SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 10 OR 15(d) OF THE EXCHANGE
ACT OF 1934
Commission File Number 0-28168
JJFN Services, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 11-3289981
(State or other jurisdiction (I.R.S. Identification number)
of incorporation or organization)
2500 Military Trail North, Suite 260, Boca Raton, Florida 33431
(Address of principal executive offices)
(561)995-0043
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant(1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such
report(s), and (2) has been subject to such filing requirements for the past
90 days.
Yes __X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date.
Outstanding Equity Securities at October 31, 1997
Class of Securities Outstanding Shares
Common Stock, $.001 par value, 16,812,005 shares
Preferred Stock, $.01 par value, 400,000 shares
<PAGE>
JJFN SERVICES, INC.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
Condensed Consolidated Balance Sheets as of 3
September 30, 1997 (unaudited) and June 30, 1997.
Condensed Consolidated Statement of Operations 4
for the three months ended September 30, 1997, and
September 30, 1996.
(unaudited)
Condensed Consolidated Statement of Cash Flows 5
for the three months ended September 30, 1997, and
September 30, 1996.
(unaudited)
Notes to Condensed Consolidated Financial Statements 6-7
(unaudited)
Item 2. Management's Discussion and Analysis of Financial 8-12
Condition and Results of Operations.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
September 30, 1997.
Signatures 13
Exhibit No.
11 Computation of earnings per share. 14
<PAGE>
JJFN SERVICES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 June 30
ASSETS 1997 1997
----------- -----------
Revenue producing assets:
Model homes on lease $27,724,621 $21,409,249
Less: accumulated depreciation (601,090) (484,176)
----------- -----------
Model homes on lease, net 27,123,531 20,925,073
Real estate under contract for development & sale - 8,591,956
----------- -----------
Total revenue producing assets 27,123,531 29,517,029
----------- -----------
Other assets:
Cash 267,956 831,266
Net assets realizable on divestiture 1,100,000 1,312,500
Deferred charges and other assets 760,153 769,500
----------- -----------
Total other assets 2,128,109 2,913,266
----------- -----------
Total assets $29,251,640 $32,430,295
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $19,526,928 $22,632,465
Notes payable 1,171,001 1,025,907
Accounts payable & accrued expenses 400,896 467,214
Unearned rental revenue 219,205 215,343
----------- -----------
Total liabilities 21,318,030 24,340,929
----------- -----------
Stockholders' equity:
Convertible preferred stock, $.01 par value
25,000,000 shares authorized
400,000 shares issued and outstanding 4,000 4,000
Common stock, $.001 par value
50,000,000 shares authorized
16,812,005/16,811,990 shares issued and outstanding 16,812 16,812
Additional paid-in capital 8,296,049 8,296,049
Accumulated deficit (383,251) (227,495)
----------- -----------
Total stockholders' equity 7,933,610 8,089,366
----------- -----------
Total liabilities and stockholders' equity $29,251,640 $32,430,295
=========== ===========
See accompanying notes.
(3)
JJFN SERVICES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended September 30, 1997 and September 30, 1996
(Unaudited)
Three Months Ended
September 30,
1997 1996
--------- ---------
Revenues:
Lease revenue $ 711,788 $380,949
Real estate option fees 8,771 37,232
Model home sales 1,417,916 264,279
Land sales 8,591,956 -
Interest Income 41,656 9,088
---------- ---------
Total Revenues 10,772,087 691,548
---------- ---------
Costs and expenses:
Interest expense 420,502 208,805
Cost of model homes sold 1,371,965 258,613
Cost of land sales 8,591,956 -
Corporate 290,026 146,471
---------- ---------
Total Operating Expenses 10,674,449 613,889
---------- ---------
Income before depreciation and amortization 97,638 77,659
Depreciation and amortization 253,394 131,643
--------- ---------
Net loss (155,756) (53,984)
--------- ---------
Preferred stock distribution - 5,000
--------- ---------
Loss applicable to common shareholders $(155,756) $ (58,984)
========= =========
Earnings (Loss) per share data:
--------- ---------
Net income (loss) $ (0.01) (0.00)
========= =========
Weighted average number 16,812,005 16,226,294
of shares
See accompanying notes.
