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: June 30, 2004
[ ] 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
(Name of Small Business in its Charter)
Colorado 68-0133692
(State or Other Jurisdiction of Incorporation) (IRS Employer Id. No.)
477 Madison Avenue, 12th Floor
New York, NY 10022
(Address of Principal Office including Zip Code)
Issuer's telephone Number: (212) 308-8700
(formerly) Logistics Management Resources, Inc.
(Former Name, Former Address, and Former Fiscal Year, if Changed
Since Last Report)
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common Stock, par value $.001 per share, 71,870,517 shares at June 30, 2003
Transitional Small Business Disclosure Format (Check one): Yes [ ] NO [ ].
AMERICAN BUSINESS CORPORATION
FORM 10-QSB - QUARTER ENDED JUNE 30, 2004
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................2
Condensed Balance Sheets at June 30, 2004
and December 31, 2003.....................................3
Condensed Statements of Operations for the Six Months
and Three Ended June 30, 2004 and June 30, 2003...........4
Condensed Statement of Shareholders' Impairment for the
Period January 1, 2003 through June 30, 2004..............5
Condensed Statements of Cash Flows for the Six Months
Ended June 30, 2004 and June 30, 2003.....................6
Notes to the Condensed Financial Statements.................7
Item 2. Management's Discussion and Analysis.......................10
Item 3. Controls and Procedures....................................12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........12
Item 5. Other Information..........................................12
Item 6. Exhibits and Reports on Form 8-K...........................13
SIGNATURES
Signatures.................................................14
Exhibits...................................................15
----------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed balance sheet of the Registrant as of June 30,
2004, the audited balance sheet at December 31, 2003, and the unaudited
condensed statements of operations, shareholders' impairment, and cash
flows for the six and three month periods ended June 30, 2004 and June
30, 2003 follow. The 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
June 30, 2004 December 31,
Assets [unaudited] 2003
------------- ------------
Current assets -
Cash $ 69,665 $ --
Deposit on acquisition of
Hybrid-Systems.com, Inc. 150,000 --
------------- ------------
Total current assets 219,665 --
Deferred compensation, net 147,500 --
------------- ------------
Total Assets $ 357,165 $ --
============= ============
Liabilities and Shareholders' Impairment
Current Liabilities
Accrued expenses $ 335,564 320,343
Accrued interest 3,273,268 3,273,268
Due to related parties 3,330,588 2,996,460
Loans payable 2,518,000 2,518,000
Convertible debentures 3,793,460 3,793,460
Net liabilities of discontinued operations 4,440,657 4,440,657
------------- ------------
Total Current Liabilities 17,691,537 17,342,188
------------- ------------
Commitments and contingencies
Shareholders' Impairment
Preferred stock, no par value;
(10,000,000 shares authorized)
Series A (99,000 and 999,000 shares
issued and outstanding, respectively) 76 762
Series B (2,000 shares issued and
outstanding) 2,000,000 2,000,000
Series C (450,000 shares issued and
outstanding) 135,000 135,000
Series D (950 shares issued and
outstanding) 950,000 950,000
Series E (2,300 shares issued and
outstanding) 2,300,000 2,300,000
Common stock, par value $.001 per share;
500,000,000 authorized, 76,870,517 and
54,370,517 issued and outstanding,
respectively 76,870 54,370
Additional paid-in capital 14,948,887 14,538,201
Accumulated deficit (37,736,205) (37,320,521)
------------ -----------
Total Shareholders' Impairment (17,324,372) (17,342,188)
------------- ------------
Total Liabilities and
Shareholders' Impairment $ 357,165 $ --
============= ============
See notes to condensed financial statements.
