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JFB Construction Holdings-A(JFB) - 2024 Q4 - Annual Report

PART I Item 1. Business JFB Construction Holdings is a commercial and residential construction and development company expanding into high-growth states, leveraging its public status to enhance capital access and bonding capacity for larger projects Company Overview and History JFB Construction Holdings, a parent holding company reorganized in July 2024, provides commercial and residential construction and development services across 36 states, with real estate development focused in South Florida - JFB Construction Holdings was formed in April 2024 as a Nevada corporation to serve as the parent holding company for JFB Construction & Development Inc., a Florida corporation established in 20141617 - The commercial contracting segment has completed projects in 36 states, delivering over 2 million square feet of commercial space, historically focused on the Southern Atlantic region18 - Real estate development and residential construction segments are currently concentrated in South Florida19 Business Segments The company operates through Commercial Construction (78% of 2024 revenue), Residential Construction (22% of 2024 revenue), and a strategic Real Estate Development segment with one project underway Revenue Contribution by Segment | Segment | FY 2024 Revenue % | FY 2023 Revenue % | | :--- | :--- | :--- | | Commercial Construction | 78% | 88% | | Residential Construction | 22% | 11% | - The company has extensive experience with national franchise brands, typically under fixed-price contracts of $1.5-2 million22 - The company is expanding its real estate development segment, acting as a general contractor on multi-family projects with future plans for direct investment or joint ventures2336 - As of the report date, the company has 26 construction projects, comprising 15 commercial and 11 residential projects26 Corporate Growth and Expansion JFB's growth strategy involves geographic expansion into high-growth states and securing larger projects, leveraging its public status for increased capital access and a target bonding capacity of $100 million - The company intends to focus its business in states with increased population and GDP growth, such as Florida, Texas, and South Carolina2025 - Increased access to capital as a public entity is expected to fund new projects, strategic acquisitions, and real estate development investments214243 - A key goal is to increase bonding capacity to $100 million to qualify for larger, more complex construction projects4445 Project Delivery and Operational Framework JFB uses cost-plus contracts for residential and fixed-price for commercial projects, relying on subcontractors selected through bidding or direct negotiation, while managing risks from market volatility and inflation - The company uses cost-plus agreements for residential construction and predominantly fixed-price contracts for commercial construction, especially with franchisees46 - A comprehensive bidding process is used to select subcontractors based on cost, qualifications, and past performance, though direct negotiation occurs with some clients4953 - The company frequently utilizes subcontractors for flexibility and scalability but acknowledges risks associated with subcontractor non-performance56 - Market challenges include inflationary pressures, rising interest rates, fluctuating material costs, and availability of skilled labor57 Item 1A. Risk Factors The company faces significant business risks including management inexperience, internal control deficiencies, client concentration, and industry competition, alongside securities risks such as stock price volatility and reduced governance requirements as an emerging growth and controlled company Risks Relating to Our Business and Strategy The company faces business risks including limited management experience in public operations, internal control deficiencies, high dependence on its CEO, significant client concentration, and uncertainties in expansion and real estate development - The company has a limited staff of 17 full-time employees, and its management team lacks experience in operating a publicly traded company6062 - Deficiencies in internal controls have been identified, specifically a lack of formalized policies for board and management oversight of financial reporting, risk management, and compliance6364 - The business is highly dependent on a single franchise client, which accounted for 41% of total revenue in FY 2024 and 52% in FY 2023103 - The company's cash balance of $8,199,835 held at Seacoast National Bank exceeds the FDIC insurance limit, posing a concentration risk76 Risks Relating to Our Industry The company operates in a highly competitive and seasonal construction industry, facing risks from regulatory compliance, inherent operating hazards, potential project delays, and disruptions from natural disasters or geopolitical events - The construction industry is seasonal, causing substantial fluctuations in the company's quarterly and annual