UNITED STATES
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, 2007
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.
(Exact name of small business issuer as specified in its charter)
DELAWARE 51-0392750
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
SUITE 312, 7 REID STREET, HAMILTON BERMUDA HM11
(Address of principal executive offices)
441-296-6006
(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, 2007 was 38,552,749
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Balance Sheet at March 31, 2007 (unaudited) 3
Statements of Operations for the Three Months ended March 31, 2007
and 2006 (unaudited) 4
Statements of Cash Flows for the Three Months ended March 31, 2007
and 2006 (unaudited) 5
Selected Notes to the Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan of Operation 9
Item 3. Controls and Procedures 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits 12
SIGNATURES 13
2
RIVER CAPITAL GROUP, INC. AND SUBSIDIARY
BALANCE SHEET
(UNAUDITED)
MARCH 31, 2007
-----------------
ASSETS
Cash $ 199,605
Other current assets 3,240
-----------------
Total current assets 202,845
-----------------
Total assets $ 202,845
=================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable and accrued expenses 32,547
Accounts payable to related parties 176,245
-----------------
Total current liabilities 208,792
-----------------
Stockholders' deficit:
Common stock, $.001 par value, 50,000,000 shares
authorized: 38,552,749 shares issued and outstanding 38,552
Additional paid-in capital 2,397,193
Retained deficit
(2,441,692)
-----------------
Total stockholders' deficit
(5,947)
-----------------
Total liablities and stockholders' deficit $ 202,845
=================
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,
2007 2006
---------------- ----------------
Revenue $ - $ -
---------------- ----------------
Total revenue - -
---------------- ----------------
Expenses:
Selling general and administrative 112,500 133,302
---------------- ----------------
Total operating expenses 112,500 133,302
---------------- ----------------
Total operating loss (112,500) (133,302)
---------------- ----------------
Other income (expense):
Interest income 98 -
Interest expense - (9,820)
---------------- ----------------
98 (9,820)
---------------- ----------------
Net loss $ (112,402) $ (143,122)
================ ================
Net loss per share - basic and diluted $ (0.00) $ (0.01)
================ ================
Weighted average shares outstanding 38,444,659 25,401,095
================ ================
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,
2007 2006
----------------- ------------------
Cash flows from operating activities:
Net loss $ (112,402) $ (143,122)
----------------- ------------------
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Stock given for compensation 24,050 6,250
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
Increase (decrease) in accounts payable to related parties - (1,254)
----------------- ------------------
Total adjustments 24,050 80,434
----------------- ------------------
Net cash used by operations (88,352) (62,688)
----------------- ------------------
Net increase (decrease) in cash (88,352) (62,688)
Cash at beginning of period - 261,001
----------------- ------------------
Cash at end of period $ (88,352) $ 198,313
================= ==================
Supplemental disclosure of cash flow information: (287,957)
Cash paid during the period for:
Interest $ - $ -
================= ==================
Income taxes $ - $ -
================= ==================
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, 2007
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, 2007 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2007.
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, 2006 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, 2007, the Company had an accumulated deficit of $2,441,692.
During the three months ended March 31, 2007 the company suffered a net loss of
$112,402. 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 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 - DUE TO RELATED PARTY
A Company owned by Howard Taylor, an officer and director of the Company,
received management and administrative fees totaling $60,000 and $40,000 for the
three months ended March 31, 2007 and 2006, respectively. An additional $1,891
and $21,217 was received as reimbursement of direct out of pocket travel and
other expenses for the three months ended March 31, 2007 and 2006, respectively.
A total of $176,245 was due to this company as of March 31, 2007. These services
were provided for fees that could be obtained from unrelated parties for the
same amounts.
NOTE 4 - STOCKHOLDERS' EQUITY
During the three months ended March 31, 2007, the Company issued 130,000 shares
of its common stock as compensation for consulting services. A charge of $24,050
was recorded for the three months ended March
6
31, 2007, valued at fair market value, in connection with this transaction. The
Company relied upon the exemption from registration contained in Section 4(2),
as the recipient was deemed to be sophisticated with regard to an investment in
the Company.
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 3,842,275 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 December 31, 2005, options to
purchase 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. On November
1, 2005, the Company issued 350,000 options at $0.50, which options were fully
vested and expire on October 31, 2007. There were no options issued in 2006. As
of March 31, 2007, there are 625,000 options outstanding under the Plan.
For 2006 and 2007 transactions, the Company accounts for options issued
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. There were no
options issued in 2006 and 2007.
