SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(x) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____ to ______
Commission file number 0-29463
RIVER CAPITAL GROUP, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
51-0392750
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(IRS Employer Identification No.)
SUITE 312 7 REID STREET, HAMILTON BERMUDA HM11
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(Address of principal executive offices)
441-296-6006
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes (X) No ( )
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
Yes ( ) No (X)
Number of shares outstanding of the registrant's class of common stock as of May
10, 2006 was 26,432,275.
Transitional Small Business Disclosure Format (check one): Yes ( ) No (X)
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Balance Sheet at
March 31, 2006 (unaudited) 3
Statements of Operations
for the Three Months ended March 31, 2006
and 2005 (unaudited) 4
Statements of Cash Flows for
for the Three Months ended March 31, 2006
and 2005 (unaudited) 5
Selected Notes to the Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Controls and Procedures 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 12
Item 3. Defaults Upon Senior Securities. 12
Item 4. Submission of Matters to a Vote of Security Holders. 12
Item 5. Other Information. 12
Item 6. Exhibits. 12
SIGNATURES
2
RIVER CAPITAL GROUP, INC. AND SUBSIDIARY
Balance Sheet
(UNAUDITED)
March 31, 2006
-------------------
ASSETS
Cash $ 198,292
-------------------
Total current assets 198,292
--------------------
Total assets $ 198,292
====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable and accrued expenses $ 104,641
Accounts payable to related parties 122,639
Convertible notes 196,120
--------------------
Total current liabilities 423,400
--------------------
Stockholders' deficit:
Common stock, $.001 par value, 50,000,000 shares
authorized: 25,407,275 shares issued and outstanding 25,407
Additional paid-in capital 1,374,525
Retained deficit (1,625,040)
--------------------
Total stockholders' deficit (225,108)
--------------------
Total liablities and stockholders' deficit $ 198,292
====================
The accompanying notes are an integral part of these financial statements.
3
RIVER CAPITAL GROUP, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three For the three
months ended months ended
March 31, March 31,
2006 2005
----------------- -----------------
Revenue $ - $ -
----------------- -----------------
Total revenue - -
----------------- -----------------
Expenses:
Selling general and administrative 133,302 138,971
----------------- -----------------
Total operating expenses 133,302 138,971
----------------- -----------------
Total operating loss (133,302) (138,971)
----------------- -----------------
Other income (expense):
Miscellaneous income - 22
Interest expense (9,820) (164)
----------------- -----------------
(9,820) (142)
----------------- -----------------
Net loss $ (143,122) $ (139,113)
================= =================
Net loss per share - basic and diluted $ (0.01) $ (0.02)
================= =================
Weighted average shares outstanding 25,401,095 6,211,624
================= =================
The accompanying notes are an integral part of these financial statements.
4
RIVER CAPITAL GROUP, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three For the three
months ended months ended
March 31, March 31,
2006 2005
----------------- ------------------
Cash flows from operating activities:
Net loss $ (143,122) $ (139,113)
----------------- ------------------
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Stock given for compensation 6,250 84,750
Discount on convertible notes 5,841 -
Changes in operating assets and liabilities:
(Increase) decrease in due from related party - -
Increase (decrease) in accounts payable 69,597 (4,054)
Increase (decrease) in accounts payable to related parties (1,254) 17,522
----------------- ------------------
Total adjustments 80,434 98,218
----------------- ------------------
Net cash used by operations (62,688) (40,895)
----------------- ------------------
Cash flows from financing activities:
Issuance of common stock - -
(Incease) decrease in subscription receivable - -
Proceeds from convertible notes - -
Payment of loan payable - -
----------------- ------------------
Net cash provided by financing activities $ - $ -
----------------- ------------------
Net increase (decrease) in cash (62,688) (40,895)
Cash at beginning of period 261,001 95,554
----------------- ------------------
Cash at end of period $ 198,313 $ 54,659
================= ==================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ - $ -
================= ==================
Income taxes $ - $ -
================= ==================
Supplemental non-cash financing transactions:
Contribution of loan to equity $ - $ -
================= ==================
The accompanying notes are an integral part of these financial statements.
5
RIVER CAPITAL GROUP, INC. AND SUBSIDIARY
SELECTED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2006
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions of Form 10-QSB and
Item 310 of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. The
preparation requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Actual results may
differ from these estimates. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended March 31, 2006 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2006.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 2005 as filed with the Securities and Exchange Commission.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of all
liabilities in the normal course of business.
As of March 31, 2006, the Company had an accumulated deficit of $1,625,040.
