UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Quarterly Period Ended December 31, 2017 |
| [ ] | 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)
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 April 25, 2019 the registrant had 37,828,441 shares of common stock, par value $0.001, issued and outstanding.
SUNDANCE STRATEGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
The Condensed Consolidated Financial Statements of the Company required to be filed with this Quarterly Report were prepared by management and commence below, together with related notes. In the opinion of management, the Condensed Consolidated Financial Statements fairly present the financial condition of the Company and include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s Condensed Consolidated Financial Statements. The results from operations for the three and nine month period ended December 31, 2017, are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2018. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the March 31, 2017, Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form10-K for the fiscal year ended March 31, 2017, which was filed with the SEC on April 12, 2018.
| 3 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
December 31, 2017 (Unaudited) and March 31, 2017
| December 31, 2017 | March 31, 2017 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | 58,307 | $ | 4,364 | ||||
| Prepaid Expenses and Other Assets | 7,205 | 4,705 | ||||||
| Investment in Net Insurance Benefits | 1,969,688 | 34,156,005 | ||||||
| Total Current Assets | $ | 2,035,200 | $ | 34,165,074 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 332,423 | $ | 508,071 | ||||
| Deferred Income Taxes | - | 758,972 | ||||||
| Notes Payable, Related Parties | 929,508 | 5,214,753 | ||||||
| Convertible Debenture | - | 700,000 | ||||||
| Accrued Expenses | 144,472 | 753,780 | ||||||
| Total Current Liabilities | 1,406,403 | 7,935,576 | ||||||
| Commitments and Contingencies (Note 8) | - | - | ||||||
| Stockholders’ Equity | ||||||||
| 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; 44,128,441 shares issued and outstanding | 44,129 | 44,129 | ||||||
| Additional Paid In Capital | 24,547,014 | 24,547,014 | ||||||
| Retained Earnings (Accumulated Deficit) | (23,962,346 | ) | 1,638,355 | |||||
| Total Stockholders’ Equity | 628,797 | 26,229,498 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 2,035,200 | $ | 34,165,074 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended December 31, 2017 and 2016
(Unaudited)
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | |||||||||||||
| Interest Income on Investment in Net Insurance Benefits | $ | - | $ | 1,271,737 | $ | - | $ | 4,145,036 | ||||||||
| General and Administrative Expenses | 281,275 | 410,120 | 1,231,639 | 2,023,056 | ||||||||||||
| Impairment of Accrued Interest Receivable on Net Insurance Benefits | - | - | 1,936,311 | - | ||||||||||||
| Income (Loss) from Operations | (281,275 | ) | 861,617 | (3,167,950 | ) | 2,121,980 | ||||||||||
| Other Expense | ||||||||||||||||
| Impairment of Investment in Net Insurance Benefits | - | - | (22,950,126 | ) | - | |||||||||||
| Interest Expense | (27,576 | ) | (103,154 | ) | (241,597 | ) | (281,982 | ) | ||||||||
| Total Other Expense | (27,576 | ) | (103,154 | ) | (23,191,723 | ) | (281,982 | ) | ||||||||
| Income (Loss) Before Income Taxes | (308,851 | ) | 758,463 | (26,359,673 | ) | 1,839,998 | ||||||||||
| Income Tax Provision (Benefit) | - | 149,741 | (758,972 | ) | 411,603 | |||||||||||
| Net Income (Loss) | $ | (308,851 | ) | $ | 608,722 | $ | (25,600,701 | ) | $ | 1,428,395 | ||||||
| Basic and Diluted: | ||||||||||||||||
| Basic Earnings (Loss) Per Share | $ | (0.01 | ) | $ | 0.01 | $ | (0.58 | ) | $ | 0.03 | ||||||
| Diluted Earnings (Loss) Per Share | $ | (0.01 | ) | $ | 0.01 | $ | (0.58 | ) | $ | 0.03 | ||||||
| Basic Weighted Average Number of Shares Outstanding | 44,128,441 | 44,128,441 | 44,128,441 | 44,132,517 | ||||||||||||
| Diluted Weighted Average Number of Shares Outstanding | 44,128,441 | 45,509,192 | 44,128,441 | 45,513,268 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended December 31, 2017 and 2016
(Unaudited)
| Nine Months Ended | Nine Months Ended | |||||||
| December 31, 2017 | December 31, 2016 | |||||||
| Operating Activities | ||||||||
| Net Income (Loss) | $ | (25,600,701 | ) | $ | 1,428,395 | |||
| Adjustments to reconcile to net cash from operating activities: | ||||||||
| Share Based Compensation - Options | - | 182,572 | ||||||
| Impairment of Net Insurance Benefits | 24,886,437 | - | ||||||
| Deferred Income Taxes | (758,972 | ) | 411,603 | |||||
| Accrued Interest on Net Insurance Benefits | - | (4,145,036 | ) | |||||
| Changes in Operating Assets and Liabilities | ||||||||
| Cash Received on Net Insurance Benefits | 7,299,880 | 1,417,870 | ||||||
| Prepaid Expenses and Other Assets | (2,500 | ) | (5,330 | ) | ||||
| Accounts Payable | (175,648 | ) | 132,742 | |||||
| Accrued Expenses | (609,308 | ) | 452,979 | |||||
| Net Cash from (used in) Operating Activities | 5,039,188 | (124,205 | ) | |||||
| Financing Activities | ||||||||
| Proceeds from Convertible Debenture | 200,000 | - | ||||||
| Repayment of Convertible Debenture | (900,000 | ) | - | |||||
| Proceeds from Issuance of Notes Payable, Related Party | 400,000 | 1,129,575 | ||||||
| Repayment of Notes Payable, Related Party | (4,685,245 | ) | (150,000 | ) | ||||
| Redemption of Mandatorily Redeemable Common Stock | - | (750,000 | ) | |||||
| Financing Advance | - | (100,000 | ) | |||||
| Net Cash from (used in) Financing Activities | (4,985,245 | ) | 129,575 | |||||
| Net Change in Cash and Cash Equivalents | 53,943 | 5,370 | ||||||
| Cash and Cash Equivalents at Beginning of Period | 4,364 | 24,717 | ||||||
| Cash and Cash Equivalents at End of Period | $ | 58,307 | $ | 30,087 | ||||
| Non Cash Financing & Investing Activities, and Other Disclosures | ||||||||
| Cash Paid for Interest | $ | 534,238 | $ | - | ||||
| Cash Paid for Income Taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
(1) ORGANIZATION AND BASIS OF PRESENTATION, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim condensed consolidated financial statements have been prepared by the Company, without audit, in accordance with the instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnotes necessary for a fair presentation of its consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States (“GAAP”).
In the opinion of management, the condensed consolidated unaudited financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s consolidated financial position, results of operations, and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.
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”). 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. 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 (see Note 3) 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 VIE.
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.
| 7 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
NIBs are generally in the form of participating debt certificates (“PDC”), and although the two terms are interchangeable, the Company typically refers to them as NIBs. According to the terms of the PDCs, the PDCs provide both variable and fixed interest return to the Company from the Owners of the policies in the form of accrued yield. The variable interest varies by individual PDC, and is calculated as 99% to 100% (depending on the PDC) of the positive profits from the life insurance assets held by the Owners of the policies. The fixed interest also varies by individual PDC, and is either 1% or 2% per annum of the par value of the PDCs held by the Company. The par value of the PDCs held by the Company is approximately $36.8 million. The NIBs agreements between the Company and the Owners of the policies contain a provision that allows for the Owners to redeem the NIBs at any point, conditional upon paying to the Company the par value of the NIBs, as well as any unpaid accrued yield relating to fixed and variable interest. In aggregate, the sum of the par value plus unpaid accrued interest is in excess of the Company’s initial investment. The Company holds between 72.2% and 100% in the NIBs relating to the underlying life insurance policies as of December 31, 2017 and 2016. 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, 2017, and during the nine months ended December 31, 2017, 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. 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.
At March 31, 2017, and during the nine months ended December 31, 2017, the Company’s investment in NIBs was treated as a debt security, which was classified as a hold-to-maturity asset.
We evaluate the carrying value of our investment in NIBs for impairment on a regular basis and, if necessary, adjust our total basis in the NIBs using new or updated information that affects our assumptions. We recognize impairment on a NIB contract if the fair value of the beneficial interest is 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.
However, 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 part of the original agreement, the Chairman of the Company helped secure the loan by including a personal guarantee for a portion of the debt, if needed. The owners and other parties to the Agreements are diligently working to secure alternative financing, although no such positive outcome can be assured. 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 as of December 31, 2017 to $1,969,688, which is equal to the actual cash received by the Company from distributions subsequent to June 30, 2017. This carrying value is less than the accretion receivable as of March 31, 2017, and as such, is considered accretion receivable and not part of the Company’s original investment.
| 8 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
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 in the remaining Notes below.
(2) NEW ACCOUNTING PRONOUNCEMENTS
Adopted During the Nine-Months Ended December 31, 2017
In December 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The new standard is designed to simplify the presentation of deferred income taxes, and requires all deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. The amendments are effective for the Company’s fiscal year beginning April 1, 2017, and for interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-06 related to the embedded derivative analysis for debt instruments with contingent call or put options. This pronouncement clarifies that an exercise contingency does not need to be evaluated to determine whether it relates only to interest rates or credit risk. Instead, the contingent put or call option should be evaluated for possible bifurcation as a derivative in accordance with the four-step decision sequence detailed in FASB ASC 815-15, without regard to the nature of the exercise contingency. The pronouncement is effective for the Company’s fiscal year beginning April 1, 2017, and for interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The new standard simplifies certain aspects of the accounting for share-based payment award transactions by allowing entities to continue to use current GAAP by estimating the number of awards that are expected to vest or, alternatively, entities can elect to account for forfeitures as they occur. Another aspect of the standard requires an entity to recognize all excess tax benefits and deficiencies associated with stock-based compensation as a reduction or increase to tax expense in the income statement. Previously, such amounts were recognized in additional paid-in capital. ASU 2016-09 is effective for the Company for its fiscal year beginning April 1, 2017. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-17, Consolidation - Interests held through Related Parties that are under Common Control, which alters how a decision maker needs to consider indirect interests in a variable interest entity (VIE) held through an entity under common control. Under the new ASU, if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party. The amendments in this Update are effective for fiscal years beginning April 1, 2017, including interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the consolidated financial statements, as the Company has no related parties under common control that have the characteristics of a primary beneficiary of a variable interest entity.
