SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to____________
Commission File No. 000-50547
SUNDANCE STRATEGIES, INC.
(Exact name of Registrant as specified in its charter)
| Nevada | 88-0515333 |
| (State or Other Jurisdiction of | (I.R.S. Employer Identification No.) |
| incorporation or organization) |
|
4626 North 300 West, Suite No. 365
Provo, Utah 84604
(Address of Principal Executive Offices)
(801) 705-8968
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS 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 Sections 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.
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: November 14, 2014 - 43,185,941 shares of common stock.
NAME REFERENCES
In this Quarterly Report, references to “Sundance Strategies,” the “Company,” “we,” “our,” “us” and words of similar import, refer to “Sundance Strategies, Inc.,” the Registrant, and where applicable, include the current and intended business operations of ANEW LIFE, INC., a Utah corporation and our wholly-owned subsidiary (“ANEW LIFE”), our acquisition of which, by merger, occurred on March 29, 2013.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Quarterly Report. These factors include, but are not limited to, economic conditions generally in the United States and internationally, and in the industry and markets in which we have and may participate in the future, competition within our chosen industry, our current and intended business, our assets and plans, the effect of applicable United States and foreign laws, rules and regulations on our business and our failure to successfully develop, compete in and finance our current and intended business operations.
You should read any other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Quarterly Report completely, and it should be considered in light of all other information contained in the reports or registration statement that we file with the Securities and Exchange Commission (the “SEC”), including all risk factors outlined therein. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.
2
JUMPSTART OUR BUSINESS STARTUPS ACT DISCLOSURE
We qualify as an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act by the Jumpstart Our Business Startups Act (the “JOBS Act”). An issuer qualifies as an “emerging growth company” if it has total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year, and will continue to be deemed an emerging growth company until the earliest of:
|
| • | the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1.0 billion or more; |
|
| • | the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer pursuant to an effective registration statement; |
|
| • | the date on which the issuer has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or |
|
| • | the date on which the issuer is deemed to be a “large accelerated filer,” as defined in Section 240.12b-2 of the Exchange Act. |
As an emerging growth company, we are exempt from various reporting requirements. Specifically, we are exempt from the following provisions:
|
| • | Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires evaluations and reporting related to an issuer’s internal controls; |
|
| • | Section 14A(a) of the Exchange Act, which requires an issuer to seek shareholder approval of the compensation of its executives not less frequently than once every three years; and |
|
| • | Section 14A(b) of the Exchange Act, which requires an issuer to seek shareholder approval of its so-called “golden parachute” compensation, or compensation upon termination of an employee’s employment. |
Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
3
PART I
Item 1. Financial Statements
The Condensed Consolidated Financial Statements of the Registrant required to be filed with this 10-Q Quarterly Report were prepared by management and commence below, together with related notes. In the opinion of management, the Condensed Consolidated Financial Statements fairly present the financial condition of the Registrant and include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Registrant’s Condensed Consolidated Financial Statements. The results from operations for the three month and six month periods ended September 30, 2014, are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2015. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the March 31, 2014, Consolidated Financial Statements and footnotes thereto included in the Registrant’s Form 10-K Annual Report for the fiscal year ended March 31, 2014, as amended, which were filed with the SEC on July 16, 2014, and July 21, 2014, respectively, and which are referenced in Part II, Item 6 hereof.
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)
|
| Page(s) |
|
|
|
| Condensed Consolidated Balance Sheets as of September 30, 2014 and March 31, 2014 | 5 |
|
|
|
| Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2014 and 2013 | 6 |
|
|
|
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2014 and 2013 | 7 |
|
|
|
| Notes to the Condensed Consolidated Financial Statements | 8 - 12 |
4
| SUNDANCE STRATEGIES, INC. AND SUBSIDIARY | ||||||
| Condensed Consolidated Balance Sheets | ||||||
| September 30, 2014 and March 31, 2014 | ||||||
| (Unaudited) | ||||||
|
|
| September 30, 2014 |
| March 31, 2014 | ||
| ASSETS | ||||||
| Current Assets |
|
|
| |||
|
| Cash and Cash Equivalents | $ | 119,662 |
| $ | 375,212 |
|
| Prepaid Expenses |
| 7,625 |
|
| 2,000 |
|
| Other Current Assets |
| 28,600 |
|
|
|
| Total Current Assets |
| 155,887 |
|
| 377,212 | |
|
|
|
|
|
|
|
|
| Other Assets |
|
|
|
|
| |
|
| Investment in Net Insurance Benefits |
| 13,399,562 |
|
| 12,243,411 |
|
| Advance for Investment in Net Insurance Benefits |
| 4,376,419 |
|
| 3,584,862 |
|
| Note Receivable |
| 211,000 |
|
| 861,000 |
|
| Other assets |
| 14,047 |
|
| 13,767 |
|
|
|
|
|
|
|
|
| Total Other Long-term Assets |
| 18,001,028 |
|
| 16,703,040 | |
|
|
|
|
|
|
|
|
| Total Assets | $ | 18,156,915 |
| $ | 17,080,252 | |
