UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
|
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
|
|
For
the Quarterly Period Ended June 30, 2019 |
|
[ ] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
|
|
For
the Transition Period From ___________ to
___________ |
Commission
File Number 000-50547
SUNDANCE STRATEGIES, INC.
(Exact
name of registrant as specified in its charter)
|
Nevada |
|
88-0515333 |
|
(State
or other jurisdiction of
incorporation or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
4626
North 300 West, Suite No. 365, Provo, Utah |
|
84604 |
|
(Address
of principal executive offices) |
|
(Zip
Code) |
(801) 717-3935
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to section 12(b) of the Exchange
Act:
None
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes [ ] No [X]
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted 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 such files.) Yes [ ] No
[X]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
|
|
Large
accelerated filer [ ] |
Accelerated
filer [ ] |
| |
Non-accelerated
filer [X] |
Smaller
reporting company [X] |
| |
|
Emerging
Growth Company [X] |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. [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]
As of
February 19, 2020, the registrant had 37,828,441 shares of common
stock, par value $0.001, issued and outstanding.
SUNDANCE
STRATEGIES, INC.
FORM
10-Q
TABLE
OF CONTENTS
PART
I — FINANCIAL INFORMATION
Item
1. Financial Statements (Unaudited)
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
Condensed
Consolidated Balance Sheets
| |
|
June 30,
2019 |
|
|
March 31,
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Current Assets |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$ |
241,614 |
|
|
$ |
579 |
|
|
Prepaid expenses and other assets |
|
|
8,133 |
|
|
|
5,108 |
|
| |
|
|
|
|
|
|
|
|
| Total Current
Assets |
|
$ |
249,747 |
|
|
$ |
5,687 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current
Liabilities |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
430,866 |
|
|
$ |
306,871 |
|
| Stock
repurchase payable |
|
|
400,000 |
|
|
|
400,000 |
|
| Total Current Liabilities |
|
|
830,866 |
|
|
|
706,871 |
|
| |
|
|
|
|
|
|
|
|
| Long-Term
Liabilities |
|
|
|
|
|
|
|
|
| Notes payable,
related parties |
|
|
2,127,008 |
|
|
|
1,672,008 |
|
|
Accrued expenses |
|
|
275,077 |
|
|
|
240,163 |
|
| |
|
|
|
|
|
|
|
|
| Total Long-Term
Liabilities |
|
|
2,402,085 |
|
|
|
1,912,171 |
|
| |
|
|
|
|
|
|
|
|
| Total
Liabilities |
|
|
3,232,951 |
|
|
|
2,619,042 |
|
| |
|
|
|
|
|
|
|
|
| Stockholders’
Deficit |
|
|
|
|
|
|
|
|
| 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; 37,828,441 shares
issued and outstanding |
|
|
37,829 |
|
|
|
37,829 |
|
| Additional paid in
capital |
|
|
24,191,224 |
|
|
|
24,191,224 |
|
|
Accumulated deficit |
|
|
(27,212,257 |
) |
|
|
(26,842,408 |
) |
| |
|
|
|
|
|
|
|
|
| Total
Stockholders’ Deficit |
|
|
(2,983,204 |
) |
|
|
(2,613,355 |
) |
| |
|
|
|
|
|
|
|
|
| Total
Liabilities and Stockholders’ Deficit |
|
$ |
249,747 |
|
|
$ |
5,687 |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
Condensed
Consolidated Statements of Operations
(Unaudited)
| |
|
Three Months Ended |
|
|
Three Months Ended |
|
| |
|
June 30,
2019 |
|
|
June 30,
2018 |
|
| |
|
|
|
|
|
|
| Interest Income on
Investment in Net Insurance Benefits |
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
General and Administrative Expenses |
|
|
282,978 |
|
|
|
352,550 |
|
| |
|
|
|
|
|
|
|
|
| Loss
from Operations |
|
|
(282,978 |
) |
|
|
(352,550 |
) |
| |
|
|
|
|
|
|
|
|
| Other Expense |
|
|
|
|
|
|
|
|
| Interest
expense |
|
|
(36,871 |
) |
|
|
(15,931 |
) |
|
Financing expense |
|
|
(50,000 |
) |
|
|
(521,607 |
) |
| |
|
|
|
|
|
|
|
|
| Total
Other Income (Expense) |
|
|
(86,871 |
) |
|
|
(537,538 |
) |
| |
|
|
|
|
|
|
|
|
| Loss Before Income
Taxes |
|
|
(369,849 |
) |
|
|
(890,088 |
) |
| Income
Tax Provision (Benefit) |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net
Loss |
|
$ |
(369,849 |
) |
|
$ |
(890,088 |
) |
| |
|
|
|
|
|
|
|
|
| Basic and
Diluted: |
|
|
|
|
|
|
|
|
| Basic
and diluted loss per share |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
| |
|
|
|
|
|
|
|
|
| Basic and
diluted weighted average number of shares outstanding |
|
|
37,828,441 |
|
|
|
