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 June 30, 2008
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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
P.O. Box 307, Cocoa, FL 32923-0307
(Address of Principal Executive Offices) (Zip Code)
(321)-433-1136
(Registrants 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X ] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined by Rule 12b-2 of the Act). Yes [ ] No [X ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X ]
The number of shares of the Registrants Common Stock, $0.001 par
value, outstanding as of August 1, 2008, was 34,408,000 shares.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 2008 and December 31, 2007 F-1
Schedule of Investments as of June 30, 2008 F-2
Statements of Operations for the three-month and six-month
periods ended June 30, 2008 and 2007 F-3
Statements of Cash Flows for the three-month and six-month
periods ended June 30, 2008 and 2007 F-4
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 5
Item 4. Controls and Procedures 5
PART II. OTHER INFORMATION 6
Item 1. Legal Proceedings 6
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 6
Item 3. Defaults Upon Senior Securities 6
Item 4. Submission of Matters to a Vote of Security Holders 7
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 7
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
BALANCE SHEETS
June 30, 2008 December 31, 2007
(unaudited)
--------------- -----------------
Assets:
Cash and cash equivalents $ 3,797 $ (41)
------------ ------------
Total Current Assets 3,797) (41)
Other Assets
Investments in Portfolio Companies - -
------------ ------------
Total Other Assets - -
------------ ------------
Total Assets $ 3,797 (41)
============ ============
Liabilities and Stockholders?
Equity (Deficit)
Accounts payable $ 10,910 $ 90,702
Due to affiliate 3,550 7,950
------------ ------------
Total Short term Liabilities 14,460 98,652
Long term Liabilities: - -
------------ -------------
Total Liabilities 14,460 98,652
------------ -------------
Commitments and contingencies
Stockholders? Equity (Deficit):
Common stock, par value $0.001
authorized 50,000,000 shares,
issued 34,407,600 and 30,283,200 shares
at June 30, 2008 and December 31, 2007 34,408 30,283
Convertible preferred stock, par value
$0.001, authorized 5,000,000 shares,
issued no shares at June 30, 2008 and
1,000,000 shares at December 31, 2007 - 1,000
Additional paid-in capital 200,990 85,665
Accumulated deficit (246,061) (215,641)
------------ ------------
Total Stockholders?(Deficit): (10,663) (98,693)
------------ ------------
Total Liabilities and
Stockholders? Equity (Deficit) $ 3,797 $ (41)
============ ============
Net Asset value per common share $ 0.00031 $ (0.00288)*
*Restated to reflect conversion of preferred stock into 4 million shares of
common stock.
The accompanying notes are an integral part of these financial statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
SCHEDULE OF INVESTMENTS (unaudited)
June 30, 2008
Portfolio Industry Amount Cost Fair % of
Investments or Number Value Net assets
- ------------------- --------- ----------- -------- --------- -----------
-- -- -- $ - $ - -
-------- --------- -----------
Total $ - $ - -
======== ========= ===========
The accompanying notes are an integral part of these financial statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENTS OF OPERATIONS
For the three and six months ended
June 30, 2008 June 30, 2007
(unaudited) (unaudited)
3 months 6 months 3 months 6 months
---------- ---------- ---------- ----------
Investment income:
Interest income $ - $ - $ - $ -
Dividend income - - - -
Other income - - - -
---------- ---------- ---------- ----------
Total income - - - -
Operating expenses:
Investment advisory fees
Base fee - - - -
Incentive fee - - - -
Capital gains fee - - - -
---------- ---------- ---------- ----------
Total investment
advisory fees - - - -
General & administrative:
Consulting expenses - 22,500 22,500 40,000
Rent expense 1,100 3,000 1,350 2,700
Professional fees 5,583 5,583 2,333 6,166
Other expenses 453 412 - -
---------- ---------- ---------- ----------
Total operating costs 7,136 31,495 26,183 48,866
---------- ---------- ---------- ---------
Net investment loss (7,136) (31,495) (26,183) (48,866)
---------- ---------- ---------- ----------
Net realized income from
disposal of investments - - - -
Net unrealized appreciation
in investments - - - -
---------- ---------- ---------- ----------
Net decrease in stockholders?