3
AMERICAN BUSINESS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
[Unaudited]
Six Months Ended Three Months Ended
June 30, June 30,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues $ -- $ -- $ -- $ --
Operating Expenses:
Depreciation and
amortization 2,500 1,273 2,500 637
Interest expense 58,147 54,406 29,290 27,591
Administrative expenses 354,037 153,213 262,975 152,685
---------- ---------- ---------- ----------
Total operating
expenses 414,684 208,892 294,765 180,913
---------- ---------- ---------- ----------
Net loss $ (414,684) $ (208,892) $ (294,765) $ (180,913)
========== ========== ========== ==========
Net loss per common
share - basic and
fully-diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
========== ========== ========== ==========
Weighted average
number of common
shares outstanding 62,299,093 54,370,517 68,245,524 54,370,517
========== ========== ========== ==========
See notes to condensed financial statements.
4
AMERICAN BUSINESS CORPORATION
CONDENSED STATEMENT OF SHAREHOLDERS' IMPAIRMENT
Preferred Preferred Preferred Preferred Preffered
Stock Stock Stock Stock Stock
Series A Series B Series C Series D Series E
Shs Amt Shs Amt Shs Amt Shs Amt Shs Amt
------- ------ ----- ---------- ------- -------- --- -------- ----- ----------
Balance, January 1, 2003 999,000 $ 762 2,000 $2,000,000 450,000 $135,000 950 $950,000 2,300 $2,300,000
Restatement for change in
par value of common - - - - - - - - - -
------- ------ ----- ---------- ------- -------- --- -------- ----- ----------
January 1, 2003, restated 999,000 $ 762 2,000 $2,000,000 450,000 $135,000 950 $950,000 2,300 $2,300,000
Net income - - - - - - - - - -
------- ------ ----- ---------- ------- -------- --- -------- ----- ----------
Balance, December 31, 2003 999,000 $ 762 2,000 $2,000,000 450,000 $135,000 950 $950,000 2,300 $2,300,000
[2004 unaudited]
Shares converted to shares (900,000) (686) - - - - - - - -
Shares issued for services - - - - - - - - - -
Shares issued as deposit - - - - - - - - - -
Shares issued to officer - - - - - - - - - -
Net loss - - - - - - - - - -
------- ------ ----- ---------- ------- -------- --- -------- ----- ----------
Balance, June 30, 2004 99,000 $ 76 2,000 $2,000,000 450,000 $135,000 950 $950,000 2,300 $2,300,000
======= ====== ===== ========== ======= ======== === ======== ===== ==========
Common Stock Additional Paid- Accumulated Total Shareholders'
Shs Amt In Capital Deficit Impairment
---------- ------- ---------------- ------------ -------------------
Balance, January 1, 2003 54,370,517 $ - $ 14,592,571 $(40,579,951) $ (20,601,130)
Restatement for change in
par value of common - 54,370 (54,370) - -
---------- ------- ---------------- ------------ -------------------
January 1, 2003, restated 54,370,517 54,370 $ 14,538,200 $(40,579,951) $ (20,601,130)
Net income - - - 3,258,942 3,258,942
---------- ------- ---------------- ------------ -------------------
Balance, December 31, 2003 54,370,517 $54,370 $ 14,538,200 $(37,320,521) $ (17,342,188)
[2004 unaudited]
Shares converted to shares 9,000,000 9,000 (8,314) - -
Shares issued for services 3,500,000 3,500 129,000 - 132,500
Shares issued as deposit 5,000,000 5,000 145,000 - 150,000
Shares issued to officer 5,000,000 5,000 145,000 - 150,000
Net loss - - - (414,684) (414,684)
---------- ------- ---------------- ------------ -------------------
Balance, June 30, 2004 76,870,517 $76,870 $ 14,948,887 $(37,735,205 $ (17,324,372)
========== ======= ================ ============ ===================
See notes to the condensed financial statements.
