Sundance Strategies, Inc 10-Q for FY2022 Q1
Sundance Strategies, Inc. (SUND)
About this 10-Q
Sundance Strategies, Inc filed this 10-Q on August 16, 2021, covering the quarter ended June 30, 2021 (FY2022 Q1).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $101.22K
- compared with a net loss of $251.09K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For
the Quarterly Period Ended |
| 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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(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 | ||
| OTCQB |
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 ☐
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 ☐
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 ☐ | |
| Smaller
reporting company | ||
| Emerging
Growth Company |
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.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐
As of August 16, 2021, the registrant had shares of common stock, par value $0.001, issued and outstanding.
SUNDANCE STRATEGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(Unaudited)
| June 30, | March 31, | |||||||
| 2021 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other assets | ||||||||
| Total Current Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Notes payable | - | |||||||
| Current portion of notes payable, related parties | ||||||||
| Stock repurchase payable | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities | ||||||||
| Accrued expenses | ||||||||
| Notes payable, related parties, net of current portion | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, authorized shares, par value $; -- shares issued and outstanding | - | - | ||||||
| Common stock, authorized shares, par value ; and shares issued and outstanding as of June 30, 2021 and March 31, 2021, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
(Unaudited)
| 2021 | 2020 | |||||||
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Interest Income on Investment in Net Insurance Benefits | $ | $ | ||||||
| General and Administrative Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Gain on settlement of liabilities | - | |||||||
| Interest expense | ( | ) | ( | ) | ||||
| Financing expense | ( | ) | ( | ) | ||||
| Total Other Income (Expense) | ( | ) | ||||||
| Loss Before Income Taxes | ( | ) | ( | ) | ||||
| Income Tax Provision (Benefit) | - | - | ||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Deficit
For the Three Months Ended June 30, 2021 and 2020
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common stock issued for director compensation | - | |||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||
| Balance, March 31, 2020 | ( | ) | ( | ) | ||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
| 2021 | 2020 | |||||||
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile to net cash used in operating activities: | ||||||||
| Share based compensation - common stock | - | |||||||
| Gain on settlement of liabilities | ( | ) | - | |||||
| Changes in operating assets and liabilities | ||||||||
| Prepaid expenses and other assets | - | |||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Net Cash used in Operating Activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Proceeds from issuance of notes payable, related party | - | |||||||
| Proceeds from issuance of Notes payable | - | |||||||
| Proceeds from Paycheck Protection Program loan | - | |||||||
| Net Cash provided by Financing Activities | ||||||||
| Net Change in Cash and Cash Equivalents | ( | ) | ( | ) | ||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
(1) BASIS OF PRESENTATION, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and reflect the financial position, results of operations and cash flows of the Company. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, which was filed with the SEC on June 29, 2021. The results from operations for the three-month period ended June 30, 2021, are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2022.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s financial statements and the accompanying notes. Actual results could materially differ from those estimates.
Organization and Nature of Operations
Sundance Strategies, Inc. (formerly known as Java Express, Inc.) was organized under the laws of the State of Nevada on December 14, 2001, and engaged in the retail selling of beverage products to the general public until these endeavors ceased in 2006; it had no material business operations from 2006, until its acquisition of ANEW LIFE, INC. (“ANEW LIFE”), a subsidiary of Sundance Strategies, Inc. (“Sundance Strategies”, “the Company”, “we” or “our”).
Our historical business model has focused on 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 of 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.”
During the latter part of the fiscal year ended March 31, 2021, the Company began developing an additional business offering, providing professional services to specialty structured finance groups, bond issuers and life settlement aggregators. The Company has now assembled an experienced team from the life settlement marketplace, as well as from other areas such as financial services and public financial markets. As a professional services provider, the Company applies industry best practices to advise on the selection of specific portfolios of life insurance policies that are tailored to meet the needs of its clients. The Company’s clients may include bond issuers, bond investors, or other structured finance product issuers. The Company develops strategies and methodologies which include the acquisition of life insurance portfolios, then uses common structured finance techniques and proprietary analytics to structure bonds for issuances, including principal protected bonds. The Company’s goal is to deliver long-term value and profitability to shareholders by growing the Company’s professional services business and asset base, resulting in the ability to pay dividends to its shareholders.
Most recently the Company began working closely with bond placement agents and aggregators to establish various aspects of a proprietary, investment grade bond offering. In this arrangement, the Company participates as the sole originator in the role of structuring and advising on the structure of the proprietary bond instrument. Included in the role of structuring financial assets, the Company uses proprietary analytics to establish the makeup of the rated instrument, including but not limited to, life settlement assets (life insurance policies) and managed cash, and implements a process of selective assembly of the underlying assets and cash management that will meet the policy requirements and analytics. The Company provides current and ongoing resources for all analytics, as well as advisement support for the investment and non-investment grade ratings for the managed asset pool and the managed cash accounts. In its advisory role, the Company is reimbursed for all expenses associated with the structuring and preparation of any bond offering, will receive an advisory payment upon the closing of any bond offering, and then will hold residual rights on the balance of assets once the bond is retired.