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current Liabilities |
|
|
|
|
| |
|
| Accounts Payable | $ | 170,826 |
| $ | 52,915 |
|
| Accrued Expenses |
| 146,809 |
|
| - |
|
| Notes Payable |
| 1,326,876 |
|
| - |
|
| Notes Payable-Related Party |
| 730,000 |
|
| 90,000 |
| Total Current Liabilities |
| 2,374,511 |
|
| 142,915 | |
|
|
|
|
|
|
|
|
|
| Notes Payable, including accrued interest |
| - |
|
| 1,455,904 |
|
|
|
|
|
|
|
|
| Total Liabilities |
| 2,374,511 |
|
| 1,598,819 | |
|
|
|
|
|
|
|
|
| Stockholders' Equity |
|
|
|
|
| |
|
| Preferred Stock, authorized 10,000,000 shares, par value $0.001; -0- shares issued and outstanding |
| - |
|
| - |
|
| Common Stock, authorized 500,000,000 shares, par value $0.001; 43,185,941 and 43,015,941 shares issued and outstanding, respectively |
| 43,186 |
|
| 43,017 |
|
| Subscription Receivable |
| - |
|
| (1,500) |
|
| Additional Paid In Capital |
| 16,111,277 |
|
| 15,050,705 |
|
| Additional Paid In Capital- Stock to be Issued |
| - |
|
| 700,000 |
|
| Accumulated Deficit |
| (372,059) |
|
| (310,789) |
| Total Stockholders' Equity |
| 15,782,404 |
|
| 15,481,433 | |
|
|
|
|
|
|
|
|
| Total Liabilities and Stockholders' Equity | $ | 18,156,915 |
| $ | 17,080,252 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
| SUNDANCE STRATEGIES, INC. AND SUBSIDIARY | ||||||||||||
| Condensed Consolidated Statements of Operations | ||||||||||||
| For the Three and Six Months Ended September 30, 2014 and 2013 | ||||||||||||
| (Unaudited) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months |
| Three Months |
| Six Months |
| Six Months | ||||
|
|
| Ended |
| Ended |
| Ended |
| Ended | ||||
|
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
|
|
| 2014 |
| 2013 |
| 2014 |
| 2013 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest Income on Investment in Net Insurance Benefits |
| $ | 592,653 |
| $ | - |
| $ | 1,156,151 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| General and Administrative Expenses |
|
| 583,006 |
|
| 310,809 |
|
| 1,199,372 |
|
| 1,344,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (Loss) from Operations |
|
| 9,647 |
|
| (310,809) |
|
| (43,221) |
|
| (1,344,674) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
| Other, net |
|
| - |
|
| - |
|
| 6,303 |
|
| - |
| Interest Income |
|
| 4,478 |
|
| - |
|
| 8,820 |
|
| 21 |
| Interest Expense |
|
| (17,031) |
|
| (30,709) |
|
| (33,172) |
|
| (60,782) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Other Expense |
|
| (12,553) |
|
| (30,709) |
|
| (18,049) |
|
| (60,761) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss Before Income Taxes |
|
| (2,906) |
|
| (341,518) |
|
| (61,270) |
|
| (1,405,435) |
| Income Tax Provision |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Loss |
| $ | (2,906) |
| $ | (341,518) |
| $ | (61,270) |
| $ | (1,405,435) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss Per Share |
| $ | (0.01) |
| $ | (0.01) |
| $ | (0.01) |
| $ | (0.03) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted Average Number of Shares Outstanding |
|
| 43,163,575 |
|
| 42,261,441 |
|
| 43,090,561 |
|
| 41,781,441 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
| SUNDANCE STRATEGIES, INC. AND SUBSIDIARY | ||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| Six Months Ended September 30, 2014 and 2013 | ||||||||
| (Unaudited) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six Months Ended | ||
|
|
|
|
| September 30, |
| September 30, | ||
|
|
|
|
| 2014 |
| 2013 | ||
|
|
|
|
|
|
|
|
|
|
| Operating Activities |
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| Net Loss | $ | (61,270) |
| $ | (1,405,435) | ||
|
| Adjustments to reconcile to cash from operating activities: |
|
|
|
|
| ||
|
|
| Share Based Compensation - Options |
| 212,242 |
|
| 659,867 | |
|
|
| Advance for Investments in Net Insurance Benefits |
| (691,557) |
|
| (6,414,063) | |
|
|
| Other Current Assets |
| (28,600) |
|
|
| |
|
|
| Accrued Interest Income |
| (280) |
|
| - | |
|
|
| Prepaid Expenses |
| (5,625) |
|
| - | |
|
|
| Accounts Payable |
| 117,911 |
|
| (6,286) | |
|
|
| Accrued Expenses |
| 17,780 |
|
| 20,782 | |
|
|
| Investment in Net Insurance Benefits |
| (1,156,151) |
|
| - | |
|
|
|
|
|
|
|
|
|
|
|
|
| Net Cash from Operating Activities |
| (1,595,550) |
|
| (7,145,135) | |
|
|
|
|
|
|
|
|
|
|
| Investing Activities |
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| Proceeds from Notes Receivables |
| 550,000 |
|
| - | ||
|
|
|
|
|
|
|
|
|
|
|
|
| Net Cash from Investing Activities |
| 550,000 |
|
| - | |
|
|
|
|
|
|
|
|
|
|
| Financing Activities |
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| Proceeds from Issuance of Common Stock – net of issuance costs |
| - |
|
| 6,826,775 | ||
|
| Proceeds from Issuance of Notes Payable-Related Party |
| 640,000 |
|
| - | ||
|
| Common Stock Issued for Cash |
| 150,000 |
|
| - | ||
|
| Common Stock to be Issued |
| - |
|
| 752,500 | ||
|
|
|
|
|
|
|
|
|
|
|
|
| Net Cash from Financing Activities |
| 790,000 |
|
| 7,579,275 | |
|
|
|
|
|
|
|
|
|
|
| Net Change in Cash |
| (255,550) |
|
| 434,140 | |||
| Cash at Beginning of Period |
| 375,212 |
|
| 545,417 | |||
|
|
|
|
|
|
|
|
|
|
| Cash at End of Period | $ | 119,662 |
| $ | 979,557 | |||
|
|
|
|
|
|
|
|
|
|
| Non Cash Financing Activities |
|
|
|
|
| |||
|
|
| Notes Receivables Exchanged for Advance for Investment in Net Insurance Benefits | $ | 100,000 |
| $ | - | |
|
|
| Fair Value of Warrants Issued as Stock Issuance Costs | $ | - |
| $ | 139,251 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2014
(1) ORGANIZATION AND BASIS OF PRESENTATION
The condensed consolidated unaudited interim financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company’s annual statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the March 31, 2014, audited consolidated financial statements and the accompanying notes thereto. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. These condensed consolidated unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.
