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EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES- OXLEY ACT OF 2002. - MAXLIFE FUND CORP. | f10k2009ex32_maxlife.htm |
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES- OXLEY ACT OF 2002. - MAXLIFE FUND CORP. | f10k2009ex31_maxlife.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended August 31, 2009
o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ___________ to ___________
Commission
File No. 333-138298
MAXLIFE
FUND CORP.
(Name of
small business issuer in its charter)
WYOMING
|
98-0505734
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification No.)
|
45
Sheppard Avenue East, Suite 900
North
York, Ontario
Canada
|
M2N
5W9
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
1-866-752-5557
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act:
|
|
Title
of each class registered:
|
Name
of each exchange on which registered:
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None
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None
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Securities
registered under Section 12(g) of the Exchange Act:
|
|
Common
Stock, par value $.001
(Title
of class)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act. Yeso No x
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated
filer o Accelerated
filer x
Non-accelerated
filer o Smaller
reporting
company o
(Do not
check if a smaller reporting company)
Revenues
for year ended August 31, 2009: $0
Aggregate
market value of the voting common stock held by non-affiliates of the registrant
as of November 25, 2009, was: $140,801,848
Number of
shares of the registrant’s common stock outstanding as of November 25, 2009 was:
16,253,168
Transitional
Small Business Disclosure Format: Yes
o No
x
The
Transfer Agent for the Company is First American Stock Transfer.
TABLE
OF CONTENTS
PART
I
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ITEM
1.
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1
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ITEM
1A.
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7
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ITEM
1B.
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10
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ITEM
2.
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10
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ITEM
3.
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10
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ITEM
4.
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10
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PART
II
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10
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ITEM
5.
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10
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ITEM
6.
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11
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ITEM
7.
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12
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ITEM
7A
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16 | |
ITEM
8.
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F-
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ITEM
9.
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17
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ITEM
9A.
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17
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ITEM
9B
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18 | |
PART
III
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19
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ITEM
10.
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19
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ITEM
11.
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20
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ITEM
12.
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21
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ITEM
13.
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21
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ITEM
14.
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21
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PART
IV
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23
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ITEM
15.
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23
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SIGNATURES
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23 |
PART
I
ITEM 1. DESCRIPTION OF BUSINESS
Business
Development
MaxLife
Fund Corp. (the “Company”, “MaxLife”, “we”, “us” or “our”) was incorporated in
the State of Wyoming on January 9, 2006. On August 31, 2006, pursuant
to the terms of a stock purchase agreement by and among us, 1254450 Ontario Ltd.
(“1254450”), and the shareholders of 1254450 (“Shareholders”), we acquired all
of the then issued and outstanding preferred and common shares of 1254450 for a
total of $5,000 worth of our common stock to be issued at such time as our
shares are approved for listing on a public market exchange. Pursuant
to the agreement 1254450 became our wholly owned subsidiary.
Business of
Issuer
General
MaxLife
Fund Corp. is concentrating on three major components of the Life Settlement
sector; (1) to generate fee income by providing a turnkey investment solution
for accredited investors wanting to own policies, (2) to obtain ownership in
companies in the life settlement industry and (3) to build a large portfolio for
institutional buyers and be involved as an intermediary. MaxLife is positioning
itself to grow with the industry and expand its operation to become one of the
leaders in the Life Settlement sector.
We have
shifted our business structure toward a business model which focuses on
acquisition or funding of life policies of individuals on behalf of strategic
buyers. MaxLife is looking to generate fees by facilitating such
transactions. We are no longer looking to purchase or fund life policies of
individuals for our own inventory. Our goal also is to earn fees by
administering a large number of policies on behalf of clients and funds and
earning a management and performance fee.
We have
been in discussion with pension funds, provident funds, brokers and accredited
investors regarding the industry and opportunities available. The structure of
the fees will be different depending on the funds that will be raised and
depending on the nature of the investor group. Some of our attempts to purchase
these portfolios were either unacceptable and /or did not meet their criteria or
objectives. They would not achieve the required rate of return or potential
gains they are seeking. We do believe that the new territories and investor
groups we are educating, as to this alternative asset class, will invest over
the next few quarters.
Depending
on the nature of the policyholder, we will provide one of two types of
settlements. A “viatical settlement” is the sale of a life insurance policy by a
terminally ill person to another party. By selling the policy, the insured (a
viator) receives an immediate cash payment to use as he or she wishes. In this
case, we take an ownership interest in the policy on behalf of clients, at a
discount to its face value and receive the death benefit under the policy when
the viator dies. A “life settlement” differs from a viatical settlement in that
the insured is not terminally ill and focuses on healthy seniors. The life
policy holder is typically 65 years of age or older, and has a life expectancy
of ten years or less. Life settlements are an attractive transaction to persons
who purchased life insurance for income protection or estate planning, but no
longer need the insurance due to growth in their investment portfolios or other
changes in life circumstances. Life settlements also appeal to persons who want
to make immediate gifts to their beneficiaries. In these instances, the insured
may feel the insurance is no longer needed. Since the market for
viatical settlements has grown to include life expectancies that are often
associated with life settlements and the age and medical condition of many life
settlers gives them a life expectancy that is the same as many viators, the
distinction between these two market segments has diminished and the markets
have largely merged. We expect to target both terminally ill policyholders as
well as non-terminally ill policyholders over the age of 65.
-1-
We are a
development company. We will require additional funds to implement
our business plan. There is no assurance that we will be able to
obtain additional funding through the sales of additional equity securities or
that such funding, if available, will be obtained on terms favorable to or
affordable by us.
Industry
Analysis
We
believe that life settlements are receiving significant attention from insurers
whose policies are being transferred, from brokers and providers seeking
financial gain from these transactions, and from lenders, mostly institutional,
seeking to enhance their return by investing in viaticals and life
settlements.
An
insured whose life expectancy has deteriorated since policy issue is more
attractive to a life settlement lender who is looking to minimize the wait to
receive the policy death benefit. As a result of reviewing the insured’s medical
records, the life settlement lender will have much more current information
regarding the insured’s life expectancy that the insurer, which likely last
reviewed the medical information when the policy was issued. However, at the
present time, non-forfeiture regulations do not permit insurers to differentiate
cash surrender values based on current life expectancy, creating the opportunity
for life settlement providers to offer more for a policy, on a selective basis,
than the insurer is able to pay.
The
financial performance of a life settlement is driven by the relationship of the
actual future lifetime of the insured after policy purchase and the expected
future lifetime upon which the life settlement offer was calculated. The
purchaser balances the present value of the death benefit, at an interest rate
that provides it with an acceptable return for the risk being assumed, against
the up-front payment for the policy, the amount of commissions, fees, and
expenses required by the transaction, and the sum needed to fund continuing
premium payments. Given that there is a reasonable distribution of the actual
future lifespan of the insured’s around what was expected at policy purchase,
the life settlement Lender will realize a return from the transactions that is
at least close to what was targeted. On some of the policies that were
purchased, returns greater than what was assumed will be achieved, which balance
out lower-than-expected returns on others.
However,
when individuals seek to evaluate a life settlement offer against the ultimate
value to be found from keeping the policy, they do not know the length of their
future lifetime. For some of them, keeping the policy will provide a greater
financial reward. For others, accepting the life settlement will produce a
better outcome. This suggests that the position adopted by some industry
observers that it is always better to retain the policy is not
correct.
Compensation
As with
many life insurance product trends, the financial interest of producers is a
powerful factor. Sales trends develop as agents and brokers learn new ways to
serve their clients, and generate income for themselves in the process. Life
settlement transactions supply life agents and brokers with a new tool to serve
clients, and provide additional sources of income for themselves. These include
fees generated from the settlement itself, which can be substantial and new
commission streams that result from additional policies funded with the proceeds
of the life settlement transaction.
There are
no externally imposed compensation standards that control what a life settlement
broker, who arranges the sale of a policy, and the life agent or financial
advisor, who brings the particular client to the transaction, might receive.
However, a competitive market generally brings its own discipline, and typical
compensation levels are evolving.
Value of the Death
Benefit
The
strongest industry reaction has been to focus the attention of policy owners who
might be considering a life settlement on the value of the policy death benefit.
Their argument suggests that the life policy is likely one of the insured’s most
valuable assets. If a current need for capital or a concern for the cash flow
necessary to maintain premium payments is motivating the settlement, they would
suggest selling other assets before the life policy, or working out an
arrangement with the beneficiary or another interested party to assist with
premium payments.
-2-
In any
analysis of a life settlement, factors particular to the current situation of
the individual insured provide the foundation for the discussion. One key issue
is balancing current wants/needs and future considerations. It can be as simple
as deciding if the insured wants to take advantage of the policy values or is
willing to let them accrue to a third party following his/her death. Risk
tolerance is an issue, as is the factor used to equate a current settlement
offer versus future policy values.
A simple
model demonstrates that the value received by holding the policy will vary
relative to the settlement offer made on the policy. Keeping the policy may be
better, or it may provide less than the settlement offer. Unfortunately, at the
time the offer is made, the insured does not know which alternative will
apply.
Other Insurable Interest
Issues
Other
programs, often with insurable interest issues or arbitrage opportunities
similar to life settlements, are included in a discussion of life settlements.
These include LILAC (life insurance life annuity contracts) programs,
non-recourse premium financing, and blocks of new policies purchased with a
settlement transfer in mind. Each is likely to erode profitability for the
insurers involved.
By
notifying their distributors they are not interested in issuing such policies,
and by establishing appropriate underwriting techniques to avoid issuing such
policies, insurers should be able to minimize the negative impact.
Coverage
Types
Individually
sold life policies are the primary source of life settlement transactions. The
initial purpose of the insurance was often to provide financial protection. In
others, the initial beneficiary, often the spouse has predeceased the insured.
Absent a secondary purpose for the insurance, a life settlement may seem like a
logical alternative.
Business
insurance policies (buy-sell, keyman, etc.) can provide additional life
settlement opportunities. Policies purchased to fund buy-sell programs may no
longer be needed after one or more of the original owners have left the firm.
Policies used to provide keyman coverage may become superfluous after the
insured has retired or otherwise dropped out of active participation in the
business.
Small and
midsize executive benefit plans funded with life insurance contracts may be
another group of likely targets for life settlements providers. This becomes
more likely in situations where corporate operations are being restructured,
such as following a sale or a bankruptcy, or where an infusion of cash is needed
to address a pressing business issue. Self-administered plans, using individual
rather than aggregate funding that do not maintain an ongoing relationship with
the life agent or broker that sold the plan are more likely to be
targets.
The
potential reduction in the estate tax might make insurance purchased with that
purpose in mind a likely target were it not for the fact that much of the life
insurance purchased to fund estate taxes is owned by trusts. Working with a
trustee is likely to introduce sufficient extra complication to the transaction
to deter some life settlement providers. Others try to distinguish themselves by
touting their ability to work with trustees.
Other
business insurance programs where regulations, such as tax laws, have changed
since the policies were purchased may also be likely candidates for life
settlements. For example, many insured’s are unsure of how to handle policies
purchased under the old split-dollar rules, now that some of those rules have
changed.
-3-
Target
Market
Emerging
demographic trends serve as a facilitator for growth in life settlement
activity. The oldest members of the Baby Boomer generation are now approaching
60 years old. This is not yet old enough to fit within the target market profile
of life settlement providers, currently focused on ages over 70. However,
anticipation of the potential of the Baby Boomer generation as a source of
policies available for settlement has motivated life settlement providers to
refine their business model in order to be in position to take advantage of this
emerging demographic phenomenon. Not only will the Boomers provide a substantial
increase in the senior population, but also they may be more receptive to life
settlements when their ages become more attractive to life settlement providers
to the extent that the current promotion of life settlements makes this option
more familiar to them.
Minimally
funded UL (universal life) contracts are the primary target of life settlement
providers. The low funding level generates only small cash surrender values,
making it easier for the settlement offer to look attractive to the insured. In
addition, the flexible funding aspect of a UL contract allows the provider to
adjust its premium-payment pattern to take future interest rates into
consideration, optimizing the provider’s return. Aggressively priced UL
contracts provide additional potential gain, in that lower mortality and/or
higher lapse assumptions used in policy pricing, maximizing the arbitrage. One
drawback of minimally funded UL contracts is that they have little cash value
available for paying ongoing mortality charges, which increase sharply as the
insured ages.
