SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------------
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
COMMISSION FILE NO. 333-70932
THE JACKSON RIVERS COMPANY
(Exact name of issuer as specified in its charter)
FLORIDA 65-1102865
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
27 RADIO CIRCLE DRIVE, MOUNT KISCO, NEW YORK 10549
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619)-615-4242
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, PAR
VALUE $0.00001
PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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]
State issuer's revenues for its most recent fiscal year: $40,700
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of April 11, 2005: $57,872.
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of April 11, 2005: 741,732,720 shares of common
stock.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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TABLE OF CONTENTS
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . 9
Item 5. Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 10
Item 6. Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . . . . . . . . . . 11
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . 17
Item 8A. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 8B Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of
the Exchange Act.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 13. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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PART I
ITEM 1. BUSINESS.
COMPANY OVERVIEW
The Jackson Rivers Company was incorporated on May 8, 2001 under the laws
of the State of Florida. We were a "development stage enterprise" (as defined in
statement of Financial Accounting Standards No. 7) until September 30, 2004.
Beginning in 2004, we entered the business of developing and providing
customized information management systems. In 2005, JRC Global Products, our
wholly-owned subsidiary, has begun to market hair extension and replacement
systems.
On February 23, 2004, Mr. Lauzon contributed to us all of his shares in JRC
Global Products, Inc. as a contribution to our capital.
In a current report on Form 8-K filed with the Commission on March 10,
2004, we reported that on February 24, 2004, Jackson Rivers Technologies, Inc.,
("JRT"), a Nevada corporation and our wholly-owned subsidiary, entered into an
LLC Interest Purchase Agreement with Multitrade Technologies LLC, a New York
limited liability company ("MTT") and MTT's sole owner, Joseph Khan, pursuant to
which JRT purchased all of the assets of MTT which were related to MTT's
business of software development and the licensing to sell the software.
On May 12, 2004, we filed with the Commission an amended Current Report on
Form 8-K/A, announcing amendments to the LLC Interest Purchase Agreement with
MTT and Joseph Khan, to be made effective as of February 24, 2004. We filed the
amended LLC Interest Purchase Agreement as an exhibit to our amended current
report, filed with the Commission on May 12, 2004.
On June 23, 2004, we announced that our board of directors formally
rescinded the previously announced amended LLC Interest Purchase Agreement with
MTT and Joseph Khan, dated February 24, 2004. The rescission was the result of
our board's decision that the LLC interest purchase transaction, as originally
planned, was not in the best interests of us and our stockholders.
In lieu of purchasing the LLC interest from MTT, we and JRT entered into a
Technology License Agreement with MTT, effective February 24, 2004, whereby we
now have the exclusive, worldwide sublicense to commercialize certain software
technologies from MTT. MTT is currently licensing the software technologies,
which are the subject of the Technology License Agreement from Kisnet
Corporation. The Technology License Agreement between MTT, JRT and us was
attached as an exhibit to the amended current reports, which were filed with the
Commission on June 23, 2004 and June 28, 2004.
On June 23, 2004, our board of directors also formally rescinded its
previously announced plans to issue 80,000,000 shares of our common stock to
Dennis Lauzon in exchange for the contribution by Mr. Lauzon of all of the
issued and outstanding shares in JRC Global Products, Inc., and JRT, Nevada
corporations, owned by him. We will still accept the contribution of all of Mr.
Lauzon's issued and outstanding shares in JRC Global Products, Inc. and JRT.,
but no shares of our stock will be issued to Mr. Lauzon in consideration for
such contribution. Instead, we will pay Mr. Dennis Lauzon a one-time cash
payment of $50,000 as consideration for Mr. Lauzon's contribution of all of the
issued and outstanding shares in the two companies, owned by him and negotiating
the Technology License Agreement between MTT, us and JRT. In December 2004, Mr.
Lauzon released our obligation of the $50,000 cash payments pursuant to the
Technology License Agreement with MTT.
Mr. Joseph Khan resigned as our director effective December 23, 2004.
Effective August 3, 2004, we amended our articles of incorporation to
increase the number of our authorized shares of common stock to 1,980,000,000,
to authorize 200,000,000 shares of preferred stock; to authorize our board of
directors to determine, in whole or part, the preferences, limitations, and
relative rights, of classes or series of shares, as provided in Section 607.0602
of the Florida Statutes; and to reduce our quorum
requirements for stockholder meetings from the majority to one-third of the
total shares entitled to be cast at such meeting.
Effective October 18, 2004, we designated 10,000,000 shares of our
preferred stock as the Series A Preferred Stock. Each share of the series A
preferred stock is convertible into 1,000 shares of our common stock. On all
matters submitted to a vote of our security holders, a holder of the Series A
Preferred Stock is entitled to the number of votes equal to the number of shares
of the Series A Preferred Stock held by such holder multiplied by 2,000.
Effective October 18, 2004, we also designated 10,000,000 shares of our
preferred stock as the Series B Preferred Stock. Each share of the Series B
Preferred Stock shall be convertible into shares of the Common Stock in
accordance with the Per Share Conversion Price as specified herein. The "Per
Share Conversion Price" means 80 percent of the OTCBB, (or such other exchange
or market on which the Common Stock is then listed, if the Common Stock is not
listed on the OTCBB) five-day average closing bid price for each share of the
Common Stock for the five days prior to the date of the conversion. The number
of underlying shares of the Common Stock issuable upon any conversion of the
shares of the Series B Preferred Stock is calculated by dividing the product of
the number of shares of the Series B Preferred Stock to be converted multiplied
by the par value of the Series B Preferred Stock ($0.001 per share) by the Per
Share Conversion Price. The holders of the Series B Preferred Stock have no
voting rights on any matter submitted to our shareholders for their vote,
waiver, release or other action
Effective November 22, 2004, we implemented a reverse split of our issued
and outstanding common stock, on the basis of one thousand pre-consolidation
shares for each one post-consolidation share. We also changed the par value of
our common and preferred stock from $0.001 per share to $0.00001 per share.
Jackson Rivers Technologies and Strategic Healthcare Systems (SHS) signed a
Letter of Intent in the fourth quarter of 2004 to jointly construct a Medical
Practice Management System (MPMS), which we planned to market as Evolve Medical
Solutions. Construction of the system began immediately after the Letter of
Intent was signed and news was announced. Financial terms were never finalized
and, therefore, the project is currently on hold.
CURRENT BUSINESS PLAN
Our current purpose is to seek, investigate and, if such investigation
warrants, acquire an interest in business opportunities presented to us by
persons or firms who or which desire to seek the perceived advantages of a
corporation which is registered under the Securities Exchange Act of 1934, as
amended. We do not restrict our search to any specific business; industry or
geographical location and we may participate in a business venture of virtually
any kind or nature.
We may seek a business opportunity with entities which have recently
commenced operations, or which wish to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service or for other corporate purposes. We may
acquire assets and establish wholly owned subsidiaries in various businesses or
acquire existing businesses as subsidiaries.
As part of our investigation of potential merger candidates, our officers
and directors will meet personally with management and key personnel, may visit
and inspect material facilities, obtain independent analysis or verification of
certain information provided, check references of management and key personnel
and take other reasonable investigative measures, to the extent of our financial
resources and management expertise. The manner in which we participate in an
opportunity will depend on the nature of the opportunity, the respective needs
and desires of us and other parties, the management of the opportunity, our
relative negotiation strength and that of the other management.
We intend to concentrate on identifying preliminary prospective business
opportunities that may be brought to our attention through present associations
of our officers and directors, or by our stockholders. In analyzing prospective
business opportunities, we will consider such matters as the available
technical, financial and managerial resources; working capital and other
financial requirements; history of operations, if any; prospects for the future;
nature of present and expected competition; the quality and experience of
management services which
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may be available and the depth of that management; the potential for further
research, development or exploration; specific risk factors not now foreseeable
but which then may be anticipated to impact our proposed activities; the
potential for growth or expansion; the potential for profit; the perceived
public recognition or acceptance of products, services or trades; name
identification; and other relevant factors.
Our officers and directors will meet personally with management and key
personnel of the business opportunity as part of their investigation. We will
not acquire or merge with any company for which audited financial statements
cannot be obtained within a reasonable period of time after closing of the
proposed transaction, as required by the Exchange Act.
We will not restrict our search to any specific kind of firms, but may
acquire a venture which is in its preliminary or development stage, which is
already in operation, or which is in essentially any stage of its corporate
life. It is impossible to predict at this time the status of any business in
which we may become engaged, in that such business may need to seek additional
capital, may desire to have its shares publicly traded or may seek other
perceived advantages which we may offer.
KEY PERSONNEL
Our future financial success depends to a large degree upon the efforts of
Mr. Dennis N. Lauzon, our key officer and director. Mr. Lauzon has played a
major role in developing and executing our business strategy. The loss of Mr.
Lauzon could have an adverse effect on our business and our chances for
profitable operations. While we intend to employ additional management and
marketing personnel in order to minimize the critical dependency upon any one
person, there can be no assurance that we will be successful in attracting and
retaining the persons needed. If we do not succeed in retaining and motivating
our current employees and attracting new high quality employees, our business
could be adversely affected. We do not maintain key man life insurance on the
life of Mr. Lauzon.
OUR FINANCIAL RESULTS MAY BE AFFECTED BY FACTORS OUTSIDE OF OUR CONTROL
Our future operating results may vary significantly from quarter to quarter
due to a variety of factors, many of which are outside our control. Our
anticipated expense levels are based, in part, on our estimates of future
revenues and may vary from our projections. We may be unable to adjust spending
rapidly enough to compensate for any unexpected revenues shortfall.
Accordingly, any significant shortfall in revenues in relation to our planned
expenditures would materially adversely affect our business, operating results,
and financial condition.
We cannot predict with certainty our revenues and operating results.
Further, we believe that period-to-period comparisons of our operating results
are not necessarily a meaningful indication of future performance.
CORPORATE OFFICES
Our executive office is located at 27 Radio Circle, Mount Kisco, New York
10549. The number to call for information is (619) 615-4242.
RECENT EVENTS
Effective January 31, 2005, we amended our articles of incorporation to
authorize 5,000,000,000 shares of common stock, par value $0.00001 per share,
and 1,000,000,000 shares of preferred stock, par value $0.00001 per share.
Effective February 1, 2005, we implemented a reverse split of our issued
and outstanding common stock on the basis of one post-consolidation share for
each 2,000 pre-consolidation shares.
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EMPLOYEES
We have four full-time employees and one part-time employee as of March 31,
2005. As we grow, we will need to attract an unknown number of additional
qualified employees. Although we have experienced no work stoppages and believe
our relationships with our employees are good, we could be unsuccessful in
attracting and retaining the persons needed. None of our employees are
currently represented by a labor union. We expect to have a ready source of
available labor to support our growth.
