NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2020
(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, 2020, which was filed with the SEC on August 10,
2020. The results from operations for the six-month period ended September 30, 2020, are not necessarily indicative of the results
that may be expected for the fiscal year ended March 31, 2021.
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.
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 and six months ended September 30, 2020 and 2019,
because to do so would be anti-dilutive. Potentially dilutive securities outstanding as of September 30, 2020 are comprised of
warrants convertible into 2,133,000 shares of common stock. No potentially dilutive securities were outstanding as of September
30, 2019.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2020
New
Accounting Pronouncements
Adopted
During the Six Months Ended September 30, 2020
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 became effective for the
Company’s fiscal year beginning April 1, 2020. The adoption of this standard did not have an impact on the consolidated
financial statements because the Company does not hold financial instruments subject to credit losses.
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.
(2)
LIQUIDITY REQUIREMENTS
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 fact that the Company is in the process
of seeking NIB investments to acquire as mentioned above, the Company has no current source of operating revenues. In order to
purchase NIBs, the Company will need to raise additional capital or secure alternative sources of debt financing.
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 September 30, 2020, the Company had $2,452
of cash assets, compared to $28,784 as of March 31, 2020. As of September 30, 2020, the Company had access to draw an additional
$4,859,992 on the notes payable, related party (see Note 5) and $3,000,000 on the Convertible Debenture Agreement (See Note 6).
For the three months ended September 30, 2020, the Company’s average monthly operating expenses were approximately $80,000,
which includes salaries of our employees, consulting agreements and contract labor, general and administrative expenses and legal
and accounting expenses. In addition to the monthly operating expenses, the Company continues to pursue other debt and equity
financing opportunities, and as a result, a financing expense of $40,730 was incurred during the three months ended September
30, 2020. As management continues to explore additional financing alternatives, the Company is expected to spend an additional
$500,000 over the next 12 months related to these efforts. Outstanding Accounts Payable as of September 30, 2020 totaled $623,195,
and other accrued liabilities totaled $568,864. 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 from the issuance of these financial statements. 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.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2020
(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.
|
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 six months ended September 30, 2020 and 2019.
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
Effective
December 6, 2018, three existing stockholders have contributed to the Company a portion of their common shares held at a repurchase
price to the Company of $0.05 per share. The Company has cancelled the acquired shares, which decreased the outstanding common
shares on the books of the Company. The total number of common shares canceled/retired was 8,000,000. The total liability related
to the repurchase of these shares is $400,000, with repayment contingent on a major financing event.
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 5) 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). Effective April
3, 2020, the number of warrants to be issued upon the loaning of additional monies is 2 warrants for each dollar loaned.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2020
In
addition, Mr. Dickman, the holder of the related party, unsecured promissory notes (see Note 5) has informed the Company that,
at such time the Company requests either an extension or additional monies from the lender, in addition to interest, the lender
will require 10,000 warrants per month the due date is extended plus 1 warrant for every $2 of the principal balance outstanding
(not including interest) at the time of the extension (rounded to the nearest whole warrant). Upon the loaning of additional monies,
the lender will also require 2 warrants for each dollar loaned.
As
of September 30, 2020 and March 31, 2020, the Company held outstanding warrants to related parties totaling 2,133,000 and 1,702,000,
respectively. All warrants have an exercise price of $0.05 per share, a five-year life as of the date of grant and expire between
November 2024 and June 2025. 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 $0.02 to $0.03 per share, a risk-free
rate of 0.23% to 0.39%, volatility of 55% to 123% and a dividend rate of 0%. The average remaining outstanding life
of the warrants as of September 30, 2020, was 4.36 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, RELATED PARTY
As
of September 30, 2020, and March 31, 2020, the Company had borrowed $2,696,008 and $2,450,508 respectively, excluding accrued
interest, from related parties. The interest associated with the Notes Payable, Related Party of $396,559 and $288,369 is recorded
on the balance sheet as an Accrued Expense obligation at September 30, 2020 and March 31, 2020, respectively.
Related
Party Promissory Notes
As
of both September 30, 2020 and March 31, 2020, 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. In addition,
as mentioned in Note 4, prior to March 31, 2020, the Company had provided Mr. Dickman warrants for 1,202,000 shares of common
stock. During the six months ended September 30, 2020, the Company neither borrowed any additional funds under this agreement
nor made any principal repayments. As of September 30, 2020, accrued interest on the notes totaled $104,325. 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 September 30, 2020 and March 31, 2020, the Company owed $1,010,500 and $795,000, respectively, exclusive of accrued interest,
under the note payable and line of credit agreement with the Chairman of the Board of Directors and a stockholder. As of September
30, 2020, the agreement allowed for borrowings of up to $4,600,000, with principal and interest due on August 31, 2021,
or at the immediate time when alternative financing or other proceeds are received. Subsequent to September 30, 2020 the note
and the line of credit was extended from August 31, 2021 to November 30, 2022 (see Note 8 for detail on the due date extension).
