UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____.
Commission file number: 333-98651*
Capital Benefits, LLC
(Exact name of small business issuer as specified in its charter)
Georgia 16-1628844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2015-A Osborne Rd.
St. Marys, Georgia 31558
(Address of principal executive offices)
(912) 882-8851
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) after the distribution of securities under a
plan confirmed by a court. Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: There were no units of membership
interest of the registrant outstanding as of November 30, 2005.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
*Registration Statement on Form S-1 was first declared effective on May 14,
2003, as amended by Post Effective Amendment No. 5, which was declared effective
on November 23, 2005.
CAPITAL BENEFITS, LLC
Formerly AmeriFirst Fund I, LLC
(A Development Stage Company)
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet as of September 30, 2005 (Unaudited) 1
Condensed Statements of Operations and Member's
(Deficiency) Equity
(Unaudited) for the Three and Nine Months Ended
September 30, 2005 and 2004
And Cumulative from April 22, 2002 (Inception) through
September 30, 2005 2
Condensed Statements of Cash Flows (Unaudited) for
the Nine Months Ended September 30, 2005 and 2004 and
Cumulative from April 22, 2002 (Inception) through
September 30, 2005 3
Notes to Condensed Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 6
Item 3. Controls and Procedures 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 8
Item 6. Exhibits 9
Special Introductory Note
Review of 2005 Comparative Information.
The accompanying unaudited condensed financial statements for 2005 have not
prior to this filing been reviewed by an independent registered public
accounting firm as required by the SEC.
Signature 10
Exhibits
31.1 Certification of principal executive officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a).
31.2 Certification of principal financial officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a).
32.1 Certification of principal executive officer pursuant to Section 1350 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of principal financial officer pursuant to Section 1350 of
the Sarbanes-Oxley Act of 2002.
-i-
CAPITAL BENEFITS, LLC
Formerly AmeriFirst Fund I, LLC
(A Development Stage Company)
CONDENSED BALANCE SHEET
September 30, 2005 (Unaudited)
ASSETS
Cash $ 1,471
--------
TOTAL ASSETS $ 1,471
========
LIABILITIES AND MEMBER'S DEFICIENCY
Accrued expenses $ 15,684
--------
COMMITMENTS AND CONTINGENCIES
Member's Deficiency
Deficit Accumulated During the Development Stage (14,213)
--------
TOTAL LIABILITIES AND MEMBER'S DEFICIENCY
$ 1,471
========
See notes to condensed financial statements.
1
CAPITAL BENEFITS, LLC
Formerly AmeriFirst Fund I, LLC
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
AND MEMBER'S (DEFICIENCY) EQUITY
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
Cumulative
from April 22,
2002
Three Months Three Months Nine Months Nine Months (Inception)
Ended Ended Ended Ended through
Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2005 2004 2005
---- ---- ---- ---- ----
Revenues from Policies Held in Trust $ -- $ -- $ -- $ -- $ --
Expenses 918 4,822 51,126 64,152 267,463
Impairment Charge -- -- -- -- 342,661
--------- --------- --------- --------- ---------
NET LOSS (918) ( 4,822) (51,126) (64,152) (610,124)
MEMBER'S (DEFICIENCY) EQUITY
- - Beginning (46,131) 296,278 (43,256) 315,434 --
Contributions of Capital 31,000 31,000 80,169 71,175 595,912
--------- --------- --------- --------- ---------
MEMBER'S (DEFICIENCY) EQUITY
- - Ending $ (14,213) $ 322,457 $ (14,213) $ 322,457 $ (14,213)
========= ========= ========= ========= =========
See notes to condensed financial statements.
