Attached files
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EX-10.6 - CHRISTIAN STANLEY INC | v173925_ex10-6.htm |
EX-23.1 - CHRISTIAN STANLEY INC | v173925_ex23-1.htm |
EX-10.5 - CHRISTIAN STANLEY INC | v173925_ex10-5.htm |
EX-10.3.1 - CHRISTIAN STANLEY INC | v173925_ex10-3x1.htm |
As filed with the
Securities and Exchange Commission on
|
Registration No.
333-155357
|
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment
No. 3
FORM
S-1
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
CHRISTIAN
STANLEY, INC.
(Exact
name of registrant as specified in its charter)
California
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6199
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20-4433804
|
||
State
or other jurisdiction of
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Primary
Standard Industrial
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(I.R.S.
Employer
|
||
incorporation
or organization
|
Classification
Code Number)
|
Identification
Number)
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12100
Wilshire Boulevard, Suite 800
Los
Angeles, California 90025
310/806-9440
(Address,
including zip code, and telephone number, including area code
of
registrant’s principal executive offices)
Daniel
C.S. Powell
12100
Wilshire Boulevard, Suite 800
Los
Angeles, California 90025
310/806-9440
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
with copy
to
Lee W.
Cassidy, Esq.
Cassidy
& Associates
215
Apolena Avenue
Newport
Beach, California 92662
949/673-4510 949/673-4525(fax)
Approximate
Date of Commencement
|
|
of
proposed sale to the public:
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As
soon as practicable after the effective date of this Registration
Statement.
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If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If
this Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If
this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
registration statement for the same offering. o
If
this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions “large accelerated filer,”“accelerated
file,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
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¨
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Accelerated
filed
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¨
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Non-accelerated
filed
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¨
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Smaller
reporting company
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x
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The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
CALCULATION
OF REGISTRATION FEE
Proposed
|
Proposed
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|||||||||||||
Amount
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Maximum
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Maximum
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Amount
of
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|||||||||||
Title
of Each Class of
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to
be
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Offering
Price
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Aggregate
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Registration
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||||||||||
Securities to be Registered
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Registered
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Per Unit
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Offering Price
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Fee
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||||||||||
Total
Minimum
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||||||||||||||
Common
Stock
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200,000 shares
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$ | 5.00 | $ | 1,000,000 | |||||||||
Total
Maximum
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||||||||||||||
Common
Stock
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4,000,000
shares
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$ | 5.00 | $ | 20,000,000 | $ | 786 |
(1)
|
There
is no current market for the securities and the price at which the Shares
are being offered has been arbitrarily determined by the Company and used
for the purpose of computing the amount of the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as
amended.
|
(2)
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$
4,048 previously paid by electronic
transfer.
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The
information contained in this prospectus is not complete and may be
changed. A registration statement relating to these securities has
been filed with the Securities and Exchange Commission and these securities may
not be sold until that registration statement becomes effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS
|
Subject
to Completion, Dated ______ ,
2009
|
CHRISTIAN
STANLEY, INC.
Minimum
of 200,000 shares and a maximum of 4,000,000 shares of
common
stock offered by the Company at $5.00 per share
This
prospectus relates to the offer and sale of up to a maximum of 4,000,000 shares
of common stock of Christian Stanley, Inc., (the “Shares”), a California
company (the “Company”),no par value per share, to be offered from
time to time by the Company at a price of $5.00 per share.
A minimum
of 200,000 Shares must be sold by the Company before the offering can be
closed. The Company may have additional closings thereafter from time
to time during the offering period. The maximum number of Shares that
can be sold pursuant to the terms of this offering is 4,000,000. All
funds received before the initial closing of the offering will be held in escrow
pursuant to an escrow agreement with Sunwest Trust Company. If the
minimum offering amount is not met by the date of termination of the offering,
all funds, without interest thereon or risk of loss, will be promptly returned
to the subscribers less the greater of the escrow agent disbursement fee of $100
or 1/10th of 1% of the subscribers invested amount. Funds received
after the initial closing will be immediately available to the Company for use
by it. Once the initial minimum offering amount is met and the
initial closing occurs, then there is no fixed amount or number of Shares that
must be reached or sold before the next closing can occur.
The
offering will terminate 24 months from the date of this prospectus unless
earlier fully subscribed or terminated by the Company. The Company
intends to maintain the currency and accuracy of this prospectus and to sell the
Company Shares for a period of up to two years, unless earlier completely sold,
pursuant to Rule 415 of the General Rules and Regulations of the Securities and
Exchange Commission. All costs incurred in the registration of the
Shares are being borne by the Company.
Prior to
this offering, there has been no public market for the Company’s common
stock. No assurances can be given that a public market will develop
following completion of this offering or that, if a market does develop, it will
be sustained. The offering price for the Shares has been arbitrarily
determined by the Company and does not necessarily bear any direct relationship
to the assets, operations, book or other established criteria of value of the
Company. The Shares will become tradeable on the effective date of
the registration statement of which this prospectus is a part.
All or
some Shares may be sold by the officers and directors of the Company including
Daniel Powell, its chief executive officer, Mona Salem, its chief financial
officer, Omar Salem, its chief operating officer, Anand S. Gupta, its senior
manager, and Sharron McCoy, a Company employee. None of these
officers or employees will receive any commission or compensation for the sale
of the Shares. The Company has no current arrangements nor has
entered into any agreement with any underwriters, broker-dealer or selling
agents for the sale of the Shares. If the Company can locate and
enter into an arrangement, the Shares will be sold through such licensed
underwriter, broker-dealer and/or selling agent.
Assumed Price
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Placement
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Proceeds
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||||||||||
To Public
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Agent discount (1)
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to the Company
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||||||||||
Per Common Stock Share | $ |
5.00
per share
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$ |
0.50
per share
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$ |
4.50
per share
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||||||
Total
Minimum 200,000 shares
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$ | 1,000,000 | $ | 100,000 | $ | 900,000 | ||||||
Total
Maximum Offering
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$ | 20,000,000 | $ | 2,000,000 | $ | 18,000,000 |
(1)
Assumes an underwriters discount or commission of 10%. The Company does not know
if it will enter an arrangement with any underwriter or placement agent but if
such arrangement is entered into, the Company expects it will pay customary
commission amounts.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
These
securities involve a high degree of risk. See “RISK FACTORS”
contained in this prospectus beginning on page 4.
Christian
Stanley
12100
Wilshire Boulevard, Suite 800
Los
Angeles, California 90025
310/806-9440
Prospectus
dated __________________, 2009
2
TABLE
OF CONTENTS
Prospectus
Summary
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4
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Risk
Factors
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7
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Forward
Looking Statement
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13
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Use
of Proceeds
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13
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Determination
of Offering Price
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16
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Dividend
Policy
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16
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Dilution
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16
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Plan
of Distribution
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17
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Description
of Securities
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18
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The
Business
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19
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The
Company
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24
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Plan
of Operation
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29
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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35
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Management
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39
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Executive
Compensation
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41
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Security
Ownership of Certain Beneficial Owners and Management
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42
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Certain
Relationships and Related Transactions
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43
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Shares
Eligible for Future Sales
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44
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Legal
Matters
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44
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Experts
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44
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Disclosure
of Commission Position of Indemnification for Securities Act
Liabilities
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44
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Financial
Statements
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46
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Part
II
|
|
Other
Expenses of Issuance and Distribution
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47
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Indemnification
of directors and Officers
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47
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Recent
Sales of Unregistered Securities
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47
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Exhibits
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50
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Undertakings
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51
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Signatures
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53
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_________________
Until
_______________, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
3
PROSPECTUS
SUMMARY
This
summary highlights some information from this prospectus, and it may not contain
all the information important to making an investment decision. A
potential investor should read the following summary together with the more
detailed information regarding the Company and the common stock being sold in
this offering, including “Risk Factors” and the financial statements and related
notes, included elsewhere in this prospectus.
The
Company
History
and Development of the Company
The
Company is a development stage company incorporated in California in March, 2006
to serve as the successor entity to Christian Stanley, LLC, a California limited
liability company formed June 1, 2004. The Company was initially
established primarily to serve as a liaison and broker in the secondary market
for life insurance policies known generally as “life settlements”.
The
Company intends to develop its services as a liaison between sellers of life
insurance policies and buyers of such policies, primarily
institutions. In addition to acting as a liaison and matching sellers
of life settlements with buyers, the Company may directly purchase life
settlements. In such event, the Company intends to bundle
a group of such Company-owned life settlements into packages, register these
packages as securities on a federal and state level and sell interests in such
securities.
On
February 10, 2009, the Company entered into an agreement with Life Settlements
International, LLC, a New York based company with contacts with broker-dealers
in the New York area. Life Settlements International has agreed to
serve as a producer of life settlements for the Company. Through its
relationship with New York based broker-dealer firms, Life Settlements has
access to a large pool of potential life settlement sellers. Life
Settlements International will obtain and purchase life settlements and the
Company will purchase the policies from Life Settlements International. The
Company will bundle several or more of the purchased life settlement contracts
into packages which it will offer and sell as securities to institutional and
retail investors.
On
February 15, 2009, the Company entered into an agreement with Settlement
Benefits Association (“SBA”). Settlement Benefits Association is a
national broker in the life settlements market and provides brokerage services
to the Company. Settlement Benefits Association will process life
settlements and will facilitate obtaining a life settlement or viatical
settlement offer. SBA provides the Company with access to the
institutional life settlement market. The Company and SBA will
negotiate fees corresponding to each transaction on a case-by-case
basis.
The
Company completed its first transaction at the end of 2008 in which it served as
a broker for the sale and purchase of a life settlement policy. The
Company has not completed any additional transactions. The Company intends to
use its relationships with SBA and Life Settlements International to develop
both a network of buyers and a pool of sellers of life settlements.
Risks
and Uncertainties facing the Company
Development of a source of sellers
and a network of potential purchasers. As a development stage
company, the Company has no operating history and has experienced losses since
its inception. The Company’s independent auditors have issued a
report questioning the Company’s ability to continue as a going concern. That
is, the Company needs to create a source of revenue or locate additional
financing in order to continue its developmental plans.
4
One of
the biggest challenges facing the Company is the identifying and targeting a
large volume of potential sellers of the life insurance policies and purchasers
of the policies, primarily institutions. As a developing company, the Company is
in the process of establishing such an on-going supply of sellers and
potential purchasers. To reach potential sellers of life insurance
policies, the Company anticipates utilizing television, radio, public relations,
print media, and internet advertising to create a larger awareness of life
settlement transactions as a viable wealth management tool and as a method of an
immediate influx of money. The Company believes the best way to reach this
market is generally through media advertising and through life insurance
professionals and, to a lesser extent, through professionals engaged in estate
planning, such as attorneys, accountants, and financial planners. The
Company hopes that it can establish an on-going network of such professionals
that would identify and source to the Company potential life settlement
sellers.
Similarly
the Company will initially rely on media advertising and life insurance
professionals and, to a lesser extent, professionals engaged in estate planning,
such as attorneys, accountants, financial planners, insurance professionals and
brokers to refer life settlement purchasers to it by which it hopes to create a
network of purchasers for life settlement policies.
The
Company initially started advertising for client purchasers of life settlements
in 2004, but has only just started, through its relationships with
Life Settlements International, SBA and International Benefits, to develop a
network of potential buyers and producers. If the Company were unable
to develop these a source of potential sellers and a network of institution
purchasers of life settlement policies, it is unlikely that it could develop its
operations to return revenue sufficient to further develop its business
plan.
The
Life Settlement Business
A life
settlement is the sale of the right to be the beneficiary and owner of an
existing life insurance policy for a cash payment that is normally greater than
the policy’s cash surrender value and less than the death
benefit. These transactions involve the purchase for investment
purposes of the life insurance policies typically of terminally ill persons
(“viatical” settlements) or persons over 65 at a discount to their face
value. The Company intends to make a market for these transactions by
matching sellers and purchasers. The Company intends to locate life
insurance policy sellers, conduct an analysis of the policy value, complete the
background disclosure (health releases and reports, medical summaries, etc.) and
then offer the policy on an auction basis to several purchasers, primarily large
institutional investors.
The
Company is in the process of developing and creating its life settlement
business. In order to establish the life settlement business, the
Company needs to identify a continuing source of potential life insurance
sellers and a network of potential purchasers of the such insurance
plans. As a developing company, the Company is in the process
of establishing such an on-going supply of sellers and potential
purchasers. To reach potential sellers of life insurance policies,
the Company anticipates utilizing television, radio, public relations, print
media, and internet advertising to create a larger awareness in the public of
life settlement transactions as a viable wealth management tool and as a method
of an immediate influx of money. The Company believes the best way to reach this
market is generally through media advertising and through life insurance
professionals and, to a lesser extent, through professionals engaged in estate
planning, such as attorneys, accountants, and financial planners.
The
Company intends to serve as a supplier of policies to providers, funders and
investors by doing policy analysis, life expectancy evaluations and gathering of
all pertinent documentation such as medical and policy release authorization
forms. The Company, as a life settlement broker, anticipates that it
will be paid a commission for such services by the purchasers of life insurance
policies).
The
Company believes that institutions will be the primary source as life settlement
purchasers. The Company intends to present life settlement policies
to institutional purchasers. The Company hopes that by presenting such policies
to several potential purchasing institutions, that a bidding and auction will
develop for each policy. The Company realizes that the life
settlement business is not a well-known or highly visible industry and the
Company will need to attract the interest of potential
purchasers. The Company intends to present to such institutions the
relatively risk-free monetary value to these institutions of the purchase of
life settlements. The Company hopes to develop a network of
institutions that are interested in making purchases of life
settlements.
In
addition, the Company intends to develop and offer securitized portfolios of
life settlement contracts to qualified institutional investors which will
provide the original funders of the life insurance settlements a liquid and
profitable exit strategy and provide a versatile financial
instrument. The Company anticipates that it will purchase, with some
of the proceeds from this offering, several life settlements and will bundle
these policies together to form life settlement packages. These
packages will be registered as securities on a federal and state level and the
equity interests in these registered securities will be sold.
5
The
Company also intends to develop an “incubator” life settlement market comprised
of pre-market policies purchased from insureds several years prior to reaching
the life settlement age standard of 65 years. As part of its
development, the Company anticipates acting as a consultant to certain
businesses desiring to add life settlement brokerage activities to
their portfolios. These business plans are based on the
Company’s ability to market the life settlement industry and develop
the awareness of such industry and the potential profitability of participating
in such life settlement transactions. The Company must develop its
strategy to adapt to the marketability and awareness of life settlements and as
such any of the areas in which the Company anticipates to develop may have
obstacles that may delay such development as the Company’s target market, both
for sales and purchases of life insurance policies, becomes increasingly aware
of such market.
Trading
Market
Currently,
there is no trading market for the securities of the Company. The
Company intends to initially apply for admission to quotation of its securities
on the OTC Bulletin Board as soon as possible which may be while this offering
is still in process. There can be no assurance that the Company will
qualify for quotation of its securities on the OTC Bulletin
Board. See
“RISK FACTORS” and “DESCRIPTION OF SECURITIES”.
The
Offering
A minimum
of 200,000 Shares must be sold by the Company before the offering can
close. The Company may have additional closings thereafter from time
to time during the offering period. The maximum number of Shares that
can be sold pursuant to the terms of this offering is 4,000,000. The
offering will terminate 24 months from the date of this prospectus unless
earlier fully subscribed or terminated by the Company.
Common
stock outstanding before the offering
|
81,062,917 | (1) | ||
Maximum
number of shares of common stock offered by the Company
|
4,000,000 | |||
Common
stock outstanding after the offering if maximum number
sold
|
85,062,917 | (2) | ||
Offering Price | $ |
5.00
per share
|
||
Proceeds
to the Company
|
$ | 20,000,000 | (2)(3) |
|
(1)
|
Based
on number of shares outstanding as of the date of this
prospectus.
|
|
(2)
|
Assumes
the sale of the maximum number of
Shares.
|
|
(3)
|
The
Company will offer the Shares directly without payment to any officer or
director of any commission or compensation for sale of the
Shares. The Company will also attempt to locate broker-dealers
or selling agents to participate in the sale of the Shares. In
such cases, the Company will pay customary selling commissions and
expenses of such sales which would reduce the proceeds to the
Company.
|
All funds
received before the initial closing of the offering will be held in escrow
pursuant to an escrow agreement with Sunwest Trust Company, Albuquerque, New
Mexico, an independent third party. Sunwest Trust Company is not a
bank but serves as an independent escrow agent. If, in the event, the
Company engages an underwriter for this offering, it will change the escrow
agent to a banking institution pursuant to the rules of Securities Exchange Act
of 1934. If the minimum offering amount is not met by the date of
termination of the offering, all funds, without interest thereon, will be
promptly returned to the investors less the greater of the escrow agent
disbursement fee of $100 or 1/10th of 1% of the subscribers invested
amount. Funds received after the initial closing will be will be
immediately available to the Company. Once the initial minimum offering amount
is met and the initial closing occurs, then there is no fixed amount or number
of Shares that must be reached or sold before the next closing can
occur.
6
Summary
Financial Information
The
statements of operations data for the nine months ended September 30, 2009 and
2008 and the balance sheet data at September 30, 2009 are derived from our
unaudited condensed financial statements and related notes thereto included
elsewhere in this prospectus. The statement of operations data for
the years ended December 31, 2008 and 2007 and the balance sheet data as of
December 31, 2008 are derived from our audited financial statements and related
notes thereto included elsewhere in this prospectus.
Nine
months ended Sept 30,
|
Year
Ended December 31,
|
|||||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Statement
of operations data
|
||||||||||||||||
Revenue
|
$ | 10,000 | $ | 10,000 | $ | 11,250 | $ | 10,000 | ||||||||
Net
loss
|
$ | (313,731 | ) | $ | (441,540 | ) | (608,503 | ) | (340,035 | ) | ||||||
Net
loss per share, basic and diluted
|
(0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
Weighted
average number of shares
|
||||||||||||||||
outstanding,
weighted and diluted
|
81,062,917 | 80,824,478 | 80,963,924 | 80,510,534 |
Sept
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
Balance
sheet data
|
||||||||
Cash
and cash equivalents
|
$ | 12,030 | $ | 398 | ||||
Working
capital deficiency
|
(743,038 | ) | (447,558 | ) | ||||
Total
assets
|
14,748 | 11,367 | ||||||
Total
stockholders’ deficiency
|
(740,320 | ) | (436,589 | ) |
RISK
FACTORS
A
purchase of any Shares is an investment in the Company’s common stock and
involves a high degree of risk. Investors should consider carefully the
following information about these risks, together with the other information
contained in this prospectus, before the purchase of the Shares. If
any of the following risks actually occur, the business, financial condition or
results of operations of the Company would likely suffer. In this case, the
market price of the common stock could decline, and investors may lose all or
part of the money they paid to buy the Shares.
The
Company's independent auditors have issued a report questioning the Company's
ability to continue as a going concern.
The
report of the Company's independent auditors contained in the Company's
financial statements for the years ended December 31, 2008 and 2007 includes a
paragraph that explains that the Company has experienced recurring losses and
has a stockholders' deficiency at December 31, 2008. These matters
raise substantial doubt regarding the Company's ability to continue as a going
concern.
7
The
Company must develop a life settlement referral network in order to create a
sufficient volume of potential life settlement transactions to develop and
expand its business plan.
An
impediment to the Company’s development and expansion in the life settlement
market could be the difficulty in identifying a large volume of potential
sellers. While the target market is narrow and traditional media is expensive,
the Company anticipates utilizing television, radio, public relations, print
media, and internet advertising to create name recognition of Christian Stanley
as a life settlement broker. The Company believes the best way to
reach this market is generally through media advertising and through life
insurance professionals and, to a lesser extent, through professionals engaged
in estate planning, such as attorneys, accountants, financial planners,
insurance professionals and brokers. The Company will rely heavily on this type
of network to refer life settlement purchasers to it. The relationships with
these professionals is essential to the Company’s operations. The
Company does not anticipate entering into contractual arrangements with the
brokers, financial planners or other professionals and they are free
to do business with competitors. In addition, the pool of referring
professionals is relatively small, which can increase the Company’s reliance on
its existing relationships. A failure to create such a network would leave the
Company without product to sell to its institutional providers and would
seriously impede the ability of the Company to develop as a life settlement
broker.
Although
the Company has been actively soliciting business since 2004, it has not yet
developed a pool of sellers of life settlement policies nor a network of
institutional or private buyers of such potential life settlement
policies.
The
Company has advertised, primarily in the print media, for client purchasers of
life settlements, whether as individual policies or packages as a group since
2004 and has only recently served as a broker for its first life settlement
transaction. The Company has not developed a pool of sellers of life
settlements policies nor a network of purchasers for such policies, but the
Company has entered into relationships with Life Settlements International and
SBA, which relationships the Company believes will be instrumental in developing
such pools and networks.
The
Company is a development-stage company with no operating history of its own and
as such an investor cannot assess the Company’s profitability or
performance.
Because
the Company is a development-stage company with no operating history, it is
impossible for an investor to assess the performance of the Company or to
determine whether the Company will meet its projected business
plan. The Company has limited financial results upon which an
investor may judge its potential. Since 2004 the Company has advertised,
primarily in the print media, for client purchasers of life settlements, whether
as individual policies or packages as a group and has only recently completed
its first transaction in which it served as broker for the sale and purchase of
a life settlement policy. As a Company emerging from the
development-stage, it may in the future experience under-capitalization,
shortages, setbacks and many of the problems, delays and expenses encountered by
any early stage business. An investor will be required to make an investment
decision based solely on the Company’s management’s history and its projected
operations in light of the risks, expenses and uncertainties that may be
encountered by engaging in the life settlement industry.
The
Company is a development-stage company and has little experience in purchasing
and pricing life settlement policies.
The
Company is a development-stage company and as such has little experience in
purchasing life settlements or pricing such settlements for purchase and
subsequent sale. Such lack of experience may result in the Company
experiencing difficulty in determining a price for any particular life
settlement and may cause to pay more than a competitive price or may result in
it not making any such purchase. If the Company consistently overpays
for life settlement policies, it will likely be unable to resell the policy to
an institution or other large purchaser. In addition, overpayment may
make it difficult to bundle the life settlement policies into a securitized
format for resale. The Company maintains a relationship with
Settlement Benefits Association and Life Settlements International for guidance
and access to personnel with experience in purchasing and pricing life
settlements.
8
Reliance
on third party agreements and relationships for development of the Company's
business.
The
Company has entered into relationships with Settlement Benefits Association and
Life Settlements International. These companies will serve the
Company in obtaining a source of life settlement policies, locating purchasers
of the policies and acting as the licensed brokerage arm to complete the
transaction. Until the Company can develop its own internal licensed
brokerage or acquired one already licenses, the Company will be dependent on the
SBA for closing its primary transactions. Similarly, the Company is highly
dependent on the assistance of Life Settlements International in locating
sources of life settlements and purchasers for the life settlement
policies. If the Company lost the services of either of these
companies prior to it having developed an internal structure of sourcing
potential life insurance sellers and purchasers and employing or contracting
with licensed brokerage individuals to handle effecting the transactions, the
Company would not be able to functionally continue until and unless it were able
to find alternate sources of sellers and purchasers and licensed
brokers.
The
Company will require additional capital in order to execute its business
plan.
The
Company is a development-stage company, has limited operations and is relying on
this offering to finance its development and operations. As of September 30,
2009, the Company had accumulated losses of $2,801,437. The Company
will require additional capital in order to execute its current business plan
and as a result, the Company may not be able to successfully implement its
business model. The Company estimates it will likely require approximately
$1,000,000 to begin its initial development of basic sales and marketing and
will need up to the maximum offering amount of $20,000,000 to execute its
business plan as herein described. If the Company raises an amount
less that the projected amount, it will not be able to develop all aspects of
its business plan and will develop such plan more incrementally.
The
Company is a development stage company and has a correspondingly small financial
and accounting organization. Being a public company may strain the Company's
resources, divert management’s attention and affect its ability to attract and
retain qualified directors.
The
Company is a development stage company with a finance and accounting
organization that has been geared toward its operations as a small privately
owned company; however, the rigorous demands of being a public reporting company
will require a larger finance and accounting group. As a public company, the
Company will be subject to the reporting requirements of the Securities Exchange
Act of 1934. The requirements of these laws and the rules and regulations
promulgated thereunder entail significant accounting, legal and financial
compliance costs, and have made, and will continue to make, some activities more
difficult, time consuming or costly and may place significant strain on the
Company's personnel, systems and resources.
The
Securities Exchange Act requires, among other things, that the Company maintain
effective disclosure controls and procedures and internal control over financial
reporting. In order to establish the requisite disclosure controls and
procedures and internal control over financial reporting, significant resources
and management oversight are required. As a result, management’s attention may
be diverted from other business concerns, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
These
rules and regulations may also make it difficult and expensive for the Company
to obtain director and officer liability insurance. If the Company is unable to
obtain adequate director and officer insurance, its ability to recruit and
retain qualified officers and directors, especially those directors who may be
deemed independent, will be significantly curtailed.
