10KSB40 1 x10k-301.txt JORDAN AMERICAN HOLDINGS U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 ----------------- Commission File Number 0-18974 Jordan American Holdings, Inc. ------------------------------ Florida 65-0142815 ---------------------------- ----------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 333 W. Vine Street, Suite 206 Lexington, KY 40507 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (859) 254-2240 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.001 par value ----------------------------- Check whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes [X] No [ ] Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of the Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The Company's revenues for fiscal year 2000 were $2,711,620. The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Company is $690,320 based on the closing price of $0.125 as of February 26, 2001, multiplied by 5,522,560 shares of common stock. As of February 26, 2000, the Company had a total of 10,421,266 shares of common stock outstanding. -------------- *Affiliates for the purpose of this item refer to the officers, directors, and/or persons or firms owning 5% or more of the Company's common stock, both of record and beneficially. 1 DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference: Portions of Proxy Statements for 2001 Annual Meeting - Part III INDEX PART 1 PAGE Item 1. Description of Business 2 Item 2. Description of Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for Common Equity and Related Stockholder Matters 6 Item 6. Management's Discussion and Analysis 7 Item 7. Financial Statements 8 Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 8 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 8 Item 10. Executive Compensation 9 Item 11. Security Ownership of Certain Beneficial Owners and Management 9 Item 12. Certain Relationships and Related Transactions 9 Item 13. Exhibits and Reports on Form 8-K 9 2 PART I Item 1. Business General ------- Jordan American Holdings, Inc. ("JAHI" or the "Company"), a Florida corporation incorporated in 1989, is a holding company whose principal wholly-owned subsidiary, Equity Assets Management, Inc. ("EAM") is an investment advisory firm that specializes in the management of accounts, the majority of which are held by semi-affluent individual clients and billed on an incentive fee basis, containing equity securities of United States public companies. EAM manages investment portfolios for individuals, trusts, corporate pension plans, other corporate accounts, foundations and mutual funds. EAM intends to continue to grow its assets under management for semi-affluent individuals and other qualified clients on an incentive fee basis. EAM plans to continue to diversify with respect to its client base by gathering assets under management from individual stock and mutual fund investors through its fixed advisory fee accounts and its mutual fund product that produces revenue based on a percentage of the assets under management. In 2001, EAM plans, with respect to its product line, to offer additional mutual fund products, including an insurance series developed for a variable annuity product. Incentive based advisory fees on assets under management for semi-affluent investors provide the largest portion of the Company's revenues. A semi-affluent investor generally has a total net worth greater than $1 million and less than $10 million. The assets of these and other clients have recently been declining primarily due to investment performance results achieved within the individual accounts. For the year ended December 31, 2000, no single client provided more than 5% of the Company's consolidated revenues. Accordingly, the loss of any single client would not have a material adverse effect on the Company's total investment management business. The investment objective of the individually held portfolios is significant capital appreciation or growth. EAM is compensated for its management of these accounts through two primary methods. EAM receives a fixed advisory fee based on the value of assets under management or an incentive based advisory fee based upon the account's annual performance results. The Company develops prospective clients through seminars, its web site (www.equityassets.com), sales representatives, referrals from clients, securities broker-dealers and other sources. The Company plans to expand its marketing and distribution activities through additional seminars in targeted geographical areas, additional strategic partnership relationships with securities broker-dealers and the internet by engaging in online marketing with strategic partners through web linking agreements. In addition to providing investment advisory services, the Company, through its other wholly-owned subsidiaries, operates a registered broker/dealer, a mutual fund servicing company, and a tax preparation and tax planning servicing company, which are described more fully under "Operations." Operations ---------- JAHI historically conducted its investment advisory business under the name Equity Assets Management. In 2000, JAHI formed EAM as a wholly-owned subsidiary and moved its investment advisory business into EAM. The Company managed 251 individual accounts with assets under management of approximately $38 million at December 31, 2000. Approximately 30% of the assets under management in these accounts pay the fixed percentage of assets fee of approximately 1.9% annually. Approximately 70% of the assets under management in these accounts are billed on an incentive fee basis, whereby the Company normally receives 20% of the net realized and unrealized gains, including dividends and interest, in the account following each year of management. Exceptional management performance results in the incentive fee based accounts may cause substantial revenues for the Company while poor performance in the same accounts may yield little or no revenues for the Company. Additionally, because incentive fee based contracts are billed on an annual basis for each respective client, there may be a delay in billing revenue for as long as eleven months from the time when actual account performance results were achieved. Thus, performance in these accounts may or may not benefit the revenues of the Company for nearly one year after such performance results were achieved, depending on the billing cycle of respective clients and the results of investments held in the portfolio during the interim period prior to the calculation of the billing. 