10-K 1 life_10k-063008.htm LIFE EXCHANGE, INC. life_10k-063008.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 fiscal year ended June 30, 2008

[_]           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: 0-50993

LIFE EXCHANGE, INC.
(Exact name of registrant as specified in its charter)

Nevada
20-2602277
(State or other jurisdiction of incorporation or organization)
(IRS Employee Identification No.)

 
2001 Biscayne Boulevard, Suite 2102, Miami, FL
33137
(Address of principal executive offices)
(Zip Code)
   
Registrant's telephone number, including area code: (866) 907-9766

Securities Registered pursuant to Section 12(b) of the Exchange Act:

Title of each class
Name of each exchange on which registered
None
None

Securities Registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, $0.001 Par Value
 (Title of class)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  [X] No  [ ]

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 15, 2008 was $25,944,000.   This valuation is based on the closing sale price of common stock as quoted on the OTCBB on September 15, 2008 ($1.60). This calculation does not reflect a determination that persons are affiliates for any other purposes.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  [_] No  [_]

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  The number of shares outstanding of the registrant's common stock as of September 15, 2008 was 176,715,000.


(DOCUMENTS INCORPORATED BY REFERENCE)
None

LIFE EXCHANGE, INC.
FORM 10-K
INDEX
 
   
Page
PART I
     
Item 1.
Business
  1
Item 1A.
Risk Factors
  9
Item 1B.
Unresolved Staff Comments
N/A
Item 2.
Properties
  12
Item 3.
Legal Proceedings
  12
Item 4.
Submission of Matters to a Vote of Security Holders
  12
   
 
PART II
     
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  12
Item 6.
Selected Financial Data
12
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  13
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
16
Item 8.
Financial Statements and Supplementary Data
  16
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  18
Item 9A.
Controls and Procedures
  18
Item 9B.
Other Information
  19
     
PART III
     
Item 10.
Directors, Executive Officers and Corporate Governance
  19
Item 11.
Executive Compensation
  20
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  21
Item 13.
Certain Relationships and Related Transactions, and Director Independence
  21
Item 14.
Principal Accounting Fees and Services
  22
   
  22
PART IV
     
Item 15.
Exhibits and Financial Statement Schedules
  22
     
Signatures
  
  24

PART I

This annual report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about the Company, us, our future performance, our beliefs and our Management's assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict or assess. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the filing of this Form 10-K, whether as a result of new information, future events, changes in assumptions or otherwise.
Unless the context otherwise requires, throughout this Annual Report on Form 10-K the words “Life-Exchange”, “Company,” “we,” “us” and “our” refer to Life Exchange, Inc. and its consolidated subsidiaries.
 
ITEM 1.  BUSINESS
 
Overview
 
           On January 19, 2005 (“date of inception”), Life-Exchange, Inc. (“the Company”) was organized under the laws of the State of Delaware as a corporation.  Life-Exchange, Inc. was established for the purposes of servicing the life settlement industry by creating an on-line business-to-business exchange platform, which will facilitate the brokering of life insurance policies in the secondary market.  On January 29, 2006, the Company began to trade publicly under the name Life Exchange, Inc. (OTC pink sheets: LFXG.PK).

Our Products and Services
 
We are an Internet-based, business-to-business exchange for the life settlement industry. By providing a secure, efficient, and neutral electronic trading platform specifically designed for life settlements, we address many of the inefficiencies and difficulties currently facing the industry.
 
On the sell side of the transaction process, licensed life settlement brokers, on behalf of the policyholders, register and submit to us information and documentation on life insurance policies which they are seeking to sell. We provide brokers a means by which to shop their client's policies to the entire community of buyers and sell them to the highest bidder. Our automated listing and auction processes encourage bidding on policies as it allows more buyers into the marketplace, and thus, we help to create greater value for policy owners.
 
By selling the policy, the policyholder/insured receives an immediate cash payment to use as he or she wishes. The buyer takes an ownership interest in the policy at a discount to its face value and receives the death benefit under the policy when the insured dies.
 
On the buy side of the transaction process, licensed life settlement providers register and list the criteria that they use in evaluating the feasibility of purchasing life insurance policies. To that end, we provide a cost effective means to sort and filter through thousands of policies in minutes - not months; thereby allowing providers to focus on just those policies most appropriate to their needs.
 
After a policy has been registered and submitted to auction, the policy enters a preview period which allows all potential buyers the opportunity to underwrite the policy. After this preview period, the policy enters a live auction period where providers are able to bid against each other for the right to purchase the life insurance policy in a real-time, online auction.
 
At such time that a provider locates and successfully bids on a life insurance policy, the provider then negotiates and enters into a contract with the broker. We do not participate in that negotiation.  We generate revenue based primarily on transaction fees.  Our fee structure is designed to provide both brokers (sellers) and providers (buyers) with a compelling cost justification to use Life-Exchange as their primary means to execute life settlement transactions.
 
Fee Structure
 
Our business model is based primarily on revenue streams generated via various transaction fees associated with successful policy auctions.  Our fee structure is designed to provide both sellers and buyers with a compelling cost justification to use Life-Exchange as their primary means to execute life settlement transactions.  Transactions fees are based on a percentage of the face amount of the life insurance policy. This fee arrangement is non-commission based and therefore it allows us to remain neutral in a life settlement transaction as we are not incentivized by either a high or a low sales price. Furthermore, because of our role in the life settlement transaction and as validated by the neutrality of our fee structure, we do not represent or negotiate on behalf of the policy owners and accordingly do not have a fiduciary responsibility to the policy owner as a life settlement broker would.
 
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In addition to the Transaction Fees described above, Life-Exchange also generates News Distribution Fees. The secondary life insurance market is a niche marketplace with a unique blend of participants. And while this marketplace is experiencing tremendous growth, it is still difficult to target the most active firms and individuals. To address this need, we maintain a large database of influential readers focused on life settlements. In order to monetize this subscriber base, we provide a news distribution service. For a fee, we will distribute press releases to our subscriber base. The news distribution fee ranges from $500 to $2,000 per press release depending on the specific nature of the press release.
 
The Life-Exchange Automation
 
While the majority of the life settlement industry is backed by technologically sophisticated, Fortune 500 financial institutions, the technological sophistication of the life settlement industry itself is antiquated and highly inefficient. The majority of policy transactions are labor-intensive, cumbersome and disorganized undertakings. There is significant duplication of work, inappropriate policy transactions, miscommunication and poor follow through. All of these factors contribute to an unproductive and inequitable marketplace.
 
We have automated and modernized the life settlement industry by introducing buyers to sellers (and vice versa) in a virtual, online marketplace. Our features and functionality are specifically designed to improve regulatory compliance, increase customer value, reduce transaction costs, create new revenue models, and add efficiency to an inefficient market.
 
With our web-based document management features and scalable database, we greatly assist clients by removing the confusion caused by different employees making changes to the same documents and not communicating the changes explicitly. Brokers and providers have access to the correct documents, and the ability to make and communicate changes, 24/7 from anywhere via secure internet connection. Each client's employee's responsibilities and completed work can be tracked using the audit feature built into our products, ensuring accountability.
 
Of particular importance to our industry, is the fact that the transfer of medical information requires adherence to the compliance procedures of the Health Insurance Portability & Accountability Act ("HIPAA"). In order to ensure compliance with the laws regulating the transmission of medical information, especially in electronic format, we offer all members a secure hosting center to store, retrieve, and exchange medical data in a manner that maintains compliance with HIPAA and state regulations.
 
In addition to the above factors, there is a significant influx of institutional capital entering the life settlement industry and the pressure to place this capital continues to increase. Automating the Life-Settlement transaction process and allowing more buyers and sellers to transact business through a single, highly efficient electronic exchange will greatly improve value for both buyer and seller by bringing greater liquidity to the life settlement marketplace. Life settlement brokers benefit by having equal and greater access to potential buyers, ensuring their clients receive the highest bids for their policies while maintaining compliance with stringent state-by-state regulations. Providers benefit by having access to more suitable investment opportunities, and are thus able to place their capital more rapidly and with greater efficiently, thus increasing their internal rate of return.
 
Intellectual Property and Patents
 
On March 31, 2006, David C. Dorr, our president, assigned his rights in a Patent pending application for Letters Patent of the United States filed July 21, 2004, U.S. Patent Application No. 10/895112. Said patent relates to our processes described herein.
 
Company History
 
On July 7, 2006, the Company entered into a note agreement with Vantage Group Ltd. to provide $300,000 of additional financing (“Note 1”).  The terms of Note 1, as modified by subsequent amendments, provide for 7% interest payable at maturity.  Note 1 is unsecured and matures on April 15, 2010 with quarterly interest installments due through April 15, 2010.  Note 1 also provides Vantage with conversion rights based on us attaining certain performance criteria as follows. The Holder of this Note 1 is entitled, at its option, to convert the principal amount of Note 1 or any portion thereof, together with accrued but unpaid interest, into shares of our common stock based on attaining certain performance criteria measured during December, 2006.  We did not meet the performance criteria and accordingly, no shares were converted.
 
On April 2, 2007, we entered into a note agreement with Vantage Group Ltd. to provide $150,000 of additional financing (“Note 2”).  The terms of Note 2, as modified by subsequent amendments, provide for 7% interest payable at maturity.  Note 2 is unsecured and matures on April 15, 2010.  Note 2 also provides Vantage with conversion rights based on us attaining certain performance criteria as follows.  Note 2 may be converted into shares of our common stock at (i) $0.10 or (ii) fifty percent (50%) of the three lowest closing prices of the Stock on the Pink Sheets (or such other principal market or exchange where the Common Stock is listed or traded at the time of conversion) immediately preceding the date of conversion.
 
On August 2, 2007, the Company was advanced an additional $5,000 under the same terms as Note 2.
 
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On September 27, 2007, the Company formed LFX Insurance Services, LLC (“LFXIS”) a Nevada limited liability corporation as a wholly-owned subsidiary.  LFXIS was formed to process “structured finance” transactions related to the Company’s core life settlement business.  Structured finance transactions involve an extension of the services provided to customer base for customer driven transactions executed through the Company’s exchange platform.  Structured finance transactions involve utilizing the skill sets of the Company’s personnel to both advise and structure an appropriate transaction that accommodates the goals of the parties involved.  The Company incurred minimal expenses in establishing the subsidiary.

In July 2008, the Company formed four additional subsidiaries to facilitate its plans to further expand its service offerings.  Filings with the State of Nevada began on June 3, 2008, however the organization activities were not completed until July 2008.  None of these subsidiaries were complete and operational or record any transactions as of June 30, 2008.  The newly formed subsidiaries are as follows:

LFX Brokerage LLC was formed to facilitate deeper market penetration into life settlement sell-side participants.  This entity will hold life settlement brokerage licenses and life insurance general agency licenses allowing us to offer expanded services as they relate to our core business of operating a life settlement exchange.  These licenses also give us the flexibility to interact directly with policy owners and more efficiently address their market needs.

LFX Acquisitions LLC was formed to facilitate deeper market penetration into life settlement buy-side participants.  This entity will hold life settlement provider licenses and provide better market access to financial institutions like banks and pension funds to our life settlement exchange.  This entity will also allow us the ability to provide ongoing asset servicing to clients that require these services.

LFX Capital Markets LLC was formed in anticipation of further regulatory developments that could bring greater oversight by FINRA to the life settlement market place.  This entity will be licensed as a broker/dealer and will also be designed for providing trades in more advanced structured life settlement products that will be classified as securities.  Having a broker/dealer license will also allow us to accept variable life insurance contracts, a sector of the market that we have not yet tapped.

LFX Trading, LLC was formed to hold all the technology related to our life settlement auction platform as well as the intellectual property we will be developing related to our electronic trading platform.  This new entity will ultimately be responsible for receiving all transaction fees as they relate to auctions or trades through our systems.

We operate two websites: www.life-exchange.com and www.life-exchange.net.
 
The Viatical and Life Settlement Industry
 
A Viatical and/or Life Settlement (herein referred to as a "Life Settlement") is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. The insurance industry generally uses the term Viatical Settlement to refer to a transaction involving the terminally or chronically ill insured and the term Life Settlement to refer to a transaction involving an insured who is not terminally or chronically ill, but generally over the age of sixty five (65).
 