If
the Company is unable to generate sufficient cash from operations, it may find
it necessary to curtail development and operational activities.
The
Company has an extensive business plan hinged on its ability to match sellers of
life insurance policies known generally as “life settlements” (policies taken on
persons shortened life expectancies i.e. terminally ill or elderly persons) with
purchasers of those insurance policies. If the Company is unable to
locate a sufficient number of holders of such life settlement policies or to
locate a sufficient number of purchasers (generally large institutions) of such
policies, then it would not be able to proceed with its business plan or
possibly to develop operations at all.
9
The
Company is not experienced in acquisitions and its use of proceeds to purchase a
broker-dealer firm or other entity may be unfeasible or difficult.
The
Company has earmarked approximately 17% of anticipated proceeds for acquisitions
(unless only the minimum offering amount is raised in which case the earmark for
acquisitions constitutes approximately 47% of anticipated
proceeds). It will use the first $100,000 of these earmarked amounts
specifically for the acquisition of a broker-dealer. The Company
believes that the acquisition of a broker-dealer firm will facilitate the
securitization of life settlement packages, will assist in developing a pool of
potential life settlement sellers and will provide additional contacts to
potential life settlement purchasers. However, the Company has not
experience in the acquisition of a broker-dealer or with any
acquisitions. Because of such lack of experience in acquisitions, the
Company may find it more difficult to finalize any such transaction on terms
acceptable to it. In addition, other than proceeds raised from the
offering, the Company does not have the financial resources to undertake any
such acquisition.
Every
life insurance policy acquired under a life settlement transaction is different
and each policy purchased is typically negotiated on an arms-length basis so it
is difficult to create projections or forecasts of revenue.
There is
no fixed formula that applies to the acquisition of a life insurance policy as
each policy is negotiated based on variables particular to each
individual. As such, it is difficult to make accurate forecasts of
possible life settlement stream and commissions arising therefrom. Without such
financial forecasts the Company may not be able to effectively plan for its
development or use of resources.
An
unanticipated increase in premiums or failure to pay premiums by the life
settlement purchaser could result in a lapse and cancellation of the policy
which would result in no death benefit payout.
The
purchaser of the policy in a life settlement is required to pay all subsequent
premiums due over the life of the policy acquired. Failure to pay premiums when
due can result in termination (lapse) of the policy and the loss of the
investment in that policy. Premiums generally will increase, on an annual basis,
although such an increase is not expected to exceed 10% per year. Expectation of
this percentage as a maximum annual increase is based upon historical experience
of insurance policies generally, and could be significantly more, as many
insurance policies do not guarantee premium rates and such rates may be
increased. It is possible that the premiums, over a period of years,
may increase so as to negate any positive cash flow that would have been
received on the payment of the death benefit.
The Company will operate in markets
that may change dramatically and is heavily dependent on a sufficient number of
institutional purchasers committing to the industry.
The
Company will operate in the viatical and age-based life settlement markets. The
viatical settlement market is approximately 15 years old. While this market saw
significant growth in its initial years as a result of the AIDS epidemic, the
market growth in recent years has moderated somewhat. The age-based life
settlement market is less than a decade old. How and to what extent both markets
will develop is uncertain. As more insureds become aware of life settlements as
a financial planning option, the Company expects the size of the market to grow
substantially. While the Company believes that it can originate and place
age-based life settlements as well as viatical settlements, any dramatic growth
will depend heavily upon the entry of institutional purchasers. Until a
sufficient number of institutional purchasers commit to this industry and create
a relatively stable demand, the Company’s financial performance during any
period could be dramatically affected by the entry or departure from the market
of one or more institutional providers. Whether the Company can
attract institutional purchasers will depend on its ability to convince these
purchasers that it can originate sufficient numbers of qualified policies for
purchase and that the Company’s policy analysis and pricing practices are
sound.
10
The
Company’s founder beneficially owns and will continue to own a majority of the
Company’s common stock and, as a result, can exercise control over shareholder
and corporate actions.
Mr.
Daniel C.S. Powell, the founder and president of the Company, is currently the
beneficial owner of approximately 79% of the Company’s outstanding common stock,
and assuming sale of all the Shares, will own 75% of the Company's then
outstanding common stock upon closing of the offering. As such, he will be able
to control most matters requiring approval by shareholders, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control, which in turn could have a material adverse effect on the
market price of the Company’s common stock or prevent shareholders from
realizing a premium over the market price for their Shares of common
stock.
The
Company depends on its president to manage its business
effectively.
The
Company's future success is dependent in large part upon its ability to
understand and develop the business plan and to attract and retain highly
skilled managerial, sales and marketing personnel. In particular, due to the
relatively early stage of the Company's business, its future success is highly
dependent on its president and founder, to provide the necessary experience and
background to execute the Company's business plan. The loss of his
services could impede, particularly initially as the Company builds a record and
reputation, its ability to develop its objectives, particularly in its ability
to develop a core of institutional purchasers of the life settlement policies
and as such would negatively impact the Company's possible
development.
Investigation
by the Securities and Exchange Commission of the earlier sale of the Company’s
shares may adversely affect the Company.
In July,
2008, the California Regional Office of the Securities and Exchange Commission
(the “SEC”) opened a formal order of investigation of the president of the
Company, Daniel C.S. Powell. Although the status of such
investigation and its specific nature are unclear, it appears that its principal
focus is whether the private sales of the Company’s stock to date has complied
with the rules and regulations governing the such private sales of
securities. Depending upon its initial findings after review, the SEC
may determine to expand its investigation to include the Company. If the SEC
determines that the rules governing the private sale of securities have been
violated, it may impose a variety of remedies, including requiring that a
recision offer be made to the purchasers of the stock, by which investors would
receive back their investment funds with interest. If the SEC made a
determination of fraud, it would have additional remedies available including
fines and/or the temporary or permanent bar of Mr. Powell from acting as an
officer, director or control person of a public company. The Company does not
have the financial ability to complete an offer of recision to its investors and
such a determination would likely have a severe adverse impact on the ability of
the Company to continue to attempt to develop operations. Similarly, the
imposition of a permanent or temporary bar of Mr. Powell from acting as an
officer or director of a public company would require Mr. Powell’s resignation
from such offices with the Company and would also likely have a severe adverse
impact on the ability of the Company to continue. Since its initial
contact with Mr. Powell, there has been no further contact by the SEC with Mr.
Powell and the nature and status of any investigation remain
unclear.
The
Company will depend on growth in the life settlement market in order to develop
and establish itself as a life settlement broker.
While
the market for viatical life settlements will provide opportunity for growth,
the Company believes that the greater opportunity for growth lies in the
age-based life settlement market. However, the are many factors which will
affect this market. Growth of the age-based life market and the Company’s
entrance into and expansion within the market may be negatively affected by a
variety of factors, including:
·
|
the
inability to locate sufficient numbers of life settlors and agents to
source life settlors;
|
·
|
the
inability to convince potential settlors of the benefits of life
settlements;
|
·
|
the
inability to attract new institutional purchasers and securitization
participants;
|
·
|
competition
from other life settlement
companies;
|
·
|
negative
publicity about the market; and
|
·
|
the
adoption of additional governmental
regulation.
|
11
In
addition, the life settlement market may evolve in ways the Company has not
anticipated and it 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 anticipated, the Company’s development, business, financial condition
and operations would be materially adversely affected.
Potential
life settlement purchasers will depend on the Company’s abilities to predict
life expectancies and if such predictions are generally inaccurate, the Company
will lose purchasers.
A
purchaser's investment return from a life settlement depends primarily on the
demise of the insured. The Company will price life settlements based on the
anticipated life expectancy of an insured and, for viatical settlements, 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. In addition, unanticipated medical advances
and new pharmaceuticals may be introduced that will make such earlier actuarial
data inaccurate. To mitigate the risk that an insured will outlive
the predicted life expectancy, viatical and age-based life settlement purchasers
must be able to bear a non-liquid investment for an indeterminate period of
time.
If the
Company underestimates average life expectancies, purchasers will not realize
anticipated returns, demand for the Company’s product will fall, and purchasers
will invest their funds elsewhere. In addition, amounts escrowed for premiums
may be insufficient to keep the policy in force. If the Company overestimates
average life expectancies, the settlement prices offered life settlors will fall
below market levels, supply will decrease, and life settlors will opt for other
alternatives.
To foster
the integrity of its pricing systems, the Company anticipates using both
in-house and outside experts and research, including published actuarial
data. Either over- or underestimation of life expectancies could
result in a loss of on-going purchasers or providers, and those losses could
have a material adverse effect on the Company’s business, financial condition,
and results of operations.
Government regulation could
negatively impact the business.
At least
36 states have now adopted some version of the model viatical and life
settlement law promulgated by the National Association of Insurance
Commissioners or another form of regulation governing viatical settlement
companies in some way. These laws generally require the licensing of viatical
providers and brokers, require the filing and approval of viatical settlement
agreements and disclosure statements, and describe the content of disclosures
that must be made to potential settlors, describe various periodic reporting
requirements for viatical settlement companies and prohibit certain business
practices deemed abusive. Settlement Benefits Association will assist
the Company by as acting as facilitator when certain licenses may be required
for the filing and approval of viatical settlements. The Company
intends to act as a facilitator and liaison in matching the seller of the life
insurance policy with the purchaser of the life insurance
policy. Because the industry is relatively new and because there has
been a history of certain abuses in the industry, particularly in the viatical
settlement market, the Company believes that there may be increased regulation
on both a state and federal level. It is impossible to predict what
such regulation would encompass, but any regulation would most likely be at
least include additional reporting requirements and possibly even regulation of
additional aspects of the industry.
There has been no prior public market
for the Company’s Shares and the lack of such a market may make resale of the
stock difficult.
No prior
public market has existed for the Company’s securities and the Company cannot
assure any investor that a market will develop subsequent to this
offering. An investor must be fully aware of the long-term nature of
an investment in the Company. The Company intends to apply for
quotation of its common stock on the OTC Bulletin Board as soon as possible
which may be while this offering is still in process. However, the
Company does not know if it will be successful in such application, how long
such application will take, or, that if successful, that a market for the common
stock will ever develop or continue on the OTC Bulletin Board. If for any reason
the common stock is not listed on the OTC Bulletin Board or a public trading
market does not otherwise develop, investors in the offering may have difficulty
selling their common stock should they desire to do so. If the
Company is not successful in its application for quotation on the OTC Bulletin
Board, it will apply to have its securities quoted by the Pink OTC
Markets, Inc., real-time quotation service for over-the-counter
equities.
12
The
Company does not intend to pay dividends to its stockholders, so investors will
not receive any return on investment in the Company prior to selling their
interest in it.
The
Company does not project paying dividends but anticipates that it will retain
future earnings for funding the Company’s growth and
development. Therefore, investors should not expect the Company to
pay dividends in the foreseeable future. As a result, investors will
not receive any return on their investment prior to selling their Shares in the
Company, if and when a market for such Shares develops. Furthermore,
even if a market for the Company’s securities does develop, there is no
guarantee that the market price for the shares would be equal to or more than
the initial per share investment price paid by any investor. There is
a possibility that the shares could lose all or a significant portion of their
value from the initial price paid in this offering.
The
Company’s stock may be considered a penny stock and any investment in the
Company’s stock will be considered a high-risk investment and subject to
restrictions on marketability.
If the
Shares commence trading, the trading price of the Company's common stock may be
below $5.00 per share. If the price of the common stock is below such
level, trading in its common stock would be subject to the requirements of
certain rules promulgated under the Securities Exchange Act of 1934, as
amended. These rules require additional disclosure by broker-dealers
in connection with any trades generally involving any non-NASDAQ equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Such rules require the delivery, before any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must determine the suitability of the penny
stock for the purchaser and receive the purchaser’s written consent to the
transactions before sale. The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from effecting
transactions in the Company’s common stock which could impact the liquidity of
the Company’s common stock.
Forward-Looking
Statements
This
prospectus contains, in addition to historical information, certain information,
assumptions and discussions that may constitute forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially than those projected or
anticipated. Actual results could differ materially from those
projected in the forward-looking statements. Although the Company believes its
assumptions underlying the forward-looking statements are reasonable, the
Company cannot assure an investor that the forward-looking statements set out in
this prospectus will prove to be accurate. The Company’s businesses
can be affected by, without limitation, such things as natural disasters,
economic trends, international strife or upheavals, consumer demand patterns,
labor relations, existing and new competition, consolidation, and growth
patterns within the industries in which the Company competes and any
deterioration in the economy may individually or in combination impact future
results.
USE
OF PROCEEDS
The
Company will receive proceeds from the sale of the Shares assuming the minimum
offering of 200,000 shares is concluded. The Company does not
know how many Shares may be sold or the aggregate amount of proceeds it may
receive from sales. The Company anticipates that it will use the
proceeds from the sale of any of the Shares as listed below. If less
than the maximum number of Shares offered is sold and less than the maximum
proceeds are received, the Company anticipates that the use of proceeds listed
below will be proportionately reduced where possible.
13
If
all 4,000,000
|
If
2,000,000
|
If
1,000,000
|
If
200,000
|
|||||||||||||
Shares
sold
|
Shares
sold
|
Shares
sold
|
Shares
sold
|
|||||||||||||
($20,000,000)
|
($10,000,000)
|
($5,000,000)
|
($1,000,000)
|
|||||||||||||
Sales
and Marketing and office
Administration
|
$ | 2,250,000 | $ | 1,125,000 | $ | 562,500 | $ | 500,000 | ||||||||
Mergers
and Acquisitions (1)
|
3,500,000 | 1,750,000 | 875,000 | 475,000 | ||||||||||||
Life
Settlement Securitization and
Incubator
Program
|
7,000,000 | 3,500,000 | 1,750,000 | (5) | - | |||||||||||
Shareholder
“Collateral Fund”(2)
|
4,000,000 | 2,000,000 | 1,000,000 | - | ||||||||||||
Public
Relations and Advertising
|
2,250,000 | 1,125,000 | 562,500 | - | ||||||||||||
Placement
Agent Fees (5%) (3)(4)
|
1,000,000 | 500,000 | 250,000 | 25,000 | ||||||||||||
Total
|
$ | 20,000,000 | $ | 10,000,000 | $ | 5,000,000 | $ | 1,000,000 |
(1) The
Company may acquire companies that it believes will assist in the development
and sale of the life-settlement process such as broker-dealers and has earmarked
approximately the first$100,000 of the money allocated for mergers and
acquisitions in the acquisition of a broker-dealer firm. In 2009, the
Company entered into a preliminary agreement to purchase a broker-dealer and
deposited $20,000 into an escrow account but subsequently the transaction was
canceled and escrow funds, minus expenses, returned.
(2) As a
method of protecting shareholders and providing some risk management, the
Company has determined to create what it calls a “shareholder collateral
fund”. The funds will be placed in a special segregated account and
used to buy life settlement policies for the account of the Company for the
interests of the shareholders to protect against principal
loss. These funds and the policies purchased for the account of the
Company are intended to be separate from the policies that the Company purchases
for securitization. The Company anticipates that with $4,000,000 it will use
$3,000,000 to purchase $30,000,000 of life settlement policies and use the
remaining $1,000,000 to pay the premiums. Likewise if 2,000,000
Shares are sold, the Company will allocate $2,000,000 for the shareholder
collateral fund from which it will use $1,500,000 to purchase $15,000,000 of
life settlement policies and use the remaining $500,000 to pay the premiums on
these policies until maturity. Proceeds from the death benefits
corresponding to these life settlement policies will be used to underpin the
principal of investors.
(3) The
Company is seeking an underwriter, broker-dealer or selling agent to sell the
Shares. The Company has not entered into any arrangements with any
underwriter, broker-dealer or selling agent as of the date of this
prospectus.
(4) At
the time of this prospectus, the Company has not located a broker-dealer or
selling agent to sell the Shares. The Company does not know if and
when it will be able to locate such any such broker-dealer or selling
agent. While it is seeking a broker-dealer or selling agent to sell
the Shares, the Company, through its officers, will offer the Shares to current
shareholders as well as contacts. Based on the foregoing, the Company
is estimating that probably at least 50% of the sale of the Shares will be made
by officers of Company before the Company can locate, negotiate and finalize any
arrangement with any underwriter. Officers will not receive any
commissions for any sales of the Shares.
(5) The
$1,750,000 noted would be used for the incubator program. The Company
anticipates that approximately $2,500,000 is needed to start the securitization
program.
14
Discussion
of Use of Proceeds Items
Sales and
Marketing: The Company hopes to capitalize on the life settlement
market opportunity by investing in branding the “Christian Stanley” name through
sales and marketing campaigns. The company's sales and marketing department will
be bifurcated into retail and institutional divisions, which maintain products
and services tailored for each respective market. The Company intends to employ
national television, radio, billboards, electronic-billboards, call centers,
print media, internet advertising, and word-of-mouth marketing to build consumer
awareness and confidence in the Company and its products and services. The
Marketing Division will be focused on creating business-to-business
relationships with national organizations that will be effective in
cross-marketing the Company and its related products and services such as CPAs,
insurance agents, business brokers, estate professionals, real estate
professionals, and assisted-living centers. To foster these relationships, the
Company intends to invest in trade conferences, trade publications, venture
partnerships, and institutional call centers.
Mergers
and Acquisitions: The Company will be actively seeking to acquire a
broker-dealer firm upon conclusion of this offering. The Company
anticipates that it will use the approximately $100,000 of the funds earmarked
for acquisitions in order to acquire such a firm. The Company has
entered into a Prospective Buyer Agreement with Broker Dealer Exchange, a
company engaged in the business of introducing prospective buyers to prospective
sellers. The Company will put 10% of the purchase price in escrow at
the time of an introduction and negotiations with such a broker-dealer firm are
commenced. If the Company enters into an acquisition from an
introduction by Broker Dealer Exchange, it will pay Broker Dealer Exchange a
finders fee of not more than 10% of the acquisition price. The
Company will not enter into any transaction with any contact introduced by
Broker Dealer Exchange for a period of two years from the date of the
agreement. The Company will also keep confidential the identity of
all potential sellers introduced to it by Broker Dealer Exchange. The Company
has not had any introductions as of the date of this prospectus and does not
intend to seek any such acquisition until the offering has closed.
The
Company’s growth strategy may employ mergers and acquisition activity as a
growth catalyst. The Company may acquire target companies that it believes hold
value when leveraged into the life settlement industry such as assisted-living
centers or it may acquire companies that it believes will assist in the
development and sale of the life-settlement process such as broker-dealers,
industrial-loan company, call centers, sales and marketing, and
public-relations.
Life
Settlement Securitization: The Company intends to acquire life
settlement that provide a positive rate of return upon maturity of the policy
relative to the annual premiums and cost of acquisition. The Company
intends to acquire life settlement assets and repackage these assets into
derivative instruments, which are insurance-linked securities. These securities
will be distributed to investors in the form of an exchange-traded fund
structured by the Company that will enable investors to earn a rate-of-return
predicated upon the performance of a reference portfolio of life settlement
assets.
Public
Relations and Advertising: The Company believes that at this present
time, the American public is not fully aware of the life settlement asset market
and the potential benefits that may be realized utilizing life settlement
transactions. This dearth of awareness is, in the Company’s view, caused by the
lack of active public relations campaigns predicted upon the life settlements
market place. The Company intends to employ its brand and trademarks as tools to
differentiate itself from competitors and create public awareness with respect
to the industry. The Company intends to lobby law makers and legislatures at
local, state, and national governmental levels for the purpose of bringing about
positive regulations, greater knowledge, and balanced sociological perspectives
concerning the life settlements industry and the products and services of the
Company.
15
DETERMINATION
OF OFFERING PRICE
There is
no public market for the Company’s common stock and the price at which the
Shares are being offered has been arbitrarily determined by the Company based on
the Company’s belief in its internal projections, anticipated growth and market
potential. This price does not necessarily bear any direct
relationship to the assets, operations, book or other established criteria of
value of the Company but represents solely the opinion of management that the
Company will develop all or a portion of its business plan and will develop a
market value. Although a development-stage .company, since 2004, the
Company has spent considerable time and effort through advertising, marketing
and public relations in developing a recognized name in the life settlements
industry. The Company believes that because of its development of the
brand name, it is positioned for development in the life settlement industry
upon the raising of capital in this offering. The Company believes
that such development and the products and services intended to be offered by
the Company perform particularly well during periods of economic recession
because life settlement transactions provide immediate capital to the seller and
long-term gain for the purchaser. In addition, with the maturation of
the senior demographic (the “baby boomer” generation), the life settlement
market stands to grow substantially. The Company has based its $5.00
per share offering price on the what it views as the potential future value of
the brand name and anticipated growth of the Company.
DIVIDEND
POLICY
The
Company does not anticipate that it will declare dividends in the foreseeable
future but rather intends to use any future earnings for the development of the
business.
DILUTION
Purchasers
of the Shares may experience immediate dilution in the value of their shares of
common stock. Purchasers in this offering will pay $5.00 per Share
but immediately after purchase the value of those Shares will be
reduced. Dilution represents the difference between the initial
public offering price per share paid by purchasers and the net tangible book
value per share immediately after completion of the offering. Net
tangible book value per share is the net tangible assets of the Company (total
assets less total liabilities less intangible assets), divided by the number of
shares of common stock outstanding.
Prior to
the offering, the Company had a net tangible book value deficiency of ($740,320)
or $(0.01) per share with 81,062,917 shares of common stock
outstanding.
The
Company intends to sell up to 4,000,000 Shares at $5.00 per
Share. This would result in an adjusted net tangible book value of
$18,259,680 (assuming offering commissions of $1,000,000) with 85,062,917 shares
of common stock outstanding or $0.21 per Share.
Assuming
Sale of all 4,000,000 Shares (resulting in $20,000,000 in gross
proceeds)
Shares
Outstanding
|
Total
Paid
|
|||||||||||||||
Number
|
Percent
|
Amount
|
Percent
|
|||||||||||||
Existing
Shareholders
|
81,062,917 | 95 | % | $ | 1,373,980 | 6 | % | |||||||||
New
Investors
|
4,000,000 | 5 | % | $ | 20,000,000 | 94 | % | |||||||||
Total
|
85,062,917 | 100 | % | $ | 21,373,980 | 100 | % | |||||||||
Per
Share offering price
|
$ | 5.00 | ||||||||||||||
Net
tangible book value deficiency per share before offering
|
$ | (0.01 | ) | |||||||||||||
Pro
forma increase to net tangible book value per share attributable to
offering
|
0.22 | |||||||||||||||
Pro
forma net tangible book value per share after this
offering
|
0.21 | |||||||||||||||
Dilution
per share to new investors
|
$ | 4.79 |
16
Assuming Sale of 2,000,000
Shares (resulting in $10,000,000 in gross proceeds)
Shares
Outstanding
|
Total
Paid
|
|||||||||||||||
Number
|
Percent
|
Amount
|
Percent
|
|||||||||||||
Existing
Shareholders
|
81,062,917 | 98 | % | $ | 1,373,980 | 11 | % | |||||||||
New
Investors
|
2,000,000 | 2 | % | $ | 10,000,000 | 89 | % | |||||||||
Total
|
83,062,917 | 100 | % | $ | 11,373,980 | 100 | % | |||||||||
Per
Share offering price
|
$ | 5.00 | ||||||||||||||
Net
tangible book value deficiency per share before offering
|
$ | (0.01 | ) | |||||||||||||
Pro
forma increase to net tangible book value per share attributable to
offering
|
0.10 | |||||||||||||||
Pro
forma net tangible book value per share after this
offering
|
0.09 | |||||||||||||||
Dilution
per share to new investors
|
$ | 4.91 |
PLAN
OF DISTRIBUTION
As of the
date of this prospectus, the Company has not entered into any arrangements with
any underwriter for the sale of the Shares. The Company intends to
attempt to locate an underwriter or broker-dealer or selling agent to sell the
Shares. Some Shares may be sold by certain officers and directors of
the Company, none of whom will receive any commission or compensation for the
sale of the Shares. The Company has no arrangements nor has entered
into any agreement with any underwriters, broker-dealer or selling agents for
the sale of the Shares. The executive officers of the Company will be
offering the Shares for sale without commission or payment. The
offering will be presented by the Company primarily through mail, telephone,
electronic transmission and direct meetings in those states in which it has
registered the Shares.
A minimum
of 200,000 Shares must be sold by the Company before the offering can be
closed. The Company, at its sole discretion, may have additional
closings thereafter from time to time during the offering period. The
maximum number of Shares that can be sold pursuant to the terms of this offering
is 4,000,000. All funds received before the initial closing of the
offering will be held in escrow pursuant to an escrow agreement with Sunwest
Trust Company, an independent third party. If the minimum offering
amount is not met by the date of termination of the offering, all funds, without
interest thereon, will be promptly returned to the investors. Funds
received after the initial closing will be will be immediately available to the
Company. If the minimum offering amount is met and the initial closing occurs,
then there is no fixed amount or number of additional Shares that must be sold
before the next closing can occur.
