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, 2006
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 84-1517721
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
P.O. Box 339, Cocoa, FL 32923-0339
(Address of Principal Executive Offices) (Zip Code)
(321)-433-3860
(Registrant 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 Registrant?s Common Stock, $0.001 par
value, outstanding as of March 31, 2006 was 30,150,000 shares.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 2006 and December 31, 2005 F-1
Schedule of Investments as of March 31, 2006 F-2
Statements of Operations for the three-month periods ended
March 31, 2006 and 2005 F-3
Statements of Cash Flows for the three-month periods ended
March 31, 2006 and 2005 F-4
Notes to Financial Statements F-5
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations 3
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Item 4. Controls and Procedures 12
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
BALANCE SHEETS
March 31, December 31,
2006 2005
(unaudited)
--------------- -----------------
Assets:
Cash and cash equivalents $ 28,580 $ -
------------ ------------
Total Current Assets 28,580 -
Other Assets
Investments in Portfolio Companies - -
------------ ------------
Total Other Assets - -
------------ ------------
Total Assets $ 28,580 -
============ ============
Liabilities and Stockholders
Equity (Deficit)
Accounts payable $ 450 $ -
Due to officer/stockholder - 21,268
------------ ------------
Total Short term Liabilities 450 21,268
Long term Liabilities: - -
------------ -------------
Total Liabilities 450 21,268
------------ -------------
Commitments and contingencies
Stockholders' Equity:
Common stock, par value $0.001
authorized 50,000,000 shares,
issued 30,150,000 shares at
March 31, 2006 and December 31, 2005 30,150 301
Convertible preferred stock, par value
$0.001, authorized 5,000,000 shares,
issued 1,000,000 shares and 0 shares at
March 31, 2006 and December 31, 2005,
respectively 1,000 -
Additional paid-in capital 45,838 16,687
Accumulated deficit (48,858) (38,256)
------------ ------------
Total Stockholder Equity (Deficit): 28,130 (21,268)
------------ ------------
Total Liabilities and
Stockholders Equity (Deficit): $ 28,580 $ -
============ ============
Net Asset value per common share $ 0.00 $ (0.00)
The accompanying notes are an integral part of these financial statements.
F-1
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
SCHEDULE OF INVESTMENTS (unaudited)
March 31, 2006
Portfolio Industry Amount Cost Fair % of
Investments or Number Value Net assets
- ------------------- --------- ----------- -------- --------- -----------
-- -- -- $ - $ - -
-------- --------- -----------
Total $ - $ - -
======== ========= ===========
The accompanying notes are an integral part of these financial statements.
F-2
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENTS OF OPERATIONS
<Table>
<Caption>
For the three
months ended
March 31, 2006 March 31, 2005
(unaudited) (unaudited)
-------------- --------------
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 and administrative
expenses 10,602 2,427
----------- ------------
Total operating costs 10,602 2,427
----------- ------------
Net investment loss (10,602) (2,247)
----------- ------------
Net realized income (loss) from
disposal of investments - -
Net unrealized appreciation
(depreciation) in investments - -
----------- ------------
Net loss $ (10,602) $ (2,247)
=========== ============
Basic and diluted net loss per
common share resulting from
operations $ (0.00) $ (0.00)
=========== ============
Weighted number of common shares
outstanding-basic 30,150,000 30,150,000
=========== ===========
Weighted number of common shares
outstanding-diluted 31,500,000 30,150,000
=========== ===========
</Table>
The accompanying notes are an integral part of these financial
statements.
F-3
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENT OF CASH FLOWS
MARCH 31, 2006 and March 31, 2005
(unaudited)
<Table>
<Caption>
For the three
months ended
March 31, 2006 March 31, 2005
Unaudited) (unaudited)
----------------- ----------------
Cash flows from operating activities:
Net loss from operations $ (10,602) $ (2,427)
Adjustments to reconcile loss from
operations to net cash used in
operating activities:
Increase in accounts payable 450 240
Decrease in amounts due
To officer/stockholder (21,268) 2,187
------------ -----------
Net cash used in operating activities (31,420) -
Cash flow from financing activities:
Net proceeds from issuance of preferred
Stock 60,000 -
------------ -----------
Net increase in cash 28,580 -
Cash, beginning of period - -
------------ -----------
Cash, end of period $ 28,580 $ -
============ ===========
</Table>
The accompanying notes are an integral part of these financial statements.