3 Management believes, despite EAM's short term investment performance results, its long-term performance history for individually managed accounts provides a basis for marketing the Company's investment advisory services to a growing network of brokers, institutions, and affluent and semi-affluent individuals. At December 31, 2000, the Company's managed accounts, on average, have outperformed the S&P 500 Index on a fifteen-year average annual total return basis. Although past performance is not a guarantee of future results or of profitability of future recommendations, performance history is a very relevant factor in the selection of investment advisors. The Company also manages the Impact Total Return Portfolio (the "Portfolio"), a mutual fund with assets under management of approximately $4 million at December 31, 2000. The Company receives a management fee of 1.25% per annum calculated on the Portfolio's average daily net assets. Of this amount, the Company pays a sub-advisor .60% per annum of the Portfolio's average daily net assets for selecting the securities for the Portfolio. Management believes that a recently acquired strategic partnership with a retail broker/dealer and the recent performance results in calendar year 2000 (where the fund substantially outperformed its index) provides a basis for marketing the Portfolio. In 2001, EAM became the investment advisor for two additional mutual fund products, the Jordan 25 Fund and the Jordan 25 Variable Fund. The Company, through a privately held affiliate, manages the Jordan Index Fund, L.P. (the "JIF"), a limited partnership with assets of approximately $2 million. In exchange for providing administrative services, the Company receives 100% of any net income resulting from the incentive and/or management fees collected by the privately held affiliate. JIF invests in stock index futures contracts and other securities and receives as its fee 20% of the partnership's total profits. The Company operates a registered broker-dealer, IMPACT Financial Network, Inc. ("IFNI"), which is a wholly owned subsidiary of the Company and a member of the National Association of Securities Dealers, Inc. ("NASD") and the Securities Investor Protection Corporation ("SIPC"). Wallace Neal Jordan, Chief Executive Officer of JAHI, founded IFNI in 1986. Approximately 90% of EAM's individually managed accounts maintain brokerage accounts with IFNI for assets placed under EAM's management. IFNI is compensated for securities transactions on behalf of the Company's managed accounts by receipt of commissions for orders executed through Pershing & Co., a division of Donaldson, Lufkin, & Jenrette, a securities corporation. Pershing & Co., a member of SIPC, acts as clearing firm and custodian and processes all confirmations and monthly statements for EAM clients who choose to hold their accounts with IFNI. Clients may decide to custody their accounts at another brokerage institution of their own choosing. IFNI also serves as the national distributor for the Portfolio and other Impact Funds. IFNI receives a fee from the various funds in exchange for marketing and distributing the Funds. The fee varies according to the class of shares distributed. It is used to pay for marketing and distribution expenses related to the mutual fund,including sales commissions. Management believes that IFNI will continue to be a source of revenue for the Company primarily through the commissions earned on securities transactions. The Company operates a mutual fund servicing company, Impact Administrative Services, Inc. ("IASI"), which is a wholly owned subsidiary of the Company and a registered transfer agent with the Securities and Exchange Commission (the "SEC") and a member of the Investment Company Institute. IASI provides administrative, dividend disbursement and transfer agent services to the Portfolio and the other Impact Funds. The Company currently receives a fee of .35% per annum of the Portfolio's average daily net assets to pay for costs associated with the administration of the Portfolio. The Company believes that IASI may become a potential revenue source for the Company by providing similar services to other funds and outside small mutual fund families. The Company acquired the assets of a tax preparation and tax planning services company in late 2000 through Impact Tax & Business Services, Inc., (ITABS) a wholly owned subsidiary of the Company formed in November 2000. ITABS, at December 31, 2000 provided tax planning and tax preparation services to approximately 181 individual clients, 55 individuals with sole proprietorships and 12 small businesses. The Company believes ITABS may continue to grow and become a stable revenue source for the Company. Total assets under management and corporate earnings may substantially increase or decrease due to stock market conditions, including the onset of a long-term declining, or bear market; performance returns as influenced by EAM's investment advisory decisions; expense and related effectiveness of marketing efforts; and competition from other investment advisory companies and mutual funds. Other indirect influences, such as interest rate changes by the Federal Reserve Board, economic conditions such as high inflation and/or recession, 4 international events, acts of terrorism, and other factors may also affect assets under management and corporate earnings. The Industry ------------ Revenues in the investment advisory business are determined primarily by fees based on the value of assets under management and on investment performance results. Therefore, the principal determinants of growth in the industry are the growth of individual assets under management and achieving positive investment performance results. In management's judgment, the major factors which influence growth in the industry are: (1) changes in the market value of securities; (2) net cash flow into or out of existing accounts; (3) gains of new or losses of existing accounts; and (4) the general stock market condition. In general, assets under management in the investment advisory business in the United States as a whole have increased steadily to approximately $17 trillion, according to the Directory of Registered Investment Advisors prepared by Money Market Directories, Inc. This steady increase can be attributed to the fact that Americans shifted household financial assets to securities in a trend that started after World War II, but the trend increased particularly in the last decade. According to the Securities Industry Association ("SIA"), in 1980, 53% of a household's liquid financial assets on average were held in bank deposits, while only 32% were held in equities. Today, there has been a substantial reversal: approximately 44% are held in equities and 23% in bank deposits. The expansion of equity ownership can be primarily attributed to declining interest rates and the prolonged trend, until recently, of rising stock prices, which have prompted many U.S. households to purchase and hold securities. Assets under management could substantially decrease, however, due to changes in stock market conditions, including the onset of a long-term declining or bear market. However, EAM believes that a return to the historical pattern of cyclical market movements would provide a competitive advantage for EAM due to its experience with investing during volatile times. Competition ----------- EAM competes to manage investment portfolios for individuals, trusts, corporate pension plans, other corporate accounts, and foundations. Management believes that the most important factors affecting competition in the investment advisory business are: (1) the abilities and reputations of investment advisors; (2) the differences in the investment performance results achieved by investment advisory firms; (3) the stability of a firm's workforce, especially of portfolio managers; (4) an effective marketing force and distribution system; and (5) quality of client services. EAM has many competitors, including other investment advisors, investment companies, broker-dealers and financial planners in addition to investment alternatives offered by insurance companies, banks, credit unions, securities dealers and other financial institutions. Many of these institutions possess large sales forces and significant financial resources, are able to engage in more extensive marketing and advertising than EAM and may offer accounts insured by the Federal Deposit Insurance Corporation. EAM's investment strategy centers on