44,128,441 |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
Condensed
Consolidated Statements of Stockholders’ Deficit
For
the Three Months Ended June 30, 2019 and 2018
(Unaudited)
| |
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
| |
|
Common
Stock |
|
|
Paid In |
|
|
Accumulated |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2019 |
|
|
37,828,441 |
|
|
$ |
37,829 |
|
|
$ |
24,191,224 |
|
|
$ |
(26,842,408 |
) |
|
$ |
(2,613,355 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(369,849 |
) |
|
|
(369,849 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, June 30, 2019 |
|
|
37,828,441 |
|
|
$ |
37,829 |
|
|
$ |
24,191,224 |
|
|
$ |
(27,212,257 |
) |
|
$ |
(2,983,204 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2018 |
|
|
44,128,441 |
|
|
$ |
44,129 |
|
|
$ |
24,547,014 |
|
|
$ |
(24,786,290 |
) |
|
$ |
(195,147 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(890,088 |
) |
|
|
(890,088 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, June 30, 2018 |
|
|
44,128,441 |
|
|
$ |
44,129 |
|
|
$ |
24,547,014 |
|
|
$ |
(25,676,378 |
) |
|
$ |
(1,085,235 |
) |
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
| |
|
Three Months Ended |
|
|
Three Months Ended |
|
| |
|
June 30,
2019 |
|
|
June 30,
2018 |
|
| |
|
|
|
|
|
|
| Operating
Activities |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Net
Loss |
|
$ |
(369,849 |
) |
|
$ |
(890,088 |
) |
| Adjustments to
reconcile to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
| Changes in
operating assets and liabilities |
|
|
|
|
|
|
|
|
| Prepaid expenses
and other assets |
|
|
(3,025 |
) |
|
|
(2,582 |
) |
| Accounts
payable |
|
|
123,995 |
|
|
|
(15,304 |
) |
|
Accrued expenses |
|
|
34,914 |
|
|
|
15,930 |
|
| |
|
|
|
|
|
|
|
|
| Net
Cash used in Operating Activities |
|
|
(213,965 |
) |
|
|
(892,044 |
) |
| |
|
|
|
|
|
|
|
|
| Financing
Activities |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable, related party |
|
|
455,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net
Cash provided by Financing Activities |
|
|
455,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net Change in Cash
and Cash Equivalents |
|
|
241,035 |
|
|
|
(892,044 |
) |
| Cash
and Cash Equivalents at Beginning of Period |
|
|
579 |
|
|
|
936,902 |
|
| |
|
|
|
|
|
|
|
|
| Cash
and Cash Equivalents at End of Period |
|
$ |
241,614 |
|
|
$ |
44,858 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
|
|
| Cash paid for
interest |
|
$ |
- |
|
|
$ |
- |
|
| Cash paid for
income taxes |
|
$ |
- |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June
30, 2019
(1)
BASIS OF PRESENTATION, ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”) and applicable rules and
regulations of the Securities and Exchange Commission (“SEC”)
regarding interim financial reporting and reflect the financial
position, results of operations and cash flows of the Company.
Certain information and note disclosures normally included in the
financial statements prepared in accordance with GAAP have been
condensed or omitted pursuant to such rules and regulations. As
such, these unaudited condensed consolidated financial statements
should be read in conjunction with the audited financial statements
and accompanying notes included in the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2019, which was filed
with the SEC on January 16, 2020. The results from operations for
the three-month period ended June 30, 2019, are not necessarily
indicative of the results that may be expected for the fiscal year
ended March 31, 2020.
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.
Organization
and Nature of Operations
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”, “we” or “our”). The
Company is 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.” Since the Company’s inception its operations have been
primarily financed through sales of equity, debt financing from
related parties and the issuance of notes payable and convertible
debentures. Currently, the Company is focused on the purchase of
net insurance benefit contracts (“NIBs”) based on life settlements
or life insurance policies.
Significant
Accounting Policies
There
have been no changes to the significant accounting policies of the
Company from the information provided in Note 2 of the Notes to
Consolidated Financial Statements in the Company’s most recent Form
10-K, except as discussed below.