(4)
JJFN SERVICES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended September 30, 1997 and September 30, 1996
(Unaudited)
Three Months Three Months
Ended Ended
9/30/97 9/30/96
----------- ----------
Net Loss $(155,756) $ (108,428)
----------- ----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization expense 98,165 45,244
Depreciation expense 155,230 86,399
Gain on sale of model homes (45,951) (5,665)
Changes in assets and liabilities:
Decrease in miscellaneous assets 21,785 112,017
Increase(decrease) in accounts payable/accrued exp (66,317) 54,639
Increase in unearned rental revenue 3,862 69,586
(Increase)decrease in net operating assets of
divested segment 212,500 (195,557)
----------- ----------
Total adjustments 379,274 166,663
----------- ----------
Net cash provided by operating activities 223,518 58,235
----------- ----------
Cash flows from investing activities
Purchase of model homes (4,488,301) (2,750,990)
Proceeds from sale of model homes 1,407,994 272,712
Proceeds from sale of land 8,591,956 -
Proceeds from sale of marketable securities - 218,250
Capital expenditures - (818)
----------- ----------
Net cash provided by (used in)
investing activities 5,511,649 (2,260,846)
----------- ----------
Cash flows from financing activities:
Proceeds from mortgages payable 1,771,801 1,450,288
Principal payments on mortgages payable (8,155,515) (263,025)
Deferred financing costs (59,857) (28,779)
Deferred offering costs - (53,829)
Proceeds from stockholder loans 145,094 825,000
Proceeds from issuance of common stock - 700
Preferred distribution - (15,000)
----------- -----------
Net cash (used in) provided by
financing activities (6,298,477) 1,915,355
----------- -----------
Net decrease in cash (563,310) (287,256)
Cash at beginning of period 831,266 770,723
----------- -----------
Cash at end of period $267,956 $ 483,467
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid - $467,247 $166,872
See accompanying notes.
(5)
JJFN SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(unaudited)
Note 1. Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. Operating results for
any quarter are not necessarily indicative of the results for any other
quarter or for the full year.
These statements should be read in conjunction with the financial statements
of JJFN Services, Inc. and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997.
Note 2. Commitments & Contingencies
Model home purchase commitments
The Company has commitments to purchase approximately $8,260,000 (37 model
homes) from a major, publicly traded homebuilder.
Model home sales contracts
During October 1997, the Company sold six model homes, and has seven additional
sales contracts pending.
Financing Activities
In order to finance its expansion, the Company conducts ongoing negotiations
with financial institutions to raise funds through debt and / or equity. In
connection with these activities, the Company has received an initial
commitment of $8,000,000 from a Mid Western financial institution to finance
the acquisition of Model Homes located in the Northeast region of the United
States.
The Company has entered into an agreement of mutual understanding with a major
international insurance company whereby the parties have committed to proceed
in accordance with the following.
The insurance company will assure the timely payment of principal and interest
on notes issued by a wholly owned bankruptcy remote special purpose subsidiary
of the Company. The estimated proceeds of $200,000,000 shall be utilized to
fund the purchase of specified parcels of property and have a term of three (3)
years.
The agreement is subject to the following conditions; (i) satisfactory
completion of due diligence regarding the assets to be held in the Special
Purpose Entity, (ii) the execution of bank or institutional financing, and
(iii) agreement to final wording of all related legal documentation.
(6)
Real Estate Under Contract Commitments
The Company has executed a letter of intent with a major publicly traded
homebuilder and real estate developer to acquire 4-5 tracts of land having a
fully developed cost of $75,000,000 to $85,000,000. The agreement provides
for a unit takedown schedule of finished lots over a period not to exceed 36
months. The closing is subject to completion of due diligence and formal
documentation among other events.
(7)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in two lines of business.
1) The purchase and leaseback on a "triple net" basis of fully furnished
model homes complete with options and upgrades to major publicly traded
homebuilders and real estate developers.
2) The real estate contract acquisition, development and sale program for
major publicly traded homebuilders and real estate developers. The
Company purchases the real estate, simultaneously enters a bonded (not to
exceed) development contract with the builder supported by a performance
(completion) bond, who then develops the real estate. The builder
purchases the finished lots from the Company on a scheduled basis usually
not to exceed three (3) years.
Since its inception, the Company has purchased a total of 173 model homes and
sold 35, resulting in a portfolio of 138 model homes owned at September 30,
1997. All of the Company's clients are major publicly traded homebuilders.
Since inception, the Company has entered into one land acquisition and
development contract with Engle Homes, Inc. The transaction involved the
purchase of 70 acres in western Boca Raton to be subdivided into 370 lots for
the development of single family estate homes, zero lot single family homes,
townhouses, and villas.