NOTE 5 - INCOME TAXES
The Company had available at March 31, 2007 net operating loss carryforwards for
federal and state tax purposes of approximately $2,400,000, which could be
applied against taxable income in subsequent years through 2026. The deferred
tax asset for net operating losses was approximately $555,700 as of March 31,
2007 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, 2007 and 2006 are approximately as follows:
Three Months ended Three Months ended
March 31, 2007 March 31, 2006
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,
2007
Net Operating Loss $ 840,000
Valuation allowance (840,000)
-----------
Net deferred tax assets $ -
===========
7
NOTE 6 - 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.
8
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
In Note 3 of the Company's Financial Statements for the year ended December 31,
2006, the Company's independent registered public accounting firm 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 the Company believes would remove the
going concern opinion.
The Company has incurred a cumulative net loss of $2,441,692 for the period from
inception to March 31, 2007. At March 31, 2007, the Company had a working
capital deficit of $5,947. The Company has yet to receive revenues from its
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
operations, once commenced, 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 the Company's
results of operations, liquidity, and capital resources on a comparative basis
for the three months ended March 31, 2007 and 2006, respectively, and should be
read in conjunction with the Financial Statements and related notes appearing
elsewhere in this report.
THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2006
RESULTS OF OPERATIONS
Operational expenses during the three months ended March 31, 2007 and 2006 of
$112,500 and $133,302, respectively, consisted primarily of reasonable expenses
incurred to effect the management of River Holdings and professional fees
necessary to complete certain corporate filings with the United States
Securities and Exchange Commission. For the three months ended March 31, 2007
and 2006, operational expenses included professional fees of $15,728 and
$39,588, respectively. For the three months ended March 31, 2007 and 2006,
operational expenses included charges of $60,000 and $80,767, respectively, for
reasonable expenses incurred to effect the management of River Holdings and
non-cash charges of $24,050 and $6,250, 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
9
400,000 shares of common stock at $0.75 per share amounted to $9,820 for the
three months ended March 31, 2006. Accordingly, the Company incurred net losses
of $112,402 and $143,122 for the three months ended March 31, 2007 and 2006,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2007, the Company had a working capital deficit of $5,947, as
compared to working capital of $82,405 at December 31, 2006. Net cash used in
operating activities was $64,198 for the three months ended March 31, 2007, as
compared to $62,688 for the three months ended March 31, 2006. The primary use
of cash from operations during the quarter ended March 31, 2007 was to fund
operations relating to the business transaction with its wholly owned subsidiary
River Capital Holdings Limited ("River Holdings") and River Reinsurance Limited,
a wholly owned subsidiary of River Holdings. The Company's present intentions
are to sell debt or equity securities to cover its operating expenses. There is
no guarantee the Company 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 insurance and reinsurance
assets and businesses. 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 will be able
to raise such capital.
CRITICAL ACCOUNTING POLICIES
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 the
Company's financial statements. The Company believes that the following
discussion addresses its Critical Accounting Policies.
Accounting for Contingencies - The Company accrues 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 the company's exercise of judgment
both in assessing whether or not a liability or loss has been incurred and
estimating the amount of probable loss.
The Company accounts for income taxes in accordance with SFAS No.109. The
Company has provided a full valuation allowance against the assets.
The Company accounts 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
10
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, 2007, the Company did
not issue any employee stock options nor did any employee stock options vest.
OFF-BALANCE SHEET ARRANGEMENTS.
The Company had no off-balance sheet arrangements as of March 31, 2007.
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, 2007 (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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On March 16, 2007, the Company issued 130,000 shares of its common stock to
Armadillo Ltd., a Bermuda company, as compensation for actuarial consulting
services. A charge of $24,050 was recorded for the three months ended March 31,
2007, valued at fair market value, in connection with this transaction. The
Company relied upon the exemption from registration contained in Section 4(2),
as the recipient was deemed to be sophisticated with regard to an investment in
the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
11
ITEM 6. EXHIBITS.
- --------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation (1)
- --------------------------------------------------------------------------------
3.2 Certificate of Amendment to the Certificate of Incorporation (2)
- --------------------------------------------------------------------------------
3.3 Bylaws (3)
- --------------------------------------------------------------------------------
10.1 Modification and Amendment Agreement dated June 30, 2006 (3)
- --------------------------------------------------------------------------------
31.1 Rule 13a-14(a) Certification
- --------------------------------------------------------------------------------
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- --------------------------------------------------------------------------------
(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.
(3) Incorporated by reference to the exhibits to the registrant's amended
current report on Form 8-K dated May 31, 2005 and filed July 7, 2006.
(4) Incorporated by reference to the exhibits to the registrant's Form
10-QSB for September 30, 2006 filed on November 14, 2006.
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, 2007 By: /s/ HOWARD TAYLOR
-----------------------------------
Howard Taylor President
(Chief Executive Officer and Chief
Financial Officer)
13