MARKETS AND MARKETING
In 2004, we worked in conjunction with our technical and marketing teams on
defining, refining and attempting to market our enterprise management software
development platform throughout the United States, Mexico and Canada. This was
a collaborative undertaking which included the input and hands-on effort of
various business software developers, solutions providers and system
integrators. Our clients, the solutions providers, are expected to develop
customized business applications, using the STEPS(TM) platform for their clients
in less time and with fewer programming, database management, and development
resources. Our experience has been that due to the software's highly advanced
structure and being a new software solution, it has been difficult to establish
a customer base. We hope to expand our client base and to win market share by
enabling established experts invarious business functions such as supply-chain
management and customer relations management to bundle their expertise with our
development platform to deliver highly effective business management
applications.
On February 1, 2005, JRC Global Products announced the hiring of a
President and Vice President to market and distribute the Raphael Basante Hair
Systems' line of hair products and services. JRC Global Products has
established a business entity in New Jersey and will be doing business as
Raphael Basante Hair Systems. The patented hair extension and replacement
systems will be marketed to the general salon market, distributors and salon
professionals. Training seminars to use the system will be offered worldwide.
Our first scheduled tradeshow will be in April at the International Beauty Show
in New York.
We are presently negotiating a partnership with a software solutions
consulting firm, whereby Jackson Rivers Technologies will be marketing the STEPS
solution and our potential partner will deploy the solutions and provide
training.
RISK FACTORS
NEED FOR ONGOING FINANCING.
We will need additional capital to continue our operations and will
endeavor to raise funds through the sale of equity shares and revenues from
operations.
There can be no assurance that we will generate revenues from operations or
obtain sufficient capital on acceptable terms, if at all. Failure to obtain
such capital or generate such operating revenues would have an adverse impact on
our financial position and results of operations and ability to continue as a
going concern. Our operating and capital requirements during the next fiscal
year and thereafter will vary based on a number of factors, including the level
of sales and marketing activities for our services and products. There can be
no assurance that additional private or public financing, including debt or
equity financing, will be available as needed, or, if available, on terms
favorable to us. Any additional equity financing may be dilutive to
stockholders and such additional equity securities may have rights, preferences
or privileges that are senior to those of our existing common stock.
Furthermore, debt financing, if available, will require payment of interest
and may involve restrictive covenants that could impose limitations on our
operating flexibility. Our failure to successfully obtain additional future
funding may jeopardize our ability to continue our business and operations.
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If we raise additional funds by issuing equity securities, existing
stockholders may experience a dilution in their ownership. In addition, as a
condition to giving additional funds to us, future investors may demand, and may
be granted, rights superior to those of existing stockholders.
BUSINESS CONCENTRATION.
While we consider our relationships with our customers to be satisfactory,
given the concentration of our sales to a few key customers, our continued
relationships may be subject to the policies and practices of the customers. We
continue to concentrate our efforts on expanding our customer base in order to
reduce our reliance on our current customers.
INFLATION.
In our opinion, inflation has not had a material effect on our financial
condition or results of our operations.
TRENDS, RISKS AND UNCERTAINTIES.
We have sought to identify what we believe to be the most significant risks
to our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our common stock.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS.
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products.
These are factors that we think could cause our actual results to differ
materially from expected results. Other factors besides those listed here could
adversely affect us.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, most of which are outside our control,
including the demand for our services, seasonal trends in purchasing, the amount
and timing of capital expenditures; price competition or pricing changes in the
industry; technical difficulties or system downtime; general economic
conditions, and economic conditions specific to our industry. Our quarterly
results may also be significantly impacted by the impact of the accounting
treatment of acquisitions, financing transactions or other matters.
Particularly at our early stage of development, occurrences such as accounting
treatment can have a material impact on the results for any quarter. Due to the
foregoing factors, among others, it is likely that our operating results will
fall below our expectations or those of investors in some future quarter.
LACK OF INDEPENDENT DIRECTORS.
We cannot guarantee that our board of directors will have a majority of
independent directors in the future. In the absence of a majority of
independent directors, our executive officers, could establish policies and
enter into transactions without independent review and approval thereof. This
could present the potential for a conflict of interest between us and our
stockholders generally and the controlling officers, stockholders or directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Our officers and directors are required to exercise good faith and high
integrity in our management affairs. Our articles of incorporation provide,
however, that our officers and directors shall have no liability to our
stockholders for losses sustained or liabilities incurred which arise from any
transaction in their respective managerial capacities unless they violated their
duty of loyalty, did not act in good faith, engaged in intentional misconduct or
knowingly violated the law, approved an improper dividend or stock repurchase,
or derived an improper benefit from the transaction. Our articles and bylaws
also provide for the indemnification by us of the
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officers and directors against any losses or liabilities they may incur as a
result of the manner in which they operate our business or conduct the internal
affairs, provided that in connection with these activities they act in good
faith and in a manner that they reasonably believe to be in, or not opposed to,
our best interests, and their conduct does not constitute gross negligence,
misconduct or breach of fiduciary obligations.
MANAGEMENT OF POTENTIAL GROWTH.
We may experience rapid growth which will place a significant strain on our
managerial, operational, and financial systems resources. To accommodate our
current size and manage growth, we must continue to implement and improve our
financial strength and our operational systems, and expand, train and manage our
sales and distribution base. There is no guarantee that we will be able to
effectively manage the expansion of our operations, or that our facilities,
systems, procedures or controls will be adequate to support our expanded
operations. Our inability to effectively manage our future growth would have a
material adverse effect on us.
WE PAY NO DIVIDENDS.
We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain any earnings for funding growth however these plans
may change depending upon capital raising requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
We believe that we do not have any material exposure to interest or
commodity risks. Our financial results are quantified in U.S. dollars and a
majority of our obligations and expenditures with respect to our operations are
incurred in U.S. dollars. Although we do not believe we currently have any
materially significant market risks relating to our operations resulting from
foreign exchange rates, if we enter into financing or other business
arrangements denominated in currency other than the U.S. dollars, variations in
the exchange rate may give rise to foreign exchange gains or losses that may be
significant.
We currently have no material long-term debt obligations. We do not use
financial instruments for trading purposes and we are not a party to any
leverage derivatives.
RISKS RELATING TO OUR BUSINESS
WE ARE NOT LIKELY TO SUCCEED UNLESS WE CAN OVERCOME THE MANY OBSTACLES WE FACE.
As an investor, you should be aware of the difficulties, delays and
expenses we encounter, many of which are beyond our control, including
unanticipated market trends, employment costs, and administrative expenses. We
cannot assure our investors that our proposed business plans as described in
this report will materialize or prove successful, or that we will ever be able
to finalize development of our products or services or operate profitably. If
we cannot operate profitably, you could lose your entire investment. As a
result of the nature of our business, initially we expect to sustain substantial
operating expenses without generating significant revenues.
OUR AUDITORS HAVE STATED WE MAY NOT BE ABLE TO STAY IN BUSINESS.
Our auditors have issued a going concern opinion, which means that there is
doubt that we can continue as an ongoing business for the next 12 months.
Unless we can raise additional capital, we may not be able to achieve our
objectives and may have to suspend or cease operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OUR ACQUISITION STRATEGY INVOLVES A NUMBER OF RISKS.
We intend to pursue growth through the opportunistic acquisition of
companies or assets that will enable us to expand our service lines to provide
more cost-effective customer solutions. We routinely review potential
acquisitions. This strategy involves certain risks, including difficulties in
the integration of operations and systems, the diversion of our management's
attention from other business concerns, and the potential loss of key employees
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of acquired companies. We may not be able to successfully acquire, and/or
integrate acquired businesses into our operations.
RISKS RELATING TO OUR STOCK
WE MAY NEED TO RAISE ADDITIONAL CAPITAL. IF WE ARE UNABLE TO RAISE NECESSARY
ADDITIONAL CAPITAL, OUR BUSINESS MAY FAIL OR OUR OPERATING RESULTS AND OUR STOCK
PRICE MAY BE MATERIALLY ADVERSELY AFFECTED.
Due to the lack of revenue and expenses, we need to secure adequate
funding. If we are unable to obtain adequate funding, we may not be able to
successfully develop and market our products and services and our business will
most likely fail. We do not have commitments for additional financing. To
secure additional financing, we may need to borrow money or sell more
securities, which may reduce the value of our outstanding securities. Under
these circumstances, we may be unable to secure additional financing on
favorable terms or at all.
Selling additional stock, either privately or publicly, would dilute the
equity interests of our stockholders. If we borrow more money, we will have to
pay interest and may also have to agree to restrictions that limit our operating
flexibility. If we are unable to obtain adequate financing, we may have to
curtail business operations which would have a material negative effect on
operating results and most likely result in a lower stock price.
OUR COMMON STOCK HAS EXPERIENCED IN THE PAST, AND IS EXPECTED TO EXPERIENCE IN
THE FUTURE, SIGNIFICANT PRICE AND VOLUME VOLATILITY, WHICH SUBSTANTIALLY
INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE
PRICE THAT YOU PAY FOR THE SHARES.
Because of the limited trading market for our common stock, and because of
the possible price volatility, you may not be able to sell your shares of common
stock when you desire to do so. During 2003 and 2004, our common stock was sold
and purchased at prices that ranged from a high of $0.25 to a low of $0.0001 per
share. The inability to sell your shares in a rapidly declining market may
substantially increase your risk of loss because of such illiquidity because the
price for our common stock may suffer greater declines due to its price
volatility.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. Certain factors, some
of which are beyond our control, that may cause our share price to fluctuate
significantly include, but are not limited to, the following:
- Variations in our quarterly operating results;
- The development of a market in general for our products and services;
- Changes in market valuations of similar companies;
- Announcement by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- Loss of a major customer or failure to complete significant transactions;
- Additions or departures of key personnel; and
- Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the OTC
Bulletin Board and technology stocks in particular, have experienced extreme
price and volume fluctuations. In some cases, these fluctuations are unrelated
or disproportionate to the operating performance of the underlying company.
These market and industry factors may materially and adversely affect our stock
price, regardless of our operating performance.
Over the past few months, there have been periods of significant increases
in trading volume of our common stock during which the price of our stock has
both increased and decreased. The historical trading of our
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common stock is not necessarily an indicator of how it will trade in the future
and our trading price as of the date of this report does not necessarily portend
what the trading price of our common stock might be in the future.
In the past, class action litigation has often been brought against
companies following periods of volatility in the market price of the common
stock of those companies. If we become involved in this type of litigation in
the future, it could result in substantial costs and diversion of management
attention and resources, which could have a further negative effect on your
investment in our stock.
OUR DIRECTORS HAVE THE RIGHT TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK AND
ADDITIONAL SHARES OF OUR COMMON STOCK.
Our directors, within the limitations and restrictions contained in our
articles of incorporation and without further action by our stockholders, have
the authority to issue shares of preferred stock from time to time in one or
more series and to fix the number of shares and the relative rights, conversion
rights, voting rights, and terms of redemption, liquidation preferences and any
other preferences, special rights and qualifications of any such series. We
have no intention of issuing preferred stock at the present time. Any issuance
of preferred stock could adversely affect the rights of holders of our common
stock.
