U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15 (d) of the
Securities Exchange Act 1934:
Fiscal Year Ended December 31, 2005
Commission File Number: 33-9640-LA
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AMERICAN BUSINESS CORPORATION
(Exact Name of Registrant in its Charter)
Colorado 90-0249312
(State or other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
11921 Brinley Avenue
Louisville, KY 40243
(Address of Principal executive Offices including Zip Code)
(502) 410-6900
(Registrant's Telephone Number)
--------------
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value per share
--------------
Check whether Registrant (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12
months (or for such shorter period that we were required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days: Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12-b-2 of the Exchange Act): Yes [X] No [ ]
Registrant's revenues for its most recent fiscal year: $ - 0 -
Market value of common stock
held by non-affiliates at August 8, 2006: $523,627
Shares of Common Stock outstanding at August 8, 2006: 69,870,517 shares
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format
(check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I
Item 1. Description of Business 3
Item 2. Description of Property 6
Item 3. Legal Proceedings 6
Item 4. Submissions of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for our Common Equity, Related Stockholder Matters
and Small Business Issuer Purchases of Equity Securities 7
Item 6. Management's Discussion and Analysis or Plan of Operation 8
Item 7. Financial Statements 10
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 22
Item 8A. Controls and Procedures 22
PART III
Item 9. Directors, Executive Officers, Promoter and Control
Persons; Compliance with Section 16(a) of the Exchange Act 22
Item 10.Executive Compensation 23
Item 11.Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 24
Item 12.Certain Relationships and Related Transactions 25
Item 13.Exhibits and Reports on Form 8-K 26
Item 14.Principal Accountant Fees and Services 26
SIGNATURES 27
EXHIBITS 28-30
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
American Business Corporation (f/k/a Logistics Management Resources,
Inc.) was incorporated in Colorado in January 1987 under the name
Northern Dancer, Inc. In September 1998, in a reverse merger business
combination in which we were the survivor, we acquired all of the
issued and outstanding shares of common stock of U.S. Trucking, Inc., a
privately owned Nevada corporation ("Trucking") solely in consideration
for an aggregate of 15,877,300 shares of our common stock, no par value
per share and changed our name to that of Trucking. Through wholly
owned subsidiaries, Trucking was engaged in providing freight
transportation services to large corporations and the operation of a
regional truckload carrier specializing in the short to medium haul
market segments.
By late 2000, in the face of substantial losses, we determined it was
in our best interest to cease operations of our unprofitable
transportation business. Accordingly, on November 30, 2000, four of
our operating subsidiaries that collectively comprised substantially
all of the unprofitable business, filed for Chapter 11 protection in
the Bankruptcy Court of the Northern District of Florida. Shortly
thereafter and principally as a result of our failure to successfully
implement a plan of reorganization, the court-appointed Trustee in
Bankruptcy converted the case to a Chapter 7 liquidation.
Notwithstanding the liquidation of our subsidiaries and the cessation
of our transportation business, we did not seek bankruptcy protection.
Rather, our management has been working to resolve the settlement or
mitigation of the liabilities occasioned by our failed transportation
business. Although there can be no assurance of success, our
management believes that we may eventually be in a position to
favorably restructure the Company through a business combination with
a privately owned company.
In February 2002, our Board of Directors and shareholders approved a
change of name to Logistics Management Resources, Inc., and a 1 for 100
reverse split of all shares of our common stock. The reverse split
became effective on February 12, 2002. On June 17, 2004, our Board of
Directors and shareholders approved a change of name to American
Business Corporation and an increase in our authorized Common Stock,
$.001 par value, from 200,000,000 to 500,000,000 shares.
Our address is 11921 Brinley Avenue, Louisville, KY 40243, and our
telephone and facsimile numbers are (502) 410-6900 and (502) 410-6902,
respectively. Our common stock trades on the OTCBB market under the
symbol AMBCE.OB. Our transfer agent is Corporate Stock Transfer, Inc.
of Denver, CO.
Recent Developments
Change In Office Location
On March 30, 2005, we relocated our offices from 477 Madison Avenue,
12th Floor, New York, NY 10022 to temporary facilities at 222 Grace
Church Street, Suite 300, Port Chester, NY 10022. On August 1, 2005,
we began to transfer our records from 222 Grace Church Street, Suite
300, Port Chester, NY 10573 to separate space available within the
offices of Midwest Merger Management, LLC ("Midwest"), our majority
shareholder, at 11921 Brinley Avenue, Louisville, KY 40243. The
relocation was completed on December 30, 2005.
Change of Registered Certified Accountant
On June 15, 2005, we received a letter from Rosenberg Rich Baker Berman
& Company ("RRBB"), the independent certified public accountants
engaged since 2001as the principal accountants to audit the
Registrant's financial statements wherein RRBB summarily advised us
that it was resigning as our independent accountants.
The audit reports of RRBB on our financial statements as of December
31, 2004 and 2003 and for each of the respective years then ended (the
"Audit Period") did not contain any adverse opinion or disclaimer of
opinion; and except for a going concern qualification, the same were
not qualified or modified as to uncertainty, audit scope or accounting
principles. During the Audit Period there were (1) no disagreements
with RRBB on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of RRBB, would have
caused it to make reference to the subject matter of the disagreements
in connection with its reports for the years ended December 31, 2004
and 2003, and (2) no reportable events as described in Item
304(a)(1)(v) of Regulation S-K which led to RRBB's resignation.
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On March 1, 2006, we retained the firm of Mountjoy & Bressler, LLP,
Louisville, KY ("M&B") as our registered certified accountants for the
year ended December 31, 2005. As we do not have an audit committee of
our Board of Directors, the resignation of RRBB was acknowledged and
accepted, and their replacement with M&B was approved by the Board.
Settlement with Wacovia Bank, NA
In May 2005 we entered into a settlement agreement with Wachovia Bank,
NA, as successor to Southtrust Bank ("Wachovia"), settling a $2,852,000
judgment held by Wachovia against the Company for $150,000, payable
$50,000 down and the balance in 12 equal monthly installments. The
payments under the settlement were advanced by Midwest through December
2005. Accordingly, the effect of the settlement has been reflected at
December 31, 2005 as a reduction of our estimated liability for claims
and litigation of discontinued operations of $2,852,000, and an
increase of our liability to Midwest of $150,000.
Status of Attempted Resolution of Legion Insurance Claim
In December 2005 we reached an agreement with Legion Insurance
Company's to settle its claims against us in the amount of $1,203,657
for $350,000, payable $100,000 in January 2006, and the balance upon
the earlier of August 2008, or a sale of the Company. To date, we
have been negotiating with Legion to accept partial payments on the
down payment in hope of inducing Midwest to fund, assume, or otherwise
guarantee payment of the settlement in full. As we are not certain of
Midwest's willingness to underwrite the settlement, we have not
recorded its effect in our financial statements at December 31, 2005.
Default on 6% Secured Convertible Note due Brentwood and the
Acquisition of that Interest by Midwest
The Company was not able to meet the previously deferred interest
payments and monthly principal payments, due October 1, 2005 and
December 1, 2005, respectively, pursuant to Brentwood's 6% Secured
Convertible Note, causing the entire amount owed to become immediately
due and payable. Effective December 31, 2005, Midwest acquired
Brentwood's interest in the 6% Secured Convertible Note.
Proposed Merger with Telomolecular Corp.
On February 22, 2006 we entered into a Merger Agreement with
Telomolecular Corp., a Delaware corporation, pursuant to which
Telomolecular would merge with and into AMBC. After the merger
Telomolecular shareholders would own or have the right to receive
approximately 74.5% of our outstanding common stock (on a fully-diluted
basis). Telomolecular is a development stage bio-tech company with
principal offices in Sacramento, California. It was recently organized
to develop a new class of drugs to deliver large-molecule proteins
important in the treatment of aging and age-related diseases.
Consummation of the merger is subject to numerous conditions, including
satisfaction of each party with its due diligence investigation of the
other. The Agreement was subsequently terminated on June 9, 2006.
Subsequent Event
On August 29, 2006 the Company reported on Form 8-K that it had been
served 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 notice 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. The Company plans to vigorously
defend its plans to combine with a profitable, privately owned business
and has no reason to believe that Midwest's participation in the
involuntary petition precludes its continued support of the Company's
efforts. The Company contemplates resolving the claims of Midwest and
all other creditors in exchange for shares of a newly created common
stock pursuant to a Plan of Arrangement that it believes will be
acceptable to claimants. There can be no assurance, however, that the
Company will be successful in obtaining the requisite amount of
approvals to confirm a Plan under the Bankruptcy Court's supervision.
Our Business
Since ceasing our freight transportation services business on November
30, 2000, followed by our December 30, 2003, disposition of our
ownership interest therein, we have not had any revenue from
operations. During this period we have principally been engaged in
seeking to resolve the claims of our creditors. More recently, our
management has begun to explore the possibility of seeking a business
combination with a privately owned company. Accordingly, and despite
the fact that management does not consider us to be a development stage
company, it is possible that we could be considered to be a
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blank check company. As defined in Section 7(b)(3) of the Securities
Act of 1933, as amended (the "Securities Act"), a "blank check" company
is an entity that has no specific business plan or purpose or has
indicated that its business plan is to engage in a merger or an
acquisition with an unidentified company or companies and is issuing
"penny stock" securities as defined in Rule 3(a)(51) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Securities
and Exchange Commission and many states have enacted statutes, rules
and regulations limiting the sale of securities of blank check
companies.
