SOOTHSAYERS LIMITED Date: October 22, 2010 To: Rob Hoskin, CEO, Soothsayers Limited

From: Team 5, Controller, Soothsayers Limited RE: Revenue Recognition Policy for Living Gifts (LG)

The recent acquisition of Living Gifts and its specific business model raises the question of the revenue recognition policy related to these new activities. I am proposing the following policy on revenue recognition: Revenue will be recognized at the time of the insureds passing. The face value of the policies will be disclosed in the footnotes of the companys periodic financial statements. Direct expenses will be accumulated on the balance sheet as an investment in the viatical contract. Continuing costs will be capitalized in the same account until the insured dies. Net gain (or loss) will be recorded as the value of the death benefit less the accumulated costs and any impairment adjustments. The investment method will be used for the financial statements and footnote presentation as recommended by FASB. These investments will be tested periodically for impairment. If the cost is impaired, an adjustment downward will be recorded. Further, this policy is supported by FASB issued Staff Position FTB 85-4-1 which amended the current authoritative standards (FTB 85-4) and addressed accounting procedures for investments in life contracts (life settlement contracts) and viaticals (life settlement contracts for the terminally ill). The above proposed policy satisfies the following key accounting principles. 1. Revenue recognition principle According to GAAP, in order for revenue to be recognized and reported on the income statement, two criteria need to be met: o Revenue must be realized or realizable o Revenue must be earned The SECs Staff Accounting Bulletin (SAB) 101 dictates that revenue is earned and realized or realizable when all of the following have been met: o Evidence that a sales agreement exists o Delivery has occurred or services have been rendered o The sellers price is fixed or determinable

o Collectability is reasonably assured 2. Matching principle - recognizing expenses in the same period that the associated revenue is recognized. Under the guidance offered by FASB, a life settlement contract can be valued as an investment (at cost) or at fair value (at market). Under the investment method, actual costs are recorded when incurred and then the value is tested annually for impairment. An impairment test compares the likelihood of collecting at least the invested amount plus future necessary premium payments from the death benefit. This likelihood would be impacted by criteria such as credit worthiness of the carrier and the expected mortality of the insured. The footnote to the statements will provide critical data to aid the users of the financial statements to understand the full impact of these investments. The face value and the related costs are shown summarized by the time frame of expected collectability. This method will capture the most accurate, relevant and timely data for our shareholders. The fair value method also begins with actual costs but then is adjusted up or down based upon a readily available and liquid marketplace. The footnotes are just as critical and are organized in the same way. The primary difference between fair value and investment methods are how the value adjustments are measured. Fair value measurements are driven by market forces whereas investment measurements are based on the policy issuer. Measurement is a key issue as even different insurance companies rate the same individual differently. At present, there are only a few secondary markets for the exchange of life settlement contracts. Any value determined by them would tend to be more volatile and therefore less reliable. The company is not an investment group, such as management investment companies, unit investment trusts, investment partnerships, and other entities regulated by the 1940 SEC Act. Those companies are required to account for these contract investments at fair value, in accordance with section 1.32 of the AICPA Audit and Accounting Guide, Investment Companies. Therefore, the company can elect to use the investment method. A common approach to revenue recognition is to immediately recognize revenue and related expenses when a policy is purchased. However, this method is not appropriate in this instance. Even though the contract was executed and the title was transferred, enough uncertainty exists to make this not an option. The risks are: 1) the insurance companys failure or inability to satisfy the contract; or 2) the insureds actions/lifestyle may invalidate the life insurance contract (e.g. suicide). These risks would be mitigated by LG performing due diligence reviewing the insureds medical records and also, evaluating the stability and worthiness of the issuing insurance company. Nonetheless, these risks create enough uncertainty to which the company cannot recognize revenue because collectability is neither reasonably assured nor realizable. A third possible approach is to recognize revenue and expenses over the estimated life expectancy of the insured. Life insurance companies are required to recognize revenue in

this manor for all short-term policies. The risks addressed in the paragraph above still exist and therefore, make this approach undesirable. Based upon the matching principle, expenses will follow the revenue recognition outlined at the beginning of this memo. The company will incur costs directly with the acquisition of the viatical contract such as the payment to the insured, due diligence investigation, medical assessment and record review. These costs provide the basis of the companys investment in the viatical contract and will be recorded on the balance sheet. The company will also incur continuing cost for the maintenance and ongoing review of the viatical contract. These costs would include additional insurance premiums and monitoring of the insureds status. These costs will also be added to the basis of the companys investment in the viatical contract on the balance sheet. When the insured passes away any additional costs related to that contract would be expensed. The death benefit would be recorded as a receivable on the balance sheet and the net gain or loss would be recorded on the income statement.