Not Yet Adopted
The Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, 2015-14, 2016-8, 10,11 and 12 and 2017-13 – Revenue from Contracts with Customers, which provides a single, comprehensive revenue recognition model for all contracts with customers. The core principal of the ASUs is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASUs also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB deferred the effective date of this standard. As a result, the standard and related amendments will be effective for the Company for its fiscal year beginning April 1, 2018, including interim periods within that fiscal year. Early application is permitted, but not before the original effective date of April 1, 2017. Entities are allowed to transition to the new standard by either retrospective application or recognizing the cumulative effect. The ASUs are not applicable to securitized beneficial interests that derive accreted yields and, therefore the Company will continue to follow the guidance in ASC 325-40. The adoption of this standard will not have an impact on the consolidated financial statements.
| 9 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
In January 2016, the FASB issued ASU 2016-01 regarding Financial Instruments, which amended guidance on the classification and measurement of financial instruments. Under the new guidance, entities will be required to measure equity investments that are not consolidated or accounted for under the equity method at fair value with any changes in fair value recorded in net income, unless the entity has elected the new practicability exception. For financial liabilities measured using the fair value option, entities will be required to separately present in other comprehensive income the portion of the changes in fair value attributable to instrument-specific credit risk. Additionally, the guidance amends certain disclosure requirements associated with the fair value of financial instruments. The standard will be effective for the Company’s fiscal year beginning April 1, 2018, including interim reporting periods within that fiscal year. The Company is currently evaluating the effect of the adoption of this guidance on the consolidated financial statements.
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 Company does not believe the adoption of this guidance will have a material effect on the consolidated financial statements because leases are month-to-month and not material to the Company’s financial statements.
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.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. Historically, there has been a diversity in practice in how certain cash receipts/payments are presented and classified in the statement of cash flows. To reduce the existing diversity in practice, this update addresses the eight cash flow issues as listed in the pronouncement. The amendments in this update are effective for fiscal years beginning April 1, 2018, and interim periods within that fiscal year. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.
On May 10, 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, the ASU is effective for the Company’s fiscal year beginning April 1, 2018, including interim periods within that annual reporting period. Early adoption is permitted, including adoption in any interim period. The adoption of this standard is not expected to have material impact on the Company’s financial statements as the Company does not expect to make future modifications to existing share based payment awards.
| 10 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
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.
(3) INVESTMENT IN NET INSURANCE BENEFITS
The balance in Investment in NIBs at December 31, 2017 and March 31, 2017, and related activity for the periods then ended were as follows:
| December 31, 2017 | March 31, 2017 | |||||||
| Beginning Balance | $ | 34,156,005 | $ | 29,822,186 | ||||
| Accretion of interest income | - | 5,751,689 | ||||||
| Cash received | (7,299,880 | ) | (1,417,870 | ) | ||||
| Impairment of investments | (24,886,437 | ) | - | |||||
| Ending Balance | $ | 1,969,688 | $ | 34,156,005 | ||||
As outlined in Note 1, between May 2018 and July 2018, the Owners entered in agreements that completed a strict foreclosure transaction that transferred these policies to the lenders in full satisfaction of the loan obligation. As a result of the foreclosure the Company reduced the carrying value of the NIBs by $24,886,437 at June 30, 2017, to $7,769,568, which is the estimated fair value of the NIBs calculated as the actual cash received subsequent to June 30, 2017, from distributions by the Owners to the Company. During the period ended December 31, 2017, the Company received $7,299,880 ($1,500,000 in May 2017, $2,500,000 in September 2017 and $3,299,880 in October 2017) from maturities and miscellaneous other adjustments to the underlying policies, thus reducing the carrying value of the NIBs at December 31, 2018 to $1,969,688.
Our Investment in NIBs are classified as held-to-maturity investments at March 31, 2017 and as available-for-sale investments at December 31, 2017. The NIBs have a contractual maturity date of 25 years from inception, and the inception dates ranged from December 2011 to January 2013. The amortized cost, aggregate fair value and gross unrecognized holding gains and losses at December 31, 2017 and March 31, 2017 were as follows:
| December 31, 2017 | March 31, 2017 | |||||||
| Amortized Cost Basis/Net Carrying Amount | $ | 1,969,688 | $ | 34,156,005 | ||||
| Aggregate Fair Value (See Note 4) | 1,969,688 | 45,643,224 | ||||||
| Gross Unrecognized Holding Gains | $ | - | $ | 11,487,219 | ||||
| 11 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
(4) LIQUIDITY REQUIREMENTS
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. As of December 31, 2017, the Company had $58,307 of cash assets, compared to $4,364 as of March 31, 2017. As of April 25, 2019, the Company had access to draw an additional $5,507,991 on the notes payable, related party (see Note 6 and Note 12) and $3,000,000 on the Convertible Debenture Agreement (See Note 7 and Note 12). The Company’s average monthly expenses are expected to be approximately $90,000, which includes salaries of our employees, consulting agreements and contract labor, general and administrative expenses and estimated legal and accounting expenses. Outstanding Accounts Payable as of December 31, 2017, totaled $332,423, and other accrued liabilities totaled $144,472. 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 April 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. The Company also continues to evaluate other debt and equity financing opportunities.
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 continue to purchase additional NIBs or remove the NIBs out of foreclosure, the Company will need to raise additional capital. Management is currently engaged in obtaining long term financing and believes that it will secure the needed additional capital within one year from the date of this filing. As management believes that additional capital is a probable outcome, the Company has the ability to continue as a going concern for a period of one year from the date of issuance of these financial statements.
(5) 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. |
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.
In accordance with the disclosure requirements of ASC Topic 825, “Financial Instruments” (“ASC 825”), the tables below summarize fair value estimates for the Company’s Investment in NIBs, which both are (at December 31, 2017) and are not (at March 31, 2017) required to be carried at fair value. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company. In estimating the fair value of the Company’s Investment in NIBs, the rate of return that a market participant would be willing to pay for each portfolio is used to recalculate the discounted estimated future cash flows. This present value is used to represent the fair value of the Investment in NIBs using level 3 inputs.
| 12 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
Financial Instruments Required To Be Carried at Fair Value at December 31, 2017
| Fair Value Measurements at December 31, 2017 | ||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investment in Net Insurance Benefits | $ | - | $ | - | $ | 1,969,688 | $ | 1,969,688 | ||||||||
Financial Instruments Not Required To Be Carried at Fair Value at March 31, 2017
| Fair Value Measurements at March 31, 2017 | ||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investment in Net Insurance Benefits | $ | - | $ | - | $ | 45,643,224 | $ | 45,643,224 | ||||||||
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 year ended March 31, 2017 and the nine months ended December 31, 2017.
At March 31, 2017, the fair value of our investment in NIBs was determined by evaluating the sum of present value of the future cash flows expected from the NIBs. 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 would be calculated prospectively based on the current amortized cost of the investment, including accrued accretion.
At December 31, 2017, the fair value of our investment in NIBs is calculated as the actual cash received (discounted) subsequent to December 31, 2017, from distributions by the Owners to the Company.
Other Financial Instruments
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 and convertible debenture approximates the fair values as the interest rate approximates market interest rates.
(6) NOTES PAYABLE, RELATED PARTY
As of December 31, 2017 and March 31, 2017, the Company had borrowed $929,508 and $5,214,753, respectively, excluding accrued interest, from related parties under notes payable agreements that allow for borrowings of up to $6,730,000, exclusive of accrued interest. There are no covenants associated with these agreements. On December 6, 2017, the note payable, related party agreement that allowed for borrowings of up to $4,600,000 at December 31, 2017, was amended to extend the due date from August 31, 2018 to August 31, 2019. At the time of the extension, the Company had no outstanding principal owing on that agreement. The $929,508 of notes payable owed as of December 31, 2017 was due November 30, 2018, and was later extended, through a series of amendments, to November 30, 2020. In the event the Company completes a successful equity raise, principal and interest on notes payable totaling $949,755 are due in full at that time. The notes payable incur interest at 7.5%, and are collateralized by Investment in NIBs. During the three months ended December 31, 2017, the Company did not borrow any funds under these agreements and repaid $2,082,474 in principal. Additionally, $59,038 in accrued interest was paid out during the three months ended December 31, 2017. As of December 31, 2017, the Company had availability to borrow up to $5,800,492 under these agreements. The interest associated with these notes of $20,247 and $334,626 is recorded on the balance sheet as an Accrued Expense obligation at December 31, 2017 and March 31, 2017, respectively. The related parties include a person who is the Chairman of the Board of Directors and a stockholder, and Radiant Life, LLC, an entity partially owned by the Chairman of the Board of Directors.
At December 31, 2017 the Company also owed $56,773 to the Chairman of the Board and a shareholder, which is included in accounts payable on the balance sheet.
See Note 12 for a detail of activity on the Notes Payable, Related Party subsequent to December 31, 2017.
| 13 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
(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. 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. These extensions applied to both the due date and the conversion rights. See Note 12 for a detail of activity on the Convertible Debenture subsequent to December 31, 2017.
As of December 31, 2017 the Company had fully paid off the outstanding principal under the agreement. During the three months ending December 31, 2017, the Company did not borrow on the agreement, and repaid the remaining $700,000 of principal owed. The outstanding interest of $124,225 and $102,488 at December 31, 2017 and March 31, 2017, respectively, is recorded on the balance sheet as an Accrued Expense obligation.
(8) COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS
As explained in Note 1, 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”. The Company does not take possession or control of the policies. The owners of the life settlements or life insurance policies acquired such policies at a discount to their face value. The life insurance portfolios underlying our NIBs typically involve loans originated with 4-5 year terms. The Company has always assumed that the Holders will be able to refinance their loans at the end of the respective loan terms. However, the Holders’ Lender’s ability to offer replacement loans has always been governed by factors that are beyond the Company’s control or the control of the Holders. At December 31, 2017, the entities that own the policies maintained a total of 13 separate loan agreements with the senior lending facility, all with separate expiration dates. As of December 31, 2017, 11 of these loans had expiration dates that had lapsed, with the remaining 2 loans having maturity dates ranging from July 2017 to January 2018. During October 2017, the entities completed a refinancing of the loans that had matured and were about to mature. The agreements were with a new senior lending facility who previously provided MRI for the underlying policies. During December 2017, these new loans were extended through April 15, 2018, and did not require MRI coverage. The Holders had available credit to pay forecasted premiums and expenses on a portion of the policies until April 15, 2018, which was the renewal date of the loans on these life insurance policies. The Holders have worked with the lender to extend the loans multiple times and now, after the last loan extension expired, between May 2018 and July 2018, the lenders foreclosed on the loans associated with the underlying life insurance policies and the Company has recorded a $24,886,437 impairment on the NIBs.
