Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2009
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)
1365 N. Courtenay Parkway, Suite A
Merritt Island, FL 32953
(Address of Principal Executive Offices) (Zip
Code)
(321)-452-9091
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Name of each exchange on which registered
None
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligation under those Sections.
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes [X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K (‘229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant ’s knowledge, in definitive proxy
or other information incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K
[X ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘accelerated filer and large accelerated filer’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ] Smaller
reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X ]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
$ None
The number of shares of the Registrants Common Stock, $0.001 par value, outstanding as of March 15, 2010 was 36,829,333 shares.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).
None.
TABLE OF CONTENTS
PART I
Item 1. Business............................................................................................................................................................................................................................................................................................................................................................ 1
Item 1A Risk Factors .................................................................................................................................................................................................................................................................................................................................................. 8
Item 1B Unresolved Staff Comments ......................................................................................................................................................................................................................................................................................................................
10
Item 2. Properties .......................................................................................................................................................................................................................................................................................................................................................
10
Item 3. Legal Proceedings.........................................................................................................................................................................................................................................................................................................................................
11
Item 4. Submission of Matters to a Vote of Security Holders………...................................................................................................................................................................................................……………………………………
11
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities .................................................................................................................................................................................................................................................................................................................
11
Item 6. Selected Financial Data...............................................................................................................................................................................................................................................................................................................................
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................................................................................................................................................................................
12
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.............................................................................................................................................................................................................................................................
14
Item 8 Financial Statements and Supplementary Data......................................................................................................................................................................................................................................................................................
14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ..........................................................................................................................................................................................................................................................................................
14
Item 9A(T). Controls and Procedures....................................................................................................................................................................................................................................................................................................................
14
Item 9B. Other Information.....................................................................................................................................................................................................................................................................................................................................
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PART III
Item 10 Directors, Executive Officers and Corporate Governance .................................................................................................................................................................................................................................................................
15
Item 11. Executive Compensation............................................................................................................................................................................................................................................................................................................................
18
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.................................................................................................................................................................................................................................................................................................................. 20
Item 13. Certain Relationships and Related Transactions and Director Independence ..............................................................................................................................................................................................................................
21
Item 14. Principal Accountant Fees and Services................................................................................................................................................................................................................................................................................................
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Item 15. Exhibits, Financial Statement Schedules..............................................................................................................................................................................................................................................................................................
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Index to Financial Statements.................................................................................................................................................................................................................................................................................................................................................
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Financial Statements...............................................................................................................................................................................................................................................................................................................................................................
F-1
Signatures.................................................................................................................................................................................................................................................................................................................................................................................
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FORWARD LOOKING STATEMENTS
This annual report on Form 10-K 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 annual report represent our estimates as of the date of this annual report. We specifically disclaim any obligation to update these forward-looking statements in the future. Some of the statements in this annual report constitute forward-looking statements, which relate to future events or
our future performance or financial condition. Such forward-looking statements contained in this annual 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-K, as well as the risk factors included in this Form 10-K under Item 1A.
PART I
Item 1. Business.
General development of business
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 under the Investment Company Act of 1940 (the
“1940 Act”) 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.
Currently, the Common shares of the Company do not trade on any over-the-counter market or exchange.
During 2009, the Company did not complete any portfolio investments, or the acquisition or disposition of any material asset. The business of the Company was limited to engaging in the due diligence necessary to locate suitable portfolio investments for the Company, as a business development company under the 1940 Act. We conducted
extensive due diligence on a number of potential portfolio investments during 2009, and entered into investment and acquisition letters of intent with several companies. No portfolio investments have yet been closed, however.
Financial information about market segments.
The Company does not currently have any portfolio investments and therefore has no market segment information. All material information regarding the activities of the Company is reflected in the financial statements included in this report.
Narrative description of business.
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As a business development company, or BDC, under the 1940 Act, the business model of the Company is to locate, invest in and provide management assistance to small public and private companies to enable those companies to undertake their own business plans and models.
We are not limited, as a BDC, to seeking portfolio investments in a particular market segment, and intend to seek investment in companies operating in a wide category of markets and business segments, including the alternative energy markets as well as medical devices and related markets.
In connection with our BDC election, the Company has adopted corporate governance resolutions and intends to operate as a closed-end management investment company as a business development company (a BDC).
INVESTMENT STRATEGY
We have conducted limited operations to date. Under the BDC election, we have been organized to provide investors with the opportunity to participate, with a modest amount of venture capital, in investments that are generally not available to the public and that typically require substantially larger financial commitments. In addition,
we will provide professional management and administration that might otherwise be unavailable to investors if they were to engage directly in venture capital investing. We have decided to be regulated as a business development company under the 1940 Act, and will operate as a non-diversified company as that term is defined in Section 5(b)(2) of the 1940 Act. We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC without the approval of the
holders of a majority of our outstanding voting stock as defined under the 1940 Act.
As a business development company, we are required to invest at least 70% of our total assets in qualifying assets, which, generally, are securities of private companies or securities of public companies whose securities are not eligible for purchase on margin (which includes many companies with thinly traded securities that are quoted
in the pink sheets or the NASD Electronic Quotation Service.) We must also offer to provide significant managerial assistance to these portfolio companies. Qualifying assets may also include:
* cash,
* cash equivalents,
* U.S. Government securities, or
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high-quality debt investments maturing in one year or less from the date of investment. |
We may invest a portion of the remaining 30% of our total assets in debt and/or equity securities of companies that may be larger or more stabilized than target portfolio companies.
Nature of a BDC
The 1940 Act defines a BDC as a closed-end management investment company that provides small businesses that qualify as an eligible portfolio company with investment capital and also significant managerial assistance.
A BDC is required under the 1940 Act to invest at least 70% of its total assets in qualifying assets consisting of eligible portfolio companies as defined in the 1940 Act and certain other assets including cash and cash equivalents.
An eligible portfolio company generally is a United States company that is not an investment company and that:
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does not have a class of securities registered on an exchange or included in the Federal Reserve Board's over-the-counter margin list; |
* is actively controlled by a BDC and has an affiliate of a BDC on its board of directors; or
* meets such other criteria as may be established by the SEC.
Control under the 1940 Act is presumed to exist where a BDC owns more than 25% of the outstanding voting securities of the eligible portfolio company. We may or may not control our portfolio companies. An example of an eligible portfolio company is a new start up company or a privately owned company that has not yet gone public by selling
its shares in the open market and has not applied to have its shares listed on a nationally recognized exchange such as the NYSE the American Stock Exchange, National Association of Securities Dealers' Automated Quotation System, or the
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National Market System. An eligible portfolio company can also be one which is subject to filing, has filed, or has recently emerged from reorganization protection under Chapter 11 of the Bankruptcy Code.
A BDC may invest the remaining 30% of its total assets in non-qualifying assets, including companies that are not eligible portfolio companies. The foregoing percentages will be determined, in the case of financings in which a BDC commits to provide financing prior to funding the commitment, by the Amount of the BDC's total assets
represented by the value of the maximum amount of securities to be issued by the borrower or lessee to the BDC pursuant to such commitment. As a BDC, we must invest at least 70% of our total assets in qualifying assets but may invest more in such qualifying assets.
Primary Strategy
We have significant relative flexibility in selecting and structuring our investments. We are not subject to many of the regulatory limitations that govern traditional lending institutions such as banks. We will seek to structure our investments so as to take into account the uncertain and potentially variable financial performance
of our portfolio companies. This should enable our portfolio companies to retain access to committed capital at different stages in their development and eliminate some of the uncertainty surrounding their capital allocation decisions. We will calculate rates of return on invested capital based on a combination of up-front commitment fees, current and deferred interest rates and residual values, which may take the form of common stock, warrants, equity appreciation rights or future contract payments.
We believe that this flexible approach to structuring investments will facilitate positive, long-term relationships with our portfolio companies and enable us to become a preferred source of capital to them. We also believe our approach should enable debt financing to develop into a viable alternative capital source for funding the growth of target companies that wish to avoid the dilutive effects of equity financings for existing equity holders.
Longer Investment Horizon
We are not subject to periodic capital return requirements. These requirements, which are standard for most private equity and venture capital funds, typically require that these funds return to investors the initial capital investment after a pre-agreed time, together with any capital gains on such capital investment. These provisions
often force such funds to seek the return of their investments in portfolio companies through mergers, public equity offerings or other liquidity events more quickly than they otherwise might, which can result in a lower overall return to investors and adversely affect the ultimate viability of the affected portfolio companies. Because we may invest in the same portfolio companies as these funds, we are subject to these risks if these funds demand a return on their investments in the portfolio companies. We
believe that our flexibility to take a longer-term view should help us to maximize returns on our invested capital while still meeting the needs of our portfolio companies.
Established Deal Sourcing Network
We believe that, through our management and directors, we have solid contacts and sources from which to generate investment opportunities. These contacts and sources include:
* public and private companies,
* investment bankers,
* attorneys,
* accountants,
* consultants, and
* commercial bankers.
However, we cannot assure you that such relationships will lead to the origination of equity, debt or other investments.
Investment Criteria
As a matter of policy, we will not purchase or sell real estate or interests in real estate or real estate investment trusts except that we may:
* purchase and sell real estate or interests in real estate in connection with the orderly liquidation of investments, or in connection with foreclosure on collateral;
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own the securities of companies that are in the business of buying, selling or developing real estate; or |
* finance the purchase of real estate by our portfolio companies.
We will limit our investments in more traditional securities (stock and debt instruments) and will not, as a matter of policy:
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sell securities short except with regard to managing the risks associated with publicly-traded securities issued by our portfolio companies; or |
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purchase securities on margin (except to the extent that we may purchase securities with borrowed money); or |
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engage in the purchase or sale of commodities or commodity contracts, including futures contracts except where necessary in working out distressed loans or similar investment situations or in hedging the risks associated with interest rate fluctuations, and, in such cases, only after all necessary registrations or exemptions from registration with the Commodity Futures Trading Commission have been obtained. |
Prospective Portfolio Company Characteristics. We have identified several criteria that we believe will prove important in seeking our investment objective with respect to target companies. These criteria will provide general guidelines for our investment decisions; however, we caution readers that not all of these criteria
will be met by each prospective portfolio company in which we choose to invest.
Experienced Management. We will generally require that our portfolio companies have an experienced president or management team. We will also require the portfolio companies to have in place proper incentives to induce management to succeed and to act in concert with our interests as investors,
including having significant equity interests. We intend to provide assistance in this area either supervising management or providing management for our portfolio companies.
Products or Services. We will seek companies that are involved in products or services that do not require significant additional capital or research expenditures. In general, we will seek target companies that make innovative use of proven technologies or methods.
Proprietary Advantage. We expect to favor companies that can demonstrate some kind of proprietary sustainable advantage with respect to their competition. Proprietary advantages include, but are not limited to:
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patents or trade secrets with respect to owning or manufacturing its products, and |
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a demonstrable and sustainable marketing advantage over its competition. |
Marketing strategies impose unusual burdens on management to be continuously ahead of its competition, either through some kind of technological advantage or by being continuously more creative than its competition.
Profitable or Nearly Profitable Operations Based on Cash Flow from Operations.
