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 February 28, 2009
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______to______.
MAXLIFE FUND CORP.
(Exact name of registrant as specified in Charter
WYOMING | 333-138298 | |||
(State or other jurisdiction of incorporation or organization) | (Commission File No.) | (IRS Employee Identification No.) |
45 Sheppard Avenue East, Suite 900
North York, Ontario, Canada M2N 5W9
(Address of Principal Executive Offices)
_______________
1-866-752-5557
(Issuer Telephone number)
_______________
(Former Name or Former Address if Changed Since Last Report)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company x
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of April 14, 2009: 30,303,16 shares of common stock.
MAXLIFE FUND CORP.
FORM 10-Q
February 28, 2009
INDEX
PART I-- FINANCIAL INFORMATION
Item 1. | Financial Statements | 1 |
Item 2. | Management’s Discussion and Analysis of Financial Condition | 10 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 13 |
Item 4T | Control and Procedures | 13 |
PART II-- OTHER INFORMATION
Item 1 | Legal Proceedings | 14 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
Item 3. | Defaults Upon Senior Securities | 14 |
Item 4. | Submission of Matters to a Vote of Security Holders | 14 |
Item 5. | Other Information | 14 |
Item 6. | Exhibits and Reports on Form 8-K | 14 |
SIGNATURE
Item 1. Financial Statements
MAXLIFE FUND CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
28 FEBRUARY 2009
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MAXLIFE FUND CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
AS AT
(Expressed in United States Dollars)
28 February 2009 (Unaudited) | 31 August 2008 (Audited) | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 232,100 | $ | 500,836 | ||||
Available-for-sale securities, at fair value (cost - $89,816 at 28 February 2009 and 31 August 2008) | 400 | 2,313 | ||||||
Total Current Assets | 232,500 | 503,149 | ||||||
Long Term Assets | ||||||||
Investment in life insurance policies | 503,897 | 452,955 | ||||||
Investment in joint venture | 1,250 | 1,250 | ||||||
Total Long Term Assets | 505,147 | 454,205 | ||||||
Total Assets | $ | 737,647 | $ | 957,354 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 29,312 | $ | 28,084 | ||||
Management salary payable | 75,000 | 30,000 | ||||||
Advances from stockholder | 3,931 | 4,694 | ||||||
Total Liabilities | 108,243 | 62,778 | ||||||
Stockholders' Equity | ||||||||
Preferred Stock $25.00 par value; Authorized 100,000,000; Issued and outstanding 26,400 (31 August 2008 - 26,400); non-voting; dividends of $0.625 paid on quarterly basis; non-convertible; redeemable at the option of the Company after two years | 660,000 | 660,000 | ||||||
Capital stock $.001 par value; Authorized 200,000,000; Issued and outstanding 30,303,168 (31 August 2008 - 30,303,168) | 30,303 | 30,303 | ||||||
Additional paid in capital | 1,086,576 | 961,967 | ||||||
Additional paid in capital - warrants | 244,158 | 244,158 | ||||||
Accumulated other comprehensive loss | (108,582 | ) | (85,206 | ) | ||||
Deficit accumulated during the development stage | (1,283,051 | ) | (916,646 | ) | ||||
Total Stockholders' Equity | 629,404 | 894,576 | ||||||
Total Liabilities and Stockholders' Equity | $ | 737,647 | $ | 957,354 |
The accompanying notes are an integral part to these financial statements.
