<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 December 31, 1994
[ ] 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 33,624,537 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 December 31, 1994 and June 30, 1994. 3
Consolidated statements of operations for the
three months and six months ended December 31,
1994 and 1993. 4-5
Consolidated statement of changes in stockholders'
equity for the six months ended December 31, 1994,
as restated for the one-for-four reverse split of
common stock. 6
Consolidated statements of changes in liabilities
subordinated to claims of general creditors for
the six months ended December 31, 1994 and 1993. 7
Consolidated statements of cash flows for the
six months ended December 31, 1994 and 1993. 8-9
Notes to consolidated financial statements. 10
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<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994 AND JUNE 30, 1994
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Cash $ 1,608,700 $ 1,862,300
Cash segregated or secured under Commodity Exchange Act 3,158,400 3,279,800
U.S. Government obligations 119,059,100 123,783,900
Deposits with clearing organizations 55,340,200 52,882,800
Warehouse receipts 872,900 963,700
Receivables:
Brokers and dealers 5,772,300 5,313,200
Clearing organizations 11,348,000 10,906,400
December 31, June 30,
1994 1994
------------ ----------
Customers $ 852,200 $ 915,800
Affiliates 8,300 13,800
Other 233,900 366,200
Less - Allowance for doubtful accounts (530,700) (506,600) 563,700 789,200
---------- ---------
Investments in and advances to
affiliated partnerships 103,000 44,400
Notes receivable 641,000 641,300
Exchange memberships at cost (market value of $1,117,900
and $955,500 at December 31, 1994 and June 30, 1994,
respectively) 679,300 652,300
Furniture, equipment, and leasehold improvements, net of
accumulated depreciation and amortization of $1,497,400
and $1,379,000 at December 31, 1994 and June 30, 1994,
respectively 617,800 608,900
Goodwill, net of accumulated amortization of $4,027,700
and $4,000,900 at December 31, 1994 and June 30, 1994,
respectively 568,700 595,500
Other assets 579,400 482,500
------------ ------------
Total $200,912,500 $202,806,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables:
Clearing organizations $ 126,100 $ 6,000
Customers 181,592,600 181,590,900
Officers and employees 1,540,500 3,888,400
Accounts payable and accrued expenses 2,535,700 3,754,400
Notes payable 7,590,000 7,690,000
------------ ------------
Total 193,384,900 196,929,700
------------ ------------
Liabilities subordinated to claims of general creditors 2,000,000 2,000,000
------------ ------------
Stockholders' equity:
Class A preferred stock, $1 par value; 10% cumulative,
redeemable, 400,000 shares authorized and outstanding 400,000 400,000
Common stock, restated for reverse split, $.004 par value;
150,000,000 shares authorized, 33,624,537 and 20,099,739
shares issued and outstanding at December 31, 1994 and
June 30, 1994, respectively 134,500 80,700
Paid-in capital 8,395,300 7,373,100
Retained deficit (3,402,200) (3,977,300)
------------ ------------
Total stockholders' equity 5,527,600 3,876,500
------------ ------------
Total $200,912,500 $202,806,200
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-3-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Revenues:
Commissions $ 7,886,500 $ 7,764,300
Interest 1,153,500 832,500
Trading gains (losses), net (35,000) 70,200
Other 180,800 69,600
----------- -----------
Total revenues 9,185,800 8,736,600
----------- -----------
Expenses:
Commission, floor brokerage and clearing costs 4,166,300 4,496,300
Compensation and related benefits 2,143,300 1,771,900
Communications 347,300 487,400
Interest 669,800 387,100
Rent and other occupancy costs 360,100 320,100
Business promotion 356,200 318,400
Professional and consulting fees 86,100 266,400
Depreciation 60,500 61,600
Amortization of goodwill 13,400 13,400
Other 504,800 430,400
----------- -----------
Total expenses 8,707,800 8,553,000
----------- -----------
Income before income taxes 478,000 183,600
Income tax expense 167,700 93,600
----------- -----------
Net income 310,300 90,000
Assumed cumulative dividend on Class A preferred stock (10,000) (10,000)
----------- -----------
Net income applicable to common stock $ 300,300 $ 80,000
=========== ===========
Primary earnings per common share, restated for reverse split:
Net income $.01 $.00
=========== ===========