We intend to identify and negotiate with a business target for the
merger of that entity with and into our company. In certain instances,
a target company may wish to become our subsidiary or may wish to
contribute or sell assets to us rather than to merge. No assurances
can be given that we will be successful in identifying or negotiating
with any target company. We seek to provide a method for a foreign or
domestic private company to become a reporting ("public") company whose
securities are qualified for trading in the United States secondary
market.
A business combination with a target company will normally involve the
transfer to the target company of the majority of our issued and
outstanding common stock, and the substitution of our management and
board of directors with that of the target company. No assurances can
be given that we will be able to enter into a business combination, or,
if we do enter into such a business combination no assurances can be
given as to the terms of a business combination, or as to the nature of
the target company.
Risk Factors
Our business is subject to numerous risk factors, including the
following:
No Operating History or Revenue and Minimal Assets. We have had an
unprofitable operating history and no revenues or earnings from
operations for the last two years. We have no significant assets or
financial resources. We will, in all likelihood, incur operating
expenses without corresponding revenues, at least until the
consummation of a business combination. This may result in us
incurring a net operating loss which will increase continuously until
we can consummate a business combination with a target company. There
can be no assurance that we will be able to identify such a target
company and consummate such a business combination on acceptable terms
or that it will derive any benefit from our net operating loss.
Speculative Nature Of Our Proposed Operations. The success of our
proposed plan of operation will depend to a great extent on the
operations, financial condition and management of any identified target
company. While our management intends to seek business combinations
with entities having established operating histories, there can be no
assurance that we will be able to identify a candidate satisfying such
criteria. In the event we complete a business combination, the success
of our operations will be dependent upon management of the target
company and numerous other factors beyond our control.
Scarcity of and Competition for Business Opportunities and Combinations.
We are and will continue to be an insignificant participant in the
business of seeking mergers with and acquisitions of business entities.
A large number of established and well-financed entities, including
venture capital firms, are active in mergers and acquisitions of
companies which may be merger or acquisition candidates for us. Nearly
all such entities have significantly greater financial resources,
technical expertise and managerial capabilities than we do and,
consequently, we will be at a competitive disadvantage in identifying
possible business opportunities and successfully completing a business
combination. Moreover, we will also compete with numerous other small
public companies in seeking merger or acquisition candidates.
Continued Management Control, Limited Time Availability. While
seeking a business combination, management anticipates devoting up to
twenty (20) hours per month to our business. Our only executive
officer, Anthony R. Russo, has not entered into a written employment
agreement with us nor is he expected to do so in the foreseeable
future. We have not obtained key man life insurance on our sole
officer and director. Notwithstanding the limited experience and time
commitment of management, loss of the services of Mr. Russo would
adversely affect development of our business and its likelihood of
consummating a business combination.
Lack of Market Research or Marketing Organization. We have not
conducted, nor have others made available to us any market research
indicating that demand exists for the transactions contemplated by us.
Even in the event demand exists for a merger or acquisition of the type
contemplated by us, there can be no assurance we will be successful in
completing any such business combination.
Probable Change in Control and Management. A business combination
involving the issuance of our common stock will, in all likelihood,
result in shareholders of a target company obtaining a controlling
interest in us. Any such business combination may require our
shareholders to sell or transfer all or a portion of our common stock
held by them. The
5
resulting change in control of our company will likely result in
removal of our present officers and directors and a corresponding
reduction in or elimination of their participation in our future
affairs.
Reduction of Percentage Ownership Following Business Combination. Our
primary plan of operation is based upon the consummation of a business
combination with a business entity which, in all likelihood, will
result in our issuing securities to shareholders of such business
entity. The issuance of previously authorized and unissued shares of
our common stock would result in a reduction in the percentage of
shares owned by our present shareholders and would most likely result
in a change in control of us and a change of our management.
Aspects of Blank Check Offering. We may enter into a business
combination with a business entity that desires to establish a public
trading market for its shares. A target company may attempt to avoid
what it deems to be adverse consequences of undertaking its own public
offering by seeking a business combination with us. Such consequences
may include, but are not limited to, time delays of the registration
process, significant expenses to be incurred in such an offering, loss
of voting control to public shareholders or the inability to obtain an
underwriter on terms satisfactory to us or the target.
Taxation. Federal and state tax consequences will, in all likelihood,
be major considerations in any business combination we may undertake.
Currently, such transactions may be structured so as to result in
tax-free treatment to both companies, pursuant to various federal and
state tax provisions. We intend to structure any business combination
so as to minimize the federal and state tax consequences to both us and
the target company; however, there can be no assurance that such
business combination will meet the statutory requirements of a tax-free
reorganization or that the parties will obtain the intended tax-free
treatment upon a transfer of stock or assets. A non-qualifying
reorganization could result in the imposition of both federal and state
taxes which may have an adverse effect on both parties to the
transaction or their respective shareholders. In addition, the change
of control that usually occurs in many business combinations may result
in the surviving entity's ability to utilize our net operating loss
carry forward to be materially limited.
Requirement of Audited Financial Statements May Disqualify Business
Opportunities. Our management will request that any potential business
opportunity provide audited financial statements. One or more
potential combination candidates may opt to forego pursuing a business
combination with us rather than incur the burdens associated with
preparing audited financial statements. In such case, we may choose to
obtain certain assurances as to the target company's assets,
liabilities, revenues and expenses prior to consummating a business
combination, with further assurances that an audited financial
statement would be provided upon closing of such a transaction in a
time frame compliant with the filing requirements for Form 8-K.
Closing documents for such a transaction may include representations
that the audited financial statements will not materially differ from
the representations included in such closing documents.
We Are Economically Dependent Upon Our Principal Common and Preferred
Stockholder and Our Noteholder. Midwest is deemed to be the record and
beneficial owner of 11,689,729 shares or approximately 16.7% of the
issued and outstanding common stock. This percentage is exclusive of:
(i) the 450,000 shares of our Series C Preferred Stock owned by
Midwest, which have the voting rights of 45,000,000 shares of our
common stock; and (ii) 90,000 shares of our Series A Preferred Stock
still owned by Midwest and convertible into 900,000 shares of our
common stock. Adding the voting rights of Midwest's Series C Preferred
Stock and its remaining Series A Preferred Stock would increase
Midwest's ownership percentage to 49.7%.
Further, the Company defaulted on the previously deferred interest
payments and monthly principal payments, due October 1, 2005 and
December 1, 2005, respectively, pursuant to Brentwood's 6% Secured
Convertible Note causing the entire amount owed to become immediately
due and payable. Effective December 31, 2005, Midwest acquired
Brentwood's interest in the 6% Secured Convertible Note. If Midwest
converted that note into its common share equivalent at December 31,
2005 of 216,716,236 shares, Midwest's ownership of the Company would
increase to 82.5%.
Accordingly, we are entirely dependent upon : (1) Midwest providing us
with office facilities and management services on favorable terms; (2)
the willingness of Midwest to fund virtually all of our settlements
with our creditors and our expenses; and (3) our implementation of
successful business combination with a profitable operating company.
Our future is entirely dependent on management's ability to secure a
business combination partner with established profitable operations.
In the opinion of management, we would experience material difficulty
in replacing the support that has been provided by Midwest.
ITEM 2. DESCRIPTION OF PROPERTY
We occupy approximately 350 square feet of office space located at
11921 Brinley Avenue, Louisville, KY 40243, that is provided rent
free on a month-to-month basis from Midwest. Our current office
facilities are adequate for our present needs, and management expects
that we will continue this arrangement in the foreseeable future.
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ITEM 3. LEGAL PROCEEDINGS
We are a defendant in a lawsuit captioned Michael Margolies v. Daniel
L. Pixler, W. Anthony Huff and American Business Corporation. The suit
was filed in the Supreme Court of New York, New York County on June 28,
2005. In his complaint Margolies claims the defendants entered into an
agreement with him in March 2000 pursuant to which we would purchase
the assets of American Intermodal Services, Inc., a New Jersey
corporation engaged in the container hauling business ("AIS"), in
consideration for the payment of 525,000 shares of our common stock,
and the payment to him personally of various commissions based on the
revenues our former subsidiary, Gulf Northern Transport, Inc., from
former AIS customers. The defendants have denied the material
allegations of the complaint and, as Margolies has failed to provide
any proof of such an agreement between us and him or AIS, we anticipate
a favorable resolution of this dispute. The proceeding is currently
in the discovery stage.
In May 2005 we entered into a settlement agreement with Wachovia Bank,
NA, settling a $2.85 million judgment Wachovia held against the Company
for $150,000, payable $50,000 down and the balance in 12 equal monthly
installments. The payments under the settlement were advanced by
Midwest through December 31, 2005.
In December 2005 we reached an agreement with Legion Insurance
Company's to settle its claims against us in the amount of $1,203,657
for $350,000, payable $100,000 in January 2006, and the balance upon
the earlier of August 2008, or a sale of the Company. To date, we
have been negotiating with Legion to accept partial payments on the
down payment in hope of inducing Midwest to fund, assume, or otherwise
guarantee payment of the settlement in full.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Neither during the fourth quarter of the fiscal year ended December 31,
2005, nor during the period January 1, 2006 through the filing date of
this report did we submit any matter to a vote of shareholders.
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information.
Since approximately December 1999, our common stock, our only class of
trading securities, has been quoted in the OTCBB under the symbol LMRI
(AMBC.PK from June 2004 through December 2005, and AMBCE.OB
thereafter). The following table sets forth the range of high and low
bid price information for our common stock for each fiscal quarter for
the past two fiscal years. High and low bid quotations represent
prices between dealers without adjustment for retail mark-ups,
mark-downs or commissions and may not necessarily represent actual
transactions.
