Infinity Augmented Reality, Inc. - FORM 10-Q

Attached files

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EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - Infinity Augmented Reality, Inc.	f10q113011_ex31z1.htm
EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATION - Infinity Augmented Reality, Inc.	f10q113011_ex32z2.htm
EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATION - Infinity Augmented Reality, Inc.	f10q113011_ex31z2.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - Infinity Augmented Reality, Inc.	f10q113011_ex32z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

X . QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2011

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

For the transition period from ___________ to ___________

Commission File Number: 000-53446

ABSOLUTE LIFE SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)


Nevada		71-1013330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

45 Broadway, 6^th Floor New York, New York		10006
(Address of principal executive offices)		(Zip Code)

(212) 201-4070
(Registrant's telephone number, including area code)

__________________________________________

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 (Section 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 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," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	Smaller reporting company	X .

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 85,424,597 shares of common stock as of January 13, 2011.

ABSOLUTE LIFE SOLUTIONS, INC.

Quarterly Report On Form 10-Q

For The Quarterly Period Ended

November 30, 2011

INDEX


			Page
PART I - FINANCIAL INFORMATION
	Item 1.	Condensed Financial Statements	3
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	22

PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
	Item 3.	Defaults Upon Senior Securities	23
	Item 5.	Other Information	23
	Item 6.	Exhibits	23

Item 1. Financial Statements

The following unaudited interim financial statements of Absolute Life Solutions, Inc. (sometimes referred to as "we", "us" or "our Company") are included in this quarterly report on Form 10-Q:


	Page
Condensed Balance Sheets at November 30, 2011 (unaudited) and August 31, 2011	4

Condensed Statements of Operations for the three months ended November 30, 2011 and 2010 (unaudited)	5

Condensed Statements of Cash Flows for the three months ended November 30, 2011 and 2010 (unaudited)	6

Notes to Condensed Financial Statements	7


ABSOLUTE LIFE SOLUTIONS, INC. CONDENSED BALANCE SHEETS
					November 30, 2011 (unaudited)		August 31, 2011
ASSETS
	Current Assets
		Cash and cash equivalents		$	1,049,533	$	1,917,896
		Accounts receivable			-		1,263,000
		Insurance purchase escrow			-		128,750
		Receivable under reverse repurchase agreement			783,571		3,368,593
		Investment in life settlement contracts at investment method			2,362,231		-
		Prepaid expenses			29,475		45,044
	Total current assets				4,224,810		6,723,283
		Equipment, net			84,094		90,082
		Security deposit			56,688		56,688
		Investment in life settlement contracts at fair value			86,766,094		92,708,076
TOTAL ASSETS				$	91,131,686	$	99,578,129
LIABILITIES
	Current Liabilities
		Accounts payable and accrued expenses		$	99,463	$	44,607
		Due to provider			-		568,000
	Total current liabilities				99,463		612,607
		Deferred rent			44,075		42,148
		Deferred income taxes			17,524,327		21,071,160
TOTAL LIABILITIES					17,667,865		21,725,915

STOCKHOLDERS’ EQUITY
		Preferred stock ($0.00001 par value; 100,000,000 authorized; of which 60,000 are designated as Series A 12.5% convertible preferred stock; 41,950 Series A issued and outstanding ( August 31, 2011 - 41,950 issued and outstanding)			-		-
					-		-
			of which 25,000 are designated as Series B 12.5% convertible preferred stock; 8,850 Series B issued and outstanding ( August 31, 2011 - 8,850 issued and outstanding)		-		-
		Common stock ($0.00001 par value; 500,000,000 authorized; 85,424,597 issued and outstanding) (August 31, 2011 - 85,424,597 issued and outstanding)			854		854
		Additional paid in capital			96,773,677		96,773,677
		Retained earnings (accumulated deficit)			(23,310,710)		(18,922,317)
Total Stockholders' Equity					73,463,821		77,852,214
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY				$	91,131,686	$	99,578,129

The accompanying notes are an integral part of these condensed financial statements.

ABSOLUTE LIFE SOLUTIONS, INC.

CONDENSED STATEMENTS OF OPERATIONS

UNAUDITED


		Three months ended November 30, 2011		Three months ended November 30, 2010


Sales, general and administrative expenses	$	(375,143)	$	(1,069,847)

Other income
Realized gain on life settlement contracts held under investment method		319,843		-
Change in fair value of life settlement contracts net of premiums paid		(7,879,926)		20,688,201
Income ( loss) before income tax		(7,935,226)		19,618,354
Income tax benefit (provision)		3,546,833		(8,573,961)
Net income (loss)		(4,388,393)		11,044,393
Deemed dividend on issuance of Series A and Series B Preferred Stock		-		(13,250,000)
Net loss applicable to common shareholders	$	(4,388,393)	$	(2,205,607)

Basic loss per common share	$	(0.05)	$	(0.03)
Diluted loss per common share	$	(0.05)	$	(0.03)

Basic weighted average shares outstanding		91,424,597		87,416,430
Diluted weighted average shares outstanding		91,424,597		87,416,430

The accompanying notes are an integral part of these condensed financial statements.

ABSOLUTE LIFE SOLUTIONS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

UNAUDITED


				Three months Ended November 30, 2011		Three months Ended November 30, 2010

OPERATING ACTIVITIES
	Net income (loss)		$	(4,388,393)	$	11,044,393
	Adjustments to reconcile net income (loss) to net cash (used in) operations
		Issuances of common stock for services		-		640,529
		Unrealized changes in fair value of life settlement contracts		5,941,982		(19,244,370)
		Realized gain on maturity of life settlement contract		-		(2,237,500)
		Realized gain on sale of life settlement contracts		(319,843)		-
		Depreciation		5,988		5,989
		Deferred rent		1,927		-
		Deferred income taxes		(3,546,833)		7,947,998

	Changes in operating assets and liabilities
		Accounts receivable		1,263,000		-
		Insurance purchase escrow		128,750		(25,000)
		Insurance proceeds receivable		-		(2,500,000)
		Prepaid expenses		15,569		(26,847)
		Accounts payable and accrued expenses		54,856		(359,713)
		Income taxes payable		-		625,963
		Due to provider		(568,000)		-
Net cash used in operating activities				(1,410,997)		(4,128,558)

