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 November 30, 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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a 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 x Non-Accelerated Filer o Smaller Reporting Company o
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 January 12, 2010: 16,253,168 shares of common stock.
MAXLIFE FUND CORP.
FORM 10-Q
November 30, 2009
INDEX
PART I-- FINANCIAL INFORMATION
Item 1. | Financial Statements | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition | 9 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 12 |
Item 4T | Control and Procedures | 12 |
PART II-- OTHER INFORMATION
Item 1 | Legal Proceedings | 14 |
Item 1A. | Risk Factors | 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 | 14 |
SIGNATURE
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Item 1. Financial Statements
MAXLIFE FUND CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
30 NOVEMBER 2009
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MAXLIFE FUND CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
AS AT
(Expressed in United States Dollars)
30 November 2009 (Unaudited) | 31 August 2009 (Audited) | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | - | $ | 48,917 | ||||
Available-for-sale securities, at fair value (cost - $24,638, 31 August 2009-$24,638) | 136 | 136 | ||||||
Total Current Assets | 136 | 49,053 | ||||||
Long Term Assets | ||||||||
Investment in life insurance policies | 550,090 | 533,307 | ||||||
Total Assets | $ | 550,226 | $ | 582,360 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Bank indebtedness | $ | 645 | $ | - | ||||
Accounts payable and accrued liabilities | 62,381 | 23,072 | ||||||
Management salary payable | 182,500 | 150,000 | ||||||
Advances from stockholder | 3,789 | 3,813 | ||||||
Dividends payable on preferred stock | 16,500 | - | ||||||
Total Liabilities | 265,815 | 176,885 | ||||||
Stockholders' Equity | ||||||||
Preferred stock $25.00 par value; Authorized 100,000,000; Issued and outstanding 26,400 (31 August 2009 - 26,400); non-voting; dividends of $0.625 paid on a quarterly basis; non-convertible; redeemable at the option of the Company after two years | 660,000 | 660,000 | ||||||
Common stock $.001 par value; Authorized 200,000,000; Issued and outstanding 16,253,168 (31 August 2009 - 16,253,168) | 16,253 | 16,253 | ||||||
Additional paid-in capital | 1,100,626 | 1,100,626 | ||||||
Additional paid in capital - warrants | 244,158 | 244,158 | ||||||
Accumulated other comprehensive loss | (39,062 | ) | (41,061 | ) | ||||
Deficit accumulated during the development stage | (1,697,564 | ) | (1,574,501 | ) | ||||
Total Stockholders' Equity | 284,411 | 405,475 | ||||||
Total Liabilities and Stockholders' Equity | $ | 550,226 | $ | 582,360 |
The accompanying notes are an integral part of these financial statements.
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MAXLIFE FUND CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in United States Dollars)
(Unaudited)
For the Three Months Ended 30 November2009 | For the Three Months Ended 30 November 2008 | For the Period from Inception (9 January 2006) to 30 November 2009 | ||||||||||
SALE OF POLICY | - | - | 330,000 | |||||||||
COST OF POLICY SOLD | - | - | 303,250 | |||||||||
GROSS PROFIT | - | - | 26,750 | |||||||||
EXPENSES | ||||||||||||
Professional fees | 55,540 | 51,394 | 382,871 | |||||||||
Management salaries | 37,500 | 30,000 | 209,078 | |||||||||
General and administrative | 14,476 | 4,356 | 251,892 | |||||||||
Interest and bank charges | 514 | 136 | 3,619 | |||||||||
Stock based compensation | - | 124,610 | 487,780 | |||||||||
(Gain) loss on foreign exchange | (953 | ) | 4,085 | (544 | ) | |||||||
TOTAL OPERATING EXPENSES | 107,077 | 214,581 | 1,334,696 | |||||||||
LOSS FROM OPERATIONS | (107,077 | ) | (214,581 | ) | (1,307,946 | ) | ||||||
REALIZED LOSS ON SALE OF AVAILABLE-FOR-SALE SECURITIES | - | (16,474 | ) | |||||||||
GOODWILL IMPAIRMENT LOSS | - | - | (35,269 | ) | ||||||||
LOSS ON INVESTMENT IN JOINT VENTURE | - | - | (1,250 | ) | ||||||||
INTEREST INCOME | 514 | 743 | 6,534 | |||||||||
NET LOSS | $ | (106,563 | ) | $ | (213,838 | ) | $ | (1,354,405 | ) | |||
FOREIGN CURRENCY TRANSLATION ADJUSTMENT | 1,999 | 1,453 | (14,560 | ) | ||||||||
UNREALIZED LOSS ON AVAILABLE-FOR-SALE SECURITIES, NET OF DEFERRED TAXES | - | (5,917 | ) | (24,502 | ) | |||||||
COMPREHENSIVE LOSS | $ | (104,564 | ) | (218,302 | ) | (1,393,467 | ) | |||||
LOSS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | $ | 0.00 | $ | (0.01 | ) | |||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | 29,801,382 | 30,303,168 |
The accompanying notes are an integral part of these financial statements.
