NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2021
(1)
BASIS OF PRESENTATION, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”)
regarding interim financial reporting and reflect the financial position, results of operations and cash flows of the Company. Certain
information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or
omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for
the fiscal year ended March 31, 2021, which was filed with the SEC on June 29, 2021. The results from operations for the three-month
period ended June 30, 2021, are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2022.
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts and the disclosure of contingent amounts in the Company’s financial statements and the accompanying notes. Actual results
could materially differ from those estimates.
Organization
and Nature of Operations
Sundance
Strategies, Inc. (formerly known as Java Express, Inc.) was organized under the laws of the State of Nevada on December 14, 2001, and
engaged in the retail selling of beverage products to the general public until these endeavors ceased in 2006; it had no material business
operations from 2006, until its acquisition of ANEW LIFE, INC. (“ANEW LIFE”), a subsidiary of Sundance Strategies, Inc. (“Sundance
Strategies”, “the Company”, “we” or “our”).
Our
historical business model has focused on purchasing or acquiring life insurance policies and residual interests in or financial products
tied to life insurance policies, including notes, drafts, acceptances, open accounts receivable and other obligations representing part
of or all of the sales price of insurance, life settlements and related insurance contracts being traded in the secondary marketplace,
often referred to as the “life settlements market.”
During
the latter part of the fiscal year ended March 31, 2021, the Company began developing an additional business offering, providing professional
services to specialty structured finance groups, bond issuers and life settlement aggregators. The Company has now assembled an experienced
team from the life settlement marketplace, as well as from other areas such as financial services and public financial markets. As a
professional services provider, the Company applies industry best practices to advise on the selection of specific portfolios of life
insurance policies that are tailored to meet the needs of its clients. The Company’s clients may include bond issuers, bond investors,
or other structured finance product issuers. The Company develops strategies and methodologies which include the acquisition of life
insurance portfolios, then uses common structured finance techniques and proprietary analytics to structure bonds for issuances, including
principal protected bonds. The Company’s goal is to deliver long-term value and profitability to shareholders by growing the Company’s
professional services business and asset base, resulting in the ability to pay dividends to its shareholders.
Most
recently the Company began working closely with bond placement agents and aggregators to establish various aspects of a proprietary,
investment grade bond offering. In this arrangement, the Company participates as the sole originator in the role of structuring and advising
on the structure of the proprietary bond instrument. Included in the role of structuring financial assets, the Company uses proprietary
analytics to establish the makeup of the rated instrument, including but not limited to, life settlement assets (life insurance policies)
and managed cash, and implements a process of selective assembly of the underlying assets and cash management that will meet the policy
requirements and analytics. The Company provides current and ongoing resources for all analytics, as well as advisement support for the
investment and non-investment grade ratings for the managed asset pool and the managed cash accounts. In its advisory role, the Company
is reimbursed for all expenses associated with the structuring and preparation of any bond offering, will receive an advisory payment
upon the closing of any bond offering, and then will hold residual rights on the balance of assets once the bond is retired.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2021
During
the quarter ended June 30, 2021, the Company and US Capital Global Securities LLC, an affiliate of US Capital Global, entered into an
arrangement wherein the Company is the lead advisor and lead originator of tailored life insurance portfolios to be used in a life insurance-linked
bond offering (“bond offering”) of between $250 million to $500 million. US Capital Global Securities LLC is the lead placement
agent and is marketing the bond offering on behalf of the issuer on a best-efforts basis to qualified investors. The Company has worked
with Egan Jones rating agency to obtain a minimum of BBB plus to an A minus rating on the bond offering. This initial rating is based
upon a sample portfolio of life settlement assets similar to those expected to be utilized in the bond offering. Once a percentage of
the bond offering is in escrow, then the actual life settlement portfolios will be purchased and held until the bond offering closes.
Once the final group of assets are assembled, then a final rating will be obtained. The Company has engaged a licensed asset manager,
whose projected returns will be approved by the rating agency. Important for the success of the bond is the treatment of the various
cash accounts that will support the bond. The two primary accounts will be the Investment account and the Cash Reserve account. These
accounts will represent approximately 40% of the total cash raised from the bond offering. The Investment and Cash Reserve accounts are
projected to produce sufficient annual returns to support the cost associated to maintain the bonds. A nationally recognized trust manager
has been engaged to insure all the workings of the bond are handled properly and timely. An actuarial company has also been engaged to
provide the modeling needed for the rating agency, asset manager and bond issuer. For services provided, the Company will receive a fee
upon the closing on the bond offering and will also hold a residual monetary right to cash flows from the life settlement assets once
the bond is retired.
