WASHINGTON, D.C. 20549
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
State the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 41,089,301 as of May 3, 2012.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2012 are not necessarily indicative of the results that can be expected for the full year.
(formerly Kinetic Resources Corp).
SEE ACCOMPANYING NOTES.
(formerly Kinetic Resources Corp).
SEE ACCOMPANYING NOTES.
(formerly Kinetic Resources Corp).
SEE ACCOMPANYING NOTES.
(formerly Kinetic Resources Corp).
While the information presented in the accompanying March 31, 2012 interim financial statements is unaudited, it includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations, and cash flows for the interim period presented in accordance with the accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. These interim financial statements should be read in conjunction with the Companys June 30, 2011 audited financial statements (notes thereto) included in the Companys Annual Report on Form 10-K.
Operating results for the nine months ended March 31, 2012 are not necessarily indicative of the results that can be expected for the year ending June 30, 2012.
The Company was incorporated in the state of Nevada, United States of America on March 4, 2010. The Company was an exploration stage company and was formed for the purpose of acquiring exploration and development stage mineral properties. The Companys year-end is June 30.
On June 4, 2010, the Company incorporated a wholly-owned subsidiary, KRC Exploration LLC (KRC) in the State of Nevada, United States of America (USA) for the purpose of mineral exploration in the USA.
On August 31, 2011, the Company changed its business focus to the development of a portfolio of life settlement policies and sold KRC to the former president.
On January 30, 2012, the Board of Directors approved a change in name from Kinetic Resources Corp. to Crown Alliance Capital Limited and a forward-split of its Common Stock on the basis of 17.85715 shares of Common Stock for one share of Common Stock held by shareholders of record at the close of business on February 10, 2012. All share and per share data has been retroactively adjusted to reflect the effect of the forward-split.
On March 15, 2012, the Company entered into its first contract to acquire life settlement policies. The agreement is expected to close on May 23, 2012.
Crown Alliance Capital Ltd.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year.
Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company has yet to achieve profitable operations, has accumulated losses of $242,605 since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Companys ability to continue as a going concern. The Companys ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing from shareholders or other sources to meet its obligations and repay its liabilities arising from normal business operations when they come due.
Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available or on acceptable terms, if at all. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are stated in US dollars. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates, which may have been made using careful judgment. Actual results may vary from these estimates.
The financial statements have, in managements opinion, been properly prepared within the framework of the significant accounting policies summarized below:
These financial statements include the accounts of the Company and KRC until KRC was disposed of by sale to the former president on August 31, 2011. Accordingly, the statements of operations and cash flows presented include the results of KRC from June 4, 2010 to
Crown Alliance Capital Ltd.
August 31, 2011 and the balance sheet presented at June 30, 2011 is a consolidated balance sheet. The balance sheet presented at March 31, 2012 is solely that of Crown Alliance Capital Ltd. All significant inter-company transactions and balances have been eliminated.
From inception through August 31, 2011, the Company was an exploration stage company. On August 31, 2011, the Company changed business directions from acquiring exploration and development stage mineral properties to development of a portfolio of life settlement policies. The Company is now a development stage company. All losses accumulated since inception have been considered as part of the Companys development stage activities.
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. There were no cash equivalents held at March 31, 2012 or June 30, 2011.
In accordance with accounting guidance now codified as FASB ASC Topic 260, Earnings per Share, basic earnings per share (EPS) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.
The Company is required to record compensation expense, based on the fair value of the awards, for all awards granted after the date of the adoption.
Crown Alliance Capital Ltd.
The Company will adopt FASB ASC Topic 325-30 Investments in Insurance Contracts. As of March 31, 2012, the Company will account for life settlement contracts using the investment method. Life settlement contracts will be initially recognized at the transaction price. Any additional costs, such as premium paid, will be capitalized. In accordance with ASC 230, Statement of Cash Flows, cash paid towards acquiring and maintaining life settlement policies will be treated as an investing outflow while the receipt of proceeds over the cash invested will be shown as an operating cash flow with return of investment and premiums shown as investing inflows.
Office equipment is stated at the lower of cost or fair value. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which is estimated at 3 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).
