Item 1. Financial Statements
JAMES RIVER HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31,
2013
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December 31,
2012
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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154,483
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$
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239,796
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Accounts receivable
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-
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82,711
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Inventory
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15,000
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15,000
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Total current assets
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169,483
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337,507
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Property and equipment, net of accumulated depreciation
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17,268,217
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17,430,063
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Goodwill
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2,437,250
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2,437,250
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Intangible assets, net of accumulated amortization
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33,860
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48,815
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TOTAL ASSETS
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$
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19,908,810
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$
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20,253,635
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities
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Accrued expenses
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$
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134,115
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$
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133,116
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Short-term debt, net of unamortized discounts
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3,298,808
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2,324,749
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Total current liabilities
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3,432,923
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2,457,865
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Long-term debt, net of unamortized discounts
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10,538,642
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10,647,527
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Long-term debt to related parties
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1,367,323
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2,243,787
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TOTAL LIABILITIES
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15,338,888
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15,349,179
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Stockholders' Equity
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Preferred stock, $0.001 par value, 10,000,000 shares authorized,
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none issued and outstanding
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-
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-
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Common stock, $0.001 par value, 100,000,000 shares authorized,
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53,204,812 issued and outstanding
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53,204
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53,204
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Additional paid-in capital
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6,985,197
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6,985,197
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Accumulated deficit
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(2,468,479
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)
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(2,133,945
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)
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TOTAL STOCKHOLDERS' EQUITY
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4,569,922
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4,904,456
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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19,908,810
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$
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20,253,635
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
JAMES RIVER HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended March 31, 2013
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Three Months Ended March 31, 2012
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Revenue
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Rental income
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$
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354,487
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$
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-
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Property management income
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4,800
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-
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Pavement maintenance income
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3,279
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-
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Total revenue
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362,566
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-
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Cost of revenue
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5,571
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-
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Operating expenses
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General and administrative
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317,490
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16,435
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Depreciation expense
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173,841
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-
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Amortization expense
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14,955
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-
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Total operating expenses
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506,286
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16,435
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Loss from operations
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(149,291
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)
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(16,435
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)
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Other expense
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Interest expense
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(185,243
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)
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-
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Net loss
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$
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(334,534
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)
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$
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(16,435
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)
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Net loss per share - basic and diluted
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$
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(0.01
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)
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$
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0.00
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Weighted average shares outstanding - basic and diluted
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53,204,812
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30,442,784
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
JAMES RIVER HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended March 31, 2013
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Three Months Ended March 31, 2012
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Cash Flows from Operating Activities
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Net loss
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$
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(334,534
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)
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$
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(16,435
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)
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Adjustments to reconcile net loss to net cash used in
operating activities:
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Amortization of debt discounts
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2,709
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-
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Amortization expense
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14,955
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-
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Depreciation expense
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173,841
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-
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Changes in operating assets and liabilities:
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Accounts receivable
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82,711
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-
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Accrued expenses
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999
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-
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Net Cash Used in Operating Activities
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(59,319
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)
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(16,435
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)
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Cash Flows from Investing Activities
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Cash paid for purchase of fixed assets
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(11,995
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)
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-
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Net Cash Used in Investing Activities
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(11,995
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)
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Cash Flows from Financing Activities
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Proceeds from the issuance of debt
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950,000
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-
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Proceeds from the issuance of debt to related parties
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(10,836
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)
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-
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Commissions paid on the issuance of debt
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64,000
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-
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Proceeds from the sale of common stock
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-
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246,501
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Payments on debt
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(74,335
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)
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-
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Payments on debt to related parties
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(942,828
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)
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-
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Net Cash (Used in) Provided by Financing Activities
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(13,999
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)
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246,501
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Net change in cash
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(85,313
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)
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230,066
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Cash, beginning of period
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239,796
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4,000
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Cash, end of period
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$
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154,483
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$
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234,066
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Supplemental Disclosures of Cash Flows Information:
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Cash paid for interest
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$
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182,534
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$
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-
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Cash paid for income taxes
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-
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-
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
JAMES RIVER HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying unaudited financial statements of James River Holding Corp. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's registration statement filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year 2012 as reported in Form 10-K, have been omitted.
