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, 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
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, 2006, was 30,150,000 shares.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 2006 and December 31, 2005 F-1
Schedule of Investments as of June 30, 2006 F-2
Statements of Operations for the three-month and six-month
periods ended June 30, 2006 and 2005 F-3
Statements of Cash Flows for the six-month periods ended
June 30, 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 7
Item 4. Controls and Procedures 7
PART II. OTHER INFORMATION 8
Item 1. Legal Proceedings 8
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
BALANCE SHEETS
June 30, December 31,
2006 2005
(unaudited)
--------------- -----------------
Assets:
Cash and cash equivalents $ 1,991 $ -
Prepaid expense 4,100 -
------------ ------------
Total Current Assets 6,091 -
Other Assets
Investments in Portfolio Companies - -
------------ ------------
Total Other Assets - -
------------ ------------
Total Assets $ 6,091 -
============ ============
Liabilities and Stockholders
Equity (Deficit)
Accounts payable $ - $ -
Due to officer/stockholder - 21,268
------------ ------------
Total Short term Liabilities - 21,268
Long term Liabilities: - -
------------ -------------
Total Liabilities - 21,268
------------ -------------
Commitments and contingencies
Stockholders Equity:
Common stock, par value $0.001
authorized 50,000,000 shares,
issued 30,150,000 shares at
June 30, 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
June 30, 2006 and December 31, 2005,
respectively 1,000 -
Additional paid-in capital 45,838 16,687
Accumulated deficit (70,897) (38,256)
------------ ------------
Total Stockholder Equity (Deficit): 6,091 (38,256)
------------ ------------
Total Liabilities and
Stockholders Equity (Deficit): $ 6,091 $ -
============ ============
Net Asset value per common share $ 0.00020 $ (0.00071)
The accompanying notes are an integral part of these financial statements.
F-1
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
SCHEDULE OF INVESTMENTS (unaudited)
June 30, 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
For the three and six months ended
June 30, 2006 June 30, 2005
(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 15,000 20,000 - 1,146
Rent expense 1,350 1,800 - -
Professional fees - 8,732 - -
Other expenses 5,689 2,109 657 1,938
---------- ---------- ---------- ----------
Total operating costs 22,039 32,641 657 3,084
---------- ---------- ---------- ----------
Net investment loss (22,039) (32,641) (657) (3,084)
---------- ---------- ---------- ----------
Net realized income from
disposal of investments - - - -
Net unrealized appreciation
in investments - - - -
---------- ---------- ---------- ----------
Net decrease in stockholders
equity resulting from
operations $ (22,039) $ (32,641) $ (657) $ (3,084)
========== =========== ========== =========
Basic and diluted net decrease
in stockholder equity per
common share resulting from
operations $ (0.0007) $ (0.0011) $ (0.00001) $(0.00005)
========== =========== =========== =========
Weighted number of common shares
outstanding-basic 30,150,000 30,150,000 64,758,400 64,758,400
========== =========== =========== =========
Weighted number of common shares
outstanding-diluted 45,150,000 38,603,039 64,758,400 64,758,400
========== =========== =========== =========
The accompanying notes are an integral part of these financial statements.
F-3
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENT OF CASH FLOWS
JUNE 30, 2006 and June 30, 2005
(unaudited)
For the six months ended
June 30, 2006 June 30, 2005
Unaudited) (unaudited)
----------------- ----------------
Cash flows from operating activities:
Net decrease in stockholders equity
from operations $ (32,641) $ (3,084)
Adjustments to reconcile net decrease
in stockholders equity from
operations to net cash used in
operating activities:
Increase (decrease) in
accounts payable - 240
Increase (decrease) in amounts due
to officer/stockholder (21,268) 2,844
Increase (decrease) in prepaid item (4,100) -
------------ -----------
Net cash used in operating activities (58,009) -
Cash flow from financing activities:
Net proceeds from issuance of preferred
stock 60,000
------------ -----------
Net cash provided by financing activities 60,000 -
------------ -----------
Net (decrease) increase in cash 1,991 -
Cash, beginning of period - -
------------ -----------
Cash, end of period $ 1,991 $ -
============ ===========
</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 SIX MONTHS ENDED JUNE 30, 2006
(unaudited)
Note 1. Organization and Interim Financial Statements
American Development & Investment Fund, Inc. (American Development 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 significant 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.