We will focus on target companies that are profitable or nearly profitable on an operating cash flow basis. Typically, we would not expect to invest in start-up companies unless there is a clear exit strategy in place.
Potential for Future Growth
We will generally require that a prospective target company, in addition to generating sufficient cash flow to cover its operating costs and service its debt, demonstrate an ability to increase its revenues and operating cash flow over time. The anticipated growth rate of a prospective target company
will be a key factor in determining the value that we ascribe to any warrants or other equity securities that we may acquire in connection with an investment in debt securities.
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Exit Strategy
Prior to making an investment in a portfolio company, we will analyze the potential for that company to increase the liquidity of its common equity through a future event that would enable us to realize appreciation, if any, in the value of our equity interest. Liquidity events may include:
* an initial public offering,
* a private sale of our equity interest to a third party,
* a merger or an acquisition of the portfolio company, or
* a purchase of our equity position by the portfolio company or one of its stockholders.
We may acquire warrants to purchase equity securities and/or convertible preferred stock of the eligible portfolio companies in connection with providing financing. The terms of the warrants, including the expiration date, exercise price and terms of the equity security for which the warrant may be
exercised, will be negotiated individually with each eligible portfolio company, and will likely be affected by the price and terms of securities issued by the eligible portfolio company to other venture capitalists and other holders. We anticipate that most warrants will be for a term of five to ten years, and will have an exercise price based upon the price at which the eligible portfolio company most recently issued equity securities or, if a new equity offering is imminent, the proposed offering price of
the equity securities. The equity securities for which the warrant will be exercised generally will be common stock, of which there may be one or more classes, or convertible preferred stock.
Substantially all the warrants and underlying equity securities will be restricted securities under the 1933 Act at the time of the issuance. We will generally negotiate for registration rights with the issuer that may provide:
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piggyback registration rights, which will permit us under certain circumstances, to include some or all of the securities owned by us in a registration statement filed by the eligible portfolio company, or |
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in some circumstances, "demand" registration rights permitting us, under certain circumstances, to require the eligible portfolio company to register securities under the 1933 Act, in some cases at our expense. |
We will generally negotiate net issuance provisions in the warrants, which will allow us to receive upon exercise of the warrant without payment of any cash a net amount of shares determined by the increase in the value of the issuer's stock above the exercise price stated in the warrant.
Liquidation Value of Assets
Although we do not intend to operate as an asset based lender, the prospective liquidation value of the assets, if any, collateralizing any debt securities that we hold will be an important factor in our credit analysis. We will emphasize both tangible assets, such as:
* accounts receivable,
* inventory, and
* equipment,
and intangible assets, such as:
* intellectual property,
* customer lists,
* networks, and
* databases.
Investment Process
Due Diligence. If a target company generally meets the characteristics described above, we will perform initial due diligence, including:
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* company and technology assessments,
* existing management team,
* market analysis,
* competitive analysis,
* evaluation of management, risk analysis and transaction size,
* pricing, and
* structure analysis.
Much of this work will be done by management and by any outside investment adviser or consultant that we may retain for that purpose. The criteria delineated above provide general parameters for our investment decisions. We intend to pursue an investment strategy by further imposing such criteria and reviews that best insures
the value of our investments. As unique circumstances may arise or be uncovered, not all of such criteria will be followed in each instance but the process provides a guideline by which investments can be prudently made and managed. Upon successful completion of the preliminary evaluation, we will decide whether to deliver a non-binding letter of intent and move forward towards the completion of a transaction.
In our review of the management team, we look at the following:
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Interviews with management and significant shareholders, including any financial or strategic sponsor; |
* Review of financing history;
* Review of management's track record with respect to:
o product development and marketing,
o mergers and acquisitions,
o alliances,
o collaborations,
o research and development outsourcing and other
strategic activities;
* Assessment of competition; and
* Review of exit strategies.
In our review of the financial conditions, we look at the following:
* Evaluation of future financing needs and plans;
* Detailed analysis of financial performance;
* Development of pro forma financial projections; and
* Review of assets and liabilities, including contingent liabilities,
if any, and legal and regulatory risks.
In our review of the products and services of the portfolio company, we look at the following:
* Evaluation of intellectual property position;
* Review of existing customer or similar agreements and arrangements;
* Analysis of core technology;
* Assessment of collaborations;
* Review of sales and marketing procedures; and
* Assessment of market and growth potential.
Upon completion of these analyses, we will conduct on-site visits with the target company's management team. Also, in cases in which a target company is at a mature stage of development and if other matters exist that warrant such an evaluation, we will obtain an independent appraisal of the target company.
Ongoing Relationships with Portfolio Companies
Monitoring.
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We will continuously monitor our portfolio companies in order to determine whether they are meeting our financing criteria and their respective business plans. We may decline to make additional investments in portfolio companies that do not continue to meet our financing criteria. However, we may choose to make additional
investments in portfolio companies that do not do so, but we believe that we will nevertheless perform well in the future.
We will monitor the financial trends of each portfolio company to assess the appropriate course of action for each company and to evaluate overall portfolio quality. Our management team and consulting professionals, who are well known by our management team, will closely monitor the status and performance of each individual company
on at least a quarterly and, in some cases, a monthly basis.
We will use several methods of evaluating and monitoring the performance and fair value of our debt and equity positions, including but not limited to the following:
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Assessment of business development success, including product development, financings, profitability and the portfolio company's overall adherence to its business plan; |
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Periodic and regular contact with portfolio company management to discuss financial position, requirements and accomplishments; |
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Periodic and regular formal update interviews with portfolio company management and, if appropriate, the financial or strategic sponsor; |
* Attendance at and participation in board meetings;
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Review of monthly and quarterly financial statements and financial projections for portfolio companies. |
Managerial Assistance
As a business development company, we will offer, and in many cases may provide, significant managerial assistance to our portfolio companies. This assistance will typically involve:
* monitoring the operations of our portfolio companies,
* participating in their board and management meetings,
* consulting with and advising their officers,
* providing other organizational and financial guidance, and
* placing a representative on the Board of Directors or other governing
body of each portfolio company.
Diversification
As a BDC, we must invest at least 70% of our total assets in qualifying assets consisting of investments in eligible portfolio companies and certain other assets including cash and cash equivalents. In order to receive favorable pass-through tax treatment on any distributions to our shareholders, we
intend to diversify our pool of investments in such a manner so as to qualify as a diversified closed end management investment company. However, because of the limited size of the funding which is likely to be available to us, we will likely be classified as a non-diversified closed end investment company under the 1940 Act. Until we qualify as a registered investment company, we will not be subject to the diversification requirements applicable to RICs under the Internal Revenue
Code. Therefore, we will not receive favorable pass through tax treatment on distributions to our shareholders. In the future, we will seek to increase the diversification of our portfolio so as to make it possible to meet the RIC diversification requirements, as described below. We cannot assure you, however, that we will ever be able to meet those requirements.
To qualify as a RIC, we must meet the issuer diversification standards under the Internal Revenue Code that require that, at the close of each quarter of our taxable year,
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not more than 25% of the market value of our total assets is invested in the securities of a single issuer, and |
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at least 50% of the market value of our total assets is represented by cash, cash items, government securities, securities of other RICs, and other securities. |
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Each investment in these other securities is limited so that not more than 5% of the market value of our total assets is invested in the securities of a single issuer and we do not own more than 10% of the outstanding voting securities of a single issuer. For purposes of the diversification requirements under the Internal Revenue Code,
the percentage of our total assets invested in securities of a portfolio company will be deemed to refer, in the case of financings in which we commit to provide financing prior to funding the commitment, to the amount of our total assets represented by the value of the securities issued by the eligible portfolio company to us at the time each portion of the commitment is funded.
Investment Amounts
The amount of funds committed to a portfolio company and the ownership percentage received will vary depending on the maturity of the portfolio company, the quality and completeness of the portfolio company's management team, the perceived business opportunity, the capital required compared to existing capital, and the potential return. Although
investment amounts will vary considerably, we expect that the average investment, including follow-on investments, will be between $250,000 and $5,000,000.
Competition
Our primary competitors which are able to provide financing to target companies, will include private equity and venture capital funds, other equity and non-equity based investment funds and investment banks and other sources of financing, including additional financial services companies such as commercial banks and specialty finance companies. Many
of these entities have substantially greater financial and managerial resources than we will have. We believe that our competitive advantage with regard to quality target companies relates to our ability to negotiate flexible terms and to complete our review process on a timely basis. We cannot assure you that we will be successful in implementing our strategies.
Financial information about geographic areas.
The Company has not engaged in any activities, and has no customers or portfolio investments, outside of the United States. As a BDC, our investment portfolio is limited to U.S. companies, although a portfolio company in which we invest may have operations in both the U.S. and outside the U.S.
Item 1A. Risk Factors.
THE COMPANY HAS LIMITED RESOURCES AND NO PRESENT SOURCE OF REVENUES
The Company has limited resources and has had no revenues to date. In addition, the Company will not achieve any revenues until, at the earliest, the consummation of a Portfolio Investment. Moreover, there can be no assurance that any Portfolio Investment, at the time of the Company's consummation of an investment, or at any time thereafter,
will provide any material revenues from its operations or operate on a profitable basis.
THE COMPANY MAY NEED ADDITIONAL FINANCING IN ORDER TO EXECUTE ITS BUSINESS PLAN
The Company has had no revenues to date and will be entirely dependent upon its limited available financial resources. The Company cannot ascertain with any degree of certainty the capital requirements for the execution of its business plan. In the event that the Company's limited financial resources prove to be insufficient to implement
the Company's business plan, the Company may be required to seek additional financing.
ADDITIONAL FINANCING MAY NOT BE AVAILABLE TO THE COMPANY IF NEEDED
There can be no assurance that additional financing, if needed, will be available on acceptable terms, or at all. To the extent that additional financing proves to be unavailable when needed, the Company would, in all likelihood, be compelled to abandon plans for a Portfolio Investment, and would have minimal capital remaining to pursue
other Portfolio Companies. The failure by the Company to secure additional financing, if needed, could also have a material adverse effect on the continued development or growth of the Portfolio Company. The Company has no arrangements with any bank or financial institution to secure additional financing and there can be no assurance that any such
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arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in the best interests of the Company.
THE COMPANY MAY NOT BE ABLE TO BORROW FUNDS IF NEEDED
There currently are no limitations on the Company's ability to borrow funds to increase the amount of capital available to the Company to effect a Portfolio Investment, other than the general limitation of the ratio between debt and equity imposed on all BDCs by the 1940 Act. Moreover, the limited resources of the Company and lack of operating
history will make it difficult to borrow funds. The amount and nature of any borrowings by the Company will depend on numerous considerations, including the Company's capital requirements, the Company's perceived ability to meet debt service on any such borrowings and the then prevailing conditions in the financial markets, as well as general economic conditions. There can be no assurance that debt financing, if required or sought, would be available on terms deemed to be commercially acceptable by and in the
best interests of the Company. The inability of the Company to borrow funds required to effect or facilitate an investment, or to provide funds for an additional infusion of capital into a Portfolio Company, may have a material adverse effect on the Company's financial condition and future prospects. Additionally, to the extent that debt financing ultimately proves to be available, any borrowings may subject the Company to various risks traditionally associated with indebtedness, including the risks of interest
rate fluctuations and insufficiency of cash flow to pay principal and interest. Furthermore, a Portfolio Company may have already incurred borrowings and, therefore, all the risks inherent thereto.