The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of its office equipment or whether the remaining balance of office equipment should be evaluated for possible impairment.
On August 31, 2011, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Membership Interests and Assumption of Obligations (the Agreement), with
Crown Alliance Capital Ltd.
the former President of the Company. Pursuant to the Agreement, the Companys interest in KRC was transferred to the former President and the former president assumed all interests and liabilities of KRC amounting to $84,445 in exchange for the Companys interest in KRC.
The following table summarizes the identifiable assets and liabilities of KRC that were disposed of, the consideration received, and the loss of KRC for the period from July 1, 2011 to August 31, 2011.
Subsequently, on November 11, 2011, the former President of the Company and several shareholders entered into a stock cancellation agreement with the Company whereby 824,000 and 465,000, common shares, respectively, were returned to treasury and cancelled (See Note 8 Capital Stock)
Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the
Crown Alliance Capital Ltd.
inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
The carrying value of the Companys financial assets and liabilities which consist of cash, accounts payable and accrued liabilities in managements opinion approximate their fair value due to the short maturity of such instruments. These financial assets and liabilities are valued using level 3 inputs, except for cash which is at level 1. Unless otherwise noted, it is managements opinion that the Company is not exposed to significant interest, exchange, or credit risks arising from these financial instruments.
On August 30, 2010, the Company issued a promissory note of $15,000 to the Companys President and received $15,000 cash in exchange. The note is unsecured, non-interest bearing and matures on September 30, 2012. During the nine month period ended March 31, 2012, the Company has recorded interest expense of $226 (nine month period ended March 31, 2011 - $525) and also recorded a capital contribution of $226 (2011 - $525) in respect of the imputed interest charge on this note payable.
On February 11, 2011, the Company issued a promissory note of $25,000 to the Companys President and received $25,000 cash in exchange. The promissory note is unsecured, bears interest at 6% per annum, and matures on February 28, 2013. During the nine month period ended March 31, 2012, the Company accrued $255 (nine month period ended March 31, 2011 - $197) of interest expense in respect of this note payable.
Crown Alliance Capital Ltd.
On May 10, 2011, the Company issued a promissory note of $10,000 to the Companys President and received $10,000 cash in exchange. The promissory note is unsecured, bears interest at 6% per annum, and matures on May 31, 2013. During the nine month period ended March 31, 2012, the Company accrued $102 (nine month period ended March 31, 2011 - $nil) of interest expense in respect of this note payable.
On August 22, 2011, the Company issued a promissory note of $10,000 to the Companys President and received $10,000 cash in exchange. The promissory note is unsecured, bears interest at 6% per annum, and matures on August 31, 2013. During the nine month period ended March 31, 2012, the Company accrued $15 (nine month period ended March 31, 2011 - $nil) of interest expense in respect of this note payable.
On August 31, 2011, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Membership Interests and Assumption of Obligations (the Agreement), with the former President of the Company. Pursuant to the agreement, the former President of the Company assumed $84,445 of accounts payable, related party notes payable and accrued interest. (Note 5)
On October 3, 2011, the Company issued 17,857,150 common shares pursuant to a share subscription agreement at $0.045 per share for total proceeds of $45,000. Shares were issued to a company managed by our President.
On January 26, 2012, the Company repurchased and cancelled 17,857,150 shares of its own stock and as consideration issued a $45,000 promissory note to a company managed by our President. The promissory note is unsecured, bears interest at 10% per annum, and is due on or before January 26, 2013. During the nine month period ended March 31, 2012, the Company accrued $801 (nine month period ended March 31, 2011 - $nil) of interest expense in respect of this note payable.
On February 8, 2012, the Company entered into an Employment Agreement with the President of the Company. Pursuant to the agreement the President will receive a signing bonus of $25,000 and $180,000 per annum February 8, 2012 until February 8, 2013 (the initial term) for services rendered plus reimbursement of the Companys expenses. The initial term shall be automatically renewed for up to 3 years successive years in consecutive one year periods. The agreement will continue in force unless either party gives notice of termination not more than 270 days and not less than 30 days prior to the then existing term of employment. On June 21, 2011, the Company amended the agreement by issuing a resolution to reflect a payment of $6,000 per month for services rendered.