The U.S. secondary market for life insurance policies has experienced phenomenal growth over the past several years. Life settlement buyers, also known as “providers”, purchase policies from policyholders for immediate cash settlement. Providers will purchase life settlement policies on their own behalf as well as on the behalf of various investors including both domestic and international banks, hedge funds, and private equity firms.
 
Once a provider acquires a policy, the provider continues to pay the policy premiums until the death of the insured, at which time they collect the policy's proceeds. Some life settlement providers negotiate directly with policyholders, but the majority of Life Settlement transactions are conducted through a life settlement broker. Most states require providers to be licensed in the states in which they purchase policies. Many providers are well-financed by large institutional investors. Not only does this institutional backing provide a secure funding source for secondary market transactions, but it also provides the highest degree of consumer protection with regard to privacy and confidentiality.
 
Life settlement sellers, also known as “brokers”, act on behalf of the policyholders in order to secure the highest price from the sale of the policyholder's life insurance policy. Life settlement brokers work with the insured, the policy owner, general agencies, life insurance agents, attorneys, and/or financial planners.
 
In an attempt to secure the highest price for a policyholder, brokers will typically present a life insurance policy to multiple providers. Brokers are required to collect and prepare critical policy information and medical records on the insured for use in evaluating the value a policyholder's life insurance policy.
 
An important industry group is the Life Insurance Settlement Association (LISA). This industry association promotes self-regulation of the industry, and advises and recommends regulations to governing bodies. They also lobby for new laws and regulations to help protect the consumer and keep fraud out of the industry.
 
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The Life Settlement Market and Competition
 
The life settlement industry developed out of the viatical industry which began in the late 1980s as large numbers of AIDS patients found themselves coping with the catastrophic costs of a terminal illness. Many had life insurance policies that seemed to be limited or inaccessible prior to the death of the insured. A creative solution was to offer AIDS patients; a lump sum payment of cash greater than their cash surrender value, in exchange for transferring the ownership and beneficiary of a policy. Viewing a life insurance policy as a financial asset which could be transferred for value had begun and unfortunately, as with many new financial concepts, lack of regulation lead to several incidences of fraud and other improprieties.
 
Over the past several years the market has evolved into a multi-billion dollar industry, which is heavily regulated and institutionally backed. The demand driving the growth of this product has been the rapid increase in the senior population, constantly changing estate planning needs and most profoundly the awareness that these insurance policies can be sold on a secondary market as financial instruments to institutionally-backed buyers.
 
We are aware of one direct competitor, -- LexNet (www.lexnet.com) -- that provide consumers with the ability to auction their life insurance policies.  LexNet was launched in May, 2007 by Cantor LifeMarkets, a division of Cantor Fitzgerald.  A primary difference between LexNet and Life-Exchange is that LexNet will not accept policy submissions directly from producers.  Rather, access to LexNet is exclusively controlled through a select group of Master Agencies.  Regardless of whether or not an insurance agent is part of the select Master Agency’s network, they must still work through a Master Agency, which is likely to be seen as an extra fee layer by agents, further diluting the agent’s commission and potentially disinter mediating the relationship between the agent and his end clients.   Life-Exchange on the other hand, is open to any life settlement broker, general agency, agent, or master general agency which is capable of meeting our membership requirements.
 
As another form of indirect competition to life settlements, the life insurance industry has responded with policy features offering various pre-death, cash benefits (sometimes called accelerated death benefits). While in some cases accelerated death benefits may compete with life settlements, we do not expect the availability of accelerated death benefits to affect the life settlement market significantly at this time. The availability of accelerated death benefits is generally more restricted than life settlements. For example, policies often limit such benefits to persons who have a life expectancy of less than one year, in contrast to life settlements that are usually available to persons with life expectancies of two to 15 years. Life settlements generally offer sellers a greater dollar amount than they would receive under accelerated death benefit provisions.
 
Finally, access to capital, the insurance industry's addition of pre-death cash benefits, law enforcement pressure on companies operating illegally, and increasing government regulation have all contributed to a stabilization in the number and sophistication of life settlement companies, both those purchasing for their own accounts and those who act as agents for purchasers.
 
Sales & Marketing
 
Since our public launch on April 20, 2006, we have aggressively focused on acquiring as clients the top life settlement sellers and buyers in our industry.  As of June 30, 2008, we have agreements with over 30 suppliers of life settlement policies, including life settlement brokers, general agencies, and master general agencies.  On the buy side, we have agreements in place with over 40 buyers of life settlement policies, including domestic life settlement providers, as well as both domestic and international banks, hedge funds, and private equity firms.
 
A primary theme of our user agreements is that we are an online venue for indications of interests to buy and sell, and that the site is only an online communications medium to facilitate registered buyers and registered sellers to exchange information relating to proposed Life Settlement Transactions; such life insurance policies transactions are completed off-line, outside of the site.
 
Life-Exchange auction participants, both on the buy-side and sell-side, pay a transaction fee that ranges from 0.25% to 0.50% of the face value of a policy.
 
           All buy-side and sell-side member contracts are identical with regards to the material rights and obligations of both parties and include:
 
·  
Contracts have no fixed contract length and parties are not obligated to use the exchange, post policies, or provide a minimum level of business to the exchange.
 
·  
Life-Exchange members may terminate this Agreement at any time upon thirty (30) days advance written notice of termination provided to the other party.
 
·  
Life-Exchange members must comply with stringent confidentiality and privacy obligations, including those related to the HIPAA,
 
·  
Life-Exchange members  are responsible for paying for any life expectancy reports that they order through Life-Exchange.
 
 
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·  
Life-Exchange members must at all times
 
§  
comply with all applicable laws and regulations applicable to its offer to purchase, solicitation to sell, or purchase of, Policies in Life Settlement Transactions,
 
§  
obtain and maintain in good standing all licenses and permits that Broker/Provider may be required to hold under applicable laws and regulations.
 
·  
Life-Exchange members  agree to a non-circumvent period where neither party shall, directly or indirectly, purchase or sell a Policy listed on the exchange or make any offer to purchase or sell any such policy for a period of 1 year
 
Over the next twelve months, management's strategy is to continue with its sales and marketing strategy of focusing efforts on establishing a “footprint” nationally with the industries top tier firms.
 
Our primary marketing efforts will continue to include:
 
·  
Taking advantage of our favorable position within the Life Settlement industry to secure exclusive industry alliances thereby ensuring long term deal flow in the form of long term use of our web-based exchange platform.
 
·  
Use our strong industry contacts within the life settlement community to promote the usage of Life-Exchange as an industry standard.
 
·  
Implement website features and functionality that create user retention.
 
·  
Continual development of products and services that anticipate the market's evolution particularly in regards to the regulatory landscape.
 
·  
Enhancements and modifications to our website that differentiates our product and services by offering industry specific tools and functionality that will become and remain the industry standard
 
           Research & Development
 
           Product and development costs consist of the costs to develop and operate the online exchange platform's web based application and transaction database and are expensed as incurred.
 
We have outsourced the development of our web application to Epiq Technologies of San Diego, California. Epiq Technologies was chosen after an exhaustive search for the most appropriate business-to-business exchange platform and software developer. Our web based application is based upon industry leading technology which has provided us with a common, secure, and scalable infrastructure for which to base future development. Our web application was publicly launched on April 20, 2006 and to date, our developer has delivered all milestones ahead of schedule.
 
           Data transmitted between our clients and our Web servers is via the industry standard Secure Sockets Layer (SSL), which is a mechanism to secure Internet traffic so that it cannot be intercepted. Life-Exchange will continue to use and update its platform with the most advanced security measures available.
 
           Our ongoing research and development will focus on modifications and enhancements to meet the changing needs of our users, as well as addressing regulatory issues encountered by the industry. This proactive approach towards customer satisfaction will include making certain that www.Life-Exchange.com continues to foster:
 
·  
A customer-first approach
 
·  
Superior and efficient execution of all web site functionality, processes, and procedures.
 
·  
Excellent, easy to access customer support services.
 
·  
Resources to serve both brokers and providers.
 
·  
A comprehensive range of products and services to ensure competitive advantage and to serve current and future customer needs.
 
·  
Fast, reliable, and accurate functionality.
 
·  
A highly credible site which offers private and secure transactions
 
 
5
 
           Equipment
 
           With respect to equipment requirements, we employ a strategy of leasing all of its technological hardware and software requirements through industry leading vendors. As such, we expect no significant equipment purchases over the next 12 months.
 
Staffing
 
We operate around a core group of highly skilled individuals with an extensive knowledge and understanding of the life settlement industry. Besides a nominal administrative staff to support this core group, we plan to outsource all staffing activities not directly related to our core capabilities in the life settlement industry, including such activities as software development, marketing, investor relations, and compliance. Based on this outsourcing strategy, we anticipate no significant staffing level increases within the next twelve months.  As of June 30, 2008, we have 8 employees, consisting of 6 full time employees, and 2 part time employee, none of whom are represented by a labor union. We consider our employee relations to be satisfactory.
 
Government Regulation
 
Although our services do not require us to be licensed under federal or state law as a provider, broker or otherwise, we believe these laws and regulations have generally had a positive effect on the industry and on our ability to compete in the life settlement marketplace.
 
Currently the life settlement industry is regulated on a state-by-state basis, and at this time almost all states regulate life settlement transactions. Depending on the state, different licenses may be required for viatical and life settlements transactions, as well as for life settlement brokers and life settlement providers. Of those states that regulate the life settlement transactions, most require both the Viatical/Life Settlement Broker and the Viatical/Life Settlement Provider to be licensed.
 
The foundation for these regulations is based largely from the NAIC Viatical Settlements Model Act (the "Model Act"), which act encompasses a model law and regulations promulgated by the National Association of Insurance Commissioners (the "NAIC"). Most states have now adopted some version of this model law or another form of regulation governing in some way viatical or life settlement companies or both. These laws generally require the licensing of providers and brokers, require the filing and approval of settlement agreements and disclosure statements, describe the content of disclosures that must be made to potential viators and/or life settlors, describe various periodic reporting requirements for settlement companies and prohibit certain business practices deemed to be abusive.
 
In 1996, Congress passed the Health Insurance Portability & Accountability Act ("HIPAA"). The purpose of HIPAA is to prevent fraud in the health care industry and to protect confidential patient information. HIPPA standardizes and provides enforcement mechanisms for ROI rules and guidelines to protect personal healthcare information. HIPAA effects entities involved with electronic health care information - including health care providers, health plans, employers, public health authorities, life insurers, clearinghouses, billing agencies, information systems vendors, service organizations, universities, and even single-physician offices. The final version of the HIPAA Privacy regulations was issued in December 2000, and went into effect on April 14, 2001. A two-year "grace" period was included; enforcement of the HIPAA Privacy Rules began on April 14, 2003.
 
Licensing in Florida
 
Florida regulates both viatical and life settlements pursuant to the Florida Viatical Settlement Act set forth in Florida Statutes Sections 626.991--626.99295 (the "Florida Act"). The Florida Act makes no distinction between viatical and life settlements and refers to all settlements as viatical settlements.
 
The settlement process begins when the policy owner executes a viatical settlement application and provides authorization to the insured's attending physician and the issuing insurance company to disclose confidential information pertaining to the insured's health and insurance coverage. This information is necessary for a buyer to evaluate the policy for potential purchase. If the policy owner is not also the insured, both the viator and the insured typically will be required to review and sign the application. In addition to the policy owner's execution of the application documents, he or she is also required to provide some form of photo identification, a copy of the life insurance policy to be sold, and a copy of the application for the policy. As a general rule, policy owners are not required to submit to a medical examination as part of the application process.
 
A viator is the owner of a life insurance policy, who seeks to sell a policy. The insured may or may not have a catastrophic or life threatening condition.
 
A viatical settlement provider is a person or company who purchases a life insurance policy from a viator A viatical settlement provider must be licensed by the Florida Department of Financial Services (the “Department”).
 