understanding the general trend of the market as assisted by certain proprietary analysis. That strategy, coupled with its long-term track record and the experience of its portfolio managers, make it a viable alternative to traditionally-managed mutual funds and money managers who have less experience and thereby disregard general market conditions as part of their investment strategy. Regulation ---------- EAM is registered with and subject to regulation by the SEC under the Investment Advisers Act of 1940 and, where applicable, under state advisory laws. EAM is also subject to regulation by the SEC under the Investment Company Act of 1940. IFNI is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act") and, where applicable, under state securities laws, and is regulated by the SEC, state securities administrators and the NASD. IASI is registered as a transfer agent under the Exchange Act and is regulated by the SEC. The privately held affiliate that manages JIF is regulated by the Commodity Futures Trading Commission and the National Futures Association. By law, investment advisors and broker-dealers are fiduciaries and are required to serve their clients' interests with undivided loyalty. There is a potential conflict of interest because of the affiliation between EAM and IFNI. While EAM believes that its existing relationships are in compliance with applicable laws and regulations, because of this potential conflict of interest, the SEC may closely examine these relationships. 5 Many aspects of the financial services industry involve substantial liability risks, including exposure under federal and state securities laws in connection with the distribution of securities and investment advisor activities. Although the Company currently maintains errors and omission insurance policies insuring against this risk, such insurance does not necessarily protect the Company against loss in all events. There can be no assurance that any changes to existing laws, regulations or rulings promulgated by government entities having jurisdiction over the Company's investment advisory, broker-dealer, investment company and commodities trading business will not have an adverse effect upon the business of the Company. Employees --------- At March 1, 2001, the Company employed 12 full-time personnel, three of whom are executive officers of the Company. The Company utilizes the services of independent contractors to assist the employees in the operation of the Company's business. Item 2. Properties The Company currently maintains its headquarters at 333 West Vine Street, Suite 206, Lexington, Kentucky. The Company also currently has satellite offices in Boston, Massachusetts, Pittsburgh, Pennsylvania and Steamboat Springs, Colorado. All current properties are leased for a total of approximately $5,400 per month. Item 3. Legal Proceedings In connection with a late 1997 examination of the Company, the SEC raised certain issues regarding possible violations of the federal securities laws in connection with the private placement of debentures of Boston Restaurant Associates, Inc. Management of the Company does not expect the resolution of this matter to have any material adverse effect on the Company's financial condition, results of operations or business. Other than the foregoing, the Company is not a party in any material litigation, and management has no knowledge of any threatened material litigation against the Company. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the fiscal year covered by this report, no matters were submitted to a vote of security holders through the solicitation of proxies or otherwise. PART II Item 5. Market for Common Equity and Related Stockholder Matters Market for Common Stock ----------------------- The Company's common stock currently trades on the OTC Bulletin Board under the symbol "JAHI." The following are the high and low sales prices for JAHI for the two-year period ended December 31, 2000. Such prices may represent high and low bid quotations or prices between dealers in securities and do not include retail markup, markdown, or commissions and may not necessarily represent actual transactions. Common Stock Prices Year Ended December 31, 1999 High Low First Quarter $0.23 $0.08 Second Quarter $0.20 $0.11 Third Quarter $0.16 $0.06 Fourth Quarter $0.19 $0.05 Year Ended December 31, 2000 High Low First Quarter $0.42 $0.20 Second Quarter $0.38 $0.13 Third Quarter $0.29 $0.15 Fourth Quarter $0.32 $0.13 On February 26, 2001, the closing price of the Company's common stock was $0.125. As of February 26, 2001, approximately 813,000 shares of its common stock were held in accounts of EAM clients, which represented approximately 8% of the Company's outstanding shares of common stock as of December 31, 2000. Wallace Neal Jordan owned approximately 33% of the Company's outstanding shares of common stock at December 31, 2000. 6 Dividends --------- COMMON ------ The Company has not paid or declared cash dividends on its common stock since inception and does not anticipate paying dividends in the foreseeable future. At December 31, 2000, the Company's policy was to retain all earnings for application in its business. Payment of future cash dividends is at the discretion of the Board of Directors and will depend upon earnings, financial requirements of the Company and other such factors as the Board of Directors may deem relevant. PREFERRED --------- From February 1993 until June 30, 1998, the Company made semi-annual cash dividend payments on its cumulative convertible non-voting preferred stock at a rate of 8% per annum. The Company did not make any dividend payments on this stock in 1999 and 2000. On December 29, 2000, the company entered into a preferred stock exchange agreement (the "Agreement") with its sole preferred shareholder (the "Shareholder"). The Shareholder was the owner of 3,000,000 shares of the Company's 8% Convertible Redeemable Cumulative Preferred Stock (the "Outstanding Preferred Stock"). The Company was in arrears with respect to the payment of dividends on the Outstanding Preferred Stock, which arrearages totaled $600,000 as of December 31, 2000 (the "Dividend Arrearage"). The Agreement provided that the Company declare and pay a cash dividend of $100,000 on the Outstanding Preferred Stock and exchange 3,500,000 shares of a new 2000 Convertible Preferred Stock (the "New Preferred Stock") for the 3,000,000 shares of the Outstanding Preferred Stock and cancellation of the $500,000 balance of the Dividend Arrearage. The New Preferred Stock is convertible into JAHI common stock at the rate of one share of common stock for each $3.50 of the face amount of the New Preferred Stock and will have a dividend rate of 3% for each of the calendar years 2001 through 2003, 4% for calendar year 2004, 5% for calendar year 2005, 6% for calendar year 2006, 7% for calendar year 2007, and 8% for calendar year 2008 and thereafter. The Company relied upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended, for the issuance of the New Preferred Stock. Shareholders ------------ At December 31, 2000, there were 10,421,266 outstanding shares of the Company's common stock and 247 shareholders of record. Item 6. Management's Discussion and Analysis Safe Harbor for Forward-Looking Statements ------------------------------------------ Information found in this report contains forward-looking implications, which may differ materially from actual results due to the success, or lack thereof, of JAHI's management decisions, marketing and sales