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.
Due to the foreclosure agreement previously mentioned, no interest income was recorded for the fiscal years ended March 31, 2020 and 2019.
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.
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.
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.
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.
The following table sets forth payments due by period for fixed contractual obligations by maturity date as of March 31, 2020:
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.
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.
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.
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).
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 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.
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.
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.
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.
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.
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:
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.