A viatical settlement broker is a person who negotiates an agreement between a viator and a viatical settlement provider. The broker has a fiduciary responsibility to act according to the viator’s instructions and in the viator’s best interests and must be licensed by the Department. Brokers typically work closely with policy owners and collect their commissions from providers after the contract has been executed. After October 1, 2006, a person must be licensed with the Department as a life agent in order to act as a viatical broker.
 
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An escrow agent or trustee is the party who holds the documents and the money until ownership rights of the policy have been transferred from the viator to the viatical settlement provider.  In some cases they retain investor’s funds until they have been placed on a life insurance policy and could be the party responsible for insuring payment to the investor.  Escrow agents or trustees are not licensed by the Department.
 
A viatical settlement investment, as of July 1, 2005, is subject to the Florida Securities and Investor Protection Act.  For an investor, this means full disclosure and access to company information.  In addition, a determination of the investment’s suitability for the investor would have to be made after considering the investor’s financial and tax status, and the investor’s investment objectives.  It also means that the viatical settlement investment must either be registered with the Department or exempt from registration.  In addition, the person offering or selling the viatical settlement investment must be licensed with the Department to sell these securities.
 
In order to make their medical records available to third parties in the viatical settlement process, insured's must authorize their physicians and other health care givers, in writing, to release their private medical records.
 
The medical release allows the viatical settlement broker to obtain current medical records from the insured's physician. At a minimum, two years of records are required. These records are then provided to a review company that specializes in viatical and life settlement mortality profiles for a determination of an estimated life expectancy. Once a medical underwriter has obtained all of the policy owner's medical records, it can generate a preliminary estimate of the insured's life expectancy and thereafter issue a final report. The report is then used by the viatical settlement provider to determine if the offered policy comes within its underwriting guidelines for purchase.
 
The evaluation of a viatical settlement focuses on the specific terminal illness with which the insured has been diagnosed. In the case of a life settlement, however, where there is no terminal illness, other factors must be examined in order to determine estimated life expectancy.
 
Once the parties agree on a price, they will enter into a viatical settlement contract and other related agreements necessary to close the transaction. The viatical settlement contract contains the price to be paid to the policy owner for the policy and other important terms and conditions of the sale, including those dealing with mandatory disclosures, the policy owner's right to rescind the contract, and post-closing contact with the insured for health status updates. Other related forms typically include an escrow agreement with the entity that will hold the funds payable to the policy owner, the forms from the issuing insurance company necessary to record the change in the policy ownership and beneficiary(ies), releases for execution by the existing policy beneficiary(ies), a power of attorney and funding instructions.
 
The Florida Act defines a viatical settlement contract as one in which the provider pays compensation or value to the policy owner in an amount less than the expected death benefit of the subject insurance policy, and the policy owner in return assigns, transfers, sells, devises, or bequeaths ownership of all or a portion of the subject insurance policy to the provider. The contract can also include a loan secured primarily by a life insurance policy, or a loan secured by the cash value of the policy, excepting loans made by life insurers to insured under the guidelines of the subject policy.
 
A viatical settlement contract and the related forms must be pre-approved by the State of Florida Office of Insurance Regulation. By statute, the department must reject any viatical settlement contract or related form that is unreasonable, contrary to the public interest, discriminatory, or misleading or unfair to the policy owner. As part of the form approval process, the department requires that each form have a unique number in the lower left hand corner. This approval requirement provides policy owners with a measure of protection in that the department has reviewed the provisions of the viatical settlement contract and related forms and has required the removal of any unfair provisions prior to use of the form.
 
A viatical settlement purchase agreement is defined as a contract between a purchaser and a party other than the policy owner to purchase an interest in a life insurance policy. This is usually the investment contract between the purchaser and the provider.
 
As a further condition to a sale, Florida law requires the policy owner to confirm or agree in writing the following:
 
  1. 
Consent to the viatical settlement contract;
  2. 
Represent that he or she has a full and complete understanding of the viatical settlement contract and the benefits of the life insurance policy;
  3. 
Release his or her medical records; and
  4. 
Acknowledge that he or she has entered into the viatical settlement contract freely and voluntarily.
 
           Finally, in Florida, all viatical settlement contracts must close in escrow in order to assure that the policy owner is paid. The independent escrow agent's role in a viatical settlement transaction is to receive and hold the executed viatical settlement contract and related documents, including the insurance company forms executed by the policy owner to transfer the ownership of the policy, and to receive and hold the funds transferred from the viatical settlement provider in the amount of the agreed-upon purchase price for the policy. After expiration of the policy owner's fifteen day right of rescission, the viatical settlement provider or its agent begins tracking or monitoring the policy owner's health status.
 
7
 
Florida law requires viatical settlement providers or brokers to provide specific information to policy owners before entering into a viatical settlement contract. Nearly all jurisdictions that regulate viatical settlements require substantially similar disclosures, the purpose of which is to give a person who is contemplating the sale of a life insurance policy basic information that may be material to that decision. Florida requires the following information to be disclosed:
 
  1. 
That there are possible alternatives to viatical settlement contracts including, but not limited to, accelerated benefits available from the insurer that issued the policy.
  2. 
That proceeds of the viatical settlement could be taxable.
  3. 
That viatical settlement proceeds could be subject to the claims of creditors.
  4. 
That receipt of the viatical settlement proceeds could adversely affect the recipient's eligibility for Medicaid or other government benefits or entitlements.
  5. 
That all viatical settlement contracts must contain an unconditional rescission provision; and
  6. 
The name, business address, and telephone number of the independent third party escrow agent.
 
The basic regulatory mechanism of the Florida Act is licensure. Brokers, providers, and sales agents are expressly subject to specific licensure requirements. Brokers must submit fingerprints, organizational documents, and sworn biographical statements, and must undergo a background check before receiving a license. Providers also must submit fingerprints and organizational documents and must undergo a background check as a prerequisite to licensure. Additionally, providers must meet a minimum trust deposit requirement of $100,000 with the Department of Insurance. Sales agents must hold valid life insurance agent licenses as defined in §626.051 of the Florida Insurance Code.
 
The Florida Act provides safeguards for the policy owners and purchasers who deal with brokers, providers, and sales agents. For example, brokers must disclose to policy owners the amount of the broker's compensation and the method used in determining compensation. In addition, providers may not enter into contracts with policy owners whose policies provide accelerated death benefits in amounts and with prerequisites equal to those offered by the provider, unless the policy owner's insurer denies a request to release the accelerated death benefit in writing, or does not respond to such a request within 30 days of receipt. Policy owners may also rescind a viatical settlement contract within 15 days after receipt of the settlement proceeds, contingent upon return of the proceeds.
 
The provider must inform the policy owner of the following: that there are alternatives to viatical settlements, including accelerated death benefits offered by the policy owner's insurer; that proceeds of the settlement may be taxable; that proceeds of the settlement could be subject to the claims of creditors; and that the policy owner's receipt of the settlement sum could adversely affect the policy owner's eligibility for Medicaid or other government benefits.
 
Moreover, the Florida Act provides for the use of independent escrow agents for the simultaneous delivery of contract documents and settlement funds. This last protection reduces much of the policy owner's transaction risk and results in orderly, real estate style settlement closings.
 
For purchasers, the Florida Act provides for the following mandatory disclosures to be made by providers, among others: that the represented return of the investment is directly tied to the lifespan of one or more insured; that the projected life span of the insured is tied to the return, if a return is represented; that the investor shall be responsible for the payment of insurance premiums on the policy, late fees, surrender fees, and other costs, if required by the terms of the viatical contract; that the life expectancy and rate of return are only estimates and cannot be guaranteed; and that the viatical investment should not be considered a liquid purchase, since it is impossible to predict the exact timing of its maturity and the funds may not be available until the death of the insured. Furthermore, providers and sales agents are expressly prohibited from misrepresenting the nature of the viatical transaction, the expected return, or that the return is guaranteed by any government authority, which it is not.
 
In May 2006 we requested an opinion from the Florida Office of Insurance Regulation, that we would not be required to be licensed as a life settlement provider as a result of our business operations. In June 2006, the Florida Office of Insurance Regulation concurred with our conclusions.
 
In August 2006, we requested an opinion from the Florida Department of Financial Services, that we would not be required to be licensed as a Life Settlement Provider as a result of our business operations. In September 2006, the Florida Department of Financial Services concurred with our conclusions.
 

8
 
ITEM 1A.      RISK FACTORS
 
An investment in our Common Stock is highly speculative, involves a high degree of risk and should be considered only by those persons who are able to afford a loss of their entire investment. In evaluating the Company and our business, prospective investors should carefully consider the following risk factors in addition to the other information included in this Annual Report.

There is substantial doubt as to our ability to continue as a going concern based on our past operating losses.
 
Although we have realized our fourth profitable quarter since inception, it is still uncertain whether we can consistently generate sufficient revenues to fund our operational costs.  As shown in the accompanying financial statements, we realized net income from operations of $376,469 for the year ended June 30, 2008 and a shareholders’ deficit of $320,406, which is an improvement from a shareholders’ deficit of $696,875 as of June 30, 2007.  It will take several quarters of revenues at volumes consistent with 2008 average quarterly revenue to offset the accumulated deficit.  These factors raise substantial doubt about our ability to continue as a going concern, which may limit our ability to access certain types of financing or may prevent us from obtaining financing on acceptable terms.  There are no assurances that we will be successful in raising additional capital or generating sufficient revenues to support our operations.  If we are unable to continue as a going concern, you could lose your entire investment in us.

Questions Concerning Our Status as a Going Concern May Cause Customers and Current and Potential Partners to Reduce or Not Conduct Business with Us
 
Due to concerns regarding our ability to continue operations, customers and current and potential partners may decide not to conduct business with us, may reduce business they conduct with us, or may conduct business with us on terms that are less favorable than those customarily offered by them. In that event, our sales would likely decrease, our product development efforts would suffer and our business will be significantly harmed.

We Are Operating in Markets that May Change Dramatically
 
We are operating in the viatical and life settlement markets. The viatical settlement market is approximately 16 years old. While the market saw tremendous growth in its initial years, the market growth in recent years has moderated somewhat. The life settlement market is less than a decade old. How and to what extent it will develop is uncertain. As more insured become aware of life settlements as a financial planning option, we expect the size of the market to grow substantially. Any dramatic growth, however, will depend heavily upon the entry of institutional purchasers. Until a sufficient number of institutional purchasers commit to this industry and create a relatively stable demand, our financial performance during any period may be dramatically affected by the entry or departure from the market of one or more institutional providers.
 
Our prospects must be considered in light of the risks, expenses and difficulties encountered by those attempting to operate in rapidly evolving markets. We cannot assure you that we will be successful in addressing the risks we face. The failure to do so could have a material adverse effect on our business, financial condition, and results of future operations.
 
Because we have a short operating history under our current management, there is limited information upon which you can evaluate our business.
 
We were formed in January 2005. As such, we have not engaged in a sufficient amount of consistent activity over a sustained period of time to establish an operating history in our current line of business. Since beginning operations in our current line of business through June 2007, we have not been profitable.  Commencing this fiscal year we have generated profitable operations in each fiscal quarter, however we have limited financial results upon which you may judge our potential. As of June 30, 2008, our accumulated losses total $682,884.
 
You should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies that are, like us, in their early stages of earning revenues and growing their businesses particularly companies in the rapidly evolving market of viatical and life settlements. Similarly, we may require additional capital in order to execute our current business plan. Further, we may in the future experience under-capitalization, shortages, setbacks and many of the problems, delays and expenses encountered by any early stage business. As a result of these factors, other factors described herein and unforeseen factors, we may not be able to successfully implement our business model.
 
Our Success Depends on Maintaining Relationships within our Referral Networks
 
In the viatical market, we rely primarily upon brokers to refer potential viators and life settlors to us and upon financial planners, known as licensees, to refer viatical and life settlement purchasers to us. These relationships are essential to our operations and we must maintain these relationships to be successful. We do not have fixed contractual arrangements with the brokers or financial planners and they are free to do business with our competitors. In addition, the pool of viatical brokers and referring financial planners is relatively small, which can increase our reliance on our existing relationships.
 
