| FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS | NOTE
18 - FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS Our
financial instruments consist of cash equivalents, if any, accounts receivable, notes receivable, investments in unconsolidated entities,
accounts payable and notes payable. The carrying amounts of cash equivalents, if any, trade accounts receivable and accounts payable
approximate their respective fair values due to the short-term nature of these financial instruments. Consistent
with the valuation hierarchy contained in ASC Topic 820, we categorized certain of our financial assets and liabilities as follows: SCHEDULE OF VALUATION HIERARCHY FINANCIAL ASSETS AND LIABILITIES
Total Level
1 Level
2 Level
3
September
30, 2023
Total Level
1 Level
2 Level
3
Assets
Investment
in unconsolidated entities $ - $ - $ - -
Total
assets $ - $ - $ - $ -
Liabilities
Notes
payable $ - $ - $ - $ -
Total
liabilities $ - $ - $ - $ -
Total Level
1 Level
2 Level
3
As
of March 31, 2023
Total Level
1 Level
2 Level
3
Assets
Investment
in unconsolidated entities $ 206,231 $ - $ - $ 206,231
Total
assets $ 206,231 $ - $ - $ 206,231
Liabilities
Notes
payable $ 24,827,086 $ - $ 24,827,086 -
Total
liabilities $ 24,827,086 $ - $ 24,827,086 $ - The
following section discusses management’s views of the financial condition and the results of operations and cash flows of Sharing
Services Global Corporation and consolidated subsidiaries. This section should be read in conjunction with: (a) our audited consolidated
financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, and (b) our
condensed consolidated financial statements included elsewhere in this Quarterly Report. This section may contain forward-looking statements.
See “Cautionary Notice Regarding Forward-Looking Statements” above for a discussion of forward-looking statements. Summary
Results of Operations:
Three Months Ended Six Months Ended
September 30, 2023 September 30, 2022 Increase (Decrease) % Change September 30, 2023 September 30, 2022 Increase (Decrease) % Change
Net sales $ 2,408,704 $ 4,188,152 $ (1,779,448 ) -42.5 % $ 5,286,825 $ 9,491,770 $ (4,204,945 ) -44.3 %
Gross profit 1,738,901 2,428,375 (689,474 ) -28.4 % 3,771,193 6,074,966 (2,303,773 ) -37.9 %
Operating expenses (2,859,297 ) (6,595,518 ) 3,736,221 -56.6 % (6,567,857 ) (13,904,221 ) 7,336,364 -52.8 %
Operating loss (1,120,396 ) (4,167,142 ) 3,046,746 -73.1 % (2,796,664 ) (7,829,255 ) 5,032,591 -64.3 %
Non-Operating (expense), net (346,496 ) (14,772,836 ) 14,426,339 -97.7 % (1,082,484 ) (12,803,590 ) 11,721,106 -91.5 %
Loss before income taxes (1,466,892 ) (18,939,978 ) 17,473,086 -92.3 % (3,879,148 ) (20,632,845 ) 16,753,697 -81.2 %
Income tax (benefit) expense (12,102 ) (554,075 ) 541,973 -97.8 % - (893,932 ) 893,932 -100.0 %
Net loss $ (1,454,790 ) $ (18,385,903 ) $ 16,931,113 -92.1 % $ (3,879,148 ) $ (19,738,913 ) $ 15,859,765 -80.3 % Highlights
for the Three months ended September 30, 2023:
● For
the three months ended September 30, 2023, our consolidated net sales decreased $1.8 million, or 42.5%, compared to the three months
ended September 30, 2022.
● For
the three months ended September 30, 2023, our consolidated gross profit decreased $0.7 million, or 28.4%, compared to the three
months ended September 30, 2022. Our consolidated gross margin was 72.2% for the three months ended September 30, 2023, compared
to 58% for the three months ended September 30, 2022.
● For
the three months ended September 30, 2023, our consolidated operating expenses decreased $3.7 million, or 56.6% to 2.9 million,
compared to the three months ended September 30, 2022.