Weighted average number of common shares outstanding 33,625,557 20,174,739
=========== ===========
Fully diluted earnings per common share, restated for reverse split:
Net income $.01 $.00
=========== ===========
Weighted average number of common shares outstanding 33,625,557 20,174,739
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-4-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Revenues:
Commissions $15,800,400 $16,053,200
Interest 2,580,700 1,734,900
Trading gains, net 38,700 136,700
Other 316,000 128,200
----------- -----------
Total revenues 18,735,800 18,053,000
----------- -----------
Expenses:
Commission, floor brokerage and clearing costs 8,682,600 9,394,200
Compensation and related benefits 4,222,800 3,581,400
Communications 784,000 1,000,200
Interest 1,406,600 756,800
Rent and other occupancy costs 653,300 655,400
Business promotion 740,300 595,500
Professional and consulting fees 221,800 426,600
Depreciation 125,700 123,500
Amortization of goodwill 26,800 26,800
Other 967,100 827,400
----------- -----------
Total expenses 17,831,000 17,387,800
----------- -----------
Income before income taxes 904,800 665,200
Income tax expense 329,700 255,400
----------- -----------
Net income 575,100 409,800
Assumed cumulative dividend on Class A preferred stock (20,000) (20,000)
----------- -----------
Net income applicable to common stock $ 555,100 $ 389,800
=========== ===========
Primary earnings per common share, restated for reverse split:
Net income $.02 $.02
=========== ===========
Weighted average number of common shares outstanding 27,704,273 20,176,470
=========== ===========
Fully diluted earnings per common share, restated for reverse split:
Net income $.02 $.02
=========== ===========
Weighted average number of common shares outstanding 27,704,273 20,176,470
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-5-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1994
(UNAUDITED)
(AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK)
<TABLE>
<CAPTION>
Class A Common Stock
Preferred ------------ Paid-In Retained
Stock Shares Amount Capital Deficit Total
--------- ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994 $400,000 20,174,739 $ 80,700 $7,373,100 $(3,977,300) $3,876,500
Issuance of common
stock pursuant to
rights offering - 13,449,826 53,800 1,022,200 - 1,076,000
Repurchase of common
stock pursuant to
reverse split - (28) - - - -
Net income - - - - 575,100 575,100
------- ---------- ------- --------- ---------- ---------
Balance,
December 31, 1994 $400,000 33,624,537 $134,500 $8,395,300 $(3,402,200) $5,527,600
======= ========== ======= ========= ========== =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-6-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN LIABILITIES
SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------
1994 1993
---- ----
<S> <C> <C>
Liabilities subordinated to claims of
general creditors at beginning of
period $2,000,000 $ -
Maturities - -
--------- ------
Liabilities subordinated to claims of
general creditors at end of period $2,000,000 $ -
========= ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-7-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 575,100 $ 409,800
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 152,500 150,300
Deferred taxes 207,600 (40,700)
Doubtful accounts expense 22,400 24,400
Equity in net loss of affiliated partnerships 3,900 2,000
Gain on sale of assets - (8,500)
Changes in:
Cash segregated or secured under
Commodity Exchange Act, net 121,400 1,549,300
U.S. Government obligations 4,724,800 (9,891,300)
Deposits with clearing organizations (2,457,400) (8,656,000)
Warehouse receipts 90,800 (116,000)
Receivables (697,600) (6,931,100)
Other assets (304,500) 256,200
Payables (2,226,100) 22,456,700
Accounts payable and accrued expenses (1,218,700) 108,800
----------- -----------
Cash used in operating activities (1,005,800) (686,100)
----------- -----------
Cash Flows From Investing Activities:
Investments in and advances to affiliated partnerships, net (62,500) 73,000
Decrease in notes receivable 300 15,100
Purchase of exchange membership (130,000) -
Purchase of furniture, equipment and leasehold
improvements (184,500) (122,900)
Rebate from purchase of equipment 50,000 -
Proceeds from sale of assets - 8,500
Rebate from exchange memberships 102,900 -
----------- -----------
Cash used in investing activities (223,800) (26,300)
----------- -----------
Cash Flows From Financing Activities:
Repayments of notes payable (100,000) (125,000)
