U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[ X ] Quarterly report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended: March 31, 2007
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from___________ to _____________
Commission File No: 33-9640-LA
AMERICAN BUSINESS CORPORATION
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(Name of small business in its charter)
Colorado 90-0249312
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(State or other jurisdiction of incorporation) (IRS Employer Id. No.)
11921 Brinley Avenue, Louisville, KY 40243
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(Address of Principal Office including Zip Code)
Issuer's telephone Number: (502) 410-6900
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Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes (X) No ( )
Check whether the Registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes ( ) No (X)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.001 par value, 69,870,517 shares at March 31, 2007
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
AMERICAN BUSINESS CORPORATION
FORM 10-QSB - QUARTER ENDED MARCH 31, 2007
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................................................2
Condensed Balance Sheets at March 31, 2007 (unaudited) and
December 31, 2006.................................................3
Condensed Statements of Operations for the Three Months
Ended March 31, 2007 and 2006 (unaudited).........................4
Condensed Statement of Stockholders' Deficit for the
Three Months Ended March 31, 2007 (unaudited).....................5
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 2007 and 2006 (unaudited)...............................6
Notes to Condensed Financial Statements.............................7
Item 2. Management's Discussion and Analysis................................9
Item 3. Controls and Procedures ...........................................11
PART II - OTHER INFORMATION
Item 6. Exhibits...........................................................12
SIGNATURES
SIGNATURES.........................................................12
EXHIBITS........................................................13-14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed balance sheet of the Registrant as of March 31, 2007,
the audited balance sheet at December 31, 2006, and the unaudited condensed
statements of operations, stockholders' deficit, and cash flows for the three
month periods ended March 31, 2007 and 2006 follow. The unaudited condensed
financial statements reflect all adjustments that are, in the opinion of
management, necessary to a fair statement of the results for the interim
periods presented.
2
AMERICAN BUSINESS CORPORATION
CONDENSED BALANCE SHEETS
107:
108:
March 31, 2007 December 31,
[unaudited] 2006
------------- ------------
112:
Assets
Current assets
Cash $ 962 $ 1,263
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Total current assets 962 1,263
Equipment, net 4,554 6,831
------------- ------------
Total assets $ 5,516 $ 8,094
============= ============
Liabilities and Stockholders' Deficit
Current liabilities
Accrued expenses $ 139,376 $ 139,376
Accrued interest 5,524,506 5,306,379
Due to related parties 4,789,117 4,685,333
Notes payable in default 6,311,460 6,311,460
Redeemable Series B,D and E Preferred
Stock, including accrued premium and
penalties of $11,647,802 and 11,254,052
in 2007 and 2006, respectively 16,897,802 16,504,052
Estimated liabilities for claims and
litigation 1,874,845 1,874,845
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Total current liabilities 35,537,106 34,821,445
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Stockholders' deficit
Preferred stock, no par value; 10,000,000
shares authorized, 545,250 shares of
Series A through E issued and outstanding
in 2007 and 2006 135,076 135,076
Common stock, par value $.001 per share;
500,000,000 shares authorized, 69,870,517
shares issued and outstanding in 2007
and 2006 69,870 69,870
Additional paid-in capital 14,872,987 14,872,987
Accumulated deficit (50,609,523) (49,891,284)
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Total stockholders' deficit (35,531,590) (34,813,351)
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Total liabilities and stockholders'
deficit $ 5,516 $ 8,094
============= ============
See notes to condensed financial statements.
3
AMERICAN BUSINESS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
[Unaudited]
Three Months Ended
March 31,
---------
2007 2006
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Revenues $ -- $ --
Operating Expenses:
Administrative expenses 69,583 70,314
Depreciation and amortization 2,277 1,138
Interest expense 646,379 644,384
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Total operating expenses 718,239 715,836
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Net loss $ (718,239) $ (715,836)
============= ============
Net loss per common share -
basic and fully-diluted $ (0.01) $ (0.01)
============= ============
Weighted average number of common
shares outstanding - basic and
fully-diluted 69,870,517 69,870,517
============= ============
See notes to condensed financial statements.