● For
the three months ended September 30, 2023, our consolidated operating loss was $1.1 million, compared to operating loss of $4.2
million for the three months ended September 30, 2022.
● For
the three months ended September 30, 2023, our consolidated net non-operating expense was $0.3 million, compared to net non-operating
income of $14.8 million for the three months ended September 30, 2022.
● For
the three months ended September 30, 2023, our consolidated net loss was $1.5 million compared to $18.4 million for the three months
ended September 30, 2022. For the three months ended September 30, 2023, and 2022, our diluted loss per share was $0.004 and $0.07,
respectively
● For
the six months ended September 30, 2023, our consolidated net cash used by operating activities was $3.0 million, compared to $5.4
million for the six months ended September 30, 2022.
● In
August 2023, Sharing Services and DSSI entered into a debt exchange agreement pursuant to which DSSI agreed to cancel the $27.0
million note dated June 15, 2022, including the aggregate principal amount of the note and unpaid interest of approximately $26.2
million in exchange for 26,000 shares of Sharing Services Series D Preferred Stock, par value $0.0001 per share.
● In
September 2023, Sharing Services qualified and is eligible for a U.S. government ERTC (employee retention tax credit) for $1.8
million. Based on this, the Company applied for a bridge loan and received net proceeds of approximately $1.2 million. Overview Summary
Description of Business Sharing
Services Global Corporation and subsidiaries (“Sharing Services”, “we,” or the “Company”) aim to
build shareholder value by developing or acquiring businesses and technologies that increase the Company’s product and services
portfolio, business competencies, and geographic reach. Currently,
the Company, through its subsidiaries, markets and distributes its health and wellness and other products primarily in the U.S. and Canada
using a direct selling business model. In addition, the Company’s U.S. subsidiaries market our products and services through an
independent sales force, using their proprietary websites, including: www.thehappyco.com The
Company was incorporated in the State of Nevada on April 24, 2015. As
further discussed below, the Company intends to continue to grow its business both organically and by making strategic acquisitions from
time to time of businesses and technologies that augment its product portfolio, complement its business competencies, and fit its growth
strategy. Convertible
Notes and Borrowing Under Short-term Financing Arrangements Historically,
the Company has funded a substantial portion of its liquidity and cash needs through the intermittent issuance of convertible notes and
borrowings under short-term financing arrangements, and through the intermittent issuance of equity securities. See “Liquidity
and Capital Resources” below for additional information about the Company’s convertible notes and borrowings under short-term
financing arrangements. Industry
and Business Trends The
information in “Industry and Business Trends” included in ITEM 1 — Strategic
Profitable Growth Initiatives The
Company intends to grow its business by pursuing a multipronged growth strategy, that includes: (a) expanding its product offerings,
both within the health and wellness category and in new product categories, (b) expanding its direct-to-consumer geographic footprint
(primarily in Asia), and (c) launching its previously announced membership-based consumer travel products line worldwide. This growth
strategy may also include the use of strategic acquisitions of businesses that augment the Company’s product and services portfolio,
business competencies and geographic reach. Results
of Operations The
Three months ended September 30, 2023, Compared to the Three months ended September 30, 2022 Net
Sales For
the three months ended September 30, 2023, our consolidated net sales decreased by $1.8 million, or 42.5%, to $2.4 million, compared
to the three months ended September 30, 2022. The decrease in net sales mainly reflects: (a) continuation of the decline in consumer
orders that we experienced since the fiscal year 2020, (b) a decline in independent distributor orders, in the number of new independent
distributors and in the number of continuing active distributors, resulting, in part, from recent product reformulations and increased
competition for independent distributors, and (c) the generally adverse impact on consumer buying trends resulting from the recent increase
in consumer good prices and in energy costs in the U.S. The
$1.8 million decrease in consolidated net sales primarily reflects a decrease in the number of comparable product units sold. During
