<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, 1998
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 West Adams Street, Suite 1460, Chicago, Illinois 60606
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(312) 419-9530
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
200 West Adams Street, Suite 1500, Chicago, Illinois 60606
- --------------------------------------------------------------------------------
(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 6,155,539 shares of
common stock, $.02 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, 1998 and June 30, 1998. 3
Consolidated statements of operations for the
three months ended September 30, 1998 and 1997. 4
Consolidated statements of cash flows for the
three months ended September 30, 1998 and 1997. 5
Notes to consolidated financial statements. 6
2
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IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------------ ------------------
(Unaudited) (Audited)
<S> <C> <C>
Cash $ 1,297,900 $ 535,200
Short-term investments 30,205,100 36,068,800
Receivables:
Brokers and dealers 8,181,700 4,573,100
Customers 803,200 1,646,800
Affiliates 171,200 54,600
Other 1,638,800 1,452,600
Less- Allowance for doubtful accounts (381,400) (358,900)
------------------ ------------------
10,413,500 7,368,200
Investments in and advances to affiliated
partnerships 78,600 134,200
Notes receivable 810,900 811,400
Furniture, equipment and leasehold
improvements, net of accumulated
depreciation and amortization of
$338,300 and $298,800, respectively 123,700 143,000
Other assets 398,700 293,100
------------------ ------------------
Total $ 43,328,400 $ 45,353,900
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables:
Brokers and dealers $ 836,500 $ 863,100
Customers and counterparties 26,717,700 29,632,900
Affiliates and employees 42,900 -
Accounts payable and accrued expenses 1,605,900 1,601,200
------------------ ------------------
Total payables 29,203,000 32,097,200
Minority interest 1,967,100 1,921,500
Stockholders' equity:
Common stock, $.02 par value;
150,000,000 shares authorized,
6,155,539 issued and outstanding 123,100 123,100
Paid-in-capital and retained earnings 12,035,200 11,212,100
------------------ ------------------
Total stockholders' equity 12,158,300 11,335,200
------------------ ------------------
Total $ 43,328,400 $ 45,353,900
================== ==================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
Revenues:
Commissions $ 243,400 $ 112,800
Interest 649,600 1,029,500
Trading gains, net 1,349,100 2,071,800
Earn-out from sale of assets 1,272,300 785,500
Other 31,100 -
-------------------- --------------------
Total revenues 3,545,500 3,999,600
-------------------- --------------------
Expenses:
Commission and brokerage 190,300 171,200
Compensation and related benefits 610,900 626,300
Communications 182,600 198,600
Interest 344,100 687,200
Rent and other occupancy 322,200 178,300
Business promotion 123,300 120,100
Professional and consulting fees 152,700 245,600
Depreciation 39,500 51,800
Other 116,800 151,100
-------------------- --------------------
Total expenses 2,082,400 2,430,200
-------------------- --------------------
Income before income taxes and minority interest 1,463,100 1,569,400
Income tax expense 489,300 366,300
-------------------- --------------------
Net income before minority interest 973,800 1,203,100
Minority Interest 150,600 315,500
-------------------- --------------------
Net income $ 823,200 $ 887,600
==================== ====================
Basic and diluted earnings per share:
Net Income $ .13 $ .14
==================== ====================
Weighted average number of
common shares outstanding 6,155,539 6,279,130
==================== ====================
</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,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 823,200 $ 887,600
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 39,500 51,800
Deferred taxes -- (6,000)
Doubtful accounts expense 22,500 --
Equity in net gain in partnership investments (6,700) (12,200)
Changes in:
Short-term investments 5,863,700 5,015,600
Receivables (3,092,900) (750,900)
Other assets (105,600) 100,900
Payables (2,873,900) (7,518,500)
Accounts payable and accrued expenses 4,700 (71,000)
----------- -----------
Cash provided by (used in) operating activities 674,500 (2,302,700)
----------- -----------
Cash Flows From Investing Activities:
Decrease in notes receivable 500 1,700
Purchase of furniture, equipment and leasehold
improvements (20,200) (1,700)
Investments in / advances to partnerships 62,300 --
----------- -----------
Cash provided by investing activities 42,600 --
----------- -----------
Cash Flows From Financing Activities:
Repayment of notes payable -- (750,000)
Minority interest 45,600 315,500
----------- -----------
Cash provided by (used in) financing activities 45,600 (434,500)
----------- -----------
Increase (decrease) in cash 762,700 (2,737,200)
Cash, beginning of period 535,200 3,279,300
----------- -----------
Cash, end of period $ 1,297,900 $ 542,100
=========== ===========
</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., "JC/312") 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 JC/312. 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.