The
Company intends to maintain the currency and accuracy of this prospectus and to
sell the Shares for a period of up to two years, unless earlier completely sold,
pursuant to Rule 415 of the General Rules and Regulations of the Securities and
Exchange Commission.
Pursuant
to the provisions of Rule 3a4-1 of the Securities Exchange Act of 1934, none of
the officers offering the Shares is considered to be a broker of such securities
as (i) no officer is subject to any statutory disqualification, (ii) no officer
is nor will be compensated by commissions for sales of the securities (iii)no
officer is associated with a broker or dealer (iv) all officers are primarily
employed on behalf of the Company in substantial duties and (v) no officer
participates in offering and selling securities more than once every 12
months.
The
offering will terminate 24 months following the date of this prospectus unless
earlier closed.
17
Resales
of the Securities under State Securities Laws
The
National Securities Market Improvement Act of 1996 (“NSMIA”) limits the
authority of states to impose restrictions upon resales of securities made
pursuant to Sections 4(1) and 4(3) of the Securities Act of companies which file
reports under Sections 13 or 15(d) of the Securities Exchange Act. Resales of
the Shares in the secondary market will be made pursuant to Section 4(1) of the
Securities Act (sales other than by an issuer, underwriter or
broker).
Escrow
Agreement
The
Company entered an agreement with Sunwest Trust Company, Albuquerque, New
Mexico, to act as escrow agent for the offering. The escrow agent
acts as a depository only without liability or responsibility for any other
matters. Pursuant to the terms of the escrow agreement all funds raised will be
deposited with the escrow agent who will place all funds in a non-interest
bearing account. The escrow agent will receive: (i) a set-up fee of
$150 as a one-time charge and (ii) disbursement fees of the greater of
$100 or 1/10th of 1% of invested amount per each investor. The
escrow agent shall hold the funds in the escrow account until
(i) the
minimum subscription amount is met in which event the escrow agent will release
the funds to the Company less the escrow agent's disbursement fee;
or
(ii) the
termination date is reached and the minimum subscription amount is not met in
which event the escrow agent will return to each investor the amount of that
investor's deposit less the escrow agent's disbursement fee.
DESCRIPTION
OF SECURITIES
Capitalization
The
Company is authorized to issue 100,000,000 shares of common stock of which
81,062,917 shares were outstanding as of the date of the registration statement
of which this prospectus is a part.
Common
Stock
The
Company is registering 4,000,000 shares of its common stock for sale to the
public at a price of $5.00 per Share.
Holders
of shares of common stock are entitled to one vote for each share on all matters
to be voted on by the shareholders. Holders of common stock do not have
cumulative voting rights. Holders of common stock are entitled to share ratably
in dividends, if any, as may be declared from time to time by the board of
directors in its discretion from funds legally available therefor. In the event
of a liquidation, dissolution or winding up, the holders of common stock are
entitled to share pro rata all assets remaining after payment in full of all
liabilities.
Holders
of common stock have no preemptive rights to purchase the Company’s common
stock. There are no conversion or redemption rights or sinking fund provisions
with respect to the common stock. The Company may issue additional
shares of common stock which could dilute its current shareholder's share
value.
Additional
Information Describing Securities
Reference
is made to applicable statutes of the state of California for a description
concerning statutory rights and liabilities of shareholders.
18
No
Trading Market
There is
currently no established public trading market for the Company’s securities. A
trading market in the securities may never develop.
Admission
to Quotation on the OTC Bulletin Board
If the
Company meets the qualifications, it intends to apply for quotation of its
securities on the OTC Bulletin Board. The OTC Bulletin Board differs from
national and regional stock exchanges in that it (1) is not situated in a single
location but operates through communication of bids, offers and confirmations
between broker-dealers and (2) securities admitted to quotation are offered by
one or more broker-dealers rather than the “specialist” common to stock
exchanges. To qualify for quotation on the OTC Bulletin Board, an equity
security must have one registered broker-dealer, known as the market maker,
willing to list bid or sale quotations and to sponsor the company
listing.
Penny
Stock Regulation
Penny
stocks generally are equity securities with a price of less than $5.00 per share
other than securities registered on national securities exchanges or listed on
the Nasdaq Stock Market, provided that current price and volume information with
respect to transactions in such securities are provided by the exchange or
system. The penny stock rules impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a
disclosure schedule prescribed by the SEC relating to the penny stock market.
The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. Because of these penny stock
rules, broker-dealers may be restricted in their ability to sell the Company’s
common stock. The foregoing required penny stock restrictions will not apply to
the Company’s common stock if such stock reaches and maintains a market price of
$5.00 per share or greater.
Dividends
The
Company does not anticipate declaring dividends but utilizing any funds for
further development of the technology and the marketing of its
applications.
THE
BUSINESS
The
Business: Life Settlement Market
When an
insured has a reasonably definable life expectancy because of terminal illness
or because of advanced age, a present value for a life insurance policy can be
reasonably calculated. This is the essence of pricing life settlement
transactions. The life settlement market is a secondary market for life
insurance policies. Life insurance is private
property. Like cars, homes, stocks and bonds, it can be sold in
accordance with applicable laws. An age-based life settlement is the sale by the
owner of a life insurance policy on a person 65 years or older for a lump-sum of
cash that is greater than the cash surrender value of the policy, but less than
the death benefit of the policy. A viatical settlement is the sale of
a life insurance policy by a terminally ill person.
The
viatical settlement market is approximately 15 years old with its origins
stemming from the onslaught of the AIDS epidemic and the immediate need for cash
by victims of the epidemic. By selling the policy, the insured
receives an immediate cash payment. The purchaser takes ownership of the policy
at a discount to its face value and receives the death benefit under the policy
when the settlor dies. The new owner is responsible for the
continuing premiums due on the policy until death of the
insured.
19
The
age-based life settlement market is approximately ten years old. 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
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. Life settlements are also an
attractive transaction for the corporate owner of a keyman or insurance policy
on an employee who no longer works for the Company and such insurance policy is
no longer applicable. Because these policies often have substantially
large face values, the purchasers of life policies are generally institutional
purchasers.
In the
past several years, the distinction between these two market segments has
diminished and the markets have largely merged. State regulations govern both
types of transactions in essentially the same manner, and the services provided
by the Company for both types of transactions are the same. The term
“life settlement transaction” used herein includes both viatical and age-based
settlements unless the context indicates otherwise.
The
Market
The
Population Reference Bureau (“PRB”) World Population Report states that as of
2007 there were 302.2 million individuals living in the United States. As a result of
declining birth rates and increasing longevity, the percentage of those 65 years
or older in the US has risen to 12.6%or 36.2 million people. With the aging of
the baby boomers, the 65 and older demographic is the fastest growing segment of
the population. According to PRB, it is estimated that 20% of Americans will be
over the age of 65 by 2030. This growing demographic provides the foundation of
the Company’s target market.
While the
Company anticipates that the industry will continue to expand, how and to what
extent it will develop is uncertain. As more insureds become aware of life
settlements as a financial planning option and the increase in the senior aged
population, the Company expects the size of the market to grow
substantially. The Company believes that with awareness the market
for life settlements will grow as it offers owners of life insurance policies,
aged 65 or greater, or those with a life expectancy of 15 years or less, a
liquid cash conversion and exit strategy from life insurance policies that are
displaced due to business restructuring, estate planning changes, budget
constraints, or other variables. A life settlement provides an
innovative wealth management tool particularly for individuals questioning their
ability to continue to pay increasing large premiums for life
insurance. The industry has developed partially as a result of these
individuals who can no longer afford premium payments, and who wish a life
settlement rather than letting their policy lapse or taking the cash-surrender
value, typically much lower than the life settlement price. Life
settlements are also available to owners of policies that have no cash-surrender
value.
In a
study entitled “Life
Settlements: Additional Pressure on Life Profits” by Conning & Co.
Research, a leading research firm in the insurance industry, estimated that
senior citizens owned approximately $500 billion in life insurance in 2003, of
which at least $100 billion was owned by seniors eligible for life settlements.
Although this market niche is large, the public in general is uninformed about
the life settlements industry. The Company views life settlements as an
essential part of a comprehensive platform of financial services. Life
settlement transactions are almost exclusively employed in an estate planning,
business transfer, corporate structuring, risk management, or tax optimization
context. Life settlements typically have a face value death benefit of no less
than $100,000.
The
Company believes that the following elements characterize the market of those
who may consider a life settlement:
An
insured:
Who is
over 65 whose policy is beyond the two year contestable period;
Whose
policy has a death benefit of at least $100,000;
Whose
policy is a universal life or second-to-die policy with low cash surrender
value;
Where the
original purpose for the insurance may no longer exists and the
current policy owner may no longer have a need for the policy death
benefit;
20
Who has a
change in financial condition and the premium is no longer
affordable;
Who
originally purchased a policy because of estate tax liability which is no longer
be needed;
Who has a
life threatening condition, such as AIDS.
Although,
through its anticipated marketing program the Company plans to introduce the
American financial planning community and the public to the benefits of life
settlements for owners of life insurance policies, any significant growth will
depend heavily upon the entry of institutional purchasers that purchase life
insurance policies. With this in mind, the Company plans to develop
securitization of the life insurance policies that it estimates will enhance
liquidity in the marketplace and entice a greater number of institutional
investors to participate in the life settlement market as such securitization
will provide an exit strategy more likely available sooner than the payment of
the death benefit itself.
In 2006,
it is estimated that life settlement funding sources acquired approximately $14
billion worth of policies increasing to an estimated $15 billion in 2007 (see
www.lisassociation.org/vlsaamembers/news/files). The Wharton Business School
indicates that more than 20% of insurance policyholders over age 65 have
policies whose value exceeds cash surrender value and that the industry will
reach $15 billion in annual transactions by 2006.
Life
settlement markets are segmented by length of life expectancy and policy face
value. The amount of competition in these markets varies according to the demand
for such policies. The Company believes the life settlement market in general
will substantially increase during the next several years due to a number of
factors. Market demand from purchasers may increase as the awareness among the
financial markets in general of the value of life settlements as an investment
vehicle grows. A favorable market demand will grow, in part, as a result of a
continued cautious attitude of purchasers and a desire for returns which are not
correlated to market indices. The Company believes that continued general
economic uncertainty has led many purchasers to seek alternative investment
strategies that diversify their portfolios and avoid economically sensitive
investments. Life settlements provide diversification and are largely
independent of the factors contributing to economic downturns, such as interest
rate fluctuations and increasing fuel costs. The Company believes that interest
from both individual and institutional purchasers will continue to grow steadily
throughout the next several years.
Life
Settlement Transactions
The
Company’s role in a life settlement transaction will be to match settlors with
purchasers. The Company intends to facilitate these transactions by identifying,
examining, and analyzing the policies for the purchasers. The Company
intends to locate potential life settlors through a network of agents (often
referred to as “producers”) consisting of insurance brokers, accountants,
lawyers, financial, estate planning and other professionals, obtained through
referrals and through Internet and print media advertising. These
sources of settlement policies will be compensated by the Company, probably on a
fee base, when and if a policy is sold. The Company
believes the economic incentive that sourcing life settlement policies will add
to some of these providers, will create an economic synergy between the Company
and the provider and will develop into a mutually profitable continual
relationship. The Company anticipates that a provider may receive not
only the fee from sourcing the life settlement but an ability to offer their
clients a method to maximum proceeds through policy liquidation.
The
Company anticipates that it will work with a sourcing network to establish a
methodology to ascertain, document and measure the relative risk and adjusted
value-added to a client’s portfolio and the effect of policy
liquidation. No such sourcing network nor methodology been has yet
been established although the Company has entered into an agreement with Life
Settlements International, Inc. (described below) to serve as a producer of life
settlement policies for the Company.
The
Company intends to present life settlement policies to institutional providers
of life settlements to create an auction-type of competitive bidding environment
that will ensure profit maximization on behalf of clients. The
Company hopes to develop a network of institutional and private buyers of the
life settlement policies to whom the Company can offer the life settlement
policies. The Company believes its relationships with Life
Settlements International and Settlement Benefits Association (as discussed
further below) will assist in developing both a network of buyers and a pool of
sellers of life settlements.
21
The cash
surrender value of a life policy does not reflect the true economic value of the
asset in a competitive market environment because it is simply the lowest value,
or floor value, of the life insurance policy, not necessarily its market
value. Major factors affecting the size of a life settlement offer
are age and health of insured, type of policy and cost of coverage, and state of
residency.
The
Company intends to serve as a supplier of policies to providers, funders and
investors by doing policy analysis, life expectancy evaluations and gathering of
all pertinent documentation such as medical and policy release authorization
forms. The Company, as a life settlement broker, anticipates that it
will be paid a commission for such services by the purchasers of life insurance
policies. The Company intends to work exclusively with licensed,
accredited, institutional funders to ensure that the highest level of
transactional legitimacy is afforded to both institutional and retail
clients.
Because
of the initial high purchase price for a life settlement, institutions are the
primary source as life settlement purchasers. The Company will
present life settlement policies to institutional providers and create a
competitive bidding environment. The Company will present life
settlements for possible purchase to Settlement Benefits Association, a provider
of life settlement transactional services, with which it has entered an
exclusive contract for such offers.
Examples
of Life Settlements
Examples. The
following are some hypothetical examples of the use of life settlements and do
not represent actual life settlements arranged by the Company. The
Company has recently completed its initial life settlement transaction and the
transactional processes described in the examples below are being developed by
the Company as it transacts additional life settlements.
1. Economic
Need. Mr. Smith age 75, owns a $500,000 life insurance policy with
annual premiums of $25,000 and is unable to pay the premiums. The cash value is
small or even zero. A life settlement transaction may immediately
offer him as much as $100,000. Understanding that he can no longer afford the
policy, Mr. Smith opts to enter into a life settlement and receive $100,000,
rather than letting the policy lapse.
2. Flexible
Tool. A widow in her early 80’s no longer needs multiple life
insurance policies with increasing annual premiums; she owns a $3 million
universal policy with a cash value of $69,000 and annual premiums of $68,000.
Through a life settlement, she may be able to receive as much as $500,000 for
the policy and eliminate the $68,000 annual premium. reinvest the $500,000 in a
single-premium annuity and use the money she would have spent on the premiums to
make $10,000 individual gifts to all five of her grandchildren and
great-grandchildren.
3. Business
Application. A company owns a $2 million key-man policy on its
president who recently retired. The policy is a convertible 20-year-level
premium term policy with no cash value at the time of retirement. Annual
premiums are $60,000. Instead of letting the policy lapse, the company can sell
it in a life settlement transaction for as much as $250,000.
The Process. The
life settlement process commences when an agent submits an application on behalf
of a policy holder to the Company. The application will be received
and the case reviewed by an underwriting team. If the policy meets certain
criteria, the policy will be approved for purchase. If approved, the Company
will contact several potential institutional purchasers (often referred to in
the industry as “funders” or “providers”) whose criteria the policy
meets. The policy will be placed up for auction amongst the potential
purchasers. The greatest offer will be submitted to the policy owner
and if accepted closing documents will be prepared and
delivered. Purchase funds will be placed in escrow at an independent
financial institution. Ownership and change of beneficiary forms will be
executed and when received by the financial institution, the funds will be
released to the policy owner.
Once the
transaction is complete, the purchaser will become the new policy owner, premium
payer, and the beneficiary of the death benefits. Responsibility for
payment of policy premiums will pass to the purchaser, who may fund the premium
costs through deposits with an escrow agent. To protect the insured’s privacy, a
purchaser will receive a copy of the policy and the transfer of ownership (which
has the settlor named as the insured), but will not receive the insureds contact
information. The Company will monitor the insured’s health status and notify the
escrow agent or purchaser upon death. The Company will monitor and notify
purchasers in instances in which the premium escrow account has been exhausted
so that the purchaser can replenish the account to keep the policy from
lapsing.
22
As a life
settlement broker, the Company will serve the institutional purchasers by
reviewing, analyzing, verifying, researching and summarizing proposed life
insurance policies for sale. The Company will also make estimates on
the pricing of a proposed life insurance policy.
As part
of the policy evaluation process, the Company will:
(a)
Verify life insurance policy, past premium payments, death benefits,
transferability, etc.
(b)
Obtain 4 years of medical records,
(c)
Review medical records to determine significant health conditions.
(d)
|
Conduct
a “Manual Underwriting” of a life expectancy using life insurance
mortality tables. By this, theCompany
will compare third-party life expectancy estimates with published
mortality tables to create
an accurate representation of life
expectancy.
|
(e)
|
Preliminary
classification is reviewed by a licensed physician to make adjustments to
lifeexpectancy
if required.
|
Pricing
analysis is conducted using a financial model that is based upon the discounted
present value of the policy’s death benefit vis-à-vis the present value of
premium payments and other post purchase servicing costs and the purchasing
company’s up-front origination fee.
It is
important for the Company to estimate an insured life expectancy as accurately
as possible. If the Company underestimates average life expectancies,
purchasers will not realize anticipated returns as the annual premiums will
erode the value of the death benefit and amounts escrowed for premium payments,
if any, may be insufficient to keep the policy in force. If the Company
overestimates average life expectancies, the settlement price received by a
settlor may be below what a more accurate estimate may have been able to
obtain. The ability to accurately predict life expectancies is
affected by a number of factors, including an insured’s age, medical condition,
life habits (such as smoking), and geographic location; and the ability to
anticipate and adjust for trends, such as advances in medical treatments, that
affect life expectancy. In order to foster an accurate pricing
system, the Company anticipates that it will use both in-house and outside
experts, including medical doctors and published actuarial data.
Criteria. The
criteria for a life insurance policy acceptable to the Company will
be:
The
insured:
Is over
65 with a life expectancy of 15 years or less;
Has a
policy that is beyond the contestable period;
Has a
policy with a death benefit of at least $100,000;
Has a
policy with a death benefit greater than the cash value (plus total premiums
based on life expectancy)
The
factors that contribute to the purchase price for a policy will be:
The face
value (death benefit);
The
insured’s estimated life expectancy;
Outstanding
loans against the policy;
The
policy’s cash value;
Premium
payments to keep the policy in force.
23
Life Settlement
Competition
Life
settlements provide a secondary market for existing life insurance policies
which the owner no longer needs or wants and which insure a person whose life
expectancy can be reasonably estimated. While measuring the market is difficult
due to the lack of reported data, based on known transaction volumes with
allowance for unreported data, the Company estimates that the total face value
of life settlement transactions completed during 2005 was approximately $2.5
billion. The largest industry competitor captured approximately 43% of that
market because of its affiliate relationship with a large insurance company
acting as an institutional purchaser. The remainder of the market is divided
among other competitors, none of whom is believed to have more than 10% of the
market.
As a form
of competition to life settlements, the life insurance industry has responded
with policy features offering various pre-death cash benefits (sometimes called
accelerated death benefits). While in some cases accelerated death benefits may
compete with viatical settlements, the Company does not expect the availability
of accelerated death benefits to affect the life settlement market
significantly. The availability of accelerated death benefits is generally more
restricted than life settlements. For example, policies often limit such
benefits to persons who have a life expectancy of less than one year, in
contrast to viatical settlements that are usually available to persons with life
expectancies of two to 15 years. Life settlements generally offer sellers
greater amounts than they would receive under accelerated death benefit
provisions. An insurance company’s willingness to offer a competitive
accelerated death benefit, and the amount of such benefit, may be affected by
imputed policy lapse rates. The availability and amount of an accelerated death
benefit negatively impacts lapse rates, which could increase policy rates. The
competition for new policies limits policy rates and may, indirectly, limit the
availability and amount of accelerated death benefits.
The life
settlement market has been negatively affected by some companies using illegal
or questionable business practices. The Company believes that state and federal
regulators have effectively identified and shut down most of the companies that
were engaged in such practices. The result of these law enforcement actions has
been to reduce the amount of competition for both policies and purchasers.
Although state and federal law enforcement officials successfully employed
existing laws to curb these illegal practices, state legislatures and insurance
regulators have passed laws and adopted regulations requiring the licensing of
viatical brokers and settlement companies, mandated disclosures to settlors or
purchasers or both, and instituting periodic reporting requirements, and setting
forth prohibited business practices.
Broker-dealer
firms such as Merrill Lynch, Smith Barney, and Morgan Stanley have been
generally prohibited from engaging in life settlement transactions because of an
implied conflict of interest. Internally, such broker-dealers treat life
settlements as unapproved products and thereby prohibit employees, advisors, and
affiliates from offering life settlements. This inefficiency creates
an opportunity for life settlement firms to acquire policies that would
otherwise be immediately absorbed into the transactional sphere of such
broker-dealer firms.
THE
COMPANY
Background
and Current Operations
The
Company is a development stage company and has no operating history and has
experienced losses since its inception. The Company has recently
completed its first transaction acting as the facilitator between a life
settlement seller and a life settlement purchaser. The Company’s
independent auditors have issued a report questioning the Company’s ability to
continue as a going concern. Currently the Company is engaged in a development
capacity focusing on the life settlement industry. The Company runs
advertising in trade journals, such as Financial Planning Magazine, On Wall
Street, and Accounting Today. The Company seeks to make its name
recognizable as a specialty consulting enterprise centered around life
settlements. The company uses Internet marketing and telephone
prospecting to develop its market impact and locate possible new
relationships.
The
Company’s website was publicly launched in 2004 at www.ChristianStanley.com.
24
The
Company has recently completed its initial life settlement transaction with SBA
for which it received a settlement fee of $1,250. The Company
anticipates that its relationship with SBA will continue to grow with the
increase of possible life settlement policies available through its relationship
with Life Settlements International; however, the Company cannot specifically
estimate or quantify the transactional and consulting fees. The
agreement with SBA does not provide a specific fee payment schedule but provides
that each fee will be negotiated on a case-by-case basis. Typically,
the Company expects the fees to average 5% of the policy face
value.
Promissory
Note Offering
Since
September, 2009, the Company has issued an aggregate of $244,522 in six-month
promissory notes which notes were sold at a 5% discount from face value
aggregating a total of $233,266 in funds to the Company. The notes are payable
six months from the date of issue plus interest at the rate of 1% per month from
the date of receipt of the borrowed funds. If the Company does not
pay the principal and interest when due, it will have a ten day period to cure
such default. In addition the Company will pay a penalty fee equal to
10% of the principal plus any additional collection costs and/or attorney's fees
required for collection.
Relationship
with Settlement Benefits Association
On
February 15, 2009, the Company entered into a non-exclusive agreement with
Settlement Benefits Association (“SBA”) located in Tampa,
Florida. Settlement Benefits Association is a national broker in the
life settlements market and provides brokerage services to the
Company. Settlement Benefits Association will process life
settlements for the Company and function as the back-office processing
unit. SBA provides the Company with access to the institutional life
settlement market. The Company and SBA will negotiate fees
corresponding to each transaction on a case-by-case basis. The
agreement remains in effect for five years but either party may dissolve the
agreement upon written notice to the other party. The agreement does
not instill to either party any obligations or rights to defend or act on behalf
of the other party. The agreement includes non-circumvention
provisions prohibiting either party from utilizing or effecting
transactions with investors, borrowers, lenders, agents, brokers, banks, lending
corporations, individuals, trusts, buyers or sellers or other types of contacts
introduced by the other party and in the case of any circumvention the breaching
party will pay an amount equal to the commission or fee the circumvented party
should have realized in such transaction by the person(s) engaged on the
circumvention for each occurrence. The agreement also provides for
non-disclosure regarding the methods, concepts, ideas,
products/services, or proposed new products or services of either party and
confidentiality of the names of any contacts introduced or revealed to the other
party.
Agreement
with Life Settlements International LLC
On
February 10, 2009, the Company entered into a non-exclusive agreement with Life
Settlements International, LLC, a New York based company with
contacts to the financial community, including broker-dealers, which the Company
believes will develop its access to a pool of potential life settlement
sellers. Life Settlements International has agreed to serve as a
producer of life settlements for the Company. Through its
broker-dealer and other financial contacts, Life Settlements has access to a
large pool of potential life settlement sellers. Life Settlements
International will obtain and purchase life settlements and the Company will
purchase the policies from Life Settlements. The Company anticipates
that this relationship will provide it with a source of potential life
settlement settlors (sellers). The Agreement provides the basic
outline for the purchase of life settlements. The Agreement does not
obligate the Company to purchase life policies from it. The Company
anticipates that it will commence purchasing life settlement policies from Life
Settlements when the Company launches its securitization program. The
Company anticipates that it will utilize funds from this public offering to
purchase life policies from Life Settlements and will bundle these policies into
registered pools that will be sold on the public market as registered
securities.
Agreement
with Tiber Creek Corporation
In March,
2006, the Company entered into a consulting agreement with Tiber Creek
Corporation whereby Tiber Creek would provide assistance to the Company in
becoming a public company including preparing and filing a registration
statement with the Securities and Exchange Commission, assisting with applicable
state blue sky requirements, advising and assisting on listing its securities on
a trading exchange, monitoring compliance with the Securities Exchange Act of
1934 when applicable, and assisting in other transactions, marketing and
corporate structure activities. Tiber Creek received a fee of
$100,000 plus 250,000 shares of common stock valued at $31,500 based on the
price of shares of the Company's common stock sold in contemporaneous private
placements.
