As filed with the Securities and Exchange Commission on: April 27, 2006
Registration No.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE JACKSON RIVERS COMPANY
(Name of small business issuer in its charter)
Florida _______ 65-1102865
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation Classification Code Number) Identification No.)
or organization)
550 Greens Parkway, Suite 230, Houston, Texas 77067, (619) 342-7449
(Address and telephone number of principal executive offices and
principal place of business)
550 Greens Parkway, Suite 230, Houston, Texas 77067, (619) 342-7449
(Address of principle place of business or intended place of business)
Jeffrey W. Flannery, 550 Greens Parkway, Suite 230, Houston, Texas 77067,
(619) 342-7449
(Name, address and telephone number of agent for service)
Copies to:
Marc A. Indeglia, Esq., Spectrum Law Group, LLP, 1900 Main Street, Suite 125,
Irvine, California 92614, (949) 851-4300
---------------
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
-----------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
=============================== =========================== ======================== ======================== =================
Proposed Proposed
Title of Each Class of Maximum Offering Maximum Aggregate Amount of
Securities to be Registered Amount to be Registered Price per Share Offering Price Registration Fee
------------------------------- --------------------------- ------------------------ ------------------------ -----------------
Common Stock, $.00001 par 752,674,418 Shares (1) $.0071 (2) $5,343,988.37 $571.80
value
------------------------------- --------------------------- ------------------------ ------------------------ -----------------
(1) Shares of common stock that may be offered pursuant to this registration
statement consist of shares that may be issuable upon conversion of
convertible promissory notes and exercise of warrants issued in connection
with the issuance of the convertible promissory notes. For purposes of
estimating the number of shares of common stock to be included in this
registration statement, we included (i) 697,674,418 shares, representing
150% of the number of shares of common stock issuable upon conversion in
full of the outstanding convertible promissory notes issued pursuant to
that certain Securities Purchase Agreement dated as of March 31, 2006
(without regard to any limitations on conversion); (ii) 50,000,000 shares
of common stock issuable upon exercise of in full of the warrants issued
to the holders of the convertible promissory notes issued pursuant that
Securities Purchase Agreement dated as of March 31, 2006 (without regard
to any limitations on exercise) and (iii) 5,000,000 shares of common stock
issuable upon exercise of the warrants issued to the finder in connection
with the issuance of the convertible promissory notes pursuant to that
certain Securities Purchase Agreement dated as of March 31, 2006. Pursuant
to Rule 416 of the Securities Act of 1933, this Registration Statement
includes an indeterminate number of additional shares as may be issuable
as a result of stock splits or stock dividends which occur during this
continuous offering.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933,
based upon the last sale of the Registrant's common stock on April 20,
2006, as reported in the over-the-counter market.
-----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
Subject to completion, dated April 27, 2006.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
Prospectus
752,674,418 Shares
THE JACKSON RIVERS COMPANY
Common Stock
We are registering up to 752,674,418 shares of our common stock for the
offer or sale by the selling stockholders named in this prospectus. Of the
shares being registered, 697,674,418 represents 150% of the 515,116,279 shares
which are issuable upon conversion of convertible notes issued and issuable to
certain of the selling stockholders and 55,000,000 represent shares which are
issuable upon exercise of warrants.
The selling stockholders will determine when they will sell their shares,
and in all cases, will sell their shares at the current market price or at
negotiated prices at the time of the sale. Although we have agreed to pay the
expenses related to the registration of the shares being offered, we will not
receive any proceeds from the sale of the shares by the selling stockholders. We
may, however, receive $3,850,000 from the exercise of the warrants.
Our common stock currently trades on the OTC Bulletin Board under the
symbol "JKRI.OB." On April 20, 2006, the last reported sale price of the common
stock of the OTC was $0.0071 per share.
Investing in our common stock involves risks, and investors should not buy
these shares unless they can afford to lose their entire investment. Please see
"Risk Factors" beginning on page 5 to read about certain factors you should
consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is ________________, _____
Cautionary Statement Concerning
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. This prospectus and the documents to
which we refer you and incorporate into this prospectus by reference contain
forward-looking statements. In addition, from time to time, we or our
representatives may make forward-looking statements orally or in writing. These
are statements that relate to future periods and include statements regarding
our future strategic, operational and financial plans, potential acquisitions,
anticipated or projected revenues, expenses and operational growth, markets and
potential customers for our products and services, plans related to sales
strategies and efforts, the anticipated benefits of our relationships with
strategic partners, growth of our competition, our ability to compete, the
adequacy of our current facilities and our ability to obtain additional space,
use of future earnings, and the feature, benefits and performance of our current
and future products and services.
You can identify forward-looking statements by those that are not
historical in nature, particularly those that use terminology such as "may,"
"will," "should," "expects," "anticipates," "contemplates," "estimates,"
"believes," "plans," "projected," "predicts," "potential," "seek" or "continue"
or the negative of these or similar terms. In evaluating these forward-looking
statements, you should consider various factors, including those described in
this prospectus under the heading "Risk Factors" beginning on page 5. These and
other factors may cause our actual results to differ materially from any
forward-looking statement. We caution you not to place undue reliance on these
forward-looking statements.
We base these forward-looking statements on our expectations and
projections about future events, which we derive from the information currently
available to us. Such forward-looking statements relate to future events or our
future performance. Forward-looking statements are only predictions. The
forward-looking events discussed in this prospectus, the documents to which we
refer you and other statements made from time to time by us or our
representatives, may not occur, and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about us. For
these statements, we claim the protection of the "bespeaks caution" doctrine.
The forward-looking statements speak only as of the date hereof, and we
expressly disclaim any obligation to publicly release the results of any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this filing.
Factors that may affect forward-looking statements. A wide range of
factors could materially affect future developments and performance of our
business. Significant factors affecting specific business operations are
identified in connection with the description of these operations and the
financial results of these operations incorporated by reference into this
prospectus. General factors affecting our operations include: o Changes in
business plans,
o Changes in U.S., global or regional economic conditions,
o Changes in U.S. and global financial and equity markets, including
market disruptions and significant interest rate fluctuations.
o Increased competitive pressures,
o Legal developments that may affect our business,
o Technological developments that may affect our business, and
o Changes in government regulations relating to the pharmaceutical
industry.
This list of factors that may affect future performance and the accuracy
of forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.
2
Prospectus Summary Information
Our Company
We build and operate large scale wireless networks and provide consulting
and engineering services to allow our customers to build and operate their
networks. We also provide data collection and management services between remote
devices called Machine to Machine or M2M services.
Our executive offices are located at 550 Greens Parkway, Suite 230,
Houston, Texas and telephone number (619) 342-7449. We maintain a website at
www.jacksonrivers.com.
The Offering
This offering relates to the offer and sale of 752,674,418 shares of our
common stock by the selling stockholders identified in this prospectus. The
selling stockholders will determine when they will sell their shares, and in all
cases, will sell their shares at the current market price or at negotiated
prices at the time of the sale. Although we have agreed to pay the expenses
related to the registration of the shares being offered, we will not receive any
proceeds from the sale of the shares by the selling stockholders. We may,
however, receive up to $3,850,000 from the exercise of warrants.
Common stock outstanding before the offering:
144,777,624
Common stock outstanding if all stock offered by selling stockholders is sold:
897,452,042
OTC Bulletin Board symbol for common stock "JKRI.OB"
--------------------------------------------------------------------------------
3
Summary Financial Information
The summary financial information set forth below has been derived from our
financial statements for the year ended December 31, 2005 and December 31, 2004.
You should read this information in conjunction with the financial statements
and notes thereto and the pro forma financial statements included elsewhere in
this prospectus.
Statement of Operations Data:
Year Ended Year Ended
December 31, December 31,
2005 2004
------------- ------------
Revenue $2,193,685 $6,589,736
Net loss (1,500,382) (527,133)
Earnings (loss) per share (basic and diluted) (0.46) N/A*
Weighted average number of shares 3,278,100 N/A*
outstanding (basic and diluted)
* Jackson Rivers issued preferred shares, rather than common stock, in
connection with the merger of Diverse Networks. Accordingly, no common
shares are deemed outstanding prior to the merger.
Balance Sheet Data:
December 31,
2005
------------
Cash $ 36,361
Working capital deficit 1,322,051
Total assets 612,400
Total liabilities 1,687,821
Total stockholders' deficit (1,075,421)
4
Risk Factors
An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors and the other information
in this annual report before investing in our common stock. Our business and
results of operations could be seriously harmed by any of the following risks.
The trading price of our common stock could decline due to any of these risks.
RISKS RELATED TO OUR SECURITIES AND THIS REGISTRATION
We have issued a substantial number of securities convertible into shares of our
common stock which will result in substantial dilution to the ownership
interests of our existing stockholders.
As of April 27, 2006, approximately 897,452,042 shares of our common stock
were reserved for issuance upon exercise or conversion of the following
securities: (i) 697,674,418 shares representing 150% of the number of shares of
common stock issuable upon conversion in full of the outstanding convertible
promissory notes issued and issuable pursuant to that Securities Purchase
Agreement dated as of March 31, 2006 (without regard to any limitations on
conversion); (ii) 50,000,000 shares of common stock issuable upon exercise of in
full of the warrants issued to the holders of the convertible promissory notes
issued pursuant to that Securities Purchase Agreement dated as of March 31, 2006
(without regard to any limitations on exercise) and (iii) 5,000,000 shares of
common stock issuable upon exercise of the warrants issued to the finder in
connection with the issuance of the convertible promissory notes pursuant to the
Securities Purchase Agreement dated as of March 31, 2006.
The exercise or conversion of these securities will result in a
significant increase in the number of outstanding shares and substantially
dilute the ownership interests of our existing shareholders.
A substantial number of our convertible securities are convertible into shares
of common stock at a conversion price of $0.005 per share. Most of these shares
are eligible for public resale. The trading price of our common stock and our
ability to raise additional financing may be adversely affected by the influx
into the market of such a substantial number of shares.
Our outstanding convertible notes (currently $700,000) are presently
convertible into 194,444,444 shares of common stock at a per share conversion
price (based upon a discount to market price at time of conversion) of $0.0036
which is less than the current trading price of our shares. We expect to issue
an additional $1,300,000 in convertible notes on the same terms as part of the
same financing in the next 90-120 days. Although many of the shares issuable
upon conversion of our convertible warrants are eligible for public resale under
Securities and Exchange Commission Rule 144, we have agreed to file a
registration statement to cover the public resale of all of these shares. This
significant increase in number of shares available for public sale may have a
negative impact on the trading price of our shares and substantially dilute the
ownership interest of our existing shareholders. In order to raise additional
financing we would likely be required to issue additional shares of common stock
or securities convertible into common stock at a purchase or conversion price as
applicable, on similar terms. To the extent these factors are viewed negatively
by the market, it may provide an incentive for persons to execute short sales of
our common stock that could adversely affect the trading price of our common
stock.
Our recent financing requires this registration statement to become effective
within 120 days after the initial closing date of March 31, 2006 and if this
fails to happen we will incur liquidated damages.
We recently received financing from the selling securityholders listed in
this document. Such financing requires us to file this registration statement
and have the registration statement declared effective by the SEC within 120
days of the closing of the financing, which occurred on March 31, 2006. If this
registration statement is not declared effective by July 31, 2006 (July 29, 2006
is 120 days, but this date falls on a Saturday), we begin incurring liquidated
damages equal to 2% of the principal of the promissory notes issued for each 30
day period that this registration statement is not declared effective after July
31, 2006.
5
The conversion of the promissory notes based on our recent financing is based on
an average of our closing bid price of our intra day trading prices of our
common stock over a certain period of time prior to conversion and the decrease
of the intra day trading price will result in issuance of a significant increase
of shares resulting in dilution to our shareholders.
The conversion of the promissory notes in our recent financing is based on
the applicable percentage of the average of the lowest three (3) Trading Prices
for the Common Stock during the twenty (20) Trading Day period prior to
conversion. The "Applicable Percentage" means 50%; provided, however, that the
Applicable Percentage shall be increased to (i) 55% in the event that a
Registration Statement is filed within thirty days of the closing and (ii) 60%
in the event that the Registration Statement becomes effective within one
hundred and twenty days from the Closing. The price of our common shares may
fluctuate and the lower intra-day trading price in the future, will result in a
conversion ratio resulting in issuance of a significant amount of our common
shares to the promissory note holders. This will result in our present
shareholders being diluted.
Selling shareholders may impact our stock value through the execution of short
sales which may decrease the value of our common stock.
Short sales are transactions in which a selling shareholder sells a
security it does not own. To complete the transaction, a selling shareholder
must borrow the security to make delivery to the buyer. The selling shareholder
is then obligated to replace the security borrowed by purchasing the security at
the market price at the time of replacement. The price at such time may be
higher or lower than the price at which the security was sold by the selling
shareholder. If the underlying security goes down in price between the time the
selling shareholder sells our security and buys it back, the selling shareholder
will realize a gain on the transaction. Conversely, if the underlying security
goes up in price during the period, the selling shareholder will realize a loss
on the transaction. The risk of such price increases is the principal risk of
engaging in short sales. The selling shareholders in this registration statement
could short the stock by borrowing and then selling our securities in the
market, and then converting the stock through either the Note or Warrants at a
discount to replace the security borrowed. Because the selling shareholders
control a large portion of our common stock, the selling shareholders could have
a large impact on the value of our stock if they were to engage in short selling
of our stock. Such short selling could impact the value of our stock in an
extreme and volatile manner to the detriment of other shareholders.
Our common stock is deemed to be a "penny stock" which may make it more
difficult for investors to sell their shares due to suitability requirements.
Our common stock is deemed to be a "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stock:
- With a price of less than $5.00 per share;
- That are not traded on a "recognized" national exchange;
- Whose prices are not quoted on the NASDAQ automated quotation system; or
- Of issuers with net tangible assets of less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or $5.0
million (if issuer has been in continuous operation for less than three
years), or with average revenues of less than $6.0 million for the last
three years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for our shareholders to
sell shares to third parties or to otherwise dispose of them. This could cause
our share price to decline.
6
We do not expect to pay dividends for the foreseeable future.
For the foreseeable future, it is anticipated that earnings, if any, that
may be generated from our operations will be used to finance our operations and
that cash dividends will not be paid to holders of our common stock.
RISKS RELATED TO OUR BUSINESS
We may not have sufficient funds to operate our business and may not be able to
obtain additional financing.