Conversion of redeemable convertible preferred stock - (4,800)
Issuance of common stock pursuant to
rights offering 1,076,000 -
----------- -----------
Cash provided by (used in) financing activities 976,000 (129,800)
----------- -----------
Decrease in cash (253,600) (842,200)
Cash, beginning of period 1,862,300 1,400,900
----------- -----------
Cash (bank overdrafts), end of period $ 1,608,700 $ 558,700
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-8-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED)
(CONTINUED FROM PAGE 8)
Supplemental Schedule of Non-Cash Investing
and Financing Activities
Six Months Ended December 31, 1994
- - - ----------------------------------
(NONE)
Six Months Ended December 31, 1993
- - - ----------------------------------
Notes payable aggregating $3,700,600, due July 31, 1993 were extended
to July 31, 1994 and a $540,000 note payable due July 31, 1993 was extended to
January 1, 1994 and subsequently extended to January 31, 1994.
A $250,000 note payable due November 1, 1993 was extended to November
1, 1994 and was subsequently extended to January 31, 1995. Notes payable
aggregating $5,000,000 due December 31, 1993 were extended to January 31, 1994
(See Note 6).
-9-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(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, 1994.
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.
-10-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(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:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------ ------------
<S> <C> <C>
Cash $ 3,158,400 $ 3,279,800
U.S. Government obligations 117,419,900 123,105,300
Deposits with clearing
organizations 49,466,200 47,651,800
Receivables from clearing
organizations, net 11,263,200 10,517,600
Receivables from brokers and dealers 5,241,300 4,821,100
Warehouse receipts 872,900 963,700
------------ ------------
Total segregated and
secured assets $187,421,900 $190,339,300
============ ============
Amount required to be
segregated and secured $181,072,900 $181,115,700
============ ============
</TABLE>
NOTE 3 - DEPOSITS WITH CLEARING ORGANIZATIONS
Deposits with clearing organizations are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------ -----------
<S> <C> <C>
U.S. Government obligations $53,439,900 $51,509,300
Guarantee deposits 955,900 960,400
Stock in exchange clearing
organization at cost (market
value of $928,000 and $896,000 at
December 31, 1994 and June 30,
1994, respectively) 360,000 360,000
Cash margins 584,400 53,100
----------- -----------
Total $55,340,200 $52,882,800
=========== ===========
</TABLE>
-11-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(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. The investments in and
advances to such entities consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------ --------
<S> <C> <C>
Investments $ 65,700 $31,700
Advances 37,300 12,700
-------- -------
Total $103,000 $44,400
======== =======
</TABLE>
IMSI is required to maintain minimum net worth and investments in the
commodity pools as defined in the commodity pool partnership agreements. At
December 31, 1994, IMSI is in compliance with those requirements. At December
31, 1994, the Cayman Islands limited liability company is in the process of
liquidation. Index provides commodity brokerage services to the pools at agreed
upon rates and IMSI receives management fees from the pools.
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 December 31, 1994 and June 30, 1994 is $51,862,500 and
$48,059,300, respectively.
-12-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(UNAUDITED)
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------ -----------
<S> <C> <C>
Principal stockholder,
interest at prime plus 4%, due:
January 31, 1995 $ 540,000 $ 540,000
January 31, 1995 400,000 400,000
Affiliates and other related parties,
interest at prime plus 4%, due:
January 31, 1995 150,000 250,000
January 31, 1995 2,000,000 2,000,000
January 31, 1995 3,000,000 3,000,000
January 31, 1995 750,000 750,000
January 31, 1995 750,000 750,000
---------- ----------
Total $7,590,000 $7,690,000
========== ==========
</TABLE>
Interest expense on notes payable is as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Three months ended December 31, $232,100 $175,700
Six months ended December 31, $454,600 $351,300
</TABLE>
In September, 1994 the Company repaid $100,000 of a $250,000 note payable
to its President and Director.