Whole
life contracts are not as attractive, although they are subject to some life
settlements. They generally have a much higher cash surrender value, increasing
the amount the Lender must pay and/or reducing the excess value that a life
settlement broker is able to provide. They also have much less flexibility in
the amount and timing of future premium payments.
VUL
(variable universal life) policies, to the extent that the policy has a fixed
income option that produces returns comparable to what can be achieved with UL,
can be attractive to life settlement providers. However, expense charges are
normally higher than on UL, and, as a registered product, there is concern for
the additional regulatory oversight. The VUL contract has the same flexibility
in future premium payments that help to make UL the current product of choice.
More settlements involving VUL are likely as fewer of the easier-to-settle UL
policies remain available.
There is
some life settlement activity on level-premium term products as well, although
there are some additional hurdles that need to be addressed. Generally speaking,
in order to avoid insured’s who might live beyond the guaranteed period, life
settlement providers will not be interested unless the remaining period on the
term contract is at least twice as long as the estimated life expectancy of the
insured. Convertible term policies, where policy provisions permit the term
contract to be exchanged for a permanent policy, can be sold. However, the life
settlement provider will need to examine the policy form to which the term
policy can be converted, the future premium stream on that policy, and the
control the insurer has in approving the conversion.
Finally,
convertible group products, where the insured is allowed to convert the group
insurance to an individual policy, may be available for life settlement,
assuming the insured has control of the election to convert the coverage and the
transfer to a third party. The life settlement provider will need to be
comfortable with the same list of things as with convertible term.
Market
Size
Currently,
the market can be described as follows:
●
|
The
market for senior’s life settlements has continued to grow exponentially,
gaining increased acceptance as a useful financial planning tool for
individuals with unneeded life
insurance.
|
●
|
The
number of people in the United States aged 65 and older is expected to
double by the year 2030 to nearly 71 million people. Seniors will comprise
roughly 20 percent of the U.S. population.(1)
|
●
|
Approximately
$27 trillion of life insurance is currently in force. (2)
|
●
|
90%
of policies lapse or are surrendered annually. Hence, the majority of
seniors’ policies do not remain in effect.
(3)
|
-4-
●
|
In
2008, more than $16 billion in life settlement transactions occurred.
(4)
|
●
|
Every
day in the United States, 6,000 people turn 65. (5)
|
●
|
47%
of those over age 65 own life insurance.(6)
|
●
|
59%
of senior settlements clients are between the ages of 71-80. (7)
|
●
|
Since
2005, the average life settlement offer is three to five times the cash
surrender. (8)
|
-
|
The
low volatility of the underlying investment (the face value of life
policies) means they are not impacted by fluctuating stocks and bond
markets, rising interest rates or oil prices, global economic instability
or business cycles.
|
-
|
Life
insurance policies are capital stable so when a policy is bought the
benefit is known.
|
-
|
Yield
is determined by time and not by market forces, so it’s not a question of
if a return will be paid, but when it will be
paid.
|
-
|
Life
settlements are not correlated to other financial markets so they differ
from investing in shares, property, cash and fixed
Interest.
|
(1)
|
Centers
for Disease Control and Prevention and The Merck Company Foundation. The
State of Aging and Health in America
2007
|
(2)
|
Federal
Reserve Bulletin, 2006
|
(3)
|
Life
Insurance Settlement Association Web Site,
2009
|
(4)
|
Life
Insurance Settlement Association Web Site,
2009
|
(5)
|
The
Alliance for Aging Research, 2008
|
(6)
|
Bernstein
Research Call, 2005
|
(7)
|
National
Underwriter, 2008
|
(8)
|
Life
Insurance Settlement Association Web Site
2009
|
There is
an additional segment of the market that operates below the radar screen,
dealing in private transactions that are rarely noticed. Complete and accurate
historical data were not available when earlier estimates of market size were
made and that data is still not easy to obtain.
Lenders
Observers
of the current situation in the life settlement market characterize it as lender
capital prudently funding policies - i.e., that there is money currently
available to fund policy purchases and there are available policies to be
purchased. As such, and keeping the magnitude of the capital being invested in
mind, it suggests just how far things have come since the late 1990s.
Institutional Lenders, using a broad definition of that term that includes hedge
funds, have replaced individuals and are a major factor of this
evolution. Investment bankers are involved, including Deutsche Bank
and UBS making investments from their own funds and facilitating the process for
groups of other Lenders. Several major U.S. life insurers are also significant
Lenders in life settlements, providing them with an opportunity to offset
potential underwriting losses if their own policies are purchased with
investment gains from the business they purchase.
Insured
mortality, the driver of life settlement profitability, is perceived to be
uncorrelated to other major drivers of investment return, such as economic
conditions, interest rates, or equity market performance. Historically, the high
and uncorrelated returns that have been available have attracted a surfeit of
capital. Closed-end German investment funds are reported to be the
largest group of Lenders in U.S. life settlements. German interest has been
driven, in large part, by the favorable tax treatment participants receive on
life insurance investments. The tax regulations changed in mid year
2005 and even though the German funds have tried to use leverage to offset the
higher taxes, the volume of new investment has dropped off.
In
October 2005, the Financial Accounting Standards Board clarified the accounting
treatment of life settlement transactions. Historically, life settlement Lenders
had been required to value policies purchased using their cash surrender value.
Because the policies are purchased for amounts in excess of surrender value,
often several times the surrender value, this caused the purchaser to report a
loss at the time of purchase. New accounting guidance permits the use of either
an investment method or the fair value of the purchased policy. This is likely
to open the market to additional institutions (trusts and pension funds, for
example) that have been kept on the sidelines by internal investment
restrictions.
-5-
Institutional
Lenders and the more rigid management routines they bring are perceived to be
good for the life settlement market. Because the identity of insured’s is often
not revealed to the Lender, participants can have less concern for their own
privacy and that some individual may profit from their death.
Securitization
is a potentially important aspect of institutional Lender participation. Rating
firms such as DBRS and AM Best have been working with large situations to rate
such financial instruments for issuance of Bonds. “Death bonds,” as they have
been referred to pejoratively, are asset-backed securities, with the death
benefit from purchased life insurance policies as the revenue stream. Several
securitizations of the life settlements have been attempted, with limited
success to date. Getting credit reporting agencies to understand these bonds,
buy into the underlying underwriting and pricing of the risks, and assign
ratings to them is one hurtle. Completing the funding for the transaction on a
timely basis is an additional concern. Dignity Partners completed a
securitization of viatical policies in 1995, life settlement institutional
sources of capital, which helps by bringing additional legitimacy to this
maturing marketplace.
Life
settlements are on the radar screen of many institutional Lenders. Those include
major investment banks (including Deutsche Bank and UBS), with a mix if
investments for their own account and the coordination of third - party
investments. Hedge funds of various sizes and nationalities, and a number of
major life insurers are other sources of life settlement capital. Faced with an
uncertain economy and low interest rates, at least at the long - term end of the
spectrum, investing in life settlements presents an attractive
alternative.
The
timing of the actual versus expected mortality is the major driver of returns on
life settlement investments. This differs from the profitability to the insurer
of the product itself, where the investment return on the assets underlying the
product is a major determinant. The life settlement Lender receives the policy
proceeds at the death of the insured, and recovers the amount advanced to fund
the life settlement. The return on the amount invested will vary depending on
the timing of the actual death relative to what had been assumed in determining
the amount to pay for the policy. Because fluctuations in actual versus expected
mortality are not related to other measures of economic activity, life
settlements provide uncorrelated returns to Lenders.
Historically,
15% annual returns, or higher, were commonplace on life settlement investments.
Increasing competition has caused returns to drop somewhat. However due to the
current market conditions our research suggests that 12%-15% is achievable as of
November 2009, but that some transactions priced to yield less than that. By
adjusting the amount of the settlement payment for a given estimated life
expectancy, the life settlement Lender can select the expected return on its
investment, constrained, of course, by current marketplace
conditions.
Life
settlements, priced to yield 12% or 15% returns, are quite attractive when
compared with the 5.25% yields currently available on A-rated 10-year corporate
bonds. The likelihood that the actual return on a life settlement would drop to
this level is small. For the return on a transaction with a seven-year life
expectancy, priced to yield 12%, to drop to 5.25%, the insured would have to
live for almost 13 years, which has a probability of approximately
15%.
Employees
We
currently have no employees other than Bennett Kurtz, our sole officer and
director.
Industry
Regulation
General
When the
life settlement market was first established, it was sparsely regulated. Due in
part to abuses within the industry, which were well-publicized, the federal
government and various states moved to regulate the market in the mid-1990’s.
These regulations generally took two forms. One sought to apply consumer
protection-type regulations to the market. This application was designed to
protect policyholders and purchasers. Another sought to apply securities
regulations to the market, which was designed to protect purchasers. Various
states have also used their insurance regulations to attack instances of
insurance fraud within the industry.
-6-
Consumer
Protection Licensing
The
consumer protection-type regulations arose largely from the draft of a model law
and regulations promulgated by the National Association of Insurance
Commissioners (NAIC). At least 39 states have now adopted some version of this
model law or another form of regulation governing life settlement companies in
some way. These laws generally require the licensing of providers and brokers,
require the filing and approval of settlement agreements and disclosure
statements, describe the content of disclosures that must be made to insured’s
and sellers, describe various periodic reporting requirements for settlement
companies and prohibit certain business practices deemed to be
abusive.
Securities
Regulations
Some
states and the Securities and Exchange Commission have attempted to treat life
settlements as securities under federal or state securities laws and have
successfully done so in circumstances in which the transactions were structured
as securities. No state or federal regulatory body or private
litigant has successfully asserted that our life settlement transactions are
securities under state or federal law. Due to the manner in which we
structure our settlements and utilizing in some instances the exceptions and
exemptions under securities laws such laws have not limited our business model
to a significant extent.
We
believe that a combination of consumer protection-type laws and existing
insurance regulations provide an appropriate framework for regulation of the
industry. The widespread application of securities laws would, as a
practical matter, prevent us and other life settlement companies from marketing
settlements with little or no benefit to purchasers. Each of our
purchasers has represented themselves to be sophisticated individuals or
institutions which have little need for the protections afforded by the
securities laws. At this point, the possible application of such laws
has not had an adverse material effect on our business but we cannot give
assurance that our business would not be materially and adversely impacted by a
securities-based action.
Insurance
Regulation
As a life
settlement company, we facilitate the transfer of ownership in life insurance
policies but do not participate in the issuance of policies. We do
not engage in the business of insurance and are not required to be licensed as
an insurance company or insurance broker. We do however, deal with
insurance companies and professionals in our business and are indirectly
affected by the regulations covering them. The insurance industry is highly
regulated, and these regulations affect us in numerous ways. We must
understand the regulations as they apply to policy terms and provisions and the
entitlement to, and collectability of, policy benefits. We rely upon
the protections against fraudulent conduct that these regulations offer and we
rely upon the licensing of companies and individuals with whom we do
business.
ITEM 1A. RISK FACTORS
In
addition to other information in this annual report on Form 10-K and in the
documents we are incorporating by reference, the following risk factors should
be carefully considered in evaluating us and our business. Such
factors significantly affect or could significantly affect our business,
operating results or financial condition. This annual report on Form
10-K contains forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of
1995. Actual results could differ materially from those projected in
the forward-looking statements as a result of the risk factors set forth below
and elsewhere in this annual report on Form 10-K.
-7-
We
Are Operating in Evolving Markets that May Be Volatile
Although
the market has grown exponentially in the past few years, how and to what extent
it will continue to develop is uncertain. Because there are so few
publicly reporting companies in this industry, measuring the market is
difficult. As more insured’s become aware of life settlements as a financial
planning option, we expect the size of the market to grow substantially. As we
demonstrate our ability to originate, underwrite and place life settlements with
our individual clients, any dramatic growth will depend heavily upon the entry
of institutional purchasers and the increase in presentations of policies with
face values in excess of $5 million. Whether we can maintain markets for such
policies will depend on our ability to attract more institutional and accredited
investors and convince these purchasers that we can originate sufficient numbers
of qualified policies for purchase on behalf of such institutions and accredited
investors and that our policy analysis and pricing practices are sound. Until we
attract a sufficient number of institutional clients to provide for consistent
and predictable demand in addition to the demand from our individual clients,
our financial performance during any period may be materially affected by the
entry or departure of one or more of our institutional clients from the
market.