Significant
Accounting Policies
There
have been no changes to the significant accounting policies of the Company from the information provided in Note 2 of the Notes to Consolidated
Financial Statements in the Company’s most recent Form 10-K, except as discussed below.
Basic
and Diluted Net Income (Loss) Per Common Share
Basic
net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the periods
presented using the treasury stock method. Diluted net loss per common share is computed by including common shares that may be issued
subject to existing rights with dilutive potential, when applicable. Potential dilutive common stock equivalents are primarily comprised
of potential dilutive shares resulting from convertible debt agreements and common stock warrants. Potentially dilutive shares resulting
from convertible debt agreements are evaluated using the if-converted method. Potentially dilutive securities are not included in the
calculation of diluted net loss per share for the three months ended June 30, 2021 and 2020, because to do so would be anti-dilutive.
Potentially dilutive securities outstanding as of June 30, 2021 and 2020 are comprised of warrants convertible into 4,488,754
and 1,952,000
shares of common stock, respectively.
New
Accounting Pronouncements
Not
Yet Adopted
The
Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on
its results of operations, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements
will have a significant effect on its financial statements.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2021
(2)
LIQUIDITY REQUIREMENTS
Since the Company’s
inception on January 31, 2013, its operations have been primarily financed through sales of equity, debt financing from related parties
and the issuance of notes payable and convertible debentures. As of June 30, 2021, the Company had $18,950 of cash assets, compared to
$21,179 as of March 31, 2021. As of June 30, 2021, the Company had access to draw an additional $4,814,192 on the notes payable, related
party (see Note 6) and $3,000,000 on the Convertible Debenture Agreement (See Note 7). For the three months ended June 30, 2021, the
Company’s average monthly operating expenses were approximately $81,000, which includes salaries of our employees, consulting
agreements and contract labor, general and administrative expenses and legal and accounting expenses. The Company anticipates the average
monthly expenses of $81,000 to decrease by approximately $6,000 over the next 12 months, resulting in ongoing, average
monthly expenses of approximately $75,000. In addition to the monthly operating expenses, the Company continues to pursue other
debt and equity financing opportunities, and as a result, financing expenses of $77,561 were incurred during the three months ended June
30, 2021. As management continues to explore additional financing alternatives, beginning July 1, 2021 the Company is expected to spend
up to an additional $400,000 on these efforts. Outstanding Accounts Payable as of June 30, 2021 totaled $555,555. Management has
concluded that its existing capital resources and availability under its existing convertible debentures and debt agreements with related
parties will be sufficient to fund its operating working capital requirements for at least the next 12 months, or through August 2022.
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. As mentioned above, the Company also continues to evaluate other debt and equity financing opportunities.
The
recent outbreak of COVID-19 originated in Wuhan, China, in December 2019 and has since spread to multiple countries, including the United
States and several European countries. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. The COVID-19
pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties
on which the Company relies. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult
to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access
capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic
is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business,
financing or other activities or on healthcare systems or the global economy as a whole. However, these effects could have a material
impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which we rely.
The
accompanying financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize
its assets and satisfy its liabilities in the normal course of business.
(3)
FAIR VALUE MEASUREMENTS
As
defined by ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. ASC 820 also requires the consideration of differing levels of inputs in the determination of fair values.
Those
levels of input are summarized as follows:
|
●
|
Level
1: Quoted prices in active markets for identical assets and liabilities.
|
|
|
|
|
●
|
Level
2: Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant
assumptions are observable in the market.
|
|
|
|
|
●
|
Level
3: Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques as well as instruments
for which the determination of fair value requires significant management judgment or estimation.
|
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2021
The
level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that
is significant to the fair value measurement in its entirety.
The
Company did not have any transfers of assets and liabilities between Levels 1, 2 and 3 of the fair value measurement hierarchy during
the three months ended June 30, 2021 and 2020.
Other
Financial Instruments
The
Company’s recorded values of cash and cash equivalents, prepaid expenses and other assets, accounts payable and accrued liabilities
approximate their fair values based on their short-term nature. The recorded values of the notes payable and convertible debenture approximate
the fair values as the interest rate approximates market interest rates.
