<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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File # 0-15187
IFX CORPORATION
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3399452
--------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 West Adams Street, Suite 1500, Chicago, Illinois 60606
-------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(312) 419-9530
------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
----- -----
As of the date of this report, the issuer had outstanding 31,395,649 shares of
common stock, $.004 par value per share.
1
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
Part I - Financial Information
Item 1. Financial Statements
Immediately following this page, the following financial information of the
Registrant is filed as part of this Report.
Page
----
Consolidated statements of financial condition
as of September 30, 1997 and June 30, 1997. 3
Consolidated statements of operations for the
three months ended September 30, 1997 and 1996. 4
Consolidated statements of cash flows for the
three months ended September 30, 1997 and 1996. 5
Notes to consolidated financial statements. 6
2
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1997 1997
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
Cash $ 542,100 $ 3,279,300
U.S. Government obligations 3,481,600 1,527,100
Other short term investments 37,905,000 44,875,100
Receivables:
Brokers and dealers 3,015,400 2,911,600
September 30, June 30,
1997 1997
------------- ----------
Customers & counterparties $2,054,800 $1,422,900
Other 1,556,900 1,503,300
Less - Allowance for doubtful accounts (430,000) (430,000) 3,181,700 2,496,200
---------- ----------
Investments in and advances to affiliated partnerships 62,200 50,000
Notes receivable 617,200 618,900
Furniture, equipment, and leasehold improvements, net of
accumulated depreciation and amortization of $192,100
and $140,300, respectively 218,900 269,000
Other assets 521,200 616,000
----------- -----------
Total $ 49,545,300 $ 56,643,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables:
Brokers and Dealers $ 1,527,000 $ 1,068,200
Customers & counterparties 33,333,700 41,284,600
Affiliates and employees 69,900 57,900
Accounts payable and accrued expenses 3,335,600 3,406,600
Notes payable 836,600 1,586,600
----------- -----------
Total 39,102,800 47,403,900
----------- -----------
Minority Interest 1,351,100 1,035,600
----------- -----------
Stockholders' equity:
Common stock, $.004 par value; 150,000,000 shares authorized,
31,395,649 shares issued and outstanding respectively 125,600 125,600
Paid-in capital and retained earnings 9,011,500 8,123,800
Cumulative translation adjustment (45,700) (45,700)
----------- -----------
Total stockholders' equity 9,091,400 8,203,700
----------- -----------
Total $ 49,545,300 $ 56,643,200
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Commissions $ 112,800 $ 61,300
Interest 1,029,500 532,600
Trading gains, net 2,071,800 957,400
Earn-out from Sale of Assets 785,500 375,500
Other - 658,200
---------- ----------
Total revenues 3,999,600 2,585,000
---------- ----------
Expenses:
Commission, floor brokerage and clearing costs 171,200 54,900
Compensation and related benefits 626,300 927,900
Communications 198,600 174,200
Interest 687,200 474,900
Rent and other occupancy costs 178,300 152,200
Business promotion 120,100 87,500
Professional and consulting fees 245,600 155,100
Depreciation 51,800 22,000
Other 151,100 118,700
---------- ----------
Total expenses 2,430,200 2,167,400
---------- ----------
Income before income taxes and minority interest 1,569,400 417,600
Income tax expense 366,300 152,200
---------- ----------
Net income before minority interest 1,203,100 265,400
Minority interest 315,500 -
---------- ----------
Net income 887,600 265,400
Assumed cumulative dividend on Class A preferred stock - (10,000)
---------- ----------
Net income applicable to common stock $ 887,600 $ 255,400
========== ==========
Primary earnings per common share:
Net income $ .03 $ .01
========== ==========
Weighted average number of common shares outstanding 31,395,649 33,624,530
========== ==========
Fully diluted earnings per common share:
Net income $ .03 $ .01
========== ==========
Weighted average number of common shares outstanding 31,395,649 33,624,530
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 887,600 $ 265,400
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 51,800 22,000
Deferred taxes (6,000) (9,800)
Doubtful accounts expense (benefit) - (56,500)
Loss on the sale of exchange memberships - 22,300
Gain on sale of clearing corporation stock - (664,000)
Equity in net gain of affiliated partnership (12,200) -
Changes in:
Cash segregated or secured under
Commodity Exchange Act, net - 2,140,900
