UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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 March 31, 2010
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission File number 814-00721
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 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 32953
(Address of Principal Executive Offices) (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). 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 [x] Smaller reporting company [ ]
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 May 15, 2010, was 39,002,667 shares.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
FORM 10-Q
MARCH 31, 2010
TABLE OF CONTENTS
0; & #160; PAGE NO.
| PART I. FINANCIAL INFORMATION | |
| Item 1. Financial Statements | |
| Balance Sheets as of March 31, 2010 and December 31, 2009 | F-1 |
| Schedule of Investments as of March 31, 2010 | F-2 |
| Statements of Operations for the three and nine month periods ended March 31, 2010 and 2009 | F-3 |
| Statements of Changes in Net Assets (Deficiency) for March 31, 2010 and December 31, 2009 | F-4 |
| Statements of Cash Flows for the nine month periods ended March 31, 2010 and 2009 | F-5 |
| Notes to Financial Statements | F-5 |
| | |
| Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 6 |
| Item 4. Controls and Procedures | 6 |
| | |
| PART II. OTHER INFORMATION | 7 |
| Item 1. Legal Proceedings | 7 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 7 |
| Item 3. Defaults Upon Senior Securities | 7 |
| Item 4. Submission of Matters to a Vote of Security Holders | 7 |
| Item 5. Other Information | 8 |
| Item 6. Exhibits and Reports on Form 8-K | 8 |
| | |
| Signatures | 8 |
PART I.
ITEM 1. FINANCIAL INFORMATION
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
BALANCE SHEETS
| | | March 31 | | December 31 |
| | | 2010 | | 2009 |
| | | | | (Audited) |
| ASSETS | | | | |
| Investments in portfolio companies-at fair value | $ | -- | $ | -- |
| Current assets: | | | | |
| Cash and cash equivalents | | 190,859 | | 1,732 |
| Total current assets | | | | 1,732 |
| Other assets | | -- | | -- |
| Total assets | $ | 190,859 | $ | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | |
| Liabilities | | | | |
| Current liabilities; | | | | |
| Accounts payable (including $87,750 and $59,700 to related parties) | $ | 127,081 | $ | 102,669 |
| Accrued interest | | 1,599 | | 799 |
| Note payable related party (net of discount of $4,542 and $6,813) | | 22,104 | | 19,833 |
| Due to affiliate | | 3,550 | | 3,550 |
| Due to officers | | 110,000 | | 60,000 |
| Total current liabilities | | 264,334 | | 186,851 |
| Long term liabilities: | | -- | | -- |
| Total liabilities | | 264,334 | | 186,851 |
STOCKHOLDERS’ EQUITY (DEFICIT) | | | | |
| Common stock, $0.001 par value, 150,000,000 shares authorized, 39,002,667 | | | | |
| and 36,829,333 shares issued at March 31, 2010 and December 31, 2009 | | 37,155 | | 36,829 |
| Additional paid-in capital | | 897,701 | | 572,027 |
| Retained earnings (accumulated loss) | | (1,008,331) | | (793,975) |
| Total stockholders’ equity (deficit) | | (73,475) | | (185,119) |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 190,859 | $ | 1,732 |
| | | | | |
Net asset value per common share | $ | -- | $ | -- |
See accompanying notes to financial statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
SCHEDULE OF INVESTMENTS
(UNAUDITED)
March 31, 2010
| Portfolio Investment | Industry | Amount or number | Cost | Fair value | % of net assets |
| -- | -- | -- | $ -- | $ -- | -- |
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
| | For the three months ended |
| | March 31, |
| | 2010 2009 |
| INVESTMENT INCOME | $ | | $ | |
| Portfolio investment interest | | -- | | -- |
| TOTAL INCOME | $ | -- | $ | -- |
| | | | | |
| EXPENSES | | | | |
| Investment advisory fees | $ | -- | $ | -- |
