As filed with the Securities and Exchange Commission
on July 3, 1996 Registration No. ___-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________________
JJFN SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 6150 11-3289981
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or organization) Classification Code Number)
Identification Number)
2500 Military Trail North
Suite 220
Boca Raton, FL 33631
(607) 995-0043
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Joan E. Kushay
100 Quentin Roosevelt Blvd.
Suite 202
Garden City, NY 11530
(516) 683-8116
(Name, address, including zip code and telephone number, including area code
of agent for service) ________________________
Paul H. DeCoster Copies to: Charles O'Rourke
Jackson & Nash 100 Quentin Roosevelt Blvd.
330 Madison Avenue Garden City, New York 11530
New York, New York 10017 (516) 542-0142
(212) 370-8114
________________________
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<TABLE>
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
<PAGE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Proposed Proposed Maxi-
Title of Class Amount to Maximum Offering mum Aggregate Amount of
Registered be Registered Price Per Share Offering Price Registration Fee
Common Stock
$.001 par value 805,000 (1) $ 7.00 (2) $ 5,635,000 $ 1,943.10
Underwriters'
Warrants 70,000 $ .01 $ 700 $ .02
Shares of Common Stock
underlying Under-
writer's Warrants 70,000 (3) $ 8.40 $ 588,000 $ 202.76
Total $ 6,223,700 $ 2,145.88
</TABLE>
(1)Includes 105,000 Shares of Common Stock which the Underwriters have the
option to purchase to cover overallotments, if any.
(2) Based upon average of bid and asked prices for the Common Stock on OTC
Bulletin Board on June 27, 1996
(3) Pursuant to Rule 416, there are also being registered such additional
Shares of Common Stock as may be issued pursuant to the anti-dilution
provisions of the Series A Preferred Stock and the Underwriters' Warrants.
_______________________________
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary o delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
<TABLE>
JJFN SERVICES, INC.
<CAPTION>
Cross-Reference Sheet Showing Location in Prospectus of Information Required
by Items of Form S-1
<S> <C>
Form S-1 Registration
Statement Item and Heading Location in Prospectus
1.
Front of Registration Statement and Outside Front Cover of Prospectus
Front of Registration Statement; Front Cover Page; Additional Information
2.
Inside Front and Outside Back Cover Pages of Prospectus
Inside Front Cover Page; Back Cover Page
3.
Summary Information and Risk Factors and Ratio of Earnings to Fixed Charges
Prospectus Summary; Risk Factors
4.
Use of Proceeds
Prospectus Summary; Use of Proceeds
5.
Determination of Offering Price
Front Cover Page; Underwriting
6.
Dilution
Risk Factors; Dilution
7.
Selling Security Holders
Shares Eligible for Future Sale
8.
Plan of Distribution
Front Cover Page; Underwriting
9.
Description of Securities to be
Registered
Prospectus Summary; Description of Stock; Capitalization
10.
Interests of Named Experts and Counsel
Experts; Legal Matters
11.
Information with Respect to Registrant
(a) Description of Business
Prospectus Summary; Business and
Properties of the Company
(b) Description of Property
Business and Properties of the Company
(c) Legal Proceedings
Business and Properties of the Company
(d) Market Price and Dividends for Common Equity and Related Stockholder
Matters
Risk Factors; Price Range of
Common Stock and Dividend Policy
(e) Financial Statements
Financial Statements
(f) Selected Financial Data
Selected Financial Data
(g) Supplemental Financial Data
Selected Financial Data
(h) Management's Discussion and Analysis or Financial Conditions and
Results of Operation
Management's Discussion and Analysis
of Financial Condition and Results of
Operations
(i) Changes in or Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
(j) Directors and Executive Officer
Management
(k) Executive Compensation
Management
(l) Security Ownership of Certain Beneficial Owners and Management
Principal Stockholders
(m) Certain Relationships and Related Transactions
Transactions with Related Parties
12.
Disclosure of Commission Position
on Indemnification for Securities Act Liabilities
</TABLE>
Management
<PAGE>
PROSPECTUS - SUBJECT TO COMPLETION
DATED JULY __, 1996
[FRONT COVER PAGE]
JJFN SERVICES, INC.
700,000 Shares Common Stock
The 700,000 shares (the "Shares") of Common Stock offered hereby are being
sold by JJFN Services, Inc. ("Company"). The Company's Common Stock is
currently being traded on the OTC Bulletin Board. The bid and asked prices
quoted for the Common Stock on June 27, 1996, as reported by the NASDAQ Stock
Market, were $6.75 bid and $7.25 asked. The Company has applied for listing
of the Common Stock on the NASDAQ SmallCap Market under the symbol "JJFN".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
See "Risk Factors" beginning on page __ for a discussion of certain factors
that should be considered by prospective purchasers of the Shares offered
hereby.
<TABLE>
<S> <C> <C> <C>
Price to Public
10% Underwriting
Discount(1)
Proceeds to
Company(2)
Per Share
$
$
$
Total(3)
$
$
$
</TABLE>
<PAGE>
(1) The Company has also agreed to (a) pay the Underwriters a
non-accountable expense allowance equal to 3% of the total offering price of
the shares, or $________ ($_______ if the Underwriters' overallotment option
is fully exercised); (b) sell to the Underwriters, at nominal cost, Warrants
exercisable for purchase of shares of Common Stock at an exercise price of
$______ per share (subject to adjustment to protect against dilution); and (c)
indemnify the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. See "Underwriting".
(2) Before deducting other offering expenses, estimated to be $113,000,
payable by the Company.
(3) The Company has granted to the Underwriters the right to purchase,
within 30 days of the date of this Prospectus, up to 105,000 additional Shares
at the Price to Public less Underwriting Discount, to cover any
overallotments. If all overallotment shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be increased to
$________, $________ and $________, respectively. See "Underwriting".
The Shares are being offered by the several Underwriters on a firm commitment
basis subject to prior sale, when, as and if delivered to and accepted by
them, and subject to their right to reject any order, in whole or in part. It
is expected that delivery of the shares will be made at the offices of R.T.G.
Richards & Co., Inc. in Garden City, New York on or about ___________, 1996.
R.T.G. RICHARDS & CO., INC.
[OTHER UNDERWRITERS]
The date on this Prospectus is _______.
[BACK COVER PAGE]
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A
PREFERRED STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and, in accordance therewith, it
files periodic and other reports and other information with the Securities and
Exchange Commission (the "Commission"). These reports and other information
filed by the Company with the Commission may be inspected at the Commissions
Public Reference Office at 450 Fifth Street, N.W. Washington, D.C. 20549 and
at its regional offices located at 500 West Madison Street, Suite 1400
Chicago, Illinois, 60661 and 7 World Trade Center, New York, New York 10048.
The Company's Common Stock is listed the NASDAQ SmallCap Market, and reports
and other information concerning the Company may be inspected at the offices
of the National Association of Securities Dealers, Inc., 1735 K Street N.W.,
Washington, D.C.
THIS PROSPECTUS CONTAINS ALL OF THE REPRESENTATIONS BY THE COMPANY CONCERNING
THIS OFFERING, AND NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS
OR GIVE ANY INFORMATION WITH RESPECT TO THE COMPANY OR THE SECURITIES OFFERED
HEREBY OTHER THAN THE INFORMATION CONTAINED HEREIN. IF MADE OR GIVEN, SUCH
REPRESENTATIONS OR INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR OTHERWISE. NO PERSON SHALL MAKE DIFFERENT OR
BROADER STATEMENTS THAN THOSE CONTAINED HEREIN. INVESTORS ARE CAUTIONED NOT
TO RELY UPON ANY INFORMATION NOT EXPRESSLY SET FORTH IN THIS PROSPECTUS.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements with notes appearing elsewhere in this
Prospectus. For a discussion of certain risks associated with a purchase of
the Shares offered hereby, see "Risk Factors" beginning at page ___.
The Company
JJFN Services, Inc. was organized in November 1995 to engage in the financial
services industry, principally in the financing of home builders and other
developers of residential real estate. The Company's only material operations
to date have consisted of the purchase from and lease back to developers of
fully furnished model homes erected complete with options and upgrades, by
these developers to assist in marketing properties in their developments. The
Company is currently working with two developers, K. Hovnanian of Florida
Inc. ("Hovnanian") and Engle Homes Inc. ("Engle"), both of whom are large
residential real estate development companies.
Under the terms of its purchase and leaseback arrangements with developers,
the Company receives lease rental income on a "triple net" basis equal to 1%
per month of the purchase price it has paid for each home until it is sold.
When the developer is finished using the home for marketing purposes, it is
sold and the parties share in any profits from the sale equally. A
performance bond equal to 5% of the property's cash purchase price is
deposited by the developer with the Company to cover any default in rental
payments. Because the Company can insist that lease rental payments be
continued on each home until it can be sold without loss, the developer
effectively bears any loss on sale.
Since November 2, 1995 (its date of organization), through May 31, 1996, the
Company has purchased a total of 61 model homes for an aggregate purchase
price of $11,836,725 and sold three of these homes for a net profit of $7,756.
Its revenues from rentals of homes in inventory has been $305,214. It has
experienced no defaults or difficulties in collecting rent on its properties
or in realizing the proceeds on their resale, and presently has commitments to
purchase an additional six homes for an aggregate purchase price of $928,500.
The Company intends to finance these purchases through loans from financial
institutions and the proceeds of this offering. To date, the Company has
financed its activities through capital contributed by and loan from its
stockholders as well as loans from banking institutions totaling $6,900,000
(through May 31, 1996) secured by model homes purchased. These loans
typically mature in 24 to 36 months, bear interest at rates currently fixed at
8.625% to 9.25% per annum and are prepayable as the homes which serve as
collateral for the loans are sold.
In addition to its financing activities, the Company's subsidiary Iron Eagle
Contracting and Mechanical Inc. ("IECM") is engaged in real estate development
and as a construction subcontractor in the New York metropolitan area. To
date, IECM has had revenues of
<PAGE>
$229,500 in its five months of operations through May 31, 1996 and a
cumulative loss of $160,199. Its current contract backlog is $1,255,000.
The Company was organized as a Delaware corporation on November 2, 1995 and
changed its name to JJFN Services, Inc. in February, 1996. On May 15, 1996 it
acquired by merger JJFN Holdings Inc. (formerly known as J.W. Gant Financial
Inc.), a publicly held company ("Old JJFN"). In the merger, the Company
issued a total of 4,084,990 shares of its Common Stock to Old JJFN
shareholders and assumed the obligations of Old JJFN to issue up to 3,250,000
shares of Common Stock on exercise of an option Old JJFN had granted to
Tarlton Financial Ltd. ("Tarlton"), at an exercise price of $1.50 per share,
and 1,200,000 shares on exercise of options granted by Old JJFN to VJS
International Holdings Inc. ("VJS") and Priority Capital Inc. ("Priority"), at
an exercise price of $.001 per share. As a result of the merger, the Company
acquired over 1,500 beneficial owners of its Common Stock, enabling it to list
its securities on the NASDAQ SmallCap Market and commence public trading in
the Stock. For a more complete description of the terms and results of the
merger, see "Business-Old JJFN Merger".
The Company's principal executive offices are located at 2500 Military Trail
North, Suite 220, Boca Raton, Florida 33431 (407-995-0043). The Offering
In the offering, the Company will sell 7,000,000 Shares at a price of $______
per share less a 10% Underwriters' discount. The Underwriters will have the
option to purchase an additional 105,000 shares at the discounted price to
cover any overallotments.
Securities Outstanding After Offering
Shares
6% Participating Convertible Preferred 400,000
Common Stock 14,784,990(1)
____________________________
(1) Does not include Common Stock issuable on exercise of the
Underwriters' overallotment option (105,000 shares), outstanding options and
warrants to Tarlton, VJS and Priority (4,450,000 shares), or 400,000 shares
issuable on conversion of the 6% Participating Convertible Preferred. See
"Description of Securities".
Listing of Securities
The Company's Common Stock is currently traded on the OTC Bulletin Board. The
Company has applied for listing of the Common Stock on the NASDAQ SmallCap
Market under the symbol "JJFN".
<PAGE>
Use of Proceeds
Net proceeds to the Company from the offering, estimated at $4,150,000, will
be used to fund the purchase of additional model homes from developers
($1,000,000) and provide working capital ($3,150,000). See "Use of Proceeds".
<TABLE>
Summary Financial and Operating Data
<S> <C>
Statement of
Operations Data
Period from
Inception
(11/2/95)
through 5/31/96
Revenues
$ 344,470
Rental Income
$ 305,214
Net Loss
$ (119,474)
Net Loss per Common Share
$ (.012)
Weighted Average Shares Outstanding
10,327,571
Operating Data
Model Homes Purchased
61
Total Model Home Purchase Price
$ 11,836,725
Average Model Home Purchase Price
$ 194,045
Model Homes Sold
3
Profit from Model Homes Sold
$ 7,756
Balance Sheet Data
May 31, 1996
Adjusted(1)
Model Homes on Lease
$ 11,270,719
$ 11,270,719
Total Assets
$ 15,886,315
$ 20,036,315
Long Term Debt
$ 9,963,103
$ 9,963,103
Shareholders' Equity
$ 6,105,530
$ 10,255,530
</TABLE>
<PAGE>
(1) Adjustment reflects the sale by the Company of the 700,000 Shares
offered hereby for estimated net proceeds of $4,150,000.
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus and Information
Statement, the following factors should be carefully considered by JJFN
shareholders and by any persons who contemplate purchasing shares of the
Company's Common Stock in the public market following the Merger.
Limited Operating History
The Company was incorporated on November 2, 1995 and to date has engaged in
operations for a period of approximately seven months. Through May 31, 1996
it generated revenues of $344,470 and on that date it had retained deficit of
$(119,428). The Company's future success will be dependent upon its ability
to find clients for its financing services and to enter into profitable
financing transactions with them. No assurance can be given that the Company
will be able to do so. Its transactions with its only clients, Hovnanian and
Engle, have been negotiated on a deal-by-deal basis, and there is no assurance
that further financing transactions with these developers or others can be
successfully concluded.
Economic Conditions
To date, the Company has been dependent upon home builders in its business.
The homebuilding industry in general is cyclical, with demand fluctuating with
general economic conditions such as recessionary forces, availability of
financing, interest rate levels and consumer confidence. In addition to the
numerous economic factors affecting housing demand, a variety of other factors
affect the housing industry, including the availability of labor and materials
and increases in the costs thereof, changes in costs associated with home
ownership (such as increases in property taxes and energy costs), changes in
consumer preferences and demographic trends.
Dependence on Key Personnel
The business and success of the Company will depend upon the services of
certain key personnel, including Susan Schlapkohl, its president, and David
Miller, its principal financial consultant. For a description of the
qualifications and experience of these persons and other key personnel, see
"Management." The loss of the services of the Company's key personnel may
have a material adverse effect upon its future prospects.
<PAGE>
Capital Requirements
The financing services which the Company intends to conduct are capital
intensive, and its future success will be dependent upon its ability to
attract equity and debt financing on terms which permit it to earn a profit
without unduly diluting the equity of its shareholders. Since November 1995,
the Company and JJFN have capital contributions of approximately $4,875,000 in
cash and $1,500,000 in stock of another corporation, as well as $2,193,184 in
loans from stockholders and their affiliates. In January 1996, the Company
borrowed $2,100,000 from Capital Bank of Miami, Florida, the proceeds from
which were used to acquire model homes. Capital Bank has since made an
additional loan to the Company in the amount of $2,300,000 and the Company has
borrowed $2,500,000 from Colorado State Bank of Denver, Colorado and $857,250
from Nations Bank, N.A., in each case to purchase additional model homes. In
the merger with Old JJFN, the Company assumed Old JJFN's outstanding options
from the exercise of which it hopes to raise an additional $3,750,000 in
equity. It expects that these options will be fully exercised, but no
assurance can be given that such will be the case.
