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EX-32 - CASE FINANCIAL INC | ex32.htm |
EX-31.1 - CASE FINANCIAL INC | ex31_1.htm |
EX-31.2 - CASE FINANCIAL INC | ex31_2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
annual period ended September 30, 2009
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
Transition period from _______________________ to
______________________
COMMISSION
FILE NUMBER 0-27757
CASE
FINANCIAL, INC.
(Exact
Name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction incorporation or organization)
|
33-0529299
(I.R.S.
Employer Identification No.)
|
7668 El
Camino Real, Ste.104-106, Carlsbad, CA 92009
(Address
of principal executive offices)
(760)
804-1449
(Registrant's
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act
Common
Stock, $.001 par value
(Title of
class)
Indicate
by check mark if the registrant is a well-know seasoned issuer, as defined in
rule 405 of the Securities Act [ ] Yes [X] No
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 [X] No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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 [ ]
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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Large
accelerated
filer [ ] Accelerated
filer [ ]
Non-accelerated
filer [ ] (Do not check if a smaller reporting
company) Smaller reporting company [X]
As of
January 4, 2010 there were 40,685,145 shares of common stock
outstanding.
Cautionary
Statement Pursuant to Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995:
This
Annual Report on Form 10-K for the fiscal year ended September 30, 2009 contains
"forward-looking statements" within the meaning of the Federal securities laws.
These forward-looking statements include, but are not limited to, statements of
expectations, beliefs, future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. The forward-looking statements in this Annual Report on Form 10-K for the
fiscal year ended September 30, 2009 are subject to risks and uncertainties that
could cause actual results to differ materially from those results expressed in
or implied by the statements contained herein.
1
TABLE OF
CONTENTS
PART
I
Item
1 Description of Business
|
3
|
Item
1a Risk Factors
|
4 |
Item
2. Description of Property
|
5 |
Item
3. Legal Proceedings
|
5 |
Item
4. Submission of Matters to a Vote of Security
Holders
|
7 |
Item
5. Market for Registrant’s common Equity and Related
Stockholder Matters
|
7 |
Item
6. Selected Financial Data
|
8 |
Item
7. Management's Discussion and Analysis Financial
Condition and Results of Operations
|
8 |
Item
7a. Quantitative and Qualitative Disclosures About Market
Rsk
|
12 |
Item
8. Financial Statements and Supplementary
Data
|
14 |
Item
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
|
35 |
Item
9a. Controls and Procedures
|
35 |
Item
10. Directors, and Executive Officers of the Registrant
|
37 |
Item
11. Executive Compensation
|
39 |
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
40 |
Item
13. Certain Relationships and Related Transactions, and Director
Independence
|
41 |
Item
14. Principal Accountant Fees and Services
|
41 |
Item
15. Exhibits, Financial Statements Schedules
|
41 |
Signatures
|
42 |
2
PART
1
Item
1. Description of Business
General
This
Annual Report (including, but not limited to, the section Management's
Discussion and Analysis or Plan of Operation) includes "forward looking
statements." All statements other than statements of historical fact made in
this Form 10-K are forward-looking. In particular, any statements made in this
Form 10-K regarding industry prospects or our future results of operations or
financial position are forward-looking statements. Forward-looking statements
reflect our current expectations and are inherently uncertain. The
forward-looking statements contained herein are subject to a variety of risks
and uncertainties, including those discussed above under the heading "Factors
That May Affect Future Results" and elsewhere in this Annual Report on Form 10-K
that could cause actual results to differ materially from those anticipated by
us. Our actual results may differ significantly from our
expectations.
We were
originally incorporated as Sheen Minerals, Inc. on August 26, 1983 in British
Columbia, Canada. In September 1993, we domesticated under Section 388 of the
Delaware General Corporation Law. Since our incorporation, we have been in
several different businesses. On March 12, 2002, we entered into a definitive
Asset Purchase Agreement (the "Agreement") with Case Financial, Inc., a private
California corporation, wherein we purchased certain assets and the entire
business operations of Case Financial, Inc. and its wholly owned subsidiary Case
Financial Funding, Inc. (hereinafter referred to as "Old CFI"), and Case
Financial, LLC (a California Limited Liability Company related through common
ownership, and hereinafter referred to as "LLC") (together hereinafter referred
to as "Old Case").
In May
2002, the Company changed its name to Case Financial, Inc. (Case) and changed
its fiscal year end to September 30. Case Financial, Inc. and its subsidiaries,
Case Financial, LLC, and Case Capital Corporation, which was formed in November
2002, are hereinafter referred to collectively as "Case" or the
"Company".
Overview
Case's
business was to provide pre-settlement and post-settlement litigation funding
services to attorneys and plaintiffs involved in personal injury and other
contingency litigation, conducted primarily within the California courts (the
"Litigation Finance Business"). Case funding services were non-recourse, meaning
that the investment principal, success fees and interest are repaid only when
the case is settled or favorably adjudicated in court. On September 30, 2005,
the Company's Board of Directors approved a resolution declaring that the
Company discontinued its Litigation Finance Business.
The
Company intends to seek, investigate and, if such investigation warrants,
acquire an interest in business opportunities who or which desire to seek the
advantages of an issuer who has complied with the Securities Act of 1934 ("1934
Act"). In any transaction, we will be the surviving entity, and our stockholders
will retain a percentage ownership interest in the post-transaction company. We
will not restrict our search to any specific business, industry, or geographical
location, and may participate in a business venture of virtually any kind or
nature. This discussion of the proposed business is purposefully general and is
not meant to be restrictive of our virtually unlimited discretion to search for
and enter into potential business opportunities. We may seek a business
opportunity with entities which have recently commenced operations, or which
wish to utilize the public marketplace in order to raise additional capital in
order to expand into new products or markets, to develop a new product or
service, or for other corporate purposes. We may acquire assets and establish
wholly owned subsidiaries in various businesses or acquire existing businesses
as subsidiaries. We anticipate that the selection of a business opportunity in
which to participate will be complex and extremely risky.
3
In
analyzing prospective business opportunities, we will consider such matters as
the available technical, financial and managerial resources; working capital and
other financial requirements; history of operations, if any; prospects for the
future; nature of present and expected competition; the quality and experience
of management services which may be available and the depth of that management;
the potential for further research, development or exploration; specific risk
factors not now foreseeable but which then may be anticipated to impact our
proposed activities; the potential for growth or expansion; the potential for
profit; the public recognition of acceptance of products, services or trades;
name identification; and other relevant factors.
Employees
As of
September 30, 2009, the Company has two employees.
Item 1a.
Risk Factors
We
currently have no operating business.
We
currently have no relevant operating business, revenues from operations or
assets. Our business plan is to seek a merger or business combination with an
operating business. We face all of the risks inherent in the investigation,
acquisition, or involvement in a new business opportunity. An investor's
purchase of any of our securities must be regarded as placing funds at a high
risk in a new or "start-up" venture with all of the unforeseen costs, expenses,
problems, and difficulties to which such ventures are subject.
4
Item 2.
Description of Property
The
Company's current operations do not require that it maintain any significant
office space. As for September 30, 2009 the Company is under no
operating lease agreement. Currently an officer of the Corporation is
providing office space at no charge to the Company to meet its business
needs.
Item 3.
Legal Proceedings
On March
25, 2005 a derivative lawsuit was filed by the Canadian Commercial Workers
Industry Pension Plan ("CCWIP"), a major stockholder of the Company. The lawsuit
was filed in the Court of Chancery of the State of Delaware against former
officers and directors of the Company, specifically Eric Alden, a former CEO and
CFO and Chairman of the Board, Harvey Bibicoff, a former interim CEO and CFO and
director, Lorne Pollock, former Vice President of Underwriting, Secretary and
director and Gordon Gregory, a former director alleging that these officers and
directors had damaged the Company by (a) engaging in self dealing transactions
in breach of their fiduciary duty of loyalty; (b) mismanaging the Company in
violation of their oversight duties and duty of care; (c) wasting corporate
assets; and (d) making fraudulent misrepresentations which induced the corporate
entity to issue shares to these individuals. The Company's Board of Directors
has elected to consent to the filing of this complaint. The Company was named as
a nominal defendant in this complaint.
On
October 5, 2005, Mr. Gregory, Mr. Pollock, and the Company executed a Settlement
and Release Agreement regarding this action pursuant to which:
·
|
Mr.
Gregory returned to the Company 750,000 shares of common stock owned or
controlled by him and cancelled two promissory notes of the Company
totaling $100,000.
|
·
|
Mr.
Pollock returned to the Company 100,000 shares of common stock owned or
controlled by him and repaid in cash to the Company
$15,160.
|
·
|
Mr.
Pollock and Mr. Gregory were released from further action by the majority
stockholder and the Company with respect to the claims made in the
derivative lawsuit.
|
·
|
Mr.
Pollock and Mr. Gregory agreed to waive any and all further claims against
the Company and the major
stockholder.
|
The
foregoing agreement was approved by the Court of Chancery in the State of
Delaware and was consummated in February 2006. .
On
September 1, 2006, the Company reached a settlement agreement with Mr. Bibicoff
resolving all current litigation between the Company and this individual. The
key terms to this settlement agreement were:
·
|
The
cancellation of promissory notes and accrued interest together totaling
approximately $875,000 held by this
individual.
|
·
|
The
dismissal of this individual from the derivative lawsuit filed in the
Delaware Court of Chancery on March 16,
2005.
|
·
|
The
release of each party from any and all claims that could have been
asserted by the other party in any of the actions dismissed as a result of
this settlement agreement.
|
5
The
foregoing agreement was approved by the Court of Chancery in the State of
Delaware and was consummated in November 2007.