THE COMPANY IS UNABLE TO ASCERTAIN RISKS RELATING TO THE INDUSTRY AND NATURE OF UNIDENTIFIED PORTFOLIO INVESTMENT TARGETS
The Company has not yet selected any particular Portfolio Company in which to concentrate its investment efforts. The directors and executive officers of the Company have had contact or discussions with several entities or representatives of entities regarding consummation of a Portfolio Investment, but have not yet successfully completed
an investment. Accordingly, there is no basis to evaluate the possible merits or risks of a Portfolio Investment, and therefore risks of a currently unascertainable nature may arise when a specific Portfolio Company is chosen. For example, to the extent that the Company effects an investment in a financially unstable company or an entity in its early stage of development or growth (including entities without established records of revenues or income), the Company will become subject to numerous risks inherent
in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that the Company effects an investment in an entity in an industry characterized by a high level of risk, the Company will become subject to the currently unascertainable risks of that industry. Although management will endeavor to evaluate the risks inherent in a particular Portfolio Company, there can be no assurance that the Company will properly ascertain or assess all
such risks.
SUCCESS OF THE COMPANY'S BUSINESS PLAN DEPENDS IN LARGE PART UPON THE CONSUMMATION OF A PORTFOLIO INVESTMENT
The success of the Company's proposed plan of operation will depend to a great extent on locating and consummating an investment in a Portfolio Company. Subsequent to any investment, the Company's success will depend greatly on the operations, financial condition, and management of the identified Portfolio Company. While
management intends to seek an investment in a company that has an established operating history, it cannot assure that the Company will successfully locate candidates meeting such criteria. In the event the Company completes an investment, the success of the Company's operations may be dependent upon management of the Portfolio Company and numerous other factors beyond the Company's control.
THE COMPANY DEPENDS UPON ITS EXECUTIVE OFFICERS AND DIRECTORS
The ability of the Company to successfully effect a Portfolio Investment will be dependent upon the efforts of its executive officers and directors, as well as its ability to attract additional directors and executive officers. The Company has not entered into employment agreements or other understandings with any officer or
director concerning compensation or obtained any "key man" life insurance on his or her life.
9
THERE EXIST RISKS TO STOCKHOLDERS RELATING TO DILUTION: AUTHORIZATION OF ADDITIONAL SECURITIES AND REDUCTION OF PERCENTAGE SHARE OWNERSHIP FOLLOWING A PORTFOLIO INVESTMENT
To the extent that additional shares of Common Stock are issued, the Company's stockholders would experience dilution of their respective ownership interests in the Company. Additionally, if the Company issues a substantial number of shares of Common Stock in connection with or following a Portfolio Investment, a change in control of the
Company may occur which may affect, among other things, the Company's ability to utilize net operating loss carry forwards, if any. Furthermore, the issuance of a substantial number of shares of Common Stock may adversely affect prevailing market prices, if any, for the Common Stock and could impair the Company's ability to raise additional capital through the sale of its equity securities. The Company may use consultants and other third parties providing goods and services, including assistance in the identification
and evaluation of potential Portfolio Companies. These consultants or third parties may be paid in cash, stock, options or other securities of the Company, and the consultants or third parties may be Placement Agents or their affiliates.
THE COMPANY EXPECTS TO PAY NO CASH DIVIDENDS
The Company does not expect to pay dividends prior to the consummation of a Portfolio Investment. The payment of dividends after consummating any such investment will be contingent upon the Company's revenues and earnings, if any, capital requirements, and general financial condition subsequent to consummation of an investment. The payment
of any dividends subsequent to an investment will be within the discretion of the Company's then Board of Directors. The Company presently intends to retain all earnings, if any, for use in the Company's business operations and accordingly, the Board does not anticipate declaring any dividends in the foreseeable future.
THE COMPANY IS AUTHORIZED TO ISSUE PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of 5,000,000 shares of preferred stock (the "Preferred Stock"), with such designations, powers, preferences, rights, qualifications, limitations and restrictions of such series as the Board of Directors, subject to the laws of the State of Nevada, may determine from time
to time. Accordingly, the Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of Common Stock. In addition, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. As of the date of this report, the Company has no outstanding shares of Preferred
Stock.
Item 1B. Unresolved Staff Comments.
The SEC Staff by telephone requested additional information regarding our Form 10-K for the year ended December 31, 2008, to which the Company has fully responded by letter dated December 23, 2009. No further comments have been received since that response and there has been no further contact from the SEC. Accordingly, the Company believes
that there are no remaining unresolved Staff comments.
Item 2. Properties.
The Company neither owns nor leases any significant real estate or other properties at the present time. The Company requires minimal office space and the Company has subleased space for corporate and administrative purposes in Merritt Island, Florida for $550 per month commencing in January, 2009 for a two year term from CF Consulting,
LLC., an independent consultant to the Company by which our contract CFO, Roger L. Tannery, has been retained. This arrangement will continue until the Company raises additional funding and determines that more extensive office space is necessary for its operations.
10
Item 3. Legal Proceedings
There are no legal proceedings pending, or to the best knowledge of management, threatened against the Company. There were no legal proceedings previously pending which were resolved during the fourth quarter of the fiscal year ended December 31, 2009.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of the Company during the fourth quarter of the fiscal year, ended December 31, 2009.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) Market information. The common shares of the Company have not been admitted for trading on any market. As a result, no information regarding high and low sales prices or high and low bid information for the common shares is available or provided in this report.
(b) Holders. As of March 15, 2010, there were approximately 50 holders of record of our common stock.
(c) Dividends. The Company has not paid any dividends to date, has not yet generated earnings sufficient to pay dividends, and currently does not intend to pay dividends in the foreseeable future.
(d) Securities authorized for issuance under equity compensation plans. Although the Company has two authorized equity compensation plans approved by its shareholders in 1997, before it elected to be treated as a business development company, no stock options, grants, warrants or other awards have ever been made under the plans. The
By-laws of the Company prohibit the grant or award of any such options, grants, warrants or other awards so long as the Company maintains its election to be treated as a business development company.
The following table sets forth, as of the year ended December 31, 2009, certain information with respect to the compensation plans and individual compensation arrangements to which the Company is a party, if any, under which any equity securities of the Company are authorized for issuance.
Plan category Number of securities Weighted
average Number of securities
to
be issued upon exercise price of
remaining available
exercise
of outstanding options, for
future issuance
outstanding
options, warrants and rights under
equity
warrants
and rights
compensation plans
(a)
(b)
(c)
___________________________________________________________________________________________________
Equity compensation
plans approved by
security holders
1997 EMPLOYEE STOCK
COMPENSATION PLAN -0- N/A
1,000,000
1997 COMPENSATORY
STOCK OPTION PLAN -0-
N/A 1,500,000
Equity compensation plans
not approved by
security holders
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NONE
N/A N/A
N/A
_____________________________________________________________________________________________________
Total
-0-
Item 6. Selected Financial Data.
The Company was in a development stage through the end of 2005 and had no income or assets during the period from its incorporation in 1997 through the end of 2005. During 2006 through 2009, after the election to be treated as a BDC, the Company has had no revenues, income from continuing operations, and similar items, and has not had any
accounting changes, or business combinations or dispositions. Therefore, the information required by Item 301 of Regulation S-K is omitted for that period as not material.
The net loss, net loss per common share, net asset values, net asset value per common share, and related financial data as a BDC are provided in the financial statements included in this report
Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations.
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 percent of net assets in qualifying portfolio companies.
We expect to invest in growing companies, many of which have relatively short or no operating histories. These companies are and will be subject to all the business risks 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 December 31, 2009, we had not yet made any portfolio or other investments.
Results of Operations
During the year ended December 31, 2009, the Company made considerable efforts to carry out its business plan as a business development company. These efforts included both business development and financing activities. Through the end of the fiscal year, the Company incurred substantial in expenses in connection with its business development
company operations, most of which related to the due diligence investigation of three proposed portfolio acquisitions, and negotiating and entering into acquisition agreements, before the investments were abandoned in December 2008, and negotiating and conducting due diligence on several acquisitions which are still under active consideration during 2009 and to date.
Critical Accounting Policies
In determining the fair value of our investments, the Audit Committee will consider valuations from an independent valuation firm, as needed, from our Investment Committee, our investment adviser and from management Results of Operations
Financial Highlights
Financial highlights of the Company for the fiscal year ending December 31, 2009 are included in Footnote 6 to our Financial Statements.
Investment Activity
We engaged in no actual investments during the year ended December 31, 2009.
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Long-Term Portfolio Investments
There were no portfolio investments made during the twelve months ended December 31, 2009.
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 other negotiated basis. In addition, we may earn revenue in other forms including commitment, origination, structuring or due diligence
fees, management fees and consultation fees, which will be recognized as earned. We earned no investment income during the year ended December 31, 2009.
Operating Expenses
Operating expenses for the years ended December 31, 2009 and 2008 are broken down as follows:
2009 2008
Operating Expenses:
Consulting expenses $ 456,500 $ 22,500
Rent
6,600 5,200
Audit fees
10,749 10,749
Legal fees 49,216
--
Other expenses:
Bank fees
868
61
Office supplies
--
150
Transfer agent
2,080 350
Travel 8,593 -- .
Total operating expense $ 534,606 $ 39,010
The consulting expenses were paid or due to:
Bainbridge Ventures, Inc. $ 160,000
CF Consulting, LLC $ 87,500
Tower I Consultants, LLC $ 180,000
The remaining consulting fees in the amount of $29,000 were paid to an unrelated party.
The amounts paid or due to Bainbridge Ventures represent consulting services provided by Gary Lewis, the Chairman of the Company. The amounts paid to the unrelated party were for consulting services related to proposed acquisitions and acquisition structuring. The amounts paid or due to Tower I Consultants, LLC are
for services provided to the Company during the year by Adam Mayblum and Patrick Donelan, officers and directors of the Company. CF Consulting, LLC was entitled to fees for financial and legal advisory services under a consulting agreement effective January 1, 2009, which was amended in July, 2009 to add the services of Roger Tannery as consulting CFO of the Company, effective August 1, 2009. The amounts still due to CF Consulting, LLC are broken down in accounts payable at December 31, 2009 as $49,700
due to CF Consulting and $10,000 due for the services of Roger Tannery as CFO, but the entire amount is due to CF Consulting, which is responsible for compensating Mr. Tannery on receipt of payment from the Company. There are also amounts due at December 31, 2009 to Bainbridge Ventures ($30,000) and Tower I Consultants, LLC ($30,000), reflected in Due to Officers..
The rent expense represents rent paid or due to CF Consulting, LLC for sub-leasing office space, telephone, office equipment, accounting systems and related office services at the rate of $550 per month.
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The remaining expenses were paid or due to non-affiliated parties, including $10,749 in professional fees to our independent audit firm for audit services and $49,216 due to a law firm for services rendered in connection with due diligence and contract negotiations for a potential portfolio investment that was not closed.