INVESTING ACTIVITIES
		Purchases of life settlement contracts		-		(10,818,000)
		Proceeds from maturity of life settlement contract		-		2,500,000
		Proceeds from sale of life settlement contracts		897,234		-
		Investment in life settlement contracts at investment method		(238,693)		-
		Investment in reverse repurchase agreement		(115,907)		-
Net cash provided by (used in) investing activities				542,634		(8,318,000)

FINANCING ACTIVITIES
	Proceeds from issuance of preferred stock			-		13,250,000
Net cash provided by financing activities				-		13,250,000

Change in cash and cash equivalents				(868,363)		803,442
Cash and cash equivalents, beginning				1,917,896		3,498,525
Cash and cash equivalents, ending			$	1,049,533	$	4,301,967

Supplemental disclosure of non-cash investing activity:
Transfer of receivable under reverse repurchase to investment in life settlement contracts at investment method			$	2,700,929	$	-

The accompanying notes are an integral part of these condensed financial statements.

ABSOLUTE LIFE SOLUTIONS INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

November 30, 2011

1. NATURE AND CONTINUANCE OF OPERATIONS

Absolute Life Solutions, Inc. (the “Company”) was originally incorporated as Shimmer Gold, Inc. in the State of Nevada on September 7, 2006 and was in the business of the acquisition and exploration of mineral resources.

On May 21, 2010, the Company changed its name from Shimmer Gold, Inc. to Absolute Life Solutions, Inc. During the fiscal year ended August 31, 2010, the Company commenced operations as a specialty financial services company engaged in the business of purchasing life settlement contracts for long-term investment purposes.

The continued existence of the Company is dependent upon its ability to generate profit from its life settlement investments and to meet its obligations as they become due. If additional cash is needed, the Company intends to finance the future capital required to acquire life settlement contracts and continued operations from a combination of traditional debt and equity markets. However, there is no assurance that (a) traditional debt and equity markets may be accessible as required, or if so, on acceptable terms and, or (b) the demand for and selling prices of the Company’s products, may not be sufficient to meet cash flow requirements. The outcome of these matters cannot be predicted with certainty and therefore the Company may not be able to continue or expand operations as planned. These unaudited condensed financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed financial statements as of November 30, 2011 and 2010 and for the three months then ended have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual audited financial statements. The unaudited Balance Sheet as of November 30, 2011, Statements of Operations for the three months ended November 30, 2011 and 2010, and Statements of Cash Flows for the three months ended November 30, 2011 and 2010, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the period presented. The results for the three months ended November 30, 2011 are not necessarily indicative of results to be expected for the year ending August 31, 2012 or for any future interim period. In addition, the balance sheet data at August 31, 2011 was derived from the audited financial statements but does not include all disclosures required by GAAP. The accompanying financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on December 14, 2011.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make 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. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to deferred income tax amounts and rates and timing of the reversal of income tax differences, the fair value of financial instruments and the determination of the variables used in the calculation of the fair value of life settlement contracts.

Cash and Cash Equivalents

The Company considers all short term investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation limits. The Company maintains its cash deposits with major financial institutions.

Receivable Under Reverse Repurchase Agreement

Transactions involving purchases of life settlement contracts under agreements to resell (reverse repurchase agreements or reverse repos) are accounted for as collateralized financings except where the Company does not have an agreement to sell the same or substantially the same life settlement contracts before maturity at a fixed or determinable price. The Company's policy is to obtain possession of collateral with a fair value equal to or in excess of the principal amount loaned under resale agreements.

At November 30, 2011 and August 31, 2011 the Company held one and thirteen life settlement contracts as collateral in the amount of $783,571 and $3,368,593 respectively, which are reflected as a receivable under reverse repurchase agreement on the Balance Sheets. The life settlement contract held at November 30, 2011, has a face value of $5 million and a term remaining of less than one month. The counterparty did not exercise its rights under the repurchase agreement and upon expiration of the repurchase agreement on December 13, 2011, the Company recognized this asset as an investment in life settlement contract at investment method.

The Company follows the provisions of ASC 860, Transfers and Servicing which requires an initial transfer of a financial asset and a repurchase financing that was entered into contemporaneously or in contemplation of the initial transfer to be evaluated as a linked transaction unless certain criteria are met, including that the transferred asset must be readily obtainable in the marketplace.

Life Settlement Contracts

ASC 325-30, Investments in Insurance Contracts allows an investor to elect to account for its investments in life settlement contracts using either the investment method or the fair value method. The election shall be made on an instrument-by instrument basis and is irrevocable. Under the investment method, an investor shall recognize the initial investment at the purchase price plus all initial direct costs. Continuing costs (policy premiums and direct external costs, if any) to keep the policy in force shall be capitalized. Under the fair value method, an investor shall recognize the initial investment at the purchase price. In subsequent periods, the investor shall re-measure the investment at fair value in its entirety at each reporting period and shall recognize the change in fair value in the current period net of premiums paid. The Company primarily uses the fair value method to account for life settlement contracts. For those life settlement contracts held as a receivable under reverse repurchase agreement in the prior period, the Company elected to account for them under the investment method upon expiration of the repurchase agreement. The Company purchased these policies under a reverse repurchase agreement as a short-term investment for the purpose of reselling them to other investors.

Life settlement contracts are inherently long term investments. The individuals upon which the life insurance is underwritten are normally healthy with indications of continuing life spans in excess of 5 years. Accounting for the value of these policies using the fair value method provides a more accurate indication of the present value of these policies as it takes into account the net effect of holding the policy over an extended period during which the investment into the asset is increased, by virtue of continuing premium payments. When life settlement contracts are purchased for the purpose of short term gain, typically in a distressed sale, where the life settlement contracts are sold below market, the fair value method would give an inaccurate valuation as it would price in the distressed opportunity as if this was a normal occurrence in the market. Additionally, the concept of holding the policy for a period of less than one year would create a situation where the asset would be best recorded under the investment method.

