ACE: Ancapistan Capital Exchange

The Ace of SL Stock Exchanges

Total shares: 7,504,047

Prospectus

Company Tagline

The Ace of SL Stock Exchanges

CEO's Real Life Name

Michael Lorrey

CEO's Real Life Location

Grantham, New Hampshire

Board of Directors

Chairman: IntLibber Brautigan
Vice Chair: Kaddan Yue
Director: Cliff Eclipse
Director: Lynn Binder
Director: Robustus Hax
Director:
Director: Charles Gemini
Director: Saiasunshine Fackler
Director:
Director: Bencly Sewell
Director: Misty Fairymeadow
Director: Robo Marx
Director:
Director:

Cash on hand

275000

Land owned

40200

Tangible Assets

3020000.00

Monthly Income

30000

Monthly Expenses

95000

IntLibber Brautigan

Welcome to Ancapistan and its new Exchange, the ACE.

As many are aware, the events of the past year in the financial sector have been very turbulent and dynamic. Early bugs in WSE caused it to close, recode, and reopen, in the BNT sim of Friedman, where it started to fulfill its promise of building a true capital market in SL. However, due to a lack of publicly accepted standards, oversight, or concern for limiting fraud, the general public lost confidence in the market, and it splintered. There are now four stock exchanges in SL, WSE, SLCapex, ISE, and VSTEX. However, none of the newcomers have caught on sufficently to raise the bar for exchanges in SL, or done anything to bring new capital into SL.

We at BNT have oriented our estates toward business and finance. We have always operated so, and having an exchange in our estate is a requirement for its long term economic vitality. Seeing the WSE and AVIX (now SLCapex) come and go from the estate, without any concern for preserving investor sense of security and stability (which staying in one location brings), has concerned us greatly.

The other exchanges do not understand why exchanges must exude a sense of stability, security, trustworthiness, to inspire the public to feel confident in the market and their investments there. Nor do they understand or accept the need for a higher authority, albiet a laissez faire one, to be a check on potential excesses, to set standards of behavior, and to enforce contracts.

We do understand these things.

I founded the SL Exchange Commission to create independent voluntary standards of exchange and corporate oversight, enforced via market mechanisms of publicity and boycott. We intend our exchange to be fully SLEC compliant from the start, and to go beyond those standards to not only provide the highest level of service and information to the public, not only provide the greatest degree of community governance, but to ensure that investors assets are sufficiently protected within the estate covenant's basic law that the exchange itself is based and subject to. As an example, IPOs will no longer be a "buy me a sim" christmas present: any company needing a full sim of land must buy their sim through the Ancapistan estates, so that ACE can protect the assets of its investors via contract enforcement. If a company goes out of business, their land can be reposessed for disposal to repay investors.

That is what the ACE stands for. We invited qualified individuals to invest in the ACE itself in a private placement before listing, to raise an initial portion of the 7.7 million L$ needed to help pay for the exchange's development and marketing costs. We raised 10% of this amount prior to opening ACE, and are now ready to IPO the remaining 7 million shares. To date, the sim is dedicated, the building built, baseline exchange software is running, ATM designs are done and running, first-of-its-kind inworld graphical displays are in development as is the rest of the platform, which will be described in this prospectus. 48% of the stock of the ACE will be available for purchase through this private placement, and the board of directors, as seen above, will seat those who invested in the private placement, and elect more from the investors who buy into the IPO, and will have a real say in the running of the exchange.

What will set us apart from the others is our focus on bringing new capital inworld from real life. We are the only company with an exchange that also has its own orientation island, its own registration API website, and will be doing real life advertising on Wall Street and major financial websites.

Thank you, and read on,

Business Overview

ACE is oriented toward becoming the paramount financial clearinghouse of Second Life, providing listing services for virtual securities in Second Life businesses, currency exchange and currency futures, as well as land futures and other key metaverse economic indices.

We began as a concept in midsummer, 2006, when it was determined that a BNT oriented stock exchange that would stay in BNT estates was paramount to the economic vitality of those estates, and also that the financial markets of SL were losing public confidence due to various issues that the other exchanges were not addressing. We are now an active exchange, have started listing companies, and are already making an impact in the SL capital markets.

Business Strategy

We have already received the interest of a half dozen companies to relist on our exchange, and several major established SL companies to do their IPO with us. It is therefore clear that there is a demand for another exchange in SL, one run by reputable people with high standards, top notch quality of service, and the best features in SL.

This is what ACE will offer: the most real-to-life stock exchange possible, to SL investors. This includes built-in corporate reporting systems, incl Profit/Loss system for CEOs, which also naturally provides for the ability to display more fundamentals data, like EPS, P/E, PEG, etc. Also, in the interest of both offering more securities products to our customers, and ones that will help provide the exchange with some natural price regulation to regular stock prices, ACE will be offering stock options, both puts and calls.

