<PAGE>
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, 1995
[ ] 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) 407-5700
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changes 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 33,624,531 shares of
common stock, $.004 par value per share.
This is page 1 of 29 sequentially numbered pages.
<PAGE>
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, 1995 and June 30, 1995. 3
Consolidated statements of operations for the
three months ended September 30, 1995 and 1994. 4
Consolidated statement of changes in stockholders'
equity for the three months ended September 30,
1995. 5
Consolidated statements of changes in liabilities
subordinated to claims of general creditors for
the three months ended September 30, 1995 and 1994. 6
Consolidated statements of cash flows for the
three months ended September 30, 1995 and 1994. 7-8
Notes to consolidated financial statements. 9
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<PAGE>
<TABLE>
<CAPTION>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1995 AND JUNE 30, 1995
ASSETS
September 30, June 30,
1995 1995
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Cash $ 1,406,200 $ 1,034,900
Cash segregated or secured under Commodity Exchange Act 1,754,600 1,181,700
U.S. Government obligations 104,031,400 82,885,600
Deposits with clearing organizations 69,936,700 78,030,700
Warehouse receipts 899,600 1,537,200
Receivables:
Brokers and dealers 6,309,700 9,253,400
Clearing organizations 15,209,500 12,627,900
September 30, June 30,
1995 1995
------------- ----------
Customers $ 898,900 $1,152,200
Affiliates 5,700 7,300
Other 251,000 379,100
Less - Allowance for doubtful accounts (191,900) (191,900) 963,700 1,346,700
--------- ----------
Investments in and advances to affiliated partnerships 48,500 39,100
Notes receivable 632,500 633,700
Exchange memberships, at cost (market value of $1,121,700
and $1,228,100 at September 30, 1995 and June 30, 1995,
respectively) 781,300 781,300
Furniture, equipment, and leasehold improvements, net of
accumulated depreciation and amortization of $1,672,500
and $1,602,800 at September 30, 1995 and June 30, 1995,
respectively 699,900 682,900
Goodwill, net of accumulated amortization of $4,067,900
and $4,054,500 at September 30, 1995 and June 30, 1995,
respectively 528,500 541,900
Other assets 333,000 355,400
------------ ------------
Total $203,535,100 $190,932,400
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables:
Clearing organizations $ 60,800 $ 185,900
Customers 181,591,300 168,500,000
Officers and employees 1,944,600 2,221,500
Accounts payable and accrued expenses 2,813,500 4,580,900
Notes payable 6,390,000 6,390,000
------------ ------------
Total 192,800,200 181,878,300
------------ ------------
Liabilities subordinated to claims of general creditors 3,440,000 1,690,000
------------ ------------
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,
33,624,531 and 33,624,532 shares issued and outstanding
at September 30, 1995 and June 30, 1995, respectively 134,500 134,500
Paid-in capital 8,395,300 8,395,300
Retained deficit (1,620,400) (1,565,700)
Cumulative translation adjustment (14,500) -
------------ ------------
Total stockholders' equity 7,294,900 7,364,100
------------ ------------
Total $203,535,100 $190,932,400
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
<TABLE>
<CAPTION>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
Three Months Ended
September 30,
---------------------------------
1995 1994
------------------- ------------
<S> <C> <C>
Revenues:
Commissions $ 7,803,200 $ 7,913,900
Interest 1,818,900 1,427,200
Trading gains, net 55,100 73,700
Other 41,200 135,200
----------- -----------
Total revenues 9,718,400 9,550,000
----------- -----------
Expenses:
Commission, floor brokerage and clearing costs 4,254,400 4,516,300
Compensation and related benefits 2,525,400 2,079,500
Communications 428,600 436,700
Interest 911,800 736,800
Rent and other occupancy costs 380,500 293,200
Business promotion 478,400 384,100
Professional and consulting fees 198,500 135,700
Depreciation 69,800 65,200
Amortization of goodwill 13,400 13,400
Other 467,900 462,300
----------- -----------
Total expenses 9,728,700 9,123,200
----------- -----------
Income (loss) before income taxes (10,300) 426,800
Income tax expense 44,400 162,000
----------- -----------
Net income (loss) (54,700) 264,800
Assumed cumulative dividend on Class A preferred stock (10,000) (10,000)
