UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
(Mark
One)
|
[X] |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the fiscal year ended March 31, 2020
or
|
[ ] |
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
Securities
registered pursuant to Section 12(g) of the Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
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Common
Stock, $0.001 par value |
|
SUND |
|
OTC
PINK |
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
[ ] No [X]
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
August 10, 2020 the registrant had 37,828,441 shares of common
stock, par value $0.001, issued and outstanding. The aggregate
market value of common shares held by non-affiliates as of
September 30, 2019 (the most recent second quarter) was
$21,962,883.
Documents
incorporated by reference.
None.
Table
of Contents
SUNDANCE
STRATEGIES, INC.
In
this Annual Report, references to “Sundance,” the “Company,” “we,”
“us,” “our” and words of similar import refer to Sundance
Strategies, Inc., a Nevada corporation and its wholly-owned
subsidiary, ANEW LIFE, INC., a Utah corporation (“ANEW LIFE”),
unless the context requires otherwise.
Information
Concerning Forward-Looking Statements
This
annual report on Form 10-K 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”) 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.
PART I
Item 1. Business
Organizational
Background
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 March of 2013. On March 29,
2013, the Company, its newly formed and wholly-owned subsidiary,
Anew Acquisition Corp., a Utah corporation (“Merger Sub”), and ANEW
LIFE, INC., a Utah corporation (“ANEW LIFE”), executed and
delivered an Agreement and Plan of Merger (the “Merger Agreement”),
pursuant to which Merger Sub merged with and into ANEW LIFE, ANEW
LIFE was the surviving company under the merger and became a
wholly-owned subsidiary of the Company on the closing of the merger
(the “Merger”). On April 17, 2013, the Company filed a Certificate
of Amendment with the Secretary of State of the State of Nevada to
change its name from “Java Express, Inc.” to “Sundance Strategies,
Inc.” Sundance Strategies, Inc. is referred to as the Company, us
or we.
Our
Business
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 represented 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
are not responsible for maintaining premiums or other expenses
related to maintaining any 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 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.
Life
Settlements Market
There
are a number of reasons a policy owner may choose to sell his or
her life insurance policy. The policy owner may no longer need or
want his or her policy, he or she may wish to purchase a different
kind of insurance policy, premium payments may no longer be
affordable or the policy owner may need cash to fund healthcare or
other expenses. In particular, policy holders 65 years of age and
older and their families are faced with a variety of challenges as
they seek to address their post-retirement financial needs and
selling one’s life insurance policy may provide a unique and
valuable financial solution to such challenges. From the early
2000s through 2008, the market for newly originated life
settlements grew from virtually no activity to a peak of an
estimated $12 billion of face value of U.S. life settlement
policies settled annually in 2007 and 2008. Economic factors slowed
the growth in 2009, when an estimated $8 billion of face value of
U.S. life insurance was settled and growth has continued to decline
since that time. According to a 2015 study done by the insurance
research group Conning & Co., investors purchased $1.7 billion
worth of U.S. life insurance face value in 2014, bringing its
estimate of the total face value of life settlements held at year
end to just over $32 billion. Looking ahead, however, Conning &
Co. projected steady growth in the amount of face value available
for life settlements, though it may take years to re-attract
capital to pre-2009 levels to meet that supply. Regardless, we
believe that the supply of policies has the potential to increase
over time due to the aging population and increased awareness of
the life settlement market as an alternative to allowing a policy
to lapse for little or no value. A report from the AAP Life
Settlement Market Update indicated that internal rates of return
for life settlement transactions conducted in 2013 were in the
high-teens. Participants in the secondary life settlement market
have included major insurance companies which have purchased
available pools of policies for their own investment, portfolio
aggregators, private equity funds, and independent third-party
investors.
Our
Business Model
Predictability of Future Cash Flows. Predictability of
future cash flows is one of the biggest challenges facing companies
engaged in the life settlements industry. If a Holder is not able
to adequately predict future cash flows and does not continually
have enough cash to make a policy portfolio’s premium payments, the
policies in the portfolio may lapse and we may lose our right to
receive the proceeds from the settlement of the policies at
maturity. Prediction of future cash flow requires the use of
financial models, which rely on various assumptions. These
assumptions include 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 those estimates. If projections of life
expectancies are wrong, Holders may be obligated to service the
related insurance policies for longer than expected, thereby
increasing their costs and reducing the net insurance benefit
available to us.
Financing a portion of the purchase price. Financing a
portion of the purchase price of a policy portfolio allows the
Holder to leverage its investment and create a larger and
diversified policy portfolio. When making an investment in a
portfolio of life insurance policies, a Holder utilizes actuarial
tables to determine when the policies in the portfolio can be
expected to come to maturity. However, the Holder assumes the risk
that the policies in the portfolio will come to maturity later than
was predicted by the actuarial tables used at the time of purchase.
The life expectancies provided by the actuarial tables are based on
actual death rates in large populations of individuals with similar
demographic characteristics. Thus, the more policies underlying a
policy portfolio, the more reliable the use of actuarial tables
becomes. In other words, the larger the policy portfolio, the more
closely the underlying insureds would be expected to, on average,
follow actuarial predictions and the lower the risk associated with
future cash flows will be. Because we want predictability and
stability in the cash flows generated by our NIBs, we have only
purchased NIBs where the Holder of the underlying policy portfolio
has maximized its investment in the policy portfolios by financing
a portion of the purchase price.
Financing premium payments. Holding NIBs where the Holder
of the policy portfolio has ensured its ability to pay policy
premiums by financing such premium payments and ensured the
predictability of future cash flows by obtaining MRI provides us
with a more stable cash position and enables us to focus on long
term growth.
Mortality Re-Insurance (MRI) Coverage. Because of the
uncertainty of maturity of insurance policies the Holders had, on
occasion, previously contracted with an insurance provider for MRI
coverage. We do not have a contract with the MRI provider and the
MRI provider has not provided any insurance to us but, rather,
provided MRI coverage to the various Holders of life insurance
policies underlying our NIBs. MRI coverage typically provides
guaranteed cash flow based on the expected death benefits of the
pool of policies being insured calculated at the issuance of the
coverage and thereby provides credit enhancement to any bank
providing financing to a Holder. The term of the MRI policies is
usually 15 years. Any claims paid by the MRI to the Holder must be
paid back to the MRI provider out of death benefit proceeds from
the pool of policies being insured when such death benefit proceeds
are eventually received. This enables the Holder to receive a
smoother cash flow from a pool of policies over time and avoid
“lumpiness” in the cash flows that would otherwise be more
pronounced in the absence of the MRI coverage. Any claim payment
balances would accrue interest, typically at a spread of 250 basis
points over LIBOR, to the extent they remain outstanding. The MRI
coverage is obtained by paying an MRI premium, typically at equal
to 2% of the cumulative death benefit of the covered life insurance
policies, at the outset of the coverage and, depending on the
specific terms of the MRI policy, possibly an additional premium
amount at a predetermined time during the effective coverage period
(the “Commitment Fee”), which is typically 1% of the cumulative
death benefits of the covered policies. The insurer under the MRI
policy typically must approve the sale of any life insurance
policies covered by the MRI policy if such sale does not result in
the full repayment of any outstanding recovery amounts. It is our
understanding that there is only one MRI Provider. While the MRI
coverage is relatively expensive, we believe that insurance
policies underlying NIBs that are covered by MRI have less
volatility, are more liquid and should achieve higher values for
purposes of financing and secondary market sales.
Financing
a policy portfolio’s premium payments gives a Holder additional
cash needed to satisfy the premium obligations of its portfolio. In
addition, obtaining MRI increases the probability that the Holder
will receive future cash flows in the event the underlying insureds
live longer than expected. This combination provides the Holder
with sufficient liquidity to stabilize its cash position and, in
turn, increases the likelihood that we will receive the NIB we have
purchased related to the Holder’s portfolio.
Life
Settlement Financing Market
Because
of the uncertainty of maturity of life insurance policies,
financing for the purchase and servicing of life insurance policies
has historically been difficult to secure. The lender (the
“Holders’ Lender”) has provided financing to the Holders to finance
the purchase of the insurance policies underlying our NIBs. To be
clear, the Holders’ Lender does not provide any financing to us
but, rather, provides financing to the various Holders of life
insurance policies underlying our NIBs. We have no contract,
arrangement or understanding with the Holders’ Lender. The Holders’
Lender contracts with the Holders for financing to purchase the
insurance policies underlying our NIBs. We believe there are few
lenders within this market. The failure of the Holders’ Lender or
other lenders to make loans to Holders may result in Holders’
inability to provide NIBs to us for purchase and our business model
of purchasing and holding NIBs will suffer substantially. We do not
have a direct contractual relationship with the Holders’
Lender.
The
loans from the original Holders’ Lender had a term of 4 to 5 years
at an interest rate between 4.5% and 8% compounded quarterly (12.1%
in the event of default) and was secured by the life insurance
policies owned by the Holder. During October 2017, the entities
completed a refinancing of the loans that had matured. The
agreements were 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.
Our
NIB Purchasing Guidelines
Our
objective is to acquire NIBs based on insurance policy portfolios
that will produce returns in excess of the purchase, financing,
servicing and insuring costs incurred by the Holder and hold those
NIBs to maturity. The guidelines we generally follow regarding the
purchase of NIBs include:
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● |
the
insured is 75 years old or older; |
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● |
all
NIBs relate to U.S. Universal Life Insurance policies; |
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● |
all
underlying insurance policies have qualified for financing that
will cover at least four years of premiums following the date on
which we acquire the NIBs; |
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● |
each
policy must first be reviewed by the legal due diligence team of
the lender providing financing for the acquisition and servicing of
the life insurance policies, second by the MRI company’s due
diligence team and then finally approved by our due diligence
processes; |
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● |
all
policies must qualify for MRI; and |
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the
projected proceeds payable on each life insurance policy upon the
death of the underlying insured are projected to exceed the costs
to service the life insurance policies, amounts due to creditors
secured by such life insurance policy, such as the Holders’ Lender
or the MRI provider, other costs and fees incurred by the Holder
and the percentage of the remaining insurance benefit retained by
the Holder before payment is made to us in satisfaction of our
NIBs. |
Competition
We
are not aware of any other company engaged in the business of
buying NIBs. However, we encounter significant competition in the
life settlements industry generally from numerous companies,
including hedge funds, investment banks, secured lenders, specialty
life insurance finance companies and life insurance companies
themselves who purchase life settlements. Many of these competitors
have greater financial and other resources than we do and may have
significantly lower cost of funds because they have greater access
to insured deposits or the capital markets. Moreover, some of these
competitors have significant cash reserves and can better fund
shortfalls in collections that might have a more pronounced impact
on companies such as ours. They also have greater market share. For
example, Berkshire Hathaway purchased a portfolio of $300 million
(face value) in life insurance policies in 2013. According to The
Deal Pipeline, total life settlement transactions grew to $2.57
billion (face value) in 2013. In 2014 transaction volumes were reported higher
by market participants in all major segments of the industry and
Conning & Co. forecast an average annual gross market potential
for life settlements of $180 billion from 2014-2023, with an
average volume of approximately $3 billion per year in life
settlement transactions.
A
report from the AAP Life Settlement Market Update indicated that
internal rates of return for life settlement transactions conducted
in 2013 were in the high-teens, an attractive return at a time when
fixed income and other hedge positions were delivering minimal
rates of return. In the event that certain better-financed
companies make a significant effort to compete against our business
or the secondary market in general, prices paid for existing
portfolios of life insurance policies may rise and our ability to
purchase NIBs or realize a return on NIBs may decline. In addition,
recent shrinking of the market for life settlements has resulted in
fewer available pools of insurance policies. As a result, price
competition for the remaining pools has increased. Our limited
resources prohibit us from competing for larger pools. These
factors could adversely affect our profitability by reducing our
return on investment or increasing our risk.
Our
NIB Portfolio
During
October 2017, the Holders of the life settlements completed a
refinancing of the loans that had matured. The agreements were 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
reduced the carrying value of the NIBs at March 31, 2018 to zero.
The Company held no NIBs during the fiscal years ended March 31,
2019 or 2020.
Employees
On
March 31, 2020, we had two full-time employees: Randall F. Pearson,
our President; and Lisa L. Fuller, Esq., our general legal counsel.
On March 31, 2020, the Company had two total employees.
Available
Information
Our
website address is www.sundancestrategies.com. We make available
free of charge on the Investor Relations portion of our website,
our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
Securities and Exchange Commission.
Item 1A. Risk Factors
We
have identified the following risks and uncertainties that may have
a material adverse effect on our business, financial condition,
results of operations and future growth prospects. Our business
could be harmed by any of these risks. The risks and uncertainties
described below are not the only ones we face. The trading price of
our common stock could decline due to any of these risks, and you
may lose all or part of your investment. In assessing these risks,
you should also refer to other information contained in this Form
10-K, including our consolidated financial statements and related
notes.
Risk
Factors relating to Our Company
A pandemic, epidemic or outbreak of an infectious disease in the
United States or elsewhere may adversely affect our
business.
If a
pandemic, epidemic or outbreak of an infectious disease occurs in
the United States or elsewhere, our business may be adversely
affected. In December 2019, a novel strain of coronavirus,
COVID-19, was identified in Wuhan, China. This virus continues to
spread globally and, as of March 2020, has spread to over 100
countries, including the United States. The spread of COVID-19 from
China to other countries has resulted in the World Health
Organization declaring the outbreak of COVID-19 as a “pandemic,” or
a worldwide spread of a new disease, on March 11, 2020.
Federal, state, and local government actions to address and contain
the impact of COVID-19 may adversely affect us. For example, we
could be subject to proposed legislative and/or regulatory action
that seeks to regulate the insurance industry to mitigate the
effects of the COVID-19 pandemic. It is also possible that changes
in economic conditions and steps taken by federal, state, and local
governments in response to COVID-19 could require an increase in
taxes at the federal, state, and local levels, which would
adversely impact our results of operations.
Though some jurisdictions have begun to ease certain restriction
related to the COVID-19 pandemic, recent spikes in the spread of
the disease have caused governmental authority to slow the
re-opening to reinstate restrictions on businesses. We are still
assessing the effect on our business, from the spread of COVID-19
and the actions implemented by the governments across the globe. A
significant outbreak of contagious diseases, such as COVID-19,
could result in a widespread health crisis that could adversely
affect the economies and financial markets of many countries,
resulting in an economic downturn. As a result, our ability to
raise additional funds, if necessary, may be adversely impacted by
risks, or the public perception of the risks, related to the recent
outbreak of COVID-19. Furthermore, the third parties we engage, or
seek to engage, with respect to OEM manufacturing relationships,
and, for supply and development activities, may be adversely
impacted by risks, or the public perception of the risks, related
to the recent outbreak of COVID-19, which may delay OEM
relationships, and, product development opportunities, and increase
our costs.
We have historically used significant amounts of cash in operating
activities since our inception and may continue to use significant
amounts of cash for operating activities in the foreseeable
future.
We
have historically used substantial amounts of cash in operating
activities. When we hold NIBs, we are not responsible for
maintaining any 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 be required 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.
Our
inability to access capital may limit our ability to adequately
fund our operations. In order to continue to purchase NIBs, we will
need to raise substantial amounts of capital. Absent additional
financing, we will not have the resources to execute our business
plan.
In
the past, we have relied on cash provided by financing activities,
including amounts received under notes payable and lines-of-credit
with related parties or the 8% convertible debenture agreement
entered into on June 2, 2015. Our default under these obligations
may also limit our ability to obtain future financing from related
or third parties.
Historically, 99% of our total assets are interests in life
settlement policies, resulting in a lack of diversification of
assets and concentration in assets that are subject to significant
fluctuations in value.
Although
we currently have no interest in life settlement policies,
generally speaking, our investment in NIBs is usually the primary
asset on our balance sheet. Life settlement products like NIBs are
subject to substantial fluctuations in value, primarily based upon
matters that are not within our control, such as the current health
and life expectancy of the insureds underlying our NIBs, the
solvency of the Holders of the policies and the Holders’ Lender,
the Holders’ financing costs and ability to acquire policies and
the solvency of the insurance companies. Each of these factors can
result in significant fluctuations of the value of the life
insurance policies underlying the NIBs, thereby affecting our
potential future interests.
Limitations to the financial model we use may result in inaccurate
or incomplete projections of future cash flow from the insurance
policies underlying our NIBs.
Our
financial model used to project our future cash flows from
potential NIBs was chosen because of its straight-forward approach
in calculating expected cash flows. We believe the methodology used
in the model is particularly desirable because it has parameters
that are easily verifiable and does not require complex
calculations or mathematic simulations to confirm results. However,
with every financial model, there are limitations. Most require
assumptions to be made. Our model is no exception. Our assumptions
may prove to be incorrect and, therefore, our model may be
incorrect. Our model relies on actuarial life-expectancy reports
prepared by third parties from which the estimated date of maturity
is calculated. It is assumed that these reports were accurately
made and properly reflect real life expectancies. Our model then
uses minimum premiums generated by the industry-standard MAPS model
as the assumed premium payments up until the date of maturity. We
assume that such results are accurate and capture all the terms of
a given policy. Our model also requires other inputs including but
not limited to the following: (i) a 15-year period for projections;
(ii) a distinct number of lives; (iii) a distinct number of
policies; (iv) life expectancy tables and projections; (v)
premiums; (vi) senior lending fees; (vii) MRI fees; and (viii)
insurance, servicing and custodial fees. While this method of
modeling cash flows is helpful in setting general expectations of
potential returns that might be produced from a given portfolio,
there is no way such results can be guaranteed. In addition to our
assumptions, there are many factors that may affect the selection
of inputs for the model.
The individuals insured by the life insurance policies underlying
our NIBs may live longer than their actuarial life expectancies and
thereby, our cash flows from life insurance policies underlying our
NIBs coming to maturity may be delayed.
The
actual date of death of an insured with respect to a life insurance
policy is uncertain. Life expectancies are projected from the
medical records of the insured and actuarial data based upon the
historical experience of similarly situated persons. However, it is
impossible to predict with certainty any insured’s life expectancy.