Subsequent to December 31, 1994 all notes payable, aggregating $7,590,000,
due January 31, 1995, were extended to January 31, 1996.
NOTE 7 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to claims of general creditors consist of the
following:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
----------- ----------
<S> <C> <C>
Bank, interest at prime plus
2%, due March 9, 1995 $2,000,000 $2,000,000
========== ==========
Interest expense on liabilities subordinated to claims of general creditors
is as follows:
1994 1993
------- --------
Three months ended December 31, $51,100 $ -
Six months ended December 31, $99,000 $ -
</TABLE>
-13-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(UNAUDITED)
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 December 31, 1994,
cumulative dividends in arrears amount to $353,300 or $.88 per share.
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. The outstanding shares of common stock were reduced to
approximately 33,624,565 shares from 134,498,260 shares before the reverse
split.
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
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. In February, 1992, the Company granted to an
employee, options for 125,000 shares of common stock exercisable from February
1, 1992 until the termination of the agreement. In May, 1992, the Company
granted to two individuals options totalling 75,000 shares of common stock
exercisable from May 7, 1992 until the termination of their respective
agreements. In May, 1994 one agreement was
-14-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
terminated and options for 25,000 shares of common stock were forfeited. In
September, 1992, the Company granted to one officer, options for 125,000
shares of common stock exercisable from October 1, 1992 until the
termination of the agreement. In February 1994, the Company granted to an
officer, options for 1,250,000 shares of common stock exercisable from
February 28, 1994 until termination of the agreement or February 28, 1999.
In May, 1994, the Company granted to an officer options for 500,000 shares
of common stock exercisable from May 1, 1994 until death, termination of
employment or June 30, 1995. The following summarizes, after restatement
for the November 4, 1994 one-for-four reverse stock split, all outstanding
options at December 31, 1994.
Shares Shares Shares Shares Shares
Granted Price Exercisable Forfeited Cancelled Remaining
------- ----- ----------- --------- --------- ---------
Dec.
1990 410,000 $.60 340,000 50,469 19,531 340,000
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
May
1994 500,000 $.24 500,000 - - 500,000
--------- --------- ------- ------ ---------
Total 2,485,000 2,390,000 75,469 19,531 2,390,000
========= ========= ======= ====== =========
NOTE 9 - RELATED PARTY TRANSACTIONS
A note receivable in the amount of $641,000 arose in connection with
advances made by the Company to an affiliated entity. These demand
receivables were converted into a demand note bearing interest at 8%, which
was subsequently changed to the prime rate of interest. This note is
partially collateralized by deposits at Index as of December 31, 1994. The
Company earned interest income on this note in the amounts of $12,900 and
$9,600 during the three months ended December 31, 1994 and 1993,
respectively, and $24,700 and $19,100 during the six months ended December
31, 1994 and 1993, respectively.
-15-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(UNAUDITED)
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
The Company currently rents from an officer and a director an exchange
membership having a market value at December 31, 1994 of approximately $745,000.
Rent expense for the three months ended December 31, 1994 and 1993 was $14,000
and $12,300, respectively, and for the six months ended December 31, 1994 and
1993, rent expense was $26,000 and $25,200, respectively.
Certain exchange memberships owned by officers and others, having an
aggregate market value of $5,257,500, 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, from its principal
shareholder, an affiliated company and an officer and director of the Company.
See Note 6 for the terms and balances at December 31, 1994 and June 30, 1994.
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. No gain was
recognized at the date of the sale due to the uncertainty of future earnings.