Mr. Alden
remains the sole defendant in this action, on November 7th 2007, Case Financial
assumed the role of plaintiff in the derivative action commenced against Alden
in March 2005 by CCWIPP.
On April
25th 2005, Mr. Alden filed a breach of contract lawsuit against the Company in
the Superior Court of the State of Californian for the County of Los Angeles,
Case Number BC 332373. This lawsuit had been stayed by the court pending the
outcome of the derivative action filed against Mr. Alden.
On April
12, 2006, Mr. Alden filed another lawsuit against Landmark American Insurance
Company and Case Financial, Inc. in the Superior Court of the State of
Californian for the County of Los Angeles, Case Number BC 336747 demanding
indemnification for costs associated with this derivative action. This lawsuit
had been stayed by the court pending the outcome of the derivative action filed
against Mr. Alden.
On April
19, 2006 Mr. Alden filed a wrongful termination lawsuit against the Company in
the Superior Court of the State of California, Case Number BC 350929. This
lawsuit had been stayed by the court pending the outcome of the derivative
action filed against Mr. Alden.
Mr. Alden
has been directed by the court not to file any additional lawsuits against the
Company until the derivative action has been resolved.
On March
6, 2006 a lawsuit was filed in the Circuit Court of the 11th Judicial Circuit
for Miami-Dade County Florida, case number 07-06488CA 02 against the Company by
a law firm, for unpaid legal bills in the amount of $94,036. On February 14,
2008 the Company entered into a settlement with the above law firm. The
settlement states that the Company shall pay the total sum of $72,500 in equal
monthly installments of $5,000. In the event of default the Company agreed that
the entire amount of $94,036 plus all accrued interest shall be due the law
firm. Because of its financial condition, the Company defaulted on this
agreement and a judgment against the Company in the amount of $82,802.72 was
entered on June 2, 2009.
On July
3rd, 2008, the company was served with a lawsuit that was filed in the Superior
Court of the State of California for the County of Los Angeles, Case Number BC
391485, against the Company by Old CFI, Inc relating to (a) its performance
under the service agreement between the Company and Old CFI, Inc and (b) the
transfer of the Company's common stock from Old CFI, Inc to the secured
creditors of Old CFI, Inc by the CEO of Old CFI, Inc. Pursuant to the service
agreement, the Company demanded and the Court granted that issue (a) be resolved
through arbitration. The arbitration is ongoing. The Company believes that this
lawsuit is completely without merit.
6
On
February 17, 2009, the Canadian Commercial Workers Industry Pension Plan
("CCWIPP") filed a Complaint in Arbitration, asserting that the Company breached
the non-disparagement clause of the November 7, 2007 settlement agreement
between CCWIPP and the Company. The Company has counter-claimed based on CWIPP’s
breach of the same agreement. The Company believes that it will prevail in
arbitration.
On
September 21, 2009, a lawsuit was filed in the Superior Court of the State of
California for the County of San Diego, North County, Case Number
37-2009-00038119-CL-UD-NC against the Company by a La Costa Tower, LLC to seek
recovery of $11,625.64, the remaining amount due under the lease at
its previous office location.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
Item 5.
Market for Registrant’s Common Equity and Related Stockholder
Matters
Our
Common Stock is traded on the Over the Counter Bulletin Board (the "OTC Bulletin
Board") under the symbol "CSEF." The following table sets forth the high and low
trade prices of the Common Stock for the quarters indicated as quoted on the OTC
Bulletin Board.
2009
|
2008
|
|||
HIGH
|
LOW
|
HIGH
|
LOW
|
|
First
Quarter
|
0.09
|
0.02
|
0.12
|
0.04
|
Second
Quarter
|
0.02
|
0.01
|
0.30
|
0.06
|
Third
Quarter
|
0.03
|
0.02
|
0.29
|
0.11
|
Fourth
Quarter
|
0.05
|
0.01
|
0.12
|
0.04
|
As of
December 31, 2009, there were approximately 426 holders of record of Common
Stock.
We do not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
The Company currently intends to retain future earnings to finance its
operations and fund the growth of its business. Any payment of future dividends
will be at the discretion of the Board of Directors and will depend upon, among
other things, earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of dividends
and other factors that the Board of Directors deems relevant.
Recent Sales of Equity
Securities
On
December 31, 2008, the Company issued 250,000 shares of its common stock to Trio
Gold Corp as consideration for an extension granted by Trio Gold Corp on an
agreement between the Company and Trio Gold Corp. Refer to the Management's
Discussion and Analysis or Plan of Operation in this Form 10-K for a discussion
on this agreement.
On
October 5, 2009, the Company issues 2,000,000 shares of its common stock as a
retainer for legal services.
In
October 2009, the Company also settled additional outstanding loans from two of
its shareholders totaling $15,000 by allowing them to purchase 1,500,000 shares
of the Company’s common stock at a price of $.01 per share.
In
October 2009, the Company borrowed $50,000 from two shareholders ($25,000 from
each shareholder). The Company issued 1,000,000 shares of the Company’s common
stock to each of the shareholders as consideration for agreeing to make those
loans.
On
November 18, 2009, the Company reduced its outstanding loans with Lawrence
Schaffer by allowing Mr. Schaffer to purchase 2,500,000 shares of the Company’s
common stock at a price of $.01 per share.
On
November 18, 2009, the Company reduced its outstanding loans with Michael
Schaffer by allowing Mr. Schaffer to purchase 2,500,000 shares of the Company’s
common stock at a price of $.01 per share.
On
November 18, 2009, the Company settled its outstanding loans with Waddy
Stephenson by allowing Mr. Stephenson to purchase 1,000,000 shares of the
Company’s common stock at a price of $.01 per share.
7
Equity Compensation Plan
Information
The
company has no equity compensation plan for its employees, officers, or
directors.
Item 6.
Selected Financial Data
None
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes thereto appearing elsewhere herein.
Case's
business was to provide pre-settlement and post-settlement litigation funding
services to attorneys and plaintiffs involved in personal injury and other
contingency litigation, conducted primarily within the California courts (the
"Litigation Finance Business"). Case funding services were non-recourse, meaning
that the investment principal, success fees and interest are repaid only when
the case is settled or favorably adjudicated in court. On September 30, 2005,
the Company's Board of Directors approved a resolution declaring that the
Company discontinued its Litigation Finance Business.
We have
recorded on our September 30, 2009 and 2008 Consolidated Balance Sheet all
assets and liabilities associated with the Litigation Finance Business as Assets
and Liabilities from Discontinued Operations. All revenues and expenses
associated with the Litigation Finance Business have been reclassified and the
net amount reported on its Consolidated Statement of Operations as Loss from
Discontinued Operations.
On June
2, 2008, the Company entered into an Exploration Agreement with Trio Gold Corp
to explore 29 gold claims covering 547 acres (the Rodeo Creek property) located
at the north end of the Carlin Trend in Elko County, Nevada. Under the terms of
the agreement, Case Financial, Inc. is to provide $4,000,000 in funding over the
next three years to explore the 29 claims and to issue 1,000,000 shares of its
common stock to Trio Gold Corp during the same time period, to earn a 70 percent
undivided interest in these claims.
On
October 3, 2008, the Company received an extension on its funding requirements
from Trio Gold Corp. Under the terms of the extension, the Company
issued 250,000 shares of its common stock to Trio Gold Corp. as consideration
for this extension.
Due to
the current economic conditions, the Company was unable to raise the capital
required to fund the Exploration Agreement with Trio Gold Corp. and on April 17,
2009, pursuant to terms of that agreement, Trip Gold Corp. terminated the
Exploration Agreement.
At this
time, Management believes that the Company's operations should be focused on the
successful prosecution of the derivative action against its former Chief
Executive Officer Eric Alden, and defending against related actions initiated by
Mr. Alden against the Company.
The
Company believes that its current cash resources will be inadequate to fund its
operations through its fiscal year ended September 30, 2010. In order to
continue its operations, the Company anticipates that some form of equity
financing and/or a formal or informal restructuring or reorganization will be
required.
8
Critical Accounting
Policies
Discontinued
Operations
In
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", we have determined that we have complied with the provisions
of SFAS No. 144 at September 30, 2009 and 2008 with respect to the
classification of the operations of the Litigation Finance Business as a
discontinued operation. Accordingly, we have accounted for our Litigation
Finance Business as a discontinued operation at September 30, 2009 and 2008, and
the assets and liabilities of the Litigation Finance Business have been
classified accordingly.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the making of
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those
estimates.
Long-lived
Assets
We review
for the impairment of long-lived assets, including the notes receivable from Old
CFI, and certain identifiable intangibles, whenever events or changes in
circumstances indicate that the carrying amount of any asset may not be
recoverable. An impairment loss would be recognized when the estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition is less than the carrying amount. If impairment is
indicated, the amount of the loss to be recorded is based on an estimate of the
difference between the carrying amount and the fair value of the asset. Fair
value is based upon discounted estimated cash flows expected to result from the
use of the asset and its eventual disposition and other valuation methods. When
a note receivable becomes impaired, interest is no longer accrued and is
recognized when received in cash.
Trends and
Uncertainties
The
principal uncertainties we face are access to adequate capital to seek other
business opportunities, the ability to collect the outstanding balances pursuant
to our portfolio of investments in contracts and loans receivable and the
ability to resolve the various litigation matters facing us.
