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EXCEL - IDEA: XBRL DOCUMENT - Crown Alliance Capital LtdFinancial_Report.xls
EX-10.1 - FURTHER AMENDMENT TO POLICY PURCHASE AGREEMENT - Crown Alliance Capital Ltdcacl_ex10.htm
EX-31.1 - CERTIFICATION - Crown Alliance Capital Ltdcacl_ex311.htm
EX-31.2 - CERTIFICATION - Crown Alliance Capital Ltdcacl_ex312.htm
EX-32.1 - CERTIFICATION - Crown Alliance Capital Ltdcacl_ex321.htm



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


[X]

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the quarterly period ended: December 31, 2012

 

 

[  ]

Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the transition period from __________ to__________

 

 

 

Commission File Number: 333-169346


Crown Alliance Capital Limited

(Exact name of registrant as specified in its charter)


Nevada

27-2089124

(State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification No.)


3601 Highway 7 East Suite # 203

Markham, ON L3R 0M3, Canada

(Address of principal executive offices)


(905) 604-8873

(Registrant’s telephone number)


________________________________

(Former name, former address and former fiscal year, if changed since last report)


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.


[   ] Large accelerated filer Accelerated filer

[   ] Non-accelerated filer

[X] Smaller reporting company

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No


State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  42,140,788 as of February 5, 2013.




 







TABLE OF CONTENTS

 

 


 

Page

 

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1:  Financial Statements

3

Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations

4

Item 3:  Quantitative and Qualitative Disclosures About Market Risk

14

Item 4:  Controls and Procedures

14

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1:  Legal Proceedings

15

Item 1A:  Risk Factors

15

Item 2:  Unregistered Sales of Equity Securities and Use of Proceeds

15

Item 3:  Defaults Upon Senior Securities

15

Item 4:  Mine Safety Disclosures

15

Item 5:  Other Information

15

Item 6:  Exhibits

16

















2






PART I - FINANCIAL INFORMATION


Item 1. Financial Statements


Our financial statements included in this Form 10-Q are as follows:


F-1

Balance Sheets as of December 31, 2012 (unaudited) and June 30, 2012 (derived from audited financial information);

 

 

F-2

Statements of Operations for the three and six months ended December 31, 2012 and 2011, and from inception on March 4, 2010 through December 31, 2012 (unaudited);

 

 

F-3

Statements of Cash Flows for the six months ended December 31, 2012 and 2011, and from inception on March 4, 2010 through December 31, 2012 (unaudited);

 

 

F-4

Notes to Financial Statements.


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 December 31, 2012 are not necessarily indicative of the results that can be expected for the full year.











3







CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

(A Development Stage Company)

BALANCE SHEETS

(Unaudited)


 

December 31,

 

June 30,

 

2012

 

2012

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current

 

 

 

 

 

    Cash

$

97,755

 

$

22,830

    Prepaid expenses

 

6,000

 

 

-

 

 

 

 

 

 

Total current assets

 

103,755

 

 

22,830

 

 

 

 

 

 

 

 

 

 

 

 

Due from related party

 

3,750

 

 

-

Premiums on life settlement policies - Note 10

 

137,718

 

 

168,189

Investment in life settlement policies - Note 10

 

509,044

 

 

119,176

Property and equipment, net - Note 4

 

18,185

 

 

17,784

Lease deposit

 

12,000

 

 

12,000

 

 

 

 

 

 

Total long term assets

 

680,697

 

 

317,149

 

 

 

 

 

 

Total assets

$

784,452

 

$

339,979

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

    Accounts payable

$

21,820

 

$

14,913

    Accrued interest, related party - Note 7

 

-

 

 

1,923

    Notes payable, related party - Note 7

 

-

 

 

45,000

 

 

 

 

 

 

Total current liabilities

 

21,820

 

 

61,836

 

 

 

 

 

 

Total liabilities

 

21,820

 

 

61,836

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value

 

 

 

 

 

        10,000,000 shares authorized, none outstanding

 

-

 

 

 -

Common stock, $0.001 par value - Notes 7 and 8

 

 

 

 

 

        90,000,000 shares authorized

 

 

 

 

 

        42,140,788 shares issued and outstanding  (41,089,296 shares as of June 30, 2012)

 

42,141

 

 

41,089

Additional paid-in capital

 

1,307,019

 

 

572,071

Deficit accumulated during the development stage

 

(586,528)

 

 

(335,017)

 

 

 

 

 

 

Total stockholders’ equity

 

762,632

 

 

278,143

 

 

 

 

 

 

Total liabilities and stockholders’ equity

$

784,452

 

$

339,979


See accompanying footnotes to financials statements




F-1







CROWN ALLIANCE CAPITAL LTD.