We currently have insufficient funds to operate our business according to
our proposed business plan. In addition, if unanticipated expenses, problems,
and difficulties occur which result in material delays in the development of our
products, we will not be able to operate within our budget. If we do not operate
within our budget, we will require additional funds to continue our business. We
may not be able to obtain additional financing as needed, on acceptable terms,
or at all, which would force us to delay our plans for growth and implementation
of our strategy which could seriously harm our business, financial condition,
and results of operations. If we need additional funds, we may seek to obtain
them primarily through stock or debt financings. Those additional financings
could result in dilution to our stockholders.
We may need to raise additional money before we achieve profitability; if we
fail to raise additional money, it could be difficult to continue our business.
Based on our current plans, we believe that we do not have sufficient
financial resources to meet our operating expenses and capital requirements for
fiscal 2006. If we plan to expand our operations to manufacture and market
additional products or services or if we make material acquisitions, we will
need to obtain additional funds. We may seek additional funding through public
or private financing or through collaborative arrangements with strategic
partners.
You should be aware that in the future:
o we may not obtain additional financial resources when necessary or
on terms favorable to us, if at all; and
o any available additional financing may not be adequate.
If we cannot raise additional funds when needed, or on acceptable terms,
we will not be able to continue to expand our operations or develop and
manufacture our products.
We may need to develop manufacturing capacity for our existing and future
products, which will increase our expenses.
We have evaluated in the past, and continue to evaluate, the feasibility
of acquiring manufacturing capabilities to support the production of our
products. These facilities may be required to meet the production capacities
required to produce such products for commercial sale at an acceptable cost. We
have not manufactured these products in the past. Developing these capabilities
and building or purchasing a facility will increase our expenses with no
guarantee that we will be able to recover our investment in our manufacturing
capabilities.
We depend heavily on key personnel, and loss of the services of one or more of
our key executives or a significant portion of any prospective local management
personnel could weaken our management team adversely affecting our operations.
Our success largely depends on the skills, experience and efforts of our
senior management, particularly our Chief Executive Officer, Jeffrey W. Flannery
and our President and Chief Operating Officer, James E. Nelson. Our operations
will also be dependent on the efforts, ability and experience of key members of
our prospective local management staff. The loss of services of one or more
members of our senior management or of a significant portion of any of our local
management staff could weaken significantly our management expertise and our
ability to deliver health care services efficiently. We do not maintain key man
life insurance policies on any of our officers, although we intend to obtain
such insurance policies in the future.
7
Because stock ownership is concentrated, you and other investors will have
minimal influence on stockholders' decisions.
Assuming that issued and outstanding warrants and options for our common
stock have not been exercised, two of our significant shareholders own
approximately 40% of our outstanding common stock as of March 31, 2006. In
addition, pursuant to their terms each share of our series A preferred stock is
entitled to 2,000 votes for each share held. As such, Messrs. Flannery and
Nelson, our sole preferred stockholders, hold voting rights equal to 1.92
billion shares of common stock based on their holdings of series A preferred
stock. As a result our executive officers may be able to significantly influence
the management of the company and all matters requiring stockholder approval,
including the election of directors. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of our company.
Substantial sales of our stock may impact the market price of our common stock.
Future sales of substantial amounts of our common stock, including shares
that we may issue upon exercise of options and warrants, could adversely affect
the market price of our common stock. Further, if we raise additional funds
through the issuance of common stock or securities convertible into or
exercisable for common stock, the percentage ownership of our stockholders will
be reduced and the price of our common stock may fall.
The marketability and profitability of our products is subject to unknown
economic conditions.
The marketability and profitability of our products may be adversely
affected by local, regional, national and international economic conditions
beyond our control and/or the control of our management. Favorable changes may
not necessarily enhance the marketability or profitability of the products. Even
under the most favorable marketing conditions, there is no guarantee that our
products can be sold or, if sold, that such sale will be made upon favorable
prices and terms.
Any projections used in this prospectus may not be accurate.
Any and all projections and estimates contained in this annual report or
otherwise prepared by us are based on information and assumptions which
management believes to be accurate; however, they are mere projections and no
assurance can be given that actual performance will match or approximate the
projections.
Issuing preferred stock with rights senior to those of our common stock could
adversely affect holders of common stock.
Our charter documents give our board of directors the authority to issue
series of preferred stock without a vote or action by our stockholders. The
board also has the authority to determine the terms of preferred stock,
including price, preferences and voting rights. The rights granted to holders of
preferred stock may adversely affect the rights of holders of our common stock.
For example, a series of preferred stock may be granted the right to receive a
liquidation preference - a pre-set distribution in the event of a liquidation -
that would reduce the amount available for distribution to holders of common
stock. In addition, the issuance of preferred stock could make it more difficult
for a third party to acquire a majority of our outstanding voting stock. As a
result, common stockholders could be prevented from participating in
transactions that would offer an optimal price for their shares.
8
Use of Proceeds
We will not receive any proceeds from the resale of our common stock by
the selling stockholders.
However, we will receive the sale price of any common stock we sell to the
selling stockholders upon exercise of the warrants. We expect to use the
proceeds received from the exercise of the warrants, if any, for general working
capital purposes. However, selling stockholders will be entitled to exercise
warrants on a cashless basis if the shares of common stock underlying the
warrants are not then registered pursuant to an effective registration
statement. In the event that the parties exercise the warrants on a cashless
basis, then we will not receive proceeds from the exercise of those warrants. In
addition, we have received gross proceeds $700,000 from the sale of the secured
convertible notes. In addition, we will receive additional proceeds from the
sale of these convertible notes as follows: (i) $600,000 within 5 days of the
filing of this registration statement and (ii) $700,000 within 5 days of this
registration statement being declared effective by the SEC. The proceeds
received from the sale of the secured convertible notes will be used for
business development purposes to pay-off obligations to certain parties, working
capital needs, pre-payment of interest, payment of consulting, legal fees and
other expenses.
Market for Common Equity and Related Stockholder Matters
Our common stock trades on the OTC Bulletin Board under the symbol "JKRI."
The following table shows the high and low bid prices for our common stock for
each quarter since January 1, 2004 as reported by the OTC Bulletin Board. All
share prices have been adjusted to provide for the 1-for-1000 reverse stock
split which was effected on November 22, 2004, the 1-for-2000 reverse stock
split which was effected on May 9, 2005 and the 4-forr 1 stock split which was
effected on May 27, 2005. We consider our stock to be "thinly traded" and any
reported sale prices may not be a true market-based valuation of the stock. Some
of the bid quotations from the OTC Bulletin Board set forth below may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
January 1, 2005 to December 31, 2005 (OTC Bulletin Board) High Bid Low Bid
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First quarter $ 3.500 $ 0.00
Second quarter 0.065 0.00
Third quarter 0.108 0.006
Fourth quarter 0.025 0.003
January 1, 2004 to December 31, 2004 (OTC Bulletin Board) High Bid Low Bid
-----------------------------------------------------------------------------------------------
First quarter $ 16,250 $2,500
Second quarter 14,500 3,525
Third quarter 9,250 575
Fourth quarter 975 0.50
As of March 9, 2006, there were approximately 48 record holders of our
common stock.
We have not paid any cash dividends since our inception and do not
contemplate paying dividends in the foreseeable future. It is anticipated that
earnings, if any, will be retained to retire debt and for the operation of the
business.
Shares eligible for future sale could depress the price of our common
stock, thus lowering the value of a buyer's investment. Sales of substantial
amounts of common stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for shares of our common stock.
Our revenues and operating results may fluctuate significantly from
quarter to quarter, which can lead to significant volatility in the price and
volume of our stock. In addition, stock markets have experienced extreme price
and volume volatility in recent years. This volatility has had a substantial
effect on the market prices of securities of many smaller public companies for
reasons unrelated or disproportionate to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of our common stock.
9
Securities Authorized for Issuance Under Equity Compensation Plans. The
following provides information concerning compensation plans under which our
equity securities are authorized for issuance as of December 31, 2005:
(a) (b) (c)
------------------------------------- -------------------- ---------------------- ------------------------
Plan Category Number of Weighted-average Number of securities
securities to be exercise price of remaining available
issued upon outstanding options, for future issuance
exercise of warrants and rights under equity
outstanding compensation plans
options, warrants (excluding securities
and rights reflected in column
(a))
------------------------------------- -------------------- ---------------------- ------------------------
Equity compensation plans approved 45,577,624 $0.0127 99,655,000
by security holders
Equity compensation plans not -- --
approved by security holders
Total 45,577,624 $0.0127 99,655,000
RECENT SALES OF UNREGISTERED SECURITIES
In January 2006, we issued an 8% Convertible Note in the aggregate
principal amount of $250,000 to a single accredited investor in consideration
for services rendered under a fee agreement dated November 2005. This note is
due and payable on or before January 1, 2007. This note is convertible into
shares of that number of shares of our common stock as would be determined by
dividing (i) the unpaid principal balance plus accrued interest by (ii) 80% of
the average of the three lowest closing bid prices for the twenty trading days
immediately prior to conversion. No conversions can be made which would result
in holder owning more than 4.99% of our common stock after conversion. The
issuance of the note was exempt under Section 4(2) of the Securities Act of
1933, as amended
In March 2006, we issued an 8% Convertible Note in the aggregate principal
amount of $60,000 to a single accredited investor. Upon consummation of a
funding in the aggregate amount of $300,000, the holder is entitled to full
payment of all outstanding principal and interest. In addition, the holder is
entitled receive Common Stock equal to the value of the Principal and interest
at a conversion price equal to the average of the lowest 3 closing bid prices in
the 20 trading days immediately preceding the repayment date. No conversions can
be made which would result in holder owning more than 4.99% of our common stock
after conversion. The issuance of this note was exempt under Section 4(2) of the
Securities Act of 1933, as amended.
10
Plan of Distribution
We are registering the shares of common stock issuable upon conversion of
the convertible promissory notes dated March 31, 2006 and upon exercise of the
related warrants to permit resale of the shares of common stock by the holders
of the convertible promissory note and the related warrants from time to time
after the date of this prospectus. We will not receive any of the proceeds from
the sale by the selling stockholders of the shares of common stock, although we
may receive up to approximately $3.85 million upon the exercise of the warrants.
We will bear all fees and expenses incident to our obligation to register the
shares of common stock.
The selling stockholders may sell all or a portion of the common stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the common stock
is sold through underwriters or broker-dealers, the selling stockholder will be
responsible for underwriting discounts or commissions or agent's commissions.
The common stock may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions,
(1) on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale,
(2) the over-the-counter market,
(3) in transactions otherwise than on these exchanges or systems or in the
over-the-counter market,
(4) through the writing of options, whether such options are listed on an
options exchange or otherwise, or
(5) through the settlement of short sales.
If the selling stockholders effect such transactions by selling shares of
common stock to or through underwriters, broker-dealers or agents, such
underwriters, brokers-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, brokers-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the common stock or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealers, which may in turn engage in short
sales of the common stock in the course of hedging in positions they assume. The
selling stockholders may also sell shares of common stock short and deliver
shares of common stock covered by this prospectus to close out short positions,
provided that the short sale is made after the registration statement is
declared effective and a copy of this prospectus is delivered in connection with
the short sale. The selling stockholder may also loan or pledge shares of common
stock to broker-dealers that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of common stock from time to time pursuant to the
prospectus. The selling stockholders also may transfer and donate the shares of
common stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of the prospectus.
The selling stockholders and any broker-dealer participating in the
distribution of the shares of common stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions paid, or any
discounts or concessions allowed to any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of common stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholder and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.
11
Under the securities laws of some states, the shares of common stock may
be sold in such states only through registered or licensed brokers or dealers.
In addition, in some states the shares of common stock may not be sold unless
such shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling stockholder will sell any or
all of the shares of common stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M of the Exchange Act, which may limit the timing of purchases and sales of any
of the shares of common stock by the selling stockholders and any other
participating person. Regulation M may also restrict the ability of any person
engaged in the distribution of the shares of common stock to engage in
market-making activities with respect to the shares of common stock. All of the
foregoing may affect the marketability of the shares of common stock and the
ability of any person or entity to engage in market-making activities with
respect to the shares of common stock.
We will pay all expenses of the registration of the shares of common stock
pursuant to the registration rights agreement estimated to be $65,572 in total,
including, without limitation, Commission filing fees and expenses of compliance
with state securities or "blue sky" laws; provided, however, that the selling
stockholders will pay all underwriting discounts and selling commissions, if
any. In connection with sales made pursuant to this prospectus, we will
indemnify the selling stockholders against liabilities, including some
liabilities under the Securities Act, in accordance with the related
registration rights agreement or the selling stockholders will be entitled to
contribution. We will be indemnified by the selling stockholders against
liabilities, including some liabilities under the Securities Act, that may arise
from any written information furnished to us by the selling stockholders for use
in this prospectus, in accordance with the related registration rights agreement
or we will be entitled to contribution.
Once sold under the shelf registration statement, of which this prospectus
forms a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
12
Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with
our audited consolidated financial statements and related notes included in this
report. This report contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. The statements contained
in this report that are not historic in nature, particularly those that utilize
terminology such as "may," "will," "should," "expects," "anticipates,"
"estimates," "believes," or "plans" or comparable terminology are
forward-looking statements based on current expectations and assumptions.
Various risks and uncertainties could cause actual results to differ
materially from those expressed in forward-looking statements. Factors that
could cause actual results to differ from expectations include, but are not
limited to, those set forth under the section "Risk Factors" set forth in this
report.
The forward-looking events discussed in this annual report, the documents
to which we refer you and other statements made from time to time by us or our
representatives, may not occur, and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about us. For
these statements, we claim the protection of the "bespeaks caution" doctrine.
All forward-looking statements in this document are based on information
currently available to us as of the date of this report, and we assume no
obligation to update any forward-looking statements. Forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements.
General
We build and operate large scale wireless networks and provide consulting
and engineering services to allow our customers to build and operate their
networks. We also provide data collection and management services between remote
devices called Machine to Machine or M2M services. We entered this industry upon
the acquisition of Diverse Networks, Inc. on December 2, 2005. The transaction
was accounted for as a recapitalization effected through a reverse merger, such
that Diverse Networks, Inc. was treated as the "acquiring company" for financial
reporting purposes
Our executive offices are located at 550 Greens Parkway, Suite 230,
Houston, Texas 77067 and telephone number (619) 342-7449. We maintain a website
at www.jacksonrivers.com.
Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement
exists, services have been rendered, the sales price is fixed or determinable,
and collectibility is reasonably assured.
Results of Continuing Operations
Basis of Presentation
The results of operations set forth below for the years ended December 31,
2005 and 2004 are those of the continuing operations of The Jackson Rivers
Company, which include Diverse Networks, Inc. on a consolidated basis
The following table sets forth, for the periods indicated, certain
selected financial data expressed as a percentage of net sales from continuing
operations:
13
Year Ended Year Ended
December 31, December 31,
2005 2004
-------------------------- --------------------------
Net sales $2,193,685 $6,589,736
Cost of sales 1,026,414 4,632,597
-------------------------- --------------------------
Gross profit 1,167,271 1,957,139
Selling, general and administrative 1,363,490 2,329,207
Recapitalization Expense 1,263,727 --
Depreciation and Amortization 171,019 189,311
-------------------------- --------------------------
Operating loss $(1,630,965) $(561,379)
========================== ==========================
Comparison of the Years ended December 31, 2005 and 2004
Net sales. Net sales for operations of The Jackson Rivers Company
decreased to $2,193,685, or a decrease of approximately 67%, for the year ended
December 31, 2005, from $6,589,736 for the year ended December 31, 2004. This
decrease was attributable to the discontinuation of a major contract with
Palm.net, a company which ceased operations in September 2004 and the completion
of a major development with Prenova, Inc., which was not renewed.
Cost of Sales. Cost of sales for continued operations decreased to
$1,026,414, or approximately 78%, for the year ended December 31, 2005, from
$4,632,597 for the year ended December 31, 2004. As a percentage of net sales,
cost of sales decreased to 47% of net sales for the year ended December 31, 2005
versus approximately 70% of sales for the year ended December 31, 2004. The
decrease in cost of sales as a percentage of net sales resulted primarily from a
reduction of company employees and operational overhead As a result, we
generated a gross profit of $1,167,271 with a gross profit margin of
approximately 53% for the year ended December 31, 2005.
Selling, general and administrative. Selling, general and administrative
expenses decreased to $1,363,490, or a decrease of approximately 41%, for the
year ended December 31, 2005, from $2,329,207 for the year ended December 31,
2004. As a percentage of net sales, selling, general and administrative expenses
were approximately 62% for the year ended December 31, 2005, as compared to
approximately 35% for the comparable period in 2004. The decrease in selling,
general and administrative expenses primarily results from a reduction in
administrative and sale staff as the number of employees was reduced to 11
employees from a previous high in excess of 50.
Recapitalization Expense During the year ended December 31, 2005, we
incurred $1,263,727 in connection with our recapitalization in December 2005.
Depreciation and Amortization. Depreciation and amortization expense
decreased to $171,019 for the year ended December 31, 2005, from $189,311 for
the year ended December 31, 2004. This decrease was due to equipment that
depreciated and not replenished due to the loss of the contract with Palm.net.
Operating loss. We incurred an operating loss of $1,630,965 for the year
ended December 31, 2005, compared to an operating loss of $561,379 for the year
ended December 31, 2004. We had increased operating losses in the year 2005 as
compared to 2004 primarily because the loss of revenues from a major contract
with Palm.net and continuing obligations that we had with rental of our
operating facilities and maintenance of equipment.
Liquidity and Capital Resources
We have financed our operations, acquisitions, debt service, and capital
requirements through cash flows generated from operations, debt financing, and
issuance of securities. Our working capital deficit at December 31, 2005 was
$1,322,051 and at December 31, 2004 it was $95,409. We had cash of $36,361 as of
December 31, 2005, while we had cash of $238,235 as of December 31, 2004. This
difference results primarily from loss of contract revenues and fluctuations in
accounts receivables.
14
We used $120,932 of net cash used in operating activities for the year
ended December 31, 2005 compared to using $275,749 in the year ended December
31, 2004. This cash used in operating activities was offset by a non-cash
depreciation expense of $143,407, and an amortization expense of $27,612.
Net cash flows used in investing activities was $9,753 for the year ended
December 31, 2005, compared to $58,616 in the year ended December 31, 2004. The
cash used in investing activities for the year ended December 31, 2005 was for
purchase of equipment and software.
Net cash flows used in financing activities were $71,189 for the year
ended December 31, 2005, compared to net cash provided by financing activities
of $29,742 in the year ended December 31, 2004. The difference results primarily
from $95,046 in payments on notes and capital leases.
March Private Offering
On March 31, 2006, we entered into a Securities Purchase Agreement with certain
accredited investors pursuant to which they agreed to issue up to $2,000,000 of
principal amount of convertible promissory notes in three separate tranches and
warrants to purchase shares of our common stock (the "Securities Purchase
Agreement"). The tranches of notes are to be issued and sold as follows: (i)
$700,000 upon execution and delivery of the Securities Purchase Agreement; (ii)
$600,000 within 5 days of filing of a registration statement with the Securities
and Exchange Commission (the "SEC") registering the shares of common stock
issuable upon conversion of the notes and exercise of the warrants issued
pursuant to the Securities Purchase Agreement (the "Registration Statement") and
(iii) $700,000 within 5 days of the Registration Statement being declared
effective by the SEC The convertible notes have a 3 year term and bear interest
at six percent (6%). The notes are convertible into our common stock pursuant to
a "variable conversion price" equal to the "Applicable Percentage" multiplied by
the "Market Price.' "Applicable Percentage" is initially 50% provided, that,
such percentage will be increased to 55% if the Registration Statement is filed
on or before April 30, 2006 and further increased to 60% if the Registration
Statement is declared effective by the SEC on or before July 29, 2006. "Market
Price" means the average of the lowest three trading prices (as defined) for our
common stock during the 20 trading day period prior to conversion. Upon an event
of default (as defined), the notes are immediately due and payable at an amount
equal to the greater of (i) 140% of the then outstanding principal amount of
notes plus interest and (ii) the "parity value" defined as (a) the highest
number of shares of common stock issuable upon conversion of the notes
multiplied by (b) the highest closing price for our common stock during the
period beginning on the date of the occurrence of the event of default and
ending one day prior to the demand for prepayment due to the event of default.
If we are unable to effect a redemption of all the convertible notes submitted
for redemption, we will redeem a pro rata amount from each holder. The notes are
secured by a first lien on all of our assets, including all of our intellectual
property.
Under the terms of these notes and the related warrants, the notes and the
warrants are convertible/exercisable by any holder only to the extent that the
number of shares of common stock issuable pursuant to such securities, together
with the number of shares of common stock owned by such holder and its
affiliates (but not including shares of common stock underlying unconverted
shares of the note or unexercised portions of the warrants) would not exceed
4.99% of our then outstanding common stock as determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended
Subject to certain terms and conditions set forth therein, the notes are
redeemable by us at a rate of between 120% to 140% of the outstanding principal
amount of the notes plus interest. In addition, so long as the average daily
price of our common stock is below the "initial market price" (as defined) we
may prepay a such monthly portion due on the outstanding notes and the investors
agree that no conversions will take place during such month where this option is
exercised by us.
The notes were issued with warrants to purchase up to 50,000,000 shares of
our common stock at an exercise price of $0.07 per share, subject to adjustment.
To the extent that the shares of common stock underlying the warrant of not
registered for resale, the warrant holder may designate a "cashless exercise
option." This option entitles the warrant holders to elect to receive fewer
shares of common stock without paying the cash exercise price. The number of
shares to be determined by a formula based on the total number of shares to
which the warrant holder is entitled, the current market value of the common
stock and the applicable exercise price of the warrant.
15
We agreed to register the secondary offering and resale of the shares
issuable upon conversion of the notes, the shares issuable upon exercise of the
warrants within 30 days of the execution of the Securities Purchase Agreement.
We relied on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended, for the offer and sale of the notes and
the warrants.
In connection with the offer and sale of the notes and the warrants, we
engaged Envision Capital LLC, as a finder for the transaction. Envision will
receive a ten percent (10%) cash commission on the sale of the notes and
warrants to purchase up to 5,000,000 shares of our common stock on the same
terms and conditions as the warrants issued to purchasers under the Securities
Purchase Agreement.
Insider and Affiliate Loans
In July 2005, we borrowed $85,000 from an officer. This note is payable
with accrued interest on or before July 13, 2006.
Capital Requirements
We had a working capital deficit of $1,322,051 as of December 31, 2005.
Since that time, we have completed a private placement of our common stock which
resulted in net proceeds to us of approximately $400,000 and we expect to close
the next 2 tranches on this placement which will generate gross proceeds of an
additional $1,300,000 in the next 90 days.
In the event we seek to expand our operations or launch new products for
sale into the marketplace, or in the event we seek to acquire a company or
business or business opportunity, or in the event that our cash flows from
operations are insufficient to fund our operations, working capital
requirements, and debt service requirements, we would need to finance our
operations through additional debt or equity financing, in the form of a private
placement or a public offering, a strategic alliance, or a joint venture. Such
additional financing, alliances, or joint venture opportunities might not be
available to us, when and if needed, on acceptable terms or at all. If we are
unable to obtain additional financing in sufficient amounts or on acceptable
terms under such circumstances, our operating results and prospects could be
adversely affected. In addition, any debt financings or significant capital
expenditures require the written consent of our lender under the March private
placement.
Off-Balance Sheet Arrangements
None.
16
Business
Our Company
We build and operate large scale wireless networks and provide consulting
and engineering services to allow our customers to build and operate their
networks. We also provide data collection and management services between remote
devices called Machine to Machine or M2M services.
Our executive offices are located at 550 Greens Parkway, Suite 230,
Houston, Texas and telephone number (619) 342-7449. We maintain a website at
www.jacksonrivers.com.
Our Business
Corporate History
We were 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
began marketing hair extension and replacement systems.
On August 31, 2005, we entered into a stock purchase agreement with
Jeffrey W. Flannery, our new President and Chief Executive Officer, and Dennis
N. Lauzon, our former President, Chief Executive Officer and controlling
stockholder, whereby Mr. Lauzon agreed to sell 960,000 shares of our Series A
Preferred Stock held by him to Mr. Flannery for a purchase price of $60,000 in
the form of $15,000 in cash and a secured promissory note in the principal
amount of $45,000 payable in 3 monthly installments of $15,000 per month.
On December 2, 2005, we, through our wholly owned subsidiary, JKRC Sub,
Inc., acquired Diverse Networks Inc., a Texas corporation, a company
specializing in technical, operational and engineering services ("DNI").
Pursuant to the definitive agreement, each share of DNI common stock was
converted into the right to receive either (i) $0.21 in the form of a one-year
8% promissory note or (ii) one shares of our Series B Preferred Stock, at the
election of each DNI stockholder. The acquisition was accounted for as a
recapitalization effected through a reverse merger, such that DNI was treated as
the acquiror for financial accounting purposes.
On March 17, 2006, we sold 100% of equity interest in our wholly owned
subsidiary, JRC Global Inc. to our former President and controlling shareholder,
Dennis Lauzon for $1,100 in the form of a promissory note.
Industry Overview
Machine to Machine (M2M) products and services are applicable to
industries, cities, government institutions or enterprises where acquiring data
from machines, or sharing data between machines, improves business processes.
Targeted customers that are relevant to the Company include municipalities,
government agencies and the vertical industry sectors of Construction, Electric,
Gas, Water and Wastewater Utilities, Public Safety, Oil and Gas production and
pipelines, and related Original Equipment Manufacturers supplying products to
these industries. Applications within these sectors, where efficiencies can be
gained or lifecycle cost can be reduced by implementing M2M services, include
asset tracking and management, automatic meter reading and demand response,
security, logistics, HVAC (heating, ventilation & air conditioning) and
industrial machinery maintenance, and environmental monitoring and control.
Current Business Plan
We are a service organization that provides M2M data delivery and
information management solutions to a wide range of industries. We design,
develop, deploy and operate wireless and wired communication networks and
IT-related services tailored to meet the specific needs of each our clients,
including:
17
o International energy companies (oil & gas)
o Energy and Water Utilities
o Municipalities
o Mobile virtual network operators (MVNO)
o Leading telecommunication companies
We have specialized expertise dealing with wireless and wired network
engineering, real-time application integration (SCADA), business intelligence
and network security. We provide services throughout the United States and
around the world, including Africa, the Caribbean, the Commonwealth of
Independent States, Europe, Japan, Mexico and the People's Republic of China.
Our focus is currently on three primary industries: Oil and Gas, Utility,
and Wireless. The Oil and Gas industry includes multiple streams within the
international private sector and national oil companies. Our utility experience
spans large regional utilities as well as small cooperatives. Within the
wireless data sector, small broadband Wireless Internet Service Providers and
large national Mobile Virtual Network Providers have turned to our experience
for the design, implementation, and operation of their customer bearing
services. Current clients include: Chevron, BP, Prenova, Constellation and
Upstream Engineering.
We have two operating divisions: The M2M Division and the Professional
Services Division.
M2M Services Division
M2M is about data flowing between untold billions of devices, and between
those devices and people that need information to help them make better
decisions. The information can be anything from monitoring the environment
inside remote greenhouses, gathering data about traffic flow and thermal
stresses on a bridge, to sending daily electricity usage information to you on a
display in your home.
Our data acquisition and delivery service provides cost effective
alternatives to the manual collection of data and to the creation of an
automated collection system. It eliminates the need to build, operate, and
manage the telecommunication and computer network. This service includes:
ruggedized, industrial remote gateway units which connect to equipment in the
field, transport of your company's data via one of several available
telecommunication technologies, 24x7 network management and help desk support,
data archival, notification in the event of a field alarm, a web-based network
visibility tool, plus the ability for clients to retrieve data and generate
reports.
Professional Services Division
Our Professional Services business leverages our data communication
knowledge, our operations expertise, our experience in real-time systems and our
insight into existing and emerging communication technologies to formulate and
implement solutions for our clients. We help our clients to identify and enter
new markets, achieve strategic objectives and deliver their products and
services more effectively and efficiently. Our innovative tools, methodologies
and other intellectual property enhance our ability to examine, engineer,
execute and then evaluate flexible and scalable solutions tailored to the
particular needs of each of our clients.
Within the Professional Services Division, we offer Engineering Services,
Business Intelligence and Security Solutions.
Engineering Services.
