_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
_______________________
For the Quarterly Period ended Commission File Number
September 30, 1997 0-12926
_______________________
JMC GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2627415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
_______________________
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
----- -----
As of September 30, 1997, the registrant had 6,044,351 shares of its
common stock, $.01 par value, issued and outstanding.
_______________________________________________________________________________
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1997 1996
------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,072,629 $ 4,682,883
Cash segregated under securities
regulations 2,422,866 1,247,231
Receivables from insurance companies 396,242 674,409
Receivable from financial institution - 325,000
Income taxes receivable 364,839 424,746
Deferred tax asset 187,728 194,361
Other assets 209,855 243,256
------------- ------------
TOTAL CURRENT ASSETS 7,654,159 7,791,886
Furniture, equipment and leasehold
improvements - net of accumulated
depreciation and amortization of
$1,490,015 in 1997 and $1,466,390 in 1996 241,664 212,844
Asset-based fees - net of accumulated
amortization of $725,701 in 1997 and
$635,836 in 1996 671,428 761,293
------------- ------------
TOTAL ASSETS $ 8,567,251 $ 8,766,023
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued fees to financial institutions $ 147,073 $ 321,609
Customer funds segregated under securities
regulations 2,422,866 1,247,231
Accrued expenses and other liabilities 193,688 491,556
Allowance for contract cancellations 48,450 53,813
Accrued payroll and related expenses 118,433 133,911
------------- ------------
TOTAL CURRENT LIABILITIES 2,930,510 2,248,120
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 6,044,351 shares in 1997
and 6,218,898 shares in 1996 60,443 62,189
Additional paid-in-capital 466,849 644,651
Retained earnings 5,109,449 5,811,063
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 5,636,741 6,517,903
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 8,567,251 $ 8,766,023
============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30,
1997 1996
--------------- --------------
REVENUES
Commissions $ 1,022,328 $ 2,244,812
Interest 54,955 38,592
Other 635 102,307
--------------- --------------
TOTAL REVENUES 1,077,918 2,385,711
--------------- --------------
EXPENSES
Employee compensation and benefits 611,237 1,224,627
Fees to financial institutions 366,066 993,269
Professional fees 71,218 675,445
Rent 67,662 103,376
Telephone 16,025 33,234
Depreciation and amortization 27,931 129,434
Other general and administrative
expenses 142,198 344,687
-------------- -------------
TOTAL EXPENSES 1,302,337 3,504,072
-------------- -------------
LOSS BEFORE INCOME TAXES (224,419) (1,118,361)
INCOME TAX BENEFIT (63,518) (435,955)
--------------- --------------
NET LOSS $ (160,901) $ (682,406)
=============== ==============
LOSS PER SHARE $ (0.03) $ (0.11)
=============== ==============
WEIGHTED AVERAGE SHARES 6,044,351 6,218,898
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended September 30,
1997 1996
--------------- ---------------
REVENUES
Commissions $ 3,241,750 $ 7,499,812
Interest 171,004 162,328
Other 9,446 110,856
--------------- ---------------
TOTAL REVENUES 3,422,200 7,772,996
--------------- ---------------
EXPENSES
Employee compensation and benefits 2,136,911 3,827,450
Fees to financial institutions 1,171,925 3,097,129
Professional fees 243,966 797,916
Rent 200,080 284,116
Telephone 37,942 115,417
Depreciation and amortization 89,167 424,108
Other general and administrative
expenses 601,920 894,319
--------------- ---------------
TOTAL EXPENSES 4,481,911 9,440,455
--------------- ---------------
LOSS BEFORE INCOME TAXES (1,059,711) (1,667,459)
INCOME TAX BENEFIT (358,097) (637,690)
--------------- ---------------
NET LOSS $ (701,614) $ (1,029,769)
=============== ===============
LOSS PER SHARE $ (0.12) $ (0.17)
=============== ===============
WEIGHTED AVERAGE SHARES 6,059,576 6,212,231
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
1997 1996
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (701,614) $ (1,029,769)
Adjustments to reconcile net loss to
net cash used by operating activities:
Gain on sale of furniture and equipment (6,625) (1,998)
Depreciation and amortization 89,167 424,108
Amortization of asset-based fees 89,865 185,573
Deferred tax provision 6,633 (53,875)
Changes in assets and liabilities:
Cash segregated under securities
regulations 1,175,635 (1,096,913)
Receivables from insurance companies 278,167 (55,689)
Receivable from financial institution 325,000 9,450
Income taxes receivable 59,907 (788,304)
Other assets 30,450 (6,507)
Accrued fees to financial institutions (174,536) 29,046
Customer funds segregated under
securities regulations (1,175,635) 1,096,913
Accrued expenses and other liabilities (297,868) (424,323)
Allowance for contract cancellations (5,363) (12,050)
Accrued payroll and related expenses (15,478) 1,739
-------------- --------------
NET CASH USED BY OPERATING ACTIVITIES (322,295) (1,722,599)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment and
leasehold improvements (116,036) (55,341)
Proceeds from sale of furniture and equipment 7,625 12,184
Payment for consulting and marketing
agreement - (1,250,000)
-------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (108,411) (1,293,157)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (194,548) -
Proceeds from stock options exercised 15,000 20,000
-------------- --------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (179,548) 20,000
-------------- --------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (610,254) (2,995,756)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 4,682,883 5,832,598
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 4,072,629 $ 2,836,842
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for:
Interest $ - $ 520
Income taxes $ 9,542 $ 221,349
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
ACTIVITIES
Warrants issued in connection with the
consulting and marketing agreement $ - $ 315,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do
not include all information and footnote disclosures that are
otherwise required by Regulation S-X and that will normally be
made in the Company's Annual Report on Form 10-K. The financial
statements do, however, reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the
results of the interim period presented.