Crown Alliance Capital Ltd.
The Agreement also allows in addition to the base salary noted above for bonus payments to be made as deemed reasonable at the time by the Board of Directors either as cash, or grants of stock options.
As at March 31, 2012, accounts payable includes $51,250 and management fees for the three and nine month periods ended March 31, 2012 include $51,250 pursuant to this agreement.
On March 15, 2012, the Company entered into its first contract to acquire four life settlement policies for the aggregate sum of $570,000 due in full on or before May 23, 2012. The shareholders of the company facilitating the sale of interests in the life settlement are also shareholders of this Company (See Note 10).
The authorized common stock of the Company consists of 90,000,000 shares of common stock with par value of $0.001 and 10,000,000 shares of preferred stock. As of March 31, 2012 and June 30, 2011 the Company had 40,375,016 common stock and zero preferred stock outstanding.
On October 3, 2011, the Company issued 17,857,150 common shares pursuant to a share subscription agreement at $0.045 per share for total proceeds of $45,000.
On November 11, 2011, the former President of the Company and several shareholders entered into a stock cancellation agreement with the Company whereby 14,714,292 and 8,303,574, common shares respectively, were returned to treasury and cancelled. Due to the fact that the shares under this agreement have been cancelled without the exchange of consideration to reduce the number of shares outstanding, the Company considered the change in capital structure from the cancellation agreement a reverse stock split. In accordance with SAB Topic 4-C, the Company recorded the cancellation retrospectively as a reduction to the par value of common stock with a corresponding increase to additional paid-in capital.
Crown Alliance Capital Ltd.
On January 26, 2012, the Company repurchased and cancelled 17,857,150 million common shares of its own stock and in consideration issued a $45,000 promissory note (Note 7). The promissory note bears interest at 6% per annum, is unsecured, and matures January 26, 2013.
On March 7, 2012, the Company received subscriptions for 285,714 shares valued at $200,000. As of March 31, 2012, the $200,000 is shown as Capital stock to be issued on the balance sheet.
On September 1, 2011, the Company entered into a lease agreement for a term of two years.
As of March 31, 2012, the Companys commitment for annual minimum future lease payments under office rental agreements are as follows:
Additional fees and taxes of approximately $2,541 per month are due in connection with the lease agreement. Upon acceptance of the lease agreement, a security deposit of $12,000 was paid.
On March 15, 2012, the Company entered into its first contract to acquire four life settlement policies for the aggregate sum of $570,000, payable on or before April 23, 2012. Pursuant to the agreement the Company is responsible for all premiums payable pursuant to the terms of the policies. As of March 31, 2012, $38,195 of policy premiums has been paid and premium payments have been capitalized in the financial statements as of March 31, 2012. On April 27, 2012, the Company amended the original life settlement contract to extend the $570,000 payable due date to May 23, 2012, with a $250,000 installment due May 10, 2012.
On April 27, 2012, the Company issued 714,285 shares of the Companys common stock pursuant to a private placement offering under Rule 506 of Regulation D. Of the 714,285 shares issued, 285,714 shares were issued to satisfy capital stock payables of $200,000.
Crown Alliance Capital Ltd.
The Company intends to restate its financial statements for the quarters ending September 30, 2011 and December 31, 2011, to correct items relating to the sale of the Companys subsidiary KRC (See Note 5). Accordingly, our previously filed financial statements for the quarters ending September 30, 2011 and December 31, 2011 cannot be relied upon.
On August 31, 2011, the Company entered into an Agreement of Conveyance, Transfer, and Assignment of Membership Interest and Assumption of Obligations with the Companys prior president. Per the terms of the agreement, the former president would assume all membership interest in the subsidiary and assume all liabilities relating to the Company and subsidiary prior to the agreement.
Prior to March 31, 2012, the Companys accounts payable included amounts assumed by the Companys prior president according to the terms of the agreement.
