PINX:CACL Crown Alliance Capital Ltd Annual Report 10-K Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K


[X]

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2012

 

[  ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to ________

 

Commission file number: 333-169346


Crown Alliance Capital Limited

(Exact name of registrant as specified in its charter)


Nevada

27-2089124

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

3601 Highway 7 East Suite # 203

Markham, ON, Canada

L3R 0M3

(Address of principal executive offices)

(Zip Code)


Registrant’s telephone number:   

(905) 604-8877


Securities registered under Section 12(b) of the Exchange Act:

 

Title of each class

Name of each exchange on which registered

none

not applicable

 

 

Securities registered under Section 12(g) of the Exchange Act:

 

Title of class

none



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [  ] No [X]


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]


Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.


[ ] Large accelerated filer

[ ] Accelerated filer

[ ] Non-accelerated filer

[X] Smaller reporting company


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [ ] No [X]


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.  n/a


Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  41,695,724 as of September 21, 2012.

 

 

 










TABLE OF CONTENTS

 

Page

 

 

PART I

 

 

 

Item 1. Business

3

Item 1A. Risk Factors

10

Item 2. Properties

13

Item 3. Legal Proceedings

14

Item 4. Mine Safety Disclosures

14

 

 

PART II

 

 

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

14

Item 6. Selected Financial Data

18

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

21

Item 8. Financial Statements and Supplementary Data

21

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

23

Item 9A(T). Controls and Procedures

23

Item 9B. Other Information

24

 

 

PART III

 

 

 

Item 10. Directors, Executive Officers and Corporate Governance

24

Item 11. Executive Compensation

26

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

29

Item 13. Certain Relationships and Related Transactions, and Director Independence

29

Item 14. Principal Accountant Fees and Services

30

 

 

PART IV

 

 

 

Item 15. Exhibits, Financial Statement Schedules

30













PART I


Item 1. Business


We are a publicly reporting Nevada corporation formed March 4, 2010 as “Kinetic Resources Corp.”  On August 31, 2011, controlling ownership of the company was acquired by a group of nine individuals led by Lorraine Fusco, who was appointed as our new President, CEO, CFO, and sole director on that date.  Following the change in control, we changed the direction of our business to focus on acquiring an ongoing portfolio of life settlement policies and to eventually build our own portfolio of policy purchases.  A life settlement is the purchase of a life insurance policy at a discount from face value from a person who no longer needs or wants the policy.  The policy owner receives a lump sum settlement and the title for the policy is transferred to the third party, which pays the future premiums due on the policy and eventually collects the death benefit.


On January 30, 2012, we changed our corporate name to “Crown Alliance Capital Limited” to better reflect our new business focus.  


Overview of Life Settlements


A life settlement (also sometimes known as a "viatical" if the life insured has less than 2 years to live.) is the purchase of a life insurance policy at a discount from face value from a person who no longer needs or wants the policy.  The policy owner receives a lump sum settlement and the title for the policy is transferred to the third party, which pays the future premiums due on the policy and eventually collects the death benefit.


Traditionally, policy owners of a life insurance contract would get access to the value built up in a policy while they are living by surrendering the policy for its cash value, withdrawing some of the accumulated surplus value (if there is any), or borrowing against the cash value. Generally, the actual value that can be accessed through these options is fairly limited. Life settlements are an alternative for those wishing to sell their policy. With a life settlement, the owner of the policy can sell their beneficial interest in a policy for cash - a life settlement. The owner often receives a higher value compared to the traditional options and is relieved from paying future premium obligations.


There is a network of licensed brokers throughout the United States through whom an individual or institution may purchase or sell an insured person's life insurance policy. These brokers represent the insured person, and they effectively 'shop' out or list for sale these insurance policies through their networks. Competing bids from life settlement companies or institutional buyers are received by the broker, who in time chooses to whom the policy will be sold. Like the real estate market, the highest offer usually secures the asset. The purchase of a life insurance policy asset is referred to as a life settlement transaction.


Life settlements are potentially profitable because the purchaser acquires a policy at a discount from the face value which is based on the insured person's life expectancy and the purchaser’s desired return on capital.  The investor then continues to pay the premiums and collects the death benefit when the policy matures. The annual rates of return that purchasers can expect typically vary between 8% and 12%. In the case of an early maturity (i.e death of an insured) the return on investment can be substantially higher. In the case where the insured person lives longer than anticipated, the return on investment will be lower, and can potentially be negative.




3






There are many reasons for policies becoming available for settlement. These include:


·

Policy-holder is terminally ill and requires funds to pay medical and/or living expenses


·

Policy-holder no longer needs coverage


·

Change in business ownership makes policy obsolete


·

Key-man leaves the business


·

Policy-holder needs to raise cash


·

Non-profit organization owns a policy insuring the life of a key donor or benefactor who no longer wants to pay premiums


·

Estate tax reform in USA


·

Growing number of sophisticated market participants


Further regulation, demographics and a low national savings rate will drive the expansion of supply to the life settlement market. The demographic of the baby boomer generation, people born in the U.S. between 1945 and 1965, is well known and is moving towards retirement with minimal savings relative to expected post-retirement expenditures.


U.S. Life Settlement Industry


The life settlement industry began in the late 1980's. The first year of credible data available is from 1989 when about $2 million in life insurance (face amount) was purchased. This figure has grown to approximately $12 billion in 2006. Processes and technologies allowing for more efficient transfer of life policies were established in the late 90's. The life settlements market developed and began to provide liquidity to a growing segment of Americans holding life insurance policies that they no longer needed.


Though individuals have many reasons for exiting their policies, few are aware of the life settlements marketplace and either accepts the cash surrender value from the insurance company (often only a fraction of what the policy could be worth in the life settlement market) or let the policy lapse. The fundamental reason for the rapid growth of the life settlements market is consumer value. The life settlements purchaser can pay more than cash surrender value and still expect a competitive rate of return on their investment.


A report by Conning Research states that as of 2005, there was approximately US $9 trillion of life insurance in force in the US. Estimates place the US life settlement market potential between USD $240 and USD $600 billion." Bernstein Equity Research indicates that from 1990 to today the life settlement industry has grown from nil to over US $12 Billion and is expected to grow more than 10 fold to over US $125 Billion over the next several years.




4






Plan of Operations


Our primary objective will be to build a diversified inventory of life insurance policies both through new investment and the re-investment of the proceeds of matured policies. Initial management and administration of our life settlements portfolio will be provided by Universal Settlements International Inc. (“USI”) under an Administrative Services Agreement.  USI is a Canadian company based in Burlington, Ontario. USI was incorporated in 1997 and has been operating in the life settlements sector for over a decade. USI facilitates the sale of interests in the benefits of U.S. life insurance policies to both institutional and individual purchasers and deals in numerous markets with representation across North America, South America, Central America, Asia and Europe. Further information on USI can be found on USI's website,   The shareholders of USI are Jeffrey Panos of Burlington, Ontario and Christopher Halas of Mississauga, Ontario.  The shareholders of USI are also shareholders in Crown Alliance Capital Limited.


Pursuant to the Administrative Services Agreement, USI has agreed to provide, on a non-exclusive basis, a number of services relating to the administration of our life settlement contracts and additional services. These services include dealing with change of ownership and change of beneficiary issues, verifying coverage under a policy, monitoring and validating premium payments required to be made, tracking each insured, managing claims, dealing with group insurance plans, maintaining records and reports on all insureds, and such other services as may be requested from time to time by us, including identifying additional policies for purchase. The Services Agreement has a fixed term of five (5) years with a mutual early termination provision of 90 days without cause. Fees for services will be charged by USI on a per policy basis.  


After acquiring an initial portfolio of life settlement contracts with the assistance of USI, we intend to focus on growing our portfolio of life settlement policies going forward. The primary strategy will be to acquire additional life settlement policies that meet certain criteria and pricing guidelines, including the following:


·

Policies must be issued in the United States on US lives.