In addition to Stock Trading and Stock Futures, we will be offering Currency Exchange, Currency Futures, and a Land Futures Exchange.

Projected cash flow:
Stock Trades:
3,000,000 shares per day average
1.00 average share price
3% commission per share
90,000 L$ per day revenues
2,700,000 L$ per month revenues
32.85 million L$ annual revenues

We expect these cash flow numbers to be rather minimal compared to true performance, based upon historical market data such as the past years performance of the WSE:

http://www.wselive.com/welcome/market_volume?period=year

As we can see, the WSE started off strong with lots of trading activity with a large amount of capital, trading between 3-6 million L$ per day. WSE lost public trust for many reasons which explain its downturn. The above chart is clear indication of the financial impact of the erosion of trust upon an exchange and the capital markets of SL in general.

The high peak of L$22 million traded was the day BNT's IPO went to the official list at WSE, the historical high point of that exchange. Today, share volume remains in the millions, but L$ volume is stuck at only a few hundred thousand per day.

ACE would not make these mistakes, we will work diligently to build the public trust. ACE will promote the market to real world investors as well as to established SL investors. ACE will rapidly work to expand features and services to maximize trading experience on the floor and our website.

Stock options:
Conservatively leveraged, would generate at least 10% to as much as 100% of stock trade revenues, however given the realities of risk/reward, we wish to start off with these securities as conservatively as possible to start with to ensure they are neither abused, nor manipulated against the exchange.
Projected annual revenues: L$3 million minimum, L$30 million maximum

We will only offer covered options (as opposed to naked options), primarily due to the lack of accountability of avatars for debt in SL. We will eventually allow more leveraged options only for traders who provide extensive RL identity and payment information to ensure they can be held accountable for their obligations.

Currency Exchange:
L$1 million exchanged per day
3% exchange fee on transactions
L$30,000 per day revenues
L$10.95 million annual revenues

Currency Futures:
Currency futures will likely never exceed more than 10% of the revenues of the currency exchange. Most investors don't participate in them, but many do depend on them to help give an idea of where the market is headed for regular currency exchange activity.

Land Futures Exchange:
Just as cars make the US economy go round, so too does the land market make SL go round. In SL there is 266 million square meters of land in SL at the present time, a good chunk of which is bought and sold at any given time, as LL economic statistics indicate. One problem in the market is the prevalence of land bots being used by a few individuals to find and buy up land which owners price under market rates due to a lack of accurate market price data (LL's market price averages treat all land paid for privately via paypal as priced at 0 L$). This activity also unfortunately causes people who make mistakes and accidentally misprice their land to see their land bought from under them so fast, before they can correct their error. Still other landowners excessively overprice their land due to unrealistic expectations of market prices, and their land sits unsold for excessive lengths of time.

A land futures exchange would enable land owners to more accurately estimate the fair market value of their properties, as well as enable the market to predict more accurately the direction that land prices are headed, while at the same time giving land owners an ability to dispose of land fairly in an exchange setting.

Current SL-wide land market activity ranges from 50 to 100 million square meters per month at the current time, which indicates rather sizable churn in land ownership. Many landowners buy and sell their land monthly as they bring money inworld to expand their holdings. Still other activity is due to the large amount of "flipping" of land that occurs, possibly largely due to the chaotic nature of the market, but also due to the large range of prices available due to a lack of accurate market price estimations.

With a current churn of 75 million square meters, and an average price of 7 L$ per square meter, this represents over a half a billion L$ monthly market. Capturing only 1% of this market means L$5 million of market activity at current market land prices. When the land economy recovers, this level will double in value per square meter, and market activity should at least double if not quadruple. The sims of BNT owned estates alone (Where the Ancapistan Capital Exchange is located) represent about 0.33 % of the real estate in Second Life at the present time. As BNT has exhibited a growth rate since its first development of 8400%, over one year. This is 8.4 times the rate of growth of SL as a whole in the same period, and it is reasonable to assume that BNT's effective management and business strategies will continue to pay off for it, albeit it is also safe to assume that as it grows, its growth rate will slowly decrease over time. Therefore, by October 2008, the share of SL real estate market under BNT control could reach in excess of 2.5%.

We can therefore conservatively estimate that the share of the real estate market on the Land Futures Exchange will start off at .33% at a minimum, perhaps 2-3 times that many as other land dealers jump on board, and growing to 10%-15% of the market by Oct 2008, or $25-32.5 million L$ in monthly activity. With similar commission structure, revenues should start off at L$50,000 per month and rise to over $1-2 million per month within a year. First year revenues should therefore be in excess of L$6-12 million.

