10KSB 1 form10ksb.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006 Commission File Number 333-74396 JPC CAPITAL PARTNERS, INC. (Name of Small Business Issuer in Its Charter) Delaware 58-2451191 ------------------------------ ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3440 Preston Ridge Road, Suite 600 Alpharetta, GA 30005 (770) 521-1330 ---------------------------------------- --------------------------- (Address of Principal Executive Offices) (Issuer's Telephone Number, Including Area Code) Securities registered under Section 12(b) of the Act: NONE Securities registered under Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.001 PER SHARE Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form and no disclosure will be contained, to the best of registrant'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 issuer's revenues for the fiscal year ended December 31, 2006 were $726,105 The aggregate market value of the voting stock outstanding, based upon the average bid and ask prices on March 15, 2007 was $1,858,303. The number of shares of Common Stock of the issuer outstanding as of March 15, 2007 was 24,796,546. TABLE OF CONTENTS Page No. Forward-Looking Statements 3 PART I Item 1. Description of Business 4 Item 2. Description of Property 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for Common Equity and Related Stockholder Matters 7 Item 6. Management's Discussion and Analysis or Plan of Operations 8 Item 7. Financial Statements 11 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial 24 Disclosure Item 8.a. Controls and Procedures 24 PART III Item 9. Directors and Executive Officers of the Registrant 24 Item 10. Executive Compensation 26 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related 28 Stockholder Matters Item 12. Certain Relationships and Related Transactions 29 Item 13. Exhibits 30 Item 14. Principal Accountant Fees and Services 31 Signatures and certifications 32 FORWARD-LOOKING STATEMENTS The following information provides cautionary statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We identify important factors that could cause our actual results to differ materially from those projected in forward-looking statements we make in this report or in other documents that reference this report. All statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, identified through the use of words or phrases such as we or our management believes, expects, anticipates, hopes, words or phrases such as will result, are expected to, will continue, is anticipated, estimated, projection and outlook, and words of similar import) are not statements of historical facts and may be forward-looking. These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties including, but not limited to, economic, competitive, regulatory, growth strategies, available financing and other factors discussed elsewhere in this report and in the documents filed by us with the Securities and Exchange Commission ("SEC"). Many of these factors are beyond our control. Actual results could differ materially from the forward-looking statements we make in this report or in other documents that reference this report. In light of these risks and uncertainties, there can be no assurance that the results anticipated in the forward-looking information contained in this report or other documents that reference this report will, in fact, occur. These forward-looking statements involve estimates, assumptions and uncertainties, and, accordingly, actual results could differ materially from those expressed in the forward-looking statements. These uncertainties include, among others, the following: (1) the inability of our firm to successfully market our consulting service; (2) increased competition from other financial services firms; (3) technological changes that hinder our ability to assist client companies; and (4) our inability to acquire additional capital. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for our management to predict all of such factors, nor can our management asses the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. -3- PART I ITEM 1. Business General JPC Capital Partners, Inc. (The "Company") is registered with the Securities and Exchange Commission as a broker/dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. The Company was formed on April 26, 1999. The primary service the Company provides is the opportunity for public companies to raise capital through the sale of equity positions in the private market ( private placement). The Company also provides financial consulting services. The Company was organized in 1999 to perform the private placement transactions via the Internet, with the Company essentially introducing the buyer (investor) to the seller (client). The Company would earn a flat fee of 4% of the funds raised by the seller. The Company would not clear, transfer or hold any securities. The transfer of any securities sold would be arranged between the buyer and the seller. The Company employed this strategy in 1999 and 2000, but had little success. In February 2001 the Company shifted to a new more traditional strategy of identifying potential sellers and buyers of securities. This strategy involved more research, more personal contact with potential sellers and more referrals through other firms and individuals in the securities business. In December 2001, the Company applied to the Securities and Exchange Commission to have its Common Stock quoted on the Over-the-Counter Bulletin Board ("OTCBB") market. In February 2003, fifteen months after application, approval was given and the Company subsequently was assigned the symbol "CFNC". The stock began trading in May 2003 on the OTC Bulletin Board of the National Association of Securities Dealers, Inc. under that symbol. In January 2004, the Company hired James P. Canouse, Scott C. Martin, and Jeffrey M. Canouse to initiate a more traditional marketing program for private placement transactions. They had previously worked for J.P. Carey Securities, Inc., a related party. In July 2004, the Company changed its name to JPC Capital Partners, Inc. to emphasize the service the Company could provide. Subsequently the Company was assigned a new trading symbol "JPCI.OB". Retail Brokerage Operation Beginning in 2001 the Company had offered retail brokerage services. To support this business the Company maintained a clearing arrangement with Fiserv Securities, Inc. Philadelphia, PA. Under the membership agreement with the NASD, the Company was required to maintain a minimum net capital balance of $100,000 pursuant to SEC Rule 15c3-1(a)(2)(ii). Since the Company decided to focus its efforts on the private placement financing business, it amended the membership agreement with the NASD in 2004, and reduced the required capital level to $5,000. The Company also closed the clearing arrangement with Fiserv Securities, Inc. and terminated its contract with NASDAQ for data services and online access to the stock markets. These actions effectively suspended the retail brokerage operation. Government Regulation Our business is subject to extensive regulation applicable to the securities industry in the United States and elsewhere. Regulatory bodies throughout the entire world, as a matter of public policy, are charged with safeguarding the integrity of the securities and other financial markets, with assuring that information provided to investors by public firms issuing securities is complete and reliable, and with protecting the interests of individual customers participating in those markets. Noncompliance with regulations could result in a firm being closed down, fined or both. Our business, and the securities industry generally, is subject to extensive regulation at both the federal and state level by various regulatory