effectiveness, investment decisions, and the management of clients' stock portfolios and pooled investments as influenced by market conditions, Federal Reserve Board policy, economic trends, political developments, domestic and international events, and other factors. There can be no guarantee that any forward-looking implications discussed and/or referenced in this report will have any impact, positive or negative, upon the earnings, value and/or operations of the Company. Results of Operations --------------------- Net loss for 2000 was $4,013 or $0.02 per common share and share equivalent compared to a net income of $1,152,749 or $0.09 per common share and share equivalent for 1999. The decrease in net income was primarily caused by the unrealized and realized losses on trading equity securities during 2000. Revenues from investment advisory fees for 2000 totaled $2,753,348 compared to $1,975,232 for 1999, an increase of 39%. Realized losses on trading equity securities for 2000 were $283,407 compared to realized gains on trading equity securities of $5,030 for 1999. Commission revenues decreased for 2000 to $241,679, as compared to $351,429 for 1999, a decrease of approximately 31%. This decrease was primarily due to a decrease in the volume of securities transactions for client accounts by the Company based on its investment strategy, market conditions and other factors. 7 Selling, general, and administrative ("SG&A") expenses of $2,221,318 were incurred during 2000, compared to SG&A expenses of $1,771,540 for 1999, an increase of approximately 25%. The increase in SG&A expenses stems primarily from an increase in selling expenses related to fees paid to investment advisory sales representatives and an increase in bonuses tied to investment performance achieved in the accounts billed on an incentive-basis. Total other income (loss) was ($452,446) for 2000, compared to $592,598 for 1999. The decrease in other income can be primarily attributed to unrealized losses on trading equity securities of $619,943 in 2000. Liquidity and Capital Resources ------------------------------- At December 31, 2000, the Company had cash and cash equivalents of $1,029,173 versus $580,757 at December 31, 1999. This increase is primarily due to the increase in net cash provided by operating activities. Marketable securities were valued at $328,609 at December 31, 2000, as compared to $607,882 at December 31, 1999, a decrease of approximately 46%. The decrease in marketable securities can be primarily attributed to a significant decrease in the market value of several of the Company's holdings at December 31, 2000 when compared to the previous year-end value. Net investment advisory fees receivable were $195,253 at December 31, 2000, as compared to $846,907 at December 31, 1999, a decrease of approximately 77%. This decrease can be primarily attributed to significantly lower incentive-based billings in the fourth quarter of 2000 as compared to the fourth quarter of 1999. Accounts payable and accrued expenses were $195,359 at December 31, 2000, as compared to $387,986 at December 31, 1999, a decrease of approximately 50%. The decrease in accounts payable and accrued expenses can be primarily attributed to lower accrued expenses for fees due investment advisor sales representatives. Accruals are based upon actual expenses incurred as well as unbilled expenses. Net cash provided by operating activities for fiscal year 2000 was $834,502 compared to $166,909 for the same period in 1999. This change was due primarily to a decrease in investment advisory fees receivables. Net cash used in investing activities for fiscal year 2000 was $286,086 compared to $81,774 for 1999. This change was due primarily to the issuance of a note receivable related to the Company's investment in a start-up business as an "angel" investor. Net cash used in financing activities for fiscal year 2000 was $100,000 compared to $0.00 for 1999. This change was due primarily to the Board of Directors' decision to pay a Preferred Stock dividend during 2000. Management of the Company believes short-term cash needs will continue to be met through management fees, brokerage revenues and/or the liquidation of marketable securities. At December 31, 2000, the Company had $1,357,782 in cash and marketable securities. Item 7. Financial Statements Financial statements contained in this report reflect no change from the preceding year in any accounting principles or practices or in the method of application of those principles or practices. Information with respect to this item is contained in the consolidated financial statements beginning on page 11 of this report. Such information is incorporated herein by reference. Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act. The response to this item will be included in a definitive proxy statement filed within 120 days after the end of the Company's fiscal year, which response is incorporated herein by reference. 8 Item 10. Executive Compensation The response to this item will be included in a definitive proxy statement filed within 120 days after the end of the Company's fiscal year, which response is incorporated herein by reference. Item 11. Security Ownership of Certain Beneficial Owners and Management The response to this item will be included in a definitive proxy statement filed within 120 days after the end of the Company's fiscal year, which response is incorporated herein by reference. Item 12. Certain Relationships and Related Transactions The response to this item will be included in a definitive proxy statement filed within 120 days after the end of the Company's fiscal year, which response is incorporated herein by reference. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits: See Exhibit Index. (b) Reports on Form 8-K: None Exhibit Index Exhibit Description Page Number 3.1 Articles of Incorporation, as amended (1) 3.2 Bylaws, as amended (2) 4.1 Specimen Certificate of Common Stock (2) 4.2 Specimen Warrant Certificate (2) 4.3 Form of Warrant Agreement, as amended (2) 4.4 Form of IPO Underwriter's Warrant (2) 4.5 Specimen Certificate of 2000 Variable Rate Convertible Cumulative Preferred Stock (1) 10.1 Employment Agreement between the Company and Wallace Neal Jordan (3) 10.2 Non-Competition Agreement between the Company and Wallace Neal Jordan (3) 10.3 Assets Purchase Agreement by and among IMPACT Tax and Business Services, Inc; A.J. Elko & Associates, LLC; and A.J. Elko Individually, dated as of November 20, 2000 (1) 21 Subsidiaries of the Company (1) 23.1 Spicer Jeffries & Co., Consent (1) (1) Filed herewith. (2) Incorporated herein from certain exhibits to the Company's Registration Statement on Form S-1, File No. 33-31324, as declared effective by the Securities and Exchange Commission on June 5, 1990. (3) Incorporated herein from certain exhibits to the Company's Current Report on Form 8-K dated August 15, 1991. 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JORDAN AMERICAN HOLDINGS, INC. (Registrant) Dated March 26, 2001 By: /s/ Wallace Neal Jordan --------------------------------- Wallace Neal Jordan, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Dated March 26, 2001 By: /s/ Wallace Neal Jordan --------------------------------- Wallace Neal Jordan, Chairman of the Board, Chief Executive Officer, Chief Investment Officer Dated March 26, 2001 By: /s/ Charles R. Clark --------------------------------- Charles R. Clark, Director, Chief Market Analyst, Senior Assistant Portfolio Manager Dated March 26, 2001 By: /s/ A.J. Elko --------------------------------- A.J. Elko, Director, Chief Operating Officer, Chief Financial Officer Dated March 26, 2001 By: /s/ Terri Williams Abady --------------------------------- Terri Williams Abady, Director Dated March 26, 2001 By: /s/ Herald Stout --------------------------------- Herald Stout, Director 10 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS TABLE OF CONTENTS ================= Page ---- Independent Auditors' Report 12 Consolidated Balance Sheets 13 Consolidated Statements of Operations 15 Consolidated Statements of Changes in Stockholders' Equity 16 Consolidated Statements of Cash Flows 17 Notes to Consolidated Financial Statements 19 11 INDEPENDENT AUDITORS' REPORT To the Board of Directors Jordan American Holdings, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Jordan American Holdings, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jordan American Holdings, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. SPICER, JEFFRIES & CO. Denver, Colorado March 16, 2001 12 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ===========================