Following the Sale of Assets, the Company decided not to reinvest the sales
proceeds in its commodities brokerage business and has been exploring other
industries and business opportunities. The Company currently is negotiating to
acquire a limited partnership interest in a domestic telecommunications and
Internet-related venture and also is negotiating the formation of a joint
venture to pursue foreign Internet-related opportunities; however the Company
has not entered into a definitive agreement or understanding with respect to
either transaction. There can be no assurance that the Company will complete
either transaction.
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, 1999. Certain reclassifications have been made in the 1998
financial statements to conform to the fiscal 1999 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, 1998.
6
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 November 24, 1997, the trustee of two pension plans filed a Demand for
Arbitration with the National Futures Association against Index and several
other respondents, including an introducing broker guaranteed by Index (Kenneth
N. Korsah, MD PA v. LFG L.L.C. et al., NFA arbitration case number 97-ARB-185).
In the Demand, the trustee alleged breach of fiduciary duty, churning,
misrepresentation, failure to supervise, breach of contract, aiding and
abetting, and violation of ERISA. Claimant sought actual damages of $141,000 and
punitive damages of $460,000. The Company settled the claim in October, 1998 for
a payment of $10,000.
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 vigorously.
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 a 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. On December 4, 1997, the Court of Appeals affirmed the district
judge's dismissal of all claims against Index. On January 13, 1998, the Court of
Appeals denied the Supplemental Plaintiffs' request for a rehearing of its
appeal. On October 2, 1998, the attorney for the equity receiver of the
commodity pool filed a class-action suit on behalf of a putative class composed
of persons who had given money to the commodity pool operator to invest, some of
which was deposited in brokerage accounts at Index by the commodity pool
operator. (Wesselhoff v. FX Chicago, Inc. et al., Circuit Court of Cook County,
Chancery Division, case number 98-CH-13396). The plaintiff seeks damages of
$600,000 plus prejudgment interest, punitive damages, and lost investment
opportunity. The Company believes that the allegations in the complaint against
FX Chicago, Inc. and the Company are without merit and will defend vigorously.
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.
7
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A lawsuit was commenced in September, 1998, in Germany against an affiliate
of MINC by a German citizen seeking damages of Deutschmark 6,403,519.19
(approximately $4,000,000 given the exchange rate as of September 15, 1998). The
Complaint arises out of transactions which occurred in an account introduced by
Index Futures Group, AG ("Index AG"), an introducing broker of Index, prior to
the Sale of Assets. The Plaintiff alleges that under German law, MINC's
affiliate is successor to Index AG, and thus assumed any liabilities of Index
AG. Pursuant to the Sale of Assets agreement, Index is responsible for any
liability "arising out of any state of facts with respect to such Assigned
Contract existing on or prior to the Closing Date". MINC has retained counsel in
Germany to represent its interests in this matter. As Index AG was an
introducing broker of Index and not a former subsidiary of the Company or Index,
the Company does not believe that it will ultimately be liable for damages.
However, as the Company first received notice of this suit on September 16,
1998, and has not received any updates from MINC, the Company does not have
information as to the extent of any potential liability under the suit or legal
costs required to defend such suit, at the present time.