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SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
During
the quarter ended June 30, 2021, the Company and US Capital Global Securities LLC, an affiliate of US Capital Global, entered into an
arrangement wherein the Company is the lead advisor and lead originator of tailored life insurance portfolios to be used in a life insurance-linked
bond offering (“bond offering”) of between $
Significant Accounting Policies
There have been no changes to the significant accounting policies of the Company from the information provided in Note 2 of the Notes to Consolidated Financial Statements in the Company’s most recent Form 10-K, except as discussed below.
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 three months ended June 30, 2021 and 2020, because to do so would be anti-dilutive. Potentially dilutive securities outstanding as of June 30, 2021 and 2020 are comprised of warrants convertible into and shares of common stock, respectively.
New Accounting Pronouncements
Not Yet Adopted
The Company has reviewed all 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.
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SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
(2) 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 June 30, 2021, the Company had $
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.
(3) FAIR VALUE MEASUREMENTS
As defined by ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also requires the consideration of differing levels of inputs in the determination of fair values.
Those levels of input are summarized as follows:
| ● | Level 1: Quoted prices in active markets for identical assets and liabilities. |
| ● | 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. |
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SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
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 three months ended June 30, 2021 and 2020.
Other Financial Instruments
The Company’s recorded values of cash and cash equivalents, prepaid expenses and other assets, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The recorded values of the notes payable and convertible debenture approximate the fair values as the interest rate approximates market interest rates.
(4) STOCKHOLDERS’ EQUITY
Common Stock
On May 4, 2021, the Company issued shares of the Company’s common stock to members of the Board of Directors in lieu of director compensation. The stock awards vested % on the date of grant and the remainder of the shares vested equally over the three months following the date granted. Using a fair value stock price of $ per share, the transaction resulted in a compensation expense of $, of which $ was recognized during the three months ended June 30, 2021, and the remainder will be recognized during the three months ending September 30, 2021 according to the vesting schedule outlined above.
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
(see Note 6) was amended to include a formal provision that provides the related party lender with common stock warrants upon the lender’s
extension of a maturity due date or upon the loaning of additional monies.
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,
On
October 1, 2020, the related party note payable and line of credit agreement with Radiant Life, LLC, an entity partially owned by the
Chairman of the Board of Directors (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.
On
April 6, 2021, the Company borrowed $
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SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
As
of June 30, 2021 and March 31, 2021, the Company held outstanding warrants to related parties totaling
(5) NOTES PAYABLE
On
April 6, 2021, the Company borrowed $
(6) NOTES PAYABLE, RELATED PARTY
As
of both June 30, 2021, and March 31, 2021, the Company had borrowed $
Related Party Promissory Notes
As
of both June 30, 2021 and March 31, 2021, the Company owed $
Related Party Note Payable and Line of Credit Agreements
As
of both June 30, 2020 and March 31, 2021, the Company owed $
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SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
As
of June 30, 2021 and March 31, 2021, the Company owed $
(7) CONVERTIBLE DEBENTURE AGREEMENT
The
Company has entered into an
(8) SUBSEQUENT EVENTS
Subsequent to June 30, 2021, the following events transpired:
On
August 9, 2021, the unsecured promissory note with Satco International, Ltd. (see Note 5) was
amended to extend the due date from
On July 29, 2021, the
Company borrowed an additional $
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Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations.
This discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources at and during the three months ended June 30, 2021 and 2020. For a complete understanding, this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Financial Statements and Notes to the Financial Statements contained in this quarterly report on Form 10-Q and our annual report on Form 10-K for the year ended March 31, 2021.
Forward-looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are based on management’s beliefs and assumptions and on information currently available to management. For this purpose any statement contained in this report that is not a statement of historical fact may be deemed to be forward-looking, including, but not limited to, statements relating to our future actions, intentions, plans, strategies, objectives, results of operations, cash flows and the adequacy of or need to seek additional capital resources and liquidity. Without limiting the foregoing, words such as “may”, “should”, “expect”, “project”, “plan”, “anticipate”, “believe”, “estimate”, “intend”, “budget”, “forecast”, “predict”, “potential”, “continue”, “should”, “could”, “will” or comparable terminology or the negative of such terms are intended to identify forward-looking statements, however, the absence of these words does not necessarily mean that a statement is not forward-looking. These statements by their nature involve known and unknown risks and uncertainties and other factors that may cause actual results and outcomes to differ materially depending on a variety of factors, many of which are not within our control. Such factors include, but are not limited to, economic conditions generally and in the industry in which we and our customers participate; competition within our industry; legislative requirements or changes which could render our products or services less competitive or obsolete; our failure to successfully develop new products and/or services or to anticipate current or prospective customers’ needs; price increases; employee limitations; or delays, reductions, or cancellations of contracts we have previously entered into; sufficiency of working capital, capital resources and liquidity and other factors detailed herein and in our other filings with the United States Securities and Exchange Commission (the “SEC” or “Commission”). Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated.