Sundance Strategies, Inc. (formerly known as Java Express, Inc.) was organized under the laws of the State of Nevada on December 14, 2001, for the purpose of selling coffee and other related items to the general public from retail coffee shop locations. These endeavors ceased in 2006, and it had no material business operations from 2006, until its acquisition of ANEW LIFE, INC. (“ANEW LIFE”), a subsidiary of Sundance Strategies, Inc. On March 29, 2013, Sundance Strategies, Inc., a Nevada corporation (“Sundance Strategies”), its newly formed and wholly-owned subsidiary, Anew Acquisition Corp., a Utah corporation (“Merger Subsidiary”), and ANEW LIFE, INC., a Utah corporation (“ANEW LIFE”), completed an Agreement and Plan of Merger, whereby the Merger Subsidiary merged with and into ANEW LIFE, and ANEW LIFE was the surviving company under the merger and became a wholly-owned subsidiary of Sundance Strategies on the closing of the merger (the “Merger”). The Merger has been treated as a reverse acquisition and a recapitalization of a public company. Accordingly, the historic financial statements of the Company are the historic financial statements of ANEW LIFE, which was incorporated on January 31, 2013.
Sundance Strategies, Inc. and subsidiary (the “Company” or “we”) is engaged in the business of directly purchasing from third parties and purchasing, acquiring and assisting third parties in assembling portfolios of high quality life insurance policies and residual interest in or financial products tied to life insurance policies, including notes, drafts, acceptances, open accounts receivable and other obligations from the secondary and tertiary marketplace often referred to as the “life settlements market.” Currently, the Company is focused on the acquisition of Net Insurance Benefits (“NIB” or “NIBs”). NIBs are residual interests in or financial products tied to life settlement policies. The Company purchases NIBs on life settlement policies from third parties in pools of multiple policies, but does not typically take possession or control of the policies, other than the policies held as collateral for advances to third parties, of which the Company does take temporary possession until collateral is returned for NIBs.
8
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2014
(2) NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2014-09 – Revenue from Contracts with Customers, which provides a single, comprehensive revenue recognition model for all contracts with customers. The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is not permitted and companies can transition to the new standard under the full retrospective method or the modified retrospective method. The Company does not believe adoption of this ASU will have a material impact on its financial statements.
In August 2014, the FASB issued ASU 2014-15 Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance around management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's financial statements.
The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its financial statements.
(3) INVESTMENT IN NET INSURANCE BENEFITS
The Company accounts for its investment in NIBs at the initial investment value increased for interest income and decreased for cash receipts received by the Company. The investment in NIBs is a residual economic beneficial interest in a portfolio of life insurance policies that have been financed by an independent third party via a loan from a senior lender and insured via a mortality risk insurance product or mortality re-insurance (“MRI”). Future expected cash flows are defined as the net insurance proceeds from death benefits after senior debt repayment, mortality risk repayment, and service provider or other third-party payments. At the time of purchase of an investment in NIBs we estimate the future expected cash flows and determine the effective interest rate based on these estimated cash flows and our cost basis. Based on this effective interest rate, the Company calculates accretable income, which is recorded as interest income on investment in NIBs in the statement of operations. Subsequent to the purchase, and on a quarterly basis, these future estimated cash flows are evaluated for changes. If the determination is made that the future estimated cash flows should be significantly adjusted, a revised effective yield is calculated prospectively based on the current amortized cost of the investment, including accrued accretion. Any positive or adverse change in cash flows that does not result in the recognition of an “other-than-temporary impairment” (“OTTI”) results in a prospective increase or decrease in the effective interest rate used to recognize interest income. Management has concluded that there was no change in estimated cash flows as of September 30, 2014.
The Company is not responsible for maintaining premiums or other expenses related to maintaining the underlying life insurance contracts. Therefore, the investment in NIBs balance on the Company’s balance sheet does not increase when premiums or other expenses are paid. The face value of the underlying life insurance policies approximated $217 million (includes estimated return of premiums) as of September 30, 2014. The Company holds a 100% interest in the NIBs relating to the underlying life insurance policies as of September 30, 2014. The estimated fair value of the Company’s investment in NIBs approximated carrying value at September 30, 2014, with fair value calculated using level 3 inputs. As of September 30, 2014 and March 31, 2014, investments in NIBs were as follows:
9
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2014
(3) INVESTMENT IN NET INSURANCE BENEFITS (continued)
|
| September 30, 2014 | March 31, 2014 |
| Beginning Balance | $ 12,243,411 | $ 12,243,411 |
| Additional investments | - | - |
| Accretion of interest income | 1,156,151 | - |
| Distributions of investments | - | - |
| Impairment of investments | - | - |
| Total | $ 13,399,562 | $ 12,243,411 |
We evaluate the carrying value of our investment in NIBs for OTTI on a regular basis and, if necessary, adjust our carrying value in the investment in NIBs using new or updated information that affects our assumptions about remaining life expectancy, credit worthiness of the policy issuer, funds needed to maintain the asset until maturity, utilization of MRI, discount rates and potential return. We recognize OTTI on investment in NIBs if the expected discounted cash flows (using the effective yield) expected to be received are less than the carrying amount of the investment. OTTI of the investment in NIBs could be generally caused by the insured significantly exceeding the estimate of the original life expectancy, which causes the original policy costs and projected future premiums to exceed the estimated maturity value, a change in credit worthiness of the policy issuer, increased or changes to applicable regulation of the investment, counter party performance risk, shortage of funds needed to maintain the asset until maturity and changes in discount rates. There are also risks associated with the policy holder’s ability to repay such financing and the occurrence of events of default under such financing. We have not recognized any OTTI from January 31, 2013 (inception) to the period ended September 30, 2014.