Quarter Ended: Low Bid High Bid
------------- ------- --------
December 31, 2005 $ 0.003 $ 0.005
September 30, 2005 0.002 0.015
June 30, 2005 0.007 0.017
March 31, 2005 0.008 0.022
December 31, 2004 $ 0.010 $ 0.035
September 30, 2004 0.024 0.085
June 30, 2004 0.050 0.130
March 31, 2004 0.060 0.190
Since our shares began trading in the OTCBB, the prices for shares have
fluctuated widely. There may be many factors that may explain these
variations. We believe that such factors include (a) the demand for
our common stock, (b) the number of shares of our common stock
available for sale, and (c) changes in the performance of the stock
market in general, among others.
In recent years, the stock market has experienced extreme price and
volume fluctuations that have had a substantial effect on the market
prices for many small companies such as us, which may be unrelated to
the operating performances of the specific companies. Some companies
that have experienced volatility in the market price of their stock
have been the objects of securities class action litigation. If we
became the object of securities class action litigation, it could
result in substantial
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costs and a diversion of our management's attention and resources and
have an adverse effect on our ability to consummate a business
combination. In addition, holders of shares of our common stock could
suffer substantial losses as a result of fluctuations and declines in
the market price of our common stock.
The trading of shares of our common stock is subject to limitations set
forth in Rule 15g-9 of the Exchange Act. This rule imposes sales
practice requirements on broker-dealers who sell so-called "penny
stocks" to persons other than established customers, accredited
investors or institutional investors. For any transaction involving a
penny stock, unless exempt, the rules require that a broker or dealer:
(i) approve a person's account for transactions in penny stocks; and
(ii) receive from the investor a written agreement to the transaction,
setting forth the identity and quantity of the penny stock to be
purchased. In order to approve a person's account for transactions in
penny stocks, the broker or dealer must: (i) obtain financial
information and investment experience and objectives of the person; and
(ii) make a reasonable determination that the transactions in penny
stocks are suitable for that person and that person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule relating to the penny stock market,
which, in highlight form, (i) sets forth the basis on which the broker
or dealer made the suitability determination; and (ii) that the broker
or dealer received a signed, written agreement from the investor prior
to the transaction. Disclosure also has to be made about the risks of
investing in penny stocks in both public offerings and in secondary
trading, and about commissions payable to both the broker-dealer and
the registered representative, current quotations for the securities
and the rights and remedies available to an investor in cases of fraud
in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in
the account and information on the limited market in penny stocks.
(b) Holders
As of December 31, 2005, the approximate number of holders of record of
shares of our Common Stock, $.001 par value per share, our only class
of trading securities, was believed by management to be as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, $.001 par value 538
Management believes there are many shareholders whose securities are
held in street name at various brokerage houses. The exact number of
shareholders is unknown to us.
(c) Dividends.
We have paid no dividends during the fiscal years ended December 31,
2005 and 2004. Other than the requirements of the General Corporation
Law of the State of Colorado that dividends be paid out of capital
surplus only and that the declaration and payment of a dividend not
render us insolvent, there are no restrictions on our present or
future ability to pay dividends.
The payment by us of dividends, if any, in the future rests within the
discretion of our Board of Directors and will depend, among other
things, upon our earnings, our capital requirements, and our financial
condition, as well as other relevant factors.
(d) Stock Option Plan
Our Long Term Incentive Plan implemented in 2004 (the "2004 Plan")
replaced our 1999 plan which had no options outstanding as there has
been no stock option plan activity since December 2001 and whose
remaining outstanding options and warrants expired in 2005. The 2004
Plan allows us to grant options for up to a total of 50,000,000 shares
of common stock. Options outstanding become exercisable at the
discretion of the Stock Option Committee, which administers the 2004
Plan, and expire 10 years after the grant date. All options granted
under the 2004 Plan were exercisable at not less than the fair market
value of the stock on the date of the grant. Accordingly, no
compensation cost has been recognized for the Plan.
In July 2004, we filed a Registration Statement on Form S-8,
No. 333-117661, wherein we registered an aggregate of 50,000,000 shares
of our Common Stock, $.001 par value per share, for issuance under our
2004 Plan. In August 2004, we engaged a shareholder relations
advisor to aid and assist in our then proposed recapitalization,
reorganization and restructuring as a business development company
including but not limited to locating and contacting our creditors and
shareholders. In connection with retaining his engagement, the
consultant was issued an option to purchase 1,500,000 shares of our
Common Stock at $0.055 per share (the "Initial Option"). The Initial
Option was exercised in full in September 2004 in consideration for the
consultant's completed services valued by our board at $82,500.
There was no activity under the 2004 Plan since the Initial Option.
Accordingly, 48,500,000 shares remain available for future option
grants at December 31, 2005.
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(e) Audit Committee Expert. Our sole director is an "audit committee
expert" as defined in applicable SEC rules. He is not independent.
(f) Code of Ethics. The Board has not adopted a Code of Ethics to
deter wrongdoing by corporate officers and promote appropriate behavior
by management in carrying out its duties to the Company and its
shareholders because we are not engaged in business and have no persons
engaged in the type business activity typically sought to be promoted
by such a Code.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
Our plan of operation for the next twelve months is to continue our
efforts to identify and merge with a privately held business that
wishes to use our publicly-held status to assist it in its access to
the capital markets. In this connection, on February 22, 2006 we
entered into a Merger Agreement with Telomolecular Corp., a Delaware
corporation, pursuant to which Telomolecular would merge with and into
AMBC. After the merger Telomolecular shareholders would own or have
the right to receive approximately 74.5% of our outstanding common
stock (on a fully-diluted basis). Telomolecular was a development
stage bio-tech company recently organized to develop a new class of
drugs to deliver large-molecule proteins important in the treatment of
aging and age-related diseases. Consummation of the merger was subject
to numerous conditions, including satisfaction of each party with its
due diligence investigation of the other. On June 9, 2006 the Company
announced in its Form 8-K filing that the planned merger, which was
scheduled to close on April 21, 2006, was terminated as it was unlikely
that it could be effected on the terms originally negotiated.
The Company continues to screen additional potential merger partners
consistent with its current objective of merging with a profitable
privately-held business. In the interim, our general and administrative
activities and office facilities are being provided by Midwest without
reimbursement therefore and Midwest has advanced all of the Company's
direct expenses as needed. There can be no assurance that Midwest will
continue to support the Company for the foreseeable future.
We did not conduct any research and development or selling and
marketing activities in the fiscal years ended December 31, 2005 and
2004. Our principal activity is seeking a privately owned business
with which to enter into a business combination.
Critical Accounting Policies and Estimates
In preparing financial statements, management is required to select
appropriate accounting policies and make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and
expenses. Actual results could differ from those estimates. The most
significant estimate included in the financial statements is as
follows:
Estimated Liability for Claims and Litigation. In the course of
preparing the accompanying financial statements, management has
recorded its estimate of the liabilities associated with claims and
litigation arising from its discontinued business based upon
information available to it including consultation with counsel. As
these claims are settled, the actual liability to be paid could differ
from those estimates.
Financial Condition
In December 2003, we disposed of 100% of our ownership interest in the
freight transportation services business having changed our direction
to searching for a business combination partner. At December 31, 2005,
we had working capital deficiency of $(31,899,626), and had cumulative
losses from operations of $(46,961,620) since inception in 1987. Our
ability to attract additional capital and to successfully consummate a
business combination with a privately owned entity is entirely
dependent upon the cooperation and assistance we receive from Midwest,
of which there can be no ongoing assurance.
As a result of the action taken at our June 17, 2004 Special Meeting of
Shareholders, we are now authorized to issue up to 500,000,000 shares
of our Common Stock; and 10,000,000 shares of Preferred Stock, $.001
par value per share. At December 31, 2005, there were 69,870,517
shares of our Common Stock and 545,250 shares of our Series A through
E preferred stock issued and outstanding. We did not have any material
commitments for capital expenditures at December 31, 2005 or 2004.
9
Results of Operations
(a) Continuing Operations: During the fiscal year ended December 31,
2005 ("2005"), we reported a loss from continuing operations of
$(2,973,554) compared to $(3,424,906) for the fiscal year ended
December 31, 2004 ("2004"). The decrease was principally attributable
to a reduction of general and administrative expenses consistent with
the company's revised focus away from its failed former operation and
toward searching for a new business combination. As expected,
depreciation and amortization, and interest expense remained relatively
constant between years. We do not expect sales of any products or
service in the foreseeable future other than those of a potential
merger partner.
(b) Discontinued Operations: During 2005, we reported a gain from
discontinued operations of $2,702,000 principally as a result the
settlement of a $2,852,000 creditor's claim for $150,000 within the
period. There was no similar activity in 2004.
(c) As a result of the foregoing, we reported a net loss of $(271,554)
or $0.00 per share for 2005 compared to a net loss of $(3,424,906) or
$(0.05) per share for 2004 on basic weighted average shares outstanding
of 69,870,517 and 65,024,367, respectively.
During the two fiscal years ended December 31, 2005, our continued
economic viability was entirely dependent upon: (1) Midwest providing
us with office facilities and management services on favorable terms;
(2) the willingness of Midwest to fund virtually all of our settlements
with our creditors; and (3) our successful business combination with a
viable operating company. Our future is entirely dependent on
management's ability to secure a business combination partner or
establish profitable operations as well as the continued willingness of
Midwest to provide funding.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements during the
two years ended December 31, 2005, or at any subsequent time through
the date of the filing of this report.