equity resulting from
operations $ (7,136) $ (31,495) $(26,183) $ (48,866)
========== =========== ========== =========
Basic and diluted net decrease
in stockholder equity per
common share resulting from
operations $ (0.00021) $ (0.00092) $(0.00086) $(0.00161)
========== =========== =========== =========
Weighted number of common
outstanding-basic 34,359,415 34,321,308 30,283,200 30,219,912
========== =========== =========== =========
Weighted number of common
outstanding-diluted 34,359,415 34,321,308 45,283,200 42,982,343
========== =========== =========== =========
The common shares outstanding have been adjusted to reflect the conversion of
1,000,000 shares of preferred stock into 4,000,000 shares of common stock in
April, 2008.
The accompanying notes are an integral part of these financial statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 2008 and 2007
(unaudited)
For the six months ended
June 30, 2008 June 30, 2007
(unaudited) (unaudited)
----------------- ----------------
Cash flows from operating activities:
Net decrease in stockholders? equity
from operations $ (31,495) $ (48,866)
Adjustments to reconcile net decrease
in stockholders? equity from
operations to net cash provided
(used)in operating activities:
Increase (decrease) in accounts payable (8,633) 41,616
Increase (decrease( in amounts
due affiliate (4,400) 2,500
Decrease in subscription payable - (39,960)
------------- ------------
Net cash used in operating activities (27,262) (44,710)
Cash flows from financing activities:
Issue of common stock 31,100 39,960
------------ ------------
Net cash from financing activities 31,100 39,960
------------ ------------
Net increase (decrease) in cash 3,838 (4,750)
Cash, beginning of period (41) 12,036
------------ ------------
Cash, end of period $ 3,797 $ 7,286
============ ============
Significant non-cash transaction:
Accounts payable contributed to capital $ 87,350 $ -
============ ============
The accompanying notes are an integral part of these financial statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED June 30, 2008
(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, and therefore files its periodic reports on
applicable Forms 10-Q and 10-K, rather than Forms 10-KSB or 10-QSB. As a
BDC, the Company also is subject to the normal financial reporting
requirements of Regulation S-X issued by the SEC, but is not subject
to Section 6 of Regulation S-X, which provides specific rules for financial
reporting of registered investment companies.
The Company does not intend to focus on any primary investment market, and
expects to invest, under normal circumstances, at least 80.0 percent of its
net assets in qualified portfolio companies in emerging growth markets. At
June 30, 2008, the Company had not yet invested in any portfolio companies;
however, the Company has entered into letters of intent to acquire three
companies in the Internet marketing area, and has negotiated acquisition
agreements for all three companies, which it expects to submit to its Board of
Directors during the quarter ended September 30, 2008 for approval. The
Company plans 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, 2007. As a BDC, and therefore as a non-registered
investment company, the Company is subject to the normal financial reporting
rules of Regulation S-X, as adopted by the SEC, in accordance with Regulation
S-X 5.01. It is specifically not subject to Section 6 of Regulation S-X,
governing the financial reporting of registered investment companies. 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, 2008)(the Audit Guide).
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED June 30, 2008
(unaudited)
Note 1. Organization and Interim Financial Statements (continued)
Operating results for the interim periods presented are not necessarily
indicative of the results to be expected for a full year
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 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 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
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED June 30, 2008
(unaudited)
Note 2. Significant Accounting Policies (continued)
traded companies and 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 managements 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 SFAS 109, 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 June 30, 2008, the Company has approximately $246,000
of net operating loss carry-forwards available to affect future taxable
income and has established a valuation allowance equal to the tax benefit of
the net operating loss carry-forwards as realization of the asset is not
assured. The net operating loss carry-forwards may be limited under the
change of control provisions of the Internal revenue Code, Section 382.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED June 30, 2008
(unaudited)
Note 2. Significant Accounting Policies (continued)
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 managements estimate of our earnings for the quarter and our investment
needs. Net realized capital gains, if any, will be reviewed at least
annually as part of any distribution determination.