Should we issue additional shares of our common stock at a later time, each
investor's ownership interest in The Jackson Rivers Company would be
proportionally reduced. No investor will have any preemptive right to acquire
additional shares of our common stock, or any of our other securities.
THE ISSUANCE OF SHARES UPON THE EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE
IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.
The issuance of shares upon the exercise of warrants may result in
substantial dilution to the interests of other stockholders since the selling
stockholders may ultimately convert and sell the full amount issuable on
conversion. There is no upper limit on the number of shares that may be issued
which will have the effect of further diluting the proportionate equity interest
and voting power of holders of our common stock, including investors in this
offering.
IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
Companies trading on the OTC Bulletin Board, such as The Jackson Rivers
Company, must be reporting issuers under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and must be current in their
reports under Section 13, in order to maintain price quotation privileges on the
OTC Bulletin Board. If we fail to remain current on our reporting requirements,
we could be removed from the OTC Bulletin Board. As a result, the market
liquidity for our securities could be severely adversely affected by limiting
the ability of broker-dealers to sell our securities and the ability of
stockholders to sell their securities in the secondary market.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. Inasmuch as that the current bid and ask price of common stock is
less than $5.00 per share, our shares are classified as "penny stock" under the
rules of the SEC. For any transaction involving a penny stock, unless exempt,
the rules require:
- That a broker or dealer approve a person's account for transactions in
penny stocks; and
8
- The broker or dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must:
- Obtain financial information and investment experience objectives of the
person; and
- Make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
- Sets forth the basis on which the broker or dealer made the suitability
determination; and
- That the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks
in both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks
ITEM 2. DESCRIPTION OF PROPERTY.
We lease office space at 27 Radio Circle, Mount Kisco, New York, 10549.
Our lease costs $975 per month and is scheduled to expire on January 31, 2004.
We also lease office space at 402 West Broadway, Suite 400 San Diego, California
92101. Our lease is for six months at the cost of $2,318 base rent per month
plus additional monthly fixed office costs. In February 2004, we entered into
an agreement leasing a corporate apartment in San Diego, California. Monthly
rental under the lease is $2,995 ($1,995 to be paid by the Company and $1,000
paid by employees) expires on February 28, 2005.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Effective January 31, 2005, our majority stockholder voted to:
1. Ratify the November 22, 2004 amendment to our articles of
incorporation to change the par value of our common and preferred stock from
$0.001 per share to $0.00001 per share;
2. Ratify the November 22, 2004 reverse split of our common stock on
the basis of one post-consolidation share for each one thousand
pre-consolidation shares;
3. Approve an amendment to our articles of incorporation to increase
the authorized number of shares of our common stock from 1,980,000,000 to
5,000,000,000 shares;
9
4. Approve an amendment to our articles of incorporation to increase
the authorized number of shares of our preferred stock from 200,000,000 to
1,000,000,000 shares;
5. Grant discretionary authority to our board of directors to implement
a reverse split of our common stock on the basis of one post-consolidation share
for up to each 2,000 pre-consolidation shares to occur at some time within 12
months of the date of this information statement, with the exact time of the
reverse split to be determined by the board of directors; and
6. Approve the following Stock Plans of The Jackson Rivers Company (the
"Stock Plans"):
a) Employee Stock Incentive Plan for the Year 2004 No. 3, adopted
by the directors on August 9, 2004 with 150,000,000 shares available for
issuance under the Plan.
b) Non-Employee Directors and Consultants Retainer Stock Plan for
the Year 2004 No. 3, adopted by the directors on August 9, 2004, with 49,000,000
shares available for issuance under the Plan.
c) Employee Stock Incentive Plan for the Year 2004 No. 4, adopted
by the directors on September 8, 2004 with 400,000,000 shares available for
issuance under the Plan; and
d) Non-Employee Directors and Consultants Retainer Stock Plan for
the Year 2004 No. 4, adopted by the directors on September 8, 2004, with
99,000,000 shares available for issuance under the Plan
Dennis N. Lauzon, our president, chief executive officer and director, held
22,000,000 shares of our common stock and 980,000 shares of our Series A
preferred stock on the record date for the above-described actions. Each share
of our common stock is entitled to one vote on all matters brought before the
stockholders and each share of our Series A preferred stock outstanding entitles
the holder to 2,000 votes of the common stock on all matters brought before the
stockholders. Therefore, Mr. Lauzon had the power to vote 1,982,000,000 shares
of the common stock, which number was sufficient to approve each of the
corporate actions described above without the concurrence of any of our other
stockholders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Until November 22, 2004, our common stock was quoted on the OTC Bulletin
Board under the symbol "JRVR.OB." Effective November 22, 2004, our symbol
changed from "JRVR.OB" to "JRVC. OB." Effective February 1, 2005, our symbol
changed from "JRVC.OB" to "JRIV.OB." These quotations reflect inter-dealer
prices, without mark-up, mark-down or commission, and may not represent actual
transactions.
CALENDAR YEAR 2003 HIGH LOW
First Quarter $0.06 $0.03
Second Quarter $0.06 $0.03
Third Quarter $0.10 $0.03
Fourth Quarter $0.09 $0.02
CALENDAR YEAR 2004 HIGH LOW
First Quarter $0.0700 $0.0136
Second Quarter $0.0635 $0.0166
Third Quarter $0.0198 $0.0024
Fourth Quarter $0.2500 $0.0002
As of March 31, 2005, we had 658,732,720 shares of our common stock
-----------
outstanding. Our shares of common stock are held by approximately 1,000
stockholders of record. The number of record holders was
10
determined from the records of our transfer agent and does not include
beneficial owners of common stock whose shares are held in the names of various
security brokers, dealers, and registered clearing agencies.
SECTION 15(G) OF THE EXCHANGE ACT
The shares of our common stock are covered by Section 15(g) of the Exchange
Act, and Rules 15g-1 through 15g-6 promulgated thereunder, which impose
additional sales practice requirements on broker-dealers who sell our securities
to persons other than established customers and accredited investors.
Rule 15g-2 declares unlawful any broker-dealer transactions in "penny
stocks" unless the broker-dealer has first provided to the customer a
standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a
"penny stock" transaction unless the broker-dealer first discloses and
subsequently confirms to the customer the current quotation prices or similar
market information concerning the penny stock in question.
Rule 15g-4 prohibits broker-dealers from completing "penny stock"
transactions for a customer unless the broker-dealer first discloses to the
customer the amount of compensation or other remuneration received as a result
of the penny stock transaction.
Rule 15g-5 requires that a broker-dealer executing a "penny stock"
transaction, other than one exempt under Rule 15g-1, disclose to its customer,
at the time of or prior to the transaction, information about the sales person's
compensation.
Our common stock may be subject to the foregoing rules. The application of
the "penny stock" rules may affect our stockholders' ability to sell their
shares because some broker-dealers may not be willing to make a market in our
common stock because of the burdens imposed upon them by the "penny stock"
rules.
The following table provides information about purchases by us and our
affiliated purchasers during the quarter ended December 31, 2004 of equity
securities that are registered by us pursuant to Section 12 of the Securities
Exchange Act of 1934:
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
(a) (b) (c) (d)
----------------- ----------------- ----------------- -----------------
Maximum
number (or
Total number approximate
of shares (or dollar value) of
units) shares (or
purchased as units) that may
part of yet be
Total number Average price publicly purchased
of shares (or paid per announced under the plans
units) share (or unit) plans or or programs
purchased programs
Period
-------------------------------- ----------------- ----------------- ----------------- -----------------
October 2004. . . . . . . . . . -0- -0- -0- -0-
November 2004 . . . . . . . . . -0- -0- -0- -0-
December 2004 . . . . . . . . . -0- -0- -0- -0-
----------------- ----------------- ----------------- -----------------
Total . . . . . . . . . . . . . -0- -0- -0- -0-
================= ================= ================= =================
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING INFORMATION
Much of the discussion in this Item is "forward looking" as that term is
used in Section 27A of the Securities Act and Section 21E of the Exchange Act.
Actual operations and results may materially differ from present plans and
projections due to changes in economic conditions, new business opportunities,
changed business
11
conditions, and other developments. Other factors that could cause results to
differ materially are described in our filings with the Securities and Exchange
Commission.
There are several factors that could cause actual results or events to
differ materially from those anticipated, and include, but are not limited to
general economic, financial and business conditions, changes in and compliance
with governmental laws and regulations, including various state and federal
environmental regulations, our ability to obtain additional financing from
outside investors and/or bank and mezzanine lenders and our ability to generate
sufficient revenues to cover operating losses and position us to achieve
positive cash flow.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. We believe
the information contained in this Form 10-KSB to be accurate as of the date
hereof. Changes may occur after that date. We will not update that
information except as required by law in the normal course of its public
disclosure practices.
MANAGEMENT'S PLAN OF OPERATIONS
We were originally organized to provide short-term loans to consumers
wishing to finance funeral arrangements for their deceased loved ones, while
payment of benefits from insurance companies on the lives of the deceased were
pending. Due to a change in control of our company and because of the
difficulty in securing a line of credit or other sources of funding to establish
a loan portfolio large enough to support our operations and return a profit, we
abandoned our plans to pursue short-term financing of funeral arrangements.
We have now entered the business of providing customized information
management systems. In February 2004, we and our wholly owned subsidiary,
Jackson Rivers Technologies, Inc., ("JRT") entered into an LLC Interest
Purchase Agreement with Multitrade Technologies LLC, a Delaware limited
liability company ("MTT") pursuant to which JRT purchased all of the assets of
MTT which were related to MTT's business of software development and the
licensing to sell the software (the "Acquisition"). In June 2004, we and
JRT rescinded the Acquisition, and entered into a Technology License Agreement
("Agreement") with MTT, whereby we now have the exclusive, worldwide sublicense
to commercialize products using the STEPS(TM) platform from MTT. STEPS
(Straight Through Enterprise Processing Systems) is a proprietary Java-based
platform, built on patented technology, used to create customized business
management applications and information management systems. The sublicensing of
the software technologies from MTT will allow us to develop the licensed product
and expand our customer base and operations.
STEPS (Straight Through Enterprise Processing Systems) is a proprietary
Java-based platform, built on patented technology, used to create customized
business management applications and information management systems. We
recently announced new developments related to the plans of Jackson Rivers
Technologies, Inc., our wholly-owned subsidiary ("JRT") to market its
open-architecture STEPS ERP solution to small-and medium-sized enterprises
(SMEs) in North, South and Central America. As reported in previous public
announcements, a STEPS solution has successfully penetrated the telecom and
insurance industries by addressing their distribution system needs for. We have
generated a considerable amount of interest throughout the region of Latin
America, including the recently announced channel partnership with global
enterprise mobility solutions provider, Symbol Technologies, which we see as a
strategic boost to STEPS deployments in Latin America.