During the three months ended December 31, 1994 and 1993, the Company earned
$207,500 and $235,400, respectively, and during the six months ended December
31, 1994 and 1993, the Company earned $406,600 and $508,200, respectively, from
this transaction, which is included in commission income.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company has noncancellable leases for office space and equipment
which expire at varying dates through 1997. Minimum annual rentals, excluding
escalations and increases in operating expenses and taxes, are as follows:
Year Ending June 30, Amount
-------------------- ----------
1995 $ 568,000
1996 415,200
1997 96,300
1998 -
1999 and thereafter -
---------
Total $1,079,500
=========
-16-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(UNAUDITED)
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has entered into employment agreements which expire at
varying dates through fiscal 1996 with certain of its officers, providing for
aggregate minimum annual payments for the years ending June 30, 1995 and 1996 of
approximately $884,900 and $481,000, 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.
The Company is a party 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, in October, 1994, settled an Internal Revenue Service
assessment which resulted from a review of its calendar year 1990 customer
income tax withholding filings. The settlement did not materially affect the
financial position or the operations of the Company.
In April, 1994, Index, without admitting or denying the allegations,
paid $100,000 to the CFTC, settling the 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.
The Company is currently defending against a complaint which was filed
against Index and BRC for alleged negligence in supervision and breach of
fiduciary duties in conjunction with the alleged operation of an unregistered
investment pool, by a customer of an introducing broker guaranteed by BRC.
Index and BRC filed a motion for summary judgement. If denied they plan to
vigorously contest the action. Management estimates that the reasonable range
of possible loss is $0 - $629,000. It is their belief that the actual
liability, if any, will be substantially less than the maximum.
-17-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(UNAUDITED)
NOTE 12 - INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes ("FAS No. 109").
Under the new 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 adoption of FAS No. 109 does
not effect the earnings for the three months or six months ended December 31,
1994 and 1993. After adoption of FAS No. 109, the primary components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------ ---------
<S> <C> <C>
Deferred income tax assets:
Bad Debt Reserve $179,400 $ 175,300
Book and Tax Depreciation
Difference 67,500 65,300
Insurance Reserve 61,100 56,800
Unrealized Loss on U.S.
Government Obligations 272,900 30,600
Contingent Liability Reserve 28,200 28,200
Bonus Accrual 3,600 89,700
Accrued Legal Expense 39,100 -
-------- ---------
Total deferred tax assets $651,800 $ 445,900
-------- ---------
Deferred income tax liabilities:
Partnership Income $ (26,100) $ (21,400)
Prepaid Rent (44,500) (49,300)
1987-1989 Audit Adjustment (61,100) (61,100)
Other - (1,600)
--------- ---------
Total deferred tax liabilities $(131,700) $(133,400)
--------- ---------
Net deferred tax assets $ 520,100 $ 312,500
========= =========
</TABLE>
No valuation allowance has been provided as management believes deferred
taxes are realizable.
-18-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(UNAUDITED)
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK
In March, 1990, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 105, which requires disclosure
of information about financial instruments with off balance sheet risk and
financial instruments with concentrations of credit risk. Included in the
definition of financial instruments are financial futures, options on financial
futures and forwards.
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 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 fluctuations, 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 December 31, 1994, were adequate to minimize the risk of
material loss which could be created by the positions held at that time. At
December 31, 1994, Index held proprietary long financial futures positions and
customer foreign currency forward contracts with an aggregate notional value of
$132,740,600 and proprietary short financial futures positions and customer
foreign currency forward contracts with an aggregate notional value of
$132,740,600.
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 December 31, 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 December 31, 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
DECEMBER 31, 1994
(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 December 31, 1994, adjusted net
capital, as defined, of $12,162,700 is $5,577,200 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 December
31, 1994, 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 six months ended December 31, 1994 and 1993 amounted to
$1,341,200 and $739,900, respectively. The Company made income tax payments in
the amount of $439,700 and $160,000 during the six months ended December 31,
1994, and 1993, 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 December 31, 1994.
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, Index became a clearing
member of 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
- - - -------------------------------
On August 17, 1994, the Company was advised by NASDAQ that the NASDAQ
Listing Qualifications Committee determined that an exception to the market
maker requirement would not be granted and, accordingly, 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 markers.
On December 7, 1994 the Company's common stock resumed trading on the NASDAQ
SmallCap Market.