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 June 30, 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.
F-5
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(unaudited)
Note 2. Significant Accounting Policies
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses during the reported period. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
The following are significant accounting policies 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.
(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 Companys 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
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-6
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 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 managements
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
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 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, 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, 2006, the Company has approximately $70,897 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.
F-7
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(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, 2006, the Company did not have any
consolidated subsidiaries.
Recent Accounting Pronouncements
In July, 2006, the Financial Accounting Standards Board issued FASB
Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes-
An Interpretation of FASB Statement No, 109. (FIN 48). Fin 48 clarifies
the accounting for uncertainty in income taxes recognized in an
enterprise s financial statements in accordance with FASB Statement No.
109-Accounting for Income Taxes. FIN 48 also prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The provisions of FIN 48 are effective for fiscal
years beginning after December 15, 2006. We will adopt FIN 48 in the first
quarter of 2007. We do not believe the effect of adopting FIN 48 will have a
material impact on our 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
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 Transaction
Investment Advisory Agreement
The Company has entered into an Investment Advisory Agreement with American
F-8
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30 2006
(unaudited)
Note 4. Related Party Agreements and Transactions (Continued)
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 majority Common Stockholder and the holder 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 Companys 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 original Agreement, the Base Management Fee would not
be lower than $25,000 per month for the first two years of the term of the
Agreement; however, the Investment Advisor agreed with the Company to
eliminate the minimum fee, and the Company amended the Agreement accordingly
with the consent of all of the common shareholders on June 30, 2006, other
than Enterprise Partners which abstained. The shareholders also unanimously
approved the appointment of American Development Fund Advisers, LLC as the
investment adviser for the Company at the same time.
No investment advisory fees have been accrued for the quarter.
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.
There were no changes in stockholder equity during the quarter.
F-9
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(unaudited)
Note 6. Financial Highlights
Financial Highlights
The following is a schedule of financial highlights for the six months ended
June 30, 2006 and for the twelve months ended December 31, 2005:
For the For the
six months twelve months
ended ended
June 30, 2006 December 31, 2005
---------------- -----------------
Net asset value at
beginning of period (1) $ (0.00071) $ (0.00020)
Proceeds from preferred stock 0.00199 -
Net investment income (0.00108) (0.00054)
Net unrealized appreciation - -
------------- --------------
Net asset value, end of period (2) $ 0.00020 $ (0.00074)
(1) Financial highlights as of June 30, 2006 and December 31, 2005 are
based on 30,150,000 common shares outstanding, giving effect to the 100 for 1
forward split. On a fully diluted basis, there would be 38,603,039 shares
outstanding as of June 30, 2006, based on conversion of the Series A
Convertible Preferred Stock into 15 million common shares, the maximum
conversion possible under the terms of the Series A Preferred Stock, and
treating those shares as outstanding as of the date of their issuance at
March 20, 2006.
(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. Subsequent Events
In August, 2006, Enterprise Partners, LLC, our majority common shareholder and
the sole holder of our Series A Convertible Preferred Stock, transferred
18,061,133 of the common shares held by it in private sale transactions, and
also transferred 731,519 of the Series A Convertible Preferred shares held by
it to its debenture holders (23 persons) As a result of these transactions,
Enterprise Partners, LLC now holds 10,558,267 shares of our common stock,
representing approximately 35 percent of our undiluted common stock outstanding
and 268,481 shares of our Series A Convertible Preferred Stock, representing
26.8 percent of the 1,000,000 shares outstanding, and convertible into a
maximum of 4,020,000 shares of our common stock. Therefore, Enterprise
Partners, LLC now holds a total of approximately 32.3 percent of our common
stock on a fully diluted basis, giving effect to the maximum conversion of the
Series A Convertible Preferred Stock held by it.
