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, 1998
[ ] 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 20, 1998
Class of Securities Outstanding Shares
Common Stock, $.001 par value, 15,904,085 shares
Preferred Stock, $.01 par value, 400,000 shares
JJFN SERVICES, INC.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
Condensed Consolidated Balance Sheets as of 3
September 30, 1998 (unaudited) and June 30, 1998.
Condensed Consolidated Statement of Operations 4
for the three months ended September 30, 1998, and
September 30, 1997.
(unaudited)
Condensed Consolidated Statement of Cash Flows 5
for the three months ended September 30, 1998, and
September 30, 1997.
(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, 1998.
Signatures 13
Exhibit No.
11 Computation of earnings per share. 14
JJFN SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 June 30
ASSETS 1998 1998
----------- -----------
Revenue producing assets:
Model homes on lease $39,999,565 $38,687,731
Less: accumulated depreciation (691,378) (906,679)
----------- -----------
Model homes on lease, net 39,308,187 37,781,052
Real estate under contract for development & sale - -
----------- -----------
Total revenue producing assets 39,308,187 37,781,052
----------- -----------
Other assets:
Cash 687,426 365,227
Net assets realizable on divestiture 1,100,000 1,100,000
Deferred charges and other assets 983,635 939,797
----------- -----------
Total other assets 2,771,061 2,405,024
----------- -----------
Total assets $42,079,248 $40,186,076
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $31,973,956 $30,512,635
Notes payable 1,283,907 1,025,907
Accounts payable & accrued expenses 703,850 481,763
Unearned rental revenue 237,307 203,367
----------- -----------
Total liabilities 34,199,020 32,223,672
----------- -----------
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
17,012,005/15,904,085 shares issued and outstanding 17,012
17,012,005/16,934,085 shares issued and outstanding 17,012
Additional paid-in capital 8,346,552 8,346,552
Treasury stock, 1,107,920/77,920 shares at cost (282,732) (20,354)
Accumulated deficit (204,604) (384,806)
----------- -----------
Total stockholders' equity 7,880,228 7,962,404
----------- -----------
Total liabilities and stockholders' equity $42,079,248 $40,186,076
=========== ===========
See accompanying notes.
(3)
JJFN SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended September 30, 1998 and September 30, 1997
(Unaudited)
Three Months Ended
September 30,
1998 1997
--------- ---------
Revenues:
Lease revenue $1,220,861 $711,788
Real estate option fees - 8,771
Model home sales 6,418,788 1,417,916
Land sales - 8,591,956
Interest Income 29,610 41,656
----------- -----------
Total Revenues 7,669,259 10,772,087
----------- -----------
Costs and expenses:
Interest expense 771,236 420,502
Cost of model homes sold 6,129,095 1,371,965
Cost of land sales - 8,591,956
Corporate 364,711 290,026
----------- -----------
Total Operating Expenses 7,265,042 10,674,449
----------- -----------
Income before depreciation and amortization 404,217 97,638
Depreciation and amortization 146,877 253,394
----------- -----------
Income (loss) before income taxes 257,340 (155,756)
----------- -----------
Deferred income tax expense 77,138 -
----------- -----------
Net income (loss) 180,202 (155,756)
=========== ===========
Net income (loss) per share
Basic $ 0.01 (0.01)
Diluted $ 0.01 (*)
Weighted average number of shares
Basic 16,858,107 16,812,005
Diluted 18,471,896 (*)
(*) Diluted loss per common share has not been presented for the three months
ended September 30, 1997 because the effect of such calculation would be
anti-dilutive.
See accompanying notes.