U.S. Government obligations (1,954,500) 139,343,000
Other short term investments 6,970,100 12,692,300
Deposits with clearing organizations - 40,895,400
Warehouse receipts - 959,500
Receivables (750,900) 11,903,400
Other assets 100,900 285,200
Payables (7,518,500) (201,140,800)
Accounts payable and accrued expenses (71,000) (2,064,300)
---------- -----------
Cash provided by (used in) operating activities (2,302,700) 4,594,000
---------- -----------
Cash Flows From Investing Activities:
Decrease in notes receivable 1,700 2,100
Purchase of furniture, equipment and leasehold
improvements (1,700) (43,900)
Proceeds from the sale of exchange memberships - 16,000
Proceeds from the sale of clearing corporation stock - 1,024,000
Proceeds from the sale of furniture and equipment - 79,600
---------- -----------
Cash provided by (used in) investing activities - 1,077,800
---------- -----------
Cash Flows From Financing Activities:
Repayment of notes payable (750,000) (900,000)
Repayment of liabilities subordinated to
claims of general creditors - (4,000,000)
Minority interest 315,500 -
---------- -----------
Cash provided by (used in) financing activities (434,500) (4,900,000)
---------- -----------
Effect of exchange rate changes on cash - (31,200)
Increase (decrease) in cash (2,737,200) 740,600
Cash, beginning of period 3,279,300 1,587,300
---------- -----------
Cash, end of period $ 542,100 $ 2,327,900
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The consolidated financial statements include the accounts of IFX
Corporation (formerly Jack Carl/312-Futures, Inc.) and Subsidiaries,
(collectively, the "Company"). All material intercompany accounts and
transactions have been eliminated in consolidation. Until July 1, 1996, the
Company engaged principally in the business of effecting transactions in futures
and options on futures contracts for the accounts of customers and the operation
of commodity pools. Index Futures Group, Inc. ("Index"), until July 1, 1996, was
the principal operating subsidiary of Jack Carl/312-Futures, Inc. Effective July
1, 1996, Index sold, transferred and assigned substantially all of its brokerage
accounts ("Sale of Assets") to E.D. & F. Man International Inc. ("MINC"). Index
ceased being a registered futures commission merchant with the Commodity Futures
Trading Commission ("CFTC") in December, 1996. As a condition of the Sale of
Assets, Index changed its name to FX Chicago, Inc. IFX, Ltd. (formerly Index FX,
Ltd.), a British corporation and a majority owned subsidiary of IFX Corporation,
continues to conduct foreign exchange business as a registrant of the British
Securities and Futures Authority.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been reflected in these
condensed consolidated financial statements. Operating results for the quarter
are not necessarily indicative of the results that may be expected for the year
ending June 30, 1998. Certain reclassifications have been made in the 1996
financial statements to conform to the 1997 presentation. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's financial statements on Form 10-K for the year
ended June 30, 1997.
Commitments and Contingencies
Litigation-
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate liability,
if any, resulting from any pending action or proceedings will not have a
material effect on the financial position or results of operations of the
Company.
On May 16, 1996, Index filed suit in the Circuit Court of Cook County--Law
Division against Doug Niemann, a former customer, for breach of contract,
seeking to recover a debit balance of $88,200 (Index Futures Group, Inc. v. Doug
Niemann, case no. 96L-5506). On January 14, 1997, Niemann filed a counterclaim
for $688,200. The Company believes that the counterclaim is without merit and
will defend vigourously.
6
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In April, 1994, Index without admitting or denying the allegations, paid
$100,000 to the CFTC, settling an administrative action filed on September 29,
1992. In a related action, the equity receiver of an alleged commodity pool
operator brought an action to recover losses of approximately $600,000, alleging
various theories such as constructive trust, negligence, breach of fiduciary
duty and conversion. On May 29, 1996, the district judge dismissed the complaint
in its entirety. Supplemental Plaintiff filed a timely Notice of Appeal with the
U.S. Court of Appeals for the Seventh Circuit on May 16, 1997. The Seventh
Circuit has yet to rule on whether this case may be appealed.
A former officer of Index whose employment was terminated as a result of
the Sale of Assets rejected Index's severance payment offer. The officer had
made a demand for $500,000. The Company settled this case in July, 1997 for
$75,000.