F-4
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(unaudited)
Note 1. Organization and Interim Financial Statements
American Development & Investment Fund, Inc. (American
Development & Investment Fund or the Company), a Nevada
corporation, was organized on February 28, 1997 and is a closed-
end investment company that has 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. The
Company has not yet undertaken its initial portfolio investment
and has not yet raised capital for its investment activities.
Prior to the election to be treated as a BDC, the Company had
been a development stage company and had not engaged in any
operating business activity.
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 (including the amount of
any borrowings for investment purposes) in the portfolio
companies in emerging growth markets. At March 31, 2006, the
Company had no net assets invested in any portfolio companies
and had just changed its business model and elected to be
treated as a BDC. The Company expects to concentrate on making
investments in companies having annual revenues of less than
$250.0 million and in transaction sizes of less than $25.0
million. In most cases, these companies will be privately held
or 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. 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, 2005.
F-5
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(unaudited)
Note 1. Organization and Interim Financial Statements
(continued)
Company. Operating results for the interim periods presented are
not necessarily indicative of the results to be expected for a
full year. Information presented for the quarter ended March
31, 2005 has been restated to conform to the reporting
requirements for a business development company for comparison
purposes, although the Company did not elect business
development company status until March, 2006.
In March 2006, the Company implemented a 100 for 1 forward split
of its common shares. The stock split was given retroactive
treatment in the accompanying financial statements.
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:
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.
F-6
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(unaudited)
Note 2. Significant Accounting Policies (continued)
(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 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.
F-7
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(unaudited)
Note 2. Significant Accounting Policies (continued)
As part of the fair valuation process, the Audit Committee of
the Company will review the preliminary evaluations prepared by
the independent valuation firm engaged by the Board of
Directors, as well as management?s valuation recommendations
and the recommendations of the Investment Committee.
Management and the independent valuation firm will respond to
the preliminary evaluation to reflect comments provided by the
Audit Committee. The Audit Committee will review the final
valuation report and management?s valuation recommendations and
make a recommendation to the Board of Directors based on its
analysis of the methodologies employed and the various weights
valuation as well as factors that the independent valuation
firm 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 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,
F-8
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(unaudited)
Note 2. Significant Accounting Policies (continued)
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 March 31,
2006, the Company has approximately $49,000 in net operating
loss carryforwards available to affect future taxable income and
has established a valuation allowance equal to the tax benefit
of the net operating loss carryforwards as realization of the
asset is not assured. The net operating loss carryforwards may
be limited under the change of control provisions of the
Internal revenue Code, Section 382.
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 distributed 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,
2006, the Company did not have any consolidated subsidiaries.
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
F-9
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 33, 2006
(unaudited)
Note 3. Portfolio Investments (Continued)
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 Agreements and Transactions
Investment Advisory Agreement
The Company has entered into an Investment Advisory Agreement
with American Development & Investment Advisors LLC (the
Investment Advisor) under which the Investment Advisor,
subject to the overall supervision of the Company?s board of
directors, will manage the day-to-day operations of, and provide
investment advisory services to, the Company. American
Development & Investment 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
majority Common Stockholder and the holder of our Class A
Convertible Preferred shares. 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
Company?s gross assets (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.
Under the terms of the Agreement, the Base Management Fee will
not be lower than $25,000 per month for the first two years of
F-10
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 33, 2006
(unaudited)
Note 4. Related Party Agreements and Transactions (Continued)
the term of the Agreement; however, the Investment Advisor has
agreed with the Company to eliminate the minimum fee, and the
Company is in the process of amending the Agreement accordingly.
No investment advisory fees have been accrued for the quarter
ended March 31, 2006.
