The Condensed Consolidated Financial Statements of the Company required
to be filed with this 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 Company and include
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s Condensed
Consolidated Financial Statements. The results from operations for the three and six month periods ended September 30, 2016, are
not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2017. The unaudited Condensed
Consolidated Financial Statements should be read in conjunction with the March 31, 2016, Consolidated Financial Statements and
footnotes thereto included in the Company’s Annual Report on Form10-K for the fiscal year ended March 31, 2016, which was
filed with the SEC on June 14, 2016.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral
part of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying interim condensed consolidated
financial statements have been prepared by the Company, without audit, in accordance with the instructions to the Quarterly Report
on Form 10-Q, and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”)
and, therefore, do not include all information and footnotes necessary for a fair presentation of its consolidated financial position,
results of operations and cash flows in accordance with accounting principles generally accepted in the United States (“GAAP”).
In the opinion of management, the unaudited
financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments,
necessary for a fair presentation of the Company’s consolidated financial position, results of operations, and cash flows.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included
in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016. Operating results for interim periods
are not necessarily indicative of operating results for an entire fiscal year.
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent
amounts in the Company’s financial statements and the accompanying notes. Actual results could materially differ 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, and engaged in the retail selling
of beverage products to the general public until these endeavors ceased in 2006; it had no material business operations from 2006,
until its acquisition of ANEW LIFE, INC. (“ANEW LIFE”), a subsidiary of Sundance Strategies, Inc. (“Sundance
Strategies,” the “Company” or “we”). The Company is engaged in the business of purchasing or acquiring
and selling 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.” Currently, the Company is focused on the purchase and sale of net insurance benefit contracts (“NIBs”)
based on life settlements or life insurance policies. The Company does not take possession or control of the policies. The Holder
of the life settlements or life insurance policies acquire such policies at a discount to their face value. The Holder has available
credit to pay forecasted premiums and expenses on the underlying policies until settlement. On settlement, the Company receives
the net insurance benefit after all borrowings, interest and expenses have been paid by the Holder out of the settlement proceeds.
(2)
NEW
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (“FASB”)
issued Accounting Standard Update (“ASU”) 2014-09, 2015-14 and 2016-8, 10,11 and 12 – Revenue from Contracts
with Customers, which provides a single, comprehensive revenue recognition model for all contracts with customers. The core principal
of the ASUs 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. The ASUs 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. In July 2015, the FASB deferred the effective date of this standard. As a result, the standard and related amendments
will be effective for the Company for its fiscal year beginning April 1, 2018, including interim periods within that fiscal year.
Early application is permitted, but not before the original effective date of April 1, 2017. Entities are allowed to transition
to the new standard by either retrospective application or recognizing the cumulative effect. The Company is currently evaluating
the guidance, including which transition approach will be applied and the estimated impact it will have on our consolidated financial
statements. The Company does not believe adoption of the ASUs will have a material impact on the consolidated 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.
In January 2016, the FASB issued ASU 2016-01
regarding Financial Instruments, which amended guidance on the classification and measurement of financial instruments. Under the
new guidance, entities will be required to measure equity investments that are not consolidated or accounted for under the equity
method at fair value with any changes in fair value recorded in net income, unless the entity has elected the new practicability
exception. For financial liabilities measured using the fair value option, entities will be required to separately present in other
comprehensive income the portion of the changes in fair value attributable to instrument-specific credit risk. Additionally, the
guidance amends certain disclosure requirements associated with the fair value of financial instruments. The standard will be effective
for the Company’s fiscal year beginning April 1, 2018, including interim reporting periods within that fiscal year. The Company
is currently evaluating the effect of the adoption of this guidance on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02
related to the accounting for leases. This pronouncement requires lessees to record most leases on their balance sheet, while expense
recognition on the income statement remains similar to current lease accounting guidance. The guidance also eliminates real estate-specific
provisions and modifies certain aspects of lessor accounting. Under the new guidance, lease classification as either a finance
lease or an operating lease will determine how lease-related revenue and expense are recognized. The pronouncement is effective
for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently
evaluating the effect of the adoption of this guidance on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-06 related
to the embedded derivative analysis for debt instruments with contingent call or put options. This pronouncement clarifies that
an exercise contingency does not need to be evaluated to determine whether it relates only to interest rates or credit risk. Instead,
the contingent put or call option should be evaluated for possible bifurcation as a derivative in accordance with the four-step
decision sequence detailed in FASB ASC 815-15, without regard to the nature of the exercise contingency. The pronouncement is effective
for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. The Company does not believe
the adoption of this guidance will have a material effect on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting. The new standard is designed to simplify the areas of share based payments
relating to income tax consequences. ASU 2016-09 is effective for the Company for its fiscal year beginning April 1, 2017. The
Company is currently evaluating the effect of the adoption of this guidance on the consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected”
credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss”
model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current
conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures relating to significant estimates
and judgments used in estimating credit losses, as well as the credit quality. The amendments are effective for fiscal years beginning
after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the
adoption of ASU 2016-13 will have on its consolidated financial statements and results of operations.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. Historically, there has been a diversity in
practice in how certain cash receipts/payments are presented and classified in the statement of cash flows. To reduce the existing
diversity in
practice, this update addresses the eight cash flow issues as listed
in the pronouncement. The amendments in this update are effective for fiscal years beginning April 1, 2018, and interim periods
within that fiscal year. Early adoption is permitted. The Company is currently evaluating the effect of the adoption of this guidance
on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-17,
Consolidation - Interests held through Related Parties that are under Common Control, which alters how a decision maker needs to
consider indirect interests in a variable interest entity (VIE) held through an entity under common control. Under the new ASU,
if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate
indirect interest in the VIE held through a common control party. The amendments in this Update are effective for fiscal years
beginning April 1, 2017, including interim periods within that fiscal year. The Company is currently evaluating the effect of the
adoption of this guidance on the consolidated 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) 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”). As part of the
Del Mar ATA, the Company entered into a Structuring and Consulting Agreement with Europa Settlement Advisors Ltd. (respectively,
the “Europa Agreement” and “Europa”).
The Del Mar ATA involved the purchase of certain
life settlement assets consisting 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. According to the Del Mar ATA, Del Mar, with the assistance of Europa, was obligated to convert the NIBs and
other newly acquired NIBs into “Qualified NIBS.” As soon as Del Mar met its obligation to provide Qualified NIBs to
the Company, any remaining NIBs and any other consideration and collateral would be returned or released to Del Mar. The original
due date for the conversion was December 31, 2013, which date was subsequently extended several times. On April 30, 2015, the Company
finalized an amendment to the Del Mar ATA and the related Europa Agreement to extend the deadline until August 31, 2015.
The remaining consideration and collateral under
the Del Mar ATA, as of September 1, 2015, primarily consisted of approximately 72.2% of the NIBs associated with a portfolio of
life settlement policies having a face value that originally totaled $94,000,000. The remaining 27.8% interested in the NIBs were
held by other parties. During June 2015, one of the life settlement policies matured for $10,000,000 (the “Matured Policy”),
lowering the remaining face value of such life settlement policies to $84,000,000. The premiums and expenses related to the maintenance
of these life insurance policies are financed by a loan from a lender.
As Del Mar was unable to provide the required
amount of Qualified NIBs by the extended due date of August 31, 2015, effective September 1, 2015, the agreements with Del Mar
and Europa were cancelled and the Company obtained full ownership and control of the collateral, which included the above mentioned
approximately 72.2% of the NIBs associated with the $84,000,000 face value of life settlement policies and certain rights to net
proceeds relating to the Matured Policy.
On September 30, 2015, the Company transferred
to Investment in NIBs the remaining balance of advances and expense payments to Del Mar, totaling $3,368,380, which approximates
fair value. This amount was residing in advance for investment in NIBs before being transferred to investment in NIBs (see Note
4).
The bulk of the $10,000,000 proceeds paid in
connection with the Matured Policy were used to repay loans secured by such Matured Policy. However, on September 10, 2015, the
Company received $1,094,335 as a result of the rights associated with the Matured Policy. These proceeds were allocated $239,415
to pay off a note receivable (including interest), $547,308 to reimburse the Company for expense payments made to or on behalf
of Del Mar and $307,612 as a refund of advance payments previously made to or on behalf of Del Mar as part of the Del Mar ATA.
