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: June 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)
Florida 16-1628844
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2015-A Osborne Rd.
St. Marys, Georgia 31558
(Address of principal executive offices)
(912) 882-8851
(Issuer's telephone number)
AmeriFirst Fund I, LLC
(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 |_|
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 August 12, 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. 4, which was declared effective
on May 4, 2004)
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 June 30, 2005 (Unaudited) 1
Condensed Statements of Operations and Member's (Deficiency) Equity
(Unaudited) for the Three and Six Months Ended June 30, 2005 and 2004 and 2
Cumulative from April 22, 2002 (Inception) through June 30, 2005
Condensed Statements of Cash Flows (Unaudited) for the Six Months Ended
June 30, 2005 and 2004 and Cumulative from April 22, 2002 (Inception)
through June 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
Signatures 10
Exhibits
31 Certification of principal executive officer and principal financial
officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32 Certification of principal executive officer and 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
June 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Cash $ 203
--------
TOTAL ASSETS $ 203
========
LIABILITIES AND MEMBER'S DEFICIENCY
Accrued expenses $ 46,334
--------
COMMITMENTS AND CONTINGENCIES
Member's Deficiency
Deficit Accumulated During the Development Stage (46,131)
--------
TOTAL LIABILITIES AND MEMBER'S DEFICIENCY
$ 203
========
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 Six Months Six Months (Inception)
Ended Ended Ended Ended through
June 30, June 30, June 30, June 30, June 30,
2005 2004 2005 2004 2005
---- ---- ---- ---- ----
Revenues from Policies Held in Trust $ -- $ -- $ -- $ -- $ --
Expenses 52,942 23,793 52,044 59,331 268,382
Impairment Charge -- -- -- -- 342,661
--------- --------- --------- --------- ---------
NET LOSS (52,942) (23,793) (52,044) (59,331) (611,043)
MEMBER'S (DEFICIENCY) EQUITY
- - Beginning (15,413) 295,022 (43,256) 315,434 --
Contributions of Capital 22,224 25,049 49,169 40,175 564,912
--------- --------- --------- --------- ---------
MEMBER'S (DEFICIENCY) EQUITY
- - Ending $ (46,131) $ 296,278 $ (46,131) $ 296,278 $ (46,131)
========= ========= ========= ========= =========
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
Six Months Six Months from April 22, 2002
Ended Ended (Inception) through
June 30, 2005 June 30, 2004 June 30, 2005
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (52,044) $ (59,331) $(611,043)
Changes in operating asset and liabilities:
Accrued Expenses 2,825 33,697 46,334
--------- --------- ---------
NET CASH USED IN OPERATING
ACTIVITIES (49,219) (25,634) (564,709)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions of Capital 49,168 42,260 564,912
Deferred offering costs -- (16,152) --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES
49,168 26,108 564,912
NET (DECREASE) INCREASE IN CASH
(51) 474 203
CASH - Beginning 254 -- --
--------- --------- ---------
CASH - Ending $ 203 $ 474 $ 203
========= ========= =========
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 (formerly known as AmeriFirst Fund I, 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 August 12, 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 October 17,
2005, except if extended for an additional six months until April 17, 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 $564,912 through June 30, 2005. During the six
months ended June 30, 2005, the Fund received $49,169 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
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 six and
three months ended June 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 August 12, 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 June 30, 2005, the Fund had $203 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 $46,334 as of June 30, 2005, primarily
consisting of professional fees. As a result of the foregoing, the Fund had
total liabilities and member's deficiency of $203 at June 30, 2005.
6
Total contributed capital from April 22, 2002 (Inception) through June 30, 2005,
was $564,912. 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
August 12, 2005, our Manager, Provider and their affiliate, AmeriFirst, Inc.,
employed a total of 11 persons, including John Tooke, a senior software
architect, in-house legal staff, accounting staff, insurance review, insurance
analyst, policy administration, computer and data 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 in a server system and whatever else is needed to
operate. 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 of the Offering and other affiliates, 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, including our Manager's
principal executive officer and principal financial officer, concluded that the
Fund's disclosure controls and procedures were effective, in all material
respects, to ensure that the information required to be disclosed in the reports
the Fund files and submits under the Exchange Act is recorded, processed,
summarized and reported as and when required.
There have been no significant changes (including corrective actions with
regards to significant deficiencies and material weaknesses) in the Fund's
internal controls or in other factors subsequent to the date the Fund carried
out its evaluation that could significantly affect these controls.
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 May 4, 2004, Post-Effective Amendment No. 4 to the
Registration Statement was declared effective with the SEC and the Offering is
being made pursuant to the final Prospectus dated May 4, 2004. 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 August 12, 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 October 17, 2005, unless
extended until April 17, 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
June 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* Certification of principal executive officer
and principal financial officer pursuant
to Rule 13a-14(a) or Rule 15d-14(a).
32* Certification of principal executive officer
and 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: August 15, 2005 Capital Benefits, LLC
By: AmeriFirst Financial Services,
Inc., its Manager
/s/ Brittany M. Ellis
---------------------
Brittany M. Ellis
President
10