agencies which are charged with protecting the interests of customers. Self-regulatory organizations such as the National Association of Securities Dealers, Inc., known as the "NASD," and state -4- securities commissions require strict compliance with their respective rules and regulations. Failure to comply with any of these laws, rules and regulations could result in fines, suspensions, expulsion from the industry, or criminal prosecution. Certain regulatory bodies perform audits or other procedures to ensure compliance with their rules and regulations. Our failure to comply with regulations could result in the termination of our business. In addition, new legislation, changes in rules promulgated by the Commission and self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules, may directly affect the mode of operation and profitability of broker-dealers. In the United States, the SEC is the federal agency responsible for the administration of the federal securities laws. In general, broker-dealers are required to register with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under the Exchange Act, every registered broker-dealer that does business with the public is required to be a member of and is subject to the rules of the NASD. The NASD administers qualification testing for all securities principals and registered representatives for its own account and on behalf of the state securities authorities. JPC Capital Partners, Inc. is a broker-dealer registered with the SEC and is a member of the NASD. Our broker-dealer is also subject to regulation under state law. We are currently registered as a broker-dealer in 28 states. Competition All aspects of our business are highly competitive. We compete or will compete directly with numerous other securities brokers and dealers, investment banking firms, investment advisors, leveraged buyout firms, venture funds and, indirectly for investment funds, with commercial banks. Many of our competitors have substantially greater capital and other resources than do we. Many commercial banks offer a variety of investment banking services. The securities industry has become considerably more concentrated and more competitive in recent years as numerous securities firms have either ceased operations or have been acquired by or merged into other firms. In addition, companies not engaged primarily in the securities business, but having substantial financial resources, have acquired leading securities firms. These developments have increased competition from firms with greater capital resources than those of JPC Capital Partners, Inc. The securities industry has experienced substantial commission discounting by broker-dealers competing for institutional and individual brokerage and investment banking business, including many offering deeply discounted commission rates on the Internet. We plan on competing in this marketplace by: o developing placements that best serve the needs of small public companies; o being responsive and providing advice that assists small public companies to succeed; o negotiating competitive yet affordable fee arrangements; o providing services on a timely basis; and o taking advantage of our contacts in the investment management community. No assurances can be given that we will be successful in implementing our plan. Effect of Net Capital Requirements As a registered broker-dealer and member of the NASD, JPC Capital Partners, Inc. is subject to the Uniform Net Capital Rule under the Exchange Act. The Uniform Net Capital Rule, which specifies minimum net capital requirements for registered broker-dealers, is designed to measure the general financial integrity and liquidity of a broker-dealer, and requires that at least a minimum part of its assets be kept in relatively liquid form. In general, net capital is defined as net worth (assets minus liabilities), plus qualifying subordinated borrowings and certain discretionary liabilities, less certain mandatory deductions that result from excluding assets that are not readily convertible into cash and from valuing conservatively certain other assets. Among these deductions are adjustments (called haircuts), which reflect the possibility of a decline in the market value of an asset prior to disposition. -5- Failure to maintain the required net capital may subject a firm to suspension or revocation of registration by the SEC, suspension or expulsion by the NASD and other regulatory bodies and ultimately could require the firm's liquidation. The Uniform Net Capital Rule prohibits payments of dividends, redemption of stock, the prepayment of subordinated indebtedness and the making of any unsecured advance or loan to a shareholder, employee or affiliate, if the payment would reduce the firm's net capital below a certain level. If a broker-dealer engages in firm commitment underwriting, their net capital requirements will significantly increase. The SEC and the NASD impose rules that require notification when net capital falls below certain predefined criteria, dictate the ratio of debt to equity in the regulatory capital composition of a broker-dealer, and constrain the ability of a broker-dealer to expand its business under certain circumstances. The Uniform Net Capital Rule and NASD rules require prior notice to the SEC and the NASD for certain withdrawals of capital and also provide that the SEC may restrict for up to 20 business days any withdrawal of equity capital, or unsecured loans or advances to shareholders, employees or affiliates if the capital withdrawal, together with all other net capital withdrawals during a 30-day period, exceeds 30% of excess net capital and the SEC concludes that the capital withdrawal may be detrimental to the financial integrity of the broker-dealer. In addition, the Uniform Net Capital Rule provides that the total outstanding principal amount of a broker-dealer's indebtedness under certain subordination agreements, the proceeds of which are included in its net capital, may not exceed 70% of the sum of the outstanding principal amount of all subordinated indebtedness included in net capital, par or stated value of capital stock, paid in capital in excess of par, retained earnings and other capital accounts for a period in excess of 90 days. A change in the Uniform Net Capital Rule, the imposition of new rules or any unusually large charge against net capital could limit those parts of our operations that require the intensive use of capital and also could restrict our ability to pay dividends, repay debt and repurchase shares of our outstanding stock. In December, 2003 we implemented the new SEC accounting procedure for the allocation of certain expenses shared with related companies J.P. Carey Securities, Inc. and J.P. Carey Asset Management, LLC. This accounting procedure requires broker-dealers to charge related companies a proportionate amount, or share, of expenses incurred by the broker-dealer when a benefit accrues to the related company. Failure to acquire additional capital, substantially increase revenue, continued operating losses, or the assumption of significant unforeseen liabilities could adversely affect our ability to continue our present levels of business. This could place us in a position to violate the capital rules, which could force the firm to cease operations. As previously discussed, due to the strategic business decision to concentrate efforts on our private placement business, we decided to amend our membership agreement with the NASD and reduce the minimum level of required capital we must maintain. On August 11, 2004 we amended our membership agreement with the NASD and were allowed to reduce our minimum net capital requirement to $50,000. Subsequently, on October 26, 2004, we amended our membership agreement again and were allowed to reduce