The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date. It is recommended that
these financial statements be read in conjunction with the
Company's financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1996.
NOTE 2. NET LOSS PER SHARE
Net loss per share amounts are computed based on the weighted
average shares outstanding during the periods which include any
dilutive stock options and warrants.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". This statement specifies the computation,
presentation, and disclosure requirements for earnings per share
for entities with publicly held common stock. SFAS No. 128 is not
in effect for the Company in the third quarter of 1997, but will
be in effect for financial statements issued for periods ending
after December 15, 1997, including interim periods. The Company
does not expect the adoption of SFAS No. 128 to have a material
effect on its net earnings or loss per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion of the Company's business contained in this Form 10-Q 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" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
RESULTS OF OPERATIONS
- ---------------------
THIRD QUARTER 1997 COMPARED TO THIRD QUARTER 1996
The Company realized a net loss of $161,000 (or $0.03 per share) in the third
quarter of 1997 compared to a net loss of $682,000 (or $0.11 per share) for
the third quarter of last year. The third quarter 1996 net loss included
expenses related to the proposed merger with USBA Holdings, Inc.
(USBA) of $704,000 ($433,000 net after estimated tax benefit or $0.07 per
share), as well as amortization of the payment of $78,000 ($48,000 net after
estimated tax benefit or $.01 per share) for the marketing plan and the
valuation of the warrant. (See "USBA Marketing Agreement and Proposed Merger"
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996.) For the nine months ended September 30, 1997, the Company had a net
loss of $702,000 (or $0.12 per share) compared to net loss of $1,030,000 (or
$0.17 per share) during the first nine months of 1996. The first nine months
of 1996 net loss included merger-related expenses of $800,000 ($492,000
net after estimated tax benefit or $0.08 per share) as well as amortization of
costs associated with the marketing plan and issuance of a warrant to USBA of
$235,000 ($145,000 net after estimated tax benefit or $0.02 per share).
Total revenues for the quarter ended September 30, 1997 were $1,078,000, a
decrease of $1,308,000 or 55% from $2,386,000 in the third quarter of 1996.
This reduction in revenues is primarily a result of the following:
. A decrease in sales production related gross revenues of $1,096,000 or
69%. This decrease is a result of gross sales production volumes declining
$19 million or 67% in the third quarter of 1997 as compared to the third
quarter of 1996. This decline in sales volume is attributable to the
termination of the Company's Virginia operation in the fourth quarter of
1996. See "Trends and Uncertainties -- Declining Revenues". The combined
annuity and mutual fund gross revenue rate for the third quarter of 1997 as
compared to such rate in the third quarter of 1996 declined from 5.6% to
5.2% primarily as a result of changes in product mix.
. A decrease in asset-based fee revenues of approximately $204,000 in the
third quarter of 1997 compared to 1996 as a result of the sale of the rights
to the portion of such asset-based fee revenues that related to the
termination of the Company's Virginia operation during the fourth quarter of
1996. Third quarter 1996 asset-based fees related to the Virginia operation
totaled approximately $208,000.
Total revenues for the first nine months of 1997 were $3,422,000 versus
$7,773,000 for the comparable period in 1996, a decrease of $4,351,000 or 56%.
The decrease in revenues for the nine month period of 1997 as compared to 1996
is also a result of a decrease in gross sales production of 67% and a decrease
in asset-based revenues due primarily to the previously described termination
of the Company's Virginia operation and is offset by an increase in service
fee revenue.