----------- -----------
Net income (loss) applicable to common stock $ (64,700) $ 254,800
=========== ===========
Primary earnings (loss) per common share,
restated for reverse split:
Net income (loss) $ (.00) $ .01
=========== ===========
Weighted average number of common shares outstanding 33,688,308 21,782,870
=========== ===========
Fully diluted earnings (loss) per common share,
restated for reverse split:
Net income (loss) $ (.00) $ .01
=========== ===========
Weighted average number of common shares outstanding 33,688,308 21,782,870
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
Class A Common Stock Cumulative
Preferred ------------ Paid-In Retained Translation
Stock Shares Amount Capital Deficit Adjustment Total
--------- ------ ------ ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 $400,000 33,624,532 $134,500 $8,395,300 $(1,565,700) $ - $7,364,100
Repurchase of common
stock pursuant to
reverse split - (1) - - - - -
Net loss - - - - (54,700) - (54,700)
Foreign currency
translation - - - - - (14,500) (14,500)
-------- ---------- -------- ---------- ----------- -------- ----------
Balance,
September 30, 1995 $400,000 33,624,531 $134,500 $8,395,300 $(1,620,400) $(14,500) $7,294,900
======== ========== ======== ========== =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
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, 1995 AND 1994
(UNAUDITED)
Three Months Ended
September 30,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Liabilities subordinated to claims of
general creditors, at beginning of
period $1,690,000 $2,000,000
New borrowings 1,750,000 -
---------- ----------
Liabilities subordinated to claims of
general creditors, at end of period $3,440,000 $2,000,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1995 1994
------------ -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (54,700) $ 264,800
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 83,200 78,600
Deferred taxes (30,700) 34,000
Doubtful accounts expense (benefit) (45,000) 17,200
Equity in net (gain) loss of affiliated partnerships (8,500) 1,800
Changes in:
Cash segregated or secured under
Commodity Exchange Act, net (572,900) 583,700
U.S. Government obligations (21,145,800) 13,307,600
Deposits with clearing organizations 8,094,000 (8,972,800)
Warehouse receipts 637,600 (63,700)
Receivables 1,082,100 (4,273,600)
Other assets (238,900) (262,700)
Payables 12,689,300 (1,820,400)
Accounts payable and accrued expenses (1,767,400) (664,100)
------------ -----------
Cash used in operating activities (1,277,700) (1,769,600)
------------ -----------
Cash Flows From Investing Activities:
Investments in and advances to affiliated partnerships, net (900) (39,100)
Decrease in notes receivable 1,200 3,100
Purchase of exchange membership - (130,000)
Purchase of furniture, equipment and leasehold
improvements (86,800) (46,600)
Rebate from purchase of equipment - 50,000
Rebate from exchange memberships - 102,900
------------ -----------
Cash used in investing activities (86,500) (59,700)
------------ -----------
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 - (100,000)
Increase in liabilities subordinated to claims
of general creditors 1,750,000 -
Issuance of common stock pursuant to
rights offering - 1,076,000
------------ -----------
Cash provided by financing activities 1,750,000 976,000
------------ -----------
Effect of exchange rate changes on cash (14,500) -
------------ -----------
Increase (Decrease) in cash 371,300 (853,300)
Cash, beginning of period 1,034,900 1,862,300
------------ -----------
Cash (bank overdrafts), end of period $ 1,406,200 $ 1,009,000
============ ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-7-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(CONTINUED FROM PAGE 7)
Supplemental Schedule of Non-Cash Investing
and Financing Activities
Three Months Ended September 30, 1995
- -------------------------------------
(None)
Three Months Ended September 30, 1994
- -------------------------------------
(None)
-8-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 1 - ORGANIZATION OF JACK CARL/312-FUTURES, INC.
Jack Carl/312-Futures, Inc. ("JC/312") and Subsidiaries, (the
"Company"), engages 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"), the
principal operating subsidiary of JC/312, is a registered futures commission
merchant with the Commodity Futures Trading Commission ("CFTC"). 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, 1995.