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MAXLIFE FUND CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
For the Three Months Ended 30 November 2009 | For the Three Months Ended 30 November 2008 | For the Period from Inception (9 January 2006) to 30 November 2009 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net loss | $ | (106,563 | ) | $ | (213,838 | ) | $ | (1,354,405 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Goodwill impairment loss | - | - | 35,269 | |||||||||
Stock based compensation | - | 124,610 | 453,580 | |||||||||
Unrealized loss on available-for-sale securities | - | - | (88,318 | ) | ||||||||
Equity issued to acquire 1255450 Ontario Limited | - | - | 5,000 | |||||||||
Issuance of common stock for services | - | - | 75,200 | |||||||||
Loss on investment in joint venture | - | - | 1,250 | |||||||||
Realization of loss on available for sale securities | - | - | 57,973 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Available-for-sale securities | - | (5,306 | ) | (136 | ) | |||||||
Proceeds on sale of policy | - | - | 330,000 | |||||||||
Purchase of insurance policies and capitalized premiums | (16,783 | ) | (40,933 | ) | (857,063 | ) | ||||||
Accounts payable and accrued liabilities | 39,309 | 1,968 | 57,414 | |||||||||
Management salary payable | 32,500 | 30,000 | 182,500 | |||||||||
CASH USED IN OPERATING ACTIVITIES | (51,537 | ) | (103,499 | ) | (1,101,736 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Capital contribution - joint venture | - | - | (1,250 | ) | ||||||||
Acquisition of 1255450 Ontario Limited | - | - | (21,739 | ) | ||||||||
CASH FLOWS USED IN INVESTING ACTIVITIES | - | - | (22,989 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Proceeds from bank indebtedness | 645 | - | 645 | |||||||||
Issuance of preferred stock | - | - | 660,000 | |||||||||
Advances to stockholder | (24 | ) | (776 | ) | (27,804 | ) | ||||||
Dividends paid | - | (16,500 | ) | (82,500 | ) | |||||||
Financing fees | - | - | (8,000 | ) | ||||||||
Issuance of common stock | - | - | 591,100 | |||||||||
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES | 621 | (17,276 | ) | 1,133,441 | ||||||||
EFFECT OF FOREIGN CURRENCY TRANSLATION | 1,999 | 1,453 | (8,716 | ) | ||||||||
NET DECREASE IN CASH | (48,917 | ) | (119,322 | ) | - | |||||||
CASH, BEGINNING OF YEAR | 48,917 | 500,836 | - | |||||||||
CASH, END OF YEAR | $ | - | $ | 381,514 | $ | - |
The accompanying notes are an integral part of 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 concentrating on three major components of the Life Settlement sector (i) to generate fee income by providing a turnkey investment solution for accredited investors wanting to own life insurance policies, (ii) to obtain ownership in companies in the life settlement industry and (iii) to build a large portfolio for institutional buyers and be involved as an intermediary. MaxLife is positioning itself to grow with the industry and expand its operation to become one of the leaders in the Life Settlement sector.