2
CAPITAL BENEFITS, LLC
Formerly AmeriFirst Fund I, LLC
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------
Cumulative
Nine Months Nine Months from April 22, 2002
Ended Ended (Inception) through
Sept 30, 2005 Sept 30, 2004 Sept 30, 2005
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (51,126) $ (64,152) $(610,124)
Changes in operating asset and liabilities:
Accrued Expenses (27,572) 9,129 46,334
--------- --------- ---------
NET CASH USED IN OPERATING
ACTIVITIES (78,698) (55,023) (563,790)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions of Capital 80,169 71,175 595,912
Deferred offering costs -- (16,152) --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES
80,169 55,023 595,912
NET (DECREASE) INCREASE IN CASH
1,217 -- 1,471
CASH - Beginning 254 -- --
--------- --------- ---------
CASH - Ending $ 1,471 $ -- $ 1,471
========= ========= =========
Non Cash Investing and Financing Activities
On February 13, 2003, the Fund converted $218,100 due to a related party to
contributed capital pursuant to an expense agreement (See Note 2).
See notes to condensed financial statements.
3
CAPITAL BENEFITS, LLC
Formerly AmeriFirst Fund I, LLC
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - Formation, Nature of Business, and Management Plans
Capital Benefits, LLC (referred to as the "Fund") was organized on April 22,
2002 to offer units in a securitized pool of life insurance policies. The Fund
will provide living benefits to medically impaired persons of all ages and
senior citizens, age 65 and older with life expectancies based solely on
actuarial tables in exchange for ownership of their life insurance policies. A
life settlement is the payment of cash in return for an assignment of ownership
or beneficial interest in and the right to receive the face value of a life
insurance policy. The Fund will purchase life insurance policies from Asset
Settlement Group, Inc., formerly AmeriFirst Funding Group, Inc. (the
"Provider"), a related party. The Provider will assign and/or transfer
beneficial interest to the Fund.
The Provider will originate policy purchases directly from the insured if
licensed as a broker, through other providers, or through an unaffiliated broker
network and transfer ownership or irrevocable beneficial interest to the Fund.
In addition, the Fund's principal offices will be located at the principal
offices of the Provider.
The Fund's Manager, AmeriFirst Financial Services, Inc. (the "Manager"), along
with the Provider or other licensed providers, will determine the amount paid
for an insurance policy based on various factors, including the estimated life
expectancy of the insured, the estimated premiums payable under the policy over
the expected life of the insured and certain other costs of the life settlement.
The Fund's existence ends on December 31, 2027, unless liquidated sooner.
The Fund has not commenced principal operations as of November 30, 2005. The
Fund will be offering and selling to the public a minimum of 2,500 units and up
to a maximum of 100,000 units at $1,000 per unit, with an initial minimum
investment of 100 units (the "Offering"). The units are being offered on a "best
efforts" basis by AmeriFirst Capital Corp., an affiliate of the Manager and
Provider. The proceeds of the Offering will be held in escrow with a bank until
the $2,500,000 minimum amount is received. If the minimum amount is not received
by June 1, 2006, except if extended for an additional six months until December
1, 2006, then all subscription amounts (including interest), will be returned to
all subscribers. These factors raise substantial doubt as to the Fund's ability
to continue as a going concern. The ability of the Fund to continue as a going
concern is dependent upon the success of the Fund to raise the $2,500,000
minimum subscription amount needed within the specified time pursuant to the
Fund's operating agreement. The financial statements do not include any
adjustments that might be necessary should the Fund be unable to continue as a
going concern.
NOTE 2 - Related Party Transactions
On February 13, 2003, the Fund and AmeriFirst, Inc. ("AmeriFirst, Inc.") entered
into an expense agreement, as restated on December 23, 2003 (the "Agreement").
Such Agreement provides that the Fund is not required to repay amounts due to
AmeriFirst, Inc. arising from expenses incurred on its behalf by AmeriFirst,
Inc., or for services rendered by AmeriFirst, Inc. to the Fund through the date
of the Agreement. In addition, AmeriFirst, Inc. will not charge the Fund for
expenses incurred on its behalf by AmeriFirst, Inc. for services rendered to the
Fund subsequent to February 13, 2003.
4
The Fund recorded the cumulative effect of this Agreement as a contribution to
capital which has aggregated to $595,912 through September 30, 2005. During the
nine months ended September 30, 2005, the Fund received $80,169 of contribution
from AmeriFirst, Inc. for organizational costs, offering expenses and deferred
offering costs incurred by the Fund. The Fund recorded the monies received as
contributed capital.