The $547,308 and $307,612 proceeds, which together total $854,920,
were applied to reduce Advance for Investment in NIBs.
In addition to obtaining full and unrestricted
rights to the NIBs upon termination of the Del Mar ATA and Europa Agreement, the Company also is entitled to receive liquidated
damages from Del Mar in an amount equal to 100% of any cash advances made under the Del Mar ATA. The Company is currently determining
the extent of the liquidated damages claim and Del Mar’s ability to pay any such liquidated damages. The liquidated damages
are computed pro rata, based upon the percentage of Qualified NIBs delivered by Del Mar under the Del Mar ATA. The Company received
$90,600,000 in Qualified NIBs or approximately 22.65% of the $400,000,000 in Qualified NIBs due under the Del Mar ATA. Accordingly,
once 22.65% of its costs and expenses are deducted, the Company would be entitled to receive the remaining amount of its costs
and expenses, times two, as liquidated damages. As a result of the termination, the Company has no further payment obligations
to Del Mar or fee obligations to Europa.
(4) INVESTMENT IN NET INSURANCE BENEFITS
Investment in NIBs for the six months ended
September 30, 2016, and the fiscal year ended March 31, 2016 were as follows:
|
|
September 30, 2016
|
|
March 31, 2016
|
Beginning Balance
|
|
$
|
29,822,186
|
|
|
$
|
22,544,635
|
|
Transfers from Advance for Investment in NIBs
|
|
|
—
|
|
|
|
3,368,380
|
|
Accretion of interest income
|
|
|
2,873,298
|
|
|
|
3,909,171
|
|
Cash received on accrued interest income
|
|
|
(1,417,870
|
)
|
|
|
—
|
|
Additional purchases
|
|
|
—
|
|
|
|
—
|
|
Distributions of investments
|
|
|
—
|
|
|
|
—
|
|
Impairment of investments
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
31,277,614
|
|
|
$
|
29,822,186
|
|
As explained in Note 3, the Company transferred
$3,368,380 from advance for investment in NIBs into investment in NIBs on September 30, 2015.
The estimated fair value of the Company’s
investment in NIBs approximated carrying value at September 30, 2016, with fair value calculated using level 3 inputs as there
is little observable market data available and management is required to use significant judgment in its estimates.
During April 2016, the Company received $1,417,870
in cash proceeds associated with the $10,000,000 maturity explained in Note 3 and miscellaneous adjustments to other underlying
policies. The cash proceeds had the effect of reducing accrued interest on NIBs.
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 flow is defined as the net insurance proceeds from death benefits after senior debt repayment, mortality risk
repayment and service provider or other third-party payments. 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 Company held a 100% interest in the NIBs
relating to the underlying life insurance policies as of March 31, 2015. During the year ended March 31, 2016 we acquired NIBs
in which the holders of the underlying policies only owned 72%. Therefore, as of September 30, 2016 the Company holds between 72%
and 100% in the NIBs relating to the underlying life insurance policies.
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. At
the time of transfer or purchase of an investment in NIBs, the Company estimates the future expected cash flows and determines
the effective interest rate based on these estimated cash flows and our initial investment. 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. Our current projections are based off of various
assumptions including, but not limited to, the amount and timing of projected net cash receipts, expected maturity events, changes
in discount rates, life expectancy estimates and their relation to premiums, interest, and other costs incurred, among other items.
These uncertainties and contingencies are difficult to predict and are subject to future events that may impact our estimates and
interest income. As a result, actual results could differ significantly from these projections. Therefore, subsequent to the purchase
and on a regular 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.
