UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2010
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
60; For the transition period from to
Commission File number 814-00721 and 0-27775
AMERICAN BIOCARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
American Development & Investment Fund, Inc., Inc.
(Former name if changed since last report)
NEVADA 60; 90-0263041
(State or Other Jurisdiction of Incorporation or Organization) (I .R.S. Employer Identification No.)
1365 N. Courtenay Parkway, Suite A
Merritt Island, FL 60; 32953
(Address of Principal Executive Offices) 0; (Zip Code)
(321)-452-9091
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. & #160; 0; Yes [X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 0; Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] 60; Smaller reporting company [x]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ; Yes [ ] No [X ]
The number of shares of the Registrants Common Stock, $0.001 par value, outstanding as of August 1, 2010, was 39,379,000 shares.
AMERICAN BIOCARE, INC.
FORM 10-Q
JUNE 30, 2010
TABLE OF CONTENTS
0; & #160; PAGE NO.
| PART I. FINANCIAL INFORMATION | |
| Item 1. Financial Statements | |
| Balance Sheets as of June 30, 2010 and December 31, 2009 | 1 |
| Schedule of Investments as of June 30, 2010 | 2 |
| Statements of Operations for the three month period ended June 30, 2010 and 2009 | 3 |
| Statements of Operations for the six month period ended June 30, 2010 and 2009 | 4 |
| Statements of Changes in Net Assets for June 30, 2010 and December 31, 2009 | 5 |
| Statements of Cash Flows for the six month periods ended June 30, 2010 and 2009 | 6 |
Notes to Financial Statements | 7 |
| | |
| Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 19 |
| Item 4. Controls and Procedures | 19 |
| | |
| PART II. OTHER INFORMATION | 20 |
| Item 1. Legal Proceedings | 20 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3. Defaults Upon Senior Securities | 20 |
| Item 4. Submission of Matters to a Vote of Security Holders | 20 |
| Item 5. Other Information | 20 |
| Item 6. Exhibits and Reports on Form 8-K | 22 |
| | |
| Signatures | 22 |
PART I.
ITEM 1. FINANCIAL INFORMATION
AMERICAN BIOCARE, INC.
BALANCE SHEETS
| | | June 30 | | December 31 |
| | | 2010 | | 2009 |
| | | | | (Audited) |
| ASSETS | | | | |
| Investments in portfolio companies-at fair value | $ | -- | $ | -- |
| Current assets: | | | | |
| Cash and cash equivalents | | 19,249 | | 1,732 |
| Deposits | | 5,000 | | -- |
| Total current assets | | | | 1,732 |
| Other assets | | -- | | -- |
| Total assets | $ | 24,249 | $ | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
| LIABILITIES | | | | |
| Current liabilities; | | | | |
| Accounts payable (including $108,300 and $59,700 to related parties) | $ | 153,056 | $ | 102,669 |
| Accrued interest | | 2,398 | | 799 |
| Note payable related party (net of discount of $2,271 and $6,813) | | 24,375 | | 19,833 |
| Due to affiliate | | 3,550 | | 3,550 |
| Due to officers | | 87,667 | | 60,000 |
| Total current liabilities | | 271,046 | | 186,851 |
| Long term liabilities: | | -- | | -- |
| Total liabilities | | 271,046 | | 186,851 |
| STOCKHOLDERS’ EQUITY (DEFICIT) | | | | |
| Common stock, $0.001 par value, 150,000,000 shares authorized, 39,379,000 | | | | |
| and 36,829,333 shares issued at June 30, 2010 and December 31, 2009 | | 39,379 | | 36,829 |
| Additional paid-in capital | | 951,927 | | 572,027 |
| Retained earnings (accumulated loss) | | (1,238,103) | | (793,975) |
| Total stockholders’ equity (deficit) | | (246,797) | | (185,119) |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 24,249 | $ | 1,732 |
| | | | | |
Net asset value per common share | $ | -- | $ | -- |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
SCHEDULE OF INVESTMENTS
(UNAUDITED)
June 30, 2010
| Portfolio Investment | Industry | Amount or number | Cost | Fair value | % of net assets |
| -- | -- | -- | $ -- | $ -- | -- |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
| | For the three months ended |
| | June 30, |
| | 2010 2009 |
| INVESTMENT INCOME | $ | | $ | |
| Portfolio investment interest | | -- | | -- |
| TOTAL INCOME | | -- | | -- |
| | | | | |
| EXPENSES | | | | |
| Investment advisory fees | | -- | | -- |
| General and administrative: | | | | |
| Bank fees | | 459 | | -- |
| Consulting fees (including $42,250 and $0 with related parties) | | 42,250 | | 12,500 |
| Officers’ consulting | | 206,250 | | 221,250 |
| Other expenses | | 12,600 | | 1,599 |
| Payroll taxes | | -- | | 16,797 |
| Professional fee expenses | | 15,942 | | 5,583 |
| Rent | | 1,800 | | 1,100 |
| Travel | | 7,401 | | -- |
| Total expenses | | 286,702 | | 258,829 |
| INCOME (LOSS) FROM OPERATIONS | | (286,702) | | (258,829) |
| Other income and expenses: | | | | |
| Cancellation of accounts payable due officers | | 60,000 | | -- |
| Interest expenses | | ( 3,070) | | -- |
| Total other income and expenses | | (56,930) | | -- |
NET INCOME (LOSS) BEFORE INCOME TAX | | (229,772) | | (258,829) |
| Provision for income tax | | -- | | -- |
| NET INCOME (LOSS) | $ | (229,772) | $ | (258,829) |
