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 September 30, 2010
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
0; 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)
0; NEVADA 90-0263041
(State or Other Jurisdiction of Incorporation or Organization) &# 160; (I.R.S. Employer Identification No.)
1365 N. Courtenay Parkway, Suite A
0; Merritt Island, FL 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 60; [ ] Accelerated filer [ ]
Non-accelerated filer ; [ ] 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 November 15, 2010, was 40,479,000 shares.
AMERICAN BIOCARE, INC.
FORM 10-Q
SEPTEMBER 30, 2010
TABLE OF CONTENTS
0; & #160; PAGE NO.
| PART I. FINANCIAL INFORMATION | |
| Item 1. Financial Statements | |
| Balance Sheets as of September 30, 2010 and December 31, 2009 | 1 |
| Statements of Operations for the three month periods ended September 30, 2010 and 2009 | 2 |
| Statements of Operations for the nine month periods ended September 30, 2010 and 2009 | 3 |
| Statements of Cash Flows for the nine month periods ended September 30, 2010 and 2009 | 4 |
| Notes to Financial Statements | 5 |
| | |
| Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 13 |
| Item 4. Controls and Procedures | 13 |
| | |
| PART II. OTHER INFORMATION | |
| Item 1. Legal Proceedings | 14 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
| Item 3. Defaults Upon Senior Securities | 14 |
| Item 4. Removed and Reserved | 14 |
| Item 5. Other Information | 14 |
| Item 6. Exhibits and Reports on Form 8-K | 16 |
| | |
| Signatures | 16 |
PART I.
ITEM 1. FINANCIAL INFORMATION
AMERICAN BIOCARE, INC.
BALANCE SHEETS
| | | September 30 | | December 31 |
| | | 2010 | | 2009 |
| | | | | (Audited) |
| ASSETS | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | $ | 98,562 | $ | 1,732 |
| Deposits | | 15,000 | | -- |
| Total current assets | | | | 1,732 |
| Other assets | | -- | | -- |
| Total assets | $ | 113,562 | $ | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
| LIABILITIES | | | | |
| Current liabilities | | | | |
| Accounts payable (including $0 and $59,700 to related parties) | $ | 207,597 | $ | 102,669 |
| Accrued interest | | 3,198 | | 799 |
| Note payable related party (net of discount of $2,271 and $6,813) | | 26,646 | | 19,833 |
| Due to affiliate | | 3,550 | | 3,550 |
| Due to officers | | 244,917 | | 60,000 |
| Total current liabilities | | 485,908 | | 186,851 |
| Long term liabilities | | -- | | -- |
| Total liabilities | | 485,908 | | 186,851 |
| STOCKHOLDERS’ EQUITY (DEFICIT) | | | | |
| Common stock, $0.001 par value, 150,000,000 shares authorized, 40,479,000 | | | | |
| and 36,829,333 shares issued at September 30, 2010 and December 31, 2009 | | 40,479 | | 36,829 |
| Additional paid-in capital | | 1,115,827 | | 572,027 |
| Retained earnings (accumulated loss) | | (1,528,652) | | (793,975) |
| Total stockholders’ equity (deficit) | | (372,346) | | (185,119) |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 113,562 | $ | 1,732 |
| | | | | |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
| | For the three months ended |
| | September 30, |
| | 2010 2009 |
| INCOME | $ | -- | $ | -- |
| | | | | |
| EXPENSES | | | | |
| General and administrative: | | | | |
| Bank fees | | 252 | | 438 |
| Consulting fees | | 50,417 | | 34,500 |
| Officers’ consulting-related parties | | 206,250 | | 206,250 |
| Other expenses | | 2,810 | | -- |
| Professional fee expenses | | 20,650 | | 12,583 |
| Rent | | 1,800 | | 1,650 |
| Travel | | 5,299 | | 4,309 |
| Total expenses | | 287,748 | | 259,730 |
| INCOME (LOSS) FROM OPERATIONS | | (287,748) | | (259,730) |
| Other income and expenses: | | | | |
| Interest expense | | ( 3,070) | | 750 |
| Total other income and expenses | | (3,070) | | (750) |
NET INCOME (LOSS) BEFORE INCOME TAX | | (290,548) | | (260,480) |
| Provision for income tax | | -- | | -- |
| NET INCOME (LOSS) | $ | (290,548) | $ | (260,480) |
| | | | | |
| Net loss per share- basic and diluted | $ | (0.01) | $ | (0.01) |
| | | | | |
| Weighted average common shares outstanding | | | | |
| Basic | | 39,558,108 | | 35,645,045 |
| Diluted | | 39,558,108 | | 35,645,045 |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
| | For the nine months ended |
| | September 30, |
| | 2010 2009 |
| INCOME | $ | -- | $ | -- |
| | | | | |