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MAXLIFE FUND CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(Expressed in United States Dollars)
For the Three Months Ended 28 February 2009 | For the Three Months Ended 29 February 2008 | For The Period From Inception (9 January 2006) to 28 February 2009 | ||||||||||
SALE OF POLICY | $ | - | $ | - | $ | 330,000 | ||||||
COST OF POLICY SOLD | - | - | 303,250 | |||||||||
GROSS PROFIT | - | - | 26,750 | |||||||||
EXPENSES | ||||||||||||
Professional fees | 52,305 | 14,454 | 253,905 | |||||||||
General and administrative | 48,772 | 6,703 | 193,148 | |||||||||
Management salaries | 36,502 | - | 96,502 | |||||||||
Interest and bank charges | 84 | 312 | 2,574 | |||||||||
Stock based compensation | - | 14,250 | 487,780 | |||||||||
(Gain) loss on foreign exchange | (17,667 | ) | 1,229 | (10,998 | ) | |||||||
TOTAL OPERATING EXPENSES | 119,996 | 36,948 | 1,022,911 | |||||||||
LOSS FROM OPERATIONS | (119,996 | ) | (36,948 | ) | (996,161 | ) | ||||||
REALIZED GAIN ON SALE OF AVAILABLE-FOR-SALE SECURITIES | - | - | 37,192 | |||||||||
GOODWILL IMPAIRMENT LOSS | - | - | (35,269 | ) | ||||||||
INTEREST INCOME | 428 | 1,706 | 4,845 | |||||||||
NET LOSS | $ | (119,568 | ) | $ | (35,242 | ) | $ | (989,393 | ) | |||
FOREIGN CURRENCY TRANSLATION ADJUSTMENT | (17,610 | ) | 1,023 | (18,889 | ) | |||||||
UNREALIZED LOSS ON AVAILABLE-FOR-SALE SECURITIES, NET OF DEFERRED TAXES | (1,302 | ) | (766 | ) | (89,695 | ) | ||||||
COMPREHENSIVE LOSS | $ | (138,480 | ) | $ | (34,985 | ) | $ | (1,098,058 | ) | |||
LOSS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | $ | 0.00 | 0.00 | |||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | 30,303,168 | 30,127,100 |
The accompanying notes are an integral part to these financial statements.
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MAXLIFE FUND CORP. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
For the Six Months Ended 28 February 2009 | For the Six Months Ended 29 February 2008 | |||||||
SALE OF POLICY | $ | - | $ | 330,000 | ||||
COST OF POLICY SOLD | - | 303,250 | ||||||
GROSS PROFIT | - | 26,750 | ||||||
EXPENSES | ||||||||
Stock based compensation | 124,610 | 14,250 | ||||||
Professional fees | 103,698 | 31,925 | ||||||
Management salaries | 66,502 | - | ||||||
General and administrative | 53,128 | 18,090 | ||||||
Interest and bank charges | 220 | 312 | ||||||
(Gain) Loss on foreign exchange | (13,582 | ) | 4,868 | |||||
TOTAL OPERATING EXPENSES | 334,576 | 69,445 | ||||||
LOSS FROM OPERATIONS | (334,576 | ) | (42,695 | ) | ||||
INTEREST INCOME | 1,171 | 943 | ||||||
NET LOSS | $ | (333,405 | ) | $ | (41,752 | ) | ||
FOREIGN CURRENCY TRANSLATION ADJUSTMENT | (16,156 | ) | 9,466 | |||||
UNREALIZED LOSS ON AVAILABLE-FOR-SALE SECURITIES, NET OF DEFERRED TAXES | $ | (7,220 | ) | $ | (8,680 | ) | ||
COMPREHENSIVE LOSS | (356,781 | ) | (40,966 | ) | ||||
LOSS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | (0.01 | ) | 0.00 | |||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | 30,303,168 | 30,127,100 |
The accompanying notes are an integral part to these financial statements.
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MAXLIFE FUND CORP. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended 28 February 2009 | Six Months Ended 29 February 2008 | For The Period From Inception to 28 February 2009 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net loss | $ | (333,405 | ) | $ | (41,752 | ) | $ | (989,393 | ) | |||
Adjustment to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Goodwill impairment loss | - | - | 35,269 | |||||||||
Stock based compensation | 124,609 | 14,250 | 453,579 | |||||||||
Unrealized loss on available-for-sale securities | (7,220 | ) | - | (89,695 | ) | |||||||
Equity issued to acquire 1255450 Ontario Limited | - | - | 5,000 | |||||||||
Issuance of common stock for services | - | - | 75,200 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Available-for-sale securities | 1,913 | 13,212 | (400 | ) | ||||||||
Purchase of insurance policies and capitalized premiums | (50,942 | ) | 219 | (810,870 | ) | |||||||
Proceeds on sale of policy | - | - | 330,000 | |||||||||
Accounts payable and accrued liabilities | 1,228 | (403,451 | ) | 24,349 | ||||||||
Management salary payable | 45,000 | - | 75,000 | |||||||||
Deferred taxes | - | (4,908 | ) | - | ||||||||
NET CASH USED IN OPERATING ACTIVITIES | (218,817 | ) | (422,430 | ) | (891,961 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Capital Contribution to joint venture | - | (1,250 | ) | (1,250 | ) | |||||||
Acquisition of 1255450 ontario limited | - | - | (21,739 | ) | ||||||||
NET CASH USED IN INVESTING ACTIVITIES | - | (1,250 | ) | (22,989 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Issuance of preferred stock | - | - | 660,000 | |||||||||
Advances to stockholder | (763 | ) | (30,006 | ) | (27,663 | ) | ||||||
Financing fees | - | - | (8,000 | ) | ||||||||
Issuance of common stock, net of deferred financing fees | - | - | 591,100 | |||||||||
Dividends paid | (33,000 | ) | - | (49,500 | ) | |||||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (33,763 | ) | (30,006 | ) | 1,165,937 | |||||||
EFFECT OF FOREIGN CURRENCY TRANSLATION | (16,156 | ) | 786 | (18,887 | ) | |||||||
NET (DECREASE) INCREASE IN CASH | (268,736 | ) | (452,900 | ) | 232,100 | |||||||
CASH, BEGINNING OF PERIOD | 500,836 | 506,204 | - | |||||||||
CASH, END OF PERIOD | $ | 232,100 | $ | 53,304 | $ | 232,100 |
The accompanying notes are an integral part to these financial statements.