Our
prospects must be considered in light of the risks, expenses and difficulties
encountered by those attempting to operate in evolving markets. We cannot assure
you that we will be successful in addressing the risks we face. The failure to
do so could have a material adverse effect on our business, financial condition,
and results of future operations.
Our
Operating Results in One or More Future Periods Are Likely to Fluctuate and May
Fail to Meet Expectations
Our net
operating results have fluctuated in the past and may fluctuate significantly in
the future depending on purchaser demand for life settlements, brokerage and
referral fees, and unexpected increases in general and administrative expenses
and competition for qualified policies. Because of these or other factors, our
operating results may, in some future period, fall below market expectations. In
such event, the market price of our securities might fall. Moreover,
fluctuations in our operating results may also result in volatility in the
market price of our securities.
Our
Success Depends on Maintaining Relationships within Our Referral
Networks
We rely
primarily upon brokers to refer potential sellers of policies to us and upon
financial planners, known as licensees, to refer client purchasers to us. These
relationships are essential to our operations and we must maintain these
relationships to be successful. We do not have fixed contractual arrangements
with the brokers or financial planners, and they are free to do business with
our competitors. In addition, the pool of brokers and referring financial
planners is relatively small, which can increase our reliance on our existing
relationships and impair attempts to reduce brokerage fees. We are also
developing our own network of insurance and financial planning professionals,
known as producers, to refer potential sellers to us, and we expect referrals
from this source to grow. As with brokers, our ability to build and maintain
these relationships will depend upon our closing rates and the level of
compensation we pay to the referring professional. The compensation paid to the
referring professional will affect the offer price to the seller and the
compensation we receive. We must balance these interests successfully to build
our referring network and attain greater profitability.
We
Depend on Growth in the Life Settlement Market
Growth of
the life settlement market and our expansion within the market may be affected
by a variety of factors, including:
o
|
the
inability to locate sufficient numbers of life
settlers;
|
o
|
the
inability to convince potential sellers of the benefits of life
settlements;
|
-8-
o
|
the
inability to attract sufficient qualified
purchasers;
|
o
|
competition
from other life settlement
companies;
|
o
|
the
occurrence of illegal or abusive business practices resulting in negative
publicity about the market; and
|
o
|
the
adoption of overly burdensome governmental
regulation.
|
In
addition, the life settlement market may evolve in ways we have not anticipated
and we may be unable to respond in a timely or cost-effective manner. If the
life settlement market fails to grow as quickly as or in the directions we have
anticipated, our business, financial condition and results of operations would
be materially adversely affected as it relates to our large-scale
growth.
Our
Purchasers Depend on Our Ability to Buy and source the most opportunistic Life
Settlement Policies and Predict Life Expectancies and Set Appropriate Price; If
Our Investment Returns Are Not Competitive We May Lose Purchasers.
A
purchaser’s investment return from a life settlement depends on three factors:
the policy face amount, the settlement purchase price and the demise of the
insured. We price settlements based on the policy face amount and the
anticipated life expectancy of an insured. For viatical settlements, life
expectancies are estimated based on a medical analysis of the insured. For life
settlements, life expectancies are estimated from medical and actuarial data
based on the historical experiences of similarly situated persons. The data is
necessarily based on averages involving mortality and morbidity statistics. The
outcome of a single settlement may vary significantly from the statistical
average. It is impossible to predict any one insured’s life expectancy exactly.
To mitigate the risk that an insured will outlive his or her predicted life
expectancy, we price life settlements to yield competitive returns even if this
life expectancy prediction is exceeded. In addition, life settlement purchasers
must be able to bear a non-liquid investment for an indeterminate period of
time.
If we
underestimate the average life expectancies and price our transactions too high,
our purchasers will not realize the returns they seek, demand may fall, and
purchasers may invest their funds elsewhere. In addition, amounts escrowed for
premiums may be insufficient to keep the policy in force and it is the
responsibility of the purchasers to pay these additional premiums. If we
overestimate the average life expectancies, the settlement prices we offer will
fall below market levels, supply will decrease, and sellers may engage in
business with our competitors or pursue other alternatives. Our ability to
accurately predict life expectancies and price accordingly is affected by a
number of factors, including:
o
|
the
accuracy of our life expectancy estimations, which must sufficiently
account for factors including an insured’s age, medical condition, life
habits (such as smoking), and geographic
location;
|
o
|
Our
ability to anticipate and adjust for trends, such as advances in medical
treatments, that affect life expectancy data;
and
|
o
|
Our
ability to balance competing interests when pricing settlements, such as
the amounts paid to life settlers, the acquisition costs paid by
purchasers, and the compensation paid to ourselves and our referral
networks.
|
To foster
the integrity of our pricing systems, we use both in-house and outside experts,
including medical doctors and published actuarial data. We cannot assure you
that, despite our experience in settlement pricing, we will not err by
underestimating or overestimating average life expectancies or miscalculating
reserve amounts for future premiums. If we do so, we could lose purchasers
or policy sellers, and those losses could have a material adverse effect on our
business, financial condition, and results of operations.
-9-
Government
Regulation Could Negatively Impact Our Business
Further,
changes in laws or governmental regulation could affect our brokers or clients,
which could have a material adverse effect on our business.
Our
Chairman and Chief Executive Officer Beneficially Owns 21.23% of Our Common
Stock and, as a Result, Can Exercise Significant Influence over Our
Company
Mr.
Bennett Kurtz, our Chairman and Chief Executive Officer, is defined under SEC
regulations as the beneficial owner of approximately 21.23% of our common stock,
largely as the result of exercising voting power by proxy over shares held by
547667 Ontario Limited. He will be able to control most matters
requiring approval by our shareholders, including the election of directors and
approval of significant corporate transactions. His voting control affects
indirectly the process for nominating directors, since theoretically he could
nominate and elect directors without board involvement. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of MaxLife, which in turn could have a material adverse effect
on the market price of our common stock or prevent our shareholders from
realizing a premium over the market price for their shares of common
stock.
Our
Stock Is Thinly Traded and the Stock Price May Be Volatile
Although
our common stock was traded on the OTC Bulletin Board market during the period
covered by this filing, our common stock has qualified for and traded on the
OTCBB since June 29, 2007. Our stock is not widely traded and our
share prices may be volatile due to actual or anticipated variations in our
quarterly operating results, positive or negative developments concerning our
business, our industry or the general economy.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. DESCRIPTION OF PROPERTY
We
currently operate our business from our corporate headquarters located at 45
Sheppard Avenue, Suite 900, North York, Ontario M2N 5W9. We operate
from a premises on a month to month agreement which commenced in January
2009.
ITEM 3. LEGAL PROCEEDINGS
There is
no litigation pending or threatened by or against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Holders of Our Common
Stock
As of
November 30, 2009, we had approximately 16,253,168 shares issued and outstanding
and 28 registered holders of our common stock.
-10-
On August
4, 2009, Maxlife Fund Corp. (the “Company”) announced that some of its founding
shareholders have agreed to cancel a total of 14,050,000 shares of the Company's
common stock in order to increase overall shareholder value for the
Company.
The
Company's common shares, par value $0.001 (the “Shares”) were approved for
trading on the Over-the-Counter Bulletin Board (OTC-BB) under the symbol MXFB on
June 29, 2007.
The table
set forth below reflects the reported high and low bid prices of the Common
Stock for each quarter for the period indicated. These prices are all on the
basis of the pre reverse stock split. Such prices are interdealer prices without
retail markups, markdowns or commissions and may not represent actual
transactions.
QUARTER
ENDED
|
HIGH
|
LOW
|
||||||
August
31, 2009
|
$ | 19.00 | $ | 12.00 | ||||
May,
31, 2009
|
$ | 22.00 | $ | 7.00 | ||||
February
28, 2009
|
$ | 20.00 | $ | 14.75 | ||||
November
30, 2008
|
$ | 26.75 | $ | 15.50 | ||||
August
31, 2008
|
$ | 29.55 | $ | 14.72 | ||||
May
31, 2008
|
$ | 27.70 | $ | 16.45 | ||||
February
29, 2008
|
$ | 18.69 | $ | 6.05 | ||||
November
30, 2007
|
$ | 9.15 | $ | 3.05 | ||||
August
31, 2007
|
$ | 3.22 | $ | 1.00 |
Dividends
During
the year ended August 31, 2009, the Company paid quarterly dividends of $0.625
per share on its 26,400 issued and outstanding preferred stock totaling
$66,000. The preferred stock entitles the holders to receive a
dividend equal to $0.625 per share to be paid on a quarterly basis.
Payment
of dividends on common shares in the future will depend upon our earnings,
capital requirements, and other factors, which our Board of Directors may deem
relevant.
ITEM 6. SELECTED FINANCIAL DATA
The
following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operation" and the Consolidated Financial Statements and related notes thereto
that are included in this Report.
Year Ended 31 August, | ||||||||||||||||
2009
|
2008
|
2007
|
2006
(1)
|
|||||||||||||
Operating
Results
|
||||||||||||||||
Operating
revenues
|
$
|
-
|
$
|
330,000
|
$
|
-
|
$
|
-
|
||||||||
Earnings
(Loss)
|
$
|
(591,855)
|
$
|
(632,882)
|
$
|
23,388
|
$
|
(46,494)
|
||||||||
Comprehensive
loss
|
$
|
(547,710)
|
$
|
(667,035)
|
$
|
(21,823)
|
$
|
(48,810)
|
||||||||
Loss
per weighted average number of shares outstanding
|
$
|
0.02
|
$
|
0.02
|
$
|
0.00
|
$
|
0.00
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||
Balance Sheet Data at Fiscal
Year End
|
|
|
|
|||||||||||||
Total
Assets
|
$
|
582,360
|
$
|
957,354
|
$
|
1,016,141
|
$
|
160,322
|
||||||||
Total Liabilities
|
$
|
176,885
|
$
|
62,778
|
$
|
453,200
|
$
|
50,558
|
||||||||
Dividends
paid on preferred shares
|
$
|
66,000
|
$
|
16,500
|
$
|
-
|
$
|
-
|
(1) For
the period from inception (9 January 2006) to 31 August 2006
-11-
ITEM 7. PLAN OF OPERATIONS
Plan of
Operations
During
the next twelve months, we expect to take the following steps in connection with
the further development of our business and the implementation of our plan of
operations:
We will
continue to make relationships with insurance brokers and their clients to seek
out opportunistic policies and life settlements situations
available. We will attempt to raise additional financing for working
capital and marketing efforts. We will also seek investment partners
in order to raise the necessary funds to acquire existing policies on behalf of
clients and partners. Such partners include banks, hedge funds, investment funds
and sophisticated investors. We will be sourcing new relationships
with companies in the sector with the objective of purchasing an ownership in
their businesses. Many opportunities are arising as the market place is seeing
distress situations of Hedge Funds that need to liquidate life settlement
policies and portfolios due to the ongoing financial crisis. MaxLife will review
such situations and is open to discussions to determine the opportunities that
can be cultivated accordingly.
We have
shifted our business structure toward a business model which focuses on
acquisition or funding of life policies of individuals on behalf of strategic
buyers. MaxLife is looking to generate fees by facilitating such
transactions. We are no longer looking to purchase or fund life policies of
individuals for our own inventory. Our goal also is to earn fees by
administering a large number of policies on behalf of clients and funds and
earning a management and performance fee. In this regards, the current inventory
of Life Settlement policies that MaxLife owns will also be put up for sale and
MaxLife will maintain an performance fee as to future occurrences with such
policies.
We will continue to negotiate the sale
of certain existing policies currently owned. We have negotiated a Letter of
Intent in the first quarter of 2010 to sell certain policies currently
owned. We anticipate final closing of this transaction to occur
during the first quarter of 2010. This will further enable the
company to be properly fund and carry forth its business plan and plan of
operations.