·

Policies must be issued by insurance companies rated at least "A-" or equivalent by AM Best, Moody's or S&P.


·

Policies must be beyond any contestability and suicide period.


·

Policies must allow for irrevocable beneficiary designations and absolute assignment of ownership.


·

Policies must allow for coverage for the whole life of the insured or allow for conversion so that coverage will continue for the whole life of the insured.


·

The cost of each policy acquired will be influenced by five major factors:


o

Face value of the policy upon maturity.


o

Annual premium on the policy.


o

Life expectancy (LE) of the insured.



5






o

Administration costs associated with the policy.


o

Competitive bids from other potential purchasers.


Sources for New Portfolio Acquisitions


We will use USI's network of licensed providers and brokers throughout the United States to purchase policies. Each U.S. state has different licensing requirements and, consequently, we will only transact with providers and brokers who have demonstrated they have met these licensing requirements and show financial reliability.


Process and Procedures for Policy Purchases


As detailed in the Administrative Services Agreement between us and USI, USI will assist us in identifying and facilitating the purchase of policies. Each life settlement will be subject to the due diligence process as described below:


1.

Due Diligence Underlying a Policy Purchase


USI will source policies which meet our criteria from Qualified Service Providers (QSP’s). If a policy meets the criteria, USI will conduct due diligence to ensure that the policy is valid and meets the necessary standards. Due diligence will include:


·

Obtaining verification of coverage (VOC) from the insurance company. VOC will confirm various policy details such as: face amount, premium, issue date, contestability, loans, withdrawals, lapses of coverage, beneficiary and ownership information, etc.


·

Obtaining and reviewing actual policy or copy of policy.


·

Obtaining a Physician's Statement of Mental Competency for the owner of policy.


·

Analyzing policy illustrations.


·

Obtaining an authorization to procure and subsequent analysis of medical records.


2.

Required Documents for Due Diligence


Documents listed below are required as part of the due diligence process:


·

Consent to Release Medical Information (Notarized)


We must be able to receive all medical documentation for at least 5 years from all physicians that an insured person may have in order to obtain an accurate life expectancy evaluation. We must also have the ability to receive updated medical records as the situation requires.


·

Letter of Competency (Signed by attending Physician)




6






This ensures that an insured person is aware of what they are doing and that they are of sound mind.


·

Release and Consent to Change Beneficiaries (Notarized)


All current beneficiaries must sign off with the acknowledgement that they understand and consent to being removed as beneficiaries.


·

Authorization to Provide Death Certificate (Notarized)


This allows us to acquire a death certificate in a legal and timely manner.


·

Seller's Premium Indemnification Letter (Notarized)


This ensures that all premiums are paid up to the point where ownership and beneficiary rights have been transferred.


·

Special Power of Attorney (Notarized)


This gives us the authority to contact and obtain any required information from doctors or insurance companies.


·

Personal Information of the Insured and their Contact Information


We must be able to monitor and track the insured. Contact is maintained either directly with an insured or through a friend, family member, lawyer, physician or financial planner.


·

Payment Instructions


This details the method of payment to an insured for their rights to ownership and beneficiary status once the closing of a policy purchase occurs.


3.

Life Expectancy (LE) Evaluations


Insured persons who seek to sell their policies on the secondary market usually retain qualified representation to facilitate the sale. These policy brokers typically provide all medical information and LE evaluations to us so that we are able to make an informed bid on a policy. The LE evaluation is completed by independent LE evaluators who have experience in the mortality assessment domain.


We will utilize the following LE providers to determine life expectancy:


·

American Viatical Services of Woodstock, Georgia, USA.


·

21st Services of Minneapolis, Minnesota, USA.


·

Examination Management Services, Inc. of Waco, Texas, USA.


·

Fasano Associates of Washington, DC, USA.




7






·

ISC Services of Clearwater, Florida, USA.


USI research indicates that over the last several years, LE evaluators have become more conservative in their reports, largely due to the adoption of updated mortality tables.  


4.

Closing


If a policy meets all necessary criteria and the due diligence process has been completed to our satisfaction, the parties enter into a "Policy Funding Agreement" which is the agreement between the policy owner and us as the buyer of the policy. The following documents are required for the closing of each individual transaction:


·

Contract between us and the seller of the policy.


·

LE reports from 2 (two) approved list of LE providers.


·

Original insurance policy (certified true copy if original is lost). Identification for the insured, such as copy of social security card or driver's license. If the owner is a trust or corporation, a copy of the trust or a corporate resolution showing individuals who have signing authority.


·

Completed and signed tax forms for all sellers and brokers.


·

Executed Ownership and Beneficiary Change forms.


·

Funds are not disbursed to the owner or brokers until all changes are reflected in insurance company records.


5.

Change of Ownership


USI reviews and verifies all policy information to ensure accuracy and to verify that there have been no changes, and submits the Absolute Assignment of Ownership and Beneficiary Change forms to the insurance company. Once the executed change forms are received back from the insurance company verifying that we are the owner and beneficiary of the policy, USI advises us to disburse funds as directed. This agreement with USI will be in place for the next 24 months. At the end of this time, the agreement will be reviewed and management will decide whether or not to extend them.


6.

Tracking


Insured persons whose policies have been purchased by us are tracked by qualified personnel in USI's office and reporting to us occurs on a regular basis. Tracking includes the following:


·

Periodic contact with the insured, attending physician of record, or a designated person such as a family member.


·

Weekly social security death index checks.


·

Other database checks on a monthly basis.


·

Health statements of insured from attending physician on an as needed basis.




8






·

Regularly updated information reports.


·

Updated medical reports from primary physician on an as needed basis.


·

Updated life expectancy reports from qualified providers on an as needed basis.


·

Alerts when premium payments are due.


7.

Premiums Management


Under the Services Agreement, USI will provide management services for our initial portfolio of life settlement contracts as well as for future acquisitions. Services include:


·

Obtaining and analyzing completed VOC (verification of coverage) forms from insurance companies for each policy. VOC forms indicate policy information, cash value figures and premium data.


·

Monitoring and validating premium payments required to be made.


·

Providing us with a premiums due schedule at least 30 days in advance of required payments.


·

Confirming receipt of premium payment by Insurance companies


·

Obtaining and analyzing updated premium illustrations as required.


·

Performing premium optimization analysis as appropriate.


8.

Claims Management


Whenever there is a maturity, USI submits a death claim to the insurance company. This process involves obtaining the death certificate, obtaining necessary claim documents from the insurance company, submitting of completed documentation to the insurance company and following up verbally and in writing with the insurance carrier on the claim status until such time as the death benefit is paid to us. The death benefit check is sent directly to us by the insurance company.


As part of our long term growth strategy, we intend to vertically integrate and internalize some of the services which will initially be outsourced. There are cost reductions that could be achieved in policy tracking costs, premium management, claims management, and agent commissions.


We can accomplish vertical integration by either buying existing companies that provide the above services or creating an internal employee pool to accomplish these tasks. By integrating the above functions, we could potentially provide these services to other life settlement companies and develop an additional income stream.





9






Item 1A.  Risk Factors


Risks Relating to Our Business and Early Stage of Development


If we are unable to raise the required capital to acquire a significant portfolio of life settlement contracts, the development of our revenue base will be hampered and our business may fail.


We currently have little operating capital and have only recently begun to acquire life settlement contracts as contemplated by our business plan.  We will be dependent on raising sufficient capital in order to continue with this plan of operations and to accumulate a significant portfolio of financial assets which can be expected to generate net profits. We cannot assure you that we will be able to acquire the necessary financing in the near future or on terms that are acceptable to us.


Also, additional equity financing could result in significant dilution to our shareholders. Further, if sufficient capital is not available, we may be required to delay or severely reduce the scope of our planned life settlement portfolio.


Because we have a limited operating history and no record of generating revenue, potential investors may not be able to evaluate our operations and prospects for profitable operations.