We have and will continue to base our longevity assumptions on the
reports of third-party life expectancy providers, among whom there
is no uniformity of assumptions, approach or procedure. There are
also significant disputes among third-party life expectancy
providers regarding the mortality rate relating to certain disease
states and the efficacy of certain treatments. Some factors that
may affect the accuracy of a life expectancy report or other
calculation of the estimated length of an individual’s life
are:
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the
experience and qualifications of the medical professional or life
expectancy company providing the life expectancy
estimate; |
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the
completeness and accuracy of medical records received by the life
expectancy company; |
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the
reliability of, and revisions to, actuarial tables or other
mortality data published by public and private organizations or
developed by a life expectancy company and utilized by its medical
professionals; |
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the
nature of any illness or health conditions of the insured disclosed
or undisclosed; |
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changes
in living habits and lifestyle of an insured and medical
treatments, medications and therapies available to and used by an
insured; and |
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future
improvements in medical treatments and cures, and the quality of
medical care the insured receives. |
We
rely primarily on four different life expectancy providers,
21st Services LLC, American Viatical Services LLC,
Fasano Associates and EMSI. A life expectancy, or LE, can be
considered the life expectancy provider’s “best estimate” as to how
long a person would live. We assume that the life expectancies were
accurately calculated and properly assessed for purposes of our
model. To introduce some “checks and balances” into our cash flow
projections, we use at least two LE reports from different
third-party LE providers for each policy. We do this to try to
avoid any systemic bias introduced by dependency on life
expectancies produced by a single source. In addition, our model
gives greater weight to the longer (and more conservative) of the
two LEs. By using such a long/short weighted average, our model
attempts to hedge against unexpected longevities in a
portfolio.
Changes
in actuarial based life expectancy methodologies (which are
determined by the Society of Actuaries and are amended every three
to five years) could have the effect of reducing the internal rate
of return on the life insurance policies underlying our NIBs and
could cause increased difficulty in financing premiums. If changes
are significant, they could lower prices for future NIBs (to our
benefit), but could also lower the value of the life insurance
policies underlying our NIBs due to the lower resulting present
value of the death benefits forecasted to be paid at later dates.
Holders’ senior loans require that certain loan to value ratios be
maintained and decreases in policy values could result in
violations of these provisions. Default by Holders on their senior
loans may impair their ability to obtain financing necessary to
maintain the life insurance policies underlying our NIBs, which
could reduce the value of our NIBs. If Holders are unable to make
premium payments and the insurance policies lapse, our NIBs related
to such policies would be worthless.
In
addition, because our cash flow is usually dependent on the life
insurance policies underlying our NIBs coming to maturity, if life
expectancies prove wrong we may not receive cash as projected. If
the insured lives longer than any or all of the life expectancy
appraisals predict, then the amounts available to us on our NIBs or
other life settlement interests could be diminished, perhaps
significantly, due to the additional time during which premiums
will have to be paid and financing and other related expenses
incurred in order to keep the related policy in force. If the
insureds with respect to too many life insurance policies
underlying our NIBs live longer than their respective life
expectancies, then Holders may have to liquidate such life
insurance policies. The market value of such Policies will
necessarily be significantly less than the related death benefits,
which could result in the NIBs held by us losing some or all of
their value.
Having relatively few insureds underlying our NIBs could cause the
overall performance of our NIBs to be unduly influenced by a
relatively small number of underlying policies that perform better
or worse than expected.
Our
life expectancy actuarial results related to our portfolios may not
be as reliable as they would be if the underlying portfolios were
larger. We understand that Standard & Poors has stated that at
least 1,000 lives are required to achieve actuarial stability,
while A.M. Best concluded that at least 300 lives are necessary.
Having fewer lives in a policy portfolio can cause the overall
performance of such portfolio to be unduly influenced by a
relatively small number of “outliers” where the assets perform
better or worse than expected. We have sought to mitigate this risk
by obtaining MRI coverage, which has the effect of accelerating
cash flows in cases where the assets underperform and reducing the
volatility normally associated with a portfolio with fewer
lives.
Increased general market interests rates could increase the
carrying costs of the life insurance policies underlying our NIBs
and correspondingly reduce the cash flows from our
NIBs.
If
general market interest rates increase, the value of any NIBs we
might hold would likely decrease. Some of the Holder’s carrying
costs associated with the life insurance policy portfolios
underlying our NIBs (specifically interest payments on the MRI
coverage outstanding balance) are tied to interest rates. If
interest rates increase, the Holder’s carrying costs will increase
and the return on our investment will decrease. Because the Holders
pay all of the costs associated with the life insurance policy
portfolios underlying our NIBs before they pay us, an increase in
the Holder’s carrying costs will correspondingly decrease the
amount we receive from any NIBs we might hold.
In
addition, if the interest rates used to determine the market value
of a life insurance policy change, the present value of the policy
may also change. Generally, as interest rates increase, the present
value of a life insurance policy decreases. If a Holder is forced
to sell a policy in a higher interest rate environment, the market
price for the policies underlying our NIBs may be less than the
price at which such policy was acquired. Furthermore, Holders are
generally obligated under the senior loans financing the purchase
of life insurance policies to maintain certain loan to value
ratios. If the present value of the life insurance policies
decreases significantly, the Holder may be in breach of such
obligations, which could impair the Holder’s ability to obtain
financing necessary to service existing life insurance policies or
acquire new policies. As a result, any NIBs we might hold may
decline in value or become worthless.
The Holders’ Lender is believed to be one of only one or two
current sources for financing the Senior Loans.
We
currently believe there are only two current sources of financing
for senior loans, which included the Holders’ previous Lenders that
had provided the senior loans for servicing the life insurance
policies underlying our prior NIBs portfolio. The Holders’ Lender
ceased making loans to Holders to finance purchases or servicing of
life settlement policies and we are unable to purchase NIBs in the
manner that we have historically, unless another lender or
financing source can be located by Holders on terms that make NIBs
a valuable asset. Without financing from the Holders’ prior Lenders
or other sources, Holders may not be able to purchase policies and
sell us NIBs. Our business of purchasing and holding NIBs has been
materially and adversely harmed.
Changes to foreign banking laws and regulations or decreased
lending capacity for life settlements could have a negative impact
on ability of Holders to obtain loans with respect to purchases of
life settlements and, thereby, limit our ability to acquire
additional NIBs.
Our
current business model relies on the availability to the Holders of
senior loans from the Holders’ Lender or any other lender. In the
event of adverse regulatory changes or reduced capacity for life
settlement lending, the Holders could experience the same liquidity
issues that have plagued other market participants. Changes to the
Holders’ Lender’s loan to value requirements, compliance with
regulatory large exposure limits and changes to regulatory large
exposure limits could also result in liquidity issues for the
Holders and corresponding liquidity issues for us. As mentioned
above, changes in life expectancies could cause decreases in policy
values, which could result in loan to value violations and
violations of large exposure limits.
We may be required to obtain MRI coverage as a condition of our
business model, which, if unavailable, could potentially increase
our risk of failure.
The
MRI is a relatively new product and there are no guarantees that
the MRI provider will be able to meet the Holders’ coverage needs.
In addition, it is our understanding that there is only one MRI
provider. The MRI provider has refused to provide future coverage
to the Holders. Without the MRI coverage, the Holders have limited
options when the senior loans mature. The Holders’ Lender has
demanded repayment of all outstanding amounts under the senior
loans, which resulted in the complete loss of the value of our
NIBs.
The lapse of life insurance policies underlying our NIBs will
result in the entire loss of our interest in the death benefits
from those particular policies.
The
Holders are required to make premium payments on the life insurance
policies underlying our NIBs in order to keep such policies in
force. These payments generally will be made from amounts available
to the Holders pursuant to the senior loans, death benefits, and
MRI payments, if available.
The Holders we contract with for the ownership of our NIBs and
their related business partners and service providers may not have
financial strength, be solvent or have
integrity.
The
value of NIBs is based on contracts with the Holders and is
dependent on the financial strength, solvency and integrity of the
Holders and their various business partners and service providers.
We have been exposed to financial risk as the Lenders have
foreclosed on the loans underlying the Policies.
Our management team relies on outside consultants and others in our
industry to make informed business decisions; potential conflicts
of interest involving those parties who are relied upon could
adversely affect the value of our NIBs.
Our
management team has relied and will continue to rely on consultants
and service providers in our industry, in evaluating life insurance
products for purchase. Many of these consultants or service
providers represent or provide services to others in this industry,
and no assurance can be given that we, as a small competitor
competing with larger competitors in our industry, will be able to
engage these consultants. In addition, our inability to retain such
consultants would negatively affect our ability to identify and
evaluate life insurance products for purchase. Even as our
management accumulates expertise in this industry, we will still
rely on the expertise of outside consultants for a variety of
information, including valuation, life expectancies, actuarials and
other matters specific to life insurance policies. If we cannot
obtain such services at an affordable price, our business will be
harmed.
Actual results from our NIBs and similar life settlement products
may not match our expected results, which could reduce our return
on investment in our NIBs and also adversely affect our ability to
service and grow our NIB portfolio for actuarial
stability.
Our
business model relies on achieving actual results that are in line
with the results we expect to attain from our investments in NIBs.
We believe that the larger the portfolio of policies underlying the
NIBs we own, the more reliable our actuarial estimates will be and,
likewise, the greater the likelihood that we will achieve our
expected results.
In a
study published in 2012, A.M. Best concluded that at least 300
lives are necessary to narrow the band of cash flow volatility and
achieve actuarial stability, while Standard & Poor’s has
indicated that actuarial stability is unlikely to be achieved with
a pool of less than 1,000 lives. While there is a risk with a
portfolio of any size that actual yield may be less than expected,
we believe that the risk we face is presently more significant
given the relatively low number of insureds underlying our
potential NIBs as compared to rating agency recommendations. Even
if our portfolio reaches the size that is actuarially stable
according to the rating agencies, we still may experience
differences between the actuarial models we use and actual
mortalities. Differences between our expectations and actuarial
models, and actual mortality results, could have a materially
adverse effect on our operating results and cash flow. In such a
case, we would face liquidity problems, including difficulties
acquiring new NIBs and other life settlement products. Continued or
material failures to meet our expected results could decrease the
attractiveness of our securities in the eyes of potential
investors, thereby making it even more difficult to obtain capital
needed to acquire additional NIBs and obtain desired
diversification and expansion of the underlying
insureds.
The limited number of sellers of NIBs and similar life settlement
products in the secondary market may limit our ability to negotiate
favorable prices in the acquisition of such life settlement
interests.
To
our knowledge, Del Mar, PCH and HFII, the three sellers from whom
we have acquired all of our prior interests in NIBs are the only
sellers of NIBs. Because we are not currently licensed to purchase
life insurance policies directly from the insureds, we rely on
re-sellers like Del Mar, PCH and HFII for such products.
Unless
other sources become available or we are able to create our own
NIBs, our ability to purchase the life settlement products desired
under our business model may be limited. In addition, the limited
number of sellers could limit our ability to negotiate favorable
prices to purchase NIBs and similar life settlement products, which
could reduce the profitability of the NIBs and other products we
purchase. Furthermore, recent declines in the secondary market for
life settlements have limited the availability of pools of life
insurance policies, resulting in increased price competition.
Holders facing increased prices may in turn demand higher prices
for the NIBs we purchase under our business model, which would
reduce the profitability of any future acquisition of
NIBs.
We do not track concentrations of pre-existing medical conditions
of insureds in our guidelines for purchasing
NIBs.
Concentrations
of pre-existing medical conditions in insureds could affect the
valuation of the portfolios and NIBs that such policies underlie.
We do not track concentrations of pre-existing medical conditions
in our purchases of NIBs and similar life settlement products.
Thus, the valuation of such interests and our estimates of cash
flows therefrom could be inaccurate.
Current and future federal regulation under the Dodd-Frank Act’s
consumer protection provisions may have an adverse effect on our
business and our planned business operations.
On
July 21, 2010, President Barack Obama signed into law the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(the “Dodd-Frank Act”). The Dodd-Frank Act contains significant
changes to the regulation of financial institutions including the
creation of new federal regulatory agencies and the granting of
additional authorities and responsibilities to existing regulatory
agencies to identify and address emerging systemic risks posed by
the activities of financial services firms. The Dodd-Frank Act also
provides for enhanced regulation of derivatives and asset-backed
securities offerings, restrictions on executive compensation and
enhanced oversight of credit rating agencies. The provisions
include a new independent Bureau of Consumer Financial Protection
to regulate consumer financial services and products, and life
settlement transactions may be within the scope of its
jurisdiction. Actions taken by the Bureau of Consumer Financial
Protection may have material adverse effects on the life settlement
industry and could affect the value of the insurance policies
underlying our NIBs and the value of our NIBs. In addition, the
Dodd-Frank Act also limits the ability of federal laws to preempt
state and local consumer laws. Prospective investors should be
aware that the changes in the regulatory and business landscape as
a result of the Dodd-Frank Act could have an adverse impact on us
and the entities from which we acquire NIBs and similar life
settlement products.
On
February 3, 2017, President Donald Trump signed an executive order
pursuant to which he ordered the Secretary of the Treasury to
consult with the heads of the member agencies of the Financial
Stability Oversight Council on the extent to which existing laws,
treaties, regulations, guidance, reporting and recordkeeping
requirements, and other government policies promote certain core
principles laid out in the executive order. This may result in
repeals of or amendments to existing laws, treaties, regulations,
guidance, reporting and recordkeeping requirements and other
government policies, including regulations implementing the
Dodd-Frank Act. In addition, President Trump’s new administration
has discussed the possibility of repealing or amending the
Dodd-Frank Act and the February 3, 2017 executive order could lead
to such repeals or amendments. The changes resulting from this
executive order and the continuing implementation of the Dodd-Frank
Act may impact the profitability of our business activities or
otherwise adversely affect our business. Failure to comply with the
requirements may negatively impact our results of operations and
financial condition. While we cannot predict what effect any
presently contemplated or future changes in the laws or regulations
or their interpretations would have on us, these changes could be
materially adverse to investors in our common stock.
If NIBs and related life settlement products we purchase are
determined to be “securities,” we may be required to register as an
investment company under the Investment Company Act, which would
substantially increase our SEC reporting costs and oversight of our
business operations.
On
July 22, 2010, the SEC released a Staff Report by the Life
Settlements Task Force that recommended the SEC consider
recommending to Congress that it amend the definition of “security”
under the federal securities laws to include life settlement
policies as securities. One U.S. Congressman has sought to
introduce a bill to make such amendment. While that attempt did not
result in any action, there can be no assurance that such a bill
will not be passed at some future date. If federal securities laws
are indeed amended to include such policies within the definition
of “security,” or if courts with relevant jurisdiction interpret
existing securities laws to that effect, our ability to operate our
business under our current business model may be constrained by
additional regulatory requirements under the Securities Act, the
Exchange Act and the Investment Company Act.
Such
requirements could, among other things, limit our ability to change
investment policies without stockholder approval, prohibit our
acquisition of assets from an affiliate without SEC approval, limit
leveraging of our assets to one-third of our total asset value,
require accounting for all derivatives as a leverage of assets to
the extent that they create an obligation on our part to pay out
assets to a counterparty ahead of our stockholders and generally
and require 40% of our directors to be independent directors. In
addition, intermediaries with whom we work to purchase NIBs and
similar life settlement products may be required to register as
broker-dealers or registered investment advisers and would
otherwise be subject to oversight by the SEC and the Financial
Industry Regulatory Authority, which require adherence to numerous
rules and regulations. Such regulations could substantially
increase our compliance and reporting costs, which would negatively
affect our profitability.
There is poor liquidity in the secondary market for life insurance
and life settlements.
The
secondary market for life insurance policies and life settlements
is relatively illiquid, and it is often difficult to sell life
insurance policies or interests in life insurance policies at
attractive prices, if at all. The ability to sell life insurance
policies may be made even more difficult due to the nature in which
the policies were originated, especially with respect to policies
where the premiums were financed by the original owner, creating an
increased risk associated with holding such policies. Holders may
be limited in their ability to liquidate assets if they need to do
so in order to raise funds to pay premiums, or otherwise. We may
experience a loss of the value of our potential NIBs (including a
total loss) if the life insurance policies underlying our NIBs must
be liquidated under adverse circumstances.
NIBs, and therefore our common stock, are highly speculative and
may lose all of their value.
Life
settlements are highly speculative investments. It is not possible
with respect to the life insurance policies underlying NIBs, to
determine in advance either the exact time that a life insurance
policy will reach maturity (i.e., at the death of the insured) or
the profit, loss or return on an investment in a life insurance
policy. NIBs are net interest benefits in life insurance policies
that will mature at uncertain times and bear associated premium and
other costs. The longer the period between our purchase of NIBs and
the payout on the underlying policy at maturity, the lower return
will be on NIBs because of the cost to maintain the underlying
policies. This renders NIBs, and therefore our common stock, highly
speculative investments.
In
addition, no assurance can be given that any life insurance policy
will perform in accordance with projections, and any such life
insurance policy may decline in value. Consequently, there can be
no assurance that we will realize a positive return on our
investment and these types of investments should be considered to
be highly speculative in nature. This, in turn, may directly affect
the amount and timing of funding sought or received by us, which in
turn will affect our ability to conduct our business. Thus, an
investment in our Company is suitable only for investors having
substantial financial resources, a clear understanding of the risk
factors associated with such investments and the ability to
withstand the potential loss of their entire investment.
General
economic conditions could have an adverse effect on our
business.
Changes
in general economic conditions, including, for example, interest
rates, investor sentiment, market and regulatory changes
specifically affecting the insurance industry, competition,
technological developments, political and diplomatic events, tax
laws, and other factors not known to us today, can substantially
and adversely affect our business and prospects. There continues to
be uncertainty about the prospects for growth in the U.S. economy
as well as economies of other countries, driven by factors such as
high current unemployment, rising government debt levels,
prospective Federal Reserve (and similar foreign bodies) policy
shifts, the withdrawal of government interventions in financial
markets, changing consumer spending patterns, and changing
expectations for inflation and deflation. These factors have
adversely affected the financial markets and the claims-paying
ability of many insurers. Such uncertainties and general economic
trends can affect our ability to obtain funds to finance our
purchase of NIBs and similar life settlement products and the
ability of the Holders we rely on for such products to acquire and
market them. None of these risks are or will be within our
control.
The costs in time and expense of being a publicly-held company are
substantial and will only increase if our business model is
successful.
We
are a “reporting issuer” under Section 13 of the Exchange Act,
required to file annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports respecting certain events on Form
8-K, along with proxy or information statements for any meeting of
stockholders or written consents of stockholders holding sufficient
securities to effect corporate actions. Most of these reports
require generating and compiling significant accounting, legal and
financial information, including audited year-end financial
statements and reviewed quarterly financial statements. The
preparation of these reports, their review by management and
professionals and the auditing and review process of such financial
statements consumes significant resources, in terms of management
time and focus, as well as expenses related to legal, accounting
and audit fees. It is difficult to quantify these costs, but we
believe them to be not less than between approximately $175,000 and
$250,000 annually. As our business grows, these costs can only
increase.