(A Development Stage Company)

INTERIM STATEMENTS OF OPERATIONS

 (Unaudited)


 

 

 

 

 

From

 

 

 

 

 

inception

 

Three Months

 

Six Months

 

(March 4,

 

Ended

 

Ended

 

2010) to

 

December 31,

 

December 31,

 

December 31,

 

2012

 

2011

 

2012

 

2011

 

2012

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Audit and accounting fees

$

5,576

 

$

5,500

 

$

16,286

 

$

13,108

 

$

55,764

   Bank charges

 

514

 

 

84

 

 

1,042

 

 

177

 

 

2,626

   Consulting fees

 

18,298

 

 

-

 

 

26,733

 

 

-

 

 

38,733

   Depreciation

 

3,337

 

 

74

 

 

6,377

 

 

74

 

 

8,790

   Foreign exchange (gain) loss

 

(304)

 

 

158

 

 

(132)

 

 

160

 

 

64

   Legal fees

 

6,676

 

 

13,399

 

 

15,717

 

 

40,982

 

 

108,575

   Management fees

 

45,000

 

 

-

 

 

90,000

 

 

-

 

 

186,750

   Marketing and promotion

 

17,652

 

 

-

 

 

35,502

 

 

-

 

 

35,502

   Mineral Property option costs

 

-

 

 

-

 

 

-

 

 

4,000

 

 

8,000

   Mineral property exploration costs

 

-

 

 

-

 

 

-

 

 

-

 

 

2,500

   Office expenses

 

1,962

 

 

18

 

 

2,751

 

 

1,018

 

 

12,618

   Rent

 

15,569

 

 

15,570

 

 

31,138

 

 

20,759

 

 

83,035

   Transfer and filing fees

 

1,585

 

 

395

 

 

17,255

 

 

4,225

 

 

29,294

   Travel

 

5,093

 

 

-

 

 

7,560

 

 

-

 

 

9,143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss before interest expense

 

(120,958)

 

 

(35,198)

 

 

(250,229)

 

 

(84,503)

 

 

(581,394)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Interest expense - Note 7

 

148

 

 

-

 

 

(1,282)

 

 

(598)

 

 

(5,134)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(121,106)

 

$

(35,198)

 

$

(251,511)

 

$

(85,101)

 

$

(586,528)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per share

$

(0.00)

 

$

(0.00)

 

$

(0.01)

 

$

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding - basic

 

41,998,659

 

 

51,826,884

 

 

41,645,266

 

 

46,100,950

 

 

 


See accompanying footnotes to financials statements




F-2







CROWN ALLIANCE CAPTIAL LTD

(A Development Stage Company)

INTERIM STATEMENTS OF CASH FLOWS

(Unaudited)


 

 

 

From

 

 

 

inception

 

 

 

(March 4 2010)

 

Six Months Ended

 

to

 

December 31,

 

December 31,

 

2012

 

2011

 

2012

 

 

 

 

 

 

 

 

 

Cash Flows Used in Operating Activities

 

 

 

 

 

 

 

 

   Net loss

$

(251,511)

 

$

(85,101)

 

$

(586,528)

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

 

 

 

   Non-cash interest expense - capital contribution

 

-

 

 

226

 

 

902

   Interest expense

 

1,282

 

 

372

 

 

4,232

   Depreciation

 

6,377

 

 

74

 

 

8,790

   Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

   Prepaid expenses

 

(6,000)

 

 

-

 

 

(6,000)

   Lease deposit

 

-

 

 

(12,000)

 

 

(12,000)

   Accrued interest, related party

 

(3,205)

 

 

-

 

 

(3,205)

   Accounts payable

 

6,907

 

 

38,640

 

 

45,238

Net cash used in operating activities

 

(246,150)

 

 

(57,789)

 

 

(548,571)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

   Purchases of life settlement policies and capitalized premiums

 

(359,397)

 

 

-

 

 

(646,762)

   Purchase of property and equipment

 

(6,778)

 

 

(2,649)

 

 

(26,975)

Net cash used in investing activities

 

(366,175)

 

 

(2,649)

 

 

(673,737)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

   Proceeds from capital stock issued

 

736,000

 

 

45,000

 

 

1,263,813

   Proceeds from share subscriptions received

 

-

 

 

-

 

 