Our prospects must be considered speculative in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development.  We have only recently begun to focus on the life settlement business and do not have history or any historical revenues upon which investors can gauge our prospects for results of operations.  A substantial risk is involved in investing in our company because, as an early stage company, we have fewer resources than an established company, our management may be more likely to make mistakes at such an early stage, and we may be more vulnerable operationally and financially to any mistakes that may be made, as well as to external factors beyond our control.


Because we depend on key personnel for our continued operations and future success, a loss of certain key personnel could significantly hinder our ability to move forward with our business plan.


Because of the specialized nature of our business, we are highly dependent on our ability to identify, hire, train and retain highly qualified sales, management, technical personnel. In particular, the loss of our sole officer and director, Lorraine Fusco, would be significantly detrimental to us. Our anticipated growth and expansion will require the addition of new management personnel and the development of additional expertise by existing management personnel. There is intense competition for qualified personnel in the areas of our present and planned activities, and there can be no assurance that we will be able to continue to attract and retain the qualified personnel necessary for the development of our business. The failure to attract and retain such personnel or to develop such expertise would adversely affect our business.






10






If the longevity of the insured lives covered by our acquired life insurance contracts is significantly greater than expected, our net returns on these assets may be significantly less than expected.


The primary risk in a life settlement transaction is “extension” or “longevity” risk. Longevity risk is the variance between actual mortality versus expected mortality, resulting from the insured’s health management, medical advances and good fortune. Fundamentally, this risk is simply the probability that the insured individual lives well beyond his or her life expectancy. The risk presents two problems: (i) that the death benefit arrives later but does not grow with time and (ii) that the ongoing premiums drain the investment returns.  Our returns on our life settlement policies may be significantly reduced due to the longevity risk inherent in such transactions.


If the Insured outlives the expected life expectancy then our net returns on these assets may be significantly less than expected.


Medical underwriter risk is the risk that the underwriter accurately estimates the life expectancy.  The life expectancy of an insured is an estimate only.  If the insured lives longer than such estimate, the payment of proceeds by the insurance company involved is not at risk but the annualized return on an investor’s capital will diminish over time, as the pay out of proceeds comes later than expected.


Because the Insurers issuing the acquired life insurance contracts may contest the policies, we face some risk that one or more death benefits may not be paid.


Before purchasing a life insurance policy for settlement purposes, one must analyze the language of the life insurance policy itself, specifically with respect to contestability issues. Insurers will investigate the contestability clause in the policy when a claim is filed, and they may decide to dispute the claim on grounds of the information provided by the insured at the time that he or she originally purchased insurance. Whether the insured is a “smoker” is a leading example: there are different rates for smokers and non-smokers. In most circumstances, the contestability clause will cease to have any effect after the life insurance policy is in force for a minimum of two years. We mitigate this risk by buying policies that are over the 2 year contestability period.


Because the Insurers issuing our acquired life insurance contracts may become insolvent, we face some risk that one or more death benefits may not be paid.


There is a risk that the insurance companies could become bankrupt or insolvent, which could result in the inability of purchasers of life settlements to receive all or part of their entitlements to proceeds under a particular policy from the life insurance issuer. The topic of insolvency risk in connection with life insurance companies has recently attracted a great deal of attention. Since the 1980s there have been several defaulted life insurance companies in Europe, Japan and the United States. A few examples from the United States are First Executive Life Insurance Co., Confederation Life Insurance Co. in 1994 and Conseco Inc. in 2002 (the 3rd largest bankruptcy in the United States in the period 1980 - 2005).





11






If the cost of maintaining our acquired life insurance contracts is increased, our net returns may be significantly reduced.


There is a risk that an insurer may change their policy illustrations, thus increasing the amount of premiums necessary in order to maintain a life insurance policy in full force and good standing. In the event that we are required to pay higher premiums to maintain one or more of our acquired life insurance contracts, our net returns and profitability will be reduced.


Because of the challenges inherent in maintaining a large and diversified portfolio of life insurance contracts, our net returns may be subject to significant fluctuations.


Our ability to select life insurance contracts for our portfolio will be subject to the available supply of life settlements in the market and the manager’s discretion in selection process.  In order for our net portfolio returns to be properly calculated and planned, our portfolio managers must be able to obtain a large portfolio of contracts related to a diversified group of lives.  Uneven policy sizes, as well as a lack of proper portfolio size, and diversity in the life insurance contracts which we are able to acquire, may lead to significant variability in our net returns.


Because of the difficulties inherent in liquidating life settlement contracts, we may not be able to liquidate assets to access additional cash when needed.


Should there be a need to liquidate all or a portion of our planned portfolio of policies, liquidity could become an issue due to a naturally lengthy, operationally intensive process.  For each policy, prospective buyers generally: (i) examine policy documents, maturity conditions, and representations and warranties, (ii) obtain updated policy illustrations, (iii) re-optimize premiums, (iv) process change of ownership, and (v) ensure compliance with relevant state laws.  Due to the delays and uncertainties inherent in this process, we may be unable to liquidate our life settlement contracts in order raise additional cash.


Because we will incur costs as a result of being a public company, our financial resources available for operations may be reduced.


The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, referred to as Section 404, have materially increased our legal and financial compliance costs and made some activities more time-consuming and more burdensome. We expect these rules and regulations to continue to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We may need to adopt and implement additional policies and procedures to further strengthen our financial reporting capability. However, the process of designing and implementing an effective financial reporting system is a continuous effort that will require us to anticipate and react to changes in our business and the economic and regulatory environments. All of this will also require us to expend significant resources. We also expect these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.




12






Risks Relating to Legal Uncertainty


If our purchased life insurance contracts are subjected to claims by former beneficiaries, we may suffer losses.


There is the possibility that a former beneficiary or their family members could challenge the sale of a life settlement for a number of reasons, including that the third party policy provider was not properly licensed or that there was duress or undue influence or that the seller was not of sound mind.  If any such challenges are made, there is the risk that we will not receive the full proceeds on the maturity of such policies.


If we fail to detect and prevent fraud on the part of the insureds, we may experience diminished returns or losses.


There is the risk of fraud inherent in the purchasing of life settlement contracts. This includes the risk that the insured may misrepresent the status of their illness, may fail to disclose all beneficiaries, or may purport to sell their policy to more than one purchaser.  Any such fraud could lead to diminished returns on the investors’ capital or even a loss of capital by the investor.


Item 2. Properties


We do not own any real property. On September 1, 2011, we entered into a lease agreement for a term of two years for our offices at 3601 Highway 7 East Suite # 203, Markham, Ontario, Canada.  The offices consist of approximately 1,765 square feet, and we expect that they 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:


Fiscal 2013

$

31,770

Fiscal 2014

$

5,295


Additional fees and taxes of approximately $2,541 per month are due in connection with the lease agreement.  Upon acceptance of the lease agreement, a security deposit of $12,000 was paid.


Item 3. Legal Proceedings


We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.


Item 4. Mine Safety Disclosures


Not applicable.



 

13





PART II


Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


Market Information


Our common stock is quoted under the symbol “CACL” on the OTCBB operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the OTCQB operated by OTC Markets Group, Inc.  Few market makers continue to participate in the OTCBB system because of high fees charged by FINRA.  Consequently, market makers that once quoted our shares on the OTCBB system may no longer be posting a quotation for our shares. As of the date of this report, however, our shares are quoted by several market makers on the OTCQB. The criteria for listing on either the OTCBB or OTCQB are similar and include that we remain current in our SEC reporting. Our reporting is presently current and, since inception, we have filed our SEC reports on time.


To date, an active trading market has not developed for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company.


The following tables set forth the range of high and low prices for our common stock for the each of the periods indicated as reported by the OTCQB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.