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 six months
ended December 31, 1994, Index's segregated asset requirement decreased by
approximately $8,059,800, which decreased Index's net capital requirements.
Throughout the six months, Index exceeded the net capital requirements of the
CFTC and the various exchanges of which it is a member. As of December 31,
1994, Index's regulatory capital exceeded the minimum net capital requirements
of the CFTC by $5,577,200. Index is also required to secure all balances due to
U.S. based customers for activities in foreign futures and options. At December
31, 1994, funds secured in separate accounts exceeded secured requirements by
$1,165,000.
The Company had relatively normal fluctuations in cash from both
operating and investing activities during 1994. Although cash used in investing
activities has shown normal fluctuations, the Company did purchase another
exchange membership in order to
-21-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
increase its business, and its subsidiary which acts as a commodity pool
operator has increased its investments in its commodity pools during 1994.
The Company, during the current year, generated $976,000 from the
financing activities through the proceeds from the rights offering in July,
1994. This enabled the Company to increase its regulatory capital.
The Company, at December 31, 1994, had $7,590,000 in notes payable
maturing January 31, 1995. 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. The ability to refinance its debt depends on
the related parties desire to continue such loans with the Company. In January,
1995, all notes payable maturing January 31, 1995 were extended to January 31,
1996.
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 December 31 1994, has realized approximately
$9,000,000 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, operations and investing activities as well as from the proceeds of the
issuance of stock.
In July, 1994, the Company offered to holders of record of its common
stock 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, by such shareholder ("Rights Offering").
53,799,304 shares of common stock were available in the Rights Offering.
Lee S. Casty, the Company's principal shareholder, Burton J. Meyer,
the Company's President and a director and Michael J. Moss, President of Index,
purchased their allocable number of shares in the Rights Offering. In addition,
Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02,
immediately following the expiration of the Rights Offering, the shares of
common stock which were not purchased by other shareholders so that all
53,799,304 shares of common stock were purchased. The gross proceeds of the
Rights Offering were $1,076,000.
Total stockholders' equity increased $1,651,100 to $5,527,600 at
December 31, 1994, from $3,876,500 at June 30, 1994. The increase in
stockholders' equity is the result of the proceeds from the issuance of stock
pursuant to the Rights Offering and net income for the six months.
-22-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
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 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. The outstanding shares of common stock have been reduced to 33,624,537
shares, at December 31, 1994, from 134,498,260 shares before the reverse split.
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 also earned commission
revenue in the amounts of $207,500 and $406,600, during the quarter and six
months ended December 31, 1994, respectively, from the sale of BRC's introducing
broker business. This revenue stream will end effective January 15, 1995.
Total revenues for the quarter ended December 31, 1994 increased
$449,200 or 5% to $9,185,800 compared to $8,736,600 for the quarter ended
December 31, 1993. Total revenues for the six months ended December 31, 1994
increased $682,800 or 4% to $18,735,800 compared to $18,053,000 for the same
period a year ago.
Commission revenue, which generally is related to trading volume and
includes revenue from the sale of BRC's introducing broker business, increased
$122,200 or 2% during the quarter ended December 31, 1994 compared to the same
period a year ago. The small increase in revenue, generated from a 17% increase
in trading volume in 1994, is primarily attributable to the Company's business
mix which has changed toward discount business that generates higher trading
volume and lower revenues and expenses per trade than other types of retail
business. Commission revenue decreased $252,800 on 2% during the six months
ended December 31, 1994 compared to the same period a year ago. This decrease
in revenue is primarily attributable to the change in business mix toward
discount business.
-23-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
Interest income increased $321,000 and $845,800 during the quarter and
six months ended December 31, 1994 compared to the same periods a year ago. The
increase in interest income in 1994 is primarily attributable to three factors.
The Company is investing in longer term U.S. Government obligations which
increases the yield on its investments. Second, the Company, by increasing its
customer base, has additional funds available to invest. Third, interest rates
have continued their trend in 1994.
Total expenses increased $154,800 or 2% and $443,200 or 3% during the
quarter and six months ended December 31, 1994, respectively, compared to the
same periods a year ago.