Total expenses for the quarters ended September 30, 1997 and 1996 were
$1,302,000 and $3,504,000, respectively. Excluding the previously described
merger-related expenses of $704,000 and amortization of $78,000 in the third
quarter of 1996, expenses for the third quarter 1997 would have decreased
$1,420,000 or 52% compared to the same period of 1996. This decrease is
attributable to:
. A $627,000 or 63% reduction in fees to financial institutions due to
lower sales volume.
. A reduction of $94,000 or 72% in salespersons' commissions also due to
lower sales volume.
. A $699,000 or 44% reduction in the remaining base operating expenses
primarily due to the downsizing of the Company's administrative and sales
management functions and a reduction in personnel related to the termination
of the Company's Virginia operation as previously discussed.
For the same reasons, total expenses for the nine months ended September 30,
1997 decreased $3,923,000 or 47% to $4,482,000 from $8,405,000 in the first
nine months of 1996, excluding the previously described merger-related
expenses and amortization.
THIRD QUARTER 1997 COMPARED TO SECOND QUARTER 1997
The Company realized a net loss of $161,000 (or $0.03 per share) in the third
quarter of 1997 compared to a net loss of $290,000 (or $0.05 per share) in the
second quarter of 1997.
Total revenues declined $60,000 or 5% to $1,078,000 in the third quarter of
1997 from $1,138,000 in the second quarter of 1997. The decrease is a result
of a decrease in gross sales production of 13%. Total expenses in the third
quarter of 1997 were $1,302,000 versus $1,562,000 in the second quarter of
1997, a reduction of $260,000 or 17%. Such reduction is attributable to the
reduction in variable costs tied to sales volumes and a reduction in
personnel.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1997, the Company had cash and cash equivalents of
approximately $4,073,000, a decrease of approximately $610,000 from $4,683,000
in cash and cash equivalents at December 31, 1996. Significant uses of cash
and cash equivalents include the following:
. A payment of $195,000 to repurchase stock from a former officer and
director of the Company during the first quarter of 1997.
. A reduction of approximately $493,000 in current liability balances
during the first nine months of 1997 primarily as a result of the transition
of the operation and closing of the Company's facility in Virginia.
. Purchases of computer equipment and program development of $116,000.
. Pre-tax losses incurred in the first nine months of 1997 of
approximately $1,060,000.
. These cash uses were offset, in part, by the receipt of $300,000 for the
remaining balance of the proceeds from the 1996 fourth quarter sale of
rights to future asset-based fees, the receipt of a $431,000 federal income
tax refund, a reduction of $303,000 in current receivables balance during
the first nine months of 1997 and non-cash expenses of approximately
$209,000 relating to depreciation and amortization.
Future trail 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 rights to certain future fees in 1996 and prior
years. The projected value of the future asset-based fees on the remaining
block of business at September 30, 1997 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 substantially 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. Such estimated value is based on the estimates of 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.
Based upon the Company's cash position as of September 30, 1997, Management
expects the Company will meet its operating and capital expenditure needs for
the remainder of its current fiscal year.
TRENDS AND UNCERTAINTIES
- ------------------------
DECLINING REVENUES
The Company's gross sales production decreased 67% when comparing the third
quarter of 1997 to the third quarter of 1996. This decrease is primarily
attributed to the termination of the Virginia operation in the fourth quarter
of 1996. Responding to these decreases in revenues, the Company has reduced
its operating expenses by more than $699,000 as compared to the third quarter
of 1996. The Company continues to explore new business development
opportunities and strategic alternatives including business combinations and
other transactions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's broker-dealer subsidiary, JMC Investment Services,
Inc. (JMCI), has been named as a defendant in a NASD arbitration
regarding sales of real estate limited partnerships by Spear Rees
& Co. (the predecessor to JMCI) between 1990 and 1993. In
addition, the Company and its subsidiaries may be 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 operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits.
The following exhibit is filed herewith:
27 Financial Data Schedule
b.) Reports on Form 8-K.
None.
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.
Date: November 6, 1997 /s/ James K. Mitchell
------------------------------------------
James K. Mitchell, Chairman, President and
Chief Executive Officer
Date: November 6, 1997 /s/ Daniel M. Harkins
-----------------------------------------
Daniel M. Harkins, Senior Vice President,
General Counsel and Chief FinancialOfficer
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<LEGEND>
This schedule contains summary financial information extracted from JMC Group,
Inc.'s Form 10-Q and is qualified in its entirety by reference to such 10-Q
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