4
AMERICAN BUSINESS CORPORATION
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
Preferred Stock Additional Total
Series A - E Common Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
--------- ------- ---------- ------- ---------- ------------ -----------
Balance,
December
31, 2006 545,250 $135,076 69,870,517 $ 69,870 $14,872,987 $(49,891,284) $(34,813,351)
(unaudited)
Net loss - three
months ended
March 31, 2007 - - - - - (718,239) (718,239)
------------------ -------------------- ---------- ---------- ----------
Balance,
March 31, 2007 545,250 $135,076 69,870,517 $ 69,870 $14,872,987 $(50,609,523) $(35,531,590)
================== ==================== ========== ========== ==========
See notes to condensed financial statements.
5
AMERICAN BUSINESS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
[Unaudited]
Three Months Ended
March 31,
---------
2007 2006
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Cash flows from operating activities -
Net loss $ (718,239) $ (715,836)
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation and amortization expense 2,277 1,138
Increase (decrease) in accrued expenses - (286,188)
Increase (decrease) in estimated liability
for claims and litigation - 286,188
Increase in accrued interest 218,127 218,127
Increase in accrued penalties and premium
on redeemable Preferred Stock 393,750 393,750
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Net cash used by operating activities (104,085) (102,821)
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Cash flows from financing activities
Net proceeds from related parties 103,784 102,821
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Net cash provided by financing activities 103,784 102,821
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Net change in cash (301) -
Cash at beginning of period 1,263 649
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Cash at end of period $ 962 $ 649
============= ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
None.
See notes to condensed financial statements.
6
AMERICAN BUSINESS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of presentation
The interim financial statements included herein are presented in accordance
with accounting principles generally accepted in the United States of America
and have been prepared by the Registrant, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Registrant believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. The Registrant's
operating results for the three months ended March 31, 2007, and 2006 are not
necessarily indicative of the results that may be expected for the years
ended December 31, 2007, and 2006. It is suggested that these interim
financial statements be read in conjunction with the audited financial
statements and notes thereto of the Registrant included in its Form 10-KSB
for the period ended December 31, 2006.
Note 2 - Estimates
In preparing the enclosed condensed financial statements in accordance with
U.S. generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X, management must make estimates and assumptions. These
estimates and assumptions affect the amounts reported for assets,
liabilities, revenues and expenses, as well as affecting the disclosures
provided. Future results could differ from the current estimates.
Note 3 - Related Party Transactions
As previously reported, and by virtue of beneficial ownership of: (i)
11,689,729 shares of the Company's common stock, (ii) 900,000 common shares
issuable upon conversion of outstanding shares of Series A Convertible
preferred stock, and (iii) 45,000,000 common share voting equivalents
attributable to outstanding shares of Series C preferred stock, or 49.7% of
the Registrant's total capitalization, the Registrant may be deemed to be
controlled by Midwest Merger Management, LLC, a Kentucky limited liability
company and its affiliates ("Midwest").
In addition to the foregoing interest, effective December 31, 2005, Midwest
acquired the 6% Secured Convertible Note formerly owned by Brentwood Capital
Corp. The amount including accrued interest due under the note at March 31,
2007 is $2,334,649, which may be converted into common stock at the rate of
$0.01 per share. If Midwest converted that note into its common share
equivalent at March 31, 2007, Midwest's ownership of the Company would
increase to 83.3%.
7
In connection with its ongoing support of the Registrant's efforts to
reorganize, Midwest has advanced an aggregate of $4,789,117 to fund its
activities through and including the end of this fiscal quarter. At March 31,
2007, the indebtedness to Midwest was as follows:
6% Secured Convertible Note $2,334,649
Working capital advances 2,454,468
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$4,789,117
==========
The Registrant intends to settle its aggregate obligations to Midwest in the
course of its planned reorganization with a profitable privately owned
business (see Note 7 and 8).
Note 4 - Per Share Results
The common share equivalents associated with the Registrant's issued and
outstanding convertible notes and Preferred Stock were not included in
computing per share results as their effects were anti-dilutive.
Note 5 - Income Taxes (Benefits)
At December 31, 2006, the Registrant had available approximately $37,600,000
of net operating loss carry-forwards, which expire between December 31, 2008
and December 31, 2022, that may be used to reduce future taxable income.
Federal income tax regulations require the Company's continued compliance
with change in control and other guidelines which, if not met, may
significantly reduce the Company's ability to utilize its loss carry-forward.