| | | | | |
| Net loss per share- basic and diluted | $ | (0.01) | $ | (0.01) |
| | | | | |
| Weighted average common shares outstanding | | | | |
| Basic | | 39,026,712 | | 34,449,319 |
| Diluted | | 39,026-712 | | 34,449,319 |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
| | For the six months ended |
| | June 30, |
| | 2010 2009 |
| INVESTMENT INCOME | $ | | $ | |
| Portfolio investment interest | | -- | | -- |
| TOTAL INCOME | | -- | | -- |
| | | | | |
| EXPENSES | | | | |
| Investment advisory fees | | -- | | -- |
| General and administrative: | | | | |
| Bank fees | | 698 | | -- |
| Consulting fees (including $68,500 and $0 with related parties) | | 91,500 | | 31,250 |
| Officers’ salaries/consulting | | 356,250 | | 427,500 |
| Other expenses | | 12,715 | | 2,509 |
| Payroll taxes | | -- | | 33,594 |
| Professional fee expenses | | 20,942 | | 5,583 |
| Rent | | 3,600 | | 2,750 |
| Travel | | 12,282 | | -- |
| Total expenses | | 497,987 | | 503,186 |
| INCOME (LOSS) FROM OPERATIONS | | (497,987) | | (503,186) |
| Other income and expenses: | | | | |
| Cancellation of accounts payable due officers | | 60,000 | | -- |
| Interest expenses | | (6,141) | | -- |
| Total other income and expenses | | 53,859 | | -- |
NET INCOME (LOSS) BEFORE INCOME TAX | | (444,128) | | (503,186) |
| Provision for income tax | | -- | | -- |
| NET INCOME (LOSS) | $ | (444,128) | $ | (503,186) |
| | | | | |
| Net loss per share- basic and diluted | $ | (0.01) | $ | (0.01) |
| | | | | |
| Weighted average common shares outstanding | | | | |
| Basic | | 37,740,210 | | 34,449,319 |
| Diluted | | 37,740,210 | | 34,449,319 |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
| | | | | | | | | | |
| | Six months ended June 30, 2010 (unaudited) | | | Year ended December 31, 2009 | |
| Increase (Decrease) in net assets from operations: | | | | | | | |
| Net investment (loss) | $ | (444,128) | | | $ | (539,324) | |
| Net increase (decrease) in net assets resulting from operations | | (444,128) | | | | (539,324) | |
| Capital share transactions: | | | | | | | |
| Proceeds from shares sold | $ | 382,450 | | | | 363,200 | |
| Warrants issued | | --- | | | | 9,084 | |
| Net increase in net assets from capital share transactions | | 382,450 | | | $ | 372,284 | |
| Total increase (decrease) in net assets: | | (61,678) | | | $ | (167,040) | |
| Net assets (deficiency) at beginning of period | | (185,119) | | | | (18,079) | |
| Net assets (deficiency) at end of period | $ | (246,797) | | | $ | (185,119) | |
| Capital share activity | | | | | | | |
| Shares sold | | 2,549,667 | | | | 2,421,333 | |
| Net increase in capital share activity | | 2,549,667 | | | | 2,421,333 | |
| | | | | | | | |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
& #160; For the six months
0; ended June 30,
& #160; 2010 2009
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net Loss | $ | (444,128) | $ | (503,186) |
| Adjustments to reconcile net loss to net cash used by operations: | | | | |
| Amortization of debt discount | | 4,542 | | -- |
| Cancellation of amounts due officers | | (60,000) | | -- |
| Increase (decrease) in: | | | | |
| Accounts payable and accrued expenses | | 50,387 | | 15,727 |
| Accrued officers’ salaries | | -- | | 382,500 |
| Accrued payroll taxes | | -- | | 33,594 |
| Accrued interest | | 1,599 | | 896 |
| Due to officers | | 87,667 | | -- |
| Deposit | | (5,000) | | |
| NET CASH USED BY OPERATING ACTIVITIES | | (364,933) | | ( 70,469) |
| | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| | | -- | | -- |
| NET CASH USED BY INVESTING ACTIVITIES | | -- | | -- |
| | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| Issuance of common stock for cash | | 382,450 | | 76,000 |
| Shareholder advance | | -- | | 30,000 |
| Proceeds from notes | | -- | | 25,000 |
| NET CASH FROM FINANCING ACTIVITIES | | 382,450 | | 131,000 |
| NET CASH INCREASE FOR PERIOD | | 17,517 | | 60,531 |
| CASH AT BEGINNING OF PERIOD | | 1,732 | | 447 |
| CASH AT END OF PERIOD | $ | 19,249 | $ | 60,978 |
| | | | | |
| | | | | |
| SUPPLEMENTAL DISCLOSURES: | | | | |
| Interest paid | $ | -- | $ | -- |
| Income taxes paid | $ | -- | $ | -- |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
NOTE 1. ORGANIZATION AND INTERIM FINANCIAL STATEMENTS
American Development & Investment Fund, Inc. (the “Company”), a Nevada corporation, was organized in February, 1997 and filed an election to be treated as a business development company (BDC) under the Investment Company Act of 1940, (the 1940 Act) in March 2006. On June 18, 2010, the Board of Directors recommended that the corporate name be changed to American BioCare, Inc. and that the election to be treated as a business development company be terminated. A majority (57%) of our shareholders approved these actions by written consent and an Information Statement on Form 14C was mailed to all of the Company’s shareholders on July 12, 2010. On August 2, 2010, the Articles of Amendment of the Company’s Articles of Incorporation were amended to change the corporate name to American BioCar e, Inc. A Form N54-C is expected to be filed with the SEC to terminate the BDC election shortly.
