The primary operating business of Amalphis is Allied Provident Insurance, an insurance company established in November 2007. Allied Provident Insurance, Inc. holds an insurance license in Barbados and is authorized to conduct a general insurance business, including the sale of property, general liability, business interruption and political risk insurance, as well as compensation bonds, directors and officers insurance, errors and omissions insurance, structured transactions insurance wraps, and reinsurance.
For the year ended December 31, 2009, Amalphis generated total revenue of $25,807,163 including earned premiums of $12,363,110, net investment gain of $13,373,060, interest income of $70,993. After giving effect to incurred losses of $8,671,297 (policy claims), the Company produced net income of $14,023,734. As a result of the Company’s financial performance during the period, as of December 31, 2009, the total shareholders’ equity of Allied Provident had increased to approximately $57,700,000.
Amalphis shall not acquire the securities or assets of any other person, firm or corporation.
On May 14, 2009, pursuant to the terms of a preferred stock purchase agreement dated as of April 30, 2009 (the “Preferred Stock Purchase Agreement”), Rineon sold an aggregate of 36,000 shares of its Series A convertible preferred stock (the “Series A Preferred Stock”) to Intigy Absolute Return Ltd., (“Intigy”) for a purchase price of $36,000,000, or $1,000 per share of Series A Preferred Stock.
has a stated or liquidation value of $1,000 per share (the “Stated Value”);
o shall be convertible at any time or from time to time into shares of Rineon Common Stock, at a conversion price per shares equal to 100% of the VWAP per share of Rineon Common Stock, as traded on any National Securities Exchange, for the twenty (20) Trading Days immediately prior to the date notice of conversion is given by the holders; provided, however, that the maximum number of shares of Rineon Common Stock that may be owned of record or beneficially at any point in time by any one holder of the Series A Preferred Stock (whether upon conversion(s) of Series A Preferred Stock, open market purchases, other purchases of Rineon Common Stock, or any combination of the foregoing) shall not exceed an aggregate of 4.95% of the outstanding shares of Rineon Common Stock; and
On May 14, 2009, pursuant to the terms of a stock purchase agreement, dated as of May 14, 2009, Rineon acquired 81.5% of the outstanding shares of Amalphis, on a fully diluted basis, for a total consideration of $36,000,000. Rineon purchased Amalphis’ Class A Preferred Shares which has a liquidation preference of $1,000 per share, is non-voting, may not be converted into Amalphis common stock, and participates with the common stock in the payment of any dividends by Amalphis.
SFAS No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. Through December 31, 2009, except for the net losses, the Company has had no items that represent comprehensive income (loss) and, therefore, has not included a schedule of comprehensive income (loss) in the financial statements.
At December 31, 2009 and 2008, a full deferred tax asset valuation allowance has been provided and no deferred tax asset has been recorded.
The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with SFAS No. 52 “Foreign Currency Translation”, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Income from operations was $14,023,734 and minority interest was $2,594,391 resulting in net income of $11,429,343.
Income from operations was $5,833,870 before minority interest of $1,079,266 resulting in net income of $4,754,604.
On December 31, 2009, the Company had cash of $195,732 and a working capital deficit of $48,209. The Company does not believe that it requires additional working capital or capital resources to meet its strategic goals.
Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary
In November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for Defensive Intangible Assets.” EITF No. 08-7 clarifies how to account for defensive intangible assets subsequent to initial measurement. EITF No. 08-7 applies to all defensive intangible assets except for intangible assets that are used in research and development activities. EITF No. 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the impact of EITF No. 08-7 on its consolidated financial position and results of operations.
Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement
In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The FSP requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. The FSP requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our consolidated statement of operations. The FSP requires retrospective application to the terms of instruments as they existed for all periods presented. The FSP is effective for fiscal years beginning after December 15, 2008 and early adoption is not permitted. The Company is currently evaluating the potential impact of FSP APB 14-1 upon its consolidated financial statements.