(4) ADVANCE FOR INVESTMENT IN NET INSURANCE BENEFITS
On June 7, 2013, the Company entered into an Asset Transfer Agreement (the “Del Mar ATA”) with Del Mar Financial, S.a.r.l. (“Del Mar”). The Del Mar ATA involved the purchase of certain life settlement assets consisting of 100% of the legal and net beneficial ownership interest in a portfolio of life insurance policies (the “NIBs”), among other assets, that are consideration and collateral for certain cash advances and expense payments made by the Company. The end result of the Del Mar ATA and the advance was not to purchase the NIBs provided as collateral, but instead to provide sufficient capital to Del Mar for the conversion of a portion of the NIBs and other potential NIBs into “Qualified NIBs” before the original due date of December 31, 2013, which was subsequently extended to September 30, 2014 (the parties have negotiated a further extension to January 31, 2015, for which documentation is presently being prepared), having a combined face amount of $400,000,000 (with “Qualified NIBs” meaning that the NIBs would have premium financing secured for up to five years; that any grouping of NIBs would have not less than 10 policies; that the average age of the insureds under the life insurance policies would be approximately 81 years; and that the NIBs would have mortality re-insurance coverage). All remaining NIBs that are not converted to “Qualified NIBs” and all other assets conveyed to the Company as collateral to assure delivery of the Qualified NIBs will be re-conveyed to Del Mar upon receipt of combined Qualified NIBs having a face amount equal to $400,000,000. In the event Del Mar was unable to provide the Qualified NIBs by the original date of December 31, 2013, which was subsequently extended to September 30, 2014 (the parties have negotiated a further extension to January 31, 2015, for which documentation is presently being prepared), the Company will have the option of selling any of the collateral assets acquired up to a liquidated damages settlement payment equal to 100% of any cash payments made under the Del Mar ATA. If the full balance of Qualified NIBs is provided by Del Mar, the Company will have paid $20,000,000 of consideration, $8,000,000 of which would be in cash and the remaining $12,000,000 in promissory notes. Promissory notes may be issued, pro rata, as Qualified NIBs are received. The promissory notes have no due date, but will be paid out of death benefits received, and incur interest of 4.0% per annum. Total interest and principal amounts are due upon maturity. Del Mar is continuing its efforts in delivering the Qualified NIBs. The Company has received $90,600,000 in Qualified NIBs under the Del Mar ATA.
10
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2014
(4) ADVANCE FOR INVESTMENT IN NET INSURANCE BENEFITS (continued)
As part of the Del Mar ATA, the Company entered into a Structuring and Consulting Agreement with Europa Settlement Advisors Ltd. (“Europa Agreement” and “Europa”). The Company is required to pay a structuring fee of 1% of the face amount of the life insurance policies underlying all NIBs introduced and acquired, payable as follows: 50% of the fee on the delivery of the NIBs; and the remaining 50% being payable on the conversion of the NIBs to Qualified NIBs as defined in the Del Mar ATA. The total restructuring fee will be up to $4,000,000. In the event that any cash consideration by the Company under the Del Mar ATA exceeds the defined $8,000,000 cash threshold, the amount payable under the Europa Agreement will be reduced on a dollar for dollar basis for any such overage. The total purchase price will not exceed $24,000,000 under the Del Mar ATA, which is comprised of $12,000,000 in cash consideration and $12,000,000 in promissory notes.
On October 29, 2013, the Company and Europa, with the agreement of Del Mar, amended the Europa Agreement and the Del Mar ATA to acknowledge that the total up-front cash payment due from the Company under the Del Mar ATA and Europa Agreement shall not exceed $12,000,000; that the Company would receive a credit on a dollar for dollar basis of the cash payment and all costs and expenses paid under the Del Mar ATA over $8,000,000, against all fees due Europa under the Europa Agreement or the Del Mar ATA. In the event the Qualified NIBs delivered are less than $300,000,000 in face value under the DMF Agreement, Del Mar and Europa shall be jointly and severally liable for liquidated damages equal to the aggregate of the cash payment under the Del Mar ATA and all of the costs advanced, reduced by the pro rata percentage of the Qualified NIBs delivered and accepted by the Company, multiplied by two; and if at least $300,000,000 in Qualified NIBs are delivered and accepted, then the cash payment and all costs will not be doubled if they are paid within 90 days.
Also on October 29, 2013, the Company entered into an Exclusivity Agreement with the consultant to Europa under the Europa Agreement under which the Company advanced $25,000 to such consultant for services related to the purchase of Qualified NIBs associated with the $400,000,000 in life insurance policies under the Del Mar ATA.
On January 14, 2014, the Company completed the closing of $90.6 million of Qualified NIBs. These Qualified NIBs are part of the $400 million transaction of additional NIBs in portfolios from the Company’s second acquisition in June 7, 2013, related to the Del Mar ATA.
(5) NOTE RECEIVABLE
On October 23, 2013, the Company made a loan totaling $650,000 in the form of a note receivable to Del Mar. The note incurred interest at 3%, compounding annually. On April 28, 2014, the Company received full payment of the $650,000 Del Mar note receivable entered into on October 23, 2013. Of the $650,000, the Company received cash payments totaling $550,000; and $100,000 was applied to advances for investment in NIBs.
(6) NOTES PAYBALE-RELATED PARTY
During the six months ended September 30, 2014, the Company borrowed $740,000 from related parties and paid back $100,000, bringing the total notes payable-related party loan balance to $730,000 at September 30, 2014. The notes do not incur interest, are payable on demand and are not collateralized.
11
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2014
(7) STOCK TRANSACTIONS
During July 2014, the Company issued 30,000 shares of common stock for $150,000 and issued 140,000 shares of common stock for $700,000. The $700,000 in cash was received prior to March 31, 2014.
On June 24, 2014, the Company entered into a private stock offering subscription agreement to issue 660,000 shares at $5 per share for a total of $3,300,000, which subscription was due and payable on August 15, 2014. The Company has been advised that there will be a further delay in the payment of this subscription as a result of the time and issues involved in a foreign probate of the subscriber’s estate, and there is no assurance that this subscription will be paid.