Net Investment Income, Net Unrealized Appreciation and Net Increase in Stockholders Equity Resulting from Operations
Our net investment income totaled $0 for the year ended December 31, 2009 compared to $0 for the year ended December 31, 2008. Net unrealized appreciation totaled $0 for the year ended December 31, 2009 compared to $0 or the year ended December 31, 2008.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources were generated during 2009 by private placement of 2,421,334 shares of common stock at $0.15 per share, or a total of $363,200 under Regulation D pursuant to the Securities Act of 1933. We generated no cash flows from operations during 2009. In the future, we may fund a portion of
our investments through borrowings from banks, issuances of senior securities or secondary offerings of equity, including further private 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.
Going Concern
The Company’s ability to continue as a going concern remains dependent upon successful operation under our business plan, obtaining additional capital and financing, and acquiring suitable portfolio investment companies. The Company currently has no revenue and minimal cash reserves. These factors, among others, raise substantial
doubt about our ability to continue as a going concern. In February, 2010, we received additional capital of $250,000 from a single investor in exchange for 1,666,667 shares of common stock in a private transaction, which we believe will be sufficient to cover our operating expenses for the next six months.
Item 7A. 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 twelve months ended December 31, 2009, we did not engage in any hedging activities.
Since the Company to date has had no significant operations, the information and disclosures required by Item 305 of Regulation S-K are omitted as not material.
Item 8. Financial Statements and Supplementary Data.
See the index to the financial statements of the Company on page 23.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
|
Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and contract Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In connection with the preparation of this Annual Report on Form 10-K, our management carried out an evaluation, under the supervision and with the participation of our CEO and contract CFO, as of December 31, 2009, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our CEO and contract CFO concluded that our disclosure controls and procedures were effective as of December 31, 2009.
14
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes
in accordance with generally accepted accounting principles. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act and includes those policies and procedures that: (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. All internal controls, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control—Integrated Framework.
Based on its assessment, our management concluded that, as of December 31, 2009, our internal control over financial reporting was effective.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s
report in this annual report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our fourth quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
Other Information. |
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
IDENTIFICATION OF DIRECTORS and EXECUTIVE OFFICERS
The persons who served as directors and executive officers of the Company through the period ending December 31, 2009 covered by this report, their ages and positions held in the Company, are listed below.
Name Age Position
Gary D. Lewis 59 Director,
Chairman
John Kelly 45
Director
Adam Mayblum 44
Director, Vice President
David Brant 44
Director
David Dallow 39
Director
Patrick Donelan 44
Vice President
15
In addition, Roger Tannery serves as consulting Chief Financial Officer for the Company under a consulting agreement between the Company and CF Consulting, LLC. He is not an elected officer or director of the Company however.
BIOGRAPHICAL INFORMATION
Gary D. Lewis, Dirrector and Chairman has served in numerous capacities with both private and public companies, including founder, executive management, board member and advisory roles. Mr. Lewis has gained experience in business development, licensing and cross border transactions, intellectual property rights, product manufacturing along
with sourcing and distribution worldwide and finance, including being involved in private placements, initial public offerings and warrant exercises. Since 1995, Mr. Lewis has primarily served as an advisor and private investor specializing in working with lower and middle market companies operating in a diverse set of industries and circumstances, including both growth-oriented and distressed situations.
John V. Kelly, Director, has served on the National Security Traders Association (STA) Board of Governors for the last 2 years. Mr. Kelly was the Director of Trading Services with Pointe Capital in Delray Beach, Florida. Before that, he was Director of Equity Trading at Sterling Financial Investment Group for 5 years. He holds Series 7,
63, 55 and 24 securities licenses with the NASD. In his 18 year trading career, Mr. Kelly has been with several institutional research boutiques based in Florida. For the past 11 years, he has been active in STA, serving on the Trading Issues Committee for the last 4 years. In addition, he is Past President of the Security Traders Association of Florida (STAF), where he has served as an officer or on the Board of Directors for the last 13 years. Mr. Kelly is Co-Chairman of the STA Technology Exhibition Committee,
which worked to bring industry leaders in technology as vendors at STA’s 2005 Conference in Boca Raton. During his tenure with STA and STAF, he has interacted with securities industry leaders as well as individual corporate chairmen and board members.
Adam Mayblum, Director and Vice President, is a principal and founder of Enterprise Partners, LLC. Prior to founding Enterprise Partners, LLC, he had 17 years of experience in the financial markets as a top retail producer specializing in Public Venture Capital. In 1998 Mr. Mayblum left his position as Branch Manager of HJ Meyers
in NY to become a Managing Director of The May Davis Group, specializing in PIPES (Private Investments in Public Equity). In 2002, Mr. Mayblum took a position as the Managing Director of the Private Equities Group of Joseph Stevens & Company where he successfully completed numerous financings and advised many companies on changes in the regulatory environment and the impact those changes have on their ability to raise capital in the public and private markets. He graduated from Emory University in 1987 with
a BBA in Management.
David Brant, Director, is Senior Vice President and CFO of Legent Clearing. Prior to joining Legent Clearing, Mr. Brant served as Vice President and Controller in the Independent Brokerage Group at Wachovia Securities, which included the correspondent clearing division, First Clearing, LLC. He has over 10 years of securities
industry experience and currently holds the 7, 24, 27, and 66 licenses. He is an active CPA in the State of Nebraska.
David Dallow, Director has over 13 years experience in the securities industry, including management positions at NYSE member and non-member firms. Currently, he is head trader at Oscar Gruss and Son, Inc. Mr. Dallow began his career as a retail
producer specializing in public venture capital. He quickly attained the positions of Managing Director and Sales Manager, overseeing the training and supervision of large sales forces. Thereafter, Mr. Dallow moved into equities trading and sales trading, rising to the level of Head Trader for a NYSE member firm. In this role he has gained valuable experience in sales, trading and compliance.
Patrick Donelan, Vice President, has over 20 years of experience in investment banking and private equity, with small market companies. His background includes raising seed capital; follow on investments in both public and private companies and recapitalizations as well as financial advisory services. His responsibilities
include new Business Development as well as strategic industry targeting for the entire organization. Prior to American Development & Investment, Mr. Donelan was a Senior Vice President and Investment Advisor of Summit Brokerage Services, of which he was a founding member. He advised individual and corporate clients’ long term planning in relation to the financial markets using a series of reports, databases and presentations concentrating on industry specific analysis. Prior
thereto, he acted in a similar capacity at First Union Securities until it merged with Wachovia Securities. Donelan has played a role in public and private offerings of equity and debt, acquisitions, restructurings and contributed to the vital industry group, helped launch a boutique investment banking subsidiary, specializing in venture capital in the science and technology sectors. Mr. Donelan has also been involved in a range of public and private equity positions, where he was responsible
for identifying and evaluating investment banking candidates as well as participating in transaction structuring and financing. Mr. Donelan is a graduate of Rutgers University where he received his degree in Chemistry.
16
Roger Tannery, consulting CFO, has held various executive level positions as CFO, CEO and COO as well as consulting roles in public and private companies in various industries. Prior to American Development & Investment he served from January 2007 until January 2009 as a consultant and chief financial officer for Universal Power Group,
Inc (AMEX) and was consultant and Vice-President of Finance at CTX Mortgage, the financial services group of Centex Corp (NYSE), from September 1998 until October 2002. He has been responsible for all levels of business financing and financial reporting including SEC compliance. He has over 30 years experience facilitating mergers, acquisitions, sales and other business transfers for both private and public companies in various industries. His career began as a Certified Public Accountant with the
predecessor of Deloitte and Touche and he later became a founding partner in a regional CPA firm. Mr. Tannery has a Bachelor of Business Administration in Accounting from the University of North Texas.
POTENTIAL CONFLICTS OF INTEREST
As a BDC, the Company is required to and will maintain a Board of Directors made up of a majority of independent directors, and will operate within the rules and requirements of a BDC under the 1940 Act. The Company has adopted a Conflicts of Interest Policy which is designed to prevent any real or potential conflicts of interest
for its directors and officers. The Company is not aware of any conflicts of interest, actual or potential, between its intended plan of operations and any director or officer of the Company, or any company in which that officer or director is an officer or director. There are no known interlocking directorships among the officers or directors of the Company which could create potential conflicts of interest. As required by the applicable BDC rules, the Company will hold an Annual Meeting
of Shareholders as soon as possible after the filing of this report in order to elect its Board of Directors and to conduct such other business as might be required. No date has been set yet for the Annual Meeting, but it is expected that the Annual Meeting will be held in May, 2010.
SIGNIFICANT EMPLOYEES
Our officers provided services during 2009 as independent contractors and were not required to devote all of their time to the business and affairs of the Company. During 2010, we intend to seek sufficient capital to complete several proposed acquisitions, at which time the full time employment agreements with Mr. Lewis, Mr.
Mayblum and Mr. Donelan will commence payment of salaries, as provided in the Agreements and the First Amendments to those Agreements. Our Governance and Nominating Committee and our Compensation Committee will be responsible for retaining and compensating all of our officers and major employees.
COMMITTEES AND BOARD MEETINGS
The Company has adopted charters for its Audit Committee, Investment Committee, Compensation Committee and Governance and Nominating Committee, which it submitted for approval by its shareholders at the Annual Meeting of Shareholders, held on July 31, 2006. Following approval of the charters, members of the Board of Directors
elected at the Annual Meeting were appointed to each of the Committees. The current members of the Committees, as appointed by the Board of Directors following the written consent of shareholders in lieu of an Annual Meeting in January, 2010, are reflected below:
AUDIT COMMITTEE
The Audit Committee is made up entirely of independent, non-affiliated Directors John Kelly, David Brant and David Dallow. The Company has identified David Brant, an independent director, as its Audit Committee Financial Expert by virtue of his background and experience. Mr. Brant serves as Chair of the Audit Committee of the
Company.
17
COMPENSATION COMMITTEE
The Compensation Committee is made up entirely of independent, non-interested Directors John Kelly, David Brant and David Dallow. Mr. Dallow serves as Chairman of the Compensation Committee.
GOVERNANCE AND NOMINATING COMMITTEE
The Governance and Nominating Committee is made up of Mr. Kelly, who serves as the Chair, Mr. Dallow and Mr. Brant.
INVESTMENT COMMITTEE
The Investment Committee is made up of Mr. Mayblum, who serves as Chair, Mr. Dallow and Mr. Kelly.
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to all of its directors, officers and employees performing financial functions for the Company, including its chief executive officer, chief financial officer, controller and any person performing similar functions.
EXCLUSION OF DIRECTOR LIABILITY
Pursuant to the General Corporation Law of Nevada, the Company Certificate of Incorporation excludes personal liability on the part of its directors to the Company for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any acts or omissions which involve intentional misconduct, fraud
or a knowing violation of law or for improper payment of dividends. This exclusion of liability does not limit any right which a director may have to be indemnified and does not affect any director's liability under federal or applicable state securities laws.
Item 11. Executive Compensation.