For life settlement contracts accounted under the investment method, the Company will recognize the difference between the death benefits and the carrying value of the policy when the Company determines that settlement and ultimate collection is realizable and reasonably assured. Income from a transaction must meet both criteria in order to be recognized. Income is generally considered realized when cash is received for the sale of a product or performance of a service. Income generally becomes realizable when a promise to pay is received in exchange for the sale of a product or performance of a service. The promise to pay could be verbal (account receivable) or written (note receivable). Income is generally earned when a legally enforceable exchange takes place (e.g., consideration has been tendered and the buyer takes possession of the product or benefits from the performance of a service). The Company recognizes gains from these life settlement contracts that the company owns upon one of the two following events:

1) Receipt of death notice or verified obituary of insured.

2) Signed sale agreement and/or filing of change of ownership forms and funds transferred to escrow.

Financial Instruments

The fair value of certain of the Company's financial instruments, consisting of cash, accounts receivable, receivable under reverse repurchase agreement, investments in life settlement contracts at investment method, accounts payable, and accrued expenses are estimated to be equal to their carrying value due to the short-term nature of these instruments. Investments in life settlement contracts at fair value are classified as held-for-trading and measured at fair value, with the realized and unrealized changes in fair value recognized each reporting period in the statements of operations.

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820, Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

It is management's opinion that the Company is not exposed to significant interest, currency and credit risks arising from these financial instruments. (See Note 7).

Deferred Rent Liability

The Company’s operating lease provides for minimum annual payments that adjust over the life of the lease. The aggregate minimum annual payments are expensed on the straight-line basis over the minimum lease term. The Company recognizes a deferred rent liability for rent escalations when the amount of straight-line rent exceeds the lease payments, and reduces the deferred rent liability when the lease payments exceed the straight-line rent expense.

Income Taxes

Deferred income taxes are provided for tax effects of temporary differences between the tax basis of asset and liabilities and their reported amounts in the financial statements. The Company uses the liability method to account for income taxes, which requires deferred taxes to be recorded at the statutory rate expected to be in effect when the taxes are paid. Valuation allowances are provided for a deferred tax asset when it is more likely than not that such asset will not be realized.

Management evaluates tax positions taken or expected to be taken in a tax return. The evaluation of a tax position includes a determination of whether a tax position should be recognized in the financial statements, and such a position should only be recognized if the Company determines that it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based upon the technical merits of the position. For those tax positions that should be recognized, the measurement of a tax position is determined as being the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

Earnings (Loss) per Share

Basic earnings (loss) per share is calculated using the weighted average number of shares of common stock outstanding during the period. Included in basic loss per share calculations are the effects of 6,000,000 warrants exercisable at $.01. Diluted earnings per share reflect the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities by the “if converted” method. 25,400,000 and 25,842,500 warrants with an exercise price of $2.00 and $4.00 respectively, and 50,800,000 Series A and Series B preferred shares, convertible into 50,800,000 common shares are not included in diluted earnings per share since their effect would be anti-dilutive.

Stock-Based Compensation

The Company accounts for stock based compensation arrangements using a fair value method and records such expense on a straight-line basis over the vesting period.

As of November 30, 2011, the Company has not granted any stock options.

Recent Accounting Pronouncements

The FASB has issued Accounting Standards Update (ASU) No. 2010-15, Financial Services—Insurance (Topic 944): How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments. This ASU codifies the consensus reached in EITF Issue No. 09-B, "Consideration of an Insurer's Accounting for Majority-Owned Investments When the Ownership Is through a Separate Account." The amendments clarify that an insurance entity generally should not consider any separate account interests held for the benefit of policy holders in an investment to be the insurer's interests and should not combine those interests with its general account interest in the same investment when assessing the investment for consolidation. The general guidance does not apply in instances where the separate account interests are held for the benefit of a related party policy holder as defined in the Variable Interest Entities Subsections of Codification Topic 810, Consolidation, Subtopic 810-10, as those Subsections require the consideration of related parties. ASU 2010-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the financial statements of the Company.

3. INVESTMENT IN LIFE SETTLEMENT CONTRACTS

The Company generally purchases life settlement contracts for long-term investment purposes and uses the fair value method to calculate its life settlement portfolio. The Company will also purchase life settlement contracts as a short-term investment for the purpose of reselling them to other investors.

When using fair value to measure assets and liabilities that are not actively trading, the Company follows the principles that clarify methods for measuring fair value when pricing these assets and liabilities. Further, the Company follows standards for the fair value option, which permits all entities to choose to measure eligible items at fair value at specified election dates. These standards state that a business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.

As of November 30, 2011 and August 31, 2011, the Company has the following investments in life settlement contracts at fair value:


	Number of Contracts		Estimated Fair Value	Face Value
2August 31, 2011	39	$	92,708,076	$	274,750,633
November 30, 2011	39	$	86,766,094	$	274,749,809

The following table represents the remaining life expectancies for each of the first five succeeding years as of November 30, 2011 for life settlement contracts at fair value:


Number of Contracts	Life Expectancies		Face Value		Carrying Value
-	0-1 years	$	-	$	-
1	1-2 years		10,000,000		5,507,346
2	2-3 years		13,000,000		5,043,048
5	3-4 years		68,200,000		32,211,191
3	4-5 years		19,000,000		5,869,486
28	Thereafter		164,549,809		38,135,023
		$	274,749,809	$	86,766,094

The following table represents the remaining life expectancies for each of the first five succeeding years as of November 30, 2011 for life settlement contracts under the investment method:


Number of Contracts	Life Expectancies		Face Value		Carrying Value
-	0-1 years	$	-	$	-
-	1-2 years		-		-
-	2-3 years		-		-
-	3-4 years		-		-
1	4-5 years		2,000,000		283,371
9	Thereafter		43,500,000		2,078,860
		$	45,500,000	$	2,362,231

For the three months ending November 30, 2011 and 2010, the investments experienced an unrealized loss of $5,941,982 and an unrealized gain of $19,244,370 respectively and the Company paid policy premiums of $1,937,944 and $793,669 respectively. For the three months ending November 30, 2011 and 2010, the Company recognized a realized gain of $0 and $2,237,500, respectively. The realized gain of $2,237,500 in the prior period is a result of the maturity of one life settlement contract.