(8) GOING CONCERN
The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At September 30, 2014, the Company had accumulated losses of $372,059, working capital deficit of $2,218,624, and has yet to receive cash payments on interest income on Investment in NIBS. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
The Company’s continued existence is dependent on its ability to generate sufficient cash flow to cover operating expenses and to invest in future operations. Management is actively pursuing opportunities to expand existing operations. The Company does not anticipate having adequate revenues from operations until three to four years, and until a revenue stream has been established, the Company will require debt or equity funding to fund its current and intended business. If management is unsuccessful in these efforts, discontinuance of operations is possible.
(9) SUBSEQUENT EVENTS
On or about November 11, 2014, the Company, Del Mar and Europa have tentatively agreed to extend the delivery date of the remaining $309,400,000 in Qualified NIBs due under the Del Mar ATA until January 31, 2015, for which documentation is presently being prepared.
12
Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this report. These factors include, but are not limited to, economic conditions generally in the United States and internationally, and in the industry and markets in which we have and may participate in the future, competition within our chosen industry, our current and intended business, our assets and plans, the effect of applicable United States and foreign laws, rules and regulations on our business and our failure to successfully develop, compete in and finance our current and intended business operations.
You should read any other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Quarterly Report completely, and it should be considered in light of all other information contained in the reports or registration statement that we file with the SEC, including all risk factors outlined therein. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.
Plan of Operation
We are engaged in the business of purchasing or acquiring life insurance policies and residual interests in or financial products tied to life insurance policies, including notes, drafts, acceptances, open accounts receivable and other obligations representing part or all of the sales price of insurance, life settlements and related insurance contracts being traded in the secondary marketplace, often referred to as the “life settlements market.” These life insurance interests are anticipated to be held to maturity. Our plan of operation for the next 12 months is to continue the acquisition of these life insurance interests whereby we will acquire the interests in life insurance policies at a discount to their face value for investment purposes. We began purchasing the net insurance benefits in life insurance policies (“NIBs”) during our fiscal year ended March 31, 2013. This is not a market sector without competition, and at present, we are a minor competitor. We will need substantial funds to effectively compete in this industry and no assurance can be given that we will be able to adequately fund our current and intended operations, whether through revenues generated from our current interest in NIBs acquired in fiscal 2013, and 2014, or through debt or equity financing. At our discretion, we may be required to expend not less than approximately $56 million on premiums, interest and servicing costs over the next five years to protect our interest in our NIBs, though we have no legal responsibility for these payments.
We currently estimate proceeds of approximately $79 million on the NIBs owned as of September 30, 2014, and acquired from PCH Financial and Del Mar Financial. This amount is based on the estimated proceeds from polices of approximately $217 million in face value, which includes estimated return of premiums; less the senior debt or MRI repayments outstanding of approximately $36 million, expected premium payments of approximately $65 million over the life expectancies, and estimated expenses and interest of approximately $37 million over the term of the senior loans.
We use an estimation methodology to project cash flows and returns as presented. The estimation model required many assumptions, including, but not limited to the following: (i) an assumption that the distinct number of lives in the portfolio would exhibit similar experience to a statistically diverse portfolio based upon which the mortality tables have been created; (ii) an assumption that the life expectancies (the “LE” or “LE’s”) provided by third-party LE providers represent the actuarial mean of the life expectancies of the insureds in the portfolio, (iii) the weighted average of the LE’s provided by the LE providers represents an appropriate method for adjusting for discrepancies in the LE’s; (iv) life expectancy tables and projections are accurate; (v) the minimum premiums calculated based on
13
the in-force illustrations provided by life insurance carriers are accurate and will not change over the course of the lifespan of the portfolio; and the senior lending fees, MRI fees, and insurance, servicing and custodial fees do not change materially over time. While this method of modeling cash flows is helpful in providing a theoretical expectation of potential returns that might be produced from our NIBs portfolio, actual cash flows and returns inevitably will be different (possibly materially) due to the fact that predicting the exact date of death of any individual is virtually impossible. The provision of a theoretical cash flow model is by no means any guarantee of any results. The actual performance of these NIB interests (as well as our future expectations as to what such performance might be) may differ substantially from our expectations, especially if any of the assumptions change or differ from the Company’s initial assumptions. These portfolios currently contain only 60 fractionalized policies on 32 individual insureds, though insurance rating agencies have stated that at least 1,000 lives are required to achieve actuarial stability. Many risk factors beyond these assumptions may result in our expectations being incorrect; therefore, no assurance can be given that these estimated results will occur.
We advanced payments to purchase future additional life settlement products during the three and six months ended September 30, 2014, and if these life settlement products become “Qualified NIBs” as defined in the acquisition documents, we will also utilize the estimation methodology to estimate what our proceeds from these “Qualified NIBs” may be, all subject to the same assumptions, qualifications and risks referenced above.
Results of Operations
Income and Cost Recognition
Interest income on investment in NIBs represents the excess of all cash flows attributable to the investment in net insurance benefits greater than the initial investment over the life of each pool of net insurance benefits using the effective yield method. Changes in the estimate of expected cash flows from investments in NIBs are adjusted prospectively.
During the period from April 1, 2013, through December 31, 2013, our investment in net insurance benefits was on non-accrual status. This decision was primarily based on the initial incremental uncertainty experienced by us during our first three quarters of the year ended March 31, 2014, after closing of the acquisition on the first pool of “Qualified NIBs.” Management concluded these uncertainties were significantly mitigated during the quarter beginning January 1, 2014, as additional experience and information was obtained, including the observation of the proper functioning of the entire system in response to the death of an insured in the quarter beginning January 1, 2014. Non-accrual status was removed effective January 1, 2014. Interest income on investment in NIBs totaled $592,653 for the three months ended and $1,156,151 for the six months ended September 30, 2014.