25
Marketing
The
Company initially started advertising for client purchasers of life settlements
in 2004, but has only just started, through its relationships with
Life Settlements International, SBA and International Benefits, to develop a
network of potential buyers and producers. The Company has recently
completed its first transaction in which it served as a broker for the sale and
purchase of a life settlement policy. The Company intends to use its
relationships with SBA and Life Settlements International to develop both a
network of buyers and a pool of sellers of life settlements.
In
order to develop its life settlement business, the Company needs to identify a
continuing source of potential life insurance sellers. While the target market
is narrow and traditional media is expensive, the Company anticipates utilizing
television, radio, public relations, print media, and internet advertising to
create name recognition of Christian Stanley as a life settlement broker and to
create a larger awareness in the public of life settlement transactions as
viable wealth management tools. The Company believes the best way to reach this
market is generally through media advertising and through life insurance
professionals and, to a lesser extent, through professionals engaged in estate
planning, such as attorneys, accountants, and financial planners. The Company’s
business plan utilizes insurance professionals and brokers as sources of
policies, as well as the development of a life settlement referral
network. The Company intends to develop this referring network of
insurance professionals to educate potential life settlors on the options
presented by life settlements. The Company anticipates utilizing direct
solicitation, seminars and calls to managing general insurance agents as well as
word-of-mouth contacts to develop this referring network.
At
present, the Company does not have a network or pool of sellers of life
settlement policies but it is working to develop a network of independent
contractors to serve as providers for the life settlement contracts by
developing relationships such as the one it has established with Life
Settlements International .
The
Company has negotiated an agreement with Settlement Benefits Association,
www.settlementbenefits.com, which is a Florida licensed life settlement broker.
The Company will develop a pool of life settlement policies, including through
its relationship with Life Settlements International but will process its life
settlement transactions through SBA. To date, the Company has
advertised its brand over television and the Company has advertised extensively
over print media and trade journal publications, which are dedicated to the
financial planning community.
The
Company is developing independent contracting relationships by serving as a
sponsor at several industry trade conferences starting in 2004 continuing to the
present. The Company has also been an active sponsor of organizations
and events such as seminars targeted to develop the Company's provider network,
including the International Business Brokers Association (2004), Alliance of
Merger and Acquisition Advisors (2005-2006), Institute of Certified Business
Consultants (2005), Assisted-Living Federation of America (2005), Association
for Corporate Growth( 2006), Sunbelt Business Brokers (2006-2007), VR Business
Brokers (2005-2006), Business Brokers Network (2004-2008), Attorney-CPA Society
(2006), and Long-Term Care Summit (2007), the Bond Buyer Conference, Chicago
(2008), Southeast Private Equity Conference, Atlanta (2009). The
Company has advertised extensively in trade journals and publications geared
towards the financial planning community and hopes to establish independent
contractor relationships from these activities as well.
The
Company maintains a call center relationship with www.AccessLine.com, which
enables the Company to create an efficient call forwarding-system for all
telecommunications between its institutional and retail
divisions. The Company relationship with AccessLine.com is a
month-to-month agreement with monthly renewals and termination provision for
cancelation at the end of any month.
26
Appearance
on Heartbeat of America
On May
11, 2009, the Company received notification that it had been accepted to appear
on “Heartbeat of America”. “Heartbeat of America” (www.heartbeatofamerica.tv)
is a cable-based television show which interviews and highlights selected
business and professional entrepreneurs including software developers,
scientists, consultants, physicians, manufacturers, engineers, financial
advisors, architects, attorneys, contractors, real estate developers, healthcare
providers, environmentalists and business owners. The interview is a 30-minute
in-depth look at the selected business or entrepreneur. William
Shatner provides initial remarks to the cable television show and serves as its
introductory host. The Company has been advised that “Heartbeat of
America” is watched by approximately 14,000,000 people. The
“Heartbeat of America” website then provides links to the web sites of the
selected interviewed businesses and entrepreneurs. The Company
appeared on the “Heartbeat of America” show in September, 2009.
Revenues
from Operations
The
Company is a development stage company incorporated in California in 2006, as
the successor company to the limited liability company formed in 2004, to serve
as a liaison and broker in the secondary market for life insurance policies
known generally as “life settlements”, to facilitate the sale of corporate-owned
policies (keyman life insurance policies) to licensed and accredited
institutional funders (i.e. purchasers), to develop investment and consultative
products and services relating to the business-to-business sale of life
insurance policies and to participate in a securitization market of life
settlement policies.
Since
2004 the Company has advertised, primarily in the print media, for client
purchasers of life settlements, whether as individual policies or packaged as a
group. The Company has recently completed its first transaction in
which it served as broker for the sale and purchase of a life settlement
policy. The Company believes that its relationship with Life
Settlements International will assist the Company in developing a pool of
potential life settlement sellers. The Company also believes that it
needs to develop a buyer or buyers of the life settlement policies before it can
more actively seek the sellers of these packages.
Since
inception, the Company has raised funds for its operations through the periodic
sale of its common stock. The Company has incurred an aggregate net
losses of $2,544,051 since inception.
The
Company has recently completed its initial transaction in which it brokered a
life settlement contract with Settlement Benefits Association
(SBA”). SBA maintains a private consortium of institutional funders
and the Company intends to offer securitized portfolios of life settlement
contracts to Settlement Benefits Association which will provide the original
funders of the life insurance settlements a liquid and profitable exit strategy
and provide a versatile financial instrument. The Company also
intends to develop an “incubator” life settlement market comprised of pre-market
policies purchased from insureds several years prior to reaching the life
settlement age standard of 65 years. As part of its development, the
Company anticipates acting as a consultant to certain businesses desiring to add
life settlement brokerage activities to their
portfolios.
Employees
The
Company has three executive officers: Daniel Powell, Mona Salem and Omar
Salem. The Company has no other employees but expects that it will
hire additional personnel as it expands.
Property
The
Company’s offices are located at 12100 Wilshire Boulevard, Suite 800, Los
Angeles, California 90025. Its telephone number is 310/806-9440 and
its fax number is 800/554-8692. The Company uses this property
pursuant to a month-to-month lease at a monthly rental of $310.
27
Subsidiaries
The
Company does not have any subsidiaries.
Patents
and Trademarks
The
Company has registered three service marks with the United States Patent and
Trademark office:
Registration
|
||||
Service
Mark
|
Date
|
Goods
and Services Description
|
||
Christian
Stanley
|
February
26, 2008
|
Computer
software services, namely, installation, implementation, maintenance, and
repair services for computer software in the field of the life settlement
industry.
|
||
Reverse-Life Insurance
|
June
2, 2009
|
Viatical
and other life settlement services, namely, financial valuation of life
insurance policies and brokerage of life insurance policies between
sellers and purchasers.
|
||
Reverse-Life
|
In
registration April 30, 2009
|
Viatical
and other life settlement services, namely, financial valuation of life
insurance policies and brokerage of life insurance policies between
sellers and
purchasers.
|
Industry
Regulation and Taxation
When the
viatical life settlement market first arose, it was sparsely regulated. Due in
part to abuses within the industry, which were well-publicized, both 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 both settlors 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.
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. A majority of states have now adopted some version of this model
law or another form of regulation governing in some way life settlement
companies. 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 potential
settlors and/or life settlors, describe various periodic reporting requirements
for settlement companies and prohibit certain business practices deemed to be
abusive.
Insurance
Regulation. As a life settlement company, the Company
facilitates the transfer of ownership in life insurance policies, but does not
participate in the issuance of policies. The Company is not required
to be licensed as an insurance company or an insurance professional. The Company
does, however, deal with insurance companies and professionals in the business
and is indirectly affected by the regulations covering them. The insurance
industry is highly regulated, and these regulations affect the Company in
numerous ways. The Company must understand the regulations as they
apply to policy terms and provisions and the entitlement to, and collectibility
of, policy benefits. The Company relies upon the protections against fraudulent
conduct that these regulations offer and upon the licensing of companies and
individuals with whom it does business.
The
Company believes that by processing its life settlement transactions through
SBA, neither the Company nor any of its employees is subject to insurance
regulation. SBA and its affiliates are licensed to transact life
settlement transactions in all 50 states and by maintaining its agreement with
SBA, the Company can offer life settlement services throughout the United
States.
28
Taxation. In 1996, Congress
passed the Health Insurance Portability and Accountability Act. This act exempts
from taxation proceeds received in a viatical settlement paid to terminally ill
settlors (those having a life expectancy of 24 months or less) and chronically
ill settlors (those who are incapable of at least two daily-living activities,
such as eating and bathing, and require supervision). The tax exemption applies
only if the viatical settlement company is licensed in the state in which the
settlor resides, or if the settlor resides in a state that does not license
viatical companies, if the viatical company can certify that it complies with
the Model Act provisions. Since most states follow the Federal income
tax definitions, the receipt of settlement proceeds is generally exempt for
state income tax purposes also. The Act does not exempt the receipt of life
settlement proceeds. Life settlement proceeds would typically be taxed as
ordinary income to the extent that the proceeds exceed the premiums paid for the
insurance policy
“Wall Street Bail Out”
Legislation. Congress has recently enacted legislation
providing a financial package intended to assist certain financial institutions
by purchasing or defraying certain mortgage or debt backed securities that have
currently lost most if not all of their value. Such legislation
includes a variety of regulations impacting the sale and regulation
of mortgage and insurance backed securities as well as other
derivative securities. The impact of this legislation on the
Company’s business plan to offer securitized packages of life settlement
insurance policies is unclear but may be significant.
Reports
to Security Holders
The
Company intends to deliver a copy of its annual report to its security holders,
and will voluntarily send a copy of the annual report, including audited
financial statements, to any registered shareholder who requests
it. The Company will not be a reporting issuer with the Securities
and Exchange Commission until its registration statement on Form S-1 is declared
effective.
The
Company has filed a registration statement on Form S-1, under the Securities Act
of 1933, with the Securities and Exchange Commission with respect to the shares
of its common stock. This prospectus is filed as a part of that registration
statement, but does not contain all of the information contained in the
registration statement and exhibits. Statements made in the registration
statement are summaries of the material terms of the referenced contracts,
agreements or documents of the company. Reference is made to the Company’s
registration statement and each exhibit attached to it for a more detailed
description of matters involving the Company. A potential investor may inspect
the registration statement, exhibits and schedules filed with the Securities and
Exchange Commission at the Commission's principal office in Washington, D.C.
Copies of all or any part of the registration statement may be obtained from the
Public Reference Section of the Securities and Exchange Commission, 100 F Street
N.E., Washington, D.C. 20002. Please call the Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. The
Securities and Exchange Commission also maintains a web site at
http://www.sec.gov that contains reports, proxy statements and information
regarding registrants that file electronically with the Commission. The
Company’s registration statement and the referenced exhibits can also be found
at the web site address.
PLAN
OF OPERATION
Business
Plan
The
Company intends to develop into a full-service, business-to-business
clearinghouse for the life settlement industry. The Company is in the
process of developing and creating its life settlement business. The
Company intends to serve as a supplier of policies to providers, funders and
investors by doing policy analysis, life expectancy evaluations and gathering of
all pertinent documentation such as medical and policy release authorization
forms. The Company, as a life settlement liaison, anticipates that it
will be paid a commission for such services by the purchasers of life insurance
policies).
The
Company intends to develop and offer securitized portfolios of life settlement
contracts primarily to qualified institutional investors which will provide the
original funders of the life insurance settlements a liquid and profitable exit
strategy and provide a versatile financial instrument. The Company
anticipates that it will purchase, with some of the proceeds from this offering,
several life settlements and will bundle these policies together to form life
settlement packages. These packages will be registered as securities
on a federal and state level and equity interests in these registered securities
will be sold.
29
The
Company also intends to develop an “incubator” life settlement market comprised
of pre-market policies purchased from insureds several years prior to reaching
the life settlement age standard of 65 years. As part of its
development, the Company anticipates acting as a consultant to certain
businesses desiring to add life settlement brokerage activities to
their portfolios. These business plans are based on the
Company’s ability to market the life settlement industry and develop
the awareness of such industry and the potential profitability of participating
in such life settlement transactions.
The
Company is developing proprietary transactions, products, and services that
align incentives between licensed brokers and providers predicated upon the life
settlement industry. The Company will market its products and
services through direct advertising, mass media communications, television
marketing, internet advertising, franchise marketing, and public
relations.
The
Company has developed a multi-faceted business plan stemming from and
anticipating development and growth in the life settlement
business. The Company’s initial primary focus is life settlement
transactions as discussed above, but the Company anticipates developing related
operational areas. Although certain of the transactions and functions
overlap, the Company’s business plan is composed of the following business
segments:
Life
settlement transactions
Incubator
acquisition program and keyman acquisition program
Securitization
of life settlements and use of life settlements as financial tools
Consulting
and business enhancement program and franchise program
Computer
software for policy analysis and life settlement auction
The plan
of operation for the Company for the succeeding twelve months is to focus on the
following key objectives:
· Develop
network of producers and potential providers for life
settlement transactions
· Continue
with mass media and public relations branding of the Company
· Launch
keyman acquisition and incubator acquisition programs
· Create
securitization of life settlement packages
· Launch
additional franchise program and financial and consulting services
· Develop
intellectual property for life settlement industry
Keyman Insurance Buyout Program.
In addition to the life settlement program outlined, the Company intends
to develop a keyman insurance buyout program. When a business owner
decides to sell the business, the keyman policy will stop serving its original
economic function because the former executive insured by the policy is no
longer with the company. Typically these policies are simply allowed to lapse or
are surrendered for their cash value. The cash value of an insurance policy does
not indicate the real economic value of the policy because it is a one-sided
offer from the insurance carrier. In contrast, the Company intends to serve as a
marketplace where policyholders are afforded the benefits of receiving multiple
bids from providers in the secondary market for these keyman life insurance
policies, rather than relying on the cash surrender value offered by the
originating insurance carrier. The purchaser of the keyman policy will pay a
lump-sum amount to the business owner in consideration of irrevocably receiving
all rights to future death benefits and ownership. The purchaser will
correspondingly maintain premium payments on the policy to keep it in
force.
In
general, the successful engagement of life settlement transactions involving
keyman life insurance are five-fold:
|
·
|
The
insured is aged 65 or greater or has a life expectancy of less than 15
years;
|
|
·
|
Face-value,
or death benefit, of the keyman life insurance is at least
$100,000;
|
30
|
·
|
The
keyman policy must be in force and past the period of
contestability;
|
|
·
|
All
types of keyman life insurance policies qualify for an appraisal
including, but not limited to, whole life, universal life, variable
universal life, convertible-term, and term
coverage;
|
|
·
|
No
medical examination is required by insured because pricing analysis is
based upon medical record review, actuarial modeling, and third-party life
expectancy underwriting;
|
Commercial
lending institutions often require keyman life insurance as a hedge for business
loans. At the bargaining table, the injection of new capital gleaned from life
settlements may be employed as a deal making tool when pricing becomes an
impediment to finalizing transactions.
Business
brokers serve as fiduciaries in the transfer process because clients rely on
intermediaries as a source of prudent advice regarding valuation. As such, it is
vital that, when applicable, life settlement transactions be employed because
the value of keyman life insurance on the secondary market constitutes a
substantial component of enterprise value when a firm is being sold. Many owners
sell businesses for retirement purposes and want to maximize the sale
price.
The
importance of employing life settlements may be important in the mergers and
acquisition context. For business transfers, keyman life insurance becomes an
increasingly valuable asset because the risk management needs of large
institutions require firms to invest more heavily in coverage, which increases
demands for liquidity from keyman policies. Often merger and acquisition
professionals find that several corporate owned life insurance policies exist
within the same firm that qualify for resale when a business transfer occurs
because of executive insurance packages. Due to the inherent leverage afforded
by life insurance policies and the economies of scale achieved when executive
insurance packages are purchased by corporations, sellers in mergers and
acquisition environments find life settlements to be of exponential
value-added.
Incubator
Program. The Company’s incubator program will be
designed to acquire life insurance policies during the pre-market phase, i.e.
policies of insureds aged between 55 and 65. The Company believes
that a substantial quantity of quality life settlement policies exists in the
pre-market phase and that by acquiring these policies prior to the insured
attaining the minimum age of 65, the Company will decrease the available supply
of life policies in the future when these insured do, in fact, attain the
minimum age. The Company anticipates that this decrease in supply
will have the effect of increasing the price that life settlement will command
upon resale. The Company will hold the policy until an insured
reaches the age of 65. Since the Company would own a quantity of
these policies as they become available to the life settlement industry, it
would be able to sell the policies at a profit. The Company
anticipates that the purchase of the initial incubator policies may be
economically prohibitive to it without the influx of additional capital through
an alliance with a larger entity or through raising capital specifically for the
purchase of bundled pre-market life settlement insurance policies.
The
general plan is as follows:
Target
pre-market life settlement policies (insureds between 55 and
65)
Hold
these pre-market policies until the life expectancy is less than 15 years i.e.
the insured reaches 65
Use
capital derived from this offering to purchase pre-market policies.
Sell
policies to mainstream life settlement providers
A typical
incubator insured would not yet be 65 and therefore mainstream providers
typically decline to make an offer on this policy. Whatever the reason, the
insured wishes to cash out of his life insurance policy and desires remuneration
higher than the cash surrender value. The Company intends to design
its incubator program to capitalize on this inefficiency. The Company
anticipates that multiple exit strategies will exist to liquidate the policies
held by the incubator program , which include (1) selling the policies to
private life settlement providers, (2) selling the policies to public
securitization pools organized by the Company or (3) placement of policies into
collateral pools, which are used to guarantee letters of credit, consumer
products, and banking instruments. The Company anticipates that its
incubator program will be a form of post-origination premium financing, which
employs the life settlements market as an exit strategy. The incubator program
will target persons who desire a life settlement, but that are unable to receive
offers from mainstream providers.
31
The
Company intends to utilize funds from the offering to fund its incubator
program. The Company anticipates that the incubator program will
increase efficiency in the life settlement market by creating a pre-market for
the transaction. The Company believes that incubator transactions
will enable it to earn trading profits by packaging the incubator life policies
into securitization time-sequenced offerings.
Securitization of Life
Settlements. The packaging of life insurance assets,
their corresponding liabilities, and cash flows into asset-backed securities is
a relatively new arm of the life settlement industry. The first rated
securitization of life settlements occurred in March, 2004 when Moody’s Investor
Services rated two separate traunches of a bond offering syndicated by Merrill
Lynch A1 and Baa2. By definition,
securitization is the process of bundling and packaging a group of life
insurance policies together to form a security. These securities can take the
form of private placements, or rated securities, such as bonds collateralized by
life settlement contracts.
The
Company will work in conjunction with Life Settlements International, LLC in its
securitization program. The Company believes that Life Settlements
will be able to provide sufficient life settlement contracts to commence the
securitization program. Life Settlements will provide life settlement
contracts to the Company and the Company will bundle these contracts for sale as
securities. The Company will facilitate complying with the regulatory
requirements for such sales. The Company believes that creating a
transparent and liquid public market for life settlement contracts will catalyze
consumer confidence pertaining to the life settlements industry and establish
name recognition for the Company. The Company intends to bundle
several or more life settlement contracts into securitized
packages. These packages will be registered for offer and sale as
securities under the Securities Act of 1933.
The
Company intends to use proceeds from this offering to develop the program and
the degree to which the Company can implement the securitization program will be
dependent upon the amount of funds raised in this offering. The
Company believes that it will need approximately a minimum of $2,500,000 to
initially start the securitization program and a minimum of $5,000,000 to fully
implement the program. If only the minimum offering amount is raised
or an amount something less than $5,000,000, then the Company does not intend to
develop the securitization program until such time as revenues or other sources
of funds are sufficient to implement the program.
Securitization
provides investors with the opportunity to gain rights to the future death
benefit of a life settlement contract, while circumventing the idiosyncrasies
that come with purchasing the asset in its raw form. Providers will
register and submit to the Company information and documentation on life
insurance policies which they purchased through life settlement transactions and
are seeking to sell prior to the maturation of the corresponding death benefit.
The securitization of the life settlements will afford life settlement providers
a means by which to monetize portfolios of life settlement policies. The Company
will group several of these policies into a life settlement portfolio and will
sell equity instruments in these groups of life insurance policies in
transactions to public investors. The Company believes that creating such an
exit strategy for life settlement providers via the securitization of life
portfolios encourages bidding on policies as it allows more buyers into the
marketplace, and thus, the Company helps to create greater value for policy
owners. In addition, the asset-class created by the securitization of
these policies may be used in various financial applications.
The
Company anticipates that providers will register and list the criteria that they
use in evaluating the feasibility of selling life insurance policies through the
Company and related securitization transactions. The Company will allow
providers to significantly cut their operating costs by providing a means to
monetize and liquidate thousands of policies held in portfolios prior to the
maturation of the death benefit by selling the life portfolios into
securitization transactions and thus focus their resources on just those
policies most appropriate to their needs.
32
At such
time that a provider locates and successfully sells a life insurance policy to
the Company’s securitization syndicate, the provider will then assign the
portfolio of policies to the securitization pool and the provider will receive a
lump-sum payment in consideration of the portfolio sold.
The
Company anticipates that the securitized life insurance policy pool will be an
asset that may be used as collateral to underpin lines of credit, which would
enable purchasers to employ portfolios of life settlements as principal
guarantees for leveraged buy-out strategies. Buyers use cash flows from the
acquired business to service the interest requirements on the line of credit,
while the life settlement portfolio serves as collateral for the principal
amount of the loan. Funds from the death benefit of the life settlement
portfolio will ultimately pay the principal amount of the loan. The Company
believes that the applications of life settlements in mainstream investment
banking and business brokerage offer a great deal of opportunity for future
transactions that has not heretofore been used.
The
Company believes that the regulatory and legislative changes related to the
recent financial crisis will focus primarily on the housing and lending markets
and their rated securitizations and derivative products and will not impact the
securitization of life insurance policies. Moreover, the Company
believes that the securitization of life insurance cash flows is a superior
collateral on a risk-adjusted basis vis-a-vis mortgage-backed securities because
the death-benefit of a life insurance policy is a guaranteed value by the
issuing insurance carrier, whereas, the value of a real estate asset is subject
to market fluctuations.
The
securitized life settlement pool as an asset holds significant advantages
because in a general sense, it is not prone to interest rate risk, stock market
fluctuations, or systemic factors. In general, the risk of investing in life
settlement contracts is longevity risk, which is the risk of the policy failing
to mature at the expected future date. The life settlement securitization
structure seeks to distill this risk by providing a wide range of conservative
policy maturity estimates from leading third-party underwriters.
Benefits
of Life Settlements: The following are key benefits of the securitized life
settlement portfolio investment structure, which in part is the fact that
portfolios are a self-liquidating asset class:
(1)
Certainty of event
(2) Clear
expectation of payment
(3) Clear
expectation of amount
(4)
Reasonable expectation of timing of payment
(5)
Diversification is achieved by holding no less than 10 life settlement contracts
per portfolio.
Consulting
and Business Enhancement
As part
of its business plan, the Company intends to develop a financial advisory and
consulting capacity specifically relevant to life
settlements. Whether a client is an institution, a trust, a small
business, or a private client, the Company’s life settlement consulting will
provide individual guidance with respect to income objectives, risk tolerance,
tax considerations, wealth transfer strategies, and other long-term goals. The
Company views portfolios as the driving force behind the attainment of long-term
financial success, and it seeks to integrate the characteristics of life
settlement portfolios into every component of a strategic plan. The
Company will investigate the applicability of life settlement asset products in
a client’s overall asset-allocation.
The
Company anticipates consulting with funding groups and assist life settlement
purchasers in structuring methodologies of life settlement portfolio management
that optimize return on behalf of funders by affording these institutions an
exit strategy from assets in their portfolios through securitization
markets. By making markets with hedge funds, pension plans,
alternative investment syndicates, and other institutional buyers, the Company
will enable its core of funding groups to refinance life settlement asset
portfolios and thereby increase their ability to receive return on their
investment and simultaneously decreasing the duration of holding such assets.
This will increase liquidity on behalf of life settlement funders.
Warehouse of life
settlements. The purchaser of life settlement contracts simply
pays policy premiums until the maturation of the portfolio. The problem with
this approach is that the funder does not realize any positive cash flows until
the maturity of the portfolio and also must pay premiums in the interim. This is
a buy and hold strategy. The Company has developed alternative structures geared
towards optimizing the internal flow of money among core funding groups. The viatical settlement
market had a shorter life expectancy and shorter hold period for the purchaser
of the life settlement. As the industry has shifted away from the
viatical market to the age-based life settlement market, the hold period has
increased for the purchaser of the life settlement.