Consolidation:
As an investment company, the Company will only consolidate subsidiaries which
are also investment companies. At June 30, 2008, the Company did not have
any consolidated subsidiaries.
Recent Accounting Pronouncements
In May 2008, the FASB issued Statement of Financial Accounting Standards No.
162 (?SFAS 162?), ?The Hierarchy of Generally Accepted Accounting Principles.?
The new standard is intended to improve financial reporting by identifying a
consistent framework, or hierarchy, for selecting accounting principles to be
used in preparing financial statements that are presented in conformity with
U.S. generally accepted accounting principles (GAAP) for non-governmental
entities. The Statement will be effective 60 days following the SEC?s
approval of the Public Company Accounting Oversight Board (?PCAOB?) amendments
to AU Section 411, ?The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.? We are currently evaluating the effects, if
any, that SFAS 162 may have on our financial reporting.
In December, 2007, the FASB issued FAS No. 141(R), Business Combinations,
and SFAS No. 160, Accounting and Reporting of Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51. FAS No. 141(R)
is required to be adopted concurrently with SFAS No. 160. These standards are
effective for fiscal years beginning after December 15, 2008 and will apply
prospectively to business combinations completed on or after that date.
Early adoption is prohibited. FAS 141(R) requires changes in accounting for
acquisitions and FAS 160 will change the accounting for minority interests.
The Company is evaluating the impact of these statements on its financial
statements.
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
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED June 30, 2008
(unaudited)
Note 3. Portfolio Investments (continued)
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 Agreements and Transactions
Investment Advisory Agreement
The Company has entered into an Investment Advisory Agreement with American
Development Fund Advisors LLC (the Investment Advisor) under which the
Investment Advisor, subject to the overall supervision of the board of
directors of the Company, will manage the day-to-day operations of, and
provide investment advisory services to, the Company. American Development
Fund Advisors, LLC is owned equally by Patrick Donelan and Adam Mayblum. Mr.
Mayblum and Mr. Donelan are also the equal owners of Enterprise Partners, LLC,
our former majority Common Stockholder and the former holder of all of
our Series A Convertible Preferred shares at the end of the quarter. Mr.
Mayblum also serves as a director of the Company.
For providing these services the Investment Advisor will receive a fee from the
Company, consisting of two components--a base management fee and an incentive
fee. The base management fee will be calculated at an annual rate of 2.00% on
the gross assets of the Company (including amounts borrowed). The base
management fee is payable quarterly in arrears based on the average value
of the Company?s gross assets at the end of the two most recently completed
calendar quarters and appropriately adjusted for any share issuances or
repurchases during the current calendar quarter. Base management fees for
any partial month or quarter will be appropriately pro rated.
No investment advisory fees have been earned or accrued for the quarter.
Amounts due to affiliate totaling $3,550 at June 30, 2008 represent
short-term, non-interest bearing advances from a related company.
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.
Note 5. Stockholders? Equity.
The 1 million shares of convertible preferred stock outstanding at December 31,
2007 automatically converted into 4 million common shares during the quarter
ended June 30, 2008. As a result, there were 34,407,600 common shares issued
and no preferred shares issued as of June 30, 2008. A total of 124,400 common
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED June 30, 2008
(unaudited)
Note 5. Stockholders? Equity. (continued)
shares were issued during the quarter for consideration equal to $31,100 to
unrelated parties in a private transaction. In addition, accounts payable
totaling $87,350 was contributed to capital.
