Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
During the year ended June 30, 2013, we earned revenue of $452,923. The source of this revenue was the maturity of one of our insurance contracts. Our costs for our insurance contacts during the year were $83,715, resulting in gross profit of $369,208. Our total expenses for the year ended June 30, 2013 were $906,107, resulting in a net loss of $536,899. The largest components of our expenses were consulting fees in the amount of $413,212, management fees in the amount of $221,957, and rent expense in the amount of $64,991.
The large majority of the consulting fees reported for the year ended June 30, 2013 represents amortized stock-based compensation paid to Caro Capital, LLC. The 2,000,000 shares of common stock issued to Caro under its Consulting Agreement were valued for accounting purposes at a total of $1,318,000. Of that total value, $979,497 was deemed a pre-paid expense and $339,503 was booked as an expense for the year ended June 30, 2013. This valuation was based solely on a small sale of shares made by the Company subsequent to the issuance of the consulting shares, and not on any appraisal or other valuation of the shares issued.
On June 19, 2012, we completed acquisition of the first of the four life settlement policies being purchased under the Agreement. The face value of the policy purchased is $500,000. As of June 30, 2013, the carrying value of the policy is $153,375. On December 28, 2012 we completed the acquisition of a second life settlement policy under the Agreement. The second policy purchased has a face value of $2,000,000. As of June 30, 2013, this policy has a carrying value of $462,076.
As of June 30, 2013, we had current assets of $1,270,669, consisting of cash in the amount of $144,769 and prepaid expenses valued for accounting purposes at $1,125,900. Prepaid expenses consisted of prepaid consulting fees related to two separate consultants, Caro Capital, LLC ($979,497) and Emerging Markets ($146,403). These will be amortized over the life of each agreement ranging from six months to one year.
As of June 30, 2013, we had current liabilities of $154,474, consisting of accounts payable in the amount of $59,037, accrued interest payable to a related party of $437 and a note payable to a related party of $95,000. On June 18, 2013, our sole officer and director, Lorraine Fusco, lent us the sum of $95,000 under a Promissory Note. The Note bears interest at a rate of fourteen percent (14%) per year. The Note was originally due on or before July 18, 2013. The Note was subsequently amended to be due and payable upon demand.
We will require substantial additional funding in order to continue the development of our business of acquiring a portfolio of life settlement policies. Although we are currently seeking and raising additional equity funding, we have no firm arrangements for financing and can provide no assurance that such funding will be received in an amount sufficient to pursue our planned line of business.
As of June 30, 2013, there were no off balance sheet arrangements.
Investments in Insurance Contracts. We have adopted FASB ASC Topic 325-30 “Investments in Insurance Contracts.” As of March 31, 2012, we will account for life settlement contracts using the investment method. Life settlement contracts will be initially recognized at the transaction price. Any additional costs, such as premium 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 following notes are an integral part of these financial statements.
The Company was incorporated in the state of Nevada, United States of America on March 4, 2010. The Company was an exploration stage company and was formed for the purpose of acquiring exploration and development stage mineral properties. The Company’s year-end is June 30.
On January 30, 2012, the Board of Directors approved a change in name from Kinetic Resources Corp. to Crown Alliance Capital Limited and a forward-split of its Common Stock on the basis of 17.85715 shares of Common Stock for one share of Common Stock held by shareholders of record at the close of business on February 10, 2012.
On March 15, 2013, the Board of Directors approved a forward-split of its Common Stock on the basis of five shares of Common Stock for one share of Common Stock held by shareholders of record at the close of business on March 31, 2013.
All share and per share data has been retroactively adjusted to reflect the effect of the forward-splits.
Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company has yet to achieve profitable operations, has accumulated losses of $871,916 since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing from shareholders or other sources to meet its obligations and repay its liabilities arising from normal business operations when they come due.
Nature of Operations and Ability to Continue as a Going Concern - (cont’d)
These financial statements include the accounts of the Company and KRC until KRC was disposed of by sale to the former president on August 31, 2011. Accordingly, the statements of operations and cash flows presented include the results of KRC from June 4, 2010 to August 31, 2011 and the balance sheets presented at June 30, 2013 and June 30, 2012 are solely that of Crown Alliance Capital Ltd. All significant inter-company transactions and balances have been eliminated.
From inception through August 31, 2011, the Company was an exploration stage company. On August 31, 2011, the Company changed business directions from acquiring exploration and development stage mineral properties to development of a portfolio of life settlement policies. The Company is now a development stage company. All losses accumulated since inception have been considered as part of the Company’s development stage activities.
In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” basic earnings per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive. The weighted average number of common and common equivalent shares used in the calculation of basic and diluted earnings per share consisted of the following:
The Company is required to record compensation expense, based on the fair value of the awards, for all awards granted after the date of the adoption.
Assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Translation adjustments from the use of different exchange rates from period to period are included in the Accumulated Other Comprehensive Income account in Stockholder’s Equity, if applicable. Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and losses are included in the Statement of Operations.
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry-forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Depreciation has been charged using the following estimates of useful lives:
Sale of policy and filing of change of ownership forms and receipt of payment.
The Company recognizes the difference between the death benefits and carrying values of the policy when an insured event has occurred and the Company determines that settlement and ultimate collection of the death benefits is realizable and reasonably assured. Revenue from a transaction must meet both criteria in order to be recognized. In an event of a sale of a policy the Company recognizes gain or loss as the difference between the sale price and the carrying value of the policy on the date of the receipt of payment on such sale.