As of September 30, 2017, the Company had remaining accrued expenses of $220,601 relating to the costs to maintain the structure of the life insurance policies. During October 2017, the Company made a final payment of $31,438, after which the Company received notification from the Holders that the remaining $189,163 had been paid in full by the Holders. During the quarter ended December 31, 2017, the Company has reversed the effects of the remaining $189,163 accrued liability on its balance sheet.
| 14 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
(9) EARNINGS (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the periods. Diluted net income per common share is computed by including common shares that may be issued subject to existing rights with dilutive potential, when applicable. Dilutive common stock equivalents are primarily comprised of stock options and warrants. Potentially dilutive shares resulting from convertible debt agreements are evaluated using the if-converted method, and such amounts were not dilutive. As of December 31, 2017 there were 2,162,086 potentially dilutive common stock equivalents.
(10) STOCK OPTIONS
During the year ended March 31, 2014, the Company issued common stock options to certain directors, officers, consultants and employees. The Company has recorded stock-based compensation expense of $182,572 and $508,503 related to these options for year ended March 31, 2017 and 2016, respectively. At March 31, 2017, all stock options had vested and all expenses relating to the outstanding options had been recognized as stock-based compensation expense. On the date of grant, the contractual option terms were all 5 years, with all options have an expiration date between April and October of 2018. The number of options outstanding and exercisable at December 31, 2017 is 2,106,875.
If all vested options as of December 31, 2017 were to be exercised, the Company could expect to receive $3,314,294.
(11) INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform Act”) was signed into law by the President of the United States. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. federal corporate tax rate from 35% to 21% effective for the Company’s fiscal year ended March 31, 2018. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. The Company will recognize the effects of the Tax Reform Act for the re-measurement of its net deferred tax liabilities during the third quarter ended December 31, 2017. This will be done in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Reform Act was signed into law.
At March 31, 2017, the Company had recorded a net deferred tax liability totaling $758,972. Due to net losses being recognized during the three months ended June 30, 2017, the Company’s deferred tax asset balance surpassed the deferred tax liability balance, resulting in the recording of an income tax benefit for the reduction of the previously recorded net deferred tax liability balance at March 31, 2017, of $758,972. For the period ended September 30, 2017, the Company continues to record net losses resulting in the accumulation of deferred tax assets relating to the net operating loss carryforwards. At September 30, 2018, management had recorded a 100% valuation allowance on the amount the Company’s deferred tax assets exceeding the Company’s deferred tax liabilities.
(12) SUBSEQUENT EVENTS
Subsequent to December 31, 2017, the following events transpired:
Effective January 1, 2018, Matthew Pearson resigned his position as the Company’s Chief Operations Officer to pursue other opportunities. As of the date of this filing, no replacement has been designated to fill his position.
| 15 |
SUNDANCE STRATEGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2017
During February 2018, management engaged consultants to explore and analyze financing alternatives available to the Company. From February 2018 through March 2019 approximately $1,320,581 has been paid to the consultants.
Effective December 5, 2018, Ty D. Mattingly resigned his position on the Company’s Board of Directors. On December 6, 2018, Glenn S. Dickman and Stephen E. Quesenberry were named to the Company’s Board of Directors.
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 USD $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, reducing the amount of outstanding common shares from approximately 44,128,441 to 36,128,441. The Company anticipates paying the $0.05 per share repurchase price upon a major financing event, as agreed upon between the Company and the stockholders. As of the date of this filing, the shares have been cancelled, but have not yet been repurchased by the Company.
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. The shares granted include a vesting period.
On July 11, 2018, the Company issued 800,000 common shares in return for obtaining the remaining 27.8% ownership of certain NIBs (see Note 3). The transaction was recorded at $40,000, 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).
From July 25, 2018 to April 10, 2019, Mr. Dickman loaned the Company $535,000 through an unsecured promissory note, which bears interest at a rate of 8% annually. To date, the Company has not made any principal or interest payments under this note. As of the date hereof, the full $535,000 of principal is recorded as Notes Payable, Related Party, and the Company has accrued $18,909 of unpaid interest.
In January 2018, the Company received $1,969,688 in cash proceeds associated with maturities and miscellaneous adjustments to other underlying policies. The cash proceeds reduced the carrying value of the Company’s Investment in NIBs to $0.
Subsequent to December 31, 2017, the Company has repaid $100,000 in principal on the Notes Payable, Related Party. The Company has also paid out accrued interest totaling $15,404 on the Notes Payable, Related Party.
Subsequent to December 31, 2017, the Company has borrowed an additional $392,500 on the Notes Payable, Related Party (exclusive of the $535,000 loaned by Mr. Dickman). As of April 25, 2019, the outstanding principal balances of all Notes Payable, Related Party totaled $1,672,008 and the outstanding principal balance of the Convertible Debenture is $0.
On February 8, 2019 note payable, related party agreement that allowed for borrowings of up to $4,600,000 was extended from August 31, 2019 to November 30, 2020. Subsequent to December 31, 2017, the note payable, related party agreement that allowed for borrowings of up to $2,130,000 was amended to extend the due dates from November 30, 2018 to November 30, 2020, respectively. On December 7, 2017, the Company agreed to amend the agreement to extend the due date and conversion rights on the Convertible Debenture from February 28, 2018 to August 31, 2019.
| 16 |
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 and nine months ended December 31, 2017 and 2016. 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, 2017.
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.
| 17 |
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, hold 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 allow 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 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
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, whether through revenues generated from our current interest in our NIBs or through debt or equity financing. 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. These payments are currently being made through an unrelated senior lending facility. The entities that own the policies maintain a total of 13 separate loan agreements with the senior lending facility, all with separate expiration dates. As of December 31, 2017, 11 of these loans had expiration dates that have lapsed, with the remaining 2 loans having expiration dates ranging from June 2017 to January 2018. 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. During December 2017, these new loans were extended through April 15, 2018 and the Holders had available credit to pay forecasted premiums and expenses on a portion of the policies until that date. 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. The Holders and other parties to the Agreements are diligently working to secure alternative financing, although no such positive outcome can be assured. The lenders continue to pay premiums and related fees on and have not yet liquidated the life insurance policies. As of the date of this filing, the lenders continue to pay premiums and related fees on the life insurance policies and have not yet liquidated the policies. 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 June 30, 2017 to $7,769,568, which is equal to the actual cash received by the Company from distributions subsequent to June 30, 2017. This carrying value is less than the accretion receivable as of March 31, 2017, and as such, is considered accretion receivable and not part of the Company’s original investment.
| 18 |
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. As of December 31, 2017, these portfolios contain only 108 fractionalized policies on 59 individual insureds, though insurance rating agencies have stated that at least 1,000 lives are required to achieve actuarial stability. Many risk factors beyond these assumptions may result in our expectations being incorrect; therefore, no assurance can be given that these estimated results will occur.
Results of Operations
Income Recognition
At the time of transfer or purchase of an investment in NIBs, we estimate the future expected cash flows from such NIBs and determine the effective interest rate that, when applied to our initial investment in such NIBs, would yield these estimated cash flows. The Company accrues income on a monthly basis by applying this interest rate to our investment in the related NIBs, and such income is recorded as interest income on investment in NIBs in the statement of operations. This accretable income is based on the effective yield method and effectively represents the total amount of cash flows we expect to receive over the life of each pool of NIBs less the amount of our initial investment in such NIBs. Subsequent to the purchase of a given pool of NIBs and on a regular basis, these future estimated cash flows are evaluated for changes. If we determine that the future estimated cash flows should be significantly adjusted, a revised effective yield is calculated and applied 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 may result in the recognition of an “other-than-temporary impairment” (“OTTI”), and would be evaluated by the Company accordingly.
We had not recognized any impairment on our investment in NIBs from January 31, 2013 (inception), through the year ended March 31, 2017. However, between May 2018 and July 2018, the Owners entered into agreements that completed a strict foreclosure transaction that transferred these policies to the lenders in full satisfaction of the loan obligation. The owners and other parties to the Agreements are diligently working to secure alternative financing, although no such positive outcome can be assured. The lenders continue to pay premiums and related fees on the life insurance policies and have not yet liquidated the policies. As of the date of this filing, the lenders continue to pay premiums and related fees on the life insurance policies and have not yet liquidated the policies. 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 June 30, 2017 to $7,769,568, which is equal to the actual cash received by the Company from distributions subsequent to June 30, 2017. During the period ended December 31, 2017, the Company received $5,799,880 from maturities and miscellaneous other adjustments to the underlying policies, thus reducing the carrying value of the NIBs at December 31, 2017 to $1,969,688.
| 19 |
Three-Months Ended December 31, 2017 Compared with Three-Months Ended December 31, 2016
Interest Income
Due to the foreclosure agreement previously mentioned, no interest income was recorded for the three months ended December 31, 2017. Interest income on investment in NIBs totaled $1,271,737 for the three months ended December 31, 2016.
General & Administrative Expenses
General and administrative expenses totaled $281,275 and $410,120 during the three months ended December 31, 2017, and 2016, respectively. A significant portion of these expenses were professional fees, payroll and travel expenses.
Other Income and Expenses
Included in Other Expense is the Company’s interest expense on the notes payable and lines-of-credit due to related-parties and a convertible debenture. During the three months ended December 31, 2017, and 2016, interest expense accrued in the amount of $27,575 and $103,154, respectively. The decrease in interest expense was primarily due to lower principal balances during the three months ended December 31, 2017.
Income Taxes
During the three months ended December 31, 2017, we recorded a net loss of $308,851 before income taxes and had no income tax expense. During the three months ended December 31, 2016, we recorded net income before income taxes of $758,463 and also recorded an income tax expense of $149,741.
Nine-Months Ended December 31, 2017 Compared with Nine-Months Ended December 31, 2016
Interest Income
Due to the foreclosure agreement previously mentioned, no interest income was recorded for the nine months ended December 31, 2017. Interest income on investment in NIBs totaled $4,145,036 for the nine months ended December 31, 2016.