(4)
JJFN SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended September 30, 1998 and September 30, 1997
(Unaudited)
Three Months Three Months
Ended Ended
9/30/98 9/30/97
----------- ----------
Net income (loss) $ 180,202 $ (155,756)
----------- ----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization expense 115,063 98,165
Depreciation expense 31,814 155,230
Gain on sale of model homes (289,693) (45,951)
Changes in assets and liabilities:
Decrease in miscellaneous assets 105,968 21,785
Increase(decrease) in accounts payable/accrued exp 222,087 (66,317)
Increase in unearned rental revenue 33,940 3,862
----------- ----------
Total adjustments 219,179 166,774
----------- ----------
Net cash provided by operating activities 399,381 11,018
----------- ----------
Cash flows from investing activities
Purchase of model homes (1,486,434) (4,488,301)
Proceeds from sale of model homes 1,341,189 234,548
Proceeds from sale of land - 1,716,956
Capital expenditures (14,594) -
Proceeds from note receivable of
divested segment - 212,500
----------- ----------
Net cash (used in)
investing activities (159,839) (2,324,297)
----------- ----------
Cash flows from financing activities:
Proceeds from mortgages payable 635,100 1,771,801
Principal payments on mortgages payable (361,231) (107,069)
Deferred financing costs (186,834) (59,857)
Proceeds from stockholder loans 258,000 145,094
Purchase of treasury stock (262,378) -
----------- -----------
Net cash provided by
financing activities 82,657 1,749,969
----------- -----------
Net increase (decrease) in cash 322,199 (563,310)
Cash at beginning of period 365,227 831,266
----------- -----------
Cash at end of period $687,426 $ 267,956
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid - $698,080 $467,247
See accompanying notes.
(5)
JJFN SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(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, 1998.
Note 2. "Bankruptcy-Remote" Special Purpose Subsidiaries
On July 7, 1997, the Company formed Model Funding I, LLC ("MFI"), and on July
9, 1998, formed Model Funding II, LLC ("MFII"), both wholly-owned "bankruptcy
remote" special purpose subsidiaries.
A bankruptcy-remote entity is established in a fashion intended to minimize
the possibility that the entity could become a debtor in a bankruptcy or
insolvency proceeding. A special-purpose entity is established with a limited
purpose. It is generally not authorized under its certificate of
incorporation to incur liabilities or engage in business except in ways that
are necessary or advisable in connection with the securitization in which it
is to be involved.
MFI and MFII were formed for the exclusive purpose of acquiring model homes
and leasing them back to a single major real estate developer and homebuilder
until such time as they are sold to third parties.
Model Funding I, LLC
The following is a breakdown of model home acquisitions and sales by MFI.
Quarter Units Amount Units Cost of Model
Ended Purchased Purchased Sold Homes Sold
- ---------- --------- ----------- ---- ------------
3/31/98 29 $ 7,091,507 - $ -
6/30/98 17 4,081,484 - -
9/30/98 20 6,120,097 4 861,040
--------- ----------- ---- ------------
Total 66 $17,293,088 4 $ 861,040
--------- ----------- ---- ------------
Model Homes on Lease at September 30, 1998 - 62 $16,432,048
(6)
Model Funding II, LLC
As of September 30, 1998, MFII has not acquired any model homes. MFII has
committed to acquire 54 model homes at an approximate cost of $10,700,000 from
an existing client. It is anticipated that this transaction will close prior
to the end of October 1998. The closing is subject to completion of due
diligence, receipt of satisfactory appraisals, formal documentation, and
successful completion of financing, for which it has received an oral
commitment.
Note 3. Commitments & Contingencies
In the ordinary course of business, the Company commits to purchase model
homes for leaseback to clients and purchase real estate for development,
selling the finished lots to its clients when development is completed. All
commitments are subject to change in size as well as closing time due to the
following; client commitments routinely change as clients determine their
actual needs; changes in economic conditions in a specific market place; land
acquisitions are typically subject to numerous conditions including, but not
limited to, the ability to obtain necessary government approvals for the
communities; and other factors affecting the homebuilding industry. The
Company has outstanding commitments to purchase model homes and real estate of
approximately $300 million.
Model home sales contracts
The Company has sale contracts pending on seventeen (17) model homes. The
aggregate sales price for the seventeen homes is $4,547,614, which the Company
originally purchased for $4,234,364.
Financing Activities
In order to finance its expansion, the Company conducts ongoing negotiations
with financial institutions to raise funds through debt and/or equity, and
is in various stages of negotiations relating to the following:
During August 1998, the Company engaged a major investment banking firm to act
as exclusive placement agent through November 30, 1998, in connection with two
specific offers and proposed sale by the Company of the Company's leased
backed notes or similar securities. The Company is in final negotiations and
expects to complete the two private placement transactions prior to the end of
October 1998, through its wholly-owned subsidiaries, Model Funding I, LLC and
Model Funding II, LLC. The transactions involve the sale of approximately
$45,000,000 in securities, which will be privately placed under rule 144A.
The transactions will be supported by an Additional Surety Bond issued by a
"AA" rated U.S. subsidiary of a major international insurer. The surety bonds
insure the timely payment by the lessee of the lease payments. In the event of
default by the lessee, the surety has an obligation to continue to make the
lease payments on a timely basis.