F-10
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.
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
-3-
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 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 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 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
-4-
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 arms
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 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 has amended the Certificate of Designations for the Series A
Convertible Preferred Stock, as filed with the Secretary of State of Nevada,
with the consent of the original holder of the shares, Enterprise Partners,
LLC. The amendments were designed to insure that the Series A Convertible
Preferred Stock meets the requirements of a senior security, as defined in
Section 18(g) of the 1940 Act. The Amended Certificate of Designations of
Series A Convertible Preferred Stock and the prior issuance of the Series A
Convertible Preferred Stock to Enterprise Partners, LLC was approved
unanimously by our common shareholders on June 30, 2006.
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 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 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 June 30, 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 June 30, 2005
is not meaningful, as we had not then made the election to be treated as a
business development company and our business model in 2005 was to locate and
merge with an operating business.
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Financial Highlights
Financial highlights of the Company for the period ending June 30, 2006
are included in Footnote 6 to our Financial Statements.
Investment Activity
We have not yet engaged in any investment activity 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,
2006.
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 June 30, 2006.
Operating Expenses
Our primary operating expenses consist of investment advisory fees,
consulting, legal and professional fees and other operating and
overhead-related expenses. Operating expenses totaled $22,039 for the quarter
ended June 30, 2006 as compared to $ 657 for the quarter ended June 30, 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 for periods before March 31, 2006 were 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
Our net investment income totaled $0 for the quarter ended June 30, 2006
compared to $0 for the quarter ended June 30, 2005 and $0 for the year ended
December 31, 2005. Net unrealized appreciation totaled $0 for the quarter
ended June 30, 2006 compared to $0 for the quarter ended June 30, 2005 and
$0 for the year ended December 31, 2005.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources were generated primarily from an advance
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of $60,000 by our major shareholder, Enterprise Partners, LLC, which was later
converted into 1 million shares of Series A Convertible Preferred Stock. 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, 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 of investments. During the three and six months ended June 30,
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 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 July 31, 2006, 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
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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, 2006 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.
During the quarter ended June 30, 2006, the Company did not issue any
securities.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Effective June 30, 2006, the shareholders of the Company unanimously approved
(1) an amendment to our Articles of Incorporation to increase the number of
authorized shares of the Company par vale $0.001 common stock from 50 million
shares to 150 million shares, which amendment was then filed with the
Secretary of State for Nevada; (2) Ratification of the appointment of American
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Development Fund Advisors, LLC as investment advisors to the Company and
approval of the Amended Investment Advisory Agreement; and (3) Approval of the
Amended Statement of Designation for the Series A Convertible Stock of the
Company, which was then filed with the Secretary of State for the State of
Nevada.
On July 31, 2006, the Company held its Annual Meeting of Shareholders pursuant
to written notice and a Proxy Statement filed with the SEC on July 19, 2006.
All of the common shareholders of the Company were present at the meeting or
submitted signed proxies prior to the meeting. The following matters were
approved by the shareholders at the Annual Meeting:
1. Election of the following as directors of the Company until the next
Annual Meeting and until their successors are duly elected and qualified:
Robert Hipple, Adam Mayblum, John Kelly, David Brant and David Dallow.
2. Ratification of the decision of the Audit Committee to appoint
Berman Hopkins Wright & Laham, CPAs, LLP as the independent auditors of the
Company for the fiscal year beginning January 1, 2006.
Item 5. Other Information.
On July 19, 2006, we filed a Form 1-E Notice of our intent to offer common
shares under a Regulation E exempt offering under the 1933 Act. We have not
yet offered or sold any shares under that exempt offering.
Item 6. Exhibits
Exhibit Description of Exhibit
31.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a)/15d-14(a)
31.2 Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a)/l5d-14(a)
32.1 Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. 1350
32.2 Certification of Chief 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, 2006
Robert Hipple
Chief Executive Officer
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