Wireless and Wired Network Engineering. Our network engineering team is
well versed in both wired and wireless technologies. We perform analysis of
existing networks, design of new and expansion networks, and testing of existing
networks and new solutions for network upgrades. As part of our LAN/WAN
engineering, we can analyze data flow and throughput, layer 2/3 protocol usage,
IP addressing, congestion, utilization, and reliability. We also perform network
design for the core, distribution, and access layers.
18
Specification design and implementation of fixed and mobile wireless data
networks for service providers such as:
o palmOne, Inc.'s Palm.Net service
o OmniSky Corporation
o SkyRiver Communications, Inc.
o Ricochet Networks, Inc.
o AsiaCorp Communications in the People's Republic of China
o CapRock Communications' worldwide network
Radio Frequency (RF) Engineering. Our RF engineering team focuses on the
characteristics and performance of wireless data networks. We perform site
surveys, propagation analysis, frequency coordination, and site selection and
optimization. Our RF experience spans many frequency ranges and air interface
standards, including UHF, Spread Spectrum, Microwave, Cellular/PCS, UNII,
LMDS/MMDS and others. Projects have included:
o Site examination and RF plan for the University of Houston campus
facilities and
o Site and equipment selection and testing for SkyRiver
Communication's Inc.
Satellite Engineering. Our satellite engineering team can manage and
engineer space segment, gateway earth stations, VSATs, and handle your
regulatory issues. When managing space segment, this team performs economic
analysis, tariff negotiation, and provisioning and management. We are familiar
with both domestic and international permitting, as well as frequency
coordination where necessary. While engineering ground segment facilities, we
have performed earth station dimensioning and RF equipment design and
configuration. Our engineers can optimizing the economic and performance
tradeoffs in the earth station, space segment, and transmission technology to
provide the lowest life cycle cost and highest performance systems available.
Business Intelligence Services.
Dashboards & Portals. Dashboards and portals allow users to customize
their views so that they get only the data they need without having to wade
through extraneous content. When combined with mobile connectivity,
dashboard/portal technology puts the power to make informed decisions into the
right hands. We have the knowledge and expertise to properly evaluate a client's
data visibility needs and architect a solution that is both customizable and
scalable.
Real-Time & Just-In-Time (JIT) Data Management. Our experience base
includes a firm foundation in Real-Time/Just-In-Time scenarios and business
models including SCADA energy management, trading enterprises, and military
applications. We fully understand the complexities that time-sensitive data add
to any business intelligence scenario.
SCADA Requirements Specification. With over 50 years of combined SCADA
products development and support experience, our expert teams can help clients
determine whether a full replacement, product upgrade or better usage of
currently implemented systems provide greater return on income (ROI). We are
currently engaged on a project for Chevron for this type of service.
Real-time Performance Tuning. We will automate cumbersome manual tasks and
fine tune the configurations of your SCADA systems to provide optimum
performance. We create custom scripts and tools for trending and analysis geared
towards each client's processes and procedures.
19
Key projects have included:
o software and application development, such as our streamlining and
customization of data input and reporting for a global capital
project management system for a major oil company;
o specification, design, and implementation of business processes and
efficiency optimization systems, such as new energy management
systems for Prenova;
o utility data center process optimization, such as our analysis and
automation of systems and procedures for Itron, Inc.;
Security Solutions
Vulnerability Scanning. We provide completely automated checks for known
vulnerabilities against a system or systems in a network using enterprise grade,
commercial, industry standard, trade, and custom tools.
Security Scanning. We perform vulnerability scans, which include manual
false positive verification, network weakness identification, and customized,
professional analysis.
Penetration Testing. We provide specialized, goal-oriented testing (such
as individual systems of interest) to gain privileged access by pre-conditional
means using a safe "hacker" methodology. Our security engineers will use the
same proven techniques and methodology that hackers use to gain unauthorized
entry to networks and computer systems. The results will be provided to you in a
full report complete with usable database data, charts and graphs, counter
measure options, while at the same time, posing absolutely no actual risk to you
network or computer systems.
Risk Assessment and Analysis. In order to make an informed business
decision on how to handle a risk properly when this situation occurs, we offer
full risk analysis and vulnerability assessment service, which give our clients
the necessary data for calculating the best solutions with proven formulas. This
process is performed through interview and mid-level research, test results
analysis, and personnel interviews, which includes business justification, legal
justifications, and industry specific justifications concluded by quantified
actuarial formulas proven in the industry. The results will be provided in a
full report complete with usable database data, charts and graphs, counter
measure options, and business cost analysis.
Security Auditing. We offer hands-on, privileged, code level, security
inspection of the operating system (OS) and applications of a system or systems
within a network or networks.
Posture Assessment & Security Testing. Project-oriented complete risk
assessment of all systems, applications, and networks through the application of
professional analysis, scanning, and testing, where penetration is often used to
confirm false positives and false negatives as project time allows.
Counter Measure Strategies. Firewalls, Intrusion Detection Systems (IDS),
and Virtual Private Networks (VPN). We will help organizations choose the right
counter measures that are the most effective for their architecture as well as
the most cost beneficial to their budget with our proven formulas.
Policy Design and Implementation. Our security professionals have years of
experience designing and implementing security policies for some of the world's
top energy companies as well as some of the nations top government agencies. We
help design an effective, industry standard security policy and integrate it
into such client's security architecture and teach the best ways to enforce them
within their organization.
Forensics. The capture, recording, and analysis of network events in order
to discover the source of security attacks, exposures, and breaches.
Security Training. Our employees have extensive wired and wireless network
as well as SCADA/Critical Infrastructure security experience. Our instructors,
all with over a decade of professional security experience, come from a
background of enterprise security software development companies, various
government agencies, financial institutions, energy & utility companies, and
some of the worlds largest oil & gas companies.
20
Competition
We face a great deal of competition for its services from a number of
companies. Competition within the M2M market varies by industry and
applications. Typical competitors are regional or national service-oriented
companies that address a single niche such as HVAC, asset tracking, or utility
meter reading. Other competitors include equipment manufacturers looking to
develop their own monitoring service to enable long-term maintenance contracts
or companies that offer M2M solutions for private label. No competitor offers an
integrated, broad-based, end-to-end, turnkey solution that's addresses any
application. It is expected that competition for our services will increase
dramatically in the coming years as additional companies looking to become
complete M2M solutions providers are expected to enter the market in the next
few years.
Employees
We have 11 full-time employees and no part-time employee as of March 31,
2006. 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.
Our Properties
Our executive and operational headquarters are based in Houston, Texas. We
lease office space under an operating lease that expires in May 2010 at a
monthly rent of $23,560. We may require additional office space if we grow. We
believe there is an adequate supply of suitable office space for lease on terms
acceptable to us should we require it.
Legal Proceedings
None
21
Management
Executive Officer and Directors
Executive Officer and Directors
Our executive officers and directors, the positions held by them, and
their ages are as follows:
Name Age Position
---- --- --------
Jeffrey W. Flannery 49 Director, Chief Executive Officer
James E. Nelson 64 Director, President
--------------------------------------------------------------------------------
Jeffrey W. Flannery has been a director of The Jackson Rivers Company and its
Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary since
August 31, 2005. Mr. Flannery brings extensive experience in business
development and fiscal management to these positions with The Jackson Rivers
Company. He is currently serving as (i) President, Chief Financial Officer,
Secretary and Director of Axia Group, Inc., a development stage company; (ii)
Chief Executive Officer and Chief Financial Officer of Centrex, Inc., a company
which is commercializing a patented technology for biochemical detection systems
and (iii) Chief Executive Officer and President of Safe Travel Care, Inc, a
company which manufactures, markets and sells mobile utility systems for
emergency power generalation. Previously, Mr. Flannery was the founder and Chief
Executive Officer of Enhanced Information Systems, Inc., an online home health
care provider for the pharmacy industry, Vice President of Development for IUSA,
an information technology company, and Vice President of Corporate
Communications for Center For Special Immunology, a public company dedicated to
medical treatments for immune disorders. As President of FLC Partners, Inc., an
investment banking services company, Mr. Flannery has provided financial
consulting and business development services for many public and private
companies. Mr. Flannery received his B.A in Philosophy from the University of
California Los Angeles.
James E. Nelson has been a director of The Jackson Rivers Company and its
President, and Chief Operating Officer since December 2, 2005. Mr. Nelson has
served as the Chief Executive Officer, President, and a founder of Diverse
Networks, Inc. in Houston Texas since 1998. Jim brings over 40 years of
experience in engineering design, business operations, and technology consulting
and senior level management to the company. Jim has many years experience both
in the industrial automation industry and in the design, deployment, and
commercialization of wireless data communication networks. Early in his career,
Jim was involved in design and deployment of some of the world's largest
pipeline SCADA projects such as ExxonMobil system, Shell system, Trans-Alaska
Pipeline, and Louisiana Offshore Oil Port (LOOP). Jim has an extensive knowledge
base of all types of wireless data communication technologies as applicable for
both fixed and mobile applications. Before founding Diverse Networks in 1998 he
was the Vice President of Network Engineering and Operations at Metricom, Inc.
and as such had senior management responsibility for the deployment and ongoing
operations of Metricom's wireless Internet product called Ricochet. Jim serves
on the Advisory Board of the Houston InfoComm Technology (HIT) Center and has
previously served as an Advisor to the University Of Houston College Of
Engineering and on the Industry Advisory Council of the Department of
Engineering Technology & Industrial Distribution at Texas A&M University. He is
the founder and Director of To His Honor Ministries, a non-profit, Houston based
sponsor of youth basketball teams and the Vice Chairman of the Gulf District AAU
Boys Basketball program. Jim has a Bachelor of Science degree in Electrical
Engineering from Texas A&M University, a Masters of Communication Technology
certification from the American Institute, and for almost 40 years was a
Registered Professional Engineer in the State of Texas.
Audit Committee
We do not have a separately designated audit committee at this time. The
entire board of directors is acting as our audit committee as specified in
Section 3(a)(58)(B) of the Securities Exchange Act of 1934, as amended.
22
Board of Directors
Each director holds office until his successor is elected and qualified or
until his earlier termination in the manner provided in our Bylaws. The officers
serve at the discretion of the Board.
Executive Compensation
The following table sets forth the cash compensation paid to the Chief
Executive Officer and to all other executive officers for services rendered
during the fiscal years ended December 31, 2005 and 2004.
Annual Compensation Long-Term Compensation
Common Shares
Underlying All
Restricted Options Other
Other Annual Stock Granted Compen
Name and Position Year Salary Bonus Compensation Awards ($) (# Shares) -sation
Jeffrey W. Flannery 2005 -0- -0- -0- -0- ------ -0-
Chief Executive Officer 2004 -0- -0- -0- -0- ------ -0-
and Director
As of August 31, 2005
James E. Nelson 2005 -0- -0- -0- -0- ------ -0-
President and Director 2004 -0- -0- -0- -0- ------ -0-
As of December 1, 2005
Dennis N. Lauzon 2005 -0- -0- -0- -0- ------
Former President 2004 -0- -0- -0- -0- ------ -0-
and Director
Resigned August 31, 2005
Nicholas Cortese 2005 -0- -0- -0- -0- ------ -0-
Former Director 2004 -0- -0- -0- -0- ------ -0-
Resigned August 31, 2005
Option Grants and Exercises
There were no option grants or exercises by any of the executive officers
named in the Summary Compensation Table above.
Employment Agreements
As of the year ended December 31, 2005, Mr. Nelson has an employment
agreement, effective December 2, 2005 (the "Employment Agreement") which
provides for a three-year term expiring on December 31, 2008 and an annual
salary of $120,000 through year end 2006, increasing to $126,000 for fiscal year
2007 and $132,300 for fiscal year 2008. The agreement also provides for medical
benefits and grants of 2,000,000 options at an exercise price of $.015 per
share. Such options will vest over a 3 year period with 50% vesting on December
1, 2006, an additional 25% vesting on the December 1, 2007 and the final 25% on
December 1, 2008. To the extent that Mr. Nelson is terminated for a reason other
than "cause" or if there is a "change of control" , Mr. Nelson is entitled to a
lump sum payment equal to 2 years' worth of salary/bonus and the continuation of
health benefits for a period of 3 years. We do not have employment agreements
with any of our other executive officers.
23
Compensation of Directors
All directors receive reimbursement for reasonable out-of-pocket expenses
in attending board of directors meetings and for promoting our business. From
time to time we may engage certain members of the board of directors to perform
services on our behalf. In such cases, we compensate the members for their
services at rates no more favorable than could be obtained from unaffiliated
parties.
Indemnification of Directors
Under our Articles of Incorporation and Bylaws of the corporation, we may
indemnify an officer or director who is made a party to a proceeding, including
any lawsuit, because of his position, if he acted in good faith and in a manner
he reasonably believed to be in our best interest. We may advance expenses
incurred in defending a proceeding. To the extent that the officer or director
is successful on the merits in a proceeding as to which he is being indemnified,
we must indemnify him against all expenses incurred, including attorney's fees.
With respect to a derivative action, indemnity may also be made only for
expenses actually and reasonably incurred in defending the proceeding, and if
the officer or director is judged liable, only by a court order. The
indemnification is intended to be to the fullest extent permitted by laws of the
State of Florida. The Florida Business Corporation Act grants corporations the
right to indemnify their directors, officers, employees and agents in accordance
with applicable law.
The indemnification provisions in the Bylaws may be sufficiently broad to
permit indemnification of our officers and directors for liabilities arising
under the Securities Act. However, we are aware that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and therefore unenforceable.
Certain Relationships and Related Transactions
On December 1, 2005, in connection with the consummation of acquisition of
all of the outstanding stock of Diverse Networks, Inc., we entered into a stock
purchase agreement with Jeffrey W. Flannery, our Chief Executive Officer (and
former President), and then controlling stockholder and James E. Nelson, our new
President and Chief Operating Officer, whereby Mr. Flannery agreed to sell
480,000 shares of our Series A Preferred Stock held by him to Mr. Nelson for a
purchase price of $150,000 in the form of a secured promissory note in the
principal amount of $150,000, accruing interest at 8% and payable in full on or
before November 30, 2007. The note is secured by a Pledge Agreement, whereby Mr.
Nelson pledged, and granted a security interest in and to, the Series A
Preferred Stock purchased from Mr. Flannery until such time as the payments due
under the note have been paid in full. Mr. Flannery continues to hold 480,000
shares of Series A Preferred Stock.