On July 3, 1997, Engle Homes elected to fully exercise its option to purchase
the approximate 70-acre tract of land. The property was purchased from the
Company for the sum of $8,591,956.
(8)
A summary of the operating results of JJFN Services, Inc. and subsidiary for
the three months ended September 30, 1997, and September 30, 1996 are
presented below.
Three Months Three Months
Ended Ended
September 30 September 30
1997 % 1996 %
--------------------------------
Revenues:
Lease revenue $ 711,788 33% $380,949 55%
Real estate option fees 8,771 -% 37,232 5%
Model home sales 1,417,916 65% 264,279 38%
Interest income 41,656 2% 9,088 2%
--------------------------------
Total revenues $2,180,131 100% 691,548 100%
Costs and expenses:
Interest expense 420,502 19% 208,805 30%
Cost of model home sales 1,371,965 63% 258,613 38%
Corporate 290,026 13% 146,471 21%
--------------------------------
Total costs and expenses 710,528 95% 613,889 89%
--------------------------------
Income before depreciation & amortization 97,638 5% 77,659 11%
Depreciation & amortization 253,394 12% 131,643 19%
--------------------------------
Net Loss $(155,756) (7%) $(53,984) (8%)
================================
Results of Operations:
Three Months Ended September 30, 1997 compared to September 30, 1996.
For the period from July 1, 1997 through September 30, 1997, the Company had
revenues of $10,772,087 of which lease rentals on model homes totaled
$711,788, revenues from land sales totaled $8,591,956, revenues from the sale
of model homes were $1,417,916, and revenues from option fees were $8,771. Net
loss for the period was $155,756. Depreciation and amortization for the quarter
totaled $253,394 resulting in a positive cash income from operations of
$97,638.
The Company's revenues from rental income increased approximately $330,000 (an
86% increase) during the three months ended September 30, 1997 as compared to
the three months ended September 30, 1996. This increase is due to additional
lease revenues generated from the purchase of $19,894,000 in model homes in
the twelve months ended September 30, 1997.
Real Estate option fee revenues of $8,771 were generated from the real estate
under contract program, versus $37,232 for the prior year quarter end. The
decrease was do to the exercise of the option to purchase resulting in the
sale of a land parcel for $8,591,956 on July 3, 1997.
(9)
Corporate costs increased from $146,471 for the quarter ended September 30,
1996 to $290,026 for the quarter ended September 30, 1997. This increase was
attributable to the hiring of additional personnel and the selling, general
and administrative costs associated with generating the increased revenue
levels.
Model Homes
Model homes on lease have increased to $27,724,621 at September 30, 1997 from
$13,391,427 at September 30, 1996, an increase of 107%.
A breakdown of model home costs and units by state is as follows:
# Model Homes Model Home # Model Homes Model Home
Owned at Cost Owned at Cost
State 9/30/97 9/30/97 to 9/30/96 9/30/96
- ------------------------------------------------------------------------------
Florida 71 $ 13,491,664 45 $ 7,966,652
New Jersey 22 4,420,508 - -
Colorado 20 4,293,240 15 3,262,778
Pennsylvania 10 2,230,500 - -
Virginia 6 1,495,847 5 1,220,232
Texas 5 910,481 1 204,477
North Carolina 4 882,381 3 737,288
------- ------------- ------- ------------
Total 138 $ 27,724,621 69 $ 13,391,427
======= ============= ======= ============
A breakdown of lease rental revenues by state is as follows:
Lease Revenues Lease Revenues
From 7/1/97 From 7/1/96
State to 9/30/97 to 9/30/96
- ------------------------------------------------------------------------------
Florida $ 424,849 $ 218,203
New Jersey 25,253 -
Colorado 122,000 97,886
Pennsylvania 45,330 -
Virginia 44,875 36,607
Texas 27,314 6,134
North Carolina 22,167 22,119
----------- -----------
Total $ 711,788 $ 380,949
=========== ===========
(10)
The average purchase price of model homes acquired by the Company since
inception was approximately $198,000. For the quarter ended September 30,
1997, the Company has sold nine model homes for total sales price of
$1,417,916 less costs of sales of $1,371,965 for a net gain of $45,951.