Additional fees generated:
- IPO Applications will require a one time fee of L$15,000 to pay for costs of verifying the CEOs identity and the claimed assets of the company.
- IPOs reaching official listings will require, under SLEC rules, that 5-30% of IPO funds be escrowed for 3 or more months depending on the risk factors of the given company and CEO.
- Fraud Insurance: Traded stocks may be insured against fraud by traders voluntarily paying a 1% additional fee on trades, funds will be escrowed to capitalize a fund to compensate for possible fraud. The WSE exhibits a 12% fraud rate. We think we can do much better, but still intend to insure against the risk.

Overall Market Growth:
The SL economy the past two years has grown by 1000% a year. It is fair to estimate that by October 2008, the land market should be reaching a billion square meters traded each month, and given land prices tend to cycle, total market size should track this, totalling L$5 billion per month SL-wide by October 2008.

Currency Market should similarly grow to L$10 million traded per day (L$100 million+ in annual ACE revenues), and Currency Futures Market will track similarly.

With the Stock Market, this largely depends upon whether ACE itself can successfully revive inworld investor confidence, as well as promote the SL capital market to real world investors via major financial media and financial websites, as well as direct marketing on Wall Street. By October 2008, the ACE could potentially earn between L$200 million (US$740,000) up to over L$500 million in revenues (1.85 million USD), if growth rates persist into the future. Should growth cease entirely, annual revenues would conservatively be L$45-60 million (US$167,000-222,000).


Expenses To Date:
To date, the Ancapistan Capital Exchange has incurred expenses in the purchase of its sim, its share of the opportunity in BNT's Orientation Island in North, the construction of its exchange facility in Venture Square, and the cost of its baseline exchange software, as well as its webserver, scripting for inworld custom displays (our unique graphical displays).

Capital Expenses To Date
Sim(s): L$675,000
Facilities Construction: L$450,000
Exchange Software (baseline system): L$ 1,000,000
Displays Scripting: L$ 100,000
Webserver hosting, admin, web development: $150,000
Business planning, development: L$ 100,000
--------------------------------------------------------------
Total capital expenses incurred to date: L$ 2.475 million

Operating Expenses To Date:
Sim tier: L$ 417,375 (tier cost plus opportunity cost/BNT overhead, Venture Square and 1/2 of North)

Total Expenses Incurred to Date: L$2,892,375

These capital expenses have been incurred by Brautigan & Tuck Holdings and will represent, along with operating expenses, BNT's contribution to the ACE venture, justifying its stake in ACE of 51% of the stock in ACE, as well as being the pioneer stakeholder in this venture.

Upcoming Expenses:
Capital Expenses:
Upgrade Features Coding:
ACE: L$1.5 million
Currency Futures Exchange: L$200,000
Land Futures Exchange: L$ 2.5 million

Operating Expenses:
Advertising:
Since the demise of casinos, advertising expenses in SL have dropped markedly. Classified rates to get on the top page of the secondlife.com search engine have dropped from a high of L$140k per week in June to a current low of less than L$5k per week.

Inworld Classified/secondlife.com listings: 20,000/mo
SL Media web ads: 200,000/mo
RL Media web ads: 1,000,000/mo
RL Wall Street Marketing: L$750,000 1 time

Marketing Costs:
VP PR/Marketing: L$ 100,000 per month to start
Expenses: Media relations, travel: L$ 600,000/month

Rent/Tier: L$95250/mo

IPO Processing: L$ 12500 per IPO. With 20 IPO applications per month, L$250,000 per month.

Staff Salaries: L$500,000 per month

Total Expenses, recurring: L$ 2.75 million / mo
Total Upcoming Capital Expenses: L$ 4.95 million

Business Strengths

Strengths
A strength of the ACE is the degree of features, products, and services that are planned to be offered compared to other exchanges, however all the bells and whistles in the world wont help an exchange run by a disreputable person. The reputation of BNT and its management team, as a paragon of integrity and fair dealing in an otherwise risky and lawless world of SL, remains unblemished. When SLCapex delisted BNT from its exchange, they could not name one thing that BNT had ever done that could be considered unethical, immoral, or a breach of the terms of service. This status is a rarity in SL, and is worth its weight in gold now that BNT is opening the ACE.

Investors want to be confident in the people running the exchange they do business at, that they will stay there, be in it for the long haul, not take shortcuts, and will demand high standards of CEOs of listed companies. ACE's commitment to meeting and exceeding SL Exchange Commission standards (SLEC is a volunteer driven group, run by a board of directors elected by the members and by their respective exchanges, which formulates voluntary market-drive standards, much like the UL and Consumers Reports do), along with the fact that the SLEC was founded by the founder of the ACE, demonstrates that the ACE will be committed to high standards, transparency and openness, not as a matter of convenience, but because its founders insist upon it.