our minimum net capital requirement to $5,000. At December 31, 2006, our minimum net capital requirement for JPC Capital Partners, Inc. was $5,000. Employees On December 31, 2006, we employed six full-time employees. None of our employees are covered by a collective bargaining agreement. Future increase in the number of employees will depend upon the growth of our business and the compensation arrangements of those employees. Our registered employees are required to take examinations administered by the NASD in order to qualify to perform their job responsibilities and to transact business. ITEM 2. DESCRIPTION OF PROPERTY. At December 31, 2006, our principal office was located at 3440 Preston Ridge Road, Suite 600, Alpharetta, GA 30005. We lease an estimated 4,000 square feet of office space at a cost of approximately $75,000 per annum. In May, 2006 we executed this 65 month lease with Duke Realty Limited Partnership. The lease -6- provided for five initial months of free rent which created a deferred rent liability of $31,046. This liability will be amortized over the remaining life of the lease. The lease includes an annual adjustment in the rent and provides for an additional adjustment based on changes in the out of pocket operating expenses for the building which include utilities, security, and certain maintenance items. The lease is for office space only and does not include telephone, computer, or other services. We have previously reported this lease in our 8-K filed May 18, 2006. ITEM 3. LEGAL PROCEEDINGS. In July 2004, the Company had been named as a Defendant in a case filed with the Superior Court of Fulton County, State of Georgia, styled First Empire Corporation, et al. v. John C. Canouse, et al. case # 2004 cv 88793. In June, 2005, the Company was dropped as defendant in this lawsuit. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of stockholders during the year ended December 31, 2006. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market Information The Common Stock, par value $0.001 per share, was initially traded May 2, 2003, on the OTC Bulletin Board of the National Association of Securities Dealers, Inc. under the symbol "CFNC." Our ticker symbol has subsequently been changed to "JPCI." The following table sets forth the closing high and low bid information for our common stock for the periods indicated below, as reported by Reuters Data: Period High Low Quarter ended March 31, 2005 $0.24 $0.02 Quarter ended June 30, 2005 $0.05 $0.02 Quarter ended September 30, 2005 $0.06 $0.02 Quarter ended December 31, 2005 $0.05 $0.02 Quarter ended March 31, 2006 $0.18 $0.03 Quarter ended June 30, 2006 $0.05 $0.03 Quarter ended September 30, 2006 $0.03 $0.03 Quarter ended December 31, 2006 $0.03 $0.01 Prices shown are inter-dealer prices with no markup, markdown, or commission. They may not reflect actual transactions. There were 24,796,546 shares of Common Stock issued and outstanding at December 31, 2006. We have not paid any cash dividends since inception, and we do not anticipate paying any cash dividends in the foreseeable future. Recent Sale of Unregistered Securities During 2006 the Company sold 790,000 shares of Common Stock to J.P. Carey Asset Management, LLC for $79,000. J.P. Carey Asset Management, LLC is an accredited investor, existing shareholder, and related party. -7- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS. Overall Results For the year ended December 31, 2006 total revenue was $726,105. Operating expenses totaled $709,768 which resulted in net income of $16,337 before an unrealized loss on securities. Including this unrealized loss of $71,500, the Company had a comprehensive loss of $55,163. For the year ended December 31, 2005 total revenue was $950,408. Expenses totaled $1,180,548 which resulted in a loss of $230,140. Revenue For the year ended December 31, 2006, total revenue was $726,105. We earned $709,367 from private placements. This included $95,000 worth of restricted stock received in May, 2006 from a client as part of our compensation for services provided. At December 31, 2006, this stock had a fair market value of $23,500, representing an unrealized loss of $71,500. During 2006, we also earned $16,650 in consulting fees and $88 in interest. For the year ended December 31, 2005, total revenue was $950,408. We earned $945,106 in private placement fees, $5,000 in consulting fees, and $302 in interest income. In 2006, we completed 23 transactions for 11 different clients. In 2005 we completed 14 transactions for 6 clients. The 2006 transactions, which were smaller total placements than we had previously experienced, resulted in the a decline in our revenue. Expenses Total expense for 2006 was $709,768, a decrease of $470,780 verses 2005. During 2006, net compensation expense decreased $133,474 to $507,027. This decrease was the result of the following: 1) Commission payments declined $46,900 to $195,100 from $242,000 in 2005, due to a lower total dollar value of transactions being completed. 2) A decrease of $21,800 in the compensation of John C. Canouse, our CEO, who has received $96,800 in 2005. In 2006 he was paid $75,000. 3) A net decrease of $59,135 in salaries as a result of staffing reductions. In May 2005, Jose Auffant, our Executive Vice President & General Counsel, resigned to take a positon with another firm. 4) A decrease of $6,609 in payroll taxes as a result of the lower salaries and commissions. 5) Also, in 2006, we allocated more of our payroll expense to our affiliated companies that we had in 2005. The increase in allocation (reduction in our expense) totaled $7,712. 6) Our employee benefit expense increased by $8,682 due to an improvement in insurance coverage and a reduction in the employee contributions toward the healthcare expense. During 2005 we paid $300,649 to J.P. Carey Securities, Inc., and J.P. Carey Asset Management, LLC, both related parties, for consulting services and assistance on our private placement transactions. This amount declined in 2006 to $50,259, as we relied less on their assistance and the total dollar value of our transactions declined. Professional service expense includes accounting, legal, and other professional services. This expense decreased by a net of $41,285, to $33,647. In this category, legal expenses decreased by $23,893, accounting expense decreased by $9,002, and other professional services decreased by $830. In 2005 we had paid a referral fee to another firm of $7,560. This expense was included in professional services. We had no referral fee expense in 2006. -8- Our net rent expense increased $4,768 in 2006 to $66,470 from $61,702. This increase was primarily a result of lower rent allocations to related parties. In 2005 we had allocated $16,170 to related parties. In 2006 we allocated only $8,872, a reduction in our allocation of $7,298, which results in greater expense to the Company. Other expenses associated with our office rental declined $2,530 during the year. As previously discussed, we received stock as part of our compensation for services in 2005 and 2006. Regulation requires the Company to retain this stock for one year before selling it. Stock acquired in 2004 was sold in 2005 and resulted in a realized loss of $40,068. We did not have a realized loss in 2006. Our cost for communication declined by $10,142 due primarily to the termination of our former office lease. Under that lease the Company had purchased telephone and fax services from the landlord. In 2005 and early 2006, as allowed under the lease, the price for these services increased significantly. We terminated this lease in May 2006. In our new office space, we purchased these services directly from providers at a reduced rate. Annually, this reduced our cost for telephone and fax services by $10,596. Offsetting this