Forward Looking Statements
This report includes "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Any statements that express or involve discussions with respect to
predictions, expectations, beliefs, plans, projections, objectives,
assumptions or future events or performance (often, but not always,
using words or phrases such as "expects" or "does not expect", "is
expected", "anticipates" or "does not anticipate", "plans", "estimates"
or "intends", or stating that certain actions, events or results "may",
"could", "would", "might" or "will" be taken, occur or be achieved)
are not statements of historical fact and may be considered "forward
looking statements". Such statements are included, among other places
in this registration statement, in the sections entitled "Management's
Discussion and Analysis or Plan of Operation," "Description of
Business" and "Description of Property." Forward-looking statements
are based on expectations, estimates and projections at the time the
statements are made that involve a number of risks and uncertainties
which could cause actual results or events to differ materially from
those presently anticipated. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to have been
correct.
ITEM 7. FINANCIAL STATEMENTS
Page
Report of Registered Independent Accounting Firm 11
Financial Statements
Balance Sheets 12
Statements of Operations 13
Statements of Stockholders' Deficit 14
Statements of Cash Flows 15
Notes to the Financial Statements 16-21
10
Report of Independent Registered Accounting Firm
To the Board of Directors and Stockholders of
American Business Corporation
We have audited the accompanying balance sheet of American Business
Corporation as of December 31, 2005 and 2004, and the related
statements of operations, stockholders' deficit 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 established by
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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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
Business Corporation as of December 31, 2005 and 2004, and the results
of its operations, cash flows and changes in stockholders' deficit for
the years ended December 31, 2005 and 2004 in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in Note 2 to the financial statements, certain errors
resulting in the understatement of interest expense and accrued
liabilities were discovered by management of the Company during the
current year. Accordingly, the 2004 financial statements have been
restated and an adjustment has been made to the accumulated deficit as
of January 1, 2004 to correct the error.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 13 of
the notes to the financial statements, the Company incurred an
accumulated deficit of $(46,961,620) through December 31, 2005, and as
of December 31, 2005 had a working capital deficiency of $(31,899,626).
The Company's ability to generate sufficient proceeds from prospective
operations or debt or equity arrangements is uncertain. These
conditions raise substantial doubt about the Company's 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/ Mountjoy & Bressler, LLP
Louisville, Kentucky
July 18, 2006, except for Note 16 as
to which the date is August 29, 2006
11
AMERICAN BUSINESS CORPORATION
CONDENSED BALANCE SHEETS
December 31,
2005 2004
RESTATED
---------- ----------
Assets
Current assets
Cash $ 649 $ 6,845
---------- ----------
Total current assets 649 6,845
Equipment, net 15,939 20,493
---------- ----------
Total Assets $ 16,588 $ 27,338
========== ==========
Liabilities and Stockholders' Deficit
Current Liabilities
Accrued expenses $ 425,564 $ 330,564
Accrued interest 4,433,871 3,561,363
Due to related parties 4,211,671 3,641,375
Notes payable in default 6,311,460 6,311,460
Redeemable Series B, D and E Preferred
Stock, inclusive of accrued premium and
penalties of $9,679,052 and $8,104,052
in 2005 and 2004, respectively 14,929,052 13,354,052
Estimated liability for claims and
litigation 1,588,657 4,440,657
---------- ----------
Total Current Liabilities 31,900,275 31,639,471
---------- ----------
Commitments and contingencies
Stockholders' Deficit
Preferred stock, no par value; 10,000,000
shares authorized, 545,250 shares of
series A through E issued and outstanding
in 2005 and 2004 135,076 135,076
Common stock, $.001 par value; 500,000,000
shares authorized, 69,870,517 shares issued
and outstanding in 2005 and 2004 69,870 69,870
Additional paid-in capital 14,872,987 14,872,987
Accumulated deficit (46,961,620)(46,690,066)
---------- ----------
Total Stockholders' Deficit (31,883,687)(31,612,133)
---------- ----------
Total Liabilities and
Stockholders' Deficit $ 16,588 $ 27,338
========== ==========
See notes to the financial statements.
12
AMERICAN BUSINESS CORPORATION
STATEMENTS OF OPERATIONS
Year Ended December 31,
2005 2004
RESTATED
---------- ----------
Continuing Operations:
Revenue $ - $ -
---------- ----------
Operating Expenses:
General and administrative 396,031 862,467
Depreciation and amortization 4,554 2,277
Interest expense 2,572,969 2,560,162
---------- ----------
Total Operating Expense 2,973,554 3,424,906
---------- ----------
Operating Loss Before Discontinued Operation (2,973,554) (3,424,906)
Discontinued Operation:
Gain on Settlement of Claim, net of
income tax provision of $ -0- 2,702,000 -
---------- ----------
Net Loss $ (271,554)$(3,424,906)
Income (Loss) per Common Share - Basic and Fully Diluted
Loss from Continuing Operations $ (0.04)$ (0.05)
Gain from Discontinued Operation 0.04 -
---------- ----------
Net Income (Loss) per share $ 0.00 $ (0.05)
========== ==========
Weighted Average Common Shares Outstanding -
Basic and Fully Diluted 69,870,517 65,024,367
See notes to the financial statements.
13
AMERICAN BUSINESS CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
Preferred Stock Additional Total
Series A - E Common Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
--------- ------- ---------- ------- ---------- ------------ -----------
Balance,
January 1, 2004,
as previously
reported 1,445,250 $135,762 54,370,512 $ 54,370 $14,538,201 $(37,320,521) $(22,592,188)
Restatement of
retained deficit - - - - - (5,944,639) (5,944,639)
------------------ -------------------- ---------- ------------ ------------
Balance,
January 1,
2004, Restated 1,445,250 $135,762 54,370,512 $ 54,370 $14,538,201 $(43,265,160) $(28,536,827)
Shares converted (900,000) (686) 9,000,000 9,000 (8,314) - -
Shares issued
for services - - 6,500,000 6,500 333,500 - 340,000
Shares issued
as a deposit - - 5,000,000 5,000 145,000 - 150,000
Cancellation
of deposit - - (5,000,000) (5,000) (145,000) - (150,000)
Rent contributed - - - - 9,600 - 9,600
Net loss - 2004,
Restated - - - - - (3,424,906) (3,424,906)
------------------ -------------------- ---------- ------------ ------------
Balance,
December 31, 2004,
Restated 545,250 $135,076 69,870,512 $ 69,870 $14,872,987 $(46,690,066) $(31,612,133)
Net loss - 2005 - - - - - (271,554) (271,554)
------------------ -------------------- ---------- ------------ ------------
Balance,
December 31, 2005 545,250 $135,076 69,870,512 $ 69,870 $14,872,987 $(46,961,620) $(31,883,687)
================== ==================== ========== ============ ============
See notes to the financial statements.
14
AMERICAN BUSINESS CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2005 2004
RESTATED
---------- ----------
Cash flows from Operating Activities -
Loss from continuing operations $(2,973,554) $(3,424,906 )
Adjustments to reconcile loss from
continuing operations to net cash used
by operating activities
Depreciation and amortization expense 4,554 2,277
Services obtained for common shares - 340,000
Rent contributed by related party - 9,600
Increase in accrued expenses 95,000 10,221
Increase in accrued interest 872,508 872,508
Increase in accrued premium and
penalties on preferred stock 1,575,000 1,575,000
---------- ----------
Net cash used in continuing operations (426,492) (615,300)
Gain on discontinued operation 2,702,000 -
Decrease in estimated liability for
claims and litigation (2,852,000) -
---------- ----------
Net cash used in Operating Activities (576,492) (615,300)
Cash flows from Investing Activities -
Additions to property - (22,770)
---------- ----------
Net cash used in Investing Activities - (22,770)
---------- ----------
Cash flows from Financing Activities -
Advances from related parties 570,296 644,915
---------- ----------
Net cash provided by Financing Activities 570,296 644,915
---------- ----------
Net change in Cash (6,196) 6,845
Cash, beginning of year 6,845 -
---------- ----------
Cash, end of year $ 649 $ 6,845
========== ==========
See notes to the financial statements.
15
AMERICAN BUSINESS CORPORATION
Notes to the Financial Statements
Note 1 - General and Summary of Significant Accounting Policies
(A) Nature of Business. American Business Corporation, formerly
Logistics Management Resources, Inc., formerly U. S. Trucking, Inc.,
was incorporated in Colorado under the name Northern Dancer, Inc. in
January, 1987 for the purpose of acquiring an operating business. We
completed a small public offering in 1988. In September, 1998 we
completed a reverse acquisition of U. S. Trucking, Inc., a Nevada
corporation that had two operating subsidiaries it had acquired in
early 1997.
On November 30, 2000 all four of our operating subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the U. S.
Bankruptcy Code. These filings were subsequently converted to Chapter
7. We are presently attempting to restructure our liabilities, and to
identify and enter into a business combination with a profitable
privately owned business.
During 2005, we relocated our corporate headquarters from New York to
Louisville, KY.
(B) Basis of Presentation. The accompanying balance sheet and related
statements of operations, stockholders' deficit and cash flows at and
for the years ended December 31, 2005 and 2004, include the financial
activities of our company. Financial activities of former subsidiaries
are included in discontinued operation when applicable.
(C) Income (Loss) Per Share. Basic per share income (loss) is computed
by dividing net loss available to common shareholders by the weighted
average number of common shares outstanding during the year. Fully
diluted per share results are computed by increasing the weighted
average number of common shares outstanding during each year by the
common share equivalents of all applicable preferred stock, convertible
notes, and options to purchase common shares. Common stock equivalents
were not used in the computation of diluted loss per common share, as
their effect would be anti-dilutive.