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1. NATURE OF OPERATIONS
MaxLife Fund Corp, Inc. (the "Company") was incorporated on 9 January 2006 under the laws of the State of Wyoming. The Company is engaged in financial services, where they seek, acquire, fund and manage the life insurance policies of individuals. The Company either holds these policies until maturity or markets the policies for sale at an earlier date.
2. BASIS OF PRESENTATION
The accompanying unaudited interim 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. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended 28 February 2009 are not necessarily indicative of the results that may be expected for the year ending 31 August 2009. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended 31 August 2008.
3. INVESTMENT IN LIFE INSURANCE POLICIES
As at 28 February 2009 the Company holds four life insurance policies with carrying amounts of $503,897 and face amounts totaling $2,650,000.
4. ADVANCES FROM STOCKHOLDER
The advances from the stockholder are non interest bearing, unsecured and are due on demand. The carrying value of the advances approximates the market value due to the short term maturity of the financial instruments.
5. PREFERRED STOCK
On 18 March 2008, the Company filed articles of amendment to amend the par value of its preferred stock from $.001 to $25.00 per share. The preferred stock have the following rights attached to them: non voting, entitle the holders to receive a dividend equal to $0.625 per share to be paid on a quarterly basis; not convertible into shares of the Company's common stock; provided all dividends have been paid to the shareholders, the preferred stock is redeemable by the Company after two years; in the event of any liquidation, dissolution or winding up of the Company, holders of the preferred stock shall have the same liquidation rights as the holders of the Company's common stock, whereby there are no redemption provisions.
The preferred stock of the Company is currently offered in units (the "Unit"). Each Unit consists of 1,200 shares of preferred stock plus warrants to purchase 600 shares of common stock. The warrants may be exercised at any time beginning six months from the date of issuance and ending on the fifth anniversary of the final closing of the offering of the preferred stock. The warrants are exercisable, in whole or in part, at exercise prices equal to the following:
One third (1/3) or 200 warrants per Unit shall be exercisable into common stock at $25.00 per share;
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One third (1/3) or 200 warrants per Unit shall be exercisable into common stock at $30.00 per share;
One third (1/3) or 200 warrants per Unit shall be exercisable into common stock at $35.00 per share.
The warrants were issued on various dated throughout the year and valued as follows:
(A) 4,400 shares at an exercise price of $25.00 per share $18.94, $18.19, $20.19, $20.16
(B) 4,400 shares at an exercise price of $30.00 per share $18.10, $17.39, $19.34, $19.32
(C) 4,400 shares at an exercise price of $35.00 per share $17.35, $16.68, $18.58, $18.57
The total value of the warrants amounted to $244,158 (31 August 2008 - $244,158) and are included as an addition to additional paid in capital - warrants.
The warrants were valued using the Black Scholes option pricing model with the following input variables and assumptions: exercise prices of $25, $30 and $35 per share as noted above, stock price on the date of issuances of $27.60, $26.30, $28.65, and $28.49 respectively; calculated volatility amounted to 84.56%; calculated average term of maturity of five years; an estimated risk free rate ranging from 2.95% to 3.68% based on the five year US treasury zero coupon yield curve.