the three months ended September 30, 2023, and 2022, the Company derived substantially all its consolidated net sales from the sale of
its health and wellness product line. Gross
Profit For the three months ended September 30, 2023, our consolidated gross profit decreased by $0.7 million, or 28.4 %, to $1.7 million, compared
to the three months ended September 30, 2022, and our consolidated gross margins were 72.2% and 58%, respectively. For the three months
ended September 30, 2023, gross margin benefited from a decrease in shipping expenses and promotional pricing, as a percentage of sales. Selling
and Marketing Expenses For the three months ended September 30, 2023, our consolidated selling and marketing expenses decreased by $1.3 million, to $0.7 million,
or 30.8% of consolidated net sales, compared to $2.0 million, or 48.7% of consolidated net sales, for the three months ended September
30, 2022. The $1.3 million decrease in consolidated selling and marketing expenses is due primarily to lower sales commissions of $0.7
million (which reflects the decrease in our consolidated net sales discussed above). General
and Administrative Expenses For
the three months ended September 30, 2023, our consolidated general and administrative expenses (which include corporate employee
compensation and benefits, stock-based compensation, professional fees, rent and other occupancy costs, certain consulting fees,
telephone and information technology expenses, insurance premiums, and other administrative expenses) decreased by $2.4 million, to
$2.0 million, or 87.9% of consolidated net sales compared to $4.6 million, or 108.8% of consolidated net sales, for the three months
ended September 30, 2022. The $2.4 million decrease in consolidated general and administrative expenses was primarily due to lower consulting expense of approximately $1.7 million, and lower employee
compensation and compensation-related benefits of $0.9 million due to less headcount year over year. Interest
Expense, Net For the three months ended September 30, 2023, our consolidated interest expense was $387,907, excluding amortization of debt discount
and amortization of deferred financing costs of $1.6 million. For the three months ended September 30, 2022, our consolidated interest expense was $736,990, excluding amortization of debt discount
and amortization of deferred financing costs of $2.6 million, and interest income of $101,981. Other Income For the three months ended September 30, 2023, Sharing
Services qualified and is eligible for a U.S. government ERTC (employee retention tax credit) for $1.8 million. Gain
(loss) on employee warrants liability For
the three months ended September 30, 2023, no compensatory gain or loss on employee warrants was recognized. For the three months ended
September 30, 2022, $52,875 of compensatory gain on employee warrants was recognized. Loss
on Extinguishment of Debt In August 2023, Sharing Services and DSSI entered into an agreement pursuant to which DSSI agreed to cancel the promissory note dated
June 15, 2022, including the aggregate principal amount of the Note and unpaid interest of $26.2 million in exchange for 26,000 shares
of Sharing Services Series D Preferred Stock, par value $0.0001 per share. The Company recognized a loss on extinguishment of debt of
$188,842 in connection therewith. Income
Tax (Benefit) Provision Income
tax (benefit) provision includes current and deferred income taxes for both our domestic and foreign operations. Income from our international
operations is subject to taxation in the countries in which we operate. During the three months ended September 30, 2023, the Company recognized a current federal income tax benefit of $3,548, and a state and
local tax provision of $85. During the three months ended September 30, 2022, the Company had a state and local tax benefit of $3,294
and a provision for deferred federal income taxes of $550,781. Net
Loss and Loss per Share As a result of the foregoing, for the three months ended September 30, 2023, our consolidated net loss was $1.5 million, compared to $18.4
million for the three months ended September 30, 2022. For the three months ended September 30, 2023, and September 30, 2022, our diluted
loss per share was $0.004 and $0.07, respectively. Six
months ended September 30, 2023, Compared to the Six months ended September 30, 2022 Net
Sales For
the six months ended September 30, 2023, our consolidated net sales decreased by $4.2 million, or 44.3%, to $5.3 million, compared to
the six months ended September 30, 2022. The decrease in net sales mainly reflects: (a) continuation of the decline in consumer orders
that we experienced since the fiscal year 2020, (b) a decline in independent distributor orders, in the number of new independent distributors