9
Results of
Operations
Discontinued
Operations
All
revenue and expenses applicable to our Litigation Finance Business have been
reported as gain/(losses) from Discontinued Operations in Statement of
Operations. The components of gain/(loss) from Discontinued Operations for the
years ended September 30, 2009 and September 30, 2008 consist of the
following:
Years Ended
|
||||||||
2009
|
2008
|
|||||||
Revenues
|
$ | 39,687 | $ | 306,305 | ||||
Operating
expenses
|
0 | 0 | ||||||
Net
income (Loss) from discontinued operations
|
$ | 39,687 | $ | 306,305 |
In the
aggregate, the Company had income from discontinued operations of $39,687
compared to an income from Discontinued Operations for 2008 of $306,305.
Revenues from the discontinued Litigation Finance Business decreased by
$266,618, in
the year ended September 30, 2009 over the year ended September 30, 2008 as a
result of settlements that occurred in 2008 related to the Company's
discontinued operations.
Operating
Expenses
Operating
expenses consist of costs not directly associated with our Litigation Finance
Business. For the year ended September 30, 2009, administrative
expenses decreased $297,172, or 29%, to $725,231.
The
decrease in operating expenses were due to the following:
1.
|
There
were no stock option expenses for the year ended September 30, 2009.
However, stock option expenses were $405,677 for the year ended September
30, 2008 as the Company had issued stock options to purchase 2,000,000
shares of the Company's common stock at an exercise price of $0.25.
Excluding stock option expenses for the year 2008, operating expenses
would have increased by $108,506.
|
2.
|
Compared
to 2008, Professional Fees increased $140,207 for the year ended September
30, 2009. The significant increase in professional fees is due to an
increase in attorney expenses.
|
3.
|
Compared
to 2008, General and Administrative expenses decreased $31,551 for the
year-end
September 30, 2009.
|
Interest
Expense
Interest
expense was $52,143 for the year ended September 30, 2009 compared with $3,023
for the year ended September 30, 2008, an increase of $49,120.
10
Gain On Forgiveness of
Debt
Gain on
forgiveness of debt consists of valuation and write-off of accounts payable and
loans payable. Gain on forgiveness of debt for the years ended September 30,
2009 and 2008 was $0 and $11,780, respectively.
Non-Cash Finance
Expense
Non-cash
finance expenses were S0 for the year ended September 30, 2009 and for the year
ended September 30, 2008.
Liquidity and Capital
Resources
The
financial statements for the fiscal year ended September 30, 2009; our
independent auditors expressed substantial doubt about our ability to continue
as a going concern. We have discontinued our principal business, the Litigation
Finance Business. We have incurred net income / (loss) of $(737,688) and
$(695,536) during the years ended September 30, 2009 and 2008, respectively.
There was an accumulated deficit of $12,296,824 as of September 30, 2009 and
total liabilities exceeded total assets by $1,652,946 as of September 30, 2009.
These conditions raise substantial doubt about our ability to continue as a
going concern and our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Operating
Activities
Our
balance sheet at September 30, 2009 reflects cash of $1,900 compared to cash of
$2,963 at September 30, 2008, a decrease of $1,063. Net cash used in
operating activities was $(100,836) for the year ended September 30, 2009
compared to $(21,672) for the year ended September 30, 2008, an increase in cash
used in operating activities of $79,164.
Investment
Activities
Net cash
provided by investing activities for the year ended September 30, 2009 was
$0 compared
to net cash provided by investing activities of $0 for the year ended September
30, 2008.
Financing
Activities
Net cash
provided by financing activities was $99,773 for the year ended September 30,
2009 as compared to $19,999 for the year ended September 30, 2008 an increase of
$79,774.
11
Item 7a.
Quantitative and Qualitative Disclosures About Market Risk
Factors That May Affect
Future Results
We are
dependent upon our current management.
We will
be heavily dependent upon the skills, talents, and abilities of our management
to implement our business plan. Our management may devote limited time to our
affairs, which may be inadequate for our business, and may delay the acquisition
of any business opportunity considered. Furthermore, management has limited
experience in seeking, investigating, and acquiring businesses and will depend
upon its limited business knowledge in making decisions regarding our
acquisition of a business opportunity. Because investors will not be able to
evaluate the merits of possible business acquisitions by us, they should
critically assess the information concerning the management.
We will
need additional financing.
In all
likelihood we will need additional funds to take advantage of any available
acquisition business opportunity. Even if we were to obtain sufficient funds to
acquire an interest in a business opportunity, we may not have sufficient
capital to fully exploit the opportunity. Our ultimate success will depend upon
our ability to raise additional capital at the time of the acquisition and
thereafter. When additional capital may be needed, there can be no assurance
that funds will be available from any source or, if available, that they can be
obtained on acceptable terms.
We do not
pay dividends.
We do not
intend to pay any dividends. We do not foresee making any cash distributions in
the manner of a dividend or otherwise.
The
effects of an acquisition or merger transaction could be dilutive.
In any
reverse merger transaction, for tax reasons and management reasons, the owners
of the target company will be issued a large number of shares of common stock,
which will dilute the ownership interest of our current stockholders. In
addition, at the time of the reverse merger, it will be likely that there will
-be additional authorized but unissued shares that may be later issued by the
then new management for any purpose without the consent or vote of the
stockholders. The acquisition issuance and additional issuances that may occur
will dilute the interests of our stockholders after the reverse merger
transaction.
Company
common stock is listed on the Over-The-Counter (OTC) Bulletin
Board.
Because
the Company's common stock is listed on the OTC Bulletin Board, the liquidity of
the common stock is impaired, not only in the number of shares that are bought
and sold, but also through delays in the timing of transactions, and limited
coverage by security analysts and the news media, if any, of the Company. As a
result, prices for shares of the Company's common stock may be lower than might
otherwise prevail if the Company's common stock was traded on NASDAQ or a
national securities exchange, like the American Stock Exchange.
12
Chang
G. Park, CPA, Ph. D.
t 2667 CAMINO DEL RIO
SOUTH PLAZA Bt SAN
DEIGO t CALIFORNIA
92108-3707t
t TELEPHONE (858)
722-5953 t FAX
(858) 761-0341 t FAX (858)
764-5480
t E-MAIL changgpark@gmail.comt
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
Case
Financial, Inc.
We have
audited the accompanying consolidated balance sheets of Case Financial, Inc. and
subsidiary (the “Company”) as of September 30, 2009 and 2008, and the related
consolidated statements of operations, changes in shareholders’ equity and cash
flows for the years ended September 30, 2009 and 2008. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audit 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. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Case Financial,
Inc. and subsidiary as of September 30, 2009 and 2008, and the results of its
operation and its cash flows for the years ended September 30, 2009 and 2008 in
conformity with U.S. generally accepted accounting principles.
The
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 11 to the
consolidated financial statements, the Company’s losses from operations raise
substantial doubt about its ability to continue as a going
concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
Chang G.
Park
CHANG G.
PARK, CPA
January
12, 2010
San
Diego, CA. 92108
13
Item 8.
Financial Statements and Supplementary Data
CASE
FINANCIAL, INC. AND SUBSIDIARIES
|
||||||||
Consolidated
Balance Sheets
|
||||||||
ASSETS
|
||||||||
As
of
|
As
of
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
Current
Assets
|
||||||||
Cash
& cash equivalents
|
$ | 1,900 | $ | 2,963 | ||||
Prepaid
expense
|
- | 41,223 | ||||||
Total
Current Assets
|
1,900 | 44,186 | ||||||
Other
Assets
|
||||||||
Deposits
|
- | 1,453 | ||||||
Total
Other Assets
|
- | 1,453 | ||||||
TOTAL
ASSETS
|
$ | 1,900 | $ | 45,639 | ||||
LIABILITIES
& STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,156,805 | $ | 757,629 | ||||
Loans
payable - related parties
|
93,041 | 8,268 | ||||||
Notes payable
|
405,000 | 200,000 | ||||||
Total
Current Liabilities
|
1,654,846 | 965,897 | ||||||
TOTAL
LIABILITIES
|
1,654,846 | 965,897 | ||||||
Stockholders'
Equity (Deficit)
|
||||||||
Preferred
stock, ($.0001 par value, 20,000,000
|
||||||||
shares
authorized; none issued and outstanding.)