Accounting
Treatment When the Company Holds NIBs
The
Company accounted for its investment in NIBs at the initial
investment value increased for interest income and decreased for
cash receipts received by the Company and impairment losses. At the
time of transfer or purchase of an investment in NIBs, we estimated
the future expected cash flows and determined the effective
interest rate based on these estimated cash flows and our initial
investment. Based on this effective interest rate, the Company
calculated accretable income, which was recorded as interest income
on investment in NIBs in the statement of operations. Our
projections were based on various assumptions that are subject to
uncertainties and contingencies including, but not limited to, the
amount and timing of projected net cash receipts, expected maturity
events, counter party performance risk, changes to applicable
regulation of the investment, shortage of funds needed to maintain
the asset until maturity, 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 were evaluated for
changes. If the determination was made that the future estimated
cash flows should be adjusted to the point of a material change in
revenue, a revised effective yield was calculated prospectively
based on the current amortized cost of the investment, including
accrued accretion. Any positive or adverse change in cash flows
would result in a prospective increase or decrease in the effective
interest rate used to recognize interest income. Any significant
adverse change in the cash flows that may have resulted in the
recognition of an “other-than-temporary impairment” (“OTTI”), and
would be evaluated by the Company accordingly.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June
30, 2019
We
evaluate the carrying value of our investment in NIBs for
impairment on a regular basis and adjust our total basis in the
NIBs using new or updated information that affects our assumptions.
We recognized impairment on a NIB contract when the fair value of
the beneficial interest was less than the carrying amount of the
investment, plus anticipated undiscounted future premiums and
direct external costs, if any, and if there are adverse changes in
cash flow.
Basic
and Diluted Net Income (Loss) Per Common Share
Basic
net loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the
periods presented using the treasury stock method. Diluted net loss
per common share is computed by including common shares that may be
issued subject to existing rights with dilutive potential, when
applicable. Dilutive common stock equivalents are primarily
comprised of stock options. Potentially dilutive shares resulting
from convertible debt agreements are evaluated using the
if-converted method, and such amounts were not dilutive.
As of
June 30, 2019 and 2018, -0- and 400,000 options were outstanding,
respectively. These common stock equivalents were excluded from net
loss per share because their effect would be
anti-dilutive.
New
Accounting Pronouncements
Adopted During the Three Months Ended June 30,
2019
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 the Company’s fiscal year beginning April 1, 2019,
and for interim periods within that fiscal year. The adoption of
this standard did not have an impact on the consolidated financial
statements because leases are month-to-month and not material to
the Company’s financial statements.
Not Yet Adopted
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 the Company’s fiscal year
beginning April 1, 2020, including interim periods within that
fiscal year. The Company is currently evaluating the impact the
adoption of ASU 2016-13 will have on its consolidated financial
statements and results of operations.
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.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June
30, 2019
(2)
LIQUIDITY REQUIREMENTS
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. Due to the fact that the Company is in the process of
seeking NIB investments to acquire as mentioned above, the Company
has no current source of operating revenues. In order to purchase
NIBs, the Company will need to raise additional capital or secure
alternative sources of debt financing.
Since
the Company’s inception on January 31, 2013, its operations have
been primarily financed through sales of equity, debt financing
from related parties and the issuance of notes payable and
convertible debentures. As of June 30, 2019, the Company had
$241,614 of cash assets, compared to $579 as of March 31, 2019. As
of June 30, 2019, the Company had access to draw an additional
$5,137,992 on the notes payable, related party (see Note 5) and
$3,000,000 on the Convertible Debenture Agreement (See Note 6). For
the three months ended June 30, 2019, the Company’s average monthly
operating expenses were approximately $94,000, which includes
salaries of our employees, consulting agreements and contract
labor, general and administrative expenses and legal and accounting
expenses. In addition to the monthly operating expenses, the
Company continues to pursue other debt and equity financing
opportunities, and as a result, a financing expense of $50,000 was
incurred during the three months ended June 30, 2019. As management
continues to explore additional financing alternatives, the Company
is expected to spend an additional $100,000 to $400,000 over the
next 12 months related to these efforts. Outstanding Accounts
Payable as of June 30, 2019 totaled $430,866, and other accrued
liabilities totaled $675,077. Management has concluded that its
existing capital resources and availability under its existing
convertible debentures and debt agreements with related parties
will be sufficient to fund its operating working capital
requirements for at least the next 12 months from the issuance of
these financial statements. Related parties have given assurance
that their continued support, by way of either extensions of due
dates, or increases in lines-of-credit, can be relied on. As
mentioned above, the Company also continues to evaluate other debt
and equity financing opportunities.
(3)
FAIR VALUE MEASUREMENTS
As
defined by ASC Topic 820, “Fair Value Measurements and Disclosures”
(“ASC 820”), fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC 820 also
requires the consideration of differing levels of inputs in the
determination of fair values.