CASH AND OTHER COMPENSATION
For the years ended December 31, 2009 and 2008 and through the date of this report, the Company has not paid any executive officers or directors any cash and cash equivalent compensation directly. Robert Hipple, served as interim CEO and CFO, on a contract basis, through a consulting agreement with CF Consulting, LLC which expired in April,
2008. In January, 2009, the Company entered into a new consulting agreement with CF Consulting, LLC to provide financial and legal consulting services for a monthly fee of $6,250, which was amended effective August 1, 2009 to add the services of Roger Tannery as contract CFO for a monthly fee of $2,500. CF Consulting, LLC also provides office and related facilities to the Company for $550 per month.
In January, 2009, the Company entered into employment agreements with Mr. Lewis, Mr. Mayblum and Mr. Donelan in the expectation that the Company would be funded and also would acquire several portfolio acquisitions then in negotiations. Salaries and employment taxes were accrued on these employment agreements during the first
three quarters of 2009. On October 15, 2009, the Board of Directors approved, and the three individuals accepted, an amendment to each Employment Agreement, postponing the payment of salaries until after the Company completes its first acquisition, and agreeing to pay Bainbridge Ventures,, Inc. for the services of Mr. Lewis, as a part-time consultant, and Tower I Consultants, LLC for the services of Mr. Mayblum and Mr. Donelan, also as part-time consultants. The previous accruals of salaries
and related taxes was reversed as a result and consulting fees were paid instead. Bainbridge Ventures was entitled to receive $160,000 as consulting expenses and received a total of $130,000 during 2009 for services provided to the Company and for providing the services of Gary D. Lewis as Chairman. Tower I Consultants, LLC was entitled to receive $180,000 as consulting expenses and received paid a total of $150,000 in consulting fees during 2009 for services provided to the Company and for providing
the services of Adam Mayblum and Patrick Donelan to the Company.
18
The Company has no other agreement or understanding, express or implied, with any director or executive officer concerning employment or cash or other compensation for services. Any new compensation arrangements with any officer or director of the Company will be adopted and approved by the independent Compensation Committee.
COMPENSATION PURSUANT TO PLANS
For the years ended December 31, 2009 and 2008 and through the date of this report, no director or executive officer has received compensation from the Company pursuant to any compensatory or benefit plan. There is no plan or understanding, express or implied, to pay any compensation to any director or executive officer pursuant to any
compensatory or benefit plan of the Company.
The Company currently has in place an employee stock compensation plan and compensatory stock option plan. No stock awards or grants were made to any officer or director under the Plans during 2009 and there are no awards or grants outstanding. There are no other compensatory or benefit plans, such as retirement or pension plans,
in effect or anticipated to be adopted.
COMPENSATION of DIRECTORS and EXECUTIVE OFFICERS
Since no officer or director was paid any salary or benefits, or other compensation during 2009 or prior years, the table setting forth the elements of any executive compensation has been omitted as there would be no entries in the table.
No individual grants of stock options, whether or not in tandem with stock appreciation rights ("SARs") and freestanding SARs, have been made to any executive officer or any director during the year ended December 31, 2009 Accordingly, no stock options were exercised by any of the officers or directors in fiscal 2009
EMPLOYEE STOCK COMPENSATION PLAN
The Company adopted the 1997 Employee Stock Compensation Plan for employees, officers, directors of the Company and advisors to the Company (the ESC Plan). The Company reserved a maximum of 1,000,000 common shares to be issued upon any grant of awards under the ESC Plan. Employees will recognize taxable income upon the grant of common stock
equal to the fair market value of the common stock on the date of the grant and the Company will recognize a compensating deduction for compensation expense at such time. The ESC Plan is administered by the Compensation Committee of the Board of Directors. No shares have been awarded or currently are anticipated to be awarded under the ESC Plan, and the By-laws of the Company prohibit the issue of any such awards so long as the Company has an investment adviser agreement providing for compensation based in part
on capital appreciation, in order to conform to the applicable limits under the 1940 Act relating to stock benefit plans of a BDC.
COMPENSATORY STOCK OPTION PLAN
The Company adopted the 1997 Compensatory Stock Option Plan for officers, employees, directors and advisors (the CSO Plan). The Company has reserved a maximum of 1,500,000 Common Shares to be issued upon the exercise of options granted under the CSO Plan. The CSO Plan will not qualify as an incentive stock option plan under Section 422
of the Internal Revenue Code of 1986, as amended. Options are granted under the CSO Plan at exercise prices be determined by the Compensation Committee of the Board of Directors. With respect to options granted pursuant to the CSO Plan, optionees will not recognize taxable income upon the grant of options granted at or in excess of fair market value. However, optionees will realize income at the time of exercising an option to the extent the market price of the common stock at that time exceeds the option exercise
price, and the Company must recognize a compensation expense in an amount equal to any taxable income realized by an optionee as a result of exercising the option. The CSO Plan will is administered by the Compensation Committee of the Board of Directors. No options have been granted or currently are anticipated to be granted under the CSO Plan and the By-laws of the Company prohibit the issue of any such awards so long as the Company has an investment adviser agreement providing for compensation based in part
on capital appreciation, in order to conform to the applicable limits under the 1940 Act relating to stock benefit plans of a BDC.
19
COMPENSATION OF DIRECTORS
The Company has no standard arrangements in place or currently contemplated to compensate the Company directors for their service as directors or as members of any committee of directors. Any compensation to directors will be determined and approved by the Company Compensation Committee.
EMPLOYMENT CONTRACTS
In January, 2009, the Company entered into employment agreements with Mr. Lewis, Mr. Mayblum and Mr. Donelan in the expectation that the Company would be funded and also would acquire several portfolio acquisitions then in negotiations. Salaries and employment taxes were accrued on these employment agreements during the first
three quarters of 2009. On October 15, 2009, the Board of Directors approved, and the three individuals accepted, an amendment to each Employment Agreement, postponing the payment of salaries until after the Company completes its first acquisition, and agreeing to pay Bainbridge Ventures, Inc. for the services of Mr. Lewis, as a part-time consultant, and Tower I Consultants, LLC for the services of Mr. Mayblum and Mr. Donelan, also as part-time consultants. The previous accruals of salaries
and related taxes was reversed as a result and consulting fees were paid instead. Bainbridge Ventures received a total of $130,000 during 2009 for services provided to the Company and for providing the services of Gary D. Lewis as Chairman. Tower I Consultants, LLC received a total of $150,000 in consulting fees during 2009 for services provided to the Company and for providing the services of Mr. Mayblum and Mr. Donelan to the Company.
As a result of the First Amendments to each of the Employment Agreements, Bainbridge Ventures, Inc. is entitled to $160,000 for the services of Mr. Lewis in 2009, $20,000 per month for January, February and March 2010, and $27,083 per month thereafter, and Tower I Consultants, LLC was entitled to $90,000 each for providing the services
of Mr. Donelan and Mr. Mayblum in 2009, $15,000 per month each for January, February and March 2010, and $20,000 per month each thereafter, until such time as the Company has closed on its first acquisition, at which time the Employment Agreements will then become effective.
No other person has entered into any employment or similar contract with the Company, other than the consulting agreement already discussed with CF Consulting, LLC, through which Roger Tannery serves as contract Chief Financial Officer. Mr. Tannery is not an elected officer or director of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
BENEFICIAL OWNERSHIP
The following table sets forth, as of the end of the reporting period covered by this report, and as of the date of this report, the stock ownership of each executive officer and director of the Company, of all executive officers and directors of the Company as a group, and of each person known by the Company to be a beneficial owner of
5% or more of its common stock. Except as otherwise noted, each person listed below is the sole beneficial owner of the shares and has sole investment and voting power as to such shares. No person listed below has any option, warrant or other right to acquire additional securities of the Company, except as may be otherwise noted.
|
Name and Address
of Beneficial Owner |
Position |
Amount and Nature of Beneficial; Ownership |
Percent of Class | |||
|
Gary D. Lewis1
Bainbridge Capital, Inc.
P.O. Box 36940
Grosse Pointe, MI 48236 |
Director, Chairman |
7,961,822 |
21.6 | |||
|
John Kelly
1227 Harbor Drive
Delray Beach, FL 33483 |
Director |
20,000 |
-- | |||
|
Adam Mayblum2
50 Andrew Lane
New Rochelle, NY 10804 |
Director
Vice President |
8,846,467 |
24.0 | |||
|
David Brant
6314 South 174th Street
Omaha, NE 68135 |
Director |
20,000 |
-- | |||
|
David Dallow
181 Plymouth Drive
Scarsdale, NY 10583 |
Director |
20,000 |
-- | |||
|
Patrick Donelan3
3570 Lakeview Drive
Delray Beach, 33445 |
Director |
8,846,467 |
24.0 | |||
|
All directors and officers
as a group
|
25,714,756 |
69.8 |
|
(1) |
Mr. Lewis is a principal of Bainbridge Capital and is considered the beneficial owner of shares held by it. |
|
(2) |
Mr. Mayblum is the owner of 8,246,467 shares directly and also is the custodian of 600,000 shares held for the benefit of his three minor children and therefore may be considered the beneficial owner of those shares. |
|
(3) |
Mr. Donelan is the owner of 8,446,467 shares directly and also is the custodian of 400,000 shares held for the benefit of his three minor children and therefore may be considered the beneficial owner of those shares. |
20
Item 13. Certain Relationships and Related Transactions and Director Independence.
No officer, director or employee of the Company has received a salary of $60,000 or more in 2009 or 2008. Mr. Lewis the Company Chairman and CEO, received no direct compensation from the Company. Bainbridge Ventures, Inc., in which Mr. Lewis is a principal, received payments of $130,000 from the Company in 2009 under the First
Amendment to Employment Agreement, and an additional $30,000 was accrued as Due to Officers at December 31, 2009. Mr. Mayblum and Mr. Donelan, who served as Vice Presidents of the Company in 2009, also received no direct compensation from the Company in 2009. Tower I Consultants, LLC, which is owned equally by Mr. Mayblum and Mr. Donelan, received a total of $150,000 in payments during 2009 from the Company in 2009 under the First Amendments to Employment Agreement, and an additional $30,000
was accrued as Due to Officers at December 31, 2009. There were no other transactions, or series of transactions, for the years ended December 31, 2009 or 2008, nor are there any currently proposed transactions, or series of transactions, to which the Company is a party, in which the amount exceeds $60,000, and in which to the knowledge of the Company any director, executive officer, nominee, five percent or greater shareholder, or any member of the immediate family of any of the foregoing persons, have or will
have any direct or indirect material interest, except as previously noted.
The Company entered into an investment advisory agreement in March 2006 with American Development & Investment Advisors, LLC, which is owned equally by Adam Mayblum, a director, Vice President and more than five percent shareholder, and Patrick Donelan, also a Vice President and more than five percent shareholder. Under the terms of
that Agreement, the advisor agreed to provide investment advice and assistance to the Company with respect to locating, reviewing and investing in suitable portfolio investments by the Company recommended by the Investment Committee and to assist the Investment Committee in determining the value of its portfolio investments from time to time as required for reporting purposes. The Agreement expired by its terms in 2008 and has not been renewed. No advisory fees were accrued or paid under
that agreement during the year ended December 31, 2009..
Item 14. Principal Accounting Fees and Services.
AUDIT FEES
21
The aggregate fees billed for each of the fiscal years ended December 31, 2009 and 2008 for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements and review of the financial statements included in the registrant's previously filed Forms 10-Q for services that are normally
provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years, were $10,749 and $10,749, respectively.