December 31, 2000 1999 ---- ---- ASSETS ------ ASSETS: Cash and cash equivalents $ 1 029 173 $ 580 757 Marketable securities 328 609 607 882 Investment advisory fees receivable, net of allowance for doubtful accounts of $27,820 195 253 846 907 Receivable from clearing broker -- 5 435 Deposit with clearing broker 25 000 25 000 Other receivables, net of allowance for doubtful accounts of $127,177 and $63,750 73 548 79 638 Other assets 46 051 101 288 Intangible assets, net of accumulated amortization of $939 (Note 5) 83 564 -- Property, equipment and leasehold improvements, at cost net of accumulated amortization and deprecation of $169,110 and $133,005, respectively 110 148 88 229 Receivable from officer (Note 5) 61 697 26 556 Notes receivable (Note 3) 650 000 500 000 ----------- ----------- TOTAL ASSETS $ 2 603 043 $ 2 861 692 =========== ===========
The accompanying notes are an integral part of these statements. 13 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS =========================== (Continued)
December 31, 2000 1999 ---- ---- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ LIABILITIES: Accounts payable and accrued expenses $ 195 359 $ 387 986 Payable to officer (Note 5) 26 166 -- Deferred investment advisory fees 27 025 35 300 ----------- ----------- TOTAL LIABILITIES 248 550 423 286 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 8 and 9) STOCKHOLDERS' EQUITY (Note 4): Variable rate, cumulative, convertible, non-voting preferred stock, $0.01 par value, $1.00 liquidation value, authorized 5,000,000 shares; issued and outstanding 3,500,000 shares 35 000 -- 8% cumulative, convertible, non-voting preferred stock, $0.01 par value, $1.00 liquidation value, authorized 5,000,000 shares; issued and outstanding 3,000,000 shares -- 30 000 Common stock, $0.001 par value, authorized 20,000,000 shares; issued and outstanding 10,421,266 shares 10 421 10 421 Additional paid-in capital 4 417 953 4 502 853 Deficit (2 108 881) (2 104 868) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 2 354 493 2 438 406 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2 603 043 $ 2 861 692 =========== ===========
The accompanying notes are an integral part of these statements. 14 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ===================================== Year Ended December 31, 2000 1999 ---- ---- REVENUE: Investment advisory fees $ 2 753 348 $ 1 975 232 Commission income 241 679 351 429 Realized gain (loss) on trading securities (283 407) 5 030 ----------- ----------- TOTAL REVENUE 2 711 620 2 331 691 ----------- ----------- OPERATING EXPENSES: Salaries and related expenses 743 679 643 797 Commission expense 519 292 368 143 General and administrative 245 368 277 909 Professional fees 224 679 156 174 Communications and data processing 96 482 85 562 Licenses, registrations and franchise taxes 59 658 22 702 Insurance 74 731 52 325 Travel 72 673 20 428 Marketing 62 577 3 181 Clearing costs 54 992 53 777 Depreciation and amortization 37 044 46 842 Occupancy 30 143 40 700 ----------- ----------- TOTAL OPERATING EXPENSES 2 221 318 1 771 540 ----------- ----------- OPERATING INCOME 490 302 560 151 ----------- ----------- OTHER INCOME: Unrealized gain (loss) on trading securities (619 943) 438 429 Interest and dividends 149 477 91 366 Other, net 18 020 62 803 ----------- ----------- TOTAL OTHER INCOME (LOSS) (452 446) 592 598 ----------- ----------- NET INCOME BEFORE INCOME TAXES 37 856 1 152 749 Provision for state income taxes (Note 6) (41 869) -- ----------- ----------- NET INCOME (LOSS) $ (4 013) $ 1 152 749 =========== =========== Basic and diluted earnings (loss) per common share $ (.02) $ .09 =========== =========== Basic and diluted weighted-average number of common shares outstanding 10 421 266 10 421 266 =========== =========== The accompanying notes are an integral part of these statements. 15 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ==========================================================
Preferred Stock Common Stock Additional Total $ 0.01 Par Value $ 0.001 Par Value Paid-in Stockholders' Shares Amount Shares Amount Capital Deficit Equity ------ ------ ------ ------ ------- ------- ------ BALANCES, December 31, 1998 3 000 000 $ 30 000 10 421 266 $ 10 421 $ 4 502 853 $(3 257 617) $ 1 285 657 Net Income -- -- -- -- -- 1 152 749 1 152 749 ----------- ----------- ---------- ----------- ----------- ----------- ----------- BALANCES, December 31, 1999 3 000 000 30 000 10 421 266 10 421 4 502 853 1 152 749 1 152 749 Retirement of preferred stock (3 000 000) (30 000) -- -- (2 970 000) -- (3 000 000) Issuance of preferred stock 3 500 000 35 000 -- -- 3 465 000 -- 3 500 000 Dividends on preferred stock -- -- -- -- (600 000) -- (600 000) Issuance of stock options in connection with asset purchase -- -- -- -- 20 100 -- 20 100 Net loss -- -- -- -- -- (4 013) (4 013) ----------- ----------- ---------- ----------- ----------- ----------- ----------- BALANCES, December 31, 2000 3 500 000 $ 35 000 10 421 266 $ 10 421 $ 4 417 953 $(2 108 881) $ 2 354 493 =========== =========== ========== =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 16 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ===================================== INCREASE (DECREASE) IN CASH
Year Ended December 31, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (4 013) $ 1 152 749 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 37 044 46 842 Decrease in receivable from clearing broker 5 435 98 453 Decrease (increase) in other receivables 11 915 (48 067) (Increase) decrease in investment advisory fees receivable 651 654 (800 922) (Increase) decrease in trading marketable securities 279 273 (444 872) (Increase) decrease in other assets 56 284 (51 173) Increase (decrease) in accounts payable and accrued expenses (194 815) 208 302 Increase (decrease) in deferred investment advisory fees (8 275) 5 597 ----------- ----------- Net cash provided by operating activities 834 502 166 909 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in receivable from officer (35 141) (11 556) Increase in payable to officer 26 166 -- Capital expenditures, net (42 111) (70 218) Issuance of note receivable (150 000) -- Purchase of assets from related entity (85 000) -- ----------- ----------- Net cash used in investing activities (286 086) (81 774) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on preferred stock (100 000) -- ----------- -----------