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 30 November 2009 are not necessarily indicative of the results that may be expected for the year ending 31 August 2010. 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 2009.
Recent Accounting Pronouncements
In June 2009 the Financial Accounting Standards Board (“FASB”) issued statement No. 168, The FASB Accounting Standards Codification and The Hierarchy of Generally Accepted Accounting Principles. The Codification became the source of authoritative generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification is nonauthoritative. GAAP is not intended to be changed as a result of this statement, but will change the way the guidance is organized and presented. During the current quarter, the Company has implemented the Codification in the consolidated financial statements by providing references to the Accounting Standards Codification (“ASC”) topics.
3. | INVESTMENT IN INSURANCE POLICIES |
As at 30 November 2009 the Company holds four life insurance policies with carrying amounts of $550,090 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 |
During the quarter ended 30 November 2009 the company declared dividends on its 26,400 (31 August 2009 - 26,400) issued and outstanding preferred stock totaling $16,000 (31 August 2009 - $66,000).
6. | 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 30 November 2009, the policies premiums were up to date and the policies were in good standing.
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7. | 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.
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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 marketing efforts. We will also seek investment partners in order to raise the necessary funds to acquire existing policies on behalf of clients and partners. Such partners include banks, hedge funds, investment funds and sophisticated investors. We will be sourcing new relationships with companies in the sector with the objective of purchasing an ownership in their businesses. Many opportunities are arising as the market place is seeing distress situations of Hedge Funds that need to liquidate life settlement policies and portfolios due to the ongoing financial crisis. MaxLife will review such situations and is open to discussions to determine the opportunities that can be cultivated accordingly.
We have shifted our business structure toward a business model which focuses on acquisition or funding of life policies of individuals on behalf of strategic buyers. MaxLife is looking to generate fees by facilitating such transactions. We are no longer looking to purchase or fund life policies of individuals for our own inventory. Our goal also is to earn fees by administering a large number of policies on behalf of clients and funds and earning a management and performance fee. In this regards, the current inventory of Life Settlement policies that MaxLife owns will also be put up for sale and MaxLife will maintain an performance fee as to future occurrences with such policies.
We will continue to negotiate the sale of certain existing policies currently owned. We have negotiated a Letter of Intent in the first quarter of 2010 to sell certain policies currently owned. We anticipate final closing of this transaction to occur during the second quarter of 2010. This will further enable the company to be properly fund and carry forth its business plan and plan of operations.
We will prepare advertisements and information material to disseminate to our network of brokers with the intention of ramping up purchases of policies for clients and partners. With funds obtained from banks and investment funds we will be in a position to purchase and administer policies and portfolios on their behalf and thereby earn fees for administration and profit participation. We will also look to offer a product which gives investors the security they require in these times and we will charge for our expertise and services of sourcing, buying and monitoring their investments.
The addition of a stronger infrastructure will be required and we intend to hire management personnel and support staff. This will enable us to segregate work responsibilities and meet the ongoing growth of the business. We will be in a position to handle different territories both in Canada and the United States.
Additional financings will be available to us through our relationships and performance. This will enable us to continue with our growth plans. The internal organization will be reviewed to see that it can handle the influx of new business. The administration of the policies will be pertinent and we will have to determine if we have sufficient staff to handle this responsibility.
The management team will be strengthened, if need be, to ensure that shareholder value is maximized and the business plan is being implemented properly.
9
During the previous quarter the Company entered into discussions with an investor and received a term sheet to provide financing arrangements. The Company is currently reviewing this term sheet financing. The Company wishes to raise financing that is most beneficial to shareholders, which is expected in the next quarter or two.