and in the number of continuing active distributors, resulting, in part, from recent product reformulations and increased competition
for independent distributors, and (c) the generally adverse impact on consumer buying trends resulting from the recent increase in consumer
good prices and in energy costs in the U.S. In efforts to restore strong sales growth, in the past several months, we have further intensified
our efforts to recruit, develop and reward our distributors and our efforts to reach new consumers, including through the continued introduction
of new products. The
$4.2 million decrease in consolidated net sales primarily reflects a decrease in the number of comparable product units sold. During
the six months ended September 30, 2023, and 2022, the Company derived substantially all its consolidated
net sales from the sale of its Elevate health and wellness product line. Gross
Profit For
the six months ended September 30, 2023, our consolidated gross profit decreased by $2.3 million, or 37.9%, to $3.8 million, compared
to the six months ended September 30, 2022, and our consolidated gross margins were 71.3% and 64%, respectively. For the six months ended
September 30, 2023, gross margin benefited from a decrease in shipping expenses and promotional pricing, as a percentage of sales. Selling
and Marketing Expenses For
the six months ended September 30, 2023, our consolidated selling and marketing expenses decreased by $2.6 million, to $2.2 million,
or 40.9% of net sales compared to $4.8 million, or 50.5% of net sales for the six months ended September 30, 2022. The decrease in consolidated
selling and marketing expenses is due primarily to lower sales commissions of $1.8 million (which reflects decrease in our consolidated
net sales discussed above) and lower sales convention expenses of $0.5 million. General
and Administrative Expenses For
the six months ended September 30, 2023, our consolidated general and administrative expenses (which include corporate employee compensation
and benefits, stock-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information
technology expenses, insurance premiums, and other administrative expenses) decreased by approximately $4.7 million to $4.4 million,
or 83% of consolidated net sales compared to $9.1 million, or 96% of consolidated net sales, for the six months ended September 30, 2022.
The decrease in consolidated general and administrative expenses was primarily driven by lower professional and legal expenses by $3.1
million, decrease on employee compensation and related benefits by $1.4 million. Interest
Expense For
the six months ended September 30, 2023, our consolidated interest expense was $1.1 million, excluding amortization of debt discount
and amortization of deferred financing costs of $2.0 million, and interest income of $290,024. For
the six months ended September 30, 2022, consolidated interest expense was $6.4 million, including amortization of debt discount and
deferred financing cost, interest income, and other expenses associated with borrowings from “DSSI” and related parties. Other
Non-operating Income/Expenses For
the six months ended September 30, 2023, our net consolidated non-operating income, includes litigation settlements and other non-operating
income of $103,434. For the six months ended September 30, 2022, our net consolidated non-operating income, includes litigation settlements
and other non-operating income of $139,798. Gain
(loss) on employee warrants liability For
the six months ended September 30, 2023, no compensatory gain or loss on employee warrants was recognized. For the six months ended September
30, 2022, we recognized a compensatory gain of $167,835. Loss
on Extinguishment of Debt Effective June 30, 2023, the Company, and DSSI, entered
into three transactions whereby such transactions offset certain liabilities through the sale of assets. The Company recognized the transactions
as extinguishment of debt of with a gain of $150,634, before income tax, in connection therewith. In August 2023, Sharing Services and
DSSI entered into an agreement pursuant to which DSSI agreed to cancel the promissory note dated June 15, 2022, including the aggregate
principal amount of the Note and unpaid interest of $26.2 million in exchange for 26,000 shares of Sharing Services Series D Preferred
Stock, par value $0.0001 per share. The Company recognized a loss on extinguishment of debt of $188,842 in connection therewith. For
the six-month ended September 31, 2022, no amounts were incurred related to extinguishment of debt. Income
Tax Benefit During
the six months ended September 30, 2023, no amounts were recognized as income tax provision or benefit. During