Note 6. Financial Highlights
The following is a schedule of financial highlights for the six months ended
June 30, 2008 and for the twelve months ended December 31, 2007:
CHANGES IN NET ASSET VALUE
For the For the
six months twelve months
ended ended
June 30, 2008 December 31, 2007
---------------- -----------------
Net asset value at
beginning of period (1) $ (0.00288) $ (0.00101)
Proceeds from common stock 0.00090 0.00117
Adjustment to retained earnings 0.00254 -
Net investment income (0.00092) (0.00304)
Net unrealized appreciation - -
------------- --------------
Net asset value, end of period (2) $ 0.00036 $ (0.00288)
(1) Financial highlights as of June 30, 2008 and December 31, 2007 are
based on 34,283,200 fully diluted common shares outstanding, giving effect to
the 100 for 1 forward split and the conversion of the preferred stock into 4
million common shares. The changes in net asset value for the year ended
December 31, 2007 have been restated to reflect the full dilution effect of the
conversion of the preferred shares in April. The adjustment to retained
earnings reflects the agreed reduction in accounts payable in the amount of
$87,500, which was charged directly to retained earnings.
(2) Total return based on net asset value is based upon the change in net
asset value per share between the opening and ending net asset values per
share in each period. The total return is not annualized.
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
$246,061 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.
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, 2007.
Overview
The Company was incorporated under the Nevada General Corporation Law in
February 1997 as MNS Eagle Equity Group, Inc., and was a development stage
company through the end of 2005, and until the Company changed its business
model with the election to be treated as a business development company on
March 20, 2006. On March 8, 2006, the Company changed its corporate name to
American Development & Investment Fund, Inc., to reflect its new business
model and plan. The Company also filed an election to be treated as a Business
Development Company under the Investment Company Act of 1940 by filing a Form
N54-A with the SEC on March 20, 2006.
On March 20, 2006, the Company filed a Certificate of Designations for Class A
Convertible Preferred Stock with the Nevada Secretary of State and the Board of
Directors authorized the issuance of 1 million shares of Class A Convertible
Preferred Stock to Enterprise Partners, LLC, our then majority shareholder, in
exchange for the cancellation of $60,000 in loans for funds advanced to the
Company by Enterprise Partners LLC to pay off debts of the Company and for
working capital. The Class A Convertible Preferred Stock was $0.001 par value
stock, and may be converted into common stock based on a formula under which
conversion is equal to 1 divided by the 30 day trailing average stock price of
the common shares at the time of the conversion election, but not more than 15
common shares for each preferred share converted, or a maximum of 15 million
common shares, with an automatic conversion two years after the date of issue.
The Class A Convertible Preferred Stock automatically converted into common
stock following the second anniversary of issue, in March 2008, at an agreed
conversion of four shares of common stock for each share of preferred stock
outstanding.
Effective March 20, 2006, the Company implemented a 100 for 1 forward split
of our outstanding common shares. As a result of the forward split, there
were 30,150,000 common shares then outstanding. This forward split has been
reflected retroactively on our financial statements.
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 June 30, 2008, we
had not yet made 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
Results of Operations
For the quarter ended June 30, 2008, we incurred rent expense of $1,100,
professional fees of $5,583 and other expenses of $453 compared to
consulting expenses of $22,500, rent expense of $1,350 and professional
expenses totaling $2,333 for the quarter ended June 30, 2007. Our total
expenses were $7,136 for the quarter ended June 30, 2008 and $26,183 for
the quarter ended June 30, 2007. We had no income reported for either
quarter.
Financial Highlights
Financial highlights of the Company for the period ending June 30, 2008
are included in Footnote 6 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.
Long-Term Portfolio Investments
There were no portfolio investments made during the three months ended
June 30, 2008.
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 June 30, 2008.
Operating Expenses
Our primary operating expenses consist of consulting, accounting and other
operating and overhead-related expenses. Operating expenses totaled $7,136 for
the quarter ended June 30, 2008 as compared to $26,183 for the quarter ended
June 30, 2007.