-

   Due to (from) related party

 

(3,750)

 

 

-

 

 

(3,750)

   Proceeds from notes payable, related party

 

-

 

 

10,000

 

 

105,000

   Payments of notes payable, related party

 

(45,000)

 

 

-

 

 

(45,000)

Net cash provided by financing activities

 

687,250

 

 

55,000

 

 

1,320,063

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash during the period

 

74,925

 

 

(5,438)

 

 

97,755

 

 

 

 

 

 

 

 

 

Cash, beginning of the period

 

22,830

 

 

5,958

 

 

-

 

 

 

 

 

 

 

 

 

Cash, end of the period

$

97,755

 

$

520

 

$

97,755

 

 

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid in cash

$

3,205

 

$

-

 

$

3,205

 

 

 

 

 

 

 

 

 

Taxes paid in cash

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

Non-cash interest and financing activities

 

 

 

 

 

 

 

 

Accounts payable settled in connection with sale of subsidiary

$

-

 

$

21,718

 

$

21,718

Accrued interest, related party settled in connection with sale of subsidiary

$

-

 

$

1,027

 

$

1,027

Notes payable, related party settled in connection with sale of subsidiary

$

-

 

$

60,000

 

$

60,000

Shares cancelled and note payable reissued

$

-

 

$

-

 

$

45,000


See accompanying footnotes to financials statements



F-3







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)


Note 1

Basis of Presentation


While the information presented in the accompanying December 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 Company’s June 30, 2012 audited financial statements (notes thereto) included in the Company’s Annual Report on Form 10-K.


Operating results for the six months ended December 31, 2012 are not necessarily indicative of the results that can be expected for the year ending June 30, 2013.



Note 2

Nature of Operations and Ability to Continue as a Going Concern


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 Company’s 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 March 29, 2013.


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.




F-4







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 2

Nature of Operations and Ability to Continue as a Going Concern - (cont’d)


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 $586,528 since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern.  The Company’s 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.


Note 3

Summary of Significant Accounting Policies


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 management’s opinion, been properly prepared within the framework of the significant accounting policies summarized below:


Principles of Consolidation


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 August 31, 2011 and the balance sheets presented at September 30, 2012 and June 30, 2012 are solely that of Crown Alliance Capital Ltd.  All significant inter-company transactions and balances have been eliminated.




8







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 3

Summary of Significant Accounting Policies - (cont’d)


Development Stage Company


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 Company’s development stage activities.

Cash and cash equivalents

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 December 31, 2012 or June 30, 2012.


Earnings per share  


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.


Investments in Insurance Contracts


The Company adopted FASB ASC Topic 325-30 “Investments in Insurance Contracts.” and accounts 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.





F-5







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 3

Summary of Significant Accounting Policies - (cont’d)


Income Taxes


The Company uses the asset and liability method of accounting for income taxes.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry-forwards and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.


Property and equipment


Property and 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.  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 as 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.


Depreciation has been charged using the following estimates of useful lives:


Computer equipment

2 years straight line

Office equipment and furnishings

3-5 years straight line

Leasehold improvements

Over the remaining term of the lease


Foreign Currency Translation


The Company’s functional currency is the United States dollar as substantially all of the Company’s operations are in the USA. The Company uses the United States dollar as its reporting currency for consistency with registrants of the Securities and Exchange Commission (“SEC”).






F-6

 






CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 3

Summary of Significant Accounting Policies - (cont’d)


Assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates.  Income statement accounts are translated at the average rates of exchange prevailing during the period.  Translation adjustments from the use of different exchange rates from period to period are included in the Accumulated Other Comprehensive Income account in Stockholder’s Equity, if applicable.  Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date.  Any exchange gains and losses are included in the Statement of Operations.


Newly Issued Accounting Pronouncements


The Company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.



Note 4

Property and equipment


 

December 31

 

June 30,

 

2012

 

2012

Cost

 

 

 

Computer equipment

$

3,618

 

$

1,409

Office equipment and furnishings

 

10,705

 

 

6,136

Leasehold improvements

 

12,652

 

 

12,652

 

 

 

 

 

 

Gross cost

 

26,975

 

 

20,197

Accumulated depreciation

 

(8,790)

 

 

(2,413)

 

 

 

 

 

 

Net book value

$

18,185

 

$

17,784


Note 5

Sale of Subsidiary


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 Company’s interest in KRC was transferred to the former President and the former president assumed all interests and liabilities of KRC amounting to $82,745 in exchange for the Company’s 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.