During the three months ended March 31, 2006 the company suffered a loss of
$143,122. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
Management's plan to alleviate this going concern issue is to raise capital and
commence the business operations of the newly acquired insurance company. The
Company's continued existence is dependent upon management funding operations
and raising sufficient capital. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 3 - ACQUISITION OF RIVER CAPITAL HOLDINGS LIMITED
On December 30, 2005, River Capital Group, Inc., a Delaware corporation ("River
Group") and River Capital Holdings Limited, a Barbados corporation ("River
Holdings") reached a share exchange agreement pursuant to which River Holdings
transferred 100% of the capital stock of River Holdings in exchange for
19,135,820 shares of common stock, $0.001 par value per share, of River Group
("River Group Common Stock"). Due to the amount of shares issued, upon
completion of the Share Exchange, River Holdings and its shareholders had voting
control of River Group.
NOTE 4 - DUE TO RELATED PARTY
A company owned by a director received management and administrative fees
totaling $30,000 and $30,000 for the three months ended March 31, 2006 and 2005,
respectively. An additional $21,217 and $13,169 was received as reimbursement of
direct out of pocket travel and other expenses for the three months ended March
31, 2006 and 2005, respectively. A total of $122,639 was due to the related
party as of March 31, 2006.
NOTE 5 - CONVERTIBLE NOTES AND WARRANTS
On May 23, 2005, the Company entered into a Subscription Agreement with several
accredited investors (the "Subscribers") pursuant to which the Company agreed to
sell, and the Subscribers agreed to purchase in the
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aggregate, up to $200,000 principal amount of convertible notes and five-year
warrants to purchase 400,000 shares of common stock at $0.75 per share. A total
of $23,280 was ascribed to the warrants, valued at estimated fair market value
at the date of the warrants issuance. The resulting discount to the convertible
notes will be amortized to interest expense over the life of the convertible
notes (one year).
The convertible notes are secured by a security interest in all of the assets of
River Capital. The convertible notes include the following terms:
Interest at the greater of (i) the prime rate plus 4% per annum or
(ii) 8%, payable quarterly beginning August 1, 2005;
Term of one year, but the note may be prepaid at 120% of the
principal only if an insurance license shall have been granted to River
Reinsurance Limited and River Reinsurance Limited shall have become a
subsidiary of River Capital;
Convertible at any time by the holders into shares of River Capital
common stock at a price equal to $0.50; and
Anti-dilution protections. River Capital has granted a one-time
demand registration right to register the resale of the shares issuable
upon conversion of the notes and the shares issuable upon exercise of
the warrants.
NOTE 6 - STOCKHOLDERS' EQUITY
During the three months ended March 31, 2006, the registrant issued 25,000
shares of its common stock as compensation for consulting services to a former
director. A charge of $6,250 was recorded for the three months ended March 31,
2006, valued at fair market value, in connection with this transaction. The
registrant relied upon the exemption from registration contained in Section
4(2), as the recipients were deemed to be sophisticated with regard to an
investment in the registrant.
In May 2004, the stockholders of the Company adopted a Stock Option Plan (the
"Plan"). Under the Plan, stock options may be granted at an exercise price not
less than the fair market value of the Company's common stock at the date of
grant. Options may be granted to key employees and other persons who contribute
to the success of the Company. The Company has reserved 2,540,728 shares of
common stock for the Plan. This number automatically shall be adjusted annually
at the beginning of the Company's fiscal year to a number equal to 10% of the
number of shares of the Company issued and outstanding at the end of the
Company's last completed fiscal year. As of March 31, 2006, options to purchase:
(i) 275,000 shares at a price of $2.00 per share had been granted
pursuant to the Plan. The options are exercisable through February 5, 2009; and
(ii) 350,000 shares at a price of $0.50 per share had been granted
pursuant to the Plan. The options are exercisable through October 31, 2007.
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share Based Payment ("SFAS No. 123R"). SFAS
No. 123R establishes the financial accounting and reporting standards for stock-
based compensation plans. As required by SFAS No. 123R, if the Company had had
stock options which vested during the period, the Company would have recognized
the cost resulting from all stock-based payment transactions including shares
issued under its stock option plans in the financial statements.
Prior to January 1, 2006, the Company accounted for stock-based employee
compensation plans (including shares issued under its stock option plans) in
accordance with APB Opinion No. 25 and followed the pro forma net income, pro
forma income per share, and stock-based compensation plan disclosure
requirements set forth in the Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123").