the six months ended September 30, 2022, the Company recognized a deferred tax benefit of approximately $880,000 and a state and local
tax benefit of $12,904. As
a result of the foregoing, for the six months ended September 30, 2023, our consolidated net loss was $3.9 million, compared to $19.7
million for the six months ended September 30, 2022. For the six months ended September 30, 2023, and September 30, 2022, our diluted
loss per share was $0.01 and $0.07, respectively. Liquidity
and Capital Resources We
broadly define liquidity as our ability to generate sufficient cash, from internal and external sources, to meet our obligations and
commitments. We believe that, for this purpose, liquidity cannot be considered separately from capital resources. Working
Capital Working
capital (total current assets minus total current liabilities). We had a deficiency in our working capital of approximately $2.0 million
as of September 30, 2023, compared to $33.9 million as of March 31, 2023. As
of September 30, 2023, and March 31, 2023, our cash and cash equivalents were $1.4 million and $3.0 million, respectively. Based upon
the current level of operations and anticipated investments necessary to grow our business, we believe that anticipated funds from operations
will likely be sufficient to meet our working capital requirements over the next 12 months. We
have implemented measures to restructure our business operations and reduce our monthly cash burns and operating loss. Such measures
include, and are not limited to, headcount reduction and elimination of certain overhead and consulting fees. Based upon the current
level of operations and anticipated investments necessary to sustain/grow our business, we believe that existing cash balances and anticipated
funds from operations will likely be sufficient to meet our working capital requirements over the next 12 months. Historical
Cash Flows Historically,
our primary sources of cash have been capital transactions involving the issuance of equity securities and secured and unsecured debt
(See “Short-term Borrowings and Convertible Notes” below) and cash flows from operating activities; and our primary uses
of cash have been for operating activities, capital expenditures, acquisitions, net cash advances to related parties, and debt repayments
in the ordinary course of our business. The
following table summarizes our cash flow activities for the six months ended September 30, 2023, compared to the six months ended
September 30, 2022:
Six
Months Ended September 30,
2023 2022
Net
cash used in operating activities $ (2,970,305 ) $ (5,436,809 )
Net
cash used in investing activities - (11,504,734 )
Net
cash provided by financing activities 1,200,000 6,527,264
Impact
of currency rate changes in cash 160,759 (150,122 )
Decrease
in cash and cash equivalents $ (1,609,546 ) $ (10,564,401 ) Net
Cash Used in Operating Activities For the six months ended September 30, 2023, net cash used in operating activities was $3.0 million, compared to $5.4 million for the
six months ended September 30, 2022. The $2.5 million decrease was due to a decline in operating losses of $2.3 million (excluding non-cash
items, such as depreciation and amortization, stock-based compensation expense, provision for obsolete inventory losses, amortization
of debt discount, unrealized gain (loss) on investments, losses on impairment of investments in unconsolidated entities and notes receivable,
and gains on extinguishment of debt), and a change in operating assets and liabilities of $207,021. Net
Cash Used in Investing Activities For the six months ended September 30, 2023, net cash used in investing activities was $0, compared to $11.5 million for the six months
ended September 30, 2022. The $11.5 million change was due to lower capital expenditures. Net
Cash Provided by Financing Activities For the six months ended September 30, 2023, net cash provided by financing activities was $1.2 million, compared to $6.5 million for the
six months ended September 30, 2022. The decrease was due to lower proceeds from loans under promissory notes, net of loan repayments,
of $7.5 million. The decrease was partially offset by lower Sharing Services common stock received in connection with a litigation settlement
of $1.0 million. Impact
of currency rate changes in cash For the six months ended September 30, 2023, the impact of currency rate changes in cash was $160,759, compared to negative $150,122 for
the six months ended September 30, 2022. Potential
Future Acquisitions The
Company, directly and through its subsidiaries, may make strategic acquisitions and purchases of equity interests in businesses that
complement its business competencies and growth strategy. Such acquisitions and purchases of equity interests are expected to be funded