General & Administrative Expenses
General and administrative expenses totaled $1,231,639 and $2,023,056 during the nine months ended December 31, 2017, and 2016, respectively. A significant portion of these expenses were professional fees, payroll and travel expenses. During the nine months ended December 31, 2016, we were made aware that credit was presently no longer available to pay up to $316,667 in certain costs to maintain the structure of the underlying life insurance policies, and in anticipation of potentially needing to pay this liability, this amount was expensed during the period. The company ultimately paid $127,504 of this liability, and the remainder of the accrual was reversed in October 2017.
| 20 |
Impairment of Net Insurance Benefits
As indicated above, no impairment on our investment in NIBs had been recognized 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 to the lenders in full satisfaction of the loan obligation. As a result of the foreclosure, the Company recognized impairment totaling $24,886,437 at June 30, 2017, reducing the carrying value of the NIBs to $7,769,568, which is the estimated fair value of the NIBs calculated as the actual cash received (discounted) subsequent to June 30, 2018, from distributions by the Owners to the Company. Of the total impairment amount recognized of $24,886,437, $1,936,311 was apportioned as an impairment on the accrued interest receivable that the Company previously expected to receive and was classified on the Statement of Income as an operating expense. The remaining impairment amount of $22,950,126 was considered impairment on the Company’s original investment in NIBs, and is included in the Company’s Other Expenses for the period.
Income Taxes
During the nine months ended December 31, 2017, the Company recorded a net loss before income taxes of $26,359,673. At March 31, 2017, the Company had recorded a net deferred tax liability totaling $758,972. Due to net losses being recognized during the three months ended June 30, 2017, the Company’s deferred tax asset balance surpassed the deferred tax liability balance, resulting in the recording of an income tax benefit for the reduction of the previously recorded net deferred tax liability balance at March 31, 2017, of $758,972. For the period ended September 30, 2017, the Company continues to record net losses resulting in the accumulation of deferred tax assets relating to the net operating loss carryforwards. At September 30, 2018, management had recorded a 100% valuation allowance on the amount the Company’s deferred tax assets exceeding the Company’s deferred tax liabilities. During the nine months ended December 31, 2016, we recorded net income before income taxes of $1,839,998, and also recorded an income tax expense of $411,603.
The Company assessed the need for a valuation allowance against its deferred income tax assets at December 31, 2017. Factors considered in this assessment include recent and expected future earnings and the Company’s liquidity and equity positions. As of March 31, 2016, management had placed a 100% valuation allowance, totaling approximately $275,000, on the amount the Company’s deferred tax assets exceeding our deferred tax liabilities. As a result, no income tax expense (benefit) or deferred tax asset or liability was recorded on the financial statement. During the year ended March 31, 2017, the Company’s deferred tax liabilities began to exceed deferred tax assets, which resulted in the recording of income tax expense and a deferred tax liability. As a result, during the year ended March 31, 2017, the $275,000 valuation allowance was reversed as the deferred tax liabilities exceeded the deferred tax liabilities and the expectation of cash inflows from the actual and anticipated maturities of the underlying life insurance policies, which will create taxable income to the Company. The deferred tax assets primarily relate to net operating loss carryforwards and the deferred tax liabilities primarily relate to interest income recognized for financial reporting purposes, but not for tax reporting purposes. During the nine months ended December 31, 2017, the Company recognized an impairment on the Investment on NIBs totaling $24,886,437, resulting in a net loss for the nine-month period of $25,600,701. For tax purposes, a net taxable loss was also recorded for the nine-month period and resulted in a deferred tax asset balance in excess of the Company’s deferred tax liabilities. As a result, during the nine months ended December 31, 2017, a valuation allowance was recorded against the net deferred tax assets balance for approximately $9,073,000 along with an income tax benefit for the reduction of the previously recorded deferred tax liability balance as of March 31, 2017.
Recent Tax Legislation
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform Act”) was signed into law by the President of the United States. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. federal corporate tax rate from 35% to 21% effective for our calendar year ending March 31, 2018. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.
| 21 |
The Tax Reform Act reduces the federal corporate tax rate to 21% effective for our calendar year ending March 31, 2018. We will recognize the effects of the Tax Reform Act for the re-measurement of the net deferred tax liabilities during the third quarter ended December 31, 2017.
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 December 31, 2017, we had $58,307 of cash, compared to $4,364 as of March 31, 2017. As of April 25, 2019, the Company had access to draw an additional $5,507,991 on the notes payable, related party and $3,000,000 on the Convertible Debenture Agreement. Our monthly expenses are approximately $90,000, 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 December 31, 2017 totaled $332,423, and other accrued liabilities totaled $144,472. 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 April 2020.
For the nine months ended December 31, 2017, and 2016 respectively, we recorded net cash provided by operating activities of $5,039,188 and net cash used in operating activities of $124,205. The increase in operating cash provided was primarily due to $7,299,880 in cash proceeds associated with maturities and miscellaneous adjustments to the underlying policies received during the nine months ended December 31, 2017. The cash proceeds reduced the carrying value of the Company’s Investment in NIBs. During the nine months ended December 31, 2016, we received $1,417,870 in cash proceeds associated with maturities.
For the nine months ended December 31, 2017, and 2016, no cash was used in or provided by investing activities
During the nine months ended December 31, 2017 and 2016, net cash used in and provided by financing activities was $4,985,245 and $129,575, respectively. During the nine months ended December 31, 2017, we repaid $4,685,245 under the Notes Payable, Related Party agreements, and borrowed $400,000. During the nine months ended December 31, 2016, we borrowed $1,129,575 and repaid $150,000 under the Notes Payable, Related Party agreements. In addition, during the nine months ended December 31, 2016, we paid out the $750,000 Mandatorily Redeemable Common Stock Payable recorded on the balance sheet as of March 31, 2016. At December 31, 2017, we owed $929,508, excluding accrued interest, pursuant to notes payable and lines-of-credits from related parties.
During the nine months ended December 31, 2017, we paid $534,238 in accrued interest on the Note Payable, Related Party agreements, and accrued an additional $241,597 of interest payable on the Note Payable, Related Party agreements and the Convertible Debenture.
The accompanying financial statements have been prepared on a going concern basis under which we are expected to be able to realize our assets and satisfy our liabilities in the normal course of business. To continue as a going concern through April 2020, removing the NIBs out of foreclosure, and to continue to acquire NIBs, we will be heavily dependent on completing securities and debt offerings or obtaining alternative sources of financing. Absent additional financing, we will not have the necessary resources to execute our business plan.
Debt
At December 31, 2017, we owed $1,073,980, including accrued interest, for debt obligations. At December 31, 2017, we owed $929,508, excluding accrued interest, pursuant to notes payable and lines-of-credits from related parties. One note payable and line-of-credit had no principal balance and is due on November 30, 2020, 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 $929,508 and is also due on November 30, 2020, or when the Company completes a successful equity raise, at which time principal and interest is due in full. The convertible debenture is due August 31, 2019. As of April 25, 2019, there was $5,507,991 available under the lines-of-credit we currently have with related parties and $3,000,000 available under the 8% convertible debenture agreement. 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.
| 22 |
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.
Investment in NIBs, The Company accounts for its investment in NIBs at the initial investment value increased for interest income and decreased for cash receipts received by the Company. At the time of transfer or purchase of an investment in NIBs, we estimate 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 calculates accretable income, which is recorded as interest income on investment in NIBs in the statement of operations. Our current projections are based off of 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 are evaluated for changes. If the determination is made that the future estimated cash flows should be adjusted to the point of a material change in revenue, a revised effective yield is calculated prospectively based on the current amortized cost of the investment, including accrued accretion.
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.
| 23 |
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.
In accordance with the disclosure requirements of ASC Topic 825, “Financial Instruments” (“ASC 825”), the NIBs are not required to be carried at fair value, but only required to be disclosed in the footnotes to the financial statements. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company. In estimating the fair value of the Company’s Investment in NIBs, the rate of return that a market participant would be willing to pay for each portfolio is used to recalculate the discounted estimated future cash flows. This present value is used to represent the fair value of the Investment in NIBs using level 3 inputs.
The fair value of our investment in NIBs is determined by evaluating the sum of present value of the future cash flows expected from the NIBs. Our current projections for the future cash flows are based off of various assumptions that are subject to uncertainties and contingencies, which are difficult to predict and are subject to future events that may impact our estimates and interest income. Therefore, subsequent to the purchase and on a regular basis, these future estimated cash flows are evaluated for changes. If the determination is made that the future estimated cash flows should be adjusted to the point of a material change in revenue, a revised effective yield is calculated prospectively based on the current amortized cost of the investment, including accrued accretion.
Our Investment in NIBs are classified as held-to-maturity investments at March 31, 2017 and as available-for-sale investments at December 31, 2017. At December 31, 2017, the fair value of our investment in NIBs of $1,969,688 is calculated as the actual cash received subsequent to December 31, 2017, from distributions by the Owners to the Company.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Our exposure to market risk for changes in interest rates relates primarily to the valuation of investment in NIBs and related income recognition. Increases in general interest rates would similarly increase the interest rates used in our financial models. Such increases would result in decreases in the present value of expected future cash flows from our NIBs and, as a result, decrease income accrued on our investment in NIBs. The Company’s assessment of market risk as of December 31, 2017 indicates there have been no material changes in the quantitative and qualitative disclosures from those in our Annual Report on Form 10-K for the year ended March 31, 2017 filed with the SEC.
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.
| 24 |
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.
Identified Material Weakness in Internal Controls
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 not effective due to the material weaknesses described below:
The design and operating effectiveness of our control environment and risk assessment, control activities and monitoring activities were inadequate 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.
Control Environment and Risk Assessment – The Company did not have an effective control environment with the structure necessary for effective internal controls over financial reporting. Further, the Company did not have an effective risk assessment to identify and assess risks associated with changes to the Company’s investment model and the impact on internal controls. The Company failed to ensure that proper policies and procedures were established to maintain an effective control environment. Specifically, the Company did not have policies and procedures in place to ensure that accounting conclusions are always thoroughly documented.
Information and Communication – The Company did not have effective information and communication activities to ensure the Company uses relevant information to support internal controls over financial reporting. Specifically, the Company did not always ensure that relevant information was provided to those responsible to document the Company’s accounting conclusions.
Control and Monitoring Activities – The Company did not have control activities that were designed and operating effectively including management review controls, monitoring and assessing the work of consultants, and verifying the completeness and accuracy of information. Specifically, the Company did not always maintain adequate procedures for the review of work performed by those responsible for reaching accounting conclusions and preparing disclosures and accounting schedules. Further, the Company did not always have procedures in place to thoroughly review the work of its consultants.