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-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(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. Segregated and secured assets included in the
consolidated statements of financial condition are as follows:
September 30, June 30,
1995 1995
------------- ------------
Cash $ 1,754,600 $ 1,181,700
U.S. Government obligations 102,114,400 81,482,000
Deposits with clearing
organizations 61,154,800 69,531,900
Receivables from clearing
organizations, net 14,803,300 12,043,300
Receivables from brokers and dealers 5,432,500 8,436,200
Warehouse receipts 899,600 1,537,200
------------ ------------
Total segregated and
secured assets $186,159,200 $174,212,300
============ ============
Amount required to be
segregated and secured $180,953,000 $167,730,300
============ ============
NOTE 3 - DEPOSITS WITH CLEARING ORGANIZATIONS
Deposits with clearing organizations are as follows:
September 30, June 30,
1995 1995
------------- ------------
U.S. Government obligations $ 66,828,700 $ 75,964,600
Guarantee deposits 1,151,700 1,163,700
Stock in exchange clearing
organization at cost (market
value of $976,000 and $960,000 at
September 30, 1995 and June 30,
1995, respectively) 360,000 360,000
Cash margins 1,596,300 542,400
------------ ------------
Total $ 69,936,700 $ 78,030,700
============ ============
-10-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 4 - INVESTMENTS IN AND ADVANCES TO AFFILIATED PARTNERSHIPS
Index Management Services, Inc. ("IMSI"), a subsidiary of Index, as a
general partner, has invested in commodity pools. IMSI is also the sponsor of an
exempted Cayman Islands limited liability company which is in the process of
liquidation. The investments in and advances to such entities consist of the
following:
September 30, June 30,
1995 1995
------------- --------
Investments $36,600 $28,000
Advances 11,900 11,100
------- -------
Total $48,500 $39,100
======= =======
IMSI is required to maintain minimum net worth and investments in the
commodity pools as defined in the commodity pool partnership agreements. At
September 30, 1995, IMSI is in compliance with those requirements. Index
provides commodity brokerage services to the active pool at agreed upon rates
and IMSI receives administrative fees from that pool.
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, 1995 and June 30, 1995 is $57,100,600 and
$45,768,800, respectively.
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<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
---------------------- ----------
<S> <C> <C>
Principal stockholder,
interest at prime plus 4%, due:
January 31, 1996 $ 540,000 $ 540,000
January 31, 1996 400,000 400,000
Affiliates and other related parties,
interest at prime plus 4%, due:
January 31, 1996 150,000 150,000
January 31, 1996 2,000,000 2,000,000
January 31, 1996 1,800,000 1,800,000
January 31, 1996 750,000 750,000
January 31, 1996 750,000 750,000
---------- ----------
Total $6,390,000 $6,390,000
========== ==========
</TABLE>
Interest expense on notes payable during the three months ended September
30, 1995 and 1994 is $205,600 and $222,500, respectively, all of which was
earned by related parties.
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.
In September, 1994 the Company repaid $100,000 of a $250,000 note payable
to its President and a Director.
NOTE 7 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to claims of general creditors consist of the
following:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- ----------
<S> <C> <C>
Bank, interest at prime plus 3%, due:
February 28, 1996 $1,690,000 $1,690,000
September 30, 1996 1,750,000 -
---------- ----------
Total $3,440,000 $1,690,000
========== ==========
</TABLE>
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<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 7 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS (CONTINUED)
These liabilities are borrowed in accordance with the terms of a revolving
subordinated debt line totalling $4,000,000 which expires November 30, 1996. Had
any of the remaining funds been borrowed, Index's regulatory capital would have
increased on a dollar for dollar basis.
Interest expense on liabilities subordinated to claims of general creditors
during the three months ended September 30, 1995 and 1994 is $53,300 and
$47,900, 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, 1995,
cumulative dividends in arrears amounted to $383,300 or $.96 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
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<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
business on November 4, 1994, the outstanding shares of common stock were
reduced to approximately 33,624,565 shares from 134,498,260 shares before the
reverse split. As the result of the repurchase of fractional shares, there are
outstanding as of September 30, 1995, 33,624,531 shares of common stock.
All outstanding share, earnings per share and weighted average information
has been restated to reflect the one-for-four reverse split of common stock.
STOCK OPTION PLAN
In March, 1986, the Company adopted an incentive stock option plan
reserving 500,000 shares of common stock. In December, 1990, the Company,
pursuant to the incentive stock option plan, granted options for 410,000 shares
at the then market price exercisable through December, 2000. The Company also
granted options, other than in accordance with the March 1986 incentive stock
option plan.
The following summarizes, after restatement for the November 4, 1994 one-
for-four reverse stock split, all outstanding options at September 30, 1995.