Fiscal Year Ending June 30, 2012

Quarter Ended

 

High $

 

Low $

June 30, 2012

 

N/A

 

N/A

March 31, 2012

 

N/A

 

N/A

December 31, 2011

 

N/A

 

N/A

September 30, 2011

 

N/A

 

N/A


Fiscal Year Ending June 30, 2011

Quarter Ended

 

High $

 

Low $

June 30, 2011

 

N/A

 

N/A

March 31, 2011

 

N/A

 

N/A

December 31, 2010

 

N/A

 

N/A

September 30, 2010

 

N/A

 

N/A






14






Penny Stock


The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.


The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.


In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.


These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.


Holders of Our Common Stock


As of September 21, 2012, we had 41,695,724 shares of our common stock issued and outstanding, held by forty (40) shareholders of record.


Recent Sales of Unregistered Securities


1.  On April 25, 2012, we issued a total of 714,285 shares of common stock to a total of five subscribers at a price of $0.70 per share, for total subscription proceeds of $500,000.  The offer and sale of these securities was made pursuant to Rule 506 under Regulation D.  All purchasers represented and warranted to us that they were “accredited investors” within the meaning of Rule 501, and we did not engage in any general solicitation or advertising.




15






2.  On August 1, 2012, we issued a total of 130,000 Units to a total of three subscribers at a price of $0.70 per Unit, for total subscription proceeds of $91,000.  Each Unit consists of one (1) share of common stock and one (1) warrant to buy one (1) share of common stock ata price of $1.10, exercisable for a period of forty-eight months. The offer and sale of these securities was made pursuant to Rule 506 under Regulation D.  All purchasers represented and warranted to us that they were “accredited investors” within the meaning of Rule 501, and we did not engage in any general solicitation or advertising.


3.  On August 28, 2012, we issued 50,000 Units to a single subscriber at a price of $0.70 per Unit, for subscription proceeds of $35,000.  Each Unit consists of one (1) share of common stock and one (1) warrant to buy one (1) share of common stock at a price of $1.10, exercisable for a period of forty-eight months. The offer and sale of these securities was made pursuant to Rule 506 under Regulation D.  The purchaser represented and warranted to us that they were an “accredited investor” within the meaning of Rule 501, and we did not engage in any general solicitation or advertising.


4.  Also on August 28, 2012, we issued 71,428 shares of common stock to a single subscriber at a price of $0.70 per share, for subscription proceeds of $50,000.  The offer and sale of these securities was made pursuant to Rule 506 under Regulation D.  The purchaser represented and warranted to us that they were an “accredited investor” within the meaning of Rule 501, and we did not engage in any general solicitation or advertising.


5.  On August 29, 2012, we issued 50,000 shares of common stock to a single subscriber at a price of $0.70 per share, for subscription proceeds of $35,000.  The offer and sale of these securities was made pursuant to Rule 506 under Regulation D.  The purchaser represented and warranted to us that they were an “accredited investor” within the meaning of Rule 501, and we did not engage in any general solicitation or advertising.


6.  On September 12, 2012, we issued a total of 305,000 shares of common stock to a total of nine subscribers at a price of $0.70 per share, for total subscription proceeds of $213,500.  The offer and sale of these securities was made pursuant to Rule 506 under Regulation D.  All purchasers represented and warranted to us that they were “accredited investors” within the meaning of Rule 501, and we did not engage in any general solicitation or advertising.


Securities Authorized for Issuance under Equity Compensation Plans


To date, we have not adopted any equity compensation plans.


Capital Stock


We have 10,000,000 preferred shares with a par value of $0.001 per share of preferred stock authorized, of which no shares were outstanding as of September 21, 2012.


We have 90,000,000 common shares with a par value of $0.001 per share of common stock authorized, of which 41,695,724 shares were outstanding as of September 21, 2012.





16






Voting Rights


Holders of common stock have the right to cast one vote for each share of stock in his or her own name on the books of the corporation, whether represented in person or by proxy, on all matters submitted to a vote of holders of common stock, including the election of directors. There is no right to cumulative voting in the election of directors. Except where a greater requirement is provided by statute or by the Articles of Incorporation, or by the Bylaws, the presence, in person or by proxy duly authorized, of the holder or holders of a majority of the outstanding shares of the our common voting stock shall constitute a quorum for the transaction of business. The vote by the holders of a majority of such outstanding shares is also required to effect certain fundamental corporate changes such as liquidation, merger or amendment of the Company's Articles of Incorporation.


Dividends


There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:


1. we would not be able to pay our debts as they become due in the usual course of business, or;


2. our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.


We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.


Pre-emptive Rights


Holders of common stock are not entitled to pre-emptive or subscription or conversion rights, and there are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of common stock are, and the shares of common stock offered hereby will be when issued, fully paid and non-assessable.


Share Purchase Warrants


We currently have warrants to purchase 180,000 shares of common stock at a price of $1.10 per share issued and outstanding.  130,000 of these warrants expire on August 1, 2014, and 50,000 of these warrants expire on August 28, 2014.


Options


We have not issued and do not have outstanding any options to purchase shares of our common stock.


Convertible Securities


We have not issued and do not have outstanding any securities convertible into shares of our common stock or any rights convertible or exchangeable into shares of our common stock.




17






Nevada Anti-Takeover Laws


Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our articles of incorporation and bylaws do not state that these provisions do not apply. The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company.


Item 6. Selected Financial Data


A smaller reporting company is not required to provide the information required by this Item.


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Forward-Looking Statements


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.


Results of Operations for the Years Ended June 30, 2012 and 2011.


We have not earned any revenues from inception on March 4, 2010 through the fiscal year ending June 30, 2012. We are presently in the development stage of our business and we can provide no assurance that we will produce significant revenues or, if revenues are earned, that we will be profitable.


We have incurred total expenses and net losses in the amount of $335,017 from our inception on March 4, 2010 through the fiscal year ending June 30, 2012.   Our expenses since our inception have consisted primarily of legal fees, audit and accounting fees, management fees, and rental expenses. During the fiscal ended June 30, 2012, we incurred expenses and net losses in the amount of $259,219. During the fiscal year ended June 30, 2011, we incurred expenses and net losses in the amount of $68,721.  


Our result of operations for the fiscal year ended June 30, 2012 relate to our current business of acquiring and holding portfolios of life settlement policies, while our results of operations for the fiscal year ended June 30, 2011 relate our discontinued mineral exploration venture.  In general, our current business



18





requires more active management and incurs more regular expenses than our former business.


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 have agreed to purchase feature death benefits which total $4,500,000.  


Under the Agreement, we will be required to pay all premiums due under each of the acquired policies until they mature. As detailed in Schedule 1 to the Agreement, the required premiums are expected to be a total of $13,699.54 per month for three of the policies being purchased, and $42,000 per quarter for the fourth policy. In connection with our execution of the agreement, we deposited $38,194.84 toward premiums due under the four policies.


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 an Amendment to the Agreement dated April 27, 2012, the termination date was extended to May 23, 2012. Under a Further Amendment to the Agreement, the final payment deadline has been extended to October 19, 2012.


On June 19, 2012, we completed acquisition one 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, 2012, the carrying value of the policy is $119,176.


To date, we have paid a total of $250,000 toward the purchase price under the Agreement and must pay an additional $320,000 in order to complete our acquisition of the four policies covered by the Agreement.


Estimated premiums to be paid for each of the five succeeding fiscal years to keep all four policies being purchased under the Agreement in force as of June 30, 2012, are as follows.


Year 1

 

$      326,721

Year 2

 

326,721

Year 3

 

326,721

Year 4

 

326,721

Year 5

 

326,721

Total estimated premiums

 

$   1,633,605


We expect that our ongoing expenses will increase when we complete our acquisition of this initial portfolio and begin making the regular premium payments due under the insurance policies.


Liquidity and Capital Resources


As of June 30, 2012, we had current assets of $22,830, consisting entirely of cash.  As of June 30, 2012, we had current liabilities of $61,836, consisting of accounts payable in the amount of $14,913, a note payable to a related party in the amount $45,000, and accrued interest due to a related party in the amount of $1,923.  Thus, we had a working capital deficit of $39,006 as of June 30, 2012.