Our principal executive and principal financial officer also identified a material weakness in the design and operating effectiveness of our internal control over financial reporting relating to processes and controls over review of information with sufficient precision including proper documentation to support accounting conclusions and communication and dissemination of information relevant to financial reporting. As defined in SEC Regulation S-X, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result, even though no material misstatement was identified in the financial statements, it was determined that there was a reasonable possibility that a material misstatement in the Company’s financial statements would not have been prevented or detected on a timely basis.
Notwithstanding the identified material weakness, the Company believes the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with accounting principles generally accepted in the United States of America.
| 25 |
The Company’s Plan to Remediate the Material Weakness
Our principal executive and principal financial officer is in the process of performing a review of our processes and controls over review of information with sufficient precision, including proper documentation to support accounting conclusions and communication and dissemination of information relevant to financial reporting. This includes an evaluation of existing procedures and controls to formalize, document and implement new policies and procedures for review of our various financial reporting processes. Although the review process has not been finalized, the Company has implemented a procedure to have the in-house lead attorney and chairman of the board of directors read all significant Exchange Act filings prior to issuance for the purposes of highlighting inconsistencies in filings with existing legal agreements and current business strategy.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting that have occurred during the Company’s fiscal quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
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.
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, 2017, which risks could materially affect our business, financial condition or future results. There were no material changes during the quarter ended December 31, 2017 to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2017. 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
There were no sales by us of unregistered securities during the quarter ended December 31, 2017.
Purchases of Equity Securities by the Issuer
There were no repurchases of equity during the quarter ended December 31, 2017.
Item 3. Defaults upon Senior Securities.
None; not applicable.
Item 4. Mine Safety Disclosures.
None; not applicable.
None; not applicable.
| 26 |
Exhibits. The following exhibits are included as part of this report:
| Exhibit 31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Randall F. Pearson, President and Director. | ||
| Exhibit 31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Randall F. Pearson, Principal Financial Officer. | ||
| Exhibit 32 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 provided by Randall F. Pearson, President and Principal Financial Officer. | ||
| Exhibit 101.INS | XBRL Instance Document | ||
| Exhibit 101.SCH | XBRL Taxonomy Extension Schema Document | ||
| Exhibit 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
| Exhibit 101.DEF | XBRL Taxonomy Definition Linkbase Document | ||
| Exhibit 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
| Exhibit 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 27 |
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: April 25, 2019 | By: | /s/ Randall F. Pearson |
| Randall F. Pearson | ||
| President and Principal Financial Officer | ||
| 28 |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Randall F. Pearson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sundance Strategies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 25, 2019 | By: | /s/ Randall F. Pearson |
| Randall F. Pearson | ||
| President and Principal Financial Officer |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Randall F. Pearson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sundance Strategies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 25, 2019 | By: | /s/ Randall F. Pearson |
| Randall F. Pearson | ||
| President and Principal Executive Officer |
EXHIBIT 32
CERTIFICATION OF PRINCIPAL
EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this quarterly report on Form 10-Q of Sundance Strategies, Inc. (the “Company”) for the period ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Randall F. Pearson, President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: April 25, 2019 | By: | /s/ Randall F. Pearson |
| Randall F. Pearson | ||
President, Principal Executive Officer and Principal Financial Officer |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Apr. 25, 2019 |
|
| Document And Entity Information | ||
| Entity Registrant Name | Sundance Strategies, Inc. | |
| Entity Central Index Key | 0001171838 | |
| Document Type | 10-Q | |
| Document Period End Date | Dec. 31, 2017 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --03-31 | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Small Business | true | |
| Entity Emerging Growth Company | true | |
| Entity Ex Transition Period | true | |
| Entity Common Stock, Shares Outstanding | 37,828,441 | |
| Document Fiscal Period Focus | Q3 | |
| Document Fiscal Year Focus | 2018 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Dec. 31, 2017 |
Mar. 31, 2017 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred Stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred Stock, par value per share | $ 0.001 | $ 0.001 |
| Preferred Stock, shares issued | 0 | 0 |
| Preferred Stock, shares outstanding | 0 | 0 |
| Common Stock, shares authorized | 500,000,000 | 500,000,000 |
| Common Stock, par value per share | $ 0.001 | $ 0.001 |
| Common Stock, shares issued | 44,128,441 | 44,128,441 |
| Common Stock, shares outstanding | 44,128,441 | 44,128,441 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Income Statement [Abstract] | ||||
| Interest Income on Investment in Net Insurance Benefits | $ 1,271,737 | $ 4,145,036 | ||
| General and Administrative Expenses | 281,275 | 410,120 | 1,231,639 | 2,023,056 |
| Impairment of Accrued Interest Receivable on Net Insurance Benefits | 1,936,311 | |||
| Income (Loss) from Operations | (281,275) | 861,617 | (3,167,950) | 2,121,980 |
| Other Expense | ||||
| Impairment of Investment in Net Insurance Benefits | (22,950,126) | |||
| Interest Expense | (27,576) | (103,154) | (241,597) | (281,982) |
| Total Other Expense | (27,576) | (103,154) | (23,191,723) | (281,982) |
| Income (Loss) Before Income Taxes | (308,851) | 758,463 | (26,359,673) | 1,839,998 |
| Income Tax Provision (Benefit) | 149,741 | (758,972) | 411,603 | |
| Net Income (Loss) | $ (308,851) | $ 608,722 | $ (25,600,701) | $ 1,428,395 |
| Basic and Diluted: | ||||
| Basic Earnings (Loss) Per Share | $ (0.01) | $ 0.01 | $ (0.58) | $ 0.03 |
| Diluted Earnings (Loss) Per Share | $ (0.01) | $ 0.01 | $ (0.58) | $ 0.03 |
| Basic Weighted Average Number of Shares Outstanding | 44,128,441 | 44,128,441 | 44,128,441 | 44,132,517 |
| Diluted Weighted Average Number of Shares Outstanding | 44,128,441 | 45,509,192 | 44,128,441 | 45,513,268 |
Organization and Basis of Presentation, Organization and Summary of Significant Accounting Policies |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Organization and Basis of Presentation, Organization and Summary of Significant Accounting Policies |
(1) ORGANIZATION AND BASIS OF PRESENTATION, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim condensed consolidated financial statements have been prepared by the Company, without audit, in accordance with the instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnotes necessary for a fair presentation of its consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States (“GAAP”).
In the opinion of management, the condensed consolidated unaudited financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s consolidated financial position, results of operations, and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.
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”). 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. 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 (see Note 3) 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 VIE.
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.
NIBs are generally in the form of participating debt certificates (“PDC”), and although the two terms are interchangeable, the Company typically refers to them as NIBs. According to the terms of the PDCs, the PDCs provide both variable and fixed interest return to the Company from the Owners of the policies in the form of accrued yield. The variable interest varies by individual PDC, and is calculated as 99% to 100% (depending on the PDC) of the positive profits from the life insurance assets held by the Owners of the policies. The fixed interest also varies by individual PDC, and is either 1% or 2% per annum of the par value of the PDCs held by the Company. The par value of the PDCs held by the Company is approximately $36.8 million. The NIBs agreements between the Company and the Owners of the policies contain a provision that allows for the Owners to redeem the NIBs at any point, conditional upon paying to the Company the par value of the NIBs, as well as any unpaid accrued yield relating to fixed and variable interest. In aggregate, the sum of the par value plus unpaid accrued interest is in excess of the Company’s initial investment. The Company holds between 72.2% and 100% in the NIBs relating to the underlying life insurance policies as of December 31, 2017 and 2016. 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, 2017, and during the nine months ended December 31, 2017, 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. 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.
At March 31, 2017, and during the nine months ended December 31, 2017, the Company’s investment in NIBs was treated as a debt security, which was classified as a hold-to-maturity asset.
We evaluate the carrying value of our investment in NIBs for impairment on a regular basis and, if necessary, adjust our total basis in the NIBs using new or updated information that affects our assumptions. We recognize impairment on a NIB contract if the fair value of the beneficial interest is 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.
However, 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 part of the original agreement, the Chairman of the Company helped secure the loan by including a personal guarantee for a portion of the debt, if needed. The owners and other parties to the Agreements are diligently working to secure alternative financing, although no such positive outcome can be assured. 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 as of December 31, 2017 to $1,969,688, which is equal to the actual cash received by the Company from distributions subsequent to June 30, 2017. This carrying value is less than the accretion receivable as of March 31, 2017, and as such, is considered accretion receivable and not part of the Company’s original investment.
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 in the remaining Notes below. |
New Accounting Pronouncements |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
| New Accounting Pronouncements |
(2) NEW ACCOUNTING PRONOUNCEMENTS
Adopted During the Nine-Months Ended December 31, 2017
In December 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The new standard is designed to simplify the presentation of deferred income taxes, and requires all deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. The amendments are effective for the Company’s fiscal year beginning April 1, 2017, and for interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-06 related to the embedded derivative analysis for debt instruments with contingent call or put options. This pronouncement clarifies that an exercise contingency does not need to be evaluated to determine whether it relates only to interest rates or credit risk. Instead, the contingent put or call option should be evaluated for possible bifurcation as a derivative in accordance with the four-step decision sequence detailed in FASB ASC 815-15, without regard to the nature of the exercise contingency. The pronouncement is effective for the Company’s fiscal year beginning April 1, 2017, and for interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The new standard simplifies certain aspects of the accounting for share-based payment award transactions by allowing entities to continue to use current GAAP by estimating the number of awards that are expected to vest or, alternatively, entities can elect to account for forfeitures as they occur. Another aspect of the standard requires an entity to recognize all excess tax benefits and deficiencies associated with stock-based compensation as a reduction or increase to tax expense in the income statement. Previously, such amounts were recognized in additional paid-in capital. ASU 2016-09 is effective for the Company for its fiscal year beginning April 1, 2017. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-17, Consolidation - Interests held through Related Parties that are under Common Control, which alters how a decision maker needs to consider indirect interests in a variable interest entity (VIE) held through an entity under common control. Under the new ASU, if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party. The amendments in this Update are effective for fiscal years beginning April 1, 2017, including interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the consolidated financial statements, as the Company has no related parties under common control that have the characteristics of a primary beneficiary of a variable interest entity.