The accompanying notes are an integral part of these statements. 17 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ===================================== INCREASE (DECREASE) IN CASH (CONTINUED)
Year Ended December 31, 2000 1999 ---- ---- NET INCREASE IN CASH AND CASH EQUIVALENTS 448 416 85 135 CASH AND CASH EQUIVALENTS, beginning of year 580 757 495 622 ----------- ------------ CASH AND CASH EQUIVALENTS, end of year $ 1 029 173 $ 580 757 =========== ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 3 608 $ 5 766 =========== ============ Income taxes paid $ 52 851 $ -- =========== ============ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of preferred stock for retirement of preferred stock and dividends in arrears $ 3 500 000 $ -- =========== ============ During the year ended December 31, 2000, the Company purchased assets from a related entity for cash and common stock options. In connection with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $ 107 288 Cash paid (85 000) Common stock options issued (20 100) ----------- Liabilities assumed $ 2 188 ===========
The accompanying notes are an integral part of these statements. 18 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION ------------ Jordan American Holdings, Inc. and Subsidiaries (JAHI/the Company) was incorporated in Florida in May 1989. JAHI historically conducted its investment advisory business under the name Equity Assets Management. In 2000, JAHI formed Equity Assets Management, Inc. ("EAM"), a wholly owned subsidiary, and moved its investment advisory business into that entity. EAM provides investment advisory and portfolio management services to individual investors, pooled accounts and its mutual fund with its customers located substantially in the United States. EAM is registered as an investment advisor under the Investment Advisor Act of 1940. The Company also owns 100% of the issued and outstanding common stock of IMPACT Financial Network, Inc. (IFNI), IMPACT Administrative Services, Inc. (IASI) and IMPACT Tax and Business Services, Inc. (ITABS). IASI provides operational and administrative support to Impact Management Investment Trust (see Note 2). EAM's customer investment transactions are primarily brokered through IFNI, a registered broker-dealer in securities acting as a non-clearing introducing broker. ITABS, created in September 2000, provides tax preparation and tax planning services to individuals and small businesses (see Note 5). The accompanying consolidated financial statements include the accounts of JAHI and its subsidiaries; all significant intercompany transactions have been eliminated during consolidation. SIGNIFICANT ACCOUNTING POLICIES ------------------------------- Investment advisory fees received in advance are deferred and amortized into income over the period in which services are performed. Investment advisory fees based on a percentage of the annual increase in the market value of a customer's portfolio (including interest and dividends) are recognized at the contract anniversary date. Fees due sales representatives are recognized when such fees are earned. Commission income is recognized on a settlement date basis, which does not differ materially from the trade date basis of accounting. For purposes of the statements of cash flows, the Company considers money market funds at brokers with maturities of three months or less to be cash equivalents. 19 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------- Marketable securities consist principally of corporate stocks. These securities are carried at market value, as determined by nationally recognized securities exchanges. Restricted securities are valued based on the judgment of the Company's management reflecting various factors as to the amount that the Company might reasonably expect to receive upon disposition to a willing purchaser. Consideration is given to factors such as earnings history, financial condition, recent sales prices of the issuer's securities and the proportion of securities owned. The cost of marketable securities was $613,373 and $272,703 at December 31, 2000 and 1999 respectively. The Company has entered into an agreement with a clearing broker that requires a minimum restricted cash balance of $25,000. Due to the restricted nature of the cash deposit, it is not considered a "cash equivalent" for financial reporting purposes. Property, equipment and leasehold improvements are carried at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the related assets ranging from three to seven years. Intangible assets are amortized on a straight-line basis over a period of fifteen years. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Earnings per share requires presentation of both basic earnings per common share and diluted earnings per common share. Common stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive. Net income (loss) per common share has been adjusted to reflect preferred stock dividends paid or in arrears of $240,000 for the years ending December 31, 2000 and 1999 (see Note 4). The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. Certain 1999 amounts have been reclassified to conform to the current year presentation. 20 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== (Continued) NOTE 2 - IMPACT MANAGEMENT INVESTMENT TRUST The Company formed Impact Management Investment Trust (the Trust), which is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company (mutual fund). Impact Total Return Portfolio (the Portfolio) is the initial Series of the Trust. EAM is the investment advisor of the Trust and IFNI is the primary distributor of the Trust. IFNI executed the majority of the Trust's transactions through April 30, 1999. At December 31, 2000 and 1999, the market value of the Company's investment in the Portfolio was $1,348 and $-0-, respectively, which is included in marketable securities in the accompanying consolidated balance sheets. As investment advisor of the Portfolio, the Company receives an annual investment advisory fee equal to 1.25% of the Portfolio's average daily net assets. Of this amount, 60 basis points is paid to the sub advisor of the Trust. NOTE 3 - NOTES RECEIVABLE The Company owns a $500,000 variable rate convertible subordinated debenture from Boston Restaurant Associates, Inc. (BRAI). The principal balance of the debenture is due and payable on December 31, 2011. The debenture has a conversion price of $1.25 per share and bears interest at a rate of 12% for 1999 and 14% thereafter. In connection with the purchase of the debenture, the Company also acquired, at no cost, warrants to subscribe for the purchase from BRAI up to 500,000 fully paid and nonassessable shares of BRAI's common stock. The purchase rights represented by the warrants are exercisable by the Company, in whole or in part, at any time through December 31, 2006, at an exercise price of $3.00 per share. In March 2000, the Company made a loan of $150,000 represented by an unsecured Convertible Subordinated Bridge Note, to an unaffiliated entity. The note bears interest at 10% and matures on May 31, 2001. The Company is entitled to receive a 4% equity interest in this entity if and when it completes a public offering of its securities. The note is convertible into Series A Convertible Preferred Stock of the entity. The carrying value of the above notes receivable approximates the fair market value as estimated by management, after considering such factors as current interest rates, liquidity, conversion terms and the credit worthiness of the borrowers. The Company's management has estimated the value of the BRAI warrants to be $-0- at December 31, 2000 and 1999. This determination was made considering primarily the current value of the underlying common stock and the current illiquidity of the warrants. 