19






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.


Off Balance Sheet Arrangements


As of June 30, 2012, there were no off balance sheet arrangements.


Going Concern


We have yet to achieve profitable operations, have accumulated losses of $335,017 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.  


Critical Accounting Policies


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, 2012, we believe that our critical accounting policies consist of the following:


1.

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.


Recently Issued Accounting Pronouncements


None.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk


A smaller reporting company is not required to provide the information required by this Item.


Item 8. Financial Statements and Supplementary Data


Index to Financial Statements Required by Article 8 of Regulation S-X:





20






Audited Financial Statements:


F-1

Report of Independent Registered Public Accounting Firm

F-2

Balance Sheets as of June 30, 2012 and 2011;

F-3

Statements of Operations for the years ended June 30, 2012 and 2011, and from Inception on March 4, 2010 to June 30, 2012;

F-4

Statement of Stockholders’ Deficit for the years ended June 30, 2012 and 2011, and from Inception on March 4, 2010 to June 30, 2012;

F-5

Statements of Cash Flows for the years ended June 30, 2012 and 2011, and from Inception on March 4, 2010 to June 30, 2012;

F-6

Notes to Financial Statements

























21























CROWN ALLIANCE CAPITAL LTD


(formerly Kinetic Resources Corp)

(A Development Stage Company)

FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)










22






Office Locations

 Las Vegas, NV

  New York, NY

    Pune, India

  Beijing, China

[cacl_10k003.gif]


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders

Crown Alliance Capital Limited


We have audited the accompanying consolidated balance sheets of Crown Alliance Capital Ltd. (A Development Stage Company) (the “Company”) as of June 30, 2012 and 2011 and the related statements of operations, stockholders’ equity and cash flows for each of the years in the two-year period ended June 30, 2012 and for the period from inception (March 4, 2010) through June 30, 2012. 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.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Crown Alliance Capital Ltd. (A Development Stage Company) as of June 30, 2012 and 2011 and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2012 and for the period from inception (March 4, 2010) through June 30, 2012 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.


/s/ De Joya Griffith, LLC

Henderson, Nevada

September 17, 2012


De Joya Griffith, LLC 2580 Anthem Village Dr. Henderson, NV 89052

Telephone (702) 563-1600 Facsimile (702) 920-8049

www.dejoyagriffith.com



F-1






CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

(A Development Stage Company)

BALANCE SHEETS


(Stated in US Dollars)


 

June 30,

 

2012

 

2011

ASSETS

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

  Cash

$

22,830

 

$

5,958

 

 

 

 

 

 

Total current assets

 

22,830

 

 

5,958

 

 

 

 

 

 

Premiums on life settlement policies - Note 10

 

168,189

 

 

-

Investment in life settlement policies - Note 10

 

119,176

 

 

-

Property and equipment (net) - Note 3

 

17,784

 

 

-

Lease deposit

 

12,000

 

 

-

 

 

 

 

 

 

Total long term assets

 

317,149

 

 

-

 

 

 

 

 

 

Total assets

$

339,979

 

$

5,958

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

    Accounts payable

$

14,913

 

$

2,612

    Accrued interest, related party - Note 6

 

1,923

 

 

-

    Notes payable, related party - Note 6

 

45,000

 

 

-

 

 

 

 

 

 

Total current liabilities

 

61,836

 

 

2,612

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

    Accrued interest

 

-

 

 

655

    Notes payable, related party - Note 6

 

-

 

 

50,000

 

 

 

 

 

 

Total long-term liabilities

 

-

 

 

50,655

 

 

 

 

 

 

Total liabilities

 

61,836

 

 

53,267

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value

 

 

 

 

 

        10,000,000 shares authorized, none outstanding

 

-

 

 

-

Common stock, $0.001 par value - Notes 6 and 7

 

 

 

 

 

        90,000,000 shares authorized

 

 

 

 

 

41,089,296 shares issued and outstanding  (40,375,011 shares as of June 30, 2011)

 

41,089

 

 

40,375

Additional paid-in capital

 

572,071

 

 

(11,886)

Deficit accumulated during the development stage

 

(335,017)

 

 

(75,798)

 

 

 

 

 

 

Total stockholders’ equity (deficit)

 

278,143

 

 

(47,309)

 

 

 

 

 

 

Total liabilities and stockholders’ equity (deficit)

$

339,979

 

$

5,958

 

The accompanying footnotes are an integral part of these financial statements.

 

F-2



 CROWN ALLIANCE CAPTIAL LTD

(formerly Kinetic Resources Corp).

 (An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in US Dollars)



 

 

 

 

 

From

 

 

 

 

 

inception

 

 

 

 

 

(March 4

 

Year Ended

 

Year Ended

 

2010) to

 

June 30,

 

June 30,

 

June 30,

 

2012

 

2011

 

2012

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Audit and accounting fees

$

22,108

 

$

17,370

 

$

39,478

   Bank charges

 

1,054

 

 

465

 

 

1,584

   Consulting fees

 

12,000

 

 

-

 

 

12,000

   Depreciation

 

2,413

 

 

-

 

 

2,413

   Foreign exchange gain

 

199

 

 

(10)

 

 

196

   Legal fees

 

54,448

 

 

32,411

 

 

92,858

   Management fees - Note 4

 

96,250

 

 

-

 

 

96,750

   Mineral property option costs

 

4,000

 

 

4,000

 

 

8,000

   Mineral property exploration costs

 

-

 

 

2,500

 

 

2,500

   Office expenses

 

3,261

 

 

6,100

 

 

9,867

   Rent

 

51,897

 

 

-

 

 

51,897

   Transfer and filing fees

 

7,485

 

 

4,554

 

 

12,039

   Travel

 

1,583

 

 

-

 

 

1,583

 

 

 

 

 

 

 

 

 

Operating loss

 

(256,698)

 

 

(67,390)

 

 

(331,165)

 

 

 

 

 

 

 

 

 

   Interest expense - Notes 7 & 8

 

(2,521)

 

 

(1,331)

 

 

(3,852)

 

 

 

 

 

 

 

 

 

Net loss

$

(259,219)

 

$

(68,721)

 

$

(335,017)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per share

$

(0.01)

 

$

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding - basic

 

46,145,268

 

 

40,375,011

 

 

 




The accompanying footnotes are an integral part of these financial statements.


 

F-3





CROWN ALLIANCE CAPTIAL LTD

(formerly Kinetic Resources Corp).

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

for the period from inception (March 4, 2010) to June 30, 2012

(Stated in US Dollars)


 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Additional

During the

 

 

 

(Note 6)

Paid In

Exploration

 

 

Preferred Shares

Common Shares

Capital

Stage

Total

 

Number

Amount

Number

Amount

 

 

 

Balance, inception (March 4, 2010)

-

$

-

-

$

-

$

-

$

-

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital stock issued to founder for cash:

-

 

-

35,714,300

 

35,714

 

(20,156)

 

-

 

15,558

Cancel founder shares and investor shares w/o consideration

 

 

 

(23,017,866)

 

(23,018)

 

(23,018)

 

-

 

-

Capital stock issued for cash, net of commission

-

 

-

27,678,576

 

27,679

 

(15,424)

 

-

 

12,255

Net loss for the period

-

 

-

-

 

-

 

-

 

(7,077)

 

(7,077)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2010

-

 

-

40,375,011

 

40,375

 

(12,562)

 

(7,077)

 

20,736

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued interest on related party promissory note

-

 

-

-

 

-

 

676

 

-

 

676

Net loss for the period

-

 

-

-

 

-

 

-

 

(68,721)

 

(68,721)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2011

-

 

-

40,375,011

 

40,375

 

(11,886)

 

(75,798)

 

(47,309)

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of Subsidiary

-

 

-

-

 

-

 

61,027

 

-

 

61,027

Accrued interest on related party promissory note

-

 

-

-

 

-

 

226

 

-

 

226

Settlement of accounts payable by previous owner

-

 

-

-

 

-

 

23,418

 

-

 

23,418

Shares issued for cash

-

 

-

17,857,150

 

17,857

 

27,143

 

-

 

45,000

Cancellation of stock issuance for promissory note

-

 

-

(17,857,150)

 

(17,857)

 

(27,143)

 

-

 

(45,000)

Shares issued for cash

-

 

-

714,285

 

714

 

499,286

 

-

 

500,000

Net loss for the period

-

 

-

-

 

-

 

-

 

(259,219)

 

(259,219)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2012

-

$

-

41,089,296

$

41,089

$

572,071

$

(335,017)

$

278,143


The accompanying footnotes are an integral part of these financial statements.