NOTE 2 – GOING CONCERN
As of March 31, 2013, we had a working capital deficit and an accumulated deficit. These conditions raise substantial doubt about our ability to continue as a going concern. Our management is continuing its efforts to secure funding through equity and/or debt instruments for our operations. We will require additional funds to pay down our liabilities, as well as finance our expansion plans. However, there can be no assurance that we will be able to secure additional funding. The consolidated financial statements contain no adjustment for the outcome of this uncertainty.
NOTE 3 – DEBT OWED TO RELATED PARTIES
During the three months ended March 31, 2013 the Company received proceeds of $64,000 in related party debt and made repayments of $942,828 on related party debt. One note carries an interest rate of 5% and is due on August 15, 2017, while the other notes carry an interest rate of 4% and have maturity dates ranging between December 31, 2015 and 2016. The debt is secured by the real estate property acquired. The debt outstanding is owed to related parties because the lender is owned by an Officer of the Company.
NOTE 4 – DEBT
During the three months ended March 31, 2013 the Company received proceeds of $950,000 on debt. This note has a payment of $5,748 per month, carries an interest rate of 6%, a maturity date of January 18, 2014, and is secured by rental properties. Commissions of $10,836 were paid to the lender upon the closing of this loan resulting in a debt discount. The discount is being amortized over the life of the note using the effective interest rate method. During the three months ended March 31, 2013, amortization of $2,709 was recognized as interest expense.
The Company made repayments on debt totaling $74,335 during the three months ended March 31, 2013.
NOTE 5 – SUBSEQUENT EVENTS
The Company received proceeds of $150,500 in related party debt. The notes carry an interest rate of 4% and have maturity dates ranging between December 31, 2015 and 2016. The debt is secured by the real estate property acquired.
The Company received proceeds of $128,908 on debt used to purchase fixed assets. The note is secured by the fixed assets, carries an interest rate of 4.99%, and has a maturity date of June 21, 2019. The Company made repayments on third party debt totaling $56,381.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Registrant to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Registrant’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Registrant. Although the Registrant believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Registrant or any other person that the objectives and plans of the Registrant will be achieved.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.
Overview
Incorporated in May 2011 as a Delaware company, James River Holding Corporation (“we,” “us” or “the Company”) is a diversified holding company engaged in acquiring controlling interests in and actively managing established companies operating profitable, high growth, entrepreneurial businesses in mature markets – companies that operate in industries with long-term macroeconomic growth opportunities, and that have positive and stable cash flows, face minimal threats of technological or competitive obsolescence and have strong management teams which desire to remain in place and benefit from the growth made possible by leveraging our business-building platform.
More specifically, our criteria for qualifying sellers of businesses for acquisition consideration include the following:
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The prospect must be an established U.S.-based company with low/no debt, annual revenues of up to $100 million and $2-$10 million in annual EBITDA.
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The prospect has bright growth prospects, but is short on growth capital.
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The prospect produces in-demand products or provides in-demand services that are not subject to discretionary dollars.
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The prospect is geographically situated within the Midwestern region of the U.S.
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The prospect operates a simple, straight forward business that James River’s executive management team fully understands.
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The prospect shares James River Holding’s core values and ethical business standards.
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We believe that private company operators and corporate parents looking to sell their businesses may consider us as an attractive purchaser because of our ability to provide ongoing strategic and financial support for their businesses. In terms of the businesses we have acquired to date, we believe that these businesses have strong management teams, operate in strong markets with defensible market niches and maintain strong customer relationships.