During the last quarter of 2004, we concentrated our efforts on
web-enabling the STEPS platform and improving the user-interface. We worked on
building a partnership with Stategic Healthcare Systems (SHS) in order to
construct a Medical Practice Management System to be marketed as Evolve Medical
Solutions, which is on hold.
During the first quarter of 2005, JRC Global Products, our wholly-owned
subsidiary, has hired a President and Vice President to head up efforts to
market and distribute the Raphael Basante Hair Systems' (RBHS -
www.raphaelbasante.com) line of hair products and services. We plan to market
and distribute the patented Raphael Basante hair extension and replacement
systems to the general salon market, distributors and train salon professionals
to use the system worldwide.
12
We plan to build brand awareness by exhibiting at trade shows and
conducting our own training classes in major market areas. We will focus on the
point of difference that our extensions have over others that are on the market.
We expect to penetrate the market through distribution. We will target major
distributors that we feel have product line synergies and with our help and
joint marketing effort we will enable them to do an effective job in expanding
their current client base. In turn, we will allow them to create trial
opportunities for this new and innovative product that does not hurt your hair
or scalp. We feel that there is an untapped market of potential extension users
who would never try extensions for fear of harming their hair.
Our marketing approach will be regional rollouts in order to effectively
work with our distributors without creating a strain on our educators and
support from our manufacturers. We expect to create a full line of POS materials
for the salons to generate interest in their clients while they are in the
salon. We are also developing a co-op marketing program for our distributors.
In conjunction, we are organizing joint promotions with other manufacturers to
help increase sales and trial for all parties involved in the promotion.
We will also support our marketing effort with trade ads, editorials and
third party testimonials. As a compliment to our unique line of extensions, we
will also carry a line of the conventional method of extensions. We feel that
this additional product offering is also superior to the extensions that are
currently on the market. This will allow the distributor's representative the
option - if his or her customer does not have time to train on the new system -
to sell them a better system than they are currently using.
DEPENDENCE UPON ONE OR A FEW MAJOR CUSTOMERS
We just consummated our first sales in the third quarter of 2004, and have
generated limited revenues for the year ended December 31, 2004. Revenue from
two customers amounted $40,700 or 100% of our sales for the year ended December
31, 2004.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THE TWELVE MONTHS ENDED
DECEMBER 31, 2003.
REVENUE
We emerged from the development stage as of September 30, 2004. Therefore,
there were no comparable revenues in the prior year. Our first customer for our
STEPS software solution was an internationally based telecom and insurance
company, which generated $40,700 of revenues in 2004. We anticipate continuing
to pursue these industry types while adding additional industries such as
medical.
COST OF SALES
We did not allocate business expenses and officers salaries to cost of
sales for the 12 months ended December 31, 2004, as the sales are minimal and
allocation of specific costs to sales was not applicable. We expect cost of
revenue to increase during the coming 12 months due to the addition of a new
line of business that has cost of goods associated with the products.
OPERATING EXPENSES
Selling, general and administrative expenses ("SG&A") were $4,864,192 for the 12
months ended December 31, 2004, compared to $642,257 for the 12 months ended
December 31, 2003, an increase of $4,203,935_or approximately 655_percent. The
variation in expenses is due to several factors relating to the growth of the
company and development expenses. We incurred a total of $2,007,056 and $67,624
of expenses in connection with issuance of shares under our Employees Stock
Incentive Plan for the year ended December 31, 2004 and 2003, respectively. The
increase was mainly transaction costs due to accounting for the variation in the
13
stock price between the share issue date and the date the shares were sold by
employees (date that the Company received proceeds) Due to the high volatility
of the stock price, total employee compensation and related transaction costs
increased substantially during the year ended December 31, 2004, however, this
expense did not require any cash expenditure by the company. The next largest
increase was due to the addition of new companies and new lines of business.
This causes two types of increases. The first being short-term increases due to
start-up and potential acquisition expenses, these includes expenses such as
one-time license fees in connection with our Technology License Agreement with
Multitrade Technologies LLC, legal and accounting fees, and business
development. This accounted for over $565,000 of the increase. The second is
the increase in on going expenses due to the new business. These expenses
including the increase in wages and benefits due to new employees, the increase
in consulting expenses, increase in rent and office expense due to adding a
second office location and increasing the office space for the main office.
These expenses accounted for approximately $1,500,000 of the increase Entering
into a new line of business additionally added recurring expenses in areas such
as monthly license fees and monthly support fees. These expenses accounted for
$220,000 of the increase.
LIQUIDITY AND CAPITAL RESOURCES
As shown in the accompanying financial statements, the Company incurred net
losses of $4,807,494 and $629,735 for the year ended December 31, 2004 and 2003,
respectively. As of December 31, 2004, the Company's current liabilities
exceeded its current assets by $322,233.
As a result of our net loss of $4,807,494, adjusted principally for
$665,490 of common stock issued to consultants in exchange for services
rendered, $2,007,056 of common stock issued in exchange for employee
compensation and ESIP transaction costs and fees, $255,000 of preferred stock
issued in exchange for management fees, and $395,657 of increase in accounts
payable and accrued liabilities, our cash flow deficit from operating activities
was $1,506,128 during the year ended December 31, 2004. We used $7,462 of cash
to acquire new property and equipment during the year ended December 31, 2004.
We met our cash requirements during the period through proceeds from sale of
common stock and stock subscription in the amount of $1,504,142, net of costs
and fees.
The Company's independent certified public accountants have stated in their
report included in the Company's December 31, 2004 Form 10-KSB, that the Company
has incurred operating losses and that the Company is dependent upon
management's ability to develop profitable operations. These factors among
others may raise substantial doubt about the Company's ability to continue as a
going concern.
We intend to continue to find ways to expand our business through new
product development and introduction. We believe that revenues and earnings
will increase as we grow. We anticipate that we will incur smaller losses in
the near future if we are able to expand our business and the marketing of our
products and services now under development. The losses will be created to the
extent of the excess of technology development and marketing expenses over the
income from operations.
We anticipate that our current incoming cash receipts generated from JRC
Global Products' new line of business, receipts of ongoing operations at Jackson
Rivers Technologies, and current financing strategy of private debt and equity
offerings will meet its anticipated objectives and business operations for the
next 12 months.
During the first quarter of 2005, we have reduced our overall overhead and
recurring expenses by approximately 50 percent. We continue to evaluate
opportunities for corporate development. Subject to our ability to obtain
adequate financing at the applicable time, we may enter into definitive
agreements on one or more of those opportunities.
We anticipate raising any necessary capital from outside investors coupled
with bank or mezzanine lenders. As of the date of this report, we have not
entered into any negotiations with any third parties to provide such capital.
In order to execute our business plan, we will need to acquire additional
capital from debt or equity financing. Our independent certified public
accountants have stated in their report, included in this Form 10-KSB,
14
that due to our net loss and negative cash flows from operations, in addition to
a lack of operational history, there is a substantial doubt about our ability to
continue as a going concern. In the absence of significant revenue and profits,
we will be completely dependent on additional debt and equity financing
arrangements. There is no assurance that any financing will be sufficient to
fund our capital expenditures, working capital and other cash requirements for
the fiscal year ending December 31, 2005. No assurance can be given that any
such additional funding will be available or that, if available, can be obtained
on terms favorable to us. If we are unable to raise needed funds on acceptable
terms, we will not be able to execute our business plan, develop or enhance
existing services, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements. A material shortage of
capital will require us to take drastic steps such as further reducing our level
of operations, disposing of selected assets or seeking an acquisition partner.
If cash is insufficient, we will not be able to continue operations.
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements, we believe the following
critical accounting policy involve the most complex, difficult and subjective
estimates and judgments.
STOCK-BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based
Compensation - Transition and Disclosure. This statement amends SFAS No. 123 -
Accounting for Stock-Based Compensation, providing alternative methods of
voluntarily transitioning to the fair market value based method of accounting
for stock based employee compensation. SFAS 148 also requires disclosure of the
method used to account for stock-based employee compensation and the effect of
the method in both the annual and interim financial statements. The provisions
of this statement related to transition methods are effective for fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for interim periods beginning
after December 31, 2002.
We elected to continue to account for stock-based compensation plans using
the intrinsic value-based method of accounting prescribed by APB No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
the provisions of APB No. 25, compensation expense is measured at the grant date
for the difference between the fair value of the stock and the exercise price.
REVENUE RECOGNITION
For revenue from product sales, the Company recognizes revenue in accordance
with Staff Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which
superceded Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS ("SAB101").
SAB 101 requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured. Determination of criteria (3) and (4) are
based on our judgments regarding the fixed nature of the selling prices of the
products delivered and the collectibility of those amounts. Provisions for
discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are recorded.
We defer any revenue for which the product has not been delivered or is subject
to refund until such time that the customer and we jointly determine that the
product has been delivered or no refund will be required.
SAB 104 incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"),
MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting for
15
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21 on
the Company's consolidated financial position and results of operations was not
significant.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (FASB) issued
SFAS 151, Inventory Costs- an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that "under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges" This Statement
requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal." In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This
Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Management does not believe the adoption of this
Statement will have any immediate material impact on the Company.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate that the implementation of this standard will
have a material impact on its financial position, results of operations or cash
flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting
Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions (" SFAS 153"). This statement
amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. Under SFAS 153, if
a nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
OFF-BALANCE SHEET ARRANGEMENTS
16
We do not have any off-balance sheet arrangements.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements and related notes are included as part of this
report as indexed in the appendix on page F-1 through F-18.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On September 16, 2003, we terminated the client-auditor relationship with
Michaelson & Co., P.A. Michaelson & Co., P.A.'s reports on our financial
statements for the years ended December 31, 2002 and through September 16, 2003,
and the period May 8, 2001 (date of inception) through December 31, 2001 did not
contain an adverse opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.
The decision to change accountants was recommended by our board of
directors.
During the two most recent fiscal years and any subsequent interim period
through September 16, 2003 there have not been any disagreements between us and
Michaelson & Co., P.A. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Michaelson & Co., P.A.,
would have caused it to make reference to the subject matter of the
disagreements in connection with its reports on the financial statements for
such periods.
On September 22, 2003 we engaged Russell Bedford Stefanou Mirchandani LLP,
certified public accountants, as our independent accountants to report on our
balance sheet as of December 31, 2003, and the related combined statements of
income, stockholders' equity and cash flows for the year then ended. The
decision to appoint Russell Bedford Stefanou Mirchandani LLP was approved by our
board of directors.
During our two most recent fiscal years and any subsequent interim period
prior to the engagement of Russell Bedford Stefanou Mirchandani LLP, neither we
nor anyone on our behalf consulted with Russell Bedford Stefanou Mirchandani LLP
regarding either (i) the application of accounting principles to a specified
transaction, either contemplated or proposed, or the type of audit opinion that
might be rendered on our financial statements or (ii) any matter that was either
the subject of a "disagreement" or a "reportable event."