33
Life settlement
hypothecation. The Company has developed an alternative
funding model (life settlement hypothecation) that will enable purchasers to
manage life settlement assets and to receive interest on their
investment. Life settlements hypothecation provides a mechanism for
institutional funders to loan life settlements inventory to borrowers. The
purchaser (funder) of the life settlement will enter into an agreement with a
potential borrower which will afford the borrower the use of the portfolio life
settlements as collateral under the condition that borrower pay funder a rate of
interest equal to the expected return of the life settlement portfolio. The
transaction will benefit funders by allowing the premium cost of financing
policies to be absorbed into borrower’s loan, which removes the cost of carry on
funders balance sheets. Eliminating the cost-of-carry enhances portfolio returns
to funders and creates a positive cash flow cycle from
acquisition. The borrower agrees to a discounted acceleration of the
expected annual return of a life settlement portfolio and pays funder an annual
rate of interest on the borrowed life settlement contracts. This may be remitted
to funder as a lump-sum reflecting the present-value of the life settlement
portfolio, or structured as a periodic stream of cash flows to
funders.
Whereas
the warehousing model (holding the life settlement portfolio) requires funders
to sustain policies until maturity to receive a gross return, hypothecation
allows funders to earn interest on a life settlement portfolio along an agreed
cash flow cycle. The final implication of hypothecation is that funders will be
induced to offer higher bids in wholesale life settlement markets to acquire
life settlement contracts, because such assets will require no cost-of-carry to
funders, have increased cash conversion liquidity, and remove mortality risk
from funders portfolios.
Refinance Model of Life Settlements:
The purchaser, or funder of life settlement assets, owns assets at
discounted acquisition costs, or wholesale rates. Rather than holding these life
settlement policies to fruition, or hypothecating these life settlement
portfolios to third-party borrowers in exchange for an agreed upon rate of
return, the refinance model anticipates that funders will sell life settlement
portfolios at a predetermined mark-up from acquisition cost. This transaction
would allow a client to open a letter of credit using a portfolio of life
settlement policies to underpin the letter of credit. The principal
of the loan is guaranteed by use of the letter of credit. The client
is obligated to service the interest requirement of any loan and the ability to
pay this interest requirement is essential to make the transaction
viable.
Software
Development
On April
21, 2006, the Company applied for a service mark for the computer software
services, namely, installation, implementation, maintenance, and repair services
for computer software in the field of the life settlement industry offered by
Christian Stanley, registration number 3390087.
The
Company has also applied and has a pending application for the service mark
“Reverse-Life Insurance”. The Company anticipates that it will
further develop software solutions that address the needs of
professionals involved in life settlement transactions. The software includes
valuation tools, portfolio analytics, consumer response management, and
professional networking amongst users.
Potential
Revenue
Life Settlement Broker: The
Company anticipates that the fees from matching life settlement transactions
will be its initial primary source of revenue. The Company plans that
it will receive a fee at or after closing based on the face value of the
purchased policy from the purchasers of the life insurance
policy. The Company has negotiated a relationship with Settlement
Benefits Association, which enables the Company to earn a fee in consideration
of introducing candidates for life settlement transactions. The fee will vary on
a case-by-case basis. Typically, the Company will earn a fee that is
between 3%-7% of the life settlement death benefit value. The Company intends to
engage in national mass media marketing and public relations campaigns, which it
believes will foster brand recognition and consumer confidence in “Christian
Stanley” and its related life settlement transaction services. The Company
anticipates that such mass media campaign will result in qualified candidates
responding to the value-proposition of life settlements on a national basis,
which will provide a source of revenue for the Company. Given the condition of
financial markets, the Company believes that consumers will desire to access
latent-value held in life insurance policies through the life settlement
brokerage services of the Company.
34
Securitization Fees: The
Company anticipates that it will earn fees in the capacity of a dealer wherein
life settlement assets are acquired, securitized, and distributed to investors
in the form of equity securities. The Company seeks to
introduce life settlement securities as an alternative to traditional investment
vehicles and believes that investors could earn positive portfolio. The Company
believes that such securitized life settlement assets will provide investors
with an efficient alternative to traditional asset-classes.
Professional Fees: The
Company anticipates that it will earn fees as a consultant specializing in life
settlement related transactions. As such, the Company will advise life
settlement providers and others to optimize portfolio holdings and
diversify the portfolio as the settlement market changes. The
expertise, relationships, know-how, and market penetration of the Company may be
leveraged in a consulting capacity. That is to say, the myriad firms that are
involved in the life settlement market place provide a key potential client base
for the Company because it is focused on engineering exit strategies for
purchasers of life settlement assets prior to the maturation of portfolio death
benefits. Institutional purchasers of life settlements will benefit from
acceleration of the rate-of-return prior to the death benefit. The Company will
provide consulting services and professional strategic advisory services to
firms that seek to access its suite of proprietary transactions.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
Company is a development stage company and was incorporated in California in
March, 2006 as a successor to Christian Stanley, LLC, a California limited
liability company formed in June, 2004. As of September 30, 2009, the
Company had generated insignificant revenue and incurred operating losses, as
part of the Company's development stage activities, of
$2,801,437. The Company has received all its operating funds from the
sale of its securities. The Company has recently completed its first
life settlement transaction.
Going
Concern
The
Company’s auditors have issued a report questioning the Company’s ability to
continue as a going concern without the influx of additional capital. The
Company has recently completed its first life settlement transactions and has
further developed a relationship with SBA and Life Settlements
International. The Company anticipates that these relationships will
provide it with a pool of potential life settlement sellers and a network of
institutional life settlement purchasers. The Company believes that
the influx of capital from this offering will allow it to utilize these
relationships to develop an on-going and profitable series of life settlement
transactions and to purchase a broker-dealer firm which will allow the Company
to establish its securitization plan. Once the these transactions are
established, the Company can further implement the other aspects of its business
plan.
Alternative
Financial Planning
The Company estimates it
will likely require approximately $1,000,000 to begin its initial development of
basic sales and marketing and will need up to the maximum offering amount of
$20,000,000 to execute its business plan as herein described. If the
Company raises an amount less that the projected amount, it will not be able to
develop all aspects of its business plan and will develop such plan more
incrementally. If the Company only $1,000,000 in this offering, it will
use the funds (after payment of placement agent fees, if any) for the basic
sales and marketing and for mergers and acquisitions with the
intention of being able to purchase a broker-dealer which the Company believes
has the potential to create a base from which it can develop its pool of life
settlement sellers and purchasers. The other programs, including life
settlement securitization and the incubator program, and other matters would not
be funded until such time as the Company had revenues or other sources of funds
sufficient to fund those programs.
35
However,
the Company has constructed a viable strategic plan to enable the Company to
overcome financial difficulties and the possible effect of being unable to raise
these funds. In the event that the minimum offering is not reached
(200,000 Shares, $1,000,000 raised), the Company has structured a contingency
plan based upon using its trademarked names, consulting services,
and intellectual property licensing, that it believes will enable it
to maintain progressive operations and then to eventually develop and fulfill
the business plan described in this prospectus.
First,
the Company will try to leverage its institutional relationships with SBA and
Life Settlements International, LLC, using the registered trademarks “Christian
Stanley®” and Reverse-Life Insurance®” through independent ownership and rights
to use the brand names of the Company for a period of 5-years.
Second,
if the Company is unable to raise the minimum offering amount, it intends to
focus on and expand its consulting services activities, which have generated
some revenue in past year although the Company has never targeted that as a
revenue source. The Company has declined to serve as a fee based
consultant to several potential clients because serving in a consulting capacity
has not been the focus of the Company, however, Management has developed an
operational contingency plan through, which the Company will try to develop
consulting activities and use consulting services as means of generating revenue
and income for the Company.
Third, if
the Company is unable to raise the necessary funds from this offering, the
Company will try to earn fees by licensing independent contractors to use the
registered trademarks “Christian Stanley®” and Reverse-Life Insurance®” in the
business services. The website, media materials, good-will, and relationships of
the Company would be licensed to independent contractors. The Company does not
know if there is a market for such usage, but it believes that it has developed
the brand sufficiently in the industry that it may be able to license the use of
the name.
Critical
Accounting Policies
The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires making estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The estimates are based on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis of making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
The
Company believes that the following critical accounting policies, among others,
affect our more significant judgments and estimates used in the preparation of
our financial statements:
Use
of estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue
recognition and investment in life insurance policies
Revenue
for consulting services is recognized when a signed contract has been executed,
the services have been delivered, fees are fixed or determinable, and
collectibility is reasonably assured, generally which occur when the Company has
completed its obligations to provide consulting services.
Revenue
for fees received from agents to act as sales agents of the Company is
recognized when a signed contract has been executed, the right to act as sales
agent or receive an enhanced commission has been delivered, fees are fixed or
determinable, and collectibility is reasonably assured, generally which occur
when the agent signs an agreement with the Company to be a sales
agent.
36
The
Company intends to serve as a life settlement policy broker and anticipates it
will be paid a commission for such services. Commission revenue, if
any, will be recorded when the commission is earned, which usually will be upon
the successful completion of a transaction and the Company has no further
performance obligations. During the nine months ended September 30,
2009 and 2008, the Company did not record and broker commission
revenue.
Investment
in life insurance policies, if any, will be recorded in accordance with
authoritative guidance issued by the FASB. Under this guidance, 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.
Share-based
payments
The
Company periodically issues shares of common stock to employees and
non-employees for services. Stock-based compensation is measured at
the grant date, based on the fair value of the award, and is recognized as
expense over the requisite service period.
The
Company will estimate the fair value of stock options and warrants using the
Black-Scholes option-pricing model, which was developed for use in estimating
the fair value of options that have no vesting restrictions and are fully
transferable. This model requires the input of subjective assumptions, including
the expected price volatility of the underlying stock and the expected life of
stock options. Projected data related to the expected volatility of stock
options is based on the average volatility of the trading prices of comparable
companies and the expected life of stock options is based upon the average term
and vesting schedules of the options. Changes in these subjective assumptions
can materially affect the fair value of the estimate, and therefore the existing
valuation models do not provide a precise measure of the fair value of our stock
options and warrants.
The
Company estimates the fair value of shares of common stock issued for services
based on the price of shares of the Company’s common stock sold in
contemporaneous private placements on the date shares are granted.
Recent
Accounting Pronouncements
In June
2009, the FASB issued authoritative guidance on an amendment of accounting for
transfers of financial assets, and seeks to improve the relevance and
comparability of the information that a reporting entity provides in its
financial statements about transfers of financial assets; the effects of the
transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement, if any, in transferred financial
assets. The authoritative guidance eliminates the concept of a
qualifying special-purpose entity, creates more stringent conditions for
reporting a transfer of a portion of a financial asset as a sale, clarifies
other sale-accounting criteria, and changes the initial measurement of a
transferor’s interest in transferred financial assets. The
authoritative guidance is effective for interim and annual reporting periods
beginning after November 15, 2009. The Company believes adopting the
new guidance will not significantly impact its financial
statements.
In
June 2009, the FASB issued authoritative guidance on consolidation of variable
interest entities, which requires an enterprise to determine whether its
variable interest or interests give it a controlling financial interest in a
variable interest entity. The primary beneficiary of a variable interest entity
is the enterprise that has both (1) the power to direct the activities of a
variable interest entity that most significantly impact the entity’s economic
performance, and (2) the obligation to absorb losses of the entity that could
potentially be significant to the variable interest entity or the right to
receive benefits from the entity that could potentially be significant to the
variable interest entity. The authoritative guidance requires ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity and is effective for interim and annual reporting periods
beginning after November 15, 2009. The Company believes adopting the new
guidance will not significantly impact its financial
statements.
37
On July
1, 2009, the Company adopted authoritative guidance issued by the FASB on
business combinations. The guidance retains the fundamental requirements that
the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are
recognized and measured as a result of business combinations. It also requires
the capitalization of in-process research and development at fair value and
requires the expensing of acquisition-related costs as incurred. We have applied
this guidance to business combinations completed since July 1,
2009. Adoption of the new guidance did not have a material impact on
our financial statements.
In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective for the Company beginning July 1, 2010, with earlier
adoption permitted. Under the new guidance on arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance. The Company believes adopting the new guidance
will not significantly impact its financial statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
Discussion
of Fiscal Years Ended December 31, 2008 and December 31, 2007
The
Company incurred a net loss of $608,503 for the year ended December 31, 2008 and
$340,035 for the year ended December 31, 2007 with general and administrative
expenses of $612,453 and $345,670, respectively, for those years. The
Company received consulting revenue of $11,250 in the year ended 2008 and
$10,000 in the year ended 2007. The Company received these fees for
project management services to private clients. The Company performed
research, editing, scheduling and operations management consulting services to
such clients. The Company does not believe that its consulting
operations will expand to create sufficient revenues to sustain the
Company.
Mr.
Daniel Powell, as chief executive office of the Company, receives a salary of
$200,000 per year commencing in 2005 and $100,000 in 2004. As of
December 31, 2008, the salary accrued to Daniel Powell since inception of the
Company was an aggregate of $900,000, including an accrued amount of $200,000 in
2008 and $200,000 in 2007. As of December 31, 2008, the Company had
paid Mr. Powell an aggregate of $577,383 since inception, including payments of
$102,014 in 2008 and $108,078 in 2007. As a result, as of December
31, 2008, the net salary amount due to Mr. Powell was $322,617.
The
Company accrued a total of $200,000 of salary due to its chief executive officer
for the years ended December 31, 2008 and December 31, 2007,
respectively.
General
and administrative expenses for the year ended December 31, 2008 were $612,453
compared with $345,670 for the year ended December 31, 2007, with total general
and administrative expenses from June 1, 2004 (inception) to December 31, 2008
of $2,497,291. The Company incurred large general and administrative
expenses in 2006 of $633,267 as a result of start-up expenses of the Company and
expenses associated with retaining legal, accounting, consulting and
administrative professionals pursuant to the Company's decision to pursue
registration of its securities for public trading. In the year ended
December 31, 2007, the Company reduced its general and administrative expenses
as it focused on business research in establishing its products and
services. In the year ended December 31, 2008, the Company began
implementing its business plan which required expenditures related to fees to
consultants, accountants, and advisors.
38
Liquidity. The
Company received $313,115 and $355,760 from the private sale of its stock in the
years ended December 31, 2008 and December 31, 2007,
respectively. The Company has issued a total of 5,321,250 shares of
its common stock to employees and other individuals for services rendered to
it. The Company has no continuous methods of generating
cash.
Capital
Resources. The Company did not incur any capital expenditures other
than the purchase of an automobile for use by the Company's chief executive
officer and office and computer equipment.
Results
of Operations. The Company received $11,250 in consulting services in
2008 and $10,000 in consulting fees in 2007. The Company anticipates
that it may be able to develop its consulting services but it does not believe
that such revenue would be sufficient to cover operating
expenses. The Company does not anticipate that it will generate
revenue sufficient to cover its operating expenses until the close of this
offering and the development of its business plan.
Discussion
of Nine Months Ended September 30, 2009 and Nine Months Ended September 30,
2008
For the
nine months ended September 30, 2009, the Company incurred a net loss of
$313,731 compared to a net loss of $441,540 for the same period in 2008
resulting in an aggregate accumulated deficit of $2,801,437 at September 30,
2009. From April 2009 to July 2009, the Company recorded revenue of
$3,000 from six individuals as consideration for the right to act as sales
agents for the Company. In addition, one individual paid the Company
an additional $7,000 to receive the right to an enhanced commission
structure. During the nine months ended September 30, 2009, the
Company did not record any revenue for providing consulting
services. For the nine months ended September 30, 2008, the Company
recorded $10,000 of revenue from providing consulting services.
The main
component in this reduction of losses from operating activities was the
reduction of general and administrative expenses from $451,540 for the nine
months ended September 30, 2008 to $317,388 for the same period in
2009. This reduction is a result of the Company having incurred in
prior years the expenses in regard to implementing its business
plan.
For the
nine months ended September 30, 2009, the Company accrued salary due to its
chief executive of $150,000 (based on an annual salary of
$200,000). As of September 30, 2009, since inception the chief
executive officer has an aggregate accrued salary of $1,050,000 and has received
aggregate salary payments thereon of $588,708. As a result, as of
September 30, 2009, the net salary due to Mr. Powell was $461,292.
Liquidity. The
Company issued no securities in the nine months ended September 30,
2009. The Company has no continuous methods of generating
cash.
Capital
Resources. The Company did not incur any capital expenditures for the
nine months ended September 30, 2009.
Results
of Operations. The Company completed its initial life settlement
transaction with SBA in December, 2008, for which it received a settlement fee
of $1,250. The Company anticipates that its relationships with Life
Settlements International and SBA will continue to grow and provide both life
settlement sellers and purchasers.
MANAGEMENT
The
following table sets forth information regarding the members of the Company’s
board of directors and its executive officers:
Date
Directorship
|
|||
Name
|
Age
|
Position
|
Commenced
|
Daniel
C.S. Powell
|
28
|
Chief
Executive Officer, Director
|
2004
|
Mona
Salem
|
52
|
Secretary,
Treasurer, Director
|
2005
|
Omar
A. Salem
|
28
|
Chief
Operations Officer
|
39
The
number of directors to compose the Company’s Board of Directors is not fewer
than one nor more than five. Directors do not receive any
compensation. Directors may be shareholders of the
Company.
The
directors will serve until the annual meeting of the shareholders and until
their respective successors have been elected and qualified or until death,
resignation, removal or disqualification.
The
Company’s by-laws provide that the number of directors to serve on the Board of
Directors may be established, from time to time, by action of the Board of
Directors. Vacancies in the existing Board are filled by a majority vote of the
remaining directors on the Board. The Company’s executive officers are appointed
by and serve at the discretion of the Board.
Pursuant
to Rule 4200 of The NASDAQ Stock Market one of the definitions of an independent
director is a person other than an executive officer or employee of a
company. Neither of the Company’s directors may be deemed to
independent. In the event that the Company applies for listing of its
securities on an exchange in which an independent directorship is required, it
will seek to have such directors elected or appointed.
Committees
and Terms
The Board
of Directors has not established any committees.
The
Company anticipates that the annual meeting of shareholders will be held in
May. The Company will notify its shareholders that they may present
proposals for inclusion in the Company’s proxy statement to be mailed in
connection with any such annual meeting; such proposals must be received by the
Company at least 90 days prior to the meeting. No other specific
policy has been adopted in regard to the inclusion of shareholder nominations to
the Board of Directors.
Daniel C.S. Powell has served
as the chief executive officer and chairman of the board of directors of the
Company since its inception. Mr. Powell is the founder of the
Company. Since its inception, Mr. Powell has been responsible for the
development and implementation of the Company’s direction, strategic ventures
and relationships. He was a key-note speaker at the Business Brokers Network
meeting in Dallas, Texas, in 2004, at the meeting of Alliance of Mergers and
Acquisition Advisors in Chicago, Illinois in 2005, and at the Association of
Attorney-Certified Public Accountants in San Diego, California, in
2006. From 2002 to 2004, Mr. Powell was a Financial Advisor and later
Vice President with Morgan Stanley in Los Angeles, California. In
2004, Mr. Powell left Morgan Stanley and founded Christian
Stanley. Mr. Powell received his Bachelor of Science degree in
Industrial and Labor Relations from Cornell University, Ithaca, New York, in
2002.
Mona Salem has served as the
secretary, treasurer and a director of the Company since 2005. Ms.
Salem worked for Castagnola Fleet Management, San Diego, California from 1981 to
2005 at which she supervised a team of 75 employees and served as senior Office
Manager. Ms. Salem holds a Bachelor of Accounting degree from the
University of Cairo, Cairo, Egypt, and has been a registered tax preparer in
California since 1995.
Omar A. Salem has served as
chief operations officer of the Company since 2005. From 2003 to
2005, Mr. Salem worked for PC Mall, Los Angeles, California where he specialized
in institutional sales. Mr. Salem received a Bachelor of Arts in
Political Science degree from the University of Arizona in May,
2003.
40
Legal
Proceedings
Investigation
by the Securities and Exchange Commission of the earlier sale of the Company’s
shares.
In July,
2008, the California Regional Office of the Securities and Exchange Commission
(the “SEC”) opened a formal order of investigation of the
president of the Company, Daniel C.S. Powell. Although the status of
such investigation and its specific nature are unclear, it appears that its
principal focus is whether the private sales of the Company’s stock to date has
complied with the rules and regulations governing the such private sales of
securities. Depending upon its initial findings after review, the SEC
may determine to expand its investigation to include the Company. If the SEC
determines that the rules governing the private sale of securities have been
violated, it may impose a variety of remedies, including requiring that a
recision offer be made to the purchasers of the stock, by which investors would
receive back their investment funds with interest. If the SEC made a
determination of fraud, it would have additional remedies available including
fines and/or the temporary or permanent bar of Mr. Powell from acting as an
officer, director or control person of a public company. The Company does not
have the financial ability to complete an offer of recision to its investors and
such a determination would likely have a severe adverse impact on the ability of
the Company to continue to attempt to develop operations. Similarly, the
imposition of a permanent or temporary bar of Mr. Powell from acting as an
officer or director of a public company would require Mr. Powell’s resignation
from such offices with the Company and would also likely have a severe adverse
impact on the ability of the Company to continue. Since its initial
contact with Mr. Powell, there has been no further contact by the SEC with Mr.
Powell and the nature and status of any investigation remain
unclear.
EXECUTIVE
COMPENSATION
Remuneration
of Officers:
Summary
Compensation Table
Aggregate
|
||||||||||||||||||||||||||||||||||
Accrued
|
All
|
Annual
|
||||||||||||||||||||||||||||||||
Annual
|
Salary
|
Stock
|
Compen-
|
Other
|
Compen-
|
|||||||||||||||||||||||||||||
Annual
|
Payments
|
Since
|
And
|
sation
|
Compen-
|
sation
|
||||||||||||||||||||||||||||
Name/Position
|
Year
|
Salary
|
Made
|
Inception
|
Bonus
|
Options
|
Plans
|
sation
|
Total
|
|||||||||||||||||||||||||
Daniel
C.S. Powell (1)
|
2008
|
$ | 200,000 | $ | 102,014 | $ | 322,617 | 0 | (2) | 0 | 0 | $ | 200,000 | |||||||||||||||||||||
Chief
Executive Officer
|
2007
|
200,000 | 108,078 | 224,632 | 0 | 0 | 0 | 0 | 200,000 | |||||||||||||||||||||||||
Omar
A. Salem
|
2008
|
(3) | ||||||||||||||||||||||||||||||||
Chief
Operations Officer
|
2007
|
|||||||||||||||||||||||||||||||||
Mona
Salem
|
2008
|
(4) | ||||||||||||||||||||||||||||||||
Secretary,
treasurer director
|
2007
|
(1) Since
2005, Mr Powell has received annual salary of $200,000 and $100,000 in
2004. As of December 31, 2007, the Company owed Mr. Powell
a net of $224,632 in accrued salary and an additional net accrual in 2008 of
$97,985 for an aggregate net amount of $322,617 owed to Mr. Powell at December
31, 2008.
(2) Mr.
Powell owns 64,000,000 shares of the Company’s common stock issued in
2004.
(3) Mr.
Salem owns 4,000,000 shares of the Company’s common stock issued in
2005.
(4) Ms.
Salem owns 500,000 shares of the Company’s common stock issued in
2005.
Description of Compensation
Table
Mr.
Daniel Power, as chief executive officer of the Company, receives $200,000 per
year commencing in 2005 and $100,000 in 2004. As of September 30,
2009 and December 31, 2008, the salary to Daniel Powell since inception of the
Company was an aggregate of $1,050,000 and $900,000, respectively. As
of September 30, 2009 and December 31, 2008, the Company had paid Mr. Powell an
aggregate of $588,708 and $577,383 since inception. As a result, as
of September 30, 2009, and December 31, 2008, the amount due to Mr. Powell from
the Company was an accumulated aggregate of $461,292 and $322,617
respectively.
41
The
Company accrued a total of $200,000 of salary due to its chief executive officer
for the years ended December 31, 2008 and December 31, 2007,
respectively.
Anticipated
Officer and Director Remuneration
Although
not presently offered, the Company anticipates that its officers and directors
will be provided with a group health, vision and dental insurance
program.
Employment
Agreements
The
Company has not entered into any employment agreements with the officers and key
personnel. The Company has no oral agreements or understandings with
any officer or employee regarding base salary or other
compensation.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT
The
following table sets forth information as of the date of this prospectus
regarding the beneficial ownership of the Company’s common stock by each of its
executive officers and directors, individually and as a group and by each person
who beneficially owns in excess of five percent of the common stock after giving
effect to any exercise of warrants or options held by that
person.