6. STOCK OPTIONS
On 21 April 2008 the Company executed stock option agreements with four directors of the Company in consideration for their appointment to the Board of Directors. Under the terms of these agreements the Company granted to each director an option to purchase a total of 10,000 shares of the company's common stock ("Option Shares") in the following manner: (A) 2,500 shares at an exercise price of $20.00 per share, (B) 3,500 shares at an exercise price of $25.00 per share and (C) 4,000 shares at an exercise price of $35.00 per share. The grantee shall have the option to purchase all of the Option Shares after six months of the grant date 22 October 2008. The options expire in five years from the grant date, on 21 April 2008.
The stock options were valued using the Black Scholes option pricing model with the following input variables and assumptions: exercise prices of $20, $35 and $35 per share as noted above, stock price on the date of issuance of $18.48; calculated volatility amounted to 84.56%; calculated average term of maturity of five years; an estimated risk free rate ranging from 2.95% based on the five year US treasury zero coupon yield curve.
The stock options were valued as follows:
(A) 10,000 shares at an exercise price of $20.00 per share $12.33
(B) 14,000 shares at an exercise price of $25.00 per share $11.61
(C) 16,000 shares at an exercise price of $35.00 per share $10.48
The total stock compensation related to the Option Shares amounted to $453,580 and is amortized over the service period of six months from the grant date and have been included in stock based compensation in the consolidated statement of loss.
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7. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months period ended 28 February 2009 and 29 February 2008 and for the period from inception (9 January 2006) to 28 February 2009, there were no interest or taxes paid by the Company.
On 21 April 2008 the Company executed stock option agreements with four directors of the Company in consideration for their appointment to the Board of Directors. The total stock compensation related to the stock options amounted to $453,580 and are amortized over the service period of six months from the grant date.
8. INVESTMENT IN JOINT VENTURE
On 25 February 2008 the Company and Capital Growth Planning, Inc. (“CGP”), an El Cajon, California company, formed MaxLife CGP Partners, LLC (the “Joint Venture”), an El Cajon, California company, to work together in sourcing, purchasing, and managing certain life settlement insurance policy assets for the Joint Venture. It is the Company’s goal to deploy a portion of funds raised in a Preferred stock offering as a loan to the Joint Venture. CGP, through its executives and subsidiary Companies, will use its life settlement experience, contacts, and specialized products to source, purchase, and manage the life settlement policy assets for the Joint Venture. The Company and CGP each have interests of 50% in the Joint Venture. The Joint Venture has been concluded to be jointly controlled, and the Company can exercise significant influence. Therefore, the investment in the Joint Venture is recorded by the equity method of accounting. The Company has contributed $1,250 to the Joint Venture.
As required under the Joint Venture agreement the Company granted Options of common stock (“Maxlife Options”) to CGP based on the achievement of certain net profit earned in the Joint Venture. The Maxlife Options will vest one year from the date the Maxlife Warrant is issued, and will expire two years thereafter. The milestones are based on the following:
Milestone
Net Profit Earned in the Joint Venture MaxLife Options Granted
$1,000,000 100,000 at $15
$5,000,000 150,000 at $20
$10,000,000 200,000 at $25
$15,000,000 250,000 at $30
$20,000,000 300,000 at $35
$25,000,000 350,000 at $40
As required under the Joint Venture agreement CGP granted Options (“CGP Options”) to the Company based on the achievement of earnings targets based on net profit earned in the Joint Venture. CGP Options will be issued with a three year term to purchase CGP’s Series B Non voting Common Stock at the price per share listed below:
Milestone
Net Profit Earned in the Joint Venture CGP Options Granted
$1,000,000 100,000 at $1
$5,000,000 150,000 at $2
$10,000,000 200,000 at $3
$15,000,000 250,000 at $4
$20,000,000 �� 300,000 at $5
$25,000,000 350,000 at $6
The services that each member will provide towards reaching the milestones has not yet commenced. Upon commencement of the service period, the Company will value the Options and amortize it over the estimated performance period.
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9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash, accounts payable and accrued liabilities, management salary payable and advances from stockholder approximates fair value because of the short term maturity of these instruments.
10. COMMITMENT AND CONTINGENT LIABILITY
The Company is contingently liable for the payment of the premiums due on the insurance policies as described in Note 3. Although the individual beneficiary is responsible for these payments, if they are not paid when they fall due, the Company must pay these premiums on the insured's behalf within a 30 day grace period or the policy would lapse. As of 28 February 2009, the policies premiums were up to date and the policies were in good standing.