Not Yet Adopted
The Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, 2015-14, 2016-8, 10,11 and 12 and 2017-13 – Revenue from Contracts with Customers, which provides a single, comprehensive revenue recognition model for all contracts with customers. The core principal of the ASUs is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASUs also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB deferred the effective date of this standard. As a result, the standard and related amendments will be effective for the Company for its fiscal year beginning April 1, 2018, including interim periods within that fiscal year. Early application is permitted, but not before the original effective date of April 1, 2017. Entities are allowed to transition to the new standard by either retrospective application or recognizing the cumulative effect. The ASUs are not applicable to securitized beneficial interests that derive accreted yields and, therefore the Company will continue to follow the guidance in ASC 325-40. The adoption of this standard will not have an impact on the consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01 regarding Financial Instruments, which amended guidance on the classification and measurement of financial instruments. Under the new guidance, entities will be required to measure equity investments that are not consolidated or accounted for under the equity method at fair value with any changes in fair value recorded in net income, unless the entity has elected the new practicability exception. For financial liabilities measured using the fair value option, entities will be required to separately present in other comprehensive income the portion of the changes in fair value attributable to instrument-specific credit risk. Additionally, the guidance amends certain disclosure requirements associated with the fair value of financial instruments. The standard will be effective for the Company’s fiscal year beginning April 1, 2018, including interim reporting periods within that fiscal year. The Company is currently evaluating the effect of the adoption of this guidance on the consolidated financial statements.
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 Company does not believe the adoption of this guidance will have a material effect on the consolidated financial statements because leases are month-to-month and not material to the Company’s financial statements.
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.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. Historically, there has been a diversity in practice in how certain cash receipts/payments are presented and classified in the statement of cash flows. To reduce the existing diversity in practice, this update addresses the eight cash flow issues as listed in the pronouncement. The amendments in this update are effective for fiscal years beginning April 1, 2018, and interim periods within that fiscal year. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.
On May 10, 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, the ASU is effective for the Company’s fiscal year beginning April 1, 2018, including interim periods within that annual reporting period. Early adoption is permitted, including adoption in any interim period. The adoption of this standard is not expected to have material impact on the Company’s financial statements as the Company does not expect to make future modifications to existing share based payment awards.
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. |
Investment in Net Insurance Benefits |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments, All Other Investments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment in Net Insurance Benefits |
(3) INVESTMENT IN NET INSURANCE BENEFITS
The balance in Investment in NIBs at December 31, 2017 and March 31, 2017, and related activity for the periods then ended were as follows:
As outlined in Note 1, between May 2018 and July 2018, the Owners entered in agreements that completed a strict foreclosure transaction that transferred these policies to the lenders in full satisfaction of the loan obligation. As a result of the foreclosure the Company reduced the carrying value of the NIBs by $24,886,437 at June 30, 2017, to $7,769,568, which is the estimated fair value of the NIBs calculated as the actual cash received subsequent to June 30, 2017, from distributions by the Owners to the Company. During the period ended December 31, 2017, the Company received $7,299,880 ($1,500,000 in May 2017, $2,500,000 in September 2017 and $3,299,880 in October 2017) from maturities and miscellaneous other adjustments to the underlying policies, thus reducing the carrying value of the NIBs at December 31, 2018 to $1,969,688.
Our Investment in NIBs are classified as held-to-maturity investments at March 31, 2017 and as available-for-sale investments at December 31, 2017. The NIBs have a contractual maturity date of 25 years from inception, and the inception dates ranged from December 2011 to January 2013. The amortized cost, aggregate fair value and gross unrecognized holding gains and losses at December 31, 2017 and March 31, 2017 were as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liquidity Requirements |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| LIQUIDITY AND CAPITAL REQUIREMENTS [Abstract] | |
| Liquidity Requirements |
(4) LIQUIDITY REQUIREMENTS
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. As of December 31, 2017, the Company had $58,307 of cash assets, compared to $4,364 as of March 31, 2017. As of April 25, 2019, the Company had access to draw an additional $5,507,991 on the notes payable, related party (see Note 6 and Note 12) and $3,000,000 on the Convertible Debenture Agreement (See Note 7 and Note 12). The Company’s average monthly expenses are expected to be approximately $90,000, which includes salaries of our employees, consulting agreements and contract labor, general and administrative expenses and estimated legal and accounting expenses. Outstanding Accounts Payable as of December 31, 2017, totaled $332,423, and other accrued liabilities totaled $144,472. 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 April 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. The Company also continues to evaluate other debt and equity financing opportunities.
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 continue to purchase additional NIBs or remove the NIBs out of foreclosure, the Company will need to raise additional capital. Management is currently engaged in obtaining long term financing and believes that it will secure the needed additional capital within one year from the date of this filing. As management believes that additional capital is a probable outcome, the Company has the ability to continue as a going concern for a period of one year from the date of issuance of these financial statements. |
Fair Value Measurements |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements |
(5) 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:
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.
In accordance with the disclosure requirements of ASC Topic 825, “Financial Instruments” (“ASC 825”), the tables below summarize fair value estimates for the Company’s Investment in NIBs, which both are (at December 31, 2017) and are not (at March 31, 2017) required to be carried at fair value. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company. In estimating the fair value of the Company’s Investment in NIBs, the rate of return that a market participant would be willing to pay for each portfolio is used to recalculate the discounted estimated future cash flows. This present value is used to represent the fair value of the Investment in NIBs using level 3 inputs.
Financial Instruments Required To Be Carried at Fair Value at December 31, 2017
Financial Instruments Not Required To Be Carried at Fair Value at March 31, 2017
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 year ended March 31, 2017 and the nine months ended December 31, 2017.
At March 31, 2017, the fair value of our investment in NIBs was determined by evaluating the sum of present value of the future cash flows expected from the NIBs. 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 would be calculated prospectively based on the current amortized cost of the investment, including accrued accretion.
At December 31, 2017, the fair value of our investment in NIBs is calculated as the actual cash received (discounted) subsequent to December 31, 2017, from distributions by the Owners to the Company.
Other Financial Instruments
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 and convertible debenture approximates the fair values as the interest rate approximates market interest rates. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable, Related Party |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Debt Disclosure [Abstract] | |
| Notes Payable, Related Party |
(6) NOTES PAYABLE, RELATED PARTY
As of December 31, 2017 and March 31, 2017, the Company had borrowed $929,508 and $5,214,753, respectively, excluding accrued interest, from related parties under notes payable agreements that allow for borrowings of up to $6,730,000, exclusive of accrued interest. There are no covenants associated with these agreements. On December 6, 2017, the note payable, related party agreement that allowed for borrowings of up to $4,600,000 at December 31, 2017, was amended to extend the due date from August 31, 2018 to August 31, 2019. At the time of the extension, the Company had no outstanding principal owing on that agreement. The $929,508 of notes payable owed as of December 31, 2017 was due November 30, 2018, and was later extended, through a series of amendments, to November 30, 2020. In the event the Company completes a successful equity raise, principal and interest on notes payable totaling $949,755 are due in full at that time. The notes payable incur interest at 7.5%, and are collateralized by Investment in NIBs. During the three months ended December 31, 2017, the Company did not borrow any funds under these agreements and repaid $2,082,474 in principal. Additionally, $59,038 in accrued interest was paid out during the three months ended December 31, 2017. As of December 31, 2017, the Company had availability to borrow up to $5,800,492 under these agreements. The interest associated with these notes of $20,247 and $334,626 is recorded on the balance sheet as an Accrued Expense obligation at December 31, 2017 and March 31, 2017, respectively. The related parties include a person who is the Chairman of the Board of Directors and a stockholder, and Radiant Life, LLC, an entity partially owned by the Chairman of the Board of Directors.
At December 31, 2017 the Company also owed $56,773 to the Chairman of the Board and a shareholder, which is included in accounts payable on the balance sheet.
See Note 12 for a detail of activity on the Notes Payable, Related Party subsequent to December 31, 2017. |
Convertible Debenture Agreement |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Debt Disclosure [Abstract] | |
| Convertible Debenture Agreement |
(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. 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. These extensions applied to both the due date and the conversion rights. See Note 12 for a detail of activity on the Convertible Debenture subsequent to December 31, 2017.
As of December 31, 2017 the Company had fully paid off the outstanding principal under the agreement. During the three months ending December 31, 2017, the Company did not borrow on the agreement, and repaid the remaining $700,000 of principal owed. The outstanding interest of $124,225 and $102,488 at December 31, 2017 and March 31, 2017, respectively, is recorded on the balance sheet as an Accrued Expense obligation. |
Commitments, Contingencies and Legal Matters |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments, Contingencies and Legal Matters |
(8) COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS
As explained in Note 1, 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”. The Company does not take possession or control of the policies. The owners of the life settlements or life insurance policies acquired such policies at a discount to their face value. The life insurance portfolios underlying our NIBs typically involve loans originated with 4-5 year terms. The Company has always assumed that the Holders will be able to refinance their loans at the end of the respective loan terms. However, the Holders’ Lender’s ability to offer replacement loans has always been governed by factors that are beyond the Company’s control or the control of the Holders. At December 31, 2017, the entities that own the policies maintained a total of 13 separate loan agreements with the senior lending facility, all with separate expiration dates. As of December 31, 2017, 11 of these loans had expiration dates that had lapsed, with the remaining 2 loans having maturity dates ranging from July 2017 to January 2018. During October 2017, the entities completed a refinancing of the loans that had matured and were about to mature. The agreements were with a new senior lending facility who previously provided MRI for the underlying policies. During December 2017, these new loans were extended through April 15, 2018, and did not require MRI coverage. The Holders had available credit to pay forecasted premiums and expenses on a portion of the policies until April 15, 2018, which was the renewal date of the loans on these life insurance policies. The Holders have worked with the lender to extend the loans multiple times and now, after the last loan extension expired, between May 2018 and July 2018, the lenders foreclosed on the loans associated with the underlying life insurance policies and the Company has recorded a $24,886,437 impairment on the NIBs.
As of September 30, 2017, the Company had remaining accrued expenses of $220,601 relating to the costs to maintain the structure of the life insurance policies. During October 2017, the Company made a final payment of $31,438, after which the Company received notification from the Holders that the remaining $189,163 had been paid in full by the Holders. During the quarter ended December 31, 2017, the Company has reversed the effects of the remaining $189,163 accrued liability on its balance sheet. |
Earnings (Loss) Per Common Share |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Earnings Per Share [Abstract] | |
| Earnings (Loss) Per Common Share |
(9) EARNINGS (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the periods. Diluted net income per common share is computed by including common shares that may be issued subject to existing rights with dilutive potential, when applicable. Dilutive common stock equivalents are primarily comprised of stock options and warrants. Potentially dilutive shares resulting from convertible debt agreements are evaluated using the if-converted method, and such amounts were not dilutive. As of December 31, 2017 there were 2,162,086 potentially dilutive common stock equivalents. |
Stock Options |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
| Stock Options |
(10) STOCK OPTIONS
During the year ended March 31, 2014, the Company issued common stock options to certain directors, officers, consultants and employees. The Company has recorded stock-based compensation expense of $182,572 and $508,503 related to these options for year ended March 31, 2017 and 2016, respectively. At March 31, 2017, all stock options had vested and all expenses relating to the outstanding options had been recognized as stock-based compensation expense. On the date of grant, the contractual option terms were all 5 years, with all options have an expiration date between April and October of 2018. The number of options outstanding and exercisable at December 31, 2017 is 2,106,875.