results of operations119 - The company is subject to numerous laws and regulations, including OSHA, which could result in fines or increased operating costs120 - The industry is highly competitive, with competition from local, regional, and national entities that may have superior resources127 - Failure to meet contractual schedule requirements could lead to additional costs, penalties, or liquidated damages122 Risks Relating to Our Securities Investing in the company's securities carries substantial risk due to potential stock price volatility, no planned dividends, a dual-class stock structure concentrating voting power, and reduced disclosure requirements as an emerging growth and controlled company - The company has a dual-class stock structure, which may result in a lower or more volatile market price for its Class A common stock142 - The company has no current plans to pay cash dividends on its common stock in the foreseeable future139 - JFB is an "emerging growth company" and a "smaller reporting company," allowing it to take advantage of reduced disclosure and reporting requirements151154 - The company is a "controlled company" as its CEO, Joseph F. Basile III, holds more than 50% of the voting power, qualifying it for exemptions from certain Nasdaq corporate governance requirements157410 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None171 Item 1C. Cybersecurity The company has implemented a cybersecurity risk management program, overseen by the Board's Audit Committee and supported by a third-party provider, with no material threats or incidents identified to date - The company has a cybersecurity risk management methodology integrated into its enterprise risk management, utilizing a third-party service provider172 - The Board of Directors provides strategic oversight, with the Audit Committee overseeing the implementation of the cybersecurity program174 - As of the report date, no known cybersecurity threats or incidents have materially affected the company173 Item 2. Properties The company leases its corporate headquarters in Lantana, FL, under a 7-year term with a monthly rent of $11,928, and holds an option to purchase the property for $4.25 million until December 31, 2025 - The company leases its headquarters in Lantana, FL under a 7-year lease with a monthly rent of $11,928, increasing by 2.5% annually177 - JFB has an option to purchase the entire property for $4,250,000, valid until December 31, 2025177 Item 3. Legal Proceedings The company reports no material pending legal proceedings, but notes ongoing litigation for an unpaid residential remodel invoice and a formal claim regarding subcontractor defaulted work as of December 31, 2024 - There are no pending legal actions expected to have a material adverse effect on the company178 - As of December 31, 2024, ongoing litigation exists concerning an unpaid invoice for a residential remodel, for which the company has filed a lien and is seeking foreclosure181 - A formal notice of claim has been issued in connection with a subcontractor's defaulted work at a job site managed by the company182 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable183 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock began trading on Nasdaq under "JFB" on March 6, 2025, with approximately 330 holders, no anticipated cash dividends, and recent issuances of unregistered securities for reorganization and consulting services - The Common Stock began trading on the Nasdaq Capital Market under the symbol JFB on March 06, 2025185 - The company has not declared or paid any cash dividends and does not anticipate paying any in the foreseeable future187 - Unregistered shares were issued to effectuate the Reorganization in July 2024, and 360,000 Class A shares were issued to Chartered Services for consulting192193 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a significant decline in 2024 revenues to $23.1 million and net income to $119,005 due to market conditions, despite a 102% increase in operating cash flow to $3.5 million, with critical accounting policies like ASC 606 revenue recognition detailed Critical Accounting Policies and Estimates The company's financial statements, prepared under U.S. GAAP, rely on significant management estimates, with revenue recognition under ASC 606 using a cost-to-cost method for single performance obligations being the most critical policy - Revenue from construction contracts is recognized over time using the cost-to-cost method in accordance with ASC 606207214 - The company treats each construction contract as a single performance obligation, as it provides a significant service of integrating complex tasks into a single project215296 - Basic and Diluted EPS are calculated using the two-class method, as required for companies with multiple classes of common stock220222 Results of Operations For FY 2024, JFB's revenues decreased by 28.66% to $23.1 million, gross profit fell by 30.7% to $5.0 million, and net income plummeted by 97.13% to $119,005, primarily due to increased operating expenses Consolidated Results of Operations (FY 2024 vs. FY 2023) | Metric | FY 2024 | FY 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $23,087,885 | $32,366,003 | (28.66%) | | Gross Profit | $5,034,561 | $7,270,961 | (30.7%) | | Income from Operations | $(33,504) | $4,021,724 | (100.8%) | | Net Income | $119,005 | $4,145,762 | (97.13%) | - The decrease in revenue was primarily driven by a decline in new contracts awarded, attributed to industry seasonality, inflation, and high interest rates on construction loans240 - General and administrative expenses increased by 56.76% to $4.8 million, mainly due to investments in talent acquisition, retention, and administrative infrastructure243 Liquidity and Capital Resources As of December 31, 2024, the company reported $2.7 million in cash and $4.5 million in working capital, with net cash from operating activities increasing by 102% to $3.5 million, deemed sufficient for current needs Summary of Cash Flows (FY 2024 vs. FY 2023) | Cash Flow Activity | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,481,851 | $1,722,022 | | Net cash used in investing activities | $(817,534) | $(375,220) | | Net cash used in financing activities | $(1,204,877) | $(142,054) | - As of December 31, 2024, the company had working capital of $4,488,300, with current assets of $7,123,579 and current liabilities of $2,635,279255 - The company reports no off-balance sheet arrangements for the fiscal years ended December 31, 2024 and 2023257 Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section summarizes significant business risks, including management's public company inexperience, internal control deficiencies, client concentration, competitive pressures, real estate development market risks, and common stock volatility - This section reiterates key risks from Item 1A, including management's inexperience with public companies, lack of formalized policies, and significant risks in entering the real estate development market259 - Highlights the concentration of cash at one financial institution, with a balance of $8,139,998 in excess of the FDIC limit as of March 28, 2025259 - Re-emphasizes the dependence on a single franchise client, which represented 41% of total revenue in 2024260 Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2024 and 2023, with an unqualified opinion from M&K CPAS, PLLC, highlighting revenue recognition on long-term contracts as a critical audit matter Report of Independent Registered Public Accounting Firm M&K CPAS, PLLC issued an unqualified opinion on the consolidated financial statements for 2024 and 2023, prepared under U.S. GAAP, identifying revenue recognition on long-term contracts as a critical audit matter - The auditor issued an unqualified opinion on the consolidated financial statements264 - Revenue Recognition was identified as a Critical Audit Matter due to the significant judgment involved in estimating costs on long-term contracts268269 Consolidated Financial Statements The consolidated financial statements show total assets decreased to $8.97 million in 2024, net income sharply declined to $119,005, and cash increased from $1.24 million to $2.70 million, primarily from operating activities Consolidated Balance Sheet Data (As of Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Current Assets | $7,123,579 | $8,859,234 | | Total Assets | $8,965,038 | $9,243,279 | | Total Current Liabilities | $2,635,279 | $2,553,167 | | Total Shareholder's Equity | $6,329,759 | $6,690,112 | Consolidated Income Statement Data (Year Ended Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Sales | $23,087,885 | $32,366,003 | | Gross Profit | $5,034,561 | $7,270,961 | | Net Income | $119,005 | $4,145,762 | | Basic and Diluted EPS | $0.02 | $0.54 | Notes to Consolidated Financial Statements The notes detail business nature, accounting policies, related party leases, S-Corporation status, significant customer concentration (41% of 2024 sales from one franchise), numerous related party transactions with the CEO, and a subsequent IPO raising $5,156,250 gross proceeds - The company operates in three segments: Commercial Construction (78% of 2024 revenue), Residential Construction (22% of 2024 revenue), and Real Estate Development (no revenue recognized)310311312 - A single franchise customer accounted for 41% of sales in 2024 and 52% in 2023, representing a significant concentration risk361 - Numerous related party transactions exist with entities owned by the CEO, Joseph F. Basile III, including loans, construction services, and property leases363364365 - Subsequent to year-end, on February 6, 2024, the company completed its IPO, raising gross proceeds of $5,156,250375 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any matter of accounting principles, financial statement disclosure, or auditing scope or procedure - None378 Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were ineffective as of December 31, 2024, due to material weaknesses including lack of segregation of duties and failure to identify financial reporting errors - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024380 - Management concluded that internal control over financial reporting was not effective as of December 31, 2024383 - Material weaknesses identified include a lack of segregation of duties and the failure of internal controls to identify multiple journal entries and errors later found by the external auditor384 Item 9B. Other Information No officers or directors reported the adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fourth quarter of fiscal year 2024 - No officers or directors adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter ended December 31, 2024386 PART III Item 10. Directors, Executive Officers and Corporate Governance This section details the company's leadership, including its seven-member Board with four independent directors, executive officer biographies, established Audit, Compensation, and Nominating committees, and its status as a "controlled company" due to the CEO's majority voting power - The Board of Directors consists of seven members, including Joseph F. Basile III (Chairman) and Ruben Calderon388 - The board has determined that four directors are independent under Nasdaq rules407 - The company is a "controlled company" because CEO Joseph F. Basile III holds more than 50% of the voting power410 - The Board has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, each with charters402416 Item 11. Executive Compensation The executive compensation program includes base salary, performance bonuses, and equity incentives; in FY 2024, CEO Joseph F. Basile III received $1,755,153 total compensation, and employment agreements were amended in February 2025 to set new base salaries and performance targets Summary Compensation Table (2024) | Name and Principal Position | Salary | Bonus | Other Compensation | Total | | :--- | :--- | :--- | :--- | :--- | | Joseph Basile, CEO | $282,307 | $600,000 | $872,846 | $1,755,153 | | Ruben Calderon, CFO | $126,395 | $20,000 | $0 | $146,395 | - Amended employment agreements effective February 1, 2025, set the CEO's base salary at $300,000 and the CFO's at $130,000, with performance bonuses tied to gross revenue444446 - The company implemented a new Equity Incentive Plan on July 18, 2024, reserving two million shares of Class A Common Stock for awards449450 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details beneficial ownership, showing CEO Joseph F. Basile III holds 71.68% of total voting power through Class B and Class A shares, while The Basile Family Irrevocable Trust holds 81.25% of Class A shares, indicating significant family control Beneficial Ownership and Voting Power | Name | Class A Shares (%) | Class B Shares (%) | Total Voting Power (%) | | :--- | :--- | :--- | :--- | | Joseph F. Basile III | 365,000 (9.13%) | 4,000,000 (100%) | 71.68% | | The Basile Family Irrevocable Trust | 3,250,000 (81.25%) | 0 (0%) | 18.84% | - Holders of Class A common stock are entitled to one vote per share, while holders of Class B common stock are entitled to three votes per share454 Item 13. Certain Relationships and Related Transactions, and Director Independence The company discloses several material related party transactions, primarily with CEO-controlled entities, including loans, headquarters construction and leases, and a $21 million project with an entity where the CEO has an ownership stake, with a formal related person transaction policy adopted on December 2, 2024 - The company received a loan from Capo 7, LLC, an entity owned by CEO Joseph F. Basile III, with the related party payable at $332,870 as of December 31, 2023, and $0 as of December 31, 2024458 - JFB built its current headquarters for Aura Commercial LLC, an entity 100% owned by the CEO, under a cost-plus 5% contract, and now leases the property from the same entity459463 - The company was awarded a $21 million project with Rare Capital Partners LLC, in which the CEO and two director nominees hold ownership interests462 - A formal policy for reviewing and approving related person transactions was adopted on December 2, 2024471 Item 14. Principal Accounting Fees and Services This section details fees paid to M&K CPAs, PLLC, with $106,175 for audit and review and $37,000 for S-1 related services in FY 2024, and $83,096 for audit and review in FY 2023, all pre-approved by the Audit Committee Accountant Fees | Fee Type | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Audit Fees | $106,175 | $83,096 | | Tax Fees | $0 | $0 | | All Other Fees (S-1 related) | $37,000 | $0 | - All audit and permissible non-audit services provided by M&K CPAs, PLLC were pre-approved by the Audit Committee480 PART IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements included under Item 8, notes the omission of other schedules, and provides an index of exhibits filed with the Form 10-K, including corporate documents and officer certifications - This item provides an index of the financial statements and exhibits filed with the annual report483487 Item 16. Form 10-K Summary The company has opted not to include a Form 10-K summary in this filing - The company has opted not to include a Form 10-K summary484