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SUND > SEC Filings for SUND > Form 10-Q on 14-Feb-2014All Recent SEC Filings

Show all filings for SUNDANCE STRATEGIES, INC.



Quarterly Report

Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations.

Forward-looking Statements

In this Quarterly Report on Form 10-Q, references to "Sundance," the "Company," "we," "us," "our" and words of similar import refer to Sundance Strategies, Inc., a Nevada corporation and its subsidiary, ANEW LIFE, INC., a Utah corporation ("ANEW LIFE"), unless the context requires otherwise.

This Quarterly Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Exchange Act. In some cases, you can identify forward-looking statements by the following words:
"anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "ongoing," "plan," "potential," "predict," "project," "should," "will," "would," or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this report. These factors include, but are not limited to, economic conditions generally in the United States and internationally, and in the industry and markets in which we have and may participate in the future, competition within our chosen industry, our current and intended business, our assets and plans, the effect of applicable United States and foreign laws, rules and regulations on our business and our failure to successfully develop, compete in and finance our current and intended business operations.

You should read any other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Quarterly Report completely, and it should be considered in light of all other information contained in the reports or registration statement that we file with the Securities and Exchange Commission, including all risk factors outlined therein. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

Plan of Operations

We are engaged in the business of purchasing or acquiring life insurance policies and residual interests in or financial products tied to life insurance policies, including notes, drafts, acceptances, open accounts receivable and other obligations representing part or all of the sales price of insurance, life settlements and related insurance contracts being traded in the secondary marketplace, often referred to as the "life settlements market." These life insurance interests are anticipated to be held to maturity. Our plan of operation for the next 12 months is to continue the acquisition of these life insurance interests whereby we will acquire the interests in life insurance policies at a discount to their face value for investment purposes. We began purchasing the net insurance benefits in life insurance policies ("NIBs") during our fiscal year ended March 31, 2013. This is not a market sector without competition, and at present, we are a minor competitor. We will need substantial funds to effectively compete in this industry, anticipated to be approximately $10,000,000 to $15,000,000 in total, and no assurance can be given that we will be able to adequately fund our current and intended operations, whether through revenues generated from our current interest in the NIBs we recently acquired in fiscal 2013 or through debt or equity financing. We may be required to expend not less than approximately $20,814,350 over premiums and servicing costs over the next five years.

We currently estimate proceeds of approximately $45,665,018 on the NIBs owned as of December 31, 2013. This amount is based on the estimated proceeds from polices of $129,423,734 plus the estimated increase on return of premium policies over the life expectancy of those individuals of $4,798,148 less the senior debt outstanding of $23,786,079, expected premium payments of $39,253,366 over the life expectancies, and estimated expenses and interest of $25,517,419 over the term of the senior debt. We anticipate that over the next 15 years that, during years 1-5, policies representing 12.4% of total death benefits will mature; during years 6-11, policies representing 85.3% of total death benefits will mature; and during the remaining years 12-15, policies representing 2.3% of the total death benefits will mature. These percentages all assume that the policies mature according to the life expectancy of the underlying insured as of the date they were originally underwritten, without any adjustments for change in health or mortality improvement factors.

We used a "Deterministic" method to project the cash flows and returns as presented. The model required many assumptions, including, but not limited to the following: (i) 15 year 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) MPIC fees; and (viii) insurance, servicing and custodial fees. While this method of modeling cash flows is helpful in informing us of our general expectation of potential returns that might be produced from our NIBs portfolio, it is by no means any guarantee of such 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 Sundance's initial assumptions. This portfolio contains only 22 policies, though insurance rating agencies have stated that at least 1,000 lives are required to achieve any actuarial stability. Many risk factors beyond these assumptions may result in our expectations being incorrect, as outlined under Part I, Item 1A Risk Factors, commencing on page 17 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, which was filed with the Securities and Exchange Commission on July 12, 2013 (see Item 6); therefore, no assurance can be given that these estimated results will occur.