5
AMERICAN BUSINESS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
---------------------------
2004 2003
------------ ------------
[unaudited] [unaudited]
Cash flows from operating activities -
Net loss $ (414,684) $ (208,892)
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation and amortization expense 2,500 1,273
Issuance of common shares for services 132,500 --
Increase in liabilities
Accrued expenses 15,221 528
Accrued interest 58,147 54,406
---------- ----------
Net cash used by operating activities (206,316) (152,685)
---------- ----------
Cash flows from financing activities -
Net proceeds from related parties 275,981 152,685
---------- ----------
Net cash provided by financing activities 275,981 152,685
---------- ----------
Net change in cash 69,665 --
Cash at beginning of period -- --
---------- ----------
Cash at end of period $ 69,665 $ --
========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Accrued interest reclassified to Convertible
Note due to related parties $ 58,147 $ 54,406
========== ==========
Increase in par value of Common Stock $ -- $ 54,370
========== ==========
Related decrease in Additional
Paid-in Capital $ -- $ (54,370)
========== ==========
See notes to condensed financial statements.
6
AMERICAN BUSINESS CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The interim financial statements included herein are presented in
accordance with United States generally accepted accounting principles
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 six and three month periods ended June 30,
2004, and 2003 are not necessarily indicative of the results that may be
or were expected for the years ended December 31, 2004, and 2003. 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, 2003.
Note 2 - Redirection of the Registrant's Activities
At a Special Meeting of Shareholders held June 17, 2004 (the "Meeting"),
a majority of the Registrant's shareholders approved amending the
Registrant's Articles of Incorporation to change its name to American
Business Corporation, increase the authorized Common Stock from 75,000,000
to 500,000,000 shares, and increase the par value of the Common Stock
from no par value to $.001 per share. The increase in par value and the
number of authorized shares of the Registrant's Common Stock has been
reflected as a restatement of the related opening account balances. The
actions taken at the Meeting were in anticipation of a planned
reorganization of the Registrant's liabilities and shareholders'
accounts and the election by the Registrant to be regulated as a
business development company.
Note 3 - Related Party Transactions
As previously reported, and by virtue of (i) a 6% secured convertible
promissory note due to Brentwood Capital Corp., an affiliated privately
owned New York merchant banking corporation ("Brentwood"), dated
September 27, 2002, in the aggregate principal amount of $1,981,961 and
convertible into 198,196,143 shares of the Registrant's Common Stock,
$.001 par value per share; and (ii) Brentwood's record
7
ownership of 1,435,000 shares of the Registrant's common stock, equaling
199,631,143 shares and equivalents or 52% of the Registrant's total
capitalization, the Registrant may be deemed to be controlled by
Brentwood.
Similarly, and as previously reported, Midwest Merger Management, LLC, a
Kentucky limited liability company and its affiliated entities ("Midwest")
is the record owner of 3,459,800 shares of the Registrant's common stock,
9,990,000 common shares issuable upon conversion of outstanding shares of
Series A preferred stock and 45,000,000 common shares issuable upon
conversion of outstanding shares of Series C preferred stock or 18% of
the Registrant's common stock and equivalents. Accordingly, the
Registrant may be deemed to be controlled by Midwest. During the period
covered by this Quarterly Report, and in connection with its ongoing
support of the Registrant, Midwest contributed an aggregate of $181,905
to the Registrant to fund its activities.
At June 30, 2004, the aggregate indebtedness to related parties was
$3,330,588. The Registrant intends to settle its aggregate obligations
to Midwest and Brentwood in the course of its planned reorganization to
a business development company.
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, 2002, the Registrant had available approximately
$23,000,000 of net operating loss carry-forward, which expires between
December 31, 2008 and December 31, 2021, that may be used to reduce
future taxable income. As utilization of this carry-forward is less
than certain, its potential tax benefit to the Registrant of
approximately $8,000,000 is fully reserved.
Note 6 - Going Concern
The Registrant's condensed consolidated 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.
As shown in the accompanying financial statements, the Registrant had
negative working capital at June 30, 2004, of $17,471,872. In addition,
the Registrant has
8
incurred an accumulated deficit of $(37,732,705) through June 30, 2004.
The Registrant is dependent upon the efforts of Midwest and Brentwood to
raise proceeds for its continued survival. The Registrant's ability to
continue to receive this level of support from Midwest and Brentwood is
uncertain. The condensed consolidated financial statements do not
include any adjustments that might be necessary if the Registrant is
unable to continue as a going concern.