Those
levels of input are summarized as follows:
|
● |
Level
1: Quoted prices in active markets for identical assets and
liabilities. |
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● |
Level
2: Observable inputs other than Level 1 quoted prices, such as
quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not
active, and model-based valuation techniques for which all
significant assumptions are observable in the market. |
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Level
3: Unobservable inputs that are supported by little or no market
activity. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques as well
as instruments for which the determination of fair value requires
significant management judgment or estimation. |
The
level in the fair value hierarchy within which a fair value
measurement in its entirety falls is based on the lowest level
input that is significant to the fair value measurement in its
entirety.
Between
May 2018 and July 2018, the Holders entered into agreements that
completed a strict foreclosure transaction that transferred the
underlying life insurance policies relating to the Company’s NIBs
to the lenders in full satisfaction of the loan obligation. As a
result of the foreclosure, the Company has lost its position in the
residual benefits of the policies and has reduced both the fair
value and the carrying value of the NIBs at March 31, 2019 to
zero.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June
30, 2019
The
Company did not have any transfers of assets and liabilities
between Levels 1, 2 and 3 of the fair value measurement hierarchy
during the three months ended June 30, 2019.
Other Financial Instruments
The
Company’s recorded values of cash and cash equivalents, prepaid
expenses and other assets, accounts payable and accrued liabilities
approximate their fair values based on their short-term nature. The
recorded values of the notes payable and convertible debenture
approximate the fair values as the interest rate approximates
market interest rates.
(4)
STOCKHOLDERS’ EQUITY
Effective
December 6, 2018, three existing stockholders have contributed to
the Company a portion of their common shares held at a repurchase
price to the Company of $0.05 per share. The Company has cancelled
the acquired shares, which decreased the outstanding common shares
on the books of the Company. The total number of common shares
canceled/retired was 8,000,000. The total liability related to the
repurchase of these shares is $400,000, with repayment contingent
on a major financing event.
On
July 11, 2018, the Company issued 800,000 common shares in return
for obtaining the remaining 27.8% ownership of certain NIBs. The
transaction was recorded at $17,840, the estimated fair value of
the common stock issued (which management believes approximated the
fair value of the NIBs received on the date of the transaction).
The additional NIBs acquired were reflected as an increase to the
Investment in NIBs account, and the NIBs were immediately impaired
on the date of the transaction, bringing the total impairment
recognized on the NIBs to $22,967,966 plus $1,936,311 of impairment
on accrued interest receivable.
(5)
NOTES PAYABLE, RELATED PARTY
As of
June 30, 2019, and March 31, 2019, the Company had borrowed
$2,127,008 and $1,672,008 respectively, excluding accrued interest,
from related parties.
As of
June 30, 2019, and March 31, 2019, the Company owed $535,000 and
$450,000, respectively, under the unsecured promissory note from
Mr. Glenn S. Dickman, a stockholder and member of the Board of
Directors. This promissory note bears interest at a rate of 8%
annually and is due November 30, 2021 (see Note 7 for detail on the
due date extensions). During the three months ended June 30, 2019
the Company borrowed $85,000 of principal under this agreement and
made no repayments. As of June 30, 2019, accrued interest on this
note totaled $27,965. In the event the Company completes a
successful equity raise, all principal and interest on this note
are due in full at that time.
As of
June 30, 2019, and March 31, 2019, the Company owed $762,500 and
$392,500, respectively, exclusive of accrued interest, under the
note payable and line of credit agreement with the Chairman of the
Board of Directors and a stockholder. The agreement allows for
borrowings of up to $4,600,000. Subsequent to June 30, 2019 the
note and the line of credit was extended from November 30, 2020 to
August 31, 2021 (see Note 7 for detail on the due date extension).
The note payable incurs interest at 7.5% per annum. During the
three months ended June 30, 2019 the Company borrowed $370,000 of
principal under this agreement and made no repayments. As of June
30, 2019, accrued interest on this note totaled $25,365. In the
event the Company completes a successful equity raise, all
principal and interest on this note are due in full at that
time.
As of
June 30, 2019, and March 31, 2019, the Company owed $829,508,
exclusive of accrued interest, under the note payable and lines of
credit agreement with Radiant Life, LLC, an entity partially owned
by the Chairman of the Board of Directors. The agreement allows for
borrowings of up to $2,130,000. Subsequent to June 30, 2019, the
note and the line of credit was extended from November 30, 2020 to
August 31, 2021 (see Note 7 for detail on the due date extensions).