7
Had the Company determined compensation expense of employee stock options based
on the estimated fair value of the stock options at the grant date, consistent
with the guidelines of SFAS 123, its net loss would have been increased to the
pro forma amount indicated below:
Three months ended Three months ended
March 31, 2006 March 31, 2005
Net (loss):
As reported $(143,122) $(139,113)
Stock--based employee compensation expense
related to stock options determined under fair
value method - -
Amounts charged to expense - -
---------- ----------
Pro forma according to SFAS 123 $(143,122) $(139,113)
========== ===========
Net income applicable to common
Stockholder per share:
As reported $(0.01) $(0.02)
======= =======
Pro forma according to SFAS 123 $(0.01) $(0.02)
======= =======
NOTE 7 - INCOME TAXES
The Company had available at March 31, 2006 net operating loss carryforwards for
federal and state tax purposes of approximately $1,625,000, which could be
applied against taxable income in subsequent years through 2026. The deferred
tax asset for net operating losses was approximately $601,250 and $453,000 as of
March 31, 2006 and 2005, respectively, and a full valuation allowance was
recorded since realization is uncertain.
Reconciliation of the differences between income taxes computed at the federal
and state statutory tax rates and the provision for income taxes for the three
months ended March 31, 2006 and 2005 are approximately as follows:
Three Months Three Months
ended ended
March 31 March 31
2006 2005
---- ----
Income tax loss at federal statutory tax rate -34.00% -34.00%
State tax, net of federal benefit -3.63% -3.63%
Valuation allowance 37.63% 37.63%
--------------------------------------
Provision for taxes - -
======================================
The Company's deferred tax assets are as follows:
March 31 March 31
2006 2005
---- ----
Net Operating Loss $ 601,250 $ 453,000
Valuation allowance (601,250) (453,000)
------------------------------------
Net deferred tax assets $ - $ -
====================================
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NOTE 8 - COMMITMENTS AND CONTINGENCIES
From time to time, we may be involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
our financial position, results of operations, or liquidity.
NOTE 9 - SUBSEQUENT EVENTS
On May 8, 2006, the Company issued 1,000,000 shares of its common stock to
Martin Eric Weisberg for compensation of services he provided to the Company. A
charge of $250,000 will be recorded for the six months ended June 30, 2006, such
shares valued at the then fair market value, in connection with this
transaction. The registrant will rely upon the exemption from registration
contained in Section 4(2), as the recipient will be deemed to be sophisticated
with regard to an investment in the registrant.
On May 10, 2006, the Company's common shares began trading on the NASD Over-the
Counter Bulletin Board ("OTCBB") under the symbol "RCGI".
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS AND INFORMATION
The Company is including the following cautionary statement in this Form 10-QSB
for any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, future events or performance and underlying
assumptions and other statements which are other than statements of historical
facts. Certain statements contained herein are forward-looking statements and,
accordingly, involve risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. The Company's expectations, beliefs and projections are expressed in
good faith and are believed by the Company to have a reasonable basis, including
without limitation, management's examination of historical operating trends,
data contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished.
INTRODUCTION
For the year ended December 31, 2005, the Company's auditors, in Note 3 of the
Financial Statements, have noted that there is substantial doubt about the
Company's ability to continue as a going concern. The Company's existence is
dependent upon management funding operations and raising sufficient capital. At
this point in time it is impossible to state an amount of additional funding
which we believe would remove the going concern opinion.
The Company has yet to receive revenues from the reinsurance business. The
Company has neither a history of earnings nor has it paid dividends. The Company
is unlikely to realize earnings or pay dividends in the immediate or foreseeable
future.
There is no assurance that the Company's acquisition will be profitable. The
Company may not be able to obtain additional funds needed for working capital
and operations.
The following discussion provides information with respect to our results of
operations, liquidity, and capital resources on a comparative basis for the
three months ended March 31, 2006 and 2005, respectively, and should be read in
conjunction with the Financial Statements and related notes appearing elsewhere
in this report.
THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2005
RESULTS OF OPERATIONS
Operational expenses during the three months ended March 31, 2006 and 2005 of
$133,302 and $138,971, respectively, consisted primarily of reasonable expenses
incurred to effect the acquisition of, and subsequent management of River
Holdings and professional fees necessary to complete certain corporate filings
with the SEC. For the three months ended March 31, 2006 and 2005, operational
expenses included professional fees of $39,588 and $5,794, respectively. For the
three months ended March 31, 2006 and 2005 operational expenses included charges
of $80,767 and $49,169, respectively, for reasonable expenses incurred to effect
the acquisition and subsequent management of River Holdings and non-cash charges
of $6,250 and $84,750, respectively, relating to the issuance of certain stock
and stock options. Interest expense in connection with the $200,000 principal
amount of convertible notes and five-year warrants to purchase 400,000 shares of
common stock at $0.75 per share amounted to $9,820 and $0 for the three months
ended March 31, 2006 and 2005, respectively. Accordingly, the Company incurred
losses of $143,122 and $139,113 for the three months ended March 31, 2006 and
2005, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2006, the Company had a working capital deficit of $225,108, as
compared to $88,236 at December 31, 2005.