On August 31, 2005, we entered into a stock purchase agreement with
Jeffrey W. Flannery, new current Chief Executive Officer, and Dennis N. Lauzon,
our former President, Chief Executive Officer and controlling stockholder,
whereby Mr. Lauzon agreed to sell 960,000 shares of our Series A Preferred Stock
held by him to Mr. Flannery for a purchase price of $60,000 in the form of
$15,000 in cash and a secured promissory note in the principal amount of $45,000
payable in 3 monthly installments of $15,000 per month. The note is secured by a
Pledge Agreement, whereby Mr. Flannery pledged, and granted a security interest
in and to, the Series A Preferred Stock purchased from Mr. Lauzon until such
time as the payments due under the note have been paid in full, which note has
been paid in full as of November 2005.
In August 2005, we borrowed $85,000 from Jeffrey W. Flannery pursuant to
which we issued Mr. Flannery an 8% promissory note payable on or before July 13,
2006.
In June 2004, 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.
24
From August 1, 2003 through March 31, 2006, we had a Consulting Services
Agreement with Radel Marketing Corporation, a company owned and controlled by
Mr. Lauzon, who was our officer and director until August 31, 2005. Pursuant to
the agreement we paid Radel Marketing the sum of $0 in 2005 and $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, 2004, 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, 2004. 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.
Related party transactions are in the normal course of operations,
occurring on terms and conditions that are similar to those of transactions with
unrelated parties and, therefore, are measured at the exchange amount.
25
Principal Stockholders and Beneficial Owners and Management.
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of March 31, 2006 by the following
persons:
o each person who is known to be the beneficial owner of more than
five percent (5%) of our issued and outstanding shares of common
stock;
o each of our directors and executive officers; and
o all of our directors and executive officers as a group.
The following table assumes that there are 144,777,624 common shares
issued and outstanding immediately before this offering. Except as set forth in
the footnotes to the table, the persons names in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where applicable.
A person is considered the beneficial owner of any securities as of a given date
that can be acquired within 60 days of such date through the exercise of any
option, warrant or right. Shares of common stock subject to options, warrants or
rights which are currently exercisable or exercisable within 60 days are
considered outstanding for computing the ownership percentage of the person
holding such options, warrants or rights, but are not considered outstanding for
computing the ownership percentage of any other person.
Number Of Shares
Name And Address (1) Beneficially Owned Percentage Owned
-------------------- ------------------ ----------------
Jeffrey W. Flannery 48,000,000(2) 33.15%
James E. Nelson. 48,000,000(2) 33.15%
All directors and officers as a group (2 96,000,000 39.87%
persons)
----------------------------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Unless otherwise noted, the address for each person is 550 Greens Parkway,
Suite 230, Houston, Texas 77067.
(2) Includes 480,000 shares of Series A Preferred Stock, each share of which
is convertible into 100 shares of our common stock.
26
Selling Security Holders
This prospectus relates to the offer and sale of shares of our common
stock by the selling stockholders identified below. Except as indicated below,
none of the selling stockholders are or have been affiliates of ours.
The selling stockholders will determine when they will sell their shares,
and in all cases, will sell their shares at the current market price or at
negotiated prices at the time of the sale. Although we have agreed to pay the
expenses related to the registration of the shares being offered, we will not
receive any proceeds from the sale of the shares sold by the selling
stockholders.
The shares of common stock being offered by the selling stockholders are
issuable upon: (1) conversion of our convertible promissory notes issued
pursuant to that Securities Purchase Agreement dated as of March 31, 2006 or (2)
upon exercise of the related warrants. For additional information regarding the
convertible promissory notes, see "Description of Securities--Convertible
Promissory Notes." For additional information regarding the warrants, see
"Description of Securities--Warrants." We are registering the shares in order to
permit the selling stockholders to offer the shares of common stock for resale
from time to time.
The following table sets forth (i) the names of the selling stockholders,
(ii) the number of shares of common stock owned beneficially by each of them as
of April 27, 2006, (iii) the number of shares which may be offered pursuant to
this prospectus and (iv) the number of shares and percentage of class to be
owned by each selling stockholder after this offering. The selling stockholders
may sell all, some or none of their shares in this offering. See "Plan of
Distribution." Pursuant to various agreements with the selling stockholders, we
have filed a registration statement, of which this prospectus forms a part, in
order to permit those stockholders to resell to the public their shares of
common stock as specifically set forth below. The following information is based
upon information provided by the selling stockholders. Except as otherwise set
forth in the footnotes to the table, none of the selling stockholders has held
any position or office or has had any other material relationship with us or any
of our affiliates within the past three years other than as a result of his or
her ownership of shares of equity securities. Because the selling stockholders
may offer all, some or none of their common stock, no definitive estimate as to
the number of shares that will be held by the selling stockholders after this
offering can be provided.
Except as set forth in the footnotes to the table, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them, subject to community property
laws, where applicable. A person is considered the beneficial owner of any
securities as of a given date that can be acquired within 60 days of such date
through the exercise of any option, warrant or right. Shares of common stock
subject to options, warrants or rights which are currently exercisable or
exercisable within 60 days are considered outstanding for computing the
ownership percentage of the person holding such options, warrants or rights, but
are not considered outstanding for computing the ownership percentage of any
other person.
In accordance with the terms of the registration rights granted to the
holders of the convertible promissory notes dated March 31, 2006, this
prospectus covers the resale of at least that number of shares of common stock
equal to (i) the product of 1.5 and the number of shares of common stock
issuable upon conversion of the convertible promissory notes determined as if
the outstanding convertible promissory notes were converted in full as of the
date immediately preceding the filing of the registration statement of which
this prospectus is a part (without regard to any limitations on conversions) and
(ii) the number of shares of common stock issuable upon exercise of warrants
determined as if the warrants were exercised in full as of the date immediately
preceding the filing of the registration statement of which this prospectus
forms a part (without regard to any limitations on exercise). In addition, we
are registering 5,000,000 shares issuable upon exercise of the warrants issued
to Envision Capital LLC, in connection with the issuance of the convertible
promissory notes. Because of adjustments to and variations in the conversion
price of the convertible promissory notes, the number of shares that will
actually be issued upon conversion of the notes may be more or less than the
number of shares being offered by this prospectus. The fourth column assumes the
sale of all of the shares offered by the selling stockholders pursuant to this
prospectus.
Under the terms of the convertible promissory notes and the warrant issued
in connection therewith, the selling stockholders may not convert the
convertible promissory notes or exercise the warrants issued in connection
therewith, to the extent such conversion or exercise would cause the selling
stockholder, together with its affiliates, to have acquired a number of shares
of common stock which would exceed 4.99% of our then outstanding common stock,
excluding for purposes of such determination shares of common stock issuable
upon conversion of the convertible promissory notes which have not been
converted and upon exercise of the warrants issued in connection therewith which
have not been exercised. The number of shares in the second column does not
reflect this limitation
27
The "Common Shares Beneficially Owned after Offering" column assumes the
sale of all shares offered by the selling stockholders set forth below (and
assumes exercise of the 55,000,000 warrants). The "Percentage of Common Shares
Beneficially Owned after Offering" column is based on 897,452,042 shares of
common stock outstanding as of April 27, 2006.
Shares Beneficially Owned Prior to
Offering (1)
-----------------------------------------
Shares Percentage of
Number of Beneficially Class
Shares Owned Number of Shares Owned After Owned After
Name (2) Offered Offering (3) Offering (3)
----------------------------------------- ---------------- --------------------- --------------- ------------------
AJW Capital Partners, LLC 56,662,791 82,244,186 0 *
AJW Offshore, Ltd. 314,220,930 456,081,395 0 *
AJW Qualified Partners, LLC 139,081,395 201,872,093 0 *
New Millenium Capital Partners II, LLC 5,151,163 7,476,744 0 *
Envision Capital LLC 5,000,000 5,000,000 0 *
TOTAL 520,116,279 752,674,418 0 *
----------------------
* Less than one percent (1%).
(1) Includes shares underlying presently exercisable warrants.
(2) Assumes the full $2,000,000 of convertible promissory notes subscribed for
will be issued. Pursuant to the terms of the Securities Purchase
Agreement, (i) $700,000 of convertible promissory notes were purchased by
the selling securityholders upon execution of the Securities Purchase
Agreement; (ii) $600,000 will be purchased within 5 days of the filing of
this Registration Statement and (iii) $700,000 will be purchased within 5
days of this Registration Statement being declared effective by the
Securities and Exchange Commission. Assuming this Registration Statement
is declared effective by July 29, 2006, the convertible notes would be
convertible into that number of shares equal to "market price" (as define)
multiplied by 60%. Based upon the closing price of our common stock on
April 20, 2006, the conversion price would be $0.0043.
(3) Assumes all of the offered shares are sold.
(4) Includes 5,500,000 shares underlying warrants exercisable at $0.07 per
share. AJW Partners LLC is a private investment fund that is owned by its
investors and managed by SMS Group, LLC. SMS Group, LLC of which Corey S.
Ribotsky is the fund manager, has voting and investment control over the
shares listed above owned by AJW Partners, LLC.
(5) Includes 30,500,000 shares underlying warrants exercisable at $0.07 per
share. AJW Offshore, Ltd. is a private investment fund that is owned by
its investors and managed by First Street Manager II, LLC. First Street
Manager II, LLC of which Corey S. Ribotsky is the fund manager, has voting
and investment control over the shares listed above owned by AJW Offshore
Ltd.
(6) Includes 13,500,000 shares underlying warrants exercisable at $0.07 per
share. AJW Qualified Partners, LLC is a private investment fund that is
owned by its investors and managed by AJW Manager, LLC. AJW Manager, LLC
of which Corey S. Ribotsky and Lloyd A. Groveman are the fund managers,
have voting and investment control over the shares listed above owned by
AJW Qualified Partners, LLC.
(7) Includes 500,000 shares underlying warrants exercisable at $0.07 per
share. New Millenium Capital Partners II, LLC is a private investment fund
that is owned by its investors and managed by First Street Manager II,
LLC. First Street Manager II, LLC of which Mr. Corey S. Ribotsky is the
fund manager, has voting and investment control over the shares listed
above owned by New Millenium Partners II, LLC.
(8) Includes 5,000,000 shares underlying warrants exercisable at $0.07 per
share.
28
Description of Securities
Common Stock
We are authorized to issued 990,000,000 shares of common stock, of which,
as of the date of this prospectus, 144,777,624 shares were issued, outstanding,
and held by approximately 48 record holders. Each holder of common stock is
entitled to one vote per share on all matters voted on generally by the
stockholders, including the election of directors, and, except as otherwise
required by law or except as provided with respect to any series of preferred
stock, the holders of the shares possess all voting power. Our charter does not
provide for cumulative voting for the election of directors. As a result, under
Florida Law, the holders of more than one-half of the outstanding shares of
common stock generally will be able to elect all of our directors then standing
for election and holders of the remaining shares will not be able to elect any
director. Subject to any preferential rights of any series of preferred stock,
holders of shares of common stock will be entitled to receive dividends on the
stock out of assets legally available for distribution when, as and if
authorized and declared by our Board of Directors. The payment of dividends on
the common stock will be a business decision to be made by our Board of
Directors from time to time based upon results of our operations and our
financial condition and any other factors as our Board of Directors considers
relevant. Payment of dividends on the common stock may be restricted by loan
agreements, indentures and other transactions entered into by us from time to
time. Any material contractual restrictions on dividend payments will be
described in the applicable prospectus supplement. Subject to any preferential
rights of any series of preferred stock, holders of shares of common stock are
entitled to share ratably in our assets legally available for distribution to
our stockholders in the event of our liquidation, dissolution or winding up.
Holders of common stock have no preferential, preemptive, conversion or exchange
rights.
Preferred Stock
Pursuant to our certificate of incorporation, the board of directors has
the authority, without further action by our stockholders, to issue up to
1,000,000,000 shares of preferred stock. The board of directors may issue this
stock in one or more series and may fix the rights, preferences, privileges and
restrictions of this stock. Some of the rights and preferences that the board of
directors may designate include dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and sinking fund terms. The
board of directors may determine the number of shares constituting any series or
the designation of such series. Any or all of the rights and preferences
selected by the board of directors may be greater than the rights of the common
stock. The issuance of preferred stock could adversely affect the voting power
of holders of common stock and the likelihood that stockholders will receive
dividend payments and payments upon liquidation. The issuance of preferred stock
could also have the effect of delaying, deferring or preventing a change in
control of Jackson Rivers.
We currently have designated two series of preferred stock, a summary of
the terms of which are set forth below. While we have no present intention to
issue shares of any additional series of preferred stock, any such issuance
could dilute the equity of the outstanding shares of common stock and could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock. In addition, such preferred stock may have
other rights, including economic rights senior to the common stock, and, as a
result, the issuance thereof could have a material adverse effect on the market
value of the common stock.
Series A Preferred Stock
10,000,000 shares of our preferred stock have been designated as series A
preferred stock. As of March 31, 2006, we had outstanding 960,000 shares of
series A preferred stock. Each share of series A preferred stock is convertible
into 100 shares of our common stock. The number of shares of common stock
issuable upon conversion is subject to adjustment for stock splits and
recapitalizations.
Upon any sale of all or substantially all our assets, or a
recapitalization, reorganization, reclassification, consolidation or merger with
or into another company in which we are not the surviving entity, we will obtain
from the acquiring person or entity a written agreement whereby the other
corporation will assume all of our obligations under the series A preferred
stock.
29
The holders of the series A preferred stock are not entitled to receive
dividends. The holders of the series A preferred stock have voting rights on all
matters submitted to holders of our common stock. Each holder of series A
preferred stock is entitled to that number of votes on such matters equal to the
number of shares of series A preferred stock held by such holder multiplied by
2,000.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up, the holders of the series A preferred stock are entitled to receive
in cash out of our assets, whether from capital or from earnings available for
distribution to our stockholders, before any amount shall be paid to any class
junior in rank to the series A preferred stock, an amount per share of series A
preferred stock equal to $0.001 plus any accrued and unpaid dividends.