We will
prepare advertisements and information material to disseminate to our network of
brokers with the intention of ramping up purchases of policies for clients and
partners. With funds obtained from banks and investment funds we will
be in a position to purchase and administer policies and portfolios on their
behalf and thereby earn fees for administration and profit
participation. We will also look to offer a product which gives
investors the security they require in these times and we will charge for our
expertise and services of sourcing, buying and monitoring their
investments.
The
addition of a stronger infrastructure will be required and we intend to hire
management personnel and support staff. This will enable us to
segregate work responsibilities and meet the ongoing growth of the
business. We will be in a position to handle different territories
both in Canada and the United States.
Additional
financings will be available to us through our relationships and
performance. This will enable us to continue with our growth
plans. The internal organization will be reviewed to see that it can
handle the influx of new business. The administration of the policies
will be pertinent and we will have to determine if we have sufficient staff to
handle this responsibility.
-12-
The
management team will be strengthened, if need be, to ensure that shareholder
value is maximized and the business plan is being implemented
properly.
In May
2009, the Joint Venture relationship with Capital Growth Partners was cancelled.
This was a mutually agreed upon decision, to enable both companies to pursue
further opportunities independently.
During
the year ended August 31, 2009 the Company has entered into discussions with an
investor and received a term sheet to provide financing arrangements. The
Company is currently reviewing this term sheet financing. The Company
wishes to raise financing that is most beneficial to shareholders, which is
expected in the next quarter or two.
Additional
financing is available to the Company through the private placement of preferred
share issuances to new and existing investors and shareholders. The Company has
developed a financial product, MX-Series and strongly believes revenues will be
generated in the next few quarters from setting up Trusts and purchasing
policies on behalf of clients and partners, which will be utilized to support
its plan of operations and future growth plans.
The
Company is committed to enter into financing arrangements that are both
beneficial to shareholders and which will strengthen the Company's business
operations and opportunity to expand its business.
During
the year ended August 31, 2009 MaxLife has made a concentrated effort to bring
to market a financial product that is based on Life Settlement Policies with
maximum five year life expectancies. Investors open a Trust that is administered
with the assistance of MaxLife. The investor can earn good returns on their
Trust that own the Life Settlement Policies over the five year period program.
There is available downside protection through a commitment from MaxLife and/or
from outside companies. The product description and information is available on
the website (www.themxway.com) and by contacting the company.
MaxLife
has travelled to countries and met with Pension Funds, Hedge Funds, Insurance
Companies and Accredited Investor groups that have been apprised of the life
settlement industry and the MX-Series product has been made available to them as
a turnkey investment opportunity.
We will
continue to focus on these groups that we met during the past year and will
pursue new opportunities by making inroads with wealth management groups in
additional countries as well.
Results of
Operations
Comparative
Analysis for the year ended August 31, 2009 and 2008:
Revenue
for the year ended August 31, 2009 was $0 and $330,000 for the year ended August
31, 2008. Cost of Sales for the year ended August 31, 2009 was $0 and
$303,250 for the year ended August 31, 2008. Gross profit for the
year ended August 31, 2009 was $0 and $26,750 for the year ended August 31,
2008. The revenues and related cost of sales and gross profit in
fiscal 2008 resulted from the sale of an insurance policy during the first
quarter of 2008. There were no revenues in fiscal 2009.
General
and administrative expenses for the year ended August 31, 2009 were
$97,396 and $102,585 for the year ended August 31, 2008. The
decrease during the year ended August 31, 2009 was primarily attributable to
decreases in payments for travel, administrative office expenses and directors
and officers insurance incurred in the business operations.
Professional
fees for the year ended August 31, 2009 were $177,125 and $122,458 for the year
ended August 31, 2008. These fees are attributable to legal,
accounting, tax, consulting and auditing services. The increase in professional
fees was attributable to the increase in consulting, tax, accounting fees and
additional instances of preferred stock dividend payments during the year ended
August 31, 2009.
-13-
Stock
based compensation for the year ended August 31, 2009 were $124,610 and $363,170
for the year ended August 31, 2008. The decrease in stock based
compensation was due to a reduced residual balance for amortization of stock
options which commenced in April 2008.
For the
year ended August 31, 2009, we had a net loss of $591,855 and net loss of
$632,882 for the year ended August 31, 2008. The decrease in
operating expenses during the year ended August 31, 2009 was due to lower
general and administrative expenses and stock based compensation expenses during
the period.
During
the year ended August 31, 2009 and year ended August 31, 2008, we had no
provision for income taxes due to the net operating losses
incurred.
Capital Resources and
Liquidity
We are
still in the process of developing and implementing our business plan and
raising additional capital. As such, management is taking action to obtain
additional funding.
At August
31, 2009, we had negative working capital of approximately $127,862. It is the
intent of management and significant stockholders, if necessary, to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding. .We
have implemented a preferred share unit offering consisting of preferred shares
plus warrants. The unit offering will be continued to be offered in order to
obtain the financing we require.
During
the year ended August 31, 2009 the Company has entered into discussions with an
investor and received a term sheet to provide financing arrangements. The
Company is currently reviewing this term sheet financing. The Company wishes to
raise financing that is most beneficial to shareholders, which is expected in
the next quarter or two.
Additional
financing is available to the Company through the private placement of preferred
share issuances to new and existing investors and shareholders. The Company has
developed a financial product, MX-Series and strongly believes revenues will be
generated within the next few quarters which will be utilized to support its
plan of operations and future growth plans.
Management
is also negotiating the sale of certain insurance policies currently
owned. The sale of these policies will provide additional working
capital requirements to the company and will assist is developing and
implementing its business plan.
Cash
flows from operating activities
Cash
flows used in operating activities for the year ended August 31, 2009 were
$371,211 and $612,707 for the year ended August 31, 2008. The
decrease in cash flows used in operating activities was primarily due to no
purchases or sales of life insurance policies during the year.
Cash
flows from investing activities
There
were no cash flows used in investing activities for the year ended August 31,
2009 and for the year ended August 31, 2008.
Cash
flows from financing activities
During
the year ended August 31, 2009, the Company paid quarterly dividends of $0.625
per share on its 26,400 issued and outstanding preferred stock totaling
$66,000.
We will
ensure that shareholder value is maximized, that our business plan is being
implemented properly and the Company will be in a position to trade policies and
capitalize on their previous purchases.
-14-
MaxLife
is also reviewing other financing options as lines of credits or asset based
loans to coincide with the equity raised.
Critical
Accounting Policies
Max
Life’s financial statements and related public financial information are based
on the application of accounting principles generally accepted in the United
States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue and expense amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use if estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.
Our
significant accounting policies are summarized in Note 3 of our financial
statements. While all these significant accounting policies impact its financial
condition and results of operations, Max Life views certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on Max Life’s consolidated financial statements and
require management to use a greater degree of judgment and estimates. Actual
results may differ from those estimates.
Our
management believes that given current facts and circumstances, it is unlikely
that applying any other reasonable judgments or estimate methodologies would
cause effect on our consolidated results of operations, financial position or
liquidity for the periods presented in this report.
The
Company believes that the following discussion addresses the Company’s most
critical accounting policies, which are those that are most important to the
portrayal of the Company’s financial condition and results of operations and
require management’s most difficult, subjective and complex
judgments.
Investment
in Life Insurance Policies
Investment
in life insurance policies are recorded in accordance the Financial Accounting
Standards Board Staff Position No. FTB 85-4-1 Accounting for Life Settlement
Contracts by Third-party Investors (FSP FTB 85-4-1). FSP FTB 85-4-1
states that an investor may elect to account for its investments in life
settlement contracts using either the investment method or the fair value
method. The election shall be made on an instrument by instrument
basis and is irrevocable. Under the investment method, an investor
shall recognize the initial investment at the purchase price plus all initial
direct costs. Continuing costs (policy premiums and direct external
costs, if any) to keep the policy in force shall be
capitalized. Under the fair value method, an investor shall recognize
the initial investment at the purchase price. In subsequent periods,
the investor shall remeasure the investment at fair value in its entirety at
each reporting period and shall recognize change in fair value earnings (or
other performance indicators for entities that do not report earnings) in the
period in which the changes occur. The Company has elected to value
its investments in life settlement contracts using the investment
method.
Stock
Based Compensation
In
December 2004, the Financial Accounting Standard Board ("FASB") issued SFAS No.
123R, Share-Based Payment ("SFAS No. 123R). SFAS No. 123R establishes standards
for the accounting for transaction in which an entity exchanges its equity
instruments for goods for services. It also addresses transactions in which an
entity incurs liabilities in exchange for goods or services that are based on
the fair value of the entity's equity instruments or that may be settled by the
issuance of those equity instruments. SFAS No. 123R focuses primarily on
accounting for transactions in which an entity obtains employee services in
shared-based payment transactions. SFAS No. 123R requires that the compensation
cost relating to share-based payment transactions be recognized in the
consolidated financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued.
-15-
The
warrants and stock options are valued using the Black-Scholes option pricing
model using the following input variables and assumptions: exercise prices per
share as noted above, stock price on the date of issuances; calculated
volatility; calculated average term of maturity of five years; an estimated risk
free rate based on the US treasury zero-coupon yield curve. The assumptions used
by the Company in determining its stock based compensation may differ materially
from actual results due to changing market and economic conditions, higher or
lower calculated volatility rates or risk free rate of return. While the Company
believes that the assumptions used are appropriate, differences in actual
experience or changes in assumptions may materially affect the Company’s
financial position or results of operations.
We cannot
predict what future laws and regulations might be passed that could have a
material effect on our results of operations. We assess the impact of
significant changes in laws and regulations on a regular basis and update the
assumptions and estimates used to prepare our financial statements when we deem
it necessary.
We have
not made any material changes to our critical accounting estimates or
assumptions or the judgments affecting the application of those estimates or
assumptions. We discuss our significant accounting policies, including those
policies that are not critical, in our Consolidated Financial
Statements.
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk
The
Company is subject to certain market risks, including changes in interest rates
and currency exchange rates. The Company does not undertake any specific
actions to limit those exposures.
-16-
ITEM 8. FINANCIAL STATEMENTS
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
FINANCIAL STATEMENTS
31
AUGUST 2009
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
Page
|
|
REPORTS
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
1-3
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
Consolidated
Balance Sheets
|
4
|
Consolidated
Statements of Operations and Comprehensive Loss
|
5
|
Consolidated
Statements of Stockholders' Equity
|
6
|
Consolidated
Statements of Cash Flows
|
7
|
Notes
to the Consolidated Financial Statements
|
8 -
17
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
MaxLife
Fund Corp. and Subsidiary
We have
audited Maxlife Fund Corp and
Subsidiary’s (“the Company”) internal control over financial reporting as
of August 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Report of Management on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
A
material weakness is a control deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim
financial statements will not be prevented or detected on a timely
basis. The following material weaknesses have been identified and
included in management’s assessment:
-
|
Segregation of Duties –
As a result of limited resources, we did not maintain proper segregation
of incompatible duties. Namely the lack of an audit committee, an
understaffed financial and accounting function, and the need for
additional personnel to prepare and analyze financial information in a
timely manner and to allow review and on-going monitoring and enhancement
of our controls. The effect of the lack of segregation of duties
potentially affects multiple processes and
procedures.
|
1
-
|
Maintenance of Current
Accounting Records – This weakness specifically affects the
payments and purchase cycle and therefore we failed to maintain effective
internal controls over the completeness and cut off of accounts payable,
expenses and other capital
transactions.
|
-
|
Application of GAAP –
We did not maintain effective internal controls relating to the
application of generally accepted accounting principles in accounting for
transactions in a foreign currency.
|
The
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2009 financial statements, and
this report does not affect our report dated November 30, 2009 on those
financial statements.
In our
opinion, because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of August 31,
2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of MaxLife Fund Corp. and
Subsidiary (A Development Stage Company) as of 31 August 2009 and 2008
and the related consolidated statements of operations, comprehensive loss,
stockholders' equity and cash flows for the years ended 31 August 2009 and 2008
and for period from the date of inception (9 January 2006) to 31 August
2009.