The note payable incurs interest at 7.5% per annum. During the
three months ended June 30, 2019 the Company neither borrowed nor
repaid any principal under this agreement. As of June 30, 2019,
accrued interest on this agreement totaled $97,522. In the event
the Company completes a successful equity raise, all principal and
interest on this note are due in full at that time.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June
30, 2019
The
interest associated with the Notes Payable, Related Party of
$150,852 and $113,981 is recorded on the balance sheet as an
Accrued Expense obligation at June 30, 2019 and March 31, 2019,
respectively. There are no covenants associated with any of these
three agreements.
(6)
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, through a series of extensions, to August 31, 2019.
Subsequent to June 30, 2019, the Company agreed to amend the 8%
Convertible Debenture Agreement and extended the due date and
conversion rights to December 1, 2020 (see Note 7 for detail on the
due date extension). As of June 30, 2019 and March 31, 2019, the
Company owed $0 under the agreement, excluding accrued interest.
The associated interest of $124,225 is recorded on the balance
sheet as an Accrued Expense obligation at June 30, 2019 and March
31, 2019.
(7)
SUBSEQUENT EVENTS
Subsequent
to June 30, 2019, the following events transpired:
On
October 22, 2019, the Company agreed to amend the 8% convertible
debenture agreement with Satco International, Ltd., to extend the
due date and conversion rights from August 31, 2019 to December 1,
2020.
On
November 5, 2019, the Company agreed to amend the agreement to
extend the due dates on all existing promissory notes with Glenn S.
Dickman from August 31, 2020 to November 30, 2021 or at the
immediate time when alternative financing or other proceeds are
received. In addition, the Company agreed to provide Mr. Dickman
warrants for 450,000 shares of common stock at an exercise price of
$0.05 per share. The warrants have a 5-year exercise window from
the date of the extension agreement.
On
December 19, 2019, the Company agreed to amend the agreement to
extend the due date on the note payable and line of credit
agreement with Radiant Life, LLC from November 30, 2020 to August
31, 2021 or at the immediate time when alternative financing or
other proceeds are received.
On
January 8, 2020, the Company agreed to amend the agreement to
extend the due date on the note payable and line of credit
agreement with the Chairman of the Board of Directors and a
stockholder. The due date was extended from November 30, 2020 to
August 31, 2021 or at the immediate time when alternative financing
or other proceeds are received. In addition, the Company agreed to
provide the Chairman with warrants for 500,000 shares of common
stock at an exercise price of $0.05 per share. The warrants have a
5-year exercise window from the date of the extension
agreement.
On
February 4, 2020, the Company borrowed $230,000 in conjunction with
an additional promissory note agreement entered into with Glenn S.
Dickman. In addition, the Company agreed to provide Mr. Dickman
warrants for 752,000 shares of common stock at an exercise price of
$0.05 per share. The warrants have a 5-year exercise window from
the date of the extension agreement.
Subsequent
to June 30, 2019, the Company has borrowed an additional $323,500
(inclusive of the $230,000 borrowed on February 4, 2020, mentioned
above) on the Notes Payable, Related Party lines of credit
agreements and promissory notes. As of February 19, 2020, the
outstanding principal balances of all Notes Payable, Related Party
totaled $2,450,508 and the outstanding principal balance of the
Convertible Debenture is zero. $1,624,508 of the outstanding
principal is currently due on August 31, 2021 and the remaining
$826,000 is due on November 30, 2021. In the event the Company
completes a successful equity raise, all principal and interest on
these notes is due at that time.
Item 2. Management’s
Discussions and Analysis of Financial Condition and Results of
Operations.
This
discussion summarizes the significant factors affecting our
consolidated operating results, financial condition, liquidity and
capital resources at and during the three months ended June 30,
2019 and 2018. For a complete understanding, this Management’s
Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Financial
Statements and Notes to the Financial Statements contained in this
quarterly report on Form 10-Q and our annual report on Form 10-K
for the year ended March 31, 2019.
Forward-looking
Statements
This
quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) that are based on management’s beliefs
and assumptions and on information currently available to
management. For this purpose any statement contained in this report
that is not a statement of historical fact may be deemed to be
forward-looking, including, but not limited to, statements relating
to our future actions, intentions, plans, strategies, objectives,
results of operations, cash flows and the adequacy of or need to
seek additional capital resources and liquidity. Without limiting
the foregoing, words such as “may”, “should”,
“expect”, “project”, “plan”,
“anticipate”, “believe”, “estimate”,
“intend”, “budget”, “forecast”,
“predict”, “potential”, “continue”,
“should”, “could”, “will” or comparable
terminology or the negative of such terms are intended to identify
forward-looking statements, however, the absence of these words
does not necessarily mean that a statement is not forward-looking.