F-7







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 5

Sale of Subsidiary- (cont’d)


 

August 31, 2011

Identifiable Assets and Liabilities

 

Amount owed to Kinetic Resources Corp

$

(13,220)

Net liabilities of KRC

 

(13,220)

 

 

 

Consideration Received

 

 

Settlement of accounts payable, promissory notes, and accrued interest

 

61,027

Assumption of Accounts payable

 

21,718

Elimination of accumulated losses of KRC

 

13,220

 

 

95,695

 

 

 

Sale of subsidiary- related party

$

82,745

 

 

 

Loss for the period from July 1, 2011 to August 31, 2011

 

 

 

 

 

Mineral property option costs

$

4,000


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.



Note 6

Financial Instruments


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 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:




F-8






CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)


Note 6

Financial Instruments - (cont’d)


Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.


Level 2 -inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.


The carrying value of the Company’s financial assets and liabilities which consist of cash, accounts payable and accrued liabilities in management’s 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 management’s opinion that the Company is not exposed to significant interest, exchange, or credit risks arising from these financial instruments.



Note 7

Related Party Transactions


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 $82,745 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 six month period ended December 31, 2012, the Company settled the note in the amount of $48,205 including accrued interest to settlement.  During the six month period ended December 31, 2012 the Company accrued $1,282 (six month period ended December 31, 2011 - $nil) of interest expense in respect of this note payable.



F-9







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 7

Related Party Transactions - (cont’d)


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 Company’s 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.


The annual base compensation pursuant to the employment agreement is as follows:


$180,000 until February 8, 2013;

$200,000 until February 8, 2014;

$255,000 until February 8, 2015;

$255,000 per annum thereafter, - unless renewal terms are renegotiated


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 of December 31, 2012, due from related party includes $3,750 (June 30, 2012 - $nil) in respect of prepaid management fees, and accounts payable and accrued liabilities includes $nil (June 30, 2012 - $3,750) in respect of unpaid management fees.  Management fees for the six month period ended December 31, 2012 includes $90,000 (six month period to December 31, 2011 -$nil) pursuant to this agreement.



Note 8

Capital Stock


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 with a par value of $0.001. As of December 31, 2012 the Company had 42,140,778 (June 30, 2012 - 41,089,296) common stock and zero (June 30, 2012 - zero) preferred stock outstanding.


a)

Issued


As part of the Company’s non-brokered private placement the Company is offering up to 14,500,000 Stock Units at $0.70 per Unit.  Each Unit consists of one share of common stock of the Company and one warrant.  Each warrant may be exercised at $1.10 into one common stock of the Company for a period of 48 months subsequent to issuance.




F-10







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 8

Capital Stock - (cont’d)


Pursuant to this non-brokered private placement the Company issued 130,000 units on August 8, 2012 and 50,000 units on August 28, 2012 for aggregate gross proceeds of $126,000 ($0.70/unit).


On August 29, 2012, the Company issued an additional 121,482 common shares pursuant to subscription agreements at $0.70 per share for total share proceeds of $85,000.


On September 12, 2012, the Company issued an additional 305,000 common shares pursuant to subscription agreements at $0.70 per share for total share proceeds of $213,500.


On October 16, 2012, the Company issued an additional 95,000 common shares pursuant to subscription agreements at $0.70 per share for total share proceeds of $66,500.


On November 2, 2012, the Company issued an additional 350,000 common shares pursuant to subscription agreements at $0.70 per share for total share proceeds of $245,000.


b)

Share Purchase Warrants


A summary of changes in share purchase warrants for the six month period ended December 31, 2012 and the year ended June 30, 2012 is presented below:


Six Months Ended

 

Year Ended

 

December 31, 2012

 

June 30, 2012

 

Number

Weighted

Average

Exercise

Price

 

Number

Weighted

Average

Exercise

Price

 

 

 

 

 

 

Balance, beginning of period

-

$

-

 

-

$

-

Issued

180,000

1.10

 

-

 

-

Exercised

-

 

-

 

-

 

-

 

 

 

 

 

 

Balance, end of period

180,000

$

1.10

-

$

-







F-11







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 8

Capital Stock - (cont’d)


As at December 31, 2012, share purchase warrants were outstanding for the purchase of common shares as follows:


Number

Number

 

 

 

Exercisable

 

 

of

 

Exercise

 

at

 

Expiry

Shares

 

Price

 

December 31, 2012

 

Date

 

 

 

 

 

 

130,000

 

$1.10

 

130,000

 

August 8, 2016

50,000

 

$1.10

 

50,000

 

August 28, 2016

180,000

 

 

 

180,000

 

 



Note 9

Commitment


On September 1, 2011, the Company entered into a lease agreement for a term of two years.