As a BDC, the company was subject to the filing requirements of the Securities Exchange Act of 1934 and elected to be subject to Sections 55 to 65 of the 1940 Act, which apply only to BDCs. The Company was not a registered investment company under the 1940 Act, however, and was not required to file the semi-annual and annual reports required to be filed by registered investment companies under Section 30 of the 1940 Act. As a BDC, the Company remained subject to the normal financial reporting requirements of Regulation S-X issued by the SEC, including Section 6 thereof applicable to regulated investment companies. The termination of the BDC election will result in the Company filing the normal financial reports required by Regulation S-X other than Section 6. Since the Company was still a BDC at June 30, 2010 and has not yet filed the Form N54-C terminating the election, the financial statements included in this Report are presented as a business development company. At June 30, 2010, the Company had not yet invested in any portfolio companies.
The accompanying financial statements are un-audited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q, including Regulation S-X. Accordingly, certain information and footnote disclosures normally included in audited financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements that were included in the Form 10-K filed by the Company for the year ended December 31, 2009. The accompanying financial reports have been prepared in accordance with the requirements of Regulation S-X, as expl ained and interpreted in the Audit and Accounting Guide for Investment Companies of the American Institute of Certified Public Accountants (May 1, 2010) the Audit Guide).
Operating results for the interim period presented are not necessarily indicative of the results to be expected for a full year.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. The following are significant accounting policies which will be consistently applied by the Company and are based on Chapter 7 of the Audit Guide, as modified by Appendix A applicable to business development companies:
Investments:
(a) Security transactions are recorded on a trade-date basis.
(b) Valuation:
(1) Investments for which market quotations are readily available are valued at such market quotations.
(2) Short-term investments which mature in 60 days or less, such as U.S. Treasury bills, are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between the principal amount due at maturity and cost. Short-term securities which mature in more than 60 days are valued at current market quotations by an independent pricing service or at the mean between the bid and ask prices obtained from at least two brokers or dealers (if available, or otherwise by a principal market maker or a primary market dealer). Investments in money market mutual funds are valued at their net asset value as of the close of business on the day of valuation.
(3) It is expected that most of the investments in the Company’s portfolio will not have readily available market values. Debt and equity securities whose market prices are not readily available are valued at fair value, with the assistance of an independent valuation service, using a valuation policy and a consistently applied valuation process which is under the direction of our board of directors.
The factors that may be taken into account in fairly valuing investments include, as relevant, the portfolio company’s ability to make payments, its estimated earnings and projected discounted cash flows, the nature and realizable value of any collateral, the financial environment in which the portfolio company operates, comparisons to securities of similar publicly traded companies and
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
other relevant factors. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of these investments may differ significantly from the values that would have been used had a ready market existed for such investments, and any such differences could be material.
As part of the fair valuation process, the Audit Committee of the Company will review the preliminary evaluations prepared by the Investment Advisor engaged by the Board of Directors, as well as management's valuation recommendations and the recommendations of the Investment Committee. Management and the Investment Advisor will respond to the preliminary evaluation to reflect comments provided by the Audit Committee. The Audit Committee will review the final valuation report and managements valuation recommendations and make a recommendation to the Board of Directors based on its analysis of the methodologies employed and the various valuation
factors as well as factors that the Investment Advisor and management may not have included in their evaluation processes. The Board of Directors then will evaluate the Audit Committee recommendations and undertake a similar analysis to determine the fair value of each investment in
the portfolio in good faith.
