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SUND > SEC Filings for SUND > Form 10-K/A on 21-Jul-2014All Recent SEC Filings

Show all filings for SUNDANCE STRATEGIES, INC.

Form 10-K/A for SUNDANCE STRATEGIES, INC.


21-Jul-2014

Annual Report


ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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.

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 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 interest in the Qualified NIBs we recently acquired in fiscal 2014 or through debt or equity financing. We may be required to expend not less than approximately $33,891,765 over premiums and servicing costs over the next five years to protect our interest in our NIBs, though we have no legal responsibility for these payments.

We currently estimate proceeds of approximately $74,546,743 on the net insurance benefits owned as of March 31, 2014, and acquired from PCH Financial and Del Mar Financial. This amount is based on the estimated proceeds from polices of $211,638,933; less the senior debt outstanding of $31,867,216; including the reductions for the $8,000,000 policy maturity; expected premium payments of


$66,341,026 over the life expectancies; the estimated increase in the net proceeds from premiums on those policies that contain a return of premium provision in the amount of $384,801; and estimated expenses and interest of $39,268,749 over the term of the Senior Loans.

We use an estimation methodology to project cash flows and returns as presented. The estimation model required many assumptions, including, but not limited to the following: (i) an assumption that the distinct number of lives in the portfolio would exhibit similar experience to a statistically diverse portfolio based upon which the mortality tables have been created; (ii) an assumption that the life expectancies (the "LE" or "LE's") provided by LE providers represent the actuarial mean of the life expectancies of the insureds in the portfolio,
(iii) the weighted average of the LEs provided by the LE providers represents an appropriate method for adjusting for discrepancies in the LE's; (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 the portfolio; and the senior lending fees, MRI fees, and insurance, servicing and custodial fees do 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 Sundance's initial assumptions. These portfolios contains only 62 policies and 32 individual insureds, 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, above; therefore, no assurance can be given that these estimated results will occur.

We advanced payments to purchase future additional life settlement products during the year ended March 31, 2014, and if these life settlement products become "Qualified NIBs" as defined in our acquisition documents and as discussed in below, we will also utilize the estimation methodology 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 included in the estimates above because to the extent that we have been delivered $90.6 million in "Qualified NIBs" from which such calculations would be made as of the fiscal year ended March 31, 2014.

Results of Operations

Income and Cost 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.

During the period from April 1, 2013, through December 31, 2013, our investment in net insurance benefits was on non-accrual status. This decision was primarily based on the initial incremental uncertainty experienced by us during our first three quarters of 2014, after closing of the acquisition on the first pool of qualified NIBS. Management concluded these uncertainties were significantly mitigated in the fourth quarter as additional experience and information was obtained, including the observation of the proper functioning of the entire system in response to the death of an insured in the fourth quarter.
Non-accrual status was removed effective January 1, 2014.


Operating and General & Administrative Expenses

Operating Expenses

During the years ended March 31, 2014, and 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 $2,278,009 and $98,074 during the years ended March 31, 2014, and 2013, respectively. Most of these expenses were professional fees, payroll and travel expenses. Most all of the professional fees were legal and accounting fees related to the preparation and filing of reports with the SEC under the Exchange Act during fiscal 2014, which did not occur in the prior year. Payroll is made up of payroll fees and equity issuances to management, directors and others in the current year.

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 years ended March 31, 2014, and 2013, interest expenses have accrued in the amount of $122,452 and $6,577, respectively. We deemed the amendment to the Secured Promissory Note payable by which such note was amended and restated and reduced by $1,499,999, to be an extinguishment of debt and recorded a gain of $1,672,124 in the year ended March 31, 2014. We had interest income in the amount of $13,788 and $0, respectively.

Income Taxes

At March 31, 2014, we had no taxable income.

Liquidity and Capital Resources

From our inception on January 31, 2013 through March 31, 2013, and as of the fiscal years ended March 31, 2014, we incurred net loss of $104,651 and $206,138, respectively. Management has expressed its belief that we need to raise approximately $40 million to $50 million in additional funds through equity or debt financing to continue our business model and to effectively compete in the life settlement industry during fiscal 2015 and beyond. We raised $11,792,500 in our private placement that commenced in April, 2013, with the receipt of a final subscription payment of $700,000 in March, 2014, and the cancellation of two subscriptions for non-payment at June 30, 2014. Our monthly expenses are between approximately $95,000 and $140,000, which includes salaries of our employees, consulting agreements and contract labor, general and administrative expenses and estimated legal and accounting expenses. As of June 30, 2014, we were current in all of our payables, and we had approximately $116,000 in cash, along with a Subscription Agreement executed on June 24, 2014, for $3.3 million to purchase 660,000 shares of our common stock, payable on or before August 15, 2014. We believe we will have adequate cash resources for our estimated monthly expenses through the end of our fiscal year of March 31, 2015, excluding any other acquisitions of additional NIBs and other life settlement products, and assuming payment of this Subscription Agreement.

We have cash assets at March 31, 2014, and 2013, of $375,212 and $545,417, respectively. We have $12,243,411 in investment in NIBs and have advanced $3,584,862 for investment in net insurance benefits. We also had a Secured Promissory 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. We 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, we 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 year ended March 31, 2014, we had received $11,792,500 for 2,358,500 common shares at $5.00 per share of which 2,218,500 shares were issued for cash of $11,092,500 and 140,000 shares were issued for cash of $700,000 on July 10, 2014; paid $845,886 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 the years ended March 31, 2014 and 2013, we had net cash used in operating activities of $10,471,080 and $3,323,323, respectively. We used $3,584,862 as an advancement to purchase the investment in NIBs under the Del Mar ATA for the year ended March 31, 2014 and used $5,944,411 and $3,300,000 to invest in net insurance benefits and accrued $508,411 and $0 in interest income on investment in net insurance benefits to invest in insurance benefits during the years ended March 31, 2014 and 2013, respectively. Net cash used in investing activities totaled $861,000 and $0 for the years ended March 31, 2014, and 2013, respectively, 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 $11,161,875 and $3,868,740 for the years ended March 31, 2014 and 2013, respectively, which represents the net funds we received from the private placement through March 31, 2014.

Long-Term Debt

At March 31, 2014, we had a long term debt balance of $1,455,904 and a short term related party note balance of $90,000. 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. Any such issuance will reduce the control of previous investors and may result in substantial additional dilution to investors purchasing shares in any such offering.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements for the two fiscal years ended March 31, 2014, and 2013.

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