Inadequate funding will impede our planned purchase of
NIBs.
We
began purchasing NIBs during our fiscal year ended March 31, 2013.
At present, we are a minor participant in this market and face
significant competition from much larger competitors. 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, whether
through revenues generated from our current interests in the NIBs
or through debt or equity financing. We expect to finance NIB
purchases, as well as our operating working capital requirements,
with proceeds from planned public and/or private offerings of our
securities and debt financing. There can be no assurance that we
will be successful in raising debt or equity capital or that we
will be successful in raising additional capital in the future on
terms acceptable to us, or at all.
We may be unable to access capital on a timely basis to fund our
operations, which would adversely affect our ability to continue as
a going concern.
Our
inability to access capital may limit our ability to adequately
fund our operations and continue as a going concern. To continue as
a going concern and in order to continue to purchase NIBs, we will
need to raise substantial amounts of capital. Absent additional
financing, we will not have the resources to execute our business
plan and continue as a going concern.
We may default on our obligations under various debt arrangements,
which may accelerate our repayment obligations or otherwise limit
our access to future financing.
If we
fail to make timely repayments of amounts received under notes
payable and lines-of-credit with related parties or the 8%
convertible debenture agreement we will be in default of such
obligations Our default under these obligations may also limit our
ability to obtain future financing from related or third
parties.
Risks
Related to the Life Insurance Policies underlying
NIBs
Our Policies may be determined to have been issued without an
“insurable interest” and could be void or
voidable.
State
insurance laws in the United States require that an insurance
policy may only be initially procured by a person that has an
insurable interest in the continuance of the life of the insured.
Whether an owner has an insurable interest in the insured is a
question of applicable state law. The general concept is that a
person with an insurable interest is a person that has a continuing
interest in the insured remaining alive, whether through the bonds
of love and affection or due to certain recognized economic
relationships. Typically this includes the insured, the insured’s
spouse and children, and in some states, other close relatives. In
some jurisdictions, however, this could also include entities such
as the insured’s creditors, employer, business partners or certain
charitable institutions. It also typically includes a trust that
owns a life insurance policy insuring the life of the grantor or
settlor of the trust where the beneficiaries of the trust are
persons, who, by virtue of certain familial relationships with the
grantor or settlor, also have an insurable interest in the life of
the insured.
A
policy purchased by a person without an insurable interest may,
depending on relevant state insurance law, be (i) void, (ii)
voidable by the insurer that issued the policy and/or (iii) subject
to the claims of the insured’s presumptive beneficiaries, such as
his or her spouse or other family members. In some states, the
insured must consent to the purchase of a policy by a person other
than the insured.
Generally,
state insurance law is clear that an individual has an insurable
interest in his or her own life and may procure life insurance on
his or her own life and may name any person as beneficiary.
However, if a person purchases insurance on his or her own life for
the benefit of a party who does not have an insurable interest in
the life of the insured for the purpose of evading the insurable
interest laws, the purchase may be viewed under applicable state
law as a violation of the state’s insurable interest laws. Should
the issuer own an interest in a policy that was originally issued
to an owner or for the benefit of a beneficiary (if required) that
did not have an insurable interest, it is possible that the issuer
may not have a valid claim for the death benefits on such policy,
and upon the death of the insured, the issuing insurance company
may refuse to pay the death benefits on the policy to us or may be
required to pay the death benefit to other beneficiaries of the
insured. Should any such claims be successful in relation to the
policies underlying NIBs, we could lose some or all of the amounts
we have invested in NIBs, although in some states the issuing
insurance company may be required to repay the premiums if it
rescinds the policy. Some states, such as New Jersey, allow the
carrier to retain all the premiums in the event the policy is
rescinded, and some states, such as Delaware, require premiums to
be returned in cases where the policy is successfully challenged by
the carrier. Even if such claims are unsuccessful, significant
amounts may need to be expended in defending such claims, thereby
reducing the amounts we may receive from NIBs and other life
settlement interests we may purchase.
Concern
also exists regarding the applicability of state insurable interest
requirements applicable to the purchase of a policy by an insured
or a person with an insurable interest in the life of the insured
in circumstances in which the owner of the policy obtains a loan
secured by the policy to finance the payment of premiums on the
policy, often referred to as a premium finance transaction. A
substantial number of the life insurance policies underlying NIBs
have been originated pursuant to premium finance transactions.
While it is generally accepted by state law that an individual has
an insurable interest in his or her own life, it is possible that a
court might construe a premium finance transaction as an attempt to
evade the requirement that an insurable interest exist at the time
an insurance policy is issued. If the borrower in such a
transaction is found to be acting, in fact, on behalf of a premium
finance company to procure an insurance policy, it is possible that
a court might find that the real party in interest is the premium
finance company, which by itself would not have an insurable
interest sufficient to support the insurance policy. As a result,
the insurance policy may be void or subject to attack, which could
diminish the value of the policy. States have varying precedent on
this subject. California, New York and Florida have case law that
is very favorable to the policy owner (see Lincoln v.
Jack Teren and Jonathan S. Berck, as trustee of the Jack Teren
Insurance Trust (Superior Court of the State of California, San
Diego), Alice Kramer v. Lockwood Pension Services, Inc., et
al., (United States District Court – Southern District of New
York)). These courts have held life insurance policies to be
enforceable even where the policies were clearly purchased with an
intent to sell the policies in the future. Florida has case law
that is also favorable (see PrucoLife Insurance Company
v. Wells Fargo (Florida Supreme Court, which held that a policy
may not be contested after the expiration of the policy’s
contestability period). Delaware has laws which benefit the
insurance carrier and others that are more favorable to the policy
owner (see PHL Variable Insurance Co. vs. Price Dawe,
(Supreme Court of Delaware) and Principal Life Insurance Company
v. Lawrence Rucker 2007 Insurance Trust (District Court of
Delaware)). These courts have invalidated policies where the
original policy owners financed the policies and did not intend to
purchase the policies with their own money and further intended to
ultimately sell the policies in the life settlement markets.
However, the Rucker case did provide that premium financing could
qualify as an insured procuring a policy and satisfy requirements
related to insurable interest. There is also legislation in most
states regulating premium financing that must be complied with for
policies originated after the legislation was enacted.
Also,
in every state that has addressed the question other than New York
and Michigan, the expiration of an insurance policy’s
contestability period may not cut off the insurer’s ability to
raise the insurable interest issue as a defense to the payment of
the policy proceeds.
One
or more states could adopt legislation that would require a holder
of an insurance policy to have an insurable interest in the insured
at the time a policy is purchased and at the time of death of the
insured. Neither us nor the Holders will have an insurable interest
in the insureds polices acquired by or on our behalf. If such
legislation were to be adopted without a ‘grandfathering’ provision
(i.e., so as not to be applicable to insurance policies then in
force), then we may be unable to collect the proceeds on the death
benefits of the insured persons under our NIBs purchased prior to
the enactment of such legislation and our NIBs would be
worthless.
Additional insurable interest concerns regarding life insurance
policies originated pursuant to premium finance transactions may
also result in adverse decisions that could affect our
NIBS.
The
legality and merit of “investor-initiated” or “stranger-originated”
life insurance products have been questioned by members of the
insurance industry, including by many life insurance companies and
insurance regulators. For example, the New York Department of
Insurance issued a General Counsel’s opinion in 2005 concluding
that a premium finance program that was coupled with the right of
the policy owner to put the financed insurance policy to a third
party violated New York’s insurable interest statute and may also
constitute a violation of New York State’s prohibition against
premium rebates/free insurance. More recently, many states have
enacted laws expressly defining and prohibiting stranger-originated
life insurance (“STOLI”) practices, which in general involve the
issuance of life insurance policies as part of or in connection
with a practice or plan to initiate life insurance policies for the
benefit of a third-party investor who, at the time of the policy
issuance, lacks a valid insurable interest in the life of the
insured. Under these laws, certain premium finance loan structures
are treated as life settlements and, accordingly, may not be
entered into at the time of policy issuance and for a two or five
year period thereafter, depending on the state. Certain court
decisions issued over the past few years may also increase concerns
with premium financed policies. In 2011, the Delaware Supreme Court
stated in PHL Variable Insurance Company v. Price Dawe 2006
Insurance Trust that the key focus in insurable interest cases
is who paid the premiums. While the decision was not issued in
connection with a premium financed policy, investors were concerned
with how the court would apply such reasoning to premium financed
policies. This concern was alleviated in the 2012 Delaware District
Court case of Principal Life Insurance Company v. Lawrence
Rucker 2007 Insurance Trust that concluded that “an insured’s
ability to procure a policy is not limited to paying the premiums
with his own funds; borrowing money with an obligation to repay
would also qualify as an insured procuring a policy.”
We
cannot predict whether a state regulator, insurance carrier or
other party will assert that any of the policies underlying NIBs
should be treated as having been issued as part of a STOLI
transaction or otherwise were issued in contravention of applicable
insurable interest laws. This risk is greater where the insured
materially misstated his or her income and/or net worth in the life
insurance application. Decisions in Florida have increased the risk
that challenges to premium financed policies may be decided in
favor of the issuing insurance company. Moreover, because the life
insurance policies underlying NIBs are often originated in the same
or a similar manner and in a limited number of states (generally,
California and Wisconsin, although the insured may reside in other
states), there is a heightened risk that an adverse court decision
or other challenge or determination by a regulatory or other
interested party with respect to a policy could have a material
adverse effect on a significant number of other policies, including
the rescission of policies or the occurrence of other actions that
prevent us from being entitled to receive or retain the net death
benefit related to the policies underlying or NIBs. Concerns of
such nature could also negatively affect the market value and/or
liquidity of the life insurance policies underlying NIBs. In the
event of such adverse legal or regulatory developments, NIBs would
be worthless.
Fraud in the application for life insurance can also affect assets
and interest in our NIBs.
There
are risks that the policies underlying NIBs may be procured on the
basis of fraud or misrepresentation in connection with the
application for the policy. Types of fraud that have enabled
carriers to successfully rescind or void the related policies
include, among others, misrepresentations concerning an insured’s
financial net worth and/or income, need for and purpose of the life
insurance protection, medical history and current physical
condition, including age and whether the insured is a smoker. Such
risk of fraud and misrepresentation is heightened in connection
with life insurance policies for which the premiums are financed
through premium finance loans or other structured programs. In
particular, there is a significant risk that applicants and
potential insureds may not answer truthfully or completely
questions related to whether the life insurance policy premiums
will be financed through a premium finance loan or otherwise, the
applicants’ purpose for purchasing the policy or the applicants’
intention regarding the future sale or transfer of the life
insurance policy. Such risk may be further increased to the extent
life insurance agents communicate to applicants and potential
insureds regarding potential premium finance arrangements or
profits to be made on policies that will be sold after the
contestability period. If an insured has made any material
misrepresentation on his/her application for life insurance, there
is a heightened risk that the insurance company will contest or
successfully rescind or void the related policy, although an
issuing insurance company may not be able to raise such claims
after the expiration of the contestability period. There has been
significant litigation regarding whether or not a policy can be
contested for fraud after the expiration of the contestability
period. Florida, California and New York have concluded that a
carrier may not contest a policy after the contestability period.
New Jersey and Delaware have allowed such contests by the carriers.
Even if such fraud in the application could not serve as a basis to
challenge a policy because the contestability period has expired,
it may be raised as evidence that the policy was provided as part
of a STOLI arrangement. Furthermore, such misrepresentations can
adversely affect the actuarial value of the death benefit under the
related life insurance policies underlying NIBs.
The risk of litigation with issuing insurance companies could
substantially raise our costs of operation and increase our risk of
loss.
Some
of the programs relating to the premium finance transactions
through which the underlying insurance policies were originated, or
other programs having similar characteristics, may be objectionable
to certain life insurance companies and other parties, including
certain regulators, on the basis of constituting a means of
originating stranger-originated life insurance. Additionally, as
described above, life insurance policies that are originated
through the use of premium finance programs often present a greater
risk of there having been fraud and/or misrepresentations in
connection with the issuance of the policies. For these reasons,
among others, it is possible that we may become subject to, or may
otherwise become affected by, litigation involving one or more
issuing insurance companies (either as a plaintiff or a defendant),
including claims by an issuing insurance company seeking to rescind
a policy prior to or after the death of the related insured.
Moreover, such risk may be enhanced with respect to an issuing
insurance company that is experiencing financial difficulty, since
a successful claim by an issuing insurance company could reduce its
financial liabilities. In the event any litigation involving us was
to occur, we would bear the costs of such litigation, and would be
unable to predict its outcome, which could include losing our right
to receive (or retain) the proceeds otherwise payable under one or
more of the underlying policies.
The contestation of the life insurance policies underlying our NIBs
by the applicable issuing insurance companies could result in the
loss of the benefits from such life insurance policies and
materially and adversely affect our business and the results of our
operations.
The
ability of an issuing insurance company to seek to rescind one or
more of the life insurance policies underlying our potential NIBs
depends on whether such issuing insurance company is barred from
bringing a rescission action by operation of an incontestability
clause contained in the life insurance policies or contestability
limitations applicable as a matter of state law. Each life
insurance policy, in accordance with laws adopted in virtually
every state in the United States, contains a provision that
provides that, absent a failure to pay premiums, a policy shall be
incontestable after it has been in force during the lifetime of the
insured for a period of not more than two years after its date of
issue. However, as stated above, some states recognize an exception
to incontestability where there was actual fraud in the procurement
of the policy. A new contestability period may also arise in
connection with information provided on any application for
reinstatement of a life insurance policy following lapse of a
policy due to non-payment of premiums, or an application for an
increase in policy benefits. The successful contestation of the
life insurance policies underlying our potential NIBs by the
applicable issuing insurance companies could materially and
adversely affect our business and the results of our
operations.
Increases in cost of insurance could reduce estimated returns and
lower revenues.
Insurers
pass on a portion of their expenses to operate their business and
administer their life insurance policies in the form of policy
charges borne by each policyholder. In the event an insurer
experiences significantly higher than anticipated expenses
associated with operation and/or policy administration, the insurer
has the right to increase the charges to each of its policy owners.
In the event the charges to a life insurance policy are materially
increased, additional premium payments may be required to maintain
enforceability of such policy.
AXA
Equitable issued cost-of-insurance, referred to herein as “COI,”
increases on eleven (11) of the previously held life insurance
policies underlying our prior NIBs. In addition, one Transamerica
and one Lincoln policy, both of which were Policies underlying our
prior NIBs, have been subject to increased COI’s. Other carriers
have been issuing COI increases that impact life insurance policies
held by large settlement funds. Multiple lawsuits, including class
actions, against Phoenix Life, Lincoln National Insurance Company,
AXA Equitable, Banner Life, and Transamerica Life Insurance Company
are currently ongoing. However, most of these lawsuits are in the
very early stages.
Carrier and service partner credit risk can adversely affect our
interest in NIBs or other life settlements.
We
are subject to the credit risk associated with the viability of the
various insurance companies that issued the life insurance policies
underlying our potential NIBs. The insolvency of an issuing
insurance company or a downgrade in the ratings of an issuing
insurance company could have a material adverse impact on the value
of the policies underlying NIBs issued by such issuing insurance
company, the collectability of the related death benefits and the
ability of such issuing insurance company to pay the cash surrender
value or other amounts agreed to be paid by the issuing insurance
company. Any such impairment of the claims-paying ability of the
issuing insurance company could materially and adversely affect the
value of the policies issued by such insurance company, the ability
of the Holder to pay the premiums due on other insurance policies
and the Holders ability to pay any required policy premiums, fees
and expenses of the service providers and our other expenses, which
could materially and adversely affect the value of our potential
NIBs.
The inability to keep track of the insureds could keep us from
updating the medical records of the insured.
It is
important for the Holder of the life insurance policies underlying
our potential NIBs to track the health status of an insured and
keep information current, which is done by contacting the insured
and/or other designated persons and obtaining updated medical
records from an insured’s physician. There are significant U.S.
federal and state laws relating to privacy of personal information
that affect the operations of the servicer and its ability to
properly service the policies underlying our potential NIBs,
especially with regard to obtaining current information from an
insured’s physician.
Under
the Health Insurance Portability and Accountability Act or HIPAA,
the federal law that governs the release of medical records from
medical record custodians, an insured may revoke his or her
authorization for previously authorized third parties to receive
medical records at any time, leaving the Holder unable to receive
additional medical records.
The
Holder may have to rely on a third party servicer to track an
insured, especially if states continue to adopt laws that would
limit the ability of person other than a licensed life settlement
provider or its authorized representative to contact insureds for
tracking purposes, and the servicer may lose contact with such
insured. For example, the insured may move and not notify the
servicer or any other third party that has authority to contact the
insured. The servicer attempts to maintain contact information for
the insured and/or one or more close family friends or relatives
whenever possible so it can maintain contact with the insured.
Additionally, the servicer subscribes to various databases that use
public records and other information to track individuals. The
servicer also subscribes to death notification services which use
Social Security and public records information to notify the
servicer if an insured has passed away so that it can begin the
process of obtaining a death certificate and arranging for the
payout of the policy. Changes to the Social Security
Administration’s Death Master File have resulted in the elimination
of many state records that were previously included in the Death
Master File. The number of new records being added to the Death
Master File has been reduced by approximately 40%. Thus, it has
become necessary to enhance alternative methods for learning of an
insured’s death. On average, it now takes longer to learn about an
insured’s death as compared to periods prior to the changes in the
Death Master File.
Despite
these various tracking methods, it is still possible for the Holder
to lose contact with an insured, making any additional updates of
medical condition for the insured impossible. There can also be no
assurance that the Holder will learn of an insured’s death on a
timely basis. Delays in receiving insurance proceeds result in a
decrease in the death benefit.
Lost insureds can result in a delay or a loss of an insurance
benefit that would have a negative effect on our revenues and
prospects.
Occasionally,
the issuing insurance company may encounter (or assert) situations
where the body of the insured or reasonable other evidence of death
cannot be located and/or identified. For example, the insured may
have been lost at sea and there may not be proof of death available
for several years or at all. Alternatively, the fact that the
original beneficiaries no longer have any financial interest in a
claim under the policy may mean that the issuing insurance company
faces practical obstructions to recording accurately and in a
timely manner the death of the insured. In the event of a “lost”
insured, the death claim may be delayed for up to seven years by
the issuing insurance company. Under these circumstances,
typically, the claim will then be paid with interest from the date
that the insured was originally presumed lost. Nonetheless, it
remains possible that it will be difficult or impossible to locate
and/or identify an insured to establish proof of death and, as a
result, the related issuing insurance company may significantly
delay (but not ultimately avoid) payment of the underlying death
benefit. This delay could result in a longer than anticipated
holding period for a policy which, in turn, could result in a loss
to us.