We have requested the former accountants to furnish us with a letter
addressed to the Commission stating whether it agrees with the statements made
by the registrant, and, if not, stating the respects in which they do not agree.
We included the former accountant's letter as Exhibit 16 of our Form 8-K/A filed
with the SEC on October 20, 2003.
ITEM 8A. CONTROLS AND PROCEDURES.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure.
Evaluation of disclosure and controls and procedures. As of the end of the
period covered by this Annual report, we conducted an evaluation, under the
supervision and with the participation of our chief executive officer and chief
financial officer, of our disclosure controls and procedures (as defined in
Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file
17
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
Changes in internal controls over financial reporting. There was no change
in our internal controls, which are included within disclosure controls and
procedures, during our most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
controls.
ITEM 8B. OTHER INFORMATION.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Our directors and executive officers are:
NAME AGE POSITION POSITION HELD SINCE
------------------------ --- --------------------------------- -------------------
Dennis N. Lauzon 49 Director, president and CEO 2003
Nicholas A. Cortese, Jr. 52 Director, Secretary and Treasurer 2004
Our executive officers are elected annually by our board of directors.
Dennis N. Lauzon has a B.S. degree from Springfield College. Mr. Lauzon
has served as president of Radel Marketing Corporation in Katonah, New York,
since its formation in 1981. He was also the founder and principal owner of
Updated Profit Systems, a company providing computerized service system for the
automotive industry. Mr. Lauzon also served as a consultant for companies
developing various POS marketing and sales programs and coupon fraud protection
systems, such as Nabisco, HP, and Seagram's.
Nicholas A. Cortese, Jr. has spent most of his professional career
dedicated to the growing success of Lindenmeyr Munroe, a $650 Million division
of Central National Gottesman, Inc. (CNG), which is a privately held $2.3
Billion company. Mr. Cortese began his career with CNG as a Sales Representative
in year 1982. In 1994 he became Sales Manager for the North Reading, MA, branch
and in 2001 he was promoted to the position of VicePresident/General Manager of
the branch. As VicePresident/General Manager of North Reading, MA, a $60
million branch of Lindenmeyr Munroe, his responsibilities include hiring and
supervising for a group of 70 employees. Mr. Cortese holds a Bachelor of
Science degree from Springfield College.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, our directors and certain of our
officers, and persons holding more than 10 percent of our common stock are
required to file forms reporting their beneficial ownership of our common stock
and subsequent changes in that ownership with the Securities and Exchange
Commission. Such persons are also required to furnish us with copies of all
forms so filed.
Based solely upon a review of copies of such forms filed on Forms 3, 4, and
5, we are aware of two persons who during the year ended December 31, 2004, were
directors, officers, or beneficial owners of more than ten percent of our common
stock, and who failed to file, on a timely basis, reports required by Section
16(a) of the Securities Exchange Act of 1934 during such fiscal year as follows:
- Dennis N. Lauzon. Mr. Lauzon was an officer and director during the entire
year 2004. Mr. Lauzon failed to timely file a Form 4 for the year ended
December 31, 2004.
18
- Joseph Khan. Mr. Khan was a director during 2004. Mr. Khan failed to timely
file a Form 4 for the year ended December 31, 2004.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The code of ethics is
designed to deter wrongdoing and to promote:
- Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
- Full, fair, accurate, timely, and understandable disclosure in reports and
documents that we file with, or submits to, the SEC and in other public
communications made by us;
- Compliance with applicable governmental laws, rules and regulations;
- The prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code; and
- Accountability for adherence to the code.
A copy of our code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions was attached as an exhibit
to our Annual Report for the year ended December 31, 2003, filed with the
Commission on April 14, 2004. We have posted a copy of the code of ethics on
our website at www.jacksonrivers.com.
We will provide to any person without charge, upon request, a copy of our
code of ethics. Any such request should be directed to our corporate secretary
at 27 Radio Circle, Mount Kisco, New York 10549, telephone number (619)
615-4242.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning the
compensation earned by the named executive officers (determined as of the end of
the last fiscal year) for services rendered in all capacities to The Jackson
Rivers Company and our subsidiaries:
19
----------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------ ----------------------------------------
AWARDS PAYOUTS
------------------------ ------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------------ ---------- ---------- ---------- ------------ ------------ ------------ ------------ ------------
Dennis N. Lauzon 2002 -0- -0- -0- -0- -0- -0- -0-
2003 -0- -0- -0- -0- -0- -0- -0-
2004 -0- -0- -0- -0- -0- -0- -0-
Nicholas A. Cortese, Jr. 2002 -0- -0- -0- -0- -0- -0- -0-
2003 -0- -0- -0- -0- -0- -0- -0-
2004 -0- -0- -0- -0- -0- -0- -0-
Joseph Khan 2002 -0- -0- -0- -0- -0- -0- -0-
2003 -0- -0- -0- -0- -0- -0- -0-
2004 -0- -0- -0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
None.
CONFIDENTIALITY AGREEMENTS
None.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
EQUITY COMPENSATION PLAN INFORMATION
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of the end of the most recently
completed fiscal year with respect to compensation plans (including individual
compensation arrangements) under which equity securities of the registrant are
authorized for issuance, aggregated as follows:
20
- All compensation plans previously approved by security holders; and
- All compensation plans not previously approved by security holders.
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO BE AVAILABLE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE UNDER EQUITY COMPENSATION
OUTSTANDING OPTIONS, WARRANTS PRICE OF OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
PLAN CATEGORY AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
(a) (b) (c)
Equity compensation plans
approved by security holders 1,212,000,000 0.002 1,045,650,000
Equity compensation plans not
approved by security holders -0- N/A N/A
Total 1,212,000,000 0.002 1,045,650,000
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2004, information
concerning ownership of our securities by:
- Each person who owns beneficially more than five percent of the outstanding
shares of our common stock;
- Each person who owns beneficially outstanding shares of our preferred
stock;
- Each director;
- Each named executive officer; and
- All directors and officers as a group.
COMMON STOCK BENEFICIALLY PREFERRED STOCK BENEFICIALLY
OWNED (2) OWNED (2)
------------------------- ----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT NUMBER PERCENT
---------------------------------------- ----------- ------------ ------------- -------------
Dennis N. Lauzon . . . . . . . . . . . . . . . . . . 20,010,001 23.8 980,000 (3) 67.65 (3)
Nicholas A. Cortese, Jr. . . . . . . . . . . . . . . 0 0
All directors and officers as a group (two persons). 20,010,001 23.8
___________________
* Less than one percent.
(1) Unless otherwise indicated, the address for each of these stockholders is c/o The Jackson Rivers
Company, 27 Radio Circle, Mount Kisco, New York 10549, . Also, unless otherwise indicated, each person
named in the table above has the sole voting and investment power with respect to the shares of
our common and preferred stock which he beneficially owns.
(2) Beneficial ownership is determined in accordance with the rules of the SEC. As of December 31, 2004, the
total number of outstanding shares of the common stock is 132,474,495 (before 1:2000 reverse stock split
in February 2005)_, the total number of outstanding shares of the Series A preferred stock is 980,000
shares, and the total number of outstanding shares of the Series B preferred stock is zero.
(3) Series A preferred stock.
There are no arrangements, known to us, including any pledge by any person
of our securities, the operation of which may at a subsequent date result in a
change in control of The Jackson Rivers Company.
There are no arrangements or understandings among members of both the
former and the new control groups and their associates with respect to election
of directors or other matters.
21
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In June 2003, a former majority shareholder sold 10,000,000 shares of
common stock to twelve investors in a private sale. As part of the sale
agreement, the former majority shareholder agreed to forgive the service and
facility costs accrued from inception, and to accept consulting fees of $16,892
for services provided through the date of the sale.
On February 23, 2004, Mr. Lauzon contributed to us all of his shares in JRC
Global Products, Inc. as a contribution to our capital. We originally planned
to issue to Mr. Lauzon 80,000,000 shares of our common stock as consideration
for the contribution of all of his shares in JRC Global Products, Inc. On June
23, 2004, our board of directors formally rescinded its previously announced
plans to issue 80,000,000 shares of our common stock to Dennis Lauzon in
exchange for the contribution by Mr. Lauzon of all of the issued and outstanding
shares in JRC Global Products, Inc., and JRT, Nevada corporations, owned by him.
We will still accept the contribution of all of Mr. Lauzon's issued and
outstanding shares in JRC Global Products, Inc. and JRT., but no shares of our
stock will be issued to Mr. Lauzon in consideration for such contribution.
Instead, we will pay Mr. Dennis Lauzon a one-time cash payment of $50,000 as
consideration for Mr. Lauzon's contribution of all of the issued and outstanding
shares in the two companies, owned by him and negotiating the Technology License
Agreement between MTT, us, and JRT. In December 2004, Mr. Lauzon released our
obligation of $50,000 cash payments pursuant to the Technology License Agreement
with MTT.
We have a Consulting Services Agreement with Radel Marketing Corporation, a
company which is owned and controlled by Mr. Lauzon, our officer and director.
Pursuant to the agreement we paid Radel Marketing the sum of $545,500 in 2004,
which includes payment for services and miscellaneous expenses incurred while
transacting business for The Jackson Rivers Company.
Under the agreement with Radel, which is dated August 1, 2003, Radel is to
provide us various services which include:
- Business Solutions;
- Business Validation;
- Contract Negotiations; and
- Public Relations.
We were obligated to pay Radel $8,000 weekly commencing on September 24,
2003. The agreement was renewed on January 1, 2004, to continue working with
Radel Marketing to assist in building our business and bring potential
opportunities to fruition. The agreement was modified to pay $4,000 weekly
beginning October, 2004.
ITEM 13. EXHIBITS.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- ----------------------------------------------------------------------------------------------------------
3.1* Articles of Incorporation filed May 8, 2001 (incorporated by reference to Exhibit A filed with Form SB-2
October 4, 2001).
3.2* Articles of Amendment to the Articles of Incorporation, filed effective August 3, 2004.
3.3** Certificate of Designation for the Series A Preferred Stock, filed effective October 18, 2004.
3.4** Certificate of Designation for the Series B Preferred Stock, filed effective October 19, 2004.
3.5** Articles of Amendment to the Articles of Incorporation, filed effective November 22, 2004.
3.6** Articles of Amendment to the Articles of Incorporation, filed effective January 31, 2005
3.7* Bylaws (incorporated by reference to Exhibit 3(ii) filed with Form SB-2 October 4, 2001).
3.8* Amended and Restated Bylaws.
10.1* Consulting Services Agreement dated August 1, 2003.
10.2* Technology License Agreement
14* Code of Ethics.
21** Subsidiaries.