AUDIT RELATED FEES
None
TAX FEES
None
ALL OTHER FEES
None
PRE-APPROVAL POLICIES AND PROCEDURES
The Company Board of Director policy is to pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up top one year and
any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and management are required to report periodically to the Audit Committee of the Board of Directors regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee of the Board
of Directors may also pre-approve particular services in a case-by-case basis. For all periods after the Company election to be treated as a BDC, all of these functions are undertaken by the independent Audit Committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
The following exhibits are filed with this report, except those indicated as having previously been filed with the Securities and Exchange Commission and are incorporated by reference to another report, registration statement or form. As to any shareholder of record requesting a copy of this report, the Company will furnish any exhibit
indicated in the list below as filed with this report upon payment to the Company of its expenses in furnishing the information. Any references to the "the Company" means American Development & Investment Fund, Inc.
Reference
1A.1 Amended Designation of Preferences for Series A Convertible
Preferred Stock................................................................................................................................................................................................................................................................................................................................
1
3.1 Certificate of Incorporation of the Company as filed with the Nevada Secretary of State
on February 28, 1997 .......................................................................................................................................................................................................................................................................................................................
2
3.4 Bylaws of the Company .....................................................................................................................................................................................................................................................................................................................
2
4.1 Specimen common stock certificate...............................................................................................................................................................................................................................................................................................
2
10.1 1997 Compensatory Stock Option Plan of the Company............................................................................................................................................................................................................................................................
2
10.2 1997 Employee Stock Compensation Plan of the Company........................................................................................................................................................................................................................................................
2
10.3 First Amendment to Employment Agreement-Gary D. Lewis……...........................................................................................................................................................................…………………….……………….. 3
10.4 First Amendment to Employment Agreement-Adam Mayblum ……….………………................................................................................................................................................................................…………….. 3
10.5 First Amendment to Employment Agreement-Patrick Donelan …………..........................................................................................................................................................................…………….……………….. 3
31.1 Certification of the Chief Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002............................................................................................................................................................................................................................................................................................................
3
31.2 Certification of the Chief Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002............................................................................................................................................................................................................................................................................................................ 3
32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 ............................................................................................................................................................................................................................................................................................................ 3
22
Reference
1 Filed as an Exhibit to the Proxy Statement dated July 21, 2006
2 Filed as an exhibit to the Registration Statement on Form 10SB-12G (File No. 0-27781) of the Registrant and incorporated by reference.
3 Filed herewith as an exhibit to this report
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm.................................................................................................................................................................................................................................................. F-1
Balance Sheets as of December 31, 2009 and 2008................................................................................................................................................................................................................................................................ F-2
Statements of Operations for the years ended December 31, 2009 and 2008.................................................................................................................................................................................................................... F-3
Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2009 and 2008............................................................................................................................................................. F-4
Statements of Cash Flows for the years ended December 31, 2009 and 2008 ................................................................................................................................................................................................................... F-5
Notes to Financial Statements ...................................................................................................................................................................................................................................................................................................... F-6
23
FINANCIAL INFORMATION
Item 1. Financial Statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of American Development & Investment Fund, Inc.
We have audited the accompanying balance sheets of American Development & Investment Fund, Inc. as of December 31, 2009 and 2008, and the related statements of operations, changes in net assets, and cash flows for the years then ended. These financial statements are the responsibility of the company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Development & Investment Fund, Inc. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 to the financial statements, the Company has suffered recurring operating losses and has working capital and stockholders’ deficits which raise substantial doubt about its ability to continue
as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Berman Hopkins Wright & LaHam, CPAs and Associates, LLP
April 15, 2010
Winter Park, Florida
F-1
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
BALANCE SHEETS
|
December 31 |
December 31 | |||
|
2009 |
2008 | |||
|
|
| |||
|
ASSETS |
||||
|
Investments in portfolio companies-at fair value |
$ |
-- |
$ |
-- |
|
Current assets: |
||||
|
Cash and cash equivalents |
1,732 |
447 | ||
|
Total current assets |
1,732 |
447 | ||
|
Other assets |
-- |
-- | ||
|
Total assets |
$ |
1,732 |
$ |
447 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
||||
|
Liabilities |
||||
|
Current liabilities; |
||||
|
Accounts payable (includes $59,700 for 2009 and $550 for 2008 to related parties) |
$ |
102,669 |
$ |
14,976 |
|
Accrued interest-related party |
799 |
-- | ||
|
Note payable-related party (net of debt discount of $6,813) |
19,833 |
-- | ||
|
Due to officers |
60,000 |
|||
|
Due to related party |
3,550 |
3,550 | ||
|
Total current liabilities |
186,851 |
18,526 | ||
|
Long term liabilities: |
-- |
-- | ||
|
Total liabilities |
186,851 |
18,526 | ||
|
STOCKHOLDERS’ EQUITY (DEFICIT) |
||||
|
Common stock, $0.001 par value, 150,000,000 shares authorized, 36,829,333 |
||||
|
and 34,408,000 shares issued at December 31, 2009 and December 31, 2008 |
36,829 |
34,408 | ||
|
Additional paid-in capital |
572,027 |
202,164 | ||
|
Retained earnings (accumulated loss) |
(793,975) |
(254,651) | ||
|
Total stockholders’ equity (deficit) |
(185,119) |
(18,079) | ||
|
TOTAL LIABILITIES AND STOCK HOLDERS’ EQUITY (DEFICIT) |
$ |
1,732 |
$ |
447 |
|
Net asset value per common share |
$ |
-- |
$ |
-- |
See accompanying notes to financial statements.
F-2
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 2009
|
Portfolio Investment |
Industry |
Amount or number |
Cost |
Fair value |
% of net assets |
|
-- |
-- |
-- |
$ -- |
$ -- |
-- |
See accompanying notes to financial statements.
F-3
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENTS OF OPERATIONS
|
For the year ended |
||||||
|
December 31 |
||||||
|
2009
2008 |
||||||
|
INVESTMENT INCOME |
$ |
$ |
||||
|
Portfolio investment interest |
-- |
-- | ||||
|
TOTAL INCOME |
-- |
-- | ||||
|
OPERATING EXPENSES: |
||||||
|
Investment advisory fees |
-- |
-- | ||||
|
General and administrative: |
||||||
|
Bank fees |
868 |
211 | ||||
|
Consulting fees (all to related parties except for $29,000 in 2009) |
456,500 |
22,500 | ||||
|
Other expenses |
2,080 |
350 | ||||
|
Professional fee expenses |
59,965 |
10,749 | ||||
|
Rent (all to related party) |
6,600 |
5,200 | ||||
|
Travel |
8,593 |
-- | ||||
|
Total operating expenses |
534,606 |
39,010 | ||||
|
(534,606) |
(39,010) | |||||
|
Other income and expenses: |
-- | |||||
|
Interest expenses |
4,718 |
-- | ||||
|
Total other income and expenses |
(4,718) |
-- | ||||
|
NET INVESTMENT LOSS |
(539,324) |
|||||
|
NET REALIZED INCOME FROM DISPOSITIONS |
-- |
-- | ||||
|
NET UNREALIZED APPRECIATION IN INVESTMENTS |
-- |
-- | ||||
|
|
||||||
|
NET DECREASE IN STOCKHOLDER EQUITY |
$ |
(539,324) |
$ |
(39,010)
| ||
|
Net loss per share- basic and diluted |
$ |
(0.015) |
$ |
-- | ||
|
Weighted average common shares outstanding |
||||||
|
Basic |
35,423,667 |
33,049,593 | ||||
|
Diluted |
35,423,667 |
33,049,593 | ||||
See accompanying notes to financial statements.
F-4
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31.
2009 2008
|
Increase (decrease) in net assets from operations: |
|||||
|
Net investment income (loss) |
$ |
(539,324) |
$ |
(39,010) | |
|
Net increase (decrease) in net assets from operations |
(539,324) |
(39,000) | |||
|
Capital share transactions: |
|||||
|
Proceeds from shares sold |
363,200 |
31,200 | |||
|
Capital contribution from cancellation of accounts payable |
-- |
88,424 | |||
|
Warrants issued |
9,084 |
-- | |||
|
Net increase (decrease) in net assets from capital share transactions |
372,284 |
119,624 | |||
|
Total increase (decrease) in net assets: |
(167,040) |
80,614 | |||
|
Net assets (deficiency) at beginning of period |
(18,079) |
98,693 | |||
|
Net assets (deficiency) at end of period |
$ |
(185,119) |
$ |
(18,079) | |
|
Capital share activity: |
|||||
|
Shares sold |
2,421,333 |
124,800 | |||
|
Net increase in capital share activity |
2,421,333 |
124,800 |
See accompanying notes to financial statements.
F-5
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
STATEMENTS OF CASH FLOWS
For
the year ended
December 31,
2009 2008
|
CASH FLOWS FROM OPERATING ACTIVITIES |
||||
|
Net Loss |
$ |
(539,324) |
$ |
(39,010) |
|
Adjustments to reconcile net loss to net cash used by operations: |
||||
|
Amortization of debt discount |
2,271 |
-- | ||
|
Increase (decrease) in: |
||||
|
Accounts payable and accrued expenses |
87,693 |
12,698 | ||
|
Accrued interest |
2,445 |
-- | ||
|
Due to officers |
60,000 |
-- | ||
|
Due to affiliate |
-- |
(4,400) | ||
|
NET CASH USED BY OPERATING ACTIVITIES |
(386,915) |
(30,712) | ||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
||||
|
Issuance of common stock for cash |
363,200 |
31,200 | ||
|
Proceeds of note |
25,000 |
-- | ||
|
NET CASH FROM FINANCING ACTIVITIES |
388,200 |
31,200 | ||
|
NET CASH INCREASE FOR PERIOD |
|
1,285 |
|
488 |
|
CASH AT BEGINNING OF PERIOD |
|
447 |
|
(41) |
|
CASH AT END OF PERIOD |
$ |
1,732 |
$ |
447 |
|
NON-CASH ACTIVITIES: |
||||
|
Accounts payable contributed as capital |
$ |
-- |
$ |
88,424 |
|
Accrued interest converted to note payable |
$ |
1,646 |
$ |
-- |
|
Issue of warrants |
$ |
9,084 |
$ |
-- |
|
SUPPLEMENTAL DISCLOSURES: |
||||
|
Interest paid |
$ |
2,398 |
$ |
-- |
|
Income taxes paid |
$ |
-- |
$ |
-- |
See accompanying notes to financial statements.
F-6
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 1. Organization and Financial Statement Presentation
American Development & Investment Fund, Inc. (the Company) a Nevada corporation, was organized on February 28, 1997 and is a closed-end investment company that filed an election to be treated as a business development company (BDC) under the Investment Company Act of 1940, (the 1940 Act) in March 2006.
As a BDC, the company is subject to the filing requirements of the Securities Exchange Act of 1934 and has elected to be subject to Sections 55 to 65 of the 1940 Act, which apply only to BDCs. The Company is not a registered investment company under the 1940 Act, however, and is not required to file the semi-annual and annual
reports required to be filed by registered investment companies under Section 30 of the 1940 Act. As a BDC, the Company also is subject to the normal financial reporting requirements of Regulation S-X issued by the SEC, including Section 6 of Regulation S-X, which provides specific rules for financial reporting of investment companies.