Operating and General & Administrative Expenses
Operating Expenses
During the three months ended September 30, 2014, and 2013, we engaged in the business of purchasing or acquiring life insurance policies and residual interests in or financial products tied to life insurance policies. General and administrative expenses were $583,006 and $310,809 during the three months ended September 30, 2014, and 2013, respectively. A significant portion of these expenses were professional fees, payroll and travel expenses. Most all of the professional fees were legal and accounting fees related to the preparation and filing of reports with the SEC under the Exchange Act. Payroll is made up of cash payroll costs and non-cash equity issuances to management, directors and others. The increase in administrative expenses for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, primarily relates to the concentration of projects that were performed in the three months ended September 30, 2014. These projects were in the normal course of the Company development, but were performed during this concentrated period of time.
During the six months ended September 30, 2014, and 2013, we engaged in the business of purchasing or acquiring life insurance policies and residual interests in or financial products tied to life insurance policies. General and administrative expenses were $1,199,372 and $1,344,674 during the six months ended September 30, 2014, and 2013, respectively. A significant portion of these expenses were professional fees, payroll and travel expenses. Most all of the professional fees were legal and accounting fees related to the preparation and filing of reports with the SEC under the Exchange Act. Payroll is made up of cash payroll costs and non-cash equity issuances to management, directors and others.
14
Income Taxes
During the three and six months ended September 30, 2014, and 2013, we had no taxable income.
Liquidity and Capital Resources
From our inception on January 31, 2013, through September 30, 2014, we incurred net losses of $372,059. Management has expressed its belief that we need to raise approximately $40 million to $50 million in additional funds through equity or debt financing to continue our business model and to effectively compete in the life settlement industry during fiscal 2015 and beyond. We raised $11,942,750 (gross) in our private placement that commenced in April 2013. Our monthly expenses are between approximately $150,000 and $225,000, which includes salaries of our employees, consulting agreements and contract labor, general and administrative expenses and estimated legal and accounting expenses. As of September 30, 2014, we had a Subscription Agreement executed on June 24, 2014, for $3.3 million to purchase 660,000 shares of our common stock. We believe we will have adequate cash resources for our estimated monthly expenses through the end of our fiscal year of March 31, 2015, excluding any other acquisitions of additional NIBs and other life settlement products, and assuming payment of this Subscription Agreement; however, we have been advised that there will be a delay in the payment of this subscription as a result of the time and issues involved in a foreign probate of the subscriber’s estate, and no assurance can be given that this subscription will be paid.
We have cash assets at September 30, 2014, and March 31, 2014, of $119,662 and $375,212, respectively. We have only common stock as our capital resource. We will be reliant upon stockholder loans or private placements of equity or debt to fund any future operations. We have secured no sources of loans. There is no assurance that we will be able to raise any required debt or equity financing.
For the six months ended September 30, 2014, and 2013, we recorded net cash used in operating activities of $1,595,550 and $7,145,135, respectively. We used cash of $691,557 and $6,414,063 on advance for investments in NIBs under the Del Mar ATA and accreted $1,156,151 and $0 in interest income on investment in net insurance benefits during the six months ended September 30, 2014, and 2013, respectively. During the six months ended September 30, 2014, and 2013 no cash was used to purchase investments in NIBs. We received $550,000 from proceeds from notes receivable during the six months ended September 30, 2014. Net cash provided by financing activities totaled $790,000 and $ 7,579,275 for the six months ended September 30, 2014 and 2013, respectively.
For the three months ended September 30, 2014, and 2013, we recorded net cash used in operating activities of $576,830 and $906,470, respectively. We used cash of $138,000 and $616,363 on advance for investments in NIBs under the Del Mar ATA and accreted $592,653 and $0 in interest income on investment in net insurance benefits during the three months ended September 30, 2014, and 2013, respectively. During the three months ended September 30, 2014 and 2013, there were no direct cash outflows that increased investments in NIBs. In addition, there were no transfers from advance for investments in NIBs to investments in NIBs during the three months ended September 30, 2014, and 2013. Net cash provided by financing activities totaled $690,000 and $627,500 for the three months ended September 30, 2014 and 2013, respectively.
Debt
At September 30, 2014, we had a long term notes payable balance of $1,326,876, excluding accrued interest. We may borrow money in the future to finance our operations. Any such borrowing will increase the risk of loss to the debt holder in the event we are unsuccessful in repaying such loans.
We may issue additional shares to finance our future operations. Any such issuance may result in substantial additional dilution to previous investors.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires that we make estimates and judgments. We base these on historical experience and on other assumptions that we believe to be reasonable.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not required.
15
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on that evaluation, our President who is also deemed to be our acting CFO, concluded that our disclosure controls and procedures as of the end of the period covered by the Quarterly Report were not effective and that the information required to be disclosed by us in reports filed under the Exchange Act is not (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our President and our acting CFO, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
We are in the process of adopting specific internal control mechanisms with our Board of Directors’ and our officers’ collaboration to ensure effectiveness as we grow our business. We appointed a COO to assist in adopting new measures to improve upon our internal controls. Future controls, among other things, will include more checks and balances and communication strategies between management and all members of the Board of Directors to ensure efficient and effective oversight over company activities as well as more stringent accounting policies to track and update our financial reporting and disclosure of information. We also plan to hire additional personnel, subject to available funding.
Changes in Internal Control over Financial Reporting
With the exception of the matters discussed by us regarding our future controls to resolve our the present weaknesses in our controls and procedures, as discussed in the preceding section, there have been no changes in internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are not party to any material legal proceedings.
Item 1A. Risk Factors.
Not required; however, for information about risk factors affecting us, our business and our common stock, see our 10-K and our 10-KA-1 Annual Report for the fiscal year ended March 31, 2014, as amended, as filed with the SEC on July 16, 2014, and July 21, 2014, respectively. See Part II, Item 6.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Sales of Unregistered Securities
30,000 shares of our common stock were subscribed and paid during the quarter ended September 30, 2014, at an offering price of $5.00 per share or a total subscription price of $150,000. These shares were issued on July 18, 2014.