|
- | - | ||||||
Common
stock, (par value $.001 per share, 100,000,000
|
||||||||
shares
authorized: 29,185,145 and 28,935,145 shares issued and
|
||||||||
outstanding
as of September 30, 2009 and 2008, respectively)
|
29,185 | 28,935 | ||||||
Paid-in
capital
|
10,614,693 | 10,609,943 | ||||||
Accumulated
deficit
|
(12,296,824 | ) | (11,559,136 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
(1,652,946 | ) | (920,258 | ) | ||||
TOTAL
LIABILITIES &
|
||||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
$ | 1,900 | $ | 45,639 | ||||
14
CASE
FINANCIAL, INC. AND SUBSIDIARIES
|
||||||||
Consolidated
Statements of Operations (Unaudited)
|
||||||||
Year
Ended
|
Year
Ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
Revenues
|
||||||||
Service
|
$ | - | $ | - | ||||
Net
Revenue
|
- | - | ||||||
Operating
Expenses
|
||||||||
Depreciation
|
- | 149 | ||||||
General
and administrative
|
121,412 | 152,963 | ||||||
Salaries
|
168,000 | 168,000 | ||||||
Stock
option expense
|
- | 405,677 | ||||||
Professional
fees
|
435,821 | 295,614 | ||||||
Total
Operating Expenses
|
725,231 | 1,022,403 | ||||||
Income
(Loss) from operations
|
(725,252 | ) | (1,022,403 | ) | ||||
Other
Income (Expenses)
|
||||||||
Interest
income
|
- | 10,270 | ||||||
Interest
expense
|
(52,143 | ) | (3,023 | ) | ||||
Gain
on forgiveness of debt
|
- | 11,780 | ||||||
Other
income
|
- | 1,645 | ||||||
Other
expense
|
- | (110 | ) | |||||
Total
Other income
|
(52,143 | ) | 20,562 | |||||
Net
income (loss) before discontinued operations
|
(777,374 | ) | (1,001,841 | ) | ||||
Gain
(Loss) from discontinued operations
|
39,687 | 306,305 | ||||||
Net
Income (loss)
|
$ | (737,688 | ) | $ | (695,536 | ) | ||
Net
Income (Loss) per common share - basic and diluted:
|
||||||||
From
continuing operations
|
$ | (0.03 | ) | $ | (0.03 | ) | ||
From
discontinued operations
|
$ | 0.00 | $ | 0.01 | ||||
Weighted
average number of
|
||||||||
common
shares - basic and diluted
|
29,123,501 | 28,655,910 | ||||||
15
CASE
FINANCIAL, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||
Consolidated
Statements of Changes in Stockholders Equity (Deficit)
|
||||||||||||||||||||||||||||
As
of September 30, 2009
|
||||||||||||||||||||||||||||
Common
|
Common
|
Additional
|
Shares
To
|
Treasury
|
Retained
|
Total
|
||||||||||||||||||||||
Shares
|
Stock
|
Paid-in
|
Be
Issued
|
Stock
|
Earnings
|
|||||||||||||||||||||||
Amount
|
Capital
|
(Deficit)
|
||||||||||||||||||||||||||
Balance,
September 30, 2007
|
28,535,145 | $ | 28,535 | $ | 10,117,166 | $ | - | $ | - | $ | (10,863,600 | ) | $ | (717,899 | ) | |||||||||||||
Common
stock issued in purchase agreement
|
250,000 | 250 | 72,250 | 72,500 | ||||||||||||||||||||||||
Common
stock issued for Directors fees
|
500,000 | 500 | 114,500 | 115,000 | ||||||||||||||||||||||||
Cancel
stock issued for Direcotors fees
|
(500,000 | ) | (500 | ) | (114,500 | ) | (115,000 | ) | ||||||||||||||||||||
Stock
options
|
405,677 | 405,677 | ||||||||||||||||||||||||||
Common
stock issued for cash
|
150,000 | 150 | 14,850 | 15,000 | ||||||||||||||||||||||||
Net
Income (loss)
|
(695,536 | ) | (695,536 | ) | ||||||||||||||||||||||||
Balance,
September 30, 2008
|
28,935,145 | 28,935 | 10,609,943 | - | - | (11,559,136 | ) | (920,258 | ) | |||||||||||||||||||
Common
stock issued in purchase agreement
|
250,000 | 250 | 4,750 | 5,000 | ||||||||||||||||||||||||
Net
Income (loss)
|
(737,688 | ) | (737,688 | ) | ||||||||||||||||||||||||
Balance,
September 30, 2009
|
29,185,145 | $ | 29,185 | $ | 10,614,693 | $ | - | $ | - | $ | (12,296,824 | ) | $ | (1,652,946 | ) | |||||||||||||
16
CASE
FINANCIAL, INC. AND SUBSIDIARIES
|
||||||||
Consolidated
Statements of Cash Flows
|
||||||||
Year
Ended
|
Year
Ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
CASH FLOWS FROM OPERATING
ACTIVITIES
|
||||||||
Gain
(Loss) from discontinued operations
|
$ | 39,687 | $ | 306,305 | ||||
Gain
(Loss) from continuing operations
|
(777,374 | ) | (1,001,841 | ) | ||||
Net
income (loss)
|
(737,688 | ) | (695,536 | ) | ||||
Adjustments
to reconcile net loss to net cash
|
||||||||
provided
by (used in) operating activities:
|
||||||||
Common
stock for services
|
5,000 | - | ||||||
Amortization
|
- | 37,419 | ||||||
Depreciation
|
- | 149 | ||||||
Stock
options
|
- | 405,677 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
decrease in prepaid expenses
|
41,223 | 75,218 | ||||||
(Increase)
decrease in deposits
|
1,453 | - | ||||||
Increase
(decrease) in accounts payable and accrued expense
|
589,176 | 155,401 | ||||||
Net
cash (used by) continuing operations
|
(100,836 | ) | (21,672 | ) | ||||
Net
cash provided by continuing operations
|
- | - | ||||||
Net
cash (used by) provided by operating activities
|
(100,836 | ) | (21,672 | ) | ||||
CASH FLOWS FROM INVESTING
ACTIVITIES
|
||||||||
Net
cash provided by (used in) investing activities
|
- | - | ||||||
CASH FLOWS FROM FINANCING
ACTIVITIES
|
||||||||
Proceeds
from common stock
|
- | 15,000 | ||||||
Proceeds
from borrowings - related party
|
84,773 | - | ||||||
Proceeds
from borrowings
|
15,000 | 4,999 | ||||||
Net
cash provided by (used in) financing activities
|
99,773 | 19,999 | ||||||
Net
increase (decrease) in cash & cash equivalents
|
(1,063 | ) | (1,673 | ) | ||||
Cash
& cash equivalents at beginning of year
|
2,963 | 4,636 | ||||||
Cash
& cash equivalents at end of year
|
$ | 1,900 | $ | 2,963 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW
|
||||||||
INFORMATION:
|
||||||||
Interest
expense
|
$ | 52,143 | $ | 3,023 | ||||
Income
taxes paid
|
$ | - | $ | - | ||||
Non-cash investing and financing activities | ||||||||
Issued common stock for service | ||||||||
Issued notes payable to redeem accounts payable | $ | 5,000 | $ | - | ||||
$ | 190,000 | $ | - |
17
Note 1. -
Organization and Basis of Presentation
The
Company was originally incorporated as Sheen Minerals, Inc. on August 26, 1983
in British Columbia, Canada. In September 1993, the Company domesticated under
Section 388 of the Delaware General Corporation Law. On March 12,
2002, the Company entered into a definitive Asset Purchase Agreement (the
"Agreement") with Case Financial, Inc., a private California corporation,
wherein we purchased certain assets and the entire business operations of Case
Financial, Inc. and its wholly owned subsidiary Case Financial Funding, Inc.
(hereinafter referred to as "Old CFI"), and Case Financial, LLC (a California
Limited Liability Company related through common ownership, and hereinafter
referred to as "LLC") (together hereinafter referred to as "Old
Case").
In May
2002, the Company changed its name to Case Financial, Inc. (Case) and changed
its fiscal year end to September 30. Case Financial, Inc. and its subsidiaries,
Case Financial, LLC, and Case Capital Corporation, which was formed in November
2002, are hereinafter referred to collectively as "Case" or the
"Company".
Overview:
Case's
business was to provide pre-settlement and post-settlement litigation funding
services to attorneys and plaintiffs involved in personal injury and other
contingency litigation, conducted primarily within the California courts (the
"Litigation Finance Business"). Case funding services were non-recourse, meaning
that the investment principal, success fees and interest are repaid only when
the case is settled or favorably adjudicated in court. On September 30, 2005,
the Company's Board of Directors approved a resolution declaring that the
Company discontinued its Litigation Finance Business.
The
Company intends to seek, investigate and, if such investigation warrants,
acquire an interest in business opportunities who or which desire to seek the
advantages of an issuer who has complied with the Securities Act of 1934 ("1934
Act"). In any transaction, we will be the surviving entity, and our stockholders
will retain a percentage ownership interest in the post-transaction company. We
will not restrict our search to any specific business, industry, or geographical
location, and may participate in a business venture of virtually any kind or
nature. This discussion of the proposed business is purposefully general and is
not meant to be restrictive of our virtually unlimited discretion to search for
and enter into potential business opportunities. We may seek a business
opportunity with entities which have recently commenced operations, or which
wish to utilize the public marketplace in order to raise additional capital in
order to expand into new products or markets, to develop a new product or
service, or for other corporate purposes. We may acquire assets and establish
wholly owned subsidiaries in various businesses or acquire existing businesses
as subsidiaries. We anticipate that the selection of a business opportunity in
which to participate will be complex and extremely risky.
18
Note
1. - Organization and
Basis of Presentation - continued
Overview:
In
analyzing prospective business opportunities, we will consider such matters as
the available technical, financial and managerial resources; working capital and
other financial requirements; history of operations, if any; prospects for the
future; nature of present and expected competition; the quality and experience
of management services which may be available and the depth of that management;
the potential for further research, development or exploration; specific risk
factors not now foreseeable but which then may be anticipated to impact our
proposed activities; the potential for growth or expansion; the potential for
profit; the public recognition of acceptance of products, services or trades;
name identification; and other relevant factors.
On June
2, 2008, the Company entered into an Exploration Agreement with Trio Gold Corp
to explore 29 gold claims covering 547 acres (the Rodeo Creek property) located
at the north end of the Carlin Trend in Elko County, Nevada. Under the terms of
the agreement, Case Financial, Inc. is to provide $4,000,000 in funding over the
next three years to explore the 29 claims and to issue 1,000,000 shares of its
common stock to Trio Gold Corp during the same time period, to earn a 70 percent
undivided interest in these claims.