The
death of an insured must have occurred to permit the servicer to
file a claim with the issuing insurance company for the death
benefit. Obtaining actual knowledge of death of an insured, as
discussed above, may prove difficult and time-consuming due to the
need to comply with applicable law regarding the contacting of the
insured’s family to ascertain the fact of death and to obtain a
copy of the death certificate or other necessary documents in order
to file the claim. The death benefit typically increases subsequent
to death by an interest rate that is less than the interest rate
under the senior loan; thus, the policy proceeds become less
valuable as time passes.
U.S. life settlement and viatical regulations may result in our
being determined to have violated applicable
law.
The
purchase and sale of insurance policies in the secondary market
from the policy’s original owner and among secondary market
participants is subject to regulation in approximately 45 states
and Puerto Rico. The scope of the regulations and the consequences
of their violation vary from state to state. In addition, within a
given state, the regulations may vary based upon the life
expectancy of the insured at the time of sale or purchase. In many
states, a policy on an insured with a life expectancy of two years
or less is referred to as a “viatical settlement” or a “viatical.”
A policy on an insured with a life expectancy of more than two
years is referred to as a “life settlement.” The Holders have not,
and do not intend to, purchase viatical settlements and should not
be subject to the regulatory regimes that govern these policies.
However, the states vary in their technical definitions of viatical
settlements and life settlements, and state insurance regulators,
who are charged with interpretation and administration of insurance
laws and regulations, vary in their interpretations. Therefore,
despite our expectations, it may be possible that under the rules
of a particular state, a policy underlying our potential NIBs that
is not commonly thought of as a viatical settlement may meet the
technical definition thereof. Engaging in the purchase or sale of
life settlements or viatical settlements in violation of applicable
regulatory regimes could result in fines, administrative and civil
sanctions and, in some instances, criminal sanctions. United States
and state securities laws could have an adverse effect on the
Holders’ ability to liquidate any policies we or they believe
should be sold.
It is
possible that, depending on the facts and circumstances attending a
particular sale of a life insurance policy, a sale could implicate
state and federal securities laws. The failure to comply with
applicable securities laws in connection with dealings in life
settlement transactions could result in fines, administrative and
civil sanctions and, in some instances, criminal sanctions. In
addition, parties may be entitled to a remedy of rescission
regarding such transactions. State guaranteed funds give some
protection for payments under life insurance policies, but no
assurance can be given that we will benefit from them.
State protections for the insolvency of an insurance company are
limited.
With
respect to the life insurance policies underlying our potential
NIBs, the payment of death benefits by issuing insurance companies
is supported by state regulated reserves held by the issuing
insurance companies and, under certain circumstances and in limited
amounts that vary from state to state, state-supported life and
health insurance guaranty associations or funds. However, such
reserves and guaranty funds, to the extent in existence, may be
insufficient to pay all death benefits under the life insurance
policies underlying our NIBs issued by an issuing insurance company
if such issuing insurance company becomes insolvent. Even if such
guaranty funds are sufficient, the obligation of a state guaranty
fund to make payments may not be triggered in certain
circumstances.
The
benefits of most or all of such state supported guaranty funds are
capped per insured life (irrespective of the number of policies
issued and outstanding on the life of such individual), which caps
are generally less than the net death benefits of the insurance
policies. Guaranty fund laws often include aggregate limits payable
with respect to any one life across different types of insurance
policies, generally $300,000 to $500,000 depending on the state.
Most state guaranty funds are statutorily created and the
legislatures may amend or repeal the laws that govern them. In
addition, most state guaranty fund laws were enacted with the
stated goal of assisting policy holders resident in such states.
Therefore, non-resident policyholders, beneficiaries, and claimants
may not be covered or may be covered only in limited circumstances.
As a result, state guaranty funds will likely provide little
protection to us in the event of the insolvency of an issuing
insurance company. In addition, in the event of an issuing
insurance company’s insolvency, courts and receivers may impose
moratoriums or delays on payments of cash surrender values and/or
death benefits.
We may incur liability for failing to comply with U.S. privacy
safeguards.
Both
federal and state statutes safeguard an insured’s private health
information. In addition, insureds frequently have an expectation
of confidentiality even if they are not legally entitled to it. If
any of the entities providing services related to the life
insurance policies underlying our NIBs properly obtains and uses
otherwise private health information, but fails to maintain the
confidentiality of such information, such service provider may
receive complaints from the affected individuals, their families
and relatives and, potentially, interested regulatory authorities.
Because of the uncertainty of applicable law, it is not possible to
predict the outcome of such disputes.
Additionally,
it is possible that, due to a misunderstanding regarding the scope
of consents that a service provider possesses, such service
provider may request and receive from health care providers
information that it in fact did not have a right to request or
receive. Once again, if a service provider receives complaints for
these acts, it is not possible to predict what the results will be.
This uncertainty also increases the likelihood that a service
provider may sell, or cause to be sold, life insurance policies in
violation of applicable law, which could potentially result in
additional costs related to defending claims or enduring regulatory
inquiries, rescinding such transactions, possible legal damages and
penalties and probable reduced market value of the affected life
insurance policies. Each of the foregoing factors may delay or
reduce the return on the life insurance policies underlying
NIBs.
Cyber-attacks or other security breaches could have a material
adverse effect on our business.
In
the normal course of business, we have access to sensitive and
confidential information regarding the insureds underlying our
NIBs. Although we devote significant resources and management focus
to ensuring the integrity of our systems through information
security and business continuity programs, our facilities and
systems, and those of third party service providers, are vulnerable
to external or internal security breaches, acts of vandalism,
computer viruses, misplaced or lost data, programming or human
errors or other similar events.
Information
security risks have increased recently in part because of new
technologies, the use of the Internet and telecommunications
technologies (including mobile devices) to conduct financial and
other business transactions and the increased sophistication and
activities of organized crime, perpetrators of fraud, hackers,
terrorists and others. In addition to cyber-attacks or other
security breaches involving the theft of sensitive and confidential
information, hackers recently have engaged in attacks designed to
disrupt key business services, such as customer-facing websites. We
are not able to anticipate or implement effective preventive
measures against all security breaches of these types, especially
because the techniques used change frequently and because attacks
can originate from a wide variety of sources. We employ detection
and response mechanisms designed to contain and mitigate security
incidents, but early detection may be thwarted by sophisticated
attacks and malware designed to avoid detection.
The
access by unauthorized persons to, or the improper disclosure by us
of, confidential information regarding the insureds underlying our
potential NIBs could result in significant legal and financial
exposure, supervisory liability, damage to our reputation or a loss
of confidence in our business, which could have a material adverse
effect on our business, financial condition or results of
operations.
U.S. privacy concerns may affect the access to accurate and current
medical information regarding the insured under the life insurance
policies underlying NIBs.
The
value of a life insurance policy underlying NIBs is inherently tied
to the remaining life expectancy of the insured and information
necessary to perform this valuation may not be available at the
time of purchase or sale. For example, if a policy is being
purchased in the secondary market from an entity that had earlier
purchased the policy directly from the insured, it is likely that
the insured made his or her medical records available at the time
of his or her sale of the policy to the initial purchaser. However,
if necessary consents were not obtained from the insured, it is
possible that this information cannot legally be made available at
the time of the subsequent purchase of the policy. If it is legally
available to the subsequent purchaser, it is possible that such
information is outdated and of little utility for a current
evaluation of the remaining life expectancy of the insured. Even if
the insured granted a general consent that gave the owner of the
policy the right to subsequently request and receive medical
information from the insured’s health providers, it is possible for
the insured to subsequently revoked such consent. Likewise, it is
possible that, under applicable law, the consent expires after a
certain period of time. Even if the consent is effective, without
the cooperation of the insured, it may be difficult to convince the
insured’s health care providers of the consent’s efficacy and such
health providers may be reluctant to release medical information.
These impediments to accessing current medical information can
prove to be a significant obstacle to the proper valuation of a
policy at the time of either the policy’s purchase or
sale.
Risk
Factors Related To Our Common Stock
There is a limited public market for our common stock, and any
market that may develop could be volatile.
The
market for our common stock has been limited due to, among other
factors, low public float of our common stock, low trading volume
and the small number of brokerage firms acting as market makers.
There were approximately 14,641,922 shares of our common stock held
by non-affiliates as of March 31, 2020. Thus, our common stock will
be less liquid than the stock of companies with broader public
ownership, and, as a result, the trading price for shares of our
common stock may be more volatile. Among other things, trading of a
relatively small volume of our common stock may have a greater
impact on the trading price for our stock than would be the case if
our public float were larger. In addition, because our common stock
is thinly traded, its market price may fluctuate significantly more
than the stock market in general or the stock prices of other
companies listed on major stock exchanges. The average daily
trading volume for our stock has varied significantly from week to
week and from month to month, and the trading volume often varies
widely from day to day. Because of the limitations of our market
and volatility of the market price of our stock, investors may face
difficulties in selling shares at attractive prices when they want
to.
An
active trading market for shares of our common stock may never
develop or be sustained. If no trading market develops, securities
analysts may not initiate or maintain research coverage of our
company, which could further depress the market for our common
stock. As a result, investors may not be able to sell their shares
of our common stock at the time that they would like to sell. The
limited market for our shares may also impair our ability to raise
capital by selling additional shares and our ability to acquire
other companies or technologies by using our common stock as
consideration. The following may result in short-term or long-term
negative pressure on the trading price of our shares, among other
factors:
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Conditions
and publicity regarding the life settlement market and related
regulations generally; |
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Regulatory
developments in the life settlement market; |
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Lack
of listing for our common stock; |
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|
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Lack
of shares of our common stock in public float; |
|
|
● |
Lack
of market makers with respect to our common stock; |
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Inability
to raise needed capital; |
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Low
volume of trading of our common stock; |
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Price
and volume fluctuations in the stock market at large, which do not
relate to our operating performance; and |
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● |
Comments
by securities analysts or government officials, including those
with regard to the viability or profitability of the life
settlement industry generally or with regard to our ability to meet
market expectations. |
The
stock market has from time to time experienced extreme price and
volume fluctuations that are unrelated to the operating performance
of particular companies.
We are an emerging growth company and we cannot be certain if the
reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to
investors.
We
are an emerging growth company under the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act. For as long as we continue
to be an emerging growth company, we intend to take advantage of
certain exemptions from various reporting requirements that are
applicable to other public companies including, but not limited to,
reduced disclosure obligations regarding executive compensation in
our periodic reports and proxy statements, exemptions from the
requirements of holding a nonbinding advisory stockholder vote on
executive compensation and any golden parachute payments not
previously approved, exemption from the requirement of auditor
attestation in the assessment of our internal control over
financial reporting and exemption from any requirement that may be
adopted by the Public Company Accounting Oversight Board. If we do,
the information that we provide stockholders may be different than
what is available with respect to other public companies. We cannot
predict if investors will find our common stock less attractive
because we will rely on these exemptions. If some investors find
our common stock less attractive as a result, there may be a less
active trading market for our common stock and our stock price may
be more volatile.
We
will remain an emerging growth company until the earliest of (1)
the end of the fiscal year in which the market value of our common
stock that is held by non-affiliates exceeds $700 million as of the
end of the second fiscal quarter, (2) the end of the fiscal year in
which we have total annual gross revenues of $1.07 billion or more
during such fiscal year, (3) the date on which we issue more than
$1 billion in non-convertible debt in a three-year period or (4)
the end of the fiscal year following the fifth anniversary of the
date of the first sale of our common stock pursuant to an effective
registration statement filed under the Securities Act. Decreased
disclosures in our SEC filings due to our status as an “emerging
growth company” may make it harder for investors to analyze our
results of operations and financial prospects.
Our management and two stockholders beneficially own approximately
61% of our outstanding common stock and therefore can exert control
over our business.
Members
of our management team and two stockholders together beneficially
own approximately 61% of our outstanding common stock. This
percentage of stock ownership is significant in that it could carry
any vote on any matter requiring stockholder approval, including
the subsequent election of directors, who in turn appoint all
officers. As a result, these persons control the Company,
regardless of the vote of other stockholders. As a result, other
stockholders may not have an effective voice in our
affairs.
Future sales of our common stock could adversely affect our stock
price and our ability to raise capital in the future, resulting in
our inability to raise required funding for our
operations.
Sales
of substantial amounts of our common stock could harm the market
price of our common stock. This also could harm our ability to
raise capital in the future. Of the 37,828,441 shares of our common
stock that were outstanding as of March 31, 2020, 225,000 of such
shares are subject to leak-out agreements. Pursuant to such
agreements, each of these stockholder’s common stock can only be
sold in an amount equal to 0.0025% (1/4%) of our outstanding
securities (to be defined for all purposes thereof as the amount
indicated in our most recent filing with the SEC) during each of
the four quarterly periods beginning on January 1, 2017; 0.01 (1%)
of our outstanding securities during each of the next four
successive quarterly periods, all on a non-cumulative basis,
meaning that if no common stock was sold during any quarterly
period while common stock was qualified to be sold, such shares of
common stock cannot be sold in the next successive quarterly period
(the “Leak-Out Period”). Notwithstanding the foregoing, any
stockholder subject to a lock-up/leak-out agreement that owns less
than 100,000 shares of common stock that are covered thereby, is
allowed to sell such stockholder’s common stock. Our remaining
outstanding shares are mostly freely tradable under Rule 144 and
certain limitations on the number of shares that can be sold
quarterly by “affiliates” of the Company as defined under the
Securities Act. Any sales of substantial amounts of our common
stock in the public market, or the perception that those sales
might occur, could harm the market price of our common stock. See
the captions “Market Price of Common Stock and Related Matters” and
“Security Ownership of Certain Beneficial Owners and Management” of
Part II, Item 5, below for further information. Further, certain
stockholders have “piggy-back” registration rights afforded to them
if we file a registration statement with the SEC; these shares or
any registered securities we may register can also have an adverse
effect on any market for our common stock.
We
will not solicit the approval of our stockholders for the issuance
of authorized but unissued shares of our common stock unless this
approval is deemed advisable by our Board of Directors or is
required by applicable law, regulation or any applicable stock
exchange listing requirements. The issuance of additional shares
would dilute the value of our outstanding shares of common
stock.
Item 1B. Unresolved Staff
Comments
None.
Item 2. Properties
We
conduct our business through our executive office, located in
Provo, Utah, with approximately 1,600 square feet of office space.
We believe that the lease to which we are subject is generally on
terms consistent with prevailing market terms, and none of the
leases are with our affiliates. We believe that our facilities are
in good condition and are adequate to meet our operating needs for
the foreseeable future.
Item 3. 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 4. Mine Safety
Disclosures
None.
PART II
Item 5. Market for Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market
Information
Our
common stock is traded on the OTC Pink under the symbol “SUND.”
There is no “established trading market” for our shares of common
stock. No assurance can be given that any established trading
market for our common stock will develop or be maintained, and if
an established trading market develops in the future, the sale of
shares of our common stock that are deemed to be “restricted
securities” or “control securities” pursuant to Rule 144 of the SEC
by members of management or others may have a substantial adverse
impact on any such market.
Holders
We
had 85 stockholders of record as of August 10, 2020, and an
indeterminate number of stockholders who hold shares in “street
name.”
Dividends
There
are no present material restrictions that limit our ability to pay
dividends on our common or preferred stock. Presently, we have no
plans to pay any dividends in the foreseeable future. Our Board of
Directors intends to pursue a policy of retaining earnings, if any,
for use in our operations and to finance expansion of our business.
Any declaration and payment of dividends in the future, of which
there can be no assurance, will be determined by our Board of
Directors in light of conditions then existing, including our
earnings, financial condition, capital requirements and other
factors. There are presently no dividends which are accrued or
owing with respect to our outstanding common stock. No assurance
can be given that dividends will ever be declared or paid on our
common stock in the future.
Recent
Sales of Unregistered Securities
None.
Purchases
of Equity Securities by Us and Affiliated Purchasers
None.
Item 6. Selected Financial
Data
Not
required of smaller reporting companies.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
Forward-looking
Statements
When
used in this Annual Report, the words “may,” “will,” “expect,”
“anticipate,” “continue,” “estimate,” “project,” “intend,” and
similar expressions are intended to identify forward-looking
statements regarding events, conditions, and financial trends that
may affect our future plans of operations, business strategy,
operating results, and financial position. Persons reviewing this
Annual Report are cautioned that any forward-looking statements are
not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from
those included within the forward-looking statements as a result of
various factors. Such factors are discussed further below under
“Trends and Uncertainties,” and also include general economic
factors and conditions that may directly or indirectly impact our
financial condition or results of operations. Reference is also
made to the caption “Forward-Looking Statements” at the forepart of
this Annual Report, which information is incorporated herein by
reference.
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
At present, we are a minor competitor in the Life Settlements
market sector. 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, 2018 to zero. The Company held no
NIBs during the fiscal year ended March 31, 2020.
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.
Results
of Operations
2020Compared to 2019
Income
Recognition
Due
to the foreclosure agreement previously mentioned, no interest
income was recorded for the fiscal years ended March 31, 2020 and
2019.
General
& Administrative Expenses
General
and administrative expenses totaled $828,447 and $1,094,917 during
the years ended March 31, 2020, and 2019, respectively. A
significant portion of these expenses were professional fees,
payroll and travel expenses. Reduced operational needs from the
year ended March 31, 2019 to March 31, 2020 resulted in decreases
in each of the areas previously mentioned.
Other
Income and Expenses
For
the year ended March 31, 2020, other income and expenses totaled
$284,388, consisting of $110,000 of expenses incurred pursuing
potential financing alternatives and $174,388 in interest
expense.
For
the year ended March 31, 2019, other income and expenses totaled
$961,201, consisting of $849,806 of expenses incurred pursuing
potential financing alternatives, $17,840 additional NIBs
impairment on newly acquired NIBs and $93,555 in interest
expense.