reduction, we had an increase of $454 in other communication expenses, primarily over-night delivery, which produced the net decrease of $10,142. License and registration expense decreased by $2,530. This was due to our continuing efforts to reduce the number of states in which the company is registered to do business. Data processing expense increased by $2,642. In 2005 we had received a refund of $2,772 which was reduced our net 2005 expense. No credits were received in 2006. In addition, charges by our former landlord in 2005, totaling $250, were reduced to $120 in 2006. Other operating expenses included the following: Depreciation expense increased by $1,749 in 2006 due primarily to the purchase of new equipment and furniture for new office. Insurance expense decreased by a net of $652. In 2006 we received a refund of $1,521 from our workmen's compensation insurance carrier. This coverage is required by law. Our other insurance expenses, primarily liability and property coverage, increased by $869. These policies were required under our new office lease. Travel and entertainment expense decreased by $1,359 due to an decrease in travel in conjunction with fewer private placement transactions. The Company has incurred losses of $230,140 and $55,163 during the years ended December 31, 2005 and 2006, respectively, and has no state or federal income tax obligation. The Company has no significant deferred tax effects from temporary differences that give rise to deferred tax assets and deferred tax liabilities for the year ended December 31, 2006 other than net operating loss carryforwards. The Company has net operating loss carryforwards of approximately $4,418,000 at December 31, 2006, which will expire in years beginning in 2019. No tax benefit has been recorded related to the net operating loss, as a full valuation allowance has been recorded against the approximate net deferred tax asset of $1,634,000 related to these carryforwards. Liquidity For the year ended December 31, 2006, we used net cash of $46,370 in operations and $4,664 for the purchase of furniture and computer equipment. We generated $79,000 through the sale of 790,000 shares of common stock to J.P. Carey Asset Management LLC, an existing shareholder. These transactions resulted in a net increase in our cash of $27,966 for the year. For the year ended December 31, 2005, we used net cash of $150,722 in operations and $4,195 for the purchase of computer equipment. During the year we sold marketable securities we had received in 2004 generating $50,000 in cash. We also sold 299,000 shares of common stock for $149,500 to J.P. Carey Asset -9- Management LLC, an existing shareholder and related party. These transactions resulted in a net decrease in our cash of $5,417 for the year. At December 31, 2006, we had unrestricted cash of $73,152. Without additional revenue from private placement transactions, consulting services, or stock sales, we will only be able to continue operations on a month-to-month basis. If we are unable to generate revenue or obtain financing, or if the financing we do obtain is insufficient to cover any operating losses we incur, we must substantially curtail or terminate our operations or seek other business opportunities through strategic alliances, acquisitions, mergers, reverse mergers, or other arrangements that might dilute the interests of existing stockholders. We are currently exploring several business opportunities and have held discussions with multiple potential partners but have been unable to finalize a satisfactory transaction. We will continue to pursue such opportunities. Critical Accounting Policies We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management's judgment in their application. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis or Plan of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the Notes to the Consolidated Financial Statements. Note that our preparation of the financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. Revenue Recognition We earn revenues from investment banking activities and consulting. Monthly retainer fees for investment banking and consulting are recognized as earned. Investment banking success fees are generally based on a percentage of the total value of a transaction and are recognized upon successful completion. Revenues are not concentrated in any particular region of the country or with any individual or group. -10- TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm.................12 Financial Statements: Statement of Financial Condition....................................13 Statement of Operations ............................................14 Statement of Changes in Shareholders' Equity........................15 Statement of Cash Flows.............................................16 Notes to Financial Statements........................................17-20 Report of Independent Registered Public Accounting firm To the Board of Directors and Shareholders JPC Capital Partners, Inc. We have audited the accompanying balance sheet of JPC Capital Partners, Inc. as of December 31, 2006 and the related statements of operations, shareholders' equity and cash flows for the years ended December 31, 2006 and 2005. 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 the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial condition of JPC Capital Partners, Inc. at December 31, 2006, and the results of its operations and its cash flows for the years ended December 31, 2006 and 2005, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that JPC Capital Partners, Inc. will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses and will have to obtain additional capital to sustain operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of this uncertainty. /s/ Sherb & Co., LLP Certified Public Accountants Boca Raton, Florida February 23, 2007 JPC Capital Partners, Inc. Statement of Financial Condition December 31, 2006 Assets Current assets: Cash $ 73,152 Marketable securities at market value 23,500 Amounts due from related party 7,077 ------------- Total Current Assets 103,729 Furniture and equipment, net 4,566 Advances Office lease deposit 6,416 ------------- Total assets $ 114,711 ============= Liabilities and Shareholders' Equity Accounts payable $ 8,500 ------------- Total current liabilities 8,500 Deferred rent 30,632 Shareholders' Equity: Common stock, $.001 par value; 95,000,000 shares authorized, 24,796,546 issued and outstanding 24,797 Additional paid-in capital 5,752,552 Accumulated deficit (5,630,270) Unrealized holding loss on securities (71,500) ------------- Total shareholders' equity 75,579 ------------- Total liabilities and shareholders' equity $ 114,711 ============= See accompanying notes to financial statements -13- JPC Capital Partners, Inc. Statements of Operations Year ended December 31, 2006 2005 ------------- ------------- Revenues: Fees from private placements $ 709,367 $ 945,106 Consulting income 16,650 5,000 Interest Income 88 302 ------------- ------------- Total Revenues 726,105 950,408 Expenses: Compensation and benefits 507,027 640,501 Related party expenses 50,259 300,649 Professional services 33,647 74,932 Rent 66,470 61,702 Realized loss on securities - 40,068 Communications 16,713 26,855 Licenses & registrations 10,438 12,968 Data processing 12,319 9,677 Other expenses 4,090 4,129 Advertising 3,400 3,400 Depreciation & amortization 3,984 2,235 Insurance 1,065 1,717 Travel & entertainment 356 1,715 Total Expenses: 709,768 1,180,548 ------------- ------------- Net income (loss) 16,337 (230,140) ============= ============= Other comprehensive loss: Unrealized holding loss, net of tax (71,500) - ------------- ------------- Comprehensive loss $ (55,163) $ (230,140) ============= ============= Net loss per share - basic and diluted $ (0.00) $ (0.01) ============= ============= Weighted average number of common shares outstanding - basic and diluted 24,549,039 23,936,888 ============= ============= See accompanying notes to financial statements. -14-