Competition
The financial services industry is highly competitive, with many banks,
financial subsidiaries of industrial companies, insurance companies and other
financial institutions competing for the business of favored customers such as
Hovnanian and Engle. Almost all of these competing financial institutions
have substantially greater financial strength and far longer operating
histories than the Company, and these resources make them formidable
competitors to the Company in its attempt to attract capital and clients.
Dilution
The purchasers of the Shares may be adversely affected by dilution in net
tangible book value per share of the Common Stock. Based on the Company's
March 31, 1996 financial statements, this dilution is $6.34 or 90.5% from the
assumed offering price of $7.00 per share. See "Dilution".
Control
The Company's officers, directors, consultants and their families and
affiliates and other principal stockholders own beneficially 8,963,615 shares,
or 63.6% of the Company's Common Stock before this offering, and 60.6% after
the offering. When and if the option and warrants the Company assumed in the
merger with Old JJFN are exercised, this group's interest in the Company's
Common Stock will be 51.2%. It will be able to effectively control the
outcome of matters requiring shareholder votes, including the right to elect
all of the Company's directors, since there is no cumulative voting of the
Company's Common Stock. When and if the Company's outstanding option and
warrants are exercised, Tarlton and the other holders of these rights will own
7,45,000 shares, or 40.3% of the Company's Common Stock after this offering.
<PAGE>
Shares Eligible For Future Sale
The Company presently has 1,084,990 shares of Common Stock freely tradeable in
the public market and 3,000,000 shares are saleable by Tarlton with the use of
a Prospectus. Assuming full exercise of the Company's outstanding option and
warrants, an additional 4,450,000 shares will be saleable with the use of a
Prospectus. See "Shares Eligible for Future Sale". Any sale of a significant
number of these shares in the public market could adversely affect the market
price for the Company's Common Stock.
Risks of Low-Priced Stocks; Possible Adverse Effect of "Penny Stock" Rules
on Liquidity for the Company's Securities
The Company's Common Stock is currently traded on the OTC Bulletin Board, and
the Company has applied for its listing on the NASDAQ SmallCap Market. If for
any reason the Stock does not remain qualified for listing in the NASDAQ
System, it will continue to be traded through the OTC Bulletin Board. The
ability to trade securities through the OTC Bulletin Board is very limited and
may not provide investors with the ability to readily dispose of their shares.
Trading of securities on the OTC Bulletin Board is subject to the Exchange
Act and Rules thereunder, which impose additional sales practice requirements
on brokers and dealers who sell such securities to persons other than
established customers and "accredited investors" (generally individuals with a
net worth in excess of $1,000,000 or an annual income exceeding $200,000, or
$300,000 together with their spouses). Under the Exchange Act Rules a
broker-dealer must make a special suitability determination of each purchaser
and receive the purchaser's written consent to the transaction prior to the
sale. Consequently, the Rules may affect the ability of broker-dealers to
sell the Company's Common Stock for their customers.
The Commission has also adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks", which are equity securities
with a market price of less than $5.00 (unless they are registered on a
national securities exchange or quoted on the NASDAQ System and current price
and volume information with respect to transactions in such securities is
provided by such exchange or System). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document prepared by
the Commission that provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such rules
the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have
the effect of reducing the level of trading activity, if any, in the secondary
market for a stock that becomes subject to the penny stock rules. If the
Company's Common Stock becomes subject to the penny stock rules, the market
liquidity for the Stock could be adversely affected, and its holders may find
it more difficult to sell their shares.
<PAGE>
<TABLE>
USE OF PROCEEDS
<CAPTION>
The net proceeds to the Company from sale of the Shares to be sold in the
offering (after deducting the Underwriters' discount and other expenses
totaling an estimated $750,000) will be approximately $4,150,000 (or
$4,789,450 if the Underwriters' overallotment option is exercised in full).
The Company intends to utilize these proceeds as follows:
<S> <C> <C>
Anticipated Use
Approximate Amount
of Net Proceeds
Percent of
Net Proceeds
Purchase of Model Homes
$1,000,000
24%
Working capital
$3,150,000
76%
Total net proceeds
$4,150,000
100%
</TABLE>
The Company reserves the right, depending upon the circumstances, to
reallocate proceeds among the various uses set forth above to other uses. Any
proceeds not immediately expended by the Company will be invested in
certificates of deposit of the Company's banks, 30-day U.S. treasury bills and
other short-term investment grade securities. Any additional proceeds
realized from the exercise of the Underwriters' overallotment option will be
added to working capital.
PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY
The Company's Common Stock has been quoted on the OTC Bulletin Board under the
symbol "JJFN" since May 15, 1996. From that date through June 27, 1996, the
range of quotes for the Common Stock as reported on the OTC Bulletin Board was
$5.625 to $7.00 bid and $6.125 to $7.25 asked. On June 27, 1996 the closing
bid and asked quotes for the Common Stock on the OTC Bulletin Board were $6.75
bid and $7.25 asked.
<PAGE>
To date, the Company has paid no cash dividends on its Common Stock and does
not anticipate paying any in the foreseeable future as it intends to continue
its present policy of retaining earnings for reinvestment in the Company's
operations. The Company has paid and intends to continue to pay dividends on
its 6% Participating Convertible Preferred at the rate of $.15 per share per
year in quarterly installments, out of net rentals from its model homes. If
and to the extent the Company does not have sufficient retained earnings to
make these dividend payments, it intends to make the payments out of paid-in
capital, if available.
<TABLE>
CAPITALIZATION
<CAPTION>
The following table shows the short term and long term debt and capital of the
Company as of May 31, 1996 and as adjusted to give effect the sale to the
700,000 Shares offered hereby. This table should be read in conjunction with
the financial statements and notes thereto included elsewhere in this
Prospectus.
<S> <C> <C>
Item
Actual at 5/31/96
Adjusted
Long term debt
$6,963,103
$6,963,103
Shareholders equity
Preferred Stock, $.01 par value; 25,000,000 shares authorized; 400,000 shares
issued and outstanding
$ 4,000
$ 4,000
Common Stock par value $.001; 50,000,000 shares authorized; 14,089,990 shares
issued and outstanding; 14,784,990 shares, as adjusted
$ 14,085
$ 14,785
Additional Paid-in Capital
$6,206,923
$10,356,223
Retained Deficit
$ (119,478)
$ (119,478)
Total Shareholders' Equity
$6,105,530
$10,255,530
Total Capitalization
$13,068,633
$17,218,633
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the period from the Company's
inception (November 2, 1995) through May 31, 1996 have been derived from the
Company's audited and unaudited consolidated financial statements. This data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and related notes included elsewhere in this Prospectus.
Income Statement Data
[S] [C] [C] [C] [C]
Inception
(11/2/95) through
12/31/95
Three
months
ended
3/31/96
Two
months
ended
5/31/96
Inception
(11/2/95)
through
5/31/96
Revenues
$33,116
$94,382
$216,972
$344,470
Expenses
32,788
167,605
263,555
463,948
Income (loss) before
income taxes, extraordinary loss and cumulative effect of change in account
for income taxes
328
(73,223)
(46,583)
(119,478)
State and federal income
taxes
-
-
-
-
Extraordinary loss
-
-
-
-
Cumulative effect of change
in accounting for income taxes
-
-
-
-
Net income (loss)
328
(73,223)
(46,583)
(119,478)
Earnings per common share
Income (loss before income taxes, extraordinary loss and cumulative effect of
change in account for income taxes
-
(0.01)
-
(0.01)
Extraordinary loss
-
-
-
-
Cumulative effect of change
in accounting for income taxes
-
________
-
________
-
________
-
________
Net income (loss) per share
(0.01)
(0.01)
Weighted average numbe
of Common shares outstanding
10,000,000
10,000,000
11,138,440
10,327,571
<PAGE>
Balance Sheet Data
12/31/95
3/31/96
5/31/96
Total assets
$ 3,512,090
$ 7,237,789
$15,886,315
Mortgages & notes
payable
955,457
4,690,310
9,134,130
Other liabilities
66,305
145,374
646,655
Stockholders' equity
2,490,328
2,402,105
6,105,530
[/TABLE]
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company's operations consist primarily of the purchase and leaseback of
residential model homes to nationally known homebuilders and real estate
developers. The Company currently owns and leases to its developer clients 58
model homes in Florida, Colorado, Virginia, North Carolina and Texas. The
Company has also committed to acquire a tract of land for one of these
developers and provide funding for site development costs. The developer is
to purchase the property on a finished lot basis over a scheduled three year
period. The Company's construction subsidiary, IECM, is primarily engaged in
subcontract work on various projects in and around the metropolitan New York
City area. It is also developing a site in Ozone Park, New York for
residential housing. IECM currently has a backlog of $1,255,000 in
construction contracts and additional jobs awards totaling $788,000, with
$4,200,000 in bids outstanding.
<TABLE>
Results of Operations
For the period from November 2, 1995 through May 31, 1996, the Company had
total revenues of $344,470 of which lease rentals on model homes totaled
$305,214, gains from the sale of model homes were $7,756 and revenues from
IECM ($31,500) for the 16 day period from its date of acquisition on May 15,
1996 through May 31, 1996.
<CAPTION>
A breakdown of lease rental revenues by location is as follows:
<S> <C> <C>
State
Lease Revenues
Model Homes
Owned
Florida
$246,979
34
Colorado
$ 30,036
15
Virginia
$ 7,221
5
North Carolina
$ 15,944
3
Texas
$ 5,034
1
Total
$305,214
58
</TABLE>
The average purchase price of model homes acquired by the Company was
approximately $194,000. The Company has sold three model homes for total
sales price of $515,000 less costs of sales of $507,244 for a gross margin of
$7,756.
<PAGE>
Trends in Operations
The Company's operations are currently accelerating at a rapid rate. For the
first five months of 1996, total purchases of model homes involved over
$11,000,000 in financing. The Company has committed to finance the
development by one of its clients, Engle Homes Inc., of a real estate tract of
70 acres into 370 home sites, with total anticipated financing costs of
$13,095,000. It is expected that following completion of the development (in
approximately six months following date of acquisition in October 1996)
revenues to the Company from this transaction will be a minimum of $1,000,000
per calendar quarter at an anticipated return on investment of approximately
12% per annum. In addition, the Company intends to continue purchasing model
homes as quickly as transactions can be negotiated with developers and
financing obtained. At May 31, 1996, the Company's lease rental revenues had
risen to a level of over $113,000 per month, and the Company anticipates that
it will increase this level of rental andother financing activity to over
$500,000 per month by the end of fiscal 1997.
The Company's IECM subsidiary accounted for only $31,000 of the Company's
revenues on a consolidated basis for the period ended May 31, 1996. However,
IECM currently has in hand work totaling over $2,000,0000, which it expects to
complete over the next several months, and an additional $4,000,000 in bids
outstanding. IECM's level of activity is dictated in part by availability of
performance bonding, which currently stands at a limit of $7,000,000, but the
Company believes it can significantly expand this performance bond bidding
limit. It expects that IECM's revenues from subcontracting will increase to a
level of over $500,000 per month by the end of fiscal 1997 based upon current
outstanding contracts and bids. In addition, IECM's residential real estate
project in Ozone Park, New York, in which it currently constructing five
two-family homes, is scheduled to be completed and sold by the end of fiscal
1997. The finished homes will be marketed at $319,000 per home, for total
revenues (to be realized over the next twelve to eighteen months) of
$1,595,000 from the development.
<PAGE>
Liquidity and Capital Resources
The Company's principal business, the financing of homebuilders and
developers, is a capital-intensive operation requiring constant infusions of
cash as the number and size of transactions in which the Company is involved
increases. To date, this business has been financed in part by capital
contributed and loans made by shareholders and in part by secured loans from
banks. These include $1 million received from Antares Resources Corporation
for the purchase of 400,000 shares of the Company's 6% Participating
Convertible Preferred Stock, $2,193,185 in loans from shareholders, and the
contribution and loan of 800,000 shares of Antares Common Stock, valued at
$2.50 per share. Secured bank loans to date have totaled $6,490,946 through
May 31, 1996, with an additional $857,250 borrowed in June of this year. The
terms of these transactions are discussed in "Business and Properties of the
Company-Capital Transactions". These capital contributions and loans have been
adequate to permit the Company and its subsidiary, IECM, to carry on
operations to date. However, in order to finance the expansion of operations
which the Company and IECM intend over the coming fiscal year, additional
funds must be raised through the issuance of debt or equity securities. To
fill this need, the Company expects to receive net proceeds of approximately
$4,150,000 from this offering which, together with existing cash of
approximately $1,700,000, will give the Company approximately $5,850,000 to
finance current operations. In addition, the Company has a commitment from
Capital Bank of Miami, Florida to loan it on a secured basis an additional $10
million, and it expects (but cannot assure) that Tarlton will complete the
exercise of its option to purchase 2.5 million shares of the Company's Common
Stock for an additional $3,750,000 in net proceeds. The Company's present
commitments for capital expenditures include the purchase of six model homes
from Hovnanian for $928,522 and the financing of purchase and development
costs for Engle's seventy acre tract development in Boca Raton, Florida, which
will require an additional $13,095,000 in cash outlays over the next twelve
months. The Company expects that it will be able to finance these
transactions and others it currently negotiating through available cash from
the sources described above and from other secured bank loans. In addition,
the Company is exploring the possibility of selling, either publicly or
privately, bonds collateralized by its model home inventory. There can be no
assurance, however, that any of the anticipated sources of funding will
ultimately be available to the Company or that other financing will be
available on acceptable terms.
<PAGE>
BUSINESS AND PROPERTIES OF THE COMPANY
The Company was formed in November 1995 for the purpose of engaging in the
financial services industry, including the financing of homebuilders and other
developers of real property. Its only principal operations to date have
consisted of the purchase from and lease back to developers of model homes
erected to assist in marketing properties in their developments. The Company
is currently working with two developers, K. Hovnanian of Florida Inc.
("Hovnanian") and Engle Homes Inc. ("Engle").
The Hovnanian Transactions. In November and December of 1995 and January 1996
the Company purchased and leased back to subsidiaries of Hovnanian 19 model
homes now being used for marketing in four developments in which they are
located. Each home has been leased back to Hovnanian on a "triple net" basis,
requiring Hovnanian to pay rent and the cost of repairs and maintenance,
insurance, taxes and other carrying charges during the term of the lease. The
rental for each home is fixed at an amount calculated to give the Company a
net return of 1% per month on its investment. The leases run until the homes
are sold. Payment of the rental and recovery of the Company's cost on resale
are guaranteed by Hovnanian by a performance bond equal to 5% of the Company's
purchase price for the homes. They will be marketed by Hovnanian in
accordance with the business plan for each development. Upon the sale of each
home, the Company and Hovnanian will (after payment of a brokerage commission
to a Hovnanian affiliate) share any profits on an equal basis. Any loss will
be absorbed by Hovnanian, because the Company is not required to accept any
loss on sale and Hovnanian is required to pay the lease rental on each home
until it is sold.
<PAGE>
Hovnanian is a subsidiary of Hovnanian Enterprises, Inc., a publicly-held
company whose stock is traded on the American Stock Exchange. It and its
predecessors have been home builders and developer for over 35 years in the
New Jersey, Pennsylvania, California, Virginia, North Carolina and Florida
markets. It has built and sold many thousands of moderately priced homes, and
enjoys an excellent reputation in the industry. During its fiscal year ended
October 31, 1995, Hovnanian Enterprises had revenues of $660,033,000 and net
profits of $14,128,000 and, at fiscal year end, a net worth of $172,335,000
and a contract backlog of 1,810 homes with a total contract price of
$310,455,000.
The following table shows the location of the 19 model homes purchased by the
Company from Hovnanian and pertinent information relating to their purchase
and rental:
<TABLE>
<S> <C> <C>
Development, Location and Number of Homes
Cost to Company
Net Monthly Rental
to Company
Juniper Glen, Margate, FL (5 homes)
$793,870
$7,939
Buttonwood Hammock, Coconut Creek, FL
(4 homes)
$630,174
$6,302
La Mirage, Lauderhill, FL (4 homes)
$509,235
$5,092
Pembroke Shores, Pembroke Pines, FL
(6 homes)
$1,320,376
$13,204
</TABLE>
The aggregate purchase price of approximately $3.25 million has been financed
by approximately $1.15 million in equity contributed by existing Company
shareholders and $2.1 million by borrowings from Capital Bank of Miami,
Florida. This loan is due February 1, 1998 and bears interest at 1% over
prime rate, payable monthly. It is secured by a first mortgage on all 19
homes and by an assignment of rents payable by Hovnanian.