NOTE 3 - Basis of Presentation
The accompanying unaudited condensed financial statements for 2005 have not
prior to this filing been reviewed by an independent registered public
accounting firm as required by the SEC. Our accompanying unaudited condensed
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results of the interim periods
presented. All such adjustments are of a normal recurring nature. The results of
operations for the three and nine months ended September 30, 2005 are not
necessarily indicative of the results that may be expected for any other interim
period or the full year. The condensed financial statements should be read in
conjunction with the notes to the financial statements and in conjunction with
the Fund's audited financial statements for the year ended December 31, 2004,
which are included in the Fund's annual report on Form 10-KSB for the year ended
December 31, 2004. The accounting policies used to prepare the condensed
financial statements are consistent with those described in the December 31,
2004 financial statements.
5
Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward Looking Statements
Statements in this Item 2 "Management's Discussion and Analysis or Plan of
Operation" and elsewhere in this report are certain statements which are not
historical or current fact and constitute "forward-looking statements" within
the meaning of such term in Section 27A of the Securities Act of l933 and
Section 21E of the Securities Act of l934. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that could
cause the actual financial or operating results of Capital Benefits, LLC (the
"Fund") to be materially different from the historical results or from any
future results expressed or implied by such forward-looking statements. Such
forward looking statements are based on our best estimates of future results,
performance or achievements, based on current conditions and our most recent
results. In addition to statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled with the terms
"may", "will", "potential", "opportunity", "believes", "belief", "expects",
"intends", "estimates", "anticipates" or "plans" to be uncertain and forward-
looking. The forward-looking statements contained herein are also subject
generally to other risks and uncertainties that are described from time to time
in the reports and registration statements of the Fund filed with the Securities
and Exchange Commission.
Background
Capital Benefits, LLC, formerly known as AmeriFirst Fund I, LLC ("we", "us",
"our" or the "Fund") was formed in the State of Delaware in April 2002 and
reincorporated in Florida in September 2002 as a Florida limited liability
company. The Fund was formed solely for the restricted, limited purpose of
purchasing life insurance policies at a discount to face value from medically
impaired persons of all ages, and senior citizens, age 65 and older with
estimated life expectancies based solely on actuarial tables, to create a pool
of life insurance policies. We are offering a minimum of 2,500 units and up to a
maximum of 100,000 units at $1,000 per unit (the "Offering"). Each member of the
Fund is entitled to his or her proportionate beneficial interest in the income
to be generated from the life insurance policies. As of November 30, 2005, the
Fund has not begun its operations. Set forth below is the Fund's plan of
operation for the next twelve months in lieu of a discussion and analysis of the
financial condition and results of operations of the Fund.
Twelve Month Plan of Operation
As of September 30, 2005, the Fund had $1,471 of assets. At December 31, 2004,
the Fund determined that the deferred offering costs of $342,661 had no future
benefit and accordingly, the Fund wrote off the deferred offering costs, which
is shown as an impairment on the statement of operations in the Fund's Annual
Report on Form 10-KSB for its fiscal year ended December 31, 2004.
Total liabilities of $218,100 as of September 30, 2002, owed by the Fund for
organizational and offering expenses to AmeriFirst, Inc. ("AmeriFirst, Inc"),
the holding company controlled by John Tooke, were forgiven by AmeriFirst, Inc.
on February 13, 2003, and recorded as contributed capital. This occurred
pursuant to the Expense Agreement under which AmeriFirst, Inc. agreed to pay at
its own expense, all organizational and offering expenses of the Offering
including without limitation, legal and accounting expenses, photocopy costs,
selling expenses, and filing fees paid to the SEC and state securities
commissions. Accordingly, the Fund will receive all proceeds from the Offering.
The Fund had total liabilities of $15,684 as of September 30, 2005, consisting
primarily of professional fees. As a result of the foregoing, the Fund had total
liabilities and member's deficiency of $1,471 at September 30, 2005.
6
Total contributed capital from April 22, 2002 (Inception) through September 30,
2005, was $595,912. During the next 12 months, if we raise at least $2,500,000,
we plan to purchase a pool of life insurance policies, created by the purchase
of insurance policies at a discount from the face amount of the policies from
medically impaired persons of all ages, and senior citizens, age 65 and older
with estimated life expectancies based solely on actuarial tables. Upon raising
$2.5 million and the release of such funds from escrow, our Manager will
purchase a pool of life insurance policies.