JPC Capital Partners, Inc. Statement of Changes in Shareholders' Equity Shares Common Additional Paid In Accumulated Unrealized holding Total Outstanding Stock Capital Deficit Losses Net of taxes Shareholders'Equity Balance December 31, 2004 23,707,546 $ 23,708 $ 5,525,141 $ (5,416,467) $ (40,000) $ 92,382 Unrealized holding (40,000) (40,000) loss net of taxes Current year net (230,140) (230,140) loss Issuance of Common stock 299,000 299 149,201 149,500 Balance December 31, 2005 24,006,546 24,007 5,674,342 (5,646,607) 51,742 Unrealized holding loss net of taxes (71,500) (71,500) Current year 16,337 16,337 net income Issuance of common 79,000 stock 790,000 790 78,210 Balance, December 31, 2006 24,796,546 $ 24,797 $ 5,752,552 $ (5,630,270) $ (71,500) $ 75,579 ========== ====== ========= =========== ======== ====== See accompanying notes to financial statements
-15- JPC Capital Partners, Inc. Statements of Cash Flows Year ended December 31,
2006 2005 ------------ ------------- Operating activities: Net income (loss) $ 16,337 $ (230,140) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 3,984 2,235 Increase in unrealized loss on securities 40,000 Stock received for services (95,000) Sale of securities 50,000 Net changes in operating assets and liabilities Accounts receivable (3,907) (2,612) (Increase) decrease in employee advances 4,000 (4,000) Increase in deferred rent 30,632 Office deposit (6,416) Accounts payable 4,000 (6,205) ------------ ------------- Net cash used in operating activities (46,370) (150,722) Investing activities: Purchase of computer equipment (4,664) (4,195) ------------ ------------- Net cash used in financing activities (4,664) (4,195) Financing activities: Issuance of common stock 79,000 149,500 ------------ ------------- Net cash provided by financing activities 79,000 149,500 Increase (decrease) in cash 27,966 (5,417) Cash at beginning of year 45,186 50,603 ------------ ------------- Cash at end of year $ 73,152 $ 45,186 ============ ============= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ - $ - ============ ============= Cash paid during the years for Federal Income Tax $ - $ - ============ =============
See accompanying notes to financial statements -16- JPC Capital Partners, Inc. Notes to Financial Statements Years ended December 31, 2006 and 2005 Note 1. Business and Basis of Presentation JPC Capital Partners, Inc. (The "Company") is registered with the Securities and Exchange Commission as a broker/dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. The Company was formed on April 26, 1999. The primary service the Company provides is the opportunity for public companies to raise capital through the sale of equity positions in the private market ( private placement). In addition, the Company provides financial consulting services to emerging companies. The Company was organized to perform the private placement transactions via the Internet, with the Company essentially introducing the buyer (investor) to the seller (client). The Company would earn a flat fee of 4% of the funds raised by the seller. The Company would not clear, transfer or hold any securities. The transfer of any securities sold would be arranged between the buyer and the seller. In February 2001 the Company shifted its strategy to more traditional methods of identifying potential sellers and buyers of securities, relying less on utilization of the Internet. This strategy involved more research, more personal contact with potential sellers and more referrals through other firms and individuals in the securities business. In December 2001, the Company applied to the Securities and Exchange Commission to have its Common Stock quoted on the Over-the-Counter Bulletin Board ("OTCBB") market. In February 2003, the application was approved and the company subsequently was assigned the symbol "CFNC". The stock began trading in May 2003 on the OTC Bulletin Board of the National Association of Securities Dealers, Inc. under that symbol. In January 2004, the Company hired James P. Canouse, Scott C. Martin, and Jeffrey M. Canouse to initiate a more traditional marketing program for private placement transactions. They had previously worked for J.P. Carey Securities, Inc., a related party. In July 2004, the Company changed its name to JPC Capital Partners, Inc. to emphasize the service the Company could provide. Subsequently the Company was assigned a new trading symbol "JPCI.OB". Since 2001 the Company had offered retail brokerage services. To support this business the Company maintained a clearing arrangement with Fiserv Securities, Inc. -17- JPC Capital Partners, Inc. Notes to Financial Statements Years ended December 31, 2006 and 2005 Note 1. Business and Basis of Presentation (Continued) Philadelphia, PA. Under the membership agreement with the NASD, the Company was required to maintain a minimum net capital balance of $100,000 pursuant to SEC Rule 15c3-1(a)(2)(ii). Since the Company decided to focus its efforts on the private placement financing business, it amended its membership agreement with the NASD, and reduced the required capital level to $50,000 and subsequently to $5,000. The Company also closed the clearing arrangement with Fiserv Securities, Inc., and suspended its retail brokerage business. Although the Company believes it has saved approximately $180,000 per year by suspending its retail brokerage activity this elimination of a potentially profitable business line increases the business risk for a potential investor in the Company due to the concentration of all business efforts into fewer revenue sources or product offerings. The Company now earns approximately 98% of its revenue from private placement fees. The remaining revenue is earned via financial consulting. The Company could readily re-start its retail brokerage operation, and may do so, if market conditions warrant such actions. However, the current concentration of revenue producing activities is a potential risk for investors. Since its inception in 1999, the Company has incurred significant operating losses. The Company has limited assets on hand and will be unable to sustain operations for a prolonged period of time unless the Company continues to generate revenue from private placement transactions or obtains additional capital. The Company's management has indicated it will seek additional capital through the sale of securities if it is unable to consistently generate the required revenue. In addition, the Company has held discussions with a number of candidate private companies regarding the possibility of a merger. The Company will continue to have dialogues with potential merger partners. If the Company is unable to reach a merger agreement, raise equity capital, or sustain its private placement business, it is doubtful that the Company can continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. -18- JPC Capital Partners, Inc. Notes to Financial Statements Years ended December 31, 2006 and 2005 Note 2. Significant Accounting Policies Use of Estimates Preparation of the Company's financial statements in accordance with generally accepted accounting principles requires the use of management's estimates and assumptions that affect the financial statements and related notes. Actual results could differ from those estimates. Revenue Recognition The Company earns revenue from investment banking activities. Investment banking or private placement success fees are generally based on a percentage of the total value of a transaction and are recognized upon successful completion. The Company also earns