(D) Fair Value of Financial Instruments. The fair values of accrued
expenses and other short-term obligations approximate their carrying
values because of the short maturity of these financial instruments.
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosure About Fair Value of Financial Instruments," rates available
at balance sheet dates to us are used to estimate the fair value of
existing debt.
(E) Income Taxes. We utilize Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and
reporting for income taxes. The difference between the financial
statement and tax basis of assets and liabilities is determined
annually. Deferred income tax assets and liabilities are computed for
those temporary differences that have future tax consequences using the
current enacted tax laws and rates that apply to the periods in which
they are expected to affect taxable income. In some situations, SFAS
109 permits the recognition of expected benefits of utilizing net
operating loss and tax credit carry-forwards. Valuation allowances are
established based upon management's estimate, if necessary. Income tax
expense is the current tax payable or refundable for the period plus or
minus the net change in the deferred tax assets and liabilities.
(F) Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(H) Property and Equipment. The cost of office equipment is depreciated
for financial statement purposes on a straight line basis over 5-7
years. Repairs and maintenance expenditures which do not extend the
useful lives of the related assets are expensed as incurred.
(I) Securities Issued for Services. We account for stock issued for
services under the intrinsic value method. For stock issued for
services, the fair market value of our common stock on the date of
issuance is used. We have adopted Statement of Accounting Standard
(SFAS) No. 123, "Accounting for Stock-Based Compensation". This
statement generally suggests, but does not require, stock-based
compensation transactions to be accounted for based upon the fair
market value of the services rendered or the fair value of the equity
instrument issued, whichever is more reliably measurable. Securities
issued for services amounted to $-0- in 2005 and $340,000 in 2004. The
underlying fair value of our common shares amounted to $0.052 per share
in 2004. Effective January 1, 2006, the Company adopted SFAS 123(R),
Share Based Payments (see Note 15).
(J) Reclassifications. Certain amounts in 2004 have been reclassified
to conform to the current year presentation. The reclassifications had
no impact to the net loss previously reported.
16
Note 2 - Restatement
During 2005, the Company's management identified and determined that
the previously reported financial position and results of operations
were materially misstated as a result of an accounting error
attributable to the failure, since March 2002, to accrue interest,
penalties and redemption premium on the Company's defaulted notes p
ayable and Series B, D and E Preferred Stock. Management has analyzed
and corrected the Company's internal financial reporting system. The
following is a summary of this restatement:
As Previously Net Effect of As
Reported Restatement Restated
----------- ------------ ----------
2004 Accrued interest $ 3,273,268 $ 288,095 $ 3,561.363
Redeemable Series B, D
and E Preferred Stock 5,250,000 8,104,052 13,354,052
Interest expense 112,654 2,447,508 2,560,162
Net income (loss) (977,398) (2,447,508) (3,424,906)
Net income (loss) per
share: Basic and fully
diluted (0.01) (0.04) (0.05)
-------------------------------------
The restatement applicable to 2004 has been presented in the
accompanying statement of operations. The net effect of the
restatement for periods prior to January 1, 2004 of $5,944,639, has
been included in the statement of stockholders' deficit as an
adjustment of the January 1, 2004 opening balance of the accumulated
deficit.
Note 3 - Fair Value of Financial Instruments
Our material financial instruments for which disclosure of estimated
fair value is required by certain accounting standards at December 31,
2005 and 2004, consist of Loans Payable, Convertible Debentures, and
Estimated Liability for Claims and Litigation relating to discontinued
operations. In the opinion of our management, such items are carried
at values that approximate fair value.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
statements. An example of this measurement process is as follows:
In December 2005 we reached an agreement with Legion Insurance
Company's to settle its claims against us in the amount of $1,203,657
for $350,000, payable $100,000 in January 2006, and the balance upon
the earlier of August 2008, or a sale of the Company. To date, we have
been negotiating with Legion to accept partial payments on the down
payment in hope of inducing Midwest to fund, assume, or otherwise
guarantee payment of the settlement in full. As we are not certain of
Midwest's willingness to underwrite the settlement, we have not
recorded its effect in our financial statements at December 31, 2005.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect such
estimates.
Note 4 - Equipment
Equipment at cost, less accumulated depreciation, consists of the
following at December 31:
2005 2004
-------- --------
Office equipment $ 22,770 $ 22,770
Accumulated depreciation (6,831) (2,277)
-------- --------
Total $ 15,939 $ 20,493
======== ========
Depreciation expense charged to operations was $4,554 and $2,277 in
2005 and 2004, respectively.
Note 5 - Notes Payable in Default
Notes payable consist of the following:
11.5% Convertible debentures in default $ 3,793,460
18% Promissory Notes in default 2,235,000
12% Notes payable in default 283,000
----------
$ 6,311,460
==========
17
Note 6 -Related Party Transactions
Amounts due related parties at December 31, 2005 and 2004 are as
follows:
2005 2004
----------- ----------
Brentwood Capital Corp. ("Brentwood") -
6% Secured Convertible Note, in default $ 2,167,162 $ 2,041,866
Midwest Merger Management, LLC and
affiliates ("Midwest") 2,044,509 1,599,509
----------- ----------
Total $ 4,211,671 $ 3,641,375
=========== ==========
The Company defaulted on the previously deferred interest payments and
monthly principal payments, due October 1, 2005 and December 1, 2005,
respectively, pursuant to Brentwood's 6% Secured Convertible Note
causing the entire amount owed to become immediately due and payable.
Effective December 31, 2005, Midwest acquired Brentwood's interest in
the 6% Secured Convertible Note.
During 2004, Midwest contributed office space to us with a fair market
value of $9,600. We are entirely dependent upon Midwest providing us
with office facilities and management services on favorable terms, as
well as Midwest's willingness to fund virtually all of our settlements
with our creditors and our expenses. Our President, Chief Executive
Officer and Chief Financial Officer is also the Chief Financial
Officer and a financial advisor to Midwest.
Note 7 - Estimated Liability for Claims and Litigation from
Discontinued Operation
On November 30, 2000, our four operating subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code.
We are liable as a guarantor on certain indebtedness of our former
subsidiaries which has given rise to certain claims and threatened
litigation. Resultant estimated liability for claims and litigation
amount to $1,588,657 and $4,440,657 at December 31, 2005 and 2004,
respectively.
In May 2005 we entered into a settlement agreement with Wachovia Bank,
NA, settling a $2.85 million judgment Wachovia held against the Company
for $150,000, payable $50,000 down and the balance in 12 equal monthly
installments. The payments under the settlement were advanced by
Midwest through December 31, 2005. Accordingly, the effect of the
settlement has been reflected at December 31, 2005 as a reduction of
our estimated liability for claims and litigation of discontinued
operations of $2,852,000, and an increase of our liability to Midwest
of $150,000.
In December 2005 we reached an agreement with Legion Insurance
ompany's to settle its claims against us in the amount of $1,203,657
for $350,000, payable $100,000 in January 2006, and the balance upon
the earlier of August 2008, or a sale of the Company. To date, we
have been negotiating with Legion to accept partial payments on the
down payment in hope of inducing Midwest to fund, assume, or otherwise
guarantee payment of the settlement in full. As we are not certain of
Midwest's willingness to underwrite the settlement, we have not
recorded its effect in our financial statements at December 31, 2005.
Note 8 - Income Taxes
For the years ended December 31, 2005 and 2004 we have no income tax
provision or benefit.
Our total deferred tax asset and valuation allowance are as follows at
December 31:
2005 2004
----------- ----------
Total deferred tax asset $13,300,000 $10,000,000
Less valuation allowance (13,300,000) (10,000,000)
----------- ----------
Net deferred tax asset $ - $ -
=========== ==========
At December 31, 2005, we have available approximately $34,700,000 of
net operating loss carry forward which may be used to reduce future
federal and state taxable income and expire between December 31, 2008
and December 31, 2021. The future benefit of these net operating loss
carry forwards may be limited on an annual basis and in total under
Section 382 of the Internal Revenue Code as a result of potential
ownership changes contemplated in the Company's plans.
18
Note 9 - Commitments and Contingencies
Effective June 1, 2004, we entered into an informal employment
arrangement with our President, Chief Executive and Chief Financial
Officer requiring the payment of compensation equal to $15,000 per
month through February 2005, and $20,000 per month thereafter. All of
the terms and conditions of this employment, including incentive
compensation in cash and/or shares have yet to be finalized.
Our former President and two other guarantors of our obligations have
provided guarantees of certain of our obligations and of our former
subsidiaries. As a result, on January 30, 1997, and as renewed on May
3, 1999, we entered into an Indemnity Agreement with these three
parties, to hold them harmless against any loss or liability related to
or arising from us and our former subsidiaries.