Note 6 - Material Transactions
A. Hybrid-Systems.com, Inc.
On May 28, 2004, and as previously reported in the Registrant's Form 8-K
filed on June 3, 2004, the Registrant executed a Stock Exchange Agreement
(the "Exchange Agreement") with Hybrid-Systems.com, Inc., a Florida
corporation engaged in the assembly, marketing and sale of computer
components and systems ("Hybrid"). The Agreement called for the
Registrant to acquire all of the issued and outstanding capital stock of
Hybrid from its shareholders in exchange for 5,000,000 newly-issued and
restricted shares of the Registrant's common stock, par value $.001 per
share (the "Exchange Shares"). The Agreement is subject to the Exchange
Shares: (i) being held in escrow pending an audit of Hybrid's financial
statements to be delivered on or before July 1, 2004; and (ii) being
reduced by 500,000 Exchange Shares for each $10,000 that Hybrid's total
assets are less than $100,000 and 500,000 Exchange Shares for each
$30,000 that net sales are less than $480,000.
On July 26, 2004, the Registrant received Hybrid's audited financial
statements which reflected $25,000 in assets and sales of $6,000.
Pursuant to the refund provisions of the Exchange Agreement, the required
reduction to the number of Exchange Shares would exceed the number of
Exchange Shares due to Hybrid. Accordingly, the Registrant abandoned the
transaction with Hybrid and initiated the cancellation of the Exchange
Shares and restoration thereof to authorized but unissued status.
B. Y2 Ultra Filters, Inc.
On May 21, 2004, and as previously reported in the Registrant's Form 8-K
filed on July 21 2004, the Registrant and Y2 Ultra-Filters, Inc., a
privately owned Wyoming corporation ("Y2") agreed upon the terms and
conditions of a form of Purchase and Contribution Agreement to be
effective on April 28, 2004, wherein the Registrant agreed to purchase
the exclusive worldwide rights to market and sell Y2's filtration system
technology known as U2-Ultra FilterTM for applications within the
worldwide gaming industry for the life of the technology (the "License").
The U2-Ultra FilterTM technology is the subject of four United States
patents which rights were also applied for in the European Community ,
Australia, Canada and Taiwan.
9
Pursuant to an amendment to the original agreement effective June 30,
2004 (the "Amendment"), the parties changed the Purchase and Contribution
Agreement to a License and Joint Venture Agreement and provided for the
formation of A.I.R. Filters, LLC, a Delaware limited liability company
(the "LLC") as a joint venture to commercialize the U2-Ultra FilterTM
technology within the worldwide gaming industry. The LLC, which was
formed on June 4, 2004, has been created to execute the party's marketing
and sales efforts in which Y2 as chief operating member and the
Registrant as chief executive member will each have a 50% interest.
In consideration for the License, the Registrant agreed to originally
issue 27,000,000 restricted shares of its common stock to Y2 and,
subject to certain performance milestones, granted to Y2 a five year
option to purchase an additional 39,000,000 restricted shares
(19,000,000 at $.10 and 20,000,000 at 100% of fair market value when
earned).
Note 7 - Commitments
On July 12, 2004, and pursuant to a Loan Agreement and annexed 10%
promissory note of even date therewith among the Registrant as lender,
Clayton, Dunning & Company Inc., a Florida corporation and registered
broker dealer ("CDC") as borrower, and Robert C. Lau and Patricia D.
Lau, as co-makers, the Registrant lent $125,000 (the "Loan") to CDC.
The terms and conditions of the Loan are described in Item 5 of this
Quarterly Report on page 13.
Item 2. Management's Discussion and Analysis
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.
10
Six Month Periods Ended June 30, 2004 and 2003:
Revenues. - 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 six month period ended June
30, 2004 ("6M04") or the six month period ended June 30, 2003 ("6M03").
The Registrant continues working through the restructure of its debt and
the mitigation of outstanding litigation.