revenue through consulting. These fees are recognize when assignments are completed and payment is made. Cash and Cash Equivalents The Company considers any liquid investment with an original maturity of three months or less as a cash and cash equivalent. Marketable Securities From time to time the Company receives restricted common stock as compensation for services provided. At the time of receipt the Company records the fair market value of such stock as revenue and includes these amounts in "Fees from private placements" in the Statement of Operations. In 2006, we included $95,000 of such income in our results. These securities are available for sale but, due to the restricted classification of the stock, must be owned for twelve months prior to sale. During this period, on a quarterly basis, the Company adjusts the carrying value of the stock to its fair market value. This adjustment is recorded in the equity section of our Statement of Financial Position as unrealized gains or losses on marketable securities. During 2006 the Company recorded $77,500 of unrealized losses and $6,000 in unrealized gains in this account. -19- JPC Capital Partners, Inc. Notes to Financial Statements Years ended December 31, 2006 and 2005 Note 2. Significant Accounting Policies (Continued) Financial Instruments The carrying amounts reported in the balance sheet for cash, marketable securities, andaccounts payable approximate fair value based on the short-term maturity of these instruments. Property and Equipment Office equipment is carried at cost and depreciated using straight-line methods over their estimated useful lives. Depreciation for the year ended December 31, 2006 was $3,984. Liabilities Subordinated To The Claims of General Creditors At December 31, 2006 and during the year then ended, the Company had no liabilities subordinated to the claims of general creditors. Earnings Per Share The Company has adopted SFAS, No. 128, Earnings per Share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the per share amount that would have resulted if dilutive common stock had been converted to common stock, as prescribed by SFAS No. 128. The Company has no dilutive stock equivalents outstanding. Stock Based Compensation In December 2004, the FASB issued SFAS No. 123(R) - Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 - Share-Based Payment, which provides interpretive guidance related to SFAS No. 123(R). The Company has adopted SFAS 123(R), which requires compensation costs related to share-based payment -20- JPC Capital Partners, Inc. Notes to Financial Statements Years ended December 31, 2006 and 2005 Note 2. Significant Accounting Policies (Continued) transactions to be recognized in the financial statements. Generally, the compensation expense is based upon the grant date fair value of the equity instrument issued. Income Taxes As of December 31, 2006 the Company had an unused net operating loss carry forward of approximately $4,418,000 available for its future federal tax returns. The Company's evaluation of the tax benefit of its loss carry forward is presented in the following table: 2006 Deferred tax asset: Tax benefit of net operating loss carry forward $1,660,000 Less: Valuation allowance (1,660,000) ----------- Total deferred tax asset $ - =========== The table below summarizes the difference between the company's effective tax rate and the statutory federal rate as follows for the year ended December 31, 2006: Computed tax expense (benefit) (34.0) % State income taxes (3.9) % Change in valuation allowance 37.9 % Effective tax rate 0.0 % The effective federal tax rate is 34 %. The Georgia state income tax rate is 6 %. This rate is effectively reduced by 2.1 % due to the Federal tax benefit. Net operating loss carry forwards expire between 2020 and 2026. The utilization of the above loss carry forwards for federal tax purposes may not be possible with changes in ownership of the Company. -21- JPC Capital Partners, Inc. Notes to Financial Statements Years ended December 31, 2006 and 2005 Note 3. Net Capital Requirements As a registered broker-dealer, JPC Capital Partners, Inc. is subject to the requirements of Rule 15c3-1 ("the net capital rule") of the Securities Exchange Act of 1934. The basic concept of the rule is liquidity; its object being to require a member firm to have at all times sufficient liquid assets to cover its current indebtedness. Specifically, the rule prohibits a broker dealer from permitting its "aggregate indebtedness" to exceed fifteen times its "net capital" as those terms are defined. The Company is required to maintain the greater of minimum net capital of 6 2/3% of aggregated indebtedness or $5,000. On December 31, 2006, the Company had aggregated indebtedness of $39,181 and its net capital as defined was $33,971, which exceeded requirements by $28,971. Note 4. Furniture and Equipment At December 31, 2006 furniture and equipment consisted of the following: Useful Life ---------------- Furniture and fixtures 3-5 Years $ 2,029 Telephone Equipment 5 Years 19,990 Computer Equipment 2-3 Years 79,664 ------- 101,683 Accumulated Depreciation (97,117) -------- $ 4,566 ======== Note 5. Commitments and Contingencies In May, 2006 we executed a 65 month lease with Duke Realty Limited Partnership for office space at 3440 Preston Ridge Road, Alpharetta, Georgia 30005, effective June 1, 2006. This lease was reported in our 8-K filing dated May 18, 2006. The lease provided for five initial months of free rent which resulted in a deferred rent liability of $30,632 at December 31, 2006. This will be amortized over the remaining life of the lease. Rental expense under this lease will increase annually. Total minimum rental payments under the lease are as follows: $403,593 which will produce an average monthly rent expense of $6,209 for the 65 month term of the lease. Our net rent expense for the year ended December 31, 2006 was $66,470 & 2005 $ 61,702. Minimum Payments Due Under Rental Agreement by Year 2006 $12,831.26 2007 $77,856.96 2008 $79,373.47 2009 $80,935.51 2010 $82,544.47 2011 $70,051.55 $403,593.22 -22- JPC Capital Partners, Inc. Notes to Financial Statements Years ended December 31, 2006 and 2005 Note 5. Commitments and Contingencies(Continued) The Company maintains no inventory of securities on site. When securities are purchased or received for services provided, the Company will rely on a clearing agent or recognized financial institution to safekeep the securities and clear transactions. Note 6. Shareholders' Equity On October 10, 2001, the Company adopted the JPC Capital Partners, Inc.(formally Corpfin.com, Inc.) 2001 Stock Option Plan (the 'Plan'), which expires in 2011 and enables the Company or the Board of Directors to grant incentive stock options and nonqualified stock options for up to an aggregate of 7,500,000 shares of the Company's common stock. Incentive stock options granted under the Plan must conform to applicable federal income tax regulations and have an exercise price not less than the fair market value of the shares at the date of grant (110% of fair market value for ten percent or more shareholders). Other options may be granted on terms determined by the board of directors or a committee of the board of directors. The Company granted options to employees for 1,000,000 shares of common stock on October 10, 2001. These options were exercisable at $1.25, and were adjusted for stock splits, and have entirely vested. In 2003 and 2005, we cancelled options granted to former employees totaling 375,000 shares. The remaining 625,000 shares expired unexercised during 2006. During 2006 we sold 790,000 shares of common stock to J.P. Carey Asset Management LLC, a related party and an accredited investor, for $79,000, an average price of $0.10. Note 7. Related Party Transactions The