These debt offerings provide financing at more favorable fixed rates compared
to existing credit facilities, which will increase the Company's margins over
the life of the leases. The proceeds from the offering will be utilized to
pay-off existing first mortgage liens on properties currently owned by the
Company as well as the acquisition of $10.7 million in new model home
properties. In addition, $2-7 million in equity previously invested in the
properties will become available to the Company, which it will utilize to
acquire new revenue producing assets.
(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 into 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 with
terms ranging from 1-4 years.
Since its inception, the Company and its special purpose bankruptcy remote
subsidiary have purchased a total of 269 model homes and sold 106, resulting in
a portfolio of 163 model homes owned at September 30, 1998. All of the Company's
clients are major publicly traded homebuilders. The following is a summary of
model home purchases and sales by year since inception:
Fiscal Units Amount Units Cost of Model
Year Ended Purchased Purchased Sold Homes Sold
- ---------- --------- ----------- ---- ------------
6/30/96 61 $11,836,729 3 $ 503,165
6/30/97 75 14,512,772 23 4,437,087
6/30/98 110 26,170,860 49 8,892,378
6/30/99 23 7,590,196 31 6,278,362
--------- ----------- ---- ------------
Total 269 $60,110,557 106 $20,110,992
--------- ----------- ---- ------------
Model Homes on Lease at September 30, 1998 - 163 $39,999,565
Since inception, the Company has entered into one land acquisition and
development contract. On July 3, 1997, the developer 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 subsidiaries for
the three months ended September 30, 1998, and September 30, 1997 are
presented below.
Three Months Three Months
Ended Ended
September 30 September 30
1998 % 1997 %
--------------------------------
Revenues:
Lease revenue $1,220,861 16% $711,788 7%
Real estate option fees - -% 8,771 -%
Model home sales 6,418,788 84% 1,417,916 13%
Land sales - -% 8,591,956 80%
Interest income 29,610 -% 41,656 -%
---------------------------------
Total revenues $7,669,259 100% 10,772,087 100%
Costs and expenses:
Interest expense 771,236 10% 420,502 4%
Cost of model home sales 6,129,095 80% 1,371,965 13%
Cost of land sales - - 8,591,956 80%
Corporate 364,711 5% 290,026 2%
---------------------------------
Total costs and expenses 7,265,042 95% 10,674,449 99%
---------------------------------
Income before depreciation & amortization 404,217 5% 97,638 1%
Depreciation & amortization 146,877 2% 253,394 2%
---------------------------------
Income (loss) before income taxes 257,340 3% (155,756) (2%)
---------------------------------
Deferred income tax expense 77,138 1% - -
---------------------------------
Net income (loss) $180,202 2% (155,756) (2%)
=================================
Results of Operations:
Three Months Ended September 30, 1998 compared to September 30, 1997.
For the period from July 1, 1998 through September 30, 1998, the Company had
revenues of $7,669,259 of which lease revenues on model homes totaled
$1,220,861 and revenues from the sale of model homes were $6,418,788. Net
income for the period was $180,202 compared to a net loss of $155,756 for
the prior year fiscal period. The increase was primarily attributable to
increased gains on the sale of model homes.
The Company's lease revenues increased approximately $509,000 (a 72% increase)
during the three months ended September 30, 1998 as compared to the three
months ended September 30, 1997. This increase is due to additional lease
revenues generated from the purchase of $26,000,000 in model homes in the
twelve months ended September 30, 1998.
The Company generated no real estate option fee revenues for the three months
ended September 30, 1998. Real estate option fee revenues of $8,771 were
generated for the prior year quarter end. The decrease was due to the exercise
of the client's option to purchase resulting in the sale of a land parcel for
$8,591,956 on July 3, 1997.
(9)
Corporate costs increased from $290,026 for the quarter ended September 30,
1997 to $364,711 for the quarter ended September 30, 1998, representing a 26%
increase. This increase was attributable to the hiring of additional personnel
and increases in selling and marketing expenses.
Model Homes
Model homes on lease have increased to $39,999,565 at September 30, 1998 from
$27,724,621 at September 30, 1997, an increase of 44%.