Commissions, floor brokerage and clearing costs which are related to
trading volume, decreased $330,000 or 7% and $711,600 or 8% during the quarter
and six months ended December 31, 1994, respectively, compared to the same
periods a year ago. The decreases during the 1994 periods are primarily the
result of a change in business mix toward discount business which generates
higher trading volume and lower commission revenues and expenses per trade than
other types of retail business.
Compensation and related benefits increased $371,400 or 21% and
$641,400 or 18% during the quarter and six months ended December 31, 1994,
respectively, compared to the same periods a year ago. These increases are the
result of an increase in the number of employees and related benefits as well as
salary increases.
Interest expense increased $282,700 and $649,800 during the quarter
and six months ended December 31, 1994, respectively, compared to the same
periods a year ago. These increases were caused by higher interest rates on the
Company's obligations during 1994 and increased customer deposits on which the
Company pays interest expense.
Professional and consulting fees decreased $180,300 and $204,800
during the quarter and six months ended December 31, 1994, respectively,
compared to the same periods a year ago. The decreases are primarily the result
of a decrease in legal fees incurred in 1994 due to decreased activity on
pending litigation.
As a result of the aforementioned revenues and expenses, net income
for the quarter ended December 31, 1994 is $310,300 or $.01 per share compared
to net income of $90,000 or less than $.01 per share for the same period a year
ago. Net income for the six months ended December 31, 1994 is $575,100 or $.02
per share compared to net income of $409,800 or $.02 per share for the same
period a year ago.
-24-
<PAGE>
Exhibit 11.1
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- ----------------------
1994 1993 1994 1993
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY
-------
EARNINGS
Net income $310,300 $ 90,000 $575,100 $409,800
Deduct assumed
dividends on Class A
preferred stock (10,000) (10,000) (20,000) (20,000)
-------- -------- -------- --------
Net income
applicable to
common stock $300,300 $ 80,000 $555,100 $389,800
======== ======== ======== ========
SHARES
Weighted average
number of common
shares outstanding 33,625,557 20,174,739 27,704,273 20,176,470
========== ========== ========== ==========
Primary earnings
per common share:
Net income $ .01 $ .00 $ .02 $ .02
======= ======= ======= =======
</TABLE>
-25-
<PAGE>
Exhibit 11.1
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1994 1993 1994 1993
-------- ------- -------- --------
<S> <C> <C> <C> <C>
ASSUMING FULL DILUTION
----------------------
EARNINGS
Net income $310,300 $90,000 $575,100 $409,800
======== ======= ======== ========
SHARES
Weighted average
number of common
shares outstanding 33,625,557 20,174,739 27,704,273 20,176,470
========== ========== ========== ==========
Earnings per
common share
assuming full
dilution:
Net income $ .01 $ .00 $ .02 $ .02
======== ======= ======== ========
</TABLE>
-26-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
DECEMBER 31, 1994
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 December 31, 1994.
-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: February 10, 1995 By: /S/ALLYSON LAACKMAN
------------------------------
Allyson Laackman
Chief Financial Officer
-29-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 1,608,700
<SECURITIES> 119,059,100
<RECEIVABLES> 18,214,700
<ALLOWANCES> (530,700)
<INVENTORY> 0
<CURRENT-ASSETS> 197,723,300
<PP&E> 2,115,200
<DEPRECIATION> (1,497,400)
<TOTAL-ASSETS> 200,912,500
<CURRENT-LIABILITIES> 195,384,900
<BONDS> 0
<COMMON> 134,500
0
400,000
<OTHER-SE> 4,993,100
<TOTAL-LIABILITY-AND-EQUITY> 200,912,500
<SALES> 15,800,400
<TOTAL-REVENUES> 18,735,800
<CGS> 0
<TOTAL-COSTS> 8,682,600
<OTHER-EXPENSES> 7,719,400
<LOSS-PROVISION> 22,400
<INTEREST-EXPENSE> 1,406,600
<INCOME-PRETAX> 904,800
<INCOME-TAX> 329,700
<INCOME-CONTINUING> 575,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 575,100
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