Company provides support services to related parties under a shared services agreement. These services included accounting and tax services, compliance support, healthcare for employees of the companies, telephone service, and rent. Also, these companies assist JPC Capital Partners, Inc. in private placement transactions. During the year the Company paid $50,000 to JP -23- JPC Capital Partners, Inc. Notes to Financial Statements Years ended December 31, 2006 and 2005 Note 7. Related Party Transactions(Continued) Carey Asset Management, LLC, a related party for assistance with our private placement transactions. The Company allocated expenses of $33,532 to JP Carey Asset Management, LLC for rent, healthcare expense, telephone expense, and administrative support. At December 31, 2006 the Company was owed $7,077 of this amount. The Company also paid $259 in miscellaneous expenses on behalf of JPC Holding Company, Inc., a related party. During the year the Company made an additional cash advances to Scott C. Martin, a related party, and commissioned salesperson. Mr. Martin had previously received an advance which was outstanding at December 31,2005 in the amount of $4,000. The Company advanced Mr. Martin an additional $3,000. No interest was charged for the advances. In July the Company forgave the advance and included it in Mr. Martin's compensation. During the year the Company paid $12,000 to Frank Connor, a related party, for website support, maintenance, and the use of a computer system for the operations of the Company. Note 8. Subsequent Events None -24- ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 8a CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-14(c). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The following table sets forth the names, ages and positions of our executive officers and directors as of March 26, 2005. Name Age Title John C. Canouse 42 Chief executive officer, chairman and president Jimmie N. Carter 60 Executive vice president, chief financial officer and director Janet L. Thompson 53 Executive vice president, chief compliance officer and director. John C. Canouse has served as chief executive officer, chairman and president of JPC Capital Partners, Inc. since our inception. Mr. Canouse was previously employed by and/or consultant to J.P. Carey Enterprises, Inc., a full service international asset management and investment banking firm located in Atlanta, Georgia from 1996 to 2003. From April 1990 until January 1996, Mr. Canouse was employed at International Assets Advisory Corporation, an investment banking firm located in Orlando, Florida specializing in the foreign securities markets with a focus on European bonds and emerging market equities. Mr. Canouse graduated with a BA degree in Business Administration from Stetson University. -25- Jimmie N. Carter has served as executive vice president and chief financial officer of JPC Capital Partners, Inc. since November 1999, and was elected director in March 2005. From April 1999 to November 1999, Mr. Carter was the chief financial officer for Argent Securities, Inc. From January 1997 to April 1999, Mr. Carter was a controller for Bristol Hotel, Inc. From January 1995 to January 1997, Mr. Carter was the president of Eau Gallie Development Company. Mr. Carter holds an MBA from Temple University and a BS degree from Florida State University. Janet L. Thompson has served as our chief compliance officer since our inception, became our executive vice president in October 2001 and was elected director in April 2002. Ms. Thompson was formerly a senior compliance officer with Cambridge Investment Research, Inc., an independent broker/dealer in Iowa. Prior to such position, she served as an assistant vice president and compliance operations manager at INVEST Financial Corporation, a full service broker-dealer based in Tampa, Florida. Ms. Thompson has over 20 years of securities brokerage experience with concentrations in compliance and back office operations, and holds the NASD Series 4, 7, 24, 53 and Series 63 licenses. Ms. Thompson received an associate degree from St. Leo College. Audit Committee Our audit committee is comprised of all of our directors. None of the directors are deemed independent. All directors also hold positions as our officers. Our audit committee is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditory and any outside advisors engaged by the audit committee. Audit Committee Financial Expert Jimmie N. Carter serves as our "audit committee financial expert" as such term is defined in the SEC's rules. Code of Ethics We have adopted a corporate code of ethics, which is filed as Exhibit 14 in our 10 KSB filing of December 31, 2004. The code applies to all employees of the Company including, but not limited to, our Chief Executive Officer and Chief Financial Officer. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than ten percent (10%) of a registered class of our company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and the other equity securities of the Company. Officers, directors and persons who beneficially own more than ten percent (10%) of a registered class of our company's equity securities are required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) forms they file. -26- ITEM 10. EXECUTIVE COMPENSATION. The following table provides information concerning the annual and long-term compensation earned by our chief executive officer and each of the five other most highly compensated executive officers of our company during the last three fiscal years ended December 31. JPC Capital Partners, Inc.
Annual compensation Long Term Compensation Payouts Other Name and Principal Year Ended Salary Bonus Other Annual Restricted Securities LTIP All Other Position Dec. 31 compensation Stock Underlying Payouts Compensation ($) Awards Options/ ($) ($) SARs(#) John C. Canouse 2006 $75,000 - - - - Chier Executive Officer 2005 $96,800 - - - - 2004 $161,000 - - - - Jimmie N. Carter 2006 $96,000 $500 - - (1) - - Executive Vice 2005 $96,000 $500 - - - - President & Chief Financial 2004 $96,000 - - - - Officer Jose A. Auffant 2006 -0- - - (1) - - Executive Vice 2005 $59,135 - - - - President & General Counsel 2004 $150,000 - - - - Joseph P. Tabback 2006 -0- - - (1) - - Executive Vice 2005 -0- - - - - President & Trading Manager 2004 $80,000 - - - - Janet L. Thompson 2006 $70,000 $500 - - (1) - - Executive Vice President 2005 $70,000 $500 - - - - & Chief Compliance 2004 $70,000 - - - - Officer
(1) All stock options granted in 2001 at an exercise price of $1.25 have expired unexercised or were cancelled due to termination of employment. -27- Option Grants in Last Fiscal Year None Compensation of Directors Directors do not receive any compensation for serving on our Board of Directors, except that JPC Capital Partners, Inc. reimburses them for any expenses incurred in attending directors' meetings, provided that JPC Capital Partners, Inc. has the resources to pay these fees. No requests for reimbursements were received nor were any fees paid in 2006 nor 2005. Employment Agreements None -28- ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information known to us regarding beneficial ownership of JPC Capital Partners, Inc.'s Common Stock as of December 31, 2006 by: o each person known by us to own, directly or beneficially, more than 5% of JPC Capital Partners, Inc.'s Common Stock, o each of JPC Capital Partners, Inc.'s executive officers and directors, and o all of JPC Capital Partners, Inc.'s officers and directors as a group. Except as otherwise indicated, JPC Capital Partners, Inc. believes that the beneficial owners of the Common Stock listed below, based on information furnished by the owners, own the shares directly and have sole investment and voting power over the shares. Name (1) Number of shares (2) Percent Held -------- -------------------- ------------ John C. Canouse (3) 16,395,156 66.1% Joseph C. Canouse (4) 2,274,106 9.2% J.P. Carey Asset Management, LLC (4) 2,257,900 9.1% Jimmie N. Carter 80,000 (5) Cache Capital (USA) L.P. (4) 36,292 (5) Janet L. Thompson 5,118 (5) Directors and officers as a group (3 persons) 16,480,274 66.4% 1. The address for all officers and directors is 3440 Preston Ridge Road, #600, Alpharetta, GA 30005. 