| General and administrative: | | | | |
| Bank fees | | 239 | | -- |
| Consulting fees (including $176,250 and $18,750 with related parties) | | 199,250 | | 18,750 |
| Officers’ salaries | | -- | | 206,250 |
| Other expenses | | 115 | | 910 |
| Payroll taxes | | -- | | 16,797 |
| Professional fee expenses | | 5,000 | | -- |
| Rent | | 1,800 | | 1,650 |
| Travel | | 4,882 | | -- |
| Total expenses | | 211,286 | | 244,357 |
| INCOME (LOSS) FROM OPERATIONS | $ | (211,286) | $ | (244,357) |
| Other income and expenses: | | | | |
| Interest expenses | | 3,070 | | -- |
| Total other income and expenses | | (3,070) | | -- |
NET INCOME (LOSS) BEFORE INCOME TAX | $ | (214,356) | $ | (244,357) |
| Provision for income tax | | -- | | -- |
| NET INCOME (LOSS) | $ | (214,356) | $ | (244,357) |
| | | | | |
| Net loss per share- basic and diluted | $ | (0.01) | $ | (0.01) |
| | | | | |
| Weighted average common shares outstanding | | | | |
| Basic | | 37,109,248 | | 34,408,000 |
Diluted | | 37,109,248 | | 34,408,000 |
See accompanying notes to financial statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (DEFICIENCY)
(UNAUDITED)
| | | | | | | | | | |
| | Three months ended March 31, 2010 (unaudited) | | | Year ended December 31, 2009 | |
| Increase (Decrease) in net assets from operations: | | | | | | | |
| Net investment (loss) | $ | (214,356) | | | $ | (539,324) | |
| Net increase (decrease) in net assets resulting from operations | | (214,356) | | | | (539,324) | |
| Capital share transactions: | | | | | | | |
| Proceeds from shares sold | | 326,000 | | | | 363,200 | |
| Warrants issued | | --- | | | | 9,084 | |
| | | | | | | | |
| Net increase in net assets from capital share transactions | | 326,000 | | | | 372,284 | |
| | | | | | | | |
| Total increase (decrease) in net assets: | | 111,644 | | | | (167,040) | |
| Net assets (deficiency) at beginning of period | | (185,119) | | | | (18,079) | |
| | | | | | | | |
| Net assets (deficiency) at end of period | $ | (73,475) | | | $ | (185,119) | |
| | | | | | | | |
| Capital share activity | | | | | | | |
| Shares sold | | 2,173,334 | | | | 2,421,333 | |
| | | | | | | | |
| Net increase in capital share activity | | 2,173,334 | | | | 2,421,333 | |
| | | | | | | | |
See accompanying notes to financial statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
& #160; For the three months
& #160; ended March 31,
& #160; 2010 2009
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net Loss | $ | (214,356) | $ | (244,357) |
| Adjustments to reconcile net loss to net cash used by operations: | | | | |
| Amortization of debt discount | | 2,271 | | -- |
| Increase (decrease) in: | | | | |
| Accounts payable and accrued expenses | | 24,412 | | 3,529 |
| Accrued officers’ salaries | | -- | | 206,250 |
| Accrued payroll taxes | | -- | | 16,797 |
| Accrued interest | | 800 | | -- |
| Due to officers | | 50,000 | | -- |
| NET CASH USED BY OPERATING ACTIVITIES | | (136,873) | | ( 17,781) |
| | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| | | -- | | -- |
| NET CASH USED BY INVESTING ACTIVITIES | | -- | | -- |
| | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| Issuance of common stock for cash | | 326,000 | | -- |
| Proceeds from notes | | -- | | 25,000 |
| NET CASH FROM FINANCING ACTIVITIES | | 326,000 | | 25,000 |
| NET CASH INCREASE FOR PERIOD | $ | 189,127 | $ | 7,219 |
| CASH AT BEGINNING OF PERIOD | $ | 1,732 | $ | 447 |
| CASH AT END OF PERIOD | $ | 190,859 | $ | 7,666 |
| | | | | |
| | | | | |
| SUPPLEMENTAL DISCLOSURES: | | | | |
| Interest paid | $ | -- | $ | -- |
| Income taxes paid | $ | -- | $ | -- |
See accompanying notes to financial statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(unaudited)
NOTE 1. ORGANIZATION AND INTERIM FINANCIAL STATEMENTS
American Development & Investment Fund, Inc. (American Development or 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.