The fair value of life settlement contracts is based on information available to the Company at period end. The Company considers the following factors in its fair value estimates: cost at date of purchase; recent purchases and sales of similar investments, financial standing of the issuer, changes in economic conditions affecting the issuer; standard actuarially developed mortality tables and industry life expectancy reports. The Company uses life expectancy reports that have been issued no later than 24 months from the ending date of the quarter being reported. Life expectancy reports are currently ordered from any two of the following life expectancy providers; AVS, 21^st Century, EMSI, ISC and Fasano. The Company considers that the underlying methodology of the life expectancy providers is an adequate gauge for calculating health status of the individual insured. Life expectancy data is used to simulate random possibilities of maturity, which form the basis for a statistical calculation that underlies our market valuations.

The fair value of the life settlement contracts are estimated using present value calculations. The following assumptions were used at November 30, 2011 and August 31, 2011:


	November 30, 2011	August 31, 2011
Dataset	VBT ALB Mortality Table	VBT ALB Mortality Table
Expected premium growth	5%	5%
Mortality rates	Standard life expectancy	Standard life expectancy
Discount rate	16%	14%

In the process of developing a benchmark from which to measure valuation, the Company uses the average redemption yield on the FINRA/Bloomberg High Yield US Corporate Bond Index as a starting point. This index measures the average yield on the highest risk debt obligations traded in the market and serves as a strong indicator of the yield that professional investors would require for similar types of assets. Traditionally, this index yields between 10 – 12%, therefore we added 250 - 350 basis points to the current index yield to account for the current uncharacteristically depressed high yield corporate bond market plus an additional 250 - 350 basis points for the highly illiquid and relatively new life settlements asset class. Our assumption is that short term US Treasuries typically trade in the 250 - 350 BP range. Given the current depressed market rates we have added 250 - 350 BP and will adjust this inversely to the short term Treasuries. As Treasuries rise the spread rate will diminish keeping the discount rate in line with the market. As the life settlement market continues to mature and the investment pools will become better managed the risk will diminish and the asset class will become more liquid. Current market players are better capitalized and understand the asset characteristics at a higher level. As such the discount rate should reflect a maturing market.

The discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life settlement contracts and the Company’s estimate of the risk premium an investor in the policy would require. The Company believes that investors in alternative investments typically target yields averaging between 13 - 16% for investments of more than a 5 year duration. A 16% rate of return over a five year duration is a reasonable target for investments that are highly illiquid, relatively new and more volatile (i.e. life settlement contracts) than standard investments. In recent months, there have been a number of government investigations of several life settlement companies. These investigations, and subsequent SEC charges, in one instance, have caused a temporary dislocation in the life settlement market. Liquidity has tightened even further. Additionally, subsequent to quarter end, the Company sold a policy to another investor, which indicated that the discount rate has moved higher. In light of these factors, the Company believes the perceived risk or uncertainty over these assets has changed and therefore the risk premium an investor would require has changed, therefore management made a change in accounting estimate and adjusted its discount rate from 14% to 16% in the first quarter ending November 30, 2011, since management believes that a more conservative discount rate is appropriate due to the continued credit crunch in the market and in discussions with other investors in the life settlements market. The Company will continue to periodically assess the discount rate applied to its portfolio of life insurance policies which may result in future changes in fair value. The Company believes that this dislocation is temporary but is unable to predict how long it will take the market to return to a more traditional level. In the event that the dislocation and the market returns to a more traditional level, management will reevaluate the discount rate it uses in valuing its life settlement contracts.

The result of applying these assumptions and using Monte Carlo simulations for the quarter ended November 30, 2011 and year ended August 31, 2011 is as follows:


		November 30, 2011		August 31, 2011
Total Pool Benefit	$	274,749,809	$	274,750,633
Average predicted period until final pool maturity		8.35 yrs		9.03 yrs
Average simulated maturities over age 90		52%		54%
Average age at November 30, 2011 and August 31, 2011		82		82
Average age at maturity		91		91

The assumptions are, by their nature, inherently uncertain and the effect of changes in estimates may be significant. The fair value measurements used in estimating the present value calculations are derived from valuation techniques that include inputs for the asset that are not based on observable market data. The risks associated with the investments in life settlement contracts arise from the unknown remaining life expectancy, a change in credit worthiness of the policy issuer, funds needed to maintain the asset, and changes in the discount rate (See Note 7).

4. PREFERRED STOCK

The total number of preferred shares authorized and that may be issued by the Company is 100,000,000 preferred shares with a par value of $0.00001. These preferred shares have no rights to voting, profit sharing or liquidation.

Of the total preferred shares authorized, pursuant to a Certificate of Designation dated July 22, 2010, 60,000 preferred shares have been designated as Series A 12.5% convertible preferred stock (the “Series A Preferred Stock”), with a par value of $0.00001. Effective April 7, 2011, an additional 25,000 preferred shares have been designated as Series B 12.5% convertible preferred stock (the “Series B Preferred Stock”), with a par value of $0.00001. In connection with the establishment of the Series B Preferred Stock, which is subordinate to the Series A Preferred Stock in respect of liquidation and redemption, the holders of 6,000 shares of Series A Preferred Stock agreed to exchange their Series A Preferred Stock for Series B Preferred Stock. As a result, each exchanging Series A holder becomes a Series B holder and is entitled to receive an additional 50 Series B warrants exercisable at $4.00 for each share of preferred stock so exchanged. During the year ended August 31, 2011, the Company issued 34,450 (2010 – Nil) shares of Series A Preferred Stock, of which holders of 6,000 shares have agreed to exchange for Series B Preferred Stock and issued 2,850 of Series B Preferred Stock. In connection with the issuance of each Series A Preferred Stock, the Company issued 1,000 warrants (500 exercisable at $2.00 per share and 500 exercisable at $4 per share of common stock). In connection with the issuance of each share of Series B Preferred Stock, the Company issued 1,050 warrants (500 exercisable at $2.00 per share and 550 exercisable at $4 per share of common stock).

The Series A convertible preferred shares were issued at $1,000 per share and each Series A convertible share is convertible into 1,000 shares of common stock at an initial conversion price of $1.00 per share. The Series A convertible preferred shares are convertible at the election of the holder. The conversion right is effective beginning on the earlier of 65 days after the initial issuance of the shares to the holder or the effective date of a registration statement filed by the Company covering the holder’s resale of the conversion shares. The earlier of the two dates will be the Conversion Date.