Series B Preferred Stock
8,413,607 shares of our preferred stock have been designated as series B
preferred stock. As of March 31, 2006, we had outstanding 1,000,001 shares of
series B preferred stock and 2,815,383 shares of series B preferred stock may be
issued upon exercise of options assumed in our merger with Diverse Networks,
Inc. Beginning on December 1, 2007, each share of series B preferred stock will
initially be convertible into that number of shares of The Jackson Rivers
Company common stock obtained by multiplying the number of shares to be
converted by a fraction, the numerator of which is .5942795 and the denominator
equal to the "market price" of The Jackson Rivers Company common stock at the
time of conversion. The conversion rate is subject to adjustment for stock
splits and recapitalizations and upon attainment of certain revenue projections
for our wholly owned subsidiary, Diverse Networks, Inc.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up, the holders of the series B preferred stock are entitled to receive
in cash out of our assets, whether from capital or from earnings available for
distribution to our stockholders, before any amount shall be paid to any class
junior in rank to the series B preferred stock (including the series A preferred
stock), an amount per share of series B preferred stock equal to "market value"
as determined in good faith by our Board of Directors.
The holders of series B preferred stock have no voting rights except as
provided by law, and except to the extent such holders own common stock.
Convertible Notes
March 2006 Note and Warrant Private Placement
On March 31, 2006, we entered into a Securities Purchase Agreement with
certain accredited investors pursuant to which they agreed to issue up to
$2,000,000 of principal amount of convertible promissory notes in three separate
tranches and warrants to purchase shares of our common stock (the "Securities
Purchase Agreement"). The tranches of notes are to be issued and sold as
follows: (i) $700,000 upon execution and delivery of the Securities Purchase
Agreement; (ii) $600,000 within 5 days of filing of a registration statement
with the Securities and Exchange Commission (the "SEC") registering the shares
of common stock issuable upon conversion of the notes and exercise of the
warrants issued pursuant to the Securities Purchase Agreement (the "Registration
Statement") and (iii) $700,000 within 5 days of the Registration Statement being
declared effective by the SEC The convertible notes have a 3 year term and bear
interest at six percent (6%). The notes are convertible into our common stock
pursuant to a "variable conversion price" equal to the "Applicable Percentage"
multiplied by the "Market Price.' "Applicable Percentage" is initially 50%
provided, that, such percentage will be increased to 55% if the Registration
Statement is filed on or before April 30, 2006 and further increased to 60% if
the Registration Statement is declared effective by the SEC on or before July
29, 2006. "Market Price" means the average of the lowest three trading prices
(as defined) for our common stock during the 20 trading day period prior to
conversion. Upon an event of default (as defined), the notes are immediately due
and payable at an amount equal to the greater of (i) 140% of the then
outstanding principal amount of notes plus interest and (ii) the "parity value"
defined as (a) the highest number of shares of common stock issuable upon
conversion of the notes multiplied by (b) the highest closing price for our
common stock during the period beginning on the date of the occurrence of the
event of default and ending one day prior to the demand for prepayment due to
the event of default. If we are unable to effect a redemption of all the
convertible notes submitted for redemption, we will redeem a pro rata amount
from each holder. The notes are secured by a first lien on all of our assets,
including all of our intellectual property.
30
Under the terms of these notes and the related warrants, the notes and the
warrants are convertible/exercisable by any holder only to the extent that the
number of shares of common stock issuable pursuant to such securities, together
with the number of shares of common stock owned by such holder and its
affiliates (but not including shares of common stock underlying unconverted
shares of the note or unexercised portions of the warrants) would not exceed
4.99% of our then outstanding common stock as determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended.
Subject to certain terms and conditions set forth therein, the notes are
redeemable by us at a rate of between 120% to 140% of the outstanding principal
amount of the notes plus interest. In addition, so long as the average daily
price of our common stock is below the "initial market price" (as defined) we
may prepay a such monthly portion due on the outstanding notes and the investors
agree that no conversions will take place during such month where this option is
exercised by us.
Other Convertible Notes
In January 2006, we issued an 8% Convertible Note in the aggregate
principal amount of $250,000 to a single accredited investor in consideration
for services rendered under a fee agreement dated November 2005. This note is
due and payable on or before January 1, 2007. This note is convertible into
shares of that number of shares of our common stock as would be determined by
dividing (i) the unpaid principal balance plus accrued interest by (ii) 80% of
the average of the three lowest closing bid prices for the twenty trading days
immediately prior to conversion. No conversions can be made which would result
in holder owning more than 4.99% of our common stock after conversion. The
issuance of the note was exempt under Section 4(2) of the Securities Act of
1933, as amended
In March 2006, we issued an 8% Convertible Note in the aggregate principal
amount of $60,000 to a single accredited investor. Upon consummation of a
funding in the aggregate amount of $300,000, the holder entitled to full payment
of all outstanding principal and interest. In addition, the holder is entitled
receive Common Stock equal to the value of the Principal and interest at a
conversion price equal to the average of the lowest 3 closing bid prices in the
20 trading days immediately preceding the repayment date. No conversions can be
made which would result in holder owning more than 4.99% of our common stock
after conversion. The issuance of this note was exempt under Section 4(2) of the
Securities Act of 1933, as amended.
Warrants
The notes were issued with Warrants to purchase up to 50,000,000 shares of
our common stock at an exercise price of $0.07 per share until March 31, 2009.
To the extent that the shares of common stock underlying the warrant of not
registered for resale, the warrant holder may designate a "cashless exercise
option." This option entitles the warrant holders to elect to receive fewer
shares of common stock without paying the cash exercise price. The number of
shares to be determined by a formula based on the total number of shares to
which the warrant holder is entitled, the current market value of the common
stock and the applicable exercise price of the warrant.
Warrant Issued to Envision Capital, LLC
On March 31, 2006, we issued a Warrant to purchase up to 5,000,000 shares
of our common stock at an exercise price of $0.07 per share until March 31,
2009. To the extent that the shares of common stock underlying the warrant of
not registered for resale, the warrant holder may designate a "cashless exercise
option." This option entitles the warrant holders to elect to receive fewer
shares of common stock without paying the cash exercise price. The number of
shares to be determined by a formula based on the total number of shares to
which the warrant holder is entitled, the current market value of the common
stock and the applicable exercise price of the warrant.
Registration Rights
The holders of our convertible notes and related warrants issued pursuant
to the March 2006 Note and Warrant Private Placement discussed above are
entitled to have the shares of common stock underlying such securities
registered by us under the terms of an agreement between us and the holders of
the convertible notes stock and related warrants. Under the terms of such
agreement, we are required to file a registration statement covering the shares
of common stock underlying such notes and related warrants by April 30, 2006. If
this registration statement has not been declared effective by July 29, 2006,
then for each month (prorated for partial months) thereafter during which the
registration statement is not declared effective we will issue to each holder of
our July 31, 2006 (July 29, 2006 is 120 days, but this date falls on a
Saturday), we begin incurring liquidated damages equal to 2% of the principal of
the promissory notes issued for each 30 day period that this registration
statement is not declared effective after July 31, 2006.
31
We are also required to maintain the effectiveness of the registration
statement covering such shares of common stock until the earlier of:
o the date as of which the holders of the convertible note and related
warrants may sell all of the shares of common stock covered by such
registration statement under Rule 144(k) of the Securities Act, and
o the date on which the holders of the convertible notes and related
warrants have sold all of the shares of common stock issued or
issuable upon conversion of the notes and exercise of the related
warrants.
We will bear all registration expenses, other than underwriting discounts
and commissions, with respect to the registration statement relating to the
series A preferred shares and the related warrants.
In addition, we have granted "piggyback" registration rights to certain
noteholders discussed under "Other Convertible Notes" above, which noteholders
have waiver their rights with respect to the offering covered by this
prospectus.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American
Registrar & Transfer Co.
Legal Matters
Spectrum Law Group LLP has given us an opinion relating to the due
issuance of the common stock being registered.
Interests of Named Experts and Counsel
Spectrum Law Group, LLP and certain affiliates of Spectrum Law Group, LLP
may be issued shares of our common stock being offered by the prospectus.
Experts
Our financial statements for the year ended December 31, 2005 appearing in
this prospectus and this registration statement have been audited by Malone &
Bailey, PC, independent auditors, as set forth in their report thereon, which
contains an explanatory paragraph with respect to the uncertainty surrounding
our ability to continue as a going concern, appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing
Changes In Disagreements With Accountants on Accounting and Financial
Disclosure
In October 2005, we dismissed Russell Bedford Stefanou Mirchandani LLP as
our independent accountants, and we engaged Malone & Bailey, PC as our
independent accountants.
The reports of Russell Bedford Stefanou Mirchandani on our financial
statements for the fiscal years ended December 31, 2003 and 2004 did not contain
an adverse opinion or a disclaimer of opinion, nor were such reports qualified
or modified as to uncertainty, audit scope or accounting principles, except that
the accountant's reports of Russell Bedford Stefanou Mirchandani on our
financial statements as of and for the year ended December 31, 2004 stated that
we were experiencing difficulty in generating sufficient cash flow to meet our
obligations and sustain its operations, which raises substantial doubt about our
ability to continue as a going concern.
32
The decision to change accountants from Russell Bedford Stefanou
Mirchandani to Malone & Bailey, PC was approved by our board of directors.
During our fiscal years ended December 31, 2003 and 2004 and the
subsequent interim period through October 21, 2005, the date of the dismissal of
Russell Bedford Stefanou Mirchandani, we did not have any disagreement with
Russell Bedford Stefanou Mirchandani on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
During that time, there were no "reportable events" as set forth in Item
304(a)(1)(i-v) of Regulation S-B adopted by the Securities and Exchange
Commission, except that the accountant's reports of Russell Bedford Stefanou
Mirchandani on our financial statements as of and for the year ended December
31, 2004 stated that we were experiencing difficulty in generating sufficient
cash flow to meet our obligations and sustain its operations, which raises
substantial doubt about our ability to continue as a going concern.
We have provided Russell Bedford Stefanou Mirchandani with a copy of our
Current Report on Form 8-K disclosing this event prior to its filing with the
Commission. Russell Bedford Stefanou Mirchandani has provided a letter to us,
dated November 4, 2005 and addressed to the Commission, which was attached as
Exhibit 16.1 to our Current Report on Form 8-K disclosing this event which is
incorporated herein by reference.
We engaged Malone & Bailey, PC in October 2005. We had not consulted
Malone & Bailey, PC regarding any of the matters specified in Item 304(a)(2) of
Regulation S-B. The decision to change accountants from Russell Bedford Stefanou
Mirchandani to Malone & Bailey, PC was approved by our board of directors.
Available Information
We filed with the Securities and Exchange Commission a registration statement on
Form SB-2 under the Securities Act with respect to the shares being offered in
this offering. This prospectus does not contain all of the information set forth
in the registration statement, certain items of which are omitted in accordance
with the rules and regulations of the Commission. The omitted information may be
inspected and copied, at prescribed rates, at the public reference facilities
maintained by the Commission at Judiciary Plaza, 100 F Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission. Statements contained in this prospectus as
to the contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete, and in each instance where
reference is made to the copy of the document filed as an exhibit to the
registration statement, each such statement is qualified in all respects by such
reference. For further information with respect to our company and the
securities being offered in this offering, reference is hereby made to the
registration statement, including the exhibits thereto and the financial
statements, notes, and schedules filed as a part thereof. .
33
Index to Financial Statements
Report of Independent Registered Public Accounting Firm......................F-1
Balance Sheet................................................................F-2
Statements of Operation......................................................F-3
Statements of Stockholder's Equity (Deficit).................................F-4
Statements of Cash Flows.....................................................F-5
Note to Financial Statements.................................................F-6
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
The Jackson Rivers Company
(formerly Diverse Networks, Inc.)
San Diego, California
We have audited the accompanying balance sheet of The Jackson Rivers Company
("Jackson Rivers") (formerly Diverse Networks, Inc.) as of December 31, 2005 and
the related statements of operations, stockholders' deficit, and cash flows for
the two years then ended. These financial statements are the responsibility of
Jackson Rivers' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jackson Rivers as of December
31, 2005, and the results of its operations and its cash flows for the periods
described in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that Jackson
Rivers will continue as a going concern. As discussed in Note 2 to the financial
statements, Jackson Rivers has recurring net losses and has negative working
capital, which raises substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
April 3, 2006
F-1
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
CONSOLIDATED BALANCE SHEET
As of December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents $ 36,361
Accounts receivable, net of allowance for doubtful account of $3,010 272,330
Inventory 19,633
Prepaid expenses and other 32,681
-----------
Total current assets 361,005
Software, net 25,910
Property and equipment, net 225,485
-----------
Total assets $ 612,400
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 453,125
Notes payable 917,000
Notes payable - related party 302,644
Capital lease - current portion 10,287
-----------
Total current liabilities 1,683,056
Long-term liabilities:
Capital lease, net of current portion 4,765
Stockholders' deficit:
Preferred stock, par value $0.01 per share, 1,000,000,000 shares
authorized:
Series A preferred stock, par value $.00001 per share, 10,000,000
shares authorized; 960,000 shares issued and outstanding 10
Series B preferred stock, par value $.001 per share, 8,413,607
shares authorized; 1,000,000 issued and outstanding 1,000
Common stock, par value $.00001 per share, 990,000,000 shares authorized;
49,527,624 shares issued and outstanding 495
Additional paid-in capital 507,755
Stock subscription receivable (92,400)
Accumulated deficit (1,492,281)
-----------
Total stockholders' deficit (1,075,421)
-----------
Total liabilities and stockholders' deficit $ 612,400
===========
See accompanying summary of accounting policies
and notes to financial statements.
F-2
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2005 and 2004
2005 2004
----------- -----------
Sales, net $ 2,193,685 $ 6,589,736
Cost of sales 1,026,414 4,632,597
----------- -----------
Gross profit 1,167,271 1,957,139
Operating expenses:
Selling, general, and administrative 1,363,490 2,329,207
Recapitalization expense 1,263,727 --
Depreciation and amortization 171,019 189,311
----------- -----------
Total operating expenses 2,798,236 2,518,518
----------- -----------
Loss from operations (1,630,965) (561,379)
----------- -----------
Other income (expense):
Other income 2,131 --
Interest expense (30,365) (25,660)
----------- -----------
Total other (expense) (28,234) (25,660)
Net loss before provision for income taxes (1,659,199) (587,039)
Income tax benefit
Income tax benefit (158,817) (59,906)
----------- -----------
Net loss $(1,500,382) $ (527,133)
=========== ===========
Earnings (loss) per share, basic and diluted $ (0.46) N/A *
=========== ===========
Weighted average number of shares outstanding
(basic and diluted) 3,278,100 N/A *
=========== ===========
* Jackson Rivers issued preferred shares, rather than common stock, in
connection with the merger of Diverse Networks. Accordingly, no common
shares are deemed outstanding prior to the merger.