Note 6 - Series B, D and E Preferred Stock
Pursuant to the provisions of their respective indentures, the Series B, D
and E Preferred Stock are entitled to receive a redemption premium of 12%
annually. The provisions of the Series B, D and E Preferred Stock also allow
the holders to redeem their shares upon the occurrence of certain events
including the Registrant's inability to issue free trading common stock to
such holders because the shares have not been registered under the Securities
Act. During such periods of non-compliance, the Series B, D and E Preferred
indentures entitle their holders to specified penalties. As the effectiveness
of a registration statement under the Securities Act is outside of
Registrant's control, the Series B, D and E Preferred Stock, together with
accrued premium and penalties, have been classified on the Registrant's
balance sheet at March 31, 2007 and December 31, 2006, as a liability.
Note 7 - Going Concern
The Registrant's condensed financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
8
As shown in the accompanying financial statements, the Registrant had
negative working capital at March 31, 2007, of $(35,536,144). In addition,
the Registrant has incurred an accumulated deficit of $(50,609,523) through
March 31, 2007. The Registrant is dependent upon the efforts of Midwest to
fund its continued survival. The Registrant's ability to continue to receive
this level of support from Midwest is uncertain. The condensed financial
statements do not include any adjustments that might be necessary if the
Registrant is unable to continue as a going concern (see Note 6 and 8).
Note 8 - Bankruptcy Proceedings
On August 28, 2006 the Company reported on Form 8-K that it had been served,
on August 28, 2006, with notice that three of its creditors filed an
Involuntary Petition for relief under Chapter 7 of the U.S. Bankruptcy Code
in the United States Court for the Western District of Kentucky in
Louisville, KY on August 23, 2006 (Case Number 06-32184). The Company has 20
days from the date of service to examine the veracity of the claims of the
three petitioners, of which one is Midwest, and respond to the Petition
before the Bankruptcy Court.
On September 18, 2006, we responded to the Petition acknowledging that we
were indebted to the Petitioners. However, the Company has been paying its
creditors as agreed or is seeking an agreeable basis for payment with
remaining creditors. To that extent, the Company has requested the Bankruptcy
Court supervision sought by Petitioners be pursuant to Chapter 11 instead of
Chapter 7 of the Bankruptcy Code. On October 30, 2006, the Bankruptcy Court
approved our request.
We have developed a plan of reorganization that will be offered to our
creditors during the three months ended June 30, 2007, which supports our
mission to identify and combine with a profitable, privately owned business.
The Company continues to have no reason to believe that Midwest's
participation in the involuntary petition precludes its continued support of
our efforts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
The Registrant does not have any capital resources. Consistent with the
inability to continue its failed freight transportation services business
beyond November 2000, and its subsequent disposition of its remaining
interest in that operation in connection with funding of the GE Credit Corp.
settlement in September 2002, the Registrant's principal activity has been
centered in resolving the claims of its former creditors so it may seek a new
business combination. In this connection, Midwest has agreed to provide
Registrant with reasonable legal, accounting and administrative resources to
resolve its affairs while it conducts its search for a business combination
candidate.
In connection with resolving its affairs, the Company has quantified its
remaining liability for claims and litigation arising from its failed
transportation business to approximate $1,874,845 at March 31, 2007. The
adequacy of this liability is reviewed quarterly by management. As a result
of the Company's pending bankruptcy proceedings, any remaining claims will be
dealt with in an orderly fashion under court supervision (see Note 8).
9
Off-Balance Sheet Arrangements
During the three months ended March 31, 2007, we had no off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on the Company's financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to investors.
Forward Looking Statements
The following discussion contains forward-looking statements regarding the
Registrant, its business, prospects and results of operations that are
subject to certain risks and uncertainties posed by many factors and events
that could cause the Registrant's actual business, prospects and results of
operations to differ materially from those that may be anticipated by such
forward-looking statements. Factors that may affect such forward-looking
statements include, without limitation, the Registrant's ability to resolve
the affairs of its creditors and other investors; or to locate and thereafter
negotiate and consummate a business combination with a profitable privately
owned company.