Managerial Assistance
As a business development company, we will offer, and must
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 following table reflects the changes in the Company?s
stockholders? equity (deficit) from December 31, 2005 to March
31, 2006:
<TABLE
Additional
Shares Par Value Paid-in Accumulated
Common Preferred Common Preferred Capital Deficit Total
--------- --------- --------- --------- -------- -------- --------
<c>
Balance at
December 31, 2005 301,500 - $ 301 $ - $ 16,687 $(38,256) $ (21,268)
=========== ========= ========= ========= ======== ========= ========
Stock split
(100 for 1) 30,150,000 - 29,849 - (29,849) - -
Issuance of
convertible
preferred stock - 1,000,000 - 1,000 59,000 - 60,000
Net loss - - - - - (10,602) (10,602)
----------- --------- --------- --------- -------- --------- --------
Balance at
March 31, 2006 30,150,000 1,000,000 $ 30,150 $ 1,000 $ 45,838 $(48,858) $ 28,130
F-11
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 33, 2006
(unaudited)
Note 6. Development Stage Company.
The Company was a development stage company from its inception
at February 28, 1997 through the filing of its Form 10-KSB
report for the calendar year ended December 31, 2005, and,
therefore, as a small business issuer, was subject to the
requirement of Rule 310 under SEC Regulation S-B that it provide
cumulative financial information from inception in its periodic
filings with the SEC. The Company filed an election with the
SEC in March, 2006 to be treated as a business development
company under the Investment Company Act of 1940 and, as a
result, is no longer a small business issuer under Regulation S-
B. However, since it has not yet raised significant capital for
its operations as a business development company and has not yet
made its first portfolio investment, the Company has elected to
provide the cumulative financial information required of a
development stage company, which is provided below.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
Statements of Operations
February. 28, 1997
(inception) to
March 31, 2006
Revenues:
Sale of investments $ 6,865
Costs and expenses:
Amortization $ 445
General and administrative 55,005
-----------
Net loss applicable to common shareholders $ (48,858)
Basic and diluted net loss per common share $ **
Weighted average number of common
shares outstanding-basic 30,150,000
===========
Weighted average number of common
shares outstanding-diluted 31,500,000
===========
** Less than $(.01) per share.
F-12
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 33, 2006
(unaudited)
NOTE 6. DEVELOPMENT STAGE COMPANY (Continued)
Statements of Changes in Stockholders? Deficit
Deficit
Additional Accumulated
Common Stock Paid-in from
Shares Amount Capital Inception
-------------------------------------------------
Balances, February 28, 1997
(inception) $ -- $ -- $ -- $ --
Common stock issued for services
valued at $0.10 per share 700,000 700 6,300
Common stock issued for cash,
valued at $.030 per share 25,000 25 7,475
Common stock issued for cash,
net of offering costs of
$1,750 7,500 7 3,243
Cancellation of common stock (50,000) (50) 50
Net loss for the period (10,654)
-----------------------------------------------
Balances, December 31, 1997 682,500 682 17,068 (10,654)
Net loss (3,247)
-----------------------------------------------
Balances, December 31, 1998 682,500 682 17,068 (13,901)
Net loss (1,687)
-----------------------------------------------
Balances, December 31, 1999 682,500 682 17,068 (15,588)
Net loss 3,997
-----------------------------------------------
Balances, December 31, 2000 682,500 682 17,068 (11,591)
Net loss (1,391)
-----------------------------------------------
Balances, December 31, 2001 682,500 682 17,068 (12,982)
Net loss (1,331)
-----------------------------------------------
Balances, December 31, 2002 647,584 682 17,068 (14,313)
Net loss (1,727)
-----------------------------------------------
Balances, December 31, 2003 647,584 682 17,068 (16,040)
Net loss (7,314)
-----------------------------------------------
Balances, December 31, 2004 647,584 682 17,068 (23,354)
Share repurchase (381,000) (381) (381)
Net loss (14,902)
-----------------------------------------------
Balances, December 31, 2005 301,500 $ 301 $ 16,687 $ (38,256)
===============================================
F-13
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 33, 2006
(unaudited)
NOTE 6. DEVELOPMENT STAGE COMPANY (Continued)
<TABLE
Additional Deficit
Shares Par Value Paid-in Accumulated
Common Preferred Common Preferred Capital from Inception
--------- --------- --------- --------- -------- --------------
<c>
Balance at
December 31, 2005 301,500 - $ 301 $ - $ 16,687 $(38,256)
=========== ========= ========= ========= ======== =========
Stock split
(100 for 1) 30,150,000 - 29,849 - (29,849) -
Issuance of
convertible
preferred stock - 1,000,000 - 1,000 59,000 -
Net loss - - - - - (10,602)