Income
Taxes
During
the years ended March 31, 2020 and 2019, the Company recorded a net
loss before income taxes of $1,112,834 and $2,056,118,
respectively, and had no income tax expense or benefit during
either year 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 March 31, 2020, we had $28,784 of cash, compared
to $579 as of March 31, 2019. As of March 31, 2020, the Company had
access to draw an additional $5,105,492 on the notes payable,
related party and $3,000,000 on the Convertible Debenture
Agreement. Our monthly expenses are approximately $70,000, which
includes salaries of our employees, policy servicing expenses,
consulting agreements and contract labor, general and
administrative expenses and estimated legal and accounting
expenses. Outstanding Accounts Payable as of March 31, 2020 totaled
$481,716, and other accrued liabilities totaled $424,954. 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
and will be sufficient to fund our operating working capital
requirements for at least the next 12 months, or through August
2021.
2020Cash Flows Compared to 2019 Cash Flows
For
the year ended March 31, 2020, we recorded net cash used in
operating activities of $750,295, compared to $1,778,823 used in
operating activities during the year ended March 31, 2019. The
decrease in cash used in operating activities was primarily due to
the overall reduction of operating expenses and cash used in
exploring potential financing options.
For
the years ended March 31, 2020 and 2019 no cash was used in or
provided by investing activities.
During
the year ended March 31, 2020 and 2019 net cash provided by
financing activities was $778,500, and $842,500, respectively.
Financing activities for both years consisted of borrowing on new
related party promissory notes and existing notes payable and
lines-of-credits.
Debt
At
March 31, 2020, we owed 2,863,102, including accrued interest, for
debt obligations. We owed $2,450,508 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
March 31, 2020, 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 a principal balance of $795,000, and the line of
credit is currently extended through August 31, 2021. A third
series of promissory notes had a total principal balance of
$826,000 and are due on November 30, 2021. The convertible
debenture agreement, which has no principal balance due as of March
31, 2020 is open through November 30, 2021. As of August 10, 2020,
there was $4,931,991 available under the lines-of-credit we
currently have with related parties and $3,000,000 available under
the 8% convertible debenture agreement.
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.
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.
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 foreclosure on the NIBs mentioned above,
the company has no current source of future revenues. In order to
meet financial obligations, the Company will need to continue to
rely on debt financing from related parties and/or raise additional
capital. 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, or through August 2021. 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. The Company also continues to evaluate other debt
and equity financing opportunities.
Contractual
Obligations and Contingencies
The
following table sets forth payments due by period for fixed
contractual obligations by maturity date as of March 31,
2020:
| |
|
|
|
|
Maturity Date |
|
| |
|
Total |
|
|
Year Ended
March 31, 2021 |
|
|
Year Ended
March 31, 2022 |
|
|
Thereafter |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Debt Obligations |
|
$ |
2,450,508 |
|
|
$ |
- |
|
|
$ |
2,450,508 |
|
|
$ |
- |
|
| Interest
payable |
|
|
412,594 |
|
|
|
- |
|
|
|
412,594 |
|
|
|
- |
|
| Total |
|
$ |
2,863,102 |
|
|
$ |
- |
|
|
$ |
2,863,102 |
|
|
$ |
- |
|
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.
Income
Taxes, The Company accounts for income taxes under FASB ASC
740, “Income Taxes”. Deferred income tax assets and liabilities are
determined based upon differences between the financial reporting
and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Accounting standards require
the consideration of a valuation allowance for deferred tax assets
if it is “more likely than not” that some component or all of the
benefits of deferred tax assets will not be realized. The primary
factor management considers when evaluating the realization of the
deferred tax assets is the amount of cash flows (which represents
taxable income) to be received from the Company’s NIBs prior the
expiration of the tax net loss carryforwards.
The
tax effects from an uncertain tax position can be recognized in the
financial statements only if the position is more likely than not
of being sustained if the position were to be challenged by a
taxing authority. The Company has examined the tax positions taken
in its tax returns and determined that there are no uncertain tax
positions. As a result, the Company has recorded no uncertain tax
liabilities in its balance sheet. Interest and penalties for
uncertain positions, when applicable, would be recognized as a
component of income tax expense.
Off Balance Sheet Arrangements
None.
Item 8. Financial Statements and
Supplementary Data
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
INDEX
TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of Sundance Strategies,
Inc.:
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of
Sundance Strategies, Inc. (“the Company”) as of March 31, 2020 and
2019, the related consolidated statements of operations,
stockholders’ deficit, and cash flows for each of the years in the
two-year period ended March 31, 2020 and the related notes
(collectively referred to as the “financial statements”). In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as
of March 31, 2020 and 2019 and the results of its operations and
its cash flows for each of the years in the two-year period ended
March 31, 2020, in conformity with accounting principles generally
accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining on a test basis, evidence
regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our
opinion.
/s/
Sadler, Gibb & Associates, LLC
We
have served as the Company’s auditor since 2018.
Salt
Lake City, UT
August
10, 2020
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
Consolidated
Balance Sheets
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current Assets |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$ |
28,784 |
|
|
$ |
579 |
|
|
Prepaid expenses and other assets |
|
|
2,205 |
|
|
|
5,108 |
|
| |
|
|
|
|
|
|
|
|
| Total Current
Assets |
|
$ |
30,989 |
|
|
$ |
5,687 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current
Liabilities |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
481,716 |
|
|
$ |
306,871 |
|
| Stock
repurchase payable |
|
|
400,000 |
|
|
|
400,000 |
|
| Total Current Liabilities |
|
|
881,716 |
|
|
|
706,871 |
|
| |
|
|
|
|
|
|
|
|
| Long-Term
Liabilities |
|
|
|
|
|
|
|
|
| Notes payable,
related parties |
|
|
2,450,508 |
|
|
|
1,672,008 |
|
|
Accrued expenses |
|
|
424,954 |
|
|
|
240,163 |
|
| |
|
|
|
|
|
|
|
|
| Total Long-Term
Liabilities |
|
|
2,875,462 |
|
|
|
1,912,171 |
|
| |
|
|
|
|
|
|
|
|
| Total
Liabilities |
|
|
3,757,178 |
|
|
|
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 |
|
|
(27,955,242 |
) |
|
|
(26,842,408 |
) |
| |
|
|
|
|
|
|
|
|
| Total
Stockholders’ Deficit |
|
|
(3,726,189 |
) |
|
|
(2,613,355 |
) |
| |
|
|
|
|
|
|
|
|
| Total
Liabilities and Stockholders’ Deficit |
|
$ |
30,989 |
|
|
$ |
5,687 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
Consolidated
Statements of Operations
| |
|
Year Ended |
|
|
Year Ended |
|
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Interest Income on
Investment in Net Insurance Benefits |
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
General and Administrative Expenses |
|
|
828,446 |
|
|
|
1,094,917 |
|
| |
|
|
|
|
|
|
|
|
| Loss
from Operations |
|
|
(828,446 |
) |
|
|
(1,094,917 |
) |
| |
|
|
|
|
|
|
|
|
| Other Expense |
|
|
|
|
|
|
|
|
| Impairment of
investment in net insurance benefits |
|
|
- |
|
|
|
(17,840 |
) |
| Interest
expense |
|
|
(174,388 |
) |
|
|
(93,555 |
) |
|
Financing expense |
|
|
(110,000 |
) |
|
|
(849,806 |
) |
| |
|
|
|
|
|
|
|
|
| Total
Other Expense |
|
|
(284,388 |
) |
|
|
(961,201 |
) |
| |
|
|
|
|
|
|
|
|
| Loss Before Income
Taxes |
|
|
(1,112,834 |
) |
|
|
(2,056,118 |
) |
| Income
Tax Provision (Benefit) |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net
Loss |
|
$ |
(1,112,834 |
) |
|
$ |
(2,056,118 |
) |
| |
|
|
|
|
|
|
|
|
| Basic and
Diluted: |
|
|
|
|
|
|
|
|
| Basic
and diluted loss per share |
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
| |
|
|
|
|
|
|
|
|
| Basic and
diluted weighted average number of shares outstanding |
|
|
37,828,441 |
|
|
|
42,455,217 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
Consolidated
Statements of Stockholders’ Deficit
For
the Years Ended March 31, 2020 and 2019
| |
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
| |
|
Common
Stock |
|
|
Paid In |
|
|
Accumulated |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2018 |
|
|
44,128,441 |
|
|
$ |
44,129 |
|
|
$ |
24,547,014 |
|
|
$ |
(24,786,290 |
) |
|
$ |
(195,147 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of Common Stock in exchange
for Net Insurance Benefits |
|
|
800,000 |
|
|
|
800 |
|
|
|
17,040 |
|
|
|
- |
|
|
|
17,840 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cancellation of repurchased shares |
|
|
(8,000,000 |
) |
|
|
(8,000 |
) |
|
|
(392,000 |
) |
|
|
- |
|
|
|
(400,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of Common Stock in lieu of
Director Compensation |
|
|
900,000 |
|
|
|
900 |
|
|
|
19,170 |
|
|
|
- |
|
|
|
20,070 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,056,118 |
) |
|
|
(2,056,118 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2019 |
|
|
37,828,441 |
|
|
$ |
37,829 |
|
|
$ |
24,191,224 |
|
|
$ |
(26,842,408 |
) |
|
$ |
(2,613,355 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,112,834 |
) |
|
|
(1,112,834 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2020 |
|
|
37,828,441 |
|
|
$ |
37,829 |
|
|
$ |
24,191,224 |
|
|
$ |
(27,955,242 |
) |
|
$ |
(3,726,189 |
) |
The
accompanying notes are an integral part of these consolidated
financial statements.
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
Consolidated
Statements of Cash Flows
| |
|
Year Ended |
|
|
Year Ended |
|
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Operating
Activities |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Net
Loss |
|
$ |
(1,112,834 |
) |
|
$ |
(2,056,118 |
) |
| Adjustments to
reconcile to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
| Share based
compensation - common stock |
|
|
- |
|
|
|
20,070 |
|
| Impairment of net
insurance benefits |
|
|
- |
|
|
|
17,840 |
|
| Changes in
operating assets and liabilities |
|
|
|
|
|
|
|
|
| Prepaid expenses
and other assets |
|
|
2,903 |
|
|
|
(403 |
) |
| Accounts
payable |
|
|
174,845 |
|
|
|
144,277 |
|
|
Accrued expenses |
|
|
184,791 |
|
|
|
95,511 |
|
| |
|
|
|
|
|
|
|
|
| Net
Cash used in Operating Activities |
|
|
(750,295 |
) |
|
|
(1,778,823 |
) |
| |
|
|
|
|
|
|
|
|
| Financing
Activities |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable, related party |
|
|
778,500 |
|
|
|
842,500 |
|
| |
|
|
|
|
|
|
|
|
| Net
Cash provided by Financing Activities |
|
|
778,500 |
|
|
|
842,500 |
|
| |
|
|
|
|
|
|
|
|
| Net Change in Cash
and Cash Equivalents |
|
|
28,205 |
|
|
|
(936,323 |
) |
| Cash
and Cash Equivalents at Beginning of Period |
|
|
579 |
|
|
|
936,902 |
|
| |
|
|
|
|
|
|
|
|
| Cash
and Cash Equivalents at End of Period |
|
$ |
28,784 |
|
|
$ |
579 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
|
|
| Cash paid for
interest |
|
$ |
- |
|
|
$ |
- |
|
| Cash paid for
income taxes |
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
| Non Cash Financing
& Investing Activities, and Other Disclosures |
|
|
|
|
|
|
|
|
| Exchange common
stock for Investment in Net Insurance Benefits |
|
$ |
- |
|
|
$ |
17,840 |
|
| Repurchase of
stock in exchange for Stock Repurchase Payable |
|
$ |
- |
|
|
$ |
400,000 |
|
The
accompanying notes are an integral part of these audited
consolidated financial statements.
SUNDANCE STRATEGIES, INC. AND
SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and 2019
(1)
ORGANIZATION AND BASIS OF PRESENTATION
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.
Accounting Treatment When the Company Holds NIBs
The
Company does not take possession or control of the policies. The
owners of the life settlements or life insurance policies (the
“Owners” or “the Holders”) acquire such policies at a discount to
their face value. On settlement, the Company receives the net
insurance benefit after all borrowings, interest and expenses have
been paid by the Owners out of the settlement proceeds.
The
Owners are variable interest entities (VIEs), for which the Company
has a variable interest, but is not the primary beneficiary. The
Company’s investment in NIBs were issued by the Owners (i.e. the
VIEs). The Company’s maximum exposure to loss in the variable
interest entities is limited to the investment in NIBs balance. The
Company does not have the power to direct activities of the VIEs.
Further, the Company does not have the contractual obligation to
absorb losses of the VIEs.
The
investment in NIBs is a residual economic beneficial interest in a
portfolio of life insurance contracts that have been financed by an
independent third party via a loan from a lender and, in certain
cases, insured via a mortality risk insurance product or mortality
re-insurance (“MRI”). Future expected cash flow and positive
profits 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.
When
NIBs held by the Company are classified as held-to-maturity 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 determine 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 CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and 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. We had not recognized any impairment on our investment
in NIBs from inception, through the year ended March 31,
2017.
When
the Company holds NIBs classified as available-for-sale the
investment in NIBs are recorded at fair value.
Prior Operations
Between
May 2018 and July 2018, the Owners entered into agreements that
completed a strict foreclosure transaction that transferred these
policies from the owners 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
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,
the Company 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
March 31, 2020 and 2019, the Company had fully impaired the
Investment in NIBs, and the value of those assets were
zero.
(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates,
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Cash
and Cash Equivalents, For purposes of reporting cash flows, the
Company considers all highly-liquid debt instruments purchased with
an original maturity of three months or less to be cash
equivalents.
Income
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.
Basic and Diluted Net 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. Potential dilutive common stock equivalents are
primarily comprised of potential dilutive shares resulting from
convertible debt agreements and common stock warrants. Potentially
dilutive shares resulting from convertible debt agreements are
evaluated using the if-converted method. Potentially dilutive
securities are not included in the calculation of diluted net loss
per share for the years ended March 31, 2020 and 2019, because to
do so would be anti-dilutive. Potentially dilutive securities
outstanding as of March 31, 2020 include warrants convertible into
1,702,000 shares of common stock. No potentially dilutive
securities were outstanding as of March 31, 2019.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and 2019
Stock
Based Compensation, The Company measures stock-based
compensation expense related to employee stock-based awards based
on the estimated fair value of the awards as determined on the date
of grant and is recognized as expense over the remaining requisite
service period. The Company utilizes the Black-Scholes option
pricing model to estimate the fair value of stock options issued as
compensation. The Black-Scholes model requires the input of highly
subjective and complex assumptions, including the estimated fair
value of the Company’s common stock on the date of grant, the
expected term of the stock option, and the expected volatility of
the Company’s common stock over the period equal to the expected
term of the grant. The Company estimates forfeitures at the date of
grant and revises the estimates, if necessary, in subsequent
periods if actual forfeitures differ from those
estimates.
Investment
in Net Insurance Benefits, The investment in NIBs is a residual
economic beneficial interest in a portfolio of life insurance
contracts that have been financed by an independent third party via
a loan from a lender and insured, on occasion, 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. At March 31, 2020, we have determined our
investment in NIBs to have no fair value, as all remaining benefits
had been received and the underlying policies have been subject to
foreclosure (see Note 1).
In
estimating these cash flows for purposes of interest income and
impairment calculations, there are a number of assumptions that are
subject to uncertainties and contingencies. These include 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 those
estimates.
Income
Taxes, The Company accounts for income taxes under FASB ASC
740, “Income Taxes”. Deferred income tax assets and liabilities are
determined based upon differences between the financial reporting
and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Accounting standards require
the consideration of a valuation allowance for deferred tax assets
if it is “more likely than not” that some component or all of the
benefits of deferred tax assets will not be realized.
The
tax effects from an uncertain tax position can be recognized in the
financial statements only if the position is more likely than not
of being sustained if the position were to be challenged by a
taxing authority. The Company has examined the tax positions taken
in its tax returns and determined that there are no uncertain tax
positions. As a result, the Company has recorded no uncertain tax
liabilities in its balance sheet. Interest and penalties for
uncertain positions, when applicable, would be recognized as a
component of income tax expense.
The
Company files United States Federal and State income tax returns.
The income tax returns of the Company are subject to examination by
taxing authorities for three to five years from the date they are
filed. The Company has tax returns subject to examination for
2014-2019.
Principles
of Consolidation, The consolidated financial statements include
the accounts of the Company and its subsidiary. The subsidiary is
wholly owned. All intercompany accounts and transactions are
eliminated in consolidation.
Variable
Interest Entities (“VIEs”), When the Company holds NIBs the
owners of the underlying Life Insurance Policies are often
considered variable interest entities (VIEs), for which the Company
has a variable interest, but is not the primary beneficiary, as it
does not have control over the significant activities affecting the
economic performance of the owners. The Company’s maximum exposure
to loss in the variable interest entities is limited to the
investment in NIBs balance, which has a carrying value of zero as
of March 31, 2020 and 2019. The Company does not have the power to
direct activities of the VIEs. Further, the Company does not have
the contractual obligation to absorb losses of the VIE beyond the
Company’s initial investment.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and 2019
Fair
Value, 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.
●
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.
●
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.
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 years ended March 31, 2020 and 2019.
The
Company’s recorded values of cash and cash equivalents, accounts
payable and accrued liabilities approximate their fair values based
on their short-term nature. The recorded values of the Notes
Payable, Related Parties and Convertible Debenture approximates the
fair values as the interest rate approximates market interest
rates.
(3)
NEW ACCOUNTING PRONOUNCEMENTS
Adopted During the Year Ended March 31, 2020
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.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and 2019
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.
(4)
CASH AND CASH EQUIVALENTS
Cash
and cash equivalents consist principally of currency on hand and
demand deposits at commercial banks. The Company had $28,784 and
$579 in cash and cash equivalents as of March 31, 2020, and 2019,
respectively. The Company maintains non-interest-bearing accounts
at one financial institution. The accounts at this institution are
insured by the Federal Deposit Insurance Corporation (FDIC) up to
$250,000.
(5)
STOCKHOLDERS’ EQUITY
Common
Stock
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.
Warrants
to Purchase Common Stock
As
explained in Note 6, the related party lenders have received
warrants to purchase common stock of the Company if extensions of
due dates had been granted or additional monies had been loaned
under the agreements.
Effective
April 3, 2020, the related party, note payable and line of credit
agreement with the Chairman of the Board of Directors and a
stockholder (see Note 6) was amended to include a formal provision
that provides the related party lender with common stock warrants
upon the lenders extension of a maturity due date or upon the
loaning of additional monies. The number of warrants issued will be
based on the following formula: 10,000 warrants per month the due
date is extended plus 1 warrant for every $2 of the principal
balance outstanding (not including interest) at the time of the
extension (rounded to the nearest whole warrant). Effective April
3, 2020, the number of warrants to be issued upon the loaning of
additional monies is 2 warrants for each dollar loaned.