with cash and cash equivalents, cash provided by operations, if any, and issuance of equity securities and debt. Short-term
Borrowings and Convertible Notes Convertible
Notes from Related Parties Decentralized
Sharing Systems, Inc. (“DSSI”) In
April 2021, the Company and DSSI which, together with DSS, Inc., is a major shareholder of the Company, entered into a Securities Purchase
Agreement, pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”)
in favor of DSSI, and (b) a detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22
per share, and DSSI loaned to the Company $30.0 million. At any time during the term of the Note, all or part of the Note, including
principal, less unamortized prepaid interest, if any, plus any accrued interest and other fees was convertible into shares of the Company’s
Class A Common Stock at the rate of $0.20 per share, at the option of the holder. As further discussed below, the Note and the detachable
Warrant were redeemed in September 2022. In
September 2022, the Company and DSSI entered into a Securities Purchase Agreement (the “SPA”), pursuant to which the Company
issued: (a) a Convertible Promissory Note in the principal amount of $27.0 million (the “2022 Note”) in favor of DSSI and
(b) a detachable Warrant to purchase up to 818,181,819 shares of the Company’s Class A Common Stock (the “Warrant”),
at $0.033 per share, in exchange for the $27.0 million. The 2022 Note bears interest at the annual rate of 8% and is due and payable
on demand or, if no demand, on May 1, 2024. At any time during the term of the 2022 Note, all or part of the Note was convertible into
up to 818,181,819 shares of the Company’s Class A Common Stock, at the option of the holder. In connection with SPA, DSSI surrendered
to the Company all DSSI’s rights pursuant to: (a) a certain Convertible Promissory Note in the principal amount of $30.0 million
issued by the Company in April 2021 in favor of DSSI, and (b) a certain detachable Warrant to purchase up to 150,000,000 shares of the
Company’s Class A Common Stock, at $0.22 per share, issued concurrently with such $30.0 million note. In
March 2023, the Company and DSSI entered into a Securities Exchange and Amendment Agreement pursuant to which the parties agreed to amend
the 2022 Note by removing the conversion rights granted by the 2022 Note. On
February 3, 2023, the Company mutually agreed with DSS to enter into a Letter Agreement (the “DSS Letter Agreement”),
pursuant to which the Company and DSS have agreed to terminate and release all obligations of the Consulting Agreement effective as of
December 31, 2022. In accordance with the DSS Letter Agreement, the Company also agreed to issue 33,333,333 shares of the Company’s
Common Stock in lieu of cash payment to satisfy the accrued and unpaid service fees equal to $700,000 owed to DSS under the Consulting
Agreement. On
February 28, 2023, the Company and DSSI mutually agreed in a Letter Agreement (the “First DSSI Letter Agreement”) to a mutual
settlement of the interest accrued on the 2022 Note issued by the Company to DSSI. In accordance with the DSSI Letter Agreement, the
Company agreed to issue 26,285,714 shares of the Company’s Common Stock, at a price per share of $0.021 in lieu of cash payment
to satisfy the accrued and unpaid interest through and including December 31, 2022, in the amount of $552,000 owed to DSSI. On
April 17, 2023, the Company and DSSI mutually agreed in a subsequent Letter Agreement (the “Second DSSI Letter Agreement”)
to a mutual settlement of the interest accrued on the 2022 Note between January 1, 2023, through and including March 31, 2023. In accordance
with the Second DSSI Letter Agreement, the Company agreed to issue 28,877,005 shares of the Company’s Common Stock, at a price
per share of $0.0187 in lieu of cash payment to satisfy the accrued and unpaid interest between January 1, 2023, through and including
March 31, 2023, in the amount of $539,806 owed to DSSI. On
May 4, 2023, DSS and DSSI distributed, in the aggregate, 280,528,500 shares of SHRG they then held to DSS, Inc. shareholders in connection
with the Form S-1 (file no. 333-271184) initially filed with the Securities and Exchange Commission on April 7, 2023, and declared effective
on April 25, 2023. Accordingly, after the distribution, DSS ceased to be a majority shareholder of the Company. On August 31, 2023, the Company and DSSI executed
a debt exchange agreement whereby DSSI cancelled the $27 million loan and accepted 26,000 shares of the Company’s Series D Preferred
Stock, $0.0001 par value per share (“Preferred D Stock”) in exchange for the cancellation of the $27.0 million loan. Pursuant
to the debt exchange agreement, the principal amount together with all unpaid interest, totaling $26,169,367.33 was deemed to be repaid.