----------- --------- --------- --------- -------- ---------
Balance at
March 31, 2006 28,468,900 1,000,000 $ 30,150 $ 1,000 $ 45,838 $(48,858)
Statements of Cash Flows
<Table>
<Caption>
Feb. 28, 1997
(inception) to
March 31, 2006
Cash flows from operating activities:
Net loss $ (48,858)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 445
Common stock issued for services 6,300
Changes in operating assets and liabilities:
(Decrease) increase in accounts payable 450
Decrease in investments 175
--------
Net cash used in operating activities (41,488)
Cash flows from investing activities:
Organization costs (100)
---------
Nash used in investing activities (100)
Cash flows from financing activities:
Proceeds from sale of common stock 12,500
Proceeds from sale of preferred stock 60,000
Share repurchase (762)
Deferred offering costs (1,570)
----------
Net cash provided by financing activities 70,168
Net increase (decrease) in cash 28,580
Cash at inception --
---------
Cash at end of period 28,580
=========
</Table>
F-14
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 33, 2006
(unaudited)
NOTE 6. DEVELOPMENT STAGE COMPANY (Continued)
Supplemental disclosure of noncash investing and
financing activities:
Common stock issued for services $ 6,300
Common stock issued for organizational costs $ 345
Common stock issued for deferred offering costs $ 770
F-15
Item 2. Management?s 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.
-3-
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.
On March 16, 2006, our then sole shareholder sold 301,500 pre-
split common shares, representing 100 percent of the pre-split
outstanding stock of the Company at the time, resulting in a
change of control of the Company. Of these shares, 286,500
common shares, representing 95 percent of the outstanding
shares, were purchased by Enterprise Partners, LLC, and 15,000
shares were purchased by Peachtree Consultants, LLC, an
unrelated party. As a result of this change of control, our
then sole director and president, Stephen Siedow, resigned
effective March 16, 2006 after appointing David Dallow, David
Brant, Adam Mayblum, John Kelly and Robert Hipple as the
directors of the Company, to serve until the next annual meeting
of shareholders of the Company. The name of the Company was
changed from MNS Eagle Equity Group, Inc. to American
Development & Investment Fund, Inc. by the filing of an
amendment to the Articles of Incorporation with the State of
Nevada on March 8, 2006. 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 54-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 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 initial working
capital. The new Class A Convertible Preferred Stock is $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
-4-
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. No conversion may occur until after one
year from the date of issue. The Company may redeem the Class A
Convertible Preferred Stock in whole or in part beginning 181
days after issue at $0.75 per share, and after 365 days from
issue at $0.95 per share. The Class A Convertible Preferred
Stock automatically converts into common stock following the
second anniversary of issue, at the formula price if not
redeemed prior to that date. The conversion of the Class A
Convertible Preferred into Common stock of the Company is
illustrated by the following table:
Class A Convertible
Preferred Shares
<Table>
<Caption>
Per Share Number of Maximum Shares
Common Stock Conversion ratio Common Shares Converted Value of
Price (1/per share price) on conversion of Common Stock preferred
- ------------------ ---------------- --------------- --------------- ---------------
0.0001 10,000.00 10,000,000,000 15,000,000 $ 1,500
0.0003 3,333.33 3,333,333,333 15,000,000 4,500
0.0007 1,428.57 1,428,571,429 15,000,000 10,500
0.0014 714.29 714,285,714 15,000,000 21,000
0.0021 476.19 476,190,476 15,000,000 31,500
0.0042 238.10 238,095,238 15,000,000 63,000
0.0050 200.00 200,000,000 15,000,000 75,000
0.0075 133.33 133,333,333 15,000,000 112,500
0.0100 100.00 100,000,000 15,000,000 150,000
0.1000 10.00 10,000,000 10,000,000 1,000,000
0.5000 2.00 2,000,000 2,000,000 1,000,000
0.7500 1.33 1,333,333 1,333,333 1,000,000
1.0000 1.00 1,000,000 1,000,000 1,000,000
</Table>
Currently, the Common shares of the Company do not trade on any
over-the-counter market or exchange; however, based on the total
acquisition price of the Common shares purchased from our former
sole shareholder in March, 2006, the shares were purchased for
the equivalent of $0.0007 per share in an arm?s length
transaction. This amount was in excess of the undiluted net
asset value of the Common shares at the time. In order for the
holder of the Class A Common Stock to realize a conversion value
- -5-
in Common stock equal to the $60,000 paid for the preferred
shares, the market value of the Common stock must increase by
approximately 6 times, to $0.0042 per share.