In
addition, Mr. Dickman, the holder of the related party, unsecured
promissory notes (see Note 6) has informed the Company that, at
such time the Company requests either an extension or additional
monies from the lender, in addition to interest, the lender will
require 10,000 warrants per month the due date is extended plus 1
warrant for every $2 of the principal balance outstanding (not
including interest) at the time of the extension (rounded to the
nearest whole warrant). Upon the loaning of additional monies, the
lender will also require 2 warrants for each dollar
loaned.
As of
March 31, 2020, the Company held outstanding warrants to related
parties totaling 1,702,000 (none as of March 31, 2019). All
warrants have an exercise price of $0.05 per share, a five-year
life as of the date of grant and expire between November 2024 and
February 2025. The average remaining outstanding life of the
warrants as of March 31, 2020, was 4.75 years. The common stock
issued upon exercise of the warrants are not registered with the
Securities and Exchange Commission and do not have registration
rights.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and 2019
(6)
NOTES PAYABLE, RELATED PARTY
As of
March 31, 2020 and 2019, the Company had borrowed $2,450,508 and
$1,672,008 respectively, excluding accrued interest, from related
parties. The interest associated with the Notes Payable, Related
Party of $288,369 and $113,981 is recorded on the balance sheet as
an Accrued Expense obligation at March 31, 2020 and March 31, 2019,
respectively.
Related
Party Promissory Notes
As of
March 31, 2020 and 2019, the Company owed $826,000 and $450,000,
respectively, under the unsecured promissory notes from Mr. Glenn
S. Dickman, a stockholder and member of the Board of Directors. The
promissory notes bear interest at a rate of 8% annually. On
November 5, 2019, the Company agreed to amend the agreements to
extend the due date on the promissory notes 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 and a five-year life.
The value of the warrants on the date of grant, as calculated by
the Black-Scholes-Merton valuation model, was not significant. The
inputs used in this calculation included a risk-free rate of 1.66%,
volatility of 27.29% and a dividend rate of 0%. On February 4,
2020, the Company borrowed an additional $230,000 from Mr. Dickman,
and agreed to provide him with an additional 752,000 warrants for
shares of common stock at an exercise price of $0.05 per share. The
value of the warrants on the date of grant, as calculated by the
Black-Scholes-Merton valuation model, was not significant. The
inputs used in this calculation included a risk-free rate of 1.66%,
volatility of 27.29% and a dividend rate of 0%. During the year
ended March 31, 2020, the Company borrowed a total of $376,000 of
principal under this agreement and made no repayments. As of March
31, 2020, accrued interest on the notes totaled $67,752. In the
event the Company completes a successful equity raise all principal
and interest on the notes are due in full at that time.
Related
Party Note Payable and Line of Credit Agreements
As of
March 31, 2020 and 2019, the Company owed $795,000 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. On January 8, 2020, the note payable and the line
of credit agreement was extended from November 30, 2020 to August
31, 2021. 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 and a five-year life. The value of the
warrants on the date of grant, as calculated by the
Black-Scholes-Merton valuation model, was not significant. The
inputs used in this calculation included a risk-free rate of 1.66%,
volatility of 27.29% and a dividend rate of 0%. The note payable
and line of credit agreement incurs interest at 7.5% per annum and
are collateralized by the Company’s NIBS, if any. During the year
ended March 31, 2020 the Company borrowed $402,500 of principal
under this agreement and made no repayments. As of March 31, 2020,
accrued interest on totaled $69,209. 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
March 31, 2020 and 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. 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 from November 30, 2020 to
August 31, 2021, or at the immediate time when alternative
financing or other proceeds are received. The note payable and line
of credit agreement incurs interest at 7.5% per annum and is
collateralized by the Company’s NIBS, if any. During the year ended
March 31, 2020 the Company neither borrowed nor repaid any
principal under this agreement. As of March 31, 2020, accrued
interest on this agreement totaled $151,408. 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 CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and 2019
(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 and is not collateralized. 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.
On October 29, 2019, the Company agreed to amend the 8% Convertible
Debenture Agreement and extended the due date and conversion rights
to December 1, 2020. Subsequent to March 31, 2020, the Company
agreed to further extend the due date and conversion rights to
November 30, 2021. As of March 31, 2020 and 2019, the Company owed
no principal under the agreement. The associated interest of
$124,225 is recorded on the balance sheet as an Accrued Expense
obligation at March 31, 2020 and 2019.
(8)
LIQUIDITY REQUIREMENTS
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 March 31, 2020, the Company had
$28,784 of cash assets, compared to $579 as of March 31, 2019. As
of March 31, 2020, the Company had access to draw an additional
$5,105,492 on the notes payable, related party (see Note 6) and
$3,000,000 on the Convertible Debenture Agreement (See Note 7). For
the year ended March 31, 2020, the Company’s average monthly
operating expenses were approximately $70,000, which includes
salaries of our employees, consulting agreements and contract
labor, general and administrative expenses and legal and accounting
expenses. The Company anticipates the average monthly expenses of
$70,000 to decrease by approximately $10,000 over the next 12
months, resulting in ongoing, average monthly expenses of
approximately $60,000. In addition to the monthly operating
expenses, the Company continues to pursue other debt and equity
financing opportunities, and as a result, financing expenses of
$110,000 and $849,806 were incurred during the years ended March
31, 2020, and 2019, respectively. As management continues to
explore additional financing alternatives, beginning April 1, 2020
the Company is expected to spend up to an additional $400,000 on
these efforts. Outstanding Accounts Payable as of March 31, 2020
totaled $481,716. 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, or through June 2020. 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.
The
recent outbreak of COVID-19 originated in Wuhan, China, in December
2019 and has since spread to multiple countries, including the
United States and several European countries. On March 11, 2020,
the World Health Organization declared the outbreak a pandemic. The
COVID-19 pandemic is affecting the United States and global
economies and may affect the Company’s operations and those of
third parties on which the Company relies. While the potential
economic impact brought by, and the duration of, the COVID-19
pandemic is difficult to assess or predict, the impact of the
COVID-19 pandemic on the global financial markets may reduce the
Company’s ability to access capital, which could negatively impact
the Company’s short-term and long-term liquidity. The ultimate
impact of the COVID-19 pandemic is highly uncertain and subject to
change. The Company does not yet know the full extent of potential
delays or impacts on its business, financing or other activities or
on healthcare systems or the global economy as a whole. However,
these effects could have a material impact on the Company’s
liquidity, capital resources, operations and business and those of
the third parties on which we rely.
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 foreclosure on the NIBs 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.
(9)
INCOME
TAXES
The
Company provides for income taxes under ASC 740, Income Taxes. ASC
740 requires the use of an asset and liability approach in
accounting for income taxes. Deferred tax assets and liabilities
are recorded based on the differences between the financial
statement and tax bases of assets and liabilities and the tax rates
in effect when these differences are expected to
reverse.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and 2019
The
Company recorded no provision for income taxes for the years ended
March 31, 2020 and 2019.
The
income tax provision differs from the amount of income tax
determined by applying the U.S. federal tax rate of 21% to pretax
income from continuing operations for the years ended March 31,
2020 and 2019, due to the following:
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Income tax benefit at U.
S. federal statutory rates: |
|
$ |
(233,695 |
) |
|
$ |
(431,785 |
) |
| State tax, net of federal benefit |
|
|
(43,517 |
) |
|
|
(80,405 |
) |
| Permanent and other differences |
|
|
20 |
|
|
|
11 |
|
| Net operating losses |
|
|
- |
|
|
|
- |
|
| Change in valuation allowance |
|
|
277,273 |
|
|
|
512,179 |
|
| Change in statutory rate |
|
|
- |
|
|
|
- |
|
| Other |
|
|
(81 |
) |
|
|
- |
|
| |
|
$ |
- |
|
|
$ |
- |
|
The
tax effects of significant items comprising the Company’s net
deferred taxes as of March 31, 2020 and 2019 were as
follows:
| |
|
2020 |
|
|
2019 |
|
| Deferred Tax assets: |
|
|
|
|
|
|
|
|
| Net operating loss carry
forwards |
|
$ |
6,574,104 |
|
|
$ |
6,296,831 |
|
| Stock and warrant compensation |
|
|
479,708 |
|
|
|
479,708 |
|
| Valuation
allowance |
|
|
(7,053,812 |
) |
|
|
(6,776,539 |
) |
| Net deferred
tax asset |
|
$ |
- |
|
|
$ |
- |
|
The
Company assesses the need for a valuation allowance against its
deferred income tax assets at March 31, 2020. Factors considered in
this assessment include recent and expected future earnings and the
Company’s liquidity and equity positions. During the year ended
March 31, 2018, the underlying policies related to the Company’s
NIBs were subject to foreclosure (see Note 1). As a result, the
Company has placed a 100% valuation allowance on the deferred tax
assets. The deferred tax assets primarily relate to net operating
loss carryforwards and the deferred tax liabilities primarily
related to revenue recognized for financial reporting purposes, but
not for tax reporting purposes.
As of
March 31, 2020, the Company has U.S. federal net operating loss
carryforwards of $26,390,855. These carry forwards are available to
offset future taxable income, if any, and begin to expire in 2021.
The utilization of the net operating loss carry forwards is
dependent upon the tax laws in effect at the time the net operating
loss carry forwards can be utilized and may be significantly
limited based on ownership changes within the meaning of section
382 of the Internal Revenue Code.
Under
FASB ASC 740-10-05-6, tax benefits are recognized only for the tax
positions that are more likely than not to be sustained upon
examination by tax authorities. The amount recognized is measured
as the largest amount of benefit that is greater than 50 percent
likely to be realized upon ultimate settlement. Unrecognized tax
benefits are tax benefits claimed in the company’s tax return that
do not meet these recognition and measurement standards.
The
Company had no liabilities for unrecognized tax benefits and the
Company has recorded no additional interest or
penalties.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and 2019
(10)
SUBSEQUENT
EVENTS
Subsequent
to year end, the following events transpired:
On
July 13, 2020, the Company agreed to amend the 8% convertible
debenture agreement with Satco International, Ltd., to extend the
due date and conversion rights from December 1, 2020 to November
30, 2021.
Subsequent to March 31, 2020, the Company borrowed an additional
$173,500 on Notes Payable, Related Party and issued 347,000
warrants.
Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and
Procedures
(a)
Disclosure Controls and Procedures
We
maintain disclosure controls and procedures, as such term is
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934 (the “Exchange Act”), that are designed to ensure that
information required to be disclosed in the reports filed or
submitted under the Exchange Act, is recorded, processed,
summarized, and reported within the time periods specified by the
Commission’s rules and forms.
We
carried out an evaluation, under the supervision and with the
participation of our management, including our principal executive
officer and principal financial officer, of the effectiveness of
the design and operation of these disclosure controls and
procedures, as such term is defined in Exchange Act Rule 13a-15(e),
as of March 31, 2020. Based on this evaluation, our principal
executive officer and principal financial officer concluded our
disclosure controls and procedures were effective as of March 31,
2020, the end of the period covered by this Annual Report on Form
10-K.
(b)
Management’s Report on Internal Control over Financial
Reporting
Management
of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Internal
control over financial reporting is a process designed 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. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness of internal
control over financial reporting to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Our
internal control over financial reporting is designed to provide
reasonable assurance of achieving its objectives as specified
above. Management does not expect, however, that our internal
control over financial reporting will prevent or detect all error
and fraud. Any control system, no matter how well designed and
operated, is based upon certain assumptions and can provide only
reasonable, not absolute, assurance that its objectives will be
met. Further, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur
or that all control issues and instances of fraud, if any, within
the Company have been detected.
Management,
including our principal executive officer and principal financial
officer, has assessed the effectiveness of our internal control
over financial reporting as of March 31, 2020. In making our
assessment of the effectiveness of internal control over financial
reporting, management used the criteria set forth in Internal
Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based
on this assessment, management has concluded that, as of March 31,
2020, our internal control over financial reporting was
effective.
This
Annual Report does not include an attestation report of our
registered public accounting firm regarding our internal controls
over financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to
rules of the SEC that permit us to provide only management’s report
in this Annual Report.
(c)
Changes in Internal Control Over Financial Reporting
During
the first, second and third quarters of the year ended March 31,
2020, we concluded the design and operation of our controls
contained a material weakness related to adequate segregation of
duties in some areas of finance. As of March 31, 2020, our material
weakness was remedied. The following controls were implemented as
of March 31, 2020, to specifically address the material weaknesses
that the Company did not maintain adequate segregation of duties in
some areas of finance:
|
|
● |
Due
to the low cash balance maintained in the Company’s bank accounts,
any significant expenditures require management to request funds
from related party lenders, who are also members of the Company’s
Board of Directors—thus representing the Board’s acknowledgement
and approval. |
|
|
|
|
|
|
● |
Check
preparation is performed by a CPA firm the Company has contracted
with to help with the accounting. Management does not enter
transactions into the Company’s accounting system. The contracted
CPA firm looks at all transactions and bank activity and reports
unusual items, if any, to the Company’s Board of
Directors. |
Other
than described above, there were no changes in our internal control
over financial reporting that occurred during the fourth quarter of
2020 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
Item 9B. Other
Information
Subsequent to year end, the following events transpired:
On July 13, 2020, the Company agreed to amend the 8% convertible
debenture agreement with Satco International, Ltd., to extend the
due date and conversion rights from December 1, 2020 to November
30, 2021.
Subsequent to March 31, 2020, the Company borrowed an additional
$173,500 on Notes Payable, Related Party and issued 347,000
warrants.
PART III
ITEM 10:
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
Identification
of Directors and Executive Officers
Our
executive officers and directors and their respective ages,
positions and biographical information are set forth
below.
|
Name |
|
Positions
Held |
|
Date
of Election or Designation |
|
Date
of Termination or Resignation |
|
Kraig
T. Higginson |
|
Chairman
of the Board |
|
1/12/2015 |
|
* |
|
Glenn
S. Dickman |
|
Director |
|
12/6/18 |
|
* |
|
Stephen
E. Quesenberry |
|
Director |
|
12/6/18 |
|
* |
|
Randall
F. Pearson |
|
President |
|
03/29/13 |
|
* |
|
Randall
F. Pearson |
|
Principal
Executive Officer |
|
03/29/13 |
|
* |
|
Randall
F. Pearson |
|
Principal
Financial Officer |
|
03/29/13 |
|
* |
|
Randall
F. Pearson |
|
Director |
|
04/01/13 |
|
* |
|
|
* |
Presently
serves in the capacities indicated opposite his name. |
The
Board of Directors has set the size of the Company’s Board of
Directors at four, which is within the number allowed by our
Bylaws.
Director
Qualifications
In
evaluating members for services on the Board of Directors, emphasis
was placed on the following factors: (i) the appropriate size of
our Board of Directors; (ii) our needs with respect to the
particular talents and experience of our directors; (iii) the
knowledge, skills and experience of the directors, including
experience in development stage companies and new enterprises and
innovations, finance, administration and management skills; and
(iv) the dedication of the directors to familiarize themselves with
the our selected business industry.
Our
goal was to assemble a Board of Directors that brings together a
variety of perspectives and skills derived from high quality
business and professional experience. We believe each of the
members of our Board of Directors possesses these
qualities.
Background
and Business Experience
Kraig
T. Higginson is 63 years of age and was appointed to the position
of Chairman of the Board of Directors. Mr. Higginson served as
Chief Executive Officer of VIA Motors, Inc. (“Via Motors”), a
hybrid electric vehicle company (PHEV), from November 2010 to
January 2014, where he was responsible for overseeing the
management and business of Via Motors and its employees. From
October 2003 until November 2010, he served as Chairman of the
Board of Directors of Raser Technologies, Inc. (“Raser
Technologies”), which was an NYSE listed company at that time. Mr.
Higginson resigned as a director of Raser Technologies on February
11, 2011. Raser Technologies filed bankruptcy proceedings on April
29, 2011, and was subsequently delisted from NYSE. Mr. Higginson
also founded American Telemedia Network, Inc. (“American
Telemedia”), a publicly-traded NASDAQ company that developed a
nationwide satellite network broadcasting data, video programming
and advertising to shopping centers and malls, and he served as
President and Chief Executive Officer of American Telemedia from
1984 through 1988.
Mr.
Glenn S. Dickman is 70 years of age. In 1984, Mr. Dickman started a
“sales rack” jobbing operation supplying grocery stores with movies
for rent and purchase. As founder and CEO of Video II, the business
grew from servicing one store to over 1,400 located in 38 states.
Video II had over 400 employees at one time, with Mr. Dickman
overseeing all facets of the business as its CEO. In 2005, Mr.
Dickman sold his interest in Video II, and has since concentrated
his efforts on a variety of investments, including stocks and real
estate.
Stephen
Quesenberry is 57 years old. He has practiced law since 1989 in
Washington and Utah, including complex business litigation and SEC
matters. Mr. Quesenberry was one of the (many) attorneys
representing Exxon Shipping in the Exxon Valdez litigation in
Alaska in the early 1990s. Mr. Quesenberry has also been a
principal in various property development projects in Washington
and elsewhere. Mr. Quesenberry graduated from Brigham Young
University in 1986 with a degree in English and was a pitcher for
the BYU Cougars varsity baseball team from 1983-1986. He attended
law school at the University of Kansas from 1986-1989, where he was
an editor of the Kansas Law Review and a member of the Order of the
Coif. He also speaks fluent German.
Mr.
Randall F. Pearson is 64 years old. Mr. Pearson was employed by JWD
Management Corp., dba, Video II for 26 years, resigning in May,
2011. He became the President of ANEW LIFE in February, 2013. While
working at JWD, he served in various positions, including National
Sales Manager, Vice President of Operations, Vice President,
President and CEO. Video II has provided movie and DVD rental and
other related services for grocery chains nationwide. Mr. Pearson
managed the video rental program in 900 different grocery store
locations. He has also fully managed the program that included
videos and DVDs for sale, as well as other products in over 1,400
locations. He oversaw a full service merchandising program with
representatives that serviced the products Video II supplied to the
grocery stores, supervising over 70 employees at Video II’s
corporate offices and over 450 employees in 33 states. Video II was
one of the larger video “rackers” in the U.S. During this same time
frame, Mr. Pearson also owned and managed his own residential and
commercial investment properties, and has focused on those
activities since leaving JWD in 2011. Mr. Pearson attended Brigham
Young University from 1972 to 1977, in Business Management,
obtained a real estate brokers license in 1977; and received Series
7 Securities License in 1978.
Significant
Employee
Lisa
L. Fuller, Esq. is 51 years of age and is our general legal
counsel. She is licensed in California, Texas and Oklahoma, with 15
years of law firm experience and 10 years of in-house counsel
experience in the areas of tax, contracts, corporations and
partnerships, estate planning, insurance and exempt organizations.