 

F-4




 

CROWN ALLIANCE CAPTIAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

STATEMENTS OF CASH FLOWS

(Stated in US Dollars)


 

 

 

From

 

 

 

inception

 

 

 

(March 4 2010)

 

Years Ended

to

 

June 30,

June 30,

 

2012

2011

2012

 

 

 

 

Cash Flows Used in Operating Activities

 

 

 

 

 

 

   Net loss

$

(259,219)

$

(68,721)

$

(335,017)

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

 

   Non-cash interest expense - capital contribution

 

226

 

676

 

902

   Accrued interest

 

2,295

 

-

 

2,950

   Depreciation

 

2,413

 

-

 

2,413

Changes in operating assets and liabilities:

 

 

 

 

 

 

   Lease deposit

 

(12,000)

 

-

 

(12,000)

   Accounts payable and accrued liabilities

 

35,719

 

(3,993)

 

38,331

Net cash used in operating activities

 

(230,566)

 

(71,383)

 

(302,421)

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

   Purchases of life settlement policies and capitalized premiums

 

(287,365)

 

-

 

(287,365)

   Purchase of office equipment

 

(20,197)

 

-

 

(20,197)

Net cash used in investing activities

 

(307,562)

 

-

 

(307,562)

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

   Proceeds from capital stock issued

 

500,000

 

-

 

527,813

   Due to related party

 

-

 

(500)

 

-

   Proceeds from notes payable, related party

 

55,000

 

50,000

 

105,000

Net cash provided by financing activities

 

555,000

 

49,500

 

632,813

 

 

 

 

 

 

 

Increase (decrease) in cash during the period

 

16,872

 

(21,883)

 

22,830

 

 

 

 

 

 

 

Cash, beginning of the period

 

5,958

 

27,841

 

-

 

 

 

 

 

 

 

Cash, end of the period

$

22,830

$

5,958

$

22,830

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid in cash

$

-

$

-

$

-

 

 

 

 

 

 

Taxes paid in cash

$

-

$

-

$

-

 

 

 

 

 

 

 

Non-cash interest and financing activities

 

 

 

 

 

 

Accounts payable settled in connection with sale of subsidiary

$

21,718

$

-

$

21,718

Accrued interest, related party settled in connection with sale of subsidiary

$

1,027

$

-

$

1,027

Notes payable, related party settled in connection with sale of subsidiary

$

60,000

$

-

$

60,000

Shares cancelled and note payable reissued

$

45,000

$

-

$

45,000


The accompanying footnotes are an integral part of these financial statements.



F-5






CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)



Note 1

Nature of Operations and Ability to Continue as a Going Concern


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 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 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.  All share and per share data has been retroactively adjusted to reflect the effect of the forward-split.


On March 15, 2012, the Company entered into its first contract to acquire life settlement policies.  The agreement is expected to close on September 19, 2012.


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.  


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 $335,017 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.  





F-6





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)


Note 1

Nature of Operations and Ability to Continue as a Going Concern - (cont’d)


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.


Note 2

Summary of Significant Accounting Policies


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 financial statements have, in management’s opinion, been properly prepared within the framework of the significant accounting policies summarized below:


Principles of Consolidation


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 sheet presented at June 30, 2011 is a consolidated balance sheet.  The balance sheet presented at June 30, 2012 is solely that of Crown Alliance Capital Ltd.  All significant inter-company transactions and balances have been eliminated.


Development Stage Company


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.


Cash and cash equivalents


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, 2012 or June 30, 2011.




F-7





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)



Note 2

Summary of Significant Accounting Policies - (cont’d)


Earnings per share  


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.


Stock-based Compensation


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.


Foreign Currency Translation


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”).


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.


Income Taxes


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.



F-8





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)



Note 2

Summary of Significant Accounting Policies - (cont’d)


Newly adopted accounting policies


Investments in Insurance Contracts


The Company will adopt FASB ASC Topic 325-30 “Investments in Insurance Contracts.” As of March 31, 2012, the Company 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.


Property and equipment


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 in other income (expense).


The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of its office equipment or whether the remaining balance of office equipment should be evaluated for possible impairment.


Depreciation has been charged using the following estimates of useful lives:


Computer equipment

2 years straight line

Office equipment and furnishings

3-5 years straight line

Leasehold improvements

Over the remaining term of the lease







F-9





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)



Note 3

Property and equipment


 

June 30

 

June 30,

 

2012

 

2011

Cost

 

 

 

Computer equipment

$

1,409

 

$

-

Office equipment and furnishings

 

6,136

 

 

-

Leasehold improvements

 

12,652

 

 

-

 

 

 

 

 

 

Gross cost

 

20,197

 

 

-

Accumulated depreciation

 

(2,413)

 

 

-

 

 

 

 

 

 

Net book value

$

17,784

 

$

-


Note 4

Sale of Subsidiary


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 $84,445 in exchange for the Company’s interest in KRC.


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.


 

August 31, 2011

Identifiable Assets and Liabilities

 

Amount owed to Kinetic Resources Corp

$

(13,220)

Net liabilities of KRC

 

(13,220)

 

 

 

Consideration Received

 

 

Settlement of accounts payable, promissory notes, and accrued interest

 

84,445

Elimination of accumulated losses of KRC

 

13,220

 

 

97,665

 

 

 

Sale of subsidiary- related party

$

84,445

 

 

 

Loss for the period from July 1, 2011 to August 31, 2011

 

 

 

 

 

Mineral property option costs

$

4,000




F-10





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)



Note 4

Sale of Subsidiary- (cont’d)


Subsequently, on November 11, 2011, the former President of the Company and several shareholders entered into a stock cancellation agreement with the Company whereby 824,000 and 465,000, common shares, respectively, were returned to treasury and cancelled (See Note 7 Capital Stock)


Note 5

Financial Instruments


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:


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, 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.



F-11





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)



Note 6

Related Party Transactions


On August 30, 2010, the Company issued a promissory note of $15,000 to the Company’s President and received $15,000 cash in exchange.  The note is unsecured, non-interest bearing and matures on September 30, 2012.  During the year ended June 30, 2012, the Company has recorded interest expense of $226 (2011 - $626) and also recorded a capital contribution of $226 (2011 - $626) in respect of the imputed interest charge on this note payable.


On February 11, 2011, the Company issued a promissory note of $25,000 to the Company’s President and received $25,000 cash in exchange.  The promissory note is unsecured, bears interest at 6% per annum, and matures on February 28, 2013.  During the year ended June 30, 2012, the Company accrued $255 (2011 - $571) of interest expense in respect of this note payable.


On May 10, 2011, the Company issued a promissory note of $10,000 to the Company’s President and received $10,000 cash in exchange.  The promissory note is unsecured, bears interest at 6% per annum, and matures on May 31, 2013.  During the year ended June 30, 2012, the Company accrued $102 (2011 - $84) of interest expense in respect of this note payable.


On August 22, 2011, the Company issued a promissory note of $10,000 to the Company’s President and received $10,000 cash in exchange.  The promissory note is unsecured, bears interest at 6% per annum, and matures on August 31, 2013.  During the year ended June 30, 2012, the Company accrued $15 (2011 - $nil) of interest expense in respect of this note payable.  