           As we develop our own network of insurance and financial planning professionals, known as producers, to refer potential sellers to us, we expect referrals from this source to grow. As with brokers, our ability to build and maintain these relationships will depend upon our closing rates and the level of compensation we pay to the referring professional. The compensation paid to the referring professional will affect the offer price to the seller and the compensation we receive. We must balance these interests successfully to build our referring network and attain greater profitability.
 
9
 
We must Develop our Life Settlement Referral Network
 
An impediment to our expansion in the life settlement market could be the difficulty in identifying a large volume of potential sellers. These sellers are typically affluent persons over the age of 70 and not terminally or chronically ill. The target market is relatively narrow and advertising methods such as direct mailings or print media advertising are not likely to be cost effective. We believe the best way to reach this market is generally through life insurance professionals and, to a lesser extent, through professionals engaged in estate planning, such as attorneys, accountants, and financial planners. Settlement brokers will also reach this market. Our business plan utilizes both insurance professionals and brokers as sources of policies, as well as the development of a life settlement referral network.
 
           We intend to rapidly expand our referring network of insurance professionals to educate potential life settlors on the options presented by life settlements. We are actively working to expand our network through direct solicitation, calls to managing general insurance agents, and by word-of-mouth contacts. To a lesser extent, we will also use advertising in financial planning trade publications and our Internet website. This is a new market and building our referral network will depend on our ability to educate insurance professionals about the benefits of senior life settlements to potential sellers and to the professionals themselves. While we believe we have been successful in publicizing the benefits of viatical settlements, we cannot assure you that our past successes will carry over into this new market. Our business, financial condition and results of operations could be materially adversely affected to the extent we fail to expand the referral network.
 
We Depend on Growth in both the Viatical and Life Settlement Market
 
While the existing markets for viatical and life settlements provide opportunity for growth, greater opportunity lies in the growth in the life settlement market. Growth of the life market and our expansion within the market may be affected by a variety of factors, including:
 
•  
the inability to locate sufficient numbers of life settlors;
 
•  
the inability to convince potential sellers of the benefits of life settlements;
 
•  
the inability to attract institutional purchasers;
 
•  
competition from other life settlement companies;
 
•  
the occurrence of illegal or abusive business practices resulting in negative publicity about the market; and
 
•  
the adoption of overly burdensome governmental regulation.
 
           In addition, the life settlement market may evolve in ways we have not anticipated and we may be unable to respond in a timely or cost-effective manner. If the life settlement market fails to grow as quickly as or in the directions we have anticipated, our business, financial condition and results of operations would be materially adversely affected as it relates to our large-scale growth.
 
Government Regulation Could Negatively Impact Our Business
 
At least 36 states have now adopted some version of the model law promulgated by the National Association of Insurance Commissioners or another form of regulation governing viatical settlement companies in some way. These laws generally require the licensing of viatical providers and brokers, require the filing and approval of viatical settlement agreements and disclosure statements, and describe the content of disclosures that must be made to potential viators, describe various periodic reporting requirements for viatical settlement companies and prohibit certain business practices deemed abusive.
 
           In addition, some states and the Securities and Exchange Commission treat viatical and life settlements as securities under state and federal securities laws. Because of legal precedent relating to the structure of our transactions, we do not believe that the application of securities laws will have a material adverse effect on our operations, but cannot assure you that state regulators or private individuals will not file these types of actions in the future or that such actions would not have a material adverse effect on our business.
 
           While we welcome reasonable regulation of the viatical and senior life markets and believe that such regulation will benefit these markets, attempts to regulate these markets through application of their securities laws - either through actions by state agencies or private individuals may adversely affect the markets. We cannot assure you that we will not encounter regulatory difficulties in the future, some of which could have a material adverse effect on our business. In addition, government regulation could affect our referral networks or settlement purchasers, which could in turn have a material adverse effect on our business.
 
10
 
Our Founder Beneficially Owns 43% of Our Common Stock and, as a Result, Can Exercise Significant Influence over Our Company
 
Mr. David Dorr, our founder, is the beneficial owner of 42.826% of our common stock. In addition, Brian Dorr, our secretary and treasurer, owns 12.348% of our common stock. He will be able to influence most matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control, which in turn could have a material adverse effect on the market price of our common stock or prevent our shareholders from realizing a premium over the market price for their shares of common stock.
 
Our Stock Is Thinly Traded and the Stock Price May Be Volatile
 
Shares of our common stock are quoted on the “pink sheets,” and we cannot assure you that any other trading market for our securities will develop and you should anticipate bearing the economic risk of your investment for an indefinite period of time. The average volume on the stock is very low and the sale of even small blocks of shares could cause a significant decrease in the per share price.
 
           If the Company were to seek to have shares of its common stock quoted on the OTC Bulletin Board or other trading medium, it may be subject to lengthy delays in doing so, and there can be no assurance that the Company's efforts will be successful. Moreover, in the event that the Company's shares become quoted on any such trading medium, we will be a penny stock and subject to the penny stock rules by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks, and as such there may be a reduction in the trading activity of our common stock.
 
Our common stock is subject to the “penny stock” rules of the SEC, which will make transactions in our common stock cumbersome and may depress the trading price of our common stock.
 
Our common stock is a "penny stock," as defined in Rule 3a51-1 under the Exchange Act. The penny stock rules apply generally to companies whose common stock trades at less than $5.00 per share, subject to certain limited exemptions. Such rules require, among other things, that brokers who trade “penny stocks” to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances Many brokers have decided not to trade “penny stocks” because of the requirements of these rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. In the event that we remain subject to the penny stock rules for any significant period, there may develop an adverse impact on the market, if any, for our securities.
 
We will incur significant additional expense related to compliance with the internal control over financial reporting requirements and other requirements of the Sarbanes Oxley Act of 2002 (“Sarbanes-Oxley”), and any inability to comply with these requirements may harm our business and the price of our common stock.
 
As directed by Section 404 of Sarbanes-Oxley, the SEC has adopted rules requiring public companies to conduct a comprehensive review and assessment of the effectiveness of their internal control over financial reporting, and to include a report of management on internal control over financial reporting in their annual reports, including Annual Reports on Form 10-K, which we will be required to file after the effectiveness of this registration statement. In addition, the independent registered public accounting firm that audits a public company's financial statements must attest to and report on management's assessment of the effectiveness of the company's internal control over financial reporting as well as the operating effectiveness of the company's internal control over financial reporting. These requirements may first apply to our annual report on Form 10-K for the fiscal year ending June 30, 2008 and the auditor attestation with not be required until fiscal year ending June 30, 2010.
 
           We have engaged an outside Sarbanes-Oxley consulting firm who is assisting our management in  evaluating our internal control over financial reporting in order to allow our management to report on, and preparing for our independent registered public accounting firm to attest to, our internal controls, and to identify weaknesses and deficiencies in or internal controls that require remediation.  Currently, we do not have an independent audit committee and due to our small staff, we are only able to provide limited segregation of duties. Until our board of directors has established a qualified, independent audit committee and were are able to provide for more robust segregation of duties, it is highly unlikely that our management will be able to conclude that our internal control over financial reporting is effective without being subject to these qualifications. We have already expended significant resources during our 2008 fiscal year and expect to expend additional significant resources during our 2009 and 2010 fiscal years developing the necessary internal controls, documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act related to our internal controls. We also expect to continue expending significant resources in audit fees and related expenses related to Section 404. Despite these efforts, a review of our financial systems and controls may uncover additional deficiencies in existing systems and controls, and our efforts to correct any such deficiencies may be costly and may strain our management resources and negatively impact earnings. In the event we identify significant deficiencies or material weaknesses in our internal controls over financial reporting that we cannot remediate in a timely manner or we receive an adverse report from our independent registered public accounting firm with respect to our internal controls over financial reporting, investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could be adversely affected. In addition to the above, in the event that our independent registered public accounting firm is unable to rely on our internal controls over financial reporting in connection with their audit of our financial statements, and in the further event that they are unable to devise alternative procedures in order to satisfy themselves as to the material accuracy of our financial statements and related disclosures, it is possible that we could receive a qualified or adverse audit opinion on those financial statements. In that event, the market for our common stock could be adversely affected. In addition, investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could be adversely affected.
 
11
 
Stockholders are subject to potential dilution as a result of future issuances of securities.
 
In the event we need additional capital, we may offer to sell additional stock with rights, preferences and privileges senior to our common stock. Any such issuance would dilute the outstanding stockholders' equity interests in the Company and might adversely affect the value of the outstanding shares. Although we are generating revenue and believe such revenues are sufficient to support operations, we have an accumulated deficit and therefore may be required to raise additional funds.
 
ITEM 2.      PROPERTIES
 
Our executive offices are located at 2001 Biscayne Blvd., Suite 2102 Miami, FL 33137. This office consists of 1,400 square feet and is leased under a one-year, non-cancelable real estate operating lease with a minimum rental commitment of $31,250 through June 15, 2009, the renewal date. We have occupied the current location since 2006 and expect that we will have no difficulty in obtaining additional annual renewals, if desired.  There is currently a surplus of vacant office space available in the South Florida market and we do not anticipate any difficulty in obtaining a suitable replacement location should it become necessary.  We do not own any properties nor do we lease any other properties.
 
ITEM 3.      LEGAL PROCEEDINGS
 
We are not a party to any pending legal proceedings nor are any of our property the subject of any pending legal proceedings.
 
ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
We did not submit any matters to a vote of our stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of fiscal 2008.
 
PART II
 
ITEM 5.      MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Our common stock trades on the Over-the-Counter Bulletin Board under the symbol "LFXG.OB".  Prices reported represent prices between dealers, do not include markups, markdowns or commissions and do not necessarily represent actual transactions. The following table sets forth high and low bid quotations of our common stock (broken-down into fiscal quarters) for the periods indicated as reported on the OTC Bulletin Board:
 

           Quarter Ended
Bid High
Bid Low
                                        Fiscal Year 2008
June 30, 2008
$1.34
$0.13
March 31, 2008
$0.18
$0.08
December 31, 2007
$0.35
$0.08
September 30, 2007
$0.23
$0.08
                                        Fiscal Year 2007
June 30, 2007
$0.25
$0.125
March 31, 2007
$0.24
$0.10
December 31, 2006
$1.39
$0.125
September 30, 2006
$0.60
$0.305

As of June 30, 2008, there were 20 holders of record of our common stock.
 
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
 
Recent Sales of Unregistered Securities.

None
 
ITEM 6.      SELECTED FINANCIAL DATA
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.
 
12
 
ITEM 7.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The following presentation of management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, the accompanying notes thereto and other financial information appearing elsewhere in this report. This section and other parts of this report contain forward-looking statements that involve risks and uncertainties.  Please refer to the discussion of Forward-looking statements included at the start of this annual report.  Our actual results may differ significantly from the results discussed in the forward-looking statements.
 
Overview and Plan of Operations
 
We are an Internet-based, business-to-business exchange for the life settlement industry.  We offer a broad range of services, resources and information specific to the life settlement industry, including news alerts, forums, industry-specific search capabilities, headlines and industry events.
 
Recent market events surrounding the AIG bankruptcy have been analyzed and evaluated by management and concur with the following observations. “The meltdown is happening at the holding company level," Connecticut Insurance Commissioner Thomas R. Sullivan said Tuesday. The insurance companies that are part of AIG "are still very solid, heavily capitalized, and are in good shape," he said.   It's not the insurance side of the business but rather how insurers chose to invest money that's a problem now, the experts said. And state guaranty funds protect residents from the total loss of their policy benefits.
 
Although we currently have several pending contracts involving AIG policies, we fully expect the current market situation to have little impact on the underlying insurance policies we exchange, or the volume related thereto.
 
Results of Operations

Year Ended June 30, 2008 (FISCAL 2008) Compared to Year Ended June 30, 2007 (FISCAL 2007)

Revenues increased $1,122,390 (652%) to $1,294,596 (FISCAL 2008) from $172,206 (FISCAL 2007).  The Company currently operates two service lines, its original exchange transaction platform service line, which commenced commercial operations during the second quarter of fiscal 2007 and a new service line of structured finance fees, which commenced operations during the first quarter of fiscal 2008.  Approximately 81% of FISCAL 2008 revenue or $1,053,967 was from structured finance fees.