23.1** Consent of Registered Independent Certified Public Accountants
23.2** Consent of Registered Independent Certified Public Accountants
23.3** Consent of Registered Independent Certified Public Accountants
23.4** Consent of Registered Independent Certified Public Accountants
31.1 ** Certification of Dennis N. Lauzon, President, Chief Executive Officer, Chief Financial Officer and
Director of The Jackson Rivers Company, pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to
Sec.302 of the Sarbanes-Oxley Act of 2002.
32.1 ** Certification of Dennis N. Lauzon, President, Chief Executive Officer, Chief Financial Officer and
Directorof The Jackson Rivers Company, pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906
of the Sarbanes-Oxley Act of 2002.
----------
* Previously Filed
** Filed Herewith
22
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth fees billed to the Company by our auditors
during the fiscal years ended December 31, 2004 and 2003:
DECEMBER 31, 2004 DECEMBER 31, 2003
1. Audit Fees $ 43,300 $ 9,000
2. Audit Related Fees -- --
3. Tax Fees -- 500
4. All Other Fees -- --
Total Fees $ 43,300 $ 9,500
Audit fees consist of fees billed for professional services rendered for
the audit of the Company's consolidated financial statements and review of the
interim consolidated financial statements included in quarterly reports and
services that are normally provided by Russell Bedford Stefanou Mirchandani LLP
in connection with statutory and regulatory filings or engagements.
Audit-related fees consists of fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of the Company's consolidated financial statements, which are not reported under
"Audit Fees."
Tax fees consists of fees billed for professional services for tax
compliance, tax advice and tax planning. The tax fees relate to federal and
state income tax reporting requirements.
All other fees consist of fees for products and services other than the
services reported above.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS
The Company currently does not have a designated Audit Committee, and
accordingly, the Company's Board of Directors' policy is to pre-approve all
audit and permissible non-audit services provided by the independent auditors.
These services may include audit services, audit-related services, tax services
and other services. Pre-approval is generally provided for up to one year and
any pre-approval is detailed as to the particular service or category of
services and is generally subject to a specific budget. The independent
auditors and management are required to periodically report to the Company's
Board of Directors regarding the extent of services provided by the independent
auditors in accordance with this pre-approval, and the fees for the services
performed to date. The Board of Directors may also pre-approve particular
services on a case-by-case basis.
23
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Annual report to be signed
on its behalf by the undersigned, thereunto duly authorized.
The Jackson Rivers Company
Date: April 13, 2005.
By /s/ Dennis N. Lauzon
-----------------------------------------
President, Chief Executive Officer,
Chief Financial Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Annual report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
---------------------------- ----------------------------------------- -------------
/s/ Dennis N. Lauzon President, Chief Executive Officer, Chief April 13, 2005
---------------------------- Financial Officer and Director
Dennis N. Lauzon
----------------------------
/s/ Nicholas A. Cortese, Jr. Director April 13, 2005
----------------------------
Nicholas A. Cortese, Jr.
24
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 2004 AND 2003
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
THE JACKSON RIVERS COMPANY
F-1
THE JACKSON RIVERS COMPANY
INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Page No.
----------
Reports of Independent Registered Certified Public Accounting Firm F-3
Consolidated Balance Sheets:
December 31, 2004 and 2003 F-4
Consolidated Statements of Losses:
For the years ended December 31, 2004 and 2003 F-5
Consolidated Statements of Stockholders' Equity:
For the years ended December 31, 2004 and 2003 F-6
Consolidated Statements of Cash Flows:
For the years ended December 31, 2004 and 2003 F-7
Notes to Consolidated Financial Statements F-8 ~ F-18
F-2
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
-----------------------------------------------------------------
Board of Directors
The Jackson Rivers Company
San Diego, California
We have audited the accompanying consolidated balance sheets of The Jackson
Rivers Company and its wholly-owned subsidiaries (the "Company") as of December
31, 2004 and 2003 and the related consolidated statements of losses,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. 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 our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 2004 and 2003, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in the Note
J to the accompanying consolidated financial statements, the Company is
experiencing difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to this
matter are described in Note J. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
------------------------------------------------
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
Certified Public Accountants
McLean, Virginia
March 17, 2005
F-3
THE JACKSON RIVERS COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
ASSETS 2004 2003
------------ ----------
Current assets:
Cash and cash equivalents $ 5,272 $ 14,820
Accounts receivable, net of allowance for doubtful account of $2,900 and
$0 at December 31, 2004 and 2003, respectively 37,800 -
Prepaid expenses and other 6,954 3,455
------------ ----------
Total current assets 50,026 18,275
Property and equipment, net of accumulated depreciation of $2,357 and
341 at December 31, 2004 and December 31, 2003, respectively 9,202 3,756
------------ ----------
Total Assets $ 59,228 $ 22,031
============ ==========
LIABILITIES AND (DEFICIENCY IN) STOCKHOLDERS' EQUITY
Current liabilities:
Cash disbursed in excess of available funds $ 11,073 $ -
Accounts payable and accrued liabilities (Note E) 361,186 15,529
Advances from related parties (Note D) - 100
------------ ----------
Total current liabilities 372,259 15,629
Commitments and contingencies - -
(Deficiency in) stockholders' equity:
Preferred stock, par value; $.00001, 1,000,000,000 shares and none
authorized at December 31, 2004 and 2003, respectively::
Series A preferred stock, par value; $.00001; 10,000,000 shares and none
authorized at December 31, 2004 and 2003, respectively; 980,000 shares
and none issued and outstanding at December 31, 2004 and December 31,
2003, respectively (Note B) 10 -
Series B preferred stock, par value; $.00001; 10,000,000 shares and none
authorized at December 31, 2004 and 2003, respectively; none issued and
outstanding at December 31, 2004 and December 31, 2003 (Note B) - -
Common stock, par value; $.00001, 5,000,000,000 and 100,000,000 shares
authorized at December 31, 2004 and 2003, respectively; 61,687 and 20
shares issued and outstanding at December 31, 2004 and December 31,
2003, respectively (Note B) 1 -
Preferred stock dividend (Note B) (255,000) -
Additional paid-in capital 5,630,360 883,180
Stock subscription receivable (Note B) (63,630) (59,500)
Accumulated deficit (5,624,772) (817,278)
------------ ----------
Total (deficiency in) stockholders' equity (313,031) 6,402
Total liabilities and (deficiency in) stockholders' equity $ 59,228 $ 22,031
============ ==========
See accompanying notes to consolidated financial statements
F-4
THE JACKSON RIVERS COMPANY
CONSOLIDATED STATEMENTS OF LOSSES
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
------------ ------------
Revenues:
Sales, net $ 40,700 $ -
Operating expenses:
Selling, general, and administrative 4,846,192 642,257
Depreciation (Note A) 2,016 341
------------ ------------
Total operating expenses 4,848,208 642,598
Loss from operations (4,807,508) (642,598)
Other income:
Other income, debt forgiveness - 12,857
Interest income 14 6
------------ ------------
Total other income 14 12,863
Net loss before provision for income taxes (4,807,494) (629,735)
Provision for income taxes - -
------------ ------------
Net loss $(4,807,494) $ (629,735)
============ ============
Preferred stock dividend - beneficial conversion
feature (Note B) (255,000) -
------------ ------------
Net loss attributable to common shareholders $(5,062,494) $ (629,735)
============ ============
Loss per share, basic and fully diluted (Note G) $ (1,476.81) $(57,248.64)
============ ============
Basic and diluted weighted average number of shares
outstanding (Note G) 3,428 11
============ ============
See accompanying notes to consolidated financial statements
F-5
THE JACKSON RIVERS COMPANY
CONSOLIDATED STATEMENTS OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Series A Series A Additional
Preferred
Preferred Stock Common Common Stock Paid-in Stock
Stock Amount Stock Amount Capital Subscription
---------- ---------- ------ ------------- ----------- --------------
BALANCE AT JANUARY 1, 2003 - $ - 9 $ - $ 211,780 $ -
========== ========== ====== ============= =========== ==============
Issuance of common stock to consultants in
exchange for services rendered at approximately
73,500 per share - - 4 - 294,000 -
Issuance of common stock to employees in
exchange for options exercised at approximately
66,725 per share - - 4 - 266,900 -
Issuance of common stock to employees in
exchange for options exercised at approximately
17,000 per share - - 3 - 110,500 (59,500)
Net loss - - - - - -
---------- ---------- ------ ------------- ----------- --------------
BALANCE AT DECEMBER 31, 2003 - $ - 20 $ - $ 883,180 $ (59,500)
========== ========== ====== ============= =========== ==============
Employee compensation and proceeds received
for common stock subscribed during the year
ended December 31, 2003 - - - - - 59,500
Issuance of common stock to consultants in
exchange for services rendered at approximately
144 per share - - 4,607 - 665,490 -
Issuance of common stock to employees in
exchange for options exercised at approximately
119 per share - - 29,060 - 3,458,070 -
Issuance of common stock to employees in
exchange for options exercised at approximately
3.54 per share - - 18,000 - 63,630 (63,630)
Issuance of preferred stock to Company's
President in exchange for services rendered at
approximately $0.26 per share 1,000,000 10 - - 254,990 -
Issuance of common stock to Company's
President in exchange for conversion of
preferred stock to common stock (20,000) - 10,000 - - -
Preferred stock dividend - beneficial conversion
feature (Note B) - - - - 255,000 -
Forgiveness of debt by Company's officer (Note -
D) - - - - 50,000 -
Net loss - - - - - -
---------- ---------- ------ ------------- ----------- --------------
BALANCE AT DECEMBER 31,2004 980,000 $ 10 61,687 $ 1 $ 5,630,360 $ (63,630)
========== ========== ====== ============= =========== ==============
Preferred
Stock Accumulated
Dividend Deficit Total
----------- ------------- ------------
BALANCE AT JANUARY 1, 2003 $ - $ (187,543) $ 24,237
=========== ============= ============
Issuance of common stock to consultants in
exchange for services rendered at approximately
73,500 per share - - 294,000
Issuance of common stock to employees in
exchange for options exercised at approximately
66,725 per share - - 266,900
Issuance of common stock to employees in
exchange for options exercised at approximately
17,000 per share - - 51,000
Net loss - (629,735) (629,735)
----------- ------------- ------------
BALANCE AT DECEMBER 31, 2003 $ - $ (817,278) $ 6,402
=========== ============= ============
Employee compensation and proceeds received
for common stock subscribed during the year
ended December 31, 2003 - - 59,500
Issuance of common stock to consultants in
exchange for services rendered at approximately
144 per share - - 665,490
Issuance of common stock to employees in
exchange for options exercised at approximately
119 per share - - 3,458,071
Issuance of common stock to employees in
exchange for options exercised at approximately
3.54 per share - - -
Issuance of preferred stock to Company's
President in exchange for services rendered at
approximately $0.26 per share - - 255,000
Issuance of common stock to Company's
President in exchange for conversion of
preferred stock to common stock - - -
Preferred stock dividend - beneficial conversion
feature (Note B) (255,000) - -
Forgiveness of debt by Company's officer (Note -
D) - - 50,000
Net loss - (4,807,494) (4,807,494)
----------- ------------- ------------
BALANCE AT DECEMBER 31,2004 $ (255,000) $ (5,624,772) $ (313,031)
=========== ============= ============
See accompanying notes to consolidated financial statements
F-6
THE JACKSON RIVERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
----- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss from operation $(4,807,494) $(629,735)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 2,016 341
Common stock issued in exchange for consulting services rendered (Note B) 665,490 294,000
Common stock issued in exchange for employee services rendered and
related transaction costs (Note B and C) 2,007,056 67,624
Employee compensation and transaction costs in connection with common
stock subscribed (Note B) 6,373 -
Preferred stock issued in exchange for management fees (Note B) 255,000 -
Loss from disposal of equipment - 1,272
(Increase) in accounts receivable (37,800) -
(Increase) decrease in prepaid expenses and other (3,499) 1,547
Increase in cash disbursed in excess of available funds 11,073 -