On October 27, 1998, a complaint was filed by James Feltman as liquidating
agent of L. Luria & Son, Inc. (Case No. 97-16731-BKC-RAM) seeking recovery from
the Company of $368,188.84. Starting in the winter of 1996, the Company entered
into an arrangement with the suppliers of L. Luria & Son, Inc. pursuant to which
the Company advance funds on behalf of L. Luria & Son, Inc. in order to allow it
to purchase inventory. L. Luria & Son, Inc. reimbursed the Company for amounts
which it advanced. The complaint alleges that the Company was an insider of L.
Luria & Son, Inc. because of Joel Eidelstein's relationship to L. Luria & Son,
Inc. and that the amounts that L. Luria & Son, Inc. paid the Company constituted
preferences under the Bankruptcy laws. The Company does not believe that it was
an insider of L. Luria & Son, Inc., does not believe that the amounts it
received from L. Luria & Son, Inc. constituted preferences and intends to
vigorously defend against the complaint.
8
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other-
- ------
In connection with the Sale of Assets, if certain conditions occur over the
next year, the Company may be subject to pay former employees additional
severance payments of up to $100,000.
The Company has entered into a consulting contract with an affiliate. This
contract provides for annual payments of $24,000.
The Company has also entered into a consulting contract which expires
during fiscal 1999, providing for aggregate minimum payments of $6,500 remaining
as of September 30, 1998.
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.
The Company has guaranteed certain liabilities of a limited partnership to
Qwest / LCI, International. The general partner of this limited partnership is
an officer of the Company. There is no maximum amount payable under this
guarantee. However, the Company does not expect that the potential liability
will exceed $100,000 based on the business of the limited partnership.
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, 1998 and 1997, the Company earned
$1,272,300 and $781,800 respectively from the Sale of Assets. Reported revenues
during previous quarters of fiscal 1998 and 1997 were adjusted and increased by
$283,000 by MINC, during the quarter ended September 30, 1998. These adjustments
are reflected in the earnings from the Sale of Assets for the quarter ended
September 30, 1998.
Stock Option Grant
- ------------------
In November, 1998, the Board of Directors authorized the issuance, to the
Company's President, of options for 300,000 shares of common stock exercisable
at $3.00 per share. The issuance of stock options is subject to the approval of
the shareholders of the Company at its next scheduled annual meeting.
Capital Requirements
- --------------------
IFX Ltd. became a registrant of the British Securities and Futures
Authority ("SFA") during November, 1996. As such, IFX Ltd. is subject to the
financial resources requirements adopted and administered by the SFA. As of
September 30, 1998, IFX Ltd.'s financial resources, as defined by the SFA, were
$6,934,000 which was $3,573,000 in excess of its requirements.
9
<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, 1998.
Overview
- --------
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, 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 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.
Following the Sale of Assets, the Company decided not to reinvest the sales
proceeds in its commodities brokerage business and has been exploring other
industries and business opportunities. Based on its research, the Company has
determined that the Internet and telecommunications industries present the
greatest opportunities for the Company's future investment and growth.
Accordingly, the Company intends to pursue the development and acquisition of
Internet services and telecommunication businesses with the proceeds from the
Sale of Assets, joint ventures and private equity offerings. The Company
currently is negotiating to acquire a limited partnership interest in a domestic
telecommunications and Internet-related venture and also is negotiating the
formation of a joint venture to pursue foreign Internet-related opportunities;
however the Company has not entered into a definitive agreement with respect to
either transaction. There can be no assurance that the Company will complete
either transaction, or any other similar transaction, or regarding the ultimate
purchase prices of or the definitive terms of any completed transaction.
Liquidity and Capital Resources
- --------------------------------
The Company maintains a highly liquid balance sheet with a majority of the
Company's assets consisting of short-term investments, which are reflected at
market. IFX Ltd.'s role as a market maker in spot and forward foreign exchange
markets for customer activities, results in significant levels of customer-
related balances on the Company's balance sheet.
The Company's cash and short-term investment portfolio totaled $31,503,000
at September 30, 1998. Included in this amount is approximately $20,289,500 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.
10
<PAGE>
The portfolio is invested primarily in U.S. dollar denominated securities, but
also includes foreign currency positions deposited by IFX customers.