42
Number
of
|
Percent
of
|
Percent
of
|
||||||||||||
Shares
of
|
Class Before
|
Class
After
|
||||||||||||
Position
|
Common Stock
|
Offering (1)
|
Offering(2)
|
|||||||||||
Daniel
C. S. Powell
|
Chief
Executive Officer,
|
64,000,000 | 79 | % | 75.3 | % | ||||||||
Director
|
||||||||||||||
Omar
A. Salem
|
Chief
Operations Officer
|
4,000,000 | 4.9 | % | 4.7 | % | ||||||||
Mona
Salem
|
Secretary,
Treasurer, director
|
500,000 | * | * |
* Less
than 1%
(1)
|
The
total number of outstanding shares of common stock as of September 30,
2009 is 81,062,917.
|
(2)
|
Assuming
sale of all shares offered by this prospectus resulting in an aggregate of
85,062,917 shares outstanding.
|
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Mona
Salem, the Company’s secretary, treasurer and a director, is the mother of Omar
Salem, chief operations officer of the Company.
In 2007,
the Company used the consulting services of Anand Gupta for assistance with
technology and information systems. He created the corporate website
for the Company and created marketing materials. Mr. Gupta is a shareholder of
the Company.
A partner
in the law firm which acts as counsel to the Company is the sole owner and
director of Tiber Creek Corporation which owns 250,000 shares of the Company’s
common stock.
During
the year ended December 31, 2008, the Company paid the shareholder of Surya
Consulting LLC $31,145 for providing various consulting services to the
Company.
43
Also
during the year ended December 31, 2008, the Company paid $20,200 to Sharron
McCoy, an employee of the Company and a shareholder, for providing consulting
services to the Company and $6,200 to ALREIC, an unrelated shareholder, for
consulting services.
On
February 12, 2008, the Company purchased five percent of Surya Consulting LLC
for $7,300. The president of Surya Consulting is a shareholder in the
Company. The investment declined in value and has been written off by the
Company in 2009.
SHARES
ELIGIBLE FOR FUTURE SALE
As of the
date of this prospectus, there are 81,062,917 shares of common stock outstanding
of which 68,500,000 shares are owned by officers and directors of the Company,
namely Mr. Powell, Ms. Salem and Mr. Salem. There will be 85,062,917
shares of common stock issued and outstanding if the maximum number of Shares
offered herein are sold. The shares of common stock held by current
shareholders are considered “restricted securities” subject to the limitations
of Rule 144 under the Securities Act. In general, securities may be sold
pursuant to Rule 144 after being fully-paid and held for more than 12 months.
While affiliates of the Company are subject to certain limits in the amount of
restricted securities they can sell under Rule 144, there are no such
limitations on sales by persons who are not affiliates of the
Company. In the event non-affiliated holders elect to sell such
shares in the public market, there is likely to be a negative effect on the
market price of the Company’s securities.
LEGAL
MATTERS
Cassidy
& Associates, Washington, D.C., has given its opinion as attorneys-at-law
regarding the validity of the issuance of the Shares of common stock offered by
the Company. A member of the law firm of Cassidy & Associates is
the sole officer and director of Tiber Creek Corporation and may be considered
the beneficial owner of the 250,000 shares of common stock of the Company owned
by Tiber Creek Corporation.
EXPERTS
Weinberg
& Company, P.A., an independent registered public accounting firm, has
audited the Christian Stanley, Inc.’s (a development
stage company) consolidated balance sheets as of December 31, 2008 and 2007, and
the related statements of operations, changes in stockholders’ deficiency,
and cash flows for the years then ended. The
Company has included its financial statements in the prospectus and elsewhere in
the registration statement in
reliance on the report of Weinberg & Company, P.A., given their authority as
experts in accounting and auditing.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR
SECURITIES ACT LIABILITIES
The
Company’s Articles
of Incorporation include an indemnification provision that provides that the
Company shall indemnify directors against monetary damages to the Company or any
of its shareholders by reason of a breach of the director’s fiduciary
except (i) for any breach of the director’s duty of
loyalty to the Company or its shareholders or (ii) for acts or omissions not in
good faith or which involve intentional misconduct of (iii) for unlawful payment
of dividend or unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit.
44
The
Articles of Incorporation do not specifically indemnify the officers or
directors or controlling persons against liability under the Securities
Act.
The
Securities and Exchange Commission’s position
on indemnification of officers, directors and control persons under the
Securities Act by the Company is as follows:
INSOFAR
AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933 MAY
BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS OF THE SMALL
BUSINESS ISSUER PURSUANT TO THE RULES OF THE COMMISSION, OR OTHERWISE, THE SMALL
BUSINESS ISSUER HAS BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND
EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED
IN THE ACT AND IS, THEREFORE, UNENFORCEABLE.
45
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
FINANCIAL
STATEMENTS
YEARS
ENDED DECEMBER 31, 2008 AND 2007
46
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONTENTS
PAGE
|
2
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
PAGE
|
3
|
BALANCE
SHEETS AS OF DECEMBER 31, 2008 AND DECEMBER 31, 2007
|
PAGE
|
4
|
STATEMENTS
OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE
PERIOD JUNE 1, 2004 (INCEPTION) TO DECEMBER 31, 2008
|
PAGE
|
5
|
STATEMENT
OF CHANGES IN STOCKHOLDER’S DEFICIENCY FOR THE PERIOD JUNE 1, 2004
(INCEPTION) TO DECEMBER 31, 2008
|
PAGE
|
6
|
STATEMENTS
OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE
PERIOD JUNE 1, 2004 (INCEPTION) TO DECEMBER 31, 2008
|
PAGES
|
7-14
|
NOTES
TO FINANCIAL STATEMENTS AS OF DECEMBER 31,
2008
|
1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders of
Christian
Stanley, Inc.
(a
Development Stage Company)
Los
Angeles, California
We have
audited the accompanying balance sheets of Christian Stanley, Inc. (the
“Company”) (a development stage company) as of December 31, 2008 and 2007, and
the related statements of operations, changes in stockholders' deficiency, and
cash flows for the years ended December 31, 2008 and 2007, and for the period
June 1, 2004 (Inception) to December 31, 2008. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Christian Stanley, Inc. (a
development stage company) at December 31, 2008 and 2007, and the results of its
operations and its cash flows for the years ended December 31, 2008 and 2007,
and for the period June 1, 2004 (Inception) to December 31, 2008 in conformity
with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming Christian Stanley,
Inc. will continue as a going concern. The Company has experienced
recurring losses and has a stockholders’ deficiency at December 31,
2008. These conditions raise substantial doubt regarding the
Company's ability to continue as a going concern. Management's plans
in regard to these matters are described in Note 1 to the financial
statements. The financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the outcome of this uncertainty.
In July,
2008, the California Regional Office of the Securities and Exchange Commission
(the "SEC") opened a formal order of investigation of the president of the
Company. Although the status of such investigation and its specific nature are
unclear, it appears that its principal focus is whether the private sales of the
Company’s stock has complied with the rules and regulations governing such
sales. If the SEC determines the rules governing the private sale of
securities have been violated, it may impose a variety of remedies, including
requiring that a recision offer be made to the purchasers of the stock, by which
investors would receive back their investment funds with interest. The Company
does not have the financial ability to complete an offer of recision to its
investors and such a determination would likely have a severe adverse impact on
the ability of the Company to continue to attempt to develop
operations.
Weinberg
& Company, P.A.
Boca
Raton, Florida
April 8,
2009
2
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
BALANCE
SHEETS
December 31,
2008
|
December 31,
2007
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 398 | $ | 103,606 | ||||
Total
current assets
|
398 | 103,606 | ||||||
Automobile
and equipment, net
|
10,969 | 14,850 | ||||||
Total
assets
|
$ | 11,367 | $ | 118,456 | ||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 80,600 | $ | - | ||||
Accrued
salaries, officer, net
|
322,617 | 224,632 | ||||||
Accrued
payroll taxes
|
44,739 | 35,025 | ||||||
Total
current liabilities
|
447,956 | 259,657 | ||||||
Commitments
|
- | - | ||||||
Stockholders’
deficiency
|
||||||||
Common
stock, 100,000,000 shares authorized, 81,062,917 and 80,789,750 shares
issued and outstanding, respectively
|
2,051,117 | 1,738,002 | ||||||
Deficit
accumulated during development stage
|
(2,487,706 | ) | (1,879,203 | ) | ||||
Total
stockholders’ deficiency
|
(436,589 | ) | (141,201 | ) | ||||
Total
liabilities and stockholders’ deficiency
|
$ | 11,367 | $ | 118,456 |
See
accompanying notes to financial statement
3
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF OPERATIONS
Year
ended
December
31,
2008
|
Year
ended
December
31,
2007
|
Period
from
June
1, 2004
(inception)
to
December
31,
2008
|
||||||||||
Consulting
revenue
|
$ | 11,250 | $ | 10,000 | $ | 21,250 | ||||||
General
and administrative expenses
|
(612,453 | ) | (345,670 | ) | (2,497,291 | ) | ||||||
Loss
from operations
|
(601,203 | ) | (335,670 | ) | (2,476,041 | ) | ||||||
Other
expenses:
|
||||||||||||
Impairment
of investment-related party
|
(7,300 | ) | - | (7,300 | ) | |||||||
Loss
on sale of automobile
|
- | (4,365 | ) | (4,365 | ) | |||||||
Net
loss
|
$ | (608,503 | ) | $ | (340,035 | ) | $ | (2,487,706 | ) | |||
Net
loss per share, basic and diluted
|
$ | (0.01 | ) | $ | (0.01 | ) | ||||||
Weighted
average number of shares outstanding, weighted and diluted
|
80,963,924 | 80,510,534 |
See
accompanying notes to financial statements
4
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENT
OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
June
1, 2004 (Inception) to December 31, 2008
Common
Stock
|
||||||||||||||||
Number of
shares
|
Amount
|
Accumulated
Deficit
|
Total
|
|||||||||||||
Balance,
June 1, 2004
|
- | $ | - | $ | - | $ | - | |||||||||
Shares
issued to founder
|
64,000,000 | - | - | - | ||||||||||||
Fair
value of shares issued for services
|
4,021,250 | 120,637 | - | 120,637 | ||||||||||||
Issuance
of shares for cash, net of offering costs
|
1,150,000 | 21,500 | - | 21,500 | ||||||||||||
Net
loss
|
- | - | (241,858 | ) | (241,858 | ) | ||||||||||
Balance,
December 31, 2004
|
69,171,250 | 142,137 | (241,858 | ) | (99,721 | ) | ||||||||||
Issuance
of shares for cash, net of offering costs
|
5,915,000 | 184,060 | - | 184,060 | ||||||||||||
Net
loss
|
- | - | (311,584 | ) | (311,584 | ) | ||||||||||
Balance,
December 31, 2005
|
75,086,250 | 326,197 | (553,442 | ) | (227,245 | ) | ||||||||||
Fair
value of shares issued for services
|
1,300,000 | 556,500 | - | 556,500 | ||||||||||||
Issuance
of shares for cash, net of offering costs
|
3,913,500 | 519,545 | - | 519,545 | ||||||||||||
Net
loss
|
- | - | (985,726 | ) | (985,726 | ) | ||||||||||
Balance,
December 31, 2006
|
80,299,750 | 1,402,242 | (1,539,168 | ) | (136,926 | ) | ||||||||||
Issuance
of shares for cash, net of offering costs
|
490,000 | 335,760 | - | 335,760 | ||||||||||||
Net
loss
|
- | - | (340,035 | ) | (340,035 | ) | ||||||||||
Balance,
December 31, 2007
|
80,789,750 | 1,738,002 | (1,879,203 | ) | (141,201 | ) | ||||||||||
Issuance
of shares for cash, net of offering costs
|
273,167 | 313,115 | - | 313,115 | ||||||||||||
Net
loss
|
- | - | (608,503 | ) | (608,503 | ) | ||||||||||
Balance,
December 31, 2008
|
81,062,917 | $ | 2,051,117 | $ | (2,487,706 | ) | $ | (436,589 | ) |
See
accompanying notes to financial statements
5
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
Year ended
December 31,
2008
|
Year ended
December 31,
2007
|
Period
June 1, 2004
(inception) to
December 31, 2008
|
||||||||||
Cash Flows
from Operating Activities
|
||||||||||||
Net
Loss
|
$ | (608,503 | ) | $ | (340,035 | ) | $ | (2,487,706 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
expense
|
6,731 | 12,635 | 36,011 | |||||||||
Impairment
of investment-related party
|
7,300 | - | 7,300 | |||||||||
Expense
of canceling purchase of broker dealer
|
7,500 | - | 7,500 | |||||||||
Loss
on sale of automobile
|
- | 4,365 | 4,365 | |||||||||
Fair
value of shares issued for services
|
- | - | 677,137 | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
Payable
|
80,600 | - | 80,600 | |||||||||
Accrued
salaries, officer, net
|
97,985 | 73,097 | 322,617 | |||||||||
Accrued
payroll taxes
|
9,714 | 9,434 | 44,739 | |||||||||
Net
cash used in operating activities
|
(398,673 | ) | (240,504 | ) | (1,307,437 | ) | ||||||
Cash
Flows from Investing Activities
|
||||||||||||
Proceeds
from sale of automobile
|
- | 4,893 | 4,893 | |||||||||
Acquisition
of property and equipment
|
(2,850 | ) | - | (56,238 | ) | |||||||
Deposit
for purchase of broker-dealer, net
|
(7,500 | ) | - | (7,500 | ) | |||||||
Investment
in Surya Consulting LLC
|
(7,300 | ) | - | (7,300 | ) | |||||||
Net
cash used in investing activities
|
(17,650 | ) | 4,893 | (66,145 | ) | |||||||
Cash
Flows from Financing Activities
|
||||||||||||
Proceeds
from issuance of common stock
|
313,115 | 335,760 | 1,373,980 | |||||||||
Proceeds
from note payable
|
- | - | 17,938 | |||||||||
Principal
payment of notes payable
|
- | - | (17,938 | ) | ||||||||
Net
cash provided by financing activities
|
313,115 | 335,760 | 1,373,980 | |||||||||
Increase
(decrease) in cash
|
(103,208 | ) | 100,149 | 398 | ||||||||
Cash
and cash equivalents, beginning of period
|
103,606 | 3,457 | - | |||||||||
Cash
and cash equivalents , end of period
|
$ | 398 | $ | 103,606 | $ | 398 | ||||||
Supplementary
cash flow information
|
||||||||||||
Income
taxes paid
|
$ | - | $ | - | $ | - | ||||||
Interest
paid
|
$ | - | $ | - | $ | - |
See
accompanying notes to financial statements
6
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
December
31, 2008
NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description
of business
Christian
Stanley, Inc. (“the Company”) was incorporated as a California corporation in
March 2006, and serves as the successor entity to Christian Stanley, LLC, a
California limited liability company formed June 1, 2004. The Company is a
development stage enterprise as defined by Statement of Financial Accounting
Standards (SFAS) No. 7, "Accounting and Reporting by Development Stage
Enterprises." All losses accumulated since the inception of the Company will be
considered as part of the Company's development stage activities. The Company
has generated insignificant revenue. The Company's fiscal year end is
December 31.
Going
concern
The
Company has a history of operating losses. During the year ended
December 31, 2008, the Company incurred a net loss of $608,503 and used cash in
operations of $398,673, and had an accumulated deficit of $2,487,706 and a
working capital deficiency of $447,558 at December 31, 2008. These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The financial statements do not include any
adjustments that might result from these uncertainties. Management
continues to seek funding from its shareholders and other qualified investors to
pursue its business plan.
In July,
2008, the California Regional Office of the Securities and Exchange Commission
(the "SEC") opened a formal order of investigation of the president of the
Company. Although the status of such investigation and its specific nature are
unclear, it appears that its principal focus is whether the private sales of the
Company’s stock has complied with the rules and regulations governing such
sales. If the SEC determines the rules governing the private sale of
securities have been violated, it may impose a variety of remedies, including
requiring that a recision offer be made to the purchasers of the stock, by which
investors would receive back their investment funds with interest. The Company
does not have the financial ability to complete an offer of recision to its
investors and such a determination would likely have a severe adverse impact on
the ability of the Company to continue to attempt to develop operations (see
Note 7).
Use of
estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and
cash equivalents
For
purposes of the financial statements, the Company considers all liquid
instruments purchased with original maturities of three months or less to be
cash equivalents.
7
Automobile
and equipment
Automobile
and equipment are stated at cost less accumulated depreciation. Expenditures for
additions, renewals, and improvements are capitalized. Costs of repairs and
maintenance are expensed when incurred.
Depreciation
is provided using the straight-line method over the estimated useful lives of
the assets, which range from three to five years.
Revenue
recognition
Revenue
for consulting services is recognized when a signed contract has been executed,
the services have been delivered, fees are fixed or determinable, and
collectibility is reasonably assured, generally which occur when the Company has
completed its obligations to provide consulting services.
The
Company intends to serve as a life settlement policy broker and anticipates it
will be paid a commission for such services. Commission revenue, if
any, will be recorded when the commission is earned, which usually will be upon
the successful completion of a transaction and the Company has no
further performance obligations. During the years ended December 31, 2008 and
2007, the Company did not record any broker commission revenue.
Investment
in life insurance policies
Investment
in life insurance policies, if any, will be 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. At December 31, 2008 and 2007,
the Company had no investments in life insurance policies.
Equity
Based Compensation
The
Company periodically issues shares of stock to employees and non-employees in
non-capital raising transactions for services. The Company adopted
Statement of Financial Accounting Standard (SFAS) No. 123R, “Accounting for
Share-Based Compensation” effective January 1, 2006, and is using the modified
prospective method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of SFAS No. 123R for all
share-based payments granted after the effective date and (b) based on the
requirements of SFAS No. 123R for all awards granted to employees prior to the
effective date of SFAS No. 123R that remain unvested on the effective
date.
8
The
Company accounts for shares granted and vesting to
non-employees in accordance with EITF No. 96-18: "Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” and EITF No. 00-18 “Accounting
Recognition for Certain Transactions involving Equity Instruments Granted to
Other Than Employees” whereas the value of the stock compensation is based upon
the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to
earn the equity instruments is complete.
The
Company has no stock options or stock warrants outstanding.
Income
Taxes
The
Company accounts for income taxes and related accounts under the liability
method. Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted rates expected to be in effect during the year in
which the basis differences reverse.
Loss per
Share
SFAS No.
128, “Earnings Per Share”, requires presentation of basic earnings per share
(“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic
earnings (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding
during the period. The diluted earnings per share calculation gives effect to
all potentially dilutive common shares outstanding during the period using the
treasury stock method. As of December 31, 2008 and 2007, the Company
had no common stock equivalents outstanding.
Financial
assets and liabilities measured at fair value
Fair
value measurements are determined by the Company's adoption of Statement of
Financial Accounting Standards ("SFAS") No. 157, “Fair Value Measurements”
("SFAS 157") as of January 1, 2008, with the exception of the
application of the statement to non-recurring, non-financial assets and
liabilities as permitted. The adoption of SFAS 157 did not have a material
impact on the Company's fair value measurements. SFAS 157 defines fair
value as the price that would be received to sell an asset or paid to transfer a
liability in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at the
measurement date. SFAS 157 establishes a fair
value hierarchy, which prioritizes the inputs used in measuring fair value into
three broad levels as follows:
Level 1—Quoted
prices in active markets for identical assets or liabilities.
Level 2—Inputs,
other than the quoted prices in active markets, are observable either directly
or indirectly.
Level 3—Unobservable
inputs based on the Company's assumptions.
SFAS 157
requires the use of observable market data if such data is available without
undue cost and effort.
At
September 30, 2009, the carrying amounts of financial instruments, including
cash, and accounts payable and accrued liabilities approximate fair value
because of their short maturity.
9
Comprehensive
loss
For the
years ended December 31, 2008 and 2007, and the period June 1, 2004 (inception) to
December 31, 2008, the Company had no items that represent other
comprehensive income or loss.
Concentration
of Credit Risk
Financial
instruments that are exposed to concentrations of credit risk consist
principally of cash. The Company places its cash in what it believes
to be credit-worthy financial institutions. However, cash balances
may have exceeded federally insured levels at various times during the
year. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risk in cash.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and
SFAS No. 160, Accounting
and Reporting of Non-Controlling Interest in Consolidated Financial
Statements, an Amendment of ARB No. 51. These new standards will
significantly change the financial accounting and reporting of business
combination transactions and non-controlling (or minority) interests in
consolidated financial statements. We will be required to adopt SFAS No. 141(R)
and SFAS No. 160 on or after December 15, 2008. The Company does
not believe the adoption of SFAS 141(R) and SFAS No. 160 will have a material
effect the Company’s results of operations, financial position, or cash
flows.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (“FSP 157-2”).
FSP 157-2 delays the implementation of SFAS 157 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis. This statement
defers the effective date to fiscal years beginning after November 15, 2008
and interim periods within those fiscal years, which is fiscal year 2010 for the
Company. The Company does not believe that the adoption of FSP 157-2
will have a material effect on the Company’s results of operations, financial
position, or cash flows.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
NOTE
2 AUTOMOBILE AND EQUIPMENT
Automobile
and equipment consists of the following as of:
December 31,
2008
|
December 31,
2007
|
|||||||
Automobile
|
$ | 35,696 | $ | 35,696 | ||||
Computer
equipment
|
7,237 | 4,387 | ||||||
42,933 | 40,083 | |||||||
Less
accumulated depreciation
|
(31,964 | ) | (25,233 | ) | ||||
$ | 10,969 | $ | 14,850 |
10
Depreciation
expense was $6,731, $12,635, and $36,011 for the years ended December 31, 2008
and 2007, and for the period June 1, 2004 (inception) to December 31, 2008,
respectively.
NOTE
3 ACCRUED SALARIES, OFFICER, NET
As of
December 31, 2008 and December 31, 2007, the Company had accrued a total of
$900,000 and $700,000, respectively, of salary due to its Chief Executive
Officer. For the years ended December 31, 2008 and 2007, salary
expense for the Company’s Chief Executive Officer was $200,000,
respectively.
Also as
of December 31, 2008 and December 31, 2007, the Company had made total advances
of $577,383 and $475,368, respectively, to its Chief Executive
Officer. For the years ended December 31, 2008 and 2007,
advances to the Company’s Chief Executive Officer totaled $102,014 and $108,078,
respectively.
At
December 31, 2008 and December 31, 2007, $322,617 and $224,632, respectively,
represents the net amount due to the Company’s Chief Executive
Officer.
NOTE
4 INCOME TAXES
The
Company has federal and state net operating loss carryforwards that can be used
through 2019 to offset taxable income, and accordingly, has not recorded a
provision for income taxes in the current year.
Significant
components of the Company's deferred income tax liability at December 31, 2008
and December 31, 2007 are as follows:
December 31,
2008
|
December 31,
2007
|
|||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carry forward
|
$ | 660,000 | $ | 426,000 | ||||
Share-based
compensation
|
258,000 | 258,000 | ||||||
Total
deferred tax assets
|
918,000 | 684,000 | ||||||
Valuation
allowance
|
(918,000 | ) | (684,000 | ) | ||||
Net
deferred income tax asset
|
$ | - | $ | - |
In the
Company’s opinion, based on the weight of available evidence, it is more likely
than not it will not generate sufficient taxable income in the future to fully
realize the net deferred tax asset. Accordingly, a valuation
allowance for the deferred tax asset has been recorded.
Reconciliation
of the effective income tax rate to the U.S. statutory rate for the year ended
December 31, 2008 is as follows:
Tax
expense at the U.S. statutory income tax rate
|
34.0 | % | ||
State
tax net of federal tax benefit
|
5.8 | % | ||
Net
effect of net operating loss and other
|
(39.8 | )% | ||
Effective
income tax rate
|
0.0 | % |
11
Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (“FIN
48”) - an interpretation of FASB Statement No. 109, Accounting for Income
Taxes.” The Interpretation addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the
financial statements. Under FIN 48, a company can recognize an income tax
benefit only if the position has a more likely than not chance of being
sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate
settlement. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures. At the date of adoption, and as of December 31,
2008, the Company does not have a liability for unrecognized tax
uncertainties.
NOTE 5
- CAPITAL STOCK
The
Company was capitalized on June 1, 2004 when it issued 64,000,000 shares of
common stock valued at zero to its founder.