Note 10 - Preferred Stock
The components of the Company's Preferred stock, no par value, is as
follows:
Shares Stated Value
Series Outstanding Per Share Total
----------- --------- --------
A 90,000 $0.000844 $ 76
B 2,000 1,000.00 2,000,000
C 450,000 0.30 135,000
D 950 1,000.00 950,000
E 2,300 1,000.00 2,300,000
---------
5,385,076
Less redeemable Series B, D and
E classified as a liability (5,250,000)
---------- ---------
545,250 $ 135,076
========== =========
Series A Convertible Preferred Stock - On February 1, 1999, we entered i
nto three stock exchange agreements whereby a total of 9,900,000 shares
of Common Stock were exchanged for 990,000 shares of Series A Preferred
Stock. The value of the shares was determined to be $762 and such
amount was deducted from additional paid-in capital. Each share of
Series A Preferred Stock is entitled to ten votes and will vote
together with the holders of the Common Stock. Pursuant to this
agreement, each share of Series A Preferred Stock may be exchanged for
ten shares of Common Stock as follows: one fifth of the shares upon us
reporting revenues of $31 million or more for any fiscal year or
shorter period in a report filed on Form 10-KSB or any appropriate
Securities and Exchange Commission filing; an additional one-fifth if
revenues are at or above $41 million; an additional one fifth if
revenues are at or above $51 million; an additional one-fifth if
revenues are at or above $61 million; and the balance if revenues are
at or above $71 million. On April 26, 2004, we and Midwest Merger
Management, LLC ("Midwest"), the sole owner of the Series A Preferred
Stock and a majority stockholder of our company, entered into an
amendment to the February 1, 1999 stock exchange agreement pertaining
to the shares of Series A Preferred Stock wherein we granted Midwest
the right to convert its 990,000 shares of Series A Preferred Stock
into 9,900,000 shares of our Common Stock on or before December 31,
2005 in consideration for Midwest's best efforts commitment to fund
our plan to reorganize our affairs and combine with a profitable owned
business. This amendment was ratified at a May 12, 2005, special
meeting of our controlling shareholders. Midwest has converted 0 and
900,000 Series A preferred shares in 2005 and 2004, respectively.
Series B Convertible, Redeemable Preferred Stock - During 1999, we sold
$2,000,000 of Series B Convertible Preferred Stock and issued 2,000
shares. We incurred $185,000 of issuance costs that were deducted from
additional paid-in capital. Shares of Series B Convertible, Redeemable
Preferred Stock are convertible into shares of Common Stock based upon
the stated value of $1,000 per share of Preferred Stock divided by the
conversion price on the date of conversion. Holders of Series B
Convertible Preferred Stock may elect to convert their shares
commencing on the earlier of October 28, 1999 or the occurrence of any
merger, tender offer, or redemption event. The conversion price is
equal to 90% of the average closing bid price for the ten consecutive
trading days immediately preceding the conversion date, not to exceed
$2.59 per share. No dividends have been declared from issuance through
December 31, 2005. There are also provisions in the security, which
allow the holders to redeem their shares upon the occurrence of
certain events including the inability of us to issue free trading
common stock to the holders because the shares have not been registered
under the Securities Act. The Series B shareholders have no voting
rights. Holders of Series B Preferred Stock are entitled to receive
a redemption premium of 12% annually. As a result of the redemption
provisions, the stated value of the Series B shares together with
accrued redemption premium has been classified as a liability.
Series C Preferred Stock - During 1999, we issued 50,000 shares of
Series C Preferred Stock to existing related party shareholders in
exchange for their guaranteeing our debt incurred under the revolving
credit agreement. The shares were valued for financial statement
19
purposes at $.30 per share. During 2000 we also issued 200,000 shares
of Series C Preferred Stock to each of Danny L. Pixler, our then Chief
Executive and Financial Officer, and the Huff Grandchildren Trust in
consideration of those parties' guaranties with respect to more than
$13,000,000 of debt obligations of us or our affiliates. Each Series
C share carries 100 votes per share on all matters submitted to a vote
of stockholders, but otherwise carries no rights to dividends or other
distributions. The holders of Series C Preferred Stock have no
liquidation rights and no rights to dividends.
Series D Convertible Preferred Stock - During 1999, we sold $950,000 of
Series D Convertible Preferred shares and issued 950 shares. We
incurred $150,000 of issuance costs that were deducted from additional
paid-in capital. Shares of Series D Convertible Preferred Stock are
convertible into shares of common stock based on the stated value of
$1,000 per share of preferred stock divided by the Fixed Conversion
Price of $2.59 per share, subject to adjustment. Holders of the Series
D Convertible Preferred Stock may elect to convert their shares
commencing the earlier of January 8, 2000 or the occurrence of a
merger, tender offer, or redemption event. Holders of Series D
Convertible Preferred Stock are entitled to receive a dividend of 12%
annually. No dividends have been declared from issuance through
December 31, 2005. In addition, the holders of Series D Convertible
Preferred Stock have no voting rights. Holders of Series D Preferred
Stock are entitled to receive a redemption premium of 12% annually. As
a result of the redemption provisions, the stated value of the Series D
shares together with accrued redemption premium has been classified as
a liability.
Series E Convertible Preferred Stock - During 1999, we sold $2,300,000
of Series E Convertible Preferred Stock and issued 2,300 shares. We
incurred $282,900 of issuance costs that were deducted from additional
paid-in capital. Shares of Series E Convertible Preferred Stock are
convertible into shares of Common Stock based upon the stated value of
$1,000 per share of preferred stock divided by the Fixed Conversion
Price of $3.18 per share, subject to adjustment. Holders of the Series
E Convertible Preferred Stock may elect to convert their shares
commencing on the earlier of March 9, 2000, or the occurrence of a
merger, tender offer, or redemption event. No dividends have been
declared from issuance through December 31, 2005.
Series E Convertible Preferred Stock has no voting rights and is
entitled to receive a redemption premium of 12% annually. As a result
of the redemption provisions, the stated value of the Series D shares
together with accrued redemption premium has been classified as a
liability.
Note 11 - Common Stock
At a June 17, 2004 Special Meeting of Shareholders we increased the
number of shares of Common Stock we are authorized to issue from
200,000,000 shares to 500,000,000 shares and increasing the par value
of our Common Stock from no par value to $.001 per share.
On September 27, 2002, we executed a 6% Secured Convertible Note in
favor of Brentwood Capital Corp ("Brentwood") in the amount of
$1,731,906 the entire balance of which is convertible into common
shares at $.01 per share. On June 17, 2004, an at the Annual Meeting of
Shareholders described in Item 1, we amended our Certificate of
Incorporation to increase the common shares authorized for issuance to
500,000,000. At December 31, 2005, the principal and accrued interest
owed by us pursuant to the terms of the Secured Convertible Note was
$2,167,162, which if converted by Brentwood, would result in the
issuance of 204,186,600 additional common shares. Effective December
31, 2005, Midwest purchased Brentwood's interest in the 6% Secured
Convertible Note.
Note 12 - Stock Option Plan
Our Long Term Incentive Plan implemented in 2004 (the "2004 Plan")
replaced our 1999 plan which had no activity since 2001 and whose
remaining outstanding options and warrants expired in 2005. A summary
of the 1999 plan for the two years ended December 31, 2005 follows:
Weighted Weighted
Options Average Warrants Average
-------- -------- -------- --------
Securities Outstanding
January 1, 2004 740,130 $ 2.12 1,622,298 $ 2.72
No activity - - - -
-------- -------- -------- --------
Securities Outstanding
December 31, 2004 740,130 2.12 1,622,298 2.72
Securities Expired (740,130) (2.12)(1,622,298) (2.72)
-------- -------- -------- --------
Securities Outstanding
December 31, 2005 - $ - - $ -
======== ======== ======== ========
The 2004 Plan is accounted for under Statement of Financial Accounting
Standards, SFAS 123, Accounting for Stock-Based Compensation. Under
SFAS 123, the compensation cost of the issuance of stock options is
measured at the grant date based on the fair value of the award.
Compensation is then recognized over the service period that is
generally the vesting period.
20
The 2004 Plan allows us to grant options for up to a total of
50,000,000 shares of common stock. Options outstanding become
exercisable at the discretion of the Stock Option Committee, which
administers the 2004 Plan, and expire 10 years after the grant date.
All options granted under the 2004 Plan were exercisable at not less
than the fair market value of the stock on the date of the grant.
Accordingly, no compensation cost has been recognized for the Plan.
In July 2004, we filed a Registration Statement on Form S-8, No.
333-117661, wherein we registered an aggregate of 50,000,000 shares of
our Common Stock, $.001 par value per share, for issuance under our
2004 Plan. In August 2004, we engaged a shareholder relations advisor
to aid and assist in our then proposed recapitalization, reorganization
and restructuring as a business development company including but not
limited to locating and contacting our creditors and shareholders. In
connection with retaining his engagement, the consultant was issued an
option to purchase 1,500,000 shares of our Common Stock at $0.055 per
share (the "Initial Option"). The Initial Option was exercised in full
in September 2004 in consideration for the consultan's completed
services valued by our board at $82,500.
There was no activity under the 2004 Plan since the Initial Option.
Accordingly, 48,500,000 shares remain available for future option
grants at December 31, 2005.
Note 13 - Going Concern
Our financial statements have been presented on the basis that we are 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, we have incurred an
accumulated deficit of $(46,961,620) through December 31, 2005. In
addition, at December 31, 2005, we had a working capital deficiency of
$(31,899,626). Our ability to generate sufficient proceeds from
prospective operations, debt or equity placements is uncertain. The
financial statements do not include any adjustments that might be
necessary if we are unable to continue as a going concern.
During the two fiscal years ended December 31, 2005, our continued
economic viability was entirely dependent upon: (1) Midwest providing
us with office facilities and management services on favorable terms;
(2) the willingness of Midwest to fund virtually all of our settlements
with our creditors; and (3) our successful business combination with a
viable operating company. Our future is entirely dependent on
management's ability to secure a business combination partner or
establish profitable operations as well as the continued willingness of
Midwest to provide funding (see Note 16).
Note 14- Rescinded Transaction.