As a registrant, IFX Ltd. is subject to the financial resources
requirements adopted and administered by the SFA. As of September 30, 1998, IFX
Ltd.'s financial resources, as defined by the SFA, were $6,934,000, which was
$3,573,000 in excess of its requirements.
Stockholders' equity at September 30, 1998 was $12,158,300. Outstanding
shares of common stock as of September 30, 1998 totaled 6,155,539.
The Company continues to repurchase and retire shares of its common stock,
pursuant to a repurchase program which permits the Company to purchase up to
1,000,000 shares. The Company did not repurchases any shares, pursuant to this
program, during the quarter ended September 30, 1998.
As of June 30, 1998, the Company had outstanding lease commitments of
approximately $2,100,000 through the year 2002. The majority of this commitment
related to space leased in Chicago. While the Company remains legally committed
under terms of the lease, subsequent to June 30, 1998, the Company subleased
its' office space in Chicago, through the end of the lease term. The Company
has signed a sublease to occupy a much smaller space in Chicago through June
1999, providing for aggregate lease payments of approximately $70,000.
For the year ended September 30, 1998, cash provided by operations was
$674,500 compared to cash used in operations of $2,302,700 for the same period
in fiscal 1998. The majority of cash provided by or used in operations is
related to customer funds from customers of IFX Ltd. Cash flows from operations
include the changes in customer funds and customer payables, and will vary
depending on the amount of excess customer funds at a given time. In fiscal
1999, the amount of excess customer funds was greater than the excess in 1998,
thus contributing to greater cash provided by operations in 1999. In addition,
the Company invests cash not needed for operations at FX Chicago, Inc. in short-
term investments such as U.S. Government obligations and overnight time
deposits. As of September 30, 1998, the Company held $6,375,000 in U.S. short-
term investments.
Management believes existing cash and short-term investments together with
operating cash flows, access to equity capital, and borrowing capacity through
its principal stockholder, provide adequate resources to fund ongoing operating
requirements and future capital expenditures related to the expansion of
existing businesses and development of new projects.
Year 2000
The Company currently is evaluating its information and non-information
technology infrastructure for Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to be
Year 2000 compliant will be material to its financial position or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance, and
the majority of the Company's suppliers have indicated that they are in the
process of or have already achieved Year 2000 compliance. In the event that any
of the Company's significant suppliers or customers does not successfully and
timely achieve Year 2000 compliance, the Company's business and results of
operations could be adversely affected.
11
<PAGE>
Results of Operations
IFX Ltd., the Company's London-based operation, appears to be experiencing
a slow-down of its growth in recent months. Its future prospects are less
certain, in light of recent market events, including the stock-market turmoil
and its related effect on hedge funds along with growing uncertainty in foreign
markets. If there is a resulting overall tightening of credit, lenders may place
greater emphasis on a borrower's balance sheet, a fact that could impede both
the operations and growth of IFX, Ltd.'s business. In addition, the Company is
concerned that the implementation of a single European currency as a result of
the European Monetary Union may greatly reduce the profit opportunities
available from foreign currency trading. On the other hand, the Company's
earnings from the Sale of Assets have continued to increase as MINC generates
additional business from the brokerage accounts it purchased from Index, and
reduces the costs associated with that business. These earn-out revenues have
somewhat offset the reduction in earnings by IFX, Ltd. Additionally, MINC paid
the Company additional income on this business during this quarter that was
related to prior periods. Pursuant to the Sale of Assets agreement, the
Company's percentage of earnings from the brokerage accounts will decrease based
upon a predetermined schedule as defined in the sales agreement, over the
remainder of the original sixty-six month period following the sale. As such,
earnings from the Sale of Assets may decrease accordingly. The first reduction
is scheduled to take place with the quarter ended March 31, 1999.