The holders of the shares of Series A Preferred Stock have the right to redeem the Series A Preferred Stock only upon existence of a Redemption Event. A Redemption Event is within control of the Company. A Redemption Event is described as:

(a) Failure of the Company to deliver certificates of conversion to the holders for any reason within 15 days after the Conversion Date and the holder has given 5 days’ notice thereof;

(b) A change in beneficial ownership of more than 50% of the common stock of the Company within a period of 40 trading days or involuntary change in a majority of the members of the Board of Directors of the Company within a period of 40 days; or

If the holder redeems the Series A preferred shares, the Company will be obligated to pay the holder a redemption amount equal to the sum of (i) the stated value of the redeemed shares multiplied by 102%, if the redemption occurs within 5 years from the initial issuance; (ii) or by 100% if the redemption occurs after the 5 years. In addition, upon redemption, the Company must pay unpaid dividends through the date of such payment.

Dividends are payable at the rate of 12.5% per annum, in cash or in common stock, at the option of the Company. Dividends are payable semi-annually on the last day of June and December, with the next dividend payment date being December 31, 2011.

The Series A Preferred Stock does not have a maturity or mandatory redemption date, except upon certain limited acts of default. The Series A Preferred Stock does have a cash settlement provision.

The Series B convertible preferred shares were issued at $1,000 per share and each Series B convertible share is convertible into 1,000 shares of common stock at an initial conversion price of $1.00 per share. The Series B convertible preferred shares are convertible at the election of the holder. The conversion right is effective beginning on the earlier of 65 days after the initial issuance of the shares to the holder or the effective date of a registration statement filed by the Company covering the holder’s resale of the conversion shares. The earlier of the two dates will be the Conversion Date.

The holders of the shares of Series B Preferred Stock have the right to redeem the Series B Preferred Stock only upon existence of a Redemption Event. A Redemption Event is within control of the Company. A Redemption Event is described as:

(a) Failure of the Company to deliver certificates of conversion to the holders for any reason within 15 days after the Conversion Date and the holder has given 5 days’ notice thereof;

If the holder redeems the Series B preferred shares, the Company will be obligated to pay the holder a redemption amount equal to the sum of (i) the stated value of the redeemed shares multiplied by 102%, if the redemption occurs within 5 years from the initial issuance; (ii) or by 100% if the redemption occurs after the 5 years. In addition, upon redemption, the Company must pay unpaid dividends through the date of such payment.

The Series B Preferred Stock does not have a maturity or mandatory redemption date, except upon certain limited acts of default. The Series B Preferred Stock does have a cash settlement provision.

The Company did not issue additional Series A Preferred Stock or Series B Preferred Stock during the quarter ended November 30, 2011.

5. COMMON STOCK

A. The Company did not issue additional common stock during the quarter ended November 30, 2011.

B. Warrant transactions are summarized as follows:


	Number of warrants	Weighted average exercise price	Weighted average life remaining (in years)
Balance as at August 31, 2011
Issued	57,242,500	2.69	4.33 years
Additions as of November 30, 2011
Issued	-	-

Balance as at November 30, 2011	57,242,500	2.69	4.08 years

As of November 30, 2011, there were 57,242,500 warrants outstanding and exercisable with expiration dates commencing June 2015 through June 2016. If our Registration Statement is not effective at the time of exercise, the holder may elect a “cashless exercise” resulting in no additional proceeds from the warrant exercise received by the Company.

Except as set forth, the warrants do not permit net cash settlement.

6. COMMITMENTS

Life insurance premiums are future payments required to keep the insurance policies, comprising the Company’s investment in life settlement contracts, intact. At November 30, 2011, the premiums to be paid for each of the five succeeding years for investment in life settlement contracts at fair value are as follows:


Year		Amount

2012	$	12,908,276
2013		17,887,369
2014		17,861,861
2015		17,861,861
2016		17,861,861
Thereafter		198,949,742

	$	283,330,970

At November 30, 2011, the premiums to be paid for each of the five succeeding years for investment in life settlement contracts at investment method are as follows:



Year		Amount

2012	$	1,827,070
2013		2,454,447
2014		2,454,447
2015		2,454,447
2016		2,454,447
Thereafter		30,160,855

	$	41,805,713

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table provides an analysis of Level 3 financial instruments that are re-measured subsequent to initial recognition at fair value. The Company determined that its investment in life settlements at fair value is a Level 3 financial instrument and that it has no Level 1 or Level 2 financial instruments:

Reconciliation of Level 3 fair value measurements of financial assets on a recurring basis using unobservable inputs as of November 30, 2011 and August 31, 2011:


Unquoted Life Settlement Contracts:		November 30, 2011		August 31, 2011
Beginning balance	$	92,708,076	$	12,313,897
Transfers in:
Purchases of life settlement contracts		-		29,791,549
Change in fair value of life settlement contracts		(5,941,982)		53,102,630
Transfers out:
Proceeds from maturity of life settlement contract		-		(2,500,000)

Ending balance	$	86,766,094	$	92,708,076

The extent to which the fair value could reasonably vary in the near term has been quantified by evaluating the effect of changes in significant underlying assumptions used to estimate the amount. If the discount factors were increased or decreased by 2% while all other variables are held constant, the carrying value of the investment in life settlement policies would be:


	Discount Rate as of November 30, 2011		Discount rate as of August 31, 2011
	+ 2%	(2%)	+ 2%	(2%)

Investment in Life Settlement Contracts	$ 80,195,722	$ 94,218,150	$ 85,215,603	$ 101,271,273

The Company utilizes the MAPS system for valuations. MAPS is a generally accepted third party pricing system utilized by funds and investors engaged in the purchase and sale of life settlements.

Life expectancy reports are generated by third party medical underwriting firms, such as AVS, 21 ^stCentury, EMSI and Fasano. These firms review medical data for an individual and grade using a series of debits and credits. The resulting values are used to generate a life expectancy value. The MAPS system utilizes this life expectancy data to calibrate underlying mortality curves generated for each individual case.

MAPS utilizes the appendixes to the VBT2008 report as a base for mortality projections. This chart established 25 unique values corresponding to 25 statistical values indicative of the next 25 years of a persons life. The value is the statistical probability that the individual will meet an untimely end in that given year. When a life expectancy provider produces a report, it indicates a value at which point a certain individual will achieve a 50% chance, statistically, of dying. This is calculated by randomly making 1000 simulations and calculating an exact point of death for each simulation. The point at which the cumulative deaths equal 500 is the median point or the life expectancy.