As a BDC, the company is subject to the filing requirements of the Securities Exchange Act of 1934 and has elected to be subject to Sections 55 to 65 of the 1940 Act, which apply only to BDCs. The Company is not a registered investment company under the 1940 Act, however, and is 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 also is not eligible to file its periodic reports under the 1934 Act as a small business issuer. As a BDC, the Company is 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 Company does not intend to focus on any primary investment market, and expects to invest, under normal circumstances, at least 80 percent of its net assets in qualified portfolio companies in emerging growth markets. At March 31, 2010, the Company had not yet invested in any portfolio companies. The Company expects to concentrate on making investments in companies having annual revenues of less than $250 million and in transaction sizes of less than $25 million. In most cases, these companies will be privately held or will have thinly traded public equity.
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 explained and interpreted in the Audit and Accounting Guide for Investment Companies of the American Institute of Certified Public Accountants (May 1, 2009) 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 DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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:
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 DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 and tax basis of assets and liabilities. At March 31, 2010, the Company has approximately $1,008,000.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 $379,000 at March 31, 2010 and the change is the valuation approximately $80,000 for the quarter ended March 31, 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 March 31, 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 DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 March 31, 2010, and no employees who have access to funds or securities of the Company. Management will obtain any required fidelity bond as and when required by the rules applicable to the Company as a BDC.
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.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The fair value of the Company’s notes payable approximates carrying value and is based on Level 2 inputs.
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 March 31, 2009 and 2008 include $150,000 and $18,750, respectively, of consulting services received from related parties. As of March 31, 2010, a total of $110,000 in amounts were due to officers from the same consulting relationships.
Due to related party at March 31, 2010 and 2009 represents cash advances received from an affiliate in 2007. The amount due is non interest bearing and due on demand.
Due to officers at March31, 2010 represents unpaid consulting expenses due to Bainbridge Ventures, LLC ($20,000) for the services of Gary D. Lewis, and to Tower I Consulting, LLC for the services of Adam Mayblum and Patrick Donelan ($90,000 total). See, Employment Contracts, below.
In addition, a total of $87,750 in accrued consulting fees were due to CF Consulting, LLC, an unaffiliated entity, including $17,500 due for the services of Roger Tannery as consulting CFO for the company. The balance of the amount due (accounts payable of $127,001 at March 31, 2010) is for financial and legal services as well as rent due to CF Consulting, LLC from March 2009 to date.
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
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(unaudited)
NOTE 4. RELATED PARTY TRANSACTIONS (continued)
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 as part-time consultants. The previous accruals of salaries and related taxes was reversed as a result and consulting fees were paid instead.
As a result of the First Amendments to each of the Employment Agreements, Bainbridge Ventures, Inc. is entitled to $20,000 per month for January, February and March 2010, and $27,083 per month thereafter for the services of Mr. Lewis, and Tower I Consultants, LLC is entitled to $15,000 per month each for January, February and March 2010, and $20,833 per month each thereafter 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 $70,000 was paid to Bainbridge Ventures, Inc. during the quarter ended March 31, 2010, and $30,000 was paid to Tower I Consultants, LLC.
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 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; this amount was recorded as a debt discount, decreasing the value of the note payable-related party and increasing equity - 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 $ 4,542 at March 31, 2010 and $6,813 at December 31, 2009.
NOTE 5. STOCKHOLDERS’ EQUITY.