See accompanying summary of accounting policies
and notes to financial statements.
F-3
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005 and 2004
2005 2004
----------- -----------
Cash flow from operating activities:
Net loss from operations $(1,500,382) $ (527,133)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 143,407 155,760
Amortization 27,612 33,551
Common stock issued in exchange for consulting
services rendered 48,400 --
Common stock issued in exchange for employee services
rendered and related transaction costs 44,543 --
Loss on recapitalization 1,263,727 --
Modification of warrants -- 270,060
Deferred income tax -- (70,945)
Changes in assets and liabilities:
(Increase) decrease
Accounts receivable 215,102 152,078
Prepaid expenses 94,923 (7,151)
Federal income tax receivable -- (86,309)
Inventory 6,856 --
Increase (decrease)
Accounts payable and accrued expenses (465,120) (195,660)
----------- -----------
Net cash used in operating activities (120,932) (275,749)
Cash flows from investing activities:
Purchase of property, equipment and software (9,753) (58,616)
----------- -----------
Net cash used in investing activities (9,753) (58,616)
Cash flows from financing activities:
Proceeds from capital lease obligation -- 29,888
Sale of common stock 23,857 --
Payments on notes payable (85,356) --
Payments on capital lease obligations (9,690) (5,146)
Proceeds from exercise of stock options -- 5,000
----------- -----------
Net cash used in financing activities (71,189) 29,742
Net decrease in cash and cash equivalents (201,874) (304,623)
Cash and cash equivalents at beginning of period 238,235 542,858
----------- -----------
Cash and cash equivalents at end of period $ 36,361 $ 238,235
=========== ===========
Supplemental disclosures of cash flow information
Income taxes paid $ -- $ --
=========== ===========
Interest paid $ 30,628 $ 30,410
=========== ===========
See accompanying summary of accounting policies
and notes to financial statements.
F-4
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
CONSOLIDATED STATEMENTS STOCKHOLDERS' DEFICIT
Years Ended December 31, 2005 and 2004
Preferred Series A Preferred Series B Common Paid In
Shares Stock Shares Stock Shares Stock Capital
------------- ----------- ------------- ---------- ---------------- ------------ ------------
Balances at December 31, 2003 - $ - - $ - 5,000,000 $ 25,000 $ -
Modification of employee options - - - - 5,000 5,000 -
Stock options exercised - - - - - 270,060
Net Loss
------------- ----------- ------------- ---------- ---------------- ------------ ------------
Balances at December 31, 2004 - - - - 5,005,000 300,060 -
Sale of common stock - - - - 24,700,000 247 116,010
Stock based compensation - - - - - - 92,943
Recapitalization of Diverse
Networks, Inc. 960,000 10 1,000,000 1,000 19,822,624 (299,812) 298,802
Net Loss
------------- ----------- ------------- ---------- ---------------- ------------ ------------
Balances at December 31, 2005 960,000 $ 10 1,000,000 $ 1,000 49,527,624 $ 495 $507,755
============= =========== ============= ========== ================ ============ ============
Stock Accumulated
Subscription Earnings (Deficit) Totals
------------- ----------------- ----------------
Balances at December 31, 2003 $ - $ 535,235 $ 560,235
Modifications of employee options - - 5,000
Stock options exercised - - 270,060
Net Loss (527,134) (527,134
------------- ----------------- ----------------
Balances at December 31, 2004 - 8,101 308,161
Sale of common stock (92,400) - 23,857
Stock based compensation - - 92,943
Recapitalization of Diverse
Networks, Inc. - - -
Net Loss (1,500,382) (1,500,382)
------------- ----------------- ----------------
Balances at December 31, 2005 $ (92,400) $ (1,492,281) $(1,075,421)
============= ================= ================
See accompanying summary of accounting policies
and notes to financial statements.
F-5
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Operations
Diverse Networks, Inc. ("DNI") was formed in Texas in 1998 and provides
technical, operational, consulting and engineering services to various companies
with respect to wired and wireless communication networks. Such services include
design engineering, operational analysis, and outsourcing of service management.
Jackson Rivers is particularly oriented to services utilizing wireless
technologies for data transport.
On December 2, 2005, The Jackson Rivers Company ("Jackson Rivers" or "JRC"),
through its wholly-owned subsidiary, JKRC Sub, Inc., a Texas corporation
("JKRC"), acquired Diverse Networks, Inc. Pursuant to the Merger Agreement, each
share of DNI common stock was converted into the right to receive either (I)
$0.21 in the form of a one-year 8% promissory note, or (ii) one share of a JRC
Series B Preferred Stock, at the election of each DNI stockholder. The
transaction has been accounted for as a recapitalization effected through a
reverse merger, such that DNI will be treated as the "acquiring" company for
financial reporting purposes.
The consolidated financial statements include the accounts of the JRC and its
wholly-owned subsidiaries (collectively, the "Company"). Significant
intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on deposits and highly
liquid investments with original maturities of three months or less.
Allowance for Doubtful Accounts
Jackson Rivers analyzes current accounts receivable for collectibility based on
historical bad debt, customer credit-worthiness, the current business
environment and historical experience with the customer. The allowance for
doubtful accounts was $3,010 at December 31, 2005.
Revenue Recognition
Jackson Rivers recognizes revenue when persuasive evidence of an arrangement
exists, services have been rendered, the sales price is fixed or determinable,
and collectibility is reasonably assured.
Concentrations of Credit Risk
Jackson Rivers' cash and cash equivalents are temporarily invested in high
quality institutions. At times, such investments may be in excess of FDIC
insurance limits. Financial instruments that potentially subject Jackson Rivers
to credit risk also include trade accounts receivable.
Property and Equipment
Property and equipment are stated at acquisition cost and are depreciated on a
straight-line basis over their useful lives as follows:
F-6
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
Assets Life (Years)
------ ------------
Computer and Equipment 3 $462,360
Furniture and Fixtures 5-7 227,237
Leasehold Improvements 10 259,835
Less: Accumulated depreciation (723,947)
---------
Property and equipment, net $ 225,485
=========
Depreciation expense for 2005 and 2004 was $143,407 and $155,760, respectively.
Software
Software is stated at acquisition cost and amortized on a straight-line basis
over their useful lives as follows:
Assets Life (Years)
------ ------------
Software 3 $158,343
Less: Accumulated amortization (132,433)
--------
Software, net $ 25,910
========
Amortization expense for 2005 and 2004 was $27,612 and $33,551, respectively.
Income Taxes
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 their respective tax
bases. Deferred tax assets, including tax loss and credit carryforwards, and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred income tax expense represents the change during the
period in the deferred tax assets and deferred tax liabilities. The components
of the deferred tax assets and liabilities are individually classified as
current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
Basic and Diluted Income (Loss) Per Share
Basic and diluted income (loss) per share equals net income (loss) divided by
weighted average shares outstanding during the period. Diluted income (loss) per
share includes the impact of common stock equivalents using the treasury stock
method when the effect is dilutive. There were no dilutive common stock
equivalents during 2005 and 2004.
Stock Options
Jackson Rivers accounts for employee stock options under the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations (APB
25). In accordance with APB 25, compensation cost for stock options is
recognized in income based on the excess, if any, of the market price of the
stock at the grant date of the award or other measurement date over the amount
an employee must pay to acquire the stock. Generally, the exercise price for
stock options granted to employees equals or exceeds the fair market value of
Jackson Rivers' common stock at the date of grant, thereby resulting in no
recognition of compensation expense by Jackson Rivers.
The following table illustrates the effect on net loss and earnings per share if
Jackson Rivers had applied the fair value recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," to stock-based compensation.
F-7
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
2005 2004
----------- -----------
Net loss, as reported $(1,500,382) $ (527,133)
Deduct: Total stock-based employee/director
compensation expense under the fair value
based method for all awards, net of related
tax effects (30,079) (56,813)
----------- -----------
Pro forma net loss $(1,530,461) $ (583,926)
=========== ===========
Loss per share basic and diluted - as reported $ (0.46) N/A
Loss per share basic and diluted - pro forma $ (0.47) N/A
Shares used in basic and diluted loss per share 3,278,100 N/A
New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment,
(SFAS 123R). This statement replaces SFAS 123, supersedes APB 25, and amends
SFAS 95, Statement of Cash Flows. SFAS 123R requires companies to apply a
fair-value-based measurement method in accounting for shared-based payment
transactions with employees and to record compensation cost for all stock awards
granted after the required effective date and for awards modified, repurchased,
or cancelled after that date. The scope of SFAS 123R encompasses a wide range of
share-based compensation arrangements, including share options, restricted share
plans, performance-based awards, share appreciation rights, and employee share
purchase plans. SFAS 123R is effective for Jackson Rivers on January 1, 2006.
Jackson Rivers is currently evaluating the effect that SFAS 123R will have on
its financial position and results of operations.
2. GOING CONCERN
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, 2005 and 2004, Jackson
Rivers has incurred a loss of $1,500,392 and $527,133, respectively. In
addition, Jackson Rivers' current liabilities exceeded its current assets by
$1,322,051 as of December 31, 2005. These factors among others may indicate that
Jackson Rivers 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 Jackson Rivers 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
Jackson Rivers be unable to continue as a going concern.
In order to improve Jackson Rivers' liquidity, Jackson Rivers is actively
pursuing additional equity financing through discussions with investment bankers
and private investors. There can be no assurance Jackson Rivers will be
successful in its effort to secure additional equity financing.
F-8
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
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.
3. ACQUISITION OF DIVERSE NETWORKS, INC.
On December 2, 2005, The Jackson Rivers Company, through its wholly-owned
subsidiary, JKRC Sub, Inc., a Texas corporation, acquired DNI. Pursuant to the
Merger Agreement, each share of DNI common stock was converted into the right to
receive either (I) $0.21 in the form of a one-year 8% promissory note, or (ii)
one share of a JRC Series B Preferred Stock, at the election of each DNI
stockholder. The transaction has been accounted for as a recapitalization
effected through a reverse merger, such that DNI will be treated as the
"acquiring" company for financial reporting purposes.
Each share of Series B stock will initially be convertible, starting December 1,
2007, into that number of JRC common stock obtained by multiplying the number of
shares to be converted by a fraction, the numerator of which is .5942795 and the
denominator equal to the "market price" of JRC common stock at the time of
conversion. The conversion rate is subject to adjustment.
JRC issued approximately $862,000 in promissory notes and 1 million shares of
Series B Preferred Stock to DNI stockholders. In addition, JRC assumed $228,000
of outstanding DNI debt in connection with the transaction.
Jackson Rivers expensed $401,727 of net liabilities assumed upon the
recapitalization and recorded the amount to recapitalization expense on the
statement of operations.
4. LEASE COMMITMENTS
Jackson Rivers leases office space under an operating lease that expires May
2010. Rent expense totaled $176,501 and $337,295 for 2005 and 2004,
respectively.
Jackson Rivers leases certain equipment under capital leases. The following is a
schedule by years of future minimum lease payments as of December 31, 2005
Years ending December 31,
2006 10,911
2007 4,845
-------
Total minimum lease payments 15,756
Less amount representing interest 704
-------
15,052
Less current installments of obligations
under capital leases 10,287
-------
Long-term obligation under capital leases,
with interest rate of 9.7% $ 4,765
=======
Obligations under capital leases are collateralized by leased equipment.
Future minimum payments under capital and operating leases as of December 31,
2005 are as follows:
2006 $ 262,512
2007 262,512
2008 262,512
2009 262,512
2010 109,338
-----------
$ 1,159,386
===========
F-9
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
5. EMPLOYEE RETIREMENT PLAN
Jackson Rivers maintains a plan under which eligible employees may elect to
defer a portion of their annual compensation, up to a maximum of 50%, not to
exceed $16,000 for the year 2004 or later years as adjusted for cost of living
increases, pursuant to Section 401(k) of the Internal Revenue Code.
Substantially all employees are eligible to participate. Jackson Rivers matches
contributions on a discretionary basis as determined by the board of directors.
Employees are 100% vested in their portion of Jackson Rivers' contributions, if
any. Jackson Rivers contribution and expenses to the plan for the year ended
December 31, 2005 was $32,462.
6. NOTES PAYABLE
During the year ended December 31, 2005, Jackson Rivers borrowed $45,000 from a
vendor. The note is payable in twelve monthly installments and is due in full
September 2006. No interest is due.
During the year ended December 31, 2005, Jackson Rivers entered into an
agreement with a third party vendor to settle claims and amounts owing to the
vendor. Under the terms of the agreement, Jackson Rivers agreed to pay $15,000
in cash and issue a demand promissory note for $30,000, in satisfaction of
amounts due, bearing interest at 6% per annum. The note is payable in six
monthly installments and is due in full January 2006. The current balance of the
note is $10,000. The note was paid in full subsequent to year end.
During the year ended December 31, 2005, Jackson Rivers borrowed $85,000 from an
officer. The note is payable with accrued interest at 8% on or before July 13,
2006.
Pursuant to the acquisition of DNI, Jackson Rivers borrowed $862,000 from 12
individuals in December 2005. The notes bear interest at 8% per annum and are
payable in four equal quarterly installments of principal and interest. The
notes are due in full December 2006. The current balance of the notes is
$862,000.
Shareholder loans are uncollateralized and totaled $217,644 at December 31,
2005, including interest at 10%, due in February 2006. The notes were paid in
full subsequent to year end.
7. INCOME TAXES
Jackson Rivers uses the liability method, where deferred tax assets and
liabilities are determined based on the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for
financial and income tax reporting purposes. During fiscal 2005 and 2004,
Jackson Rivers incurred net losses and, therefore, has no tax liability. The net
deferred tax asset generated by the loss carry-forward has been fully reserved.
The cumulative net operating loss carry-forward is approximately $1.5 million at
December 31, 2005, and will expire beginning in the year 2025.