<PAGE>
(iv)
16
In addition to the nineteen homes purchased to date, the Company has committed
to purchase an additional six homes from Hovnanian, located in four
development projects in Florida. The total purchase price for the homes is
$928,522, to be financed out of working capital or a new secured bank loan.
To date, the Company has sold three of the model homes acquired from
Hovnanian. The first home in Juniper Glen was sold at a profit of
approximately $1,700, the second in Buttonwood Hammock was sold at a profit
of approximately $3,500 and the third also in Juniper Glen was sold at a
profit of approximately $2,500.
The Engle Transactions. In March 1996 and April 1996, the Company entered
into a series of transactions with Engle Homes Inc. of Boca Raton, Florida for
the purchase of 45 model homes located in Florida, North Carolina, Texas,
Virginia, Maryland and Colorado. The terms of the Engle transactions are
similar to those of the Hovnanian transactions, with the Company leasing the
homes it purchased from Engle back to Engle on a "triple net" basis calculated
to give the Company a net return of 1% per month on its investment. Engle is
obligated to continue paying rent on each home until it is sold. The homes
will be marketed by Engle when it finishes using them for model home purposes
in accordance with the business plan for the developments in which the homes
are located. On the sale of each home, the Company and Engle will (after
payment of a brokerage commission to an Engle affiliate) share any profits on
an equal basis. Because the Company controls the sale price of each home
and Engle is obligated to continue paying rent until the home is sold, any
loss which may be suffered on sale will effectively be borne by Engle.
Engle is a publicly held corporation where stock is traded on the Nasdaq
National Market. It has been engaged in home development for many years, with
development properties presently located in several states. It enjoys an
excellent reputation in the industry and is solidly financed. The latest
available financial information on Engle indicates that it had revenues of
$239,754,000 and net profits of $ 5,912,000 for its fiscal year ended October
31, 1995 and, at fiscal year end, had a net worth of $ 74,106,000 and a
contract backlog of 804 homes with a total contract price of $161,900,000.
<TABLE>
The following table shows the location of the 45 model homes purchased to date
from Engle and pertinent information relating to these purchases.
<PAGE>
<S> <C> <C>
Development , Location, Number of Homes
Cost to
Company
Net Monthly
Rental to Company
Westchester, Boynton Beach, FL (3 homes)
$487,232
$4,872
Bay Hill, West Palm Beach, FL (1 home)
$330,903
$3,309
Whale Run, Boynton Beach, FL (2 homes)
$245,180
$2,451
Shadow Ridge, Flower Mound, TX (1 home)
$202,161
$2,022
White Bridge, Amherst and Hadden Hill,
Apex, NC (3 homes)
$735,150
$7,352
Radcliffe, Tampa, FL (1 home)
$247,558
$2,476
Englewood and Wimbledon Green, Zephyr
Hills, FL (2 homes)
$203,809
$2,038
Quail Overlook, Barnestown, MD (1 home)
$439,799
$4,398
McNair Farms, Herndon, VA (1 home)
$429,626
$4,295
Ashburn S/F and T/H, Ashburn, NC
(3 homes)
$831,541
$8,315
Lowes Island, Sterling, NC (2 homes)
$496,774
$4,967
Jackson Farm II and Spring Creek III,
CO (4 homes)
$795,256
$7,953
Meadows II and III, Castle Rock, CO
(3 homes)
$677,179
$6,772
Rolling Hills, Thornton, CO (3 homes)
$691,513
$6,915
Wright Farms, Brighton, CO (2 homes)
$330,822
$3,308
Highland Ranch, CO (3 homes)
$643,840
$6,438
</TABLE>
The aggregate purchase price of the Engle homes acquired to date is
$8,583,098, which has been financed by cash available to the Company through
equity contributions and by borrowings of $2.3 million from Capital Bank and
$2.5 million from the Colorado State Bank of Denver. The Capital Bank loan
matures on May 31, 1998, bears interest at 8.625% per annum and is secured by
first mortgages on 18 of the model homes purchased from Engle in Florida and
by an assignment of rents payable by Engle on those homes. The Colorado
State Bank loan is due April 30, 1999, bears interest at 9.25% per annum and
is secured by a first mortgage on 15 of the homes purchased in Colorado and an
assignment of rents payable by Engle on those homes.
<PAGE>
In addition to which purchases of model homes, the Company has committed to
finance for Engel the acquisition of a seventy acre tract for development into
370 units of housing. The tract, which is in Boca Raton, Florida, will
require payment of a purchase price of $8,595,000 and additional development
costs of 4,500,000. Closing of the purchase is scheduled for October , 1996.
Under the terms of the proposed arrangement with Engel, the Company will
purchase the property and advance funds for the development costs. Engel will
sign a contract to purchase the property on a finished lot basis, with minimum
takedowns each calendar quarter of $1,000,000 and purchase of the entire
project over 13 quarters from the completion of site development, expected to
take approximately six months. As security for the performance of its
obligations, Engle will deliver to the Company a $500,000 non-refundable
deposit which may be used to offset interest costs for the first two quarters
during which no takedowns are occurring, and a $4,500,000 surety bond as
security for performance of its development and purchase obligations under the
contract. The transaction is designed to provide the Company with a return on
investment of 12% per annum.
To finance this and other proposed transactions with Engle, the Company has
negotiated a third line of credit from Capital Bank for $10,000,000. Under
this line, the Company's borrowings will be payable in two years with interest
on $2,500,000 of the loan at prime rate plus 1% and on the balance of
$7,500,000 of the loan at 1/2% over prime. The loans will be secured by first
mortgages on land and homes purchased with the proceeds. The commitment
permits the Company to use up to 25% of its credit under the line to purchase
non-Florida homes.
The Company is currently negotiating for the purchase and leaseback of
additional model homes owned by Hovnanian and Engle, as well as other national
and regional home builders, including Arvida/JMB Partners, Oriole Homes Inc.
and Regency Homes, Inc. No additional transactions have yet been agreed to,
other than the commitments described above.
Iron Eagle
In its merger with Old JJFN, the Company acquired IECM as a wholly owned
subsidiary of Old JJFN. IECM was organized in December 1995 to build
residential housing on a tract in Ozone Park, New York and to act as
contractor in foundation and steel construction work, sewer installation and
repair and laying, maintenance and repair of electrical, telephone and water
pipes and conduits for utilities. Through its first five months of
operations, IECM had gross revenues of $226,000 from subcontract work and a
net loss of $160,199. At July 1, 1996 IECM had a contract backlog of
approximately $1,255,000 on six projects, awards of $787,000 on two projects,
and bids outstanding for an additional $4,627,000 of work. The Company
anticipates that IECM's activities will increase substantially in the coming
months.
<PAGE>
IECM was acquired by Old JJFN on December 29, 1995 from Anthony Gurino and
Dennis Sommeso, IECM's former stockholders, together with certain construction
equipment. In January 1996 IECM purchased a 1.25 acre tract of land in Ozone
Park, New York for $300,000 on which it is presently constructing two family
homes. To finance this acquisition and provide needed working capital, IECM
has borrowed $450,000 from VJS, secured by the Ozone Park property and by
IECM's construction equipment and other assets. The loan is payable on
October 31, 1997 and carries interest at 12% per annum. In consideration for
its loan, VJS received warrants by IECM to purchase 700,000 shares of the Old
JJFN Common Stock for a price of $.001 per share. IECM will also pay VJS a
fee of $3,000 per year so long as the loan remains outstanding. In December
1995, IECM engaged Priority, a corporation in which Warren Miller, the brother
of David Miller (the chief financial consultant of the Company) is the
President and a principal stockholder, to provide financial consulting
services. As part of its services to date, Priority has obtained an agreement
with Universal Bonding Company to post performance bonds for IECM's
subcontracting jobs totaling up to $7 million. This line is now being used to
reinvest IECM's bid on its subcontract work. IECM pays Priority a fee of
$3,000 per year and has issued Priority warrants to purchase 500,000 shares of
Old JJFN Common Stock at a price of $.001 per share. IECM's obligations under
the VJS and Priority warrants were assumed by the Company in the merger with
Old JJFN, and the warrants are now exercisable for 1,200,000 shares of the
Company's Common Stock.
Old JJFN Merger
On May 15, 1996, the Company acquired Old JJFN by its merger with a subsidiary
of the Company. In the merger, in which Old JJFN became a subsidiary of the
Company, each outstanding share of Old JJFN Common Stock and each 50 shares of
its Preferred Stock were converted into one share of the Company's Common
Stock. On the date of merger the consolidated assets of Old JJFN included
$1,444,480 in cash, 100,000 shares of Antares Resources Corporation and
$2,300,000 in loan receivables from the Company It had $5,113,470 in
consolidated assets, $1,353,462 in consolidated liabilities and shareholders
equity of $3,760,008. Its outstanding stock consisted of 4,066,898 shares of
Common Stock and 904,585 shares of Preferred Stock, owned by approximately 260
record holders and 1,500 beneficial owners. A total of 4,084,990 shares of
the Company's Common Stock were issued in the merger in exchange for this
stock.
As part of the merger, the Company assumed Old JJFN's obligations under
warrants issued by IECM to VJS and Priority and the option granted to Tarlton.
Tarlton is a Cayman Islands company owned by a Cayman Islands trust whose
sole trustee, Glendyne Company, is directed by members of Bruce Campbell &
Co., attorneys at law of Grand Cayman, Cayman Islands, BWI. The Tarlton
option was issued for a price of $125,000. It covers the purchase of up to
5,000,000 shares of Old JJFN Common Stock for a price of $1.50 per share.
Prior to the merger, Tarlton had exercised its option to purchase 2,500,000
Old JJFN shares which were exchanged for a like number of shares of the
Company's Common Stock in the merger. The Company also assumed Old JJFN's
consulting agreement with Tarlton pursuant to which Tarlton agreed to assist
Old JJFN in finding up to $7,500,000 million in equity capital and Old JJFN
agreed to issue to Tarlton over a period of eight months 1,250,000 shares of
Old JJFN's Common Stock, conditioned upon Tarlton's success in finding this
equity. Of the 1,250,000 shares, 500,000 have already been issued, but they
and Tarlton's rights to the remaining 750,000 shares issuable under the
consulting agreement will be canceled if Tarlton fails to provide the full
$7,500,000 in equity financing on or before the option's expiration date.
While the Company believes that Tarlton will exercise its option in full, thus
earning the full 1,250,000 shares, there can be no assurance however that such
will be the case. All shares issued and issuable to Tarlton under the Tarlton
option and consulting agreement, as well as the shares issuable on exercise of
the VJS and Priority warrants, have been registered under the Securities Act
and are freely salable in the public market by use of a Prospectus to be
provided by the Company. See "Shares Eligible for Future Sale".
<PAGE>
Old JJFN was formerly known as J.W. Gant Financial Inc. and is a Delaware
corporation organized in 1987 as a holding company to engage in the
securities, investment banking and related businesses of J.W. Gant &
Associates Inc., its wholly owned subsidiary. On June 30, 1992, J.W. Gant
Associates ceased operations as a licensed securities broker and dealer,
closed its office and terminated its entire sales force and most of its
administrative personnel. It declared bankruptcy on May 24, 1994, leaving Old
JJFN without any significant sources of revenue. In July 1992, Old JJFN
transferred all of its assets to its principal secured creditor and had no
operations from that time until its acquisition of IECM in December 1995. In
November 1995, prior to the merger, the officers and directors of the Company
became the officers and directors of Old JJFN and implemented the merger, the
principal purpose of which was to give the Company sufficient common
stockholders to have its Common Stock listed on the over-the-counter market,
thus enabling it commence public trading in the Stock.
Capital Transactions
The Company's activities have been financed in part by capital contributed to
it and Old JJFN and by loans made by its existing stockholders. In November
1995, the Company issued and sold 10,000,000 shares of Common Stock for an
aggregate purchase price of $1,500,000 (or $.15 per share), which was paid for
by the transfer to the Company of 600,000 shares of Antares Resources
Corporation, and 400,000 shares of 6% Participating Convertible Preferred
stock for a price of $1,000,000 (or $2.50 per share), paid in cash. Old JJFN
has been financed primarily through capital contributed by Tarlton by purchase
of common stock on exercise of the Tarlton option. In January and February
1996, old JJFN issued to Tarlton a total of 3,000,000 JJFN common shares for a
total purchase price of $3,750,000. The Company and Old JJFN have also
borrowed $2,193,188 from shareholders and affiliates. These loans are payable
on demand with interest at 9% per annum and are secured by a pledge of 500,000
Antares common shares. Antares is a publicly held corporation of Amelia
Island, Florida with whom several of the Company's officers and directors and
key personnel are associated. The Company currently owns a total of 585,000
shares of Antares common stock, which is currently traded on the NASDAQ
SmallCap Market. On June 28, 1996 the last bid price for Antares was $3.00.
Antares engages through various subsidiaries in the businesses of buying and
selling pine wood by-products; manufacture of horse and utility trailers; and
design, packaging and marketing of sun and skin care products, and in the
process of acquiring facilities for production and sale of kitty litter.
Antares is the owner of the 400,000 outstanding shares of the Company's 6%
Participating Convertible Preferred Stock. This purchase was approved by the
directors of Antares who are not affiliated in any way with the Company. See
"Transactions with Related Parties".
<PAGE>
In addition to shareholder loans and capital contributions, the Company has
financed the bulk of its purchases of model homes to date through secured
loans from banks. These loans, which totaled $6,490,946 at May 31, 1996, are
secured by mortgages on specified model homes owned by the Company and an
assignment of rents from the developers who are leasing them back from the
Company. They bear interest currently at rates of 8.625% to 9.25% per annum
and are payable over the next 34 months. The Company also has a commitment
from Capital Bank of Miami, Florida to loan it an additional $10 million on
similar terms.
The capital contributions and loans received by and committed to the Company
have been adequate to permit it to carry on operations to date. However, in
order to expand by acquiring other assets and engaging in other financing
transactions, the Company must raise additional financing through issuance of
debt or equity securities. To fill this need, the Company is selling the
700,000 Shares offered hereby, which will produce net proceeds of
approximately $4,150,000, after expenses of offering. These funds, together
with existing cash of approximately $1,700,000 will give the Company over
$5,850,000 to pursue additional financing activities. The Company anticipates
that this amount, coupled with secured borrowings from banks and other
financial institutions made to support its purchase of model homes and the
exercise of the Tarlton option, will be sufficient to carry on and expand its
operations in the normal course for the next several months. However, no
assurance can be given that Tarlton will exercise its option or that the
Company will be able to obtain additional borrowings on suitable terms once
its present funds have been fully employed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Offices
The Company's day to day operations are conducted from its executive offices
at 2500 Military Trail North, Suite 220, Boca Raton, Florida 33431. The
premises contains 814 square feet and is leased for three years at a rental of
$17,256 per annum, escalating to $18,072 in the third year. It also maintains
an office at 100 Quentin Roosevelt Boulevard, Suite 202, Garden City, New York
11530, in space provided on a month-to-month basis at no rent by David Miller,
its principal financial consultant.
Employees
The Company presently has three full-time employees, including Susan
Schlapkohl, its President, and John Kushay, its Treasurer and Comptroller.
The other personnel of the Company, including Joan E. Kushay, Assistant
Secretary, and David Miller, its principal financial consultant are part-time
employees, expending such time on Company matters as is required in order to
carry on its operations.
Litigation
The Company is not presently a party to any litigation or threatened litigation.