Shares Shares Shares Shares Shares
Granted Price Exercisable Forfeited Cancelled Remaining
------- ----- ----------- --------- --------- ---------
Dec.
1990 410,000 $.60 317,500 72,969 19,531 317,500
Feb.
1992 125,000 $.25 125,000 - - 125,000
May
1992 75,000 $.60 50,000 25,000 - 50,000
Sep.
1992 125,000 $.375 125,000 - - 125,000
Feb.
1994 1,250,000 $.24 1,250,000 - - 1,250,000
Jan.
1995 250,000 $.125 250,000 - - 250,000
--------- --------- ------ ------ ---------
Total 2,235,000 2,117,500 97,969 19,531 2,117,500
========= ========= ====== ====== =========
-14-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 9 - RELATED PARTY TRANSACTIONS
A note receivable in the amount of $632,500 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. This note is partially collateralized by deposits at
Index as of September 30, 1995. The Company earned interest income on this note
in the amounts of $13,800 and $11,800 during the three months ended September
30, 1995 and 1994, respectively.
The Company rents from an officer and a director an exchange membership
having a market value at September 30, 1995 of approximately $615,000. Rent
expense for the three months ended September 30, 1995 and 1994 was $18,000 and
$12,000, respectively.
Certain exchange memberships owned by officers and others, having an
aggregate market value of $5,209,000, have been pledged to various exchange
clearinghouses or corporations on behalf of the Company and may be used by them
under certain circumstances to fulfill the Company's obligations to those
clearinghouses or corporations. These exchange memberships are not included in
the Company's consolidated statements of financial condition. The Company, in
the ordinary course of business, guarantees certain loans which are secured by
exchange memberships owned by an individual who is an officer and director and
by the principal shareholder.
The Company receives funds, in the form of loans and advances, from its
principal shareholder, an affiliated company and an officer and a director of
the Company. See Note 6 for the terms and balances at September 30, 1995 and
June 30, 1995.
NOTE 10 - SALE OF ASSETS
In January, 1993, Brokers Resource Corp., at the time a wholly-owned
subsidiary of Index and currently a wholly-owned subsidiary of the Company, sold
the majority of its guaranteed introducing broker business to an unrelated
entity in return for a portion of future earnings on such business through
January 15, 1995. No gain was recognized at the date of the sale due to the
uncertainty of future earnings. During the three months ended September 30,
1994, the Company earned $199,100 from this transaction, which is included in
commission income. The revenue stream generated from this transaction ended
effective January 15, 1995.
-15-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company has noncancellable leases for office space which expire at
varying dates through the year 2000. Minimum annual rentals, excluding
escalations and increases in operating expenses and taxes, are as follows:
Year Ending June 30, Amount
-------------------- ------
1996 $136,300
1997 155,700
1998 102,500
1999 102,500
2000 and thereafter 119,600
-------
Total $616,600
=======
The Company has entered into employment agreements which expire at varying
dates through fiscal 1997 with certain of its officers, providing for aggregate
minimum annual payments for the years ending June 30, 1996 and 1997 of
approximately $566,800 and $240,000, respectively. Additional compensation is
payable under certain circumstances as defined in the agreements.
The Company has guaranteed performance under the Commodity Exchange Act of
certain introducing brokers with respect to their customer accounts.
Index and BRC issued a limited indemnification agreement to the purchaser
of the BRC business (See Note 10). This agreement covers potential customer
claims arising from activity prior to the sale. No such claims are currently
outstanding.
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate liability,
if any, resulting from any pending action or proceedings will not have a
material effect on the financial position or results of operations of the
Company.
The Company is currently defending against a demand for arbitration filed
by a former client to recover damages of $1,000,000 for misrepresentation of
risk and unauthorized trading. The client's actual losses were approximately
$850,000. The Company believes the claims are without merit and plans to
vigorously contest the action. In management's opinion, the ultimate liability,
if any, will not materially affect the financial position or operations of the
Company.
-16-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company, subsequent to September 30, 1995, settled a complaint filed by
former partners of a general partnership which cleared its trades at the
Company. The settlement did not materially affect the financial position or
results of operations of the Company.
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. The equity receiver of an alleged commodity pool operator brought a
related action which is still pending to recover losses of approximately
$600,000, alleging various theories such as constructive trust, negligence,
breach of fiduciary duty and conversion. Index denies the allegations, believes
they are without merit and intends to defend this action vigorously.