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 9/30/98 9/30/98 9/30/97 9/30/97
- ------------------------------------------------------------------------------
Florida 38 $ 8,398,145 71 $ 13,491,664
New Jersey 76 19,644,793 22 4,420,508
New York 6 2,404,000 0 -
Colorado 13 2,854,187 20 4,293,240
Pennsylvania 23 5,166,369 10 2,230,500
Virginia 2 495,269 6 1,495,847
Texas 2 342,430 5 910,481
North Carolina 3 694,372 4 882,381
------- ------------- ------- ------------
Total 163 $ 39,999,565 138 $ 27,724,621
======= ============= ======= ============
A breakdown of lease rental revenues by state is as follows:
Lease Revenues Lease Revenues
From 7/1/98 From 7/1/97
State to 9/30/98 to 9/30/97
- ------------------------------------------------------------------------------
Florida $ 298,808 $ 424,849
New Jersey 547,834 25,253
New York 68,085 -
Colorado 98,080 122,000
Pennsylvania 156,115 45,330
Virginia 14,858 44,875
Texas 16,249 27,314
North Carolina 20,832 22,167
----------- -----------
Total $1,220,861 $ 711,788
=========== ===========
The average purchase price of model homes acquired by the Company since
inception was approximately $223,000. For the quarter ended September 30,
1998, the Company sold thirty-one (31) model homes for total sales price of
$6,418,788 less costs of sales of $6,129,095 for a net gain of $289,693.
(10)
Liquidity and Capital Resources
The Company's principal business, leasing of model homes and real estate
acquisition and contract development, 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 by equity capital contributions, loans made by shareholders, and
secured loans from financial institutions.
These capital contributions and loans have been adequate to permit the Company
to carry on operations to date. However, it may be necessary to finance the
expansion of operations over the coming fiscal year with additional funds
raised through the issuance of debt or equity securities. Should the need
arise, the Company will complete a securities offering of debt or equity prior
to the end of fiscal 1999. The net proceeds of an offering, together with
existing cash and credit facilities, as well as new facilities obtained on an
"as needed" basis, should enable the Company to finance its growing level of
operations. (See Financing Activities for additional information.)
Cash Flow - Three Months Ended September 30, 1998.
Net cash provided by operating activities comprised net income of $180,202,
offset by net adjustments for non-cash items of $142,816, plus a net change in
other operating assets and liabilities of $361,995.
Net cash used in investing activities comprised proceeds from sale of
model homes of $1,341,189, offset by $1,486,434 in model home purchases and
$14,594 in capital expenditures.
Net cash provided by financing activities comprised principal payments on
mortgages payable of $361,231, deferred financing costs of $186,834,
and purchase of treasury stock of $262,378, offset by proceeds from mortgages
payable of $635,100, and proceeds from stockholder loans of $258,000.
Trends in Operations
The Company's operations continue to grow at an accelerated rate. Such
growth has resulted from the ongoing acquisition of model homes under lease
and from the implementation of the Company's 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, 1998, purchases of model homes totaled
approximately $7,600,000, increasing total model homes on lease at September
30, 1998 to approximately $40,000,000.
(11)
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, as well as procuring the necessary financing to acquire these
products. 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: October 20, 1998
(13)
JJFN Services, Inc. - Form 10-Q
Three Months ended September 30, 1998 and September 30, 1997
Exhibit 11
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
------------- -------------
Basic:
Net income (loss) $ 180,202 $ (155,756)
Weighted average number of common 16,858,107 16,812,005
shares outstanding
------------- -------------
Basic earnings (loss) per share 0.01 (0.01)
============= =============
Diluted:
Net income (loss) $ 180,202
Diluted weighted average number of 18,471,896
common shares outstanding
-------------
Diluted earnings per share 0.01
=============
Diluted loss per common share has not been presented for the three months
ended September 30, 1997 because the effect of such calculation would be
anti-dilutive.
(14)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 687,426
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 709,329
<PP&E> 40,085,179
<DEPRECIATION> 722,985
<TOTAL-ASSETS> 42,079,248
<CURRENT-LIABILITIES> 2,225,064
<BONDS> 31,973,956
0
4,000
<COMMON> 17,012
<OTHER-SE> 7,859,216
<TOTAL-LIABILITY-AND-EQUITY> 42,079,248
<SALES> 7,639,649
<TOTAL-REVENUES> 7,669,259
<CGS> 7,047,208
<TOTAL-COSTS> 7,411,919
<OTHER-EXPENSES> 364,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 257,340
<INCOME-TAX> 77,138
<INCOME-CONTINUING> 180,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180,202
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