These shares of common stock were offered and sold pursuant to exemptions from registration under Sections 4(a)(2) of the Securities Act, and Rule 506(b) of Regulation D of the SEC, and, as applicable, Regulation S of the SEC.
Purchases of Equity Securities by Us or our Affiliates
There were no purchases by us or any affiliated persons of any shares of our equity securities during the quarter ended September 30, 2014.
16
Item 3. Defaults upon Senior Securities.
None; not applicable.
Item 4. Mine Safety Disclosures.
None; not applicable.
Item 5. Other Information.
(i)
On June 7, 2013, we entered into an Asset Transfer Agreement (the “Del Mar ATA”) with Del Mar Financial, S.a.r.l. (“Del Mar”). The Del Mar ATA involved the purchase of certain life settlement assets consisting of 100% of the legal and net beneficial ownership interest in a portfolio of life insurance policies (the “NIBs”), among other assets, that are consideration and collateral for certain cash advances and expense payments made by us under the Del Mar ATA. Under the Del Mar ATA and related Exhibits, PCH Financial S.a.r.l. (“PCH”) retained a lien on certain of the DMF assets being transfer or acquired by us, and we were obligated to make our initial payments under the Del Mar ATA to PCH to obtain lien releases on these assets, which was done, and we received a Collateral Release Agreement from PCH on October 3, 2013, of its lien in any of such assets. A total of $6,717,022 was paid to PCH under the Del Mar ATA to obtain the release of its lien on such assets. Also effective June 7, 2013, we and Europa Settlement Advisors Ltd. (“Europa”) executed and delivered a Structuring and Consulting Agreement (the “Europa Agreement”) related to services that were rendered to us regarding the Del Mar ATA, and other services to be rendered. The end result of the Del Mar ATA and the advances was not to purchase the NIBs provided as collateral, but instead to provide sufficient capital to Del Mar for the conversion of a portion of the NIBs and other potential NIBs into “Qualified NIBs” before the original due date of December 31, 2013 (which was subsequently extended to September 30, 2014, and has tentatively been agreed to be extended to January 31, 2015, as discussed below), having a combined face amount of $400,000,000 (with “Qualified NIBs” meaning that (i) the NIBs would have premium financing secured for up to five years; (ii) that any grouping of NIBs would have not less than 10 policies; (iii) that the average age of the insureds under the life insurance policies would be approximately 81 years; and (iv) that the NIBs would have mortality re-insurance coverage. All remaining NIBs that are not converted to “Qualified NIBs” and all other assets conveyed to us as collateral under the Del Mar ATA to assure delivery of the Qualified NIBs are to be re-conveyed to Del Mar upon receipt of combined Qualified NIBs having a face amount equal to $400,000,000. In the event Del Mar is unable to provide the Qualified NIBs by the original date of December 31, 2013 (which was subsequently extended to September 30, 2014, and has tentatively been agreed to be extended to January 31, 2015, as discussed below), we will have the option of foreclosing on and selling any of the collateral assets acquired up to a liquidated damages settlement payment equal to 100% of any cash payments made under the Del Mar ATA. If the full balance of Qualified NIBs is provided by Del Mar, we will have paid $20,000,000 of consideration, $8,000,000 of which would be in cash and the remaining $12,000,000 in promissory notes. Promissory notes may be issued, pro rata, as Qualified NIBs are received. The promissory notes have no due date, but will be paid out of death benefits received, and incur interest of 4.0% per annum. Total interest and principal amounts are due upon maturity. To date, we have received $90,600,000 in Qualified NIBs under the Del Mar ATA. A complete description of the Del Mar ATA and the Europa Agreement, both as amended, is contained in our 8-KA-5 Current Report date June 7, 2014, which was filed with the SEC on July 10, 2014. See Item 6.01 below.
During the past quarter, a substantial portion of the assets held by us as collateral for performance under the Del Mar ATA and the Europa Agreement were released. It was our management’s belief that the assets released were too highly leveraged in a manner that would require excessive amounts of additional equity, that when evaluated extensively, it was determined that reaching the targeted rate of return for us would be difficult. Some of the key reasons for the release of collateral assets include, but are not limited to, the following:
-
NIBs portfolio debt levels were too highly leveraged, thus creating a debt level unacceptable to management.
-
Changes in life expectancies within the portfolios required additional equity on some policies to make the Senior Loans required more acceptable for the lending institution, and we were unwilling to commit the additional equity.
-
Our evaluation process exposed some of the assets as less than ideal for our desired rate of return, thus making a total portfolio unacceptable.
17
We continue to hold assets acquired under the Del Mar ATA that are being evaluated and processed to fit our Qualified NIBs criteria. As mentioned above, they will need to fit our processes and structure without compromising our expected rates of return. We believe that with the assets currently held as collateral, as well as other opportunities in the open market place, Del Mar will be able to find assets and portfolios that will fit our target acquisition profile and allow Del Mar and Europa to satisfy the requirements of delivering the remaining $309,400,000 in Qualified NIBs due us under the Del Mar ATA. Management also believes that if we are required to exercise our rights with regards to seeking the liquidated damages settlement by foreclosing on the collateral, while retaining the $90,600,000 in Qualified NIBs that have already been received by us under the Del Mar ATA, that the collateral we now hold has sufficient value to recover such damages.
We have determined that extending the Del Mar ATA and the Europa Agreement delivery requirements of Qualified NIBs through January 31, 2015, is in our best interest, and documentation regarding such extension is in the process of being prepared. We will require additional equity to have sufficient liquidity to complete the balance of the $309,400,000 Qualified NIBs. The amount of the additional equity required is being evaluated and will be disclosed when determined. We are confident in our ability as an organization to complete the acquisition of the Qualified NIBs under the Del Mar ATA, as well as acquiring other NIBs moving forward, with or without the assistance of Del Mar or Europa.