Forward-looking statements are predictions and not guarantees of future performance or events. Forward-looking statements are based on current industry, financial and economic information which we have assessed but which by its nature is dynamic and subject to rapid and possibly abrupt changes. Our actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements and we hereby qualify all our forward-looking statements by these cautionary statements.
These forward-looking statements speak only as of their dates and should not be unduly relied upon. We undertake no obligation to amend this report or revise publicly these forward-looking statements (other than pursuant to reporting obligations imposed on registrants pursuant to the Exchange Act) to reflect subsequent events or circumstances, whether as the result of new information, future events or otherwise.
The following discussion should be read in conjunction with our financial statements and the related notes contained elsewhere in this report and in our other filings with the Commission.
Overview
Our historical business model has focused on 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.”
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We currently do not 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.
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.
During the latter part of the fiscal year ended March 31, 2021, we began developing an additional business offering, providing professional services to specialty structured finance groups, bond issuers and life settlement aggregators. We have assembled an experienced team from the life settlement marketplace, as well as from other areas such as financial services and public financial markets. As a professional services provider, we apply industry best practices to advise on the selection of specific portfolios of life insurance policies that are tailored to meet the needs of its clients. Our clients may include bond issuers, bond investors, or other structured finance product issuers. We develop strategies and methodologies which include the acquisition of life insurance portfolios, then uses common structured finance techniques and proprietary analytics to structure bonds for issuances, including principal protected bonds. Our goal is to deliver long-term value and profitability to shareholders by growing our professional services business and asset base, resulting in the ability to pay dividends to its shareholders.
Most recently we began working closely with bond placement agents and aggregators to establish various aspects of a proprietary, investment grade bond offering. In this arrangement, we participate as the sole originator in the role of structuring and advising on the structure of the proprietary bond instrument. Included in the role of structuring financial assets, we use proprietary analytics to establish the makeup of the rated instrument, including but not limited to, life settlement assets (life insurance policies) and managed cash, and implements a process of selective assembly of the underlying assets and cash management that will meet the policy requirements and analytics. We provide current and ongoing resources for all analytics, as well as advisement support for the investment and non-investment grade ratings for the managed asset pool and the managed cash accounts. In our advisory role, we are reimbursed for all expenses associated with the structuring and preparation of any bond offering, will receive an advisory payment upon the closing of any bond offering, and then will hold residual rights on the balance of assets once the bond is retired.
During the quarter ended June 30, 2021, we and US Capital Global Securities LLC, an affiliate of US Capital Global, entered into an arrangement wherein we are the lead advisor and lead originator of tailored life insurance portfolios to be used in a life insurance-linked bond offering (“bond offering”) of between $250 million to $500 million. US Capital Global Securities LLC is the lead placement agent and is marketing the bond offering on behalf of the issuer on a best-efforts basis to qualified investors. We have worked with Egan Jones rating agency to obtain a minimum of BBB plus to an A minus rating on the bond offering. This initial rating is based upon a sample portfolio of life settlement assets similar to those expected to be utilized in the bond offering. Once a percentage of the bond offering is in escrow, then the actual life settlement portfolios will be purchased and held until the bond offering closes. Once the final group of assets are assembled, then a final rating will be obtained. We have engaged a licensed asset manager, whose projected returns will be approved by the rating agency. Important for the success of the bond is the treatment of the various cash accounts that will support the bond. The two primary accounts will be the Investment account and the Cash Reserve account. These accounts will represent approximately 40% of the total cash raised from the bond offering. The Investment and Cash Reserve accounts are projected to produce sufficient annual returns to support the cost associated to maintain the bonds. A nationally recognized trust manager has been engaged to insure all the workings of the bond are handled properly and timely. An actuarial company has also been engaged to provide the modeling needed for the rating agency, asset manager and bond issuer. For services provided, we will receive a fee upon the closing on the bond offering and will also hold a residual monetary right to cash flows from the life settlement assets once the bond is retired.
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Plan of Operations
Life Settlements is not a market sector without competition and, at present, we are a minor competitor. We will need substantial additional funds to effectively compete in this industry and no assurance can be given that we will be able to adequately fund our current and intended operations through debt or equity financing. The Company has no current source of operating revenues. When we hold NIBs 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.