Our auditors have included an explanatory paragraph in their report dated April
5, 2005, a copy which is included in the Fund's Annual Report on Form 10-KSB for
its fiscal year ended December 31, 2004, which disclosed that there is
substantial doubt as to the Fund's ability to continue as a going concern. The
ability of the Fund to continue as a going concern is dependent upon the success
of the Fund to raise the $2,500,000 minimum subscription needed within the
specified time pursuant to the Fund's operating agreement. The financial
statements do not include any disclosures that might be necessary should the
Fund be unable to continue as a going concern.
John Tooke, Chief Executive Officer and controlling shareholder of our
underwriter, AmeriFirst Capital Corp. (the "Underwriter") and controlling
shareholder of our manager, AmeriFirst Financial Services, Inc. (the "Manager")
and our provider, Asset Settlement Group, Inc. (the "Provider"), has extensive
experience in investment banking and selling mortgage backed securities.
Although he has no actual experience in purchasing life settlement policies, he
has researched the life settlements industry since at least April, 2001 and
conducted all organizational activities necessary for the Fund. Our Manager
intends to service the insurance policies with experienced employees it has
hired, as described below. However, our Manager may outsource any or all of the
non-financial services of servicing the life insurance policies to an
unaffiliated third party servicer to assist us in reviewing each policy, closing
the purchases of such policies, monitoring life status of the insureds and
filing death benefit claims. Our Manager has entered into agreements with four
unaffiliated organizations to conduct its medical due diligence review to
determine estimated life expectancies and with one of such companies to track
the status of the insured. Neither the Fund nor our Manager, Provider or
Underwriter has entered into any other arrangements, agreements or
understandings with any third parties to act as our servicer. If it did enter
into such an agreement, the Fund would be dependent upon the services of third
parties for its overall success.
We do not anticipate hiring any employees or acquiring any fixed assets such as
office equipment or furniture, or incurring material office expenses during the
next twelve (12) months since we will be utilizing the personnel and office
equipment of our Manager, Provider and their affiliate, AmeriFirst, Inc. As of
November 30, 2005, our Manager, Provider and their affiliate, AmeriFirst, Inc.,
employed a total of 12 persons, including John Tooke, a software developer,
executive assistant, in-house legal staff, accounting staff, insurance review,
insurance analyst, medical review, policy administration, computer and data
processing personnel, customer service, medical administration and
administrative assistants. For purposes of calculating the foregoing number of
aggregate employees of our Underwriter and AmeriFirst, Inc., John Tooke, an
employee of each of our Underwriter and AmeriFirst, Inc., was regarded as one
employee.
Our Manager, Provider, Underwriter and AmeriFirst, Inc., together, occupy
approximately 4,726 square feet of office space in St. Mary's, Georgia. This
facility is equipped with office furniture, telephones, fax machines, photo
copiers, multiple computers and a server system and other equipment necessary to
operate the Fund. The fees which we will pay our Manager as compensation will be
in lieu of all other payments for operating expenses.
7
The Fund has not committed itself to purchase any life insurance policies, and
has not entered into any arrangements or other transactions other than with our
Underwriter and four unaffiliated medical review service companies, the latter
of which are terminable without penalty after 90 days. We do not intend to incur
any indebtedness at the commencement of our operations, although we may later
establish a line of credit for future use.
Critical Accounting Policy
Recognition for Purchased Life Insurance Policies
We will record our investment in life insurance policies pursuant to Financial
Accounting Standards Board Technical Bulletin 85-4 "Accounting for Purchases of
Life Insurance" ("FTB85-4"). FTB 85-4 requires the amount to be realized (the
policy's cash surrender value) under the insurance contract to be recorded as an
asset.
The change in cash surrender value during the period will be recorded as an
adjustment of premiums paid in determining the expenses or income to be
recognized for the period.