<PAGE>
<TABLE>
MANAGEMENT
<CAPTION>
Executive Officers and Directors
The executive officers and directors of the Company are:
<S> <C> <C>
NAME
AGE
POSITION
Susan Schlapkohl
46
President and Director
John Kushay
35
Treasurer and Comptroller
Samuel G. Weiss
45
Secretary, Counsel and
Director
Joan E. Kushay
34
Assistant Secretary
and Director
Janice Rufo
25
Assistant Secretary
and Director
Ralph Wilson
65
Director
</TABLE>
All directors will hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified. Officers of the
Company are elected and serve until their death, resignation or removal by the
directors. There are no family relationships among the officers and
directors, other than the fact that John Kushay and Joan Kushay are husband
and wife, and there is no arrangement or understanding between the Company (or
any of its directors) and any other person pursuant to which that person was
or is to be selected as a Director or officer.
<PAGE>
Susan Schlapkohl, President and Director, has served in those capacities since
the Company's organization. She became a full time employee in January 1996.
From September, 1986 to January, 1996, Ms. Schlapkohl was Vice President and
Manager of the National Bank of Canada office in Boca Raton, Florida. Since
March of 1995 she has also served as a Director of Antares Resources
Corporation. Ms. Schlapkohl received a B.S. degree in accounting from
Kennesaw College in 1974, majoring in accounting.
John Kushay, Treasurer, CFO and Controller, became a full time Company
employee in June 1996. From February, 1994 to March, 1996, Mr. Kushay was the
Controller of International Operations for Xpedite Systems, Inc., a publicly
held corporation located in Glen Head, New York. From May, 1990 to February,
1994, he was employed as Controller and MIS Director at Tamco Systems, Inc., a
privately owned New York engineering firm. From December, 1981 through June,
1996, Mr. Kushay held positions with Jubran O'Day & Co., (CPA's), Fidelcor
Business Credit Corp. (Controller, Asset Based Lending) and Kaufman, Nachbar &
Co., (CPA's). He has a BS degree in accounting from Adelphi University.
Samuel G. Weiss, Secretary, General Counsel and Director, has held these
positions with the Company since its organization. He is also Secretary,
Counsel and a Director of Antares Resources Corporation. Since 1974, Mr.
Weiss has been engaged in the practice of law in Port Washington, New York.
He received a B.A. degree in 1971 and JD/LLM degrees in 1977 from New York
University. Mr. Weiss devotes only such time as is necessary to the business
of the company.
Joan E. Kushay, Assistant Secretary and Director, has held these positions
since the Company's organization. She is also Assistant Secretary and
Director of Antares Resources Corporation. From June, 1994 to date she has
been employed as an executive assistant at XYZ Cleaning Contractors Inc., a
privately owned New York office cleaning and maintenance company located in
Garden City, New York. From February 1994 through June 1994, Ms. Kushay was
employed by Arrow Electronics Inc. of Melville, New York in shareholder and
investor relations and, from July 1988 to January 1994, by Action Staffing
Inc., a publicly held corporation located in Tampa, Florida, as Executive
Assistant to the Chairman. Ms. Kushay devotes only such time as is necessary
to the business of the Company.
Janice Rufo, Director and Assistant Secretary, has held those positions with
the Company since its organization. Since June, 1994 she has been an
executive assistant at Intercapital Holdings, Inc., a financial consulting
firm in Garden City, New York. Prior to that date, she was a full-time
student at Adelphi University, from which she graduated in 1994 with a B.A.
Degree in History. Ms. Rufo devotes only such time as is necessary to the
business of the Company.
Ralph Wilson, Director, has held that position since the Company's
organization. From October 1990 through February 1995, Mr. Wilson was
President of Antares Resources Corporation and has served as a Director of
that company since December 1983. In addition, since 1971 Mr. Wilson has been
a principal officer of Comet Electronics Corp., a privately owned manufacturer
of subassemblies in Farmington, New York. Mr. Wilson devotes only such time
as is necessary to the business of the Company.
<PAGE>
Key Personnel
In addition to its executive officers and directors, the Company has relied
and will, following the Merger, rely upon the following key personnel:
David Miller has been engaged as financial consultant to the Company since its
inception. Mr. Miller, who is not an employee of the Company, was primarily
responsible for negotiating its transactions with Hovnanian and with prior
management of JJFN. He is presently a consultant to the Company and devotes
only such time as is necessary to its business. Mr. Miller owns 1,250,000
shares of Company Common Stock and members of his family, a trust for their
benefit and certain companies affiliated with them presently own an additional
6,100,000 shares, totaling approximately 74% of the outstanding Common Stock
of the Company. Mr. Miller disclaims beneficial ownership or voting power
over the 6,100,000 shares he does not own personally. He may be deemed the
"promoter" of the Company.
Since 1992, Mr. Miller has been a financial consultant to several companies,
including Antares Resources Corporation. From 1978 to 1992 Mr. Miller was
president of Valley Funding Corporation, a privately owned commercial finance
company of Great Neck, New York; from 1974 to 1992 Mr. Miller also served as
president of Darita Capital Corporation, a private financial consulting firm
in Great Neck and from 1981 to 1992 Mr. Miller was president of Scomiller
Realty Corp., a privately owned real estate holding company of Great Neck.
From 1966 to 1992 Mr. Miller was employed by Action Staffing, Inc. (formerly
Leasing Consultants Incorporated), a publicly held company engaged in employee
leasing services in Tampa, Florida; he was president of that company from 1980
to 1987 and chairman of the board from 1987 to 1992. From 1989 to 1992 Mr.
Miller also served as chairman of the board of Action Capital Inc., a publicly
held company engaged in asset based lending.
During April 1992 Mr. Miller entered a plea of guilty to three counts of
violations of the Internal Revenue Code in the United States District Court
for the Eastern District of New York. The plea arose out of charges that he
had engaged in a conspiracy with others to violate the Code relating to
personal income tax returns and employer's quarterly tax returns as well as
impeding the Internal Revenue Service's collection process. The plea admitted
to violations for the years 1983 to 1985.
Other Personnel. Following the Merger, the Company will rely upon the
services of Anthony Gurino and Dennis Sommeso to run IECM. Messrs. Gurino and
Sommeso were former owners of Iron Eagle Contracting Corp. (a corporation not
affiliated with JJFN) for which Mr. Sommeso worked over 12 years as a
principal executive officer. Mr. Sommeso works full-time for IECM, and Mr.
Gurino works on a part-time basis, as he is also an owner and the chief
executive officer of Ragtime Dairy and Ragtime Foods of New York, private
companies which supply supermarkets and other outlets with milk and bakery
products in the New York metropolitan area.
<PAGE>
Executive Compensation
Through May 31, 1996, none of the employees, consultants, directors or
officers of the Company received any compensation other than Susan Schlapkohl,
who was paid $46,154 for the five months then ended. The Company reimbursed
all employees, consultants, officers and directors for out-of-pocket expenses
incurred in the pursuit of their duties; such reimbursements did not exceed
$1,000 in the aggregate through December 31, 1995. Ms. Schlapkohl is employed
by the Company as its chief executive officer under a five-year employment
contract calling for a salary of $120,000 per year, plus customary employee
benefits. David Miller is engaged to consult out under a ten year consulting
agreement calling for his part-time employment as independent contractor at a
consulting fee of $180,000 per year. Dennis Sommeso and Anthony Gurino are
each employed by IECM under five-year employment contracts calling for payment
of $75,000 per year in salary plus performance bonuses equal to 7.5% of IECM's
future pretax profits. Each of the employment contracts entered into by the
Company and IECM contains covenants not to compete.
Indemnification
Pursuant to Section 145 of the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that it will indemnify its Directors and
officers against expenses (including attorneys' fees), judgments, fines and
amounts paid pursuant to settlement of any pending, completed or threatened
action to which they become parties by reason of the fact that they are or
were directors, officers, employees or agents of the Company, provided that
they have acted in good faith in the manner they reasonably believe to be in
or not opposed to the best interest of the Corporation and, with respect to
any criminal action or proceeding, have had no reasonable cause to believe
their conduct was unlawful. The Company will also make such indemnity in any
threatened, pending or completed action commenced by or in the right of the
Company to procure a judgment in favor of the Company against a present or
former director or officer, provided that there has been no adjudication that
such person is liable tothe Company (unless a court finds that, despite the
adjudication of liability, the director or officer was fairly and reasonably
entitled to indemnity in an amount deemed proper by the court).
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to officers, directors and other persons affiliated with the
Company pursuant to the foregoing authority, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against
liability (other than the payment by the Company to a director or officer who
has successfully defended any such action, suit or proceeding) is asserted by
a director, officer or other person affiliated with the Company, it will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of competent jurisdiction the
question whether such indemnification is against public policy is expressed in
the Securities Act, and the Company will be governed by the final adjudication
of such issue.
<PAGE>
<TABLE>
PRINCIPAL STOCKHOLDERS
<CAPTION>
The following table shows the name, address and number of shares of Common
Stock held by the Company's directors and executive officers and by each
Company stockholder who presently holds, or will hold following the Merger,
more than 5% of its outstanding Common Stock
<S> <C> <C>
Name and Address
Shares Owned
Percentage Owned (1)
Susan Schlapkohl
1,000,000
7.1 %
Samuel G. Weiss
154,165
1.1%
Joan E. Kushay
154,200
1.1%
Ralph Wilson
157,500
1.1%
Janice Rufo
100,000
.7%
All directors and officers as a group
1,565,865
11.1%
David Miller
1,253,500
8.9%
Helen Miller
1,253,500
8.9%
Scott Miller
1,263,500
8.9%
Rita Miller
1,263,500
8.9%
Helen Miller Irrevocable
Trust No. 1, Libo Fineberg, Trustee
1,250,000
8.9%
Tarlton Financial Ltd.
2,500,000
21.3%
Intercapital Holdings Inc.
1,000,000
7.1%
</TABLE>
(1) Before exercise of the existing Tarlton option (covering 3,250,000
or17.5%) of shares following exercise) and warrants to VJS and Priority
(covering 1,200,000 shares or 6.5% of shares following exercise).
<PAGE>
TRANSACTIONS WITH RELATED PARTIES
The only material contracts, transactions and relationships between the
Company and Old JJFN and their officers, directors, key personnel, principal
stockholders and the affiliates of those persons have consisted of the
following matters.
Certain officers and the sole directors of the Company (including Ms.
Schlapkohl, Ms. Kushay and Ms. Rufo and Messrs. Wilson and Weiss) also held
positions as officers and directors of Old JJFN, prior to the merger of the
Company and Old JJFN, holding the same positions in both corporations. All of
them other than Ms. Rufo also hold positions as directors of Antares Resources
Corporation.
. In November and December of 1995, 400,000 shares of Old JJFN Common
Stock was issued to Damill Capital Corporation and its affiliates, including
David Miller and members of his family, on conversion of $200,000 of
indebtedness owing by Old JJFN to Damill.
In November, 1995, Mr. Miller, various members of his family, a trust for
their benefit and companies affiliated with them purchased a total of
7,350,000 shares of the Company's Common Stock for a price of $.15 per share
which they paid by contributing 600,000 shares of Antares Resources
Corporation to the Company (this number has been adjusted to reflect a
subsequent two-for-one stock split of Antares). Members of the Miller family
and their affiliates have also loaned $2,193,185 to the Company and Old JJFN.
The loans are payable on demand with interest at 9% per annum and are secured
by 500,000 Antares shares owned by the Company. The proceeds from these loans
were used to acquire model homes from Hovnanian and Engle.
During November, 1995, the Company's officers and directors purchased the
following shares of Old JJFN Common Stock and the Company's Common Stock for a
price of $.15 per share: Susan Schlapkohl-1,000,000 shares of the Company;
Ralph Wilson-7,500 shares of Old JJFN and 150,000 shares of the Company;
Samuel G. Weiss-4,165 shares of Old JJFN and 150,000 shares of the Company;
Joan E. Kushay-4,200 shares of Old JJFN and 150,000 shares of the Company; and
Janice Rufo-100,000 shares of the Company.
On December 29, 1995, pursuant to the terms of a consulting agreement, JJFN
assumed certain warrants to purchase 500,000 shares of Old JJFN Common Stock
for a price of $.001 per share, issued to Priority Capital Corp., a
corporation of which Warren Miller, David Miller's brother is the President
and a principal stockholder. In the merger the Company assumed Old JJFN's
obligations under the warrants.
<PAGE>
On or about November 2, 1995, David Miller, members of his family and an
affiliated trust transferred 600,000 shares of Antares Common Stock (adjusted
to reflect the subsequent stock split) to the Company in exchange for 10
million shares of the Company's Common Stock. On or about that same date, Mr.
Miller, members of his family and the affiliated trust loaned 200,000 shares
(adjusted to reflect the stock split) of Antares Common Stock to Old JJFN.
The Antares shares were valued at $2.50 per share, the market price for
Antares stock then being $3.00 per share (adjusted to reflect that stock
split). The Company sold 100,000 Antares shares in March 1996 for $2.50 per
share and 15,000 Antares shares in May 1996 for $4.25 per sahre in brokerage
transactions at the market; Old JJFN sold 100,000 shares of Antares in a
brokerage transaction in April 1996 for $2.50 per share. The Company
continues to hold 585,000 shares or 3.2% of Antares' outstanding Common Stock.
In January 1996 Antares acquired 400,000 shares of the Company's 6%
Convertible Participating Preferred Stock for a cash purchase price of $1
million. These shares are convertible share for share into the Company's
Common Stock. When and if such conversion takes place, Antares will own 2.8%
of the Company's Common Stock (on a fully diluted basis).
The Company has entered in an employment contract with Susan Schlapkohl and a
consulting contract with David Miller, the terms of which are set forth in
"Management-Executive Compensation".
<TABLE>
DILUTION
<CAPTION>
The following table presents information concerning the net tangible book
value of the Company and the net tangible book value per share of its Common
Stock as at May 31, 1996, as adjusted to reflect the issuance of Common Stock
since that date, and the pro forma net tangible book value and net tangible
book value per share after the issuance and sale of the shares offered hereby
and payment of Underwriting Discount and other expenses of this offering.
These figures assume an offering price of $7.00 per Share.
<S> <C>
Net tangible book value before offering
$ 5,604,521
Net tangible book value after offering
$ 9,754,521
Per share public offering price
$ 7.00
Net tangible book value per share before offering
$ .40
Increase per share attributable to payments by purchasers of shares
$ .26
Pro forma net tangible book value per share after offering
$ .66
Dilution per share to purchasers of shares
$ 6.34
</TABLE>
<PAGE>
As used herein, the "net tangible book value" of the Company consists of net
tangible assets less its total liabilities, and "dilution per share"
represents the difference between the amount paid per share by purchasers in
this offering and the pro forma net tangible book value per share after sale
of the shares.
<TABLE>
The following table sets forth on a pro forma basis at May 31, 1996 as
adjusted to reflect the issuance of Common Stock since that date, the number
of shares owned by existing shareholders and the number of shares to be owned
by purchasers in this offering, the percentage ownership of Common Stock held
by each group, and the cash consideration paid and average price per share.
<S> <C> <C> <C> <C> <C>
Shares Purchased Consideration Paid Average
Number % Amount % Price per Share
Present Shareholders 14,084,990 95.3% $ 6,229,008 56% $ .44
IPO Purchasers 700,000 4.7% $ 4,900,000 44% $ 7.00
Total 14,784,990 100% $11,125,008 100% $ .75
</TABLE>
The above table assumes no exercise of the Underwriters' overallotment option.
If such option is exercised in full, the shares purchased in this offering
will represent 5.2% of the total Common Stock outstanding and the dilution per
share will be $6.30. The foregoing tables also assume no exercise of options
or warrants.
DESCRIPTION OF STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, $.001
par value per share, of which 10,000,000 shares are issued and outstanding,
and 25,000,000 shares of Preferred Stock, $.01 per value, of which 400,000
shares, designated 6% Participating Convertible Preferred Stock (the
"Participating Preferred"), are issued and outstanding. With the approval of
a majority of the Company's directors then in office, it may issue additional
shares of Common or Preferred Stock without the prior approval of
stockholders. The shares of the Company's Common Stock already issued and
outstanding are, and the shares reserved for issuance on exercise of its
existing options and warrants or in conversion of the Participating Preferred,
will, upon their issuance, be validly issued, fully paid and non-assessable.