On
October 3, 2008, the Company received an extension on its funding requirements
from Trio Gold Corp. Under the terms of the extension, the Company
issued 250,000 shares of its common stock to Trio Gold Corp. as consideration
for this extension.
Due to
the current economic conditions, the Company was unable to raise the capital
required to fund the Exploration Agreement with Trio Gold Corp. and on April 17,
2009, pursuant to terms of that agreement, Trip Gold Corp. terminated the
Exploration Agreement.
19
Note
2. – Summary of
Significant Accounting Policies
a. Basis of
presentation:
The
accompanying financial statements include the accounts of Case Financial Inc.
and its subsidiaries, Case Financial, LLC and Case Capital Corporation. All
significant intercompany accounts, transactions and profits have been eliminated
upon consolidation and combination.
In
accordance with ASC Topic 205, "Accounting for the Impairment or Disposal of
Long -Lived Assets", the Company has determined that it complied with the
provisions of ASC Topic 205 at September 30, 2009 and 2008 with respect to the
classification of the operations of the Litigation Finance Business as a
discontinued operation. Accordingly, the Company has accounted for its
Litigation Finance Business as a discontinued operation at September 30, 2009
and 2008.
Effective this quarter, the Company
implemented ASC Topic 855, “Subsequent
Events”. This standard
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued.
The adoption of ASC topic 855 did not impact the Company’s financial position or
results of operations. The Company evaluated all events or transactions that
occurred after September 30, 2009 up through January 12, 2010, the date the
Company issued these financial statements. During this period, the
Company did not have any material recognizable subsequent events, other than as
disclosed in Note 12.
b. Use of
estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual
amounts could differ from those estimates. A significant estimate is the
allowance for losses on investments in contracts and loans receivable. Because
of the inherent uncertainties in estimating the allowance for losses on
investments in contracts and loans receivable, it is likely that the Company's
estimate of the allowance for losses on investments in contracts and loans
receivable will change, as circumstances become better known.
c. Cash and cash
equivalents:
The
Company considers all liquid investments with a maturity of three months or less
from the date of purchase that are readily convertible into cash to be cash
equivalents. The Company maintains its cash in bank deposit accounts that may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
20
Note
2. – Summary of
Significant Accounting Policies – continued
d.
Principles of
Consolidation:
The
accompanying financial statements include the accounts of Case Financial Inc.
and its subsidiaries, Case Financial, LLC and Case Capital
Corporation. All significant intercompany accounts, transactions and
profits have been eliminated upon consolidation and combination.
e.
Impairment of
Long-Lived Assets:
Long-lived
assets consist primarily of property and equipment. The
recoverability of long-lived assets is evaluated by an analysis of operating
results and consideration of other significant events or changes in the business
environment. If impairment exists, the carrying amount of the
long-lived assets is reduced to its estimated fair value, less any costs
associated with the final settlement. As of September 30, 2009,
management believes there was no impairment of the Company’s long-lived
assets.
f.
Property and
Equipment:
Depreciation
is computed using accelerated methods based on the estimated useful lives of the
assets, generally as follows:
Computer
software 3
years
Office
furniture and fixtures 5-7
years
Equipment 5
years
The
Company reviews for the impairment of long-lived assets, whenever events or
changes in circumstances indicate that the carrying amount of any asset may not
be recoverable. An impairment loss would be recognized when the estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition is less than the carrying amount. If impairment is
indicated, the amount of the loss to be recorded is based on an estimate of the
difference between the carrying amount and the fair value of the asset. Fair
value is based upon discounted estimated cash flows expected to result from the
use of the asset and its eventual disposition and other valuation
methods.
21
Note
2. – Summary of
Significant Accounting Policies - continued
g.
Prepayments and other
assets:
Finders'
fees, prepaid interest, and loan fees are included in prepayments and other
assets. These assets are amortized on the straight-line method over the term of
the related debt and are expensed immediately in the case of demand
notes.
h.
Stock-based
compensation:
ASC topic
718 requires that the cost resulting from all share-based transactions be
recorded in the financial statements and establishes fair value as the
measurement objective for share-based payment transactions with employees and
acquired goods or services from non-employees. The Company accounts for
stock-based compensation arrangements in accordance with the provisions of SFAS
No. 123R "Accounting for Stock-Based Compensation" which establishes a fair
value-based method of accounting for stock-based compensation plans. Under SFAS
No. 123R, compensation cost is recognized based on the difference, if any, on
the date of grant between the fair value of the Company's common stock and the
amount the grantee must pay to acquire the stock. The Company uses the
Black-Scholes option-pricing model to determine the fair value of each stock
option granted.
i.
Deferred taxes on
income:
The
Company records deferred taxes on income for transactions that are reported in
different years for financial reporting and tax purposes using an asset and
liability method whereby assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is established against
deferred tax assets when the Company is unable to determine it is more likely
than not that the deferred tax assets will be realized.
j.
Fair value of
financial instruments:
The
carrying value of cash and accrued expenses are measured at cost, which
approximates their fair value. The carrying values of loans payable are
presented at face value plus accrued interest and dividends through the due
date.
22
Note
2. – Summary of
Significant Accounting Policies - continued
k.
Segment
Reporting
ASC topic
2 Item 6. Management's Discussion and Analysis or Plan of Operation 80,
"Disclosure About Segments of an Enterprise and Related Information" requires
use of the "management approach" model for segment reporting. The management
approach model is based on the way a company's management organizes segments
within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal
structure, management structure, or any other manner in which management
disaggregates a company. Currently, ASC topic 280 has no effect on the Company's
financial statements as substantially all of the Company's operations are
conducted in one industry segment.
l.
Recent Accounting
Pronouncements:
Recent
accounting pronouncements that the Company has adopted or that will be required
to adopt in the future are summarized below.
On
September 30, 2009, the Company adopted updates issued by the Financial
Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These
changes establish the FASB Accounting Standards CodificationTM (ASC) as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. The FASB will no longer issue
new standards in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts; instead the FASB will issue Accounting Standards
Updates. Accounting Standards Updates will not be authoritative in their own
right, as they will only serve to update the Codification. These changes and the
Codification itself do not change GAAP. Other than the manner in which new
accounting guidance is referenced, the adoption of these changes had no impact
on the Consolidated Financial Statements.
23
Note
2. – Summary of
Significant Accounting Policies - continued
l.
Recent Accounting
Pronouncements:
In June
2009, the FASB issued guidance now codified as ASC Topic 105, “Generally Accepted Accounting
Principles” (“ASC 105”), which establishes the FASB Accounting Standards
Codification as the source of GAAP to be applied to nongovernmental agencies.
ASC 105 explicitly recognizes rules and interpretive releases of the SEC under
authority of federal securities laws as authoritative GAAP for SEC registrants.
ASC 105 became effective for interim or annual periods ending after
September 15, 2009. ASC 105 does not have a material impact on the
Company’s consolidated financial statements presented hereby.
In
May 2009, the FASB issued guidance now codified as ASC Topic 855, “Subsequent Events” (“ASC
855”). The pronouncement modifies the definition of what qualifies as a
subsequent event—those events or transactions that occur following the balance
sheet date, but before the financial statements are issued, or are available to
be issued—and requires companies to disclose the date through which it has
evaluated subsequent events and the basis for determining that date. The Company
adopted the provisions of ASC 855 in accordance with the effective
date.
In April
2009, the FASB issued guidance now codified as ASC Topic 825, “Financial
Instruments” (“ASC 825”). The pronouncement amends previous ASC 825 guidance to
require disclosures about the fair value of financial instruments in all interim
as well as annual financial statements. This pronouncement was effective for
interim periods ending after June 15, 2009 and the Company adopted its
provisions in the second quarter of 2009. There has been no impact to the
Company’s consolidated financial statements.
In April
2008, the FASB issued guidance now codified as ASC Topic 350, “Intangibles—Goodwill and
Other” (“ASC 350”). This pronouncement amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under previous ASC 350 guidance,
thereby improving the consistency between the useful life of a recognized
intangible asset under ASC 350 and the period of expected cash flows used to
measure the fair value of the asset under ASC Topic 805, “Business Combinations”
(“ASC 805”). This pronouncement was effective for financial statements issued
for fiscal years beginning after December 15, 2008 and must be applied
prospectively to intangible assets acquired after the effective date. The
Company has not acquired any intangible assets since adopting this
pronouncement. As such, there has been no impact to the Company’s consolidated
financial statements.
24
Note
2. – Summary of
Significant Accounting Policies - continued
l.
Recent Accounting
Pronouncements:
In March
2008, the FASB issued guidance now codified as ASC Topic 815 “Derivatives and Hedging”
(“ASC 815”), which expands the disclosure requirements in previous ASC 815
guidance about an entity’s derivative instruments and hedging activities. This
pronouncement’s disclosure provisions apply to all entities with derivative
instruments subject to the previous ASC 815 guidance. The provisions also apply
to relate hedged items, bifurcated derivatives, and nonderivative instruments
that are designated and qualify as hedging instruments. Entities with
instruments subject to this pronouncement must provide more robust qualitative
disclosures and expanded quantitative disclosures. Such disclosures, as well as
existing required disclosures, generally will need to be presented for every
annual and interim reporting period. This pronouncement was effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. There has been no impact to the Company’s consolidated
financial statements.