(c) Realized gains or losses on the sale of investments are calculated using the specific identification method.
(d) Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis.
(e) Dividend income is recorded on the ex-dividend date.
(f) Loan origination, facility, commitment, consent and other advance fees received by us on loan agreements or other investments are accreted into income over the term of the loan.
Federal and State Income Taxes:
The Company has not elected to be treated as, and is not, a regulated investment company and does not presently intend to comply with the requirements of the Internal Revenue Code of 1986 (the Code), applicable to regulated investment companies. A regulated investment company is required to distribute at least 90% of its investment company taxable income to shareholders, which the Company does not expect to do for the foreseeable future. Therefore, the Company must make appropriate provision for income taxes in accordance with FASB ASC 740-10-25, Accounting for Income Taxes, using the liability method, which requires the recognition of deferred assets and liabilities for the expected future tax consequences of temporary differences between carry amounts
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
and tax basis of assets and liabilities. At June 30, 2010, the Company has approximately $1,238,000 of net operating loss carry-forwards available to affect future taxable income and has established a valuation allowance equal to the tax benefit of the net operating loss carry-forwards as realization of the asset is not assured. The valuation allowance was approximately $420,920 at June 30, 2010 and the change in the valuation was approximately $80,800 for the quarter ended June 30, 2010. The net operating loss carry-forwards may be limited under the change of control provisions of the Internal revenue Code, Section 382.
The Company applies the provisions of the accounting standards for the Accounting for Uncertainty in Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.
For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Dividends and Distributions:
Dividends and distributions to common stockholders will be recorded on the ex-dividend date. The amount, if any, to be paid as a dividend will be approved by the board of directors each quarter and will be generally based upon management’s estimate of our earnings for the quarter and our investment needs. Net realized capital gains, if any, will be reviewed at least annually as part of any distribution determination.
Consolidation:
As an investment company, the Company will only consolidate subsidiaries which are also investment companies. At June 30, 2010, the Company did not have any consolidated subsidiaries.
Managerial Assistance
As a business development company, we will offer, and provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. The Company expects to receive fee income for providing these services from each portfolio company.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Custodial Agreements
Rule 17f-1(c) issued under the Investment Company Act of 1940 provides that if a registered investment company shall place or maintain any of its investment securities in the custody of a member of a national securities exchange, then it may do so only pursuant to a written contract approved by its Board of Directors and containing certain required provisions. The Company, as a BDC, is not a registered investment company and in any event has no securities placed or maintained with such a member. Therefore, the Company does not have and has not filed, such an agreement with the SEC.
Fidelity Bond
Rule 17g-1 issued under the Investment Company Act of 1940 provides that a registered investment company must provide and maintain a fidelity bond against larceny or embezzlement by each officer or employee of the company who may have access to securities or funds of the company, directly or indirectly. The Company had no securities and minimal cash as of June 30, 2010, and no employees who have access to funds or securities of the Company.
Fair Value of Measurements
The Company follows accounting guidance relating to fair value measurements. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
Level 2 – inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
Level 3 – unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the unobservable inputs.
The fair value of the Company’s notes payable approximates carrying value and is based on Level 2 inputs.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements:
In February 2010, the FASB issued Accounting Standards Update No. 2010-09 (“ASU 2010-09”), “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” which amount other things amended ASC 855 to remove the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between ASC 855 and the SEC’s requirements. All of the amendments in this update are effective upon issuance of this update. Management has included the provisions of these amendments in the financial statements.
The Company has reviewed all recently issued, but not effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
NOTE 3. PORTFOLIO INVESTMENTS
As required by the 1940 Act, we will classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally viewed to exist when a company or individual owns 25% or more of the voting securities of an investee company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through ownership of an amount greater than 5% but less than 25% of the voting securities of the investee company. The Company currently has no controlled or affiliated investments.
NOTE 4. RELATED PARTY TRANSACTIONS
Consulting expenses for the quarters ended June 30, 2010 and 2009 include $3,250 and $0 respectively, of consulting services received from related parties. For the quarter ended June 30, 2010, a total of $206,250 in amounts were due to officers from consulting relationships in lieu of salaries.
Due to affiliate at June 30, 2010 and December 31, 2009 of $3,550 represents cash advances received from an affiliate in 2007. The amount due is non interest bearing and due on demand.