Expenses and Income Taxes - General and administrative expenses for 6M04
were $414,684 compared to $208,892 for 6M03. This increase 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) professional fees
(legal and accounting) associated with the resolution of the Registrant's
affairs with its former creditors and investors, and the maintenance of
its reporting requirements and good standing, (ii) interest on its
outstanding convertible note due to Brentwood (commencing on October 1,
2003), (iii) other ancillary expenses, and (iv) the payment of minimum
franchise taxes.
Net Income (Loss) - Accordingly, the Registrant experienced a net loss of
$414,684 for 6M04 compared to a net loss of $208,892 for 6M03. When
related to the weighted average number of common shares outstanding
during 6M04 and 6M03 per share loss results were $0.00 and $0.00,
respectively.
Quarters Ended June 30, 2004 and 2003:
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 second quarter June 30,
2004 ("2Q04") or the second quarter ended June 30, 2003 ("2Q03"). The
Registrant continues working through the restructure of its debt and the
mitigation of outstanding litigation.
Expenses and Income Taxes - General and administrative expenses for 2Q04
were $294,765 compared to $180,913 for 2Q03. This increase 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) professional fees (legal
and accounting) associated with the resolution of the Registrant's
affairs with its former creditors and investors, and the maintenance of
its reporting requirements and good standing, (ii) interest on its
outstanding convertible note due to Brentwood (commencing on October 1,
2003), (iii) other ancillary expenses, and (iv) the payment of minimum
franchise taxes.
11
Net Income (Loss) - Accordingly, the Registrant experienced a net loss
of $294,765 for 2Q04 compared to a net loss of $180,913 for 2Q03. When
related to the weighted average common shares outstanding during each
period, per share results were $0.00 and $0.00, for 2Q04 and 2Q03,
respectively.
Liquidity and Capital Resources.
The Registrant does not have any permanent capital resources. Consistent
with the inability to continue its failing freight transportation
services business beyond November 2000, and its subsequent disposition
in connection with arranging the 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 business combination. In this connection, Midwest and Brentwood
have agreed to provide Registrant with reasonable legal, accounting and
administrative resources to resolve its affairs and conduct its search
for a business combination candidate.
Accordingly, the Registrant is entirely dependent upon: (i) Midwest
providing the Registrant with certain advisory services in connection
with the resolution of its affairs on favorable terms; (ii) the
willingness of Brentwood to provide the Registrant with certain office
and administrative facilities and to fund virtually all of the Registrant's
settlements with its creditors; and (iii) the Registrant's successfully
implementing 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 Brentwood will
fund any further settlements, or that the combined efforts of Midwest
and Brentwood will lead to a successful business combination.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Registrant maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Registrant
files or submits under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those controls and procedures
performed within 90 days of the filing date of this report, the Chief
Executive and Chief Financial officers of the Registrant concluded that
the Registrant's disclosure controls and procedures were adequate.
(b) Changes in Internal Controls
12
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 officers.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At a Special Meeting of Shareholders held June 17, 2004 (the "Meeting"),
a majority of the Registrant's shareholders approved the following three
matters: (i) amending the Registrant's Certificate of Incorporation to
change its name to American Business Corporation ("Item 1"); increase the
number of shares of Common Stock the Registrant is authorized to issue
from 75,000,000 shares to 500,000,000 shares ("Item2"); and (iii)
increasing the par value of the Registrant's Common Stock from no par
value to $.001 per share ("Item3"). The actions taken at the Meeting
were in anticipation of a proposed reorganization of the Registrant into
a business development company. The votes cast for, against and
abstained from each matter were as follows:
Shares Entitled Voted Voted
Matter to Vote For Against Abstained
------ --------------- ---------- -------- ----------
Item 1 106,860,517 62,215,823 4 7
Item 2 106,860,517 62,183,268 19,553 13,013
Item 3 106,860,517 61,789,101 426,703 0
Item 5. Other Information
A. Employment Arrangement
Effective June 1, 2004, Anthony R. Russo, became the Registrant's
President, Chief Executive and Chief Financial Officer. The terms and
conditions of Mr. Russo's five year written employment agreement with
the Registrant, which have yet to be finalized, will include 5,000,000
shares of the Registrant's common stock written off over the term of the
agreement.