(4)
STOCKHOLDERS’ EQUITY
Common
Stock
On
May 4, 2021, the Company issued 1,200,000 shares of the Company’s common stock to members of the Board of Directors in lieu of
director compensation. The stock awards vested 25% on the date of grant and the remainder of the shares vested equally over the three
months following the date granted. Using a fair value stock price of $0.062 per share, the transaction resulted in a compensation
expense of $73,920, of which $55,440 was recognized during the three months ended June 30, 2021, and the remainder will be recognized
during the three months ending September 30, 2021 according to the vesting schedule outlined above.
Warrants
to Purchase Common Stock
Effective
April 3, 2020, the related party note payable and line of credit agreement with the Chairman of the Board of Directors and a stockholder
(see Note 6) was amended to include a formal provision that provides the related party lender with common stock warrants upon the lender’s
extension of a maturity due date or upon the loaning of additional monies. The number of warrants issued will be based on the following
formula: 10,000 warrants per month the due date is extended plus 1 warrant for every $2 of the principal balance outstanding (not including
interest) at the time of the extension (rounded to the nearest whole warrant). Effective April 3, 2020, the number of warrants to be
issued upon the loaning of additional monies is 2 warrants for each dollar loaned.
In
addition, Mr. Dickman, the holder of the related party unsecured promissory notes (see Note 6) has informed the Company that, at such
time the Company requests either an extension or additional monies from the lender, in addition to interest, the lender will require
10,000 warrants per month the due date is extended plus 1 warrant for every $2 of the principal balance outstanding (not including interest)
at the time of the extension (rounded to the nearest whole warrant). Upon the loaning of additional monies, the lender will also require
2 warrants for each dollar loaned.
On
October 1, 2020, the related party note payable and line of credit agreement with Radiant Life, LLC, an entity partially owned by the
Chairman of the Board of Directors (see Note 6) was amended to include a formal provision that provides the related party lender with
common stock warrants upon the lenders extension of a maturity due date or upon the loaning of additional monies. The number of warrants
issued will be based on the following formula: 10,000 warrants per month the due date is extended plus 1 warrant for every $2 of the
principal balance outstanding (not including interest) at the time of the extension (rounded to the nearest whole warrant). In addition,
the number of warrants to be issued upon the loaning of additional monies is 2 warrants for each dollar loaned.
On
April 6, 2021, the Company borrowed $300,000 under an unsecured promissory note with Satco International,
Ltd. (see Note 5). This promissory note bears interest at a rate of 8% annually and is due July 5, 2021. This note is separate
from the 8% convertible debenture agreement that the Company has in place with Satco International,
Ltd.. In conjunction with this note, the Company issued a warrant for 1,000,000 shares of common stock, exercisable at $1.00 per
share and expiring in 3 years from the date of the promissory note. The value of the warrants on the date of grant, as calculated by
the Black-Scholes-Merton valuation model, was not significant. The inputs used in this calculation included a fair value of $0.062
per share, a risk-free rate of 0.35%, volatility of 50.3% and a dividend rate of 0%.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2021
As
of June 30, 2021 and March 31, 2021, the Company held outstanding warrants to related parties totaling 4,488,754 and 3,488,754, respectively.
3,488,754 warrants have an exercise price of $0.05 per share, a five-year life as of the date of grant and expire between November 2024
and October 2025. 1,000,000 warrants have an exercise price of $1.00 per share, a three-year life as of the date of grant and expire
in April 2024. The estimated fair value of the warrants on the date of grant, as calculated by the Black-Scholes-Merton valuation model,
was not significant. The average remaining outstanding life of the warrants as of March 31, 2021, was 3.63 years. The shares of common
stock issuable upon exercise of the warrants are not registered with the Securities and Exchange Commission and the holders of the warrants
do not have registration rights with respect to the warrants or the underlying shares of common stock.
(5)
NOTES PAYABLE
On
April 6, 2021, the Company borrowed $300,000 under an unsecured promissory note with Satco International,
Ltd.. This promissory note bears interest at a rate of 8% annually and is due July 5, 2021. Subsequent to June 30, 2021,
the due date of this note was extended to October 6, 2021 (see Note 8). This note is separate from the 8%
convertible debenture agreement that the Company has in place with Satco International, Ltd.. In conjunction with this note, the Company
issued warrants for 1,000,000 shares of common stock, exercisable at $1.00 per share and expiring in 3 years from the date of
the promissory note.