From 2009 to the beginning of April 2013, she was general legal
counsel for NorthStar Life Services, LLC, of Irvine, California,
the Servicer, of the current portfolio of policies underlying the
Company’s NIBs, where she managed a four person legal department;
Structured international and domestic companies and transactions,
reviewed and negotiated contracts; Managed all company litigation;
tax planning (U.S. and internationally, with a focus in Luxembourg,
Germany and the Cayman Islands); and oversaw purchase of a European
financial institution and assisted with obtaining various approvals
from regulators related to business plans and deposits. She also
served as general legal counsel for Pacifica Group, LLC, of Irvine,
California, a predecessor of NorthStar, from 2006 until 2009,
where, in addition to other services similar to those performed for
NorthStar, she lobbied for the passage of regulations related to
life settlements. She graduated from New York University, New York,
NY, with an LL.M. Degree in Taxation, 1993; the University of
Oklahoma, Norman, OK, receiving a J.D. Degree, 1992; and Trinity
University, San Antonio, TX, receiving a B.A. Degree in Finance,
1988. Lisa is a member of the Bar Associations of Oklahoma and
Texas.
Directorships
Held in Other Reporting Companies
None
of our directors or executive officer is a director of a company
that is required to file reports under Sections 15 or 13(d) of the
Exchange Act.
Promoters
and control person
To
the best of our management’s knowledge, and except as indicated
below, no person who may be deemed to have been a promoter or
founder of our Company was the subject of any of the legal
proceedings listed under the heading “Involvement in Certain Legal
Proceedings” above; however, Kraig T. Higginson, our Board
Chairman, and who was the incorporator and one of the founding
directors of ANEW LIFE, resigned as a director of Raser
Technologies, Inc., a Delaware corporation, on February 11, 2011.
Raser Technologies, Inc. filed bankruptcy proceedings on April 29,
2011.
Corporate
Governance
Overview
Our
Bylaws provide that the size of our Board is to be determined by
resolution of the Board. Our Board has fixed the exact number of
directors at four. Our Board currently consists of four
members.
We
are subject to a number of technological, regulatory, product,
legal and other types of risks. The Board is responsible for
overseeing these risks, and we employ a number of procedures to
help them carry out that duty. For example, Board members regularly
consult with executive management about pending issues and expected
challenges, and at each Board meeting directors receive updates
from, and have an opportunity to interview and ask questions of,
key personnel and management. Furthermore, because our President
serves as a member of our Board, we believe that the Board has a
direct channel and better access to insights into our performance,
business and challenges.
Board
Leadership Structure
The
Board does not have a policy regarding the separation of the roles
of Chief Executive Officer and Chairman of the Board as the Board
believes it is in the best interests of the Company to make that
determination based upon the position and direction of the Company
and the membership of the Board. The Board has determined at this
time that the Company’s Chairman should not be its
President.
The
Board has determined that of the current directors or nominees,
Messrs. Higginson, Dickman and Quesenberry would qualify as
independent directors as that term is defined in the listing
standards of The NASDAQ Capital Market if we were listed on The
NASDAQ Capital Market. Such independence definition includes a
series of objective tests, including that the director is not an
employee of the Company and has not engaged in various types of
business dealings with the Company. As Mr. Pearson is also employed
by the Company, the Board has determined that Mr. Pearson is not
currently independent. Although the Company’s common stock is not
listed on The NASDAQ Capital Market, the Company has applied The
NASDAQ Capital Market independence rules to make its independence
determinations.
Committees
of the Board of Directors
The
Board has not established an Audit Committee, a Compensation
Committee or a Nominating Committee. Therefore, the Board has not
adopted written charters for any of these committees. Because we
have only four directors and one executive officer, we believe that
we are able to effectively manage the issues normally considered by
such committees. The Board also does not have an audit committee
financial expert. We believe we are currently able to manage our
audit and financial reporting obligations without an audit
committee financial expert. However, as we grow, we will consider
adding an audit committee financial expert.
In
evaluating a director candidate, our Board of Directors will review
his or her qualifications including capability, availability to
serve, conflicts of interest, general understanding of business,
understanding of the Company’s business and technology, educational
and professional background, personal accomplishment and other
relevant factors. Our Board of Directors has not established any
specific qualification standards for director nominees and we do
not have a formal diversity policy relating to the identification
and evaluation of nominees for director, although from time to time
the Board of Directors may identify certain skills or attributes as
being particularly desirable to help meet specific needs that have
arisen. Our Board of Directors may also interview prospective
nominees in person or by telephone. After completing this
evaluation, the Board of Directors will determine the
nominees.
The
Board has not adopted a formal process for considering director
candidates who may be recommended by stockholders. However, our
policy is to give due consideration to any and all such candidates.
A stockholder may submit a recommendation for director candidates
to us at our corporate offices, to the attention of Randall F.
Pearson. We do not pay fees to any third parties to assist us in
identifying potential nominees.
Number
of Meetings
The
Board held a total of two (2) meetings during the fiscal year ended
March 31, 2020. Each incumbent director attended all of the Board
meetings. Although we do not have a formal policy regarding
attendance by directors at our annual meeting, we encourage
directors to attend.
Codes
of Ethics and Business Conduct
We
have adopted a corporate Code of Ethics and Business Conduct which
is available as Exhibit 14.1 to this filing. The Code of Ethics and
Business Conduct applies to all our officers, directors and
employees, including our principal executive officer, principal
financial officer and controller, or persons performing similar
functions. If we effect an amendment to, or waiver from, a
provision of our Code of Ethics and Business Conduct, we intend to
satisfy our disclosure requirements by posting a description of
such amendment or waiver on our website at
www.sundancestrategies.com.
ITEM 11:
EXECUTIVE COMPENSATION
Director
Compensation
Non-employee
directors received no compensation during the fiscal year ended
March 31, 2020.
The
following table outlines information regarding equity awards held
by our named executive officers or directors as of the fiscal year
ended March 31, 2020:
Outstanding
Equity Awards Held at March 31, 2020
|
Name |
|
Date
of Grant |
|
Shares |
|
|
$
Value |
|
Randall
F. Pearson |
|
12/6/18 |
|
|
300,000 |
|
|
$6,900 |
| Glenn
S. Dickman |
|
12/6/18 |
|
|
300,000 |
|
|
$6,900 |
| Stephen
E. Quesenberry |
|
12/6/18 |
|
|
300,000 |
|
|
$6,900 |
Executive
Compensation Objectives and Principles
The
overall objective of our executive compensation program is to help
create long-term value for our stockholders by attracting and
retaining talented executives, rewarding superior operating and
financial performance, and aligning the long-term interests of our
executives with those of our stockholders. Accordingly, our
executive compensation program incorporates the following
principles:
|
|
● |
Compensation
should be based upon individual job responsibility, demonstrated
leadership ability, management experience, individual performance,
and Company performance. |
|
|
|
|
|
|
● |
Compensation
should reflect the fair market value of the services received. We
believe that a fair and competitive pay package is essential to
attract and retain talented executives in key
positions. |
|
|
|
|
|
|
● |
Compensation
should reward executives for long-term strategic management and
enhancement of stockholder value. |
|
|
|
|
|
|
● |
Compensation
should reward performance and promote a performance-oriented
environment. |
Executive
Compensation Procedures
We
believe that compensation paid to our executive officers should be
closely aligned with our performance and the performance of each
individual executive officer on both a short-term and a long-term
basis, should be based upon the value each executive officer
provides to us, and should be designed to assist us in attracting
and retaining the best possible executive talent, which we believe
is critical to our long-term success. To attain our executive
compensation objectives and implement the underlying compensation
principles, we follow the procedures described below.
Role
of the Board. The Board has responsibility for establishing and
monitoring our executive compensation programs and for making
decisions regarding the compensation of our Named Executive
Officers. The Board sets the compensation package of the Named
Executive Officers. Our President, Mr. Randall Pearson, suggests
items to be considered by the Board from time to time, including
the compensation package for the other Named Executive Officer; and
participates in meetings in which the compensation package of the
other Named Executive Officer is discussed.
The
Board relies on its judgment in making compensation decisions after
reviewing our performance and evaluating our executives’ leadership
abilities and responsibilities with our Company and their current
compensation arrangements. The Board’s assessment process is
designed to be flexible so as to better respond to the evolving
business environment and individual circumstances.
Role
of Compensation Consultant. We have not engaged a compensation
consultant.
Elements
of Compensation
Our
executive compensation objectives and principles are implemented
through the use of the following elements of compensation, each
discussed more fully below:
|
|
● |
Base
Salary |
|
|
|
|
|
|
● |
Annual
Incentive Bonuses |
|
|
|
|
|
|
● |
Stock-Based
Compensation |
|
|
|
|
|
|
● |
Other
Benefits |
Base
Salary. The Board approved the salaries of all our executive
officers for Fiscal Year 2020. Base salaries are offered to ensure
that our executive officers receive an ongoing level of
compensation. Salary decisions concerning these officers were based
upon a variety of considerations consistent with the compensation
philosophy stated above. First, salaries were competitively set
relative to both other companies in our industry and other
comparable companies. The Board considered each officer’s level of
responsibility and individual performance, including an assessment
of the person’s overall value to the Company. In addition, internal
equity among employees was factored into the decision. Finally, the
Board considered our financial performance and our ability to
absorb any increases in salaries.
Annual
Incentive Bonuses. Annual incentive bonuses are designed to
reward extraordinary performance by our executives. For Fiscal Year
2020, the Board did not precisely define the parameters of a bonus
program for the Named Executive Officers, and no bonuses were
awarded to the Named Executive Officers.
Stock-Based
Compensation. Each Named Executive Officer is eligible
to receive stock-based compensation. Stock-based compensation is
designed to more closely align the interests of management with
those of our stockholders. We do not have any securities authorized
for issuance under an equity compensation plan, or any policies for
allocating compensation between long-term and currently paid out
compensation or between cash and non-cash compensation or among
different forms of non-cash compensation. On December 6, 2018, the
Company awarded three of its directors 300,000 shares each of the
Company’s stock, in lieu of director compensation. 25% of the
shares vested immediately on the date of the agreement, and the
remainder of the shares vested equally over the months January 2019
through March 2019. The transaction resulted in a compensation
expense of $20,070, which was recognized on a pro rata basis,
following the vesting schedule. As of March 31, 2020, all of the
compensation expensed was recognized.
Other
Benefits. Our Named Executive Officers receive the same
benefits that are available to all other full-time employees,
including the payment of health, dental, life and disability
insurance premiums.
Deductibility
of Executive Compensation
Internal
Revenue Service (“IRS”) Code Section 162(m) limits the amount that
we may deduct annually for compensation paid to our principal
executive officer, principal financial officer, and to each of our
three most highly compensated officers to $1.0 million per person.
According to the Tax Cuts and Jobs Act of 2017, exemptions to this
deductibility limit for various forms of performance-based
compensation have been repealed for compensation payable under a
written binding contract put into effect after November 2, 2017.
Written binding contracts regarding officer compensation are
subject to a transition rule that states that contracts in effect
prior to November 2, 2017 may continue to qualify for
performance-based exemptions so long as the contract has not been
materially modified after that date. In the past, annual salary and
bonus compensation to our executive officers has not exceeded $1.0
million per person, so the compensation has been deductible. In
addition to salary and bonus compensation, upon the exercise of
stock options that are not treated as incentive stock options, the
excess of the current market price over the option price, or option
spread, is treated as compensation and accordingly, in any year,
such exercise may cause an officer’s total compensation to exceed
$1.0 million. Under the aforementioned transition rule, option
spread compensation from options that meet certain requirements
will not be subject to the $1.0 million cap on deductibility. The
Board cannot predict how the deductibility limit may impact our
compensation program in future years. The Board intends to pay
competitive compensation consistent with our philosophy to attract,
retain and motivate executive officers to manage our business in
the best interests of the Company and our shareholders. The Board,
therefore, may choose to provide non-deductible compensation to our
executive officers if it deems such compensation to be in the best
interests of the Company and our shareholders.
Summary
Compensation Table
The
following information presents the compensation paid to our
executive officers in Fiscal Year 2020 and 2019. We refer to these
executive officers as the Named Executive Officers.
|
Name and Principal Position |
|
Year |
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Randall
F. Pearson |
|
|
2020 |
|
|
|
120,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
120,000 |
|
| President, Principal Executive Officer
and Principal Financial Officer |
|
|
2019 |
|
|
|
120,000 |
|
|
|
— |
|
|
|
6,900 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
126,900 |
|
Outstanding
Equity Awards at Fiscal Year End
The
following table presents for each named executive officer,
information regarding outstanding stock options and stock awards
held as of March 31, 2020.
| |
|
Option Awards |
|
Stock Awards |
|
|
Named Executive Officer |
|
Number of securities
underlying unexercised
options exercisable |
|
|
Number of securities
underlying unexercised
options unexercisable |
|
|
Option
exercise price ($) |
|
|
Option
expiration date |
|
Numbers of
shares or
units of stock
granted(1) |
|
|
Market
value of
shares or
units of stock ($) |
|
| Randall F. Pearson |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
N/A |
|
|
300,000 |
|
|
$ |
6,900 |
|
|
(1) |
On
December 6, 2018, Mr. Pearson was awarded 300,000 shares of the
Company’s stock, in lieu of director compensation. 25% of the
shares vested immediately on the date of the agreement, and the
remainder of the shares vested equally over the months January 2019
through March 2019. |
ITEM 12:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Security
Ownership of Certain Beneficial Owners
The
following table shows information regarding the beneficial
ownership of our common stock as of the date of this filing by (a)
each stockholder, or group of affiliated stockholders, that we know
owns more than 5% of our outstanding common stock; (b) each of our
named executive officers; (c) each of our directors; and (d) all of
our current directors and executive officers as a group. The table
is based upon information supplied by directors, executive officers
and principal stockholders, and Schedules 13D and 13G filed with
the Securities and Exchange Commission.
Percentage
ownership in the table below is based on 37,828,441 shares of
common stock outstanding as of August 10, 2020. Beneficial
ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and generally includes voting
power and/or investment power with respect to the securities held.
Any securities not outstanding but which are subject to options or
warrants exercisable within 60 days of August 10, 2020 are deemed
outstanding and beneficially owned for the purpose of computing the
percentage of outstanding common stock beneficially owned by the
stockholder holding such options or warrants, but are not deemed
outstanding for the purpose of computing the percentage of common
stock beneficially owned by any other stockholder.
Unless
otherwise indicated, each of the stockholders listed below has sole
voting and investment power with respect to the shares beneficially
owned. The address for each director or named executive officer is
c/o Sundance Strategies, Inc., Attention: Randall F. Pearson, 4626
North 300 West, Suite No. 365, Provo, Utah 84604.
| |
|
Shares Beneficially Owned |
|
| Name and Address of Beneficial
Owner |
|
Number |
|
|
Percent |
|
| Directors and Named Executive
Officers |
|
|
|
|
|
|
|
|
| Glenn S.
Dickman (5) |
|
|
3,369,881 |
|
|
|
8.9 |
% |
| Kraig T. Higginson
(1) |
|
|
2,712,000 |
|
|
|
7.2 |
% |
| Randall F. Pearson |
|
|
591,432 |
|
|
|
1.6 |
% |
| Stephen E.
Quesenberry |
|
|
370,206 |
|
|
|
1.0 |
% |
| |
|
|
|
|
|
|
|
|
| All executive officers and
directors as a group (4 persons) |
|
|
7,043,519 |
|
|
|
18.7 |
% |
| |
|
|
|
|
|
|
|
|
| 5% Stockholders Not Listed
Above |
|
|
|
|
|
|
|
|
| ZOE, LLC (2) |
|
|
10,100,000 |
|
|
|
25.4 |
% |
| Ty Mattingly (3) |
|
|
3,500,000 |
|
|
|
8.8 |
% |
| Smartrade Consulting, Inc.
(4) |
|
|
4,000,000 |
|
|
|
10.0 |
% |
| Radiant Life, LLC (2) |
|
|
3,952,000 |
|
|
|
10.0 |
% |
|
(1) |
Mr.
Higginson’s ownership includes 750,000 shares owned by Eclipse Fund
LLC; 320,000 shares owned by Radion Energy LLC; 425,000 shares
owned by Peoples Philanthropic, and 370,000 shares owned by
Ecosystems Resources LLC. Also included are 847,000 warrants held
by Mr. Higginson. |
|
|
|
|
(2) |
ZOE,
LLC and Radiant Life, LLC are beneficially owned by Mitchell D.
Burton, for an aggregate percentage of ownership of approximately
35.7%. On December 6, 2018, the Company agreed to repurchase
6,000,000 shares from ZOE, LLC (see note 5 for more detail). The
address of ZOE, LLC is 4626 N. 300 W., Provo, Utah 84604. The
address of Radiant Life, LLC is 4626 N. 300 W., Provo, Utah
84604. |
|
|
|
|
(3) |
Mr.
Mattingly’s ownership includes 3,500,000 shares owned in the name
of Primary Colors, LLC. On December 6, 2018, the Company agreed to
repurchase 1,500,000 shares from North Shore Foundation, LLP, an
entity beneficially owned by Mr. Mattingly (see note 5 for more
detail). Mr. Mattingly is the beneficial owner of Primary Colors,
LLC. |
|
|
|
|
(4) |
Smartrade
Consulting, Inc. is held by Summit Trustees PLLC for the beneficial
owner, Lam Ping of Hong Kong. The address of Smartrade Consulting,
Inc. is 22G Tower 4, The Metropolis, 8 Mau Yip Road, Tsung Kwan Q,
N.T., Hong Kong. |
|
|
|
|
(5) |
Mr.
Dickman’s ownership includes 1,202,000 warrants. |
Changes
in Control
See
the heading “Business Development” of Part I, Item 1. To the
knowledge of management, there are no arrangements or
understandings that may result in a change in control of the
Company.