Other-
In connection with the Sale of Assets, if certain conditions occur over
the next year, the Company may be subject to additional severance payments of up
to $100,000.
The Company has also entered into a consulting contract, which expires
during fiscal 1999, providing for aggregate minimum payments of $97,500.
The Company had quaranteed performance under the Commodity Exchange Act
of certain introducing brokers with respect to their customer accounts. In
connection with the Sale of Assets, these introducing broker quarantees were
terminated or transferred to MINC effective July 1, 1996.
Index issued a limited indemnification agreement to MINC related to the
Sale of Assets. This agreement covers potential customer claims arising from
activity prior to the sale.
Sale of Assets
The purchase price payable by MINC in connection with the Sale of Assets
is based on a percentage of the net income, as defined in the Sales Agreement,
of the transferred activities during the sixty-six month period following the
sale. During the three months ended September 30, 1997 and 1996, the Company, as
its percentage of net income from the Sale of Assets, earned $781,800 and
$375,500 respectively from the Sale of Assets. Such earnings are included in
other revenue in the Statements of Operations.
Capital Requirements
IFX Ltd. became a registrant of the British Securities and Futures
Authority ("SFA") in November, 1996. As such, IFX Ltd. is subject to the
financial resources requirements adopted and administered by the SFA. As of
September 30, 1997, IFX Ltd.'s financial resources, as defined by the SFA, were
$6,857,000, which was $3,813,000, in excess of its requirements.
7
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Period Ended September 30, 1997.
IFX Corporation (formerly Jack Carl/312-Futures, Inc.), (which when
consolidated with its subsidiaries is henceforth referred to as the "Company")
is a holding company which operates its business through its subsidiaries. Index
Futures Group, Inc. ("Index"), until July 1, 1996, the Company's principal
operating subsidiary, provided a full range of futures brokerage, clearing and
back office services for institutional and public commodity traders. It was a
clearing member of all major U.S. commodity exchanges. Effective July 1, 1996,
Index sold, transferred and assigned substantially all of its brokerage accounts
("Sale of Assets") to E.D.& F. Man International, Inc. ("MINC"). As a result of
the Sale of Assets, Index no longer acts as a futures commission merchant. It
immediately withdrew as a clearing member from all commodity exchanges, and
terminated its registration as a futures commission merchant in December, 1996.
As a condition of the Sale of Assets, Index changed its name to FX Chicago Inc.
Operations at FX Chicago Inc. are currently limited to activity relating to the
net income derived from the Sale of Assets. IFX Ltd. (formerly Index FX, Ltd.),
a British corporation and a majority-owned subsidiary of IFX Corporation
continues to conduct foreign exchange business as a registrant of the British
Securities and Futures Authority ("SFA"). IFX Ltd. commenced trading operations
in October, 1995 and became an SFA registrant in November, 1996.
Financial Condition
The Company's cash and short-term investment portfolio totaled $41,928,700
at September 30, 1997. Included in this amount is $31,500,000 of funds from
IFX Ltd. customers, which have been invested by IFX Ltd. on the customers'
behalf or are held in segregated cash accounts, pursuant to rules of the SFA.
The Company's positions are generally liquid. The portfolio is invested
primarily in U.S. dollar denominated securities, but also includes foreign
currency positions deposited by IFX customers.
As a registrant of the SFA, IFX Ltd. is subject to the financial resources
requirements adopted and administered by the SFA. As of September 30, 1997, IFX
Ltd.'s financial resources, as defined by the SFA, were $6,857,000, which was
$3,813,000 in excess of its requirements.
For the three months ended September 30, 1997, cash used in operations was
$2,302,700 compared to cash provided by operations of $4,594,000 for the same
period in fiscal 1996. The majority of cash used in operations is related to
payments of customer funds made to customers of IFX Ltd. In addition, $750,000
of notes payable were repaid during the quarter ended September 30, 1997.
As of September 30, 1997, the Company had $836,600 of notes payable to its
principal stockholder. Stockholders' equity at September 30, 1997 was
$9,091,400.
Management believes existing cash and short-term investments together
with operating cash flows, access to equity capital, and borrowing capacity,
provide adequate resources to fund ongoing operating requirements and future
capital expenditures related to the expansion of existing businesses and
development of new projects.