(ii)
Certain founding shareholders of the Company owning approximately 28,727,000 shares of our common stock who executed and delivered Lock-Up/Leak-Out Agreements restricting the sale of their respective shares of common stock of the Company until on or about October 5, 2014, a date which was 18 months from the filing of our 8-K Current Report dated March 29, 2013, and filed with the SEC on April 5, 2013, regarding our acquisition by merger of ANEW LIFE, INC., a Utah corporation that became our wholly-owned subsidiary following such merger (“ANEW LIFE”), have executed and delivered Agreements that have extended the Lock-Up Period under these Lock-Up/Leak-Out Agreements for an additional year, to on or about October 5, 2015, and the Leak-Out Period in their initial Lock-Up/Leak-Out Agreements will now commence on the expiration of the new Lock-Up Period, or October 5, 2015. These persons received their respective shares of common stock of the Company on the organization of ANEW LIFE and its subsequent merger into the Company on a share for share basis. Certain other smaller founding shareholders or their transferees who collectively own approximately 225,000 shares of our common stock, each of whom owned less than 100,000 shares of our common stock, have also agreed to extend their respective Lock-Up Periods to October 5, 2015. See Item 6.01.
Item 6. Exhibits.
Exhibit No. Identification of Exhibit
*Filed as Exhibit 10.7 to our Current Report on Form 8-K dated March 29, 2013 and filed with the Securities and Exchange Commission on April 5, 2013.
18
Documents Incorporated by Reference
8-K Current Report dated October 21, 2013, which was filed on October 24, 2013, regarding the employment of a COO.
10-K and 10-KA-1 Annual Report for the fiscal year ended March 31, 2014, as amended, which were filed with the SEC on July 16, 2014 and July 21, 2014, respectively.
8-K Current Report dated June 7, 2013, as amended, and filed with the SEC on June 20, 2013, November 14, 2013, May 5, 2014, May 27, 2014 and July 10, 2014, regarding the Del Mar ATA.
8-K Current Report dated March 29, 2013, which was filed with the SEC on April 5, 2013, along with our 8-KA Current Reports of the same date, which were respectively filed with the SEC on May 24, 2013, July 12, 2013, September 12, 2013, and November 27, 2013, regarding the PCH Transfer Agreement.
19
SIGNATURES
Pursuant to the requirements 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
Sundance Strategies, Inc.
| Date: | November 14, 2014 |
| By: | /s/Randall F. Pearson |
|
|
|
|
| Randall F. Pearson, President and, Acting CFO |
20
AGREEMENT
THIS AGREEMENT is made between Sundance Strategies, Inc., a Nevada corporation (the “Company”) and ____________ (“_____” or the “Shareholder”);
RECITALS:
WHEREAS, on or about March 28, 2013, ________ executed a Lock-Up/Leak-Out Agreement with ANEW LIFE, INC., the predecessor of the Company, a copy of which is attached hereto as Exhibit A and incorporated herein by reference; and
WHEREAS, the Company and the Shareholder desire to extend the Lock-Up Period outlined in the Lock-Up/Leak-Out Agreement to October 5, 2015;
NOW, THEREFORE, for $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Shareholder hereby agree to extend the Lock-Up Period in the Lock-Up/Leak-Out Agreement that is Exhibit A hereto until October 5, 2015, with the Leak-Out Period contained in such Lock-Up/Leak-Out Agreement to commence at the end of the new Lock-Up Period or October 5, 2015, for all purposes thereof.
SUNDANCE STRATEGIES, INC.
Dated: 10-10-2014.
By/s/ Randall Pearson
DYNAMO HOLDINGS BUSINESS, INC.
Dated: 10-10-2014.
By /s/ Douglas Hawkes
SUNDANCE STRATEGIES, INC.
Dated: 10-14-14.
By /s/ Randall Pearson
ECLIPSE FUND, LLC
Dated: 10-14-14.
By/s/ Kraig Higginson
SUNDANCE STRATEGIES, INC.
Dated: 10-6-2014.
By /s/ Randall Pearson
NOEL INVESTMENTS, LTD.
Dated: 10-6-2014.
By /s/ Kelly Trimble
SUNDANCE STRATEGIES, INC.
Dated: 10-13-2014.
By /s/ Randall Pearson
NORTH SHORE FOUNDATION, LLP
Dated: 10-13-2014.
By /s/Ty Mattingly
SUNDANCE STRATEGIES, INC.
Dated: 10-14-14.
By /s/ Randall Pearson
PEOPLES PHILANTHROPIC, LLC
Dated: 10-14-14.
By /s/ S. Blatter
SUNDANCE STRATEGIES, INC.
Dated: 10-13-2014.
By /s/ Randall Pearson
PRIMARY COLORS, LLC
Dated: 10-13-2014.
By /s/ Ty Mattingly
SUNDANCE STRATEGIES, INC.
Dated: 10-7-14.
By /s/ Randall Pearson
RADIANT LIFE, LLC
Dated: 10-7-14.
By /s/Mitchell Burton
SUNDANCE STRATEGIES, INC.
Dated: 10-7-14.
By /s/ Randall Pearson
ZOE, LLC
Dated: 10-7-14.
By /s/ Mitchell Burton
Exhibit 31-1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Randall F. Pearson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Sundance Strategies, Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
d)
disclosed in this Quarterly Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: | November 14, 2014 |
| By: | /s/Randall F. Pearson |
|
|
|
| Randall F. Pearson, President |
Exhibit 31-2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Randall F. Pearson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Sundance Strategies, Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
d)
disclosed in this Quarterly Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: | November 14, 2014 |
| By: | /s/Randall F. Pearson |
|
|
|
| Randall F. Pearson, Acting CFO |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sundance Strategies, Inc. (the “Registrant”) on Form 10-Q for the period ending September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Randall F. Pearson, President and acting CFO of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: | November 14, 2014 |
| By: | /s/Randall F. Pearson |
|
|
|
| Randall F. Pearson, President and acting CFO |