Since
inception, the Company has sold a total of 11,741,667 shares of common stock in
private placements to accredited investors for total proceeds, net of offering
costs, of $1,373,980 as follows:
Sale of common stock in
2004
-500,000
shares issued at $0.007 per share for total consideration of $3,500
-650,000
shares issued at $0.03 per share for a total consideration of
$20,000
-Offering
costs totaling $2,000 are deducted from the proceeds of the sales
Sale of common stock in
2005
-1,100,000
shares issued at $0.02 per share for total consideration of $23,000
-2,935,000
shares issued at $0.03 per share for total consideration of $93,000
-725,000
shares issued at $0.04 per share for total consideration of $29,000
-1,000,000
shares issued at $0.06 per share for total consideration of $60,000
-150,000
shares issued at $0.07 per share for total consideration of $10,000
-5,000
shares issued at $1.00 per share for total consideration of $5,000
-Offering
costs totaling $35,940 are deducted from the proceeds of the sales
Sale of common stock in
2006
-250,000
shares issued at $0.02 per share for total consideration of $5,000
-1,135,000
shares issued at $0.04 per share for total consideration of $45,000
-500,000
shares issued at $0.06 per share for total consideration of $30,000
-575,000
shares issued at $0.07 per share for total consideration of $40,000
-145,000
shares issued at $0.10 per share for total consideration of $14,000
-580,000
shares issued at $0.12 per share for total consideration of $70,000
-136,000
shares issued at $0.20 per share for total consideration of $26,666
-250,000
shares issued at $0.24 per share for total consideration of $60,000
-20,000
shares issued at $0.42 per share for total consideration of $8,334
-15,000
shares issued at $0.50 per share for total consideration of $7,500
12
-25,000
shares issued at $0.60 per share for total consideration of $15,000
-25,000
shares issued at $0.72 per share for total consideration of $18,000
-125,000
shares issued at $0.80 per share for total consideration of
$100,000
-107,500
shares issued at $1.00 per share for total consideration of
$107,500
-25,000
shares issued at $1.20 per share for total consideration of $30,000
-Offering
costs totaling $57,455 are deducted from the proceeds of the sales
Sale of common stock in
2007
-125,000
shares issued at $0.08 per share for total consideration of $10,000
-30,000
shares issued at $0.10 per share for total consideration of $3,000
-10,000
shares issued at $0.20 per share for total consideration of $2,000
-5,000
shares issued at $0.80 per share for total consideration of $4,000
-10,000
shares issued at $0.90 per share for total consideration of $9,000
-12,500
shares issued at $0.92 per share for total consideration of $11,560
-13,000
shares issued at $0.98 per share for total consideration of $12,700
-274,500
shares issued at $1.00 per share for total consideration of
$274,500
-10,000
shares issued at $1.90 per share for total consideration of $19,000
-Offering
costs totaling $10,000 are deducted from the proceeds of the sales
Sale of common stock in
2008
-20,000
shares issued at $0.53 per share for total consideration of $10,500
-109,000
shares issued at $1.00 per share for total consideration of
$109,000
-63,000
shares issued at $1.06 per share for total consideration of $66,500
-30,000
shares issued at $1.10 per share for total consideration of $33,000
-20,000
shares issued at $1.50 per share for total consideration of $30,000
-15,000
shares issued at $1.94 per share for total consideration of $29,115
-12,500
shares issued at $2.00 per share for total consideration of $25,000
-3,667
shares issued at $2.73 per share for total consideration of $10,000
-There
were no offering costs incurred during the year ended December 31,
2008.
Issuance of common stock for
services
Since
inception, the Company has issued a total of 5,321,250 shares of common stock to
employees and other individuals for services as follows:
Period
|
Number of
shares
|
Fair value of
shares
|
Average
value per
share
|
|||||||||
Year
ended December 31, 2004
|
4,021,250 | $ | 120,637 | $ | 0.03 | |||||||
Year
ended December 31, 2005
|
- | - | - | |||||||||
Year
ended December 31, 2006
|
1,300,000 | 556,500 | $ | 0.43 | ||||||||
Year
ended December 31, 2007
|
- | - | - | |||||||||
Year
ended December 31, 2008
|
- | - | - | |||||||||
Total
|
5,321,250 | $ | 677,137 | $ | 0.13 |
The value
of the shares were valued based on the price of shares of the Company's common
stock sold in contemporaneous private placements and were recorded as
compensation expense as follows: $556,500 for the year ended December 31, 2006,
and $120,637 for the year ended December 31, 2004.
Included
in shares issued for services, 250,000 shares of the Company’s common stock were
issued pursuant to a consulting agreement. The consulting agreement
provides for up to an additional 250,000 shares of the Company’s common stock to
be issued if the Company’s shares of common stock trade below $1.00 per share
for a 30 day period. Currently, the Company shares of common stock are not
listed on any stock exchange.
13
NOTE
6 RELATED PARTY TRANSACTIONS
On
February 12, 2008, the Company purchased five percent of Surya Consulting LLC
for $7,300. The president of Surya Consulting is a shareholder in the
Company. The Company accounted for the investment using the cost
method of accounting. Under this method, the Company carries its investment
at historical cost and periodically evaluates the fair value of the investment
to determine if an other-than-temporary decline in value has
occurred.
In the
fourth quarter of 2008, the Company recorded a $7,300 impairment charge to
write-down the investment in Surya Consulting. The decline in value was based on a combination of
factors, including deterioration in the
economic
environment
and lack of operating activities at Surya Consulting, and the impairment
was determined to be other other-than-temporary. The impairment charge is
included in other expenses in the accompanying statement of
operations.
During
the year ended December 31, 2008, the Company paid the shareholder or Surya
Consulting LLC $31,145 for providing various consulting services to the
Company.
Also
during the year ended December 31, 2008, the Company paid $29,000 to another
shareholder for providing consulting services to the Company.
During
the year ended December 31, 2007, the Company paid $500 to a shareholder as a
commission related to the Company’s private placement of its common
stock.
NOTE 7
– COMMITMENTS AND CONTINGIENCIES
On March
5, 2008, the Company began preliminary negotiations to purchase a broker-dealer
company for $45,000, and deposited $20,000 into escrow towards the purchase. In
the fourth quarter of 2008, the transaction was cancelled and the Company’s
deposit was returned, net of $7,500 fees incurred in the
transaction.
The
Company leases its office facilities under a month-to-month operating
lease. For the year ended December 31, 2008 and 2007, rent expense
was $5,126 and $6,899, respectively.
In July,
2008, the California Regional Office of the Securities and Exchange Commission
(the "SEC") opened a formal order of investigation of the president of the
Company, Mr. Daniel C.S. Powell. Although the status of such investigation and
its specific nature are unclear, it appears that its principal focus is whether
the private sales of the Company’s stock to date has complied with the rules and
regulations governing such private sales of securities. Depending upon its
initial findings after review, the SEC may determine to expand its investigation
to include the Company or to broaden the focus of the investigation to other
concerns such as securities fraud. If the SEC determines that the rules
governing the private sale of securities have been violated, it may impose a
variety of remedies, including requiring that a recision offer be made to the
purchasers of the stock, by which investors would receive back their investment
funds with interest. If the SEC made a determination of fraud, it would have
additional remedies available including fines and/or the temporary or permanent
bar of Mr. Powell from acting as an officer, director or control person of a
public company. The Company does not have the financial ability to complete an
offer of recision to its investors and such a determination would likely have a
severe adverse impact on the ability of the Company to continue to attempt to
develop operations. Similarly, the imposition of a permanent or temporary bar of
Mr. Powell from acting as an officer or director of a public company would
require Mr. Powell’s resignation from such offices with the Company and would
also likely have a severe adverse impact on the ability of the Company to
continue.
14
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
FINANCIAL
STATEMENTS
(Unaudited)
NINE
MONTHS ENDED SEPTEMBER 30, 2009
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONTENTS
PAGE
|
2
|
CONDENSED
BALANCE SHEETS AS OF SEPTEMBER 30, 2009 (Unaudited) AND DECEMBER 31,
2008
|
PAGE
|
3
|
CONDENSED
STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008 AND FOR THE PERIOD JUNE 1, 2004 (INCEPTION) TO SEPTEMBER 30, 2009
(Unaudited)
|
PAGE
|
4
|
CONDENSED
STATEMENT OF CHANGES IN STOCKHOLDER’S DEFICIENCY FOR THE PERIOD JUNE 1,
2004 (INCEPTION) TO SEPTEMBER 30, 2009 (Unaudited)
|
PAGE
|
5
-6
|
CONDENSED
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008 AND FOR THE PERIOD JUNE 1, 2004 (INCEPTION) TO SEPTEMBER 30, 2009
(Unaudited)
|
PAGES
|
7-17
|
NOTES
TO CONDENSED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009
(Unaudited)
|
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
BALANCE SHEETS
September 30,
2009
(Unaudited)
|
December 31,
2008
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 12,030 | $ | 398 | ||||
Total
current assets
|
12,030 | 398 | ||||||
Equipment,
net
|
2,718 | 10,969 | ||||||
Total
assets
|
$ | 14,748 | $ | 11,367 | ||||
LIABILITIES
AND STOCKHOLDERS’
DEFICIENCY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable and accrued expenses (including $58,000 and $0
due to related party respectively)
|
$ | 135,871 | $ | 80,600 | ||||
Accrued
salaries, officer, net
|
461,292 | 322,617 | ||||||
Accrued
payroll taxes
|
54,026 | 44,739 | ||||||
Notes
payable (including $3,000 and $0 due to related party
respectively)
|
103,879 | - | ||||||
Total
current liabilities
|
755,068 | 447,956 | ||||||
Commitments
|
||||||||
Stockholders’
deficiency
|
||||||||
Common
stock, 100,000,000 shares authorized, 81,062,917 shares issued and
outstanding, respectively
|
2,051,117 | 2,051,117 | ||||||
Additional
paid-in capital
|
10,000 | - | ||||||
Deficit
accumulated during development stage
|
(2,801,437 | ) | (2,487,706 | ) | ||||
Total
stockholders’ deficiency
|
(740,320 | ) | (436,589 | ) | ||||
Total
liabilities and stockholders’ deficiency
|
$ | 14,748 | $ | 11,367 |
See
accompanying notes to condensed financial statements
- 2
-
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended
September 30,
|
Period from June 1,
2004 (inception) to |
|||||||||||
2009
|
2008
|
September 30, 2009
|
||||||||||
Consulting
revenue
|
$ | - | $ | 10,000 | $ | 21,250 | ||||||
Agent
fee revenue
|
10,000 | - | 10,000 | |||||||||
Total
revenue
|
10,000 | 10,000 | 31,250 | |||||||||
General
and administrative expenses
|
(317,388 | ) | (451,540 | ) | (2,814,679 | ) | ||||||
Loss
from operations
|
(307,388 | ) | (441,540 | ) | (2,783,429 | ) | ||||||
Other income (expenses): | ||||||||||||
Impairment
of investment – related party
|
- | - | (7,300 | ) | ||||||||
Gain
(loss) on sale of automobiles
|
745 | - | (3,620 | ) | ||||||||
Interest
expense
|
(7,088 | ) | - | (7,088 | ) | |||||||
Net
loss
|
$ | (313,731 | ) | $ | (441,540 | ) | $ | (2,801,437 | ) | |||
Net
loss per share, basic and diluted
|
$ | (0.00 | ) | $ | (0.00 | ) | ||||||
Weighted
average number of shares outstanding, weighted and diluted
|
|
81,062,917 | 80,824,478 |
See
accompanying notes to condensed financial statements
- 3
-
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
STATEMENT OF CHANGES
IN
STOCKHOLDERS’ DEFICIENCY
June
1, 2004 (Inception) to Sept 30, 2009
(Unaudited)
Common Stock
|
||||||||||||||||||||
Number of
shares |
Amount
|
Additional paid
in Capital
|
Accumulated
Deficit
|
Total
|
||||||||||||||||
Balance, June
1, 2004
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
Shares
issued to founder
|
64,000,000 | - | - | - | - | |||||||||||||||
Fair
value of shares issued for services
|
4,021,250 | 120,637 | - | - | 120,637 | |||||||||||||||
Issuance
of shares for cash, net of offering costs
|
1,150,000 | 21,500 | - | - | 21,500 | |||||||||||||||
Net
loss
|
- | - | - | (241,858 | ) | (241,858 | ) | |||||||||||||
Balance,
December 31, 2004
|
69,171,250 | 142,137 | - | (241,858 | ) | (99,721 | ) | |||||||||||||
Issuance
of shares for cash, net of offering costs
|
5,915,000 | 184,060 | - | - | 184,060 | |||||||||||||||
Net
loss
|
- | - | - | (311,584 | ) | (311,584 | ) | |||||||||||||
Balance,
December 31, 2005
|
75,086,250 | 326,197 | - | (553,442 | ) | (227,245 | ) | |||||||||||||
Fair
value of shares issued for services
|
1,300,000 | 556,500 | - | - | 556,500 | |||||||||||||||
Issuance
of shares for cash, net of offering costs
|
3,913,500 | 519,545 | - | - | 519,545 | |||||||||||||||
Net
loss
|
- | - | - | (985,726 | ) | (985,726 | ) | |||||||||||||
Balance,
December 31, 2006
|
80,299,750 | 1,402,242 | - | (1,539,168 | ) | (136,926 | ) | |||||||||||||
Issuance
of shares for cash, net of offering costs
|
490,000 | 335,760 | - | - | 335,760 | |||||||||||||||
Net
loss
|
- | - | - | (340,035 | ) | (340,035 | ) | |||||||||||||
Balance,
December 31, 2007
|
80,789,750 | 1,738,002 | - | (1,879,203 | ) | (141,201 | ) | |||||||||||||
Issuance
of shares for cash, net of offering costs
|
273,167 | 313,115 | - | - | 313,115 | |||||||||||||||
Net
loss
|
- | - | - | (608,503 | ) | (608,503 | ) | |||||||||||||
Balance,
December 31, 2008
|
81,062,917 | 2,051,117 | - | (2,487,706 | ) | (436,589 | ) | |||||||||||||
Intrinsic
value of beneficial conversion associated with convertible
notes
|
10,000 | - | 10,000 | |||||||||||||||||
Net
loss
|
- | - | - | (313,731 | ) | (313,731 | ) | |||||||||||||
Balance,
September 30, 2009
|
81,062,917 | $ | 2,051,117 | $ | 10,000 | $ | (2,801,437 | ) | $ | (740,320 | ) |
See
accompanying notes to condensed financial statements
- 4
-
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine months Ended September 30,
|
Period
June 1, 2004
(inception) to
September 30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Cash
Flows from Operating Activities
|
||||||||||||
Net
Loss
|
$ | (313,731 | ) | $ | (451,540 | ) | $ | (2,801,437 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
expense
|
3,996 | 4,906 | 40,007 | |||||||||
Amortization
of discount on convertible notes
|
5,000 | 5,000 | ||||||||||
Impairment
of investment-related party
|
- | - | 7,300 | |||||||||
Expense
of canceling purchase of broker dealer
|
- | - | 7,500 | |||||||||
(Gain)
loss on sale of automobile
|
(745 | ) | - | 3,620 | ||||||||
Fair
value of shares issued for services
|
- | - | 677,137 | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
Payable and Accrued Interest
|
60,271 | - | 140,871 | |||||||||
Accrued
salaries, officer, net
|
138,675 | 57,768 | 461,292 | |||||||||
Accrued
payroll taxes
|
9,287 | 8,989 | 54,026 | |||||||||
Net
cash used in operating activities
|
(97,247 | ) | (379,877 | ) | (1,404,684 | ) | ||||||
Cash
Flows from Investing Activities
|
||||||||||||
Proceeds
from sale of automobile
|
- | - | 4,893 | |||||||||
Acquisition
of property and equipment
|
- | (2,850 | ) | (56,238 | ) | |||||||
Deposit
for purchase of broker-dealer, net
|
- | (20,000 | ) | (7,500 | ) | |||||||
Investment
in Surya Consulting LLC – related party
|
- | (7,300 | ) | (7,300 | ) | |||||||
Net
cash used in investing activities
|
- | (30,150 | ) | (66,145 | ) | |||||||
Cash
Flows from Financing Activities
|
||||||||||||
Proceeds
from issuance of common stock
|
- | 313,115 | 1,373,980 | |||||||||
Proceeds
from notes payable
|
108,879 | - | 126,817 | |||||||||
Principal
payment of notes payable
|
- | - | (17,938 | ) | ||||||||
Net
cash provided by financing activities
|
108,879 | 313,115 | 1,482,859 | |||||||||
Increase
(decrease) in cash
|
11,632 | (96,912 | ) | 12,030 | ||||||||
Cash
and cash equivalents, beginning of period
|
398 | 103,606 | - | |||||||||
Cash
and cash equivalents , end of period
|
$ | 12,030 | $ | 6,694 | $ | 12,030 |
(Continued)
- 5
-
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
(Unaudited)
(Continued)
Nine months Ended September 30,
|
Period
June 1, 2004
(inception) to
September 30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Supplementary
cash flow information
|
||||||||||||
Intrinsic
value of beneficial conversion associated with convertible
notes
|
$ | 10,000 | $ | - | $ | 10,000 | ||||||
Exchange
of automobile for forgiveness of accounts payable
|
$ | 5,000 | $ | 5,000 |
See
accompanying notes to condensed financial statements
- 6
-
CHRISTIAN
STANLEY, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
September
30, 2009
NOTE
1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of
business
Christian
Stanley, Inc. (“the Company”) was incorporated as a California corporation in
March 2006, and serves as the successor entity to Christian Stanley, LLC, a
California limited liability company formed June 1, 2004. The Company
is a development stage enterprise pursuant to the guidance issued by the
Financial Accounting Standards Board (“FASB”). All losses accumulated
since the inception of the Company will be considered as part of the Company's
development stage activities. The Company has generated insignificant revenue
since inception. The Company's fiscal year end is December
31.
Going
concern
The
Company has a history of operating losses. During the nine months
ended September 30, 2009, the Company incurred a net loss of $313,731 and used
cash in operations of $97,247, and had an accumulated deficit of $2,801,437 and
a working capital deficiency of $743,038 at September 30, 2009. These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The financial statements do not include any
adjustments that might result from these uncertainties. Management
continues to seek funding from its shareholders and other qualified investors to
pursue its business plan.
In July,
2008, the California Regional Office of the Securities and Exchange Commission
(the "SEC") opened a formal order of investigation of the Chief Executive
Officer of the Company. Although the status of such investigation and its
specific nature are unclear, it appears that its principal focus is whether the
private sales of the Company’s stock has complied with the rules and regulations
governing such sales. If the SEC determines the rules governing the
private sale of securities have been violated, it may impose a variety of
remedies, including requiring that a recision offer be made to the purchasers of
the stock, by which investors would receive back their investment funds with
interest. The Company does not have the financial ability to complete an offer
of recision to its investors and such a determination would likely have a severe
adverse impact on the ability of the Company to continue to attempt to develop
operations (see Note 8).
Basis of
presentation
The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of America
for interim financial information and pursuant to the rules and regulations of
the United States Securities and Exchange Commission (“SEC”). Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
- 7
-
These
financial statements should be read in conjunction with the Company's annual
financial statements for the year ended December 31, 2008 included elsewhere in
the registration statement. The results of operations for interim
periods are not necessarily indicative of the results expected for a full year
or for any future period.
Use of
estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and cash
equivalents
For
purposes of the financial statements, the Company considers all liquid
instruments purchased with original maturities of three months or less to be
cash equivalents.
Equipment
Equipment
is stated at cost less accumulated depreciation. Expenditures for additions,
renewals, and improvements are capitalized. Costs of repairs and maintenance are
expensed when incurred.
Depreciation
is provided using the straight-line method over the estimated useful lives of
the assets, which range from three to five years.
Revenue recognition and
investment in
life insurance policies
Revenue
for consulting services is recognized when a signed contract has been executed,
the services have been delivered, fees are fixed or determinable, and
collectibility is reasonably assured, generally which occur when the Company has
completed its obligations to provide consulting services.
The
Company intends to serve as a life settlement policy broker and anticipates it
will be paid a commission for such services. Commission revenue, if
any, will be recorded when the commission is earned, which usually will be upon
the successful completion of a transaction and the Company has no further
performance obligations. During the nine months ended September
30, 2009 and 2008, the Company did not record any broker commission
revenue.
- 8
-
Investment
in life insurance policies, if any, will be recorded in accordance with
authoritative guidance issued by the FASB. Under this guidance, 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. At September 30, 2009 and December 31, 2008, the Company had
no investments in life insurance policies.
Share-based
payments
The
Company periodically issues shares of common stock to employees and
non-employees for services. Stock-based compensation is measured at
the grant date, based on the fair value of the award, and is recognized as
expense over the requisite service period.
The
Company has no options or warrants to purchase shares of common stock
outstanding at September 30, 2009 and December 31, 2008.
Income
Taxes
The
Company accounts for income taxes and related accounts under the liability
method. Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted rates expected to be in effect during the year in
which the basis differences reverse.
Loss per
Share
Basic
earnings (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding
during the period. The diluted earnings per share calculation gives effect to
all potentially dilutive common shares outstanding during the period using the
treasury stock method. As of September 30, 2009, the Company had no
common stock equivalents outstanding.
Financial assets and
liabilities measured at fair value
Fair
value measurements are determined by the Company's adoption of authoritative
guidance issued by the FASB, with the exception of the application of the
statement to non-recurring, non-financial assets and liabilities as permitted.
The adoption of the authoritative guidance did not have a material impact on the
Company's fair value measurements. Fair value is defined in the authoritative
guidance as the price that would be received to sell an asset or paid to
transfer a liability in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants at the
measurement date. A fair value hierarchy was established, which prioritizes the
inputs used in measuring fair value into three broad levels as
follows:
Level 1—Quoted
prices in active markets for identical assets or liabilities.
- 9
-
Level 2—Inputs,
other than the quoted prices in active markets, are observable either directly
or indirectly.
Level 3—Unobservable
inputs based on the Company's assumptions.
The
Company is required to use of observable market data if such data is available
without undue cost and effort.
At
September 30, 2009, the carrying amounts of financial instruments, including
cash, and accounts payable and accrued liabilities approximate fair
value because of their short maturity.
Comprehensive
loss
For the
nine months ended September 30, 2009 and 2008, and the period June 1, 2004
(inception) to September 30, 2009, the Company had no items that represent other
comprehensive income or loss.
Concentration of Credit
Risk
Financial
instruments that are exposed to concentrations of credit risk consist
principally of cash. The Company places its cash in what it believes
to be credit-worthy financial institutions. However, cash balances
may have exceeded federally insured levels at various times during the
year. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risk in cash.
Recent Accounting
Pronouncements
In June
2009, the FASB issued authoritative guidance on an amendment of accounting for
transfers of financial assets, and seeks to improve the relevance and
comparability of the information that a reporting entity provides in its
financial statements about transfers of financial assets; the effects of the
transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement, if any, in transferred financial
assets. The authoritative guidance eliminates the concept of a
qualifying special-purpose entity, creates more stringent conditions for
reporting a transfer of a portion of a financial asset as a sale, clarifies
other sale-accounting criteria, and changes the initial measurement of a
transferor’s interest in transferred financial assets. The
authoritative guidance is effective for interim and annual reporting periods
beginning after November 15, 2009. The Company believes adopting
the new guidance will not significantly impact its financial
statements.
- 10
-
In June
2009, the FASB issued authoritative guidance on consolidation of variable
interest entities, which requires an enterprise to determine whether its
variable interest or interests give it a controlling financial interest in a
variable interest entity. The primary beneficiary of a variable interest entity
is the enterprise that has both (1) the power to direct the activities of a
variable interest entity that most significantly impact the entity’s economic
performance, and (2) the obligation to absorb losses of the entity that
could potentially be significant to the variable interest entity or the right to
receive benefits from the entity that could potentially be significant to the
variable interest entity. The authoritative guidance requires ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity and is effective for interim and annual reporting periods
beginning after November 15, 2009. The Company believes adopting the new
guidance will not significantly impact its financial statements.
On July
1, 2009, the Company adopted authoritative guidance issued by the FASB on
business combinations. The guidance retains the fundamental requirements that
the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are
recognized and measured as a result of business combinations. It also requires
the capitalization of in-process research and development at fair value and
requires the expensing of acquisition-related costs as incurred. We have applied
this guidance to business combinations completed since July 1,
2009. Adoption of the new guidance did not have a material impact on
our financial statements.
In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective for the Company beginning July 1, 2010, with earlier
adoption permitted. Under the new guidance on arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance. The Company believes adopting the new guidance
will not significantly impact its financial statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
NOTE
2 - EQUIPMENT
Equipment
consists of the following as of:
September 30,
2009
(Unaudited)
|
December 31,
2008
|
|||||||
Automobile
|
$ | - | $ | 35,696 | ||||
Computer
equipment
|
7,237 | 7,237 | ||||||
7,237 | 42,933 | |||||||
Less
accumulated depreciation
|
(4,519 | ) | (31,964 | ) | ||||
$ | 2,718 | $ | 10,969 |
- 11
-
Depreciation
expense was $3,996, and $4,906 for the nine months ended September 30, 2009 and
2008, respectively.
NOTE
3 - ACCRUED SALARIES, OFFICER, NET
As of
September 30, 2009 and December 31, 2008, the Company had accrued a total of
$1,050,000 and $900,000, respectively, of salary due to its Chief Executive
Officer. Also as of September 30, 2009 and December 31, 2008, the
Company had made total advances of $588,708 and $577,383, respectively, to its
Chief Executive Officer. At September 30, 2009 and December 31, 2008,
$461,292 and $322,617, respectively, represents the net amount due to the
Company’s Chief Executive Officer.
For the
nine months ended September 30, 2009 and 2008, salary expense for the Company’s
Chief Executive Officer was $150,000 and $150,000, respectively.