On October 25, 2004, we caused the execution and delivery of a
Rescission and Release Agreement by and among us, Y2 Ultra-Filter,
Inc. a Wyoming corporation ("Y2"), Midwest and The Huff Grandchildren
Trust, a trust organized under the laws of the State of Kentucky (the
"Rescission Agreement") wherein and whereby we and the other parties
agreed to rescind and terminate the a Purchase and Contribution
Agreement dated as of April 28, 2004 and Amendment No. 1 to Purchase
and Contribution Agreement dated as of June 30, 2004, changing the same
to a License and Joint Venture Agreement and materially modifying the
terms and conditions of the Purchase and Contribution Agreement.
Pursuant to the Rescission Agreement, and in consideration for: (i)
Y2's return of a certificate representing an aggregate of 27,000,000
shares of our common stock; (ii) the cancellation by us of Y2's options
to purchase 39,000,008 shares of our common stock; (iii) the
cancellation by Y2 of a call option Midwest granted to Y2 to call a
number of shares of our common stock equal to fifty percent (50%) of
the number of issued and outstanding common stock equivalents of our
preferred stock held by Midwest, the Trust or any affiliate of either;
and (iv) Y2's release of any claim of right, title or interest in or to
A.I.R. Filters, LLC, a Delaware limited liability company formed by us,
we gave up all of its previously licensed rights to exploit U2 Ultra
Filter's patented filtration system technology to the worldwide gaming
industry.
Note 15 - Recent Accounting Pronouncements
Share-Based Payments: Financial Accounting Standards Board Statement
(FASB) 123(R), Share-Based Payment was issued in December 2004. This
Statement eliminates the alternative to use Opinion 25's intrinsic
value method of accounting that was provided in FASB Statement 123 as
originally issued. Under Opinion 25, issuing stock options to
employees generally resulted in recognition of no compensation costs.
Statement 123(R) requires entities to recognize the cost of employee
services received in exchange for awards of equity instruments based
on the grant-date fair value of those awards. This statement is
effective for public entities that file as small business issuers as of
the beginning of the first interim or annual reporting period that
begins after December 15, 2005. This statement will be adopted for
the first quarterly reporting period of 2006 beginning on January 1
using the modified prospective application. Under this method, only
new awards modified, repurchased, or cancelled after the required
effective date will be subject to requirements of FAS 123(R). No
restatement of prior periods will be necessary.
Accounting Changes and Error Corrections: In May 2005, the FASB issued
FASB No. 154 Accounting Changes and Error Corrections. This statement
requires retrospective application to prior periods' financial
statements for changes in accounting principle. Previously, under APB
20, all such changes were recorded as a line item on the statement of
operations only in the period of change. This statement is effective
for fiscal years beginning after December 15, 2005. Future impact of
the application of this statement is unknown.
21
Note 16 - Subsequent Event
On August 29, 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. The
Company plans to vigorously defend its plans to combine with a
profitable, privately owned business and has no reason to believe that
Midwest's participation in the involuntary petition precludes its
continued support of the Company's efforts. The Company contemplates
resolving the claims of Midwest and all other creditors in exchange for
shares of a newly created common stock pursuant to a Plan of
Arrangement that it believes will be acceptable to claimants. There
can be no assurance, however, that the Company will be successful in
obtaining the requisite amount of approvals to confirm a Plan under the
Bankruptcy Court's supervision.
_____________________________
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 8A. CONTROLS AND PROCEDURES
Our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)
evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13(a), and 15(d) - (e) of the Securities Exchange
Act of 1934, as amended) as of the end of the period covered by this
report. Based upon their evaluation, the CEO and CFO concluded that
the disclosure controls and procedures are effective in ensuring all
required information relating to the Company is included in this
report.
Except for the inherent limitations of having a staff of one person,
we maintain a system of internal control over financial reporting (as
defined in Rules 13(a)-15(f) and 15d-15(f) designed to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United
States of America.
During our most recent fiscal quarter, the Company's management
identified and determined that the previously reported financial
position and results of operations were materially misstated as a
result of an accounting error attributable to the failure, since March
2002, to accrue interest, penalties and redemption premium on the
Company's defaulted notes payable and Series B, D and E Preferred
Stock. Management has analyzed and corrected the Company's internal
financial reporting system. There have been no other changes in our
internal control over financial reporting that occurred during the last
fiscal quarter that have materially affected or are reasonably likely
to materially affect our internal control over financial reporting.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) Identify Directors and Executive Officers.
The following table sets forth: (1) names and ages of all persons who
presently are and who have been selected as our directors; (2) all
positions and offices with us held by each such person; (3) the term
or office of each person named as a director; and 4) any period during
which he or she has served a such:
22
Duration and Date Position and Age and
of Expiration of Office with Director
Name Present Term Registrant Since
Anthony R. Russo One year term Chief Executive 63
expiring June 30, Chief Financial February,
2007 Officer, and 2003
Director
There is no understanding or arrangement between any directors or any
other person or persons pursuant to which such individual, was or is to
be, selected as a director or nominee of our company.
Business Experience
Anthony R. Russo, has served as CEO and CFO since June 2004 and as a
director since February 2003. From March 2000 to August 2003, Mr.
Russo served as CFO and a director of Momentum Holdings Corporation, a
publicly owned and traded Delaware corporation with a class of
securities registered pursuant to Section 12(g) of the Exchange Act.
In March 2003, Mr. Russo was elected CEO of Momentum Holdings
Corporation. Simultaneously therewith from August 2003 through
December 2003, Mr. Russo has served as CEO, CFO, and director of Edgar
Filing.net, Inc., an inactive publicly owned and traded Nevada
corporation with a class of securities registered pursuant to Section
12(g) of the Exchange Act. Additionally from August 2002 until his
resignation in December 2003, Mr. Russo served as CFO and director
(since April 2002) of Certified Services, Inc. a publicly owned and
traded Nevada corporation with a class of securities registered
pursuant to Section 12(g) of the Exchange Act. Prior thereto since
1990, Mr. Russo served as co-founder, CEO, and director of Cartilage
Technologies, Inc., a privately owned manufacturer of dietary
supplements headquartered in Elmsford, NY. Prior thereto since 1971,
he served as CEO, CFO and director of Sherwood Corporation, a publicly
owned financial services firm in New York City. In his capacity as CEO,
Mr. Russo often served as a member of the board of directors of several
small and emerging companies including Lloyds Electronics, Inc. (AMEX:
LLYD) where he chaired the Audit Committee and served on the Executive
Committee from 1980 to 1985. Prior thereto since 1966, he was a member
of the audit staff of Arthur Andersen LLP in New York City. Mr. Russo
received a BBA in accountancy practice from Pace University in 1967,
was licensed as a CPA by the State of New York in 1969, and received a
MA in Business and Policy from the State University of New York at
Saratoga Springs in 2001. Mr. Russo has been a member of the American
and New York Associations of CPA's since 1969; and a member of the
National Association of Corporate Directors since 1998.
Directorship
Except as disclosed in this Item, each of our directors has indicated
to us that he is not presently a director in any other registrant with
a class of securities registered pursuant to Section 12 of the Exchange
Act or subject to the requirements of Section 15(d) of such act or any
investment company registered under the Investment Company Act of 1940.
(b) Identification of Certain Significant Employees
We do not presently employ any person as a significant employee who is
not an executive officer but who makes or is expected to make a
significant contribution to our business.
(c) Family Relationships
No family relationship exists between any of our directors or executive
officers.
(d) Involvement in Certain Legal Proceedings
No event listed in Sub-paragraphs (1) through (4) of Subparagraph (d)
of Item 401 of Regulation S-B, has occurred with respect to any of our
present executive officers or directors or any nominee for director
during the past five years which is material to an evaluation of the
ability or integrity of such director or officer.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act, as amended, requires our executive
officers and directors and persons who own more than 10% of a
registered class of our equity securities, to file with the SEC initial
statements of beneficial ownership, reports of changes in ownership and
annual reports concerning their ownership, of Common Stock and other of
our equity securities on Forms 3, 4, and 5, respectively. Executive
officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish us with copies of all Section 16(a) reports
they file. To our knowledge, Danny L. Pixler and Anthony R. Russo our
executive officer and director, has complied with all Section 16(a)
filing requirements applicable to them during our most recent fiscal
year.
23
ITEM 10. EXECUTIVE COMPENSATION.
(a) General
(1) through (7) All Compensation Covered. During the three fiscal
years ended December 31, 2005, the aggregate compensation paid to,
accrued or set aside for any of our executive officers or directors was
$120,000 in 2003, $105,000 in 2004, and $230,000 in 2005.
(b) Summary Compensation Table.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payments
------------------- ------ --------
Name and Position Year Salary Bonuses Other(1) Stock Options LTIP Other
----------------- ---- ------- ------- ------- ----- ------- ---- -----
Danny L. Pixler,
CEO President 2003 $120,000 $ - $ - - - - -
and Director 2004 - - - - - - -
(through June 2005 - - - - - - -
2004)
Anthony R. Russo, 2003 - - - - - - -
CEO President, 2004 105,000 - - - - - -
and Director 2005 200,000 - - - - - -
(since June 2004)
------- ------- ------ ----- ----- ---- -----
Totals 2003 $120,000 $ - $ - - - - -
2004 105,000 - - - - - -
2005 200,000 - - - - - -
======= ====== ===== ===== ==== =====
(1) No additional payments were made to our officers and directors for
the three years ending December 31, 2005.
____________________________________
(c) Option/SAR Grant Table.
During the fiscal year ended December 31, 2005, we made no grants of
stock options or freestanding SAR's to any of our executive officers
or directors.
(d) Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR
Value Table.
During the three fiscal years ended December 31, 2005, no stock
options or freestanding SAR's were exercised by any of our executive
officers or directors.
(e) Long-Term Incentive Plan ("LTIP") Awards Table.
During the three fiscal years ended December 31, 2005, we made no LTIP
awards.