If all vested options as of December 31, 2017 were to be exercised, the Company could expect to receive $3,314,294. |
Income Taxes |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes |
(11) INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform Act”) was signed into law by the President of the United States. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. federal corporate tax rate from 35% to 21% effective for the Company’s fiscal year ended March 31, 2018. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. The Company will recognize the effects of the Tax Reform Act for the re-measurement of its net deferred tax liabilities during the third quarter ended December 31, 2017. This will be done in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Reform Act was signed into law.
At March 31, 2017, the Company had recorded a net deferred tax liability totaling $758,972. Due to net losses being recognized during the three months ended June 30, 2017, the Company’s deferred tax asset balance surpassed the deferred tax liability balance, resulting in the recording of an income tax benefit for the reduction of the previously recorded net deferred tax liability balance at March 31, 2017, of $758,972. For the period ended September 30, 2017, the Company continues to record net losses resulting in the accumulation of deferred tax assets relating to the net operating loss carryforwards. At September 30, 2018, management had recorded a 100% valuation allowance on the amount the Company’s deferred tax assets exceeding the Company’s deferred tax liabilities. |
Subsequent Events |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Subsequent Events [Abstract] | |
| Subsequent Events |
(12) SUBSEQUENT EVENTS
Subsequent to December 31, 2017, the following events transpired:
Effective January 1, 2018, Matthew Pearson resigned his position as the Company’s Chief Operations Officer to pursue other opportunities. As of the date of this filing, no replacement has been designated to fill his position.
During February 2018, management engaged consultants to explore and analyze financing alternatives available to the Company. From February 2018 through March 2019 approximately $1,320,581 has been paid to the consultants.
Effective December 5, 2018, Ty D. Mattingly resigned his position on the Company’s Board of Directors. On December 6, 2018, Glenn S. Dickman and Stephen E. Quesenberry were named to the Company’s Board of Directors.
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 USD $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, reducing the amount of outstanding common shares from approximately 44,128,441 to 36,128,441. The Company anticipates paying the $0.05 per share repurchase price upon a major financing event, as agreed upon between the Company and the stockholders. As of the date of this filing, the shares have been cancelled, but have not yet been repurchased by the Company.
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. The shares granted include a vesting period.
On July 11, 2018, the Company issued 800,000 common shares in return for obtaining the remaining 27.8% ownership of certain NIBs (see Note 3). The transaction was recorded at $40,000, 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).
From July 25, 2018 to April 10, 2019, Mr. Dickman loaned the Company $535,000 through an unsecured promissory note, which bears interest at a rate of 8% annually. To date, the Company has not made any principal or interest payments under this note. As of the date hereof, the full $535,000 of principal is recorded as Notes Payable, Related Party, and the Company has accrued $18,909 of unpaid interest.
In January 2018, the Company received $1,969,688 in cash proceeds associated with maturities and miscellaneous adjustments to other underlying policies. The cash proceeds reduced the carrying value of the Company’s Investment in NIBs to $0.
Subsequent to December 31, 2017, the Company has repaid $100,000 in principal on the Notes Payable, Related Party. The Company has also paid out accrued interest totaling $15,404 on the Notes Payable, Related Party.
Subsequent to December 31, 2017, the Company has borrowed an additional $392,500 on the Notes Payable, Related Party (exclusive of the $535,000 loaned by Mr. Dickman). As of April 25, 2019, the outstanding principal balances of all Notes Payable, Related Party totaled $1,672,008 and the outstanding principal balance of the Convertible Debenture is $0.
On February 8, 2019 note payable, related party agreement that allowed for borrowings of up to $4,600,000 was extended from August 31, 2019 to November 30, 2020. Subsequent to December 31, 2017, the note payable, related party agreement that allowed for borrowings of up to $2,130,000 was amended to extend the due dates from November 30, 2018 to November 30, 2020, respectively. On December 7, 2017, the Company agreed to amend the agreement to extend the due date and conversion rights on the Convertible Debenture from February 28, 2018 to August 31, 2019. |
Organization and Basis of Presentation, Organization and Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Basis of Presentation |
Basis of Presentation
The accompanying interim condensed consolidated financial statements have been prepared by the Company, without audit, in accordance with the instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnotes necessary for a fair presentation of its consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States (“GAAP”).
In the opinion of management, the condensed consolidated unaudited financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s consolidated financial position, results of operations, and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.
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 |
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”). 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. 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 (see Note 3) 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 VIE.
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.
NIBs are generally in the form of participating debt certificates (“PDC”), and although the two terms are interchangeable, the Company typically refers to them as NIBs. According to the terms of the PDCs, the PDCs provide both variable and fixed interest return to the Company from the Owners of the policies in the form of accrued yield. The variable interest varies by individual PDC, and is calculated as 99% to 100% (depending on the PDC) of the positive profits from the life insurance assets held by the Owners of the policies. The fixed interest also varies by individual PDC, and is either 1% or 2% per annum of the par value of the PDCs held by the Company. The par value of the PDCs held by the Company is approximately $36.8 million. The NIBs agreements between the Company and the Owners of the policies contain a provision that allows for the Owners to redeem the NIBs at any point, conditional upon paying to the Company the par value of the NIBs, as well as any unpaid accrued yield relating to fixed and variable interest. In aggregate, the sum of the par value plus unpaid accrued interest is in excess of the Company’s initial investment. The Company holds between 72.2% and 100% in the NIBs relating to the underlying life insurance policies as of December 31, 2017 and 2016. 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, 2017, and during the nine months ended December 31, 2017, 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. 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.
At March 31, 2017, and during the nine months ended December 31, 2017, the Company’s investment in NIBs was treated as a debt security, which was classified as a hold-to-maturity asset.
We evaluate the carrying value of our investment in NIBs for impairment on a regular basis and, if necessary, adjust our total basis in the NIBs using new or updated information that affects our assumptions. We recognize impairment on a NIB contract if the fair value of the beneficial interest is 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.
However, 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 part of the original agreement, the Chairman of the Company helped secure the loan by including a personal guarantee for a portion of the debt, if needed. The owners and other parties to the Agreements are diligently working to secure alternative financing, although no such positive outcome can be assured. 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 as of December 31, 2017 to $1,969,688, which is equal to the actual cash received by the Company from distributions subsequent to June 30, 2017. This carrying value is less than the accretion receivable as of March 31, 2017, and as such, is considered accretion receivable and not part of the Company’s original investment. |
| Significant Accounting Policies |
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 in the remaining Notes below. |
| New Accounting Pronouncements |
NEW ACCOUNTING PRONOUNCEMENTS
Adopted During the Nine-Months Ended December 31, 2017
In December 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The new standard is designed to simplify the presentation of deferred income taxes, and requires all deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. The amendments are effective for the Company’s fiscal year beginning April 1, 2017, and for interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-06 related to the embedded derivative analysis for debt instruments with contingent call or put options. This pronouncement clarifies that an exercise contingency does not need to be evaluated to determine whether it relates only to interest rates or credit risk. Instead, the contingent put or call option should be evaluated for possible bifurcation as a derivative in accordance with the four-step decision sequence detailed in FASB ASC 815-15, without regard to the nature of the exercise contingency. The pronouncement is effective for the Company’s fiscal year beginning April 1, 2017, and for interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The new standard simplifies certain aspects of the accounting for share-based payment award transactions by allowing entities to continue to use current GAAP by estimating the number of awards that are expected to vest or, alternatively, entities can elect to account for forfeitures as they occur. Another aspect of the standard requires an entity to recognize all excess tax benefits and deficiencies associated with stock-based compensation as a reduction or increase to tax expense in the income statement. Previously, such amounts were recognized in additional paid-in capital. ASU 2016-09 is effective for the Company for its fiscal year beginning April 1, 2017. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-17, Consolidation - Interests held through Related Parties that are under Common Control, which alters how a decision maker needs to consider indirect interests in a variable interest entity (VIE) held through an entity under common control. Under the new ASU, if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party. The amendments in this Update are effective for fiscal years beginning April 1, 2017, including interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the consolidated financial statements, as the Company has no related parties under common control that have the characteristics of a primary beneficiary of a variable interest entity.
Not Yet Adopted
The Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, 2015-14, 2016-8, 10,11 and 12 and 2017-13 – Revenue from Contracts with Customers, which provides a single, comprehensive revenue recognition model for all contracts with customers. The core principal of the ASUs is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASUs also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB deferred the effective date of this standard. As a result, the standard and related amendments will be effective for the Company for its fiscal year beginning April 1, 2018, including interim periods within that fiscal year. Early application is permitted, but not before the original effective date of April 1, 2017. Entities are allowed to transition to the new standard by either retrospective application or recognizing the cumulative effect. The ASUs are not applicable to securitized beneficial interests that derive accreted yields and, therefore the Company will continue to follow the guidance in ASC 325-40. The adoption of this standard will not have an impact on the consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01 regarding Financial Instruments, which amended guidance on the classification and measurement of financial instruments. Under the new guidance, entities will be required to measure equity investments that are not consolidated or accounted for under the equity method at fair value with any changes in fair value recorded in net income, unless the entity has elected the new practicability exception. For financial liabilities measured using the fair value option, entities will be required to separately present in other comprehensive income the portion of the changes in fair value attributable to instrument-specific credit risk. Additionally, the guidance amends certain disclosure requirements associated with the fair value of financial instruments. The standard will be effective for the Company’s fiscal year beginning April 1, 2018, including interim reporting periods within that fiscal year. The Company is currently evaluating the effect of the adoption of this guidance on the consolidated financial statements.
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 Company does not believe the adoption of this guidance will have a material effect on the consolidated financial statements because leases are month-to-month and not material to the Company’s financial statements.
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.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. Historically, there has been a diversity in practice in how certain cash receipts/payments are presented and classified in the statement of cash flows. To reduce the existing diversity in practice, this update addresses the eight cash flow issues as listed in the pronouncement. The amendments in this update are effective for fiscal years beginning April 1, 2018, and interim periods within that fiscal year. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.