Additional financing is available to the Company through the private placement of preferred share issuances to new and existing investors and shareholders. The Company has developed a financial product, MX-Series and strongly believes revenues will be generated in the next few quarters from setting up Trusts and purchasing policies on behalf of clients and partners, which will be utilized to support its plan of operations and future growth plans.
The Company is committed to enter into financing arrangements that are both beneficial to shareholders and which will strengthen the Company's business operations and opportunity to expand its business.
During the three months ended November 30, 2009 MaxLife has made a concentrated effort to bring to market a financial product that is based on Life Settlement Policies with maximum five year life expectancies. Investors open a Trust that is administered with the assistance of MaxLife. The investor can earn good returns on their Trust that own the Life Settlement Policies over the five year period program. There is available downside protection through a commitment from MaxLife and/or from outside companies. The product description and information is available on the website (www.themxway.com) and by contacting the company.
MaxLife has travelled to countries and met with Pension Funds, Hedge Funds, Insurance Companies and Accredited Investor groups that have been apprised of the life settlement industry and the MX-Series product has been made available to them as a turnkey investment opportunity.
We will continue to focus on these groups that we met during the past year and will pursue new opportunities by making inroads with wealth management groups in additional countries as well.
Results of Operations
Comparative Analysis for the three months ended November 30, 2009 and 2008:
General and administrative expenses for the three months ended November 30, 2009 were $14,476 and $4,356 for the three months ended November 30, 2008. The increase during the three months ended November 30, 2009 was primarily attributable to increases in payments for travel, administrative office expenses and directors and officers insurance incurred in the business operations.
Professional fees for the three months ended November 30, 2009 were $55,540 and 51,394 for the three months ended November 30, 2008. These fees are attributable to legal, accounting, tax, consulting and auditing services. The small increase in professional fees was attributable to the increase in consulting, tax, accounting fees and additional instances of preferred stock dividend payments during the three months ended November 30, 2009.
Stock based compensation for the three months ended November 30, 2009 were Nil and $124,610 for the three months ended November 30, 2008. The decrease in stock based compensation was due to a reduced residual balance for amortization of stock options which commenced in April 2008.
For the three months ended November 30, 2009, we had a net loss of $106,563 and net loss of $213,838 for the three months ended November 30, 2008. The decrease in operating expenses during the three months ended November 30, 2009 was due to lower general and administrative expenses and stock based compensation expenses during the period.
During the three months ended November 30, 2009 and three months ended November 30, 2008, we had no provision for income taxes due to the net operating losses incurred.
Capital Resources and Liquidity
We are still in the process of developing and implementing our business plan and raising additional capital. As such, management is taking action to obtain additional funding.
At November 30, 2009, we had negative working capital of approximately $265,679. It is the intent of management and significant stockholders, if necessary, to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, there is no legal obligation for either management or significant stockholders to provide additional future funding. We have implemented a preferred share unit offering consisting of preferred shares plus warrants. The unit offering will be continued to be offered in order to obtain the financing we require.
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During the last quarter the Company entered into discussions with an investor and received a term sheet to provide financing arrangements. The Company is currently reviewing this term sheet financing. The Company wishes to raise financing that is most beneficial to shareholders, which is expected in the next quarter or two.
Additional financing is available to the Company through the private placement of preferred share issuances to new and existing investors and shareholders. The Company has developed a financial product, MX-Series and strongly believes revenues will be generated within the next few quarters which will be utilized to support its plan of operations and future growth plans.
Management is also negotiating the sale of certain insurance policies currently owned. The sale of these policies will provide additional working capital requirements to the company and will assist is developing and implementing its business plan.
Cash flows from operating activities
Cash flows used in operating activities for the three months ended November 30, 2009 were $51,537 and $103,499 for the three months ended November 30, 2008. The decrease in cash flows used in operating activities was primarily due to an increase in accounts payable during the three months ended November 30, 2009.