21 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== (Continued) NOTE 4 - STOCKHOLDERS' EQUITY At December 31, 2000, the Company has stock warrants outstanding entitling the warrant holder to acquire 1,113,000 shares of common stock at $.50 per share expiring June 5, 2010. The Company also has outstanding Underwriter Warrants related to the initial public offering entitling the Company's president to purchase 44,545 units (five shares of common stock and five stock warrants; two warrants entitle the holder to purchase one share of common stock for $.60 per share) of the Company at a price of $2.58 per unit expiring through January 8, 2011. JAHI has authorized 5,000,000 shares of $0.01 par value preferred stock. The Board of Directors is authorized to issue preferred stock in one or more series, to determine the rights thereto, and to fix the number of shares on any series of preferred stock and the designation of any such series. The Company issued 3,000,000 shares of 8% cumulative, convertible, non-voting preferred stock to a customer of EAM in a private placement offering. In connection with this offering, 750,000 shares of common stock were given to the Company to distribute to the preferred shareholder by three officers of the Company for no additional consideration. From February 1993 until June 30, 1998, the Company made semi-annual cash dividend payments on its cumulative convertible non-voting preferred stock at a rate of 8% per annum. The Company did not make any dividend payments on this stock in 1999 and 2000. On December 29, 2000, the Company entered into a preferred stock exchange agreement (the "Agreement") with its sole preferred shareholder (the "Shareholder"). The Shareholder was the owner of 3,000,000 shares of the Company's 8% Convertible Redeemable Cumulative Preferred Stock (the "Outstanding Preferred Stock"). The Company was in arrears with respect to the payment of dividends on the Outstanding Preferred Stock, which arrearages totaled $600,000 as of December 31, 2000 (the "Dividend Arrearage"). The Agreement provided that the Company declare and pay a cash dividend of $100,000 on the Outstanding Preferred Stock and exchange 3,500,000 shares of a new 2000 Convertible Preferred Stock (the "New Preferred Stock") for the 3,000,000 shares of the Outstanding Preferred Stock and cancellation of the $500,000 balance of the Dividend Arrearages. The New Preferred Stock is convertible to JAHI common stock at the rate of one share of common stock for each $3.50 of the face amount of the New Preferred Stock and will have a dividend rate of 3% for each of the calendar years 2001 through 2003, 4% for calendar year 2004, 5% for calendar year 2005, 6% for calendar year 2006, 7% for calendar year 2007, and 8% for calendar year 2008 and thereafter. In connection with the original preferred stock offering, the Company obtained "key man" life insurance on the Company's president, in the amount of $3,750,000. The shareholder is the direct beneficiary and, upon the death of the Company's president, would receive the insurance proceeds in redemption of the New Preferred Stock. In addition, the Company maintains life insurance on certain officers aggregating $1,000,000, with the Company as the primary beneficiary. 22 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== (Continued) NOTE 5 - RELATED PARTY TRANSACTIONS The Company has a loan to an officer bearing interest at a rate of 10% and 6% per annum in the amount of $61,697 and $26,556 at December 31, 2000 and 1999, respectively. On November 30, 2000, the Company purchased certain assets of a tax preparation and tax planning services company from an officer and director of JAHI valued at $105,100 as determined by the Board of Directors of the Company. The purchase included a client database in the amount of $71,025 and goodwill of $13,478, which are included on the accompanying balance sheets as intangible assets. The Company issued 100,500 stock options valued at $20,100 as part of the purchase price. In connection with the purchase, the Company owes the officer $26,166 at December 31, 2000. In 1994, the Company's president established the Jordan Index Fund, L.P. (the "Fund"). The Fund engages in the speculative trading of stock index futures contracts, and may occasionally trade in equity securities and stock options. The Fund is administered by its general partner, Jordan Assets, Ltd. Jordan Assets, Ltd. is not a subsidiary of JAHI, although JAHI is registered as a principal of Jordan Assets, Ltd. with the Commodity Futures Trading Commission. All trading decisions for the Fund are made by Jordan Assets, Ltd. Certain administrative functions are provided to the Fund by JAHI in return for the fees earned by Jordan Assets, Ltd. No such fees were earned during 2000 and 1999. NOTE 6 - INCOME TAXES For the year ended December 31, 2000, the Company utilized approximately $980,000 of its net operating loss carryforward to offset taxes currently payable. The tax effect of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are primarily attributable to net operating loss carryforwards for U.S. income tax purposes. The difference between net income for financial statement purposes and net income for income tax purposes is primarily due to realized and unrealized losses of approximately $903,000 recognized for financial reporting purposes and not for income tax reporting purposes. As of December 31, 2000 and 1999, the Company had approximately $2,010,000 and $2,990,000, respectively in pretax U.S. net operating loss carryforwards, expiring through the year 2018. A large portion of such net operating loss carryforwards were incurred prior to the August 15, 1991 reverse acquisition of JAHI and its subsidiaries, and as such, management of the Company anticipates restrictions on the use of these carryforwards due to provisions of Section 382 of the U.S. Internal Revenue Code. 23 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== (Continued) NOTE 6 - INCOME TAXES (CONTINUED) The deferred tax assets that result from such operating loss carryforwards of approximately $680,000 and $1,016,600 at December 31, 2000 and 1999, respectively, have been fully reserved for in the accompanying consolidated financial statements. During the years ended December 31, 2000 and 1999, the valuation allowance established against the net operating loss carryforwards decreased by $336,600 and $273,400, respectively. As of December 31, 2000 and 1999, the Company also had U.S. net capital loss carryforwards of approximately $545,000 and $277,000, respectively, which expire through 2005. The deferred tax assets of approximately $185,000 in 2000 and $94,000 in 1999 that result from the capital loss carryforwards have been fully reserved for in the accompanying consolidated financial statements. During the years ended December 31, 2000 and 1999, the valuation allowance established against the capital loss carryforwards increased (decreased) by $268,000 and $(5,000), respectively. NOTE 7 - STOCK OPTIONS During August 1991, the Board of Directors of JAHI approved the Long-Term Incentive Plan (the "Plan"), a stock option plan. The aggregate number of shares of common stock that may be granted by the Company will not exceed a maximum of 2,000,000 shares during the period of the Plan. The