On May 10, 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, the ASU is effective for the Company’s fiscal year beginning April 1, 2018, including interim periods within that annual reporting period. Early adoption is permitted, including adoption in any interim period. The adoption of this standard is not expected to have material impact on the Company’s financial statements as the Company does not expect to make future modifications to existing share based payment awards.
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. |
Investment in Net Insurance Benefits (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments, All Other Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Investments in Net Insurance Benefits |
The balance in Investment in NIBs at December 31, 2017 and March 31, 2017, and related activity for the periods then ended were as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost, Aggregate Fair Value and Gross Unrecognized Holding Gains and Losses |
The amortized cost, aggregate fair value and gross unrecognized holding gains and losses at December 31, 2017 and March 31, 2017 were as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value of Investment in NIBs |
In accordance with the disclosure requirements of ASC Topic 825, “Financial Instruments” (“ASC 825”), the tables below summarize fair value estimates for the Company’s Investment in NIBs, which both are (at December 31, 2017) and are not (at March 31, 2017) required to be carried at fair value. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company. In estimating the fair value of the Company’s Investment in NIBs, the rate of return that a market participant would be willing to pay for each portfolio is used to recalculate the discounted estimated future cash flows. This present value is used to represent the fair value of the Investment in NIBs using level 3 inputs.
Financial Instruments Required To Be Carried at Fair Value at December 31, 2017
Financial Instruments Not Required To Be Carried at Fair Value at March 31, 2017
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and Basis of Presentation, Organization and Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
9 Months Ended | |||
|---|---|---|---|---|
Dec. 31, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2016 |
|
| Variable interest rate description | The variable interest varies by individual PDC, and is calculated as 99% to 100% (depending on the PDC) of the positive profits from the life insurance assets held by the Owners of the policies. The fixed interest also varies by individual PDC, and is either 1% or 2% per annum of the par value of the PDCs held by the Company. | |||
| Par value of PDCs held | $ 36,800,000 | |||
| Investment in net insurance benefits | $ 1,969,688 | $ 34,156,005 | $ 29,822,186 | |
| Minimum [Member] | ||||
| Variable interest rate by individual PDC | 99.00% | |||
| Percentage of NIBs held | 72.20% | 72.20% | ||
| Maximum [Member] | ||||
| Variable interest rate by individual PDC | 100.00% | |||
| Percentage of NIBs held | 100.00% | 100.00% |
Investment in Net Insurance Benefits (Details Narrative) - USD ($) |
1 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Oct. 31, 2017 |
Sep. 30, 2017 |
May 31, 2017 |
Dec. 31, 2017 |
Jun. 30, 2017 |
|
| Proceeds from maturities and miscellaneous | $ 3,299,880 | $ 2,500,000 | $ 1,500,000 | $ 7,299,880 | |
| NIB [Member] | December 31, 2018 [Member] | |||||
| Carrying value | $ 1,969,688 | ||||
| NIB [Member] | |||||
| Carrying value | $ 24,886,437 | ||||
| Period of contractual maturity | 25 years | ||||
| NIB [Member] | Subsequent to June 30, 2017 [Membe] | |||||
| Carrying value | $ 7,769,568 | ||||
Investment in Net Insurance Benefits - Summary of Investments in Net Insurance Benefits (Details) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2017 |
|
| Investments, All Other Investments [Abstract] | |||||
| Beginning Balance | $ 34,156,005 | $ 29,822,186 | $ 29,822,186 | ||
| Accretion of interest income | $ 1,271,737 | 4,145,036 | 5,751,689 | ||
| Cash received | (7,299,880) | (1,417,870) | |||
| Impairment of investments | (24,886,437) | ||||
| Ending Balance | $ 1,969,688 | $ 1,969,688 | $ 34,156,005 | ||
Investment in Net Insurance Benefits - Amortized Cost, Aggregate Fair Value and Gross Unrecognized Holding Gains and Losses (Details) - USD ($) |
Dec. 31, 2017 |
Mar. 31, 2017 |
|---|---|---|
| Investments, All Other Investments [Abstract] | ||
| Amortized Cost Basis/Net Carrying Amount | $ 1,969,688 | $ 34,156,005 |
| Aggregate Fair Value (See Note 4) | 1,969,688 | 45,643,224 |
| Gross Unrecognized Holding Gains | $ 11,487,219 |
Liquidity Requirements (Details Narrative) - USD ($) |
9 Months Ended | |||
|---|---|---|---|---|
Dec. 31, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2016 |
|
| Cash assets | $ 58,307 | $ 4,364 | $ 30,087 | $ 24,717 |
| Monthly expenses incurred by company | 90,000 | |||
| Accounts payable | 332,423 | 508,071 | ||
| Other accrued liabilities | 144,472 | $ 753,780 | ||
| April 25, 2019 [Member] | ||||
| Additional borrowing capacity from related party notes payable | 5,507,991 | |||
| Additional borrowing capacity from Convertible Debenture Agreement | $ 3,000,000 |
Fair Value Measurements - Schedule of Fair Value of Investment in NIBs (Details) - USD ($) |
Dec. 31, 2017 |
Mar. 31, 2017 |
|---|---|---|
| Investment in Net Insurance Benefits | $ 1,969,688 | $ 45,643,224 |
| Level 1 [Member] | ||
| Investment in Net Insurance Benefits | ||
| Level 2 [Member] | ||
| Investment in Net Insurance Benefits | ||
| Level 3 [Member] | ||
| Investment in Net Insurance Benefits | $ 1,969,688 | $ 45,643,224 |
Convertible Debenture Agreement (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2017 |
|
| Face amount of debt instrument | $ 949,755 | $ 949,755 | ||
| Maturity date | Nov. 30, 2018 | |||
| Extended maturity date | Nov. 30, 2020 | |||
| Proceeds from convertible debt | $ 200,000 | |||
| Repayments of convertible debt | 900,000 | |||
| Accrued interest | 124,225 | $ 124,225 | $ 102,488 | |
| 8% Convertible Debenture Agreement [Member] | ||||
| Proceeds from convertible debt | ||||
| Repayments of convertible debt | $ 700,000 | |||
| 8% Convertible Debenture Agreement [Member] | Satco International, Ltd., [Member] | ||||
| Interest rate | 8.00% | 8.00% | ||
| Convertible debenture, terms of conversion | 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. | |||
| Debt conversion price per share | $ 1.00 | $ 1.00 | ||
| Maturity date | Jun. 02, 2016 | |||
| Extended maturity date | Aug. 31, 2019 | |||
| 8% Convertible Debenture Agreement [Member] | Satco International, Ltd., [Member] | Maximum [Member] | ||||
| Face amount of debt instrument | $ 3,000,000 | $ 3,000,000 | ||
Commitments, Contingencies and Legal Matters (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|---|
Oct. 31, 2017 |
Dec. 31, 2017 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2017 |
Sep. 30, 2017 |
|
| Loan description | At December 31, 2017, the entities that own the policies maintained a total of 13 separate loan agreements with the senior lending facility, all with separate expiration dates. As of December 31, 2017, 11 of these loans had expiration dates that had lapsed, with the remaining 2 loans having maturity dates ranging from July 2017 to January 2018.During October 2017, the entities completed a refinancing of the loans that had matured and were about to mature. The agreements were with a new senior lending facility who previously provided MRI for the underlying policies. During December 2017, these new loans were extended through April 15, 2018, and did not require MRI coverage. The Holders had available credit to pay forecasted premiums and expenses on a portion of the policies until April 15, 2018, which was the renewal date of the loans on these life insurance policies. The Holders have worked with the lender to extend the loans multiple times and now, after the last loan extension expired, between May 2018 and July 2018. | |||||
| Impairment on NIBs | $ 24,886,437 | |||||
| Accrued expense relating to life insurance policies | $ 220,601 | |||||
| Final payment of life insurance policies | $ 31,438 | |||||
| Accrued liability paid | $ 189,163 | |||||
| Reversal of prior accrual for certain unpaid costs to maintain the structure of the life insurance policies | $ 189,163 | |||||
| Minimum [Member] | ||||||
| Loan originate term | 4 years | |||||
| Maximum [Member] | ||||||
| Loan originate term | 5 years | |||||
Earnings (Loss) Per Common Share (Details Narrative) |
9 Months Ended |
|---|---|
|
Dec. 31, 2017
shares
| |
| Earnings Per Share [Abstract] | |
| Potentially dilutive common stock equivalents | 2,162,086 |
Stock Options (Details Narrative) - USD ($) |
9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2017 |
Mar. 31, 2016 |
|
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||
| Stock-based compensation expense | $ 182,572 | $ 182,572 | $ 508,503 | |
| Stock option term | 5 years | |||
| Stock option expiration period | The contractual option terms were all 5 years, with all options have an expiration date between April and October of 2018. | |||
| Number of options outstanding | 2,106,875 | |||
| Number of options exercisable | 2,106,875 | |||
| Stock option exercised that are vested, expected to receive | $ 3,314,294 | |||
Income Taxes (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Mar. 31, 2017 |
|
| U.S. federal corporate tax rate | 34.00% | |
| Net deferred tax liability | $ 758,972 | |
| March 31, 2018 [Member] | ||
| U.S. federal corporate tax rate | 21.00% | |
| September 30, 2018 [Member] | ||
| Percentage of deferred tax, valuation allowance | 100.00% |
Z=&PZ$V+H'R>R5'D#YFU8;R9PW34?L8( UD20%H4ER0R3C"E=%])U,5>C1
M":[@9) =I63F_0A"3R5.\8?CA7>]"PY2%0/KX#NX'\/)>(NL*@V7H"S7"AEH
M2WR7'HYYP$? 3PZ3W9Q1J.2L]6LPOC8E3D)"(*!V08'Y[0+W($00\FG\7C3Q
M&C(0M^J"^-W5PQE;$.Y^\]=Y+E64%N02=!7*<(70#25<$\>)K!+H7
MX4@_T>D^/=M-,(OT;!L]3?8%\EV!/ KD_ZOP,R1-_ZV1;#HJP71QEBRJ]:CB
M'&^\Z[C>T?@B?^'SK#\STW%ET5D[_ZZQ^ZW6#GPJR94?H-Y_K]40T+IP_.+/
M9AZRV7!Z6/X/63]Q]0=02P,$% @ U8F93O'_EQ:T 0 T@, !@ !X
M;"]W;W)K