We advanced payments to purchase future additional life settlement products during the nine months ended December 31, 2013, and if these life settlement products become "Qualified NIBs" as defined in the acquisition documents and as discussed in Part II, Item 5, below, we will also utilize the "Deterministic" method to estimate what our proceeds from these "Qualified NIBs" may be, all subject to the same assumptions, qualifications and risks referenced above. These life settlement products are not included in the estimates above because we have not been delivered the "Qualified NIBs" from which such calculations would be made.

Results of Operations

Revenue and Cost Recognition

The Company accounts for its investment in life settlement contracts under FASB ASC 325-30. Under this guidance, the Company elects to account for the contracts using either the investment method or the fair value method on an instrument-by-instrument basis. The Company has elected to account for its current investments in net insurance benefits under the investment method. Under the investment method, the Company recognizes income upon final settlement of the underlying contract and once the requirements of Staff Accounting Bulletin No. 104, Revenue Recognition ("SAB 104) have been met, which entails recognizing revenues when an arrangement exists, the terms are fixed or determinable, and only at the time a settlement closes and collection is reasonably assured. The Company recognizes income as the difference between the carrying amount of the underlying life settlement contract and the net proceeds received for the underlying policy.

Operating and General & Administrative Expenses

Operating Expenses

During the three and nine months ended December 31, 2013, we engaged in the business of purchasing or acquiring life insurance policies and residual interests in or financial products tied to life insurance policies. General and administrative expenses were $253,770 and $1,355,526 during the three and nine months ended December 31, 2013, respectively. Most of these expenses were payroll and travel expenses. We had professional fees totaling $100,664 and $343,582 during the three and nine months ended December 31, 2013, respectively.
Most all of these expenses were legal and accounting fees related to the preparation and filing of reports with the SEC under the Exchange Act.

Other Income and Other Expenses

Other income and expenses consist of interest accrued on the note payable used to purchase the investment in our NIBs. During the three and nine months ended December 31, 2013, interest expenses have accrued in the amount of $31,020 and $91,802, respectively. The Company deemed the amendment to the secured note payable to be an extinguishment of debt and recorded a gain of $1,672,124 for the three and nine months ended December 31, 2013.

Income Taxes

At December 31, 2013, we had no taxable income.

Liquidity and Capital Resources

We have cash assets at December 31, 2013, of $124,850. We have $6,299,000 in investment in NIBs and have advanced $8,572,972 for investment in net insurance benefits. The Company also had a note payable for $2,999,000 related to the $6,299,000 in investment in NIBs, which was amended and determined to be an extinguishment of debt and issuance of new debt. The Company recorded a gain on extinguishment of $1,672,124. We have only common stock as our capital resource. We will be reliant upon stockholder loans or private placements of equity or debt to fund any future of operations. We have secured no sources of loans.
There is no assurance that we will be able to raise any required debt or equity financing.

On April 8, 2013, our Board of Directors approved a private offering of up to 3,000,000 common shares of our common stock, also comprised of "restricted securities" under SEC Rule 144 to "accredited investors" only at $5.00 per share. The purpose of the offering was to acquire additional NIBs or other life settlement products. During the nine months ended December 31, 2013, we had received $10,592,500 for 2,118,500 common shares at $5.00 per share of which 1,464,000 share were issued for cash of $7,320,000 and 654,500 shares are to be issued for cash of $3,272,500; paid $586,400 in introduction fees; and issued two year warrants to acquire 70,000 shares of our common stock at an exercise price of $5.00 per share.

For nine months ended December 31, 2013, we had net cash used in operating activities of $9,597,442. We used $8,572,972 as an advancement to purchase the investment in NIBs under the Del Mar ATA. Net cash used in investing activities totaled $861,000, which represents the issuance of two note receivables to unrelated parties in the amounts of $211,000 and $650,000. Net cash provided by financing activities totaled $10,037,875, which represents the net funds we received from the private placement through December 31, 2013.

Long-Term Debt

At December 31, 2013, we had a long term debt balance of $1,425,254. We may borrow money in the future to finance our future operations. Any such borrowing will increase the risk of loss to the investor in the event we are unsuccessful in repaying such loans.

We may issue additional shares to finance our future operations, although we do not currently contemplate doing so. Any such issuance will reduce the control of previous investors and may result in substantial additional dilution to investors purchasing shares from this offering.

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.

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