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
Three-Months Ended June 30, 2021, Compared with Three-Months Ended June 30, 2020
Interest Income
Due to the Company not holding NIBs, no interest income was recorded for the three months ended June 30, 2021 or 2020.
General & Administrative Expenses
General and administrative expenses totaled $243,461 and $124,341 during the three months ended June 30, 2021, and 2020, respectively. A significant portion of these expenses were professional fees and payroll costs. The increase in expenses was primarily due to the compensation expense related to the common stock issued to our directors, as well as increased professional fees.
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Other Income and Expenses
During the three months ended June 30, 2021, we negotiated a settlement to reduce our outstanding accounts payable to one of our vendors by $285,192. The gain was recorded as a gain on settlement of liabilities.
For the three months ended June 30, 2021 and 2020, other expenses related to pursuing potential financing alternatives were $77,561 and $74,500, respectively.
During the three months ended June 30, 2021, and 2020, interest expense accrued in the amount of $65,385 and $52,245, respectively. The increased interest expense was due slightly higher principal balances on our notes payable, as well as the effects of compounding interest.
Income Taxes
During the three months ended June 30, 2021, the Company recorded a net loss before income taxes of $101,215 and had no income tax expense or benefit as a result of a full valuation allowance on the net deferred tax asset.
Liquidity and Capital Resources
Since our inception our operations have been primarily financed through sales of equity instruments, debt financing, lines of credit and notes payable from related parties and the issuance of convertible debentures. As of June 30, 2021, we had $18,950 of cash, compared to $21,179 as of March 31, 2021. As of June 30, 2021, the Company had access to draw an additional $4,814,192 on the notes payable, related party and $3,000,000 on the Convertible Debenture Agreement. Our monthly expenses are anticipated to be approximately $75,000, which includes salaries of our employees, policy servicing expenses, consulting agreements and contract labor, general and administrative expenses, estimated legal and accounting expenses. Outstanding Accounts Payable as of June 30, 2021 totaled $555,555, and other accrued liabilities totaled $789,942. We believe that our availability under our existing lines of credit with related parties, our existing capital resources, together with the issuance of additional notes payable and convertible debentures will be sufficient to fund our operating working capital requirements for at least the next 12 months, or through August 2022.
Debt
At June 30, 2021, we owed $3,745,084, including accrued interest, for debt obligations. We owed $2,741,808 in principal pursuant to notes payable and lines-of-credits from related parties, $300,000 in other notes payable, and had fully paid off the principal owing on the 8% Convertible Debenture. As of June 30, 2021, one note payable and line-of-credit had a principal balance of $859,508 and is due on November 30, 2022, 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 $1,056,300, and the line of credit is currently extended through November 30, 2022. At June 30, 2021, unsecured promissory notes had principal balances totaling $826,000 and are due November 30, 2021. The convertible debenture agreement, which has no principal balance due as of June 30, 2021 is open through November 30, 2021. As of August 16, 2021, there was $4,764,192 available under the lines-of-credit we currently have with related parties and $3,000,000 available under the 8% convertible debenture agreement.
Critical Accounting Policies and Estimates
See Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, which was filed with the SEC on June 29, 2021.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not Applicable.
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Item 4. Controls and Procedures
Limitation on the Effectiveness of Controls
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed timely, is accumulated and communicated to management in a timely fashion. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management is necessarily required to use judgment in evaluating controls and procedures.
Evaluation of Controls and Procedures
Our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to the issuer’s management, including its Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and principal financial officer has concluded that our disclosure controls and procedures as of the end of the period covered by the Quarterly Report were effective.
Changes in Internal Control
There were no changes in our internal control over financial reporting that occurred during the first quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of our knowledge, there are no legal proceedings pending or threatened against us; and there are no actions pending or threatened against any of our directors or officers that are adverse to us.
Item 1A. Risk Factors
In addition to the other information set forth in this quarterly report on Form10-Q, you should carefully consider the risks discussed in our Annual Report on Form 10-K for the year ended March 31, 2021, which risks could materially affect our business, financial condition or future results. There were no material changes during the quarter ended June 30, 2021 to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2021. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Purchases of Equity Securities by the Issuer
There were no repurchases of equity during the quarter ended June 30, 2021.
Item 3. Defaults upon Senior Securities.
None; not applicable.
Item 4. Mine Safety Disclosures.
None; not applicable.
Item 5. Other Information.
None; not applicable.
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Item 6. Exhibits
Exhibits. The following exhibits are included as part of this report:
* Previously filed as an Exhibit to the registrant’s Annual Report on Form 10-K for the year ended March 31, 2021, filed with the Securities and Exchange Commission on August 10, 2020, and incorporated by reference herein.
**Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SUNDANCE STRATEGIES, INC. | ||
| Date: August 16, 2021 | By: | /s/ Randall F. Pearson |
| Randall F. Pearson | ||
| President and Principal Financial Officer | ||
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