(f) Compensation of Directors.
(1) and (2). During the three fiscal years ended December 31, 2005,
none of our directors received any compensation pursuant to any
standard or other arrangement.
(g) Employment Contracts and Termination of Employment, and Change in
Control Arrangements. (1) and (2).
In June 2004, Anthony R, Russo joined us as President and CEO at a
level of compensation equal to $15,000 per month through February
2005, and $20,000 per month through December 31, 2005. Formal
agreement has not yet been reached on Mr. Russo's access to incentive
compensation or other benefits. Except for the foregoing, no
executive officer of ours was employed pursuant to the terms of an
employment agreement with us. No changes in control of our company
took place during the fiscal year ended December 31, 2005.
24
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
(a) Security Ownership of Certain Beneficial Owner. The information is
furnished as of December 31, 2005, as to the number of shares of our
Common Stock, $.001 par value per share, owned beneficially, or known
by us to own beneficially, more than 5% of any class of such security:
Amount and Nature
Name and Address of of Beneficial Percentage
Beneficial Owner Ownership of Class(1)
---------------- ------------- ----------
Midwest Merger Management, LLC
11921 Brinley Avenue
Louisville, KY 40243 57,589,729(2) 49.7%
-----------
(1) Based upon the equivalent of 115,770,517 common shares as follows:
(i) 69,870,517 common shares outstanding; (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.
(2) Comprised of: (i) beneficial ownership of 11,689,729 shares of
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.
(3) Does not include the common share equivalent of the 6% Secured
Convertible Note that Midwest acquired from Brentwood effective
December 31, 2005 of 216,716,236 shares. If Midwest converted that
note into its common shares at December 31, 2005, Midwest's
ownership of the Company would increase to 82.5%.
(b) Security Ownership of Management. The following information is
furnished as of December 31, 2005, as to the number of shares of our
Common Stock, $.001 par value per share owned beneficially by each of
our executive officers and directors and by all executive officers and
directors as a group:
Amount and Nature
Name and Address of of Beneficial Percentage
Beneficial Owner Ownership of Class(1)
---------------- ------------- ----------
Anthony R. Russo
11921 Brinley Avenue
Louisville, KY 40243 - (2) -%
All Officers and Directors as
a Group of two persons - (2) -%
--------------
(1) Based upon the equivalent of 115,770,517 common shares as follows:
(i) 69,870,517 common shares outstanding, and (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.
(2) Mr. Russo has been the Chief Financial Officer and acts as a
financial advisor to Midwest since June 2005. Mr. Russo disclaims
any beneficial ownership in Midwest's 57,589,729 common and common
equivalent shares of the company owned by Midwest..
(c) Changes in Control.
None.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information as of December 31, 2005,
with respect to compensation plans (including individual compensation
arrangements) under which our common stock is authorized for issuance,
aggregated as follows: (i) all compensation plans previously approved
by security holders; and (i) all compensation plans not previously
approved by security holders.
25
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
future issuance under
Number of securities to Weighted average equity compensation
be issued upon exercise exercise price of plans [excluding
of outstanding options, outstanding options, securities reflected
warrants and rights (a) warrants, and rights (b) in column (a)(c)]
----------------------- ------------------------ -----------------------
Equity compensation
plans approved by
security holders -- -- --
Equity compensation
plans not approved
by security holders -- -- --
Total -- -- --
(e) Code of Ethics.
The Company has not adopted a code of ethics during 2005 and 2004 that
applies to all employees including its directors , principal executive
officers, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Company has
not developed a formal code of ethics primarily due to the limited
nature of its activities, including the fact that there is currently
only one person involved in its operations.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Midwest is deemed to be the record and beneficial owner of 11,689,729
shares or approximately 16.7% of the issued and outstanding common
stock. This percentage is exclusive of: (i) the 450,000 shares of our
Series C Preferred Stock owned by Midwest, which have the voting rights
of 45,000,000 shares of our common stock; and (ii) 90,000 shares of our
Series A Preferred Stock still owned by Midwest and convertible into
900,000 shares of our common stock. Adding the voting rights of
Midwest's Series C Preferred Stock and its remaining Series A Preferred
Stock would increase Midwest's ownership percentage to 49.7%.
Further, the Company defaulted on the previously deferred interest
payments and monthly principal payments, due October 1, 2005 and
December 1, 2005, respectively, pursuant to Brentwood's 6% Secured
Convertible Note causing the entire amount owed to become immediately
due and payable. Effective December 31, 2005, Midwest acquired
Brentwood's interest in the 6% Secured Convertible Note. If Midwest
converted that note into its common share equivalent at December 31,
2005 of 216,716,236 shares, Midwest's ownership of the Company would
increase to 82.5%.
We are entirely dependent upon: (1) Midwest providing us with office
facilities and management services on favorable terms; (2) the
willingness of Midwest to fund virtually all of our settlements with
our creditors and our expenses; and (3) our implementation of
successful business combination with a profitable operating company
through Midwest's assistance. There can be no assurance of Midwest's
continued support for the foreseeable future.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits:
DESCRIPTION LOCATION
31.1 Certifications Pursuant to Section Filed electronically
302 of the Sarbanes-Oxley Act of 2002 herewith
32.2 Certification Pursuant to Section Filed electronically
906 of the Sarbanes-Oxley Act of 2002 herewith
(b) Reports on Form 8K: During the last quarter of the fiscal year
ended December 31, 2005, we did not file any Reports on Form 8-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees. The aggregate fees billed by Mountjoy & Bressler, LLP
("M&B"), our current registered independent accountants, for
professional services rendered for the audit of our annual financial
statements for the two years ended December 31, 2005 and 2004 and
their reviews of the interim financial statements included in our
Quarterly Reports on Form 10-QSB during 2005 was $35,500. [2004 was
re-examined by M&B and re-issued.] The Company paid Rosenberg
26
Rich Baker Berman & Company ("RRBB"), its former independent
accountants, $17,300 for their audit of our 2004 financial statements
and review of the related 2004 Quarterly Reports.
Audit - Related Fees. There were no fees billed to us by M&B or RRBB,
in fiscal year 2005 or 2004 respectively, for professional services for
assurance and related services reasonably related to their audit or
review of our financial statements not reported in the previous
paragraph.
Tax Fees. There are no fees billed by M&B or RRBB for tax compliance,
tax advice and tax planning services rendered to us during the last two
fiscal years.
All Other Fees. Except as indicated above, we were not billed by M&B
or RRBB for any other services during the last two fiscal years.
The engagement of independent accountants to render audit or non-audit
services requires the prior approval of our Board of Directors since we
do not yet have an audit committee of our Board of Directors.
SIGNATURES
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of us and in the capacities and on
the dates indicated.
Dated: September 14, 2006
American Business Corporation
By: /s/ Anthony R. Russo
----------------------
Anthony R. Russo
President, Chief Executive and
Financial Officer, and Director
27
EXHIBIT 31.1
AMERICAN BUSINESS CORPORATION
CERTIFICATIONS PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony R. Russo, our Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-KSB of American
Business Corporation;
2. Based on my knowledge, this annual 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 periods covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of our
operations and cash flows as of, and for, the periods presented in this
annual report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for us and I have: a) designed such disclosure controls and
procedures to ensure that material information relating to us,
including its consolidated subsidiaries, is made known to me by others
within those entities, particularly during the period in which this
annual report is being prepared; b) evaluated the effectiveness of our
disclosure controls and procedures as of a date within 90 days prior
to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to our
auditors and, in lieu of an audit committee, to our board of directors
(or persons performing the equivalent function): a) all significant
deficiencies in the design or operation of internal controls which
could adversely affect our ability to record, process, summarize and
report financial data and have identified for our auditors any material
weaknesses in internal controls; and b) any fraud, whether or not
material, that involves management or other employees who have a
significant role in our internal controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
my most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: September 14, 2006
/s/ Anthony R. Russo
-----------------------
Chief Executive Officer
28
I, Anthony R. Russo, our Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-KSB of American
Business Corporation;
2. Based on my knowledge, this annual 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 periods covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, our results of operations
and cash flows as of, and for, the periods presented in this annual
report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
us and I have: a) designed such disclosure controls and procedures to
ensure that material information relating to us, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this annual report is
being prepared; b) evaluated the effectiveness of our disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and c)
presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of
the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to our
auditors and, in lieu of an audit committee, to our board of directors
(or persons performing the equivalent function): a) all significant
deficiencies in the design or operation of internal controls which
could adversely affect our ability to record, process, summarize and
report financial data and have identified for our auditors any material
weaknesses in internal controls; and b) any fraud, whether or not
material, that involves management or other employees who have a
significant role in our internal controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: September 14, 2006
/s/ Anthony R. Russo
-----------------------
Chief Financial Officer
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EXHIBIT 32.2
AMERICAN BUSINESS CORPORATION
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of American Business Corporation
on Form 10-KSB for the fiscal year ended December 31, 2005, as filed
with the Securities and Exchange Commission on September 14, 2006 (the
Report"), the undersigned, in the capacities and on the dates indicated
below, each hereby certify 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
Certified Services, Inc.
Dated: September 14, 2006
/s/ Anthony R. Russo
-----------------------
Chief Executive Officer
Dated: September 14, 2006
/s/ Anthony R. Russo
-----------------------
Chief Financial Officer
Note: The certification we furnish in this exhibit is not deemed
"filed" for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liabilities of that
Section. Registration Statements or other documents filed with the
Securities and Exchange Commission shall not incorporate this exhibit
by reference, except as otherwise expressly stated in such filing.
30