =========== Earnings (loss) per common share assuming full dilution: Net income (loss) $ .01 $ (.00) =========== ===========
27 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION SEPTEMBER 30, 1996 Item 6. Exhibits and Reports on Form 8-K (a) Immediately following this page is an Exhibit Index setting forth the exhibits to this Quarterly Report on Form 10-Q and the page number in the sequential numbering system where such exhibits can be found. (b) Reports on Form 8-K - There were no reports filed on Form 8-K for the three months ended September 30, 1996. 28 JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES EXHIBIT INDEX Page ----- (11) Statement re: Computation of per share earnings 26-27 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Jack Carl/312-Futures, Inc. --------------------------- (Registrant) Dated: November 13, 1996 By: /S/ ALLYSON LAACKMAN ------------------------------ Allyson Laackman Chief Financial Officer 30 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 3-MOS JUN-30-1997 SEP-30-1996 2,404,100 4,985,800 5,035,200 (415,100) 0 30,411,900 2,457,600 (2,235,800) 32,229,400 25,778,700 0 134,500 0 400,000 5,916,200 32,229,400 61,300 2,585,000 0 54,900 1,694,100 (56,500) 474,900 417,600 152,200 265,400 0 0 0 265,400 .01 .01
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