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Item 2. Management’s Discussion and Analysis or Plan of Operation
Certain statements contained in this quarterly filing, including, without limitation, statements containing the words “believes”, “anticipates”, “expects” and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings. Given these uncertainties, readers of this prospectus and investors are cautioned not to place undue reliance on such forward-looking statements.
Plan of Operations
During the next twelve months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations:
We will continue to make relationships with insurance brokers and their clients to seek out opportunistic policies and life settlements situations available. We will attempt to raise additional financing for working capital and to marketing efforts. We will also seek investment partners in order to raise the necessary funds to acquire existing policies. Such partners include banks, hedge funds, investment funds and sophisticated investors. We will be sourcing new relationships with companies in the sector with the objective of purchasing an ownership in their businesses.
We will prepare advertisements and information material to disseminate to our network of brokers with the intention of ramping up purchases of policies. With funds obtained from banks and investment funds we will be in a position to purchase and administer policies and portfolios. We will also look to offer a product which gives investors the security they require and we will charge for our expertise and services of sourcing, buying and monitoring their investments.
The addition of a stronger infrastructure will be required and we intend to hire management personnel and support staff. This will enable us to segregate work responsibilities and meet the ongoing growth of the business. We will be in a position to handle different territories both in Canada and the United States.
Additional financings will be available to us through our relationships and performance. This will enable us to continue with our growth plans. The internal organization will be reviewed to see that it can handle the influx of new business. The administration of the policies will be pertinent and we will have to determine if we have sufficient staff to handle this responsibility. We will review in depth the success of purchasing of policies and initiating new policies. Upon review it will be determined if dividends can be paid to shareholders or if funds should be used to further purchase policies.
The management team will be strengthened, if need be, to ensure that shareholder value is maximized and the business plan is being implemented properly.
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Results of Operations
Comparative Analysis for the six months ended February 28, 2009 and February 29, 2008:
Revenue for the six months ended February 28, 2009 was $0 and $330,000 for the six-months period ended February 29, 2008. Cost of policy sold for the six months ended February 28, 2009 was $0 and $303,250 for the six-months period ended February 29, 2008. Gross Profit for the six months ended February 28, 2009 was $0 and $26,750 for the six-months period ended February 29, 2008.
General and administrative expenses for the six months ended February 28, 2009 were $53,128 and $18,090 for the six-months period ended February 29, 2008. The increase during the six months ended February 28, 2009 was primarily attributable to increases in payments for printing and advertising, travel, administrative office expenses and directors and officers insurance incurred in the business operations.
Professional fees for the six months ended February 28, 2009 were $103,698 and $31,925 for the six months ended February 29, 2008. These fees are attributable to legal, accounting, tax, consulting (including IT services for contacts) and auditing services. The increase in professional fees were attributable to the increase in accounting, tax, valuation and disclosure requirements of equity instruments including stock options, stock warrants, a preferred stock issuances, tax advisory, and IT consulting services during the six months ended February 28, 2009. These activities also resulted in An increase in management salaries.
Management salaries expense for the six months ended February 28, 2009 were $66,502 and $0 for the six-months period ended February 29, 2008.
Capital Resources and Liquidity
At February 28, 2009, we had working capital of $124,257. It is the intent of management and significant stockholders, if necessary, to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, there is no legal obligation for either management or significant stockholders to provide additional future funding. Should this pledge fail to provide financing, we have not identified any alternative sources.
On February 28, 2009, the Company paid dividends of $0.625 per share on its 26,400 issued and outstanding preferred stock totaling $16,500. The preferred stock entitles the holders to receive a dividend equal to $0.625 per share to be paid on a quarterly basis. Payment of dividends on common shares in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Cash flows from operating activities
Cash flows used in operating activities for the six months ended February 28, 2009 were $218,817 and $422,430 for the six months ended February 29, 2008. The decrease in cash flows used in operating activities was due to reductions in the payment of investment in life insurance policies purchased during the three months ended 28 February 2008.
Critical Accounting Policies
MaxLife’s financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
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Our significant accounting policies are summarized in Note 3 of our financial statements filed with our 10K report on December 15, 2008. While all these significant accounting policies impact its financial condition and results of operations, MaxLife views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on MaxLife’s consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.
Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
Investment in Life Insurance Policies
Investment in life insurance policies are recorded in accordance the Financial Accounting Standards Board Staff Position No. FTB 85-4-1 Accounting for Life Settlement Contracts by Third-Party Investors (FSP FTB 85-4-1). FSP FTB 85-4-1 states that an investor may elect to account for its investments in life settlement contracts using either the investment method or the fair value method. The election shall be made on an instrument-by instrument basis and is irrevocable. Under the investment method, an investor shall recognize the initial investment at the purchase price plus all initial direct costs. Continuing costs (policy premiums and direct external costs, if any) to keep the policy in force shall be capitalized. Under the fair value method, an investor shall recognize the initial investment at the purchase price. In subsequent periods, the investor shall remeasure the investment at fair value in its entirety at each reporting period and shall recognize change in fair value earnings (or other performance indicators for entities that do not report earnings) in the period in which the changes occur. The Company has elected to value its investments in life settlement contracts using the investment method.
Goodwill and Intangible Assets
Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the tangible and intangible assets acquired, less liabilities assumed, based on fair values.
The Company accounts for purchased goodwill and other intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and any other intangibles deemed to have indefinite lives are not subject to amortization; however, goodwill is subject to an assessment for impairment, which must be performed at least annually, or more frequently if events or circumstances indicate that goodwill or other indefinite lived intangibles might be impaired.
The Company tested goodwill of its operating unit, 1254450, for impairment at 31 August 2008 and 2007.
In order to determine if write down of goodwill was necessary, management utilized a two step process: (i) they compared the implied fair value of the reporting unit, 1254450, with its carrying amount of $35,269 and (ii) the estimated fair value of the reporting unit was performed using a valuation technique based on multiples of earnings.
The implied fair value of the reporting unit was compared with its carrying amount; and management has determined that the implied fair value of goodwill is $0 as at 31 August 2008 and as a result an impairment loss of $35,269 has been recognized in the statement of loss and comprehensive loss for the year ended 31 August 2008.
The Company cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill that totaled $0 at August 31, 2008. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on the Company’s customer base, or a material negative change in its relationships with significant customers.
Stock Based Compensation
In December 2004, the Financial Accounting Standard Board ("FASB") issued SFAS No. 123R, Share-Based Payment ("SFAS No. 123R). SFAS No. 123R establishes standards for the accounting for transaction in which an entity exchanges its equity instruments for goods for services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services in shared-based payment transactions. SFAS No. 123R requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued.
The warrants and stock options are valued using the Black-Scholes option pricing model using the following input variables and assumptions: exercise prices per share as noted above, stock price on the date of issuances; calculated volatility; calculated average term of maturity of five years; an estimated risk free rate based on the US treasury zero-coupon yield curve. The assumptions used by the Company in determining its stock based compensation may differ materially from actual results due to changing market and economic conditions, higher or lower calculated volatility rates or risk free rate of return. While the Company believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may materially affect the Company’s financial position or results of operations.
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We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.
We have not made any material changes to our critical accounting estimates or assumptions or the judgments affecting the application of those estimates or assumptions. We discuss our significant accounting policies, including those policies that are not critical, in Note 3 of our 10K Consolidated Financial Statements.
Off-Balance Sheet Arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to certain market risks, including changes in interest rates and currency exchange rates. The Company does not undertake any specific actions to limit those exposures.
Item 4T. Controls and Procedures
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of February 28, 2009. Based on this evaluation, our principal executive officer and principal financial officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with United State’s generally accepted accounting principles (US GAAP), including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Based on this assessment, Management concluded the Company maintained effective internal control over financial reporting as of February 28, 2009.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Changes in internal controls
We have not made any changes to our internal controls subsequent to the Evaluation Date. We have not identified any deficiencies or material weaknesses or other factors that could significantly affect these controls, and therefore, no corrective action was taken.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Currently we are not aware of any litigation pending or threatened by or against the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports of Form 8-K.
(a) Exhibits
31.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes Oxley Act of 2002
(b) Reports of Form 8-K
On January 9, 2009 the Company filed a Form-8k based on a resignation of its Board of Directors.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Signature | Title | Date |
/s/ Bennett Kurtz | President, Chief Executive Officer and Chief Financial Officer, (Principal Accounting Officer ) | April 14, 2009 |
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