Liquidity and Capital Resources
The Registrant's principal business, leasing of model homes and real estate
under contract, is a capital-intensive operation requiring constant infusions
of cash as the number and size of transactions in which the Registrant is
involved increases. To date, this business has been financed by capital
contributed and loans made by shareholders, secured loans from banks, and a
registered offshore private placement.
These capital contributions, loans and offering have been adequate to permit
the Registrant to carry on operations to date. However, in order to finance
the expansion of operations over the coming fiscal year, additional funds
must be raised through the issuance of debt or equity securities. To fill
this need, the Registrant anticipates completing a securities offering of
$5 million prior to the end of fiscal 1998. The net proceeds of this offering,
together with new financing and existing cash of approximately $268,000,
should enable the Company to finance its growing level of operations.
The Company has executed a letter of intent with a major publicly traded
homebuilder and real estate developer to acquire 4-5 tracts of land having a
fully developed cost of $75,000,000 to $85,000,000. The agreement provides
for a unit takedown schedule of finished lots over a period not to exceed 36
months. The closing is subject to completion of due diligence and formal
documentation among other events.
The Company has commitments to purchase approximately $8,260,000 (37 model
homes) from a major, publicly traded homebuilder.
The Registrant expects that it will be able to finance these transactions and
others it currently is negotiating through available cash from the sources
described above and from other secured bank loans. In addition, the
Registrant is exploring the possibility of selling, either publicly or
privately, securities backed by its model home inventory and real estate
and development contracts. There can be no assurance, however, that any of
the anticipated sources of funding will ultimately be available to the
Registrant or that other financing will be available on acceptable terms.
Cash Flow - Three Months Ended September 30, 1997.
Net cash provided in operating activities comprised net loss of $155,756, plus
net adjustments for non-cash items of $207,444, plus a net change in other
operating assets and liabilities of $171,830.
Net cash provided in investing activities comprised proceeds from land sales
of $8,591,956 and $1,407,994 from sale of model homes, offset by $4,488,301 in
model home purchases.
Net cash used in financing activities comprised principal payments on
mortgages payable of $8,155,515 and deferred financing costs of $59,857,
offset by proceeds from mortgages payable of $1,771,801 and proceeds from
stockholder loans of $145,094.
(11)
Trends in Operations
The Registrant's operations are currently accelerating at a rapid rate. Such
growth has resulted from the ongoing acquisition of model homes under lease
and from the implementation of the Company's new land acquisition and contract
development program. Both programs have generated significant interest from
national home builders and real estate developers. The Company's successful
implementation of these programs has led to increased credit facilities.
For the quarter ended September 30, 1997, purchases of model homes exceeded
$7,712,000, increasing total model homes on lease at September 30, 1997 to
over $27,700,000. Monthly lease rental revenues on these assets will be in
excess of $277,000 per month.
New Acquisitions
----------------
7/1/97 - 9/30/97 7/1/96 - 9/30/96
---------------- ----------------
Florida $ - $ 2,330,591
New Jersey 4,420,508 -
Pennsylvania 2,230,500 -
Colorado 916,108 -
North Carolina 145,094 -
---------------- ----------------
Total $ 7,712,210 $ 2,330,591
================ ================
Forward Looking Statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") concerning
the Company's operations, economic performance and financial conditions,
including, in particular, the likelihood of the Company's success in
developing and bringing to market the products which it currently has under
development. These statements are based upon a number of assumptions and
estimates which are inherently subject to significant uncertainties, and
contingencies, many of which are beyond the control of the Company and
reflect future business decisions which are subject to change. Some of
these assumptions inevitably will not materialize, and unanticipated events
will occur which will affect the Company's results. Consequently, actual
results will vary from the statements contained herein and such variance may
be material. Prospective investors should not place undue reliance on this
information.
(12)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
JJFN SERVICES, INC.
By: /s/John P. Kushay
John P. Kushay, Treasurer
Chief Financial Officer and
Chief Accounting Officer
(Duly Authorized Officer)
Date: November 13, 1997
(13)
JJFN Services, Inc. - Form 10-Q
Three Months ended September 30, 1997 and September 30, 1996
Exhibit 11
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
------------ ------------
Primary
Net loss $ (155,756) $ (53,984)
------------ ------------
Loss applicable to common shareholders (155,756) (58,984)
============ ============
Weighted average number of common 16,812,005 16,226,294
shares outstanding
------------ ------------
Loss per common share (0.01) (0.00)
============ ============
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.
(14)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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