/s/
DNTW Chartered Accountants, LLP
Markham,
Canada
Licensed
Public Accountants
November
30, 2009
2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
MaxLife
Fund Corp. and Subsidiary
We have
audited the accompanying consolidated balance sheets of MaxLife Fund Corp. and
Subsidiary (A Development Stage Company) as of 31 August 2009 and 2008
and the related consolidated statements of operations, comprehensive loss,
stockholders' equity and cash flows for the years ended 31 August 2009 and 2008
and for period from the date of inception (9 January 2006) to 31 August
2009. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of MaxLife Fund Corp. and
Subsidiary (A Development Stage Company) as of 31 August 2009 and 2008,
and the results of its operations for the years ended 31 August 2009 and 2008
and for the period from the date of inception (9 January 2006) to 31 August 2009
in conformity with accounting principles generally accepted in the United States
of America.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of MaxLife Fund Corp. and
Subsidiary’s internal control over financial reporting as of 31 August
2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated November 30, 2009 expressed an
adverse opinion.
/s/
DNTW Chartered Accountants, LLP
Markham,
Canada
Licensed
Public Accountants
November
30, 2009
3
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
AS
AT 31 AUGUST
(Expressed
in United States Dollars)
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
|
$ | 48,917 | $ | 500,836 | ||||
Available-for-sale
securities, at fair value (cost - $24,638, 2008 - $89,816)
|
136 | 2,313 | ||||||
Total
Current Assets
|
49,053 | 503,149 | ||||||
Long
Term Assets
|
||||||||
Investment
in life insurance policies
|
533,307 | 452,955 | ||||||
Investment
in joint venture
|
- | 1,250 | ||||||
Total
Long Term Assets
|
533,307 | 454,205 | ||||||
Total
Assets
|
$ | 582,360 | $ | 957,354 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 23,072 | $ | 28,084 | ||||
Management
salary payable
|
150,000 | 30,000 | ||||||
Advances
from stockholder
|
3,813 | 4,694 | ||||||
Total
Liabilities
|
176,885 | 62,778 | ||||||
Stockholders'
Equity
|
||||||||
Preferred
stock $25.00 par value; Authorized 100,000,000; Issued and outstanding
26,400 (2008 - 26,400); non-voting; dividends of $0.625 paid on
a quarterly basis; non-convertible; redeemable at the option of the
Company after two years
|
660,000 | 660,000 | ||||||
Common
stock $.001 par value; Authorized 200,000,000; Issued and outstanding
16,253,168 (2008 - 30,303,168)
|
16,253 | 30,303 | ||||||
Additional
paid-in capital
|
1,100,626 | 961,967 | ||||||
Additional
paid in capital - warrants
|
244,158 | 244,158 | ||||||
Accumulated
other comprehensive loss
|
(41,061 | ) | (85,206 | ) | ||||
Deficit
accumulated during the development stage
|
(1,574,501 | ) | (916,646 | ) | ||||
Total
Stockholders' Equity
|
405,475 | 894,576 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 582,360 | $ | 957,354 |
The
accompanying notes are an integral part of these financial
statements.
4
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed
in United States Dollars)
For
the Year Ended 31 August 2009
|
For
the Year Ended 31 August 2008
|
For
the Period from Inception (9 January 2006) to 31 August
2009
|
||||||||||
REVENUE
|
$ | - | $ | 330,000 | $ | 330,000 | ||||||
COST
OF GOODS SOLD
|
- | 303,250 | 303,250 | |||||||||
GROSS
PROFIT
|
- | 26,750 | 26,750 | |||||||||
EXPENSES
|
||||||||||||
Professional
fees
|
177,125 | 122,458 | 327,331 | |||||||||
Management
salary
|
141,578 | 30,000 | 171,578 | |||||||||
Stock
based compensation
|
124,610 | 363,170 | 487,780 | |||||||||
General
and administrative
|
97,396 | 102,585 | 237,416 | |||||||||
Interest
and bank charges
|
751 | 1,150 | 3,105 | |||||||||
(Gain)
loss on foreign exchange
|
(2,175 | ) | 7,055 | 409 | ||||||||
TOTAL
OPERATING EXPENSES
|
539,285 | 626,418 | 1,227,619 | |||||||||
LOSS
FROM OPERATIONS
|
(539,285 | ) | (599,668 | ) | (1,200,869 | ) | ||||||
REALIZATION
OF LOSS ON SALE OF AVAILABLE-FOR-SALE SECURITIES
|
(53,666 | ) | - | (16,474 | ) | |||||||
GOODWILL
IMPAIRMENT LOSS
|
- | (35,269 | ) | (35,269 | ) | |||||||
LOSS
ON INVESTMENT IN JOINT VENTURE
|
(1,250 | ) | - | (1,250 | ) | |||||||
INTEREST
|
2,346 | 2,055 | 6,020 | |||||||||
NET
LOSS
|
$ | (591,855 | ) | $ | (632,882 | ) | $ | (1,247,842 | ) | |||
FOREIGN
CURRENCY TRANSLATION ADJUSTMENT
|
(13,828 | ) | 3,095 | (16,559 | ) | |||||||
UNREALIZED
GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES, NET OF DEFERRED
TAXES
|
57,973 | (37,248 | ) | (24,502 | ) | |||||||
COMPREHENSIVE
LOSS
|
$ | (547,710 | ) | (667,035 | ) | $ | (1,288,903 | ) | ||||
LOSS
PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND
DILUTED
|
$ | (0.02 | ) | $ | (0.02 | ) | ||||||
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
|
29,801,382 | 30,302,739 |
UNREALIZED
GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES, NET OF DEFERRED TAXES
The
accompanying notes are an integral part of these financial
statements.
5
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST 31,
2009
(Expressed
in United States Dollars)
Preferred
Shares
|
Common
Stock
|
|||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Additional
Paid-In Capital
|
Shares
|
Amount
|
Additional
Paid-In Capital
|
Additional
Paid-In Capital - Warrants
|
Accumulated
other comprehensive Loss
|
Deficit
accumulated during the development stage
|
Total
stockholders' Equity
|
|||||||||||||||||||||||||||||||
Issuance
of common stock at inception
|
- | $ | - | $ | - | 30,000,000 | $ | 30,000 | $ | - | $ | - | $ | - | $ | - | $ | 30,000 | ||||||||||||||||||||||
Issuance
of common stock for cash
|
- | - | - | 116,100 | 116 | 115,984 | - | - | - | 116,100 | ||||||||||||||||||||||||||||||
Issuance
of common stock for services
|
- | - | - | 11,000 | 11 | 10,989 | - | - | - | 11,000 | ||||||||||||||||||||||||||||||
Acquisition
of 1254450 Ontario Ltd.
|
- | - | - | - | - | 5,000 | - | - | - | 5,000 | ||||||||||||||||||||||||||||||
Foreign
currency translation
|
- | - | - | - | - | - | - | (5,842 | ) | - | (5,842 | ) | ||||||||||||||||||||||||||||
Net
loss for the period
|
- | - | - | - | - | - | - | - | (46,494 | ) | (46,494 | ) | ||||||||||||||||||||||||||||
Balance,
August 31, 2006
|
- | $ | - | $ | - | 30,127,100 | $ | 30,127 | $ | 131,973 | $ | - | $ | (5,842 | ) | $ | (46,494 | ) | $ | 109,764 | ||||||||||||||||||||
Issuance
of common stock for cash
|
- | - | - | 170,068 | 170 | 499,830 | - | - | - | 500,000 | ||||||||||||||||||||||||||||||
Financing
fees
|
- | - | - | - | - | (25,000 | ) | - | - | - | (25,000 | ) | ||||||||||||||||||||||||||||
Unrealized
loss on available-for-sale securities, net of taxes
|
- | - | - | - | - | - | - | (45,227 | ) | - | (45,227 | ) | ||||||||||||||||||||||||||||
Foreign
currency translation
|
- | - | - | - | - | - | - | 16 | - | 16 | ||||||||||||||||||||||||||||||
Net
earnings
|
- | - | - | - | - | - | - | - | 23,388 | 23,388 | ||||||||||||||||||||||||||||||
Balance,
August 31, 2007
|
- | $ | - | $ | - | 30,297,168 | 30,297 | $ | 606,803 | $ | - | $ | (51,053 | ) | $ | (23,106 | ) | $ | 562,941 | |||||||||||||||||||||
Common
stock issued for services
|
- | - | - | 6,000 | 6 | 34,194 | - | - | - | 34,200 | ||||||||||||||||||||||||||||||
Stock
options issued
|
- | - | - | - | - | 328,970 | - | - | - | 328,970 | ||||||||||||||||||||||||||||||
Financing
fees
|
- | - | - | - | - | (8,000 | ) | - | - | - | (8,000 | ) | ||||||||||||||||||||||||||||
Unrealized
loss on available-for-sale securities, net of taxes
|
- | - | - | - | - | - | - | (37,248 | ) | - | (37,248 | ) | ||||||||||||||||||||||||||||
Fair
market value of warrants attached to preferred stock
|
- | - | - | - | - | - | 244,158 | - | (244,158 | ) | - | |||||||||||||||||||||||||||||
Preferred
stock issued for cash
|
26,400 | 660,000 | - | - | - | - | - | - | - | 660,000 | ||||||||||||||||||||||||||||||
Foreign
currency translation
|
- | - | - | - | - | - | - | 3,095 | - | 3,095 | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | (632,882 | ) | (632,882 | ) | ||||||||||||||||||||||||||||
Dividends
paid
|
- | - | - | - | - | - | - | - | (16,500 | ) | (16,500 | ) | ||||||||||||||||||||||||||||
Balance,
August 31, 2008
|
26,400 | $ | 660,000 | $ | - | 30,303,168 | 30,303 | $ | 961,967 | $ | 244,158 | $ | (85,206 | ) | $ | (916,646 | ) | $ | 894,576 | |||||||||||||||||||||
Stock
options issued
|
- | - | - | - | - | 124,609 | - | - | - | 124,609 | ||||||||||||||||||||||||||||||
Common
stock cancelled
|
- | - | - | (14,050,000 | ) | (14,050 | ) | 14,050 | - | - | - | - | ||||||||||||||||||||||||||||
Realization
of loss on available-for-sale securities, net of taxes
|
- | - | - | - | - | - | - | 57,973 | - | 57,973 | ||||||||||||||||||||||||||||||
Foreign
currency translation
|
- | - | - | - | - | - | - | (13,828 | ) | - | (13,828 | ) | ||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | (591,855 | ) | (591,855 | ) | ||||||||||||||||||||||||||||
Dividends
paid
|
- | - | - | - | - | - | - | - | (66,000 | ) | (66,000 | ) | ||||||||||||||||||||||||||||
Balance,
August 31, 2009
|
26,400 | $ | 660,000 | $ | - | 16,253,168 | 16,253 | $ | 1,100,626 | $ | 244,158 | $ | (41,061 | ) | $ | (1,574,501 | ) | $ | 405,475 |
The
accompanying notes are an integral part of these financial
statements.