Revenues were $3,545,500 during the period ended September 30, 1998,
representing a decrease of 11% from the same period a year ago. Trading
revenues decreased by 35% for the period ended September 30, 1998, compared to
the same period a year ago, largely due to volatility in the foreign currency
market during the period. This market volatility likely contributed to a
reduction of trading activity by IFX, Ltd.'s customers who are sensitive to
perceived increased risk in the foreign currency markets. Interest income
decreased by 37% for the period ended September 30, 1998, compared to the same
period a year ago. Lower market interest rates together with a decrease in IFX
Ltd. customer funds on deposit contributed to lower overall interest income for
the quarter ended September 30, 1998.
Revenues from the Sale of Assets increased by $486,800, or 62%, for the
period ended September 30, 1998, compared to the same period a year ago.
Reported revenues during previous quarters of fiscal 1997 and 1998 were
subsequently adjusted and increased by $283,000 by MINC. These adjustments are
included in the earnings from the Sale of Assets for the period ended September
30, 1998, attributing to a significant portion of the increase in the revenue
from the Sale of Assets for the period ended September 30, 1998, compared to the
same period a year ago. The Company's earnings from the Sale of Assets also
increased due to MINC generating more business from the brokerage accounts it
purchased from Index while at the same time holding down the costs it takes to
operate the business.
Total expenses were $2,082,400 for the period ended September 30, 1998,
representing a decrease of 14% from the same period a year ago. The decrease in
expenses is largely attributable to a reduction of consulting fees resulting
from the Sale of Assets, and a reduction of interest expense. The interest
expense reduction resulted from the repayment of debt which was
outstanding during part of the quarter ended September 30, 1997, but which was
paid off prior to the end of that quarter. The reduction in expense was offset
somewhat by the increase in rent and occupancy expense resulting in large part
due to a one-time brokerage fee paid by the Company to sublet its office space
in Chicago.
12
<PAGE>
As a result of the aforementioned changes in revenues and expenses, net
income for the period ended September 30, 1998 is $823,200 or $.13 per share
compared to net income of $887,600 or $.14 per share for the period ended
September 30, 1997.
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. The Company
currently is negotiating to acquire a limited partnership interest in a domestic
telecommunications and Internet-related venture and also is negotiating the
formation of a joint venture to pursue foreign Internet-related opportunities;
however, the Company has not entered into a definitive agreement or
understanding with respect to either transaction. There can be no assurance
that the Company will complete either transaction, or any other similar
transaction, or regarding the definitive terms of any completed transaction.
Forward-Looking Statements
Statements contained in this Form 10-Q regarding the Company's prospective
business opportunities, anticipated future results of operations and planned
expansion are forward-looking statements that involve substantial risks and
uncertainties. Such forward-looking statements include (i) the Company's belief
that it will not incur material costs or operational disruptions as a result of
Year 2000 problems that may be resident in its, or its customers' and suppliers'
computer information systems, (ii) potential changes in the projected future
business prospects and continued profitability of IFX Ltd.'s operations, (iii)
the Company's belief that the Internet and telecommunications industries present
growth opportunities for the Company and the Company's plans to pursue the
development and acquisition of Internet services and telecommunication
businesses, (iv) the amount of future revenues the Company expects to receive
from MINC pursuant to the Sale of Assets Agreement, (v) the amount and nature of
planned capital expenditures, (vi) the Company's belief that its existing cash,
short-term investments, operating cash flows, access to equity capital and
borrowing capacity will be sufficient to finance the Company's ongoing
operations and future capital expenditures, and (vii) statements relating to the
Company or its operations that are preceded by terms such as "anticipates",
"expects", "believes" and similar expressions.
In accordance with the Private Securities Litigation Reform Act of 1995,
following are important factors that could cause the Company's actual results,
performance or achievements to differ materially from those implied by such
forward-looking statements: The Company has not determined (and may be unable to
determine), with certainty, the magnitude and scope of any Year 2000 problems
that may be resident on its, or on its customers' or suppliers' information or
non-information systems. There can be no assurance that IFX Ltd. can maintain
its historic growth rate or profitability. The amount of revenues the Company
receives pursuant to the Sale of Assets agreement is dependent upon (i) the
amount of earnings MINC generates from the brokerage accounts it purchased from
Index and (ii) the contractual percentage of such earnings to which the Company
is entitled, which is set forth in the agreement and decreases over time. The
Company cannot accurately predict how creation of a single European currency and
the implementation of the European Monetary Union will affect the profitability
of its foreign currency trading operations. The Company has never conducted
business in the telecommunications or Internet-related industries and there can
be no assurance that the Company's entrance into these industries will be
successful.