Our September 30 and December 31, 2011 10-Qs will be restated to adjust for those accounts payable assumed by the Companys prior president in connection with the sale of the subsidiary.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements. These forward-looking statements generally are identified by the words believes, project, expects, anticipates, estimates, intends, strategy, plan, may, will, would, will be, will continue, will likely result, and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
We are a publicly reporting Nevada corporation formed March 4, 2010 as Kinetic Resources Corp. On August 31, 2011, controlling ownership of the company was acquired by a group of nine individuals led by Lorraine Fusco, who was appointed as our new President, CEO, CFO, and sole director on that date. Following the change in control, we changed the direction of our business to focus on acquiring an ongoing portfolio of life settlement policies and to eventually build our own portfolio of policy purchases. A life settlement is the purchase of a life insurance policy at a discount from face value from a person who no longer needs or wants the policy. The policy owner receives a lump sum settlement and the title for the policy is transferred to the third party, which pays the future premiums due on the policy and eventually collects the death benefit. On January 30, 2012, we changed our corporate name to Crown Alliance Capital Limited to better reflect our new business focus.
Overview of Life Settlements
A life settlement (also sometimes known as a "viatical" if the life insured has less than 2 years to live.) is the purchase of a life insurance policy at a discount from face value from a person who no longer needs or wants the policy. The policy owner receives a lump sum settlement and the title for the policy is transferred to the third party, which pays the future premiums due on the policy and eventually collects the death benefit.
Traditionally, policy owners of a life insurance contract would get access to the value built up in a policy while they are living by surrendering the policy for its cash value, withdrawing some of the accumulated surplus value (if there is any), or borrowing against the cash value. Generally, the actual value that can be accessed through these options is fairly limited. Life settlements are an alternative for those wishing to sell their policy. With a life settlement, the owner of the policy can sell their beneficial interest in a policy for cash - a life settlement. The owner often receives a higher value compared to the traditional options and is relieved from paying future premium obligations.
There is a network of licensed brokers throughout the United States through whom an individual or institution may purchase or sell an insured person's life insurance policy. These brokers represent the insured person, and they effectively 'shop' out or list for sale these insurance policies through their networks. Competing bids from life settlement companies or institutional buyers are received by the broker, who in time chooses to whom the policy will be sold. Like the real estate market, the highest offer usually secures the asset. The purchase of a life insurance policy asset is referred to as a life settlement transaction.
Life settlements are potentially profitable because the purchaser acquires a policy at a discount from the face value which is based on the insured person's life expectancy and the purchasers desired return on capital. The investor then continues to pay the premiums and collects the death benefit when the policy matures. The annual rates of return that purchasers can expect typically vary between 8% and 12%. In the case of an early maturity (i.e death of an insured) the return on investment can be substantially higher. In the case where the insured person lives longer than anticipated, the return on investment will be lower, and can potentially be negative.
There are many reasons for policies becoming available for settlement. These include:
Policy-holder is terminally ill and requires funds to pay medical and/or living expenses
Policy-holder no longer needs coverage
Change in business ownership makes policy obsolete
Key-man leaves the business
Policy-holder needs to raise cash
Non-profit organization owns a policy insuring the life of a key donor or benefactor who no longer wants to pay premiums
Estate tax reform in USA
Growing number of sophisticated market participants
Further regulation, demographics and a low national savings rate will drive the expansion of supply to the life settlement market. The demographic of the baby boomer generation, people born in the U.S. between 1945 and 1965, is well known and is moving towards retirement with minimal savings relative to expected post-retirement expenditures.
U.S. Life Settlement Industry
The life settlement industry began in the late 1980's. The first year of credible data available is from 1989 when about $2 million in life insurance (face amount) was purchased. This figure has grown to approximately $12 billion in 2006. Processes and technologies allowing for more efficient transfer of life policies were established in the late 90's. The life settlements market developed and began to provide liquidity to a growing segment of Americans holding life insurance policies that they no longer needed.
Though individuals have many reasons for exiting their policies, few are aware of the life settlements marketplace and either accepts the cash surrender value from the insurance company (often only a fraction of what the policy could be worth in the life settlement market) or let the policy lapse. The fundamental reason for the rapid growth of the life settlements market is consumer value. The life settlements purchaser can pay more than cash surrender value and still expect a competitive rate of return on their investment.