A total of 2,173,334 common shares were issued by the Company during the quarter ended March 31, 2010 at $0.15 per share for a total of $326,000.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(unaudited)
NOTE 6. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the three months ended March 31, 2010 and for the twelve months ended December 31, 2009:
0; CHANGES IN NET ASSET VALUE
| | | For the | | For the |
| | | Three months ended | | Twelve months ended |
| | | March 31, 2010 | | December 31, 2009 |
| | | | | |
| Net asset value at beginning of period (1) | $ | (0.00475) | $ | (0.00050) |
| Proceeds from common stock | | 0.00836 | | 0.01008 |
| Net investment income (loss) | | (0.00549) | | (0.01496) |
| Warrants issued | | 0.00000 | | 0.00024 |
| Net asset value at end of period (2) | $ | (0.00188) | $ | (0.00514) |
(1) Financial highlights as of March 31, 2010 and December 31, 2009 are based on 39,002,667 and 36,829,333 fully diluted common shares outstanding, respectively.
(2) The changes in net asset value during the period ended March 31, 2010 result in insignificant changes, (measured in the thousandths or smaller increments) and therefore are not deemed to be material.
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 $1,008,331 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
Management has evaluated the effect that subsequent events would have on the financial statements through the date these financial statements were issued on May 24, 2010 and has concluded that there are no such subsequent events which would have a material effect on these financial statements, except as noted below.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(unaudited)
NOTE 8 SUBSEQUENT EVENTS (continued)
Engagement of Investment Bank
On May 8, 2010, the Company engaged Grandview Capital, Inc. to assist the Company in raising an initial private placement offering amount of $3,000,000, followed by a registered offering of up to $20 million in securities of the Company. An initial investment banking fee of $12,500 was paid on signing of the engagement letter with Grandview Capital.
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 described 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 its 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 have elected to be treated as a business development company under the 1940 Act. Accordingly, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in qualifying assets, including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. We will typically invest under normal circumstances, at least 80% of net assets in qualified portfolio companies.
We intend to invest in companies in emerging markets and industries, most of which will have relatively short operating histories. We do not currently intend to invest in companies which may be considered as start-up companies, due to the increased risk involved. The companies in which we invest are and will be subject to all of the business risk and uncertainties associated with any growing business enterprise, including the risk that these companies may not reach their investment objective and the value of our investment in them may decline substantially or fall to zero. As of March 31, 2010, we had not yet completed any portfolio or other investments.
Critical Accounting Policies
In determining the fair value of our investments, the Audit Committee will consider valuations from our Investment Advisor, from our Investment Committee and from management
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.
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 has no securities and minimal cash as of March 31, 2010. Management will obtain any required fidelity bond as and when required by the rules applicable to the Company as a BDC.
Compliance Procedures
Rule 38a-1 issued under the 40 Act requires a business development company to adopt and implement written policies and procedures reasonably designed to prevent violations of the federal securities laws by the company, including policies and procedures that provide for the oversight of compliance by each investment adviser, principal underwriter, administrator, and transfer agent of the fund. The Company has not yet adopted or implemented these procedures but is in the process of doing so, and expects to have the compliance policies and procedures implemented by the end of the second quarter. Also, the Company currently has no principal underwriter or administrator.
Rule 38a-1 also requires that the Company appoint a Chief Compliance Officer to oversee the compliance with the written policies and procedures and to report periodically to the Company and its Board of Directors. The Company has maintained a consulting agreement to obtain necessary compliance services to date.
Results of Operations
For the quarter ended March 31, 2010, we incurred bank fees of $239, consulting expenses of $199,250, rent expense of $1,800, professional fees of $5,000, and travel expenses of $4,881, compared to consulting expenses of $18,750, rent expense of $1,650, professional fees of $0, officers’ salaries of $206,250, payroll taxes of $16,797, transfer agent fees of $910 and travel expenses of $0 for the quarter ended March 31, 2009.