These statements by their nature involve known and unknown risks
and uncertainties and other factors that may cause actual results
and outcomes to differ materially depending on a variety of
factors, many of which are not within our control. Such factors
include, but are not limited to, economic conditions generally and
in the industry in which we and our customers participate;
competition within our industry; legislative requirements or
changes which could render our products or services less
competitive or obsolete; our failure to successfully develop new
products and/or services or to anticipate current or prospective
customers’ needs; price increases; employee limitations; or delays,
reductions, or cancellations of contracts we have previously
entered into; sufficiency of working capital, capital resources and
liquidity and other factors detailed herein and in our other
filings with the United States Securities and Exchange Commission
(the “SEC” or “Commission”). Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those
indicated.
Forward-looking
statements are predictions and not guarantees of future performance
or events. Forward-looking statements are based on current
industry, financial and economic information which we have assessed
but which by its nature is dynamic and subject to rapid and
possibly abrupt changes. Our actual results could differ materially
from those stated or implied by such forward-looking statements due
to risks and uncertainties associated with our business. Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither
we nor any other person assumes responsibility for the accuracy and
completeness of these forward-looking statements and we hereby
qualify all our forward-looking statements by these cautionary
statements.
These
forward-looking statements speak only as of their dates and should
not be unduly relied upon. We undertake no obligation to amend this
report or revise publicly these forward-looking statements (other
than pursuant to reporting obligations imposed on registrants
pursuant to the Exchange Act) to reflect subsequent events or
circumstances, whether as the result of new information, future
events or otherwise.
The
following discussion should be read in conjunction with our
financial statements and the related notes contained elsewhere in
this report and in our other filings with the
Commission.
Overview
We
are currently focused on the business of purchasing residual
economic interests in a portfolio of life settlements. A life
settlement is the sale of an existing life insurance policy to a
third party for more than the policy’s cash surrender value, but
less than the face value of the policy benefit. After the sale, the
new policy holder will pay the premiums due on the policy until
maturity and then collect the settlement proceeds at
maturity.
We
currently do not purchase or hold life settlement or life insurance
policies but, rather, previously held a contractual right to
receive the net insurance benefits, or NIBs, from a portfolio of
life insurance policies held by a third party (“the Owners” or “the
Holders”). These NIBs represent an indirect, residual ownership
interest in a portfolio of individual life insurance policies and
they allowed us to receive a portion of the settlement proceeds
from such policies, after expenses related to the acquisition,
financing, insuring and servicing of the policies underlying our
NIBs have been paid.
We
were not responsible for maintaining premiums or other expenses
related to maintaining the underlying life settlement or life
insurance policies. Ownership of the underlying life settlement or
life insurance policies, and the related obligation to maintain
such policies, remains with the entity that holds such policies.
However, in the event of default of the owner, the Company may
choose to expend funds on premiums, interest and servicing costs to
protect its interest in NIBs, though the Company has no legal
responsibility nor adequate funds for these payments.
NIBs
are generally sold by an entity that holds the underlying life
settlement or life insurance policies, either directly or
indirectly through a subsidiary, such an entity being referred to
herein as a “Holder.” A Holder, either directly or through a wholly
owned subsidiary, purchases life insurance policies either from the
insured or on the secondary market and aggregates them into a
portfolio of policies. At the time of purchase, the Holder also (i)
contracts with a service provider to manage the servicing of the
policies until maturity, (ii) consider purchasing mortality
re-insurance (“MRI”) coverage under which payments will be made to
the Holder in the event the insurance policies do not mature
according to actuarial life expectancies, and (iii) arranges
financing to cover the initial purchase of the insurance policies,
the servicing of the life insurance policies until maturity and the
payment of the MRI premiums. The financing obtained by the Holder
for a portfolio of life settlement or life insurance policies is
secured by the insurance policies for which the financing was
obtained. After a Holder purchases policies, aggregates them into a
portfolio and arranges for the servicing, MRI coverage and
financing, the Holder contracts to sell NIBs related to the
policies, which gives the holder of the NIBs the right to receive
the proceeds from the settlement of the insurance policies after
all of the expenses related to such policies have been paid. When
an insurance policy underlying our NIBs comes to maturity, the
insurance proceeds are first used to pay expenses associated with
such policy. Once all of the expenses have been paid, the Holder
will retain a small percentage of the proceeds and then will pay
the remaining insurance proceeds to us.
We
began purchasing NIBs during our fiscal year ended March 31,
2013.
Plan
of Operations
Life
Settlements is not a market sector without competition and, at
present, we are a minor competitor. We will need substantial
additional 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 through debt or equity financing.
In addition, due to the foreclosure on the NIBs described below,
the company has no current source of operating revenues. We may be
required to expend funds on premiums, interest and servicing costs
to protect our interest in NIBs, though we have 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, we would be required to
evaluate our investment in NIBs for possible adverse impairment.