6
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in United States Dollars)
For
the Year Ended 31 August
2009
|
For
the Year Ended 31 August 2008
|
For
the Period from Inception (9 January 2006) to 31 August
2009
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
Net
loss
|
$ | (591,855 | ) | $ | (632,882 | ) | $ | (1,247,842 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Goodwill
impairment loss
|
- | 35,269 | 35,269 | |||||||||
Stock
based compensation
|
124,610 | 328,970 | 453,580 | |||||||||
Unrealized loss on available-for-sale securities
|
- | (37,248 | ) | (88,318 | ) | |||||||
Equity
issued to acquire 1255450 Ontario Limited
|
- | - | 5,000 | |||||||||
Issuance
of common stock for services
|
- | 34,200 | 75,200 | |||||||||
Loss
on investment in joint venture
|
1,250 | - | 1,250 | |||||||||
Realization
of loss on available for sale securities
|
57,973 | - | 57,973 | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Available-for-sale
securities
|
2,177 | 16,704 | (136 | ) | ||||||||
Proceeds
on sale of policy
|
- | 330,000 | 330,000 | |||||||||
Purchase
of insurance policies and capitalized premiums
|
(80,352 | ) | (352,877 | ) | (840,280 | ) | ||||||
Accounts
payable and accrued liabilities
|
(5,014 | ) | (390,416 | ) | 18,107 | |||||||
Management
salary payable
|
120,000 | 30,000 | 150,000 | |||||||||
Deferred
taxes
|
- | 25,573 | - | |||||||||
CASH
USED IN OPERATING ACTIVITIES
|
(371,211 | ) | (612,707 | ) | (1,050,199 | ) | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
Capital
contribution - joint venture
|
- | (1,250 | ) | (1,250 | ) | |||||||
Acquisition
of 1255450 Ontario Limited
|
- | - | (21,739 | ) | ||||||||
CASH
FLOWS USED IN INVESTING ACTIVITIES
|
- | (1,250 | ) | (22,989 | ) | |||||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
Issuance
of preferred stock
|
- | 660,000 | 660,000 | |||||||||
Advances
to shareholder
|
(880 | ) | (30,006 | ) | (27,780 | ) | ||||||
Dividends
paid
|
(66,000 | ) | (16,500 | ) | (82,500 | ) | ||||||
Financing
fees
|
- | (8,000 | ) | (8,000 | ) | |||||||
Issuance
of common stock
|
- | - | 591,100 | |||||||||
CASH
FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
(66,880 | ) | 605,494 | 1,132,820 | ||||||||
EFFECT
OF FOREIGN CURRENCY TRANSLATION
|
(13,828 | ) | 3,095 | (10,715 | ) | |||||||
NET
(DECREASE) INCREASE IN CASH
|
(451,919 | ) | (5,368 | ) | 48,917 | |||||||
CASH,
BEGINNING OF YEAR
|
500,836 | 506,204 | - | |||||||||
CASH,
END OF YEAR
|
$ | 48,917 | $ | 500,836 | $ | 48,917 |
The
accompanying notes are an integral part of these financial
statements.
7
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
1.
|
NATURE
OF OPERATIONS
|
MaxLife
Fund Corp, Inc. (the "Company") was incorporated on 9 January 2006 under the
laws of the State of Wyoming.
The
Company is engaged in financial services, where they seek, acquire, fund and
manage the life insurance policies of individuals. The Company either
holds these policies until maturity or markets the policies for sale at an
earlier date.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
The
accounting policies of the Company are in accordance with accounting principles
generally accepted in the United States of America. Presented below
are those policies considered particularly significant:
Principles
of Consolidation
The
Company includes, in consolidation, its wholly owned subsidiary, 1254450 Ontario
Ltd. All significant intercompany transactions and balances have been eliminated
upon consolidation.
Development
Stage Company
The
Company is considered to be in the development stage as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, Accounting and Reporting by
Development Stage Enterprises. The Company has devoted substantially all
of its efforts to business planning and development by means of raising capital
for investing in life Insurance policies. The Company has also not realized any
significant revenues.
Available-for-sale
securities
Available-for-sale
securities are reported at fair value and consist of securities not classified
as trading securities or as held-to-maturity securities. Unrealized holding
gains and losses on available-for-sale securities, net of deferred income taxes,
are reported as a net amount in accumulated other comprehensive income within
stockholders' equity. Gains and losses on the sale of
available-for-sale securities are determined using the weighted average cost
method.
Declines
in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary would result in
write-downs of the individual securities to their fair value. Such write-downs
would be included in earnings.
Investment
in Life Insurance Policies
Investment
in life insurance policies are recorded in accordance the Financial Accounting
Standards Board Staff Position No. FTB 85-4-1 Accounting for Life Settlement
Contracts by Third-party Investors (FSP FTB 85-4-1). FSP FTB
85-4-1 states that an investor may elect to account for its investments in life
settlement contracts using either the investment method or the fair value
method. The election shall be made on an instrument by instrument basis and is
irrevocable. Under the investment method, an investor shall recognize
the initial investment at the purchase price plus all initial direct
costs. Continuing costs (policy premiums and direct external costs,
if any) to keep the policy in force shall be capitalized. Under the
fair value method, an investor shall recognize the initial investment at the
purchase price. In subsequent periods, the investor shall remeasure the
investment at fair value in its entirety at each reporting period and shall
recognize change in fair value earnings (or other performance indicators for
entities that do not report earnings) in the period in which the changes occur.
The Company has elected to value its investments in life settlement contracts
using the investment method.
8
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Fair
Value of Financial Instruments
The
carrying value of the Company's notes receivables, advances and accounts payable
approximates fair value because of the short-term maturity of these
instruments.
Foreign
Translation Adjustment
The
accounts of the Company were translated into United States dollars in accordance
with the provisions of Financial Accounting Standards Board (“FASB”) Statement
No. 52, Foreign Currency
Translation ("SFAS No. 52"). In accordance with the provisions
of SFAS No. 52, transaction gains and losses on these assets and liabilities are
included in the determination of income for the relevant
periods. Adjustments resulting from the translation of the financial
statements from their functional currencies to United States dollars are
accumulated as a separate component of accumulated other comprehensive income
and have not been included in the determination of income for the relevant
periods.
Income
Taxes
The
Company accounts for income taxes pursuant to SFAS No. 109, Accounting for Income
Taxes. Deferred tax assets and liabilities are recorded for
differences between the financial statements and tax basis of the assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is recorded for the amount of
income tax payable or refundable for the period increased or decreased by the
change in deferred tax assets and liabilities during the period.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the 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. Examples include estimates of stock based compensation; the
potential outcome of future tax consequences of events that have been recognized
in our financial statements or tax returns; estimating the fair value and/or
goodwill impairment for our reporting units; and determining when investment
impairments are other-than-temporary. Actual results could differ
from those estimates. These estimates are reviewed periodically, and,
as adjustments become necessary, they are reported in earnings in the period in
which they become known.
9
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Earnings
or Loss Per Share
The
Company accounts for earnings per share pursuant to SFAS No. 128, Earnings per Share, which
requires disclosure on the financial statements of "basic" and "diluted"
earnings (loss) per share. Basic earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding for the year. Diluted earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding plus common stock equivalents (if dilutive) related to stock
options and warrants for each year.
There
were no dilutive financial instruments for the year ended 31 August 2009 and
2008 or for the period from inception (9 January 2006) to 31 August
2009.
Goodwill
and Intangible Assets
Goodwill
is the residual amount that results when the purchase price of an acquired
business exceeds the sum of the amounts allocated to the tangible and intangible
assets acquired, less liabilities assumed, based on fair values.
The
Company accounts for purchased goodwill and other intangible assets in
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill and any other intangibles
deemed to have indefinite lives are not subject to amortization; however,
goodwill is subject to an assessment for impairment, which must be performed at
least annually, or more frequently if events or circumstances indicate that
goodwill or other indefinite lived intangibles might be impaired.
The
Company tested goodwill of its operating unit, 1254450, for impairment at 31
August 2008.
In order
to determine if writedown of goodwill was necessary, management utilized a two
step process: (i) they compared the implied fair value of the reporting unit,
1254450, with its carrying amount and (ii) the estimated fair value of the
reporting unit was performed using a valuation technique based on multiples of
earnings.
The
implied fair value of the reporting unit was compared with its carrying amount;
and management determined that the implied fair value of goodwill was $Nil as at
31 August 2008.
As a
result, an impairment loss of $35,269 was recognized in the statement of loss
and comprehensive loss for the year ended 31 August 2008.
Joint
Ventures
The
Company accounts for its non-controlling interests in joint ventures where the
Company has influence over financial and operational matters, generally 50% or
less ownership interest, under the equity method of accounting. In such cases,
the Company's original investments are recorded at cost and adjusted for its
share of earnings, losses and distributions. During the year ended 31
August 2009, MaxLife CGP Partners, LLC (the “Joint Venture”) executed a Limited
Liability Company Certificate of Cancellation with the State of California
Secretary of State and completed the dissolution of MaxLife CGP Partners, LLC.
As result of dissolution, the Company has written down their investment in the
Joint Venture during the quarter and reported a loss on investment in joint
venture of $1,250 on the Consolidated Statement of Operations.
10
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Comprehensive
Income
The
Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and presentation
of comprehensive income and its components in a full set of financial
statements. Comprehensive income is presented in the statements of
changes in stockholders' equity, and consists of net loss and unrealized gains
(losses) on available for sale marketable securities; foreign
currency translation adjustments and changes in market value of future contracts
that qualify as a hedge; and negative equity adjustments recognized in
accordance with SFAS 87. SFAS No. 130 requires only additional
disclosures in the financial statements and does not affect the Company's
financial position or results of operations.
Stock
Based Compensation
In
December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No.
123R establishes standards for the accounting for transaction in which an entity
exchanges its equity instruments for goods for services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. SFAS No. 123R
focuses primarily on accounting for transactions in which an entity obtains
employee services in shared-based payment transactions. SFAS No. 123R requires
that the compensation cost relating to share-based payment transactions be
recognized in the consolidated financial statements. That cost will be measured
based on the fair value of the equity or liability instruments
issued.
Recent
Accounting Pronouncements
In June
2009, the FASB approved SFAS No. 168, The FASB Accounting Standards
Codification and The Hierarchy of Generally Accepted Accounting
Principles. The Codification became the source of authoritative generally
accepted accounting principles (“GAAP”) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The Codification supersedes all existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification is nonauthoritative. GAAP is not intended to be
changed as a result of this statement, but will change the way the guidance is
organized and presented. The pronouncement is effective for financial
statements issued for interim and annual periods ending after 15 September 2009.
We have adopted the new Codification subsequent to the year end. The adoption
did not have a material impact on the Company’s consolidated financial
statements.
ASC
820-10, Fair Value Measurements and Disclosures, for financial assets and
liabilities and nonfinancial assets and liabilities that are recognized or
disclosed at fair value in the financial statements on a recurring basis. The
Company will not adopt ASC 820-10 until October 1, 2009 for nonfinancial assets
and liabilities that are not recognized or disclosed at fair value in the
financial statements on a recurring basis. ASC 820-10 clarifies the definition
of fair value and the methods used to measure fair value and expands disclosures
about fair value measurements. The adoption of ASC 820-10 did not have a
material impact on the Company’s consolidated financial statements.
11
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
ASC
855-10, Subsequent Events. ASC 855-10 establishes general standards of
accounting for and disclosure
of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. The adoption of ASC 855-10
did not have a material impact on the Company’s consolidated financial
statements.
In
December 2007, the FASB issued ASC 805, Business Combinations. ASC 805 generally
requires an acquirer to recognize the identifiable assets acquired, liabilities
assumed, contingent purchase consideration and any noncontrolling interest in
the acquiree at fair value on the date of acquisition. It also requires an
acquirer to recognize as expense most transaction and restructuring costs as
incurred, rather than include such items in the cost of the acquired entity. For
the Company, ASC 805 will apply prospectively to business combinations for which
the acquisition date is on or after October 1, 2009. The Company will evaluate
the impact of ASC 805 on any potential future business combinations that may
occur on or after the effective date.
3.
|
INVESTMENT
IN INSURANCE POLICIES
|
As at 31
August 2009 the Company holds four life insurance policies with carrying amounts
of $533,307 and face amounts totaling $2,650,000.
4.
|
ADVANCES
FROM SHAREHOLDER
|
The
advances from the shareholder are non-interest bearing, unsecured and have no
specific terms of repayment. The carrying value of the advances
approximates the market value due to the short-term maturity of the financial
instruments.
12
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
5.
|
CAPITAL
STOCK
|
On 9
January 2006, the Company issued 30,000,000 common stock to the founders of the
corporation at the par value of $0.001 each.
On 31
August 2006, the Company completed a private placement of 117,100 common stock,
with a par value of $0.001 at a price of $1.00 each.
On 31
August 2006, the Company issued 11,000 common stock to various individuals for
legal services rendered. The shares issued were valued at their fair
market value of $1.00 which is the amount that would have been received if the
shares had been issued for cash. Management believes that the fair
market value of the services received approximates this value.
On 29
August 2007, the Company issued 170,068 shares of common stock with a par value
of $0.001 at a price of $2.94 each for an aggregate value of
$500,000.