The Company’s current portfolio companies include Springfield Property Management, which owns and manages 215 single family and two duplex residential rental properties in the Springfield, Missouri market; and PaveCare, a company specializing in commercial pavement repair and parking lot maintenance services, mainly to big box retailers in the Midwestern region of the United States.
With acquisitions serving as a key component of James River Holding’s long term growth strategy, the Company will continue to remain very busy qualifying and pursuing opportunities to continue its growth and enhance shareholder value.
Revenues
Total revenues for the three months ended March 31, 2013 totaled $362,566, which compared to $0 total revenues in the same three month period in 2012. In our residential real estate business segment, revenue from rental income was $354,487 and revenue from property management income totaled $4,800. In our commercial paving business segment, PaveCare’s revenues were $3,279. The reason that revenues were nil for the three month reporting period in 2012 is due to the fact that the Company did not complete its acquisition of the rental properties comprising its residential real estate portfolio until late in the third and fourth quarters of 2012. Similarly, the acquisition of the assets of 4 State Asphalt & Sealing and the subsequent formation of PaveCare did not occur until late in the fourth quarter of 2012.
Operating Expenses
Due to the previously noted timing of the acquisitions relating to our real estate rental and paving businesses, as well as increased costs associated with becoming a fully reporting public company, general and administrative expenses increased 1,832% to $317,490 for the three months ended March 31, 2013 compared to $16,435 in the prior year’s first quarter period.
For the three months ended March 31, 2013 and 2012, depreciation expense totaled $173,841 and $0, respectively; and amortization expense was $14,955 and $0, respectively.
Loss from Operations
After factoring total operating expenses, including non-cash depreciation and amortization expenses, loss from operations totaled $149,291 for the first three months of 2013, representing an 808% increase over a loss from operations of $16,435 reported for the same three month period in 2012.
Other Expense
Total other expense for the three months ended March 31, 2013 and 2012 was $185,243 and $0, respectively. The increase is solely attributable to interest expense associated with servicing the Company’s real estate loans during the first three months of 2013.
Net Loss
Net loss was $334,534, or $0.01 loss per basic and diluted share, and $16,435, or $0.00 loss per basic and diluted share, for the three month periods ended March 31, 2013 and 2012, respectively.
Liquidity and Capital Resources
We are currently seeking additional operating income opportunities through potential acquisitions or investments. Such acquisitions or investments may consume cash reserves or require additional cash or equity. Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current Company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; and (iv) the activities of competitors. In addition to developing new products and services, obtaining new customers and increasing sales to existing customers, management plans to increase its business and profitability by entering into collaboration agreements, buying assets and acquiring companies that meet its defined acquisition criteria.
During the three months ended March 2013, the Company had a net decrease in cash of $85,313. The Company's principal sources and uses of funds were as follows:
Cash used in operating activities
The Company used $59,319 in cash for operating activities for the three months ended March 31, 2013, as compared to using $16,435 in cash for operating activities for the three months ended March 31, 2012.
Cash used in investing activities
Investing activities for the three months ended March 31, 2013 used cash of $11,995, as compared to using $0 in cash for the three months ended March 31, 2012. This increase in cash used is attributed to the purchase of equipment.
Cash (used in) provided by financing activities
Financing activities for the three months ended March 31, 2013 used cash of $13,999, as compared to providing $246,501 of cash for the three months ended March 31, 2012. This increase in using cash in financing activities was largely attributable to the Company’s capital raising activities in the first three months of 2012, wherein $246,501 in proceeds was raised from the sale of Common Stock.
The Company believes that as a result of the predictable cash flow in its residential real estate rental business, coupled with growth in its paving business, it has adequate liquidity to fund its operating plans for at least the next 12 months.
There was no significant impact on the Company’s operations as a result of inflation for the three months ended March 31, 2013. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K to the SEC for the fiscal year ended December 31, 2012.
Off Balance Sheet Arrangements
During the three months ended March 31, 2013, we did not engage in any material off-balance sheet activities nor have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.