Increase (decrease) in accounts payable and accrued liabilities 395,657 4,082
------------ ----------
Net cash (used in) operating activities (1,506,128) (260,869)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,462) (4,098)
------------ ----------
Net cash (used in) investing activities (7,462) (4,098)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) related party advances (100) 100
Proceeds from the sale of common stock subscribed, net of costs and fees
(Note B) 53,127 -
Proceeds from the sale of common stock, net of costs and fees (Note B) 1,451,015 250,276
------------ ----------
Net cash provided by financing activities 1,504,042 250,376
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (9,548) (14,591)
Cash and cash equivalents at beginning of year 14,820 29,411
------------ ----------
Cash and cash equivalents at end of year $ 5,272 $ 14,820
============ ==========
Supplemental Disclosure of Cash Flows Information:
Cash paid during the period for interest $ - $ -
Cash paid during the period for income taxes - -
Common stock issued in exchange for consulting services rendered (Note B) 665,490 294,000
Preferred stock issued in exchange for management fees (Note B) 255,000 -
Common stock issued in exchange for employee services rendered and
related transaction costs (Note B and C) 2,007,056 67,624
Employee compensation and transaction costs in connection with common
stock subscribed (Note B) 6,373 -
Debt forgiveness (Note D and E) 50,000 12,857
Preferred stock dividend - beneficial conversion feature (Note B) (255,000) -
Employee stock purchase plan: (Note B)
Common stock issued under employee stock purchase plan 3,521,701 377,400
Less: stock subscription receivable (63,630) (59,500)
Less: common stock retained by employees and related transaction costs (2,007,056) (67,624)
------------ ----------
Net proceeds from the sale of common stock $ 1,451,015 $ 250,276
============ ==========
See accompanying notes to consolidated financial statements
F-7
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
Business and Basis of Presentation
--------------------------------------
The Jackson Rivers Company (the "Company") was incorporated on May 8, 2001 under
the laws of the State of Florida. The Company was a "development stage
enterprise" (as defined in statement of Financial Accounting Standards No. 7)
until September 30, 2004. The Company is currently engaged in the business of
developing and providing customized information management systems.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Jackson Rivers Technologies, Inc. and JRC Global
Products, Inc. Significant intercompany transactions and accounts have been
eliminated in consolidation.
Revenue Recognition
--------------------
The Company follows a policy of recognizing revenues as services are provided.
The Company recognizes revenue in accordance with Staff Accounting Bulletin No.
104, REVENUE RECOGNITION ("SAB104"), which superceded Staff Accounting Bulletin
No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB101").
SAB 101 requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured. Determination of criteria (3) and (4) are
based on management's judgments regarding the fixed nature of the selling prices
of the products delivered and the collectibility of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund will
be required.
SAB 104 incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"),
MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21 on
the Company's consolidated financial position and results of operations was not
significant.
Advertising
-----------
The Company follows the policy of charging the costs of advertising to expenses
as incurred. The Company did not incur advertising costs during the years ended
December 31, 2004 and 2003.
F-8
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents
-----------------
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
Property and Equipment
------------------------
Property and equipment are stated at cost. When retired or otherwise disposed,
the related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are depreciated using the straight-line method over their
estimated useful lives of the assets. Depreciation expense included as a charge
to operations amounted $$2,016 and $341 for the years ended December 31, 2004
and 2003, respectively.
Income Taxes
-------------
Income taxes are provided based on the liability method for financial reporting
purposes in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under this method deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statements
of operations in the period that includes the enactment date.
Earnings Per Share
--------------------
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," specifying the computation, presentation and disclosure
requirements of earnings per share information. Basic earnings per share has
been calculated based upon the weighted average number of common shares
outstanding. Stock options and warrants have been excluded as common stock
equivalents in the diluted earnings per share because they are either
antidilutive, or their effect is not material.
Use of Estimates
------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
F-9
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived Assets
----------------------------------
The Company has adopted Statement of Financial Accounting Standards No. 144
("SFAS 144"). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based
upon forecasted undiscounted cash flows. Should an impairment in value be
indicated, the carrying value of intangible assets will be adjusted, based on
estimates of future discounted cash flows resulting from the use and ultimate
disposition of the asset. SFAS No. 144 also requires assets to be disposed of
be reported at the lower of the carrying amount or the fair value less costs to
sell.
Research and Development
--------------------------
The Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. The Company incurred no
research and product development costs for the years ended December 31, 2004 and
2003.
Concentrations of Credit Risk
--------------------------------
Financial instruments and related items which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with credit quality institutions. At times, such investments may be in excess
of the FDIC insurance limit. The Company will periodically review its trade
receivables in determining its allowance for doubtful accounts. The allowance
for doubtful accounts was $2,900 and $0 at December 31, 2004 and December 31,
2003, respectively.
Fair Value of Financial Instruments
---------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The carrying value of cash and cash equivalents,
accounts receivable, accounts payable and short-term borrowings, as reflected in
the balance sheets, approximate fair value because of the short-term maturity of
these instruments.
F-10
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation
--------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the year ended December 31, 2004 and 2003
and will adopt the interim disclosure provisions for its financial reports for
the subsequent periods. The Company has no awards of stock-based employee
compensation outstanding at December 31, 2004 (see Note C).
Liquidity
---------
As shown in the accompanying financial statements, the Company has incurred a
net loss of $4,807,494 and $629,735 for the years ended December 31, 20004 and
2003, respectively. The Company's current liabilities exceeded its current
assets by $322,233 as of December 31, 2004.
Comprehensive Income
---------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in any of the periods presented.
Reclassifications
-----------------
Certain reclassifications have been made in prior year's financial statements to
conform to classifications used in the current year.
F-11
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Segment Information
--------------------
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company's principal operating segment.
New Accounting Pronouncements
-------------------------------
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
151, Inventory Costs- an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that "under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges" This Statement
requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal." In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This
Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Management does not believe the adoption of this
Statement will have any immediate material impact on the Company.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005, with earlier application encouraged.
The Company does not anticipate that the implementation of this standard will
have a material impact on its financial position, results of operations or cash
flows.
F-12
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF SIGNIICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements (Continued)
--------------------------------------------
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting Standards
No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions (" SFAS 153"). This statement amends APB
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Under SFAS 153, if a
nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
NOTE B - CAPITAL STOCK
The Company has authorized 100,000,000 shares of common stock, with a par value
$0.001 per share. In August 2004, the Company filed the Article of Amendment to
the Articles of Incorporation to increase the authorized shares to be
2,180,000,000, of which 1,980,000,000 shares shall be common shares with a par
value $0.001 per share, and 200,000,000 shares shall be preferred shares with a
par value $0.001 per share. In November 2004, the Company's board of directors
approved an amendment to the Articles of Incorporation to increase the
authorized common shares from 1,980,000,000 to 5,000,000,000 shares, with a par
value $0.00001 per share, and increase the authorized preferred shares from
200,000,000 to 1,000,000,000 shares, with a par value $0.00001 per share. In
November 2004, the Company effected a one one-for-one thousand reverse stock
split of its authorized and outstanding shares of common stock. Subsequent to
the date of the financial statements, the Company effected a one one-for-two
thousand reverse stock split of its authorized and outstanding shares of common
stock in February 2005. All references in the financial statements and notes to
financial statements, numbers of shares and share amounts have been
retroactively restated to reflect the reverse split in November 2004 and
February 2005. As of December 31, 2004 and 2003, the Company has 61,687 and 20
shares of common stock issued and outstanding, respectively.
F-13
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE B - CAPITAL STOCK (CONTINUED)
Effective October 18, 2004, the Company designated 10,000,000 shares of its
preferred stock as the Series A Preferred Stock. Each share of the series A
preferred stock is convertible into 1,000 shares of the Company's common stock.
On all matters submitted to a vote of the Company's security holders, a holder
of the Series A Preferred Stock is entitled to the number of votes equal to the
number of shares of the Series A Preferred Stock held by such holder multiplied
by 2,000. Upon the dissolution, liquidation or winding up of the Company,
whether voluntary or involuntary, the holders of the then outstanding
shares of Series A Preferred Stock shall be entitled to receive out of the
assets of the Company the sum of $0.001 per share (the "Liquidation Rate")
before any payment or distribution shall be made on the common stock, or any
other class of capital stock of the Company ranking junior to the Series A
Preferred Stock. As of December 31, 2004 and 2003, the Company has 980,000
shares and none Series A preferred stock issued and outstanding, respectively.
Effective October 18, 2004, the Company also designated 10,000,000 shares of its
preferred stock as the Series B Preferred Stock. Each share of the series B
preferred stock is convertible into shares of the Company's common stock at 80
percent of the OTCBB, (or such other exchange or market on which the Common
Stock is then listed, if the Common Stock is not listed on the OTCBB) five-day
average closing bid price for each share of the common stock for the five days
prior to the date of the conversion. Upon the dissolution, liquidation or
winding up of the Company, whether voluntary or involuntary, the holders
of the then outstanding shares of Series B Preferred Stock shall be entitled
to receive out of the assets of the Company the sum of $0.001 per share
(the "Liquidation Rate") before any payment or distribution shall be made on
the common stock, or any other class of capital stock of the Company ranking
junior to the Series B Preferred Stock. As of December 31, 2004 and 2003, the
Company has no Series B preferred stock issued and outstanding.
During the year ended December 31, 2003, the Company issued an aggregate of 4
shares of common stock to consultants in exchange for $294,000 of services
rendered, which approximated the fair value of the shares issued during the
period the services were rendered. The Company issued an aggregate of 7 shares
of common stock to officers and employees for stock options exercised for a
total of $377,400, which approximated 85% of the fair value of the shares issued
on the date of the options were exercise (see Note C). The Company received
$250,276 of proceeds, net of costs and fees. Stock subscription of $59,500 was
due to the Company and compensation and related transaction costs of $67,624
were charged to income during the year ended December 31, 2003.