We are also focused on marketing the exchange to RL investors, bringing new capital inworld to revive the SL capital markets.

The ACE will also be transparent and community driven, with a large Board of Governors assisting in the operation and governance of the exchange.

Opportunities
We feel that with our fresh, bright exchange, run by well known ethical professionals, we will quickly convinced a large number of existing listed companies to relist on our exchange. By providing superior products, as well as superior ethics, we have an opportunity to take market share from those who have overreached their authority to run exchanges.

With the end of wagering, those seeking risk and profit should be more interested in investing in exchanges, not less. Our exchange logo is an ace of spades for a reason: that card is the winning card. Also with the imposition of VAT, european users will seek opportunities for profit that do not involve Euro-fees to Linden Lab. As BNT and ACE are in reality based in low-tax New Hampshire, with no sales or personal income tax, or VAT, we can offer europeans a means of investing their L$ in a way that keeps that money out of the hands of european tax collectors.

We also see opportunities for companies to provide real world goods and services, sold from within SL for L$, delivered to users homes, to start up in SL and raise capital inworld to capitalize their operations.

Furthermore, we look at the Open Grid movement as an opportunity to expand ACE to multiple grids and worlds that adopt open and free market principles and mechanisms.

Use of Capital

Use of Capital:
Capital raised in this IPO will cover upcoming capital expenses plus one months operating expenses, for a total of L$7.7 million.

Shares Issued: 8,000,000
IPO Shares: 3,200,000

Par Share Price: 1.00 L$ per share.

1st Month Estimated Revenues: L$2 million
2nd Month Estimated Revenues: L$4 million
3rd Month Estimated Revenues: L$ 6 million

1st quarter Total Revenues: L$ 12 million
1st quarter Total Expenses: L$ 8.25 million
1st quarter Profit: L$ 3.75 million

Estimated 2nd Quarter Profit: L$ 9.75 million

Use of Profits
ACE is not a growth oriented company, once established, other than software upgrades/improvements and added features, there will be no additional physical plant additions or other need for investment of capital. For this reason, ACE is to be a dividend oriented company, with the majority of profits going back to the shareholders.

Estimated 1st quarter dividend: 0.15 per share*
Estimated 2nd quarter dividend: 0.50 per share*

* These dividend estimates are contingent upon quarterly performance as projected herein. These are forward looking statements and as such are to be considered risky estimates only, not a guarantee, contract, or promise of future earnings.

Risk Factors

Weaknesses:
There are already four stock exchanges, at least, in SL. Many of them have helped IPO some major companies in SL, however we see this more as an opportunity, as we can recruit listed companies to relist their companies on our exchange.

The existing exchanges have damaged public confidence in the capital markets, which could cause the ACE to be tarred with the same brush as the others in the court of public opinion. Others have driven many people away from the financial services industry, and the wagering rule change has badly impacted the economy of SL.

The tail end of the current recession, and the imposition of VAT on european residents, may be too much for inworld investors to handle, and be too much for our strengths to overcome.

Threats
- LL could go bankrupt: Discussions with Philip Rosedale at SLCC in August indicate LL is financially healthy.
- Public could grow bored with SL: Not Likely. CBS television network is currently airing a series of episodes of CSI:NY featuring Second Life, concurrently with an ESC project with CSI:NY to provide 400 sims for fans of the show to play "CSI" in SL. The public response to this has been tremendous, and with the resurgence of the school year, college students are back from vacation and looking for fun and opportunities online.
- Government, esp the SEC could decide to regulate exchanges. However we feel the SLEC has a reasonable chance of holding off this threat, depending on how well the public supports the SLEC.
- Other Exchanges could lower fees. A real possibility, with sufficient competition, a commission war could give savings to traders and reduce profit margins for exchanges. However most seem to remain in the 2-3% range simply because they all have operating expenses to meet.
- Scandal/Fraud: Despite our best efforts at oversight, there remains the threat of possible fraud by companies traded on the exchange. This is a real threat, and unavoidable in entirety due to the pseudo-anonimical nature of the internet and SL. We can however take real steps to minimize this threat as much as possible, investigate CEOs, encourage investors to keep an eye on their companies, and promptly halt trading when evidence of wrongdoing occurs.

Management

CEO: (interim) IntLibber Brautigan
VP - Communications:
VP - Operations: Kaddan Yue
VP - Technology:
VP - Ethics/Oversight/Compliance:
VP - Finance/Accounting: Cliff Eclipse
VP - IPO & CEO Relations:

VPs will be chairing committees of directors and other interested volunteers to help run the exchange operations and engage the public in its governance.