The holders of the Participating Preferred, and the Common Stock have the
following rights: Transferability of Shares. All stock is issued in
registered form and is freely transferrable, subject to applicable securities
laws.
<PAGE>
Preemptive Rights. None of the stockholders have preemptive or other
preferential rights to purchase or subscribe for any authorized but unissued
shares of capital stock or securities convertible into capital stock.
Dividend Rights. The holders of the Participating Preferred are entitled to
share pro rata in preferential dividends equal to 50% of the net revenues
received from rental of the Company's model homes, up to $60,000 per year.
The holders of Common Stock are entitled to share pro rata in all other
dividends declared by the Company's directors out of funds legally available.
The Company has paid and expects to continue to pay preferential dividends on
its Participating Preferred but has paid no dividends on its Common Stock to
date and does not expect to do so in the foreseeable future.
Voting of Shares. The holders of Participating Preferred are not entitled to
vote, except to the extent that the right to vote on certain matters is given
to them as a class under the Delaware General Corporation Law. The holders of
Common Stock are entitled to one vote for each share held by them with respect
to all matters subject to shareholder vote. There is no cumulative voting for
the election of directors or for any other purpose, and persons holding a
majority of shares voted in the election of directors will be able to elect
all directors.
Conversion. Commencing December 1, 1996, Participating Preferred is
convertible into Common Stock share for share, at the election of its holders,
and may also be converted for a period of 30 days following notice of its
redemption, if such notice if given prior to December 1, 1996.
Rights on Liquidation. On liquidation of the Company, any remaining assets of
the Company after payment to creditors will be payable pro rata to the holders
of the Common Stock and Participating Preferred.
Redemption. The Participating Preferred is redeemable at the option of the
Company at the following redemption prices: (i) from July 1, 1996 through
December 31, 1996 at $2.60 per share; (ii) from January 1, 1997 through June
30, 1997 at $2.575 per share; (iii) from July 1, 1997 through December 31,
1997 at $2.55 per share; (iv) from January 1, 1998 through June 30, 1998 at
$2.525 per share; and (v) following June 30, 1998 at $2.50 per share; plus, in
each case, unpaid dividends accrued through the date of redemption. The
Common Stock is not redeemable.
<PAGE>
SECURITIES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding an
aggregate of 14,784,990 shares of Common Stock (14,889,990 shares if the
Underwriters' overallotment option is exercised in full). Of these shares,
the 700,000 Shares sold in the offering (805,000 if the Underwriter's
overallotment option is exercised in full) and 1,084,990 of the shares issued
in the Old JJFN merger will be freely tradeable without restriction or further
registration under Securities Act, except for any shares purchased by
"affiliates" of the Company (persons deemed in control of the Company) which
will be subject to the limitations and restrictions of Rule 144 described
below.
Tarlton, the Company's largest stockholder, owns 3,000,000 shares of Common
Stock and may purchase up to 3,250,000 additional shares of Common Stock on
exercise of its option. In addition, VJS and Priority hold warrants to
purchase 1,200,000 shares of Common stock at $.001 per share. All of these
shares have been registered under the Securities Act and may be sold in the
public market following the offering with the use of a Prospectus to be
provided by the Company. Tarlton, VJS and Priority (the "Selling Holders")
may offer these securities for sale from time to time through brokers, dealers
or other agents in transactions in the over-the-counter market, in privately
negotiated transactions or in the over-the-counter market through usual
brokerage channels, or any combination of such transactions. Sales may be
effected at then prevailing market prices or, if the sales are private, at
negotiated prices. Brokers, dealers, agents and others participating in such
transactions may receive compensation inthe form of discounts, concessions or
commissions and, if they act as agent for the purchasers, from the purchasers.
Such discounts, concessions or commissions may be in excess of those
customary for the types of transactions involved. Each Selling Holder and any
broker, dealer or agent who participates in the distribution of his securities
may be deemed an underwriter within the meaning of the Securities Act, and any
discounts or commissions paid, may be deemed underwriting commissions.
The Company cannot presently estimate the amount of such payments and knows of
no existing arrangement between any selling holders and any broker, dealer or
agent relating to the sale or distribution of their securities. Pursuant to
rules promulgated by the Commission under the Exchange Act, no person engaged
in the distribution of any securities may simultaneously engage in market
activities with respect to other securities of the same class for a period of
nine business days prior to the commencement of such distribution. Each
Selling Holder and the brokers and dealers effecting transactions for his will
be subject to this limitation and to all other applicable provisions of the
Exchange Act and the rules thereunder limiting the timing of their purchases
and sales of the Company's securities.
The Company's remaining 10,000,000 shares of Common Stock, issued to its
founders, officers and directors, have not been registered under the
Securities Act. These unregistered shares are "restricted securities" under
Rule 144 promulgated by the Commission under the Securities Act, and may be
sold only subject to the limitations of that Rule. In general, under Rule 144
a holder of restricted securities may sell them in public market transactions
only after a holding period of two years and then only in ordinary "broker's
transactions" where the only commission paid is a normal brokerage commission.
Sales of restricted securities within any three month period securities may
not exceed the greater of (i) one percent of the total number of all such
securities of the same class then outstanding (approximately 147,850 shares of
the Company's Common Stock following this offering), or (ii) the average
weekly trading volume in such securities during the four calendar weeks
preceding the filing of a Form 144 Notice with respect to the sale. Such
sales are also subject to the availability of current public information about
the Company. Under Rule 144(k) a person who is not deemed to have been an
"affiliate" at any time during the 90 days preceding a sale and who has
beneficially owned the shares to be sold for at least three years is entitled
to sell them without having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of Rule 144.
UNDERWRITING
The Underwriters named below have severally agreed, on a firm commitment basis
and subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company that number of Shares set forth opposite their names:
Name of Underwriter
Number
of Shares
R.T.G. Richards & Co., Inc.
Total
_______
700,000
The Underwriters have advised the Company that they propose to sell the Shares
to the public at the initial public offering price set forth on the cover page
of this Prospectus and that they may offer shares to certain selected dealers
who are members of the National Association of Securities Dealers, Inc. at
that price less a concession not in excess of $________ per share, from which
there will be no reallowance to other dealers. The Company has been advised
that the Underwriters do not intend to sell any of the shares offered in the
initial public offering to accounts over which they exercise any discretionary
authority.
The Company has granted the Underwriters an option to purchase up to 105,000
additional Shares solely to cover overallotments. Sales of these shares will
be made at the public offering price less the Underwriters' discount set forth
on the cover page. This overallotment option may be exercised within 30 days
after the date of this Prospectus and, if exercised, will obligate all
Underwriters to purchase their pro rata percentage of the shares purchased in
the proportions stated above in the table.
<PAGE>
Pursuant to other provisions of the Underwriting Agreement:
(i) The Company will indemnify the Underwriters and the Underwriters will
indemnify the Company against certain liabilities, including liabilities under
the Securities Act, arising out of the initial public offering.
(ii) The Company will pay the Underwriters a non-accountable expense
allowance of $147,000, being three percent of the initial public offering
price of the 700,000 Shares sold in the offering ($169,050 if the
Underwriter's overallotment option is fully exercised).
(iii) The Company will hire R.T.G. Richards & Co., Inc. as a financial
consultant for a period of two years following completion of the offering, at
a fee of $36,000 per year, payable at the closing.
(iv) The Company will issue to the Underwriters warrants to purchase an
aggregate of 70,000 shares of Common Stock at a price equal to 120% of the
public offering price of the Shares, exercisable for a period of four years,
commencing twelve months following the date of this Prospectus. The warrants
may be transferred only to the Underwriters and their officers, directors,
principals and employees. The shares issuable on exercise of the warrants
have been registered under the Securities Act and the Company has agreed to
deliver a Prospectus for use by their holders in selling such shares in the
public market.
LEGAL MATTERS
The validity of the shares offered hereby and general corporate legal matters
will be passed upon for the Company by Jackson & Nash, LLP, New York, New
York. Certain legal matters relating to the sale of the shares and Warrants in
the offering will be passed upon for Underwriters by Charles O'Rourke, Esq.,
Garden City, New York.
EXPERTS
The financial statements of the Company included in this prospectus have been
audited to the extent indicated by independent public accountants of Horton &
Company, LLC, as set forth in their report with respect to such financial
statements, and such statements have been included herein in reliance on such
report and the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Reports to Stockholders
The Company intends to furnish its shareholders with annual reports containing
audited financial information and, for each of the first three quarters of
each fiscal year, quarterly reports containing unaudited financial
information. The Company's fiscal year ends on June 30th.
Other Public Information
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (No. __________)
registering the Shares to be sold in the offering. As permitted by the
Commission's rules and regulations, this Prospectus omits certain information
contained in the Registration Statement. For further information with respect
to the Company and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, and the financial
statements and related notes filed as a part thereof. Statements made in this
Prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to
the exhibit for its complete contents.
<PAGE>
This Registration Statement, as well as all reports and other information
filed by the Company with the Commission, may be inspected at the Public
Reference Office of the Commission at 450 Fifth Street, N.W. Washington, DC
20549 and at its regional offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York
10048. Copies of the complete Registration Statement may be obtained at
prescribed rates by mail from the public reference office of the Commission at
450 Fifth Street, N.W., Washington, DC 20549.
<PAGE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated balance sheet as of December 31, 1995 F-3
Consolidated statement of operations for the period
November 2, 1995 (date of incorporation) through December 31, 1995
F-4
Consolidated statement of stockholders' equity for the period
November 2, 1995 (date of incorporation) through December 31, 1995
F-5
Consolidated statement of cash flows for the period November 2, 1995
(date of incorporation) through December 31, 1995 F-6 - F-7
Notes to consolidated financial statements F-8 - F-12
INDEPENDENT AUDITORS' REPORT
The Board of Directors
JJFN Services, Inc.
Garden City, New York
We have audited the accompanying consolidated balance sheet of JJFN Services,
Inc. (formerly J & J Financial Services, Inc.) and subsidiary as of December
31, 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the period November 2, 1995 (date
of incorporation) through December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JJFN Services,
Inc. (formerly J & J Financial Services, Inc.) and subsidiary as of December
31, 1995, and the results of its consolidated operations and its consolidated
cash flows for the period November 2, 1995 (date of incorporation) through
December 31, 1995 in conformity with generally accepted accounting principles.
January 29, 1996, except for the last paragraph of Note 7, as to which the
date is February 9, 1996
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
<S> <C>
Model homes on lease, at cost, net of
accumulated depreciation of $7,192 (Notes 3 and 7) $1,930,788
Other assets:
Cash 62,102
Marketable securities (Notes 2 and 4) 1,500,000
Deferred financing costs 15,200
Deferred acquisition costs 4,000
1,581,302
Total assets $3,512,090
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable (Note 4) $ 955,457
Accounts payable and accrued expenses 36,972
Unearned rental revenue 19,333
Preferred distribution payable (Note 5) 10,000
Total liabilities 1,021,762
Commitments (Notes 6 and 7) -
Stockholders' equity (Notes 5 and 6):
Convertible preferred stock, $.01 par value
25,000,000 shares authorized,
400,000 shares issued and outstanding 4,000
Common stock, $.001 par value
50,000,000 shares authorized
10,000,000 shares issued and outstanding 10,000
Additional paid-in capital 2,476,000
Retained earnings 328
Total stockholders' equity 2,490,328
Total liabilities and stockholders' equity $3,512,090
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
<S> <C>
Rental revenue (Note 3) $ 33,116
Operating expenses:
Interest ( Note 4) 10,625
Professional fees 14,500
Depreciation 7,192
Other 471
32,788
Net income $ 328
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
<S> <C> <C> <C>
<C> <C> <C>
Additional
Preferred stock Common
Stock Paid-In Retained
Shares Amount Shares
Amount Capital earnings
Common stock issued at inception - $ - 10,000,000
$10,000 $1,490,000 $ -
Preferred stock issued 400,000 4,000 - - 996,000
-
Preferred distribution - - - - (10,000)
-
Net income - - -
- - 328
Balances, December 31, 1995 400,000 $ 4,000
10,000,000 $ 10,000 $2,476,000 $ 328
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
<S> <C>
Cash flows from operating activities:
Net income $
328
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,192
Rental revenue paid to related party (40,323)
Changes in assets and liabilities:
Increase in accounts payable and accrued expenses
28,272
Increase in unearned rental revenue
19,333
Net adjustments
14,474
Net cash provided by operating activities
14,802
Cash flows from financing activities:
Advances from stockholders 62,500
Deferred financing costs
(15,200)
Net cash provided by financing activities
47,300
Net increase in cash 62,102
Cash at beginning of period -
Cash at end of period $ 62,102
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
Supplemental schedules of non-cash investing and financing activities:
During the period ended December 31, 1995, the Company acquired model
homes at a cost of $1,937,980. Such purchases were financed as follows:
<S> <C>
Model homes acquired $ 1,937,980
Funds deposited into escrow by stockholders (1,933,280)
Accounts payable (4,700)
Capital expenditures $ -
During the period ended December 31, 1995, the Company issued common and
preferred stock as follows:
Common stock issued $ 1,500,000
Preferred stock issued 1,000,000
Consideration received:
Marketable securities received (1,500,000)
Funds deposited into escrow in connection
with acquisition of model homes (1,000,000)
Proceeds from issuance of common
and preferred stock $ -
</TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
1. Summary of significant accounting policies
This summary of significant accounting policies of JJFN Services, Inc.
(formerly J & J Financial Services, Inc.) and subsidiary (hereinafter the
"Company") is presented to assist in understanding the consolidated financial
statements. The consolidated financial statements and notes are
representations of the Company's management, which is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the consolidated financial statements.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
JJFN Services, Inc. for the period November 2, 1995 (date of incorporation)
through December 31, 1995, and of its wholly-owned subsidiary, Priority
Financial, Inc. ("PFI") for the period from the date of incorporation
(November 21, 1995) through December 31, 1995.
History and business activity
JJFN Services, Inc. is engaged in the purchase and leasing of model homes and
accounts receivable factoring and financing. Through December 31, 1995, the
Company had purchased 13 model homes from subsidiaries of K. Hovnanian
Enterprises, Inc. ("Hovnanian") a nationally known home builder and real
estate developer. Concurrent therewith, the Company entered into
arrangements to lease back the units to Hovnanian under operating lease
agreements.
Concentration of credit risk
To date, all of the model homes that the Company has purchased are located in
Florida. All such homes are leased to a single lessee (Hovnanian). See Notes
3 and 7.
Depreciation
Model homes on lease are carried at cost. Depreciation is provided on the
straight-line method over an estimated useful life of 30 years. Cost includes
$386,656 of cost allocated to land.
Maintenance, repairs and renewals which neither materially add to the value of
the homes nor appreciable prolong their lives are charged to expense as
incurred. Gains or losses or disposition of model homes are included in
income.
1. Summary of significant accounting policies (continued)
Accounting standards change
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ( "SFAS 121")
which is effective for fiscal years beginning after December 15, 1995. The
Company will be required to adopt SFAS 121 for the fiscal year beginning July
1, 1996. However, based on a preliminary evaluation of the requirements of
SFAS 121, management does not expect any material impact on the Company's
consolidated financial position. SFAS 121 provides additional guidance on
when long-lived assets should be reviewed for possible impairment, how
impairment losses should be measured and when such losses should be
recognized. In addition to long- lived assets, SFAS 121 amended the
accounting standards for valuing real estate assets to the lower of cost or
fair value less cost to sell (for certain assets the lower of cost or fair
value) from the lower of cost or net realizable value.