Due to officers of $87,667 at June 30, 2010 represents unpaid consulting expenses due to Tower I Consulting, LLC for the services of Adam Mayblum and Patrick Donelan ($35,833 each) and to Bainbridge Ventures, LLC ($16,000) for the services of Gary D. Lewis. See, Employment Contracts, below.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
NOTE 4. RELATED PARTY TRANSACTIONS (continued)
As of June 30, 2010, a total of $81,800 has been accrued under the consulting agreement with CF Consulting, LLC, of which approximately $5,500 represents unpaid rent for office space, telephone, computer and network services and related items, also supplied by CF Consulting, LLC. The balance of the total accounts payable of $153,056 at June 30, 2010 is for financial and legal services as well as a total of $17,500 in accrued consulting fees due to Roger Tannery, the consulting CFO of the Company. The principal of CF Consulting is a stockholder of the Company.
The Company has entered into a consulting agreement with GNL Advisors, LLC, based on in Chicago, Illinois, for financial and related services. A total of $6,000 was paid to GNL advisors, LLC in April, 2010, and an additional $5,000 has been accrued as due for each of the months of May and June, 2010. The principal of GNL Advisors, LLC is Gary N. Lewis, who is the son of the Chairman of the Company, Gary D. Lewis.
Employment Contracts
In January, 2009, the Company entered into employment agreements with Mr. Lewis, Mr. Mayblum and Mr. Donelan, officers and directors (Lewis and Mayblum) of the Company, in the expectation that the Company would be funded and also would acquire several portfolio acquisitions then in negotiations. Salaries and employment taxes were accrued on these employment agreements during the first three quarters of 2009. On October 15, 2009, the Board of Directors approved, and the three individuals accepted, an amendment to each Employment Agreement, postponing the payment of salaries until after the Company completes its first acquisition, and agreeing to pay Bainbridge Ventures, Inc. for the services of Mr. Lewis, as a part-time consultant, and Tower I Consultants, LLC for the services of Mr. Mayblum and Mr. Donelan, also a s part-time consultants. The previous accruals of salaries and related taxes was reversed as a result and consulting fees were paid instead at that time, except for a total of $60,000 in accrued amounts due to Tower I for Donelan and Mayblum at December 31, 2009, which was subsequently reversed during the quarter ended June 30, 2010. The results of that reversal are reflected as Other income in the accompanying financial statements.
As a result of the First Amendments to each of the Employment Agreements, Bainbridge Ventures, Inc. was entitled to $27,083 per month during the quarter ended June 30, 2010 for the services of Mr. Lewis, and Tower I Consultants, LLC was entitled to $41,667 per month during the quarter ended June 30, 2010 for providing the services of Mr. Donelan and Mr. Mayblum, until such time as the Company has closed on its first acquisition, at which time the salaries payable under the Employment Agreements will commence. A total of $206,250 in amounts were due to officers for the quarter, ended June 30, 2010. A total of $85,250 was paid to Bainbridge Ventures, Inc. during the quarter for the services of Mr. Lewis, and $83,333 was paid to Tower I Consultants, LLC during the quarter for the services of Mr. Mayblum and Mr. Donelan.
Note Payable
On March 10, 2009, the Company issued to an existing, otherwise non-affiliated shareholder a convertible promissory note in the aggregate principal amount of $25,000. The note bears interest at 12% per annum. All principal and interest were due September 30, 2009 and were convertible, in
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
NOTE 4. RELATED PARTY TRANSACTIONS (continued)
full or in part, at the option of the holder into shares of the Company’s common stock at a conversion price of $0.15 per share at or before maturity. No conversion occurred and the note was paid by the issue of a new promissory note dated September 30, 2009 in the principal amount of $26,646, representing principal and accrued interest on the old note. The new note also bears interest at the rate of 12 percent per year and is due September 30, 2010. The note holder also received a warrant dated October 1, 2009 to purchase up to 200,000 non-assessable shares of the Company’s common stock. See Note 5. The fair value of the warrant was determined to be $9,084 at the time of issue, and this amount was recorded as a debt discount, decreasing the value of the note payable and increasing equity as additional paid in capital, as of October 1, 2009. The debt discount, which is being amortized to interest expense over the one-year term of the debt, totaled $2,271 at June 30, 2010 and $6,813 at December 31, 2009.
NOTE 5. STOCKHOLDERS’ EQUITY.
A total of 376,333 common shares were issued by the Company during the quarter ended June 30, 2010 at $0.15 per share for a total of $56,450.