8
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
Results of Operations
IFX Ltd., the Company's London-based operation, continues to grow. IFX
Ltd.'s target customer base is beginning to recognize it as an effective and
efficient alternative to the larger money center banks. In addition, the
Company's earnings from the Sale of Assets continue to increase as MINC
generates more and more business from the brokerage accounts it purchased from
Index. As such, revenues of the Company are increasing at a much greater rate
than are the expenses.
Revenues were $3,999,600 in the first quarter of fiscal 1998, an
increase of 55% from the first quarter of fiscal 1997.
Trading gains increased by $1,114,400 during the quarter ended September
30, 1997, compared to the same period a year ago. The primary component in
trading gains in fiscal 1997 is the revenue from IFX Ltd.
Revenues from the Sale of Assets increased by $410,000 during the quarter
ended September 30, 1997, compared to the same period a year ago. Reported
revenue from the Sale of Assets during the first quarter of fiscal 1997 was
subsequently adjusted and increased by $168,800 by MINC. These additional
earnings were received and recorded by the Company during the third and fourth
quarters of fiscal 1997, as per the Sale of Assets Agreement. As noted above,
the Company's earnings from the Sale of Assets continue to increase as MINC
generates more and more business from the brokerage accounts it purchased from
Index.
Other revenue decreased $658,200 during the quarter ended September 30,
1997, compared to same period a year ago. Included in other revenue for the
quarter ended September 30, 1996 was a net gain of $641,700 on the sale of
clearing corporation stock and exchange memberships.
Total expenses were $2,430,200 in the first quarter of fiscal 1998, a
decrease of 12% from the first quarter of fiscal 1997. The decrease in
expenses as resulting from the Sale of Assets has been offset somewhat by the
increasing expenses from the expanding operations of IFX Ltd.
As a result of the aforementioned revenues and expenses, net income for
the quarter ended September 30, 1997 is $887,600 or $.03 per share compared to
a net income of $255,400 or $.01 per share for the same period a year ago.
The Board of Directors is exploring various business opportunities for
the Company now that FX Chicago Inc. no longer acts as a futures commission
merchant, and as a result has capital available for investments.
9
<PAGE>
Item 1. Legal Proceedings
See Notes to Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
11.1 Computation of Earnings per Common Share
27 Financial Data Schedule (EDGAR only)
(B) REPORTS ON FORM 8-K
During the fourth quarter the Company filed the following report
on Form 8-K:
August 1, 1997 Item 2, reporting restructuring of capital of IFX
Ltd., the Registrant's London subsidiary, and subsequent sale of
50% of the stock to The Park Trust.
10
<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.
IFX CORPORATION
------------------------
(Registrant)
Dated: November 12, 1997 By: /s/ CHRISTINA S. DONKA
------------------------
Christina S. Donka
Chief Financial Officer
11
<PAGE>
Exhibit 11.1
IFX CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Earnings (Loss)
Net income (loss) $ 887,600 $ 265,400
Deduct assumed dividends on
Class A preferred stock - (10,000)
---------- ----------
Net income (loss) applicable
to common stock $ 887,600 $ 255,400
========== ==========
Shares
Weighted average number of
common shares outstanding 31,395,649 33,624,530
========== ==========
Primary earnings (loss)
per common share:
Net income (loss) $ .03 $ .01
========= ==========
</TABLE>
Note: Fully diluted earnings per share have not been presented because
the effects are not material.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
IFX Corporation's Form 10-Q as of September 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 542,100
<SECURITIES> 41,386,600
<RECEIVABLES> 6,197,100
<ALLOWANCES> (430,000)
<INVENTORY> 0
<CURRENT-ASSETS> 48,125,800
<PP&E> 218,900
<DEPRECIATION> 192,100
<TOTAL-ASSETS> 49,545,300
<CURRENT-LIABILITIES> 38,266,200
<BONDS> 0
0
0
<COMMON> 9,137,100
<OTHER-SE> (45,700)
<TOTAL-LIABILITY-AND-EQUITY> 49,545,300
<SALES> 0
<TOTAL-REVENUES> 3,999,600
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,743,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 687,200
<INCOME-PRETAX> 1,569,400
<INCOME-TAX> 366,300
<INCOME-CONTINUING> 1,203,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 887,600
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