Under SFAS 121, real estate assets are to be reviewed for possible impairment
whenever events or circumstances indicate the carrying amount of an asset may
not be recoverable such as a significant decrease in market value, a
significant adverse change in legal factors or business climate, a
significant change in intended use, an accumulation of costs significantly in
excess of the amount originally expected, or current period losses combined
with a history of losses or a forecast of continuing losses. If indications
are that the carrying amount of an asset may not be recoverable, SFAS 121
requires an estimate of the future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition. If these cash flows
are less than the carrying amount of the asset, an impairment loss must be
recognized to write down the asset to its estimated fair value less cost to
sell. While the determination of whether a property is impaired under the
new accounting standard is similar to previous accounting standards, the
amount of a write-down under SFAS 121 could be greater than under the
previous standards. Fair value differs from net realizable value in that,
among other things, fair value assumes a cash sale under current market
conditions, considers a potential purchaser's requirement for future profit
and discounts the timing of estimated future cash receipts, whereas net
realizable value is the price obtainable in the future based on the current
intended use of the land, net of disposal and holding costs, without provision
for future profits or discounting future cash flow to present value.
2. Marketable securities
Marketable securities, which consist of equity securities available-for-sale,
are shown in the balance sheet at fair value. The cost of securities sold is
determined using the specific identification method.
On November 30, 1995, the Company acquired 300,000 shares of Antares Resources
Corporation ("Antares"), a publicly held company whose stock is traded on the
NASDAQ Small-Cap Stock Market. At December 31, 1995, the fair value of the
securities approximates cost. While the listed bid price of the stock is
$61/2 per share at December 31, 1995, the market value is discounted to
reflect an estimated block trading price. The securities are used to secure
stockholder loans (Note 4).
The Company's investment represents approximately 4% of the outstanding common
stock of Antares. Antares owns all of the Company's convertible preferred
stock (Note 5).
Two officers and directors of the Company are also directors of Antares. Two
other directors of the Company are also directors of Antares.
3. Leasing arrangements
The Company has entered into a series of thirteen operating leases with
Hovnanian (the "Lessee") (Note 1) which provide for monthly lease payments
equal to 1% of the Company's purchase price of each premises. Under the
terms of the lease agreements, all expenses arising during the term of the
lease shall be paid by the Lessee including utilities, homeowner association
assessments, maintenance, insurance and real estate taxes. Monthly revenue
from leases existing at December 31, 1995 was $19,333.
The leases terminate only upon the sale of the model homes. In connection
therewith, the Company has agreed to enter into an exclusive listing agreement
with a brokerage affiliate of the Lessee. Such agreement specifies that the
commission to the affiliate shall not exceed 1.25% plus a 3% fee to be paid
to another broker, if any, who produces a purchaser.
The net profit from the sale of any property (excluding closing costs
associated with mortgage financing and commissions) shall be equally divided
between the Company and the Lessee. Should the sale price be less than the
purchase price paid by the Company, such deficiency shall be funded from a
guaranty fund, described in the following paragraph. If the fund is
depleted, the property cannot be sold until such time that it can be sold
without a deficit.
The Lessee has provided a fund to be held in escrow as an additional guaranty
to the Company to secure the lease payments and the recovery of the purchase
price and all related costs. Such fund shall be equal to 5% of the Company's
purchase price including related costs. The lessee has provided a surety
bond to secure its performance.
During November 1995, the Company entered into a contract to sell one of its
model homes for $170,000. The property was purchased at a cost of $163,641.
Such sale is expected to close in March 1996.
4. Notes payable
Notes payable represent advances made to the Company by various stockholders.
The notes are payable on demand, bear interest at 9% and are secured by
marketable securities (Note 2).
Interest on notes payable totaled $10,625 for the initial period ended December
31, 1995.
5. Stockholders' equity
Convertible preferred stock
On November 2, 1995, the Company issued 400,000 shares of its 6% participating
preferred stock. Each share is convertible into one share of the Company's
common stock commencing in December 1996. The preferred stockholders are
entitled to 50% participation in the rental revenue stream up to $60,000 per
year. The preferred stock is redeemable at the option of the Company, on the
basis of 105% within the first six-months, 104% within the second six- months,
103% within the third six-months, 102% within the fourth six months, 101%
within the fifth six-month period and 100% thereafter.
The Board of Directors declared a regular quarterly distribution of $15,000
payable on February 1, 1996. Through December, $10,000 was accrued as a
preferred distribution and is to be paid out of additional paid-in capital
due to the lack of available retained earnings.
6. Commitments
Merger agreement
On December 29, 1995, the Company executed a letter of intent to merge with
JJFN Holdings, Inc. ("JJFN"). JJFN is a publicly-held company which was
inactive until it commenced operations as a construction contractor through a
wholly-owned subsidiary on December 29, 1995. Under the terms of the
proposed agreement, Priority Financial, Inc. ("PFI"), a wholly owned
subsidiary of the Company, shall be merged into JJFN which shall be the
surviving subsidiary corporation. On the effective date of the merger, each
non-dissenting JJFN shareholder shall be entitled to receive one share of the
Company's common stock for each share of JJFN's common stock. The preferred
stockholders of JJFN shall be entitled to receive one share of the Company's
common stock for each 50 shares of preferred stock owned. On the effective
date of the merger, the Company will also assume JJFN's rights and
obligations under the stock option and consulting agreements with Tarlton
Company, Ltd. ("Tarlton") as described below, as well as all other obligations
of JJFN.
The merger agreement also provides that the Company shall file a registration
statement with the Securities and Exchange Commission in order to register all
shares issued or to be issued to JJFN shareholders and those shares issued
pursuant to the Tarlton agreements. The merger agreement is subject to the
registration statement becoming effective.
Two officers and directors of the Company are also officers and directors of
JJFN. Three other directors of the Company are also directors of JJFN
Stock option and consulting agreements to be assumed
On December 8, 1995, JJFN entered into an Offshore Securities Subscription
Agreement which gives Tarlton the option to purchase up to 5,000,000 shares of
JJFN's common stock at $1.50 per share. The purchase price is based on the
estimated market value of JJFN's common stock as of the date of the option
agreement. The agreement is assignable to JJFN Services, Inc. (formerly J &
J Financial Services, Inc.), under the terms of the Company's proposed
merger. In the event of the merger, the options issued shall become an
obligation of the Company.
Concurrent with the above agreement, JJFN entered into a consulting agreement
with Tarlton whereby Tarlton would provide a variety of consulting and
financial advisory services. In return, Tarlton will receive a placement fee
of up to 1,250,000 shares of JJFN's common stock, of which 550,000 shares are
payable January 1996, and 140,000 shares payable each succeeding month. This
agreement is also assignable to the Company in the event of a merger.
In the event that the proposed merger takes place and Tarlton exercises its
option to purchase the full 5,000,000 shares and receives the placement fee
of 1,250,000 shares, Tarlton would own approximately 34% of the outstanding
common stock of the consolidated entity. Such stock could be freely traded
with the use of a prospectus. Shares issued as a placement fee will be
treated as a reduction of the per share price of the stock purchased under the
option agreement. The exercise of the option agreement is not expected to
have any impact on the management or operations of the Company other than
providing additional capital and liquidity.
7. Subsequent events
On January 24, 1996, the Company purchased six additional model homes from
Hovnanian and entered into leases under the same terms as described in Note 3.
The total acquisition price of the six homes was $1,320,549. Monthly
revenue from such leases will be $13,205.
7. Subsequent events (continued)
On January 24, 1996, the Company closed on a $2,100,000 mortgage loan. The
loan bears interest at 1% over prime with interest only payable monthly. The
loan balance is due and p payable on February 1, 1998. The loan is secured by
the Company's real estate and by the leases described in Note 3 and in the
previous paragraph.
Pursuant to a resolution by the Board of Directors, the certificate of
incorporation was amended to change the Company's name to JJFN Services, Inc.
The change was effective February 9, 1996.
JJFN SERVICES, INC.
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Page
Consolidated balance sheet as of May 31, 1996 F-2 - F-3
Consolidated statement of operations for the period
November 2, 1995 (date of incorporation) through May 31, 1996 F-4
Consolidated statement of stockholders' equity for the period
November 2, 1995 (date of incorporation) through May 31, 1996 F-5
Consolidated statement of cash flows for the period November 2, 1995
(date of incorporation) through May 31, 1996 F-6 - F-7
Notes to consolidated financial statements F-8 - F-16
Additional information F-17 - F-18
F-1
<PAGE>
<TABLE>
JJFN SERVICES, INC.
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED BALANCE SHEET
May 31, 1996
(Unaudited)
ASSETS
<S> <C>
Model homes on lease, at cost, net of
accumulated depreciation of $62,841 (Notes 5 and 8) $11,270.719
Other assets:
Cash 1,699,813
Contract receivables 196,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 3O,000
Marketable securities (Notes 3 and 10) 1,462,500
Land and development costs 378,364
Prepaid expenses 20,397
Construction equipment, net of accumulated
depreciation of $16,923 (Note 9) 200,365
Office furniture and equipment, net of accumulated
depreciation of $3,020 66,499
Deferred finance charges and other assets 184,295
Intangibles (Note 4) 377.363
4,615.596
Total assets $15,886.315
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
<TABLE>
JJFN SERVICES, INC.
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED BALANCE SHEET
May 31, 1996
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Liabilities:
Line of credit (Note 6) $ 161,295
Accounts payable and accrued expenses 344,942
Unearned rental revenue 113,261
Preferred distribution payable (Note 11) 5,000
Stockholder notes payable (Note 10) 2,193,184
Note payable (Note 7) 450,000
Mortgages payable (Note 8) 6,490,946
Long-term debt (Note 9) 22,157
Total liabilities 9.780,785
Commitments (Notes 13 and 14)
Stockholders' equity (Notes 11 and 13):
Convertible preferred stock, $.01 par value
25,000,000 shares authorized,
400,000 shares issued and outstanding 4,000
Common stock, $.001 par value
50,000,000 shares authorized
14,084,990 shares issued and outstanding 14,085
Additional paid-in capital 6,206,923
Accumulated deficit (119,478)
Total stockholders' equity 6,105,530
Total liabilities and stockholders' equity $15.886.315
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
<TABLE>
JJFN SERVICES, INC.
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
For the period November 2, 1995 (date of incorporation)
through May 31,1996
(Unaudited)
<S> <C>
Revenues:
Lease revenue (Note 5) $ 305,214
Construction revenue 31,500
Gain on sale of model homes (Note 5) 7,756
344,470
Costs and expenses:
Cost of construction revenue 28,427
Interest and financing costs 181,398
Professional fees 35,959
Consulting fees 39,070
Salaries and wages 69,956
Depreciation and amortization 92,811
Other 47,515
495,136
Loss from operations (150,666)
Other income:
Gain on sale of marketable securities 26,250
Interest income 4.938
31,188
Net loss $ (119,478)
Net loss per share $ .012)
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
<TABLE>
JJFN SERVICES, INC.
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the period November 2, 1995 (date of incorporation)
through May 31, 1996
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Additional
Preferred stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital deficit
Common stock issued at inception- $ -10,000,000 $1O,000 $1,490,000 $ -
Preferred stock issued 400,000 4,000 - - 996,000 -
Preferred distributions - - - - (35,000) -
Common stock issued in merger - - 4,084,990 4,085 3,755,923 -
Net loss - - - - (119.478)
Balances, December 31, 1995
400.000 $ 4.000 14.084.990 $ 14.085 $6.206.923 $ (119.478)
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
<TABLE>
JJFN SERVICES, INC.
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period November 2, 1995 (date of incorporation)
through May 31, 1996
(Unaudited)
<S> <C>
Net loss $ (119.478)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization expense 21,041
Depreciation expense 72,878
Gain on sale of model homes (7,756)
Gain on sale of marketable securities (26,250)
Changes in assets and liabilities, net of effects
from business combination:
Increase in contract receivables (1,500)
Increase in costs and estimated earnings in excess
of billings on uncompleted contracts (30,000)
Increase land and development costs (5,410)
Increase in prepaid expenses (5,843)
Increase in security deposits (2,950)
Increase in accounts payable and accrued expenses 130,930
Increase in unearned rental revenue 113.261
Total adjustments 258.401
Net cash provided by operating activities 138.923
Cash flows from investing activities:
Cash acquired in business combination 1,644,480
Purchase of model homes (2,018,818)
Proceeds from sale of model homes 229,520
Rent paid to affiliate (40,621)
Proceeds from sale of marketable securities 313,750
Capital expenditures (37,788)
Net cash provided by investing activities 90,523
Cash flows from financing activities:
Proceeds from mortgages payable 1,383,099
Principal payments on mortgages payable (134,030)
Financing costs (70,831)
Proceeds from stockholder loans 158,250
Loans from affiliate 200,000
Acquisition costs (36,121)
Preferred distributions (30 000)
Net cash provided by financing activities 1,470,367
Net increase in cash 1,699,813
Cash at beginning of period -
Cash at end of period $1.699.813
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
JJFN SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period November 2, 1995 (date of
incorporation)
through May 31,1996
(Unaudited)
Supplemental schedules of non-cash investing and financing activities:
During the period ended May 31, 1995, the Company acquired model homes at a
cost of $11,835,986. Such purchases were financed as follows:
Model homes acquired $ 11,835,986
Funds deposited into escrow by stockholders
and affiliates (4,374,913)
Bank borrowings (5,442,255)
Expenditures for acquisition of model homes $ 2,018.818
In connection with the Company's initial capitalization, the Company issued
common and preferred stock as follows:
Common stock issued $ 1,500,000
Preferred stock issued 1,000,000
Consideration received:
Marketable securities received (1,500,000)
Funds deposited into escrow in connection
with acquisition of model homes (1.000.000)
Proceeds from issuance of common
and preferred stock $ -
During the period ended May 31, 1996, the Company completed a business
combination in which it acquired all of the capital stock of JJFN Holdings,
Inc. in exchange for 4,084,990 shares of the Company's common stock as follows:
Cash acquired $ 1,644,480
Fair value of non-cash assets acquired 3,468,990
Liabilities assumed (1,353.462)
Common stock and additional paid-in capital
issued in business combination $ 3,760,008
F-7
<PAGE>
JJFN SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the period November 2, 1995 (date of incorporation)
through May 31, 1996
(Unaudited)
1. Summary of significant accounting policies
This summary of significant accounting policies of JJFN Services, Inc.
(formerly J & J Financial Services, Inc.) and subsidiary (hereinafter the
"Company") is presented to assist in understanding the consolidated financial
statements. The consolidated financial statements and notes are
representations of the Company's management, which is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the consolidated financial statements.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of JJFN
Services, Inc. for the period November 2, 1995 (date of incorporation) through
May 31, 1996, and of its whollyowned subsidiary, JJFN Holdings, Inc.
("Holdings") and its wholly-owned subsidiary, Iron Eagle Contracting and
Mechanical!, Inc. ("Iron Eagle") for the period from the date of acquisition
(May 15, 1996) through May 31, 1996.
History and business activity
The Company was originally incorporated as J & J Financial Services, Inc.
Effective February 9, 1996, the Certificate of Incorporation was amended to
change the Company's name from J & J Financial Services, Inc. to JJFN
Services, Inc.
JJFN Services, Inc. is engaged in the purchase and leasing of model homes and
accounts receivable factoring and financing. Through May 31, 1996, the Company
had purchased 19 model homes from subsidiaries of K. Hovnanian Enterprises,
Inc. ("Hovnanian") and 42 model homes from Engle Homes, Inc. ("Engle"). Both
Hovnanian and Engle are nationally known home builders and real estate
developers. Concurrent therewith, the Company entered into arrangements to
lease back the units to the builders under operating lease agreements.
JJFN Holdings, Inc. is inactive. Iron Eagle Contracting and Mechanical, Inc. is
a construction contractor and real estate developer. Iron Eagle is developing
a tract of land in Ozone Park, Queens, New York to build two-family homes.