In order to calibrate this curve, a multiplier is formulated to cause the median mark to equal the life expectancy value provided by the life expectancy provider. For every case, 1000 simulations are run, each simulation resulting in a unique death month. For example, if a life expectancy equals 50 months, the underlying data would show 500 deaths prior to the 50th month and 500 deaths after the 50th month.

The MAPS system takes the results of the modified life expectancy curve and applies it to the premium and death benefit projections stream. For the 500 deaths prior to the 50th month, utilizing our previous example, it would apply the percentage of the simulated runs that died in each 12 month period to the death benefit and premium schedules to form estimated cash flows. The net present value, using a discount rate defined by the user, of the streams of values created by this method form the indicated value of the policy.

8. INCOME TAXES

Income tax expense consists of the following components at November 30, 2011 and 2010:


	2011		2010
Current tax expense	$	-	$	-
Deferred tax expense		(3,546,833)		8,573,961
Total income tax expense	$	(3,546,833)	$	8,573,961

The Company calculates its interim tax provision in accordance with the provisions of ASC 740-270, Income Taxes; Interim Reporting . For interim periods, the Company estimates its annual effective income tax rate and applies the estimated rate to the year-to-date income or loss before income taxes. The Company also computes the tax provision or benefit related to items we report separately and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

In computing the annual estimated effective tax rate the Company makes certain estimates and judgments, such as estimated annual taxable income or loss, the nature and timing of permanent and temporary differences between taxable income for financial reporting and tax reporting, and the recoverability of deferred tax assets. These estimates and assumptions may change as new events occur, additional information is obtained, or as the tax environment changes. The difference between the statutory rate of 35% and the effective rate of 45% is primarily attributable to the affect of state and local taxes.

As of November 30, 2011, the Company has filed income tax returns through the fiscal 2009 tax year. The Company is required to file income tax returns in the United States (federal) and in New York State and City. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The evaluation was performed for the August 31, 2007 – August 31, 2011 tax years, which remain subject to examination. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There are no significant amounts accrued for penalties or interest as of or during the three months ended November 30, 2011 and 2010. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

9. SUBSEQUENT EVENTS

On December 22, 2011, the Board of Directors authorized that the Company issue 3,201,093 shares of common stock as payment of the 12.5% dividend for December 31, 2011 on the Series A Preferred Stock and Series B Preferred Stock.

The Company evaluates events that have occurred after the balance sheet date through the date the financial statements were publicly available. Based upon the evaluation, the Company did not identify any other recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements .

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Special Note: Certain statements in this quarterly report on Form 10-Q concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items, estimates as to size, growth in or projected revenues from the life settlement market, developments in industry regulations and the application of such regulations, expected outcomes of pending or potential litigation and regulatory actions, and our strategies, plans and objectives, together with other statements that are not historical facts, are “forward-looking statements” as that term is defined under the federal securities laws. All of these forward-looking statements are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. You should carefully review the risks described herein and in other documents we file from time to time with the Securities and Exchange Commission, (“ SEC ”), including our Annual Report on Form 10-K for the year ended August 31, 2011 (“ Fiscal 2011 ”), particularly in the sections entitled “Item 1A – Risk Factors” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Report or to reflect the occurrence of unanticipated events. Shareholders and potential shareholders should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Report. Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside of our control, and involve a number of risks, uncertainties and other factors that could cause actual results and events to differ materially from the statements made, including, but not limited to, the following:

actual or anticipated fluctuations in our quarterly and annual operating results;

actual or anticipated product constraints;

decreased demand resulting from changes in laws;

product and services announcements by us or our competitors;

loss of any of our key executives;

regulatory announcements, proceedings or changes;

competitive product developments and legal developments;

any business combination we may propose or complete;

any financing transactions we may propose or complete; or

broader industry and market trends unrelated to its performance.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Results of Operations

Our results of operations for the three months ended November 30, 2011, consisted of consisted of change in fair value of life settlement contracts net of premiums paid (which include unrealized gains on life settlement contracts and realized gains on sale of life settlement contracts), less operating and administrative expenses for personnel, leased office space and professional fees and income tax expense.

Three months ended November 30, 2011 compared to three months ended November 30, 2010

ABSOLUTE LIFE SOLUTIONS, INC.


		Three months ended November 30, 2011		Three months ended November 30, 2010
Sales, general and administrative expenses	$	(375,143)	$	(1,069,847)
Other income
Realized gain on life settlement contracts held under investment method		319,843		-
Change in fair value of life settlement contracts net of premiums paid		(7,879,926)		20,688,201
Income ( loss) before income tax		(7,935,226)		19,618,354
Income tax benefit (provision)		3,546,833		(8,573,961)
Net income (loss)		(4,388,393)		11,044,393
Deemed dividend on issuance of Series A and Series B Preferred Stock		-		(13,250,000)
Net loss applicable to common shareholders	$	(4,388,393)	$	(2,205,607)

Basic loss per common share	$	(0.05)	$	(0.03)
Diluted loss per common share	$	(0.05)	$	(0.03)

Basic weighted average shares outstanding		91,424,597		87,416,430
Diluted weighted average shares outstanding		91,424,597		87,416,430

Expenses: Operating and administrative expenses decreased from $1,069,847 for the three months ended November 30, 2010 to $375,143 for the three months ended November 30, 2011. The decrease of approximately $700 thousand from the prior period is primarily attributable to a decrease in spending on marketing budgets. Marketing expenses related to the initial start-up of the Company were incurred in the first quarter of the prior year. These were one time charges.

Other Income (Loss): Total other income decreased from $20,688,201 for the three months ended November 30, 2010 to a loss of $7,560,083 for the three months ended November 30, 2011. Unrealized losses net of premiums paid were $7,879,926 for the three months ended November 30, 2011, due to fair market valuation of pool policies. Realized gains from the sale of two policies were $319,843 for the three months ended November 30, 2011. The decrease in fair value of our life settlement portfolio is primarily attributable to the increase in discount rate that the Company utilizes in valuing its investments. Additionally, the Company made no new acquisitions of policies in the three months ended November 30, 2011 as compared to acquisitions of 16 new policies in the quarter ended November 30, 2010. These were acquisitions of policies in distressed sales from individuals/entities that did not have the ability to “hold” the policies. When these policies were initially marked at fair value, there were significant unrealized gains because of our intent and ability to hold these policies until maturity. In subsequent periods, the gradual changes in fair value will result in a decrease in the change in unrealized gains on policies already acquired.