| EXPENSES | | | | |
| General and administrative: | | | | |
| Bank fees | | 950 | | 521 |
| Consulting fees | | 141,917 | | 65,750 |
| Officers’ salaries/consulting | | 562,500 | | 633,750 |
| Other expenses | | 15,525 | | 1,530 |
| Payroll taxes | | -- | | 33,594 |
| Professional fee expenses | | 41,592 | | 18,166 |
| Rent | | 5,400 | | 4,400 |
| Travel | | 17,582 | | 4,309 |
| Total expenses | | 785,466 | | 762,020 |
| INCOME (LOSS) FROM OPERATIONS | | (785,466) | | (762,020) |
| Other income and expenses: | | | | |
| Cancellation of accounts payable due officers | | 60,000 | | -- |
| Interest expenses | | (9,211) | | 1,646 |
| Total other income and expenses | | 50,789 | | 1,646 |
NET INCOME (LOSS) BEFORE INCOME TAX | | (734,677) | | (1,646) |
| Provision for income tax | | -- | | -- |
| NET INCOME (LOSS) | $ | (734,677) | $ | (763,666) |
| | | | | |
| Net loss per share- basic and diluted | $ | (0.02) | $ | (0.02) |
| | | | | |
| Weighted average common shares outstanding | | | | |
| Basic | | 38,287,199 | | 34,834,579 |
| Diluted | | 38,257,194 | | 34,834,579 |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
& #160; For the nine months
0; ended September 30,
& #160; 2010 2009
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net Loss | $ | (734,677) | $ | (763,666) |
| Adjustments to reconcile net loss to net cash used by operations: | | | | |
| Amortization of debt discount | | 6,813 | | -- |
| Cancellation of amounts due officers | | (60,000) | | -- |
| Increase (decrease) in liabilities: | | | | |
| Accounts payable and accrued expenses | | 104,929 | | 13,144 |
| Accrued officers’ salaries | | 244,917 | | 463,750 |
| Accrued payroll taxes | | -- | | 33,594 |
| Accrued interest | | 2,398 | | 1,646 |
| Decrease (increase) in assets: | | | | |
| Deposit | | (15,000) | | |
| NET CASH USED BY OPERATING ACTIVITIES | | (450,620) | | ( 251,532) |
| | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| Issuance of common stock for cash | | 547,450 | | 246,200 |
| Proceeds from notes | | -- | | 25,000 |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | | 547,450 | | 271,200 |
| NET CASH INCREASE FOR PERIOD | | 96,830 | | 19,668 |
| CASH AT BEGINNING OF PERIOD | | 1,732 | | 447 |
| CASH AT END OF PERIOD | $ | 98,562 | $ | 20,115 |
| | | | | |
| | | | | |
| SUPPLEMENTAL DISCLOSURES: | | | | |
| Interest paid | $ | -- | $ | -- |
| Income taxes paid | $ | -- | $ | -- |
See accompanying notes to financial statements.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 was a development stage company through the end of 2005 until it 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 Inco rporation were amended to change the corporate name to American BioCare, Inc. A Form N54-C was filed with the SEC to terminate the BDC election on August 16, 2010.
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 resulted in the Company filing the normal financial reports required by Regulation S-X other than Section 6. As a result of the termination of th e election, the financial statements included in this Report are presented retroactively as if the Company had not been a business development company for all periods presented. Development stage company disclosures are not presented as the Company operated as a BDC since the end of 2005.
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.
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 NINE MONTHS ENDED SEPTEMBER 30, 2010
(unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
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.
Fair Value 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.
In accordance with accounting principles generally accepted in the United States of America, certain assets and liabilities are required to be recorded at fair value on a recurring basis. None of the Company’s assets or liabilities are required to be adjusted on a recurring basis.
At September 30, 2010, the Company had no instruments that require additional disclosure under the fair value measurement standards.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Concentration of Credit Risk
The Company may place its cash with various financial institutions and, at times, cash held in depository accounts at such institutions may exceed the Federal Deposit Insurance Corporation insured limit.