In February 2008, the FASB issued FSP FAS No. 157-2, “Effective Date of FASB Statement No. 157”. This FSP delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material to the Company’s consolidated financial condition or results of operations.
This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and may not be applied before that date. The Company is unable at this time to determine the effect that its adoption of SFAS No. 141(R) will have on its consolidated results of operations and financial condition.
Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51
As previously reported by the Company on Form 8-K filed with the Securities and Exchange Commission on May 14, 2009 (the “Form 8-K”), on May 14, 2009 the Company entered into a preferred stock purchase agreement dated as of April 30, 2009 (the “Preferred Stock Purchase Agreement”) under which the Company sold an aggregate of 36,000 shares of its Series A convertible preferred stock (the “Series A Preferred Stock”) to Intigy Absolute Return Ltd., a British Virgin Islands corporation (“Intigy”), for a purchase price of $36,000,000, or $1,000 per share of Series A $.001 Par Value Preferred Stock. In addition, pursuant to the terms of a stock purchase agreement dated as of May 14, 2009, Rineon agreed to acquire 1,985,834 shares of Amalphis from NatProv Holdings Inc (“NatProv”) for a total consideration of $36,000,000. Of the 2,437,500 shares of Amalphis held by NatProv, 1,985,834 were converted into Class A Preferred non-voting shares, which were then assigned by NatProv to Rineon. As a result, NatProv now owns 451,666 Common Shares of Amalphis, representing 100% of the voting shares of Amalphis, and Rineon owns 1,985,834 of Amalphis’ Class A Preferred Shares which have the same rights and privileges as the common shares except that they have a liquidation preference and no voting rights. Amalphis’ Class A Preferred Shares are not convertible into Common Shares.
The consolidated financial statements include the accounts of Amalphis Group Inc. and its wholly owned subsidiary, Allied Provident, Inc. All material intercompany accounts and transactions are eliminated in consolidation.
The Company recognizes revenue in accordance with ASC 605 Revenue Recognition which established that revenue can be recognized when persuasive evidence of an arrangement exists, the product has been shipped, all significant contractual obligations have been satisfied and collection is reasonably assured.
Realized and unrealized gains and losses - Gains and losses on the sale of investments are calculated as the difference between net sale proceeds and the cost basis and are recorded as revenue upon occurrence of the sale transaction.
Interest income - Interest income is generated from the Company’s investment portfolio. Interest income is recognized as revenue as it is earned.
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are defined to include cash on hand and cash in the bank.
Insurance contracts are defined as those containing significant insurance risk at the inception of the contract or those where, at the inception of the contract, there is a scenario with commercial substance where the level of insurance risk may be significant. The significant insurance risk is dependent upon both the probability of an insured event and the magnitude of its potential effect.
Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during the period.
For investments that are actively traded in organized financial markets, fair value is determined by reference to stock exchange bid market prices at the close of business on the balance sheet date.
All marketable security transactions are recognized on the trade date. Fair value and realized gains and losses adjustments are recorded in the statement of operations.
Insurance premium receivable consist of amounts due in connections with its written policies. The balance as of December 31, 2009 and 2008 was $4,875,112 and $3,276,725, respectively.
The liabilities for unpaid claims and claim adjustment expenses are based on the estimated ultimate cost of settling the claims, including the effects of inflation and other societal and economic factors. These liabilities are subjected to independent actuarial review by internationally recognized actuarial company and represent the values over a range of actuarially determined expected outcomes. All estimates are calculated gross in respect to time value of money and are net of salvage and subrogation.
There are no liabilities for unpaid claims and claim adjustment expenses relating to short term duration contracts that are presented at present value. No interest rate is set for use in the discount of liabilities for unpaid claims and claims adjustment expenses relating to short term duration contracts.
Acquisition costs are expensed as premium is earned. Due to the short term nature of the business underwritten, no significant amount of deferred acquisition costs results and, therefore, amounts incurred are expensed. Any deferred acquisition costs are accounted for as a net amount in unearned premium reserve.