In
December 2007, the FASB issued guidance now codified as ASC Topic 805, “Business Combinations” (“ASC
805”), which replaces previous ASC 805 guidance. This pronouncement establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any non-controlling interest in the acquire and the goodwill acquired in
connection with a business combination. This pronouncement also establishes
disclosure requirements that will enable users to evaluate the nature and
financial effect of the business combination. This pronouncement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of an entity’s first fiscal year that begins after
December 15, 2008. The adoption of this pronouncement did not have a
material impact on the Company’s consolidated financial statements.
Note 3. –
Discontinued operations
The
Company has discontinued its Litigation Finance Business. In
accordance with ASC Topic 205, "Accounting for the Impairment or Disposal of
Long-Lived Assets", we have determined that we have complied with the provisions
of ASC Topic 205 at September 30, 2009 and 2008 with respect to the
classification of the operations of the Litigation Finance Business as a
discontinued operation. All remaining assets have either been
assigned to the third party investors to collect directly from the attorneys
that they advanced funds to, or were part of a settlement. The
Company will continue to account for all Litigation Finance Business as a
discontinued operation at September 30, 2009, and the assets and liabilities of
the Litigation Finance Business have been classified accordingly. All
revenues and expenses associated with the Litigation Finance Business have been
reclassified and the net amount reported on its Consolidated Statement of
Operations as Loss from Discontinued Operations. There was a gain
from discontinued operation of $39,687 and $306,305 for the years ended
September 30, 2009 and 2008, respectively.
25
Note 4. -
Property and Equipment
Equipment
consisted of the following:
September
30,
|
||||||||
2009
|
2008
|
|||||||
Computer
Software
|
$ | 3,240 | $ | 3,240 | ||||
Office
furniture and fixtures
|
3,077 | 3,077 | ||||||
Office
Equipment
|
13,922 | 13,922 | ||||||
20,239 | 20,239 | |||||||
Less:
Accumulated depreciation
|
(20,239 | ) | (20,239 | ) | ||||
$ | 0 | $ | 0 |
Note 5. -
Notes Payable
September
30,
|
|||||||||||
2009
|
2008
|
||||||||||
1 |
Notes
payable, uncollateralized, interest payable monthly at 12.0% per
annum
|
$ | 150,000 | $ | 150,000 | ||||||
2 |
Notes
payable, uncollateralized, interest payable monthly at 12.0% per
annum
|
50,000 | 50,000 | ||||||||
3 |
Notes
payable, uncollateralized, interest payable monthly at 8.0% per
annum
|
10,000 | - | ||||||||
4 |
Notes
payable, uncollateralized, interest payable monthly at 8.0% per
annum
|
5,000 | - | ||||||||
5 |
Notes
payable, uncollateralized
|
190,000 | - | ||||||||
$ | 405,000 | $ | 200,000 |
26
Effective
January 1, 2003, an accredited investor, through its affiliation with CCWIPP,
converted an investment in the Company by exchanging a four year, 9.85% per
annum promissory note for a four year, 12% per annum promissory note issued by
the Company. The principal amount of the promissory note was $150,000. The
Company is in default on this note due to non-payment of interest and
principal.
The
principal amount of this promissory note was $50,000. Effective January 1, 2003,
the note holder converted their investment in the Company by
exchanging a four-year, 9.85% per annum promissory note for a four
year, 12% per annum Promissory note. The Company is in default on this note due
to non-payment of interest and principal .
The
principal amount of this promissory note was $10,000. This is an interest-
bearing note at 8% per annum. On October 17, 2009, the Company issued 1,000,000
restricted shares of the Company’s Common Stock at $0.01 per unit as the payment
of this note, recorded as a $10,000.
The
principal amount of this promissory note was $5,000. This is an interest-
bearing note at 8% per annum. On October 17, 2009, the Company issued 500,000
restricted shares of the Company’s Common Stock at $0.01 per unit as the payment
of this note, recorded as a $5,000.
On
September 29, 2009, the Company entered into an agreement with a law firm that
is currently representing them on ongoing litigation. The two parties
agree that the outstanding legal fees be settled at $190,000. The
agreement stipulates if the Company is award exceeds $1,000,000 then the
principal outstanding shall be increased to $210,000. If the award
exceeds $1,500,000 then the principal outstanding shall be increased to
$235,000. The principal amount shall be paid on or before September
29, 2010.
27
Note 6. -
Related Parties Transactions
Loan
payable
The
related party debt consists of the following:
September
30,
|
||||||||
2009
|
2008
|
|||||||
Revolving
demand loans – officers
|
$ | 93,041 | $ | 8,268 | ||||
$ | 93,041 | $ | 8,268 |
The
Company entered into revolving demand loan agreements with its Chief Executive
Officer and Chief Financial Officer. Pursuant to the terms of these
agreements, the Company may borrow, at the discretion of the lender, up to
$50,000 from each officer payable on demand with interest at 8%. The
terms of these agreements were amended increasing the amount the Company may
borrow from $50,000 to $100,000 at the discretion of the lenders. As
of September 30, 2009 and 2008 , related accrued interest is $5,577 and $
0.
On
November 18, 2009, the Company issued aggregate of 6,000,000 restricted shares
of the Company’s Common Stock at $0.01 per unit as the payment of the loan,
recorded as a $60,000, aggregate payment of Revolving demand loans –
officers
Stock
Options
On June
18, 2008, as compensation for serving on the Company's Board of Directors, the
Company issued:
An option
to purchase 1,000,000 shares of the Company's common stock at an exercise price
of $0.25 to Mr. Michael Schaffer;
An option
to purchase 500,000 shares of the Company's common stock at an exercise price of
$0.25 to Mr. Lawrence Schaffer; and
An option
to purchase 500,000 shares of the Company's common stock at an exercise price of
$0.25 to Mr. Waddy Stephenson
28
Note
6. - Related Parties
Transactions - continued
A summary
of the Company’s stock options as of September 30, 2009 and changes during the
periods is as follows:
Year
ended September 30, 2009
|
||||||||
Weighted
Average
|
||||||||
Options
|
Exercise
Price
|
|||||||
Outstanding
at Beginning of Period
|
- | $ | - | |||||
Granted
|
2,000,000 | 0.25 | ||||||
Exercised
|
- | - | ||||||
Expired
Unexercised
|
- | - | ||||||
Outstanding
at End of period
|
2,000,000 | $ | 0.25 | |||||
Stock
Options
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||
Exercise
prices
|
Number
|
Weighted
|
Weighted
|
Number
|
Weighted
|
Weighted
|
|||||||||
Outstanding
|
average
|
average
|
exercisable
|
average
|
average
|
||||||||||
remaining
|
exercise
|
remaining
|
exercise
|
||||||||||||
contractual
|
price
|
contractual
|
price
|
||||||||||||
life
(years)
|
life
(years)
|
||||||||||||||
$
|
0.25
|
2,000,000
|
1.71
|
$
|
0.25
|
-
|
-
|
$
|
-
|
||||||
2,000,000
|
1,71
|
0.25
|
-
|
-
|
$
|
-
|
29
Note
7. – Contingencies
Case
Financial v. Eric Alden
On March
25, 2005 a derivative lawsuit was filed by the Canadian Commercial Workers
Industry Pension Plan ("CCWIPP"), a major stockholder of the Company. The
lawsuit was filed in the Court of Chancery of the State of Delaware against
former officers and directors of the Company, specifically Eric Alden, a former
CEO and CFO and Chairman of the Board, Harvey Bibicoff, a former interim CEO and
CFO and director, Lorne Pollock, former Vice President of Underwriting,
Secretary and director and Gordon Gregory, a former director alleging that these
officers and directors had damaged the Company by (a) engaging in self dealing
transactions in breach of their fiduciary duty of loyalty; (b) mismanaging the
Company in violation of their oversight duties and duty of care; (c) wasting
corporate assets; and (d) making fraudulent misrepresentations which induced the
corporate entity to issue shares to these individuals. The Company's Board of
Directors has elected to consent to the filing of this complaint. The Company
was named as a nominal defendant in this complaint.
On
October 5, 2005, Mr. Gregory, Mr. Pollock, and the Company executed a Settlement
and Release Agreement regarding this action pursuant to which:
· Mr.
Gregory returned to the Company 750,000 shares of common stock owned or
controlled by him and cancelled two promissory notes of the Company totaling
$100,000.
· Mr.
Pollock returned to the Company 100,000 shares of common stock owned or
controlled by him and repaid in cash to the Company $15,160.
· Mr.
Pollock and Mr. Gregory were released from further action by the majority
stockholder and the Company with respect to the claims made in the derivative
lawsuit.
· Mr.
Pollock and Mr. Gregory agreed to waive any and all further claims against the
Company and the major stockholder.
The
foregoing agreement was approved by the Court of Chancery in the State of
Delaware and was consummated in February 2006. .
On
September 1, 2006, the Company reached a settlement agreement with Mr. Bibicoff
resolving all current litigation between the Company and this individual. The
key terms to this settlement agreement were:
· The
cancellation of promissory notes and accrued interest together totaling
approximately $875,000 held by this individual.
· The
dismissal of this individual from the derivative lawsuit filed in the Delaware
Court of Chancery on March 16, 2005.
· The
release of each party from any and all claims that could have been asserted by
the other party in any of the actions dismissed as a result of this settlement
agreement.
30
Note
7. – Contingencies – continued
The
foregoing agreement was approved by the Court of Chancery in the State of
Delaware and was consummated in November 2007.