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 $84,445 of accounts payable, related party notes payable and accrued interest. (Note 4)


On October 3, 2011, the Company issued 17,857,150 common shares pursuant to a share subscription agreement at $0.045 per share for total proceeds of $45,000.  Shares were issued to a company managed by our President.


On January 26, 2012, the Company repurchased and cancelled 17,857,150 shares of its own stock and as consideration issued a $45,000 promissory note to a company managed by our President.  The promissory note is unsecured, bears interest at 10% per annum, and is due on or before January 26, 2013.  During the year ended June 30, 2012, the Company accrued $1,923 (2011 - $nil) of interest expense in respect of this note payable.




F-12





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)



Note 6

Related Party Transactions - (cont’d)


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.


The annual base compensation pursuant to the employment agreement is as follows:


$180,000 until February 8, 2013;

$200,000 until February 8, 2014;

$255,000 until February 8, 2015;

$255,000 per annum thereafter, - unless renewal terms are renegotiated


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.


As at June 30, 2012, accounts payable includes $3,750 and management fees for the year ended June 30, 2012 include $96,250 pursuant to this agreement.


Note 7

Capital Stock


The authorized common stock of the Company consists of 90,000,000 shares of common stock with par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001. As of June 30, 2012 the Company had 41,089,296 (June 30, 2011 - 40,375,011) common stock and zero (June 30, 2012 - zero) preferred stock outstanding.


On October 3, 2011, the Company issued 17,857,150 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 14,714,292 and 8,303,574, 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.



F-13





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)


Note 7

Capital Stock - (cont’d)


On January 26, 2012, the Company repurchased and cancelled 17,857,150 million common shares of its own stock and in consideration issued a $45,000 promissory note (Note 6).


On May 7, 2012, the Company issued 285,714 common shares pursuant to subscription agreements at $0.70 per share for total share proceeds of $200,000.


On May 15, 2012, the Company issued 428,571 common shares pursuant to subscription agreements at $0.70 per share for total share proceeds of $300,000.


Note 8

Income Taxes


A reconciliation of the income tax provision computed at statutory rates to the reported tax provision is as follows:


 

Year Ended

Year Ended

 

June 30

June 30,

 

2012

2011

 

 

 

Basic statutory and state income tax rate

35.0%

35.0%


 

Year Ended

 

Year Ended

 

June 30

 

June 30

 

2012

 

2011

 

 

 

 

Approximate loss before income taxes

$

259,219

 

$

68,721

 

 

 

 

 

 

Expected approximate tax recovery on net loss, before income tax

$

90,726

 

$

24,052

Valuation allowance

 

(90,726)

 

 

(24,052)

 

 

 

 

 

 

Deferred income tax recovery

$

-

 

$

-


Significant components of the Company’s deferred tax assets and liabilities are as follows:


 

Year Ended

 

Year Ended

 

June 30

 

June 30

 

2011

 

2011

Deferred income tax assets

 

 

 

 

 

  Non-capital losses carried forward

$

117,256

 

$

26,529

Less: valuation allowance

 

(117,256)

 

 

(26,529)

 

 

 

 

 

 

Deferred income tax assets

$

-

 

$

-



F-14





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)


Note 8

Income Taxes - (cont’d)


At June 30, 2012, the Company has incurred accumulated net operating losses in the United States of America totalling approximately $335,017 which are available to reduce taxable income in future taxation years.


These losses expire as follows:


Year of Expiry

Amount

 

 

2030

$

7,077

2031

$

68,721

2032

$

259,219


The amount taken into income as deferred tax assets must reflect that portion of the income tax loss carryforwards that is more-likely-than-not to be realized from future operations.  The Company has chosen to provide an allowance of 100% against all available income tax loss carryforwards, regardless of their time of expiry.


Note 9

Commitment


On September 1, 2011, the Company entered into a lease agreement for a term of two years.


As of June 30, 2012, the Company’s commitment for annual minimum future lease payments under office rental agreements are as follows:


Fiscal 2013

$

31,770

Fiscal 2014

 

5,295

Total

$

37,065


Additional fees and taxes of approximately $2,541 per month are due in connection with the lease agreement.  Upon acceptance of the lease agreement, a security deposit of $12,000 was paid.


Note 10

Investment in Life Settlement Policies


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.  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.



F-15





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)



Note 10

Investment in Life Settlement Policies - (cont’d)


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 3.5 years.  As of June 30, 2012, the carrying value of the policy is $119,176.


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. 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 policy to be impaired as of June 30, 2012.


Estimated premiums to be paid for each of the five succeeding fiscal years to keep all four policies in force as of June 30, 2012, are as follows.


Year 1

 

$      326,721

Year 2

 

326,721

Year 3

 

326,721

Year 4

 

326,721

Year 5

 

326,721

Total estimated premiums

 

$   1,633,605


As of June 30, 2012, $168,189 of policy premiums has been paid on the remaining three policies and premium payments have been capitalized in the financial statements as of June 30, 2012.  On April 27, 2012, the Company amended the original life settlement contract to extend the $570,000 payable due date to May 10, 2012, and the contract was further amended on May 23, 2012 to extend the $570,000 payable due date to September 17, 2012.  As of  September 24, 2012, the Company has paid a total of $250,000 towards the $570,000 payable and amended the contract to extend the due date for the remaining payable of $320,000 to October 17, 2012.





F-16





CROWN ALLIANCE CAPITAL LTD

(formerly Kinetic Resources Corp).

 (A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2012

(Stated in US Dollars)




Note 11

Subsequent Events


a)

As part of the Company’s non-brokered private placement the Company is offering up to 14,500,000 Stock Units at $0.70 per Unit.  Each Unit consists of one share of common stock of the Company and one warrant.  Each warrant may be exercised at $1.10 into one common stock of the Company for a period of 48 months subsequent to issuance.


Pursuant to the private placement, as of September 17, 2012, the Company has received subscriptions to acquire 180,000 Units at $0.70 for aggregate proceeds of $126,000.


b)

During August 2012, the Company issued an additional 121,482 common shares pursuant to subscription agreements at $0.70 per share for total share proceeds of $85,000.


c)

On September 12, 2012, the Company issued an additional 305,000 common shares pursuant to subscription agreements at $0.70 per share for total share proceeds of $213,500.




















F-17





Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure


No events occurred requiring disclosure under Item 307 and 308 of Regulation S-K during the fiscal year ending June 30, 2012.


Item 9A(T). Controls and Procedures


As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report, being June 30, 2012. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.


Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.


Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report.


Management’s Report on Internal Control over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of June 30, 2012 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of June 30, 2012, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.





23






We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending June 30, 2013: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.


This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.


Item 9B. Other Information


 

PART III


Item 10. Directors, Executive Officers and Corporate Governance


The following information sets forth the names, ages, and positions of our current directors and executive officers as of September 24, 2012.


Lorainne Fusco is our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, and Director.  Ms. Fusco has an Honours Bachelor of Science from the University of Toronto and has worked in the life insurance industry since 2003. She holds several high level distinctions, including being a member of the Million Dollar Round Table (2005, 2006, and 2008), Court of the Table (2005 and 2006) and Top of the Table (2006).  In 2007, she was #2 in Canada for life insurance sales from Des Jardin Financial Security. She has run Fusco Financial since 2005 - a successful life insurance brokerage selling life insurance, critical illness insurance and investments through segregated funds.


Term of Office


Our Directors are appointed for a one year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws.  Our officers are appointed by our board of directors and hold office until removed by the board.


Family Relationships


There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.





24






Involvement in Certain Legal Proceedings


To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.


Committees of the Board


We do not currently have a compensation committee, executive committee, or stock plan committee.


Audit Committee


We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an “audit committee financial expert” within the definition of Item 407(d)(5)(ii) of Regulation S-K. We believe that, at our current size and stage of development, the addition of a special audit committee financial expert to the Board is not necessary.