A report by Conning Research states that as of 2005, there was approximately US $9 trillion of life insurance in force in the US. Estimates place the US life settlement market potential between USD $240 and USD $600 billion. Bernstein Equity Research indicates that from 1990 to today the life settlement industry has grown from nil to over US $12 Billion and is expected to grow more than 10 fold to over US $125 Billion over the next several years.
Plan of Operations
Our primary objective will be to build a diversified inventory of life insurance policies both through new investment and the re-investment of the proceeds of matured policies. Initial management and administration of our life settlements portfolio will be provided by Universal Settlements International Inc. (USI) under an Administrative Services Agreement. USI is a Canadian company based in Burlington, Ontario. USI was incorporated in 1997 and has been operating in the life settlements sector for over a decade. USI facilitates the sale of interests in the benefits of U.S. life insurance policies to both institutional and individual purchasers and deals in numerous markets with representation across North America, South America, Central America, Asia and Europe. Further information on USI can be found on USI's website, www.universalsettlements.com. The shareholders of USI are Jeffrey Panos of Burlington, Ontario and Christopher Halas of Mississauga, Ontario. The shareholders of USI are also shareholders in Crown Alliance Capital Limited.
Pursuant to the Administrative Services Agreement, USI has agreed to provide, on a non-exclusive basis, a number of services relating to the administration of our life settlement contracts and additional services. These services include dealing with change of ownership and change of beneficiary issues, verifying coverage under a policy, monitoring and validating premium payments required to be made, tracking each insured, managing claims, dealing with group insurance plans, maintaining records and reports on all insureds, and such other services as may be requested from time to time by us, including identifying additional policies for purchase. The Services Agreement has a fixed term of five (5) years with a mutual early termination provision of 90 days without cause. Fees for services will be charged by USI on a per policy basis.
After acquiring an initial portfolio of life settlement contracts with the assistance of USI, we intend to focus on growing our portfolio of life settlement policies going forward. The primary strategy will be to acquire additional life settlement policies that meet certain criteria and pricing guidelines, including the following:
Policies must be issued in the United States on US lives.
Policies must be issued by insurance companies rated at least "A-" or equivalent by AM Best, Moody's or S&P.
Policies must be beyond any contestability and suicide period.
Policies must allow for irrevocable beneficiary designations and absolute assignment of ownership.
Policies must allow for coverage for the whole life of the insured or allow for conversion so that coverage will continue for the whole life of the insured.
The cost of each policy acquired will be influenced by five major factors:
Face value of the policy upon maturity.
Annual premium on the policy.
Life expectancy (LE) of the insured.
Administration costs associated with the policy.
Competitive bids from other potential purchasers.
Sources for New Portfolio Acquisitions
We will use USI's network of licensed providers and brokers throughout the United States to purchase policies. Each U.S. state has different licensing requirements and, consequently, we will only transact with providers and brokers who have demonstrated they have met these licensing requirements and show financial reliability.
Process and Procedures for Policy Purchases
As detailed in the Administrative Services Agreement between us and USI, USI will assist us in identifying and facilitating the purchase of policies. Each life settlement will be subject to the due diligence process as described below:
Due Diligence Underlying a Policy Purchase
USI will source policies which meet our criteria from Qualified Service Providers (QSPs). If a policy meets the criteria, USI will conduct due diligence to ensure that the policy is valid and meets the necessary standards. Due diligence will include:
Obtaining verification of coverage (VOC) from the insurance company. VOC will confirm various policy details such as: face amount, premium, issue date, contestability, loans, withdrawals, lapses of coverage, beneficiary and ownership information, etc.
Obtaining and reviewing actual policy or copy of policy.
Obtaining a Physician's Statement of Mental Competency for the owner of policy.
Analyzing policy illustrations.
Obtaining an authorization to procure and subsequent analysis of medical records.
