We do not own any real property. On March 16, 2013, we entered into a lease agreement for a term of two years for our offices at 2985 Drew Road, Mississauga, Ontario, Canada. We expect that these offices will be adequate for our needs for the foreseeable future. Our commitment for annual minimum lease payments under our office lease agreement is as follows:
A smaller reporting company is not required to provide the information required by this Item.
Results of Operations for the Years Ended June 30, 2013 and 2012 and for the period from March 4, 2010 (date of inception) through June 30, 2013.
By comparison, during the fiscal year ended June 30, 2012, we generated no revenues and had total expenses and a net loss of $259,219. From our inception on March 4, 2010 through the year ending June 30, 2013, we have generated total revenue of $452,953 and have experienced a net loss since inception of $871,916.
We began the acquisition of our initial portfolio of life settlements on March 15, 2012, when we entered into a Policy Purchase agreement (the “Agreement”) with Universal Settlements International, Inc. (“USI”). Pursuant to the Agreement, we agreed to purchase all right, title, and interest in a portfolio of four (4) life insurance policies for a total purchase price of $570,000. The four policies we agreed to purchase featured death benefits which total $4,500,000.
Under the Agreement, we are required to pay all premiums due under each of the acquired policies until they mature. The Agreement originally required us to deposit the full purchase price of $570,000 on or before April 23, 2012 in order to close our purchase of the four life insurance policies. Under a series of Amendments to the Agreement, the final payment deadline has been extended. Most recently, the Agreement was amended to change the final payment deadline to October 31, 2013.
To date, we have completed the purchase of two of the four policies under the Agreement, and a third policy has matured prior to completion of our purchase, as described above. We must pay $120,000 by October 31, 2013 to complete our purchase the last of the four policies covered by the Agreement.
Estimated premiums to be paid for each of the five succeeding fiscal years to keep all three remaining policies being purchased under the Agreement, as of June 30, 2013, are as follows.
We have yet to achieve profitable operations, have accumulated losses of $871,916 since our inception, and we have no established source of revenue, all of which casts substantial doubt about our ability to continue as a going concern.
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. As of June 30, 2013, we believe that our critical accounting policies consist of the following:
Index to Financial Statements Required by Article 8 of Regulation S-X:
We have audited the accompanying balance sheets of Crown Alliance Capital Ltd. (A Development Stage Company) (the “Company”) as of June 30, 2013 and 2012 and the related statements of operations, stockholders’ equity (deficit) and cash flows for the each of years in the two-year period ended June 30, 2013 and for the period from inception (March 4, 2010) through June 30, 2013. Crown Alliance Capital Ltd.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Crown Alliance Capital Ltd. as of June 30, 2013 and 2012 and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2013 and for the period from inception (March 4, 2010) through June 30, 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
2580 Anthem Village Drive, Henderson, NV 89052 Phone: (702) 563-1600 Fax: (702) 920-8049
for the period from inception (March 4, 2010) to June 30, 2013
Nature of Operations and Ability to Continue as a Going Concern
On June 4, 2010, the Company incorporated a wholly-owned subsidiary, KRC Exploration LLC (“KRC”) in the State of Nevada, United States of America (“USA”) for the purpose of mineral exploration in the USA.
On August 31, 2011, the Company changed its business focus to the development of a portfolio of life settlement policies and sold KRC to the former president.
On March 20, 2013, the Board of Directors approved an increase in the number of authorized common shares of the Company from 90,000,000 to 450,000,000.
On March 15, 2012, the Company entered into its first contract to acquire life settlement policies. The agreement is expected to close on October 31, 2013.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year.
Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available or on acceptable terms, if at all. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are stated in US dollars. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates, which may have been made using careful judgment. Actual results may vary from these estimates.
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. There were no cash equivalents held at June 30, 2013 or June 30, 2012.
The Company adopted FASB ASC Topic 325-30 “Investments in Insurance Contracts” and accounts for life settlement contracts using the investment method. Life settlement contracts will be initially recognized at the transaction price. Any additional costs, such as premiums paid, will be capitalized. In accordance with ASC 230, “Statement of Cash Flows”, cash paid towards acquiring and maintaining life settlement policies will be treated as an investing outflow while the receipt of proceeds over the cash invested will be shown as an operating cash flow with return of investment and premiums shown as investing inflows.
The Company’s functional currency is the United States dollar as substantially all of the Company’s operations are in the USA. The Company uses the United States dollar as its reporting currency for consistency with registrants of the Securities and Exchange Commission (“SEC”).
Property and equipment is stated at the lower of cost or fair value. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected as other income (expense).
The carrying value of long-lived assets is evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable from the estimated undiscounted future cash flows expected to result from its use and eventual disposition. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value as estimated by discounted cash flows. No impairment was recognized in the years ended June 30, 2013 and 2012.
As of June 30, 2013 and 2012 depreciation expense was $8,529 and $2,413, respectively. Additionally, during the year ended June 30, 2013, the Company recognized a loss on the disposal of equipment related to lease hold improvements of $6,279.
The following table summarizes the identifiable assets and liabilities of KRC that were disposed of, the consideration received, and the loss of KRC for the period from July 1, 2011 to August 31, 2011.
Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 - inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
The carrying value of the Company’s financial assets and liabilities which consist of cash, prepaid expenses, accounts payable and accrued liabilities in management’s opinion approximate their fair value due to the short maturity of such instruments. These financial assets and liabilities are valued using level 3 inputs, except for cash which is at level 1. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, exchange, or credit risks arising from these financial instruments.
On August 31, 2011, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Membership Interests and Assumption of Obligations (the “Agreement”), with the former President of the Company. Pursuant to the agreement, the former President of the Company assumed $82,745 of accounts payable, related party notes payable and accrued interest. (Note 5)
The annual base compensation pursuant to the employment agreement is as follows:
The Agreement also allows in addition to the base salary noted above for bonus payments to be made as deemed reasonable at the time by the Board of Directors either as cash, or grants of stock options. On March 26, 2013, the Board of Directors approved and paid a bonus to the president of $35,000.
On June 1, 2010, the Company issued 178,571,500 common shares to the founder pursuant to share subscription agreement at $0.00087 for total proceeds of $15,558.
On October 3, 2011, the Company issued 89,285,750 common shares pursuant to a share subscription agreement at $0.045 per share for total proceeds of $45,000.
On November 11, 2011, the former President of the Company and several shareholders entered into a stock cancellation agreement with the Company whereby 73,571,460 and 41,517,870, common shares respectively, were returned to treasury and cancelled.
Due to the fact that the shares under this agreement have been cancelled without the exchange of consideration to reduce the number of shares outstanding, the Company considered the change in capital structure from the cancellation agreement a reverse stock split. In accordance with SAB Topic 4-C, the Company recorded the cancellation retrospectively as a reduction to the par value of common stock with a corresponding increase to additional paid-in capital.
On January 26, 2012, the Company repurchased and cancelled 89,285,750 common shares of its own stock and in consideration issued a $45,000 promissory note (Note 6).
On May 15, 2012, the Company issued 2,142,855 common shares pursuant to subscription agreements at $0.70 per share for total share proceeds of $300,000.
In August 2012 the Company initiated a non-brokered private placement whereby the Company is offering up to 72,500,000 Stock Units at $0.14 per Unit. Each Unit consists of one share of common stock of the Company and one warrant. Each warrant may be exercised at $0.22 into one common stock of the Company for a period of 48 months subsequent to issuance.
Pursuant to this non-brokered private placement the Company issued 650,000 units on August 8, 2012 and 250,000 units on August 28, 2012 for aggregate gross proceeds of $126,000.
On September 12, 2012, the Company issued 1,525,000 common shares pursuant to subscription agreements at $0.14 per share for total share proceeds of $213,500.
A summary of changes in share purchase warrants for the years ended June 30, 2013 and 2012 is presented below:
As at June 30, 2013, share purchase warrants were outstanding for the purchase of common shares as follows:
The tax years 2013, 2012, 2011 and 2010 remain open to examination by the major taxing jurisdictions in which the Company operates. The Company expects no material changes to unrecognized tax positions within the next twelve months.
On March 16, 2013, the Company entered into a lease agreement for a term of two years commencing April 1, 2013.
As of June 30, 2013, the Company’s commitment for annual minimum future lease payments under office rental agreements are as follows:
On May 14, 2013, the Company entered into a Consultancy agreement with Cara Capital LLC. (“Caro”) which expires on November 14, 2013. Pursuant to the agreement the Company receive consultancy services with respect to investor relations, sourcing financing and introducing the Company to investment managers and analysts. As compensation for services rendered the Company will issue Caro 2,000,000 common shares with a fair value of $1,320,000 for proceeds of $2,000 which is being amortised over the period of the Contract. Additionally, the Company will also pay a monthly retainer of $2,000 during the term of the agreement. The contract can be terminated by either party upon delivery of 30 days written notice of termination.
On December 28, 2012, the Company acquired the second life settlement policy pursuant to the above agreement. The face value of the policy is for $2,000,000 with a remaining life of 3.75 years. As of June 30, 2013, the carrying value of the policy is $462,076.
During January 2013, one life settlement policy which the Company had not formally acquired matured upon the death of the insured. The Company received proceeds equal to one half of the net proceeds less acquisition costs paid by Universal Settlements International Inc. aggregating $452,923. At Maturity the Company had capitalized into life settlement premiums paid an amount of $83,715 in respect of this policy.
The Company evaluates the carrying value of their investment in life settlement policies on a regular basis and adjusts their total basis in the policies using new or updated information that
affects their assumptions about remaining life expectancy, credit worthiness of the policy issuer, funds needed to maintain the asset until maturity, discount rates and potential return.
Estimated premiums to be paid for each of the five succeeding fiscal years to keep all three remaining policies in force as June 30, 2013, are as follows.
On April 27, 2012, the Company amended the original life settlement contract to extend the $570,000 payable due date to May 10, 2012, the contract was further amended on May 23, 2012 to extend the $570,000 payable due date to September 17, 2012, and on September 24, 2012, the contract was amended again to extend the $570,000 payable due date to October 17 2012. On April 18, 2012 the contract was further amended to extend the contract due date for the remaining amount payable to June 28, 2013. On July 18, 2013, the contract was amended to extend the contract due date to September 30, 2013. The contract was further amended on September 30, 2013 to extend the remaining amount payable to October 31, 2013.
As of June 30, 2013, the Company has paid a total of $325,000 towards the $445,000 payable and amended the contract to extend the due date for the remaining payable of $120,000 to October 31, 2013.