F-8
<PAGE>
1. Summary of significant accounting policies (continued)
Construction revenue and cost recognition
Revenue from construction contracts is recognized on the
percentage-of-completion method measured by the percentage of costs incurred
to date to estimated total costs for each contract. Contract costs include all
direct material and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs, and depreciation
costs. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability, including those arising from
contract penalty provisions, and final contract settlements may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined. Profit incentives are included in revenue when their
realization is reasonably assured. An amount equal to contract costs
attributable to claims is included in revenues when realization is probable
and the amount can be reliably estimated. General and administrative costs are
charged to expense as incurred.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed.
Concentration of credit risk
Through May 31, 1996, the model homes that the Company has purchased are
located in Florida, Colorado, North Carolina, Virginia and Texas. All such
homes are leased to either Hovnanian or Engle (Note 5).
At May 31, 1996, the Company had a cash balance with four banks which were, in
the aggregate, $1,222,082 in excess of the $100,000 limit insured by the
Federal Deposit Insurance Corporation. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk on cash.
Depreciation
Property and equipment are carried at cost. Depreciation is provided on the
straight-line method over the following estimated useful lives:
Model homes on lease 30 years Construction equipment 5 years Office furniture
and equipment 5 years
Maintenance, repairs and renewals which neither materially add to the value of
the homes nor appreciable prolong their lives are charged to expense as
incurred. Gains or losses or disposition of model homes are included in income.
Deferred finance charges
Deferred finance charges are carried at cost. Amortization is provided on the
straight-line method over the lives of the loans to which the deferred finance
charges relate. Amortization expense of deferred finance charges was $18,882
for the period ended May 31, 1996. Accumulated amortization of deferred
finance charges totaled $18,882 at May 31, 1996.
F-9
<PAGE>
:
1. Summary of significant accounting policies (continued)
Accounting standards change
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of' ( "SFAS 121")
which is effective for fiscal years beginning after December 15, 1995. The
Company will be required to adopt SFAS 121 for the fiscal year beginning July
1, 1996. However, based on a preliminary evaluation of the requirements of SFAS
121, management does not expect any material impact on the Company's
consolidated financial position. SFAS 121 provides additional guidance on when
long-lived assets should be reviewed for possible impairment, how impairment
losses should be measured and when such losses should be recognized. In
addition to long-lived assets, SFAS 121 amended the accounting standards for
valuing real estate assets to the lower of cost or fair value less cost to sell
(for certain assets the lower of cost or fair value) from the lower of cost or
net realizable value.
Under SFAS 121, real estate assets are to be reviewed for possible impairment
whenever events or circumstances indicate the carrying amount of an asset may
not be recoverable such as a significant decrease in market value, a
significant adverse change in legal factors or business climate, a significant
change in intended use, an accumulation of costs significantly in excess of
the amount originally expected, or current period losses combined with a
history of losses or a forecast of continuing losses. If indications are that
the carrying amount of an asset may not be recoverable, SFAS 121 requires an
estimate of the future undiscounted cash flows expected to result from the use
of the asset and its eventual disposition. If these cash flows are less than
the carrying amount of the asset, an impairment loss must be recognized to
write down the asset to its estimated fair value less cost to sell. While the
determination of whether a property is impaired under the new accounting
standard is similar to previous accounting standards, the amount of a
write-down under SFAS 121 could be greater than under the previous standards.
Fair value differs from net realizable value in that, among other things, fair
value assumes a cash sale under current market conditions, considers a
potential purchaser's requirement for future profit and discounts the timing
of estimated future cash receipts, whereas net realizable value is the price
obtainable in the future based on the current intended use of the land, net of
disposal and holding costs, without provision for future profits or
discounting future cash flow to present value.
Loss per common share
Loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period. For
the period November 2, 1995 through May 31, 1996, the weighted average number
of shares used in the calculation was 10,327,571. Primary loss per common
share does not include the effect of common stock equivalents because the
effect of such inclusion would be to reduce loss per common share. Fully
diluted loss per share amounts are not presented because they are
anti-dilutive.
2. Business combination
In a statutory merger which became effective May 15, 1996, the Company acquired
all of the stock of Holdings in exchange for 4,084,990 shares of its $.001 par
value common stock. The acquisition was accounted for as a purchase.
F-10
<PAGE>
2. Business combination (continued)
Holdings was a publicly-held company which was inactive until it commenced
operations as a construction contractor through its wholly-owned subsidiary,
Iron Eagle, on December 29, 1995. Under the terms of the merger agreement,
Priority Financial, Inc. ("PFI"), a wholly-owned subsidiary of the Company,
merged into Holdings which became the surviving subsidiary corporation. On the
effective date of the merger, each non-dissenting Holdings shareholder
received one share of the Company's common stock for each share of Holdings
common stock. The preferred stockholders of Holdings received one share of the
Company's common stock for each 50 shares of preferred stock owned. On the
effective date of the merger, the Company also assumed the rights and
obligations of Holdings under the stock option and consulting agreements with
Tarlton Company, Ltd. ("Tarlton") as described in Note 13, as well as all other
obligations of Holdings.
The merger agreement also provided that the Company file a registration
statement with the Securities and Exchange Commission in order to register all
shares issued or to be issued to Holdings shareholders and those shares issued
pursuant to the Tarlton agreements. The merger was completed upon the
effective date of the registration statement (May 15, 1996). As a result, JJFN
Services, Inc. became a publicly held company.
3. Marketable securities
Marketable securities, which consist of equity securities available-for-sale,
are shown in the balance sheet at fair value. The cost of securities sold is
determined using the specific identification method.
The Company owns 585,000 shares of Antares Resources Corporation ("Antares"), a
publicly held company whose stock is traded on the NASDAQ Small-Cap Stock
Market. At May 31, 1996, the fair value of the securities approximates cost.
While the listed bid price of the stock is $4 per share at May 31, 1996, the
market value is discounted to reflect an estimated block trading price. The
securities are used to secure stockholder loans (Note 10).
The Company's investment represents approximately 4% of the outstanding common
stock of Antares. Antares owns all of the Company's convertible preferred
stock (Note 11).
Two officers and directors of the Company are also directors of Antares. Two
other directors of the Company are also directors of Antares.
4. Intangibles
Intangibles consist of the following:
Restrictive covenants $263,333
Customer contacts 53,203
Goodwill 60,570
Organization costs 257
$377.363
F-11
<PAGE>
4. Intangibles (continued)
Customer contacts, restrictive covenants and goodwill are carried at cost and
were acquired in the asset acquisition described in Note 2. Customer contacts
are being amortized on the straight-line method over the five-year life of the
employment agreements with two individuals (Note 13). Restrictive covenants
are being amortized on the straight-line method over the seven-year period
specified in the employment agreements. Goodwill is being amortized over a
fifteen year period. For the period from November 2, 1995 through May 31,
1996, amortization expense of intangibles totaled Accumulated amortization of
intangibles was $38,636 at May 31, 1996.
5. Leasing arrangements
The Company has entered into a series of operating leases with Hovnanian and
Engle (the "Lessees") (Note 1) which provide for monthly lease payments equal
to 1% of the Company's purchase price of each premises. Under the terms of the
lease agreements, all expenses arising during the term of the lease shall be
paid by the Lessee including utilities, homeowner association assessments,
maintenance, insurance and real estate taxes. Monthly revenue from leases
existing at May 31, 1996 was $113,293.
The leases terminate only upon the sale of the model homes. In connection
therewith, the Company has agreed to enter into an exclusive listing agreement
with a brokerage affiliate of the Lessee. Such agreement specifies that the
commission to the affiliate shall not exceed 1.25% plus a 3% fee to be paid to
another broker, if any, who produces a purchaser.
The net profit from the sale of any property (excluding closing costs
associated with mortgage financing and commissions) shall be equally divided
between the Company and the Lessee. Should the sale price be less than the
purchase price paid by the Company, such deficiency shall be funded from a
guaranty fund, described in the following paragraph. If the fund is depleted,
the property cannot be sold until such time that it can be sold without a
deficit.
The Lessees have provided surety bonds as an additional guaranty to the Company
to secure the lease payments and the recovery of the purchase price and all
related costs. Such bonds are equal to 5% of the Company's purchase price
including related costs.
During the period November 2, 1995 through May 31, 1996, the Company sold three
of its model homes for a total sales price of $515,000. The Company recognized
a total gain on the sales of $7,756.
6. Line of credit
The Company has a $250,000 credit line with Damill Capital Corp. ("Damill"), a
corporation which is owned by a principal stockholder of the Company. The line
of credit bears interest at the rate of 16% per annum on the outstanding
portion of principal and loan origination fee of 7.5% of the committed amount.
Interest is payable on a monthly basis. The line of credit is secured by all
assets of Holdings, including stock in any subsidiaries.
Damill has the right to convert the loan plus unpaid interest and origination
fees into common stock at a conversion price of $.01 per share.
F-12
7. Note payable
Iron Eagle has entered into a loan agreement which provides for up to $600,000
of financing to be used for working capital and asset acquisitions. The loan
bears interest at 12% with interest only payable monthly and the principal
balance due on October 31, 1997. The note is secured by substantially all
assets of Iron Eagle. In conjunction therewith, Iron Eagle entered into
consulting agreements (Note 13).
Through May 31, 1996, $17,188 of interest has been capitalized in conjunction
with the development of a real estate project.
8. Mortgages payable
Mortgages payable consist of the following:
Mortgage payable to a bank, bearing interest at prime plus 1% with
interest only payable monthly. The loan balance is due February 1998.
The loan is secured by the 16 model homes purchased from Hovnanian and
by the related leases described in Note 5. $1,703,866
Mortgage payable to a bank, bearing interest at 8.625% with interest
only payable monthly. The loan balance is due May 1998. The loan is
secured by 15 model homes purchases from Engle and by the related
leases described in Note 5. 2,300,000 Mortgage payable to a bank
in monthly installments of $32,191, including interest at 9.25%, until
maturity in April 1999. The loan is secured by 15 model homes purchased
from Engle and by the related leases described in Note 5. 2,487,080
$6,490,946
Maturities of mortgages payable are as follows:
Year ending May 31, 1997 $ 163,036
Year ending May 31, 1998 4,182,639
Year ending May 31, 1999 2,145,271
$6,490,946
9. Long-term debt
Long-term debt consists of a 10% note payable in monthly installments of
$1,063, including interest, through April 1998. The note is secured by
construction equipment.
Maturities of long-term debt are as follows:
Year ending May 31, 1997 $ 11,031
Year ending May 31, 1998 11.126
$ 22.157
F-13
<PAGE>
10. Stockholder notes payable
Stockholder notes payable represent advances made to the Company by various
stockholders. The notes are payable on demand, bear interest at 9% and are
secured by marketable securities (Note 3). Interest on stockholder notes
payable totaled $65,428 for the period November 2, 1995 through May 31, 1996.
Accrued expenses includes $86,584 of accrued interest payable to stockholders.
11. Stockholders' equity
Convertible preferred stock
On November 2, 1995, the Company issued 400,000 shares of its 6% participating
preferred stock. Each share is convertible into one share of the Company's
common stock commencing in December 1996. The preferred stockholders are
entitled to 50% participation in the rental revenue stream up to $60,000 per
year. The preferred stock is redeemable at the option of the Company, on the
basis of 105% within the first six-months, 104% within the second six-months,
103% within the third six-months, 102% within the fourth six months, 101%
within the fifth six-month period and 100% thereafter.
The Company has paid regular quarterly distributions of $15,000 on February 1
and May 1, 1996. Through May 31, 1996, $5,000 was accrued as a preferred
distribution payable. All distributions paid and accrued have been made out of
additional paid-in capital due to the lack of available retained earnings.
12. Income taxes
The Company has a net operating loss available for carry forward to offset
future years' taxable income. The net operating loss expires in the year
ending June 30, 2011. Deferred income taxes arise from temporary differences in
reporting assets and liabilities for income tax and financial accounting
purposes primarily resulting from net operating losses. The components of the
deferred tax asset and the related tax effects of the temporary differences are
as follows:
Non-current deferred income tax asset
arising from net operating loss carryforward $ 30,000
Valuation allowance (30.000)
Net deferred income tax asset $
13. Commitments
Stock option and consulting agreements
As a result of the merger described in Note 2, the Company assumed an Offshore
Securities Subscription Agreement which had been previously entered into by
Holdings with Tarlton Company, Ltd. ("Tarlton"). Under the terms of that
agreement, Tarlton has the option to purchase up to 5,000,000 shares of the
Company's common stock at $1.50 per share. The purchase price was based on the
estimated market value of the common stock of Holdings as of the date of the
option agreement.
F-14
<PAGE>
13. Commitments (continued)
Stock option and consulting agreements (continued)
Concurrent with the above agreement, Holdings entered into a consulting
agreement with Tarlton whereby Tarlton would provide a variety of consulting
and financial advisory services. In return, Tarlton will receive a placement
fee of up to 1,250,000 shares of the Company's common stock, of which 550,000
shares are payable January 1996, and 140,000 shares payable each succeeding
month. This agreement was also assigned to the Company as a result merger.
In the event that Tarlton exercises its option to purchase the full 5,000,000
shares and receives the placement fee of 1,250,000 shares, Tarlton would own
approximately 34% of the outstanding common stock of the consolidated entity.
Such stock could be freely traded with the use of a prospectus. Shares issued
as a placement fee will be treated as a reduction of the per share price of
the stock purchased under the option agreement. The exercise of the option
agreement is not expected to have any impact on the management or operations
of the Company other than providing additional capital and liquidity.
Lease agreement
The Company leases its office space under an operating lease for a three-year
term ending in January 1999. Rent expense for the period November 2, 1995
through May 31, 1996 was $6,575. The following is a schedule of future minimum
lease payments:
Year ending May 31, 1997 $17,426
Year ending May 31, 1998 17,834
Year ending May 31, 1999 10.542
$45.802
Consulting agreements
In conjunction with the loan agreement described in Note 7, Iron Eagle entered
into two consulting agreements. Each agreement is for a six-month period
commencing January 1996. Combined payments under the two agreements are $ 1,000
per month. In addition, the agreements provide for a total of 1,200,000
warrants. Such warrants are convertible into 1,200,000 shares of the Company's
common stock at $.001 per share.
Effective June 1996, the Company entered into a ten-year consulting agreement
with a principal stockholder. The agreement specifies that the consultant
shall receive annual compensation of $180,000 with 10% annual increases during
the second through tenth years. In addition, the consultant is entitled to
certain benefits and participation in any Company bonus or retirement plan.
Employment agreements
Iron Eagle has entered into employment agreements with two individuals. Each
agreement is for a five-year period commencing January 1996 and calls for base
compensation of $75,000 with annual increases equal to the increase in the cost
of living for the New York metropolitan area plus 1%. In addition, each
individual is entitled to a performance bonus equal to 7.5% of pre-tax profit
of Iron Eagle.
F-15
<PAGE>
13. Commitments (continued)
Employment agreements (continued)
Effective June 1996, the Company entered into a five-year employment agreement
with the Company's president. The agreement specifies that the president shall
receive annual compensation of $120,000 with 10% annual increases during the
second through fifth years. In addition, the president is entitled to certain
benefits and participation in any Company bonus or retirement plan.
Land purchase commitment
The Company has made a commitment to acquire a 70 acre tract of land that would
be developed by Engle with 370 residential units. The purchase price of the
property is $8,595,000 with closing anticipated in October 1996. In addition,
the Company would provide $4,500,000 of funding to Engle for site development
costs. Engle would purchase the property on a finished lot basis over a
scheduled three-year period. Engle would provide a $500,000 non-refundable
deposit and post a $4,500,000 surety bond to secure their performance under
the contract.
Model home purchase commitments
The Company has also committed to purchase an additional six model homes from
Hovnanian for approximately $ 944,000. Such acquisition is expected to close
during July 1996.
Loan commitment
During May 1996, the Company received a revolving loan commitment for
$10,000,000 from a Florida bank of which $2,500,000 may be used for
non-Florida properties.
14. Subsequent events
Model home sales contracts
The Company has a sales contract pending on two model homes. One contract is
for a sale price of $ 124,500 on a house which was purchased for $ 118,023.
The other contract is for a sale price of $138,000 on a house which was
purchased for $130,995.