During the year ended December 31, 2004, the Company received the received
$53,127 of proceeds for the $59,500 of common stock subscribed in December 2003,
the remaining balance of $6,373 was charged to operations as compensation and
transaction costs for the year ended December 31, 2004. The Company issued an
aggregate of 4,607 shares of common stock to consultants in exchange for
$665,490 of services rendered, which approximated the fair value of the shares
issued during the period the services were rendered. The Company issued an
aggregate of 47,060 shares of common stock to officers and employees for stock
options exercised for a total of $3,521,701, which approximated 85% of the fair
value of the shares issued on the date of the options were exercise (see Note
C). The Company received $1,451,015 of proceeds, net of costs and fees. Stock
subscription of $63,630 was due to the Company and compensation and related
transaction costs of $2,007,056 were charged to income during the year ended
December 31, 2004.
F-14
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE C - EMPLOYEE STOCK INCENTIVE PLAN
In November 2004, the Company issued an aggregate of 1,000,000 shares of Series
A preferred stock to its President and CEO in exchange for $255,000 of
management fees. The reverse stock split had no effect on the ratio of the
conversion with respect to the preferred stock. In accordance with Emerging
Issues Task Force Issue 98-5, Accounting for Convertible Securities with a
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios
("EITF 98-5"), the Company recognized an imbedded beneficial conversion feature
present in the preferred stock in connection with the Company's reverse stock
split. The Company recognized and measured an aggregate of $255,000, which
equals to the intrinsic value of the imbedded beneficial conversion feature, to
additional paid-in capital and a return to the preferred stock holders. Since
the preferred shares were convertible at the date of issuance, the return to the
preferred shareholder attributed to the beneficial conversion feature has been
recognized in full at the date the preferred stock was issued.
In November 2004, the Company's President and CEO converted 20,000 shares of the
Series A preferred stock into 10,000 shares (20,000,000 pre-split shares) of the
Company's restricted common stock.
In August 2003, the Company established the 2003 Employee Stock Incentive Plan
(the "Plan"). The purpose of the Plan is to provide officers and employees, who
make significant contributions to the long-term growth and performance of the
Company, with equity-based compensation incentives, and to attract and retain
quality employees. The Plan is administered by a Compensation Committee (the
"Committee") appointed by the board of directors of the Company. The number of
shares authorized under the Plan shall not be proportionately adjusted in the
event of any increase or decrease in the number of the issued shares of the
common stock which results from any stock split.
The maximum number of shares of common stock that may be awarded or issued under
the Plan was 17,000,000 shares. In January 2004, Company established the 2004
Employee Stock Incentive Plan and the maximum number of shares of common stock
that may be awarded or issued under the 2004 Plan is 50,000,000 shares. In
September 2004, the Company increased the maximum number of shares of
common stock that may be awarded or issued to 400,000,000 shares. In
December 2004, the Company increased the maximum number of shares of
common stock that may be awarded or issued to 800,000,000 shares.
The stock option plan provides for the issuance of incentive stock options at an
exercise price approximating 85% of the fair market value of the Company's
common stock on the date of exercise (or 110% of the fair market value of the
common stock on the date of the grant of the option, in the case of significant
stockholders). The maximum life of the options is ten years. An aggregate of
47,060 and 7 post-stock split options were granted and all options were
exercised on the grant date during the year ended December 31, 2004 and 2003,
respectively (Note B). There are no stock options outstanding as of December 31,
2004.
NOTE D - RELATED PARTY TRANSACTIONS
In June 2003, a former majority shareholder sold 10,000,000 shares of common
stock to twelve investors in a private sale. As part of the sale agreement, the
former majority shareholder agreed to forgive the service and facility costs
accrued from inception, and to accept consulting fees of $16,892 for services
provided through the date of the sale. As a result of the forgiveness of
service and facility costs, the Company recognized $12,857 as other income
during the year ended December 31, 2003.
F-15
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE D - RELATED PARTY TRANSACTIONS (CONTINUED)
An entity controlled by the Company's President has advanced funds to the
Company for working capital purposes. The amount of the advances at December
31, 2003 is $100. During the year ended December 31, 2004, the amount was paid
in full. On January 1, 2004, the Company entered into a one-year consulting
agreement with the entity controlled by the Company's President ("Consultant")
whereby the Company compensates the Consultant $8,000 per week for consulting
services rendered. The Company also engaged the Consultant on different projects
of marketing development, contract negotiation, and public relations. Total
consulting fees paid to Consultant amounted $545,500 for the year ended December
31, 2004.
In December 2004, the Company's President released the Company's obligation of
$50,000 accrued liabilities payable to the Company's President pursuant to the
Technology License Agreement with Multitrade Technologies LLC (Note E). The
Company's President is also a significant shareholder of the Company. As a
result of the forgiveness of debts, the Company accounted for the $50,000 as
additional paid-in capital contributed by the Company's President during the
year ended December 31, 2004.
NOTE E - ACCOUNTS PAYABLE AND ACCRUED LAIBILITIES
Accounts payable and accrued liabilities at December 31, 2004 and 2003 are as
follows:
2004 2003
---- ----
Accrued expenses $149,195 $15,529
Accrued payroll, payroll expenses and taxes 11,991 -
Accrued liabilities in connection with MTT license 200,000 -
-------- -------
Total $361,186 $15,529
======== =======
In February 2004, the Company and its wholly owned subsidiary, Jackson Rivers
Technologies, Inc., ("JRT") entered into an LLC Interest Purchase Agreement
with Multitrade Technologies LLC, a Delaware limited liability company ("MTT")
pursuant to which JRT purchased all of the assets of MTT which were related to
MTT's business of software development and the licensing to sell the
software (the "Acquisition"). In June 2004, the Company and JRT rescinded the
Acquisition, and entered into a Technology License Agreement ("Agreement") with
MTT, whereby the Company has the exclusive, worldwide sublicense to
commercialize certain software technologies from MTT. Pursuant to the
Agreement, the Company is obligated to make a one-time cash payment to MTT in
the amount of $200,000 and a one-time cash payment of $50,000 to the
Company's President (Note D). During the year ended December 31, 2004, the
Company has charged license fees in the amount of $250,000 to operations. As of
December 31, 2004, the fees are unpaid and the Company plans to issue a
promissory note in the amount of $200,000 to MTT. As of December 31, 2004, the
Company and MTT have not finalized the terms of the note agreement, and all
unpaid fees to MTT in the amount of $200,000 are included in the Company's
accrued liabilities. In December 2004, the Company's President released the
Company's obligation of $50,000 accrued liabilities payable to the Company's
President pursuant to the Technology License Agreement with MTT. As a result of
the forgiveness of debts, the Company accounted for the $50,000 as additional
paid-in capital contributed by the Company's President during the year ended
December 31, 2004 (Note D). In connection with the Agreement, the Company is
also obligated to pay to MTT $20,000 per month of royalty and sales support fees
and any additional royalty based on a percentage of sales during the first year
of the Agreement. Unpaid royalty and sales support fees at December 31, 2004
included in accrued liabilities were $61,750.
F-16
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE F - INCOME TAXES
The Company has adopted Financial Accounting Standard number 109, which requires
the recognition of deferred tax liabilities and assets for the expected future
tax consequences of events that have been included in the financial statement or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between financial statements and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.
For income tax reporting purposes, the Company's aggregate unused net operating
losses approximate $5,624,000, which expires through 2024, subject to
limitations of Section 382 of the Internal Revenue Code, as amended. The
deferred tax asset related to the carry forward is approximately $1,912,000. Due
to significant changes in the Company's ownership, the Company's future use of
its existing net operating losses may be limited.
Components of deferred tax assets as of December 31, 2004 are as follows:
Non-Current:
Net operating loss $ 1,912,000
carryforward
Valuation allowance (1,912,000)
------------
Net deferred tax asset $ -
============
NOTE G - LOSSES PER COMMON SHARE
The following table presents the computation of basic and diluted loss per
share. The numbers of shares and share amounts have been retroactively restated
to reflect the reverse split.
2004 2003
------------ -------------
Net loss available for common shareholders $(5,062,494) $ (629,735)
============ =============
Basic and fully diluted loss per share $ (1,476.81) $( 57,248.64)
============ =============
Weighted average common shares outstanding 3 428 11
============ =============
NOTE H - BUSINESS CONCENTRATION
Revenue from two customers amounted $40,700 or 100% of sales for the year ended
December 31, 2004. The Company generated no revenues during the year ended
December 31, 2003.
F-17
THE JACKSON RIVERS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE I - COMMITMENTS AND CONTINGENCIES
Lease Agreement
----------------
The Company entered into a six-month agreement leasing office spaces in San
Diego, California. Monthly rental under the lease is $2,318, expires on January
31, 2005. In February 2004, the Company entered into an agreement leasing a
corporate apartment in San Diego, California. Monthly rental under the lease is
$2,995 ($1,995 to be paid by the Company and $1,000 paid by employees) expires
on February 28, 2005. The Company also leases office space under a sub-lease
agreement for office spaces in New York, NY. Monthly rental under the lease is
$975, expires on April 30, 2005. Commitments for minimum rentals under non
cancelable leases at December 31, 2004 amounted $10,208.
Total rental expenses charged to income were $55,982 and $5,780 for the years
ended December 31, 2004 and 2003, respectively.
Litigation
----------
The Company is subject to legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters should not have a material adverse effect on its financial position,
results of operations or liquidity.
NOTE J - GOING CONCERN MATTERS
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
financial statements during the year ended December 31, 2004 and 2003, the
Company has incurred a loss of $4,807,494 and $629,735, respectively. The
Company's current liabilities exceeded its current assets by $322,233 as of
December 31, 2004. These factors among others may indicate that the Company
will be unable to continue as a going concern for a reasonable period of time.
The Company's existence is dependent upon management's ability to develop
profitable operations and resolve its liquidity problems. Management
anticipates the Company will attain profitable status and improve its liquidity
through the continued developing, marketing and selling of its products and
additional equity investment in the Company. The accompanying financial
statements do not include any adjustments that might result should the Company
be unable to continue as a going concern.
In order to improve the Company's liquidity, the Company is actively pursuing
additional equity financing through discussions with investment bankers and
private investors. There can be no assurance the Company will be successful in
its effort to secure additional equity financing.
If operations and cash flows continue to improve through these efforts,
management believes that the Company can continue to operate. However, no
assurance can be given that management's actions will result in profitable
operations or the resolution of its liquidity problems.
NOTE K - SUBSEQUENT EVENTS
On February 1, 2005, the Company effected a one one-for-two thousand reverse
stock split of its authorized and outstanding shares of common stock. All
references in the financial statements and notes to financial statements,
numbers of shares and share amounts have been retroactively restated to reflect
the reverse split.
F-18