The Company has not chosen to focus on investments in companies in any particular market or industry, but expects to invest, under normal circumstances, at least 80 percent of its net assets (including the amount of any borrowings for investment purposes) in qualified portfolio companies. At December 31, 2009, the Company had no net assets
invested in portfolio companies.
Custodial Agreements
Rule 17f-1(c) issued under the Investment Company Act of 1940 provides that if a registered investment company shall place or maintain any of its investment securities in the custody of a member of a national securities exchange, then it may do so only pursuant to a written contract approved by its Board of Directors and containing certain
required provisions. The Company has no securities placed or maintained with such a member and had no portfolio investments or investment securities during 2009; therefore, the Company does not have and has not filed, such an agreement with the SEC.
Fidelity Bond
Rule 17g-1 issued under the Investment Company Act of 1940 provides that a registered investment company must provide and maintain a fidelity bond against larceny or embezzlement by each officer or employee of the company who may have access to securities or funds of the company, directly or indirectly. The Company had no securities and
minimal cash as of December 31, 2009, and no employees who have access to funds or securities of the Company. Management will obtain any required fidelity bond as and when required by the rules applicable to the Company as a BDC.
Accounting Principles
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for financial information and the instructions to Form 10-K, including Regulation S-X. As a BDC, and therefore as a non-registered investment company, the Company is subject to the normal financial
reporting rules of Regulation S-X, as adopted by the SEC, in accordance with Regulation S-X 5.01and is also subject to Section 6 of Regulation S-X, governing the financial reporting of investment companies. The accompanying financial reports have been prepared in accordance with the requirements of Regulation S-X, as explained and interpreted in the Audit and Accounting Guide for Investment Companies of the American Institute of Certified Public Accountants (May 1, 2009) (the Audit Guide).
779,999 common shares were issued during the quarter ending December 31, 2009. A total of 2,421,333 common shares were issued during the year ended December 31, 2009 in private placement transactions at an issue price of $0.15 per share.
F-7
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 2. Significant Accounting Policies
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period.
Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.
The following are significant accounting policies consistently applied by the Company and are based on Chapter 7 of the Audit Guide, as modified by Appendix A thereof:
Investments:
(a) Security transactions are recorded on a trade-date basis.
(b) Valuation:
(1) Investments for which market quotations are readily available are valued at such market quotations.
(2) Short-term investments which mature in 60 days or less, such as U.S. Treasury bills, are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between the principal
amount due at maturity and cost. Short-term securities which mature in more than 60 days are valued at current market quotations by an independent pricing service or at the mean between the bid and ask prices obtained from at least two brokers or dealers (if available, or otherwise by a principal market maker or a primary market dealer). Investments in money market mutual funds are valued at their net asset value as of the close
of business on the day of valuation.
(3) It is expected that most of the investments in the Company’s portfolio will not have readily available market values. Debt and equity securities whose market prices are not readily available are valued at fair value, with the assistance of an independent valuation service, using a valuation policy and a consistently applied valuation
process which is under the direction of our board of directors.
The factors that may be taken into account in fairly valuing investments include, as relevant, the portfolio company ability to make payments, its estimated earnings and projected discounted cash flows, the nature and realizable value of any collateral, the financial environment in which the portfolio company operates, comparisons
to securities of similar publicly traded companies and other relevant factors. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of these investments may differ significantly from the values that would have been used had a ready market existed for such investments, and any such differences could be material.
As part of the fair valuation process, the Audit Committee of the Company will review the preliminary evaluations prepared by the Investment Advisor engaged by the Board of Directors, as well as management’s valuation recommendations and the recommendations of the Investment Committee.
Management and the Investment Advisor will respond to the preliminary evaluation to reflect comments provided by the Audit Committee. The Audit Committee will review the final valuation report and managements valuation recommendations and make a recommendation to the Board of Directors based on its analysis of the methodologies
employed and the various valuation factors as well as factors that the Investment Advisor and management may not have included in their evaluation processes. The Board of Directors then will evaluate the Audit Committee recommendations and undertake a similar analysis to determine the fair value of each investment in the portfolio in good faith.
F-8
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 2. Significant Accounting Policies (continued)
(c) Realized gains or losses on the sale of investments are calculated using the specific identification method.
(d) Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis.
(e) Dividend income is recorded on the ex-dividend date.
(f) Loan origination, facility, commitment, consent and other advance fees received by us on loan agreements or other investments are accreted into income over the term of the loan.
Federal and State Income Taxes:
The Company has not elected to be treated as, and is not, a regulated investment company and does not presently intend to comply with the requirements of the Internal Revenue Code of 1986 (the Code), applicable to regulated investment companies. A regulated investment company is required to distribute at least 90% of its investment company
taxable income to shareholders, which the Company does not expect to do for the foreseeable future. Therefore, the Company must make appropriate provision for income taxes in accordance with accounting standards, 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 December 31, 2009 and 2008, the Company
had approximately $ 794,000 and $255,000, respectively, 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 and expire in 2029. The valuation allowance was approximately $299,000
and $96,000 at December 31, 2009 and 2008, respectively, and the change in valuation allowance for 2009 and 2008 was approximately $203,000 and $15,000, respectively.
The Company applies the provisions of income accounting standards for accounting for uncertainty in income taxes, a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must
be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. When applicable, the Company will include interest and penalties related to uncertain tax positions in income tax expense.
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 estimates 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.
Cash and Equivalents:
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Concentrations of Credit Risk:
Financial instruments which potentially expose the Company to concentrations of credit risk consist principally of cash which is insured by the FDIC up to balances of $250,000. The Company maintains its cash in a bank deposit account which, at times, may exceed federally insured limits. At December 31, 2009, the Company deposits did not
exceed
F-9
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 2. Significant Accounting Policies (continued)
FDIC insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Offering Costs:
Offering costs are expensed as incurred
Consolidation:
As an investment company, the Company will only consolidate subsidiaries which are also investment companies. At December 31, 2009, the Company did not have any consolidated subsidiaries.
Financial instruments:
The fair values of all financial instruments approximate their carrying values.
Stock-Based Compensation
The Company applies FASB ASC Topic 718 and 505 to account for stock options and similar equity instruments issued. Accordingly, compensation costs attributable to stock options and similar equity instruments (i.e., warrants) are measured at fair value at the date of grant and amortized over the vesting period.
Recent Accounting Pronouncements
In April 2009, the FASB issued guidance now codified as FASB ASC Topic 820, "Fair Value Measurements and Disclosures," which provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This guidance also includes provisions for identifying circumstances
that indicate a transaction is not orderly. The provisions of this guidance are effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. We adopted the provisions of this guidance during the year ended December 31, 2009 and its impact on our consolidated financial position, cash flows, and results of operations was not significant.
In April 2009, the FASB issued guidance now codified as FASB ASC Topic 825, "Financial Instruments," which amends previous Topic 825 guidance to require disclosures about the fair value of financial instruments for interim periods of publicly traded companies as well as in annual financial statements. This guidance also amends previous
guidance in FASB ASC Topic 270, "Interim Reporting," to require those disclosures in summarized financial information at interim reporting periods. We adopted the provisions of this guidance during the year ended December 31, 2009 and its impact on our disclosures was not significant.
In May 2009, the FASB issued authoritative guidance establishing general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. This guidance, which was incorporated into ASC Topic 855, "Subsequent Events," was effective in 2009. The Company adopted ASC Topic
855 during the year ended December 31, 2009. We have evaluated subsequent events through the date our consolidated financial statements were issued, noting no events that require adjustment of, or disclosure in, the consolidated financial statements except for the matters disclosed in Note 19 to our consolidated financial statements.
In June 2009, the FASB issued authoritative guidance establishing two levels of U.S. generally accepted accounting principles ("GAAP")—authoritative and nonauthoritative—and making the Accounting Standards Codification ("ASC") the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the
Securities and
F-10
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 2. Significant Accounting Policies (continued)
Exchange Commission. This guidance, which was incorporated into ASC Topic 105, "Generally Accepted Accounting Principles," was effective in 2009. The adoption changed certain disclosure references to U.S. GAAP, but did not have any other impact on our consolidated 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 Transactions
Consulting expenses for 2009 and 2008 include $456,500 and $22,500, respectively, of consulting services received from related parties.
All rent expense for 2009 and 2008 was from related parties.
Included in accounts payable at December 31, 2009 and 2008 were $59,700 and $550, respectively, of amounts due to related parties for consulting services and rent.
Due to related party at December 31, 2009 and 2008 represents cash advances received from an affiliate in 2007. The amount due is non interest bearing and due on demand.
Due to officers at December 31, 2009 represents unpaid consulting expenses due to Bainbridge Ventures, LLC ($30,000) for the services of Gary D. Lewis, and to Tower I Consulting, LLC for the services of Adam Mayblum and Patrick Donelan ($15,000 each). See, Employment Contracts, below.
Employment Contracts
In January, 2009, the Company entered into employment agreements with Mr. Lewis, Mr. Mayblum and Mr. Donelan, officers and directors of the Company, in the expectation that the Company would be funded and also would acquire several portfolio acquisitions then in negotiations. Salaries and employment taxes were accrued on these
employment agreements during the first three quarters of 2009. On October 15, 2009, the Board of Directors approved, and the three individuals accepted, an amendment to each Employment Agreement, postponing the payment of salaries until after the Company completes its first acquisition, and agreeing to pay Bainbridge Ventures, Inc. for the services of Mr. Lewis, as a part-time consultant, and Tower I Consultants, LLC for the services of Mr. Mayblum and Mr. Donelan, also as part-time consultants. The
previous accruals of salaries and related taxes was reversed as a result and consulting fees were paid instead. Bainbridge Ventures received a total of $130,000 during 2009 for services provided to the Company and for providing the services of Gary D. Lewis as Chairman. An additional $30,000 due to Bainbridge Ventures, Inc. was accrued as Due to Officers at December 31, 2009. Tower I Consultants, LLC received a total of $150,000 in consulting fees during 2009 for services provided to the Company and for providing
the services of Mr. Mayblum and Mr. Donelan to the Company. An additional $30,000 due to Bainbridge Ventures, Inc. was accrued as Due to Officers at December 31, 2009.
As a result of the First Amendments to each of the Employment Agreements, Bainbridge Ventures, Inc. is entitled to $160,000 for the services of Mr. Lewis in 2009, $20,000 per month for January, February and March 2010, and $27,083
F-11
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 4. Related Party Transactions (continued)
per month thereafter, and Tower I Consultants, LLC was entitled to $90,000 each for providing the services of Mr. Donelan and Mr. Mayblum in 2009, $15,000 per month each for January, February and March 2010, and $20,000 per month each thereafter, until such time as the Company has closed on its first acquisition, at which time the salaries
payable under the Employment Agreements will commence.