During the six months ended September 30, 2020 the Company borrowed $208,500 in cash, and another $7,000 of expense paid
on behalf of the Company, totaling and additional $215,500 in principal borrowed under this agreement. The Company
made no repayments during the six months ending September 30, 2020. As discussed in Note 4, effective April 3, 2020,
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. Under this provision, additional warrants for 431,000 shares of
common stock were issued in conjunction with the $215,500 borrowed during the six months ended September 30, 2020, bringing the
total number of warrants issued to the related party lender to 931,000 as of September 30, 2020 (see Note 4 for further details
on these warrants). 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 September 30, 2020, accrued interest on this note totaled $103,212.
As
of September 30, 2020 and March 31, 2020, the Company owed $859,508 and $829,508 in principal, respectively, 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 August 31, 2021 or at
the immediate time when alternative financing or other proceeds are received. Subsequent to September 30, 2020 the note and
the line of credit was extended from August 31, 2021 to November 30, 2022 (see Note 8 for detail on the due date extension).
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 six months ended September 30, 2020 the Company borrowed $30,000 of principal under this agreement and made
no repayments. As of September 30, 2020, accrued interest on this agreement totaled $189,022.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2020
(6)
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. On July 13, 2020, the Company agreed to amend the
convertible debenture agreement to extend the due date and conversion rights from December 1, 2020 to November 30, 2021. As of
September 30, 2020 and March 31, 2020, 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 September 30, 2020 and March 31, 2020.
(7)
OTHER DEBT
On
April 20, 2020, the Company received funding under a Paycheck Protection Program (“PPP”) loan (the “PPP Loan”)
from CCBank (the “Lender”). The principal amount of the PPP Loan is $26,458. The PPP was established under the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration
(the “SBA”). The PPP Loan has a two-year term, maturing on April 20, 2022. The interest rate on the PPP Loan is 1.0%
per annum. Principal and interest are payable in monthly installments, beginning on November 20, 2020, until maturity with respect
to any portion of the PPP Loan which is not forgiven as described below. The Company did not provide any collateral or guarantees
for the PPP Loan, nor did the Company pay any facility charge to obtain the PPP Loan. The PPP Loan provides for customary events
of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material
adverse effects. The PPP Loan may be partially or fully forgiven if the Company complies with the provisions of the CARES Act,
including the use of PPP Loan proceeds for payroll costs, rent, utilities and other expenses, provided that such amounts are incurred
during a 24-week period that commenced on April 20, 2020, and at least 60% of any forgiven amount has been used for covered payroll
costs as defined by the CARES Act. Any forgiveness of the PPP Loan will be subject to approval by the SBA and the Lender and will
require the Company to apply for such treatment in the future.
(8)
SUBSEQUENT EVENTS
Subsequent
to September 30, 2020, the following events transpired:
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 5) 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.
In this amendment,
the due date was extended from August 31, 2021 to November 30, 2022 or at the immediate time when alternative financing or other
proceeds are received. As per the provision outlined above, and in conjunction with the extension of the due date of the agreement,
the Company also agreed to provide the Radiant Life, LLC with warrants for 579,754 shares of common stock at an exercise price
of $0.05 per share. The warrants have a 5-year exercise window from the date of the extension agreement.
On
October 27, 2020, the Company agreed to amend the agreement to extend the due date on the note payable and line of credit agreement
with the Chairman of the Board of Directors and a stockholder (see Note 5). The due date was extended from August 31, 2021 to
November 30, 2022 or at the immediate time when alternative financing or other proceeds are received. As per the provision outlined
in Note 4, and in conjunction with the extension of the due date of the agreement, the Company also agreed to provide the Chairman
with warrants for 679,400 shares of common stock at an exercise price of $0.05 per share. The warrants have a 5-year exercise
window from the date of the extension agreement.
Subsequent
to September 30, 2020, the Company has borrowed an additional $48,300 on
the Notes Payable, Related Party and issued an additional 96,600 warrants in conjunction with this borrowed amount, bringing the
total warrants issued subsequent to September 30, 2020 to 776,000.
On
November 10, 2020, the Company issued a private placement memorandum offering to raise up to $1,000,000 through the issuance of
restricted shares of the Company’s common stock (par value $0.001) to qualified investors. The Company has received subscription
agreements for 500,000 common shares at a purchase price of $1 per share, with total proceeds to the Company of $500,000.