Recent Accounting Pronouncements
There were no new accounting pronouncements applicable to the Company’s business during the quarter ended September 30, 2010.
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.
Federal and State Income Taxes:
The Company accounts for income taxes in accordance with accounting standards for Accounting for Income Taxes which require the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and tax credit carry-forwards. Additionally, the standards require the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.
As of September 30, 2010, the Company has net operating loss carry-forwards for Federal income tax purposes totaling approximately $1,529,000, which expire in 2030 available to offset future taxable income and has established a valuation allowance equal to the tax benefit if the loss carry-forwards as realization of the asset is not assured.. The valuation allowance changed by $249,790 during the nine months ended September 30, 2010.
The Company performed a comprehensive review of its uncertain tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10-25. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or expected to be taken in a tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. The Company does not expect any reasonably possible material changes to the estimated amount of liability associated with uncertain tax positions through September 30, 2010. The Company’s continuing policy is to recognize accrued interest and penalties related to income tax matters in income tax expense.
Reclassifications.
Certain amounts reflected in the accompanying financial statements for prior periods have been reclassified to conform to current period classification.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(unaudited)
NOTE 3. RELATED PARTY TRANSACTIONS
For the quarter ended September 30, 2010, a total of $244,914 was due to officers from consulting relationships in lieu of salaries.
Due to affiliate at September 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.
As of September 30, 2010, a total of $102,350 has been accrued under a consulting agreement with CF Consulting, LLC, of which approximately $2,600 represents unpaid rent for office space, telephone, computer and network services and related items, also supplied by CF Consulting, LLC.
The Company has entered into a consulting agreement with GNL Advisors, LLC, for financial and related services. A total of $31,667 has been accrued during the quarter ended September 30, 2010, and a total of $41,667 was accrued at September 30, 2010. No amounts were paid to GNL Advisors during the quarter ended September 30, 2010. The principal of GNL Advisors, LLC is Gary N. Lewis, who is the son of the Chairman of the Company, Gary D. Lewis.
The remaining $63,581 balance of the total accounts payable of $207,598 at September 30, 2010 is for financial and legal services, including $17,500 in accrued consulting fees due to Roger Tannery, the former consulting CFO of the Company.
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.
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(unaudited)
NOTE 3. RELATED PARTY TRANSACTIONS (continued)
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 September 30, 2010 for the consulting services of Mr. Lewis, and Tower I Consultants, LLC was entitled to $41,667 per month during the quarter ended September 30, 2010 for providing the services of Mr. Donelan and Mr. Mayblum, and this consulting expense will continue 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 and $562,500 were due to officers for the quarter and nine months ended September 30, 2010, and a total of $49,000 and $ 204,250, respectively, was paid to Bainbridge Ventures, Inc. for the services of Mr. Lewis, and $0 and $71,666 wa s paid to Tower I Consultants, LLC for the services of Mr. Mayblum and Mr. Donelan, respectively. At September 30, 2010, the total amount due to officers under the employment contracts was $244,497.
Note Payable
On March 10, 2009, the Company issued to an existing 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 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 was due September 30, 2010, but was extended by agreement to December 31, 2010. The note holder also received a warrant dated October 1, 2009 t o 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 was being amortized to interest expense over the one-year term of the debt, totaled $0 at September 30, 2010 and $6,813 at December 31, 2009.
NOTE 4. STOCKHOLDERS’ EQUITY.
A total of 1,100,000 common shares were issued by the Company during the quarter ended September 30, 2010 at $0.15 per share for a total of $165,000.
NOTE 5. 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
AMERICAN BIOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(unaudited)
NOTE 5. GOING CONCERN (continued)
substantial doubt about the Company’s ability to continue as a going concern, as reflected by the accumulated deficit of $1,528,652 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 6. RECAPITALIZATION
In June 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.
Stock split will be implemented in November, 2010 by the filing of an amended certificate of incorporation in Nevada to establish two classes of stock. The reverse split wil 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 are being 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 classified into 146,000,000 million shares of Class A Common S tock 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 40,479,000 common shares outstanding, which will become 3,373,250 Series B common shares after the transaction. An additional 626,750 post-split Series B Common Stock shares will remain available for issue. 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 statements once the amended certificate of incorporation is filed with the Secretary of State of Nevada and the recapitalization has been approved by the Financial Industry Regulatory Authority (FGINRA). There was one common stock transaction during the quarter ended September 30, 2010 in which a total of 1,100,000 common shares (pre-split) were purchased for $165,000 in cash.