During October 2017, the entities completed a refinancing of the
loans that had matured. The agreements are with a new senior
lending facility who previously provided MRI for the underlying
policies. Between May 2018 and July 2018, the Holders entered into
agreements that completed a strict foreclosure transaction that
transferred the underlying life insurance policies relating to the
Company’s NIBs to the lenders in full satisfaction of the loan
obligation. As a result of the foreclosure, the Company has lost
its position in the residual benefits of the policies and has
reduced the carrying value of the NIBs at March 31, 2019 to
zero.
When
we hold NIBs, we use an estimation methodology to project cash
flows and returns as presented. The estimation model requires many
assumptions, including, but not limited to the following: (i) an
assumption that the distinct number of lives in our portfolio would
exhibit similar experience to a statistically diverse portfolio
from which mortality tables have been created; (ii) an assumption
that the life expectancies (the “LE” or “LEs”) provided by LE
providers represent the actuarial mean of the life expectancies of
the insureds in our portfolio, (iii) the weighted average of the
LEs provided by the LE providers represents an appropriate method
for adjusting for discrepancies in the LEs; (iv) life expectancy
tables and projections are accurate; (v) the minimum premiums
calculated based on the in-force illustrations provided by life
insurance carriers are accurate and will not change over the course
of the lifetime of our portfolio; and (vi) the Holders’ Lender
fees, MRI fees, and insurance, servicing and custodial fees will
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 our initial assumptions.
As a
result of the foreclosure mentioned above, we lost our position in
the residual benefits of the policies and recognized a $22,950,126
impairment on the NIBs and $1,936,311 impairment of related
interest receivable during the year ended March 31, 3018.
Management concluded that the foreclosure event represented the
culmination of conditions that provided indications affecting the
realization of the Company’s investment in NIBs assets during the
fiscal year ended March 31, 2018. As a result, we recorded the
impairment of the NIBs during the fiscal year ended March 31, 2018,
and changed the classification of the Investment in NIBs from Held
to Maturity to Available for Sale.
On
July 11, 2018, the Company issued 800,000 common shares in return
for obtaining the remaining 27.8% ownership of certain NIBs. The
transaction was recorded at $17,840, the estimated fair value of
the common stock issued (which management believes approximated the
fair value of the NIBs received on the date of the transaction).
The additional NIBs acquired were reflected as an increase to the
Investment in NIBs account, and the NIBs were immediately impaired
on the date of the transaction, bringing the total impairment
recognized on the NIBs to $22,967,966 plus $1,936,311 of impairment
on accrued interest receivable. At June 30, 2019, the value the
fully impaired Investment in NIBs was $0.
Results
of Operations
Interest
Income
Due
to the foreclosure agreement mentioned above, no interest income
was recorded for the three months ended June 30, 2019 or
2017.
General
& Administrative Expenses
General
and administrative expenses totaled $282,978 and $352,550 during
the three months ended June 30, 2019, and 2018, respectively. A
significant portion of these expenses were professional fees,
payroll and travel expenses. The decrease in general and
administrative expenses is primarily due to a decrease in
professional fees, and is a result of fewer complexities in our
operations.
Other
Income and Expenses
For the three months ended June 30, 2019 and 2018, other expenses
related to pursuing potential financing alternatives were $50,000
and $521,607, respectively.
During
the three months ended June 30, 2019, and 2018, interest expense
accrued in the amount of $36,871 and $15,931, respectively. The
increased interest expense was due to higher principal balances
during the three months ended June 30, 2019.
Income
Taxes
During
the three months ended June 30, 2019, the Company recorded a net
loss before income taxes of $369,849 and had no income tax expense
or benefit as a result of a full valuation allowance on the net
deferred tax asset.
Liquidity
and Capital Resources
Since
our inception our operations have been primarily financed through
sales of equity instruments, debt financing, lines of credit and
notes payable from related parties and the issuance of convertible
debentures. As of June 30, 2019, we had $241,614 of cash, compared
to $579 as of March 31, 2019. As of June 30, 2019, the Company had
access to draw an additional $5,137,992 on the notes payable,
related party and $3,000,000 on the Convertible Debenture
Agreement. Our monthly expenses are approximately $90,000, which
includes salaries of our employees, policy servicing expenses,
consulting agreements and contract labor, general and
administrative expenses, estimated legal and accounting expenses.
Outstanding Accounts Payable as of June 30, 2019 totaled $430,866,
and other accrued liabilities totaled $675,077. We believe that our
availability under our existing lines of credit with related
parties, our existing capital resources, together with the issuance
of additional notes payable and convertible debentures will be
sufficient to fund our operating working capital requirements for
at least the next 12 months from the issuance of this
report.