The Company is in the process of amending the Certificate of
Designations for the Class A Convertible Preferred Stock, as
filed with the Secretary of State of Nevada, with the consent of
the holder of the shares, Enterprise Partners, LLC. The proposed
amendments, which are listed below, are designed to insure that
the Class A Convertible Preferred Stock meets the requirements
of a senior security, as defined in Section 18(g) of the 1940
Act and that the Class A Convertible Preferred Stock meets the
requirements of Section 18, as made applicable to a business
development company by Section 61 of the 1940 Act. The proposed
changes are:
1. Section 4 of the existing Certificate of Designation will be
modified to provide that the Class A Convertible Preferred will
have a dividend preference equal to the amount of dividend
payable if the outstanding preferred stock had been converted to
common stock, and that this dividend must be paid before any
dividend is paid on the common stock. This will clarify the
status of the Class A Convertible Preferred as a senior security
under Section 18(g).
2. Section 4 of the existing Certificate of Designation also will be
modified to provide that the Class A Convertible Preferred will
have a protective provision prohibiting the declaration of a
dividend on the common stock, in the terms provided by Section
18(a)(2)(B)of the 1940 Act, to maintain the required 200 percent
asset coverage for the preferred stock.
3. Section 5 of the existing Certificate of Designation will be
modified to provide that the Class A Convertible Preferred Stock
will have a liquidation preference equal to the par value per
share of each share outstanding, and that, thereafter, the
preferred stock will share in any further liquidation
distribution on a par with the common stock, as if the
outstanding preferred stock has been converted to common stock.
This again will clarify the status of the Class A Convertible
Preferred as a senior security under Section 18(g)of the 1940
Act.
4. A provision will be added to the Certificate of Designations
entitling the holders of the Class A Preferred Stock to elect two
directors, voting as a class, as provided in Section
18(a)(2)(C)of the 1940 Act.
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These proposed changes will be submitted for approval by the
shareholders of the Company at the annual meeting of
shareholders
to be held as soon as possible after the filing of
this 10-Q report.
Effective March 20, 2006, the Company implemented a 100 for 1
forward split of its outstanding common shares. As a result of
the forward split, there are now 30,150,000 common shares
outstanding.
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 alternative energy
companies.
We intend to invest in companies in emerging markets and
industries, most of which will have relatively short or no
operating histories. These companies are and will be subject to
all of the business risk and uncertainties associated with any
new 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, 2006, 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 an independent valuation
firm, from our Investment Committee and from management
Results of Operations
A comparison of the current quarter results to the quarter ended
March 31, 2005 is not meaningful, as we had not then made the
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election to be treated as a business development company and our
business model in 2005 was to locate and merge with an operating
business.
Financial Highlights
The following is a schedule of financial highlights for the
three months ended March 31, 2006 and for the twelve months
ended December 31, 2005:
For the For the
three months twelve months
ended ended
March 31, 2006 December 31, 2005
---------------- -----------------
Per share date (1)
Net asset value at
beginning of period $ (0.00074) $ (0.00020)
Proceeds from preferred
stock 0.00210 -
Net investment income (0.00071) (0.00054)
Net unrealized appreciation - -
------------- --------------
Net asset value at end of
period $ 0.00065 $ (0.00074)
(1) Financial highlights as of March 31, 2006 and December 31, 2005 are
based on 30,150,000 common shares outstanding, giving effect to the 100
for 1 forward split.
(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.