Income Tax: Income tax expense decreased from $8,573,961 for the three months ended November 30, 2010 to a benefit of $3,546,833 for the three months ended November 30, 2011. The decrease is primarily attributable to the decrease in unrealized gains on life settlement contracts for the three months ended November 30, 2011 as compared to the three months ended November 30, 2010. A decrease of $3,546,833 in addition to the previous year’s liability of $21,071,160 resulted in a deferred tax liability of $17,524,327.

Net Income (Loss): We reported a net loss of $4,388,393 for the three months ended November 30, 2011 compared to net income of $11,044,393 for the three months ended November 30, 2010. The decrease of approximately $15.4 million from the prior period is primarily attributable to a decrease of approximately $26.3 million in unrealized gains and approximately $1.9 million in realized gains offset by a decrease of approximately $12.1 million in income tax expense and approximately $700 thousand in general and administrative expenses. Refer to preceding discussions for explanation of variances.

Deemed Dividend. Deemed dividend decreased from $13,250,000 for the three months ended November 30, 2010 to $0 for the three months ended November 30, 2011. The decrease is a result of the Company not issuing any additional preferred shares for the three months ended November 30, 2011 as compared to the three months ended November 30, 2010. The Company recorded a deemed dividend for financial statement purposes of $13,250,000 for the three months ended November 30, 2010 to holders of our Series A preferred shares in connection with the appreciation of our common stock price. The deemed dividend reflects the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares.

Liquidity and Capital Resources

Net cash used in operating activities for the three months ended November 30, 2011 was $1,410,997. Net cash provided by investing activities was $542,634 arising from proceeds received from sale of life settlement contracts partially offset by investment in life settlement contracts at investment method and investment in reverse repurchase agreement. This resulted in a decrease in cash of $868,363.

The Company establishes and analyzes its premium reserves on a monthly basis. Once an adequate reserve level is met, the Company weighs additions to its portfolio based on the future value of the investment and the future impact the premium commitment will have on its liquidity. Since the Company is still building a carefully weighted portfolio it must meet future liquidity needs through the issuance of debt instruments and the sale of equity. It is anticipated that as the pool of policies expands and policies mature the resultant cash flows will enable the Company to satisfy the Company’s liquidity needs though such maturities, but because of the variability of life expectancy we cannot predict the date when this will occur.

Working Capital and Capital Availability: As of November 30, 2011, we had working capital of $4,125,347, including $783,571 of a policy held under a reverse repurchase agreement and $2,362,231 of policies held under the investment method. Subsequent to quarter end, we sold one policy, which was held at fair value, for cash equal to $939,792. We expect to raise additional funds to continue to build our portfolio through debt or subsequent equity offerings. Such issuance may dilute the interest of our existing shareholders. During the next twelve months we anticipate that we will not generate significant cash from operations. The Company has in the past and expects to in the future find opportunities to purchase policies at advantageous prices. In order to finance future operations, the Company may sell these policies to other investors as these situations present a short term gain that exceeds the projected long term benefit. We expect to continue to build a portfolio of life settlements that will mature over the following ten year period. While we may derive income from early maturities, the policies will generally have a life expectancy exceeding 3 years. As our portfolio matures, we expect that our capital needs will subside.

Going Concern Qualification

Our financial statements for the period ended November 30, 2011 indicate that the activities of the Company did not generate positive cash flow from operations, and that we incurred losses in developing this business. The Company will require additional funds to finance its operations. These conditions raise substantial doubt about our ability to continue as a going concern. Since July 2010, we have raised in excess of $50,000,000 in additional capital, a portion of which is available for our working capital needs. The Company has undertaken further steps with the goal of sustaining our operations for the next twelve months and beyond to address its lack of liquidity by raising additional funds, either in the form of debt or equity or by selling our policies to other investors. However, there can be no assurance that the Company can successfully accomplish these steps and or business plans, and it is uncertain that the Company will achieve a profitable level of operations and be able to obtain additional financing.

There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all.

Application of Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based on our condensed financial statements that were prepared in accordance with accounting principles generally accepted in the United States of America. To guide our preparation, we follow accounting policies, some of which represent critical accounting policies as defined by the SEC. The SEC defines critical accounting policies as those that are both most important to the portrayal of a company’s financial condition and results and require management’s most difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates involve significant judgments, assumptions and estimates by management that may have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent liabilities, and the reported amounts of income and expenses during the reporting period that management considers critical accounting estimates. The judgments, assumptions and estimates used by management are based on historical experience, management’s experience, knowledge of the accounts and other factors that are believed to be reasonable. Because of the nature of the judgments and assumptions made by management, actual results may differ materially from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of our operations. Areas affected by our estimates and assumptions are identified below.

ASC 325-30, Investments in Insurance Contracts, states that an investor may elect to account for its investments in life settlement contracts using either the investment method or the fair value method. The election is to be made on an instrument-by instrument basis and is irrevocable. Under the investment method, an investor is to recognize the initial investment at the purchase price plus all initial direct costs. Continuing costs (e.g., policy premiums and direct external costs, if any) to keep the policy in force are to be capitalized. Under the fair value method, an investor recognizes the initial investment at the purchase price. In subsequent periods, the investor re-measures the investment at fair value in its entirety at each reporting period and recognizes change in fair value earnings (or other performance indicators for entities that do not report earnings) in the period in which the changes occur. We primarily value our investments in life settlement contracts using the fair value method. As of November 30, 2011 and August 31, 2011, the total of our investment in life settlements held for our own account held at fair value was valued at $86,766,094 and $92,708,076, respectively. As of November 30, 2011 and August 31, 2011, the total of our investment in life settlements held for our own account held at investment method was valued at $2,362,231 and $0, respectively.