The purchase price for life insurance policies (which includes all related
acquisition costs) is expected to be higher than the cash surrender value. We
will record the cash surrender value of the policy as an asset and not the
amount of cash invested in such policy. This accounting policy will have a
negative effect on our balance sheet and an operating loss will be recorded on
the initial purchase of the policy. We expect operating losses during the early
life of the Fund until the benefits under such policies become payable. This
accounting policy should have no effect on the Fund's cash flows and estimated
rate of return per individual insurance policy.
Item 3. Controls and Procedures
As of the end of the period covered by this report, the Fund's management,
including our Manager's principal executive officer and principal financial
officer, evaluated the effectiveness of the design of the Fund's disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934. Based on that evaluation, the Fund's management
concluded that the Fund's disclosure controls and procedures were effective to
ensure that the information required to be disclosed in the reports the Fund
files or submits under the Exchange Act is recorded, processed, summarized and
reported as and when required.
The Fund's management, including our Manager's principal executive officer and
principal financial officer, evaluated whether any change in the Fund's internal
control over financial reporting occurred during its third quarter of fiscal
2005. Based on that evaluation, the Fund's management concluded that there has
been no change in the Fund's internal control over financial reporting during
its third quarter of fiscal 2005 that has materially affected, or is reasonably
likely to materially affect, the Fund's internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On May 14, 2003, our Registration Statement on Form S-1 (Registration No.:
333-98651), as amended, was initially declared effective with the Securities and
Exchange Commission ("SEC") for the initial public offering of up to a maximum
of 100,000 units of ownership interest in the Fund at $1,000 per unit
8
for an aggregate purchase price of $100,000,000. The Offering commenced on or
about May 14, 2003. On November 23, 2005, Post-Effective Amendment No. 5 to the
Registration Statement was declared effective with the SEC and the Offering is
being made pursuant to the final Prospectus dated November 23, 2005. Our
Underwriter, AmeriFirst Capital Corp., an NASD licensed broker-dealer, who is
also an affiliate of our Manager, is offering and selling the units, but it may
also engage other NASD broker-dealers and foreign dealers not licensed with the
NASD, provided such foreign dealers are in compliance with their respective
country's laws, to sell our units. As of November 30, 2005, no units have been
sold.
The proceeds of the Offering will be held in an interest bearing escrow account
with Wachovia Bank, National Association until we raise a minimum of $2,500,000.
We must receive the $2,500,000 minimum offering by June 1, 2006, unless extended
until December 1, 2006, before we can commence our principal operations and
purchase life insurance policies. The gross proceeds of the Offering will be
used to purchase life insurance policies for less than the face amount of the
policy, pay the referring broker's fee, establish a premium escrow account to
make premium payments on the policies and the balance to pay for all services
required in connection with the policies, including all related fees and all
sales commissions on the units offered in the Offering. Funds that have not yet
been used to make or acquire life insurance policies will be deposited in an
interest bearing operating escrow account. Investors will be entitled to a
pro-rata share of the short-term interest earned in the operating escrow
account.
AmeriFirst, Inc., the holding company controlled by John Tooke, has agreed
pursuant to an Expense Agreement dated February 13, 2003, as restated on
December 23, 2003, to pay at its own expense all organizational and offering
expenses of the Offering including without limitation, legal and accounting
expenses, photocopy costs, selling expenses, and filing fees paid to the
Securities and Exchange Commission and state securities commissions.
From May 14, 2003, the initial effective date of the registration statement, to
September 30, 2005, an aggregate of approximately $166,000 in expenses were
incurred on the account of the Fund in connection with the registration
statement for the sale of the units.
Item 6. Exhibits.
(a) Exhibits.
Exhibit Number Description
- -------------- -----------
*31.1 Certification of principal executive officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a).
*31.2 Certification of principal financial officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a).
*32.1 Certification of principal executive officer pursuant to
Section 1350 of the Sarbanes-Oxley Act of 2002.
*32.2 Certification of principal financial officer pursuant to
Section 1350 of the Sarbanes-Oxley Act of 2002.
- ----------
* Filed with this report
9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: December 1, 2005 Capital Benefits, LLC
By: AmeriFirst Financial Services,
Inc., its Manager
/s/ Brittany M. Ellis
-----------------------------------
Brittany M. Ellis
President
10