The fair value of a financial instrument is the amount that would be received to see an asset or amount paid to transfer a liability in a current transaction between market participants, other than in a forced sale or liquidation, at the measurement date. The carrying amounts of financial instruments, including cash, accounts payable and accrued expenses approximate fair value because of the relatively short maturity of the instruments.
dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of December 31,2009, there were no potential dilutive instruments that could result in share dilution.
In September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures - Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this Update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
In December 2009, the FASB has published ASU 2009-16 “Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets.” ASU No. 2009-16 is a revision to ASC 860, “Transfers and Servicing,” and amends the guidance on accounting for transfers of financial assets, including securitization transactions, where entities have continued exposure to risks related to transferred financial assets. ASU No. 2009-16 also expands the disclosure requirements for such transactions. This ASU will become effective for us on April 1, 2010. The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.
In December 2009, the FASB has published ASU 2009-17 “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 amends the guidance for consolidation of VIEs primarily related to the determination of the primary beneficiary of the VIE. The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.
The Company records fair value of monetary and nonmonetary instruments in accordance with ASC 820 Fair Value Measurements and Disclosures. The ASC establishes a framework for measuring fair value, establishes a fair value hierarchy based on inputs used to measure fair value, and expands disclosure about fair value measurements. Adopting this statement has not had an effect on the Company’s financial condition, cash flows, or results of operations.
Level 2: Inputs (other than quoted prices included within Level 1) that are observable for the instrument either directly or indirectly (e.g., certain corporate and municipal bonds and certain preferred stocks). This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments, and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means.
The composition of the investment portfolio as of December 31, 2009 was:
The composition of the investment portfolio as of December 31, 2008 was:
During each valuation period, internal estimations of portfolio valuation (performance returns) are created based on current market-related activity (i.e., interest rate and credit spread movements and other credit-related factors) within each major sector of our portfolio. Internally generated portfolio results are compared with those generated based on quotes we received externally and research material valuation differences.
Based on the criteria described above, the Company believes that the current level classifications are appropriate based on the valuation techniques used and that our fair values accurately reflect current market assumptions in the aggregate.
The Company’s investment in corporate debt securities consisted of the following as of December 31, 2009 and 2008:
One of the members of API’s Board of Directors is the chief executive officer of Lindsay General Insurance, which manages underwriting, policy issuance and claims on behalf of Drivers Insurance Company. API’s auto reinsurance policy was issued to Drivers.
The Company is authorized to issue 75,000,000 shares with a par value of $0.001 per share and no other class of shares is authorized.
On April 20, 2007, the Company sold 200,000 shares of common stock at a price of $0.01 per share for cash proceeds of $2,000.
On June 15, 2007, the Company sold 650,000 shares of common stock at a price of $0.01 per share for cash proceeds of $6,500.
Simultaneous with the sale of the Series A Preferred Stock, Darcy George Roney, an individual who owned 5,000,000 shares of Rineon common stock sold 4,990,000 of his shares back to Rineon for $25,000, which shares were cancelled. As a result of such stock redemption, an aggregate of 2,010,000 shares of Rineon common stock are currently issued and outstanding, all of which shares are owned by 21 shareholders of record.
While the Company’s counsel does not believe that the transaction further described in Note 9, Subsequent Events, commits the Company to any liability to its Preferred Stock shareholder, it is currently evaluating the situation. If the transaction is deemed to be a “Sale of Control”, the Company would be obligated to a payment of $37,782,000.
On January 19, 2010, Amalphis, our 81.5% controlled subsidiary, entered into a transaction to sell 81.5% controlling equity interest in Amalphis Group, Inc., a British Virgin Islands company, and its wholly-owned subsidiary, Allied Provident Insurance Inc., a Barbados company, to Gerova Financial Group Ltd. (the “Amalphis Agreement”). The Amalphis Agreement resulted in Rineon owning convertible preferred stock of an unaffiliated publicly traded insurance group. As a result of this transaction, we became a minority investor in this insurance group and, therefore, no longer have control of our former operating subsidiary, Allied Provident Insurance.