The fair value of the investment in life settlement contracts is evaluated at the end of each reporting period. Realized and unrealized changes in the fair value of the investment are recognized each reporting period in the statements of operations. The fair value is determined on a discounted cash flow basis that incorporates current life expectancy assumptions. The discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life insurance policy and our estimate of the risk premium an investor in the policy would require. In the process of developing a benchmark from which to measure valuation, the Company uses the average redemption yield on the FINRA/Bloomberg High Yield US Corporate Bond Index as a starting point. This index measures the average yield on the highest risk debt obligations traded in the market and serves as a strong indicator of the yield that professional investors would require for similar types of assets. Traditionally, this index yields between 10 – 12%, therefore we added 250 - 350 basis points to the current index yield to account for the current uncharacteristically depressed high yield corporate bond market plus an additional 250 - 350 basis points for the highly illiquid and relatively new life settlements asset class. Our assumption is that short term US Treasuries typically trade in the 250 - 350 BP range. Given the current depressed market rates we have added 250 - 350 BP and will adjust this inversely to the short term Treasuries. As Treasuries rise the spread rate will diminish keeping the discount rate in line with the market. As the life settlement market continues to mature and the investment pools will become better managed the risk will diminish and the asset class will become more liquid. Current market players are better capitalized and understand the asset characteristics at a higher level. As such the discount rate should reflect a maturing market.

The Company believes that investors in alternative investments typically target yields averaging between 13 - 16% for investments of more than a 5 year duration. A 16% rate of return over a five year duration is a reasonable target for investments that are highly illiquid, relatively new and more volatile (i.e. life settlement contracts) than standard investments. In recent months, there have been a number of government investigations of several life settlement companies. These investigations, and subsequent SEC charges, in one instance, have caused a temporary dislocation in the life settlement market. Liquidity has tightened even further. Additionally, subsequent to quarter end, the Company sold a policy to another investor, which indicated that the discount rate has moved higher. In light of these factors, the Company believes the perceived risk or uncertainty over these assets has changed and therefore the risk premium an investor would require has changed, therefore we made a change in accounting estimate and adjusted our discount rate from 14% to 16% in the first quarter ending November 30, 2011, since we believe that a more conservative discount rate is appropriate due to the continued credit crunch in the market and in discussions with other investors in the life settlements market. The Company will continue to periodically assess the discount rate applied to its portfolio of life insurance policies which may result in future changes in fair value. The Company believes that this dislocation is temporary but is unable to predict how long it will take the market to return to a more traditional level. In the event that the dislocation and the market returns to a more traditional level, we will reevaluate the discount rate we use in valuing our life settlement contracts.

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

The following table provides an analysis of Level 3 financial instruments that are re-measured subsequent to initial recognition at fair value. The Company determined that its investment in life settlements is a Level 3 financial instrument and that it has no Level 1 or Level 2 financial instruments:

Reconciliation of Level 3 fair value measurements of financial assets on a recurring basis using unobservable inputs as of November 30, 2011 and August 31, 2011:


Unquoted Life Settlement Contracts:		November 30, 2011		August 31, 2011
Beginning balance	$	92,708,076	$	12,313,897
Transfers in:
Purchases of life settlement contracts		-		29,791,549
Change in fair value of life settlement contracts		(5,941,982)		53,102,630
Transfers out:
Proceeds from maturity of life settlement contract		-		(2,500,000)

Ending balance	$	86,766,094	$	92,708,076

We make estimates of the collectability of insurance proceeds receivable. The accounts associated with these areas are critical to recognizing the correct amount of revenue in the proper period. We have not experienced any material changes in our estimates of collectability versus actual results in the current or prior periods.

We review the carrying value of the property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment includes current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, there was no impairment during the three months ended November 30, 2011.

We evaluate the useful lives of our property and equipment to assure that an adequate amount of depreciation is being charged to operations. Useful lives are based generally on specific knowledge of an asset’s life in combination with the Internal Revenue Service rules and guidelines for depreciable lives for specific types of assets.

We are required to estimate our income taxes. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we include a tax provision or reduce our tax benefit in the statements of operations. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

We have not made any material changes to our critical accounting estimates or assumptions or the judgments affecting the application of those estimates or assumptions.

New Accounting Pronouncements

Off-Balance Sheet Arrangements

We did not engage in any off-balance sheet arrangements or transactions.

Outlook

We believe our company and our industry are fundamentally sound and well positioned to deal with the current uncertainty in the financial and capital markets. Our life settlements are not correlated to the financial or commodities markets, which increases their appeal in uncertain times. Further, we have an adequate amount of cash and cash equivalents. We carry no operational debt and do not rely on leverage in our capital structure. We do rely, however, upon the availability of investment capital. While it is conceivable that a deep financial crisis could diminish the supply of investment capital throughout the economy, our experience during the First Quarter of this year indicates that greater investment capital will be placed in life settlements. We believe this is due to the fact that returns in life settlements are relatively attractive and not correlated to the performance of the financial markets.

Our operating strategy is to increase cash flows generated from operations by increasing revenues while controlling operating and administrative expenses. We believe that domestic and international demand for life settlements will continue to grow as the prospects for economic conditions remain uncertain and investors look for alternative investments. On the supply side, we are increasing our advertising and professional awareness marketing to potential sellers of policies and to strengthen our broker network.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures. With the participation of our Chief Executive Officer and Chief Accounting Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such periods, our disclosure controls and procedures were not effective due to the material weaknesses noted below, in ensuring that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Due to the small size of its staff, the Company did not have sufficient segregation of duties to support its internal control over financial reporting.

There were no changes in our internal controls over financial reporting during the quarter ended November 30, 2011, that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not engaged in any legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

The Company currently does not have senior securities

Item 5. Other Information.

Item 6. Exhibits.


Exhibit Number	Description
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act .

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.



ABSOLUTE LIFE SOLUTIONS, INC.

January 17, 2012	/s/ Joshua Yifat
	Joshua Yifat Treasurer and Chief Financial Officer (Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Capacity in which signed	Date



/s/ Avrohom Oratz
Avrohom Oratz	President and Chief Executive Officer (Principal Executive Officer )	January 17, 2012

Infinity Augmented Reality, Inc. - FORM 10-Q - January 17, 2012

Attached files

Infinity Augmented Reality, Inc. Reports