Required Documents for Due Diligence
Documents listed below are required as part of the due diligence process:
Consent to Release Medical Information (Notarized)
We must be able to receive all medical documentation for at least 5 years from all physicians that an insured person may have in order to obtain an accurate life expectancy evaluation. We must also have the ability to receive updated medical records as the situation requires.
Letter of Competency (Signed by attending Physician)
This ensures that an insured person is aware of what they are doing and that they are of sound mind.
Release and Consent to Change Beneficiaries (Notarized)
All current beneficiaries must sign off with the acknowledgement that they understand and consent to being removed as beneficiaries.
Authorization to Provide Death Certificate (Notarized)
This allows us to acquire a death certificate in a legal and timely manner.
Seller's Premium Indemnification Letter (Notarized)
This ensures that all premiums are paid up to the point where ownership and beneficiary rights have been transferred.
Special Power of Attorney (Notarized)
This gives us the authority to contact and obtain any required information from doctors or insurance companies.
Personal Information of the Insured and their Contact Information
We must be able to monitor and track the insured. Contact is maintained either directly with an insured or through a friend, family member, lawyer, physician or financial planner.
This details the method of payment to an insured for their rights to ownership and beneficiary status once the closing of a policy purchase occurs.
Life Expectancy (LE) Evaluations
Insured persons who seek to sell their policies on the secondary market usually retain qualified representation to facilitate the sale. These policy brokers typically provide all medical information and LE evaluations to us so that we are able to make an informed bid on a policy. The LE evaluation is completed by independent LE evaluators who have experience in the mortality assessment domain.
We will utilize the following LE providers to determine life expectancy:
American Viatical Services of Woodstock, Georgia, USA.
21st Services of Minneapolis, Minnesota, USA.
Examination Management Services, Inc. of Waco, Texas, USA.
Fasano Associates of Washington, DC, USA.
ISC Services of Clearwater, Florida, USA.
USI research indicates that over the last several years, LE evaluators have become more conservative in their reports, largely due to the adoption of updated mortality tables.
If a policy meets all necessary criteria and the due diligence process has been completed to our satisfaction, the parties enter into a "Policy Funding Agreement" which is the agreement between the policy owner and us as the buyer of the policy. The following documents are required for the closing of each individual transaction:
Contract between us and the seller of the policy.
LE reports from 2 (two) approved list of LE providers.
Original insurance policy (certified true copy if original is lost). Identification for the insured, such as copy of social security card or driver's license. If the owner is a trust or corporation, a copy of the trust or a corporate resolution showing individuals who have signing authority.
Completed and signed tax forms for all sellers and brokers.
Executed Ownership and Beneficiary Change forms.
Funds are not disbursed to the owner or brokers until all changes are reflected in insurance company records.
Change of Ownership
USI reviews and verifies all policy information to ensure accuracy and to verify that there have been no changes, and submits the Absolute Assignment of Ownership and Beneficiary Change forms to the insurance company. Once the executed change forms are received back from the insurance company verifying that we are the owner and beneficiary of the policy, USI advises us to disburse funds as directed. This agreement with USI will be in place for the next 24 months. At the end of this time, the agreement will be reviewed and management will decide whether or not to extend them.
Insured persons whose policies have been purchased by us are tracked by qualified personnel in USI's office and reporting to us occurs on a regular basis. Tracking includes the following:
Periodic contact with the insured, attending physician of record, or a designated person such as a family member.
Weekly social security death index checks.
Other database checks on a monthly basis.
Health statements of insured from attending physician on an as needed basis.
Regularly updated information reports.
Updated medical reports from primary physician on an as needed basis.
Updated life expectancy reports from qualified providers on an as needed basis.
Alerts when premium payments are due.
Under the Services Agreement, USI will provide management services for our initial portfolio of life settlement contracts as well as for future acquisitions. Services include:
Obtaining and analyzing completed VOC (verification of coverage) forms from insurance companies for each policy. VOC forms indicate policy information, cash value figures and premium data.
Monitoring and validating premium payments required to be made.
Providing us with a premiums due schedule at least 30 days in advance of required payments.
Confirming receipt of premium payment by Insurance companies
Obtaining and analyzing updated premium illustrations as required.
Performing premium optimization analysis as appropriate.