Costs of Revenue decreased $14,232 (28%) to $36,849 (FISCAL 2008) from $51,081 (FISCAL 2007).  Cost of revenues consists of product development expenses, internet hosting services and related expenses.  The decrease was primarily due to an $8,213 reduction in product development costs as a result of commercializing the exchange platform during the second quarter of fiscal 2007 along with overall reductions in administration and other costs and $11,204, which were partially offset by a $5,185 increase in product development costs.

Sales and Marketing Costs increased $161,940 (276%) to $220,666 (FISCAL 2008) from $58,726 (FISCAL 2007).  Sales and marketing costs consist of travel, communications, subscriptions and memberships.  The increase was primarily due to increased commissions associated with the new structured finance fee line; increased expenditures for organization memberships and other marketing costs design to promote the business; and increased travel and entertainment expenses incurred to promote growth.

Administration Costs decreased $138,844 (18%) to $626,328 (FISCAL 2008) from $765,172 (FISCAL 2007).  Administration costs consist of payroll expenses, professional fees, office expenses and other general and administrative costs.  The decrease was primarily due to $120,378 decrease in legal and professional fees related to intellectual property acquisition costs  a $54,013 decrease in insurance and a $65,901 decrease in other administration cost.  The decreases were partially offset by a $110,952 increase in payroll costs caused by the hiring of additional staff needed due to company’s growth.

Other Income (Expense) reported an increased expense of $26,012 (314%) to $34,284 expense (FISCAL 2008) from $8,272 expense (FISCAL 2007). Other income (expense) consists of refunds received, interest income and interest expense.  The increased expense is primarily interest expense.

Net Income (Loss) increased $1,087,512 (153%) to $376,469 net income (FISCAL 2008) from $711,043 net loss (FISCAL 2007).  The increase is primarily due to the new service line of structured fees.
 
13

 
Liquidity and Capital Resources and Plan of Operations

Overview The Company’s net working capital increased $377,338 (139%) to a $105,870 surplus at June 30, 2008 from a $271,468 deficit at June 30, 2007.  The Company reported $263,263 in cash at June 30, 2008, which represents collections of earned revenue primarily from structured finance fees, our additional service line which commenced operations during the first quarter of fiscal 2008.

Although the Company has realized its fourth profitable quarter since inception, it is still uncertain whether the Company can consistently generate sufficient revenues to fund its operational costs.  As shown in the accompanying financial statements, the Company realized net income from operations of $376,469 for the year ended June 30, 2008 and a shareholders’ deficit of $320,406, which is an improvement from a shareholders’ deficit of $696,875 as of June 30, 2007.  It will take several quarters of revenues at volumes consistent with 2008 average quarterly revenue to offset the accumulated deficit. These factors continue to raise substantial doubt about the Company’s ability to continue as a going concern. Our financial statements were prepared on the assumption that we will continue as a going concern and do not include any adjustments that might result should we be unable to continue as a going concern

Management’s plans in regard to this matter are to continue to raise equity capital and seek strategic relationships and alliances in order to further enhance the commercialization of its exchange platform in an effort to generate positive cash flow.  Until its technologies become fully commercially viable and marketing efforts generate sufficient transaction volume, the Company may need to seek additional equity infusions in order to provide adequate liquidity to sustain its operations.

Cash Flows for FISCAL 2008

Cash Flows From Operating Activities  Net cash provided by operating activities was $254,903 (FISCAL 2008).  Net cash provided from Net income, adjusted for non-cash reconciling items, was $386,907, which was partially offset by net cash used for working capital requirements of $132,004.  Working capital was used to support increased revenues in the form of increased accounts receivables ($107,440) and a decrease in accrued expenses ($27,597), which was partially reduced by working capital provided by increased accounts payables ($3,033).

Cash Flows From Investing Activities Net cash used by investing activities was $9,837 (FISCAL 2008), which was entirely for capital spending for equipment related to expanding our operations.

Cash Flows From Financing Activities  Net cash provided by financing activities was $5,000 (FISCAL 2008) and was the result of an extension to our existing financing.

Financing The Company has obtained its financing from Vantage Group Ltd., a significant shareholder, through two note agreements, one for $300,000 dated July 7, 2006 and one for $150,000 dated April 2, 2007 and a $5,000 advance made under the same terms as the second note.  Vantage Group Ltd. has provided $455,000 of financing in aggregate.  The terms of the notes provide for 7% interest payable at maturity.  The notes are unsecured and mature on April 15, 2010.

The $300,000 note provides that the Holder, at its option, may convert the principal amount of this Note or any portion thereof, together with accrued but unpaid interest, into shares of Common Stock of the Company (“Conversion Shares”) based on the Company attaining certain performance criteria as follows measured during December 2006. Company did not meet the performance criteria and accordingly, no shares were converted.

The $150,000 note also provides the Holder with conversion rights based on the Company attaining certain performance criteria.

Recent Accounting Pronouncements
 
The Company continues to assess the effects of recently issued accounting standards. The impact of all recently adopted and issued accounting standards has been disclosed in the Notes to the audited Consolidated Financial Statements.
 
14
 
Critical Accounting Estimates
 
           The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires the use of estimates and assumptions the affect the reported amounts of revenue and expenses during the reporting period. The Company's critical accounting policies are those that are both most important to the Company's financial condition and results of operations and requires the most difficult, subjective or complex judgments or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the financial statements, actual results could vary from these estimates.

Although we believe we will have sufficient cash flow for operations, we would like to continue to grow and expand our business. During the next 12 months, we intend to spend between $250,000 and $500,000 to fund the establishment and expansion of our operations, although our ability to do so may depend on our ability to raise additional funds through debt and/or equity financing. The expansion of our operations will be primarily through further product development and intellectual property development and purchases. In the event we do not or cannot raise additional funds, we may be required to limit or curtail our expansion and growth plans.

Our plan of operation over the next twelve months is to focus on the following key objectives:
 
·  
Continue with our successful acquisition of new member clients.
 
·  
Continue to generate positive operating cash flows and develop cash reserves.
 
·  
Continue with the aggressive expansion of our intellectual property portfolio.
 
·  
Launch additional services which will increase our revenue streams.
 
Critical Accounting/Use of Estimates
 
           The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires the use of estimates and assumptions the affect the reported amounts of revenue and expenses during the reporting period. The Company's critical accounting policies are those that are both most important to the Company's financial condition and results of operations and requires the most difficult, subjective or complex judgments or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the financial statements, actual results could vary from these estimates.
 
           Income taxes
 
           Income taxes will be computed using the liability method and will be provided on all temporary (timing) differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Allowable tax credits and carry- forward losses will be applied as reductions to future provision for income taxes if and when the Company becomes profitable, as reductions of the provision for income taxes.
 
15
 
Revenue Recognition/Accounting Pronouncement(s)
 
           The Company will recognize revenues in accordance with SAB No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, Revenue Recognition . The Company's accounting policy for revenue recognition will have a substantial impact on its reported results and relies on certain estimates that require difficult, subjective and complex judgments on the part of management The Company will recognize revenue when substantially all the risks and rewards of life settlement transactions have transferred from the seller to the buyer. A life settlement transaction is defined by the Company as “the sale of an in-force life insurance policy that is issued on the life of a person that is not considered terminally ill, for a lump sum amount; the amount is more than the cash surrender value of the policy but less than the face value of the policy”. Revenue associated with life settlement transactions will be recognized when title (ownership) passes to the customer (purchaser), either immediately or within a fixed time schedule that is reasonable and customary in the industry.

 
OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2008, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships.
 
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.
 
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


16
 

Life Exchange, Inc. and Subsidiary

FINANCIAL STATEMENTS

June 30, 2008

Table of Contents


Report of Independent Registered Public Accounting Firm
F – 2
   
Consolidated Balance Sheets                                                                                          
F – 3
   
Consolidated Statements of Revenue and Expense
F – 4
   
Consolidated Statements of Changes in Shareholders' Deficit
F – 5
   
Consolidated Statements of Cash Flow
F – 6
   
Consolidated Notes to Financial Statements
F – 7 -19


 

F-1




Report of Independent Registered Public Accounting Firm



To The Shareholders and Board of Directors of
Life Exchange, Inc.

We have audited the accompanying balance sheets of Life Exchange, Inc. and the related statements of operations, changes in shareholders’ deficiency and cash flows for the year ended June 30, 2008 and 2007.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these 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 audits provided a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Life Exchange, Inc. as of June 30, 2008 and 2007 and the results of its operations and its cash flows in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that Life Exchange, Inc. will continue as a going concern.  As discussed in Note A to the financial statements, it is still uncertain whether the Company can consistently generate sufficient revenues to fund its operational costs, which raises substantial doubt about its ability to continue as a going concern.  Management’s plans regarding those matters also are described in Note A.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




/s/ Jewett, Schwartz, Wolfe & Associates

Hollywood, Florida
September 26, 2008


 
F-2
LIFE EXCHANGE, INC. AND SUBSIDIARY
  
CONSOLIDATED BALANCE SHEETS
             
             
   
June 30,
  
   
2008
    
2007
  
ASSETS
            
             
CURRENT ASSETS
            
        Cash
   $ 263,263     $ 13,197  
        Accounts receivables
     106,752       4,043  
        Prepaid expenses
     2,750       2,750  
TOTAL CURRENT ASSETS
     372,765       19,990  
                 
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET
     15,964       11,166  
OTHER ASSETS, NET
     12,760       13,427  
                 
TOTAL ASSETS
   $ 401,489     $ 44,583  
                 
                 
LIABILITIES AND SHAREHOLDERS' DEFICIT
                
                 
CURRENT LIABILITIES
                
        Trade accounts payable
   $ 27,899     $ 24,865  
        Accrued expenses, payroll, related taxes and interest
     238,996       266,593  
TOTAL CURRENT LIABILITIES
     266,895       291,458  
                 
NOTE PAYABLE RELATED PARTY
     455,000       450,000  
                 
TOTAL LIABILITIES
     721,895       741,458  
                 
COMMITMENTS AND CONTINGENCIES
                
                 
SHAREHOLDERS' DEFICIT
                
     Preferred stock $.001 par value
                
         Authorized 20,000,00 shares.  No shares issued and outstanding
     -       -  
     Common stock $.001 par value
                
         Authorized 250,000,00 shares.
                
         176,715,000 shares issued and outstanding
     176,715       176,715  
     Additional paid-in capital
     185,764       185,764  
     Accumulated deficit
     (682,885 )     (1,059,354 )
TOTAL SHAREHOLDERS' DEFICIT
     (320,406 )     (696,875 )
                 
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
   $ 401,489     $ 44,583  
 
 
The accompanying notes are an integral part of these financial statements
 

 
 
F-3
 

LIFE EXCHANGE, INC. AND SUBSIDIARY
  
CONSOLIDATED STATEMENTS OF REVENUE AND EXPENSE
  
             
             
   
Year Ended June 30,
  
   
2008
    
2007
  
             
             
NET REVENUE
   $ 1,294,596     $ 172,206  
                 
COSTS AND EXPENSES
                
    Cost of net revenue
                
        Product development
     5,000       13,213  
        Internet hosting
     28,847       23,662  
        Other costs of net revenue
     3,002       14,206  
      36,849       51,081  
    Costs of sales and marketing
                
        Travel and entertainment
     50,168       23,653  
        Telephone and communication
     13,184       9,369  
        Dues, subscriptions and memberships
     18,768       14,690  
        Other costs of sales and marketing
     138,546       11,014  
      220,666       58,726  
    Costs of administration
                
        Legal and professional fees
     122,656       243,034  
        Payroll expenses
     405,731       294,779  
        Office expenses
     54,164       63,667  
        Insurance
     5,110       59,122  
        Other cost of administration
     38,667       104,568  
      626,328       765,170  
                 
TOTAL COSTS AND EXPENSES
     883,843       874,977  
                 
OPERATING INCOME (LOSS)
     410,753       (702,771 )
                 
OTHER INCOME (EXPENSE)
                
    Refunds received and other fees
     -       14,850  
    Interest income
     422       750  
    Interest expense
     (34,706 )     (23,872 )
      (34,284 )     (8,272 )
                 
NET INCOME (LOSS)
   $ 376,469     $ (711,043 )
                 
                 
Net Earnings (Loss) Per Share
                
     Basic
   $ 0.002     $ (0.004 )
     Fully Diluted
   $ 0.002     $ (0.004 )
                 
Weighted Average Shares Outstanding
                
     Basic
     176,715,000       176,715,000  
     Fully Diluted
     178,391,210       176,715,000  
 
 
The accompanying notes are an integral part of these financial statements
 
 
 
F-4
 
 
LIFE EXCHANGE, INC.
  