Investment Activity
We have not yet engaged in any investment activity and have not
yet raised capital to be employed in our proposed investment
activities.
Long-Term Portfolio Investments
There were no portfolio investments made during the three months
ended March 31, 2006.
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Investment Income
We expect to generate revenue in the form of interest income on
the 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. 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. We also may 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, 2006.
Operating Expenses
Our primary operating expenses consist of investment advisory
fees, legal and professional fees and other operating and
overhead-related expenses. Our investment advisory fees
compensate our Investment Advisor for its work in identifying,
evaluating, negotiating, closing and monitoring our investments.
We will bear all other costs and expenses of our operations and
transactions.
Operating expenses totaled $ 10,602 for the quarter ended March
31, 2005 as compared to $ 2,427 for the quarter ended March 31,
2005, before our election to be treated as a business
development company. These expenses consisted of general and
administrative expenses and most of the expenses represented
amounts due to our former sole shareholder and officer, Stephen
M. Seidow, in connection with the preparation of our financial
reports for prior years.
Net Investment Income, Net Unrealized Appreciation and Net
Increase in Stockholders? Equity Resulting from Operations
The Company?s net investment income totaled $0 for the quarter
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ended March 31, 2006 compared to $0 for the quarter ended March
31, 2005 and $0 for the year ended December 31, 2005. Net
unrealized appreciation totaled $0 for the quarter ended March
31, 2006 compared to $0 for the quarter ended March 31, 2005 and
$0 for the year ended December 31, 2005.
Financial Condition, Liquidity and Capital Resources
The Company?s 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 Class A Convertible Preferred Stock. We
generated no cash flows from operations. In the future, we may
fund a portion of our investments through borrowings from banks,
issuances of senior securities or secondary offerings of equity.
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, 2005, 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
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of investments. During the three months ended March 31, 2006 and
the twelve months ended December 31, 2005, 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 the Company?s management, including the
Company?s Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the
Company?s disclosure controls and procedures (as defined in Rule
13a-15 of the Securities Exchange Act of 1934). Based on that
evaluation, as of April 15, 2006, the Chief Executive Officer
and the Chief Financial Officer have concluded that the
Company?s 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 over 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. The
Company?s 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
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reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company?s
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,
thought not eliminate, this risk.
There have been no changes in The Company?s internal control
over financial reporting that occurred during the three months
ended March 31, 2006 that have materially affected, or are
reasonably likely to materially affect, the Company?s 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.
During the quarter ended March 31, 2006, the Company issued
1,000,000 Class A Convertible Preferred shares, $0.001 par
value, for $60,000 in funds advanced by our majority Common
shareholder, Enterprise Partners, LLC, for payment of existing
liabilities of $ 21,268 owed to our former sole shareholder and
officer, for audit expenses and for working capital. These
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shares were issued in a private transaction without registration
under the 1933 Act in reliance on an exemption from
registration, and any sale or transfer of the preferred shares
is restricted
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On March 8, 2006, our sole shareholder consented in writing to
the amendment of our Articles of Incorporation in the State of
Nevada to change the name of the Company to American Development
& Investment Fund, Inc.
Item 5. Other Information.
On March 16, 2006, our then sole shareholder, officer and
director, Stephen M. Seidow, sold all of his shares in the
Company, and appointed David Dallow, David Brant, Adam Mayblum,
John Kelly and Robert Hipple as our directors, until the next
annual meeting of shareholders. Mr. Seidow then resigned as an
officer and director of the Company. This change of control,
change in our Board of Directors and election of new officers
was reported in our Form 10-K for the year ended December 31,
2005 under Item 9(b).
On May 9, 2006, the Audit Committee of the Board of Directors of
the Company approved the engagement of Berman Hopkins Wright &
Laham, CPAs, LLP, (?Berman Hopkins?) for Berman Hopkins to
conduct quarterly reviews and perform an annual audit of the
Company?s annual financial statements for the year ended
December 31, 2006.
Item 6. Exhibits
Exhibit
Description of Exhibit
31 Certification of Chief Executive and Financial Officer
Pursuant to Rule 13a-14(a)/15d-14(a)
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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____ May 15, 2006
Robert Hipple
Chief Executive Officer
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