The holder of Preferred D Stock is entitled to receive dividends in cash valued at a rate of 25% per annum of the operating income of
the Company. Any accrued and unpaid dividends shall be payable in cash commencing on August 31, 2024 and continuing each annual anniversary
of such date on a perpetual basis. As
of September 30, 2023, DSS and its affiliates owned, in the aggregate, 24,821,089 shares of the Company’s Class A Common Stock. Heng
Fai Ambrose Chan, Frank D. Heuszel, and John (“JT”) Thatch, each a Director of the Company, also serve on the Board of Directors
of DSS. Mr. Chan serves as Executive Chairman of the Board of Directors of the Company. Mr. Thatch serves as President, CEO and Vice
Chairman of the Board of Directors of the Company. American
Pacific Bancorp, Inc. On
September 15, 2022, Sharing Services, through one of its subsidiaries, entered into a secured real estate promissory note with American
Pacific Bancorp, Inc. (“APB”), and the Company entered into a Loan Agreement pursuant to which APB loaned the Company approximately
$5.7 million (the “APB Loan”). The APB Loan bears interest at the annual rate of 8% matures on September 1, 2024, is payable
in equal monthly instalments of $43,897 commencing on July 1, 2022 (with the remainder due on September 1, 2024). The loan is secured
by a first mortgage interest on the Company’s Lindon, Utah office building. In connection with this loan, the Company received
net proceeds of $5,522,829 from APB on September 17, 2022. APB is a subsidiary of DSS. Heng Fai Ambrose Chan, Frank D. Heuszel and John
“JT” Thatch, each a Director of the Company, also serve on the Board of Directors of DSS, and Messrs. Chan and Heuszel also
serve on the Board of Directors of APB. On
August 11, 2022, the Company executed a revolving credit promissory note with APB pursuant to which the Company has access to advances
with a maximum principal balance not to exceed the principal sum of $10.0 million. The APB Revolving Note is collateralized by the assets
of the Company, and it bears interest at the annual rate of 8% and such interest shall be due and payable quarterly as it accrues on
the outstanding balance. On December 9, 2022, APB and the Company mutually agreed to limit and/or end any further commitment by APB to
fund or to readvance under the terms of the APB Revolving Note to $6.0 million. As of March 31, 2023, the Company had $1,430,459 outstanding
under the APB Revolving Note. Effective
June 30, 2023 subject to the terms of an Assignment of Limited Liability Company Interests agreement, DSSI purchased the SHRG subsidiary,
Linden Real Estate Holdings LLC, with the financial terms generally summarized as follows: (a) DSSI assumed approximately $7.24 million
in SHRG liabilities (namely, all amounts due under the APB Loan and the APB Revolving Note), (b) DSSI credited SHRG $239,790 towards
accrued interest payable under the 2022 Note, and (c) DSSI acquired ownership of Linden Real Estate Holdings LLC, with its sole asset
being a commercial lot and commercial building located in Lindon, Utah, subject to the assumed indebtedness. HWH
International, Inc. In
October 2017, the Company issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International,
Inc. (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director
of the Company. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note,
the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock,
at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain
financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may
have to amend and restate the Note and the detachable stock warrant to be identical. On
August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,636, which
amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022. Capital
Requirements During
the three months ended September 30, 2023, there were no capital expenditures for property and equipment (consisting of furniture and
fixtures, computer equipment and software, other office equipment and leasehold improvements) in the ordinary course of our business. Contractual
Obligations There
were no material changes to our contractual cash obligations during the three months ended September 30, 2023. Off-Balance
Sheet Financing Arrangements As
of September 30, 2023, we had no off-balance sheet financing arrangements. Inflation In
recent history, inflation has generally been low in the geographies where we operate. However, during the fiscal period covered by this
Quarterly Report, the inflation rate in the Uni |