Mr. Alden
remains the sole defendant in this action, on November 7th 2007, Case Financial
assumed the role of plaintiff in the derivative action commenced against Alden
in March 2005 by CCWIPP.
On April
25th 2005, Mr. Alden filed a breach of contract lawsuit against the Company in
the Superior Court of the State of Californian for the County of Los Angeles,
Case Number BC 332373. This lawsuit had been stayed by the court pending the
outcome of the derivative action filed against Mr. Alden.
On April
12, 2006, Mr. Alden filed another lawsuit against Landmark American Insurance
Company and Case Financial, Inc. in the Superior Court of the State of
Californian for the County of Los Angeles, Case Number BC 336747 demanding
indemnification for costs associated with this derivative action. This lawsuit
is ongoing.
On April
19, 2006 Mr. Alden filed a wrongful termination lawsuit against the Company in
the Superior Court of the State of California, Case Number BC 350929. This
lawsuit had been stayed by the court pending the outcome of the derivative
action filed against Mr. Alden.
Mr. Alden
has been directed by the court not to file any additional lawsuits against the
Company until the derivative action has been resolved.
Case
Financial v. Squire Sanders
On March
6, 2006 a lawsuit was filed in the Circuit Court of the 11th Judicial Circuit
for Miami-Dade County Florida, case number 07-06488CA 02 against the Company by
a law firm, for unpaid legal bills in the amount of $94,036. On February 14,
2008 the Company entered into a settlement with the above law firm. The
settlement states that the Company shall pay the total sum of $72,500 in equal
monthly installments of $5,000. In the event of default the Company agreed that
the entire amount of $94,036 plus all accrued interest shall be due the law
firm. Because of its financial condition, the Company defaulted on this
agreement and a judgment against the Company in the amount of $82,802.72 was
entered on June 2, 2009. The Company record $82,802.72 as Account Payable as of
September 30, 2009.
31
Note
7. – Contingencies – continued
Case
Financial v. CCWIPP
On
November 5, 2007 the Company entered into a settlement agreement with the
Canadian Commercial Workers Industry Pension Plan ("CCWIPP"), resolving a
dispute concerning the disposition of funds collected and held in escrow
totaling $812,000 and another $160,000 in receivables collected on behalf of
CCWIPP and the Company pursuant to a previously entered settlement agreement.
The Company and CCWIPP each received $250,000 of these funds. However $50,000 of
the Company's funds are to remain in escrow for one year to address potential
future costs that may be incurred by CCWIPP in the derivative lawsuit discussed
above. In December 2008 the Company received $35,000 of the $50,000
that remained in escrow.
On
February 17, 2009, the Canadian Commercial Workers Industry Pension Plan
("CCWIPP") filed a Complaint in Arbitration, asserting that the Company breached
the non-disparagement clause of the November 7, 2007 settlement agreement
between CCWIPP and the Company. The Company has counter-claimed based on CWIPP’s
breach of the same agreement. The Company believes that it will prevail in
arbitration.
Case
Financial v Old CFI
On July
3rd, 2008, the company was served with a lawsuit that was filed in the Superior
Court of the State of California for the County of Los Angeles, Case Number BC
391485, against the Company by Old CFI, Inc relating to (a) its performance
under the service agreement between the Company and Old CFI, Inc and (b) the
transfer of the Company's common stock from Old CFI, Inc to the secured
creditors of Old CFI, Inc by the CEO of Old CFI, Inc. Pursuant to the service
agreement, the Company demanded and the Court granted that issue (a) be resolved
through arbitration. The arbitration is ongoing. The Company believes that this
lawsuit is completely without merit.
Case
Financial v La Costa Tower
On
September 21, 2009, a lawsuit was filed in the Superior Court of the State of
California for the County of San Diego, North County, Case Number
37-2009-00038119-CL-UD-NC against the Company by a La Costa Tower, LLC to seek
recovery of $11,125.64, the remaining amount due under the lease at
its previous office location. The Company record $11,125.64 as Accounts Payable
as of September 30, 2009.
Note
8 – Warrants
At
September 30, 2009 year-ended, the Company had zero warrants
outstanding.
32
Note
9. - Taxes on income
No
provision was made for Federal income tax since the Company has significant net
operating loss. As of September 30, 2009, the Company had available net
operating loss carryforwards amounting to approximately$11,642,247, that may be
applied against future taxable income and that expire in 2029. A substantial
portion of this net operating loss carryforwards may be limited due to past and
future changes of ownership.
The
Company's total deferred tax asset is as follows:
September
30,
2009
|
||||
Tax
benefit of net operating loss carryforward
|
$ | 3,958,364 | ||
Valuation
allowance
|
(3,958,364 | ) | ||
Net
deferred tax asset
|
$ | - |
Note
10– Common Stock Transactions
In June
2008, pursuant to the terms of its exploration agreement with Trio Gold Corp.,
the Company issued 250,000 shares of the Company’s common stock to Trio Gold
Corp.
On June
18, 2008, as consideration for his agreeing to serve on the Company's Board of
Directors, the Company issued 500,000 shares of the Company's common stock to
Ike Suri. On August 6, 2008, upon Mr. Ike Suri's resignation from the Company's
Board of Directors, the common stock issued to Mr. Ike Suri was returned to the
Company and cancelled.
In June
2008, warrants to purchase 150,000 of the Company’s common stock at a price of
$.10 per share were exercised.
In
December 2008, pursuant to the terms of the its exploration agreement extension
with Trio Gold Corp., the Company issued 250,000 shares of the Company’s common
stock to Trio Gold Corp.
As of
September 30, 2009 the Company has 29,185,145 shares of common stock
outstanding.
33
Note
11. - Going concern
The
accompanying financial statements contemplate continuation of the Company as a
going concern. The Company incurred net income/ (loss) of $($737,688) and
$(695,536) during the years ended September 30, 2009 and 2008, respectively.
There was an accumulated deficit of $12,296,824, as of September 30, 2009 and
total liabilities exceeded total assets by $1,652,946 as of September 30, 2009.
The Company has discontinued its primary business activity, the Litigation
Finance Business. The Company's current cash is not sufficient to sustain the
Company's operations unless the Company is successful at collecting amounts due
and owing on its existing investment in contracts and loan receivable portfolios
and/or raising additional capital. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Note
12. – Subsequent Events
On
October 5, 2009, the Company issues 2,000,000 shares of its common stock as a
retainer for legal services.
In
October 2009, the Company also settled additional outstanding loans from two of
its shareholders totaling $15,000 by allowing them to purchase 1,500,000 shares
of the Company’s common stock at a price of $.01 per share.
In
October 2009, the Company borrowed $50,000 from two shareholders ($25,000 from
each shareholder). The Company issued 2,000,000 shares of the Company’s common
stock to the shareholders as consideration for agreeing to make those
loans.
On
November 18, 2009, the Company reduced its outstanding loan$25,000 with Lawrence
Schaffer by allowing Mr. Schaffer to purchase 2,500,000 shares of the Company’s
common stock at a price of $.01 per share.
On
November 18, 2009, the Company reduced its outstanding loan $25,000 with Michael
Schaffer by allowing Mr. Schaffer to purchase 2,500,000 shares of the Company’s
common stock at a price of $.01 per share.
On
November 18, 2009, the Company settled its outstanding loan $10,000 with Waddy
Stephenson by allowing Mr. Stephenson to purchase 1,000,000 shares of the
Company’s common stock at a price of $.01 per share.
34
ITEM
9. Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
None.
ITEM
9A. CONTROLS AND PROCEDURES
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange
Act of 1934 as a process designed by, or under the supervision of, the company's
principal executive and principal financial officers and effected by the
company's board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America and
includes those policies and procedures that:
-
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
|
-
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America and that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and
|
-
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
As of the
year ended September 30, 2009 management assessed the effectiveness of our
internal control over financial reporting based on the criteria for effective
internal control over financial reporting established in Internal Control and
SEC guidance on conducting such assessments.
The
matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) lack of a functioning audit committee due
to a lack of a majority of independent members and a lack of a majority of
outside directors on our board of directors, resulting in ineffective oversight
in the establishment and monitoring of required internal controls and
procedures; (2) inadequate segregation of duties consistent with control
objectives; and (3) ineffective controls over period end financial disclosure
and reporting processes. The aforementioned material weaknesses were identified
by our Chief Executive Officer in connection with the review of our financial
statements as of the year ended September 30, 2009.
35
Management
believes that the material weaknesses set forth in items (2) and (3) above did
not have an effect on our financial results. However, management believes that
the lack of a functioning audit committee and the lack of a majority of outside
directors on our board of directors results in ineffective oversight in the
establishment and monitoring of required internal controls and procedures, which
could result in a material misstatement in our financial statements in future
periods.
This
annual report does not include an attestation report of the Corporation's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the
Corporation's registered public accounting firm pursuant to temporary rules of
the SEC that permit the Corporation to provide only the management's report in
this annual report.
Management's
Remediation Initiatives
In an
effort to remediate the identified material weaknesses and other deficiencies
and enhance our internal controls, we have initiated, or plan to initiate, the
following series of measures:
We will
create a position to segregate duties consistent with control objectives and
will increase our personnel resources and technical accounting expertise within
the accounting function when funds are available to us. And, we plan to appoint
one or more outside directors to our board of directors who shall be appointed
to an audit committee resulting in a fully functioning audit committee who will
undertake the oversight in the establishment and monitoring of required internal
controls and procedures such as reviewing and approving estimates and
assumptions made by management when funds are available to us.