The consulting expenses were paid or due to CF Consulting, LLC, pursuant to a
Consulting Agreement under which it provided CEO, CFO and Chief Compliance
Officer services for a monthly fee. The consulting agreement with CF Consulting
LLC expired in April, 2008 and has not yet been renewed. Due to the delay in
identifying the first portfolio acquisition, CF Consulting, LLC agreed to
forego a total of $87,350 in accumulated fees due to it under the expired
consulting agreement. This concession has been recorded as a reduction in
accounts payable and an increase in paid-in capital. The rent expense
represents rent paid or due to CF Consulting, LLC for sub-leasing office space,
telephone, office equipment and related office services at the rate of $450 per
month through April, 2008 and $550 per month commencing May 1, 2008.
Net Investment Income, Net Unrealized Appreciation and Net Increase in
Stockholders Equity Resulting from Operations
Our net investment income totaled $0 for the quarter ended June 30, 2008
compared to $0 for the quarter ended June 30, 2007 and $0 for the year
ended December 31, 2007. Net unrealized appreciation totaled $0 for the quarter
ended June 30, 2008 compared to $0 for the quarter ended June 30, 2007
and $0 for the year ended December 31, 2007.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources were generated primarily from an advance
of $60,000 by our major shareholder, Enterprise Partners, LLC, which was later
converted into 1 million shares of Series A Convertible Preferred Stock, and
from the sale of common shares in March, 2007, for a total of $39,960. We
generated no cash flows from 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.
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, 2007, which
could materially affect our business, financial condition or future results.
The risks described in our Annual Report on Form 10-K are not the only
risks facing our Company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition and/or operating results.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are subject to financial market risks, including changes in interest rates,
equity price risk and some of the loans in our portfolio may have floating
rates in the future. We may hedge against interest rate fluctuations by using
standard hedging instruments such as futures, options and forward contracts
subject to the requirements of the 1940 Act. While hedging activities may
insulate us against adverse changes in interest rates, they may also limit our
ability to participate in the benefits of higher interest rates with respect
to our portfolio of investments. During the three months ended June 30, 2008
and the twelve months ended December 31, 2007, we did not engage in any hedging
activities.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934).
Based on that evaluation, as of June 30, 2008, the Chief Executive Officer
and the Chief Financial Officer have concluded that our current disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company that is required to be disclosed by the
Company in the reports it files or submits under the Securities Exchange Act of
1934.
Internal Control Over Financial Reporting
Our management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, is responsible for establishing
and maintaining adequate internal control over financial reporting, as such
responsibility is defined in Rule 13a-15(f) of the Securities Exchange Act of
1934, and for performing an assessment of the effectiveness of internal control
of financial reporting. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control
over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Because of
such limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
There have been no changes in our internal controls over financial reporting
that occurred during the three months ended June 30, 2008 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 124,400 shares of common stock were sold to unrelated parties during
the quarter ended June 30, 2008 in private transactions for total proceeds of
$31,100. The 1 million outstanding shares of Series A Convertible Preferred
Stock converted automatically into 4 million shares of common stock during the
quarter ended June 30, 2008. The proceeds were used for operating expenses
and payment of accrued liabilities.
As a result, there were 34,407,600 common shares issued as of June 30, 2008
and no shares of preferred stock issued at June 30, 2008.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
The Company has executed Term Sheets to acquire three separate Internet based
businesses, ColoradoNewHomes, Com, Inc., RealMart realty, LLC, and Custom
Business Solutions International, Ltd. and also has entered into an agreement
to raise the necessary capital to complete the acquisitions. Each of the Term
Sheets has been incorporated into a final Acquisition Agreement agreed to by
the respective Sellers, but the Acquisition Agreements have not yet been
submitted to or approved by the Board of Directors of the Company. It is
expected that the three Acquisition Agreements will be submitted to the Board
of Directors before the end of August 2008.
Assuming the Acquisition Agreements are approved, the Company will then file
separate Form 8-K reports with respect to each of the three proposed
acquisitions.
Item 6. Exhibits
Exhibit Description of Exhibit
31 Certification of Chief Executive and Financial Officer
pursuant to Rule 13a-14(a)/15d-14(a)
32 Certification of Chief Executive and Financial Officer
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/__Robert Hipple____ August 14, 2008
Robert Hipple
Interim Chief Executive Officer
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