NOTE
4 - NOTES PAYABLE
Notes
payable consist of the following:
Maturity Date
|
September 30,
2009
(Unaudited)
|
December 31,
2008
|
|||||||
Notes
payable
|
Various
through
May
15, 2010
|
$ | 95,879 | $ | - | ||||
Convertible
notes payable
|
May
28, 2010
|
10,000 | - | ||||||
Note
payable to officer
|
January
31, 2010
|
3,000 | - | ||||||
Sub-Total
|
108,879 | - | |||||||
Less,
remaining debt discount
|
(5,000 | ) | - | ||||||
Notes
payable
|
$ | 103,879 | $ | - |
Notes
Payable
From
March 2009 to July 2009, the Company issued promissory notes to nine individuals
in the aggregate of $95,879. The notes are unsecured, bear
interest at 5% to 12% per annum and will mature within twelve months from
issuance date. At September 30, 2009 the balance of the loans was
$95,879.
Convertible Notes
Payable
In July
2009, the Company issued convertible notes payable to three individuals in the
aggregate of $10,000. The convertible notes are unsecured, bear
interest at 10% per annum and mature on May 28, 2010. The notes
are convertible, at the option of the noteholders, into shares of common stock
of the Company at a conversion price equal to 50% of the initial public trade
price of the Company’s common stock. At September 30, 2009 the
balance of the loans was $10,000.
- 12
-
The
Company determined that the convertible notes payable contained a beneficial
conversion feature of $10,000. The beneficial conversion feature is
considered as debt discount and is being amortized over the life of the
notes. During the nine months ended September 30, 2009, amortization
of the discount on convertible notes was $5,000, and at September 30, 2009,
unamortized debt discount was $5,000.
Note Payable to officer
In July
2009, the Company’s Chief Financial Officer loaned $3,000 to the
Company. The loan is unsecured, bears interest at 12% per annum
and will mature on January 31, 2010. At September 30, 2009 the
balance of the loan was $3,000.
NOTE
5 - INCOME TAXES
The
Company has federal and state net operating loss carryforwards that can be used
through 2019 to offset taxable income, and accordingly, has not recorded a
provision for income taxes in the current year.
Significant
components of the Company's deferred income tax liability at September 30, 2009
and December 31, 2008 are as follows:
September 30,
2009
(Unaudited)
|
December 31,
2008
|
|||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carry forward
|
$ | 784,000 | $ | 660,000 | ||||
Share-based
compensation
|
258,000 | 258,000 | ||||||
Total
deferred tax assets
|
1,042,000 | 918,000 | ||||||
Valuation
allowance
|
(1,042,000 | ) | (918,000 | ) | ||||
Net
deferred income tax asset
|
$ | - | $ | - |
In the
Company’s opinion, based on the weight of available evidence, it is more likely
than not it will not generate sufficient taxable income in the future to fully
realize the net deferred tax asset. Accordingly, a valuation
allowance for the deferred tax asset has been recorded.
- 13
-
Reconciliation
of the effective income tax rate to the U.S. statutory rate for the nine
months ended September 30, 2009 is as follows:
Tax
expense at the U.S. statutory income tax rate
|
34.0 | % | ||
State
tax net of federal tax benefit
|
5.8 | % | ||
Net
effect of net operating loss and other
|
(39.8 | )% | ||
Effective
income tax rate
|
0.0 | % |
Pursuant
to the authoritative guidance issued by the FASB, a company can recognize an
income tax benefit only if the position has a more likely than not chance of
being sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate
settlement. FASB also provides guidance on de-recognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures. At the date of adoption, and as of September 30,
2009, the Company does not have a liability for unrecognized tax
uncertainties.
NOTE
6 - CAPITAL STOCK
The
Company was capitalized on June 1, 2004 when it issued 64,000,000 shares of
common stock valued at zero to its founder.
Since
inception, the Company has sold a total of 11,741,667 shares of common stock in
private placements to accredited investors for total proceeds, net of offering
costs, of $1,373,980 as follows:
Sale of common stock in
2004
-500,000
shares issued at $0.007 per share for total consideration of $3,500
-650,000
shares issued at $0.03 per share for a total consideration of
$20,000
-Offering
costs totaling $2,000 are deducted from the proceeds of the sales
Sale of common stock in
2005
-1,100,000
shares issued at $0.02 per share for total consideration of $23,000
-2,935,000
shares issued at $0.03 per share for total consideration of $93,000
-725,000
shares issued at $0.04 per share for total consideration of $29,000
-1,000,000
shares issued at $0.06 per share for total consideration of $60,000
-150,000
shares issued at $0.07 per share for total consideration of $10,000
-5,000
shares issued at $1.00 per share for total consideration of $5,000
-Offering
costs totaling $35,940 are deducted from the proceeds of the sales
Sale of common stock in
2006
-250,000
shares issued at $0.02 per share for total consideration of $5,000
-1,135,000
shares issued at $0.04 per share for total consideration of $45,000
-500,000
shares issued at $0.06 per share for total consideration of $30,000
-575,000
shares issued at $0.07 per share for total consideration of
$40,000
- 14
-
-145,000
shares issued at $0.10 per share for total consideration of $14,000
-580,000
shares issued at $0.12 per share for total consideration of $70,000
-136,000
shares issued at $0.20 per share for total consideration of $26,666
-250,000
shares issued at $0.24 per share for total consideration of $60,000
-20,000
shares issued at $0.42 per share for total consideration of $8,334
-15,000
shares issued at $0.50 per share for total consideration of $7,500
-25,000
shares issued at $0.60 per share for total consideration of $15,000
-25,000
shares issued at $0.72 per share for total consideration of $18,000
-125,000
shares issued at $0.80 per share for total consideration of
$100,000
-107,500
shares issued at $1.00 per share for total consideration of
$107,500
-25,000
shares issued at $1.20 per share for total consideration of $30,000
-Offering
costs totaling $57,455 are deducted from the proceeds of the sales
Sale of common stock in
2007
-125,000
shares issued at $0.08 per share for total consideration of $10,000
-30,000
shares issued at $0.10 per share for total consideration of $3,000
-10,000
shares issued at $0.20 per share for total consideration of $2,000
-5,000
shares issued at $0.80 per share for total consideration of $4,000
-10,000
shares issued at $0.90 per share for total consideration of $9,000
-12,500
shares issued at $0.92 per share for total consideration of $11,560
-13,000
shares issued at $0.98 per share for total consideration of $12,700
-274,500
shares issued at $1.00 per share for total consideration of
$274,500
-10,000
shares issued at $1.90 per share for total consideration of $19,000
-Offering
costs totaling $10,000 are deducted from the proceeds of the sales
Sale of common stock in
2008
-20,000
shares issued at $0.53 per share for total consideration of $10,500
-109,000
shares issued at $1.00 per share for total consideration of
$109,000
-63,000
shares issued at $1.06 per share for total consideration of $66,500
-30,000
shares issued at $1.10 per share for total consideration of $33,000
-20,000
shares issued at $1.50 per share for total consideration of $30,000
-15,000
shares issued at $1.94 per share for total consideration of $29,115
-12,500
shares issued at $2.00 per share for total consideration of $25,000
-3,667
shares issued at $2.73 per share for total consideration of $10,000
-There
were no offering costs incurred during the year ended December 31,
2008.
Issuance of common stock for
services
Since
inception, the Company has issued a total of 5,321,250 shares of common stock to
employees and other individuals for services as follows:
- 15
-
Period
|
Number of
shares
|
Fair value of
shares
|
Average
value per
share
|
|||||||||
Year
ended December 31, 2004
|
4,021,250 | $ | 120,637 | $ | 0.03 | |||||||
Year
ended December 31, 2005
|
- | - | - | |||||||||
Year
ended December 31, 2006
|
1,300,000 | 556,500 | $ | 0.43 | ||||||||
Year
ended December 31, 2007
|
- | - | - | |||||||||
Year
ended December 31, 2008
|
- | - | - | |||||||||
Nine
months ended September 30, 2009 (unaudited)
|
- | - | - | |||||||||
Total
|
5,321,250 | $ | 677,137 | $ | 0.13 |
The value
of the shares were valued based on the price of shares of the Company's common
stock sold in contemporaneous private placements and were recorded as
compensation expense as follows: $556,500 for the year ended December 31, 2006,
and $120,637 for the year ended December 31, 2004.
Included
in shares issued for services, 250,000 shares of the Company’s common stock were
issued pursuant to a consulting agreement. The consulting agreement
provides for up to an additional 250,000 shares of the Company’s common stock to
be issued if the Company’s shares of common stock trade below $1.00 per share
for a 30 day period. Currently, the Company shares of common stock are not
listed on any stock exchange.
NOTE
7 – RELATED PARTY TRANSACTIONS
As
of September 30, 2009 and December 31, 2008, the Company owes its Chief
Financial Officer $58,000 and $0 respectively for services
rendered.
In July
2009, the Company sold an automobile to its Chief Financial Officer in
consideration of a $5,000 reduction in accounts payable owed to the Chief
Financial Officer for services. The net book value of the automobile
was $4,255 on the date sold and resulted in a gain on the sale of
$745.
On
February 12, 2008, the Company purchased five percent of Surya Consulting LLC
for $7,300. The president of Surya Consulting is a shareholder in the
Company. In the fourth quarter of
2008, the Company recorded a $7,300 impairment charge to write-down the
investment in Surya Consulting. The decline in value was based on a
combination of factors, including deterioration in the economic environment and
lack of operating activities at Surya Consulting, and the impairment was determined to be other
other-than-temporary.
During
the year ended December 31, 2008, the Company paid the shareholder or Surya
Consulting LLC $31,145 for providing various consulting services to the
Company.
Also
during the year ended December 31, 2008, the Company paid $29,000 to another
shareholder for providing consulting services to the Company.
- 16
-
NOTE
8 - COMMITMENTS AND CONTINGIENCIES
The
Company leases its office facilities under a month-to-month operating
lease. For the nine months ended September 30, 2009 and 2008, rent
expense was $1,855 and $3,449, respectively.
In July,
2008, the California Regional Office of the Securities and Exchange Commission
(the "SEC") opened a formal order of investigation of the chief executive
officer of the Company, Mr. Daniel C.S. Powell. Although the status of such
investigation and its specific nature are unclear, it appears that its principal
focus is whether the private sales of the Company’s stock to date has complied
with the rules and regulations governing such private sales of securities.
Depending upon its initial findings after review, the SEC may determine to
expand its investigation to include the Company or to broaden the focus of the
investigation to other concerns such as securities fraud. If the SEC determines
that the rules governing the private sale of securities have been violated, it
may impose a variety of remedies, including requiring that a recision offer be
made to the purchasers of the stock, by which investors would receive back their
investment funds with interest. If the SEC made a determination of fraud, it
would have additional remedies available including fines and/or the temporary or
permanent bar of Mr. Powell from acting as an officer, director or control
person of a public company. The Company does not have the financial ability to
complete an offer of recision to its investors and such a determination would
likely have a severe adverse impact on the ability of the Company to continue to
attempt to develop operations. Similarly, the imposition of a permanent or
temporary bar of Mr. Powell from acting as an officer or director of a public
company would require Mr. Powell’s resignation from such offices with the
Company and would also likely have a severe adverse impact on the ability of the
Company to continue.
The
Company is currently in the process of filing with the U.S. Securities and
Exchange Commission to become registered and sell shares to the
public. The Company is filing under the Securities and Exchange Act
of 1934 to start reporting on its operations. In conjunction with the
process of filing, the Company has filed a Form S-1 (as amended) under the
Securities and Exchange Act of 1933.
NOTE
9 - SUBSEQUENT EVENTS
From
November 6, 2009 to January 22, 2010, the Company issued five notes payable to
unrelated parties totaling $214,666. The notes bear interest at 17%
per annum, are unsecured, and due six months from the date issued.
In
preparing the financial statements, the Company evaluated all subsequent events
and transactions for potential recognition through January 22, 2010, the date
the financial statements were issued.
- 17
-
PART
II
Item
13. Other expenses of Issuance and Distribution
The
following table sets forth the Company’s expenses
in connection with this registration statement. All of the listed expenses are
estimates, other than the filing fees payable to the Securities and Exchange
Commission.
Registration
Fees
|
$ | 4,048 | ||
State
filing fees
|
$ | |||
Edgarizing
fees
|
$ | |||
Transfer
agent fees
|
$ | |||
Accounting
fee
|
$ | |||
Legal
fees
|
$ | |||
Printing
|
$ |
Item
14. Indemnification of Directors and
Officers
The
Company’s articles
of incorporation includes an indemnification provision that provides that a
director shall not be liable to the Company or any shareholder for monetary
damages for breach of fiduciary duty as a director except (i) for any breach of
the director’s duty of
loyalty to the Company or its shareholders or (ii) for acts or omissions not in
good faith or which involve intentional misconduct of (iii) for unlawful payment
of dividend or unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit.
The
Company does not believe that such indemnification affects the capacity of such
person acting as officer, director or control person of the
Company.
Item
15. Recent Sales of Unregistered Securities
The
Company has sold the following securities within the past three years which were
not registered under the Securities Act of 1933:
In 2006,
the Company sold the following shares of common stock for the listed
consideration pursuant to an exemption from registration under Section 3(b) of
the Securities Act of 1933, as amended, as a transaction by an issuer not
involving any public offering. Each of the transactions listed below
was a private transaction with a person or entity related to or personally known
to the founder of the Company or one of its officers or
shareholders. There was no public solicitation or
advertisement.
47
Names
|
Number of Shares
|
Consideration
|
Date
|
||||||
George
McKinney
|
240,000 | $ | 3,000 |
1/17/2006
|
|||||
G.
McKinney, Jr.
|
10,000 | 2,000 |
1/17/2006
|
||||||
Martin
Hoekstra
|
500,000 | 30,000 |
2/10/2006
|
||||||
John
Floyd
|
625,000 | 25,000 |
2/13/2006
|
||||||
Jeffrey
Louie
|
5,000 | 2,500 |
2/13/2006
|
||||||
Zosimo
McAbalo
|
250,000 | 30,000 |
2/15/2006
|
||||||
Brian
McAbalo
|
250,000 | 30,000 |
2/21/2006
|
||||||
John
& Rita Powell
|
250,000 | 10,000 |
2/27/2006
|
||||||
Ernest
McKinney
|
125,000 | 4,000 |
3/16/2006
|
||||||
Virginia
McKinney
|
10,000 | 1,000 |
3/16/2006
|
||||||
William
Smith
|
40,000 | 5,000 |
3/20/2006
|
||||||
Karen
Smith
|
40,000 | 5,000 |
3/20/2006
|
||||||
Dietra
Artis
|
2,500 | 2,500 |
3/21/2006
|
||||||
Dr.
Lorenzo McKinney
|
200,000 | 15,000 |
3/22/2006
|
||||||
Thomas
Usury
|
125,000 | 30,000 |
3/31/2006
|
||||||
Washington
Classical Christian School
|
125,000 | 5,000 |
5/22/2006
|
||||||
Rich
Cronquist
|
75,000 | 5,000 |
3/22/2006
|
||||||
Linda
Cronquist
|
75,000 | 5,000 |
3/24/2006
|
||||||
Pourdie
Reyes
|
125,000 | 30,000 |
3/27/2006
|
||||||
Carrie
Chiles
|
5,000 | 5,000 |
4/17/2006
|
||||||
Diana
Cronquist
|
125,000 | 12,000 |
5/3/2006
|
||||||
Tora
Shiroma
|
75,000 | 5,000 |
6/6/2006
|
||||||
Jaime
Ryan
|
10,000 | 5,000 |
6/15/2006
|
||||||
Noberto
Escobar
|
50,000 | 10,000 |
7/26/2006
|
||||||
Rafael
Bautista
|
150,000 | 10,000 |
7/27/2006
|
||||||
Amir
O. Smith
|
20,000 | 8,334 |
8/11/2006
|
||||||
Rodney
Heath
|
42,000 | 8,333 |
8/15/2006
|
||||||
Matt
Henss
|
22,000 | 7,500 |
8/15/2006
|
||||||
Raina
Henss
|
22,000 | 833 |
8/15/2006
|
||||||
Kulwant
Sran
|
125,000 | 100,000 |
9/27/2006
|
||||||
Andrew
Castagnolia Trust
|
25,000 | 25,000 |
10/23/2006
|
||||||
Louis
Castagnolia, Jr. Trust
|
25,000 | 25,000 |
10/24/2006
|
||||||
Dominic
Castagnolia
|
25,000 | 25,000 |
10/17/2006
|
||||||
Juan
Durutthy
|
25,000 | 15,000 |
10/24/2006
|
||||||
Mona
Salem
|
25,000 | 18,000 |
10/16/2006
|
||||||
Adel
Salem
|
10,000 | 1,000 |
10/16/2006
|
||||||
Nora
Salem
|
10,000 | 1,000 |
10/16/2006
|
||||||
Venky
Kandallu
|
25,000 | 30,000 |
10/16/2006
|
||||||
Baljit
Saini
|
25,000 | 25,000 |
11/15/2006
|
||||||
Total
2006
|
3,913,500 | $ | 577,000 |
48
In 2007,
the Company sold the following shares of common stock for the listed
consideration pursuant to an exemption from registration under Section
3(b) of the Securities Act of 1933, as amended, as a transaction by
an issuer not involving any public offering. Each of the transactions
listed below was a private transaction with a person or entity related to or
personally known to the founder of the Company or one of its officers or
shareholders. There was no public solicitation or
advertisement. Offering costs of $10,000 have not been deducted from
the proceeds shown below.
Mathew
Weiner
|
5,000 | $ | 4,000 |
1/4/2007
|
|||||
Josh
Rodef
|
5,000 | 5,000 |
1/10/2007
|
||||||
Sunita
Gupta
|
12,500 | 11,560 |
2/6/2007
|
||||||
Jennifer
LaPlante
|
10,000 | 2,000 |
2/23/2007
|
||||||
Donald
Mc Donald
|
10,000 | 10,000 |
2/28/2007
|
||||||
Michael
W. McCowan
|
2,000 | 2,000 |
3/6/2007
|
||||||
Anand
Gupta
|
13,000 | 12,700 |
3/7/2007
|
||||||
Lauranne
Chartier
|
7,500 | 7,500 |
3/26/2007
|
||||||
Anand
Gupta
|
5,000 | 5,000 |
4/11/2007
|
||||||
Sharron
McCoy
|
4,000 | 4,000 |
4/11/2007
|
||||||
Joseph
W. Harrison
|
125,000 | 10,000 |
4/20/2007
|
||||||
Carey
A. Longley
|
10,000 | 9,000 |
4/30/2007
|
||||||
Jenish
Patel
|
25,000 | 25,000 |
5/16/2007
|
||||||
Sharron
Mc Coy
|
10,000 | 10,000 |
7/2/2007
|
||||||
Sharron
Mc Coy
|
5,000 | 5,000 |
7/23/2007
|
||||||
Sharron
Mc Coy
|
10,000 | 10,000 |
7/26/2007
|
||||||
Sharron
Mc Coy
|
10,000 | 19,000 |
8/7/2007
|
||||||
Sharron
Mc Coy
|
5,000 | 5,000 |
8/29/2007
|
||||||
Sharron
Mc Coy
|
6,000 | 6,000 |
10/22/2007
|
||||||
Adel
A. Salem
|
30,000 | 3,000 |
11/1/2007
|
||||||
Dominic
Castagnola
|
75,000 | 75,000 |
11/27/2007
|
||||||
Judith
Castagnola
|
10,000 | 10,000 |
11/27/2007
|
||||||
Jose
Basso
|
5,000 | 5,000 |
11/27/2007
|
||||||
Andrew
Castagnola
|
25,000 | 25,000 |
11/28/2007
|
||||||
Louis
Castagnola, Jr.
|
25,000 | 25,000 |
11/28/2007
|
||||||
Joseph
Castagnola
|
20,000 | 20,000 |
11/28/2007
|
||||||
Louis
Castagnola Trust Acct.
|
20,000 | 20,000 |
12/21/2007
|
||||||
Total
2007
|
490,000 | $ | 345,760 |
In 2008,
the Company sold the following shares of common stock for the listed
consideration pursuant to an exemption from registration under Section 3(b) of
the Securities Act of 1933, as amended, as a transaction by an issuer not
involving any public offering. Each of the transactions listed below
was a private transaction with a person or entity related to or personally known
to the founder of the Company or one of its officers or
shareholders. There was no public solicitation or
advertisement.
49
Daniel
Joo
|
5,000 | $ | 10,000 |
2/15/2008
|
|||||
Alic-Land,
LLC
|
63,000 | 66,500 |
3/7/2008
|
||||||
David
Lo
|
15,000 | 29,115 |
3/7/2008
|
||||||
Mary
Gregorio
|
7,500 | 15,000 |
3/14/2008
|
||||||
Alic-land,
LLC
|
20,000 | 10,500 |
3/20/2008
|
||||||
Kim
Anderson-Woods
|
20,000 | 30,000 |
4/4/08
|
||||||
Jamil
A. Blake
|
3,667 | 10,000 |
5/15/08
|
||||||
Mary
Helen Manjarrez
|
30,000 | 33,000 |
5/19/08
|
||||||
Sharron
Mc Coy
|
12,000 | 12,000 |
5/28/08
|
||||||
Steve
Finley
|
50,000 | 50,000 |
7/1/2008
|
||||||
Sharon
Mc Coy
|
2,000 | 2,000 |
8/19/2008
|
||||||
Brian
Quinn
|
30,000 | 30,000 |
9/8/2008
|
||||||
George
Kaelin
|
15,000 | 15,000 |
9/17/2008
|
||||||
Total
2008
|
273,167 | $ | 313,115 |
Beginning
September 25, 2009, through January 22, 2010, the Company issued six 6-month
promissory notes with a face value of $244,522 at a 5% discounted sales price of
$233,266 with an interest rate of 1% per month. The notes were issued
pursuant to an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended, as a transaction by an issuer not involving
any public offering.
Item
16. Exhibits and Financial Statement Schedules.
EXHIBITS
3.1*
|
Articles
of Incorporation, filed as exhibit to registration statement filed with
Securities and Exchange Commission, November 11, 2008
|
|
3.2*
|
By-laws
filed as exhibit to registration statement filed with Securities and
Exchange Commission, November 11, 2008
|
|
10.1*
|
Agreement
with Settlement Benefits Association, Inc.
|
|
10.2*
|
Agreement
with Life Settlements International, LLC
|
|
10.3*
|
Escrow
Agreement with Sunwest Trust Company
|
|
10.3.1
|
Fee
Schedule to Escrow Agreement with Sunwest Trust Company
|
|
10.4**
|
Form
of subscription agreement for sale of the shares
|
|
10.5
|
Agreement
with Tiber Creek Corporation
|
|
10.6
|
Prospective
Buyers Agreement
|
|
5.0**
|
Opinion
of Counsel on legality of securities being registered
|
|
23.1
|
Consent
of Accountants
|
|
23.2**
|
Consent
of Attorney (as part of Exhibit
5.0)
|
*
|
Previously
filed
|
**
|
To
be filed
|
50
Item
17. Undertakings
Undertaking Pursuant to Rule
415 Under the Securities Act of 1933
The
undersigned registrant hereby undertakes:
(1).
|
To
file, during any period in which it offers or sales securities, a
post-effective amendment to this registration
statement:
|
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii) To
include any additional material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2).
|
That,
for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of the securities at that time to be the initial bona fide
offering thereof.
|
(3).
|
To
remove from registration by means of a post-effective amendment any of the
securities that remain unsold at the termination of the
offering.
|
(4).
|
That,
for the purpose of determining liability under the Securities Act of 1933
to any purchaser in the initial distribution of
securities:
|
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to this offering, other than registration statements relying on Rule
403B or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be part of and included in the registration statement as of the date it is
first used after effectiveness. Provided, however, that no statement
made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
(5).
|
That,
for the purpose of determining liability under the Securities Act of 1933
to any purchaser in the initial distribution of
securities:
|
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser.:
|
i
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to this offering required to be filed pursuant to Rule
424;
|
|
ii.
|
Any
free writing prospectus relating to this offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
51
|
iii.
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
|
iv.
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
Undertaking Request for
acceleration of effective date or filing of registration statement becoming
effective upon filing.
The
undersigned registrant hereby undertakes:
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
52
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-1 and authorized this registration statement to
be signed on its behalf by the undersigned, in the City of Los Angeles, State of
California on February 10, 2010.
Date:
February 10, 2010
|
/s/
Daniel C. S. Powell
|
Title:
Chief Executive Officer (principal executive officer)
|
|
Date:
February 10, 2010
|
/s/ Mona
Salem
|
Title:
Corporate Secretary, Treasurer
|
|
(Principal
financial and accounting
officer)
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature
|
Capacity
|
Date
|
||
/s/ Daniel
C. S. Powell
|
Director
|
February
10, 2010
|
||
/s/
Mona Salem
|
Director
|
February
10, 2010
|
53