NOTE 6. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the six months ended June 30, 2010 and for the twelve months ended December 31, 2009:
CHANGES IN NET ASSET VALUE
| | | For the | | For the |
| | | Three months ended | | Twelve months ended |
| | | June 30, 2010 | | December 31, 2009 |
| | | | | |
| Net asset value at beginning of period (1) | $ | (0.00516) | $ | (0.00053) |
| Proceeds from common stock | | 0.00971 | | 0.00997 |
| Net investment income (loss) | | (0.01087) | | (0.01480) |
| Warrants issued | | 0.00000 | | 0.00020 |
| Net asset value at end of period (2) | $ | (0.00632) | $ | (0.00516) |
| (1) | Financial highlights as of June 30, 2010 and December 31, 2009 are based on 39,379,000 and 36,829,333 fully diluted common shares outstanding, respectively. |
| (2) | The changes in net asset value during the period ended June 30, 2010 result in insignificant |
changes, (measured in the thousandths or smaller increments) and therefore are not deemed to be material.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
NOTE 7 GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s financial position and operating results raise substantial doubt about the Company’s ability to continue as a going concern, as reflected by the accumulated deficit of $1,238,103 and recurring net losses. The ability of the Company to continue as a going concern is dependent upon acquiring suitable portfolio investments and obtaining additional capital and financing. Management’s plan in this regard is to acquire portfolio investment operating entities and secure financing and operating capital. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a
going concern.
NOTE 8 SUBSEQUENT EVENTS
During the quarter ended June 30, 2010, the Board of Directors approved resolutions to change the name of the corporation to American BioCare, Inc., to end the election to be treated as a business development company, and to recapitalize the Company by creating two classes of common stock, Series A and Series B common stock. The Board also approved the adoption of a stock option plan for officers, directors, employees and consultants. A majority of the shareholders of the Company approved these actions and an Information Statement describing the changes was sent to all of the shareholders of the Company on July 12, 2010. The changes became effective on August 2, 2010.
However the stock split has not yet been implemented as it is contingent upon the Company filing an amended certificate of incorporation in Nevada to establish two classes of stock, which has not yet occurred. The reverse split will be accomplished by the exchange of the current common shares for new Series B common shares. As a result of the one-for-twelve reverse stock split, each twelve shares of outstanding common stock will be exchanged for one new share of Series B common stock. Each stockholder will hold the same percentage of outstanding common stock immediately following the reverse stock split as such stockholder held immediately prior to the reverse stock split. Currently, the Company is authorized to issue up to a total of 150,000,000 shares of common stock, which as a result of the recapitalization will be class ified into 146,000,000 million shares of Class A Common Stock and 4,000,000 million shares of Class B Common Stock. The reverse stock split will not change the number of total authorized shares of the Company’s capital stock. There were 39,379,000 common shares outstanding, which will become 3,281,583 Series B common shares after the transaction. An additional 718,417 post-split Series B Common Stock shares will remain available for issue. No Series B Common shares have been issued as of the date of this Report. The par value per share of Series A and the new Series B common stock will remain unchanged at $0.001 per share after the reverse stock split.
The stock split will be retroactively applied in the financial statement once the amended certificate of incorporation is filed with and approved by the State of Nevada. There have been no common stock transactions subsequent to the announced split effective August 2, 2010.
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, expenses, earnings or losses from operations or investments, or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include risks that are describe d from time to time in our Securities and Exchange Commission, or the SEC, reports filed before this report.
The forward-looking statements included in this quarterly report represent our estimates as of the date of this quarterly report. We specifically disclaim any obligation to update these forward-looking statements in the future. Some of the statements in this quarterly report constitute forward-looking statements, which relate to future events or our future performance or financial condition. Such forward-looking statements contained in this quarterly report involve risks and uncertainties.
We use words such as anticipates, believes, expects, future, intends and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason. We caution you that forward-looking statements of this type are subject to uncertainties and risks, many of which cannot be predicted or quantified.
The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto contained elsewhere in this Form 10-Q, as well as the risk factors included in our Form 10-K filed for the year ended December 31, 2009.
Overview
We were incorporated under the Nevada General Corporation Law in February 1997 as MNS Eagle Equity Group, Inc., and were a development stage company through the end of 2005, and until we changed our business model with the election to be treated as a business development company on March 20, 2006. On March 8, 2006, we changed our corporate name to American Development & Investment Fund, Inc., to reflect our new business model and plan. We expect to file a Form N54-C terminating our status as a business development company in the near future, and will then cease to act as a BDC. We have also changed our corporate name to American BioCare, Inc.
Results of Operations
For the quarter ended June 30, 2010, we incurred bank fees of $459, consulting expenses of $42,250, rent expense of $1,800, professional fees of $15,942, officers’ consulting expenses of $206,250, investment banking fees of $12,500 and travel expenses of $7,401, compared to bank fees of $83, consulting expenses of $63,750, rent expense of $1,650, professional fees of $5,583, officers’ salaries of $0, payroll taxes of $0, transfer agent fees of $510 and travel expenses of $0 for the quarter ended June 30, 2009. For the six months ended June 30, 2010, net investment loss totaled $444,128 compared to a net investment loss of $503,186 for the six months ended June 30, 2009, based on net operating expenses of $497,987 for 2010 compared to $503,186 for 2009. The Company has yet to generate any revenue.