As of December 31, 2012, the Company’s commitment for annual minimum future lease payments under office rental agreements are as follows:


Fiscal 2013

$

15,885

Fiscal 2014

 

5,295

Total

$

21,180


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.



Note 10

Investment in Life Settlement Policies


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 and are entitled to fifty percent of the death benefits of those policies not formally closed pursuant to the terms of the agreement.  ASC 325-30, Investments in Insurance Contracts, provides that a purchaser may elect to account for its investments in life settlement contracts based on the initial investment at the purchase price plus all initial direct costs. Continuing costs (e.g., policy premiums, statutory interest and direct external costs, if any) to keep the policy in force are capitalized. The Company has elected to use the investment method and refer to the recorded amount as the carrying value of the policies.



F-12







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 10

Investment in Life Settlement Policies - (cont’d)


On June 19, 2012, the Company acquired one of the four life settlement policies.  The face value of the policy is $500,000 with a remaining life expectancy of 2.75 years.  As of December 31, 2012, the carrying value of the policy is $141,975.


On December 28, 2012, the Company acquired the second life settlement policy pursuant to the above agreement.  The face value of the policy is for $1,000,000 with a remaining life of 4 years.  As of December 31, 2012, the carrying value of the policy is $367,069.


The Company evaluates the carrying value of their investment in life settlement policies on a regular basis and adjusts their total basis in the policies using new or updated information that affects their assumptions about remaining life expectancy, credit worthiness of the policy issuer, funds needed to maintain the asset until maturity, discount rates and potential return. The Company recognizes impairment on individual policies if the expected undiscounted cash flows are less than the carrying amount of the investment, plus anticipated undiscounted future premiums and capitalizable direct external costs, if any. Impairment of policies is generally caused by the insured significantly exceeding the estimate of the original life expectancy, which causes the original policy costs and projected future premiums to exceed the estimated maturity value. The Company does not believe the life settlement policies to be impaired as of December 31, 2012.


Estimated premiums to be paid for each of the five succeeding fiscal years to keep all four policies in force as December 31, 2012, are as follows.


Year 1

$

113,400

Year 2

 

256,200

Year 3

 

256,200

Year 4

 

222,000

Year 5

 

54,000

Total estimated premiums

$

901,800


As of December 31, 2012, $137,718 of the policy premiums has been paid on the remaining two policies and the premium payments have been capitalized in the financial statements.


On April 27, 2012, the Company amended the original life settlement contract to extend the $570,000 payable due date to May 10, 2012, the contract was further amended on May 23, 2012 to extend the $570,000 payable due date to September 17, 2012, and on September 24, 2012, the contract was amended again to extend the $570,000 payable due date to October 17 2012.  On November 23, 2012 the contract was further amended to extend the contract due date for the remaining amount payable to March 29, 2013.



F-13







CROWN ALLIANCE CAPITAL LTD

(A Development Stage Company)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)



Note 10

Investment in Life Settlement Policies - (cont’d)


As of December 31, 2012, the Company has paid a total of $325,000 towards the $570,000 payable and amended the contract to extend the due date for the remaining payable of $245,000 to March 29, 2013.



Note 11

Subsequent Event


Subsequent to the period end, one life settlement policy which the Company had not formally acquired matured upon the death of the insured.  The Company will receive proceeds equal to one half of the net proceeds less acquisition costs paid by Universal Settlements International Inc,


As of December 31, 2012, the Company had also capitalized into life settlement premiums paid an amount of $83,715 in respect of this policy.























F-14






Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Forward-Looking Statements


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.  


Company Overview


We are a publicly reporting Nevada corporation formed March 4, 2010.  Our business is focused 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.


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.



4







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 purchaser’s 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.





5






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,   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.  



6







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:


o

Face value of the policy upon maturity.


o

Annual premium on the policy.


o

Life expectancy (LE) of the insured.


o

Administration costs associated with the policy.


o

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:




7







1.

Due Diligence Underlying a Policy Purchase


USI will source policies which meet our criteria from Qualified Service Providers (QSP’s). 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.


2.

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)




8







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.


·

Payment Instructions


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.


3.

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.  




9







4.

Closing


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.


5.

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.


6.

Tracking


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.




10







·

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.


7.

Premiums Management


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.


8.

Claims Management


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.