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
  
For the Year Ended June 30, 2007 and 2008
  
                               
                               
                               
                               
                               
   
  Common Stock
    
Additional
    
Accumulated
    
Shareholder's
  
   
Shares
    
$
    
Paid In Capital
    
Deficit
    
Deficit
  
                               
BALANCE AT JUNE 30, 2006
     176,715,000     $ 176,715     $ 185,764     $ (348,311 )   $ 14,168  
                                         
                                         
                                         
Net Loss for the year ended June 30, 2007
                             (711,043 )     (711,043 )
                                         
BALANCE AT JUNE 30, 2007
     176,715,000       176,715       185,764       (1,059,354 )     (696,875 )
                                         
                                         
                                         
Net Income for the period ended June 30, 2008
     -               -       376,469       376,469  
                                         
BALANCE AT JUNE 30, 2008
     176,715,000     $ 176,715     $ 185,764     $ (682,885 )   $ (320,406 )
 
 
The accompanying notes are an integral part of these financial statements
 
 
F-5
 
 
LIFE EXCHANGE, INC. AND SUBSIDIARY
  
CONSOLIDATED STATEMENTS OF CASH FLOW
  
             
             
   
Year Ended June 30,
  
   
2008
    
2007
  
             
Cash Flows From Operating Activities:
            
NET INCOME (LOSS)
   $ 376,469     $ (711,043 )
   Adjustments to reconcile net loss to net
                
      cash used in operating activities:
                
            Depreciation
     5,040       8,918  
            Amortization of intangible assets
     667       667  
            Allowance for bad debts
     4,731       86,200  
   Changes in operating assets and liabilities:
                
            Trade accounts receivable
     (107,440 )     (90,243 )
            Prepaid expenses
     -       2,180  
            Trade accounts payable
     3,033       13,566  
            Accrued expenses, payroll,related taxes and interest
     (27,597 )     258,672  
      Net cash provided by (used in) operating activities
     254,903       (431,083 )
                 
Cash Flow From Investing Activities:
                
            Purchases of property, equipment and improvements
     (9,837 )     (4,197 )
      Net cash used in investing activities
     (9,837 )     (4,197 )
                 
Cash Flow From Financing Activities:
                
            Net proceeds related party
     5,000       450,000  
      Net cash provided by financing activities
     5,000       450,000  
                 
NET INCREASE IN CASH AND EQUIVILANTS
     250,066       14,720  
Cash and cash equiviliants at beginning of the period
     13,197       (1,523 )
                 
CASH AND CASH EQUIVILANTS AT END OF PERIOD
   $ 263,263     $ 13,197  
                 
                 
SUPPLEMENTARY INFORMATION
                
     Interest paid
   $ -     $ -  
     Income taxes paid
   $ -     $ -  
                 
NONCASH INVESTING AND FINANCING ACTIVITIES
                
     None
   $ -     $ -  
 
 
The accompanying notes are an integral part of these financial statements
 

 
F-6
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Terms and Definitions

Company
Life-Exchange, Inc. and subsidiary
APB
Accounting Principles Board
ARB
Accounting Review Board
EITF
Emerging Issues Task Force
FASB
Financial Accounting Standards Board
FSP
FASB Staff Position
FIFO
First-in, First-out
SAB
Staff Accounting Bulletin
SEC
Securities Exchange Commission
SFAS or FAS
Statement of Financial Accounting Standards
YTD 2008
the year ended June 30, 2008

Company Background

On January 19, 2005 (“date of inception”), Life-Exchange, Inc. (“the Company”) was organized under the laws of the State of Delaware as a corporation.  Life-Exchange, Inc. was established for the purposes of servicing the life settlement industry by creating an on-line business-to-business exchange platform, which will facilitate the brokering of secondary life insurance.

On January 29, 2006, the Company began to trade publicly under the name Life Exchange, Inc. (OTC pink sheets: LFXG.PK).

On September 27, 2007, the Company formed LFX Insurance Services, LLC (“LFXIS”) a Nevada limited liability corporation as a wholly-owned subsidiary.  LFXIS was formed to process “structured finance” transactions related to the Company’s core life settlement business.  Structured finance transactions involve an extension of the services provided to customer base for customer driven transactions executed through the Company’s exchange platform.  Structured finance transactions involve utilizing the skill sets of the Company’s personnel to both advise and structure an appropriate transaction that accommodates the goals of the parties involved.  The Company incurred minimal expenses in establishing the subsidiary.

Going Concern

Although the Company has realized its fourth consecutive profitable quarter, it is still uncertain whether the Company can consistently generate sufficient revenues to fund its operational costs.   As shown in the accompanying financial statements, the Company realized net income from operations of $376,469 for the year ended June 30, 2008 and a shareholders’ deficit of $320,406, which is an improvement from a shareholders’ deficit of $696,875 as of June 30, 2007.  It will take several quarters of revenues at volumes consistent with 2008 average quarterly revenue to offset the accumulated deficit.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to this matter are to continue to pursue structured finance transactions and if necessary to raise equity capital, seek debt financing and to form strategic relationships and alliances in order to continue the commercialization of its online exchange platform in an effort to generate sustainable positive cash flow.  Until its online exchange platform becomes commercially viable or the newly formed structured finance transactions prove sustainable and continue to generate sufficient revenues, the Company must continue to rely upon debt and/or equity infusions in order to provide adequate liquidity to sustain its operations.  However, there can be no assurance that management’s plans will be successful.

The financial statements have been prepared on a “going concern” basis and accordingly do not include any adjustments that might result from the outcome of this uncertainty.

 
F-7
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Life-Exchange, Inc. and its wholly owned subsidiary LFX Insurance Services, LLC.  All significant intercompany balances and transactions have been eliminated in consolidation.  Certain reclassifications have been made in the 2007 results to conform to the presentation used in 2008.

Basis of Accounting

The consolidated financial statements are prepared using the accrual basis of accounting where revenues and expenses are recognized in the period in which they were incurred.  The basis of accounting conforms to accounting principles generally accepted in the United States of America.

Management’s 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 estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures 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 results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue in accordance with the provisions of SAB No.101, Revenue Recognition in Financial Statements, as amended by SAB No.104, Revenue Recognition, which states that revenue is realized and earned when all of the following criteria are met:
 
(a)  
persuasive evidence of the arrangement exists,
(b)  
delivery has occurred or services have been rendered,
(c)  
the seller’s price to the buyer is fixed and determinable and
(d)  
collectability is reasonably assured.

The Company’s accounting policy for revenue recognition will have a substantial impact on its reported results and relies on certain estimates that require difficult, subjective and complex judgments on the part of management.  The Company will recognize revenue when substantially all the risks and rewards of life settlement transactions have transferred (will transfer) from the seller to the buyer.  A life settlement transaction is defined by the Company as “the sale of an in-force life insurance policy that is issued on the life of a person that is not considered terminally ill, for a lump sum amount; the amount is more than the cash surrender value of the policy but less than the face value of the policy”.  Revenue associated with life settlement transactions will be recognized when title (ownership) passes to the customer (purchaser), either immediately or within a fixed time schedule that is reasonable and customary in the industry.

In addition to settlement transactions, the Company also recognizes revenue from distributing industry related news and information; annual license fees and setup fees.  All these fees are non-refundable and earned upon delivery of the related service.

Cash and Cash Equivalents

The Company considers liquid investments with an original maturity of three months or less to be cash equivalents.


 
F-8
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.

At June 30, 2008, the Company had cash deposits that exceeded federally insured limits, which potentially subjects the Company to a concentration risk.  Although the Company believes that it maintains its cash deposits at high quality financial institutions, the Company will periodically evaluate the quality of its financial depository’s and if appropriate, distribute its deposits across several financial institutions, to mitigate this concentration risk.

The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an appropriate allowance for uncollectible accounts receivable based upon the expected collectability of all accounts receivable.

Accounts Receivable

The Company carries its accounts receivable at net realizable value.  On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on its history of past write-offs, collections and current credit conditions.  During YTD 2008, the Company reflected an allowance for doubtful accounts of $4,730, related to the amounts due from specific customers that were deemed by management to be uncollectible.
   
Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method. Maintenance and repair costs are expensed as incurred. Major replacements and betterments are capitalized and depreciated over the remaining useful lives of the assets.   
     
Intangible Assets

Intangible assets consist of patent costs covering the exchange platform concept and associated technology.  The patent has a carrying value of $10,000 and is being amortized on the straight-line basis over 15 years.  Accumulated amortization as of June 30, 2008 was $2,000.  Amortization expense was $667 for YTD 2008.  Amortization expense is estimated to be $667 per year in each of the years ended June 30, 2009 through 2013.
 
Income Tax Benefit

The income tax benefit consists of taxes currently refundable due to net operating loss carry back provisions for federal and state governments. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
 
Product Development Costs

Product and development costs consist of the costs to develop and operate the online exchange platform’s web based application and transaction database and are expensed as incurred.

 
F-9
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Fair Value of Financial Instruments

Cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses, as reflected in the financial statements, approximate fair value because of the short-term maturity of these instruments. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates arte subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable in accordance with SFAS No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. If an asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. We assess the recoverability of the intangible assets by determining whether the unamortized balances can be recovered through undiscounted future net cash flows of the related assets. The amount of impairment, if any, is measured based on projected discounted future net cash flows using a discount rate reflecting our average cost of capital, or other appropriated methods of determining fair value. In 2008, the Company believes that there has been no impairment of its long-lived assets.

Research and Development Costs

Research and development costs are expensed as incurred.

Earnings (Loss) Per Share

The Company reports earnings (loss) per share in accordance with SFAS No.128.  This statement requires dual presentation of basic and diluted earnings (loss) with a reconciliation of the numerator and denominator of the loss per share computations.  Basic earnings per share amounts are based on the weighted average shares of common stock outstanding.  If applicable, diluted earnings per share would assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share.

Comprehensive Income (Loss)

The Company adopted SFAS No.130, “Reporting Comprehensive Income”, which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the year covered in the financial statements.

Segment Reporting

SFAS No.131, “Disclosures about Segments of an Enterprise and Related Information” requires companies to report information about operating segments in interim and annual financial statements.  It also requires segment disclosures about products and services, geographic areas and major customers.  The Company determined that it did not have any separately reportable operating segments.



 
F-10
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Recent Accounting Pronouncements

Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.
 
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The FSP affects entities that accrue dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the award. This FSP is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of FSP EITF 03-6-1 on its consolidated financial position and results of operations.
 
Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own Stock
 
In June 2008, the FASB ratified EITF 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock".  EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions.  It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation.  EITF 07-5 is effective for fiscal years beginning after December 15, 2008.  The Company is currently assessing the impact of EITF 07-5 on its consolidated financial position and results of operations.
 
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 
In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion.  The FSP requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized.  The FSP requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our consolidated statement of operations.  The FSP requires retrospective application to the terms of instruments as they existed for all periods presented.  The FSP is effective for us as of January 1, 2009 and early adoption is not permitted.  The Company is currently evaluating the potential impact of FSP APB 14-1 upon its consolidated financial statements.
 

 
F-11
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
 
The Hierarchy of Generally Accepted Accounting Principles
 
In May 2008, the FASB issued SFAS No.162, "The Hierarchy of Generally Accepted Accounting Principles".  SFAS No.162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements.  SFAS No.162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles".  The implementation of this standard will not have a material impact on the Company's consolidated financial position and results of operations.
 