option price per share shall be at least the fair market value (as determined by the Finance/Compensation Committee or, in lieu thereof, the Board of Directors) of the common stock on the date the stock option is granted. If at any time a stock option is granted, an employee owns more than 10% of the total combined voting power of all classes of stock of the Company or any of its subsidiaries, then the terms of the stock option shall specify that the option price shall be at least 110% of the fair market value of the stock subject to the option, and shall be exercisable for up to 5 years from the date of grant. In addition, the Plan provides for the mandatory grant of options to directors on a yearly basis commencing March 1, 1993. If for any reason a change in control of the Company occurs, or under the sole discretion of the Finance/Compensation Committee or, in lieu thereof, the Board of Directors, all shares subject to the stock option shall immediately become earned and exercisable. The Board of Directors may discontinue the Plan at any time, and may amend it from time to time. Certain amendments require stockholders' approval. 24 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== (Continued) NOTE 7 - STOCK OPTIONS (CONTINUED) The Company has also issued certain stock options outside of the Plan. Information with respect to all options is as follows:
Long-Term Weighted Incentive Other Exercise Average Plan Options Total Price Range Exercise Price ---- ------- ----- ----------- -------------- Balances at December 31, 1998 955 859 267 200 1 223 059 $0.14 - 2.00 $ 1.02 Granted 1 041 482 20 000 1 061 482 0.13 - 1.00 0.21 Forfeited (411 859) (411 859) -- -- --------- --------- --------- ------------ ---------- Balances at December 31, 1999 1 585 482 287 200 1 872 682 0.13 - 2.00 0.56 Granted 58 750 -- 58 750 0.20 - 0.35 0.31 Forfeited -- -- -- -- -- --------- --------- --------- ------------ ---------- Balances at December 31, 2000 1 644 232 287 200 1 931 432 $0.13 - 2.00 $ 0.55 ========= ========= ========= ============ ========== Number of options exercisable at December 31, 1999 1 272 082 255 700 1 527 782 $0.13 - 2.00 $ 0.55 ========= ========= ========= ============ ========== Number of options exercisable at December 31, 2000 1 422 532 257 200 1 679 732 $0.13 - 2.00 $ 0.55 ========= ========= ========= ============ ==========
At December 31, 2000 and 1999 respectively, 355,768 and 414,518 share options were available for future grant under the Plan. The following table summarizes additional information regarding all stock options outstanding at December 31, 2000:
* * Number Weighted-Average Weighted Number Weighted Exercise Outstanding at Remaining Average Exercisable at Average Prices December 31, 2000 Contractual Life Exercise Price December 31, 2000 Exercise Price ------ ----------------- ---------------- -------------- ----------------- -------------- $ 0.13 - 0.38 1 203 232 6.0 years $ 0.06 1 059 232 $ 0.16 0.57 - 1.00 1 583 200 8.5 years 0.62 1 503 000 0.65 1.02 - 1.50 283 000 5.2 years 1.17 255 500 1.18 1.56 - 2.00 75 500 3.0 years 1.87 75 500 1.87 2.58 44 545 10.0 years 2.58 44 545 2.58 --------- --------- 3 189 477 2 937 777 ========= =========
* Includes 1,258,045 stock options and warrants discussed in Notes 4 and 5. The Financial Accounting Standards Board issued statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-based Compensation" which recommends, but does not require, measuring compensation cost for stock options based on the fair value of the options at the grant date. The Company has elected not to adopt SFAS 123 but continues to apply Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for the Plan and other stock option activity. 25 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== (Continued) NOTE 7 - STOCK OPTIONS (CONTINUED) Had the Company measured compensation cost based on the fair value of the options at the grant date for 2000 and 1999 consistent with the method prescribed by SFAS 123, the Company's net income (loss) and earnings per common share would have been reduced to the pro forma amounts indicated below: 2000 1999 ---- ---- Net income (loss) As reported $ (4 013) $ 1 152 749 Pro forma (19 564) 1 060 032 Basic and diluted earnings As reported (.02) .09 (loss) per common share Pro forma (.02) .08 The fair value of each option grant was estimated at the date of the grant using the Black-Scholes option pricing model with the following assumptions for 2000 and 1999: risk-free interest rate of 5.5% and 5.3%; no dividend yield; expected life of 10 and 5 years; and volatility of 99% and 84%. During the initial phase-in period of applying SFAS 123 for pro forma disclosure purposes, the results may not be representative of the effects on reported net income for future years because options vest over several years and additional grants generally are made each year. NOTE 8 - COMMITMENTS The Company leases office space from unrelated entities under operating leases expiring through 2003. Future minimum lease payments under the non-cancelable leases as of December 31, 2000 are approximately as follows: Year Amount ---- ------ 2001 $ 48 400 2002 49 500 2003 40 100 ----------- $ 138 000 Total rent expense for the years ended December 31, 2000 and 1999 was approximately $24,000 and $32,000, respectively. 26 JORDAN AMERICAN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== (Continued) NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONTINGENCIES In the normal course of business, the Company's client activities through its clearing broker involve the execution, settlement, and financing of various client securities transactions. These activities may expose the Company to off-balance sheet risk. In the event the client fails to satisfy its obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices in order to fulfill the client's obligations. In the Company's investment activities, the Company purchases securities for its own account and may incur losses if the market value of the securities declines subsequent to December 31, 2000. The Company's revenues are primarily derived from a percentage of the assets under management and performance fees based on the appreciation of those assets. Assets under management are impacted by both the extent to which the Company attracts new or loses existing clients and the appreciation or depreciation of the U.S. and international equity and fixed income markets. A downturn in general economic conditions could cause investors to cease using the services of the Company. The Company's financial instruments, including cash and cash equivalents, receivables and other assets, are carried at amounts that approximate fair value. The Company's marketable securities are carried at the December 31, 2000 market value. Payables and other liabilities are carried at amounts that approximate fair value. The Company has a substantial portion of its assets on deposit with banks and brokers. Assets deposited with banks and brokers are subject to credit risk. In the event of a bank's or broker's insolvency, recovery of Company assets on deposit may be limited to account insurance or other protection afforded such deposits. The Securities and Exchange Commission ("SEC") has completed an inspection of the Company's investment advisory and broker-dealer operations. As a result of the inspection, certain issues arose regarding possible violations. Management of the Company does not expect the resolution of this matter to have a material adverse effect on the Company's operations. 27