2. Information presented includes shares of Common Stock owned. All stock options issued in 2001 have expired. 3. These shares are beneficially owned by John C. Canouse through The Rearden Trust and The Four Life Trust which are Canouse Family trusts. The address for both trusts is 3rd Floor, Murdoch House, South Quay, Douglas, Isle of Man, IM15AS and the executor for each is City Trust, Ltd., which has sole voting power over all shares in the trusts. John C. Canouse, our president, chief executive officer and chairman, Joseph C. Canouse, James P. Canouse, Jeffrey M. Canouse and Scott C. Martin are beneficiaries of The Rearden Trust and The Four Life Trust, which collectively hold 66.4.% of our outstanding Common Stock as follows: The Rearden Trust - 16,395,156 (66.1%) and The Four Life Trust - 80,000 (0.3%). While these individuals are the beneficiaries of the trusts, they do not have any affiliation with City Trust, Ltd. nor do they have voting or investment power over the shares. The control person of City Trust, Ltd. is Rodney Margot, its Chairman and principal owner. 4. The address for Joseph C. Canouse, Cache Capital (USA) L.P., and J. P. Carey Asset Management , LLC is 3440 Preston Ridge Road, #600, Alpharetta, GA 30005. . Cache Capital (USA) L.P. is controlled by J.P. Carey Asset Management, LLC. Its General Partner and sole owner is Joseph C. Canouse, the brother of John C. Canouse. 5. Ownership is less than 1 %. -29- ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. John C. Canouse, our president, chief executive officer and chairman, is a beneficiary of The Rearden Trust and The Four Life Trust, which collectively hold 70% of our outstanding Common Stock. We share the services of several employees with J.P. Carey Asset Management, LLC. including John C. Canouse, our president, chief executive officer and chairman, Jimmie N. Carter, our executive vice president and chief financial officer, and Janet L. Thompson, our executive vice president and chief compliance officer. We also benefit from the services provided by employees of the related companies. Generally, shared employees are compensated exclusively by only one of the companies in order to minimize benefit and payroll tax expense. We monitor the amount of time employees devote to each of the companies and allocate the associated labor costs accordingly. We also allocate the office rent expense, communications expense, the cost of healthcare insurance, and other overhead or shared services expense. We recognize any differential in cost and benefit in our financial statements and make the appropriate payment from one company to the other. This is consistent with the SEC shared services accounting procedures promulgated December 2003. During the year the Company paid $50,000 to JP Carey Asset Management, LLC, a related party for assistance with our private placement transactions. The Company allocated expenses of $33,532 to JP Carey Asset Management, LLC for rent, healthcare expense, telephone expense, and administrative support. At December 31, 2006 the Company was owed $7,077 of this amount. The Company also paid $259 in miscellaneous expenses on behalf of JPC Holding Company, Inc., a related party. During the year the Company made an additional cash advances to Scott C. Martin, a related party, and commissioned salesperson. Mr. Martin had previously received an advance which was outstanding at December 31,2005 in the amount of $4,000. The Company advanced Mr. Martin an additional $3,000. No interest was charged for the advances. In July the Company forgave the advance and included it in Mr. Martin's compensation. During the year the Company paid $12,000 to Frank Connor, a related party, for website support, maintenance, and the use of a computer system for the operations of the Company. -30- ITEM 13. EXHIBITS AND REPORTS ON FORM 10-KSB. (a) Exhibits Exhibit # Description
3.1 Amended Articles of Incorporation [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 3.2 By-Laws [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.1 Clearing Agreement [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.2 Stock Option Plan [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.3 Lease for Office [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.4 Consulting Agreement - eSAFETYWORLD, Inc. [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.5 First Amendment to Consulting Agreement with eSAFETYWORLD, Inc. [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.6 Form of Series A Preferred Stock Purchase Agreement [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.7 Form of Series B Preferred Stock Purchase Agreement [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.8 Series C Preferred Stock Subscription Agreement [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.9 Warrant Agreement with Harbour Nominees Ltd. [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 10.10 Warrant Agreement with I-Bankers Securities, Inc. [Incorporated by reference to the same titled exhibit in the Company's 2002 Annual Report on Form 10-KSB (Registration No. 333-74396).] 10.11 First Amendment to Clearing Agreement with Fiserv Securities, Inc. [Incorporated by reference to the same titled exhibit in the Company's 2003 Annual Report on Form 10-KSB (Registration No. 333-74396).] 10.12 Lease renewal for Office [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form 8-K (Registration No. 333-74396).] 10.13 Lease for Office [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form 8-K (Registration No. 333-74396).]
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14.1 Code of Business Conduct and Ethics[Incorporated by reference to the same titled exhibit in the Company's 2004 Annual Report on Form 10-KSB (Registration No. 333-74396).] 16.1 E&Y Letter on Change in Certifying Accountant [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 16.2 Grassi Letter on Change in Certifying Accountant [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form SB-2 (Registration No. 333-74396).] 99.1 Order to grant Plaintiffs' Motion to drop party as defendant [Incorporated by reference to the same titled exhibit in the Company's Registration Statement on Form 8-K (Registration No. 333-74396).] 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 Sarbanes-Oxley Act of 2002
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES During the year ended December 31, 2006 the Company incurred audit fees of $17,928. These fees were for annual audit services and quarterly reviews. During the year ended December 31, 2005 these fees totaled $23,000. These fees included the cost of the annual audit and reviews of the quarterly and annual filings with the Securities and Exchange Commission. -33- 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 by the undersigned thereunto duly authorized. JPC Capital Partners, Inc. Registrant /s/ John C. Canouse ---------------------------- John C. Canouse Chief Executive Officer, President and Chairman Date: March 30, 2007 Pursuant to the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Jimmie N. Carter ---------------------------- Jimmie N. Carter Executive Vice President and Chief Financial Officer Date: March 30, 2007 /s/ Janet L. Thompson ---------------------------- Janet L. Thompson Executive Vice President, Chief Compliance Officer and Director Date: March 30, 2007 -34-