Determination of the Useful Life of Intangible Assets
 
In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No.142 “Goodwill and Other Intangible Assets”.  The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No.142 and the period of the expected cash flows used to measure the fair value of the asset under SFAS No.141 (revised 2007) “Business Combinations” and other U.S. generally accepted accounting principles.    The Company is currently evaluating the potential impact of FSP FAS 142-3 on its consolidated financial statements.
 
Disclosure about Derivative Instruments and Hedging Activities
 
In March 2008, the FASB issued SFAS No.161, “Disclosure about Derivative Instruments and Hedging Activities, an amendment of SFAS No.133”. This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The Company is required to adopt SFAS No.161 on January 1, 2009. The Company is currently evaluating the potential impact of SFAS No.161 on the Company’s consolidated financial statements.
 
Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No.160, “Noncontrolling Interests in Consolidated Financial
 
Statements”, which amends ARB 51, “Consolidated Financial Statements”, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No.160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No.160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary.  SFAS No.160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No.160 to have a material impact on its financial statements.


 
F-12
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Business Combinations

In December 2007, the FASB issued SFAS No.141(R) “Business Combinations”.  This Statement replaces the original SFAS No.141.  This Statement retains the fundamental requirements in SFAS No.141 that the acquisition method of accounting (which SFAS No.141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. The objective of SFAS No.141(R) is to improve the relevance, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, SFAS No.141(R) establishes principles and requirements for how the acquirer:
 
a.  
Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.
 
b.  
Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase.
 
c.  
Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.
 
This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and may not be applied before that date. The Company is unable at this time to determine the effect that its adoption of SFAS No.141(R) will have on its consolidated results of operations and financial condition.

Fair Value Option for Financial Assets and Liabilities

In February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets and Financial Liabilities”, which provides companies with an option to report selected financial assets and liabilities at fair value with the changes in fair value recognized in earnings at each subsequent reporting date. SFAS No.159 provides an opportunity to mitigate potential volatility in earnings caused by measuring related assets and liabilities differently, and it may reduce the need for applying complex hedge accounting provisions. If elected, SFAS No.159 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact that this statement may have on the Company results of operations and financial position, and has yet to make a decision on the elective adoption of SFAS No.159.

Fair Value Measurements

In September 2006, the FASB issued SFAS No.157, “Fair Value Measurements”. SFAS No.157 provides guidance for using fair value to measure assets and liabilities. SFAS No.157 addresses the requests from investors for expanded disclosure about the extent to which Companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. SFAS No.157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. In February 2008, the FASB issued FSP FAS No. 157-2, “Effective Date of FASB Statement No. 157”.  This FSP delays the effective date of SFAS No. 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal tears.  SFAS No.157 will be adopted by the Company in the first quarter of fiscal year 2009.  The Company is does not expect the adoption of SFAS No.157 to have a material impact on its consolidated results of operations and financial condition.



 
F-13
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008

 NOTE B – PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET

     
June 30,
    
June 30,
  
 Description
 Life
  
2008
    
2007
  
               
Office Equipment
4 yrs
   $ 20,731     $ 10,894  
Furniture & Fixtures
7 yrs
     2,085       2,085  
Leasehold Improvements
1 yr
     5,775       5,775  
Vehicles
3 yrs
     2,123       2,123  
                   
        30,714       20,877  
Less: Accumulated Depreciation
     (14,750 )     (9,711 )
                   
      $ 15,964     $ 11,166  
 
Depreciation expenses for the years ended June 30, 2008 and 2007 were $5,040 and $8,918, respectively.


NOTE C – OTHER ASSETS

   
June 30,
    
June 30,
  
   
2008
    
2007
  
             
Patent costs, net of amortization of
            
   $2,000 (2008) and $1,333 (2007)
   $ 8,000     $ 8,667  
Lease security deposits
     4,760       4,760  
                 
    $ 12,760     $ 13,427  
 
Patent costs consist of accumulated legal costs associated with a patent application covering the exchange platform concept and associated technology.  On March 29, 2006 David Dorr (“Dorr”), the chief executive officer of Life Exchange and primary developer of the online exchange platform concept, entered into an Assignment by Inventor agreement whereby the ownership of the patent application and associated intellectual property rights were transferred to the Company.  Prior to the transfer, the Company had operated under a license agreement with Dorr to pursue the development and utilization of the online exchange platform.  Patent costs amortization expense is $667 annually, for each fiscal year ended June 30, through 2020.


NOTE D – NOTE PAYABLE – RELATED PARTIES

On July 5, 2006, the Company entered into a note agreement with Vantage Group Ltd. to provide $300,000 of additional financing (“Note 1”).  The terms of Note 1, as modified by subsequent amendments, provide for 7% interest payable at maturity.  Note 1 is unsecured and matures on April 15, 2010 with quarterly interest installments due through April 15, 2010.  Note 1 also provides Vantage with conversion rights based on the Company attaining certain performance criteria as follows. The Holder of this Note 1 is entitled, at its option, to convert the principal amount of Note 1 or any portion thereof, together with accrued but unpaid interest, into shares of Common Stock of the Company (“Conversion Shares”) based on the Company attaining certain performance criteria measured during December, 2006.  The Company did not meet the performance criteria and accordingly, no shares were converted.


 
F-14
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008

NOTE D – NOTE PAYABLE – RELATED PARTIES (Cont’d)

On April 2, 2007, the Company entered into a note agreement with Vantage Group Ltd. to provide $150,000 of additional financing (“Note 2”).  The terms of Note 2, as modified by subsequent amendments, provide for 7% interest payable at maturity.  Note 2 is unsecured and matures on April 15, 201.  Note 2 also provides Vantage with conversion rights based on the Company attaining certain performance criteria as follows.  Note 2 may be converted into shares of the Company’s common stock at (i) $0.10 or (ii) fifty percent (50%) of the three lowest closing prices of the Company’s Common Stock on the Pink Sheets (or such other principal market or exchange where the Common Stock is listed or traded at the time of conversion) immediately preceding the date of conversion.

On August 2, 2007, the Company was advanced an additional $5,000 under the same terms as Note 2.


NOTE E – INCOME TAXES

The benefit from income taxes for the years ended June 30, 2008 and 2007 consist of the following:

   
2008
    
2007
  
Current:
            
   Federal
   $ 128,000     $ (241,755 )
   State
     13,666       (25,811 )
   Benefit from income taxes
     141,665       (267,566 )
   Use of NOL/Increase in valuation allowance
     (141,665 )     267,566  
   Benefit from income taxes, net of allowance
   $ -     $ -  
 
The difference between benefit from income taxes computed by applying the federal statutory Corporate tax rate and actual income tax expense for the periods ended June 30, 2008 and 2007 is as follows:

   
2008
    
2007
  
Statutory federal income tax rate
     34.0 %     34.0 %
State income taxes, net of federal benefit
     3.6 %     3.6 %
Increase in valuation allowance
     -37.6 %     -37.6 %
Effective income tax rate
     0.0 %     0.0 %
 
The net deferred tax assets at June 30, 2008 and June 30, 2007 are comprised of the following:
 
   
2008
    
2007
  
Deferred tax assets - non-current
   $ 278,942     $ 420,608  
Valuation allowance
     (278,942 )     (420,608 )
Net defered tax asset
   $ -     $ -  

The Company currently has a net operating loss (NOL) of $682,885 (2008) and $1,035,654 (2007) which can be utilized until the year 2026.  The deductibility of the NOL is subject to the limitations provision of the Federal tax code (i.e. IRC § 382).


 
F-15
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008

NOTE F – EARNINGS PER SHARE

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock.  The following reconciles amounts reported in the financial statements for the year ended June 30, 2008:

   
2008
    
2007
  
Basic earnings per share computation
            
Numerator:
            
  Income (loss) from continuing operations
   $ 376,469     $ (711,043 )
  Net Earnings (Loss)
   $ 376,469     $ (711,043 )
Denominator:
                
  Basic shares outstanding
     176,715,000       176,715,000  
Basic net earnings per share
   $ 0.002     $ (0.004 )
                 
Diluted earnings per share computation
                
Numerator:
                
  Income from continuing operations
   $ 376,469     $ (711,043 )
  Plus: Preferred share dividends
     --       --  
  Net Earnings
   $ 376,469     $ (711,043 )
Denominator:
                
  Basic shares outstanding
     176,715,000       176,715,000  
  Assumed conversion of:
                
    Warrants related to Note 2
     1,676,500       --  
  Diluted shares outstanding
     178,391,210       176,715,000  
Diluted net earnings per share
   $ 0.002     $ (0.004 )

Effect of dilutive securities

The 1,676,500 shares of potential common stock associated with Note 2 were not included in the computation of diluted earnings per share in 2007 because the effect of conversion would be antidilutive.


NOTE G – LEASES and COMMITTMENTS

The Company currently leases its primary office facilities under a one-year, non-cancelable real estate operating lease with a minimum annual rental commitment of $33,000.  The lease expires on June 1, 2009 and may be renewed.


 
F-16
 
LIFE-EXCHANGE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended June 30, 2008

NOTE H – SUBSEQUENT EVENTS

In July 2008, the Company formed four additional subsidiaries to facilitate its plans to further expand its service offerings.  Filings with the State of Nevada began on June 3, 2008, however the organization activities were not completed until July 2008.  None of these subsidiaries were complete and operational or record any transactions as of June 30, 2008.  The newly formed subsidiaries are as follows:

LFX Brokerage LLC

This company was formed to facilitate deeper market penetration into life settlement sell-side participants.  This entity will hold life settlement brokerage licenses and life insurance general agency licenses allowing us to offer expanded services as they relate to our core business of operating a life settlement exchange.  These licenses also give us the flexibility to interact directly with policy owners and more efficiently address their market needs.

LFX Acquisitions LLC

This company was formed to facilitate deeper market penetration into life settlement buy-side participants.  This entity will hold life settlement provider licenses and provide better market access to financial institutions like banks and pension funds to our life settlement exchange.  This entity will also allow us the ability to provide ongoing asset servicing to clients that require these services.

LFX Capital Markets LLC

This company was formed in anticipation of further regulatory developments that could bring greater oversight by FINRA to the life settlement market place.  This entity will be licensed as a broker/dealer and will also be designed for providing trades in more advanced structured life settlement products that will be classified as securities.  Having a broker/dealer license will also allow us to accept variable life insurance contracts, a sector of the market that we have not yet tapped.

LFX Trading, LLC

This company was formed to hold all the technology related to our life settlement auction platform as well as the intellectual property we will be developing related to our electronic trading platform.  This new entity will ultimately be responsible for receiving all transaction fees as they relate to auctions or trades through our systems.


 
F-17
 

 
ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
NONE
 
ITEM 9A.    CONTROLS AND PROCEDURES
 
Management’s Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting.  Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements and that receipts and expenditures of company assets are made in accordance with management authorization; and (iii) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

For the period ending December 31, 2008, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. The term “disclosure controls and procedures” is defined in Rules 13(a)-15e and 15(d) - 15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2008. They have concluded, as of June 30, 2008 that our disclosures were effective to ensure that:
 
(1) Information required to be disclosed by the Company in reports that it files or submits under the act is recorded, processed, summarized and reported, within the time periods specified in the Commissions' rules and forms, and
 
(2) Controls and procedures are designed by the Company to ensure that information required to be disclosed by us in the reports we file or submit under the Act is accumulated and communicated to the issuer's management including the Chief Executive Officer and the Chief Financial Officer or persons performing similar functions, as appropriate to allow timely decisions regarding financial disclosure.

This term refers to the controls and procedures of a Company that are designed to ensure that information required to be disclosed by a Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Our Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report. They have concluded that, as of June 30, 2008 our disclosure and procedures were effective in ensuring that required information will be disclosed on a timely basis in our reports filed under the exchange act.

This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits the company to provide only management's report in this Annual Report.

Lack of Segregation of Duties

Management is aware that there is a lack of segregation of duties at the Company due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the abilities of the employees now involved and the control procedures in place, the risks associated with such lack of segregation are low and the potential benefits of adding employees to clearly segregate duties do not justify the substantial expenses associated with such increases. However, Management has engaged the services to of a consulting firm specializing in Sarbanes-Oxley compliance to assist us in identifying areas where we may cost-effectively improve our segregation of duties.  They are also assisting Management in testing our internal controls to determine if the internal controls currently in place are functioning as designed.  Management will periodically reevaluate this situation.