Securities
Authorized for Issuance under Equity Compensation
Plans
The
following table provides information as of March 31, 2020, about
our common stock that may be issued upon the exercise of options,
warrants and rights under all of our existing equity compensation
plans (including individual arrangements):
|
Plan
Category |
|
Number
of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
|
|
Number
of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c)
|
|
| |
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Equity
compensation plans not approved by security holders |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
ITEM 13:
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS
INDEPENDENCE
Review
and Approval of Related Person Transactions
Before
engaging in a related person transaction, the transaction is
presented to non-interested board members for approval. In
considering related person transactions, the non-interested board
members are guided by their fiduciary duty to our stockholders. The
Board of Directors does not have any written or oral policies or
procedures regarding the review, approval and ratification of
transactions with related person. Additionally, each of our
directors and executive officers are required to annually complete
a directors’ and officers’ questionnaire that elicits information
about related person transactions. Approval of a related person
transaction is provided either verbally or in writing.
Related
Person Transactions
Other
than as described below, there were no material transactions, or
series of similar transactions, during our last two fiscal years,
or any currently proposed transactions, or series of similar
transactions, to which we or any of our subsidiaries was or is to
be a party, in which the amount involved exceeded the lesser of
$120,000 or 1% of the average of our total assets at year-end for
the last two completed fiscal years and in which any director,
executive officer or any security holder who is known to us to own
of record or beneficially more than 5% of any class of our common
stock, or any member of the immediate family of any of the
foregoing persons, had an interest, except as stated
below.
As of
March 31, 2020 and 2019, the Company had borrowed $2,450,508 and
$1,672,008 respectively, excluding accrued interest, from related
parties. The interest associated with the Notes Payable, Related
Party of $288,369 and $113,981 is recorded on the balance sheet as
an Accrued Expense obligation at March 31, 2020 and March 31, 2019,
respectively.
Warrants to Purchase Common Stock
Effective April 3, 2020, the related party, note payable and line
of credit agreement with the Chairman of the Board of Directors and
a stockholder was amended to include a formal provision that
provides the related party lender with common stock warrants upon
the lenders extension of a maturity due date or upon the loaning of
additional monies. The number of warrants issued will be based on
the following formula: 10,000 warrants per month the due date is
extended plus 1 warrant for every $2 of the principal balance
outstanding (not including interest) at the time of the extension
(rounded to the nearest whole warrant). Effective April 3, 2020,
the number of warrants to be issued upon the loaning of additional
monies is 2 warrants for each dollar loaned.
In addition, Mr. Dickman, the holder of the related party,
unsecured promissory notes (see Note 6) has informed the Company
that, at such time the Company requests either an extension or
additional monies from the lender, in addition to interest, the
lender will require 10,000 warrants per month the due date is
extended plus 1 warrant for every $2 of the principal balance
outstanding (not including interest) at the time of the extension
(rounded to the nearest whole warrant). Upon the loaning of
additional monies, the lender will also require 2 warrants for each
dollar loaned.
As of March 31, 2020, the Company held outstanding warrants to
related parties totaling 1,702,000 (none as of March 31, 2019). All
warrants have an exercise price of $0.05 per share, a five-year
life as of the date of grant and expire between November 2024 and
February 2025. The average remaining outstanding life of the
warrants as of March 31, 2020, was 4.75 years. The common stock
issued upon exercise of the warrants are not registered with the
Securities and Exchange Commission and do not have registration
rights.
Related
Party Promissory Notes
As of
March 31, 2020 and 2019, the Company owed $826,000 and $450,000,
respectively, under the unsecured promissory notes from Mr. Glenn
S. Dickman, a stockholder and member of the Board of Directors. The
promissory notes bear interest at a rate of 8% annually. On
November 5, 2019, the Company agreed to amend the agreements to
extend the due date on the promissory notes 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 and a five-year life.
The value of the warrants on the date of grant, as calculated by
the Black-Scholes-Merton valuation model, was not significant. The
inputs used in this calculation included a risk-free rate of 1.66%,
volatility of 27.29% and a dividend rate of 0%. On February 4,
2020, the Company borrowed an additional $230,000 from Mr. Dickman,
and agreed to provide him with an additional 752,000 warrants for
shares of common stock at an exercise price of $0.05 per share. The
value of the warrants on the date of grant, as calculated by the
Black-Scholes-Merton valuation model, was not significant. The
inputs used in this calculation included a risk-free rate of 1.66%,
volatility of 27.29% and a dividend rate of 0%. During the year
ended March 31, 2020, the Company borrowed a total of $376,000 of
principal under this agreement and made no repayments. As of March
31, 2020, accrued interest on the notes totaled $67,752. In the
event the Company completes a successful equity raise all principal
and interest on the notes are due in full at that time.
Related
Party Note Payable and Line of Credit Agreements
As of
March 31, 2020 and 2019, the Company owed $795,000 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. On January 8, 2020, the note payable and the line
of credit agreement was extended from November 30, 2020 to August
31, 2021. 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 and a five-year life. The value of the
warrants on the date of grant, as calculated by the
Black-Scholes-Merton valuation model, was not significant. The
inputs used in this calculation included a risk-free rate of 1.66%,
volatility of 27.29% and a dividend rate of 0%. The note payable
and line of credit agreement incurs interest at 7.5% per annum and
are collateralized by the Company’s NIBS, if any. During the year
ended March 31, 2020 the Company borrowed $402,500 of principal
under this agreement and made no repayments. As of March 31, 2020,
accrued interest on totaled $69,209. 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
March 31, 2020 and 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. 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 from November 30, 2020 to
August 31, 2021, or at the immediate time when alternative
financing or other proceeds are received. The note payable and line
of credit agreement incurs interest at 7.5% per annum and is
collateralized by the Company’s NIBS, if any. During the year ended
March 31, 2020 the Company neither borrowed nor repaid any
principal under this agreement. As of March 31, 2020, accrued
interest on this agreement totaled $151,408. In the event the
Company completes a successful equity raise, all principal and
interest on this note are due in full at that time.
Parents
We
have no parents.
Director
Independence
The
Board has determined that of the current directors or nominees,
Messrs. Higginson, Dickman and Quesenberry would qualify as
independent directors as that term is defined in the listing
standards of The NASDAQ Capital Market if we were listed on The
NASDAQ Capital Market. Such independence definition includes a
series of objective tests, including that the director is not an
employee of the Company and has not engaged in various types of
business dealings with the Company. As Mr. Pearson is also employed
by the Company, the Board has determined that Mr. Pearson is not
currently independent. Although the Company’s common stock is not
listed on The NASDAQ Capital Market, the Company has applied The
NASDAQ Capital Market independence rules to make its independence
determinations.
ITEM 14:
PRINCIPAL ACCOUNTING FEES AND SERVICES
The
following is a summary of the fees billed to us by our principal
accountants during fiscal years ended March 31, 2020, and
2019:
| |
|
2020 |
|
|
2019 |
|
|
Fee
Category |
|
Saddler
Gibb |
|
|
Saddler
Gibb |
|
|
Audit
Fees |
|
$ |
46,000 |
|
|
$ |
89,250 |
|
| Audit-related
Fees |
|
|
- |
|
|
|
- |
|
| Tax
Fees |
|
|
- |
|
|
|
- |
|
|
All
Other Fees |
|
|
- |
|
|
|
- |
|
| Total
Fees |
|
$ |
46,000 |
|
|
$ |
89,250 |
|
Audit
Fees - Consists of fees for professional services rendered by
our principal accountants for the audit of our annual financial
statements and review of the financial statements included in our
Forms 10-Q or services that are normally provided by our principal
accountants in connection with statutory and regulatory filings or
engagements including out of pocket expenses.
Audit-related
Fees - Consists of fees for assurance and related services by
our principal accountants that are reasonably related to the
performance of the audit or review of our financial statements and
are not reported under “Audit fees.”
Tax
Fees - Consists of fees for professional services rendered by
our principal accountants for tax compliance, tax advice and tax
planning.
All
Other Fees - Consists of fees for products and services
provided by our principal accountants, other than the services
reported under “Audit fees,” “Audit-related fees,” and “Tax fees”
above.
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
We
have not adopted an Audit Committee; therefore, there is no Audit
Committee policy in this regard. However, we do require approval in
advance of the performance of professional services to be provided
to us by our principal accountant. Additionally, all services
rendered by our principal accountant are performed pursuant to a
written engagement letter between us and the principal
accountant.
PART IV
Item 15. Exhibits and Financial
Statement Schedules
|
(a) |
The
following documents are filed as part of this report: |
The
financial statements listed on the accompanying Index to
Consolidated Financial Statements are filed as part of this
report.
|
|
(2) |
Financial
statement schedules |
There
are no financial statements schedules included because they are
either not applicable or the required information is shown in the
consolidated financial statements or the notes thereto.
The
following exhibits are filed or incorporated by reference as part
of this Form 10-K.
|
Exhibit
No. |
|
Exhibit
Description |
|
3.1 |
|
Amended
and Restated Articles of Incorporation (incorporated by reference
to Exhibit 3(i) to the Company’s Current Report on Form 8-K filed
April 5, 2013, file no. 000-50547) |
|
3.2 |
|
Certificate
of Amendment to the Amended and Restated Articles of
Incorporation(incorporated by reference to Exhibit 3(i)(a) to the
Company’s Current Report on Form 8-K filed April 5, 2013, file no.
000-50547) |
|
3.3 |
|
Certificate
of Amendment to the Amended and Restated Articles of
Incorporation(incorporated by reference to Exhibit 3(i)(b) to the
Company’s Current Report on Form 8-KA-1 filed May 24, 2013, file
no. 000-50547) |
|
3.4 |
|
Amended
Bylaws (incorporated by reference to Exhibit 3(ii) to the Company’s
Current Report on Form 8-K filed April 5, 2013, file no.
000-50547) |
|
4.10 |
|
Description of Securities Registered Under
Section 12 of the Exchange Act |
|
10.1 |
|
Agreement
and Plan of Merger (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed April 5, 2013, file
no. 000-50547) |
|
10.2 |
|
Form
of Lock-Up/Leak-Out Agreement (incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed April 5,
2013, file no. 000-50547) |
|
10.3 |
|
NIBs
Asset Transfer Agreement (incorporated by reference to Exhibit 10.3
to the Company’s Current Report on Form 8-KA-1 filed May 24, 2013,
file no. 000-50547) |
|
10.4 |
|
Form
of Senior Loan Agreement (incorporated by reference to Exhibit 10.4
to the Company’s Current Report on Form 8-K filed April 5, 2013,
file no. 000-50547) |
|
10.5 |
|
Form
of MRI Agreement (incorporated by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K filed April 5, 2013, file no.
000-50547) |
|
10.6 |
|
Europa
Settlement Advisors Ltd. Structuring and Consulting Agreement
(incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed June 20, 2013, file no.
000-50547) |
|
10.7 |
|
Del
Mar Financial, S.a.r..l. Asset Transfer Agreement (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed June 20, 2013, file no. 000-50547) |
|
10.8 |
|
Amendment
No. 1 to Europa Settlement Advisors Ltd. Structuring and Consulting
Agreement (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-KA-2 filed November 14, 2013,
file no. 000-50547) |
|
10.9 |
|
Collateral
Release Agreement from PCH to the Company (incorporated by
reference to Exhibit 10.4 to the Company’s Current Report on Form
8-KA-2 filed November 14, 2013, file no. 000-50547) |
|
10.10 |
|
Amendment
No. 2 to Europa Settlement Advisors Ltd. Structuring and Consulting
Agreement (incorporated by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-KA-2 filed November 14, 2013,
file no. 000-50547) |
|
10.11 |
|
Brown
Exclusivity Agreement (incorporated by reference to Exhibit 10.6 to
the Company’s Current Report on Form 8-KA-2 filed November 14,
2013, file no. 000-50547) |
|
10.12 |
|
Amended
and Restated Secured Promissory Note of ANEW LIFE, INC. to DMF
(incorporated by reference to Exhibit 10.7 to the Company’s Current
Report on Form 8-KA-2 filed November 14, 2013, file no.
000-50547) |
|
10.13 |
|
Assignment
Agreement of Amended and Restated Secured Promissory Note from the
Company to DMF (incorporated by reference to Exhibit 10.8 to the
Company’s Current Report on Form 8-KA-2 filed November 14, 2013,
file no. 000-50547) |
|
10.14 |
|
Amended
and Restated Assignment Agreement from DMF to Hyperion
(incorporated by reference to Exhibit 10.9 to the Company’s Current
Report on Form 8-KA-2 filed November 14, 2013, file no.
000-50547) |
|
10.15 |
|
Assignment
of Buyback Rights of Amended and Restated Secured Promissory Note
by DMF to the Company (incorporated by reference to Exhibit 10.10
to the Company’s Current Report on Form 8-KA-2 filed November 14,
2013, file no. 000-50547) |
|
10.16 |
|
Amendment
No. 3 to Europa Settlement Advisors Ltd. Structuring and Consulting
Agreement (incorporated by reference to Exhibit 10.11 to the
Company’s Current Report on Form 8-KA-4 filed July 10, 2014, file
no. 000-50547) |
|
10.17 |
|
Form
of Extension Agreement to Lock-Up/Leak-Out Agreement (incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q filed November 14, 2014, file no.
000-50547) |
|
10.18 |
|
HFII
Letter of Intent (incorporated by reference to Exhibit 10 to the
Company’s Current Report on Form 8-K filed December 8, 2014, file
no. 000-50547) |
|
10.19 |
|
HFII
Asset Transfer Agreement (incorporated by reference to Exhibit 10.1
to the Company’s Annual Report on Form 10-K filed June 15, 2015,
file no. 000-50547) |
|
10.20 |
|
Amendment
No. 1 to HFII Asset Transfer Agreement (incorporated by reference
to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed
June 15, 2015, file no. 000-50547) |
|
10.21 |
|
Debenture
Agreement Dated June 2, 2015 (incorporated by reference to Exhibit
10.5 to the Company’s Quarterly Report on Form 10-Q filed August
10, 2015, file no. 000-50547) |
|
10.22 |
|
8%
Convertible Debenture (incorporated by reference to Exhibit 10.6 to
the Company’s Quarterly Report on Form 10-Q filed August 10, 2015,
file no. 000-50547) |
|
10.23 |
|
Line-of-Credit
Agreement (incorporated by reference to Exhibit 10.7 to the
Company’s Quarterly Report on Form 10-Q filed August 10, 2015, file
no. 000-50547) |
|
10.24 |
|
Amendment
to the notes payable and lines-of-credit agreements, dated February
4, 2016, between the Company, Kraig Higginson and Radiant Life, LLC
(incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q filed February 9, 2016, file no.
000-50547) |
|
10.25 |
|
Amendment
to the Convertible Debenture Agreement, dated February 2, 2016,
between the Company and Sactco International, Limited (incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q filed February 9, 2016, file no.
000-50547) |
|
10.26 |
|
Strict
Foreclosure and Forbearance Agreement dated May 25, 2018 between
the Company, Wells Fargo Bank, N.A. and the other parties thereto
(incorporated by reference to Exhibit 99.1 to the Company’s Current
Report on Form 8-K filed June 11, 2018, file no.
000-50547) |
|
10.27* |
|
Promissory Note between Sundance Strategies,
Inc. and Glenn S. Dickman, dated April 10, 2019.
|
|
10.28* |
|
Promissory Note between Sundance Strategies,
Inc. and Glenn S. Dickman, dated November 5, 2019
|
|
10.29* |
|
Promissory Note between Sundance Strategies,
Inc. and Glenn S. Dickman, dated February 4, 2020
|
|
10.30* |
|
Extension to Promissory Note between
Sundance Strategies, Inc. and Kraig T. Higginson, dated January 8,
2020
|
|
10.31* |
|
First Amendment to the Note Payable and Line
of Credit Agreement between Sundance Strategies, Inc. and Kraig
Higginson, dated April 3, 2020
|
|
10.32* |
|
Extension to Promissory Notes between
Sundance Strategies, Inc. and Glenn S. Dickman, dated November 5,
2019
|
|
10.33* |
|
Amendment to $3,000,000 Convertible
Debenture Agreement between Sundance Strategies, Inc. and Satco
International, Limited, dated July 13, 2020
|
|
10.34* |
|
Extension Agreement to Promissory Note
between Sundance Strategies, Inc. and Radiant Life, dated December
19, 2019
|
|
14.1 |
|
Code
of Ethics (incorporated by reference to Exhibit 14 to the Company’s
Current Report on Form 8-K filed April 5, 2013, file no.
000-50547) |
|
16.1 |
|
Letter
of BDO USA, LLP dated January 22, 2018 |
|
16.2 |
|
Letter
of BDO USA, LLP dated April 18, 2018 |
|
31.1 |
|
Certification
of Principal Executive Officer Pursuant to Rule
13a-14(a)* |
|
31.2 |
|
Certification
of Principal Financial Officer Pursuant to Rule
13a-14(a)* |
|
32 |
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section
1350* |
|
101
INS |
|
XBRL
Instance Document** |
|
101
SCH |
|
XBRL
Schema Document** |
|
101
CAL |
|
XBRL
Calculation Linkbase Document** |
|
101
DEF |
|
XBRL
Definition Linkbase Document** |
|
101
LAB |
|
XBRL
Labels Linkbase Document** |
|
101
PRE |
|
XBRL
Presentation Linkbase Document** |
*
Filed herewith.
**
The XBRL related information in Exhibit 101 shall not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, or otherwise subject to liability of that
section and shall not be incorporated by reference into any filing
or other document pursuant to the Securities Act of 1933, as
amended, except as shall be expressly set forth by specific
reference in such filing or document.
Item 16. Form 10-K
Summary
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed by the undersigned, thereunto duly authorized.
| |
SUNDANCE
STRATEGIES, INC. |
|
|
|
|
|
Date:
August 10, 2020 |
By: |
/s/
Randall F. Pearson |
| |
|
Randall
F. Pearson |
| |
|
President,
Principal Executive Officer and Principal Financial
Officer |
| |
|
(Duly
Authorized Representative) |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dated
indicated.
|
Signatures |
|
Title |
|
Date |
| |
|
|
|
|
|
/s/
Kraig T. Higginson |
|
Chairman
of the Board of Directors |
|
August
10, 2020 |
| Kraig
T. Higginson |
|
|
|
|
| |
|
|
|
|
|
/s/
Randall F. Pearson |
|
President
(Principal Executive Officer), |
|
August
10, 2020 |
|
Randall
F. Pearson |
|
Director
and Principal Financial Officer |
|
|
| |
|
|
|
|
|
/s/
Glenn S. Dickman |
|
Director |
|
August 10, 2020 |
| Glenn
S. Dickman |
|
|
|
|
| |
|
|
|
|
|
/s/
Stephen E. Quesenberry |
|
Director |
|
August
10, 2020 |
| Stephen
E. Quesenberry |
|
|
|
|