Nomination Committee


Our Board of Directors does not maintain a nominating committee. As a result, no written charter governs the director nomination process. Our size and the size of our Board, at this time, do not require a separate nominating committee.




25






When evaluating director nominees, our directors consider the following factors:


-

The appropriate size of our Board of Directors;

-

Our needs with respect to the particular talents and experience of our directors;

-

The knowledge, skills and experience of nominees, including experience in finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board;

-

Experience in political affairs;

-

Experience with accounting rules and practices; and

-

The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new Board members.


Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds.


Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that its current nomination process is sufficient to identify directors who serve our best interests.


Code of Ethics


As of June 30, 2012, we had not adopted a Code of Ethics for Financial Executives, which would include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.


Item 11. Executive Compensation


Compensation Discussion and Analysis


Currently, the objective of the cash compensation paid by the company is to provide fair reimbursement for the time spent by our executive officer to the extent feasible within the financial constraints faced by our developing business.  


On February 8, 2012, we entered into an Employment Agreement with our sole officer and director, Lorraine Fusco.  Under Agreement, Ms. Fusco will devote her full time and effort to serving as our President and CEO in exchange for a signing bonus and annual salary.  The term of the agreement is three years, subject to renewal.  Ms. Fusco will receive a $25,000 signing bonus and an initial annual salary of $180,000 per year, payable in semi-monthly installments.  Her salary is scheduled to increase under the agreement as follows:



26






·

February 8, 2013 - $200,000 per year

·

February 8, 2014 - $225,000 per year

·

Renewal Terms - as further agreed in writing by the Company and the Executive or, if no further agreement is made, $225,000 per year.


The Agreement contains certain covenants against competition, terms governing termination of the Agreement by us or Ms. Fusco under certain circumstances, and other terms.  The Agreement should be reviewed in its entirety for more information.


Summary Compensation Table

 

The table below summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended June 30, 2012 and 2011.


SUMMARY COMPENSATION TABLE

Name and

principal position

Year

Salary

($)

Bonus

($)

Stock Awards

($)

Option

Awards

($)

Non-Equity

Incentive Plan

Compensation

($)

Nonqualified

Deferred

Compensation

Earnings ($)

All Other

Compensation

($)

Total

($)

Lorraine Fusco, CEO, CFO, President, Secretary-Treasurer

2012

2011

67,500

n/a

25,000

n/a


0

n/a


0

n/a


0

n/a


0

n/a


0

n/a

92,500

n/a


Luis Antonio

Delgado Gonzalez,

former officer

2012

2011

n/a

0

n/a

0

n/a

0

n/a

0

n/a

0

n/a

0

n/a

0

n/a

0


Narrative Disclosure to the Summary Compensation Table


During the fiscal year ended June 30, 2012, we paid our sole officer and director, Lorraine Fusco, a total of $92,500.


Outstanding Equity Awards at Fiscal Year-End


The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of June 30, 2012.




27






OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

OPTION AWARDS

STOCK AWARDS

 Name

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

Number of

Securities

Underlying

Unexercised

Options

 (#)

Unexercisable

Equity

Incentive

 Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

Option

Exercise

 Price

 ($)

Option

Expira-tion

Date

Number

of

Shares

or Shares

of

Stock That

Have

Not

Vested

(#)

Market

Value

of

Shares

or

Shares

of

Stock

That

Have

Not

Vested

($)

Equity

Incentive

 Plan

Awards:

 Number

of

Unearned

 Shares,

Shares or

Other

Rights

That Have

 Not

Vested

(#)

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Shares or

Other

Rights

That

Have Not

 Vested

(#)

Lorraine Fusco

-

-

-

-

-

-

-

-

-


Director Compensation


The table below summarizes all compensation of our directors as of June 30, 2012.


DIRECTOR COMPENSATION

Name

Fees Earned or

Paid in

Cash

Stock

Awards

Option

Awards

Non-Equity

Incentive

Plan

Compensation

Non-Qualified

Deferred

Compensation

Earnings

All

Other

Compensation

Total

Lorraine Fusco

-

-

-

-

-

-

-


Narrative Disclosure to the Director Compensation Table


We do not compensate our directors for their service at this time.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


The following table sets forth, as of September 24, 2012, the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5% of the our common stock and by the executive officers and directors as a group:





28






Title of class

Name and address

of beneficial owner

Amount of

beneficial ownership(1)

Percent

of class

Common

Lorraine Fusco

72 Thomson Creek Blvd.

Woodbridge, ON L4H 1B7

336,000

0.8%

 

All Officers and Directors as a Group (one person)

336,000

0.8%

 

 

 

 

 

Other 5% owners

 

 

 

None

 

 


(1)

As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.


Disclosure of Commission Position of Indemnification for Securities Act Liabilities


In accordance with the provisions in our articles of incorporation, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law.


Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.


Item 13. Certain Relationships and Related Transactions, and Director Independence


Except as set forth below, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction since our incorporation or in any presently proposed transaction which, in either case, has or will materially affect us:


1.

On January 26, 2012, we repurchased and cancelled 17,857,150 (post split) shares of our own common stock in consideration for a $45,000 promissory note to a company managed by our President, Lorraine Fusco. The promissory note is unsecured, bears interest at 10% per annum, and is due on or before January 26, 2013.


2.

On February 8, 2012, we entered into an Employment Agreement with our sole officer and director, Lorraine Fusco.  Under Agreement, Ms. Fusco will devote her full time and effort to serving as our President and CEO in exchange for a signing bonus and annual salary.  The term of



29





the agreement is three years, subject to renewal.  Ms. Fusco will receive a $25,000 signing bonus and an initial annual salary of $180,000 per year, payable in semi-monthly installments.  Her salary is scheduled to increase under the agreement as follows:


a.

February 8, 2013 - $200,000 per year

b.

February 8, 2014 - $225,000 per year

c.

Renewal Terms - as further agreed in writing by the Company and the Executive or, if no further agreement is made, $225,000 per year.


Director Independence


We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we do not have any independent directors.


Item 14. Principal Accounting Fees and Services


Below is the table of Audit Fees (amounts in US$) billed by our auditor in connection with the audit of the Company’s annual financial statements for the years ended:


Financial Statements for

the Year Ended June 30

Audit Fees

Audit-Related Fees

Tax Fees

Other Fees

2012

$12,500

$0

$1,700

$0

2011

$9,250

$0

$0

$0





 

30





PART IV


Item 15. Exhibits, Financial Statements Schedules

 

(a)

Financial Statements and Schedules

 

The following financial statements and schedules listed below are included in this Form 10-K.

 

Financial Statements (See Item 8)

 

(b)

Exhibits

 

Exhibit Number

Description

10.1

Promissory Note dated January 26, 2012(1)

10.2

Agreement to Lease(1)

10.3

Employment Agreement with Lorraine Fusco(1)

10.4

Policy Purchase Agreement as Amended April 27, 2012(2)

10.5

Further Amendment to Policy Purchase Agreement

3.1

Articles of Incorporation (3)

3.2

Bylaws(3)

31.1

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101**

The following materials from the Company’s Annual Report on Form 10-K for the year ended June 30, 2012 formatted in Extensible Business Reporting Language (XBRL).


(1)

Incorporated by reference to Quarterly Report on Form 10-Q filed February 14, 2012

(2)

Incorporated by reference to Quarterly Report on Form 10-Q filed May 9, 2012

(3)

Incorporated by reference to Registration Statement on Form S-1 filed on September 13, 2012










31





SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


CROWN ALLIANCE CAPITAL LIMITED


By:

/s/ Lorraine Fusco

  

Lorraine Fusco

Title:

Chief Executive Officer, Chief Financial Officer and Director

Date:

September 26, 2012


In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

By:

/s/ Lorraine Fusco

  

Lorraine Fusco

Title:

Chief Executive Officer, Chief Financial Officer and Director

Date:

September 26, 2012














 




32


PINX:CACL Crown Alliance Capital Ltd Annual Report 10-K Filling

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