The following table presents the principal reasons for the difference between
the Company's effective tax rates and the United States federal statutory income
tax rate of 35% for 2005 and 2004:
2005 2004
------------------------------------------------ --------- ---------
Federal income tax benefit at statutory rate $(525,134) $(205,464)
------------------------------------------------ --------- ---------
Non-deductible expense -- 96,839
------------------------------------------------ --------- ---------
Adjustments 366,317 48,719
------------------------------------------------ --------- ---------
Income tax benefit $(158,817) $ (59,906)
------------------------------------------------ ========= =========
Effective income tax rate 9.6 % 10.2 %
------------------------------------------------ ========= =========
F-10
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
8. CAPITAL STOCK
Jackson Rivers has authorized 990,000,000 shares of common stock, with a par
value $0.00001 per share. During the period ended December 31, 2005, Jackson
Rivers issued 8,100,000 shares of common stock to consultants for services.
Valuation of common stock issued for services was based upon the value of the
services rendered, which did not differ materially from the fair value of
Jackson Rivers' common stock during the period the services were rendered.
Jackson Rivers issued 16,600,000 shares of common stock, valued at $143,400, to
officers and employees for stock options exercised. Jackson Rivers received
$23,847 in connection with common shares issued to employees for common stock
subscribed and stock options exercised, net of costs and fees.
Compensation and related transaction costs of $92,943 were charged to operations
during 2005.
Jackson Rivers has 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 Jackson Rivers' common stock. On all matters
submitted to a vote of Jackson Rivers' 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 Jackson Rivers ranking junior to the Series A Preferred Stock. As of
December 31, 2005 Jackson Rivers has 960,000 shares of Series A Preferred Stock
issued and outstanding.
Jackson Rivers has 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 Jackson Rivers' 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 Jackson Rivers ranking junior to the Series B
Preferred Stock. On December 31, 2005 the total authorized shares of the Series
B Preferred Stock was reduced to 8,413,607 shares. As of December 31, 2005
Jackson Rivers has 1,000,000 shares of Series B preferred stock issued and
outstanding.
Jackson Rivers evaluated the application of Statement of Financial Accounting
Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities" and Emerging Issues Task Force ("EITF") 00-19, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock" for the Series A and Series B Preferred Stock. Based on the
guidance of SFAS No. 133 and EITF 00-19, Jackson Rivers concluded that these
instruments were not required to be accounted for as derivatives.
9. STOCK OPTIONS
Jackson Rivers has stock option plans, which provide for the granting of
qualified and nonqualified options to employees of Jackson Rivers. A maximum of
5,000,000 shares of common stock may be issued under the plans. The option
price, number of shares, vesting schedule, holding period or other restrictions
and grant dates are determined at the discretion of a committee appointed by
Jackson Rivers' board of directors. Options granted under the plans are
exercisable for a period not to exceed ten years from the option grant date.
F-11
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
A summary of option transactions during the year ended December 31, 2005 and
2004, respectively, is shown below:
2005 2004
------------------------------- -------------------------------
Number Weighted-Average Number Weighted-Average
of Shares Exercise Price of Shares Exercise Price
--------- -------------- --------- --------------
Outstanding at January 1 3,885,552 0.3118 4,174,457 0.3185
Granted 120,000 0.2000 14,000 1.0000
Exercised - - (5,000) 0.5000
Canceled (288,148) 0.4484 (297,905) 0.4547
--------- ---------
Outstanding at December 31 3,717,404 0.2976 3,885,552 0.3118
========= =========
Exercisable at
December 31 3,490,696 3,615,751
========= =========
A summary of options outstanding as of December 31, 2005 is shown below:
Weighted-Average
Exercise Number of Shares Remaining Contractual Life Number of Shares
Price Outstanding of Shares Outstanding Exercisable
------ ----------- --------------------- -----------
$ 0.01 1,980,811 3.4 years 1,980,811
$ 0.20 120,000 9.5 years -
$ 0.50 1,108,289 5.0 years 1,013,785
$ 1.00 508,304 5.4 years 496,100
---------- ----------
3,717,404 3,490,696
========= =========
The weighted-average estimated fair value of stock options granted during 2005
and 2004 was $0.20 and $0.20 per share, respectively. These amounts were
determined using the Black-Scholes option-pricing model, which values options
based on the stock price at the grant date, the expected life of the option, the
estimated volatility of the stock, the expected dividend payments, and the
risk-free interest rate over the expected life of the option. The assumptions
used in the Black-Scholes model were as follows for stock options granted in
2005 and 2004:
Risk-free interest rate 1.66%-3.94%
Expected life (years) 10
Expected dividends None
Expected volatility 137%
The Black-Scholes option valuation model was developed for estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. Because option valuation models require the use of subjective
assumptions, changes in these assumptions can materially affect the fair value
of the options, and Jackson Rivers' options do not have the characteristics of
traded options, the option valuation models do not necessarily provide a
reliable measure of the fair value of its options.
The terms of awards issued to employees state that awards are forfeited upon
termination of employment with Jackson Rivers. In October 2004, Jackson Rivers
modified the terms of certain awards issued to former employee in connection
with their termination, such that the awards continue after termination of
employment. The awards were fully vested at the time of modification. As a
result of this modification, Jackson Rivers recorded expense totaling $270,060
in fiscal 2004, representing the fair value of the options on the date of
modification.
F-12
THE JACKSON RIVERS COMPANY
(formerly Diverse Networks, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
10. MAJOR CUSTOMERS
During 2005, Jackson Rivers had two major customers, sales to which represent
approximately 89% of Jackson Rivers' revenues. During 2004, Jackson Rivers had 4
major customers, sales to which represent approximately 86% of Jackson Rivers'
revenues.
11. SUBSEQUENT EVENTS
On March 17, 2006 Jackson Rivers sold its wholly-owned subsidiary, JRC Global,
Inc. to the former CEO of The Jackson Rivers Company. Jackson Rivers received a
note for $1,100 for its one share of JRC Global, Inc. The value of the note
approximated the book value of the net assets sold, such that no significant
gain/loss was recorded on the sale
On March 31, 2006, Jackson Rivers executed a Securities Purchase Agreement with
certain accredited investors pursuant to which they agreed to issue up to
$2,000,000 of principal amount of convertible promissory notes in three separate
tranches and warrants to purchase shares of our common stock (the "Securities
Purchase Agreement"). The tranches of notes are to be issued and sold as
follows: (i) $700,000 upon execution and delivery of the Securities Purchase
Agreement (issued March 31, 2006); (ii) $600,000 within 5 days of filing of a
registration statement with the Securities and Exchange Commission (the "SEC")
registering the shares of common stock issuable upon conversion of the notes and
exercise of the warrants issued pursuant to the Securities Purchase Agreement
(the "Registration Statement") and (iii) $700,000 within 5 days of the
Registration Statement being declared effective by the SEC The convertible notes
have a 3 year term and bear interest at six percent (6%). The notes are
convertible into our common stock pursuant to a "variable conversion price"
equal to the "Applicable Percentage" multiplied by the "Market Price.'
"Applicable Percentage" is initially 50% provided, that, such percentage will be
increased to 55% if the Registration Statement is filed on or before April 30,
2006 and further increased to 60% if the Registration Statement is declared
effective by the SEC on or before July 29, 2006. "Market Price" means the
average of the lowest three trading prices (as defined) for our common stock
during the 20 trading day period prior to conversion. Upon an event of default
(as defined), the notes are immediately due and payable at an amount equal to
the greater of (i) 140% of the then outstanding principal amount of notes plus
interest and (ii) the "parity value" defined as (a) the highest number of shares
of common stock issuable upon conversion of the notes multiplied by (b) the
highest closing price for our common stock during the period beginning on the
date of the occurrence of the event of default and ending one day prior to the
demand for prepayment due to the event of default. The notes are secured by a
first lien on all of our assets, including all of our intellectual property.
Subject to certain terms and conditions set forth therein, the notes are
redeemable by us at a rate of between 120% to 140% of the outstanding principal
amount of the notes plus interest. In addition, so long as the average daily
price of our common stock is below the "initial market price" (as defined)
Jackson Rivers may prepay a such monthly portion due on the outstanding notes
and the investors agree that no conversions will take place during such month
where this option is exercised by us.
The notes were issued with warrants to purchase up to 50,000,000 shares of our
common stock at an exercise price of $0.07 per share, subject to adjustment.
In connection with the offer and sale of the notes and the warrants, Jackson
Rivers engaged Envision Capital LLC, as a finder for the transaction. Envision
will receive a ten percent (10%) cash commission on the sale of the notes and
warrants to purchase up to 5,000,000 shares of our common stock on the same
terms and conditions as the warrants issued to purchasers under the Securities
Purchase Agreement.
F-13
TABLE OF CONTENTS
Page
----
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 9
Market for Common Equity and Related Stockholder Matters 9
Plan of Distribution 11
Management's Discussion and Analysis Or Plan of Operation 13
Business 17
Management 22
Certain Relationships and Related Transactions 24
Principal Stockholders and Beneficial Ownership of Management 26
Selling Security Holders 27
Description of Securities 29
Legal Matters 32
Interests of Named Experts and Counsel 32
Experts 32
Available Information 33
Index to Financial Statements 34
Until _______, 2006, 25 days after commencement of the offering, all
dealers that buy, sell or trade shares, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
-------------------------------------------
THE JACKSON RIVERS COMPANY
752,674,418 Shares
----------------------
PROSPECTUS
----------------------
_______________ __, 2006
-------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Under our Articles of Incorporation and Bylaws of the corporation, we may
indemnify an officer or director who is made a party to a proceeding, including
any lawsuit, because of his position, if he acted in good faith and in a manner
he reasonably believed to be in our best interest. We may advance expenses
incurred in defending a proceeding. To the extent that the officer or director
is successful on the merits in a proceeding as to which he is being indemnified,
we must indemnify him against all expenses incurred, including attorney's fees.
With respect to a derivative action, indemnity may also be made only for
expenses actually and reasonably incurred in defending the proceeding, and if
the officer or director is judged liable, only by a court order. The
indemnification is intended to be to the fullest extent permitted by laws of the
State of Florida. The Florida Business corporation Act grants corporations the
right to indemnify their directors, officers, employees and agents in accordance
with applicable law.
The indemnification provisions in the Bylaws may be sufficiently broad to
permit indemnification of our officers and directors for liabilities arising
under the Securities Act. However, we are aware that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth estimated expenses to be incurred by us in
connection with the issuance and distribution of all shares being registered.
All such expenses are estimated except for the SEC registration fee.
Description of Expense Amount ($)
---------------------- ----------
SEC registration fee................................... $ 572
Printing expenses...................................... 5,000
Fees and expenses of counsel for the Company........... 25,000
Fees and expenses of accountants for Company........... 25,000
Miscellaneous.......................................... 10,000
------
Total: 65,572.00
Item 26. Recent Sales of Unregistered Securities
In January 2006, we issued an 8% Convertible Note in the aggregate
principal amount of $250,000 to a single accredited investor in consideration
for services rendered under a fee agreement dated November 2005. This note is
due and payable on or before January 1, 2007. This note is convertible into
shares of that number of shares of our common stock as would be determined by
dividing (i) the unpaid principal balance plus accrued interest by (ii) 80% of
the average of the three lowest closing bid prices for the twenty trading days
immediately prior to conversion. No conversions can be made which would result
in holder owning more than 4.99% of our common stock after conversion. The
issuance of the note was exempt under Section 4(2) of the Securities Act of
1933, as amended
In March 2006, we issued an 8% Convertible Note in the aggregate principal
amount of $60,000 to a single accredited investor. Upon consummation of a
funding in the aggregate amount of $300,000, the holder entitled to full payment
of all outstanding principal and interest. In addition, the holder is entitled
receive Common Stock equal to the value of the Principal and interest at a
conversion price equal to the average of the lowest 3 closing bid prices in the
20 trading days immediately preceding the repayment date. No conversions can be
made which would result in holder owning more than 4.99% of our common stock
after conversion. The issuance of this note was exempt under Section 4(2) of the
Securities Act of 1933, as amended.
II-1
Item 27. Exhibits
Exhibit No. Description
----------- -----------
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 December 2, 2005.
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.
5.1 Opinion of Spectrum Law Group, LLP re: Legality of Shares.
10.1* Consulting Services Agreement dated August 1, 2003.
10.2* Technology License Agreement.
10.3* Stock Purchase Agreement dated as of August 31, 2005 by and among
The Jackson Rivers Company, Dennis Lauzon and Jeffrey Flannery.
10.4* Agreement and Plan of Merger dated December 1, 2005 by and among the
Jackson Rivers Company, JKRC Sub, Inc., Diverse Networks, Inc. and
the shareholders of Diverse Networks, Inc.
10.5* Stock Purchase Agreement dated as of December 1, 2005 by and between
Jeffrey W. Flannery, James E. Nelson and The Jackson Rivers Company.
10.6*. Employment Agreement dated as of December 1, 2005 between James E.
Nelson and The Jackson Rivers Company.
10.7* Securities Purchase Agreement dated as of March 31, 2006 by and
among The Jackson Rivers Company and the Purchaser set forth
therein.
10.8* Form of Callable Secured Promissory Note dated March 31, 2006.
10.9* Security Agreement dated as of March 31, 2006.
10.10* Registration Rights Agreement dated as of March 31, 2006.
10.11* Intellectual Property Security Agreement dated as of March 31, 2006.
10.12* Form of Stock Purchase Warrant dated March 31, 2006.
10.13* Convertible Promissory Note dated as of January 2, 2006.
10.14* Convertible Promissory Note dated as of March 12, 2006.
14* Code of Ethics.
21* Subsidiaries.
23.1 Consent of Malone & Bailey, PC.
23.2 Consent of Spectrum Law Group, LLP (filed as part of Exhibit 5.1).
----------
* Previously Filed
Item 28. Undertakings
The undersigned Registrant hereby undertakes the following:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (1)(i) and (1)(ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registration pursuant to Section 13
or Section 15(d) of the Exchange Act that are incorporated by reference in this
Registration Statement.
II-2
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, Wire One has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Wire One will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
on Form SB-2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in Houston, Texas, on April 27, 2006.
THE JACKSON RIVERS COMPANY
By: /s/ Jeffrey W. Flannery
-----------------------------------
Jeffrey W. Flannery
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated.
Signatures Title Date
--------------------------------------------------------------------------------
/s/ Jeffrey W. Flannery Chief Executive Officer, April 27, 2006
----------------------- Chief Financial Officer, Director
Jeffrey W. Flannery (Principal Executive, Financial and
Accounting Officer)
/s/ James E. Nelson President, Chief Operating Officer, April 27, 2006
----------------------- Director
James E. Nelson
II-4