Note Payable
On March 10, 2009, the Company issued to an existing, otherwise non-affiliate, shareholder a convertible promissory note in the aggregate principal amount of $25,000. The note bears interest at 12% per annum. All principal and interest were due September 30, 2009 and were convertible, in full or in part, at the option of the holder into
shares of the Company’s common stock at a conversion price of $0.15 per share at or before maturity. No conversion occurred and the note was paid by the issue of a new promissory note dated September 30, 2009 in the principal amount of $26, 646, representing principal and accrued interest on the old note. The new note also bears interest at the rate of 12 percent per year and is due September 30, 2010. The note holder also received a warrant dated October 1, 2009 to purchase up to
200,000 non-assessable shares of the Company’s common stock. See Note 5. The fair value of the warrant was determined to be $9,084; this amount was recorded as a debt discount, decreasing the value of the note payable-related party and increasing equity - additional paid in capital, as of October 1, 2009. The debt discount, which is being amortized to interest expense over the one-year term of the debt, totaled $6,813 at December 31, 2009.
Note 5 Stockholders’ Equity (Deficit)
The following table reflects the changes in the stockholders’ equity (deficit) of the Company from December 31, 2007 to December 31, 2009:
Deficit
Additional Accumulated
Common Stock Preferred Stock
Paid in from
Shares Amount Shares Amount Capital
Inception Total
# $
# $ $
$ $
|
Balances 12-31-2007 |
30,283,200 |
30,283 |
1,000,000 |
1,000 |
85,665 |
(215,641) |
(98,693) |
|
Issuance of stock |
124,800 |
125 |
-- |
-- |
31,075 |
-- |
31,200 |
|
Conversion of preferred |
4,000,000 |
4,000 |
(1,000,000) |
(1,000) |
(3,000) |
-- |
-- |
|
Cancellation of payable |
-- |
-- |
-- |
-- |
88,424 |
-- |
88,424 |
|
Net loss |
-- |
-- |
-- |
-- |
-- |
(39,010) |
(39,010) |
|
Balances 12-31-2008 |
34,408,000 |
34,408 |
-- |
-- |
202,164 |
(254,651) |
(18,079) |
|
Issuance of stock |
2,421,333 |
2,421 |
-- |
-- |
360,779 |
-- |
363,200 |
|
Issuance of warrant |
-- |
-- |
-- |
-- |
9,084 |
-- |
9,084 |
|
Net loss |
-- |
-- |
-- |
-- |
-- |
(539,324) |
(539,324) |
|
Balances 12-31-2009 |
36,829,333 |
36,829 |
-- |
-- |
572,027 |
(793,975) |
(185,119) |
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of 5,000,000 shares of preferred stock (the "Preferred Stock"), with such designations, powers, preferences, rights, qualifications, limitations and restrictions of such series as the Board of Directors, subject to the laws of the State of Nevada, may determine from time
to time. Accordingly, the Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of Common Stock. In addition, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. The Company has no outstanding shares of Preferred Stock.
F-12
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 5 Stockholders’ Equity (Deficit) (Continued)
Employee Stock Compensation Plan
The Company adopted the 1997 Employee Stock Compensation Plan for employees, officers, directors of the Company and advisors to the Company (the ESC Plan). The Company reserved a maximum of 1,000,000 common shares to be issued upon any grant of awards under the ESC Plan. Employees will recognize taxable income upon the grant of common stock
equal to the fair market value of the common stock on the date of the grant and the Company will recognize a compensating deduction for compensation expense at such time. The ESC Plan is administered by the Compensation Committee of the Board of Directors. No shares have been awarded or currently are anticipated to be awarded under the ESC Plan, and the By-laws of the Company prohibit the issue of any such awards so long as the Company has an investment adviser agreement providing for compensation based in part
on capital appreciation, in order to conform to the applicable limits under the 1940 Act relating to stock benefit plans of a BDC.
Compensatory Stock Option Plan
The Company adopted the 1997 Compensatory Stock Option Plan for officers, employees, directors and advisors (the CSO Plan). The Company has reserved a maximum of 1,500,000 Common Shares to be issued upon the exercise of options granted under the CSO Plan. The CSO Plan will not qualify as an incentive stock option plan under Section 422
of the Internal Revenue Code of 1986, as amended. Options are granted under the CSO Plan at exercise prices be determined by the Compensation Committee of the Board of Directors. With respect to options granted pursuant to the CSO Plan, optionees will not recognize taxable income upon the grant of options granted at or in excess of fair market value. However, optionees will realize income at the time of exercising an option to
the extent the market price of the common stock at that time exceeds the option exercise price, and the Company must recognize a compensation expense in an amount equal to any taxable income realized by an optionee as a result of exercising the option. The CSO Plan will is administered by the Compensation Committee of the Board of Directors. No options have been granted or currently are anticipated to be granted under the CSO Plan and the By-laws of the Company prohibit the issue of any such awards so long as
the Company has an investment adviser agreement providing for compensation based in part on capital appreciation, in order to conform to the applicable limits under the 1940 Act relating to stock benefit plans of a BDC.
Warrant
On October 1, 2009, the Company issued a warrant to a shareholder to purchase up to 200,000 non-assessable shares of the Company’s common stock at a per share purchase price of $0.25 at any time until October 1, 2011. The Company used the Black-Scholes option valuation model to calculate the fair value of the warrant. The assumptions
used in the calculation were: market value of company stock on date of grant of $0.15, exercise price of warrant of $0.25, expected term of 2 years, volatility of 101.1%, interest rate of .06%, and yield of zero. The expected term was based on the term of the warrant. The expected volatility was based on the historical volatility of similar companies. The dividend yield of zero was based on the fact that the Company had never paid cash dividends and the expectation that there will not be any earnings available
to pay dividends in the near future. The risk free interest rate was derived from average US treasury rates. The calculated fair value of the warrant was $9,084; this amount was recorded as a debt discount, decreasing the value of the note payable-related party and increasing equity - additional paid in capital. See Note 4.
Note 6 Financial Highlights
Financial Highlights
The following is a schedule of financial highlights for the years ended December 31, 2009 and December 31, 2008:
F-13
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 6 Financial Highlights (continued)
CHANGES IN NET ASSET VALUE
For the years ended
December 31, 2009 December 31, 2008
Net asset value (deficiency) at
beginning of period 1
$ (0.00053) $ (0.00326)
Proceeds from stock sales
0.00997 0.00103
Conversion of preferred stock
- 0.00026
Cancellation of payable
- 0.00257
Net investment loss
(0.01480) (0.00113)
Warrants issued
0.00020 -
Net unrealized appreciation
- -
__________ __________
Net asset value (deficiency), end of period2
$ (0.00516) $ (0.00053)
(1) Financial highlights as of December 31, 2009 and December 31, 2008 are based on 36,423,667 and 34,283,000 common shares outstanding, respectively.
(2) Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in each period. The total return is not annualized.
Note 7 Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s financial position and operating results raise substantial doubt about the Company’s ability to continue as a going concern, as reflected by the accumulated deficit of $ (793,975) at December
31, 2009 and recurring net losses. The ability of the Company to continue as a going concern is dependent upon acquiring suitable portfolio investments and obtaining additional capital and financing. Management’s plan in this regard is to acquire portfolio investment operating entities and secure financing and operating capital. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
During 2009, the Company did not complete any portfolio investments, or the acquisition or disposition of any material asset. The business of the Company was limited to engaging in the due diligence necessary to locate suitable portfolio investments for the Company, as a business development company under the 1940 Act. We conducted
extensive due diligence on a number of potential portfolio investments during 2009, and entered into investment and acquisition letters of intent with several companies. No portfolio investments have yet been closed, however.
Note 8 Fair Value Measurements
ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers
the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
Fair Value Hierarchy
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the
F-14
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 8 Fair Value Measurements (continued)
fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
Level 1 —Quoted prices in active markets for identical assets or liabilities.
Level 2 —Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level 3 —Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the unobservable inputs. Following is a description of the valuation methodologies
used for assets measured at fair value.
Level 3 Fair value Measurements
The value of the Company’s stock warrant is deemed to be unobservable. Management has used the Black-Scholes method to determine fair value.
Note 9 Significant Adjustments in the Fourth Quarter of 2009
During the quarter ended December 31, 2009, the officers of the Company agreed to forgo salaries and related taxes totaling $497,344 which were accrued and payable to them as of September 30, 2009 as they had not been devoting full time to the business and because no acquisitions or funding occurred in 2009, as had been expected. These
accruals, all of which were expensed in 2009, were reversed in the 4th quarter against the related expenses.
The officers had been paid $170,000 of salaries through September 30, 2009, and were paid an additional $110,000 and accrued an additional $60,000 in consulting fees during the fourth quarter. The $170,000 amount paid prior to September 30, 2009 was reclassified from payroll expense to consulting expense in the fourth quarter as the amounts
were paid to the officers’ consulting companies and not to them individually. Additional consulting fees unrelated to officers of $50,750 also were paid during the 4th quarter.
The following table illustrates the significant 4th quarter adjustments:
|
At or Thru 9/30/2009 |
4th Quarter Adjustment |
Adjusted | ||||
|
Accrued Salaries |
$ (463,750) |
$ 463,750 |
$ - | |||
|
Accrued Payroll |
(33,594) |
33,594 |
- | |||
|
Payroll Taxes Expense |
33,594 |
(33,594) |
- | |||
|
Officers Salaries Expense |
633,750 |
(633,750) |
- | |||
|
Consulting Expense |
65,750 |
170,000 |
235,750 | |||
|
Total |
$ 235,750 |
$ - |
$ 235,750 |
F-15
AMERICAN DEVELOPMENT & INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
Note 9 Significant Adjustments in the Fourth Quarter of 2009 (continued)
The following table reconciles consulting expense for the 4th quarter:
|
09/30/2009 balance per the Statement of Operations |
$ 65,750 |
|
4th Quarter adjustment |
170,000 |
|
Additional 4th Quarter expenses |
220,500 |
|
12/31/2009 balance per the Statement of Operations |
$ 456,500 |
All 2009 consulting expenses except for $29,000 were with related parties. All 2008 consulting expenses were to related parties
Note 10 Subsequent Events
Management has evaluated the effect that subsequent events would have on the financial statements through the date these financial statements were issued on April 15, 2010 and has concluded that, except as noted below, there are no such subsequent events which would have a material effect on these financial statements.
The Company anticipates closing on new funding for its operations during the first half of 2010, and is considering submitting the question of electing to terminate the business development company election to its shareholders at the next Annual Meeting. During the first quarter of 2010, the Company has received an additional capital contribution
of $250,000 from one investor for 1,666,667 shares of common stock.
F-16
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereto duly authorized individuals.
Dated April 15, 2010
American Development & Investment Fund, Inc.
/s/ Gary D. Lewis
By ___________________________________
Gary D. Lewis
Chief Executive Officer
/s/ Roger Tannery
By ___________________________________
Roger Tannery
Chief Financial Officer
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Title Date
/s/ Gary Lewis
__________________
Director, and April 15, 2010
Gary D. Lewis
Chief Executive Officer
/s/ David Dallow
___________________ Director April
15, 2010
David Dallow
/s/ Adam Mayblum Director and
April 15, 2010
___________________ Vice
President
Adam Mayblum
/s/ David Brant
Director April 15, 2010
___________________
David Brant
/s/ John Kelly
Director April 15, 2010
___________________
John Kelly
24