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 $15,000 each per month for the services of Adam Mayblum and Patrick Donelan, and $20,000 for the services of Gary Lewis, in lieu of employment payments during the quarter, as follows:
Bainbridge Ventures, Inc. $ 60,000 (for Gary D. Lewis)
Tower 1 Consulting, LLC $ 90,000 (for Adam Mayblum and Patrick Donelan)
A total of $110,000 in amounts due officers under this consulting arrangement were accrued as of the end of the quarter ended March 31, 2010.
Our total expenses were $214,356 for the quarter ended March 31, 2010 and $244,357 for the quarter ended March 31, 2009. We had no income reported for either quarter.
Financial Highlights
Financial highlights of the Company for the period ending March 31, 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 March 31, 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 expect to acquire minority or majority equity interests in our portfolio companies, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis. In addition, we may generate revenue in other forms including commitment, origination, structuring or due diligence fees, and possibly consultation fees. Any such fees generated in connection with our investments will be recognized as earned. We earned no investment income during the quarter ended March 31, 2010.
Operating Expenses
Our primary operating expenses consist of consulting, and other operating and overhead-related expenses, including amounts paid to our executive officers.
Operating expenses totaled $214,356 for the quarter ended March 31, 2010 as compared to $244,357 for the quarter ended March 31, 2009.
Net Investment Income, Net Unrealized Appreciation and Net Increase in Stockholders’ Equity Resulting from Operations
Our net investment income (loss) totaled $(214,356) for the quarter ended March 31, 2010 compared to $(244,357) for the quarter ended March 31, 2009 and $(539,324) for the year ended December 31, 2009. Net unrealized appreciation totaled $0 for the quarter ended March 31, 2010 compared to $0 for the quarter ended March 31, 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 March 31, 2010, we raised proceeds of $326,000 from the sale of 2,173,334 shares of common stock in two separate private placement transactions. The pre 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 March 31, 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 March 31, 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 March 31, 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 2,173,334 common shares were issued by the Company during the quarter ended March 31, 2010 at $0.15 per share for a total of $326,000.
As a result, there were 39,002,667 common shares issued as of March 31, 2010 and no shares of preferred stock issued at March 31, 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.
None during the quarter ended March 31, 2010.
Item 5. Other Information.
Resignation of Director, Appointment of New Director
On May 8, 2010, the Board of Directors accepted the resignation of David Brant as a director. Mr. Brant resigned for personal reasons, there were no disagreements between the Company and Mr. Brant, and Mr. Brant did not provide the Company with a letter regarding the circumstances of his resignation.
On May 8, 2010, the Board of Directors elected Dr. Elliott Hahn as a director of the Company, to replace Mr. Brant. There was no arrangement or understanding between Dr. Hahn and any other person, pursuant to which he was selected as a director. There also was no material plan, contract, or arrangement (whether or not written) to which Mr. Hahn is a party or in which he participates involving the Company. John Kelly was also appointed as Chair of the Audit Committee of the Board of Directors to replace Mr. Brant.
Dr. Hahn is the Executive Chairman of Accu-Break Pharmaceuticals, Inc., a developer and provider of tablet technologies to the pharmaceutical industry, where he previously served as the President from October 2004 through December 2007 and as Chairman from January 2008 through March 2009. Dr. Hahn was a co-founder of Andrx Corporation and served as Chairman Emeritus from March 2003 until its acquisition in November 2006. Dr. Hahn was Andrx Corporation’s President from February 1993 until March 2003, Chief Executive Officer from October 2001 until June 2002, and Chairman of the Board of Directors from June 2002 through March 2003. From June 1990 until February 1993, Dr. Hahn was Vice President for Scientific Affairs of IVAX and Vice President of Research at the pharmaceutical subsidiary of IVAX Corp., then a publicly traded pharmaceuticals company.
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____ May 24, 2010
Gary D. Lewis, Chairman