Cash flows from investing activities
There were no cash flows used in investing activities for the three months ended November 30, 2009 and for the three months ended November 30, 2008.
Cash flows from financing activities
During the three months ended November 30, 2009, the Company declared quarterly dividends of $0.625 per share annually on its 26,400 issued and outstanding preferred stock totaling $16,500.
We will ensure that shareholder value is maximized, that our business plan is being implemented properly and the Company will be in a position to trade policies and capitalize on their previous purchases.
MaxLife is also reviewing other financing options as lines of credits or asset based loans to coincide with the equity raised.
Critical Accounting Policies
Max Life’s financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Refer to Note 3 of our August 31, 2009 audited financial statement, which summarizes our significant accounting policies. 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 Max Life’s consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.
Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
Investment in Life Insurance Policies
Investment in life insurance policies are recorded in accordance with ASC 325-30, Investments in Insurance Contracts. Under ASC 325-30 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
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(policy premiums and direct external costs, if any) to keep the policy in force shall be capitalized. Under the fair value method, an investor shall recognize the initial investment at the purchase price. In subsequent periods, the investor shall remeasure the investment at fair value in its entirety at each reporting period and shall recognize change in fair value earnings (or other performance indicators for entities that do not report earnings) in the period in which the changes occur. The Company has elected to value its investments in life settlement contracts using the investment method.
Stock Based Compensation
ASC 718 – Stock Compensation 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. ASC 718 – Stock Compensation focuses primarily on accounting for transactions in which an entity obtains employee services in shared-based payment transactions. ASC 718 – Stock Compensation 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.
In June 2009, the FASB approved SFAS No. 168, The FASB Accounting Standards Codification and The Hierarchy of Generally Accepted Accounting Principles. The Codification became the source of authoritative generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification is nonauthoritative. GAAP is not intended to be changed as a result of this statement, but will change the way the guidance is organized and presented. The pronouncement is effective for financial statements issued for interim and annual periods ending after 15 September 2009. We have adopted the new Codification for the current quarter. The adoption did not have a material impact on the Company’s consolidated financial statements.
We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.
We have not made any material changes to our critical accounting estimates or assumptions or the judgments affecting the application of those estimates or assumptions. We discuss our significant accounting policies, including those policies that are not critical, in our Consolidated Financial Statements.
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 President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director (the “Certifying Officer”) we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Certifying Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective. We and our auditors identified material weaknesses discussed below in the Report of management on internal control over financial reporting.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
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(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;
and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement to the Company's annual or interim financial statements will not be prevented or detected.
In the course of management's assessment, we have identified the following material weaknesses in internal control over financial reporting:
- | Segregation of Duties – As a result of limited resources, we did not maintain proper segregation of incompatible duties. Namely the lack of an audit committee, an understaffed financial and accounting function, and the need for additional personnel to prepare and analyze financial information in a timely manner and to allow review and on-going monitoring and enhancement of our controls. The effect of the lack of segregation of duties potentially affects multiple processes and procedures. |
- | Maintenance of Current Accounting Records – This weakness specifically affects the payments and purchase cycle and therefore we failed to maintain effective internal controls over the completeness and cut off of accounts payable, expenses and other capital transactions. |
- | Application of GAAP – We did not maintain effective internal controls relating to the application of generally accepted accounting principles in accounting for transactions in a foreign currency. |
We are in the continuous process of improving our internal control over financial reporting in an effort to eliminate these material weaknesses through improved supervision and training of our staff, but additional effort is needed to fully remedy these deficiencies. Management has engaged a Certified Public Accountant as a consultant to assist with the financial reporting process in an effort to mitigate some of the identified weaknesses. The Company is still in its development stage and intends on hiring the necessary staff to address the weaknesses once full operations have commenced.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended August 31, 2009, filed with the SEC on November 30, 2009.
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
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
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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 | January 14, 2010 |
and Chief Financial Officer, (Principal Accounting Officer ) |