Mortgage closing
During June 1996, the Company closed on an $857,250 loan from a Virginia bank.
The loan is for a two-year period with monthly principal payments of $5,063
plus fixed interest at 2.85 % over the 30-day LIBOR rate at the time of the
closing. The loan is secured by five model homes leased to Engle.
Public offering
The Company is in the process of filing a registration statement to raise
$4,500,000, net of underwriting discount, through the issuance of its common
stock.
Backlog
Iron Eagle has four signed construction contracts totaling $1,255,000. In
addition, Iron Eagle has been awarded two construction jobs totaling $787,793
and is awaiting finalization of the contracts.
F-16
<PAGE>
JJFN SERVICES, INC.
CONSOLIDATED BALANCE SHEET WITH CONSOLIDATING INFORMATION
May 31,1996
(UNAUDITED)
Iron Eagle Consolidated
JJFN JJFN Contracting and Balance
Services, Inc. Holdings Mechanical, In Total Eliminations
ASSETS
Model homes on lease, at cost, net of
accumulated depreciation of 62,841 11,270,719 - - 11,270,719 11,270,719
Other assets:
Cash 427,499 1,064,414 207,900 1,699,813 1,699,813
Contract receivables 0 0 196,000 196,000 196,000
Costs and earnings in excess of billings 0 0 30,000 30,000 30,000
Marketable securities 1,212,500 250,000 0 1,462,500 1,462,500
Land and development costs 0 0 378,364 378,364 378,364
Prepaid expenses 3,386 0 17,011 20,397 20,397
Construction equipment 0 0 200,365 200,365 200,365
Office furniture and equipment 34,137 0 32,362 66,499 66,499
Investment in subsidiary 0 1,000,000 0 1,000,000 (1,000,000) 0
Loan to affiliate 0 2,331,858 0 2,331,858 (2,331,858) 0
Deferred finance charges and other assets
126,595 0 57,700 184,295 184,295
Intangibles 45,571 15,000 316,792 377,363 377,363
Total assets 13,120,407 4,661,272 1,436,494 19,218,173 (3,331,858} 15,886,315
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit 0 161,295 0 161,295 161,295
Accounts payable and accrued
expenses 134,129 86,278 124,535 344,942 344,942
Unearned rental revenue 113,261 0 0 113,261 113,261
Preferred distribution payable 5,000 0 0 5,000 5,000
Loan from affiliate 2,331,858 0 0 2,331,858 (2,331,858) 0
Stockholder loans 1,678,684 514,500 0 2,193,184 2,193,184
Note payable 0 0 450,000 450,000 450,000
Mortgages payable 6,490,946 0 0 6,490,946 6,490,946
Long-term debt 0 0 22,157 22,157 22,157
Total liabilities 10,753,878 762,073 596,692 12,112,643 (2,331,858) 9,780,785
Stockholders' equity:
Preferred stock 4,000 9,046 0 13,046 (9,046) 4,000
Common stock 10,000 4,067 500,000 514,067 (499,982) 14,085
Additional paid-in capital
2,451,000 8,828,583 500,000 11,779,583 (5,572,660) 6,206,923
Accumulated deficit
(98,471) (4,942,501) (160,198) (5,201,170) 5,081,688 (119,482)
Total stockholders' equity
2,366,529 3,899,195 839,802 7,105,526 (1,000,000) 6,105,526
Total liabilities and stockholders' equity
13,120,407 4,661,268 1,436,494 19,218,169 (3,331,858) 15,886,311
F-17
<PAGE>
JJFN SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS WITH CONSOLIDATING INFORMATION
For the period November 2, 1995 through May 31, 1996
(UNAUDITED)
Iron Eagle Consolidated
JJFN JJFN Contracting and Balance
Services, Inc. Holdings, Inc. Mechanical Inc. Total Elimination
Revenues:
Lease revenue 305,214 - - 305,214 305,214
Construction revenue - - 31,500 31,500 31,500
Gain on sale of model homes 7,756 - - 7,756 7,756
312,970 0 31,500 344,470 344,470
Costs and expenses:
Cost of construction revenue 0 0 28,427 28,427 28,427
Interest and financing costs 177,012 3,669 717 181,398 181,398
Professional fees 26,406 7,797 1,756 35,959 35,959
Consulting fees 39,070 0 0 39,070 39070
Salaries and wages 63,054 0 6,902 69,956 69 956
Depreciation and amortization 89,805 0 3,006 92,811 92,811
Other 46,372 0 1,143 47,515 47,515
441,719 11,466 41,951 495,136 495,136
Loss from operations (128,749) (11,466) (10,451) (150,666) (150,666)
Other income:
Gain on sale of marketable securities 26,250 0 0 26,250 26,250
Interest income 4,028 910 0 4,938 4,938
Net loss (98,471) (10,556) (10,451) (119,478) (119,478)
F-18
<PAGE>
PART II
INFORMATION REQUIRED IN THE PROSPECTUS
<TABLE>
Item 13. Other Expenses of Issuance and Distribution
<CAPTION>
The following is a list of the expenses the Company expects to pay in
connection with the issuance and distribution of the Shares registered hereby,
other than underwriting discounts and commissions.
<S> <C>
Category of Expenses Amount of Expense
SEC Registration Fee $ 2145.88
Legal Fees and Expenses $ 35,000.00 *
Accounting Fees and Expenses $ 35,000.00 *
Blue Sky Fees and Expenses $ 25,000.00 *
Fees of Transfer Agent $ 2,500.00 *
Printing and Engraving Expenses $ 10,000.00 *
General Expenses $ 3.354.12 *
Total: $ 113,000 *
* Estimated
</TABLE>
<PAGE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law grants corporations the
right to indemnify their directors, officers, employees and agents against
expenses, judgment, fines and other amounts paid pursuant to settlement of any
pending, completed or threatened legal action to which any of such persons
becomes a party by reason of the fact that he is or was a director, officer,
employee or agent of the corporation so long as the indemnity has acted in
good faith and in a manner he reasonably believes to be or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, has had no reasonable cause to believe that his conduct was
unlawful. The Company's Certificate of Incorporation and By-laws provide for
indemnification of such persons to the full extent allowable under applicable
law.
In the Underwriting Agreement relating to the initial public offering, the
Underwriters have agreed to indemnify the Company and its directors and
officers (upon the terms and under the circumstances described therein) as to
certain civil liabilities, including liabilities under the Securities Act.
See Item 17.
<TABLE>
Item 15. Recent Sales of Unregistered Securities
<CAPTION>
On November 30, 1995, the Company issued to the following persons 10,000,000
shares of Common Stock, for a price of $.15 per share, paid for by delivery of
600,000 shares of Common Stock of Antares Resources Corporation:
<S> <C>
Name and Position or Relationship Number of Shares
Susan Schlapkohl, President and Chief Executive Officer of Company
1,000,000
Samuel G. Weiss, Secretary, Counsel
and Director of Company
150,000
Joan E. Kushay, Assistant Secretary
and Director of Company
150,000
Janice Rufo, Assistant Secretary and
Director of Company
100,000
Ralph Wilson, Director of Company
150,000
David Miller, financial consultant to Company
1,250,000
Helen Miller, mother of David Miller
1,250,000
Scott Miller, son of David Miller
1,250,000
Rita Miller, wife of David Miller
1,250,000
Warren Miller, brother of David Miller
200,000
Helen Miller Irrevocable Trust No. 1 (Libo Feinberg, Trustee)
1,250,000
Priority Capital Corp., owned by
Warren Miller
450,000
Lite 'n Low, Inc., owned by David Miller
450,000
Intercapital Holdings, Inc.
1,000,000
Michael J. DeMayo
100,000
</TABLE>
<PAGE>
The foregoing issuances were exempt from registration under the Securities Act
by reason of the provisions of Section 4(2) of the Act, as transactions not
involving a public offering. All of the shares are "restricted securities"
within the meaning of Rule 144 promulgated by the Commission under the Act and
may not be sold for a period of two years following their date of purchase
without an available exemption from registration.
<TABLE>
In November and December of 1995, Old JJFN, now a subsidiary of the Company,
issued and sold to the following persons (all of whom are officers and
directors of the Company and of Old JJFN or are affiliated with the Company)
the following shares of old JJFN, now exchanged for the same number of shares
of the Company's Common Stock. The purchase price for the shares sold to
officers and directors was $.15 per share, paid in cash, and the purchase
price for shares issued to affiliates of Damill Capital Corporation was $.50
per share, paid by conversion of indebtedness formerly owing by Old JJFN to
Damill.
<CAPTION>
<S> <C>
Name and Affiliation Number of Shares
Officers and Directors
Ralph Wilson
7,500
Samuel G.Weiss
4,165
Joan E. Kushay
4,200
Affiliates of Damill
Lite 'n Low Inc.
50,000
Priority Capital Corp.
50,000
David Miller
75,000
Rita Miller
75,000
Scott Miller
75,000
Helen Miller
75,000
</TABLE>
The foregoing issuances of shares by Old JJFN were exempt from registration
under the Securities Act by reason of the provisions of Section 4(2) of the
Act as transactions not involving a public offering. While the shares of the
Company's Common Stock issued in respect of these JJFN shares in the merger
were registered under the Securities Act in Registration Statement on Form S-4
(File No. 333-1842), because their holders may be deemed affiliates of the
Company these Company shares are "restricted securities" and may be sold only
in accordance with the provisions of Rule 144. On December 7, 1995 Old JJFN
issued to Bright Eyes, Ltd 255,000 shares of its Common Stock and to Park
Place Financial Services Inc. 25,000 shares of its Common Stock in
consideration for consulting services rendered to Old JJFN in connection with
the execution and delivery of its option agreement with Tarlton Financial Ltd.
The shares of the Company's Common Stock issued in respect of these Old JJFN
shares in the Old JJFN merger have been registered under the Securities Act by
the aforesaid Registration Statement.
On January 29, 1996 Old JJFN issued to Tarlton 2,000,000 shares of Common
Stock on exercise of Tarlton's option and in February, 1996 Old JJFN issued an
additional 500,000 shares to Tarlton on exercise of its option, both issuances
being at $1.50 per share. In addition, 500,000 shares were issued to Tarlton
on January 25, 1996. The shares of the Company's Common Stock issued to
Tarlton in the merger of Old JJFN have been registered under the Securities
Act in the aforesaid Registration Statement, and Tarlton may sell these share
in the public market through use of a prospectus which is part of that
Registration Statement. On December 29, 1995, Old JJFN issued to Anthony
Gurino, Dennis Sommeso and Angelo Gurino a total of 250,000 shares of its
Common Stock in exchange for all of the issued and outstanding capital stock
of IECM. This issuance was exempt from registration under the Securities Act
by reason of the provisions of Section 4(2) of the Act as a transaction not
involving a public offering. The shares of the Company's Common Stock issued
in exchange for these Old JJFN shares in the merger of Old JJFN have been
registered under the Securities Act in the aforesaid Registration Statement.
On November 2, 1995 Antares Resources Corporation purchased 400,000 shares of
the Company's 6% Convertible Participating Preferred Stock for a cash purchase
price of $1,000,000. This issuance was exempt from registration under the
Securities Act by reason of the provisions of Section 4(2) of the Act as a
transaction not involving a public offering. The preferred shares are, and
any Common Stock issued on conversion of such shares will be, "restricted
securities" and may be sold only pursuant to the provisions of Rule 144.
<TABLE>
Item 16. Exhibits and Financial Statement Schedules
<capiton>
(a) Exhibits
<S>
Exhibit No.
<C>
Incorporated by Reference
to Registration Statement
333-1842
<C>
Description
* 1.1
Underwriting Agreement
2.1
X
Merger Agreement between the Company, JJFN Inc. and Priority Financial, Inc.
dated December 29, 1995
3.1
X
Company Certificate of
Incorporation, as amended
to date.
3.2
X
Company By-laws, as amended to date
* 5.1
Opinion of Jackson & Nash, LLP.
10.1
X
Subscription Agreement
between JJFN and Tarlton Company Ltd.
10.2
X
Consulting Agreement
between JJFN and Tarlton Company Ltd. dated
December 8, 1995.
10.3
X
Loan Agreement, Promissory Note and Mortgage of the Company to Capital Bank
dated January 24, 1996.
10.4
X
Form of Sale and Lease-Back Agreements between the Company and
K. Hovnanian Company
of Florida Inc.
10.6
X
Purchase Agreement, Loan Agreement and Consulting Agreements among JJFN and
Iron Eagle Contracting Corp., VJS International Holdings Inc. and Priority
Capital Corp.
10.7
X
Agreement reforming the Purchase Agreement
between JJFN and Iron
Eagle Contracting Corp.
10.8
X
Form of Purchase
Agreement, Lease and
Exclusive Sale Agreement
between the Company and Engle Homes Inc.
* 10.9
Loan Agreement, Promissory Note and Mortgage of the Company to Capital Bank
dated April 9, 1996
* 10.10
Loan agreement, Promissory Note and Mortgage to
Colorado State Bank
dated May ___, 1996.
* 10.11
Promissory Note
and Mortgage to
NationsBank, N.A. dated June 28, 1996
* 21.1
List of Company
subsidiaries.
* 23.1
Consent of Jackson & Nash, LLP (contained in Exhibit 5.1)
23.2
Consent of Horton &
Company, LLC
____________________________
</TABLE>
* To be filed by Amendment
(b) Financial Statement Schedule
Not applicable
<PAGE>
Item 17. Undertakings
The Company's officers, directors, employees, and agents have the right,
pursuant to the Company's Certificate of Incorporation and Section 145 of the
Delaware General Corporation Law, to be indemnified against liability or
expense in any action or proceeding threatened, pending or completed against
them under certain circumstances. This right of indemnification is described
in "Management-Indemnification" in the Prospectus. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in thesuccessful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered in this Registration
Statement, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-1 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Boca
Raton, State of Florida, on July 3, 1996.
JJFN SERVICES, INC.
By: /s/Susan Schlapkohl
Susan Schlapkohl, President
and Chief Executive Officer
By: /s/John P. Kushay
John P. Kushay, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
and on the dates stated.
/s/Susan Sclapkohl Dated: July 3, 1996
Susan Schlapkohl, Director
/s/Samuel G. Weiss Dated: July 3, 1996
Samuel G. Weiss, Director
/s/Joan Kushay Dated: July 3, 1996
Joan Kushay, Director
/s/Janice Rufo Dated: July 3, 1996
Janice Rufo, Director
/s/Ralph Wilson Dated: July 3, 1996
Ralph Wilson, Director
C:\WP\19515\S-1.PT2
II-8
II-9
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation in the Registration Statement on Form S-1 of
JJFN Services, Inc., of our report dated January 19, 1996, relating to the
consolidated balance sheet of JJFN Holdings, Inc. as of December 31, 1995 and
the related consolidated statements of operations, stockholders' equity and
cash flows for the period November 2, 1995 (date of incorporation) through
December 31, 1995.
HORTON & COMPANY, L.L.C.
July 2, 1996
<TABLE>
[BACK COVER]
<S>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus. Any information or representation not herein contained, if given
or made, must not be relied upon as having been authorized by the Company or
by any of the Underwriters. This Prospectus is not an offer to sell or
solicitation of an offer to buy any securities other than those specifically
offered hereby, nor is it an offer or solicitation in any jurisdiction in
which such offer is unlawful or in which the person making such offer or
solicitation is unqualified to do so. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any
implication that the information herein is correct as of any time subsequent
to its date.
TABLE OF CONTENTS
Page
Prospectus Summary
Risk Factors
Use of Proceeds
Price Range of Common Stock and
Dividend Policy
Capitalization
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operation
Business and Properties of the Company
Management
Principal Stockholders
Dilution
Description of Securities
Transactions with Related Parties
Shares Eligible for Future Sale
Underwriting
Legal Matters
Experts
Additional Information
Financial Statements
Until ____________, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
<C>
JJFN SERVICES, INC.
700,000 Shares of Common Stock
____________________________
PROSPECTUS
___________________________
R.T.G. RICHARDS & CO., INC.
_________________, 1996
19
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