13
<PAGE>
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk is directly related to its role,
through IFX Ltd., as a foreign exchange market maker in customer-related
transactions. IFX Ltd.'s primary market risk exposure relates to foreign
exchange rate risk. Foreign exchange rate risk arises from the possibility that
changes in foreign currency exchange rates will adversely impact the value of
the financial instruments. When IFX Ltd. buys or sells a foreign currency or a
financial instrument denominated in a foreign currency, exposure exists from the
net open currency position. Until the position is covered by selling or buying
an equivalent amount of the same currency, IFX Ltd. is exposed to the risk that
the exchange rate may move against it. In general, IFX Ltd. offsets it open
customer positions, thus substantially reducing its foreign exchange rate risk.
IFX Ltd. is also exposed to credit risk. Credit risk arises from the potential
inability of market counterparties, such as exchanges and banks, or customers to
perform an obligation in accordance with the terms of the contract. IFX Ltd.
has established policies and procedures to manage credit risk. A Credit
Committee is responsible for approving and reviewing new and existing customer
accounts. The Committee is responsible for establishing margin requirements and
margin call levels, position limits and trade restrictions (i.e., 1 month
forward trading, instrument types, etc.). The Finance Officer is responsible
for monitoring all customer accounts on a daily basis to ensure that they are in
compliance with the agreed terms of trading. Customer trading positions, equity
balances, margin excess amounts, and margin calls are monitored daily. As IFX
Ltd. conducts the majority of its business for its customers in foreign
currencies on the spot market, its trades generally settle on the next business
day. However, if margin calls are necessary and not satisfied in a timely
manner, (within 5 days), IFX Ltd. reserves the right to liquidate all or part of
the customer's open positions. Management believes that with trades settling
the next business day and the margin policies it employs, its credit risk is
somewhat mitigated.
14
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
See Notes to Financial Statements.
Item 5. Other Information
The Company's 1998 Annual Meeting of Shareholders currently is scheduled to
be held on January 21, 1999. All shareholders of record as of the close of
business on December 11, 1998 will be entitled to receive notice of and to vote
at the Company's 1998 Annual Meeting.
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
- No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1998.
15
<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 16, 1998 By: /s/ CHRISTINA S. DONKA
----------------------
Christina S. Donka
Chief Financial Officer
16
<PAGE>
Exhibit 11.1
IFX CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Common Share
as Restated for the One-for-Five Reverse Split of Common Stock
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Earnings:
Net income $ 823,200 $ 887,600
========== ==========
Shares:
Weighted average number of common
shares outstanding 6,155,539 6,279,130
========== ==========
Earnings per common share:
Net income $ .13 $ .14
========== ==========
</TABLE>
Note: 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 9/30/98 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,297,900
<SECURITIES> 30,205,100
<RECEIVABLES> 10,794,900
<ALLOWANCES> (381,400)
<INVENTORY> 0
<CURRENT-ASSETS> 41,995,100
<PP&E> 462,000
<DEPRECIATION> (338,300)
<TOTAL-ASSETS> 43,328,400
<CURRENT-LIABILITIES> 29,203,000
<BONDS> 0
0
0
<COMMON> 123,100
<OTHER-SE> 12,035,200
<TOTAL-LIABILITY-AND-EQUITY> 43,328,400
<SALES> 243,400
<TOTAL-REVENUES> 3,545,500
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,738,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344,100
<INCOME-PRETAX> 1,463,100
<INCOME-TAX> 489,300
<INCOME-CONTINUING> 823,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 823,200
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