During July 2015 a group of persons
located in the United States (the “Purchasers”) acquired the entities that owned all of the portfolios of life
insurance policies underlying the Company’s NIBs. In connection with this purchase, the Purchasers and the
respective owners of these portfolios entered into a settlement agreement releasing such owners and their managers from
liability related to their ownership and management of the entities that owned the respective portfolios of life insurance
contracts. The Company and Purchasers agreed to indemnify the prior owners of such portfolios against future claims in
connection with the issuance of the NIBs or their ownership or management of the entities sold, based on actions that
occurred prior to this sale to the Purchasers. The Company and Purchasers further agreed to maintain certain liquidity
requirements of the entities underlying the NIBs for a period of 15 months following the acquisition by the Purchasers, which
15 month period expired in October 2016. If such liquidity was not provided, the Company and Purchasers were obligated to
indemnify the prior owners and managers of the entities against third party claims for unpaid expenses. Neither the
purchase of these entities nor the Settlement Agreement resulted in any material change in the Company’s NIBs ownership
interest. The Company was supportive of the Purchasers acquiring the entities that owned the portfolios of life insurance
contracts underlying the Company’s NIBs and was willing to provide the indemnification because it believed this
ownership change would result in a reduction of costs and expenses associated with ownership of the NIBs, which would
increase their intrinsic value. The Company was made aware by the Purchasers that credit was presently no longer available to
pay certain costs to maintain the structure of the underlying life insurance policies. The Company’s obligations to
provide liquidity under the Settlement Agreement have now expired and the Company is not legally obligated for costs incurred
by the entities underlying the NIBs. However, if credit does not become available, whether it be by proceeds from a future
maturity or other negotiations, the Company may provide such liquidity to protect its investment in the NIBs. The total
historical unpaid costs incurred prior to the ownership transition and potential unpaid cost incurred after the ownership
transition approximates $370,000 and $580,000, respectively, for an estimated total of $950,000. The Company believes the
probable amount it will ultimately pay is approximately $316,667. Therefore, the Company has accrued $316,667 during the
three months ended September 30, 2016, to account for this uncertainty. The Company anticipates that the total $316,667 will
be paid by March 31, 2017, and therefore this amount has been recorded as current accrued expense. The Company will assess
this uncertainty throughout the year ended March 31, 2017, and will adjust the amount accrued as more information becomes
available.
(5) NOTES PAYABLE AND LINES-OF-CREDIT, RELATED PARTY
As of September 30, 2016, the Company had borrowed
$4,438,753, excluding accrued interest, from related parties under notes payable and lines-of-credit agreements that allow for
borrowings of up to $5,230,000. Of the $4,438,753 of notes payable and lines-of-credit currently owed as of September 30, 2016,
$1,500,000 is due November 30, 2017. The remaining $2,938,753 is due August 31, 2018. In the event the Company completes a successful
equity raise, principal and interest on both notes payable are due in full at that time. The notes payable and lines-of-credit incur
interest at 7.5%, allow for origination fees and are collateralized by Investment in NIBs. During the six months ended September
30, 2016, the Company borrowed an additional $768,575 under these agreements and repaid $150,000. As of November 9, 2016 the Company
can still borrow up to $1,125,247 on these lines-of-credit. The associated interest is recorded on the balance sheet as a Long
Term Accrued Expense obligation. The related parties include a person who is the Chairman of the Board of Directors and a stockholder,
and Radiant Life, LLC, an entity partially owned by the Chairman of the Board of Directors.
(6) NOTES PAYABLE TRANSFERRED TO REDEEMED COMMON STOCK PAYABLE
At March 31, 2014, the Company owed $1,455,904,
including accrued interest, for notes payable. During the year ended March 31, 2015, the Company had accrued an additional $37,350
in interest. The note incurred interest at 4%, was collateralized by NIBs and was due in April 2015. During June 2015, the note
payable and related accrued interest were converted to equity through the issuance of 187,500 shares of common stock and the holder
was granted the right to require the Company to redeem the common stock for $8.00 per share. On June 9, 2015, the holder exercised
a portion of the redemption right relating to 93,750 shares and, as a result, the Company paid the holder $750,000 to redeem the
shares. On March 25, 2016, the holder exercised the redemption right in relation to the remaining shares and on April 12, 2016,
the Company paid the holder an additional $750,000 to redeem the remaining shares. At March 31, 2016, the $750,000 associated with
the redemption had been classified on the balance sheet as Mandatorily Redeemable Common Stock.