Effective January 1, 2009, we entered into employment agreements with our three principal officers, calling for annual salaries of $325,000, $250,000 and $250,000 to commence when the Company is adequately funded. Pending such funding, the Company expensed consulting amounts of $20,833 each per month for the services of Adam Mayblum and Patrick Donelan, and $27,083 for the services of Gary Lewis, in lieu of employment payments during the quarter, as follows:
Bainbridge Ventures, Inc. 0; $ 81,250 (for Gary D. Lewis)
Tower 1 Consulting, LLC $ 125,000 (for Adam Mayblum and Patrick Donelan)
A total of $87,667 in amounts due officers under this consulting arrangement were accrued as of the end of the quarter ended June 30, 2010, $71,667 to Tower I Consulting, LLC and $16,000 to Bainbridge Ventures, Inc.
Our total operating expenses were $286,702 for the quarter ended June 30, 2010 and $72,472 for the quarter ended June 30, 2009. We had no operating income reported for either quarter. For the quarter ended June 30, 2010, by agreement with Tower I Consulting, LLC, an accrual of consulting expenses at December 31, 2010 was cancelled in the amount of $60,000, resulting in Other income reported in that amount for the quarter.
Financial Highlights
Financial highlights of the Company for the period ending June 30, 2010 are included in Footnote 5 to our Financial Statements.
Investment Activity
We have not yet engaged in any portfolio investments and have not yet raised significant capital to be employed in our proposed investment activities. As of the date of this report, the Company has entered into an understanding for the acquisition of a company in the healthcare field and also is in negotiations to acquire an unrelated company in the Internet distribution market.
Long-Term Portfolio Investments
There were no portfolio investments made during the three months ended June 30, 2010.
Investment Income
We expect to generate revenue in the form of interest income on any debt securities that we own, dividend income on any common or preferred stock that we own, and capital gains or losses on any debt or equity securities that we acquire in portfolio companies and subsequently sell. We also expect to receive fee income from providing management services to our portfolio companies. Our investments, if in the form of debt securities, will typically have a term of one to ten years and bear interest at a fixed or floating rate. To the extent achievable, we will seek to collateralize our investments by obtaining security interests in our portfolio companies assets. Our business model, however, is to invest primarily in equity securities of our portfolio companies and to maintain a minimal level of debt investment. We do not plan to engage in any form of leveraged investment for the foreseeable future, and will not engage in any co-investment transactions with any affiliated persons. We earned no investment income during the quarter ended June 30, 2010.
Operating Expenses
Our primary operating expenses consisted of consulting, and other operating and overhead-related expenses, including amounts paid to our executive officers.
Operating expenses totaled $286,702 for the quarter ended June 30, 2010 as compared to $72,472 for the quarter ended June 30, 2009.
Net Investment Income, Net Unrealized Appreciation and Net Increase in Stockholders’ Equity Resulting from Operations
Our net investment income (loss) totaled $(229,773) for the quarter ended June 30, 2010 compared to $($72,472) for the quarter ended June 30, 2009 and $(499,324) for the year ended December 31, 2009. Net unrealized appreciation totaled $0 for the quarter ended June 30, 2010 compared to $0 for the quarter ended June 30, 2009 and $0 for the year ended December 31, 2009. To date, we have generated no cash flows from operations.
Financial Condition, Liquidity and Capital Resources
During the quarter ended June 30, 2010, we raised proceeds of $56,450 from the sale of 376,333 shares of common stock in two separate private placement transactions. The per-share price of each transaction was $0.15.
In the future, we may fund a securities or secondary offering of equity, including further exempt offerings. We may also securitize a portion of our investments in mezzanine or senior secured loans or other assets. Our primary use of funds will be investments in portfolio companies.
The ability of the Company to continue as a going concern is dependent upon acquiring suitable portfolio investments and on obtaining additional capital and financing.
Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to
be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are subject to financial market risks, including changes in interest rates, equity price risk and some of the loans in our portfolio may have floating rates in the future. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of higher interest rates with respect to our portfolio of investments. During the three months ended June 30, 2010 and the twelve months ended December 31, 2009, we did not engage in any hedging activities.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based on that evaluation, as of June 30, 2010, the Chief Executive Officer and the Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to the Company that is required to be disclosed by the
Company in the reports it files or submits under the Securities Exchange Act of 1934.
Internal Control Over Financial Reporting
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such responsibility is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, and for performing an assessment of the effectiveness of internal control of financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
There have been no changes in our internal controls over financial reporting that occurred during the three months ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a defendant in any legal action arising out of its activities. We are not aware of any other material pending legal proceeding, and no such material proceedings are known to be contemplated, to which we are a party or of which any of our property is subject.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
A total of 376,333 common shares were issued by the Company during the quarter ended June 30, 2010 at $0.15 per share for a total of $56,450.