The Company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
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 Company’s interest in KRC was transferred to the former President and the former president assumed all interests and liabilities of KRC amounting to $82,745 in exchange for the Company’s interest in KRC.
Subsequently, on November 11, 2011, the former President of the Company and several shareholders entered into a stock cancellation agreement with the Company whereby 73,571,458 and 41,517,872, common shares, respectively, were returned to treasury and cancelled.
Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
On February 8, 2012, the Company entered into an Employment Agreement with the President of the Company. Pursuant to the agreement the President will receive a signing bonus of $25,000 and $180,000 per annum February 8, 2012 until February 8, 2013 (the initial term) for services rendered plus reimbursement of the Company’s expenses.
The initial term shall be automatically renewed for up to 3 years successive years in consecutive one year periods. The agreement will continue in force unless either party gives notice of termination not more than 270 days and not less than 30 days prior to the then existing term of employment.
As of June 30, 2013, accounts payable and accrued liabilities includes $3,207 (June 30, 2012 - $3,750) in respect of unpaid management fees. Management fees for the year ended June 30, 2013 includes $221,957 (nine month period to March 31, 2012 -$96,250) pursuant to this agreement.
On June 18, 2013, the Company issued a promissory note for $95,000 and received $95,000 in exchange. The promissory note is unsecured, bears interest at 14% per annum, and is due on or before July 18, 2013. The Company accrued $437 (year ended June 30, 2012 - $nil) of interest expense in respect of this note payable. The Company has amended the maturity date of the promissory note to an on demand note.
As of June 30, 2013 and 2012, prepaid expenses were $1,125,900 and $0, respectively. Prepaid expenses consist of prepaid consulting fees related to two separate consultants and will be amortized over the life of each agreement ranging from six months to one year. Of the total prepaid expenses, $979,497 is attributable to prepaid stock-based compensation.
On June 1, 2010, the Company issued 138,392,885 common shares pursuant to share subscription agreements at $0.00089 for total proceeds of $12,255.
On August 29, 2012, the Company issued 607,140 common shares pursuant to subscription agreements at $0.14 per share for total share proceeds of $85,000.
On October 16, 2012, the Company issued 475,000 common shares pursuant to subscription agreements at $0.14 per share for total share proceeds of $66,500.
On May 14, 2013, the Company issued 2,000,000 common shares at $0.01 in accord with a share subscription required pursuant to a consultancy agreement for total proceeds of $2,000. Accounting rules require the shares to be recorded at their fair market valued of $1,320,000 ($0.66/share) as of the agreement date of which $979,497 is included in prepaid expenses.
The following table presents income before taxes and income tax expense as well as the taxes charged to stockholders equity:
A reconciliation of the expected consolidated income tax expense, computed by applying a 35% U.S. Federal corporate income tax rate to income before taxes to income tax expense is as follows:
At June 30, 2013 and 2012, the Company had available a net-operating loss carry-forward for Federal tax purposes of approximately $516,200 and $319,255, respectively, which may be applied against future taxable income, if any, at various times through 2033. Certain significant changes in ownership of the Company may restrict the future utilization of these tax loss carry-forwards.
The Company recognizes interest and penalties, if any, related to uncertain tax positions in general and administrative expenses. No interest and penalties related to uncertain tax positions were accrued at June 30, 2013 and 2012.
On March 15, 2012, the Company entered into its first contract to acquire four life settlement policies for the aggregate sum of $570,000, payable on or before April 23, 2012. Pursuant to the agreement the Company is responsible for all premiums payable pursuant to the terms of the policies and are entitled to fifty percent of the death benefits of those policies not formally closed pursuant to the terms of the agreement. ASC 325-30, Investments in Insurance Contracts, provides that a purchaser may elect to account for its investments in life settlement contracts based on the initial investment at the purchase price plus all initial direct costs. Continuing costs (e.g., policy premiums, statutory interest and direct external costs, if any) to keep the policy in force are capitalized. The Company has elected to use the investment method and refer to the recorded amount as the carrying value of the policies.
On June 19, 2012, the Company acquired one of the four life settlement policies. The face value of the policy is $500,000 with a remaining life expectancy of 2.50 years. As of June 30, 2013, the carrying value of the policy is $153,375.
The Company recognizes impairment on individual policies if the expected undiscounted cash flows are less than the carrying amount of the investment, plus anticipated undiscounted future premiums and capitalizable direct external costs, if any. Impairment of policies is generally caused by the insured significantly exceeding the estimate of the original life expectancy, which causes the original policy costs and projected future premiums to exceed the estimated maturity value. The Company does not believe the life settlement policies to be impaired as of June 30, 2013.
As of June 30, 2013, $76,003 of the policy premiums has been paid on the remaining policy and the premium payments have been capitalized in the financial statements.
On July 18, 2013, the Company amended the terms of the $95,000 promissory note to amend the principle maturity date of July 18, 2013 to due on demand.
On September 6, 2013, we issued 43,228 shares of common stock in satisfaction of $23,775 of subscriptions payable.
On September 30, 2013, the Company amended the original life settlement contract to extend the remaining $120,000 payable due date to October 31, 2013.