10
Net cash used in operating activities was $62,688 for the three months ended
March 31, 2006, as compared to $40,895 for the three months ended March 31,
2005. The primary use of cash from operations in 2006 was to fund operations
relating to the business transaction with River Capital Limited.
Our present intentions are to sell debt or equity securities to cover our
operating expenses. There is no guarantee we can raise additional funds in the
future.
PLAN OF OPERATION
The Company's primary strategy is to establish and grow a core reinsurance
business based on the development and acquisition of solid insurance and
reinsurance assets and businesses. These will be initially sourced from the
River RE's strategic relationship with Strategy. The Company has no plans for
capital expenditures for the next twelve months.
To provide the cash necessary to support this growth plan for the next twelve
months and to maintain the Company's service readiness requires an ongoing
financial commitment for $10,000,000. The Company intends to raise additional
capital through the sale of equity or debt securities in the public market or
through private placements. The Company may also seek debt capital through
banking institutions or through the use of other instruments. The addition of
any capital to the Company for use as allowable capital for the purposes of
writing insurance or reinsurance business may require the approval of the
Barbados Supervisor of Insurance. There is no assurance the Company with be able
to raise such capital.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are fully described in Note 2 of the Notes to the
Financial Statements. As discussed in Note 2, the preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions about future
events that affect the amounts reported in the financial statements and
accompanying notes. Future events and their effects cannot be determined with
absolute certainty. Therefore, the determination of estimates requires the
exercise of judgment. Actual results inevitably will differ from those
estimates, and such difference may be material to our financial statements. We
believe that the following discussion addresses our Critical Accounting
Policies.
Accounting for Contingencies - We accrue for contingencies in accordance with
Statement of Accounting Standards ("SFAS") No. 5, "Accounting for
Contingencies," when it is probable that a liability or loss has been incurred
and the amount can be reasonably estimated. Contingencies by their nature relate
to uncertainties that require our exercise of judgment both in assessing whether
or not a liability or loss has been incurred and estimating the amount of
probable loss.
We account for income taxes in accordance with SFAS No.109. We have provided a
full valuation allowance against the assets.
We account for option issues according to FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R
requires companies to recognize in the statement of operations the grant-date
fair value of stock options and other equity-based compensation issued to
employees beginning January 1, 2006. During the three months ended March 31,
2006, the Company did not issue any employee stock options nor did any employee
stock options vest.
ITEM 3. CONTROLS AND PROCEDURES.
The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of March 31, 2006 (the "Evaluation Date").
Such evaluation was conducted under the supervision and with the participation
of the Company's Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO"). Based upon such evaluation, the Company's CEO and CFO have concluded
that, as of the Evaluation Date, the Company's disclosure controls and
procedures were effective. There have been no significant changes in the
Company's internal controls over financial reporting that occurred during the
Company's most recent fiscal quarter, that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS.
(a) Exhibits. The following are exhibits to this report:
- --------------------------------------------------------------------------------
Number Description
- --------------------------------------------------------------------------------
3.1 Form of Certificate of Incorporation of Ballistic Ventures, Inc.
(1)
- --------------------------------------------------------------------------------
3.2 Certificate of Amendment to the Certificate of Incorporation (2)
- --------------------------------------------------------------------------------
31.1 Rule 13a-14(a) Certification of Principal Executive Officer and
Chief Financial Officer
- --------------------------------------------------------------------------------
32.1 Section 1350 Certification of Principal Executive Officer and
Chief Financial Officer
- --------------------------------------------------------------------------------
- ---------------
(1) Incorporated by reference to the exhibits to the registrant's registration
statement on Form 10-SB filed on February 11, 2000.
(2) Incorporated by reference to the exhibits to the registrant's current report
on Form 8-K dated June 5, 2004 and filed on June 7, 2004.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RIVER CAPITAL GROUP, INC.
Date: May 15, 2006 By: /s/ HOWARD TAYLOR
-------------------------------------
Howard Taylor President
(Chief Executive Officer and
Chief Financial Officer)
13