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, 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 filed a Form N54-C terminating our status as a business development company on August 12, 2010 and thereby ceased acting as a BDC. We have also changed our corporate name to American BioCare, Inc. on August 2, 2010.
Results of Operations
For the quarter ended September 30, 2010, we incurred bank fees of $252, consulting expenses of $50,417, rent expense of $1,800, professional fees of $20,650, officers’ consulting expenses of $206,250, other expenses of $2,810 and travel expenses of $5,299, compared to bank fees of $438, consulting expenses of $34,500, rent expense of $1,650, professional fees of $50,095, officers’ consulting of $206,250, payroll taxes of $12,583 and travel expenses of $4,309 for the quarter ended September 30, 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 $244,917 in amounts due officers under this consulting arrangement were accrued as of the end of the quarter ended September 30, 2010, $196,667 of it to Tower I Consulting, LLC and $48,250 to Bainbridge Ventures, Inc.
Our total operating expenses were $287,748 for the quarter ended September 30, 2010 and $259,730 for the quarter ended September 30, 2009. We had no operating income reported for either quarter.
For the nine months ended September 30, 2010, operating expenses were $785,468 compared to $762,020 for the comparable period in the prior year. Consulting fees and officers’ salaries combined were $704,417 in the nine months ended September 30, 2010 compared to $699,500 in the comparable period in 2009. Professional fees and travel expenses increased a combined total of $36,699 in 2010 over the prior year nine month period.
Financial Condition, Liquidity and Capital Resources
During the quarter ended September 30, 2010, we raised proceeds of $165,000 from the sale of 1,100,000 shares of common stock in private placement transactions. The per-share price of each transaction was $0.15. Proceeds from stock sales for the nine months ended September 30, 2010 totaled $547,450, of which $450,620 has been used in operations.
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 nine months ended September 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 September 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 r esulting 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 September 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 1,100,000 common shares were issued by the Company during the quarter ended September 30, 2010 at $0.15 per share for a total of $165,000.
As a result, there were 40,479,000 common shares issued as of September 30, 2010 and no shares of preferred stock issued at September 30, 2010. As a result of the reverse split and recapitalization of the Company which will be completed by the end of November, 2010, , there will be 3,373,250 Series B Common Shares outstanding and no shares of either Series A Common Stock or preferred stock outstanding.
Item 3. Defaults Upon Senior Securities.
The Company is not in default on any senior securities.
Item 4. Removed and Reserved
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 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 o f 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, as amended in November, 2010, and which will become effective on approval of the transaction by FINRA, which is expected to be received by the end of November, 2010.
The Series B shares may be converted, in whole or in part, at any time after the effective date of the filing of the Statement of Preferences into fully paid and non-assessable shares of Series A Common Stock, at the rate of one (1) share of Series B Common Stock for one (1) share of Series A Common Stock unless, at the time such conversion election is made, the then-outstanding shares of Series A Common Stock represent at least 65 percent of the then total shares of Common Stock outstanding, in which event, each share of Series B Common Stock to be converted shall convert into that number of shares, or fractions thereof, of Series A Common Stock that would entitle the converting shareholder to the same pro-rata portion of any dividend or distribution pursuant to Paragraph 4 of the Amended and Restated Certificate of Preferences declar ed with respect to all shares of Common Stock as each share of Series 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 Series 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 filing a Certificate of Designation of Preferences in Nevada to establish two classes of common stock, as amended by the Amended and Restated Certificate of Designation of Preferences which was filed in November, 2010. The reverse stock split will be accomplished by the exchange of the current common shares for new Series B Common Stock as soon as the recapitalization has been approved by FINRA.
The stock split will be implemented in November, 2010 by the filing of an amended certificate of incorporation in Nevada to establish two classes of stock. The reverse split was 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 are being 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 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 the Company’s capital stock. There were 40,479,000 common shares outstanding, which will become 3,373,250 Series B common shares after the transaction. An additional 626,750 post-split Series B Common Stock shares will remain available for issue. 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 to the financial statements once the statement of designations has been filed and approved, which is expected by the end of November, 2010.
Item 6. Exhibits
Exhibit Description of Exhibit
| 99 | Amended and Restated Certificate of Designations of Series A and Series B Common Stock filed on November 1, 2010. |
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____ November 15, 2010
Gary D. Lewis, Chairman
/s/ Jack Zwick
Jack Zwick, Consulting CFO