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
-17-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 12 - INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
-------------- ----------
<S> <C> <C>
Deferred income tax assets:
Bad debt reserve $ 66,100 $ 66,100
Book and tax depreciation
difference 70,900 67,500
Insurance reserve 10,600 -
Contingent liability reserve 2,900 -
Bonus accrual 2,100 65,400
Accrued legal expense 40,800 40,800
--------- ---------
Total deferred tax assets $ 193,400 $ 239,800
--------- ---------
Deferred income tax liabilities:
Unrealized gain on U.S.
Government obligations $ (74,900) $(135,900)
Partnership income (26,200) (26,200)
Prepaid and deferred rent, net (3,400) (18,100)
1987-1989 audit adjustment (61,300) (61,300)
Other - (1,400)
--------- ---------
Total deferred tax liabilities $(165,800) $(242,900)
--------- ---------
Net deferred tax assets
(liabilities) $ 27,600 $ (3,100)
========= =========
</TABLE>
No valuation allowance has been provided as management believes
deferred taxes are realizable.
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK
The Company, through Index, is in the business of clearing and
executing futures contracts and options on futures contracts for the accounts of
its customers. As such, Index guarantees to the respective clearinghouses its
customers' performance under
-18-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK (CONTINUED)
these contracts. To reduce its risk, Index requires its customers to meet, at a
minimum, the margin requirement established by each of the exchanges at which
the contract is traded. This margin is a good faith deposit from the customer
which reduces 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 adjusts these margin requirements, as needed, due to
daily fluctuations in the values of the underlying positions. If necessary,
certain positions may be liquidated to satisfy resulting changes in margin
requirements. Management believes that the margin deposits held at September 30,
1995, were adequate to minimize the risk of material loss which could be created
by the positions held at that time. 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 short proprietary
financial futures positions and customer foreign currency forward contracts with
an aggregate notional value of $200,676,900. At September 30, 1994, Index held
long proprietary financial futures positions and customer foreign currency
forward contracts with an aggregate notional value of $486,596,700 and
proprietary short financial futures positions and customer foreign currency
forward contracts with an aggregate notional value of $486,596,700.
The exchange upon which financial futures and options on futures
contracts are traded acts as the counterparty and, accordingly, bears the risk
of performance. At September 30, 1995 and 1994, 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 First National Bank
of Chicago. At September 30, 1994 foreign currency forward contracts were
transacted at First National Bank of Chicago and DAIWA Securities America, Inc.
-19-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
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, 1995, adjusted net
capital, as defined, of $13,628,300 is $7,183,500 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, 1995, the subsidiary is in compliance with those requirements.
NOTE 15 - NASDAQ LISTING
On August 17, 1994, the Company was advised by NASDAQ that the
securities of the Company were delisted from the NASDAQ SmallCap Market
effective August 18, 1994. The Company appealed NASDAQ's decision and secured
additional market makers. On December 7, 1994, the Company's common stock
resumed trading on the NASDAQ SmallCap Market.
NOTE 16 - CASH FLOWS
For purposes of reporting cash flows, cash does not include net
segregated or secured cash, as defined, in the Commodity Exchange Act. Interest
paid during the three months ended September 30, 1995 and 1994 amounted to
$920,600 and $636,900, respectively. The Company made income tax payments in
the amount of $1,100,000 and $430,200 during the three months ended September
30, 1995, and 1994, respectively.
-20-
<PAGE>
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, 1995.
Jack Carl/312-Futures, Inc. (the "Company") is a holding company and
operates its business through its subsidiaries. Index Futures Group, Inc.
("Index"), the Company's principal operating subsidiary, provides a full range
of futures brokerage, clearing and back office services for institutional and
public commodity traders. It is a clearing member of the Chicago Mercantile
Exchange, Chicago Board of Trade, Mid-America Commodity Exchange, Commodity
Exchange, Inc., New York Mercantile Exchange, New York Futures Exchange and New
York Cotton Exchange, and effective January 1, 1995, the Coffee, Sugar & Cocoa
Exchange. Index also acts as a registered commodity pool operator through one
of its subsidiaries. Another subsidiary of the Company is a registered
securities broker-dealer.