11







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 six months ended December 31, 2012 and 2011, and for the period from March 4, 2010 (date of inception) through December 31, 2012


We have not earned any revenues from inception on March 4, 2010 through the fiscal year ending December 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 $586,528 from our inception on March 4, 2010 through the quarter ending December 31, 2012.   Our expenses since our inception have consisted primarily of legal fees, audit and accounting fees, management fees, and rental expenses. During the quarter ended December 31, 2012, we incurred expenses and net losses in the amount of $121,106. By comparison, during the quarter ended December 31, 2011, we incurred expenses and net losses in the amount of $35,198.  During the six months ended December 31, 2012, we incurred expenses and a net loss of $251,511.  By comparison, during the six months ended December 31, 2011, we incurred expenses and a net loss of $85,101


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 right, 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 $13,699.54 per month for three of the policies being purchased, and $42,000 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, the termination date was extended to May 23, 2012. Under a Further Amendment to the Agreement, the final payment deadline has been extended to November 23, 2012. Most recently, the Agreement was further amended to change the payment deadline to March 29, 2013.



12







On June 19, 2012, we completed acquisition of the first of the four life settlement policies being purchased under the Agreement.  The face value of the policy purchased is $500,000.  As of December 31, 2012, the carrying value of the policy is $141,975. On December 28, 2012 we complete the acquisition of a second life settlement policy under the Agreement.  The second policy purchased has a face value of $2,000,000. As of December 31, 2012, this policy has a carrying value of $367,069.


Subsequent to the reporting period, on February 5, 2013, we received notice that another of the policies being purchased under the Agreement had matured prior to our completing the acquisition of the policy.  The policy had a face value of $1,000,000.  Under the terms of the Agreement and our most recent extension with USI, the $125,000 purchase price for the policy will be paid from the death benefit.  We and USI will then split the $875,000 in net proceeds equally.


To date, we have completed the purchase of two of the four policies under the Agreement, and a third policy has matured prior to completion of our purchase, as described above.  We must pay $120,000 by March 29, 2013 to complete our purchase the last of the four policies covered by the Agreement.


Estimated premiums to be paid for each of the five succeeding fiscal years to keep all four policies being purchased under the Agreement, as of December 31, 2012, are as follows.


Year 1

$

113,400

Year 2

 

256,200

Year 3

 

256,200

Year 4

 

222,000

Year 5

 

54,000

Total estimated premiums

$

901,800


Due to the recent maturity of one of the four policies, as discussed above, the total future premium payments on the policies covered by the Agreement are expected to decrease.


Liquidity and Capital Resources


As of December 31, 2012, we had current assets of $103,755, consisting of cash in the amount of $97,755 and a prepaid expense of $6,000.  As of December 31, 2012, we had current liabilities of $21,820, consisting entirely of accounts payable. Thus, we had working capital of $81,935 as of December 31, 2012.


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 and raising additional 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.



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Off Balance Sheet Arrangements


As of December 31, 2012, there were no off balance sheet arrangements.  


Going Concern


We have yet to achieve profitable operations, have accumulated losses of $586,528 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.  


Item 3. Quantitative and Qualitative Disclosures About Market Risk


A smaller reporting company is not required to provide the information required by this Item.


Item 4. Controls and Procedures


We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2012.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, Lorraine Fusco.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2012, our disclosure controls and procedures were not effective.  There have been no changes in our internal controls over financial reporting during the quarter ended December 31, 2012.


Management determined that the material weaknesses that resulted in controls being ineffective are primarily due to lack of resources and number of employees. Material weaknesses exist in the segregation of duties required for effective controls and various reconciliation and control procedures not regularly performed due to the lack of staff and resources.


Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.





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Limitations on the Effectiveness of Internal Controls


Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.   Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

PART II - OTHER INFORMATION


Item 1. Legal Proceedings


We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.


Item 1A: Risk Factors


A smaller reporting company is not required to include this Item.  Risk factors for our current line of business can be found in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed on September 27, 2012.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


None.


Item 3. Defaults upon Senior Securities


None


Item 4. Mine Safety Disclosures


Not applicable.


Item 5. Other Information


None.



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Item 6. Exhibits


Exhibit Number

Description of Exhibit

10.1

Further Amendment to Policy Purchase Agreement

31.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002






















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SIGNATURES


In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

Crown Alliance Capital Limited

 

 

Date:

February 14, 2013

 

 

 

/s/ Lorraine Fusco

By:

Lorraine Fusco

Title:

Chief Executive Officer, Chief Financial Officer and Director




























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