On 20
September 2007, the Company issued 6,000 shares of common stock in exchange
for services rendered by two individuals on the Board of Directors.
The shares issued were valued at their fair market value of $5.70 which is the
amount that would have been received if the shares had been issued for
cash. Management believes that the fair market value of the services
received approximates this value. For year ended 31 August 2009 $Nil
(2008 - $34,200) of these services were rendered and included in stock based
compensation.
In 18
August 2009, certain founding shareholders agreed to cancel a total of
14,050,000 shares of common. As a result, common stock decreased by
$14,050, the amount at which the shares were originally issued, and there was a
corresponding increase in additional paid-in capital.
13
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
6.
|
PREFERRED
STOCK
|
On 18
March 2008, the Company filed articles of amendment to amend the par value of
its preferred stock from $.001 to $25.00 per share. The preferred
stock have the following rights attached to them: non-voting, entitle the
holders to receive a dividend equal to $0.625 per share to be paid on a
quarterly basis; not convertible into shares of the Company's common stock;
provided all dividends have been paid to the shareholders, the preferred stock
is redeemable by the Company after two years; in the event of any liquidation,
dissolution or winding up of the Company, holders of the preferred stock shall
have the same liquidation rights as the holders of the Company's common stock,
whereby there are no redemption provisions.
The
preferred stock of the Company are currently offered in units (the
"Unit"). Each Unit consists of 1,200 shares of preferred stock plus
warrants to purchase 600 shares of common stock. The warrants may be exercised
at any time beginning six months from the date of issuance and ending on the
fifth anniversary of the final closing of the offering of the preferred stock.
The warrants are exercisable, in whole or in part, at exercise prices equal to
the following:
One third
(1/3) or 200 warrants per Unit shall be exercisable into common stock at $25.00
per share;
One third
(1/3) or 200 warrants per Unit shall be exercisable into common stock at $30.00
per share;
One third
(1/3) or 200 warrants per Unit shall be exercisable into common stock at $35.00
per share.
The
warrants were issued on various dated throughout the year and valued as
follows:
(A) 4,400
shares at an exercise price of $25.00 per share -$18.94, $18.19, $20.19,
$20.16
(B) 4,400
shares at an exercise price of $30.00 per share - $18.10, $17.39, $19.34,
$19.32
(C) 4,400
shares at an exercise price of $35.00 per share - $17.35, $16.68, $18.58,
$18.57
The total
value of the warrants amounted to $244,158 (2008 - $244,158) and are included as
an addition to additional paid-in capital - warrants.
The
warrants were valued using the Black-Scholes option pricing model with the
following input variables and assumptions: exercise prices of $25, $30 and $35
per share as noted above, stock price on the date of issuances
of $27.60, $26.30, $28.65, and $28.49 respectively; calculated
volatility amounted to 84.56%; calculated average term of maturity of five
years; an estimated risk free rate ranging from 2.95% to 3.68% based on the five
year US treasury zero-coupon yield curve.
14
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
6.
|
PREFERRED
STOCK (Continued)
|
During
the year ended 31 August 2009 the Company issued 26,400 shares of preferred
stock for proceeds of $660,000, including 13,200 warrants to purchase 13,200
shares of common stock as discussed above.
During
the year ended 31 August 2009 the company paid dividends of $0.625 (2008 -
$0.625) per share on its 26,400 (2008 - 26,400) issued and
outstanding preferred stock totaling $66,000 (2008 - $16,500).
7. STOCK
OPTIONS
On 21
April 2008 the Company executed stock option agreements with four directors of
the Company in consideration for their appointment to the Board of
Directors. Under the terms of these agreements the Company granted to
each director an option to purchase a total of 10,000 shares of the company's
common stock ("Option Shares") in the following manner: (A) 2,500 shares at an
exercise price of $20.00 per share, (B) 3,500 shares at an exercise price of
$25.00 per share and (C) 4,000 shares at an exercise price of $35.00 per share.
The grantee shall have the option to purchase all of the Option Shares after six
months of the grant date - 22 October 2008. The options expire in five years
from the grant date, on 21 April 2008.
The stock
options were valued using the Black Scholes option pricing model with the
following input variables and assumptions: exercise prices of $20, $25 and $35
per share as noted above, stock price on the date of issuance
of $18.48; calculated volatility amounted to 84.56%; calculated
average term of maturity of five years; an estimated risk free rate ranging from
2.95% based on the five year US treasury zero coupon yield curve.
The
Company has adopted SFAS No. 123R, Share Based Payment requiring that
compensation cost relating to share based payment awards made to employees and
directors be recognized in the financial statements. The cost for
such awards is measured at the grant date based on the calculated fair value of
the award. The value of the portion of the award that is ultimately
expected to vest is recognized as an expense over the requisite service periods
(generally the vesting period of the equity award) in the consolidated statement
of operations.
The stock
options were valued as follows:
(A)
10,000 shares at an exercise price of $20.00 per share
- $12.33
(B)
14,000 shares at an exercise price of $25.00 per share
- $11.61
(C)
16,000 shares at an exercise price of $35.00 per share
- $10.48
The total
stock compensation related to the Option Shares amounted to $453,580 and is
amortized over the service period of six months from the grant date and have
been included in stock based compensation in the consolidated Statement of
Operations.
15
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
8.
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
During
the year ended 31 August 2009 and 2008 and for the period from inception (9
January 2006) to 31 August 2008, there were no interest or taxes paid by the
Company.
During
the year ended 31 August 2009 there were unrealized losses on available-for-sale
securities of $Nil (2008 - $37,248).
On
September 20, 2007, the Company issued 6,000 shares of common stock in exchange
for services rendered by two individuals on the Board of Directors. For the year
ended August 31, 2008, $34,200 of these services were rendered and included as
stock based compensation.
On 21
April 2008 the Company executed stock option agreements with four directors of
the Company in consideration for their appointment to the Board of
Directors. The total stock compensation related to the stock options
amounted to $487,780 and are amortized over the service period of six months
from the grant date. For the year ended 31 August 2009, the Company expensed
$124,160 as stock based compensation related to the stock options.
9.
|
INVESTMENT
IN JOINT VENTURE
|
During
the quarter, MaxLife CGP Partners, LLC (the “Joint Venture”) executed a Limited
Liability Company Certificate of Cancellation with the State of California
Secretary of State and completed the dissolution of MaxLife CGP Partners, LLC.
As result of dissolution, the Company has written down their investment in the
Joint Venture during the quarter and reported a loss on investment in joint
venture of $1,250 on the consolidated Statement of Operations.
10.
INCOME TAXES
The
Company has tax losses available to be applied against future years income as a
result of the losses incurred since inception. However, due to the
losses incurred in the period and expected future operating results, management
determined that it is more likely than not that the deferred tax asset resulting
from the tax losses available for carryforward will not be realized through the
reduction of future income tax payments. Accordingly a 100% valuation
allowance has been recorded for income tax losses available for
carryforward.
The
components of deferred income taxes have been determined at the combined
Canadian federal and provincial statutory rate of 36.12% and US 15% statutory
rate as follows:
2009
|
2008
|
|||||||
Deferred
income tax asset:
|
||||||||
Income
tax losses available for carryforward
|
235,869 | 99,622 | ||||||
Unrealized
loss on available-for-sale securities
|
1,838 | 25,573 | ||||||
Valuation
allowance
|
(237,707 | ) | (125,195 | ) | ||||
Deferred
income taxes
|
$ | - | $ | - |
16
MAXLIFE
FUND CORP. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE PERIOD FROM THE DATE OF INCEPTION (9 JANUARY 2006) TO 31 AUGUST
2009
(Expressed
in United States Dollars)
11.
|
COMMITMENT
AND CONTINGENT LIABILITY
|
The
Company is contingently liable for the payment of the premiums due on the
insurance policies as described in Note 3. Although the individual
beneficiary is responsible for these payments, if they are not paid when they
fall due, the Company must pay these premiums on the insured's behalf within a
30 day grace period or the policy would lapse. As of 31 August 2009,
the policies premiums were up to date and the policies were in good
standing.
12.
FINANCIAL INSTRUMENTS
Foreign
Currency Risk
The
Company is exposed to currency risks due to potential variation of the
currencies in which it operates. Principal currencies include the United States
dollar and Canadian dollar. We monitor our foreign currency exposure regularly
to minimize our foreign currency risk exposure.
Concentrations
of credit
SFAS No.
105, Disclosure of Information
About Financial Instruments with Off-Balance-Sheet Risk and Financial Instrument
with Concentration of Credit Risk, requires disclosure of any significant
off-balance-sheet risk and credit risk concentration. The Company does not have
significant off-balance-sheet risk or credit concentration. The Company
maintains cash with major financial institutions. From time to time, the company
may have funds on deposit with commercial banks that exceed federally insured
limits. Management does not consider this to be a significant risk.
Liquidity
Risk
The
company is exposed to liquidity risk as its continued operations are dependent
upon obtaining additional capital or maturing or trading of invested policies to
satisfy its liabilities as they come due.
Predictive
risk
Our
investment return from a life settlement depends on the difference between the
policy face amount and purchaser’s cost basis (consisting of the acquisition
cost and premiums paid to maintain the policy) and the length of the holding
period, and the demise of the insured. The anticipated life expectancy of an
insured are estimated from standard medical and actuarial data based on the
historical experiences of similarly situated persons. The data is based on
averages involving mortality and morbidity statistics. The outcome of a single
settlement may vary significantly from the statistical average. It is impossible
to predict any one insured’s life expectancy exactly. To mitigate the risk that
an insured will outlive his or her predicted life expectancy, we review all
purchases of life settlement policies and the insured medical records and value
the price of life settlements to yield competitive returns in line with our
expected rate of return.
17
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
At no
time have there been any disagreements with such accountants regarding any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation
of disclosure controls and procedures
Under the
supervision and with the participation of our management, including our
President, Chief Executive Officer, Chief Financial Officer, Principal
Accounting Officer and Director (the “Certifying Officer”) we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of
1934 (the “Exchange Act”)). Based upon that evaluation, the Certifying Officer
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were not effective. We and our auditors
identified material weaknesses discussed below in the Report of management on
internal control over financial reporting.
Report
of Management on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) under the
Exchange Act. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles. Our internal control over
financial reporting includes those policies and procedures that:
(i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
(ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and
directors;
and
(iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could have a
material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement to the Company's annual or
interim financial statements will not be prevented or detected.
In the
course of management's assessment, we have identified the following material
weaknesses in internal control over financial reporting:
-
|
Segregation of Duties –
As a result of limited resources, we did not maintain proper segregation
of incompatible duties. Namely the lack of an audit committee, an
understaffed financial and accounting function, and the need for
additional personnel to prepare and analyze financial information in a
timely manner and to allow review and on-going monitoring and enhancement
of our controls. The effect of the lack of segregation of duties
potentially affects multiple processes and
procedures.
|
-
|
Maintenance of Current
Accounting Records – This weakness specifically affects the
payments and purchase cycle and therefore we failed to maintain effective
internal controls over the completeness and cut off of accounts payable,
expenses and other capital
transactions.
|
-17-
-
|
Application of GAAP –
We did not maintain effective internal controls relating to the
application of generally accepted accounting principles in accounting for
transactions in a foreign currency.
|
We are in
the continuous process of improving our internal control over financial
reporting in an effort to eliminate these material weaknesses through improved
supervision and training of our staff, but additional effort is needed to fully
remedy these deficiencies. Management has engaged a Certified Public Accountant
as a consultant to assist with the financial reporting process in an effort to
mitigate some of the identified weaknesses. The Company is still in its
development stage and intends on hiring the necessary staff to address the
weaknesses once full operations have commenced.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
ITEM 9B. OTHER INFORMATION
None.
-18-
PART
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS: COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our
directors and officers, as of November 30, 2009, are set forth below. The
directors hold office for their respective term and until their successors are
duly elected and qualified. Vacancies in the existing Board are filled by a
majority vote of the remaining directors. The officers serve at the will of the
Board of Directors.