Liquidity and Capital Resources
- -------------------------------
Index, the Company's primary operating subsidiary, is subject to the
minimum capital requirements adopted and administered by various exchanges and
regulatory bodies. Among these are requirements for registered futures
commission merchants to maintain minimum net capital based on a percentage of
the amount of customer funds required to be segregated. During the three months
ended September 30, 1995, Index's segregated asset requirement increased by
approximately $17,929,700, which increased Index's net capital requirements. As
of September 30, 1995, Index's segregated funds exceeded the requirement by
$4,522,500. Index is also required to secure all balances due to U.S. based
customers for activities in foreign futures and options. At September 30, 1995,
funds secured in separate accounts exceeded secured requirements by $683,700.
Throughout the three months, Index exceeded the net capital requirements of the
CFTC and the various exchanges of which it is a member. As of September 30,
1995, Index's regulatory capital exceeded the minimum net capital requirements
of the CFTC by $7,183,500.
The Company, at September 30, 1995, had $6,390,000 in notes payable to
related parties maturing January 31, 1996 and $3,440,000 of subordinated debt of
which $1,690,000 matures February 28, 1996 and $1,750,000 matures September 30,
1996. The majority of the proceeds from the notes were loaned to Index in the
form of subordinated loans which are included in net capital for regulatory
purposes. Index has a $4,000,000 revolving subordinated debt line of credit,
with a $560,000 available balance. The line of credit expires November 30,
1996. The ability to refinance its debt depends on the lenders desire to
continue such loans with the Company.
-21-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
The Company has historically satisfied its capital needs from
subordinated loans, notes payable, which have increased $1,750,000 since June
30, 1995, and proceeds from the issuance of stock. The Company, since inception
through September 30, 1995, has realized approximately $8,929,800 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, operations and
investing activities as well as from the proceeds of the issuance of stock.
The Company, during the quarter ended September 30, 1995 used
approximately $1,300,000 cash in operating activities. This expenditure was
funded primarily from a $1,750,000 subordinated loan. Additional cash was used
for start up costs incurred on the Company's London subsidiary which began
trading operations in October, 1995.
Total stockholders' equity decreased $69,200 to $7,294,900 at
September 30, 1995, from $7,364,100 at June 30, 1995. The decrease in
stockholders' equity is the result of the net loss and the foreign currency
translation adjustment for the quarter.
The majority of the Registrant's assets are liquid in nature and are
not significantly affected by inflation. However, the rate of inflation affects
the Registrant's expenses, such as employee compensation and other operating
expenses.
Results of Operations
- ---------------------
In January, 1993, Brokers Resource Corp. ("BRC"), at the time a
wholly-owned subsidiary of Index and currently a wholly-owned subsidiary of Jack
Carl/312-Futures, Inc., sold the majority of its guaranteed introducing broker
business to an unrelated entity in return for a portion of future earnings on
such business through January 15, 1995. The Company earned $199,100 of
commission revenue during the quarter ended September 30, 1994 from the sale of
BRC's introducing broker business. This revenue stream ended effective January
15, 1995.
Total revenues for the quarter ended September 30, 1995 increased
$168,400 to $9,718,400 compared to $9,550,000 for the quarter ended September
30, 1994.
Commission revenue, which generally is related to trading volume,
decreased $110,700 during the quarter ended September 30, 1995 compared to the
same period a year ago. Included in commission revenue for 1994 is $199,100
from the sale of BRC's introducing broker business. Excluding the effect of the
BRC revenue, the Company's commission revenue increased slightly in
-22-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
1995 on a 17% increase in trading volume. The small increase in commission
revenue compared to the increase in trading volume is primarily attributable to
the Company's business mix which has changed toward business that generates
higher trading volume and lower revenues and expenses per trade than other types
of retail business. Included in this type of business are accounts from non-
clearing futures commission merchants, other wholesale business and execution
only business.
Interest income increased $391,700 during the quarter ended September
30, 1995 compared to the same period a year ago. The increase in interest
income in fiscal 1996 is primarily attributable to the following factors. The
Company is investing in longer term U.S. Government obligations which increases
the yield on its investments. Such investments are interest rate sensitive
which cause fluctuations in income as interest rates vary. The change in
appreciation of these investments due to such market value fluctuations
generated an increase in interest income of approximately $6,100 during the
quarter ended September 30, 1995 compared to the same period a year ago.
Second, the Company, by increasing its customer base, has additional funds
available to invest. Third, interest rates have continued their upward trend in
fiscal 1996.