As a result, there were 39,379,000 common shares issued as of June 30, 2010 and no shares of preferred stock issued at June 30, 2010.
Item 3. Defaults Upon Senior Securities.
The Company is not in default on any senior securities.
Item 4. Submission of Matters to a Vote of Security Holders.
During the quarter ended June 30, 2010, a majority of our shareholders consented in writing to the change of our corporate name, termination of our status as a business development company, a reverse stock split, recapitalization and creation of Series A and Series B common stock, and adoption of a stock option plan for officers, directors, employees and consultants of the Company. These changes became effective on August 2, 2010 after the delivery of an Information Statement describing the changes to all of our shareholders on July 12, 2010.
Item 5. Other Information.
Recapitalization
The Company has engaged an investment banking firm to assist the Company with its capital structure and to assist in the funding of the proposed acquisitions of operating companies to
undertake the new business direction of the Company. A total of $23,000,000.00 in new funding has been proposed, as an investment in a new class of common stock, designated as Series A common stock; however, no agreements have been signed yet. It was also recommended that the existing common stock be reclassified as Series B common stock, and that the new Series B common stock have a non-dilutive 35 percent equity interest in the Company, until such time as the Series B shares are converted into Series A common shares. It is expected that, following the completion of the proposed funding of the Company and the effectiveness of a planned registration statement, we will seek to list the Series A shares for trading on a senior exchange. Holders of the Series B shares will have the election to convert into Series A shares, as discussed in more detail below.
The Series B shares initially will represent 100 percent of the issued and outstanding shares of the Company following the recapitalization, but will be diluted as new Series A shares are issued for cash or other consideration deemed to be acceptable to the Board of Directors. In no event, can the dilution of the Series B shares be diluted below 35 percent of the total voting equity of the Company, unless and until Series B shares are converted into Series A shares. The specific rights of each class of shares are set forth in Certificates of Designations filed with the Secretary of State of Nevada, in the form set forth in Schedule “B” to the Information Statement filed with the SEC on July 12, 2010
The Series B shares may be converted, in whole or in part, at any time after the effective date of this Information Statement into Series A shares on the basis of one (1) Series A share for each Series B share tendered for conversion. As a result of a conversion of a Series B share as provided in the Certificate of Designations for the Series B Shares, the remaining Series B shares shall have a non-dilutive minimum equity interest in the Company equal to 35 percent reduced proportionately by the percentage of the total Series B shares outstanding at the effective date of the Information Statement represented by the Series B shares which have been converted into Series A shares. On conversion of all of the Series B shares into Series A shares, all of the equity voting interests in the Company shall then be vested in the Serie s A common shares. All Series B Common Stock will convert automatically into Series A Common Stock on the date which is five (5) years from the effective date of this Information Statement, which is 20 days after it has been mailed to our shareholders of record.
Reverse Stock Split
The Board of Directors of the Company unanimously approved an amendment to our certificate of incorporation and a reverse stock split of all outstanding shares of our common stock at an exchange ratio of one new share of Series B Common Stock for each twelve (12) shares of common stock now outstanding. The reverse stock split became effective at 5:00 p.m. Eastern Standard time on August 2, 2010, but has not yet been implemented as it is contingent on the Company filing a Certificate of Designation of Preferences in Nevada to establish two classes of common stock, which has not yet occurred. The reverse stock split will be accomplished by the exchange of the current common shares for new Series B Common Stock. There have been no common stock transactions subsequent to the announced split, effective August 2, 2010.
As a result of the one-for-twelve reverse stock split, each twelve shares of outstanding common stock will be exchanged for one new share of Series B common stock. Each stockholder will hold the same percentage of outstanding common stock immediately following the reverse stock split as such stockholder held immediately prior to the reverse stock split. Currently, we are authorized to issue up to a total of 150,000,000 shares of common stock, which as a result of the recapitalization will be classified into 146,000,000 million shares of Class A Common Stock and 4,000,000 million shares of Class B Common Stock. The reverse stock split will not change the number of total authorized shares of our capital stock. There are 39,379,000 common shares outstanding, which will become 3,281,583 Series B common shares after the transaction. 60; An additional 718,417 post-split Series B Common Stock shares will remain available for issue. No Series A Common shares have been issued as of the date of this Report. The par value per share of both Series A and Series B common stock will remain unchanged at $0.001 per share after the reverse stock split.
The reverse stock split will be retroactively applied in the financial statements once the Statement of Designations is filed with the State of Nevada.
Item 6. Exhibits
Exhibit Description of Exhibit
31 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.1 Certification of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a)
32 Certification of Chief Executive and Financial Officers pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
_/s/__Gary D. Lewis____ August 13, 2010
Gary D. Lewis, Chairman