B. Loan Agreement
On July 12, 2004, and pursuant to a Loan Agreement and annexed 10%
promissory note of even date (the "Loan Agreement") among the Registrant
as lender, Clayton, Dunning & Company Inc., a Florida corporation and
registered broker dealer ("CDC") as borrower, and Robert C. Lau and
Patricia D. Lau, as co-makers (the Co-Makers"), the Registrant lent
$125,000 (the "Loan") to CDC. The Loan, which was made in
13
contemplation of a long term relationship with CDC as described below in
Paragraph B.,is due and payable in 13 months or within ten days after an
event of default. The Loan is secured by the Registrant's first lien and
security interest in 800 issued and outstanding shares of CDC's common
stock owned by the Co-Makers, representing an 80% equity interest in CDC
and held in escrow by the Co-Maker's attorney. In addition to the
customary representations and warranties, and default provisions, the
Loan Agreement provides that only in the event the Co-Makers' deliver 350
issued and outstanding shares of CDC's common stock to the Registrant
prior to the due date of the Loan, the obligation of CDC to repay the
Loan shall be forgiven by the Registrant and the Note shall be and be
deemed to be paid in full.
C. Letter of Intent
On July 12, 2004, the Registrant entered into a letter of intent (the
"Letter") with the Co-Makers, the individual owners of 800 issued and
outstanding shares of common stock of CDC representing 80% of CDC. The
Letter sets forth the principal terms pursuant to which the Registrant
and three present employees of CDC (collectively the "Buyers") propose
to acquire all 1,000 issued and outstanding shares of common stock of
CDC in a stepped transaction. The Letter also sets forth the terms and
conditions pursuant to which the Registrant shall make a short term loan
available to CDC of up to a maximum of $125,000, and a $125,000 capital
contribution to CDC. In addition, the Letter sets forth the terms and
conditions pursuant to which the Co-Makers shall grant to the Buyers the
exclusive and irrevocable right to nominate and appoint such number of
directors to CDC's Board of Directors as shall equal 65% thereof,
covenant and agree to vote their shares of CDC's common stock in favor
of the Buyers' nominees; and grant to the Registrant a security interest
in the Shares as collateral for the Registrant's $125,000 short term loan.
The Registrant's obligations under the Letter are subject to and
conditioned upon: the negotiation, execution and delivery of (i) a
definitive stock purchase agreement, option agreement, shareholders'
agreement, and escrow agreement on or before August 31, 2004; (ii) the
execution of the certain employment agreements and a consulting agreement;
(iii) CDC's satisfactory resolution of any obligation it may have under
an agreement with Eric M. Westbury including the exchange of general
releases and the return of Mr. Westbury's shares of CDC's common stock
representing a 20% equity interest in CDC; (iv) the approval of the
Transaction by the NASD; and (vi) the other conditions precedent
enumerated in the Letter.
D. Registration Statement on Form S-8
On July 26, 2004, the Registrant filed a Registration Statement on Form
S-8 wherein (the "S-8") the Registrant registered an aggregate of
50,000,000 shares of its Common Stock, $.001 par value per share, for
issuance under the Registrant's 2004 Long Term
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Incentive Plan. As of the date of this Quarterly Report, no shares
registered under the S-8 have been issued by the Registrant.
Item 6. Exhibits and Reports on Form 8-K
10(b) - Loan Agreement dated July 12, 2004
10(c) - Letter of Intent dated July 12, 2004
31.1 - Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2003
32.2 - Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2003
Reports on Form 8-K:
During the three months covered by this Quarterly Report, the Registrant
filed the following three Current Reports on Form 8-K:
Date Items Reported Financial Statements Filed
June 3, 2004 2 and 7 None
June 28, 2004 5 None
July 21, 2004 2 and 7 None
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 Director
By: /s/ Anthony R. Russo
---------------------------------------------
Chief Financial Officer
Dated: August 16, 2004
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