Total expenses increased $605,500 or 7% during the quarter ended
September 30, 1995 compared to the same period a year ago.
The Company, during the quarter ended September 30, 1995, organized
Index FX, Ltd. ("Index FX") a British corporation 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 quarter ended
September 30, 1995. Due to international tax laws, the income tax benefit
resulting from the loss generated by Index FX during the quarter ended September
30, 1995 cannot be consolidated to reduce the Company's overall tax liability.
Commissions, floor brokerage and clearing costs which are related to
trading volume, decreased $261,900 or 6% during the quarter ended September 30,
1995 compared to the same period a year ago. The decrease in expense is the
result of the gradual restructuring of sales agreements to include the
absorption of certain production related costs by certain sales people before
commissions are earned. Also, as part of the restructuring, certain sales
people are being compensated by salary in addition to commissions. Another
reason for the decrease in commissions, floor brokerage and clearing costs is
the change in business mix
-23-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
toward business which generates higher trading volume and lower commission
revenues and expenses per trade than other types of retail business. Included
in this type of business are accounts from non-clearing futures commission
merchants, other wholesale business and execution only business.
Compensation and related benefits increased $445,900 or 21% during the
quarter ended September 30, 1995 compared to the same period a year ago. The
increase is the result of an increase in the number of employees and salary
increases. Also contributing to the increase is the restructuring of sales
agreements which provide for certain sales people to be compensated by salary in
addition to commissions.
Interest expense increased $175,000 during the quarter ended September
30, 1995 compared to the same period a year ago. The increase was caused by
higher interest rates on the Company's obligations during fiscal 1996 and
increased customer deposits on which the Company pays interest expense.
As a result of the aforementioned revenues and expenses, net loss for
the quarter ended September 30, 1995 is $54,700 or less than $.01 per share
compared to net income of $264,800 or $.01 per share for the same period a year
ago.
-24-
<PAGE>
Exhibit 11.1
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY
- -------
EARNINGS (LOSS)
Net income (loss) $ (54,700) $ 264,800
Deduct assumed
dividends on Class A
preferred stock (10,000) (10,000)
----------- -----------
Net income (loss)
applicable to
common stock $ (64,700) $ 254,800
=========== ===========
SHARES
Weighted average
number of common
shares outstanding 33,688,308 21,782,870
=========== ===========
Primary earnings (loss)
per common share:
Net income (loss) $ (.00) $ .01
=========== ===========
</TABLE>
-25-
<PAGE>
Exhibit 11.1
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK
Three Months Ended
September 30,
--------------------------
1995 1994
---- ----
ASSUMING FULL DILUTION
- ----------------------
EARNINGS (LOSS)
Net income (loss) $(54,700) $264,800
======== ========
SHARES
Weighted average
number of common
shares outstanding 33,688,308 21,782,870
========== ==========
Earnings (loss) per
common share
assuming full
dilution:
Net income (loss) $ (.00) $ .01
======== ========
-26-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
SEPTEMBER 30, 1995
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, 1995.
-27-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Page
----
(11) Statement re: Computation of per share earnings 25-26
-28-
<PAGE>
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 10, 1995 By: /S/ Allyson Laackman
------------------------------
Allyson Laackman
Chief Financial Officer
-29-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 1,406,200
<SECURITIES> 104,031,400
<RECEIVABLES> 22,674,800
<ALLOWANCES> (191,900)
<INVENTORY> 0
<CURRENT-ASSETS> 200,511,400
<PP&E> 2,372,400
<DEPRECIATION> (1,672,500)
<TOTAL-ASSETS> 203,535,100
<CURRENT-LIABILITIES> 196,240,200
<BONDS> 0
<COMMON> 134,500
0
400,000
<OTHER-SE> 6,760,400
<TOTAL-LIABILITY-AND-EQUITY> 203,535,100
<SALES> 7,803,200
<TOTAL-REVENUES> 9,718,400
<CGS> 0
<TOTAL-COSTS> 4,254,400
<OTHER-EXPENSES> 4,607,500
<LOSS-PROVISION> (45,000)
<INTEREST-EXPENSE> 911,800
<INCOME-PRETAX> (10,300)
<INCOME-TAX> 44,400
<INCOME-CONTINUING> (54,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,700)
<EPS-PRIMARY> (.00)
<EPS-DILUTED> (.00)
</TABLE>