(6)
NOTES PAYABLE, RELATED PARTY
As
of both June 30, 2021, and March 31, 2021, the Company had borrowed $2,741,808 excluding accrued interest, from related parties. The
interest associated with the Notes Payable, Related Party of $573,462 and $513,665 is recorded on the balance sheet as an Accrued Expense
obligation at June 30, 2021 and March 31, 2021, respectively.
Related
Party Promissory Notes
As
of both June 30, 2021 and March 31, 2021, the Company owed $826,000 under the unsecured promissory notes from Mr. Glenn S. Dickman, a
stockholder and member of the Board of Directors. The promissory notes bear interest at a rate of 8% annually. The notes are due on November
30, 2021, or at the immediate time when alternative financing or other proceeds are received. During the three months ended June 30,
2021, the Company neither borrowed any additional funds under this agreement nor made any principal repayments. As of June 30, 2021,
accrued interest on the notes totaled $161,684. In the event the Company completes a successful equity raise all principal and interest
on the notes are due in full at that time.
Related
Party Note Payable and Line of Credit Agreements
As
of both June 30, 2020 and March 31, 2021, the Company owed $1,056,300, exclusive of accrued
interest, under the note payable and line of credit agreement with the Chairman of the Board of Directors and a stockholder. The note
is due November 30, 2022 or at the immediate time when alternative financing or other proceeds are received. As of June
30, 2021, the agreement allowed for borrowings of up to $4,600,000. During the three months ended June 30, 2021, the Company neither
borrowed any additional funds under this agreement nor made any principal repayments. The note payable and line of credit agreement incurs
interest at 7.5% per annum and are collateralized by the Company’s NIBS, if any. As of June
30, 2021, accrued interest on this note totaled $162,262. As discussed in Note 5, a provision to the lending agreement provides
the related party lender with common stock warrants upon the lenders extension of a maturity due date or upon the loaning of additional
monies. No new warrants were issued during the three months ended June 30, 2021. The total number of warrants issued to the related party
lender was 1,707,000 as of June 30, 2021 (see Note 5 for further details on these warrants).
These warrants have an exercise price of $0.05 per share and have a 5-year exercise window from the respective dates of issuance.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2021
As
of June 30, 2021 and March 31, 2021, the Company owed $859,508 in principle under the note payable and lines of credit agreement with
Radiant Life, LLC, an entity partially owned by the Chairman of the Board of Directors. The agreement allows for borrowings of up to
$2,130,000. The principal and interest on the note are due November 30, 2022 or at the immediate time when alternative financing or other
proceeds are received. The note payable and line of credit agreement incurs interest at 7.5% per annum and is collateralized by the Company’s
NIBS, if any. During the three months ended June 30, 2021 the Company neither borrowed nor repaid any principal under this agreement.
As of June 30, 2021, accrued interest on this agreement totaled $249,545. As discussed in Note 5, a provision to the lending agreement
provides the related party lender with common stock warrants upon the lenders extension of a maturity due date or upon the loaning of
additional monies. No new warrants were issued during the three months ended June 30, 2021. The total number of warrants issued to the
related party lender was 579,754 as of June 30, 2021 (see Note 5 for further details on
these warrants). These warrants have an exercise price of $0.05 per share and have a 5-year exercise window from the respective dates
of issuance.
(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 December
1, 2020. As of June 30, 2021 and March 31, 2021, the Company owed $0 under the agreement, excluding accrued interest. The associated
interest of $124,225 is recorded on the balance sheet as an Accrued Expense obligation at June 30, 2021 and March 31, 2021.
(8)
SUBSEQUENT EVENTS
Subsequent
to June 30, 2021, the following events transpired:
On
August 9, 2021, the unsecured promissory note with Satco International, Ltd. (see Note 5) was
amended to extend the due date from July
5, 2021 to October 6, 2021, or at the immediate time when alternative financing or other proceeds are received. This
extension has no bearing on the warrants that were issued in conjunction with the original promissory note.
On July 29, 2021, the
Company borrowed an additional $50,000 on Notes Payable, Related Party line of credit with Radiant Life, LLC. In conjunction with this
specific loan event, a one-time agreement specifies that the associated warrants issued totaled 50,000, have an exercise price of $2.00,
and expire in 5 years.