Debt
At June 30, 2019, we owed $2,402,085, including accrued interest,
for debt obligations. We owed $2,127,008 in principal pursuant to
notes payable and lines-of-credits from related parties and had
fully paid off the principal owing on the 8% Convertible Debenture.
As of June 30, 2019, one note payable and line-of-credit had a
principal balance of $829,508 and is due on August 31, 2021, or
when the Company completes a successful equity raise, at which time
principal and interest is due in full. The second note payable and
line-of-credit had no principal balance, and the line of credit is
currently extended through August 31, 2021. At June 30, 2019,
unsecured promissory notes had principal balances totaling $535,000
and are due November 30, 2021. The convertible debenture agreement,
which has no principal balance due as of June 30, 2019 is open
through December 1, 2020. As of February 19, 2020, there was
$5,105,492 available under the lines-of-credit we currently have
with related parties and $3,000,000 available under the 8%
convertible debenture agreement. We may borrow money in the future
to finance our operations, but can make no guarantees that such
credit will be made available to us. Any such borrowing will
increase the risk of loss to the debt holder in the event we are
unsuccessful in repaying such loans.
Critical
Accounting Policies and Estimates
See
Consolidated Financial Statements and footnotes thereto included in
the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2019, which was filed with the SEC on January 16,
2020.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative
Disclosure about Market Risk
Not Applicable.
Item 4. Controls and
Procedures
Limitation on the Effectiveness of
Controls
The Company maintains disclosure controls and procedures that are
designed to provide reasonable assurance that information, which is
required to be disclosed timely, is accumulated and communicated to
management in a timely fashion. In designing and evaluating such
controls and procedures, we recognize that any controls and
procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control
objectives. Our management is necessarily required to use judgment
in evaluating controls and procedures.
Evaluation of 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 Quarterly Report. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time
periods specified in the Commission’s rules and forms, and that
such information is accumulated and communicated to the issuer’s
management, including its Principal Executive Officer and Principal
Financial Officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure. Based on that evaluation, our principal executive and
principal financial officer has concluded that our disclosure
controls and procedures as of the end of the period covered by the
Quarterly Report were not effective as our filings with the SEC are
not current.
Changes in Internal Control
As defined in SEC Regulation S-X, a material weakness is a
deficiency, or combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely
basis. Based on this assessment, management determined that, as of
March 31, 2019, our internal control over financial reporting was
not effective because of the material weaknesses described
below:
|
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1) |
the Company did not maintain adequate segregation of duties in some
areas of finance; |
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2) |
the Company did not maintain sufficient monitoring review controls
with respect to accounting for complex accounting
transactions. |
As of June 30, 2019, one of the two material weaknesses identified
in our annual reported filed on Form 10K for the year ended March
31, 2019, was remediated. The following controls were implemented
relating to material weakness #2 during the quarter ended June 30,
2019: Complex transaction accounting issues faced by the Company
where alternative treatments appear to be available in the
literature will be presented to a subject matter expert to obtain
input on industry trends and preferred solutions.
Management continues to evaluate possible alternatives to remediate
material weakness #1.
Other than described above, there were no changes in our internal
control over financial reporting that occurred during the first
quarter of 2020 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
To
the best of our knowledge, there are no legal proceedings pending
or threatened against us; and there are no actions pending or
threatened against any of our directors or officers that are
adverse to us.
Item 1A. Risk Factors
In
addition to the other information set forth in this quarterly
report on Form10-Q, you should carefully consider the risks
discussed in our Annual Report on Form 10-K for the year ended
March 31, 2019, which risks could materially affect our business,
financial condition or future results. There were no material
changes during the quarter ended June 30, 2019 to the risk factors
disclosed in the Company’s Annual Report on Form 10-K for the year
ended March 31, 2019. These risks are not the only risks facing our
Company. Additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition or future
results.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
There
were no sales by us of unregistered securities during the quarter
ended June 30, 2019.
Purchases
of Equity Securities by the Issuer
There
were no repurchases of equity during the quarter ended June 30,
2019.
Item 3. Defaults upon Senior
Securities.
None;
not applicable.
Item 4. Mine Safety
Disclosures.
None;
not applicable.
Item 5. Other
Information.
None;
not applicable.
Item
6. Exhibits
Exhibits.
The following exhibits are included as part of this
report:
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.
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SUNDANCE
STRATEGIES, INC. |
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Date:
February 19, 2020 |
By: |
/s/
Randall F. Pearson |
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Randall
F. Pearson |
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President
and Principal Financial Officer |