When used in this discussion, words such as "believes," "anticipates,"
"expects," "intends," and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying
forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
of this report. The Registrant undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that
may subsequently arise. Readers are urged to carefully review and consider
the various disclosures made by us in this report and other reports filed
with the SEC that attempt to advise interested parties of the risks and
factors that may affect the Registrant's business.
Discussion and Analysis of the Three Months Ended March 31, 2007 and 2006:
Revenue - As a direct result of the Registrant's inability to continue its
failing freight transportation services beyond November 2000, the Registrant
had no revenues during either the three months ended March 31, 2007 ("3M7")
or the three months ended March 31, 2006 ("3M6"). The Registrant continues
working through the resolution of its outstanding indebtedness, claims and
litigation.
Expenses and Income Taxes - Operating expenses for 3M7 were $718,239 compared
to $715,836 for 3M6. This level of expenses is consistent with the
Registrant's strategy of redirecting its focus toward becoming a candidate to
acquire or merge with a profitable, privately-held business operation.
Accordingly, the Registrant's recurring administrative expenses include: (i)
accrued interest on its defaulted notes and accrued premium and penalties
10
relating to its Series B, D and E preferred stock, (ii) professional fees
(legal and accounting) and management fees associated with resolution of the
Registrant's affairs with its former creditors and investors, maintenance of
reporting requirements and good standing, (iii) ancillary expenses, and (iv)
minimum franchise taxes.
Net Loss - As a result of the foregoing, the Registrant experienced a net
loss of $(718,239) for 3M7 compared to a net loss of $(715,836) for 3M6. When
related to the weighted average number of common shares outstanding during
each period, per share results were a net loss of $(0.01) for both periods.
Liquidity and Capital Resources
The Registrant is entirely dependent upon: (i) Midwest providing it with
certain advisory services in connection with resolution of its affairs; (ii)
Midwest's willingness to provide the Registrant with certain office and
administrative facilities and to fund virtually all its settlements with
creditors; and (iii) the Registrant's successful implementation of a business
combination with a profitable operating company. There can be no assurances
that Midwest will be successful in resolving all or substantially all of
Registrant's affairs, that Midwest will fund any further settlements, or that
the combined efforts of Midwest and the Registrant will lead to a successful
business combination.
Nonetheless, Midwest has advanced the Registrant $4,789,117 through March 31,
2007, of which $103,784 (inclusive of $34,502 accrued interest during 3M7)
evidences its continued support during the current period.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
------------------------------------------------
The Company's Chief Executive Officer and Chief Financial Officer carried out
an evaluation of the effectiveness of the Company's disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
or 15d-15(e)) as of March 31, 2007, as required by paragraph (b) of Exchange
Act Rules 13a-15 or 15d-15. Based upon this evaluation, the CEO and CFO has
concluded that as of March 31, 2007, the Company's disclosure controls and
procedures are effective to provide reasonable assurance that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms and
that information required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act is accumulated and communicated to
its management, including its principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosures.
11
(b) Changes in Internal Controls
--------------------------------
The Registrant made no significant changes in its internal controls or in
other factors that could significantly affect these controls subsequent to
the date of the evaluation of those controls by the Chief Executive and Chief
Financial officer.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
31.1 - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
31.2 - Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
American Business Corporation
By: /s/ Anthony R. Russo
------------------------
Chief Executive Officer, and
Chief Financial Officer
Dated: June 15, 2007
12
EXHIBIT 31.1
AMERICAN BUSINESS CORPORATION
CERTIFICATIONS PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony R. Russo certify that:
1. I have reviewed this quarterly report on Form 10-QSB of American Business
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this quarterly report is
being prepared; and
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report my conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
5. I have disclosed, based on my most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
13
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Dated: June 15, 2007
/s/ Anthony R. Russo
-----------------------
Chief Executive Officer
and Chief Financial Officer
14
EXHIBIT 32.1
AMERICAN BUSINESS CORPORATION
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Business Corporation on
Form 10-QSB for the quarterly period ended March 31, 2007, as filed with the
Securities and Exchange Commission on June 15, 2007 (the "Report"), the
undersigned, in the capacities and on the date indicated below, hereby
certifies pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of American
Business Corporation.
Date: June 15, 2007
/s/ Anthony R. Russo
----------------------
Chief Executive Officer
and Chief Financial Officer
15