Management
believes that the appointment of one or more outside directors, who shall be
appointed to a fully functioning audit committee, will remedy the lack of a
functioning audit committee and a lack of a majority of outside directors on our
Board.
36
Item 10.
Directors, and Executive Officers of the Registrant.
The
following are the directors and officers as of September 30, 2009.
Name
|
Position
|
Age
|
Michael
Schaffer
|
Chairman
of the Board, Chief Executive Officer
|
67
|
Lawrence
Schaffer
|
Director,
President, Chief Financial Officer
|
41
|
Waddy
Stephenson
|
Director,
Corporate Secretary
|
49
|
Michael
A. Schaffer had served as Chairman of the Board and Chief Executive Officer of
the Company from April 1994 to March 2002. Since 1975, Mr. Schaffer has been a
private investor. In addition, Mr. Schaffer received a Bachelor of Arts degree
from Hunter College and a Jurist Doctorate from Brooklyn Law School. Mr.
Schaffer was admitted to the practice of law in the State of New York in 1967
and practiced law through 1974. Mr. Schaffer is also a shareholder of the
Company.
Lawrence
C. Schaffer had served as President and a Director of the Company from June 1994
to May 2002. In addition, Mr. Schaffer has ten years of experience in
administration and marketing for several small-cap public companies. Mr.
Schaffer received a Bachelor of Arts degree from the University of Arizona in
1991. Mr. Schaffer is also a shareholder of the Company.
Waddy
Stephenson had served as Director and Vice President of the Company March 1999
to May 2002. Mr. Stephenson is also a shareholder of the Company. Mr. Stephenson
has over 20 years experience in the development and management of computer
software. Mr. Stephenson received a Bachelor of Science from the University of
North Florida in 1986.
Audit Committee Financial
Expert
The
Company's Board of Directors has not established a separate audit committee
within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Instead, the entire Board of Directors
acts as the audit committee within the meaning of Section 3(a)(58)(B) of the
Exchange Act. In addition, no director on the Company's Board of Directors
currently meets the definition of an "audit committee financial expert" within
the meaning of Item 401(e) of Regulation SB. The Company is currently seeking
candidates for outside directors and for a financial expert to serve on a
separate audit committee when we establish one. Due to the Company's small size
and limited resources, it has been difficult to recruit outside directors and
financial experts, especially due to the fact that we do not have directors and
officer's liability insurance to offer suitable candidates.
37
Compliance with Section
16(a) of the Act
The
members of the Board of Directors, certain executive officers of the Company and
persons who hold more than 10% of the Company's outstanding common stock are
subject to the reporting requirements of Section 16(a) of the Exchange Act which
require them to file reports with respect to their ownership of common stock and
their transactions in common stock. Based upon the copies of Section 16(a)
reports that the Company received from such persons for their 2009 fiscal year
transactions in the common stock and their common stock holdings, the Company
believes that the reporting requirements under Section 16(a) for such fiscal
year were not met in a timely manner by certain of its executive officers, Board
members and greater than ten-percent stockholders. The following schedule
contains the required information for the last fiscal year:
Number
of Late Reports
|
Number
of Late Transactions Not Reported on Time
|
Number
of Failures to File
|
|
Michael
Schaffer
|
0
|
0
|
0
|
Lawrence
Schaffer
|
0
|
0
|
0
|
Waddy
Stephenson
|
0
|
0
|
0
|
Sam
Schwartz
|
0
|
0
|
0
|
Code of
Ethics
We have
not adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. We are in the process of reviewing a code
of ethics with our attorneys and the independent board members and will adopt
one upon completion of discussions.
38
Item 11.
Executive Compensation
The
following Summary Compensation Table sets forth the accrued compensation earned
by the Company's Chief Executive Officer and Chief Financial Officer for the
year ended September 30, 2009.
Name
|
Salary
|
Bonus
|
Michael
Schaffer, CEO
|
99,000
|
$0.00 (1)
|
Lawrence
Schaffer, CFO
|
84,000
|
$0.00 (2)
|
(1)
Includes an auto allowance of $9,000.
(2)
Includes an auto allowance of $6,000.
Option Grants in Last Fiscal
Year
None
Aggregated Options Exercised
in Last Fiscal Year and Year End Option Holdings
None
Employment
Agreements
As of
September 30, 2009 there were no employment agreements with any current
employees.
Compensation of
Directors
None
39
Item 12.
Security Ownership of Certain Beneficial Owners and Management
The
following table sets forth certain information as of December 31, 2009 with
respect to beneficial ownership of the outstanding shares of common stock of the
Registrant by the Registrant's directors, executive officers and each person
known by the Registrant to own in excess of 5% of the outstanding shares of
common stock of the Registrant, and the directors and executive officers as a
group. Unless otherwise specified, the address of all listed persons is 7668 El
Camino Real, Ste.104-106, Carlsbad, CA 92009. Beneficial ownership is determined
in accordance with the SEC Rule 13d-3 and generally includes shares over which
the holder has voting or investment power, subject to community property laws.
All shares of common stock obtainable upon conversion of securities or exercise
of stock options or warrants (including those that are not currently exercisable
but will become exercisable within 60 days hereafter) are considered to be
beneficially owned by the person holding the options or warrants for computing
that person's percentage, but are not treated as outstanding for computing the
percentage of any other person. Unless otherwise specified, each person below
has personal and sole beneficial ownership of the shares of common
stock:
Name of Beneficial
|
Total
|
%
|
Michael
Schaffer
|
5,206,015
|
12.5%
(1)
|
Lawrence
Schaffer
|
4,562,850
|
11.1%
(2)
|
Waddy
Stephenson
|
2,246,300
|
5.5%
(3)
|
Directors
and Executive Officers as a group (3 persons)
|
12,015,165
|
28.1%
(4)
|
Sam
Schwartz
16032
Valley Meadow Place
Encino,
CA 91436
|
4,767,300
|
11.7%
|
This
table was calculated using the number of shares outstanding as of December 31,
2009, which were 40,685,145.
(1)
|
This
entry includes the option to purchase 1,000,000 shares of the Company's
common stock at an exercise price of $0.25 granted to Michael Schaffer on
June 18, 2008. This option expires on June 17,
2011.
|
(2)
|
This
entry includes the option to purchase 500,000 shares of the Company's
common stock at an exercise price of $0.25 granted to Lawrence Schaffer on
June 18, 2008. This option expires on June 17,
2011.
|
(3)
|
This
entry includes the option to purchase 500,000 shares of the Company's
common stock at an exercise price of $0.25 granted to Waddy Stephenson on
June 18, 2008. This option expires on June 17,
2011.
|
(4)
|
This
entry includes the options to purchase 2,000,000 shares of the Company's
common stock detailed in notes 1-3
above.
|
40
Item 13.
Certain Relationships and Related Transactions, and Director
Independence
In October 2005, the Company entered
into revolving demand loan agreements with Michael Schaffer, its Chief Executive
Officer and Lawrence Schaffer, its Chief Financial Officer. Pursuant to the
terms of these agreements, the Company may borrow, at the discretion of the
lender, up to $50,000 from each officer payable on demand with interest at
8.0%. The terms of these agreements were amended increasing the
amount the Company may borrow from $50,000 to $100,000 at the discretion of the
lenders.
In
October 2007, the Company entered into revolving demand loan agreements with
Waddy Stephenson, a director and the Corporate Secretary. Pursuant to the terms
of these agreements, the Company may borrow, at the discretion of the lender, up
to $50,000 payable on demand with interest at 8.0%.
As of
September 30, 2009, the total amount owed on these notes was $93,041.
Item 14.
Principal Accountant Fees and Services.
Audit
Fees
The
approximate aggregate fees billed for each of the last two fiscal years for
professional services rendered by Chang G. Park, CPA for the audit of the
Registrant's annual financial statements, and review of financial statements
included in the company's SEC filings is as follows: 2009: $21,000; and 2008:
$29,000.
Audit-Related
Fees
The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by Chang G. Park, CPA that are reasonably related to the
performance of the audit or review of the Registrant's financial statements and
are not reported under Audit Fees above: $0.
Tax Fees
The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by Chang G. Park, CPA for tax compliance, tax advice, and tax
planning is as follows: 2009: $0 and 2008: $0.
All Other
Fees
The
aggregate fees billed in each of the last two fiscal years for products and
services provided by Chang G. Park, CPA other than the services reported above:
$0.
The
Company's Board of Directors serves as the Audit Committee and has unanimously
approved all audit and non-audit services provided by the independent auditors.
The independent accountants and management are required to periodically report
to the Board of Directors regarding the extent of services provided by the
independent accountants, and the fees for the services performed to date. There
have been no non-audit services provided by our independent accountant in
2009.
Item 15.
Exhibits and Reports
(a)
Exhibits. The exhibits listed on the attached Exhibit Index are filed as part of
this report.
41
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Case
Financial, Inc.
|
/s/ Michael Schaffer
|
|
January
13, 2010
|
Michael Schaffer | |
Chief
Executive Officer
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
|
/s/ Michael Schaffer
|
Chairman
of the Board of
|
January
13, 2010
|
|
Michael
Schaffer
|
Directors, Chief Executive Officer | ||
/s/ Lawrence Schaffer
|
Director,
President, Chief
|
January
13, 2010
|
|
Lawrence
Schaffer
|
Financial Officer | ||
/s/ Waddy Stephenson
|
Director,
Corporate Secretary
|
January
13, 2010
|
|
Waddy
Stephenson
|
42
EXHIBIT
INDEX
31.1
|
Certification
of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|