Lack of Independent Board of Directors and Audit Committee
 
Management is aware that there is a lack of an independent board of directors and audit committee due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the cost of maintaining independent board members and the direct involvement of the existing officers and board members in the company’s daily transactions, the risks associated with such lack of an independent board of directors are low and the potential benefits of adding independent directors to enhance corporate governance duties do not justify the substantial expenses associated with such additions. Management has begun the interview process for several potential additions to the board.  Management will periodically reevaluate this situation.
 
18

 
Changes in Internal Control
 
There have been no other changes in our internal controls over financial reporting that occurred during the period covered by this Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
ITEM 9B.      OTHER INFORMATION
 
None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following table furnishes the information concerning our directors and officers as of June 30, 2008. The directors are elected every year and serve until their successors are elected and qualify.

Name
Age
Position(s)
David Dorr
30
President, Chief Executive Officer, Chief Financial Officer, Director
Brian Dorr
25
Secretary, Treasurer, Director
Jean-Marc Golden
41
Vice President, Chief Operating Officer, Director

David Dorr, (30) is the President, Chief Executive Officer and founder of Life-Exchange.  Mr. Dorr has been an officer and director with Life-Exchange since its inception in January 2005. Over this period, Mr. David Dorr has been responsible for development and implementation of the company’s direction, strategic ventures and relationships. Mr. David Dorr has been asked to speak both in the U.S. and Europe at industry conferences, including the BVZL Conference held in Dortmund, Germany, the Life Insurance Settlement Association Conference in New York, and the Emerging Investment Strategies in the Secondary Life Market, Hedge Fund Conference in New York. For the three years prior to launching Life-Exchange, Mr. Dorr was Director of Business Development for Life Asset Group in Miami, Florida; a premier life settlement brokerage firm.  He joined Life Asset Group when it was a start-up operation and in his position as Director of Business Development, Mr. Dorr transformed the firm from a start-up operation of one employee, to a profitable operation of 22 employees within two years.
 
 Brian Dorr, (25), has been has been an officer and director with Life-Exchange since March 2005.  As Vice President of Longevity Trading his primary responsibility is on the execution of all life settlement policy auctions.  In addition to these duties, Mr. Dorr is responsible for the development of the Life-Exchange software application and all customer service and client side activities. For the three years prior to joining Life-Exchange, Mr. Dorr was employed by Life Asset Group in Miami, Florida; one of the nation’s largest life settlement brokerage firms based in Miami, Florida. At Life Asset Group, he was responsible for the creation and management of the firm's Case Coordination Department.  In addition to his management duties, Mr. Dorr was responsible for sourcing, recommending and implementing software applications to streamline case management. Mr. Dorr was also a member of the firm’s in-house design committee responsible for design and improvements to the firm’s Customer Resource Management system.
 
Jean-Marc Golden, (41), has been an officer and director with Life-Exchange since March 2005.  As Vice President and Chief Operating Officer, Mr. Golden has been primarily responsible for management of the company's day-to-day operations, including accounting, marketing, software development, technology and personnel. Prior to joining Life-Exchange, Mr. Golden’s last five years of business experience was a New York based management consultant specializing in operations, product commercialization, client development and organizational audits.  His clients consisted of both Fortune 500 companies and entrepreneurial ventures, including Deloitte & Touche, Lois Law, American Lawyer Media, Wasserstein Perella & Co., MTV, and Viacom. During this period, Mr. Golden has also served as a Board Member for The Sam and Adele Golden Foundation for the Arts, Inc., an internationally recognized 503(c) organization.

David Dorr, Brian Dorr, and Cameron Dorr, an investor in the company, are brothers.

Code of Ethics

Subsequent to our fiscal year end, in the quarter ended September 30, 2008, we adopted a code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our three directors, David Dorr, Brian Dorr and Jean-Marc Golden, have chosen to adopt such a code of ethics because they believe that establishing a code of ethics is in the best interest of our shareholders.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Exchange Act requires our directors, executive officers and ten percent (10%) beneficial owners to file reports with the SEC regarding their ownership and changes in ownership of their equity securities of the Company and to furnish to the Company copies of such reports. Based solely upon our review of the copies of such reports, we believe that during the 2008 fiscal year, all directors, executive officers and ten percent (10%) beneficial owners have complied with such filing requirements.
 
19
 
ITEM 11.      EXECUTIVE COMPENSATION
 
(a) Compensation.
 
The following table sets forth compensation awarded to, earned by or paid to our Chief Executive Officer and the four other most highly compensated executive officers with compensation in excess of $100,000 for the years ended June 30, 2008 and 2007 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE
 
Name and principal position
 
 
 
 
Year
 
 
 
 
Salary
 
 
 
 
Bonus
 
 
 
Stock Awards
 
 
 
Option Awards
 
Non-Equity Incentive
Plan Compensation
 
Nonqualified Deferred Compensation Earnings
 
 
 
All Other Compensation
 
 
 
 
Total
 
                   
David Dorr, CEO
 
2008
73,629
0
0
0
0
0
0
73,629
2007
84,608
0
0
0
0
0
0
84,608
Brian Dorr, secretary
2008
73,769
0
0
0
0
0
0
73,769
2007
83,908
0
0
0
0
0
0
83,908
Jean-Marc Golden, vice pres.
2008
115,824
0
0
0
0
0
0
115,824
2007
80,700
0
0
0
0
0
0
80,700



OUTSTANDING EQUITY AWARDS AT JUNE 30, 2008
OPTION AWARDS
STOCK AWARDS
Name
Number of Securities Underlying Unexercised Options
(#)
Exercisable
Number of Securities Underlying Unexercised Options
(#)
Unexercisable
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
Option Exercise Price
($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested
(#)
Market Value of Shares or Units of Stock That Have Not Vested
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
David Dorr
None 
None 
None 
None 
None 
None 
None 
None 
None 
Brian Dorr
None 
None 
None 
None 
None 
None 
None 
None 
None 
Jean-Marc Golden  Ponnath
None 
None 
None 
None 
None 
None 
None 
None 
None 

EMPLOYMENT CONTRACTS
 
We do not have an employment contract with any executive officer.
 
We have made no Long Term Compensation payouts (LTIP or other).
 
20
 
DIRECTOR COMPENSATION

DIRECTOR COMPENSATION
Name
Fees
Earned or
Paid in
Cash
Stock
Awards
Option
Awards
Non-Equity
Incentive
Plan
Compensation
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
All
Other
Compensation
Total
David Dorr
None 
None 
None
None 
None 
None 
None
Brian Dorr
 None
 None
None
None 
None 
 None
None
Jean-Marc Golden
None
None
None
None
None
None
None

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The following table sets forth certain information regarding the beneficial ownership of Common Stock as of June 30, 2008, for each person, other than directors and executive officers, who is known by us to own beneficially five percent (5%) or more of its outstanding Common Stock.

Security Ownership of five percent (5%) Shareholders

Security Ownership of five percent (5%) Shareholders
 
Title of class
Name and address of
 beneficial owner
Amount and nature of beneficial ownership
 
Percent of class
common
Vantage Group Ltd.(1)
45,000,000
25.465%

(1) Lyle Hauser is the sole shareholder, officer and director of Vantage Group, Ltd.  Address is c/o Life Exchange, Inc., 2001 Biscayne Blvd., Suite 2102, Miami, FL 33137.  Vantage Group, Ltd. provided the bulk of the initial funding necessary to launch the Company.  As of June 30, 2008, the Company owes Vantage Group, Ltd. $455,000 under 2 unsecured convertible notes.
 
Security Ownership of Management
 
The following table sets forth certain information regarding the beneficial ownership of Common Stock as of June 30, 2008, for the following: (1) each of the Company's directors and executive officers and (2) its directors and executive officers as a group.

Security Ownership of Management
 
Title of Class
 
Name of Beneficial Owner
Amount and nature of Beneficial Ownership
 
Percent of Class(1)
Common
David Dorr
75,680,000
42.826%
Common
Brian Dorr
21,820,000
12.348%
Common
Jean-Marc Golden
10,500,000
5.942%
Directors and executive officers as a group(3total)
108,000,000
61.116%

(1) Based on an aggregate of 176,715,000 common shares outstanding as of June 30, 2008.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
None of our directors or executive officers or their respective immediate family members or affiliates are indebted to us. As of the date of this report, there is no material proceeding to which any of our directors, executive officers or affiliates is a party or has a material interest adverse to us.
 
David Dorr, Brian Dorr, and Cameron Dorr, an investor in the company, are brothers.
 
David Dorr is the primary developer of the online exchange platform concept.  On March 29, 2006 Mr. Dorr entered into an Assignment by Inventor agreement whereby the ownership of the Patent Application that had been filed with the U.S. Patent office on July 21, 2004, patent Application No. 10/895112 and associated intellectual property rights were transferred to the Company. Mr. Dorr assigned the patent rights for the nominal consideration of $1.00.
 
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ITEM 14.      PRINCIPAL ACCOUNTING FEES AND SERVICES
 
Audit Fees

We were billed $24,950 for the fiscal year ended June 30, 2008 and $22,300 for the fiscal year ended June 30, 2007 for professional services rendered by the principal accountant for the audit of our annual financial statements, the review of our quarterly financial statements, and other services performed in connection with our statutory and regulatory filings.
 
Audit Related Fees
 
There were $0 in audit related fees for the fiscal year ended June 30, 2008 and $0 in audit related fees for the fiscal year ended June 30, 2007. Audit related fees include fees for assurance and related services rendered by the principal accountant related to the audit or review of our financial statements, not included in the foregoing paragraph.
 
Tax Fees
 
Tax fees were $10,000 for the fiscal year ended June 30, 2008 and $0 for the fiscal year ended June 30, 2007.
 
All Other Fees
 
           There were no other professional services rendered by our principal accountant during the last two fiscal years that were not included in the above paragraphs.
 
Preapproval Policy
 
Our Board of Directors reviews and approves audit and permissible non-audit services performed by its independent accountants, as well as the fees charged for such services. In its review of non-audit service fees and its appointment of Jewett, Schwartz, Wolfe & Associates as the Company's independent accountants, the Board of Directors considered whether the provision of such services is compatible with maintaining independence.
 

 
PART IV
 
ITEM 15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements and Schedules. The following financial statements and schedules for the Company as of June 30, 2008 are filed as part of this report.
 
                      (1)      Financial statements of the Company and its subsidiaries.
 
(2)      Financial Statement Schedules:
 
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
 
(A) EXHIBITS.
 
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The following Exhibits are incorporated herein by reference or are filed with this report as indicated below.

EXHIBIT
NUMBER
DESCRIPTION
   
2.1
Exchange Agreement dated December 22, 2005*
2.2
Agreement and Plan of Merger (Short Form Merger) dated March 29, 2006*
3.1
Articles of Incorporation of Life Exchange, Inc. Delaware dated January 20, 2005*
3.2
Amendment to Articles of Life Exchange, Inc. Delaware dated April 6, 2005*
3.3
Amended and Restated Articles of Incorporation of Life Exchange, Inc., Nevada, dated November 14, 2005*
3.4
By-Laws*
10.1
Stock Purchase Agreement dated March 8, 2006*
10.2
Assignment by Inventor dated March 31, 2006*
10.3
Form of Broker User Agreement*
10.4
Form of Provider User Agreement*
23.1
Consent of Auditor*
31.1
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
_______________
* Previously filed
 
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Signatures

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

                 Life Exchange, Inc.

/s/ David Dorr
By:  David Dorr
President, Chief Executive Officer, Chief Financial Officer
Date: September 26, 2008
 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

/s/ David Dorr
By:  David Dorr, Director
Date:  September 26, 2008
 
 
/s/ Brian Dorr
By:  Brian Dorr, Director
Date:  September 26, 2008
 
 
/s/ Jean-Marc Golden
By:  Jean-Marc Golden, Director
Date:  September 26, 2008
 
 
 
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