Whenever there is a maturity, USI submits a death claim to the insurance company. This process involves obtaining the death certificate, obtaining necessary claim documents from the insurance company, submitting of completed documentation to the insurance company and following up verbally and in writing with the insurance carrier on the claim status until such time as the death benefit is paid to us. The death benefit check is sent directly to us by the insurance company.
As part of our long term growth strategy, we intend to vertically integrate and internalize some of the services which will initially be outsourced. There are cost reductions that could be achieved in policy tracking costs, premium management, claims management, and agent commissions.
We can accomplish vertical integration by either buying existing companies that provide the above services or creating an internal employee pool to accomplish these tasks. By integrating the above functions, we could potentially provide these services to other life settlement companies and develop an additional income stream.
Results of operations for the three and nine months ended March 31, 2012 and 2011, and for the period from March 4, 2010 (date of inception) through March 31, 2012
We have not earned any revenues from inception on March 4, 2010 through the period ending March 31, 2012. We are presently in the development stage of our business and we can provide no assurance that we will produce significant revenues or, if revenues are earned, that we will be profitable.
We have incurred total expenses and net losses in the amount of $242,605 from our inception on March 4, 2010 through the period ending March 31, 2012. Our expenses since our inception have consisted primarily of legal fees, audit and accounting fees, and rental expenses. During the three months ended March 31, 2012, we incurred expenses and net losses in the amount of $81,706. During the three months ended March 31, 2011, we incurred expenses and net losses in the amount of $8,990. During the nine months ended March 31, 2012, we incurred expenses and net losses of $166,807. During the nine months ended March 31, 2011, we incurred expenses and net losses of $60,614.
Our result of operations for the three and nine months ended March 31, 2012 relate to our current business of acquiring and holding portfolios of life settlement policies, while our results of operations for the three and nine months ended March 31, 2011 relate our discontinued mineral exploration venture. In general, our current business requires more active management and incurs more regular expenses than our former business.
We began the acquisition of our initial portfolio of life settlements on March 15, 2012, when we entered into a Policy Purchase agreement (the Agreement) with Universal Settlements International, Inc. (USI). Pursuant to the Agreement, we agreed to purchase all rights, title, and interest in a portfolio of four (4) life insurance policies for a total purchase price of $570,000. The four policies we have agreed to purchase feature death benefits which total $4,500,000.
Under the Agreement, we will be required to pay all premiums due under each of the acquired policies until they mature. As detailed in Schedule 1 to the Agreement, the required premiums are expected to be a total of $12,850 per month for three of the policies being purchased, and $40,581.75 per quarter for the fourth policy. In connection with our execution of the agreement, we deposited $38,194.84 toward premiums due under the four policies.
The Agreement originally required us to deposit the full purchase price of $570,000 on or before April 23, 2012 in order to close our purchase of the four life insurance policies. Under an Amendment to the Agreement dated April 27, 2012, we are now required to deposit a $250,000 toward the purchase price by May 10, 2012, with the balance of $320,000 due on or before May 23, 2012.
We expect that our ongoing expenses will increase when we complete our acquisition of this initial portfolio and begin making the regular premium payments due under the insurance policies.
Liquidity and Capital Resources
As of March 31, 2012, we had current assets of $122,848, consisting of cash in the amount of $118,348 and prepaid expenses in the amount of $4,500. As of March 31, 2012, we had current liabilities of $104,842, consisting of accounts payable in the amount of $59,041, a note payable to a related party in the amount $45,000, and accrued interest due to a related party in the amount of $801. Thus, we had working capital of $18,006 as of March 31, 2011.
We will require substantial additional funding in order to continue the development of our business of acquiring a portfolio of life settlement policies. Although we are currently seeking equity funding, we have no firm arrangements for financing and can provide no assurance that such funding will be received in an amount sufficient to pursue our planned line of business.
Off Balance Sheet Arrangements
As of March 31, 2012, there were no off balance sheet arrangements.
We have yet to achieve profitable operations, have accumulated losses of $242,605 since our inception, and we have no established source of revenue, all of which casts substantial doubt about our ability to continue as a going concern.