Name
|
Age
|
Positions
and Offices Held
|
Bennett
Kurtz
|
49
|
President,
Chief Executive Officer, Chief Financial Officer and
Director
|
Dan
Schmitt
|
42
|
Director
|
Randy
Delkus
|
42
|
Director
|
Set forth
below is a brief description of the background and business experience of our
executive officers and directors for the past five years:
Bennett Kurtz was previously
President and CEO of Kurtz Financial Group, a corporate finance company offering
a full range of consulting and investment banking services to companies seeking
growth. Mr. Kurtz has been involved in financing Public Companies and taking
private company’s public through reverse mergers.
Mr. Kurtz
was involved in an early stage private placement for Ezenet Inc., which later
raised $51,000,000. Previously he administered and managed a comprehensive
mortgage portfolio in excess of $125,000,000. He was responsible for
underwriting and the syndication of mortgages to financial institutions and
accredited investors. Mr. Kurtz also was responsible for managing and growing a
chain of retail hearing aid centers, which he later sold.
Mr.
Kurtz graduated from York University in 1983 with a BA degree in Administrative
Studies.
Mr. Dan Schmitt is co-founder
and Chief Executive Officer of Anthony, Allan & Quinn, Inc. ETAL (“AAQ”)
Inc. This integrated family of businesses, offered clients a broad
range of services and technological solutions, including electronic medical
records, outsourced business services, marketing and advertising
initiatives.
Since its
inception in 1993, AAQ grew from a single automotive marketing firm to a
diversified holding company with combined revenues of over $100 million in 2003.
By 1998, AAQ had become the 156th
fastest growing company in the United States on Inc. Magazine’s Inc. 500
list. In 1997, recognizing a tremendous need and opportunity for the
application of document processing solutions to the healthcare industry, Mr. Dan
Schmitt and his two AAQ partners co-founded ABF, to serve insurance companies,
Managed Care Organizations, HMO’s, and Third Party
Administrators. ABF leveraged a combination of proprietary print,
insert and Web-based technology to integrate directly with healthcare company
claim systems. By 2003, ABF had become the 23rd
fastest growing company on the Inc. 500 and #1 in Missouri. In July
of 2003, ABF was sold to publicly-traded WebMD, for cash and stock of $260
million.
Mr.
Schmitt was the leading force of AAQ and ABF business models and the architect
of a methodology for creating new business initiatives. He has since
combined his expertise in business development, administration, finance, and
marketing, to create The Incubation Factory – a privately funded business
incubator. In 2005, Mr. Schmitt opened the doors to “The Factory” in
state of the art renovated 50,000 sq.ft. warehouse in downtown St.
Louis. The Incubation Factory is dedicated to the mission of growing
businesses faster, smarter, and cheaper than ever thought possible. Mr. Schmitt
serves as the Chief Operating Officer of The Incubation Factory.
Mr.
Schmitt earned a B.A. in Marketing from the University of Northern Iowa in
1989. He spends time consulting with each of the businesses while
always keeping an eye to the next business opportunity.
Mr. Randy Delkus is a senior
healthcare executive with experience in both for profit and not for profit
sectors. He received his B.S. in Nursing, Magna Cum Laude, from St.
Louis University and also holds a Business degree from Southern Illinois
University, specializing in Marketing and Management. He completed
his Masters in Business Administration at Webster University in St. Louis,
graduating Magna Cum Laude.
-19-
Mr.
Delkus is currently the President of Anthony, Allan & Quinn (AAQ) and The
Incubation Factory (TIF), a go-to market business incubator that works with
start up companies, universities, individual entrepreneurs and private and
public industry; 75% of its current portfolio has a life sciences and/or
healthcare focus.
Prior to
AAQ, Mr. Delkus served as Chief Executive Officer for one of St. Louis’ most
premier healthcare institutions.
Committees
and Meetings
The board
of directors is currently composed of three people. All board action requires
the approval of a majority of the directors in attendance at a meeting at which
a quorum is present.
We
currently do not have standing audit, nominating or compensation committees. Our
entire board of directors handles the functions that would otherwise be handled
by each of the committees. We intend, however, to establish an audit committee,
a nominating committee and a compensation committee of the board of directors as
soon as practicable. We envision that the audit committee will be primarily
responsible for reviewing the services performed by our independent auditors,
evaluating our accounting policies and our system of internal controls. The
nominating committee would be primarily responsible for nominating directors and
setting policies and procedures for the nomination of directors. The nominating
committee would also be responsible for overseeing the creation and
implementation of our corporate governance policies and procedures. The
compensation committee will be primarily responsible for reviewing and approving
our salary and benefit policies (including equity plans), including compensation
of executive officers.
Upon the
establishment of an audit committee, the board will determine whether any of the
directors qualify as an audit committee financial expert.
Family
Relationships
There are
no family relationship among any of our officers or directors.
Involvement
in Certain Legal Proceedings
To the
best of our knowledge, none of our directors or executive officers has been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement. Except as set forth in our discussion below in “Certain
Relationships and Related Transactions,” none of our directors, director
nominees or executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the
SEC.
CERTAIN
LEGAL PROCEEDINGS
No
director, nominee for director, or executive officer has appeared as a party in
any legal proceeding material to an evaluation of his ability or integrity
during the past five years.
COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
We have
not filed a Form 5 for the year ending August 31, 2009.
ITEM 11. EXECUTIVE COMPENSATION
The
particulars of the compensation paid to the following persons:
(a)
|
our
principal executive officer;
|
|
(b)
|
each
of our two most highly compensated executive officers who were serving as
executive officers at the end of the years ended August 31, 2009 and 2008;
and
|
|
(c)
|
up
to two additional individuals for whom disclosure would have been provided
under (b) but for the fact that the individual was not serving as our
executive officer at the end of the years ended August 31, 2009, 2008 and
2007, who we will collectively refer to as the named executive officers of
our company, are set out in the following summary compensation table,
except that no disclosure is provided for any named executive officer,
other than our principal executive officers, whose total compensation did
not exceed $100,000 for the respective fiscal
year:
|
-20-
SUMMARY
COMPENSATION TABLE
Annual
Compensation
|
Long-Term
Compensation
|
|||||||
Awards
|
Payouts
|
|||||||
Name
And
Principal
Position
|
Year
|
Salary
|
Bonus
|
Other
Annual
Compensation
|
Stock
Award(s)
|
Options
Awards
|
LTIP
Payouts
|
All
Other
Compensation
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
||
Bennett Kurtz, Chief
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Executive Officer |
2008
|
30,000
(1)
|
0
|
0
|
0
|
82,242
(2)
|
0
|
0
|
2009
|
150,000
(1)
|
31,152
(2)
|
||||||
Mr.
Dan Schmitt Director
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
2008
|
0
|
0
|
0
|
0
|
82,242
(2)
|
0
|
0
|
|
2009
|
31,152
(2)
|
|||||||
Mr.
Randy Delkus Director
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
2008
|
0
|
0
|
0
|
17,100
(3)
|
82,242
(2)
|
0
|
0
|
|
2009
|
31,152
(2)
|
|||||||
Mr.
Daniel E. Kahan
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
2008
|
0
|
0
|
0
|
17,100
(3)
|
82,242
(2) (4)
|
0
|
0
|
|
2009
|
31,152
(2) (4)
|
(1)
|
In
consideration of the services to be rendered hereunder, the Company hereby
agrees to pay to Bennett Kurtz to serve as Chief Executive Officer of the
Company $10,000 per month from June 1, 2008 to December 31, 2008 and then
$12,500 per month commencing January 1, 2009 until December 31, 2009.
$150,000 was accrued in the financial statements as at August 31,
2009.
|
(2)
|
On
April 21, 2008 the Company executed stock option agreements with four
directors of the Company in consideration for their appointment to the
Board of Directors. Under the terms of these agreements the
Company granted to each director an option to purchase a total of 10,000
shares of the company's common stock ("Option Shares") in the following
manner: (A) 2,500 shares at an exercise price of $20.00 per share, (B)
3,500 shares at an exercise price of $25.00 per share and (C) 4,000 shares
at an exercise price of $35.00 per share. The grantee shall have the
option to purchase all of the Option Shares after six months of the grant
date of October 22, 2008. The options expire in five
years from the grant date, on April 21, 2008.
|
|
(3)
|
On
September 20, 2007, the Company issued 6,000 shares of common stock in
exchange for services rendered by two individuals on the Board of
Directors. The shares issued were valued at their fair market value of
$5.70 which is the amount that would have been received if the shares had
been issued for cash.
|
|
(4)
|
On
January 8, 2009, Daniel Kahan resigned as a member of the Board of
Directors of Maxlife Fund Corp. We have included information relating to
compensation paid to Mr. Daniel E. Kahan during his tenure as a director
during the period September 1, 2008 to January 8, 2009 (date of
resignation).
|
-21-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the number of shares of Common
Stock beneficially owned on November 30, 2009, the Closing Date, by each person
who is known by the Company to beneficially own 5% or more of the Company’s
Common Stock, each of the Company’s directors and executive officers, and all of
the Company’s directors and executive officers, as a group:
Title of
Class
|
Name
and Address of Beneficial Owner
|
Amount
and Nature
of
Beneficial Ownership
|
Percentage
of Class (1)
|
Common
|
574667
Ontario Limited (2)
32
Prue Avenue
Toronto,
ON M6B 1R4
|
3,450,000
|
21.23%
|
Common
|
974257
Ontario Inc.
355
Hillhurst Blvd
Toronto,
ON M6B 1M9
|
1,170,000
|
7.20%
|
All
officers and directors as a group (1 person)
|
3,450,000
|
21.23%
|
(1)
|
Based
on 16,253,168 shares of our common stock outstanding.
|
(2)
|
574667
Ontario Limited is controlled by Bennett Kurtz and there Mr. Kurtz is
deemed as the beneficial owner of these
shares.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
None
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit
Fees
For the
Company’s fiscal year ended August 31, 2009, we were billed approximately
$22,698 (2008 – $30,000) for professional services rendered for the audit of our
financial statements.
Audit-Related
Fees
For the
Company’s fiscal year ended August 31, 2009 and 2008 we did not incur any fees
for services rendered for other audit related fees.
Tax
Fees
For the
Company’s fiscal year ended August 31, 2009 and 2008 we were billed
approximately $12,751 (2008 - $Nil) for professional services rendered for tax
compliance, tax advice, and tax planning.
All Other
Fees
None.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Effective
May 6, 2003, the Securities and Exchange Commission adopted rules that require
that before our auditor is engaged by us or our subsidiaries to render any
auditing or permitted non-audit related service, the engagement be:
-approved
by our audit committee; or
-entered
into pursuant to pre-approval policies and procedures established by the audit
committee, provided the policies and procedures are detailed as to the
particular service, the audit committee is
informed of each service, and such policies and procedures do not include
delegation of the audit committee's responsibilities to management.
We do not
have an audit committee. Our entire board of directors pre-approves
all services provided by our independent auditors. The pre-approval process has
just been implemented in response to the new rules. Therefore, our board of
directors does not have records of what percentage of the above fees were
pre-approved. However, all of the above services and fees were
reviewed and approved by the entire board of directors either before or after
the respective services were rendered.
-22-
PART
IV
ITEM 15. EXHIBITS
Exhibit Number
|
Exhibit Title
|
31.1
|
Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of
the Sarbanes- Oxley Act of 2002.
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
(b) Reports
of Form 8-K filed in fourth quarter of the fiscal year:
Form 8-K
filed on August 6, 2009 for the announcement that some of its founding
shareholders have agreed to cancel a total of 14,050,000 shares of the Company's
common stock in order to increase overall shareholder value for the
Company.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, there unto duly authorized.
MAXLIFE
FUND CORP.
|
|
By:
|
/s/ Bennett
Kurtz
|
Bennett
Kurtz
|
|
President,
Chief Executive Officer,
Chief
Financial Officer,
Principal
Accounting Officer, and Director
|
Dated:
November 30, 2009
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
NAME
|
TITLE
|
DATE
|
/s/ Bennett Kurtz
|
President,
Chief Executive Officer,
|
November
30, 2009
|
Bennett
Kurtz
|
Chief
Financial Officer, Principal Accounting Officer,
and
Director
|
|
-23-