(7) CONVERTIBLE DEBENTURE AGREEMENT
The Company has entered into an 8% convertible
debenture agreement with Satco International, Ltd., that allows for borrowings of up to $3,000,000. The holder originally had the
option to convert the outstanding principal and accrued interest to unregistered, restricted common stock of the Company on June
2, 2016. Per the agreement, the number of shares issuable at conversion shall be determined by the quotient obtained by dividing
the outstanding principal and accrued and unpaid interest by 90% of the 90 day average closing price of the Company’s common
stock from the date the notice of conversion is received; and the price at which the Debenture may be converted will be no lower
than $1.00 per share. The original maturity date was June 2, 2016, but was later extended to August 31, 2017. On October 25, 2016,
the Company agreed to amend the 8% Convertible Debenture Agreement that extended the due date and conversion rights to February
28, 2018. As of September 30, 2016, the Company owed $700,000 under the agreement, excluding accrued interest. The associated interest
is recorded on the balance sheet as a Long Term Accrued Expense obligation. As of November 9, 2016, the Company is still able to
borrow up to $2,300,000 on this agreement.
(8) LIQUIDITY AND CAPITAL REQUIREMENTS
Since the Company’s inception on January
31, 2013, its operations have been primarily financed through sales of equity, debt financing, lines of credit from related parties
and the issuance of notes payable and convertible debentures. As of September 30, 2016, the Company had $34,348 of cash assets,
compared to $24,717 as of March 31, 2016. As of November 9, 2016, the Company has access to draw an additional $1,125,247 on the
notes payable and lines-of-credit, related party (see Note 5) and $2,300,000 on the Convertible Debenture Agreement (See Note 7).
The Company’s average monthly expenses are expected to be approximately $262,000, which includes salaries of our employees,
consulting agreements and contract labor, general and administrative expenses and estimated legal and accounting expenses.
The Company believes that its existing capital resources, together with the issuance of additional notes payable and convertible
debentures and availability under its existing lines of credit with related parties, will be sufficient to fund its operating working
capital requirements for at least the next 12 months, or through November 15, 2017. It is to be noted that $1,500,000 of notes
payable and lines-of-credit currently owed as of September 30, 2016 is due November 30, 2017 (see Notes 5 and 7 for debt maturity
dates). The Company continues to evaluate other debt and equity financing opportunities and in August 2016 paid a financing advance
of $100,000 to a group for a potential line-of-credit offering. While the Company believes it has sufficient liquidity and capital
resources to fund its projected operating requirements through November 15, 2017, it does not anticipate having adequate cash flows
from operations for three to four years, and until a revenue stream has been established, it will require debt or equity financing
to fund its current and intended business and any future purchases of NIBs.
If the Company is unable to raise sufficient
capital through the planned securities and debt offerings or other alternative sources of financing, management will curtail NIB
purchases. Under this plan, expenditures for NIBs will be curtailed.
The accompanying financial statements have been
prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities
in the normal course of business. To continue as a going concern beyond the period ended September 30, 2017, and in order to continue
to purchase NIBs, the Company will need to raise additional capital to fund operations and purchase NIBs. Absent additional financing,
the Company will not have the resources to execute its current business plan and continue operations.
(9) COMMITMENTS AND CONTINGENCIES
As explained in Note 1, the Company is focused
on the purchase and sale of NIB’s based on life settlements or life insurance policies. The Company does not take possession
or control of the policies. The Holder of the life settlements or life insurance policies acquires such policies at a discount
to their face value. The Holder has available credit to pay forecasted premiums and expenses on the underlying policies until settlement.
On settlement, the Company receives the net insurance benefit after all borrowings, interest and expenses have been paid by the
Holder out of the settlement proceeds. However, in the event of default of the Holder, the Company may be required to expend funds
on premiums, interest and servicing costs over the next five years to protect its interest in NIBs, though the Company has no legal
responsibility nor adequate funds for these payments. In the event that neither party fulfils the financial obligations pertaining
to the premiums, interest and servicing costs, the Company would be required to evaluate its investment in NIBs for possible adverse
impairment. In addition, see Note 4 relating to associated commitments and contingencies affiliated with life settlements or life
insurance policies.
(10) SUBSEQUENT EVENTS
Management has considered subsequent events
through November 9, 2016, the date these financial statements were issued. No events have occurred subsequent to September 30,
2016 which would have a material effect on the financial statements of the Company.